XML 47 R19.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Net deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
| Table | 12.1 |  |  |  |
Deferred tax assets and liabilities | (in thousands) |  | 2017 |  | 2016
Total deferred tax assets |  | $ | 258,663 |  |  | $ | 636,449 |
Total deferred tax liabilities |  | (24,282 | ) |  | (28,794 | )
| Net deferred tax asset |  | $ | 234,381 |  |  | $ | 607,655 |
Table 12.2 includes the components of the net deferred tax asset as of December 31, 2017 and 2016.
| Table | 12.2 |  |  |  |
Deferred tax components | (in thousands) |  | 2017 |  | 2016
Unearned premium reserves |  | $ | 29,196 |  |  | $ | 40,153 |
| Benefit plans |  | (7,162 | ) |  | (12,350 | )
| Federal net operating loss |  | 155,839 |  |  | 520,812 |
| Loss reserves |  | 4,994 |  |  | 10,883 |
| Unrealized (appreciation) depreciation in investments |  | (7,782 | ) |  | 11,211 |
| Mortgage investments |  | 8,963 |  |  | 17,751 |
| Deferred compensation |  | 7,265 |  |  | 12,517 |
| AMT credit carryforward |  | 37,017 |  |  | 2,215 |
| Other, net |  | 6,051 |  |  | 4,463 |
| Net deferred tax asset |  | $ | 234,381 |  |  | $ | 607,655 |
We review the need to maintain a deferred tax asset valuation allowance on a quarterly basis. We analyze several factors, among which are the severity and frequency of operating losses, our capacity for the carryback or carryforward of any losses, the existence and current level of taxable operating income, operating results on a three year cumulative basis, the expected occurrence of future income or loss, the expiration dates of the carryforwards, the cyclical nature of our operating results, and available tax planning strategies. Based on our analysis, we reduced our benefit from income tax through the recognition of a valuation allowance from the first quarter of 2009 through the second quarter of 2015. In the third quarter of 2015, we concluded that it was more likely than not that our deferred tax assets would be fully realizable and that the valuation allowance was no longer necessary and we reversed the valuation allowance. For the year ended December 31, 2015, we reversed $161.1 million of our valuation allowance based on income from 2015. The portion of the valuation allowance reversed related to deferred tax assets that are expected to be realized in future years, totaling $747.5 million, is treated as a discrete period item and is recognized as a component of the tax provision in continuing operations in the period of reversal. Furthermore, in determining the discrete period impact from the reversal, we removed the prior period disproportionate tax effects that had arisen in other comprehensive income because of the valuation allowance. This reduced the amount of tax benefit included in net income and resulted in an allocation of tax benefit of $60.8 million to components of other comprehensive income. Table 12.3 provides a rollforward of our deferred tax asset valuation allowance for the year ended December 31, 2015.
| Table | 12.3 |  |
Deferred tax valuation allowance rollforward | (in millions) |  | For the year ended December 31, 2015
Balance at December 31, 2014 |  | $ | 902.3 |
| Reduction in tax provision in current year |  | (161.1 | )
| Amounts recorded in other comprehensive income in the current year |  | 6.3 |
| Change in valuation allowance for deferred tax assets in the current year |  | (154.8 | )
| Reduction in tax provision for amounts to be realized in future years |  | (686.7 | )
| Amounts recorded in other comprehensive income to be realized in future years |  | (60.8 | )
| Change in valuation allowance for deferred tax assets realizable in future years |  | (747.5 | )
| Balance at December 31, 2015 |  | $ | — |
Table 12.4 shows the effect of the change in valuation allowance on the provision for (benefit from) income taxes for the year ended December 31, 2015.
| Table | 12.4 |  |
Provision for (benefit from) income taxes | (in thousands) |  | 2015
Provision for income taxes before valuation allowance |  | $ | 163,497 |
Change in valuation allowance |  | (161,158 | )
| Reversal of valuation allowance |  | (686,652 | )
| Benefit from income taxes |  | $ | (684,313 | )
The change in the valuation allowance that was included in other comprehensive income was a decrease $54.5 million for the year ended December 31, 2015. Giving full effect to the carryback of net operating losses for federal income tax purposes, we have approximately $742 million of net operating loss ("NOL") carryforwards on a regular tax basis as of December 31, 2017. Any unutilized carryforwards are scheduled to expire at the end of tax years 2032 and 2033. Table 12.5 summarizes the components of the provision for (benefit from) income taxes:
| Table | 12.5 |  |  |  |  |  |
Provision for (benefit from) income taxes | (in thousands) |  | 2017 |  | 2016 |  | 2015
Current Federal |  | $ | 73,348 |  |  | $ | 9,470 |  |  | $ | 8,067 |
Deferred Federal |  | 351,677 |  |  | 160,657 |  |  | (686,652 | )
| Other |  | 3,710 |  |  | 2,070 |  |  | (5,728 | )
| Provision for (benefit from) income taxes |  | $ | 428,735 |  |  | $ | 172,197 |  |  | $ | (684,313 | )
Our income tax expense for 2017 reflects the remeasurement of our net deferred tax assets to reflect the lower corporate tax rate of 21% under the Tax Act, effective January 1, 2018. As a result of the lower tax rate, we have recorded a decrease to our net deferred tax assets of $133 million with a corresponding increase to our deferred income tax expense for the year ended December 31, 2017. We paid $22.0 million, $4.5 million, and $5.4 million in federal income tax in 2017, 2016 and 2015, respectively. Table 12.6 reconciles the federal statutory income tax rate to our effective tax provision (benefit) rate.
| Table | 12.6 |  |  |  |  |
Effective tax rate reconciliation |  | 2017 |  | 2016 |  | 2015
Federal statutory income tax rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
| Additional income tax provision related to the rate decrease included in the Tax Act | 17.0 | % |  | — | % |  | — | %
| Additional income tax provision related to IRS litigation | 3.7 | % |  | 0.1 | % |  | 0.1 | %
| Valuation allowance | — | % |  | — | % |  | (173.8 | )%
| Tax exempt municipal bond interest | (1.4 | )% |  | (1.9 | )% |  | (0.8 | )%
| Other, net | 0.4 | % |  | 0.3 | % |  | (0.8 | )%
| Effective tax provision (benefit) rate | 54.7 | % |  | 33.5 | % |  | (140.3 | )%
As previously disclosed, the Internal Revenue Service ("IRS") completed examinations of our federal income tax returns for the years 2000 through 2007 and issued proposed assessments for taxes, interest and penalties related to our treatment of the flow-through income and loss from an investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits ("REMICs"). The IRS indicated that it did not believe that, for various reasons, we had established sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We appealed these assessments within the IRS and in August 2010, we reached a tentative settlement agreement with the IRS which was not finalized. In 2014, we received Notices of Deficiency (commonly referred to as “90 day letters”) covering the 2000-2007 tax years. The Notices of Deficiency reflect taxes and penalties related to the REMIC matters of $197.5 million and at December 31, 2017, there would also be interest related to these matters of approximately $205.0 million. In 2007, we made a payment of $65.2 million to the United States Department of the Treasury which will reduce any amounts we would ultimately owe. The Notices of Deficiency also reflect additional amounts due of $261.4 million, which are primarily associated with the disallowance of the carryback of the 2009 net operating loss to the 2004-2007 tax years. We believe the IRS included the carryback adjustments as a precaution to keep open the statute of limitations on collection of the tax that was refunded when this loss was carried back, and not because the IRS actually intends to disallow the carryback permanently. Depending on the outcome of this matter, additional state income taxes and state interest may become due when a final resolution is reached. As of December 31, 2017, those state taxes and interest would approximate $85.8 million. In addition, there could also be state tax penalties. Our total amount of unrecognized tax benefits as of December 31, 2017 is $142.8 million, which represents the tax benefits generated by the REMIC portfolio included in our tax returns that we have not taken benefit for in our financial statements, including any related interest. We filed a petition with the U.S. Tax Court contesting most of the IRS’ proposed adjustments reflected in the Notices of Deficiency and the IRS filed an answer to our petition which continued to assert their claim. The case has twice been scheduled for trial and in each instance, the parties jointly filed, and the U.S. Tax Court approved (most recently in February 2016), motions for continuance to postpone the trial date. Also in February 2016, the U.S. Tax Court approved a joint motion to consolidate for trial, briefing, and opinion, our case with similar cases of Radian Group, Inc., as successor to Enhance Financial Services Group, Inc., et al. The parties have reached agreement on all issues in the case and in the fourth quarter of 2017, the IRS submitted documentation reflecting the terms of the agreement to the Joint Committee on Taxation ("JCT") for its review, which must be performed before a settlement can be completed. There is no assurance that a settlement will be completed. Based on information that we currently have regarding the status of our ongoing dispute, we recorded a provision for additional taxes and interest of $29.0 million in 2017. Should a settlement not be completed, ongoing litigation to resolve our dispute with the IRS could be lengthy and costly in terms of legal fees and related expenses. We would need to make further adjustments, which could be material, to our tax provision and liabilities if our view of the probability of success in this matter changes, and the ultimate resolution of this matter could have a material negative impact on our effective tax rate, results of operations, cash flows, available assets and statutory capital. In this regard, see Note 14 - "Statutory Information." Under current guidance, when evaluating a tax position for recognition and measurement, an entity shall presume that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. The interpretation adopts a benefit recognition model with a two-step approach, a more-likely-than-not threshold for recognition and derecognition, and a measurement attribute that is the greatest amount of benefit that is cumulatively greater than 50% likely of being realized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is shown in table 12.7.
| Table | 12.7 |  |  |  |  |  |
Unrecognized tax benefits reconciliation | (in thousands) |  | 2017 |  | 2016 |  | 2015
Balance at beginning of year |  | $ | 108,245 |  |  | $ | 107,120 |  |  | $ | 106,230 |
Additions based on tax positions related to the current year |  | — |  |  | — |  |  | — |
| Additions for tax positions of prior years |  | 35,003 |  |  | 1,125 |  |  | 890 |
| Reductions for tax positions of prior years |  | (427 | ) |  | — |  |  | — |
| Settlements |  | — |  |  | — |  |  | — |
| Balance at end of year |  | $ | 142,821 |  |  | $ | 108,245 |  |  | $ | 107,120 |
The total amount of the unrecognized tax benefits related to our aforementioned REMIC issue, which would affect our effective tax rate, is $129.3 million. We recognize interest accrued and penalties related to unrecognized tax benefits in income taxes. During 2017, we recognized $23.1 million in interest. As of December 31, 2017 and 2016, we had $52.0 million and $28.9 million of accrued interest related to uncertain tax positions, respectively. The statute of limitations related to the consolidated federal income tax return is closed for all years prior to 2000. It is reasonably possible that our 2000-2007 federal tax case will be resolved, other than through litigation. If it is resolved under the basis of settlement as disclosed above, our total unrecognized tax benefits would be reduced by $142.8 million during 2018. After taking into account prior payments and the effect of available net operating loss carrybacks, any net cash outflows would approximate $55 million.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration