Income Taxes

We file consolidated federal income tax returns that include all of our wholly-owned subsidiaries. Our income tax expense as presented in the consolidated financial statements is summarized as follows:



	Year Ended December 31,
	2017			2016			2015
	(Dollars in thousands)
Consolidated statements of operations:
Current income taxes	$	188,356		$	57,412		$	75,568
Deferred income taxes (benefits)	(46,730		)	(10,408		)	41,916
Total income tax expense included in consolidated statements of operations	141,626			47,004			117,484
Stockholders' equity:
Expense (benefit) relating to:
Change in net unrealized investment losses	177,162			74,471			(279,860		)
Share-based compensation	—			(527		)	(3,649		)
Total income tax expense (benefit) included in consolidated financial statements	$	318,788		$	120,948		$	(166,025	)

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,
	2017			2016			2015
	(Dollars in thousands)
Income before income taxes	$	316,271		$	130,247		$	337,314

Income tax expense on income before income taxes	$	110,695		$	45,586		$	118,060
Tax effect of:
State income taxes	1,961			2,559			2,924
Tax exempt net investment income	(4,288		)	(2,167		)	(3,834		)
Impact of Tax Reform	35,932			—			—
Other	(2,674		)	1,026			334
Income tax expense	$	141,626		$	47,004		$	117,484
Effective tax rate	44.8		%	36.1		%	34.8		%

Tax Reform was enacted on December 22, 2017, reducing the statutory federal income tax rate from 35% to 21% effective January 1, 2018. The primary impact on our 2017 financial results is the reduction in the U.S. statutory tax rate from 35% to 21% on our deferred tax balances as of December 31, 2017.

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, 2017 and 2016, are as follows:



	December 31,
	2017			2016
	(Dollars in thousands)
Deferred income tax assets:
Policy benefit reserves	$	1,842,049		$	2,354,786
Other than temporary impairments	11,262			15,681
Amounts due reinsurer	6,852			1,321
Other policyholder funds	3,724			6,474
Deferred compensation	3,827			7,963
Share-based compensation	3,383			5,407
State net operating loss carryforwards	3,196			3,745
Other	10,253			11,367
Gross deferred tax assets	1,884,546			2,406,744
Deferred income tax liabilities:
Deferred policy acquisition costs and deferred sales inducements	(1,212,509		)	(1,951,333		)
Net unrealized gains on available for sale fixed maturity and equity securities	(220,533		)	(170,925		)
Derivative instruments	(179,776		)	(75,405		)
Policy benefit reserves	(197,233		)	—
Investment income items	(34,849		)	(39,118		)
Other	(1,499		)	(1,385		)
Gross deferred tax liabilities	(1,846,399		)	(2,238,166		)
Net deferred income tax asset	$	38,147		$	168,578

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, 2017 and 2016.

There were no material income tax contingencies requiring recognition in our consolidated financial statements as of December 31, 2017. We are no longer subject to income tax examinations by tax authorities for years prior to 2013.

At December 31, 2017, we have no non-life net operating loss carryforwards remaining for federal income tax purposes.