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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | (11) Income Taxes On December 22, 2017 the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) was enacted in the United States. The Tax Reform Act introduced a broad range of tax reforms affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Under U.S. GAAP, the effects of new legislation are recognized upon enactment, which, for federal legislation, is the date the president signs a bill into law. Accordingly, we recognized the tax effects of the Tax Reform Act as of December 31, 2017. The SEC staff issued Staff Accounting Bulletin No. 118, which allowed companies to recognize provisional amounts for the tax effects resulting from the enactment of the Tax Reform Act for which the accounting under Accounting Standards Codification Topic 740, Income Taxes ("ASC 740") was incomplete as of December 31, 2017 but a reasonable estimate could be determined. Adjustments to these provisional amounts were to be completed within a measurement period not to exceed one year. Amounts recognized by the Company as of December 31, 2017 represented reasonable estimates based on obtaining, preparing, and analyzing the information necessary at that time to account for the tax effects of the Tax Reform Act under ASC 740. As of December 31, 2018, we finalized our analysis of the incomplete areas and made the necessary adjustments to the provisional amounts recognized as of December 31, 2017. We identified the following updates to the areas discussed in our Annual Report on Form 10-K for the year ended December 31, 2017 that were incomplete and adjusted in 2018 when the necessary information was available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting:
| • | The Company finalized its decision to make a policy election to account for estimated taxes in regard to global intangible low-taxed income (“GILTI”) under the provisions of the Tax Reform Act by recognizing such taxes as incurred.
| • | We finalized the amount recognized for the one-time mandatory deemed repatriation of Canadian earnings required by the Tax Reform Act, which res ulted in a $2.7 million reduction to income tax expense in 2018. As part of the finalization of the amount recognized for the one-time mandatory deemed repatriation, we identified excess foreign tax credits that could not be used to offset the mandatory deemed repatriation of foreign earnings stipulated by the Tax Refor m Act of $6.1 million in addition to the provisional amount recognized as of December 31, 2017. However, the amount recognized for these foreign tax credits was fully offset by a corresponding increase to the full valuation allowance recorded for these foreign tax credits as we do not expect to be able to utilize them in the future.
| • | We finalized the amount recognized for the timing difference for the haircut on deductibility of future policy benefit reserves prescribed in the Tax Reform Act upon the Company’s final computation as it relates to insurance contracts identified with cash value features. The adjustment did not impact the Company’s effective income tax rate or net deferred tax liability position and did not materially impact the timing of when such temporary differences are eliminated.
Income tax expense. Income tax expense (benefit) consists of the following:
|  | Current |  |  | Deferred |  |  | Total |
|  | (In thousands) |
Year ended December 31, 2018 |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 50,691 |  |  | $ | 17,399 |  |  | $ | 68,090 |
Foreign |  |  | 36,028 |  |  |  | (14,809 | ) |  |  | 21,219 |
State and local |  |  | 2,681 |  |  |  | - |  |  |  | 2,681 |
Total tax expense |  | $ | 89,400 |  |  | $ | 2,590 |  |  | $ | 91,990 |
Year ended December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 53,084 |  |  | $ | (46,622 | ) |  | $ | 6,462 |
Foreign |  |  | 28,613 |  |  |  | (7,166 | ) |  |  | 21,447 |
State and local |  |  | 1,356 |  |  |  | - |  |  |  | 1,356 |
Total tax expense |  | $ | 83,053 |  |  | $ | (53,788 | ) |  | $ | 29,265 |
Year ended December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 47,980 |  |  | $ | 50,758 |  |  | $ | 98,738 |
Foreign |  |  | 23,102 |  |  |  | (4,710 | ) |  |  | 18,392 |
State and local |  |  | 2,783 |  |  |  | (1,732 | ) |  |  | 1,051 |
Total tax expense |  | $ | 73,865 |  |  | $ | 44,316 |  |  | $ | 118,181 |
Effective tax rate reconciliation. Total income tax expense is different from the amount determined by multiplying income before income taxes by the U.S. statutory federal tax rate of 21% for the year ended December 31, 2018 and 35% for the years ended December 31, 2017 and 2016. The reconciliation for such difference follows:
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | Amount |  |  | Percentage |  |  | Amount |  |  | Percentage |  |  | Amount |  |  | Percentage |
|  | (Dollars in thousands) |
Computed tax expense |  | $ | 87,378 |  |  |  | 21.0 | % |  | $ | 132,832 |  |  |  | 35.0 | % |  | $ | 118,158 |  |  |  | 35.0 | %
Difference between foreign statutory rate and U.S. statutory rate |  |  | 4,474 |  |  |  | 1.1 | % |  |  | (6,668 | ) |  |  | (1.8 | )% |  |  | (5,665 | ) |  |  | (1.7 | )%
Excess tax benefits recognized on share-based compensation |  |  | (3,885 | ) |  |  | (0.9 | )% |  |  | (6,051 | ) |  |  | (1.6 | )% |  |  | - |  |  |  | — | %
Transition impact of the Tax Reform Act |  |  | (2,737 | ) |  |  | (0.7 | )% |  |  | (95,457 | ) |  |  | (25.1 | )% |  |  | - |  |  |  | — | %
Recognition of foreign tax credits |  |  | (6,069 | ) |  |  | (1.5 | )% |  |  | (40,386 | ) |  |  | (10.6 | )% |  |  | - |  |  |  | — | %
Change in valuation allowance on foreign tax credits |  |  | 6,069 |  |  |  | 1.5 | % |  |  | 40,386 |  |  |  | 10.6 | % |  |  | - |  |  |  | — | %
Other |  |  | 6,760 |  |  |  | 1.6 | % |  |  | 4,609 |  |  |  | 1.2 | % |  |  | 5,688 |  |  |  | 1.7 | %
Total tax expense / effective rate |  | $ | 91,990 |  |  |  | 22.1 | % |  | $ | 29,265 |  |  |  | 7.7 | % |  | $ | 118,181 |  |  |  | 35.0 | %
Deferred tax assets and liabilities. The main components of deferred income tax assets and liabilities were as follows:
|  | December 31, |
|  | 2018 |  |  | 2017 |
|  | (In thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Future policy benefit reserves and unpaid policy claims |  | $ | 218,461 |  |  | $ | 206,794 |
Intangibles and tax goodwill |  |  | 17,115 |  |  |  | 19,436 |
Future deductible liabilities |  |  | 13,372 |  |  |  | 10,235 |
State income taxes |  |  | 12,755 |  |  |  | 12,521 |
Foreign tax credits |  |  | 46,455 |  |  |  | 40,386 |
Other |  |  | 12,653 |  |  |  | 10,145 |
Total deferred tax assets before valuation allowance |  |  | 320,811 |  |  |  | 299,517 |
Valuation allowance on foreign tax credits |  |  | (46,455 | ) |  |  | (40,386 | )
Total deferred tax assets after valuation allowance |  | $ | 274,356 |  |  | $ | 259,131 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Deferred policy acquisition costs |  | $ | (293,729 | ) |  | $ | (275,388 | )
Transitional amount for future policy benefit reserves prescribed in the Tax Reform Act |  |  | (17,798 | ) |  |  | (22,307 | )
Unremitted earnings on foreign subsidiaries |  |  | (4,669 | ) |  |  | (2,614 | )
Reinsurance deposit asset |  |  | (48,085 | ) |  |  | (45,641 | )
Other |  |  | (15,144 | ) |  |  | (17,139 | )
Total deferred tax liabilities |  |  | (379,425 | ) |  |  | (363,089 | )
Net deferred tax liabilities |  | $ | (105,069 | ) |  | $ | (103,958 | )
The majority of total deferred tax assets are attributable to future policy benefit reserves and unpaid policy claims, which represents the difference between the financial statement carrying value and tax basis for liabilities related to future policy benefits. The tax basis for future policy benefit reserves and unpaid policy claims is actuarially determined in accordance with guidelines set forth in the Internal Revenue Code. The majority of total deferred tax liabilities are attributable to DAC, which represents the difference between the policy acquisition costs capitalized for U.S. GAAP purposes and those capitalized for tax purposes, as well as the difference in the resulting amortization methods. Prior to the enactment of the Tax Reform Act, deferred income tax assets and liabilities were measured using the 35% U.S. federal statutory tax rate that was expected to be applicable when those temporary differences were recognized in taxable income. The Tax Reform Act reduced the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018. The reduction in the U.S. federal statutory tax rate used to measure our net deferred tax liabilities as of the enactment date of approximately $98.5 million was recorded as a benefit to income tax expense during the year ended December 31, 2017. Deferred tax liabilities associated with net unrealized gains from our AFS investments were originally established through OCI. Under ASC 740, the remeasurement of all deferred taxes, even those associated with net unrealized gains from AFS investments, resulting from the change in the statutory tax rate are recognized through income tax expense. As a result, we recognized an income tax benefit of approximately $7.8 million during the year ended December 31, 2017 to remeasure our U.S. deferred tax liabilities associated with net unrealized gains from AFS investments at the newly enacted 21% U.S. federal statutory tax rate. The stranded component, which was also equal to $7.8 million, remained in accumulated OCI as of December 31, 2017. In February 2018, the FASB issued Accounting Standards Update No. 2018-02 Income Statement – Reporting Comprehensive Income (Topic 220)- Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 allows for the reclassification of stranded tax effects on items resulting from the Tax Reform Act from accumulated other comprehensive income (loss) to retained earnings. We adopted the amendments in ASU 2018-02 during 2018 to reclassify the stranded tax effects from the Tax Reform Act and recorded a decrease of $7.8 million to retained earnings with a corresponding increase to accumulated other comprehensive income (loss) on January 1, 2018. The Company has state net operating losses resulting in a deferred tax asset of approximately $12.2 million, which are available for use through 2037. The Company has no other material net operating loss or credit carryforwards other than foreign tax credit carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback and carryforward periods, and tax planning strategies in making this assessment. As of December 31, 2018, management identified excess foreign tax credits of approximately $46.5 million that could not be used to offset the mandatory deemed repatriation of foreign earnings tax stipulated by the Tax Reform Act and believes it will not be able to utilize these foreign tax credits in the future. Therefore, the Company established a deferred tax asset for these foreign tax credits with a corresponding full valuation allowance. These foreign tax credits are available for use through 2027. With the exception of these foreign tax credits, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets. Therefore, there were no other deferred tax asset valuation allowances as of December 31, 2018 or 2017. Controlled foreign corporations. The Company has direct ownership of a group of controlled foreign corporations in Canada. During the year ended December 31, 2017, we recognized a one-time charge of approximately $3.0 million related to the mandatory deemed repatriation of foreign earnings required by the Tax Reform Act. As noted earlier, we finalized the amount recognized for the one-time mandatory deemed repatriation of Canadian earnings required by the Tax Reform Act, which resulted in a $2.7 million reduction to income tax expense in 2018. In response to the provisions of the Tax Reform Act, we have not made a permanent reinvestment assertion for any unremitted earnings in Canada; therefore, in connection with the adjustments noted in the previous paragraph, we established a deferred tax liability to account for Canadian withholding taxes that will occur upon repatriation of such earnings. Furthermore, as we no longer make a permanent reinvestment assertion for unremitted earnings in Canada, we continue to record deferred tax liabilities to account for Canadian withholding taxes as earnings are recognized. The Company has no intentions to sell or substantially liquidate our Canadian operations and, therefore, has not provided for any additional outside basis difference for the amount of book basis in excess of tax basis in its Canadian subsidiaries. In addition, it is not practicable to determine the amount of the unrecognized deferred tax liability related to any additional outside basis difference in these entities. Unrecognized tax benefits. The total amount of unrecognized benefits on uncertain tax positions that, if recognized, would affect our effective tax rate was approximately $13.9 million and $13.4 million as of December 31, 2018 and 2017, respectively. We recognize interest expense related to unrecognized tax benefits in tax expense net of federal income tax. The total amount of accrued interest and penalties in the consolidated balance sheets was $1.9 million as of each reporting period. Additionally, we did not recognize any interest expense related to unrecognized tax benefits in the consolidated statements of income in 2018. During 2017 and 2016, we recognized less than $0.3 million of interest expense related to unrecognized tax benefits in the consolidated statements. A reconciliation of the change in the unrecognized income tax benefit for the years ended December 31, 2018 and 2017 is as follows:
|  | December 31, |
|  | 2018 |  |  | 2017 |
|  | (In thousands) |
Unrecognized tax benefits, beginning of period |  | $ | 14,385 |  |  | $ | 14,811 |
Change in prior period unrecognized tax benefits |  |  | (101 | ) |  |  | 91 |
Change in current period unrecognized tax benefits |  |  | 3,105 |  |  |  | 2,855 |
Reductions as a result of a lapse in statute of limitations |  |  | (2,216 | ) |  |  | (3,372 | )
Unrecognized tax benefits, end of period |  | $ | 15,173 |  |  | $ | 14,385 |
We have no penalties included in calculating our provision for income taxes. There is no significant change that is reasonably possible to occur within twelve months of the reporting date. The major tax jurisdictions in which we operate are the United States and Canada. We are currently open to tax audit by the Internal Revenue Service for the year ended December 31, 2015 and thereafter for federal income tax purposes. We are currently open to audit in Canada for tax years ended December 31, 2014 and thereafter for federal and provincial income tax purposes.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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