Income Taxes

12 Months Ended

Dec. 31, 2018

7.	Income Taxes

The Company’s deferred income tax assets and liabilities are as follows:

	December 31,
	2018			2017
	(in thousands)
Deferred income tax assets:
Discounting of net unpaid loss and loss adjustment expenses	$	21,377		$	8,830
Unearned premiums		8,069			8,466
Accrued expenses and other		2,636			2,359
State income tax		855			782
Accrued policyholder dividends		2,188			1,918
Impaired securities		21			42
Capital loss carryforward		—			190
Accrued insurance-related assessments		3,139			3,256
Net unrealized loss on securities		496			—
Total deferred tax assets		38,781			25,843
Deferred income tax liabilities:
Deferred policy acquisition costs		(5,207	)		(5,317	)
Callable bond amortization		(5	)		(8	)
Unrealized gain on securities available-for-sale		—			(1,070	)
Property and equipment and other		(178	)		(3	)
Salvage and subrogation		(719	)		(183	)
Loss reserves adjustment due to the Tax Act		(10,820	)		—
Total deferred income tax liabilities		(16,929	)		(6,581	)
Net deferred income taxes	$	21,852		$	19,262

The components of consolidated income tax expense (benefit) are as follows:

	Year Ended December 31,
	2018			2017			2016
	(in thousands)
Current:
Federal	$	16,407		$	22,477		$	35,602
State		1,004			732			1,603
		17,411			23,209			37,205
Deferred:
Federal		(1,389	)		12,965			(2,120	)
State		(73	)		(165	)		(129	)
		(1,462	)		12,800			(2,249	)
Total	$	15,949		$	36,009		$	34,956

During 2018, 2017 and 2016, there was no valuation allowance on the Company’s deferred income tax assets and liabilities.

Income tax expense from operations is different from the amount computed by applying the U.S. federal income tax statutory rate of 21% in 2018 and 35% in 2017 and 2016 to income before income taxes as follows:

	Year Ended December 31,
	2018			2017			2016
	(in thousands)
Income tax computed at federal statutory tax rate	$	18,392		$	28,784		$	39,487
Tax-exempt interest, net		(2,965	)		(5,707	)		(5,370	)
State income tax		720			311			913
Dividends received deduction		(44	)		(48	)		(125	)
Revaluation of net deferred income tax assets		—			12,620			—
Other		(154	)		49			51
	$	15,949		$	36,009		$	34,956

On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. As a result, we recorded $12.6 million as additional income tax expense related to our net deferred tax assets revalued at the new lower rate of 21% in the fourth quarter of 2017, the period in which the legislation was enacted.

In December 2018, the IRS released its guidance for determining the Tax Act transition adjustment related to the discounting of loss reserves. During the period ended December 31, 2018, the Company recorded an increase in its deferred tax assets and a corresponding increase in its deferred tax liabilities as a result of the transition adjustment, which had no impact on tax expense recognized in 2018. As of December 31, 2018, we have completed our accounting for the tax effects of enactment of the Tax Act.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2018, 2017 and 2016.

Tax years 2015 through 2018 are subject to examination by the federal and state taxing authorities.