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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] |
Income Taxes | Income Taxes Income tax provision The Company and its subsidiaries file a consolidated federal income tax return. The income tax (benefit) expense consisted of the following components:
| Year Ended December 31,
| 2016 |  | 2015 |  | 2014
| (Amounts in thousands)
Federal |  |  |  |  |
Current | $ | 17,444 |  |  | $ | 21,942 |  |  | $ | 44,469 |
Deferred | (21,947 | ) |  | (25,594 | ) |  | 20,444 |
| $ | (4,503 | ) |  | $ | (3,652 | ) |  | $ | 64,913 |
State |  |  |  |  |
Current | $ | 2,239 |  |  | $ | 943 |  |  | $ | 4,421 |
Deferred | (56 | ) |  | (1,203 | ) |  | 142 |
| $ | 2,183 |  |  | $ | (260 | ) |  | $ | 4,563 |
Total |  |  |  |  |
Current | $ | 19,683 |  |  | $ | 22,885 |  |  | $ | 48,890 |
Deferred | (22,003 | ) |  | (26,797 | ) |  | 20,586 |
Total | $ | (2,320 | ) |  | $ | (3,912 | ) |  | $ | 69,476 |
The income tax (benefit) expense reflected in the consolidated statements of operations is reconciled to the federal income tax (benefit) expense on income before income taxes based on a statutory rate of 35% as shown in the table below:
| Year Ended December 31,
| 2016 |  | 2015 |  | 2014
| (Amounts in thousands)
Computed tax expense at 35% | $ | 24,753 |  |  | $ | 24,699 |  |  | $ | 86,598 |
Tax-exempt interest income | (26,197 | ) |  | (26,993 | ) |  | (27,839 | )
Dividends received deduction | (2,303 | ) |  | (1,613 | ) |  | (2,027 | )
State tax expense | 1,907 |  |  | (287 | ) |  | 3,872 |
Nondeductible expenses | 303 |  |  | 575 |  |  | 9,900 |
Other, net | (783 | ) |  | (293 | ) |  | (1,028 | )
Income tax (benefit) expense | $ | (2,320 | ) |  | $ | (3,912 | ) |  | $ | 69,476 |
Deferred Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax-planing strategies in making this assessment. The Company believes that through the use of prudent tax planning strategies and the generation of capital gains, sufficient income will be realized in order to maximize the full benefits of its deferred tax assets. The following table presents the significant components of the Company’s net deferred tax assets and liabilities:
| December 31,
| 2016 |  | 2015
| (Amounts in thousands)
Deferred tax assets: |  |  |
20% of net unearned premiums | $ | 77,104 |  |  | $ | 75,406 |
Discounting of loss reserves and salvage and subrogation recoverable for tax purposes | 9,864 |  |  | 9,518 |
Write-down of impaired investments | 726 |  |  | 857 |
Tax credit carryforward | 47,238 |  |  | 36,349 |
Expense accruals | 11,090 |  |  | 11,264 |
Other deferred tax assets | 8,828 |  |  | 9,596 |
Total gross deferred tax assets | 154,850 |  |  | 142,990 |
Deferred tax liabilities: |  |  |
Deferred policy acquisition costs | (70,289 | ) |  | (70,617 | )
Tax liability on net unrealized gain on securities carried at fair value | (15,612 | ) |  | (23,095 | )
Tax depreciation in excess of book depreciation | (10,446 | ) |  | (10,742 | )
Undistributed earnings of insurance subsidiaries | (3,985 | ) |  | (4,022 | )
Tax amortization in excess of book amortization | (3,030 | ) |  | (2,514 | )
Other deferred tax liabilities | (6,211 | ) |  | (8,769 | )
Total gross deferred tax liabilities | (109,573 | ) |  | (119,759 | )
Net deferred tax assets | $ | 45,277 |  |  | $ | 23,231 |
The Company had an alternative minimum tax credit carryforward balance of $47.2 million and $36.3 million at December 31, 2016 and 2015, respectively, which is not subject to expiration. Uncertainty in Income Taxes The Company recognizes tax benefits related to positions taken, or expected to be taken, on a tax return only if, the positions are "more-likely-than-not" sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. There was a $0.8 million increase to the total amount of unrecognized tax benefits related to tax uncertainties during 2016. The increase was mainly due to tax positions taken regarding state tax apportionment issues based on management’s best judgment given the facts, circumstances and information available at the reporting date. The Company does not expect any changes in such unrecognized tax benefits to have a significant impact on its consolidated financial statements within the next 12 months. The Company and its subsidiaries file income tax returns with the Internal Revenue Service and the taxing authorities of various states. Tax years that remain subject to examination by major taxing jurisdictions are 2013 through 2015 for federal taxes and 2003 through 2015 for California state taxes. The Company is currently under examination by the California Franchise Tax Board ("FTB") for tax years 2003 through 2013. The FTB issued Notices of Proposed Assessments to the Company for tax years 2003 through 2010, which the Company formally protested. The proposed adjustments for tax years 2003 through 2006 were affirmed following an administrative protest process with the FTB examination. The Company is in settlement discussions with the FTB and believes a reasonable settlement could be reached during 2017 with regards to tax years 2003 through 2010. If a reasonable settlement is not reached, the Company intends to pursue other options, including a formal hearing with the State Board of Equalization or litigation in superior court. Management believes that the resolution of these examinations and assessments will not have a material impact on the consolidated financial statements. The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits:
| December 31,
| 2016 |  | 2015
| (Amounts in thousands)
Balance at January 1 | $ | 12,165 |  |  | $ | 12,612 |
Additions (reductions) based on tax positions related to: |  |  |
Current year | 688 |  |  | 932 |
Prior years | 101 |  |  | (1,379 | )
Additions (reductions) as a result of lapse of the applicable statute of limitations | — |  |  | — |
Balance at December 31 | $ | 12,954 |  |  | $ | 12,165 |
As presented above, the balances of unrecognized tax benefits were $13.0 million and $12.2 million at December 31, 2016 and 2015, respectively. Of these totals, $11.8 million and $10.9 million at December 31, 2016 and 2015, respectively, represent unrecognized tax benefits, net of federal tax benefit and accrued interest expense which, if recognized, would impact the Company’s effective tax rate. Management does not expect the Company's total amount of unrecognized tax benefits to materially increase within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as a part of income taxes. During the years ended December 31, 2016, 2015, and 2014, the Company recognized net interest and penalty expense, excluding refunds, of $606,000, $112,000, and $739,000, respectively. The Company carried an accrued interest and penalty balance of $3,521,000 and $2,915,000 at December 31, 2016 and 2015, respectively.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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