Income Taxes

12 Months Ended

Dec. 31, 2019

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, 2019, 2018 and 2017, the Company paid $239 million, $275 million and $127 million to Loews related to federal income taxes.

For 2017 through 2019, 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, 2019 and 2018, there were no unrecognized tax benefits.

The Company recognizes interest accrued related to unrecognized tax benefits and tax refund claims in Income tax (expense) benefit on the Consolidated Statements of Operations. The Company recognizes penalties (if any) in Income tax (expense) benefit on the Consolidated Statements of Operations. During 2019, 2018 and 2017 the Company recognized no interest and no penalties. There were no amounts accrued for interest or penalties as of December 31, 2019 or 2018.

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). 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 this 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.

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)	2019			2018			2017
Income tax expense at statutory rates	$	(257	)	$	(203	)	$	(459	)
Tax benefit from tax exempt income	53			63			131
Foreign taxes and credits	(1		)	(1		)	3
State income taxes	(14		)	(13		)	(7		)
Net deferred tax asset remeasurement	—			6			(83		)
Other tax expense	(4		)	(3		)	4
Income tax expense	$	(223	)	$	(151	)	$	(411	)

As of December 31, 2019, 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)	2019			2018			2017
Current tax expense	$	(269	)	$	(171	)	$	(243	)
Deferred tax benefit (expense)	46			20			(168		)
Total income tax expense	$	(223	)	$	(151	)	$	(411	)

Total income tax presented above includes foreign tax (expense)/benefit of approximately $(19) million, $(5) million and $1 million related to pretax income from foreign operations of approximately $43 million, $22 million and $39 million for the years ended December 31, 2019, 2018 and 2017.

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)	2019		2018
Deferred Tax Assets:
Insurance reserves:
Property and casualty claim and claim adjustment expense reserves	$	129	$	108
Unearned premium reserves	153		108
Receivables	11		15
Employee benefits	127		143
Deferred retroactive reinsurance benefit	82		79
Other assets	132		131
Gross deferred tax assets	634		584
Deferred Tax Liabilities:
Investment valuation differences	40		44
Deferred acquisition costs	83		78
Net unrealized gains	264		14
Software and hardware	34		44
Other liabilities	14		12
Gross deferred tax liabilities	435		192
Net deferred tax asset	$	199	$	392

As of December 31, 2019, the CNA Tax Group had no loss carryforwards and a tax credit carryforward of $2 million which expires in 2029. The foreign operations had loss carryforwards of $42 million, $2 million of which expires in 2035, and tax credit carryforwards of $2 million, which have no expiration.

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, 2019 or 2018.