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, 2017, 2016 and 2015, the Company paid $127 million, $142 million and $256 million to Loews related to federal income taxes.

For 2015 through 2017, the Internal Revenue Service (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.

As of December 31, 2017 and 2016, 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 2017, 2016 and 2015 the Company recognized no interest and no penalties. There were no amounts accrued for interest or penalties as of December 31, 2017 or 2016.

On December 22, 2017, H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018,” previously known as “The Tax Cuts and Jobs Act” was signed into law (Tax Reform Legislation). The Tax Reform Legislation is subject to further clarification by the issuance of future technical guidance by the U.S. Department of the Treasury and/or future technical correction legislation.

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118) to provide guidance on accounting for the income tax effects of the Tax Reform Legislation. SAB 118 describes scenarios where the measurement of the income tax effects is complete, incomplete, or incomplete but for which a reasonable provisional amount can be estimated, and provides a twelve month measurement period from December 22, 2017 to complete the accounting for the income tax effects. Any future measurement period effects will be recognized when certain clarification of the Tax Reform Legislation is issued.

The Tax Reform Legislation provides for a permanent reduction in the Federal corporate income tax rate from 35% to 21% effective January 1, 2018, among other provisions.

The Company is required to recognize the effect of this tax rate change on its net deferred tax assets, including those accounted for in AOCI, in the period the tax rate change was signed into law. Consequently, the Company recorded a one-time non-cash increase to Income tax expense of $83 million in the Consolidated Statements of Operations for the year ended December 31, 2017.

The accounting for the income tax effects of the Federal corporate income tax rate change on net deferred tax assets is complete. The Company has determined there are no income tax effects for which the accounting is incomplete. Set forth below are the significant provisional items that are incomplete, but have been reasonably estimated and reflected in the remeasurement of the Company’s income taxes.


•	The Company has re-computed its insurance reserves and the transition adjustment from existing law. The effect of any measurement period adjustments will not impact the effective tax rate.


•	The Company has computed amounts under special accounting method provisions for recognizing income for Federal income tax purposes no later than for financial accounting purposes and the transition adjustment from existing law. The effect of any measurement period adjustments will not impact the effective tax rate.


•	The Company has not recorded current or deferred taxes with respect to the international provisions since it does not expect to have inclusions in U.S. taxable income for certain earnings of foreign subsidiaries in future years. The effect of any measurement period adjustments would impact the effective tax rate.

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



Years ended December 31
(In millions)	2017			2016			2015
Income tax expense at statutory rates	$	(459	)	$	(398	)	$	(192	)
Tax benefit from tax exempt income	131			124			123
Foreign taxes and credits	3			3			9
Net deferred tax asset remeasurement	(83		)	—			—
Other tax expense	(3		)	(7		)	(10		)
Income tax expense	$	(411	)	$	(278	)	$	(70	)

Provision has not been made for the Company's investment in certain subsidiaries for which the Company intends to invest the undistributed earnings indefinitely. As of December 31, 2017, the Company has not provided deferred taxes of $2 million on $10 million of undistributed earnings related to a foreign subsidiary.

The following table presents the current and deferred components of the Company's income tax expense.



Years ended December 31
(In millions)	2017			2016			2015
Current tax expense	$	(243	)	$	(142	)	$	(220	)
Deferred tax benefit (expense)	(168		)	(136		)	150
Total income tax expense	$	(411	)	$	(278	)	$	(70	)

Total income tax presented above includes foreign tax (expense)/benefit of approximately $1 million, $(9) million and $(14) million related to pretax income from foreign operations of approximately $39 million, $51 million and $71 million for the years ended December 31, 2017, 2016 and 2015.

The deferred tax effects of the significant components of the Company's deferred tax assets and liabilities are presented in the following table.



December 31
(In millions)	2017		2016
Deferred Tax Assets:
Insurance reserves:
Property and casualty claim and claim adjustment expense reserves	$	74	$	125
Unearned premium reserves	142		206
Receivables	15		27
Employee benefits	154		272
Life settlement contracts	—		56
Deferred retroactive reinsurance benefit	68		117
Investment valuation differences	—		—
Other assets	105		148
Gross deferred tax assets	558		951
Deferred Tax Liabilities:
Investment valuation differences	55		57
Deferred acquisition costs	77		120
Net unrealized gains	233		309
Other liabilities	56		86
Gross deferred tax liabilities	421		572
Net deferred tax asset	$	137	$	379

As of December 31, 2017, 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 as of December 31, 2017 or 2016.