Federal Income Taxes

(a) On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ("Tax Reform") was signed into law, which among other implications, will reduce our statutory corporate tax rate from 35% to 21% beginning with our 2018 tax year. We revalued our deferred tax inventory as of December 31, 2017 in anticipation of this reduction, which resulted in a $20.2 million charge to income as illustrated in the rate reconciliation table below. This charge included a $5.7 million benefit related to net unrealized gains on our investment portfolio and pension plan, which were originally recorded through AOCI.

Our accounting for the impact of Tax Reform on our deferred tax assets and liabilities is complete with the exception of amounts related to loss reserve discounting. Prior to Tax Reform, we had elected to use our own loss reserve payment patterns in determining the factors that we use in our discounting calculation. Under Tax Reform, this election has been eliminated and we are required to use an industry experience approach that includes a discount rate based on a corporate bond yield curve for which the IRS has not yet issued any guidance. Considering this, we have recorded a $7.5 million provisional increase to our deferred tax asset that is based on the industry experience approach under the tax law that existed prior to Tax Reform. We believe this is a reasonable estimate for the elimination of the company experience method election. We have not estimated a provisional amount based on the revised Tax Reform industry experience approach. Based on a Tax Reform transition rule that allows for this type of change in accounting method to be amortized into expense over an eight-year period beginning in 2018, we have established an offsetting deferred tax liability of $7.5 million as of December 31, 2017. During 2018, we will obtain, prepare, and analyze the necessary information to complete the accounting for loss reserve discounting.

(b) A reconciliation of federal income tax on income at the corporate rate to the effective tax rate is as follows:



($ in thousands)	2017			2016		2015
Tax at statutory rate of 35%	$	91,689		76,984		81,442
Tax-advantaged interest	(11,510		)	(12,126	)	(13,164	)
Dividends received deduction	(1,961		)	(1,114	)	(1,817	)
Stock based compensation	(4,281		)	—		—
Tax reform rate change	20,205			—		—
Other	(1,000		)	(2,284	)	370
Federal income tax expense from continuing operations	$	93,142		61,460		66,831

In addition to the impact of Tax Reform discussed above, our rate reconciliation for 2017 was also impacted by the $4.3 million impact of new accounting literature requiring that the tax effects of share-based compensation be recognized in the income tax provision. Previously, these amounts were recorded in additional paid-in capital. See Note 3. "Adoption of Accounting Pronouncements" for additional information regarding this literature change.

(c) The tax effects of the significant temporary differences that gave rise to deferred tax assets and liabilities were as follows:



($ in thousands)	2017		2016
Deferred tax assets:
Net loss reserve discounting	$	38,771	70,065
Net unearned premiums	50,267		78,201
Employee benefits	8,606		17,881
Long-term incentive compensation plans	12,221		17,750
Temporary investment write-downs	1,044		2,475
Other investment related items, net	—		1,484
Net operating loss	54		771
Other	5,784		8,344
Total deferred tax assets	116,747		196,971
Deferred tax liabilities:
Deferred policy acquisition costs	47,484		75,310
Unrealized gains on investment securities	26,183		22,681
Other investment-related items, net	2,500		—
Accelerated depreciation and amortization	8,590		14,140
Total deferred tax liabilities	84,757		112,131
Net deferred federal income tax asset	$	31,990	84,840

Net deferred federal income tax assets decreased by $52.9 million during 2017. As mentioned above, net deferred federal income tax assets were reduced by $20.2 million in relation to Tax Reform. In addition to this charge, net deferred assets decreased by $21.4 million resulting from additional unrealized gains generated during the year on our investment portfolio.

After considering all evidence, both positive and negative, with respect to our federal tax loss carryback availability, expected levels of pre-tax financial statement income, and federal taxable income, we believe it is more likely than not that the existing deductible temporary differences will reverse during periods in which we generate net federal taxable income or have adequate federal carryback availability. As a result, we had no valuation allowance recognized for federal deferred tax assets at December 31, 2017 or 2016.

As of December 31, 2017, we had federal tax net operating loss ("NOL") carryforwards of $0.3 million. These NOLs, which are subject to an annual limitation of $1.9 million, will expire between 2030 and 2031.

Stockholders' equity reflects tax benefits related to compensation expense deductions for share-based compensation awards of $23.8 million at December 31, 2017 and December 31, 2016, and $22.0 million at December 31, 2015. As mentioned above, beginning in 2017, all excess tax benefits and tax deficiencies on share-based payment awards are recognized as income tax expense or benefit on the Consolidated Statements of Income.

We have analyzed our tax positions in all open tax years, which as of December 31, 2017 were 2014 through 2016, and we believe our tax positions will more likely than not be sustained upon examination, including related appeals or litigation. In the event we had a tax position that did not meet the more likely than not criteria, any tax, interest, and penalties incurred related to such a position would be reflected in "Total federal income tax expense" on our Consolidated Statements of Income. We are not currently under a federal income tax audit for any tax year.