Income Taxes
Income tax expense (benefit) consists of:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Current
Expense | | Deferred Expense (Benefit) | | Total |
| December 31, 2025 | | | | | |
| U.S. Federal | $ | 399,800 | | | $ | (16,709) | | | $ | 383,091 | |
| State & Local | 13,597 | | | (561) | | | 13,036 | |
| Foreign | 96,856 | | | 2,781 | | | 99,637 | |
| Total expense (benefit) | $ | 510,253 | | | $ | (14,489) | | | $ | 495,764 | |
| | | | | |
| December 31, 2024 | | | | | |
| Domestic | $ | 344,210 | | | $ | 51,754 | | | $ | 395,964 | |
| Foreign | 69,312 | | | 44,640 | | | 113,952 | |
| Total expense | $ | 413,522 | | | $ | 96,394 | | | $ | 509,916 | |
| | | | | |
| December 31, 2023 | | | | | |
| Domestic | $ | 352,891 | | | $ | (43,456) | | | $ | 309,435 | |
| Foreign | 44,372 | | | 16,750 | | | 61,122 | |
| Total expense (benefit) | $ | 397,263 | | | $ | (26,706) | | | $ | 370,557 | |
Income before income taxes from domestic operations was $1,881 million, $1,840 million and $1,430 million for the years ended December 31, 2025, 2024 and 2023, respectively. Income before income taxes from foreign operations was $400 million, $424 million and $324 million for the years ended December 31, 2025, 2024 and 2023, respectively.
A reconciliation of the income tax expense and the amounts computed by applying the Federal and foreign income tax rate of 21% for 2025, 2024 and 2023 to pre-tax income are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2025 | | % | | 2024 | | 2023 |
| U.S. Federal Statutory Tax Rate | | $ | 478,914 | | | 21.0 | % | | $ | 475,543 | | | $ | 368,425 | |
| State and Local Taxes, Net of Federal Benefit (1) | | 10,299 | | | 0.4 | % | | 12,329 | | | 12,271 | |
| Foreign Tax Effects | | 11,635 | | | 0.5 | % | | 19,317 | | | (1,896) | |
| Effect of Cross-Border Tax Laws | | (14,727) | | | (0.7) | % | | — | | | — | |
| Changes in Valuation Allowances | | 19,726 | | | 0.9 | % | | (220) | | | (10,883) | |
| Nontaxable or Nondeductible Items | | (10,083) | | | (0.4) | % | | 2,947 | | | 2,640 | |
| Total | | $ | 495,764 | | | 21.7 | % | | $ | 509,916 | | | $ | 370,557 | |
(1) State income taxes in Florida and Illinois made up the majority (greater than 50%) of the tax effect in this category.
At December 31, 2025 and 2024, the tax effects of differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows: | | | | | | | | | | | |
| (In thousands) | 2025 | | 2024 |
| Deferred tax asset: | | | |
| Loss reserve discounting | $ | 253,980 | | | $ | 218,222 | |
| Unearned premiums | 228,752 | | | 216,721 | |
| Unrealized investment losses | — | | | 58,701 | |
| Net operating losses & foreign tax credits | 77,810 | | | 62,159 | |
| Other-than-temporary impairments | 5,006 | | | 7,149 | |
| Employee compensation plans | 83,034 | | | 70,529 | |
| Other | 82,948 | | | 81,915 | |
| Gross deferred tax asset | 731,530 | | | 715,396 | |
| Less valuation allowance | (55,789) | | | (36,063) | |
| Deferred tax asset | 675,741 | | | 679,333 | |
| Deferred tax liability: | | | |
| Amortization of intangibles | 15,541 | | | 15,124 | |
| Unrealized investment gains | 41,641 | | | — | |
| Deferred policy acquisition costs | 204,979 | | | 195,150 | |
| | | |
| Property, furniture and equipment | 61,479 | | | 45,276 | |
| Investment funds | 229,694 | | | 184,899 | |
| Other | 80,784 | | | 83,818 | |
| Deferred tax liability | 634,118 | | | 524,267 | |
| Net deferred tax asset | $ | 41,623 | | | $ | 155,066 | |
The Company had a net current tax payable of $81 million and $14 million at December 31, 2025 and 2024, respectively. At December 31, 2025, the Company had foreign net operating loss carryforwards of $179 million that have no expiration date. At December 31, 2025, the Company had a valuation allowance of $56 million. The Company has provided a valuation allowance against the utilization of $33 million of foreign tax credits and the future net operating loss carryforward benefits of $23 million for certain foreign operations. The statute of limitations for the Company’s U.S. Federal income tax returns has closed for all years through December 31, 2021.
The realization of the deferred tax asset is dependent upon the Company’s ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future current operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of this asset.
The Company has not provided U.S. deferred income taxes on the undistributed earnings of approximately $585 million of its non-U.S. subsidiaries since these earnings are intended to be permanently reinvested in the non-U.S. subsidiaries. In the future, if such earnings were distributed the Company projects that the incremental tax, if any, will be immaterial.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.