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Benefit Plans
 12 Months Ended
Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]  
Benefit Plans
Note J. Benefit Plans
Pension and Postretirement Health Care Benefit Plans
CNA sponsors noncontributory pension plans, primarily through the CNA Retirement Plan, typically covering full-time employees age 21 and over that have completed at least one year or 1,000 hours of service.
Effective January 1, 2000, the CNA Retirement Plan was closed to new participants. Existing participants at that time were given a choice to either continue to accrue benefits under the CNA Retirement Plan or to cease accruals at December 31, 1999. Employees who chose to continue to accrue benefits under the plan will receive a benefit based on their years of credited service and highest 60 months of compensation at termination. Compensation is defined as regular salary, eligible bonuses and overtime. Employees who elected to cease accruals at December 31, 1999 received the present value of their accrued benefit in an accrued pension account that is credited with interest based on the annual rate of interest on 30-year Treasury securities. These employees also receive certain enhanced employer contributions in the CNA Savings and Capital Accumulation Plan.
CNA's funding policy for defined benefit pension plans is to make contributions in accordance with applicable governmental regulatory requirements with consideration of the funded status of the plans.
CNA provides certain health care benefits to eligible retired employees, their covered dependents and their beneficiaries primarily through the CNA Health and Group Benefits Program. These benefits have largely been eliminated for active employees.
The following table provides a reconciliation of benefit obligations and plan assets for the years ended December 31, 2013 and 2012.
Funded Status
 
Pension Benefits
 
Postretirement Benefits
(In millions)
2013
 
2012
 
2013
 
2012
Benefit obligation at January 1
$
3,271

 
$
3,003

 
$
47

 
$
49

Changes in benefit obligation:
 
 
 
 
 
 
 
Service cost
12

 
12

 
1

 
—

Interest cost
121

 
135

 
1

 
2

Participants' contributions
—

 
—

 
5

 
5

Actuarial (gain) loss
(289
)
 
266

 
(3
)
 
3

Benefits paid
(165
)
 
(164
)
 
(12
)
 
(12
)
Settlements
(8
)
 
—

 
—

 
—

Foreign currency translation and other
1

 
19

 
1

 
—

Benefit obligation at December 31
2,943

 
3,271


40


47

Fair value of plan assets at January 1
2,425

 
2,212

 
—

 
—

Change in plan assets:
 
 
 
 
 
 
 
Actual return on plan assets
311

 
245

 
—

 
—

Company contributions
92

 
115

 
7

 
7

Participants' contributions
—

 
—

 
5

 
5

Benefits paid
(165
)
 
(164
)
 
(12
)
 
(12
)
Settlements
(8
)
 
—

 
—

 
—

Foreign currency translation and other
1

 
17

 
—

 
—

Fair value of plan assets at December 31
2,656

 
2,425

 
—

 
—

Funded status
$
(287
)
 
$
(846
)
 
$
(40
)
 
$
(47
)
Amounts recognized on the Consolidated Balance Sheets at December 31:
 
 
 
 
 
 
 
Other assets
$
9

 
$
—

 
$
—

 
$
—

Other liabilities
(296
)
 
(846
)
 
(40
)
 
(47
)
Net amount recognized
$
(287
)
 
$
(846
)
 
$
(40
)
 
$
(47
)
Amounts recognized in Accumulated other comprehensive income, not yet recognized in net periodic cost (benefit):
 
 
 
 
 
 
 
Prior service credit
$
—

 
$
—

 
$
(98
)
 
$
(116
)
Net actuarial loss
745

 
1,213

 
8

 
11

Net amount recognized
$
745

 
$
1,213

 
$
(90
)
 
$
(105
)

The accumulated benefit obligation for all defined benefit pension plans was $2,889 million and $3,187 million at December 31, 2013 and 2012.
The components of net periodic cost (benefit) are presented in the following table.
Net Periodic Cost (Benefit)
Years ended December 31
 
 
 
 
 
(In millions)
2013
 
2012
 
2011
Pension cost (benefit)
 
 
 
 
 
Service cost
$
12

 
$
12

 
$
13

Interest cost on projected benefit obligation
121

 
135

 
146

Expected return on plan assets
(181
)
 
(171
)
 
(172
)
Amortization of net actuarial (gain) loss
47

 
39

 
25

Settlement loss
3

 
—

 
—

Net periodic pension cost (benefit)
$
2

 
$
15

 
$
12

 
 
 
 
 
 
Postretirement cost (benefit)
 
 
 
 
 
Service cost
$
1

 
$
—

 
$
1

Interest cost on projected benefit obligation
1

 
2

 
3

Amortization of prior service credit
(18
)
 
(18
)
 
(19
)
Amortization of net actuarial (gain) loss
2

 
1

 
—

Net periodic postretirement cost (benefit)
$
(14
)
 
$
(15
)
 
$
(15
)

The amounts recognized in Other comprehensive income are presented in the following table.
Years ended December 31
 
 
 
 
 
(In millions)
2013
 
2012
 
2011
Pension and postretirement benefits
 
 
 
 
 
Amounts arising during the period
$
422

 
$
(195
)
 
$
(325
)
Reclassification adjustment relating to prior service credit
(18
)
 
(18
)
 
(19
)
Reclassification adjustment relating to actuarial loss
49

 
40

 
25

Total increase (decrease) in Other comprehensive income
$
453

 
$
(173
)
 
$
(319
)

The table below presents the estimated amounts to be recognized from Accumulated other comprehensive income into net periodic cost (benefit) during 2014.
(In millions)
 
Pension
Benefits
 
Postretirement Benefits
Amortization of prior service credit
 
$
—

 
$
(18
)
Amortization of net actuarial loss
 
25

 
—

Total estimated amounts to be recognized
 
$
25

 
$
(18
)

Actuarial assumptions used for the CNA Retirement Plan and CNA Health and Group Benefits Program to determine benefit obligations are set forth in the following table.
Actuarial Assumptions for Benefit Obligations
December 31
2013
 
2012
Pension benefits
 
 
 
Discount rate
4.650
%
 
3.800
%
Expected long term rate of return
7.500

 
7.750

Rate of compensation increases
3.990

 
4.066

Postretirement benefits
 
 
 
Discount rate
3.600
%
 
2.800
%
Actuarial assumptions used for the CNA Retirement Plan and CNA Health and Group Benefits Program to determine net cost or benefit are set forth in the following table.
Actuarial Assumptions for Net Cost or Benefit
Years ended December 31
2013
 
2012
 
2011
Pension benefits
 
 
 
 
 
Discount rate
3.800
%
 
4.600
%
 
5.375
%
Expected long term rate of return
7.750

 
8.000

 
8.000

Rate of compensation increases
4.066

 
4.125

 
5.030

Postretirement benefits
 
 
 
 
 
Discount rate
2.800
%
 
3.750
%
 
4.375
%

In determining the expected long term rate of return on plan assets assumption for the CNA Retirement Plan, CNA considered the historical performance of the benefit plan investment portfolio as well as long term market return expectations based on the investment mix of the portfolio.
The CNA Health and Group Benefits Program has limited its share of the health care trend rate to a cost-of-living adjustment of 4% per year. For all participants, the employer subsidy on health care costs will not increase by more than 4% per year. As a result, the assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the CNA Health and Group Benefits Program was 4% per year in 2013, 2012 and 2011.
CNA employs a total return approach whereby a mix of equity, limited partnerships and fixed maturity securities are used to maximize the long term return of plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The intent of this strategy is to minimize the Company's expense related to funding the plan by outperforming plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. In addition, alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2013, the plan had committed approximately $102 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships. Derivatives may be used to gain market exposure in an efficient and timely manner. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
Pension plan assets measured at fair value on a recurring basis are summarized below.
December 31, 2013
 
 
 
 
 
 
 
 
(In millions)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets
at Fair Value
Assets
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
Corporate and other bonds
 
$
—

 
$
505

 
$
15

 
$
520

States, municipalities and political subdivisions
 
—

 
73

 
—

 
73

Asset-backed:
 
 
 
 
 
 
 
 
Residential mortgage-backed
 
—

 
130

 
—

 
130

Commercial mortgage-backed
 
—

 
106

 
—

 
106

Other asset-backed
 
—

 
12

 
—

 
12

Total asset-backed
 
—

 
248

 
—

 
248

Total fixed maturity securities
 
—

 
826

 
15

 
841

Equity securities
 
480

 
117

 
8

 
605

Derivative financial instruments
 
2

 
—

 
—

 
2

Short term investments
 
45

 
49

 
—

 
94

Limited partnerships:
 
 
 
 
 
 
 
 
Hedge funds
 
—

 
647

 
322

 
969

Private equity
 
—

 
—

 
114

 
114

Total limited partnerships
 
—

 
647

 
436

 
1,083

Other assets
 
—

 
31

 
—

 
31

Total assets
 
$
527

 
$
1,670

 
$
459

 
$
2,656


December 31, 2012
 
 
 
 
 
 
 
 
(In millions)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets
at Fair Value
Assets
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
Corporate and other bonds
 
$
—

 
$
436

 
$
11

 
$
447

States, municipalities and political subdivisions
 
—

 
91

 
—

 
91

Asset-backed:
 
 
 
 
 
 
 
 
Residential mortgage-backed
 
—

 
161

 
—

 
161

Commercial mortgage-backed
 
—

 
105

 
—

 
105

Total asset-backed
 
—

 
266

 
—

 
266

Total fixed maturity securities
 
—

 
793

 
11

 
804

Equity securities
 
386

 
102

 
5

 
493

Derivative financial instruments
 
1

 
—

 
—

 
1

Short term investments
 
37

 
82

 
—

 
119

Limited partnerships:
 
 
 
 
 
 
 


Hedge funds
 
—

 
537

 
359

 
896

Private equity
 
—

 
—

 
62

 
62

Total limited partnerships
 
—

 
537

 
421

 
958

Other assets
 
—

 
40

 
—

 
40

Investment contracts with insurance company
 
—

 
—

 
10

 
10

Total assets
 
$
424

 
$
1,554

 
$
447

 
$
2,425


The limited partnership investments are recorded at fair value, which represents the plan's share of net asset value of each partnership, as determined by the General Partner. Level 2 includes limited partnership investments which can be redeemed at net asset value in 90 days or less. Level 3 includes limited partnership investments with withdrawal provisions greater than 90 days, or for which withdrawals are not permitted until the termination of the partnership. Within hedge fund strategies, approximately 58% are equity related, 37% pursue a multi-strategy approach and 5% are focused on distressed investments at December 31, 2013.
The fair value of the insurance company guaranteed investment contracts is an estimate of the amount that would be received in an orderly sale to a market participant at the measurement date. The amount the plan would receive from the contract holder if the contracts were terminated is the primary input and is unobservable. The guaranteed investment contracts are therefore classified as Level 3 investments.
For a discussion of the fair value levels and the valuation methodologies used to measure fixed maturity securities, equities, derivatives and short term investments, see Note D.
The tables below present a reconciliation for all pension plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012.
Level 3
(In millions)
Balance at January 1, 2013
 
Actual return on assets still held at December 31, 2013
 
Actual return on assets sold during the year ended December 31, 2013
 
Purchases, sales, and settlements
 
Net transfers into (out of) Level 3
 
Balance at December 31, 2013
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
11

 
$
(1
)
 
$
—

 
$
5

 
$
—

 
$
15

Equity securities
5

 
3

 
—

 
—

 
—

 
8

Limited partnerships:
 
 
 
 
 
 
 
 
 
 
 
Hedge funds
359

 
56

 
—

 
(77
)
 
(16
)
 
322

Private equity
62

 
—

 
—

 
52

 
—

 
114

Total limited partnerships
421

 
56

 
—

 
(25
)
 
(16
)
 
436

Investment contracts with insurance company
10

 
—

 
—

 
(10
)
 
—

 
—

Total
$
447

 
$
58

 
$
—

 
$
(30
)
 
$
(16
)
 
$
459


Level 3
(In millions)
Balance at January 1, 2012
 
Actual return on assets still held at December 31, 2012
 
Actual return on assets sold during the year ended December 31, 2012
 
Purchases, sales, and settlements
 
Net transfers into (out of) Level 3
 
Balance at December 31, 2012
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
10

 
$
1

 
$
—

 
$
—

 
$
—

 
$
11

Equity securities
5

 
—

 
—

 
—

 
—

 
5

Limited partnerships:
 
 
 
 
 
 
 
 
 
 
 
Hedge funds
330

 
41

 
3

 
(15
)
 
—

 
359

Private equity
65

 
8

 
—

 
(11
)
 
—

 
62

Total limited partnerships
395

 
49

 
3

 
(26
)
 
—

 
421

Investment contracts with insurance company
10

 
—

 
—

 
—

 
—

 
10

Total
$
420

 
$
50

 
$
3

 
$
(26
)
 
$
—

 
$
447

The table below presents the estimated future minimum benefit payments to participants at December 31, 2013.
Estimated Future Minimum Benefit Payments to Participants
(In millions)
Pension Benefits
 
Postretirement Benefits
2014
$
189

 
$
5

2015
191

 
4

2016
194

 
5

2017
199

 
4

2018
203

 
4

2019-2023
1,013

 
14


In 2014, CNA expects to contribute $56 million to its pension plans and $5 million to its postretirement health care benefit plans.
Savings Plans
CNA sponsors savings plans, which are generally contributory plans that allow most employees to contribute a maximum of 20% of their eligible compensation, subject to certain limitations prescribed by the IRS. The Company contributes matching amounts to participants, amounting to 70% of the first 6% (35% of the first 6% in the first year of employment) of eligible compensation contributed by the employee. Employees vest in these contributions ratably over five years.
The CNA Savings and Capital Accumulation Plan allows employees to make contributions to an investment fund that is supported in part by an investment contract purchased from CAC. CAC will not accept any further deposits under this contract. The liability to the CNA Savings and Capital Accumulation Plan is included in Separate account liabilities on the Consolidated Balance Sheets, and was $129 million and $256 million at December 31, 2013 and 2012.
As noted above, during 2000, CCC employees were required to make a choice regarding their continued participation in CNA's defined benefit pension plan. Employees who elected to forgo earning additional benefits in the defined benefit pension plan and all employees hired by CCC on or after January 1, 2000 receive a Company contribution of 3% or 5% of their eligible compensation, depending on their age. In addition, these employees are eligible to receive additional discretionary contributions of up to 2% of eligible compensation and an additional Company match of up to 80% of the first 6% of eligible compensation contributed by the employee. These additional contributions are made at the discretion of management and are contributed to participant accounts in the first quarter of the year following management's determination of the discretionary amounts. Employees vest in these contributions ratably over five years.
Benefit expense for the Company's savings plans was $71 million, $70 million and $60 million for the years ended December 31, 2013, 2012 and 2011.
Stock-Based Compensation
The CNAF Incentive Compensation Plan (the Plan), as amended and restated on January 1, 2010, authorizes the grant of stock-based compensation to certain management personnel for up to 6 million shares of CNAF's common stock. The Plan currently provides for awards of stock options, stock appreciation rights (SARs), restricted shares, performance-based restricted share units (RSUs) and performance share units. The number of shares available for the granting of stock-based compensation under the Plan as of December 31, 2013 was approximately 1.5 million.
The Company recorded stock-based compensation expense related to the Plan of $10 million, $9 million and $6 million for the years ended December 31, 2013, 2012 and 2011. The related income tax benefit recognized was $3 million, $3 million and $2 million. The compensation cost related to nonvested awards not yet recognized was $14 million, and the weighted average period over which it is expected to be recognized is 1.7 years at December 31, 2013.
Equity based compensation that is not fully vested prior to termination is generally forfeited upon termination, except as otherwise provided by contractual obligations. In addition, any such compensation that vested prior to termination is generally canceled immediately, except in cases of retirement, death or disability, and as otherwise provided by contractual obligations.
Stock Options and SARs
The exercise price of all stock options and SARs granted is based on the market value of the Company's common stock as of the date of grant. Stock options and SARs generally vest ratably over a four-year service period following date of grant and have a maximum term of ten years.
The fair value of granted stock options and SARs was estimated at the grant date using the Black-Scholes option-pricing model. The Black-Scholes model incorporates a risk free rate of return and various assumptions regarding the underlying common stock and the expected life of the securities granted. Different interest rates and assumptions were used for each grant, as appropriate based on date of grant.
There were no stock options or SARs granted for the year ended December 31, 2013. The following table presents the significant assumptions used to estimate the fair value of granted stock options and SARs for the years ended December 31, 2012 and 2011.
Years ended December 31
2012
 
2011
Weighted average expected life of the securities granted (in years)
5.68

 
5.61

Estimate of the underlying common stock's volatility
40.39
%
 
39.88
%
Expected dividend yield
2.1
%
 
1.5
%
Risk free interest rate
1.0
%
 
2.2
%

The following table presents activity for stock options and SARs under the Plan in 2013.
 
 
Number of Awards
 
Weighted-Average Exercise Price per Award
 
Aggregate Intrinsic Value
 
Weighted-Average Remaining Contractual Term (in years)
Outstanding at January 1, 2013
 
1,158,700

 
$
25.93

 
 
 
 
Awards granted
 
—

 
—

 
 
 
 
Awards exercised
 
(117,950
)
 
21.19

 
 
 
 
Awards forfeited, canceled or expired
 
(4,100
)
 
30.66

 
 
 
 
Outstanding at December 31, 2013
 
1,036,650

 
$
26.45

 
$
17
 million
 
4.16
Outstanding, fully vested and expected to vest
 
1,032,849

 
$
26.45

 
$
17
 million
 
4.15
Outstanding, exercisable
 
936,650

 
$
26.42

 
$
15
 million
 
3.87

The following table presents weighted-average grant date fair value for awards granted, total intrinsic value for awards exercised and total fair value for awards vested for the years ended December 31, 2013, 2012 and 2011.
Years ended December 31
2013
 
2012
 
2011
Weighted-average grant date fair value

 
$
8.81

 
$
9.38

Total intrinsic value of awards exercised
$
1,495
 thousand
 
$
548
 thousand
 
$
481
 thousand
Fair value of awards vested
$
1
 million
 
$
1
 million
 
$
2
 million

Share Awards
The fair value of share awards is based on the market value of the Company's common stock as of the date of grant. Share awards currently granted under the Plan include restricted shares, performance-based RSUs, and performance share units. Generally, restricted shares vest ratably over a four-year service period following the date of grant. Performance-based RSUs generally become payable within a range of 0% to 100% of the number of shares initially granted based upon the attainment of specific annual performance goals and vest ratably over a four-year service period following the date of grant. Performance share units become payable within a range of 0% to 200% of the number of shares initially granted based upon the attainment of specific performance goals achieved over a three year period.
The following table presents activity for restricted shares, performance-based RSUs and performance share units under the Plan in 2013.
 
Number of Awards
 
Weighted-Average Grant Date Fair Value
Balance at January 1, 2013
882,321

 
$
26.15

Awards granted
351,364

 
31.80

Awards vested
(417,955
)
 
24.04

Awards forfeited, canceled or expired
(13,770
)
 
28.72

Performance-based adjustment
45,714

 
28.39

Balance at December 31, 2013
847,674

 
$
29.61