Income Taxes

We file consolidated federal income tax returns that include all of our wholly-owned subsidiaries except Eagle Life which must file a separate federal income tax return for 2009–2013 under applicable federal income tax guidelines. Our income tax expense as presented in the consolidated financial statements is summarized as follows:



	Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Consolidated statements of operations:
Current income taxes	$	133,036		$	80,527		$	127,535
Deferred income taxes (benefits)	3,013			(52,336		)	(80,869		)
Total income tax expense included in consolidated statements of operations	136,049			28,191			46,666
Stockholders' equity:
Expense (benefit) relating to:
Change in net unrealized investment losses	(344,944		)	123,620			202,143
Share-based compensation	(4,043		)	(392		)	(1,061		)
Extinguishment of convertible debt	(4,546		)	—			—
Total income tax expense included in consolidated financial statements	$	(217,484	)	$	151,419		$	247,748

Income tax expense in the consolidated statements of operations differed from the amount computed at the applicable statutory federal income tax rate of 35% as follows:



	Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Income before income taxes	$	389,332		$	85,989		$	132,914

Income tax expense on income before income taxes	$	136,266		$	30,096		$	46,520
Tax effect of:
Tax exempt net investment income	(2,657		)	(1,876		)	—
Extinguishment of convertible debt	2,695			—			—
Other	(255		)	(29		)	146
Income tax expense	$	136,049		$	28,191		$	46,666
Effective tax rate	34.9		%	32.8		%	35.1		%

Deferred income tax assets or liabilities are established for temporary differences between the financial reporting amounts and tax bases of assets and liabilities that will result in deductible or taxable amounts, respectively, in future years. The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2013 and 2012, are as follows:



	December 31,
	2013			2012
	(Dollars in thousands)
Deferred income tax assets:
Policy benefit reserves	$	1,875,516		$	1,698,831
Other than temporary impairments	901			8,177
Investment income items	2,121			—
Amounts due reinsurer	7,366			—
Other policyholder funds	9,200			10,860
Litigation settlement accrual	7,420			7,351
Deferred compensation	13,430			14,659
Convertible senior notes	34,818			—
Net operating loss carryforwards	24,179			16,783
Other	8,835			7,192
Gross deferred tax assets	1,983,786			1,763,853
Deferred income tax liabilities:
Deferred policy acquisition costs and deferred sales inducements	(1,475,403		)	(1,425,266		)
Net unrealized gains on available for sale fixed maturity and equity securities	(12,742		)	(357,686		)
Convertible senior notes	—			(6,665		)
Derivative instruments	(193,067		)	(18,280		)
Investment income items	—			(2,588		)
Other	(718		)	(2,671		)
Gross deferred tax liabilities	(1,681,930		)	(1,813,156		)
Net deferred income tax (liability) asset	$	301,856		$	(49,303	)

The total deferred income tax asset includes other than temporary impairments on investments. The other than temporary impairments will not be available for utilization for tax purposes until the securities are either sold at a loss or deemed completely worthless. The other than temporary impairments totaled $2.6 million and $23.4 million as of December 31, 2013 and 2012, respectively.

Included in the deferred income taxes is the expected income tax benefit attributable to unrealized losses on available for sale fixed maturity securities. There is no valuation allowance provided for the deferred income tax asset attributable to unrealized losses on available for sale fixed maturity securities. Management expects that the passage of time will result in the reversal of these unrealized losses due to the fair value increasing as these securities near maturity. Management has the intent and ability to hold these securities to maturity because we generate adequate cash flow from new business to fund all foreseeable cash flow needs and do not believe it would be necessary to liquidate these securities at a loss to meet cash flow needs.

Realization of our deferred income tax assets is more likely than not based on expectations as to our future taxable income and considering all other available evidence, both positive and negative. Therefore, no valuation allowance against deferred income tax assets has been established as of December 31, 2013 and 2012.

There were no material income tax contingencies requiring recognition in our consolidated financial statements as of December 31, 2013. We are no longer subject to income tax examinations by tax authorities for years prior to 2009.

At December 31, 2013, we had non-life net operating loss carryforwards for federal income tax purposes totaling $36.8 million which expire beginning in 2018 through 2033.