Annual Report 2011 - SNL Financial

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Annual Report 2011 - SNL Financial

14. Income Taxes

The components of the consolidated income tax provision from continuing operations for the years ended December 31,

2011, 2010, and 2009 are as follows (in thousands):

2011 2010 2009

Current tax expense .............................................................. $2,829 $ 369 $1,596

Deferred tax (benefit) expense ..................................................... (393) 873 906

Income tax expense .......................................................... $2,436 $1,242 $2,502

The reconciliation of taxes computed at the statutory tax rate of 35.0% for the years ended December 31, 2011, 2010,

and 2009 to the consolidated income tax expense from continuing operations is as follows (in thousands):

2011 2010 2009

Income tax expense at statutory rate ................................................. $3,427 $1,460 $2,952

Tax-exempt interest .............................................................. (318) (403) (518)

Outside basis difference in foreign operations ......................................... (824) (130) (122)

Other ......................................................................... 151 315 190

Income tax expense .......................................................... $2,436 $1,242 $2,502

The income tax benefit of $824 recorded in 2011 is attributable to the fact that the Company has not recorded federal

income taxes associated with its foreign operations due to significant deficits in the Company’s foreign earnings and profits.

The significant components of the net deferred tax asset as of December 31, 2011 and 2010 are as follows (in

thousands):

2011 2010

Deferred tax assets:

Reserve discounting ................................................... $1,925 $2,244

Unearned/advance premiums ............................................ 3,110 2,948

Other-than-temporary investment impairments .............................. 56 1,869

Policyholder dividends ................................................. 705 518

Stock compensation expense ............................................ 1,160 943

Benefit plan liabilities ................................................. 668 251

Other ............................................................... 281 439

Total deferred tax assets ............................................ 7,905 9,212

Deferred tax liabilities:

Intangible assets ...................................................... 1,430 1,790

Unrealized gain on investments .......................................... 2,542 3,207

Deferred acquisition costs .............................................. 1,164 1,555

Basis difference in limited partnerships .................................... 246 717

Basis difference in foreign operations ..................................... 485 912

Other ............................................................... 270 310

Total deferred tax liabilities ......................................... 6,137 8,491

Net deferred tax asset .............................................. $1,768 $ 721

As of December 31, 2011, the net deferred tax asset of $1,768 has not been reduced by a valuation allowance because

management believes that, while it is not assured, it is more likely than not that the Company will generate sufficient future

taxable income to utilize these net future tax deductions. The amount of the net deferred tax asset considered realizable,

however, could be materially reduced in the near term if estimates of future taxable income in the years in which the

differences are expected to reverse are decreased.

As of December 31, 2011, the Company has not recognized any future tax benefit related to its foreign operations at

Eastern Re. The unrecognized tax benefit, which represents the excess of the tax basis over the amount for financial reporting

(i.e., outside basis difference) of Eastern Re, was $11,367 as of December 31, 2011. The outside basis difference primarily

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