Income Taxes

12 Months Ended

Dec. 31, 2019

7.	Income Taxes

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

	December 31,
	2019			2018
	(in thousands)
Deferred income tax assets:
Discounting of net unpaid loss and loss adjustment expenses	$	19,985		$	21,377
Unearned premiums		7,638			8,069
Accrued expenses and other		2,612			2,636
State income tax		2,484			855
Accrued policyholder dividends		2,330			2,188
Impaired securities		—			21
Capital loss carryforward		20			—
Accrued insurance-related assessments		2,672			3,139
Net unrealized loss on securities		—			496
Total deferred tax assets		37,741			38,781
Less: Valuation allowance		(2,025	)		—
Net deferred tax assets		35,716			38,781

Deferred income tax liabilities:
Deferred policy acquisition costs		(4,838	)		(5,207	)
Callable bond amortization		(2	)		(5	)
Unrealized gain on securities available-for-sale		(3,970	)		—
Property and equipment and other		(271	)		(178	)
Salvage and subrogation		(636	)		(719	)
Loss reserves adjustment due to the Tax Act		(8,486	)		(10,820	)
Total deferred income tax liabilities		(18,203	)		(16,929	)
Net deferred income taxes	$	17,513		$	21,852

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

	Year Ended December 31,
	2019		2018			2017
	(in thousands)
Current:
Federal	$	20,658	$	16,407		$	22,477
State		1,297		1,004			732
		21,955		17,411			23,209
Deferred:
Federal		732		(1,389	)		12,965
State		140		(73	)		(165	)
		872		(1,462	)		12,800
Total	$	22,827	$	15,949		$	36,009

As of December 31, 2019, the Company had a valuation allowance of $2.0 million against its deferred income tax benefits. During 2018 and 2017, 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 2019 and 2018, and 35% in 2017 to income before income taxes as follows:

	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Income tax computed at federal statutory tax rate	$	24,258		$	18,392		$	28,784
Tax-exempt interest, net		(2,999	)		(2,965	)		(5,707	)
State income tax		1,178			720			311
Dividends received deduction		(59	)		(44	)		(48	)
Revaluation of net deferred income tax assets		—			—			12,620
Other		449			(154	)		49
	$	22,827		$	15,949		$	36,009

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.

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, 2019, 2018 and 2017.

Tax years 2016 through 2019 are subject to examination by the federal and state taxing authorities.