Entity information:
Note E - Income Taxes

Deferred income taxes are calculated to account for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:


  
2017
  
2016
 
Deferred tax liabilities:
      
   Unrealized gain on fixed income and equity security investments
 
$
15,086
  
$
18,335
 
   Deferred acquisition costs
  
1,804
   
874
 
   Loss and loss expense reserves
  
2,623
   
1,198
 
   Limited partnership investments
  
3,826
   
2,274
 
   Accelerated depreciation
  
492
   
1,037
 
   Other
  
1,791
   
1,251
 
      Total deferred tax liabilities
  
25,622
   
24,969
 
         
Deferred tax assets:
        
   Loss and loss expense reserves
  
6,761
   
9,467
 
   Unearned premiums discount
  
1,837
   
1,295
 
   Other-than-temporary investment declines
  
815
   
858
 
   Deferred compensation
  
885
   
1,097
 
   Deferred ceding commission
  
627
   
464
 
   Other
  
339
   
376
 
      Total deferred tax assets
  
11,264
   
13,557
 
         
      Net deferred tax liabilities
 
$
14,358
  
$
11,412
 


On December 22, 2017, the U.S. Tax Act was signed into law, which lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018.  As a result, the Company recorded a tax benefit of $9.6 million related to the re-measurement of its deferred tax assets and liabilities.  The IRS has not yet published all of the detailed regulations resulting from the enactment of the U.S. Tax Act; therefore we have not completed our accounting for the tax effects, but we have made a reasonable estimate of the effects on our existing deferred tax balances at December 31, 2017. We re-measured deferred tax assets and liabilities based on the rates at which they are expected to be utilized in the future, which is generally 21%. However, we are still analyzing certain aspects of the U.S. Tax Act and refining our calculations, which could potentially affect the measurement of those balances or give rise to new deferred tax amounts.
 
A summary of the difference between federal income tax expense computed at the statutory rate and that reported in the consolidated financial statements is as follows:


  
2017
  
2016
  
2015
 
 
         
Statutory federal income rate applied to pretax income
 
$
3,543
  
$
15,069
  
$
11,883
 
Tax effect of (deduction):
            
Tax-exempt investment income
  
(968
)
  
(938
)
  
(919
)
Change in enacted tax rates
  
(9,572
)
  
-
   
-
 
Other
  
(1,204
)
  
(22
)
  
(295
)
Federal income tax expense (benefit)
 
$
(8,201
)
 
$
14,109
  
$
10,669
 
 

Federal income tax expense (benefit) consists of the following:
    
  
2017
  
2016
  
2015
 
Taxes (benefit) on pre-tax income:
         
   Current
 
$
(4,335
)
 
$
11,271
  
$
12,488
 
   Deferred
  
(3,866
)
  
2,838
   
(1,819
)
  
$
(8,201
)
 
$
14,109
  
$
10,669
 
 

  
2017
  
2016
  
2015
 
Limited partnerships
 
$
4,099
  
$
503
  
$
(2,865
)
Discounts of loss and loss expense reserves
  
1,315
   
(114
)
  
1,526
 
Reserves - salvage and subrogation and other
  
56
   
(1,110
)
  
29
 
Unearned premium discount
  
(1,767
)
  
298
   
608
 
Deferred compensation
  
(168
)
  
595
   
(127
)
Other-than-temporary investment declines
  
(127
)
  
2,320
   
(1,416
)
Deferred acquisitions costs and ceding commission
  
1,553
   
(95
)
  
(287
)
Change in enacted tax rates
  
(9,572
)
  
-
   
-
 
Other
  
745
   
441
   
713
 
   Provision for deferred federal income tax
 
$
(3,866
)
 
$
2,838
  
$
(1,819
)
 
The Company is required to establish a valuation allowance for any portion of the gross deferred tax asset that management believes will not be realized.  Management has determined that no such valuation allowance is necessary at December 31, 2017 or 2016.  As of December 31, 2017, calendar years 2016, 2015 and 2014 remain subject to examination by the IRS.

The Company has no uncertain tax positions as of December 31, 2017 or 2016.  The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense and changes in such accruals would impact the Company's effective tax rate.  There were no amounts accrued for the payment of interest at December 31, 2017, 2016 and 2015.