Income Taxes

We file consolidated federal income tax returns that include all of our wholly-owned subsidiaries, except for 2009–2013 when Eagle Life filed a separate federal income tax return 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,
	2014			2013			2012
	(Dollars in thousands)
Consolidated statements of operations:
Current income taxes	$	116,545		$	133,036		$	80,527
Deferred income taxes (benefits)	(46,504		)	3,013			(52,336		)
Total income tax expense included in consolidated statements of operations	70,041			136,049			28,191
Stockholders' equity:
Expense (benefit) relating to:
Change in net unrealized investment losses	363,572			(344,944		)	123,620
Share-based compensation	(5,716		)	(4,043		)	(392		)
Extinguishment of convertible debt	(9,284		)	(4,546		)	—
Total income tax expense (benefit) included in consolidated financial statements	$	418,613		$	(217,484	)	$	151,419

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,
	2014			2013			2012
	(Dollars in thousands)
Income before income taxes	$	196,064		$	389,332		$	85,989

Income tax expense on income before income taxes	$	68,622		$	136,266		$	30,096
Tax effect of:
Tax exempt net investment income	(3,669		)	(2,657		)	(1,876		)
Extinguishment of convertible debt	4,202			2,695			—
Other	886			(255		)	(29		)
Income tax expense	$	70,041		$	136,049		$	28,191
Effective tax rate	35.7		%	34.9		%	32.8		%

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, 2014 and 2013, are as follows:



	December 31,
	2014			2013
	(Dollars in thousands)
Deferred income tax assets:
Policy benefit reserves	$	2,052,968		$	1,875,516
Other than temporary impairments	753			901
Investment income items	—			2,121
Amounts due reinsurer	680			7,366
Other policyholder funds	7,765			9,200
Litigation settlement accrual	7,100			7,420
Deferred compensation	10,565			13,430
Convertible senior notes	12,281			34,818
Net operating loss carryforwards	17,694			24,179
Other	11,685			8,835
Gross deferred tax assets	2,121,491			1,983,786
Deferred income tax liabilities:
Deferred policy acquisition costs and deferred sales inducements	(1,637,607		)	(1,475,403		)
Net unrealized gains on available for sale fixed maturity and equity securities	(376,314		)	(12,742		)
Derivative instruments	(94,038		)	(193,067		)
Investment income items	(14,842		)	—
Other	(2,585		)	(718		)
Gross deferred tax liabilities	(2,125,386		)	(1,681,930		)
Net deferred income tax (liability) asset	$	(3,895	)	$	301,856

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. We have 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, 2014 and 2013.

There were no material income tax contingencies requiring recognition in our consolidated financial statements as of December 31, 2014. We are no longer subject to income tax examinations by tax authorities for years prior to 2010.

At December 31, 2014, we had non-life net operating loss carryforwards for federal income tax purposes totaling $28.1 million which expire beginning in 2018 through 2033.