Verisk Analytics, Inc. (VRSK) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our historical financial statements and the related notes included elsewhere in this annual report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors, including but not limited to those listed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” New risks and uncertainties come up from time to time, and it is impossible to predict these events or how they may affect us. We have no obligation to update any forward-looking statements after the date hereof, except as required by applicable federal securities law. This discussion includes a comparison of our results of operations, liquidity and capital resources, financing and financing capacity and cash flow for the years ended December 31, 2023 and 2022.

We are a leading data analytics provider serving clients in the insurance markets. Using advanced technologies to collect and analyze billions of records, we draw on unique data assets and deep domain expertise to provide innovations that may be integrated into client workflows. We offer predictive analytics and decision support solutions to clients in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, and many other fields. In the U.S., and around the world, we help clients protect people, property, and financial assets. Refer to Item 1. Business for further discussion.

Our clients use our solutions to make better decisions about risk and opportunities with greater efficiency and discipline. We refer to these products and services as “solutions” due to the integration among our services and the flexibility that enables our clients to purchase components or the comprehensive package. These solutions take various forms, including data, statistical models, or tailored analytics, all designed to allow our clients to make more logical decisions. We believe our solutions for analyzing risk positively impact our clients’ revenues and help them better manage their costs.

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Executive Summary

Key Performance Metrics

Revenue growth. We use year-over-year revenue growth as a key performance metric. We assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers, sales to new customers, sales of new or expanded solutions to existing and new customers, and strategic acquisitions of new businesses.

We use year-over-year EBITDA growth as metrics to measure our performance. EBITDA and EBITDA margin are non-GAAP financial measures. EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization of fixed and intangible assets. We calculate EBITDA margin as EBITDA divided by revenues. The respective nearest applicable GAAP financial measures are net income and net income margin. Although EBITDA is a non-GAAP financial measure, EBITDA is frequently used by securities analysts, lenders, and others in their evaluation of companies; EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our operating income, net income, or cash flow from operating activities reported under GAAP. Management uses EBITDA and EBITDA margin in conjunction with traditional GAAP operating performance measures as part of its overall assessment company performance. We believe these measures are useful and meaningful because they help us allocate resources, make business decisions, allow for greater transparency regarding our operating performance, and facilitate period-to-period comparisons. Some of these limitations involved in the use of EBITDA are:

• EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments.

• EBITDA does not reflect changes in, or cash requirements for, our working capital needs.

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements.

• Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

EBITDA growth. We use EBITDA growth as a measure of our ability to balance the size of revenue growth with cost management and investing for future growth. EBITDA growth allows for greater transparency regarding our operating performance and facilitate period-to-period comparison.

EBITDA margin. We use EBITDA margin as a performance measure to assess segment performance and scalability of our business. We assess EBITDA margin based on our ability to increase revenues while controlling expense growth.

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Revenues

We earn revenues through agreements for hosted subscriptions, advisory/consulting services, and for transactional solutions, recurring and non-recurring. Subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year and automatically renewed each year. As a result, the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. Examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language, our claims fraud database, or our actuarial services throughout the subscription period. In general, we experience minimal revenue seasonality within the business. Approximately 80% and 81% of the revenues in our Insurance segment for the years ended December 31, 2023 and 2022 were derived from hosted subscriptions through agreements (generally one to five years) for our solutions, respectively.

We also provide advisory/consulting services, which help our customers get more value out of our analytics and their subscriptions. In addition, certain of our solutions are paid for by our customers on a transactional basis, recurring and non-recurring. For example, we have solutions that allow our customers to access property-specific rating and underwriting information to price a policy on a commercial building, or compare a P&C insurance or a workers' compensation claim with information in our databases, or use our repair cost estimation solutions on a case-by-case basis. For the years ended December 31, 2023 and 2022, approximately 20% and 19% of our consolidated revenues were derived from providing transactional and advisory/consulting solutions, respectively.

Principal Operating Costs and Expenses

Personnel expenses are a major component of both our cost of revenues and selling, general and administrative expenses. Personnel expenses, which represented approximately 57% and 59% of ourtotal operating expenses (excluding gains/losses related to dispositions) for each of the years ended December 31, 2023 and 2022, respectively, include salaries, benefits, incentive compensation, equity compensation costs, sales commissions, employment taxes, recruiting costs, and outsourced temporary agency costs.

We assign personnel expenses between two categories, cost of revenues and selling, general and administrative costs, based on the actual costs associated with each employee. We categorize employees who maintain our solutions as cost of revenues, and all other personnel, including executive managers, salespeople, marketing, business development, finance, legal, human resources, and administrative services, as selling, general and administrative expenses. A significant portion of our other operating costs, such as facilities and communications, are either captured within cost of revenues or selling, general and administrative expense based on the nature of the work being performed.

While we expect to grow our headcount over time to take advantage of our market opportunities, we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues. Historically, our EBITDA margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses. However, part of our corporate strategy is to invest in new solutions and new businesses, which may offset margin expansion.

Cost of Revenues. Our cost of revenues consists primarily of personnel expenses. Cost of revenues also includes the expenses associated with the acquisition and verification of data, the maintenance of our existing solutions, and the development and enhancement of our next-generation solutions. Our cost of revenues excludes depreciation and amortization.

Selling, General and Administrative Expense. Our selling, general and administrative expense also consists primarily of personnel costs. A portion of the other operating costs such as facilities, insurance, and communications are allocated to selling, general and administrative costs based on the nature of the work being performed by the employee. Our selling, general and administrative expenses exclude depreciation and amortization.

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Trends Affecting Our Business

A significant change in P&C insurers’ profitability could affect the demand for our solutions. For insurers, the keys to profitability include increasing investment income, premium growth and disciplined and accurate underwriting of risks. Growth in P&C insurers’ direct written premiums has been cyclical, with total industry premium growth receding from a peak of 14.8% in 2002 to a trough of negative 3.1% in 2009 and subsequently recovering to 5.1% in 2019. In 2020, industry premium growth declined to 2.3% due to the COVID-19 pandemic. Direct premium growth accelerated to 9.5% in 2021 and 9.7% in 2022 indicating a recovery from the pandemic. Based on the most recent results available, direct written premiums continued to grow in 2023 on comparable level. In 2023, the main economic indicators stabilized, inflation began to fall, and the federal interest rate increases stopped mid-year. Despite high interest rates in 2023, the annualized yield on investments (not attributable to cash transfers from outside the P/C industry) was 3.0% as of nine-months 2023, down from the 3.3% yield for year-end 2022. Both recent results are lower than the historical 15-year average of 3.4%, showing that yields have yet to follow the trend in interest rates.

The trend of high catastrophic losses incurred by insurers that began in 2020, continued into 2023 – a time during which  the estimated sum of losses from events that ISO's Property Claims Service had classified as catastrophes remains above the 10- and 20-year averages. The catastrophes of 2020 included Hurricane Laura and the Midwest derecho, as well as multiple wildfires in the Western states.  The most notable events of 2021 included the winter storm in February that left much of Texas without power and Hurricane Ida in August. Calendar year 2022 was marked by Hurricane Ian in September, the deadliest hurricane to strike Florida since 1935. All three of these hurricanes - Laura, Ida, and Ian - are among the strongest hurricanes to ever make landfall in the United States. While 2023 did not bring any high-loss large catastrophes, it is worth noting that the losses incurred by insurers during the tornado season from March to June were record-breaking in the history of ISO's Property Claims Service measurements. The upward trend in the number of disasters recorded by ISO's Property Claims Service continues in 2023 - the average increase in the number of disasters was 14% over the last 5 years. In Florida specifically, the high overall claim risk, as evidenced by Ian, combined with the litigious environment in the state poses an even greater risk to insurers who have faced two consecutive years with significant net underwriting losses. In California, the Department of Insurance enacted regulations for wildfire mitigation discounts in rating plans and wildfire risk models in response to an insurance affordability crisis in wildfire prone areas. We continue to provide the necessary coverages and data and analytics to meet the changing needs of communities, regulators and insurers as illustrated by these events.

In response to rising inflation, carriers are working to reset pricing to fix loss ratios and improve profitability. This has slowed their marketing spend for customer acquisition. Until premium pricing adjustments take effect and profitability improves, carriers are refraining from spending to drive new policy volume, creating short term impacts on demand and volume for our Marketing Solutions offerings and auto underwriting solutions.

Trends in catastrophe and non-catastrophe losses (such as from weather, climate, casualty, terrorism, pandemics, and tsunamis) can have an effect on our customers’ profitability, and therefore on their appetite for buying analytics to help them manage their risks. Any increase or decrease in frequency or severity of these events over time could lead to an increased or decreased demand for our catastrophe modeling, catastrophe loss information, and repair cost solutions. Likewise, any structural changes in the reinsurance and related brokerage industry from alternative capital or newer technologies could affect demand for our products. We also have a portion of our revenue related to the number of claims processed due to losses, which can be impacted by seasonal storm activity. The need by our customers to fight insurance fraud - both in claims and at policy inception - could lead to increased demand for our underwriting and claims solutions.

In the life insurance market, carriers are looking to modernize and digitize their core platforms, as well as offer streamlined underwriting decision-making process to expand the number of policies, which can be offered more rapidly, and without cumbersome medical tests. Our no-code modular technology stack and advanced analytics (such as using electronic health records to model mortality and detecting of tobacco use through voice analysis) enable the digital transformation of our customers' core infrastructure and automate their decision-making processes across the policy lifecycle.

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Description of Acquisitions

We acquired 13 businesses since January 1, 2021. These acquisitions affect the comparability of our consolidated results of operations between periods. See a description of our 2023 acquisitions below and Note 10. Acquisitions to our consolidated financial statements included in this annual report on Form 10-K for further discussions.

On April 20, 2023, we acquired Krug Sachverständigen GmbH ("Krug") for a net cash purchase price of approximately $43.3 million including working capital adjustments, of which $3.8 million represents indemnity escrows. Krug is a Germany-based motor claims solutions provider and has established an industry-leading position in the German insurance market through highly digitalized solutions that help insurers and car manufacturers achieve better and faster customer service, leading to sustainable reductions in costs. The acquisition expands our claims and casualty offerings across Europe. Krug has become a part of our claims category within our Insurance segment.

On February 1, 2023, we acquired 100 percent of the stock of Mavera Holding AB ("Mavera") for a net cash purchase price of $28.3 million, of which $4.2 million represents indemnity escrows. Mavera, a Sweden-based InsurTech firm with a regional presence and established customer base for its personal injury claims management platform, has become a part of the claims category within our Insurance segment. We expect that Mavera will support our expansion in continental Europe and our continued growth as a technology and analytics partner to the global insurance industry.

Description of Discontinued Operations

See a description of our 2023 disposition below and within Note 11. Dispositions and Discontinued Operations to our consolidated financial statements included in this annual report on Form 10-K for further discussions.

On February 1, 2023, we completed the sale of our Energy business to Planet Jersey Buyer Ltd, an entity that was formed on behalf of, and is controlled by, The Veritas Capital Fund VIII, L.P. and its affiliated funds and entities (“Veritas Capital”), for a net cash sale price of $3,066.4 million paid at closing (reflecting a base purchase price of $3,100.0 million, subject to customary purchase price adjustments for, among other things, the cash, working capital, and indebtedness of the companies as of the closing) and up to $200.0 million of additional contingent cash consideration based on Veritas Capital’s future return on its investment paid through a Class C Partnership interest.

The Energy business, which was part of our Energy and Specialized Markets segment, was classified as discontinued operations per ASC 205-20 as we determined, qualitatively and quantitatively, that this transaction represented a strategic shift that had a major effect on our operations and financial results. Accordingly, all results of the Energy business have been removed from continuing operations and presented as discontinued operations in our consolidated statements of operations for all periods presented. Additionally, all assets and liabilities of the Energy business were classified as assets and liabilities held for sale within our consolidated balance sheet as of December 31, 2022. In connection with the held for sale classification, we recognized an impairment of $303.7 million on the remeasurement of the disposal group held for sale, which has been included in discontinued operations in our consolidated statement of operations. Upon classification of the Energy business as held for sale, its cumulative foreign currency translation adjustment within shareholders’ equity was included with its carrying value, which primarily resulted in the impairment. When we closed on and completed the sale of our Energy business on February 1, 2023, we recognized a loss of $128.4 million. As a result of closing adjustments in the second and fourth quarter of 2023, we incurred an additional net loss of $2.7 million.

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Consolidated Results of Continuing Operations

Revenues

Revenues were $2,681.4 million for the year ended December 31, 2023 compared to $2,497.0 million for the year ended December 31, 2022, an increase of $184.4 million or 7.4%. The growth in our revenues was partially offset by the sale of 3E and our Financial Services segment, both of which did not qualify as discontinued operations and as a result, their prior year revenues of $60.0 million were included in our results. Our recent acquisitions (Morning Data within the underwriting category of our Insurance segment; and Mavera and Krug within the claims category of the Insurance segment increased net revenues by $32.4 million. The remaining growth in revenues of $212.0 million or 8.7% is related to increased revenues within our Insurance segment. Refer to the Results of Operations by Segment within this section for more information regarding our revenues. Our Specialized Market business was sold in March 2022; and our Energy business, which qualified for discontinued operations in the fourth quarter of 2022, was subsequently sold in February 2023. Our Financial Services segment was sold in April 2022. Our Energy and Specialized Markets and Financial Services segments did not have revenues from continuing operations in 2023.

Cost of Revenues

Cost of revenues was $876.5 million for the year ended December 31, 2023 compared to $824.6 million for the year ended December 31, 2022, an increase of $51.9 million or 6.3%. Our recent acquisitions and dispositions accounted for a net decrease of $16.5 million in cost of revenues, which was primarily related to salaries and employee benefits. The cost of revenues increase of $68.4 million or 8.7% was primarily due to increases in salaries and employee benefits of $51.0 million, rent expense of $6.6 million, bad debt expense of $3.8 million, travel expenses of $3.6 million, data costs of $1.8 million, and other operating costs of $3.9 million. These increases were partially offset by decreases in information technology expenses of $2.1 million and professional consulting fees $0.2 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SGA") were $391.8 million for the year ended December 31, 2023 compared to $381.5 million for the year ended December 31, 2022, an increase of $10.3 million or 2.7%. Our recent acquisitions, primarily related to salaries and benefits of $24.5 million, contributed to the increase, offset by our recent dispositions and acquisition-related earn out costs, which accounted for decreases of $34.1 million and $16.5 million, respectively. The remaining SGA increase of $36.4 million or 10.0% was primarily due to a litigation reserve expense of $38.2 million associated with an indemnification of an ongoing inquiry related to our former Financial Services segment, increases in travel expenses of $3.9 million, professional consulting fees (mostly related to ERP costs) of $3.4 million, information technology expenses of $0.6 million, and other operating costs of $0.9 million, partially offset by a decrease in salaries and employee benefits of $10.6 million.

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Depreciation and Amortization of Fixed Assets

Depreciation and amortization of fixed assets was $206.8 million for the year ended December 31, 2023 compared to $164.2 million for the year ended December 31, 2022, an increase of $42.6 million or 25.9%. The increase was primarily driven by $44.6 million of depreciation and amortization expense attributed to an increase in assets placed into service to support revenue growth and recent acquisitions of $0.2 million, partially offset by $2.2 million related to recent dispositions. The increase in assets placed into service in 2023 primarily resulted from the timing of certain large internally developed software projects that were completed and placed into service during the year.

Amortization of Intangible Assets

Amortization of intangible assets was $74.6 million for the year ended December 31, 2023 compared to $74.4 million for the year ended December 31, 2022, an increase of $0.2 million or 0.3%. The increase was primarily driven by recent acquisitions of $3.7 million, partially offset by our recent dispositions of $3.5 million.

Other Operating Income

Other operating income was $0.0 million for the year ended December 31, 2023 compared to $354.2 million for the year ended December 31, 2022. The gain in the prior year was primarily driven by the sale of 3E and Financial Services segment recognized in the prior year.

Investment Income (Loss) and Others, Net

Investment income (loss) and others, net was a gain of $11.0 million for the year ended December 31, 2023 compared to a loss of $5.3 million for the year ended December 31, 2022. The increase was primarily due to impact of foreign currencies.

Interest Expense, net

Interest expense was $115.5 million for the year ended December 31, 2023 compared to $138.8 million for the year ended December 31, 2022, a decrease of $23.3 million or 16.8%. The decrease in interest expense was primarily due to the paydown in the current year of our outstanding borrowings on our Syndicated Revolving and Bilateral credit facilities, and an increase in interest income of $15.8 million, partially offset by interest expense related to the issuance of our 2033 Senior Notes.

Provision for Income Taxes

The provision for income taxes was $258.8 million for the year ended December 31, 2023 compared to $220.3 million for the year ended December 31, 2022. The effective tax rate was 25.2% for the year ended December 31, 2023 compared to 17.5% for the year ended December 31, 2022. The increase in the effective tax rate in 2023 compared to 2022 was primarily due to tax rate benefits in 2022 related to the sale of 3E and a release of a United Kingdom valuation allowance associated with interest expense utilization. In addition, the tax rate for 2023 was higher than the prior year due to tax charges incurred in structuring the Energy sale in the first quarter and the unfavorable impact of the litigation reserve expense, described above, that is anticipated to be mostly non-deductible.

Net Income Margin

The net income margin for our consolidated results was 22.9% for the year ended December 31, 2023 compared to 38.2% for the year ended December 31, 2022. The decrease in net income margin was primarily driven by the net gain from dispositions in the prior year, as well as the current year litigation reserve expense described above.

EBITDA Margin [1]

The EBITDA margin for our consolidated results was 53.1% for the year ended December 31, 2023 compared to 65.7% for the year ended December 31, 2022. The decrease in EBITDA margin was primarily related to dispositions in the prior year, as well as the current year litigation reserve expense described above.

[1] Note: Consolidated EBITDA margin, a non-GAAP measure, is calculated as a percentage of consolidated revenue. A reconciliation from net income to EBITDA is in the table below:

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Results of Continuing Operations by Segment

Insurance

Revenues

Revenues were $2,681.4 million for the year ended December 31, 2023 compared to $2,437.0 million for the year ended December 31, 2022, an increase of $244.4 million or 10.0%. Our underwriting revenues increased $158.2 million or 9.1%. Our claims revenues increased $86.2 million or 12.3%.

Our recent acquisitions (Morning Data within the underwriting category of our Insurance segment; and Mavera and Krug within the claims category of the Insurance segment) contributed net revenues of $32.4 million, while the remaining Insurance revenues increased $212.0 million or 8.7%. Our underwriting revenues increased $146.6 million or 8.5% primarily due to an annual increase in prices derived from continued enhancements to the content of the solutions within our forms, rules and loss cost services as well as selling expanded solutions to new and existing customers within underwriting solutions. In addition, extreme events, life insurance, and specialty business solutions contributed to the growth. Our claims revenues increased $65.4 million or 9.3%, primarily due to growth in property estimating solutions and anti-fraud solutions.

Cost of Revenues

Cost of revenues for our Insurance segment was $876.5 million for the year ended December 31, 2023 compared to $781.9 million for the year ended December 31, 2022, an increase of $94.6 million or 12.1%. Our recent acquisitions and dispositions represented a net increase of $26.2 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining increase in cost of revenues of $68.4 million or 8.7% was primarily due to increases in salaries and employee benefits of $51.0 million, which was primarily driven by increase in rent expenses of $6.6 million, bad debt expenses of $3.8 million, travel expenses of $3.6 million, data costs of $1.8 million, and other operating costs of $3.9. These increases were partially offset by decreases in information technology expenses of $2.1 million and professional consulting fees of $0.2 million.

Selling, General and Administrative Expenses

SGA expenses for our Insurance segment were $391.8 million for the year ended December 31, 2023 compared to $347.4 million for the year ended December 31, 2022, an increase of $44.4 million or 12.8%. Our recent acquisitions and dispositions accounted for an increase of $24.5 million primarily related to salaries and employee benefits, partially offset by acquisition-related earn-out costs of $16.5 million. The remaining increase in SGA of $36.4 million or 10.0% was primarily due to a litigation reserve expense of $38.2 million associated with an indemnification of an ongoing inquiry related to our former Financial Services segment, increases in travel expenses of $3.9 million, professional consulting fees (mostly related to ERP costs) of $3.4 million, information technology expenses of $0.6 million, and other operating costs of $0.9 million, partially offset by a decrease in salaries and employee benefits of $10.6 million.

Investment Income (Loss) and Others, Net

Investment income (loss) and others, net was a gain of $11.0 million for the year ended December 31, 2023 compared to a loss of $4.7 million for the year ended December 31, 2022. The increase was primarily due to impact of foreign currencies.

EBITDA

EBITDA for our Insurance segment was $1,424.1 million for the year ended December 31, 2023 compared to $1,303.0 million for the year ended December 31, 2022. The EBITDA margin for our Insurance segment was 53.1% for the year ended December 31, 2023 compared to 53.5% for the year ended December 31, 2022.

Energy and Specializes Markets and Financial Segments

On March 11, 2022, we completed the sale of 3E, which made up the Specialized Markets within this segment. On February 1, 2023, we completed the sale of our Energy business.

On April 8, 2022, we completed the sale of our Financial Services segment.

As a result of these sale transactions, we have excluded the Energy and Specialized Markets and Financial Services segments from our management's discussion and analysis of the results of operations by segment.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Consolidated Results of Continuing Operations

Revenues

Revenues were $2,497.0 million for the year ended December 31, 2022 compared to $2,462.5 million for the year ended December 31, 2021, an increase of $34.5 million or 1.4%. Our recent acquisitions (Data Driven Safety, LLC, Infutor Data Solutions, LLC, and Opta Information Intelligence Corp. within the underwriting category of the Insurance segment, ACTINEO GmbH, Automated Insurance Solutions Ltd. and Pruvan Inc., within the claims category of the Insurance segment) and dispositions (the Specialized Markets segment and the Financial Services segment) reduced net revenues by $93.8 million. The remaining growth in consolidated revenues of $128.3 million or 5.8% is related to increased revenues within our Insurance segment. Refer to the Results of Operations by Segment within this section for more information regarding our revenues.

Cost of Revenue

Cost of revenues was $824.6 million for the year ended December 31, 2022 compared to $853.7 million for the year ended December 31, 2021, a decrease of $29.1 million or 3.4%. Our recent acquisitions and dispositions accounted for a net decrease of $54.9 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining cost of revenues of $25.8 million or 3.6% was primarily due to increases in salaries and employee benefits of $15.0 million, information technology expenses of $13.6 million and travel expenses of $3.5 million. These increases were partially offset by decreases in data costs of $4.7 million, professional consulting fees of $0.9 million and other operating cost of $0.7 million.

Selling, General and Administrative Expenses

SGA were $381.5 million for the year ended December 31, 2022 compared to $313.2 million for the year ended December 31, 2021, an increase of $68.3 million or 21.8%. Our recent acquisitions and dispositions accounted for an increase of $13.7 million in SGA primarily related to salaries and employee benefits. Our acquisition-related costs (earn-outs) accounted for a decrease of $3.6 million (See Note 10. Acquisitions to our consolidated financial statements included in this annual report on Form 10-K). The remaining SGA increase of $58.2 million or 21.3% was primarily due to increases in professional consulting costs of $49.2 million, travel expenses of $4.6 million, salaries and employee benefits of $4.2 million and information technology expenses of $0.4 million. The increase in professional consulting costs is primarily due to the release of the previously established Xactware Solutions Patent Litigation's ("EVT Litigation Reserve") reserve once the final payment was made in the fourth quarter of 2021 (the original accrual for this matter was recorded as part of SGA). These increases were partially offset by decreases of other operating costs of $0.2 million.

Depreciation and Amortization of Fixed Assets

Depreciation and amortization of fixed assets was $164.2 million for the year ended December 31, 2022 compared to $170.3 million for the year ended December 31, 2021, a decrease of $6.1 million or 3.6%. The decrease was primarily driven by recent dispositions of $20.5 million, partially offset by $13.1 million attributed to assets placed into service to support data capacity expansion and revenue growth and $1.3 million related to recent acquisitions.

Amortization of Intangible Assets

Amortization of intangible assets was $74.4 million for the year ended December 31, 2022 compared to $79.9 million for the year ended December 31, 2021, a decrease of $5.5 million or 6.9%. The decrease was primarily driven by recent dispositions of $20.1 million, and intangible assets that were fully amortized of $8.6 million, partially offset by additional amortization of intangible assets incurred in connection with our recent acquisitions of $23.2 million.

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Other Operating (Income) Loss

Other operating (income) loss was a gain of $354.2 million for the year ended  December 31, 2022 compared to a loss of $134.0 million for the year ended December 31, 2021. This increase of $488.2 million was primarily related to the net gain from our dispositions within our former Energy and Specialized Markets and Verisk Financial Services segments.

Investment (Loss) Income and Others, Net

Investment (loss) income and others, net was a loss of $5.3 million for the year ended December 31, 2022 compared to a gain of $2.1 million for the year ended December 31, 2021. The decrease was primarily due to impact of foreign currencies.

Interest Expense, net

Interest expense was $138.8 million for the year ended December 31, 2022 compared to $127.0 million for the year ended December 31, 2021, an increase of $11.8 million or 9.3%. The increase in interest expense was primarily due to increased borrowings and higher interest rates on our Syndicated Credit Facility, and the addition of a Bilateral Term Loan Credit Facility during the first quarter of 2022, partially offset by the maturity of our 4.125% senior notes.

Provision for Income Taxes

The provision for income taxes was $220.3 million for the year ended December 31, 2022 compared to $179.4 million for the year ended December 31, 2021, an increase of $40.9 million or 22.8%. The effective tax rate was 17.5% for the year ended December 31, 2022 compared to 22.8% for the year ended December 31, 2021. The decrease in the effective tax rate in 2022 compared to 2021 was primarily due to a tax rate benefit in connection with the sale of 3E for which a benefit was recognized for the difference between book and tax basis of our investment. The 2022 rate was also lower than 2021 due to a $30.3 million release of a United Kingdom valuation allowance related to interest expense utilization and a reduced Global Intangible Low Taxed Income ("GILTI") inclusion in the current period versus the prior period, partially offset by reduced stock option exercises resulting in lower tax benefits from equity compensation in the current period versus the prior period.

Net Income Margin

The net income margin for our consolidated results was 41.7% for the year ended December 31, 2022 compared to 24.7% for the year ended December 31, 2021. The increase in net income margin was primarily related to the net gain from the sale of 3E and the Financial Services segment in addition to an impairment of our Financial Services segment in 2021.

EBITDA Margin [1]

The EBITDA margin for our consolidated results was 65.7% for the year ended December 31, 2022 compared to 47.3% for the year ended December 31, 2021. The increase in EBITDA margin was primarily related to the net gain from our dispositions within our former Energy and Specialized Markets and Verisk Financial Services segments. The net gain from the sale of 3E and the Financial Services segment, which positively impacted our margin by 14.2%.

[1] Note: Consolidated EBITDA margin, a non-GAAP measure, is calculated as a percentage of consolidated revenue. A reconciliation from net income to EBITDA is in the table below:

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Results of Continuing Operations by Segment

As previously described in our “Results of Continuing Operations by Segment, for year ended December 31, 2023 compared to year ended December 31, 2022, we have excluded Energy and Specialized Markets segment and Financial Services segment from the results of operations by segment due to the sale of these two segments. See a description of our 2023 dispositions and businesses held for sale below and Note 11. Dispositions and Discontinued Operations to our consolidated financial statements included in this annual report on Form 10-K for further discussions.

Insurance

Revenues

Revenues were $2,437.0 million for the year ended December 31, 2022 compared to $2,206.9 million for the year ended December 31, 2021, an increase of $230.1 million or 10.4%. Our underwriting revenues increased $179.4 million or 11.5%. Our claims revenues increased $50.7 million or 7.8%.

Our recent acquisitions (Data Driven Safety, LLC, Infutor Data Solutions, LLC, and Opta Information Intelligence Corp. within the underwriting category of the Insurance segment, ACTINEO GmbH, Automated Insurance Solutions Ltd. and Pruvan Inc., within the claims category of the Insurance Segment) contributed net revenues of $101.8 million, while the remaining Insurance revenues increased $128.3 million or 5.8%. Our underwriting revenues increased $91.8 million or 5.9% primarily due to an annual increase in prices derived from continued enhancements to the content of the solutions within our industry-standard insurance programs as well as selling expanded solutions to existing customers within commercial and personal lines. In addition, catastrophe modeling services contributed to the growth. Our claims revenues increased $36.5 million or 5.6%, primarily due to growth in our repair cost estimating solutions revenue and claims analytics revenue related to annual price as well as volume increases.

Cost of Revenues

Cost of revenues for our Insurance segment was $781.9 million for the year ended December 31, 2022 compared to $704.4 million for the year ended December 31, 2021, an increase of $77.5 million or 11.0%. Our recent acquisitions and dispositions represented a net increase of $51.7 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining increase in cost of revenues of $25.8 million or 3.6% was primarily due to increases in salaries and employee benefits of $15.0 million, information technology expenses of $13.6 million, and travel expenses of $3.5 million. These increases were partially offset by decreases in data costs of $4.7 million, professional consulting fees of $0.9 million, and other operating cost of $0.7 million.

Selling, General and Administrative Expenses

SGA expenses for our Insurance segment were $347.4 million for the year ended December 31, 2022 compared to $239.1 million for the year ended December 31, 2021, an increase of $108.3 million or 45.3%. Our recent acquisitions and dispositions accounted for an increase of $53.7 million primarily related to salaries and employee benefits. Our acquisition-related costs (earn-outs) accounted for a decrease of $3.6 million. The remaining increase in SGA of $58.2 million or 21.3% was primarily due to increases in professional consulting costs of $49.2 million, travel expenses of $4.6 million, salaries and employee benefits of $4.2 million and information technology expenses of $0.4 million. This increase in professional consulting costs is primarily due to the release of the previously established EVT Litigation Reserve once the final payment was made in the fourth quarter of 2021 (the original accrual for this matter was recorded as part of SGA). These increases were partially offset by decreases of other operating costs of $0.2 million.

Investment (Loss) Income and Others, Net

Investment (loss) income and others, net was a loss of $4.7 million for the year ended December 31, 2022 compared to a gain of $1.8 million for the year ended December 31, 2021. The decrease was primarily due to impact of foreign currencies.

EBITDA

EBITDA for our Insurance segment was $1,303.0 million for the year ended December 31, 2022 compared to $1,265.2 million for the year ended December 31, 2021. The EBITDA margin for our Insurance segment was 53.5% for the year ended December 31, 2022 compared to 57.3% for the year ended December 31, 2021. The decrease in EBITDA was primarily due to the release of the previously established EVT Litigation Reserve once the final payment was made in the fourth quarter of 2021.

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Energy and Specialized Markets and Financial Segments

On March 11, 2022, we completed the sale of 3E, which made up the Specialized Markets within this segment. This transaction did not qualify as discontinued operations per the guidance in ASC 205-20. The Energy business within the "Energy and Specialized Markets" segment was classified as discontinued operations per the guidance in ASC 205-20. Accordingly, all results of the Energy business have been removed from continuing operations and presented as discontinued operations in our consolidated statements of operations for all periods presented. On February 1, 2023, we completed the sale of our Energy business.

On April 8, 2022, we completed the sale of Verisk Financial Services, our Financial Services segment, to TransUnion. We did not classify this transaction as a discontinued operation.

As a result of these sale transactions, we have excluded the Energy and Specialized Markets and Financial Services segments from our management's discussion and analysis of the results of operations by segment.

Quarterly Results of Operations

The following table set forth our quarterly unaudited consolidated statement of operations data for each of the eight quarters in the period ended December 31, 2023. In management's opinion, the quarterly data has been prepared on the same basis as the audited consolidated financial statements and includes all adjustments necessary to state fairly the information for the periods presented. Our Energy business is classified as discontinued operations.

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Liquidity and Capital Resources

As of December 31, 2023 and 2022, we had cash and cash equivalents and available-for-sale securities totaling $303.9 million and $296.7 million, respectively, inclusive of cash included within assets held for sale. Subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year. Subscriptions are automatically renewed at the beginning of each calendar year. We have historically generated significant cash flows from operations. As a result of this factor, as well as the availability of funds under our Syndicated Credit Facility (as defined below), we believe we will have sufficient cash to meet our working capital, human capital and capital expenditure needs, and to fuel our future growth plans.

We have historically managed the business with a working capital deficit due to the fact that, as described above, we offer our solutions and services primarily through annual subscriptions or long-term contracts, which are generally prepaid quarterly or annually in advance of the services being rendered. When cash is received for prepayment of invoices, we record an asset (cash and cash equivalents) on our balance sheet with the offset recorded as a current liability (deferred revenues). This current liability is deferred revenue that does not require a direct cash outflow since our customers have prepaid and are obligated to purchase the services. In most businesses, growth in revenue typically leads to an increase in the accounts receivable balance causing a use of cash as a company grows. Unlike these businesses, our cash position is favorably affected by revenue growth, which results in a source of cash due to our customers prepaying for most of our services.

Our capital expenditures for the years ended December 31, 2023 and 2022 were $230.0 million and $274.7 million, respectively. Expenditures related to developing and enhancing our solutions are predominately related to internal-use software and are capitalized in accordance with ASC 350-40, Accounting for Costs of Computer Software Developed or Obtained for Internal Use. We also capitalize amounts in accordance with ASC 985-20, Software to be Sold, Leased or Otherwise Marketed.

We have historically used a portion of our cash for repurchases of our common stock from our stockholders. For the years ended December 31, 2023, 2022, and 2021, we repurchased $2,762.3 million, $1,662.5 million, and $475.0 million, respectively, of our common stock. For the years ended December 31, 2023, 2022, and 2021, we also paid dividends of $196.8 million, $195.2 million, and $188.2 million, respectively.

Financing and Financing Capacity

We had total debt, excluding finance lease obligations, unamortized discounts and premium, and debt issuance costs, of $2,850.0 million and $3,740.0 million at December 31, 2023 and 2022, respectively. The debt at December 31, 2023 primarily consists of senior notes issued in 2023, 2020, 2019, and 2015. Interest on the senior notes is payable semi-annually each year. The unamortized discount and debt issuance costs were recorded as "Long-term debt" in the accompanying consolidated balance sheets, and will be amortized to "Interest expense" in the accompanying consolidated statements of operations within this Form 10-K over the life of the respective senior note. The indenture governing the senior notes restricts our ability to, among other things, create certain liens, enter into sale/leaseback transactions, and consolidate with, sell, lease, convey, or otherwise transfer all or substantially all of our assets, or merge with or into, any other person or entity. We have made, and may from time to time in the future make, optional repayments on our debt obligations, which may include repurchases or exchanges of our outstanding notes, depending on various factors, such as market conditions. Any such repurchases may be effected through privately negotiated transactions, market transactions, tender offers, redemptions or otherwise. See Note 15 for additional information on our financing activities.

We have a $1,000.0 million Syndicated Credit Facility with Bank of America N.A., HSBC Bank USA, N.A., JP Morgan Chase Bank, N.A., Wells Fargo Bank, National Association, Citibank, N.A., Morgan Stanley Bank, N.A., TD Bank, N.A., Goldman Sachs Bank USA, and the Northern Trust Company that was amended on April 5, 2023. The amendment does not change the current borrowing capacity of $1,000.0 million, but does extend the maturity date to April 5, 2028. Borrowing under the Amendment is payable at an interest rate of SOFR plus 100.0 to 162.5 basis points, depending on the public debt rating. The financial covenants require that, at the end of any fiscal quarter, we have a consolidated funded debt leverage ratio of less than 3.75 to 1.0. At our election, the maximum consolidated funded debt leverage ratio could be permitted to increase to 4.50 to 1.0 (no more than once) and to 4.25 to 1.0 (no more than once) in connection with the closing of a permitted acquisition. The Syndicated Credit Facility may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividend payments, and the Repurchase Program. As of December 31, 2023, we were in compliance with all financial and other debt covenants under the Syndicated Credit Facility. As of December 31, 2023 and December 31, 2022, the available capacity under the Syndicated Revolving Credit Facility was $995.4 and $5.6 million, which takes into account outstanding letters of credit of $4.6 and $4.4 million, respectively.

We also maintained a $125.0 million Bilateral Term Loan Facility and a $275.0 million Bilateral Revolving Credit Facility (together the "Bilateral Credit Facilities") that matured on September 9, 2023 and October 2, 2023, respectively. The Bilateral Credit Facilities carried an interest rate of 135 basis points plus the one-month BSBY were used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividend payments, and the Repurchase Program. We have had no outstanding borrowings under our Bilateral Credit Facilities during 2023 through the maturity dates. The Bilateral Credit Facilities have not been renewed.

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Cash Flow

The following table summarizes our cash flow data for the years ended December 31:

Operating Activities

Net cash provided by operating activities was $1,060.7 million for the year ended December 31, 2023 compared to $1,059.0 million for the year ended December 31, 2022, an increase of $1.7 million, or 0.2%.The increase in net cash provided by operating activities reflects an increase in the operating profit of our Insurance segment and lower tax payments in the current year, offset by the disposition of our Energy business in February 2023. Cash taxes paid in the prior year were higher primarily due to the gain on the sale of 3E.

Net cash provided by operating activities was $1,059.0 million for the year ended December 31, 2022 compared to $1,155.7 million for the year ended December 31, 2021, a decrease of $96.7 million, or 8.4%. The decrease is primarily related to the sale of 3E and Financial Services segment, as well as an increase in tax payments of $310.8 million primarily due to the gain on the sale of 3E, partially offset by an impairment related to the Financial Services segment and the Energy business of $243.4 million and the prior year settlement of our EVT litigation reserve of $75.0 million.

Investing Activities

Net cash provided by investing activities of $2,746.5 million for the year ended December 31, 2023 was primarily related to proceeds from the sale of our Energy business of $3,066.4 million, partially offset by capital expenditures of $230.0 million, and acquisitions, including escrow funding of $87.1 million.

Net cash used in investing activities of $301.4 million for the year ended December 31, 2022 was primarily related to the $1,073.3 million in proceeds from the sale of 3E and our Financial Services segment, partially offset by acquisitions and purchase of non-controlling interest, including escrow funding associated with these acquisitions, of $451.2 million, capital expenditures of $274.7 million, and investments in nonpublic companies of $46.0 million.

Net cash used in investing activities of $592.0 million for the year ended December 31, 2021 was primarily related to acquisitions, including escrow funding, of $299.0 million, capital expenditures of $268.4 million, and investments in nonpublic companies of $23.6 million.

Financing Activities

Net cash used in financing activities of $3,786.5 million for the year ended December 31, 2023 was primarily driven by the funding of $2,799.8 million in share repurchases, repayments of debt under our revolving credit and bilateral credit facilities of $1,265.0 million, and dividend payments of $196.8 million, partially offset by the proceeds from the issuance of our 2033 Senior Notes of $495.2 million, and proceeds from stock options exercised of $141.9 million.

Net cash used in financing activities of $1,330.2 million for the year ended December 31, 2022 was primarily related to repurchases of common stock of $1,662.5 million, repayment of our $350.0 million 4.125% senior notes on September 12, 2022, and dividend payments of $195.2 million, partially offset by proceeds under our Bilateral Term Loan Credit Facility of $125.0 million, proceeds from our Bilateral Revolving Credit Facility of $275.0 million, proceeds, net of repayments of debt under our Syndicated Credit Facility, of $380.0, million and proceeds from stock options exercised of $132.5 million.

Net cash used in financing activities of $498.9 million for the year ended December 31, 2021 was primarily related to repurchases of common stock of $475.0 million, repayment of our $450.0 million 5.800% senior notes on May 3, 2021, and dividend payments of $188.2 million, partially offset by proceeds, net of repayments, from our Syndicated Credit Facility, of $560.0 million and proceeds from stock options exercised of $84.3 million.

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Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2023 and the future periods in which such obligations are expected to be settled in cash:

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements require management to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, goodwill and intangible assets, pension and other postretirement benefits, stock-based compensation, and income taxes. Actual results may differ from these assumptions or conditions.

Revenue Recognition

We recognize revenue based on the transfer of promised goods or services to customers for the amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recognized in a five-step model: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when or as we satisfy a performance obligation. Revenues for hosted subscription services are recognized ratably over the subscription term. Revenues from certain discrete project based advisory/consulting services are recognized over time by measuring the progress toward complete satisfaction of the performance obligation, based on the input method of consulting hours worked; this aligns with the results achieved and value transferred to the customer. Revenues from transactional solutions are recognized as the solutions are delivered or services performed at point in time.

We invoice our customers in annual, quarterly, or monthly installments. Amounts billed and collected in advance are recorded as deferred revenues on the balance sheet and are recognized as the services are performed and revenue recognition criteria are met.

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Stock-Based Compensation

Stock-based compensation cost, including nonqualified stock options, restricted stock, TSR-based performance share units ("PSUs"), and ROIC-based PSUs, is measured at the grant date, based on the fair value of the awards granted, and is recognized as expense over the requisite service period. The fair value of stock options is measured using a Black-Scholes option-pricing model, which requires the use of several estimates, including expected term, expected risk-free interest rate, expected volatility, and expected dividend yield. The stock options have an exercise price equal to the adjusted closing price of our common stock on the grant date with a ten-year contractual term. The fair value of the restricted stock is determined using the closing price of our common stock on the grant date. The restricted stock is not assignable or transferable until it becomes vested. The fair value of TSR-based PSUs is determined on the grant date using the Monte Carlo Simulation model and their ultimate achievement is based on relative total shareholder return as compared to the companies that compromise the S&P 500 index. The fair value of ROIC-based PSUs is determined on the closing price of our common stock on the grant date and their ultimate achievement is tied to incremental return on invested capital based on net operating profit. Each of the TSR-based PSUs and ROIC-based PSUs has a three-year performance period, subject to the recipients continued service. Each PSU represents the right to receive one share of our common stock and the ultimate realization is based on our achievement of certain market and financial performance criteria and may range from 0% to 200% of the recipients target levels of 100% established on the grant date.

Option grants and restricted stock awards are generally expensed ratably over the four-year vesting period. PSUs are generally expensed ratably over the three-year vesting period. We follow the substantive vesting period approach for awards granted after January 1, 2005, which requires that stock-based compensation expense be recognized over the period from the date of grant to the date when the award is no longer contingent on the employee providing additional service.

We estimate expected forfeitures of equity awards at the date of grant and recognize compensation expense only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.

Goodwill and Intangibles

As of December 31, 2023, we had goodwill associated with continuing operations of $1,760.8 million, which represents 40.3% of our total assets. Goodwill and intangible assets with indefinite lives are subject to impairment testing annually as of June 30, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. When evaluating goodwill for impairment, we may decide to first perform a qualitative assessment, or “Step Zero” impairment test, to determine whether it is more likely than not that impairment has occurred. The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and our own overall financial and share price performance, among other factors. If we do not perform a qualitative assessment, or if we determine that it is more likely than not that the carrying amounts of our reporting units exceeds their fair value, we perform a quantitative assessment and calculate the estimated fair value of the respective reporting unit. If the carrying amount of a reporting unit’s goodwill exceeds the fair value of that goodwill, an impairment loss is recognized. As of June 30, 2023, we completed our Step Zero impairment test at the reporting unit level and determined it was not more likely than not that the carrying values of our reporting units exceeded their fair values. We did not recognize any additional impairment charges related to our goodwill and indefinite-lived intangible assets. Subsequent to the test performed on June 30, 2023, we continued to monitor these reporting units for events that would trigger an interim impairment test; we did not identify any such events.

We allocate the fair value of the purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. The estimates used in valuing the intangible assets are determined with the assistance of third-party specialists, a discounted cash flow analysis and estimates made by management. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

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Pension and Postretirement

Certain assumptions are used in the determination of our annual net period benefit (credit) cost and the disclosure of the funded status of these plans. The principal assumptions concern the discount rate used to measure the projected benefit obligation and the expected return on plan assets. We revise these assumptions based on an annual evaluation of long-term trends and market conditions that may have an impact on the cost of providing retirement benefits.

In determining the discount rate, we utilize quoted rates from long-term bond indices, and changes in long-term bond rates over the past year, cash flow models and other data sources we consider reasonable based upon the life expectancy and mortality rate of eligible employees. As part of our evaluation, we calculate the approximate average yields on securities that were selected to match our separate projected cash flows for both the pension and postretirement plans. Our separate benefit plan cash flows are input into actuarial models that include data for corporate bonds rated AA or better at the measurement date. The outputs from the actuarial models are assessed against the prior year’s discount rate and quoted rates for long-term bond indices. For our pension plans at December 31, 2023, we determined this rate to be 5.37% and 5.49% at December 31, 2023 and 2022, respectively. Our postretirement rate was 4.75% and 5.25% at December 31, 2023 and 2022, respectively.

The expected return on plan assets is determined by taking into consideration our analysis of our actual historical investment returns to a broader long-term forecast adjusted based on our target investment allocation, and the current economic environment. Our pension asset investment guidelines target an investment portfolio allocation of 60.0% debt securities and 40.0% equity securities. As of December 31, 2023, the pension plan assets were allocated 53.5% debt securities, 40.0% equity securities, 5.3% real estate and 1.2% other. The VEBA Plan target allocation is 100% debt securities. We have used our target investment allocation to derive the expected return as we believe this allocation will be retained on an ongoing basis that will be commensurate with the projected cash flows of the plan. The expected return for each investment category within our target investment allocation is developed using average historical rates of return for each targeted investment category, considering the projected cash flow of the qualified pension plan and postretirement plan. The difference between this expected return and the actual return on plan assets is generally deferred and recognized over subsequent periods through future net periodic benefit (credits) costs. We believe these considerations provide the basis for reasonable assumptions with respect to the expected long-term rate of return on plan assets.

When actual plan experience differs from the assumptions used, actuarial gains or losses arise. We amortize, as a component of annual pension expense, total outstanding actuarial gains or losses over the estimated average expected remaining lifetime of plan participants to the extent that the gain/loss exceeds 10% of the greater of the beginning-of-year projected benefit obligation or the market-related value of plan assets. For our pension and postretirement plans, the total actuarial losses as of December 31, 2023 that have not been recognized in annual expense are $118.3 million and $3.6 million, respectively, and we expect to recognize a net periodic pension and postretirement expenses of $3.6 million and $0.3 million, respectively, in 2024 related to the amortization of actuarial losses.

A one percent change in discount rate and future rate of return on plan assets would have the following effects:

Income Taxes

In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. The calculation of our tax liabilities also involves dealing with uncertainties in the application and evolution of complex tax laws and regulations in other jurisdictions.

We account for uncertain tax positions in accordance with Accounting for Uncertainty in Income Taxes — an interpretation of ASC 740, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this interpretation, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position.

We recognize and adjust our liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

We estimate unrecognized tax positions of $0.7 million that may be recognized by December 31, 2024, due to expiration of statutes of limitations and resolution of audits with taxing authorities, net of additional uncertain tax positions.

As of December 31, 2023, we have gross federal, state, and foreign income tax net operating loss carryforwards of $69.0 million, which will expire at various dates from 2024 through 2043. Such net operating loss carryforwards expire as follows:

The net deferred income tax liability of $179.3 million consists primarily of timing differences involving amortization.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 2(s) to the audited consolidated financial statements included in this annual report on Form 10-K.

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