Note E. Income Taxes

The CNA Tax Group is included in the consolidated federal income tax return of Loews and its eligible subsidiaries. Loews and the Company have agreed that for each taxable year, the Company will 1) be paid by Loews the amount, if any, by which the Loews consolidated federal income tax liability is reduced by virtue of the inclusion of the CNA Tax Group in the Loews consolidated federal income tax return, or 2) pay to Loews an amount, if any, equal to the federal income tax that would have been payable by the CNA Tax Group filing a separate consolidated tax return. In the event that Loews should have a net operating loss in the future computed on the basis of filing a separate consolidated tax return without the CNA Tax Group, the Company may be required to repay tax recoveries previously received from Loews. This agreement may be canceled by either party upon 30 days written notice.

For the year ended December 31, 2013, the Company paid $89 million to Loews related to federal income taxes. For the years ended December 31, 2012 and 2011, the Company received from Loews $75 million and $10 million related to federal income taxes.

For 2011 through 2013, the IRS has accepted Loews and the Company into the Compliance Assurance Process (CAP), which is a voluntary program for large corporations. Under CAP, the IRS conducts a real-time audit and works contemporaneously with the Company to resolve any issues prior to the filing of the tax return. The Company believes that this approach should reduce tax-related uncertainties, if any.

At December 31, 2013 and 2012, there were no unrecognized tax benefits.

The Company recognizes interest accrued related to: 1) unrecognized tax benefits in Interest expense and 2) tax refund claims in Other revenues on the Consolidated Statements of Operations. The Company recognizes penalties (if any) in Income tax (expense) benefit on the Consolidated Statements of Operations. During 2013, the Company did not recognize any interest or penalties. During 2012, the Company recognized $2 million of interest income and no penalties. During 2011, the Company did not recognize any interest or penalties. There were no amounts accrued for interest or penalties at December 31, 2013 or 2012.

The following table provides a reconciliation between the Company's federal income tax (expense) benefit at statutory rates and the recorded income tax (expense) benefit.

Tax Reconciliation



Years ended December 31
(In millions)	2013			2012			2011
Income tax expense at statutory rates	$	(460	)	$	(305	)	$	(305	)
Tax benefit from tax exempt income	97			84			74
Foreign taxes and credits	(1		)	(13		)	(3		)
Taxes related to domestic affiliate	—			—			(21		)
Prior year tax adjustment	—			—			20
Other tax expense	(12		)	(10		)	(7		)
Income tax expense	$	(376	)	$	(244	)	$	(242	)

At December 31, 2013, no deferred taxes are required on the undistributed earnings of subsidiaries subject to tax.

The following table provides the current and deferred components of the Company's income tax (expense) benefit.

Current and Deferred Taxes



Years ended December 31
(In millions)	2013			2012			2011
Current tax expense	$	(299	)	$	(97	)	$	(54	)
Deferred tax expense	(77		)	(147		)	(188		)
Total income tax expense	$	(376	)	$	(244	)	$	(242	)

Total income tax presented above includes foreign tax expense of approximately $24 million, $34 million and $27 million related to income from continuing foreign operations of approximately $101 million, $88 million and $75 million for the years ended December 31, 2013, 2012 and 2011.

The deferred tax effects of the significant components of the Company's deferred tax assets and liabilities are set forth in the table below.

Components of Net Deferred Tax Asset



December 31
(In millions)	2013		2012
Deferred Tax Assets:
Insurance reserves:
Property and casualty claim and claim adjustment expense reserves	$	289	$	352
Unearned premium reserves	178		162
Receivables	50		60
Employee benefits	187		384
Life settlement contracts	46		45
Deferred retroactive reinsurance benefit	66		—
Other assets	149		160
Gross deferred tax assets	965		1,163
Deferred Tax Liabilities:
Investment valuation differences	68		38
Deferred acquisition costs	232		238
Net unrealized gains	383		737
Other liabilities	62		57
Gross deferred tax liabilities	745		1,070
Net deferred tax asset	$	220	$	93

At December 31, 2013, the CNA Tax Group had no loss carryforwards or tax credit carryforwards.

Although realization of deferred tax assets is not assured, management believes it is more likely than not that the recognized net deferred tax asset will be realized through recoupment of ordinary and capital taxes paid in prior carryback years and through future earnings, reversal of existing temporary differences and available tax planning strategies. As a result, no valuation allowance was recorded at December 31, 2013 or 2012.