THG 2018 Annual Report

7KH IROORZLQJ DUH WKH FRPSRQHQWV RI WKH &RPSDQ\¶V GHIHUUHG WD[ DVVHWV DQG OLDELOLWLHV H[FOXGLQJ WKRVH DVVRFLDWHG ZLWK LWV G iscontinued operations.) DECEMBER 31 2018 2017 (in millions) Loss, LAE and unearned premium reserves, net $ 129.8 $ 115.7 Employee benefit plans 14.5 18.7 Tax credit carryforwards ² 23.1 Investments, net 4.1 ² Other 16.3 11.5 164.7 169.0 Less: Valuation allowance 0.2 0.2 164.5 168.8 Deferred tax liabilities: Deferred acquisition costs 95.0 90.2 Investments, net ² 41.8 Software capitalization 18.3 18.0 Other 0.6 1.8 113.9 151.8 Net deferred tax asset $ 50.6 $ 17.0 Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be realized. The Company believes it is more likely than not that the deferred tax assets will be realized. In prior years, the Company completed several transactions which resulted in, for tax purposes only, realized gains in its investment portfolio. As a result of these transactions, the Company was able to utilize capital losses carried forward and to release the valuation allowance recorded against the deferred tax asset related to these losses. The releases of valuation allowances were recorded as a benefit in accumulated other comprehensive income. Previously unrealized benefits of $9.2 million, $12.7 million and $20.7 million, are recognized as part of income from continuing operations during 2018, 2017 and 2016, respectively. The remaining amount of $35.6 million in accumulated other comprehensive income will be released into income from continuing operations in future years, as the investment securities subject to these transactions are sold or mature. The table below provides a reconciliation of the beginning and ending liability for uncertain tax positions as follows: YEARS ENDED DECEMBER 31 2018 2017 2016 (in millions) Liability at beginning of year, net $ 3.0 $ 2.7 $ 3.0 Additions for tax positions of current year ² 0.9 0.4 Subtractions as a result of a lapse of the applicable statute of limitations ² (0.6) (0.7) Liability at end of year, net $ 3.0 $ 3.0 $ 2.7 There are no tax positions at December 31, 2018, 2017 and 2016 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, a change in the timing of deductions would not impact the annual effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits in federal income tax expense. For the years ended December 31, 2018, 2017 and 2016 the Company recognized a de minimis amount of net interest and has not recognized any penalties associated with unrecognized tax benefits. In 2019, the Company is expecting to release $1.7 million of liability due to the expiration of a statute of limitations. 104 THE HANOVER INSURANCE GROUP | 2018 ANNUAL REPORT