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 years ended December 31, 2014 and 2013, the Company paid $287 million and $89 million to Loews related to federal income taxes. For the year ended December 31, 2012, the Company received from Loews $75 million related to federal income taxes.

For 2012 through 2014, 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, 2014 and 2013, 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 2014 and 2013, the Company recognized no interest and no penalties. During 2012, the Company recognized $2 million of interest income and no penalties. There were no amounts accrued for interest or penalties at December 31, 2014 or 2013.

The following table provides a reconciliation between the Company's federal income tax expense at statutory rates and the recorded income tax expense, excluding discontinued operations.

Tax Reconciliation



Years ended December 31
(In millions)	2014			2013			2012
Income tax expense at statutory rates	$	(423	)	$	(447	)	$	(301	)
Tax benefit from tax exempt income	119			97			84
Foreign taxes and credits	(6		)	(1		)	(13		)
Other tax expense	(9		)	(10		)	(9		)
Income tax expense	$	(319	)	$	(361	)	$	(239	)

At December 31, 2014, 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, excluding taxes on discontinued operations.

Current and Deferred Taxes



Years ended December 31
(In millions)	2014			2013			2012
Current tax expense	$	(318	)	$	(292	)	$	(94	)
Deferred tax expense	(1		)	(69		)	(145		)
Total income tax expense	$	(319	)	$	(361	)	$	(239	)

Total income tax presented above includes foreign tax expense of approximately $24 million, $24 million and $34 million related to income from continuing foreign operations of approximately $66 million, $101 million and $88 million for the years ended December 31, 2014, 2013 and 2012.

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)	2014		2013
Deferred Tax Assets:
Insurance reserves:
Property and casualty claim and claim adjustment expense reserves	$	265	$	289
Unearned premium reserves	187		178
Receivables	35		50
Employee benefits	289		187
Life settlement contracts	46		46
Deferred retroactive reinsurance benefit	61		66
Other assets	138		149
Gross deferred tax assets	1,021		965
Deferred Tax Liabilities:
Investment valuation differences	50		68
Deferred acquisition costs	226		232
Net unrealized gains	489		383
Other liabilities	65		62
Gross deferred tax liabilities	830		745
Net deferred tax asset	$	191	$	220

At December 31, 2014, 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, 2014 or 2013.