5Income Taxes
The components of our income tax provision (benefit) were as follows:
| (millions) |  2009 |
2008 | 2007 | |||
|---|---|---|---|---|---|---|
| Current tax provision | $ | 491.0 | $ | 255.4 | $ | 503.7 |
| Deferred tax expense (benefit) | 8.4 | (407.7) | 6.8 | |||
| Total income tax provision (benefit) | $ | 499.4 | $ | (152.3) | $ | 510.5 |
The provision (benefit) for income taxes in the accompanying consolidated statements of income differed from the statutory rate as follows:
| ($ in millions) | 2009 |
2008 | 2007 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Income (loss) before income taxes | $ | 1,556.9 | $ | (222.3) | $ | 1,693.0 | |||
| Tax at statutory rate | $ | 544.9 | 35% | $ | (77.8) | 35% | $ | 592.6 | 35% |
| Tax effect of: | |||||||||
| Exempt interest income | (26.7) | (2) | (38.7) | 17 | (40.3) | (3) | |||
| Dividends received deduction | (17.9) | (1) | (35.0) | 16 | (35.4) | (2) | |||
| Other items, net | (.9) | — | (.8) | — | (6.4) | — | |||
| Total income tax provision (benefit) | $ | 499.4 | 32% | $ | (152.3) | 68% | $ | 510.5 | 30% |
Deferred income taxes reflect the effect for financial statement reporting purposes of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. At December 31, 2009 and 2008, the components of the net deferred tax assets were as follows:
| (millions) | 2009 |
2008 | ||
|---|---|---|---|---|
| Deferred tax assets: | ||||
| Write-downs on securities | $ | 353.8 | $ | 478.4 |
| Unearned premiums reserve | 290.5 | 291.4 | ||
| Non-deductible accruals | 158.5 | 150.0 | ||
| Loss reserves | 118.9 | 117.9 | ||
| Derivative instruments | 2.8 | — | ||
| Net unrealized losses on securities | — | 41.4 | ||
| Other | 1.4 | 10.0 | ||
| Deferred tax liabilities: | ||||
| Net unrealized gains on securities | (231.6) | — | ||
| Hedges on forecasted transactions | (11.6) | (13.4) | ||
| Deferred acquisition costs | (140.8) | (144.9) | ||
| Depreciable assets | (97.9) | (96.1) | ||
| Derivative instruments | — | (23.8) | ||
| Other | (24.0) | (17.6) | ||
| Net deferred tax assets | 420.0 | 793.3 | ||
| Net income taxes recoverable (payable) | (3.3) | 28.3 | ||
| Income taxes | $ | 416.7 | $ | 821.6 |
The decrease in our net deferred tax asset during the year is primarily due to the net unrealized gains that occurred in the investment portfolio. Although realization of the deferred tax asset is not assured, management believes that it is more likely than not that the deferred tax asset will be realized based on our expectation that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes.
Our IRS exams for 2004-2007 have been completed. Technically the statute of limitations for all of these years remains open (for 2004 and 2005 until June 30, 2010 due to a statute extension, and for 2006 and 2007 until three years from the date the returns were filed). However, since the audits of these years have been completed, we consider these years to be effectively settled.
We are currently under IRS examination for the 2008 and 2009 tax years under the Compliance Assurance Program (CAP). Under CAP, the IRS begins its examination process for the tax year before the tax return is filed, by examining significant transactions and events as they occur. The goal of the CAP program is to expedite the exam process and to reduce the level of uncertainty regarding a taxpayer’s tax filing positions.
We recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. We have not recorded any unrecognized tax benefits, or any related interest and penalties, as of December 31, 2009 or December 31, 2008. The 2009 tax provision includes an interest benefit (net of tax) of $0.3 million related to the settlement of the 2004-2007 IRS exams.