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,
	2015			2014			2013
	(Dollars in thousands)
Consolidated statements of operations:
Current income taxes	$	75,568		$	116,545		$	133,036
Deferred income taxes (benefits)	41,916			(46,504		)	3,013
Total income tax expense included in consolidated statements of operations	117,484			70,041			136,049
Stockholders' equity:
Expense (benefit) relating to:
Change in net unrealized investment losses	(279,860		)	363,572			(344,944		)
Share-based compensation	(3,649		)	(5,716		)	(4,043		)
Extinguishment of convertible debt	—			(9,284		)	(4,546		)
Total income tax expense (benefit) included in consolidated financial statements	$	(166,025	)	$	418,613		$	(217,484	)

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,
	2015			2014			2013
	(Dollars in thousands)
Income before income taxes	$	337,314		$	196,064		$	389,332

Income tax expense on income before income taxes	$	118,060		$	68,622		$	136,266
Tax effect of:
Tax exempt net investment income	(3,834		)	(3,669		)	(2,657		)
Extinguishment of convertible debt	—			4,202			2,695
Other	3,258			886			(255		)
Income tax expense	$	117,484		$	70,041		$	136,049
Effective tax rate	34.8		%	35.7		%	34.9		%

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, 2015 and 2014, are as follows:



	December 31,
	2015			2014
	(Dollars in thousands)
Deferred income tax assets:
Policy benefit reserves	$	2,092,731		$	2,052,968
Other than temporary impairments	7,801			753
Derivative instruments	91,638			—
Amounts due reinsurer	—			680
Other policyholder funds	6,861			7,765
Litigation settlement accrual	7,100			7,100
Deferred compensation	8,346			10,565
Convertible senior notes	—			12,281
Net operating loss carryforwards	6,637			17,694
Other	13,317			11,685
Gross deferred tax assets	2,234,431			2,121,491
Deferred income tax liabilities:
Deferred policy acquisition costs and deferred sales inducements	(1,860,722		)	(1,637,607		)
Net unrealized gains on available for sale fixed maturity and equity securities	(96,454		)	(376,314		)
Derivative instruments	—			(94,038		)
Amounts due reinsurer	(9,677		)	—
Investment income items	(32,466		)	(14,842		)
Other	(2,429		)	(2,585		)
Gross deferred tax liabilities	(2,001,748		)	(2,125,386		)
Net deferred income tax (liability) asset	$	232,683		$	(3,895	)

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, 2015 and 2014.

There were no material income tax contingencies requiring recognition in our consolidated financial statements as of December 31, 2015. We are no longer subject to income tax examinations by tax authorities for years prior to 2011.

At December 31, 2015, we had non-life net operating loss carryforwards for federal income tax purposes totaling $1.4 million which expire beginning in 2034.