Income Taxes

12 Months Ended

Dec. 31, 2020

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,
	2020		2019		2018
	(Dollars in thousands)
Consolidated statements of operations:
Current income taxes	$	3,430	$	12,528	$	120,289
Deferred income taxes (benefits)	141,071		56,947		(12,563)
Total income tax expense included in consolidated statements of operations	144,501		69,475		107,726
Stockholders' equity:
Expense (benefit) relating to:
Adoption of expected credit loss model	(2,543)		—		—
Change in net unrealized investment losses	247,578		412,117		(240,459)


Total income tax expense (benefit) included in consolidated financial statements	$	389,536	$	481,592	$	(132,733)

Income tax expense in the consolidated statements of operations differed from the amount computed at the applicable statutory federal income tax rates of 21% for the years ended December 31, 2020, 2019, and 2018 as follows:


	Year Ended December 31,
	2020			2019			2018
	(Dollars in thousands)
Income before income taxes	$	815,961		$	315,565		$	565,742

Income tax expense on income before income taxes	$	171,352		$	66,269		$	118,806
Tax effect of:

State income taxes	5,749			5,111			5,777
Tax exempt net investment income	(4,602)			(4,385)			(4,223)
Tax rate differential on net operating loss carryback	(30,041)			—			—

Worthless stock deduction	—			—			(7,448)
Other	2,043			2,480			(5,186)
Income tax expense	$	144,501		$	69,475		$	107,726
Effective tax rate	17.7		%	22.0		%	19.0		%

The effective tax rate for the year ended December 31, 2020 was positively impacted by $30.0 million related to the provision of the CARES ACT which allowed net operating losses for 2018 through 2020 to be carried back to previous tax years in which a 35% statutory tax rate was in effect.

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, 2020 and 2019, are as follows:


	December 31,
	2020		2019
	(Dollars in thousands)
Deferred income tax assets:
Policy benefit reserves	$	1,463,227	$	1,733,672
Credit losses/Impairments	28,519		15,166



Amounts due reinsurer	—		8,784
Other policyholder funds	3,789		4,359

Deferred compensation	2,161		3,705
Share-based compensation	2,189		2,775

Net operating loss carryforwards	—		37,509
Other	3,569		14,677
Gross deferred tax assets	1,503,454		1,820,647
Deferred income tax liabilities:
Deferred policy acquisition costs and deferred sales inducements	(1,146,016)		(1,303,385)
Net unrealized gains on available for sale fixed maturity securities	(639,769)		(392,189)

Derivative instruments	(119,444)		(109,287)
Policy benefit reserves	(123,270)		(147,924)
Investment income items	(28,719)		(42,105)
Amounts due reinsurer	(5,636)		—
Other	(4,603)		(3,654)
Gross deferred tax liabilities	(2,067,457)		(1,998,544)
Net deferred income tax liability	$	(564,003)	$	(177,897)

Included in 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 and do not believe it would be necessary to liquidate these securities at a loss. In addition, we have the ability to sell fixed maturity securities in unrealized gain positions to offset realized deferred income tax assets attributable to unrealized losses on available for sale fixed maturity securities.

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, 2020 and 2019.

There were no material income tax contingencies requiring recognition in our consolidated financial statements as of December 31, 2020. We are no longer subject to income tax examinations by tax authorities for years 2016 and prior.

At December 31, 2020, we have no net operating loss carryforwards for federal income tax purposes.