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, 2018, 2017 and 2016, the Company paid $275 million, $127 million and $142 million to Loews related to federal income taxes.

For 2016 through 2018, 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, 2018 and 2017, 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 2018, 2017 and 2016 the Company recognized no interest and no penalties. There were no amounts accrued for interest or penalties as of December 31, 2018 or 2017.

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,” was signed into law (Tax Reform Legislation).

Shortly after enactment, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin No. 118 (SAB 118) to provide guidance on accounting for the Tax Reform Legislation impacts when the measurements of the income tax effects are complete, incomplete, or incomplete but for which a provisional amount can be estimated. SAB 118 permitted the recognition of provisional amounts, and adjustments to provisional amounts, in subsequent reporting periods within a one year measurement period.

At December 31, 2017, the Company had significant provisional items as set forth below.


•	The Company re-computed its insurance reserves and the transition adjustment from existing law.


•	The Company 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 Company did not record current or deferred taxes with respect to the international provisions since it did not expect to have inclusions in U.S. taxable income for certain earnings of foreign subsidiaries in future years.

Adjustments to the Company's provisional amounts for the year ended December 31, 2018 did not impact the effective tax rate.

The Tax Reform Legislation provided for a permanent reduction in the Federal corporate income tax rate from 35% to 21% effective January 1, 2018, among other provisions. The Company was required to recognize the effect of the tax rate change on its deferred tax assets in the period the tax rate change was signed into law. Consequently, the Company recorded a non-cash increase to Income tax expense of $83 million in the Consolidated Statements of Operations for the year ended December 31, 2017. Based on the filed 2017 tax return, the effect of the tax rate change decreased Income tax expense by $6 million for the year ended December 31, 2018.

At December 31, 2018, measurement of the income tax effects of the Tax Reform Legislation is complete.

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)	2018			2017			2016
Income tax expense at statutory rates	$	(203	)	$	(459	)	$	(398	)
Tax benefit from tax exempt income	63			131			124
Foreign taxes and credits	(1		)	3			3
State income taxes	(13		)	(7		)	(6		)
Net deferred tax asset remeasurement	6			(83		)	—
Other tax expense	(3		)	4			(1		)
Income tax expense	$	(151	)	$	(411	)	$	(278	)

As of December 31, 2018, no deferred taxes are required on the undistributed earnings of subsidiaries subject to tax.

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



Years ended December 31
(In millions)	2018			2017			2016
Current tax expense	$	(171	)	$	(243	)	$	(142	)
Deferred tax benefit (expense)	20			(168		)	(136		)
Total income tax expense	$	(151	)	$	(411	)	$	(278	)

Total income tax presented above includes foreign tax (expense)/benefit of approximately $(5) million, $1 million and $(9) million related to pretax income from foreign operations of approximately $22 million, $39 million and $51 million for the years ended December 31, 2018, 2017 and 2016.

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)	2018		2017
Deferred Tax Assets:
Insurance reserves:
Property and casualty claim and claim adjustment expense reserves	$	108	$	74
Unearned premium reserves	108		142
Receivables	15		15
Employee benefits	143		154
Deferred retroactive reinsurance benefit	79		68
Other assets	131		105
Gross deferred tax assets	584		558
Deferred Tax Liabilities:
Investment valuation differences	44		55
Deferred acquisition costs	78		77
Net unrealized gains	14		233
Software and hardware	44		46
Other liabilities	12		10
Gross deferred tax liabilities	192		421
Net deferred tax asset	$	392	$	137

As of December 31, 2018, 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, 2018 or 2017.