Income Taxes

12 Months Ended

Dec. 31, 2019

The provision for income taxes consists of the following for the years ended December 31:



(in thousands)
	2019		2018			2017
Current income tax expense	$	76,535	$	84,454		$	81,689
Deferred income tax expense (benefit)	3,349		(1,358		)	26,912
Other income tax expense	—		—			10,095
Income tax expense	$	79,884	$	83,096		$	118,696

Other income tax expense for 2017 was impacted by the re-measurement of our deferred tax assets and liabilities due to the enactment of the Tax Cuts and Jobs Act ("TCJA") which reduced the corporate tax rate from 35% to 21% effective January 1, 2018. The current and deferred income tax expense (benefit) for 2019 and 2018 is measured at the statutory rate of 21%, and 35% for 2017.

A reconciliation of the provision for income taxes, with amounts determined by applying the statutory federal income tax rate to pre-tax income, is as follows for the years ended December 31:



(in thousands)
	2019			2018			2017
Income tax at statutory rate	$	83,308		$	77,977		$	110,493
Change in tax rate ⁽¹⁾	—			—			10,095
Tax-exempt interest	(123		)	(1,305		)	(2,278		)
(Decrease) increase in unrecognized tax benefits	(3,088		)	3,088			—
Other, net	(213		)	3,336			386
Income tax expense	$	79,884		$	83,096		$	118,696


(1)	The change in tax rate represents the tax effect of the re-measurement of deferred tax assets and liabilities due to the enactment of the TCJA.

The statutory rate for the years ended December 31, 2019 and 2018 is 21%, and 35% for the year ended December 31, 2017.

Temporary differences and carry-forwards, which give rise to deferred tax assets and liabilities, are as follows for the years ended December 31:



(in thousands)
	2019		2018
Deferred tax assets:
Pension and other postretirement benefits	$	25,720	$	20,124
Other employee benefits	11,835		12,237
Deferred revenue	3,755		3,524
Allowance for management fee returned on cancelled policies	3,421		3,292
Unrealized losses on investments	0		2,030
Other	1,663		1,246
Total deferred tax assets	46,394		42,453
Deferred tax liabilities:
Depreciation	19,454		13,015
Prepaid expenses	4,890		1,376
Limited partnerships	2,632		2,534
Unrealized gains on investments	1,549		0
Commissions	545		1,270
Other	138		157
Total deferred tax liabilities	29,208		18,352
Net deferred tax asset	$	17,186	$	24,101

If we determine that any of our deferred tax assets will not result in future tax benefits, a valuation allowance must be established for the portion of the assets that are not expected to be realized. We had no valuation allowance recorded at December 31, 2019 or 2018.

A reconciliation of unrecognized tax benefits for the years ended December 31 is as follows:



(in thousands)
	2019			2018			2017
Balance at the beginning of the year	$	3,088		$	0		$	—
Additions for current year tax positions	—			7,719			—
Reductions for current year tax positions	—			(4,631		)	—
Additions for prior year tax positions	4,631			—			2,337
Reductions for prior year tax positions	(7,719		)	—			(2,337		)
Balance at the end of the year	$	0		$	3,088		$	0

The uncertain tax position including $3.1 million of tax expense and $0.9 million of interest expense recorded in 2018 was settled during 2019. This settlement reduced our effective tax rate by 1.0% in 2019. The amounts recorded in 2018 resulted from the difference in measuring the tax liability at the previous tax rate and the current enacted tax rate. The recording of the uncertain tax position and related interest expense increased our 2018 effective tax rate by 1.0%. In 2017, we had an uncertain tax position of $2.3 million and related interest expense recorded was $0.1 million. As a related temporary tax difference was recognized, there was no impact to our results of operations or financial position.

Tax years ending December 31, 2018, 2017 and 2016 remain open to IRS examination. We are not currently under IRS audit, nor have we been notified of an upcoming IRS audit.

We are the attorney-in-fact for the subscribers (policyholders) at the Exchange, a reciprocal insurance exchange. In that capacity, we provide all services and facilities necessary to conduct the Exchange's insurance business. Indemnity and the Exchange together constitute a single insurance business. Consequently, we are not subject to state corporate income or franchise taxes in states where the Exchange conducts its business and the states collect premium tax in lieu of corporate income or franchise tax, as a result of the Exchange's remittance of premium taxes in those states.