Income Taxes

12 Months Ended

Dec. 31, 2020

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, 2020, 2019 and 2018, the Company paid $65 million, $239 million and $275 million to Loews related to federal income taxes.

For 2018 through 2020, Loews and the Company participate in the Internal Revenue Service (IRS) Compliance Assurance Process (CAP), which is a voluntary program for large corporations. Under CAP, the IRS generally conducts a real-time audit and works contemporaneously with the Company to resolve any issues prior to the filing of the 2018 and 2019 tax returns. The 2018 and 2019 examinations were completed in this manner. For 2020, the Company was selected to participate in the phase of CAP reserved for taxpayers whose risk of noncompliance does not warrant use of IRS resources. The Company believes that participation in CAP should reduce tax-related uncertainties, if any.

As of December 31, 2020 and 2019, 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 2020, 2019 and 2018 the Company recognized no interest and no penalties. There were no amounts accrued for interest or penalties as of December 31, 2020 or 2019.

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


Years ended December 31
(In millions)	2020		2019		2018
Income tax expense at statutory rates	$	(172)	$	(257)	$	(203)
Tax benefit from tax exempt income	52		53		63
Foreign taxes and credits	2		(1)		(1)
State income taxes	(6)		(14)		(13)
Other tax expense	(7)		(4)		3
Income tax expense	$	(131)	$	(223)	$	(151)

As of December 31, 2020, 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)	2020		2019		2018
Current tax expense	$	(180)	$	(269)	$	(171)
Deferred tax benefit	49		46		20
Total income tax expense	$	(131)	$	(223)	$	(151)

Total income tax presented above includes foreign tax expense of approximately $16 million, $19 million and $5 million related to pretax income from foreign operations of approximately $45 million, $43 million and $22 million for the years ended December 31, 2020, 2019 and 2018.

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)	2020		2019
Deferred Tax Assets:
Insurance reserves:
Property and casualty claim and claim adjustment expense reserves	$	157	$	129
Unearned premium reserves	174		153
Receivables	11		11
Employee benefits	122		127
Deferred retroactive reinsurance benefit	83		82
Other assets	143		132
Gross deferred tax assets	690		634
Deferred Tax Liabilities:
Investment valuation differences	28		40
Deferred acquisition costs	93		83
Net unrealized gains	453		264
Software and hardware	31		34
Other liabilities	19		14
Gross deferred tax liabilities	624		435
Net deferred tax asset	$	66	$	199

As of December 31, 2020, the CNA Tax Group had no loss carryforwards and a tax credit carryforward of $8 million, of which $4 million expires in 2029 and $4 million expires in 2030. The foreign operations had loss carryforwards of $48 million, of which $2 million expires in 2035 and $46 million has no expiration. The foreign operations had a tax credit carryforward of $3 million, which has 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, 2020 or 2019.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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