15. Income Taxes

The Company and its domestic subsidiaries file a consolidated federal income tax return. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective entities.

The Internal Revenue Service ("IRS") is currently examining the Company's 2011 and 2012 federal income tax returns. The IRS has completed its examination of the Company's 2009 and 2010 federal income tax returns and a final settlement related to the examination was approved by the IRS Appeals Division on September 19, 2014. The Company's tax years prior to 2009 have been examined by the IRS and the statute of limitations has expired on those years. Any adjustments that may result from IRS examinations of the Company's tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.

The reconciliation of the change in the amount of unrecognized tax benefits for the years ended December 31 is as follows:

($ in millions)	2014		2013			2012

Balance – beginning of year	$	—	$	25		$	25
Increase for tax positions taken in a prior year		—		1			—
Decrease for tax positions taken in a prior year		—		—			—
Increase for tax positions taken in the current year		—		—			—
Decrease for tax positions taken in the current year		—		—			—
Decrease for settlements		—		(26	)		—
Reductions due to lapse of statute of limitations		—		—			—

Balance – end of year	$	—	$	—		$	25

The Company believes it is reasonably possible that the liability balance will not significantly increase within the next twelve months. Because of the impact of deferred tax accounting, recognition of previously unrecognized tax benefits is not expected to impact the Company's effective tax rate.

The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. The Company did not record interest income or expense relating to unrecognized tax benefits in income tax expense in 2014, 2013 or 2012. As of December 31, 2014 and 2013, there was no interest accrued with respect to unrecognized tax benefits. No amounts have been accrued for penalties.

The components of the deferred income tax assets and liabilities as of December 31 are as follows:

($ in millions)	2014			2013

Deferred assets
Unearned premium reserves	$	763		$	722
Pension		254			—
Discount on loss reserves		210			238
Accrued compensation		206			226
Other postretirement benefits		138			105
Difference in tax bases of invested assets		64			223
Sale of subsidiary		20			196
Other assets		118			96

Total deferred assets		1,773			1,806
Deferred liabilities
DAC		(1,076	)		(1,077	)
Unrealized net capital gains		(994	)		(849	)
Life and annuity reserves		(192	)		(206	)
Pension		—			(136	)
Other liabilities		(226	)		(324	)

Total deferred liabilities		(2,488	)		(2,592	)
Net deferred liability before classification as held for sale		(715	)		(786	)
Deferred taxes classified as held for sale		—			(151	)

Net deferred liability	$	(715	)	$	(635	)

Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized based on the Company's assessment that the deductions ultimately recognized for tax purposes will be fully utilized.

As of December 31, 2014, the Company has net operating loss carryforwards of $94 million which will expire at the end of 2024 through 2029.

The components of income tax expense for the years ended December 31 are as follows:

($ in millions)	2014		2013		2012

Current	$	1,123	$	869	$	295
Deferred		263		247		705

Total income tax expense	$	1,386	$	1,116	$	1,000

The Company paid income taxes of $1.07 billion, $500 million and $280 million in 2014, 2013 and 2012, respectively. The Company had current income tax payable of $158 million and $203 million as of December 31, 2014 and 2013, respectively.

A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the years ended December 31 is as follows:



Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
Tax-exempt income	(0.9	)	(1.8	)	(3.0	)
Tax credits	(0.7	)	(2.2	)	(1.4	)
Sale of subsidiary	(0.9	)	2.0		—
Other	0.2		(0.1	)	(0.3	)

Effective income tax rate	32.7	%	32.9	%	30.3	%