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continues to evaluate the permanent investment of foreign earnings for additional jurisdictions. 

Shareholders’ net income for the year ended December 31, 2012 increased by $37 million related to this method of providing for income taxes including $13 million attributable to the first quarter implementation of this method for the Company’s China and Indonesia operations. Permanent investment of foreign operation earnings has resulted in cumulative unrecognized deferred tax liabilities of $116 million through December 31, 2012. The year-to-date change in the cumulative unrecognized deferred tax 

## B. Deferred Income Taxes 

Deferred income tax assets and liabilities as of December 31 are shown below. 

liability includes an increase of $10 million associated with unrecorded deferred tax liabilities reported through other comprehensive income. 

## Change in Valuation Allowance 

The significant decline in the 2010 valuation allowance primarily reflects the resolution of a disputed federal income tax matter specific to the run-off reinsurance operations. 

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Management believes consolidated taxable income expected to be generated in the future will be sufficient to support realization of the Company’s net deferred tax assets. This determination is based upon the Company’s consistent overall earnings history and future earnings expectations. Other than deferred tax benefits attributable to operating loss carryforwards, there are no time constraints within which the Company’s deferred tax assets must be realized. 

## C. Uncertain Tax Positions 

A reconciliation of unrecognized tax benefits for the years ended December 31 is as follows: 

The Company’s deferred tax asset is net of federal, state, and foreign valuation allowances. The foreign valuation allowance was initially recorded in connection with the Company’s 2011 acquisition of FirstAssist, for which there was a year over year decline of $7 million. This reduction did not impact shareholder’s net income. The valuation allowance reflects management’s assessment that certain deferred tax assets may not be realizable. 

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