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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2022
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,
| 2022 |  | 2021 |  | 2020
| (Amounts in thousands)
Federal |  |  |  |  |
Current | $ | (62,355) |  |  | $ | 37,391 |  |  | $ | 69,554 |
Deferred | (93,562) |  |  | 11,349 |  |  | 12,340 |
| $ | (155,917) |  |  | $ | 48,740 |  |  | $ | 81,894 |
State |  |  |  |  |
Current | $ | 784 |  |  | $ | 1,542 |  |  | $ | 1,172 |
Deferred | (2,910) |  |  | 1,088 |  |  | 828 |
| $ | (2,126) |  |  | $ | 2,630 |  |  | $ | 2,000 |
Total |  |  |  |  |
Current | $ | (61,571) |  |  | $ | 38,933 |  |  | $ | 70,726 |
Deferred | (96,472) |  |  | 12,437 |  |  | 13,168 |
Total | $ | (158,043) |  |  | $ | 51,370 |  |  | $ | 83,894 |
In computing taxable income, property and casualty insurers reduce underwriting income by losses and loss adjustment expenses incurred. The amount of the deduction for losses incurred associated with unpaid losses is discounted at the interest rates and for the loss payment patterns prescribed by the U.S. Treasury. The Inflation Reduction Act of 2022 introduced a new Corporate Alternative Minimum Tax (“CAMT”) on the adjusted financial statement income of applicable corporations. The provision will be effective for tax years beginning after December 31, 2022, and was enacted on August 16, 2022. The Company has determined that averaged adjusted financial statement income is below the thresholds such that the Company does not expect to be required to perform the CAMT calculations, nor be liable for any CAMT. The following table presents a reconciliation of the tax expense based on the statutory rate to the Company's actual tax expense in the consolidated statements of operations:
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
| (Amounts in thousands)
Computed tax (benefit) expense at 21% | $ | (140,850) |  |  | $ | 62,854 |  |  | $ | 96,285 |
Tax-exempt interest income | (11,864) |  |  | (11,577) |  |  | (12,270) |
Dividends received deduction | (1,364) |  |  | (1,311) |  |  | (1,335) |
State tax (benefit) expense | (1,597) |  |  | 2,134 |  |  | 1,678 |
Nondeductible expenses | 279 |  |  | 843 |  |  | 983 |
Other, net | (2,647) |  |  | (1,573) |  |  | (1,447) |
Income tax (benefit) expense | $ | (158,043) |  |  | $ | 51,370 |  |  | $ | 83,894 |
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-planning 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,
| 2022 |  | 2021
| (Amounts in thousands)
Deferred tax assets: |  |  |
20% of net unearned premiums | $ | 67,285 |  |  | $ | 65,978 |
Discounting of loss reserves and salvage and subrogation recoverable for tax purposes | 21,606 |  |  | 18,163 |
Expense accruals | 11,578 |  |  | 12,997 |
Tax asset on net unrealized loss on securities carried at fair value | 22,802 |  |  | — |
Other deferred tax assets | 6,511 |  |  | 6,054 |
Total gross deferred tax assets | 129,782 |  |  | 103,192 |
Deferred tax liabilities: |  |  |
Deferred policy acquisition costs | (55,960) |  |  | (54,234) |
Tax liability on net unrealized gain on securities carried at fair value | — |  |  | (70,808) |
Tax depreciation in excess of book depreciation | (11,029) |  |  | (10,129) |
Undistributed earnings of insurance subsidiaries | (1,898) |  |  | (3,557) |
Tax amortization in excess of book amortization | (7,466) |  |  | (6,064) |
Other deferred tax liabilities | (10,526) |  |  | (11,969) |
Total gross deferred tax liabilities | (86,879) |  |  | (156,761) |
Net deferred tax assets (liabilities) | $ | 42,903 |  |  | $ | (53,569) |
Uncertainty in Income Taxes The Company recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, 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 were no changes to the total amount of unrecognized tax benefits related to tax uncertainties during 2022. The Company does not expect any changes in unrecognized tax benefits to have a material 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 2019 through 2021 for federal taxes, and 2011 through 2013 and 2020 through 2021 for California state taxes. The Company submitted a formal protest to the Notices of Action on Proposed Assessment issued by the California Franchise Tax Board ("FTB") for the 2011 tax year and is disputing the tax assessment due for the 2012 and 2013 tax years for California state taxes. Tax years 2014 through 2019 for California state taxes have been resolved with no outstanding issues. If a reasonable settlement is not reached for tax years 2011 through 2013 for California state taxes, the Company intends to pursue other options, including a formal hearing with the FTB, an appeal with the California Office of Tax Appeals, or litigation in Superior Court. The Company believes that the resolution of these examinations and assessments will not have a material impact on the financial position of the Company. The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits:
| December 31,
| 2022 |  | 2021
| (Amounts in thousands)
Balance at January 1 | $ | 4,380 |  |  | $ | 4,634 |
Additions (reductions) based on tax positions related to: |  |  |
Current year | — |  |  | — |
Prior years | — |  |  | (254) |
Balance at December 31 | $ | 4,380 |  |  | $ | 4,380 |
If unrecognized tax benefits were recognized, approximately $6.6 million and $6.2 million, including accrued interest, penalties and federal tax benefit related to unrecognized tax benefits, would impact the Company’s effective tax rate at December 31, 2022 and 2021, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits as a part of income taxes. The Company recognized an accrued net expense related to interest and penalty of approximately $0.4 million, $0.3 million, and $0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company carried an accrued interest and penalty balance of approximately $3.7 million and $3.3 million at December 31, 2022 and 2021, 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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