10.

Income 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 for the periods presented (in thousands):


	As of June 30,			As of December 31,
	2013			2012
Deferred income tax assets:
Unearned premiums	$	12,710		$	11,430
Advance premium		1,945			1,132
Unpaid losses and LAE		3,116			3,449
Regulatory assessments		1,384			2,447
Stock-based compensation		1,420			3,048
Accrued wages		478			778
Allowance for uncollectible receivables		208			205
Additional tax basis of securities		45			573
Unrealized losses on trading investments		—			2,782
Capital loss carryforwards		622			—
Other comprehensive loss		1,638

Total deferred income tax assets		23,566			25,844


Deferred income tax liabilities:
Deferred policy acquisition costs, net		(6,650	)		(6,666	)
Unrealized gains on trading investments		(264	)		—

Total deferred income tax liabilities		(6,914	)		(6,666	)



Net deferred income tax asset	$	16,652		$	19,178

A valuation allowance is deemed unnecessary as of June 30, 2013 and December 31, 2012, 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.

Tax years that remain open for purposes of examination of its income tax liability due to taxing authorities, include the years ended December 31, 2012, 2011 and 2010.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (decreases) resulting from:
Disallowed meals & entertainment		0.4	%		0.2	%		0.3	%		0.2	%
Fines and penalties		1.5	%		—			0.9	%		—
Disallowed compensation		2.0	%		1.0	%		1.5	%		0.7	%
State income tax, net of federal tax benefit (1)		3.6	%		3.6	%		3.6	%		3.6	%
Other, net		0.1	%		0.3	%		0.1	%		0.1	%

Effective tax rate		42.6	%		40.1	%		41.4	%		39.6	%

(1)	Included in income tax is Florida income tax at a statutory rate of 5.5%.