The provision for income tax was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Current: | | | | | |
Federal | $ | 17,352 |
| | $ | (57,108 | ) | | $ | 1,148 |
|
Foreign | 17 |
| | — |
| | — |
|
Subtotal | 17,369 |
| | (57,108 | ) | | 1,148 |
|
Deferred: | | | | | |
Federal | (118,094 | ) | | 99,260 |
| | 840 |
|
Provision for income tax expense (benefit) | $ | (100,725 | ) | | $ | 42,152 |
| | $ | 1,988 |
|
The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Tax provision at U.S. statutory rate | $ | (17,129 | ) | | $ | 46,397 |
| | $ | 8,779 |
|
Tax effect of: | | | | | |
Rate revaluation due to tax reform (1) | (77,308 | ) | | — |
| | — |
|
Dividend received deduction | (5,159 | ) | | (4,732 | ) | | (5,589 | ) |
Prior year tax | (493 | ) | | 1,282 |
| | (624 | ) |
Tax credits | (636 | ) | | (797 | ) | | (580 | ) |
Other, net | — |
| | 2 |
| | 2 |
|
Provision for income tax expense (benefit) | $ | (100,725 | ) | | $ | 42,152 |
| | $ | 1,988 |
|
__________________
(1) For the year ended December 31, 2017, the Company recognized a $77.3 million benefit in net income from remeasurement of our net deferred tax liability in connection with the Tax Act discussed in Note 1. As the Company completes the analysis of data relevant to the Tax Act, as well as interpret any additional guidance issued by the Internal Revenue Service (“IRS”), U.S. Department of the Treasury, or other relevant organizations, it may make adjustments to these amounts.
Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In thousands) |
Deferred income tax assets: | | | |
Tax credit carryforwards | $ | 3,463 |
| | $ | 4,491 |
|
Net operating loss carryforwards | 3,661 |
| | — |
|
Other | 2,973 |
| | 2,206 |
|
Total deferred income tax assets | 10,097 |
| | 6,697 |
|
Deferred income tax liabilities: | | | |
Investments, including derivatives | 958 |
| | 1,102 |
|
Policyholder liabilities and receivables | 94,717 |
| | 210,814 |
|
Intangibles | 1,384 |
| | 1,850 |
|
Net unrealized investment gains | 7,875 |
| | 2,373 |
|
DAC | 17,661 |
| | 10,397 |
|
Total deferred income tax liabilities | 122,595 |
| | 226,536 |
|
Net deferred income tax asset (liability) | $ | (112,498 | ) | | $ | (219,839 | ) |
At December 31, 2017, the Company had net operating loss carryforwards of approximately $17.4 million and the Company had recorded a related deferred tax asset of $3.7 million which expires in years 2033-2037.
Tax credit carryforwards of $3.5 million at December 31, 2017 have an indefinite expiration date.
The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Balance at January 1, | $ | 1,204 |
| | $ | 983 |
| | $ | 983 |
|
Additions for tax positions of prior years | 49 |
| | 300 |
| | — |
|
Reductions for tax positions of prior years | (62 | ) | | (23 | ) | | — |
|
Additions for tax positions of current year | 169 |
| | 300 |
| | — |
|
Reductions for tax positions of current year | (318 | ) | | — |
| | — |
|
Settlements with tax authorities | (66 | ) | | (356 | ) | | — |
|
Balance at December 31, | $ | 976 |
| | $ | 1,204 |
| | $ | 983 |
|
Unrecognized tax benefits that, if recognized would impact the effective rate | $ | 976 |
| | $ | 1,130 |
| | $ | 909 |
|
The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties are included in income tax expense. Interest related to unrecognized tax benefits was not significant. The Company had no penalties for each of the years ended December 31, 2017, 2016 and 2015.
The Dividend Received Deduction (“DRD”) reduces the amount of dividend income subject to tax and is a significant component of the difference between the actual tax expense and expected amount determined using the federal statutory tax rate. The Tax Act has changed the DRD amount applicable to insurance companies to a 70% company share and a 50% dividend received deduction for eligible dividends.
For the years ended December 31, 2017, 2016 and 2015, the Company recognized an income tax benefit of $5.6 million, $3.9 million and $5.6 million, respectively, related to the separate account DRD. The 2017 benefit included an expense of $400 thousand related to a true-up of the 2016 tax return. The 2016 and 2015 benefit included a benefit of $900 thousand and $600 thousand related to a true-up of the 2015 and 2014 tax returns, respectively.
The Company is under continuous examination by the IRS and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to U.S. federal, state or local income tax examinations for years prior to 2007. Management believes it has established adequate tax liabilities, and final resolution of the audit for the years 2007 and forward is not expected to have a material impact on the Company’s financial statements.
Tax Sharing Agreements
For the periods prior to the Separation from MetLife, Brighthouse Life Insurance Company of NY will be included in a consolidated U.S. life and non-life federal income tax return in accordance with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Current taxes (and the benefits of tax attributes such as losses) are allocated to Brighthouse Life Insurance Company of NY under the consolidated tax return regulations and a tax sharing agreement with MetLife. This tax sharing agreement states that federal taxes will be computed on a separate return basis with benefits for losses.
Brighthouse Life Insurance Company and any directly owned life insurance and reinsurance company subsidiaries (including the Company and BRCD) entered in a tax sharing agreement to join a life consolidated federal income tax return. The tax sharing agreements state that federal taxes are generally allocated to the Company as if each entity were filing its own separate company tax return, except that net operating losses and certain other tax attributes are characterized as realized (or realizable) when those tax attributes are realized (or realizable) by the Company.
Related Party Income Tax Transactions
The Company also entered into a tax separation agreement with MetLife (the “Tax Separation Agreement”). Among other things, the Tax Separation Agreement governs the allocation between MetLife and us of the responsibility for the taxes of the MetLife group. The Tax Separation Agreement also allocates rights, obligations and responsibilities in connection with certain administrative matters relating to the preparation of tax returns and control of tax audits and other proceedings relating to taxes. In October 2017, MetLife paid $55.6 million to Brighthouse Life Insurance Company of NY under the Tax Separation Agreement. At December 31, 2017, a $958 thousand receivable related to this agreement is included in other assets.