XML 104 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
Income Taxes

NOTE 7 - Income Taxes

The income tax assets and liabilities included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets as of December 31, 2012 and 2011 were as follows:

 

                     
    December 31,
   

  2012  

  

  2011  
        As Adjusted

Income tax (asset) liability

                    

Current

     $ 4,575       $ (5,857 )

Deferred

       286,726         204,421  

 

Deferred tax assets and liabilities are recognized for all future tax consequences attributable to “temporary differences” between the financial statement carrying value of existing assets and liabilities and their respective tax bases. There are no deferred tax liabilities that have not been recognized. The “temporary differences” that gave rise to the deferred tax balances as of December 31, 2012 and 2011 were as follows:

 

                     
    December 31,
   

  2012  

  

2011
                  As Adjusted  

Deferred tax assets

                    

Unearned premium reserve reduction

       $  14,952         $  14,336  

Compensation accruals

       13,592         8,304  

Other comprehensive income – net funded status of pension and other postretirement benefit obligations

       8,352         8,798  

Discounting of unpaid claims and claim expenses tax reserves

       4,825         5,388  

Postretirement benefits other than pensions

       2,333         2,743  

Impaired securities

       1,268         5,410  

Unutilized net operating loss carryforward

                    -                 8,394  

Total gross deferred tax assets

           45,322               53,373  

Deferred tax liabilities

                    

Other comprehensive income – net unrealized gains on fixed maturities and equity securities

       228,159         155,941  

Deferred policy acquisition costs

       62,411         66,820  

Life insurance future policy benefit reserve

       18,620         15,704  

Investment related adjustments

       15,375         13,984  

Intangible assets

       4,262         4,262  

Other, net

             3,221                 1,083  

Total gross deferred tax liabilities

         332,048             257,794  

Net deferred tax liability

       $286,726           $204,421  

The Company evaluated sources and character of income, including historical earnings, loss carryback potential, taxable income from future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences, and taxable income from prudent and feasible tax-planning strategies. Although realization of deferred tax assets is not assured, the Company believes it is more-likely-than-not that gross deferred tax assets will be fully realized and that a valuation allowance with respect to the realization of the total gross deferred tax assets was not necessary as of December 31, 2012 and 2011.

At December 31, 2012, the Company did not have any loss carryforwards or credits.

The components of income tax expense were as follows:

 

                               
    Year Ended December 31,
   

  2012  

  

  2011  

  

  2010  
        As Adjusted   As Adjusted
       

Current

       $26,331         $18,211         $13,609  

Deferred

       18,976         6,201         16,428  
     

 

 

      

 

 

      

 

 

  

Total income tax expense

       $45,307         $24,412         $30,037  
     

 

 

      

 

 

      

 

 

  

 

Income tax expense for the following periods differed from the expected tax computed by applying the federal corporate tax rate of 35% to income before income taxes as follows:

 

                               
    Year Ended December 31,
   

  2012  

  

  2011  

  

  2010  
        As Adjusted   As Adjusted
       

Expected federal tax on income

       $52,210         $33,221         $38,560  

Add (deduct) tax effects of:

                              

Tax-exempt interest

       (6,836 )       (7,072 )       (7,034 )

Dividend received deduction

       (2,132 )       (2,010 )       (1,660 )

Resolution of contingent tax liabilities

       -         -         (1,429 )

Other, net

           2,065               273             1,600  

Income tax expense provided on income

       $45,307         $24,412         $30,037  

The Company’s federal income tax returns for years prior to 2007 are no longer subject to examination by the Internal Revenue Service (“IRS”). In 2011, the IRS completed an examination of the federal returns through 2009 resulting in additional tax expense of $22.

In 2010, the IRS published guidance regarding Separate Account (variable annuity) dividend received deductions for life insurance companies in which they advised (1) they would concede appeals related to the issue and not raise the issue on audit unless the taxpayer changed its methodology for computing the deduction, and (2) any changes in law regarding this deduction would be effective prospectively. As a result, the Company believed this issue was no longer an uncertain tax position and recorded a reduction of $1,429 in the uncertain tax position liability related to the separate account dividend received deduction in 2010.

The Company recognizes tax benefits from tax return positions only if it is more likely than not the position will be sustainable, upon examination, on its technical merits and any relevant administrative practices or precedents. As a result, the Company applies a more-likely-than-not recognition threshold for all tax uncertainties.

The Company records liabilities for uncertain tax filing positions where it is more-likely-than-not that the position will not be sustainable upon audit by taxing authorities. These liabilities are reevaluated routinely and are adjusted appropriately based upon changes in facts or law. The Company has no unrecorded liabilities from uncertain tax filing positions.

HMEC and its subsidiaries file a consolidated federal income tax return. The federal income tax sharing agreement between HMEC and its subsidiaries, as approved by the Board of Directors, provides that tax on income is charged to each subsidiary as if it were filing a separate tax return with the limitation that each subsidiary will receive the benefit of any losses or tax credits to the extent utilized in the consolidated tax return. Intercompany balances are settled quarterly with a final settlement after filing the consolidated federal income tax return with the IRS.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

 

                     
        Year Ended December 31,    
   

  2012  

  

  2011  
     

Balance as of the beginning of the year

       $    -             $ 38       

Additions based on tax positions related to the current year

       -             -       

Settlements in tax positions for prior years

             -               (38)      

Balance as of the end of the year

       $    -             $    -       

The Company’s effective tax rate would be affected to the extent there were unrecognized tax benefits that could be recognized. There are no positions for which it is reasonably possible that the total amount of unrecognized tax benefit will significantly increase within the next 12 months.

The Company classifies all tax related interest and penalties as income tax expense.

Interest and penalties were as follows:

 

                               
    Year Ended December 31,
    2012   2011   2010

Interest and penalties expense (benefit), net of releases of previous provisions, recognized in the Consolidated Statements of Operations:

                              

Gross

     $ 468       $ (279 )     $ 27  

Net of tax

       304         (181 )       16  
     
    December 31,    
    2012   2011  

Interest and penalties (asset) liability included in Other Assets or Other Liabilities in the Consolidated Balance Sheets

     $ 307       $ 3