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Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  
INCOME TAXES

NOTE 12 – INCOME TAXES

The following table reconciles the statutory federal income tax rate to the Company’s effective tax rate for the periods presented:

 

                         
    For the years ended December 31,  
    2012     2011     2010  

Statutory federal income tax rate

     35.0 %      35.0 %      35.0 % 

Increases (decreases) resulting from:

                        

Disallowed meals & entertainment

     0.6 %      0.6 %      0.3 % 

Disallowed compensation

     3.2 %      2.3 %      1.3 % 

State income tax, net of federal tax benefit(1)

     3.6 %      3.6 %      3.6 % 

Other, net(2)

     (0.1 %)      (1.1 %)      0.4 % 
   

 

 

    

 

 

    

 

 

  

Effective tax rate

     42.3 %      40.4 %      40.6 % 
   

 

 

    

 

 

    

 

 

  

 

(1) Included in income tax is Florida income tax at a statutory rate of 5.5%.
(2) Other represents true-ups recorded upon completion of prior years tax returns, partially offset by estimates of penalties and interest for current year underpayment of estimated taxes.

Deferred income taxes represent the temporary differences between the GAAP and tax basis of the Company’s assets and liabilities. The tax effects of temporary differences are as follows as of the periods presented (in thousands):

 

                 
    As of December 31,  
    2012     2011  

Deferred income tax assets:

                

Unearned premiums

   $ 11,430     $ 9,007  

Advanced premiums

     1,132       1,451  

Unpaid losses and LAE

     3,449       3,139  

Regulatory assessments

     2,447       —    

Stock-based compensation

     3,048       4,341  

Accrued wages

     778       958  

Allowance for uncollectible receivables

     205       276  

Additional tax basis of securities

     573       2,407  

Change in unrealized losses on investments

     2,782       6,425  
   

 

 

    

 

 

  

Total deferred income tax assets

     25,844       28,004  
   

 

 

    

 

 

  
     

Deferred income tax liabilities:

                

Deferred policy acquisition costs, net

     (6,666 )      (5,013 ) 
   

 

 

    

 

 

  

Total deferred income tax liabilities

     (6,666 )      (5,013 ) 
   

 

 

    

 

 

  
                 
   

 

 

    

 

 

  

Net deferred income tax asset

   $ 19,178     $ 22,991  
   

 

 

    

 

 

  

A valuation allowance is deemed unnecessary as of December 31, 2012 and 2011, respectively, because management believes it is probable that the Company will generate taxable income sufficient to realize the tax benefits associated with the net deferred income tax asset shown above in the near future.

Liabilities for unrecognized tax benefits, if any, are recorded in accordance with issued FASB guidance on Accounting for Uncertainty in Income Taxes. The Company recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

The Company filed a consolidated federal income tax return for the fiscal years ended December 31, 2011, 2010, and 2009 and intends to file the same for the year ended December 31, 2012. The tax allocation agreements between the Company and the Insurance Entities provide that they will incur income taxes based on a computation of taxes as if they were stand-alone taxpayers. The computations are made utilizing the financial statements of the Insurance Entities prepared on a statutory basis of accounting and prior to consolidating entries which include the conversion of certain balances and transaction of the statutory financial statements to a U.S. GAAP basis.

 

Tax years that remain open for purposes of examination of its income tax liability due to taxing authorities, include the years ended December 31, 2011 and 2010.