UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20132016
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-5823
 
CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
36-6169860
(I.R.S. Employer
Identification No.)
333 S. Wabash
Chicago, Illinois
(Address of principal executive offices)
 
60604
(Zip Code)
(312) 822-5000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Common Stock
with a par value
of $2.50 per share
 
Name of each exchange on which registered
New York Stock Exchange
Chicago Stock Exchange
 

Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [x] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [x]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x] Accelerated filer [ ] Non-accelerated filer (Do not check if a smaller reporting company) [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
As of February 14, 2014, 269,824,83210, 2017, 270,621,400 shares of common stock were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 20132016 was approximately $870$844 million based on the closing price of $32.62$31.42 per share of the common stock on the New York Stock Exchange on June 30, 2013.2016.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the CNA Financial Corporation Proxy Statement prepared for the 20142017 annual meeting of shareholders, pursuant to Regulation 14A, are incorporated by reference into Part III of this Report.report.



Item Number 
Page
Number
 
Page
Number
  
1.
1A.
1B.
2.
3.
4.
PART II PART II 
5.
6.
7.
7A.
8.
9.
9A.
9B.
PART III PART III 
10.
11.
12.
13.
14.
PART IV PART IV 
15.


2

Table of Contents

PART I
ITEM 1. BUSINESS
CNA Financial Corporation (CNAF) was incorporated in 1967 and is an insurance holding company. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. References to “CNA,” “the Company,” “we,” “our,” “us” or like terms refer to the business of CNAF and its subsidiaries. CNA's property and casualty and remaining life and group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company, Western Surety Company, CNA Insurance Company Limited and Hardy Underwriting Bermuda Limited and its subsidiaries and Continental Assurance Company (CAC)(Hardy). Loews Corporation (Loews) owned approximately 90% of our outstanding common stock as of December 31, 20132016.
Our insurance products primarily include commercial property and casualty coverages, including surety. Our services include risk management, information services, warranty and claims administration. Our products and services are primarily marketed through independent agents, brokers and managing general underwriters to a wide variety of customers, including small, medium and large businesses, insurance companies, associations, professionals and other groups.
Our core business, commercial property and casualty insurance operations, is reported in three business segments: CNA Specialty, CNA Commercial and Hardy.International. Our non-core businesses are managedreported in two business segments: Life & Group Non-Core and Corporate & Other Non-Core. Each segment is managed separately due to differences in their markets and product lines and markets. Discussionsmix. Discussion of each segment, including the products offered, customers served and distribution channels used, are set forth in the Management's Discussion and Analysis (MD&A) included under Item 7 and in Note O to the Consolidated Financial Statements included under Item 8.
Competition
The property and casualty insurance industry is highly competitive both as to rate and service. We compete with a large number of stock and mutual insurance companies and other entities for both distributors and customers. Insurers compete on the basis of factors including products, price, services, ratings and financial strength. WeAccordingly, we must continuously allocate resources to refine and improve our insurance products and services.
There are approximately 2,8002,700 individual companies that sell property and casualty insurance in the United States. Based on 20122015 statutory net written premiums, we are the eighth largest commercial insurance writer and the 1314th largest property and casualty insurance organization in the United States.
Regulation
The insurance industry is subject to comprehensive and detailed regulation and supervision. Regulatory oversight by applicable agencies is exercised through review of submitted filings and information, examinations (both financial and market conduct), direct inquiries and interviews. Each domestic and foreign jurisdiction has established supervisory agencies with broad administrative powers relative to licensing insurers and agents, approving policy forms, establishing reserve requirements, prescribing the form and content of statutory financial reports and regulating capital adequacy and the type, quality and amount of investments permitted. Such regulatory powers also extend to premium rate regulations, which require that rates not be excessive, inadequate or unfairly discriminatory.discriminatory, governance requirements and risk assessment practice and disclosure. In addition to regulation of dividends by insurance subsidiaries, intercompany transfers of assets may be subject to prior notice or approval by insurance regulators, depending on the size of such transfers and payments in relation to the financial position of the insurance subsidiaries making the transfer or payment.
Domestic insurers are also required by state insurance regulators to provide coverage to certain insureds who would not otherwise be considered eligible by the insurers. Each state dictates the types of insurance and the level of coverage that must be provided to such involuntary risks. Our share of these involuntary risks is mandatory and generally a function of our respective share of the voluntary market by line of insurance in each state.
Further, domestic insurance companies are subject to state guaranty fund and other insurance-related assessments. Guaranty funds are governed by state insurance guaranty associations which levy assessments to meet the funding needs of insolvent insurer estates. Other insurance-related assessments are generally levied by state agencies to fund various organizations, including disaster relief funds, rating bureaus, insurance departments and workers'

compensation second injury funds, or by industry organizations that assist in the statistical analysis and ratemaking process, and we have the ability to recoup certain of these assessments from policyholders.
As our insurance operations are conducted in a multitude of both domestic and foreign jurisdictions, we are subject to a number of regulatory agency requirements applicable to a portion, or all, of our operations. These include, among other things, the State of Illinois Department of Insurance (which is our global group-wide supervisor), the U.K. Prudential Regulatory Authority and Financial Conduct Authority, the Bermuda Monetary Authority and the Office of Superintendent of Financial Institutions in Canada.
Hardy, a specialized Lloyd's of London (Lloyd's) underwriter, is also supervised by the Council of Lloyd's, which is the franchisor for all Lloyd's operations. The Council of Lloyd's has wide discretionary powers to regulate Lloyd's underwriting, such as establishing the capital requirements for syndicate participation. In addition, the annual business plans of each syndicate are subject to the review and approval of the Lloyd's Franchise Board, which is responsible for business planning and monitoring for all syndicates.

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Table of Contents

TheCapital adequacy and risk management regulations, referred to as Solvency II, apply to our European operations and are enacted by the European Union's executive body, the European Commission, is implementing newCommission. Additionally, the International Association of Insurance Supervisors (IAIS) continues to consider regulatory proposals addressing group supervision, capital adequacyrequirements and enterprise risk management regulations called Solvency II that would apply to our European operations. In addition, global regulators, includingmanagement. The U.S. Federal Reserve, the United StatesU.S. Federal Insurance Office and the National Association of Insurance Commissioners are working with the International Association of Insurance Supervisors (IAIS)other global regulators to consider changes to insurance company supervision. Among the areas being addressed are company and group capital requirements, group supervision and enterprise risk management.define such proposals. It is not currently clear to what extent or how the activities of the IAIS activities will impact the Company as any final proposal would ultimately need to be legislated or U.S. insurance regulation.
Domestic insurers are also requiredregulated by the state insurance regulators to provide coverage to insureds who would not otherwise be considered eligible by the insurers. Each state dictates the types of insurance and the level of coverage that must be provided to such involuntary risks. Our share of these involuntary risks is mandatory and generally a function of our respective share of the voluntary market by line of insurance in each state.
Further, insurance companies are subject to state guaranty fund and other insurance-related assessments. Guaranty fund assessments are levied by the state departments of insurance to cover claims of insolvent insurers. Other insurance-related assessments are generally levied by state agencies to fund various organizations including disaster relief funds, rating bureaus, insurance departments, and workers' compensation second injury funds,individual country or by industry organizations that assist in the statistical analysis and ratemaking process.state.
Although the U.S. federal government does not currently directly regulate the business of insurance, federal legislative and regulatory initiatives can impact the insurance industry. These initiatives and legislation include proposedproposals relating to potential federal oversight of certain insurers; tort reform proposals; proposals addressingterrorism and natural catastrophe exposures; terrorismcybersecurity risk mechanisms;management; federal financial services reforms; and variouscertain tax proposals affecting insurance companies. Anyreforms.
The Terrorism Risk Insurance Program Reauthorization Act of 2015 provides for a federal government backstop for insured terrorism risks through 2020. The mitigating effect of such law is part of the analysis of our overall risk posture for terrorism and, accordingly, our risk positioning may change if such law were modified. We also continue to invest in the security network of our systems on an enterprise-wide basis, especially considering the implications of data and privacy breaches. This requires an investment of a significant amount of resources by us on an ongoing basis. Potential implications of possible cybersecurity legislation on such current investment, if any, are uncertain. The foregoing laws and proposals, either separately or in the aggregate, create a regulatory limitations, impositions and restrictionslegal environment that may resultrequire changes in our business plan or significant burdens on us.investment of resources in order to operate in an effective and compliant manner.
VariousAdditionally, various legislative and regulatory efforts to reform the tort liability system have, and will continue to, impact our industry. Although there has been some tort reform with positive impact to the insurance industry, new causes of action and theories of damages continue to be proposed in state court actions orand by federal orand state legislatures that continue to expand liability for insurers and their policyholders.
Employee Relations
As of December 31, 20132016, we had approximately 7,0356,700 employees and have experienced satisfactory labor relations. We have never had work stoppages due to labor disputes.
We have comprehensive benefit plans for substantially all of our employees, including retirement plans, savings plans, disability programs, group life programs and group health care programs. See Note JI to the Consolidated Financial Statements included under Item 8 for further discussion of our benefit plans.

Direct Written Premiums by Geographic Concentration
Set forth below is the distribution of our direct written premiums by geographic concentration.
Direct Written Premiums
Years ended December 31Percent of TotalPercent of Total
2013 2012 20112016 2015 2014
California9.2% 9.5% 9.4%9.5% 9.1% 9.1%
Texas8.0
 7.4
 6.7
8.2
 8.1
 8.1
Illinois7.6
 7.5
 6.7
New York7.3
 7.1
 6.7
6.9
 7.1
 7.2
Illinois5.9
 6.5
 4.9
Florida5.9
 5.8
 6.1
5.8
 5.7
 5.7
Pennsylvania3.7
 3.8
 3.7
New Jersey3.7
 3.5
 3.5
3.1
 3.2
 3.4
Pennsylvania3.7
 3.4
 3.4
Canada3.1
 3.0
 3.0
1.9
 2.2
 2.6
All other states, countries or political subdivisions53.2
 53.8
 56.3
53.3
 53.3
 53.5
Total100.0% 100.0% 100.0%100.0% 100.0% 100.0%

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Table of Contents

Approximately 8.9%7.9%, 9.2%8.0% and 8.8% of our direct written premiums were derived from outside of the United States for the years ended December 31, 2013, 20122016, 2015 and 2011.2014.
Property and Casualty Claim and Claim Adjustment Expenses
The following loss reserve development table illustrates the change over time of reserves established for property and casualty claim and claim adjustment expenses at the end of the preceding ten calendar years for our property and casualty insurance companies. The table excludes our life insurance subsidiaries, and as such, the carried reserves will not agree to the Consolidated Financial Statements included under Item 8. The first section shows the reserves as originally reported at the end of the stated year. The second section, reading down, shows the cumulative amounts paid as of the end of successive years with respect to the originally reported reserve liability. The third section, reading down, shows re-estimates of the originally recorded reserves as of the end of each successive year, which is the result of our property and casualty insurance subsidiaries' expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The last section compares the latest re-estimated reserves to the reserves originally established, and indicates whether the original reserves were adequate or inadequate to cover the estimated costs of unsettled claims. The loss reserve development table is cumulative and, therefore, ending balances should not be added since the amount at the end of each calendar year includes activity for both the current and prior years.

5

Table of Contents

Schedule of Loss Reserve Development
Calendar Year Ended2003 2004 2005 2006 2007 2008 2009 
2010 (a)
 2011 
2012 (b)
 2013
(In millions)                     
Originally reported gross reserves for unpaid claim and claim adjustment expenses$31,284
 $31,204
 $30,694
 $29,459
 $28,415
 $27,475
 $26,712
 $25,412
 $24,228
 $24,696
 $24,015
Originally reported ceded recoverable13,847
 13,682
 10,438
 8,078
 6,945
 6,213
 5,524
 6,060
 4,967
 5,075
 4,911
Originally reported net reserves for unpaid claim and claim adjustment expenses$17,437
 $17,522
 $20,256
 $21,381
 $21,470
 $21,262
 $21,188
 $19,352
 $19,261
 $19,621
 $19,104
Cumulative net paid as of:                     
One year later$4,382
 $2,651
 $3,442
 $4,436
 $4,308
 $3,930
 $3,762
 $3,472
 $4,277
 $4,588
 $
Two years later6,104
 4,963
 7,022
 7,676
 7,127
 6,746
 6,174
 6,504
 7,459
 
 
Three years later7,780
 7,825
 9,620
 9,822
 9,102
 8,340
 8,374
 8,822
 
 
 
Four years later10,085
 9,914
 11,289
 11,312
 10,121
 9,863
 10,038
 
 
 
 
Five years later11,834
 11,261
 12,465
 11,973
 11,262
 11,115
 
 
 
 
 
Six years later12,988
 12,226
 12,917
 12,858
 12,252
 
 
 
 
 
 
Seven years later13,845
 12,551
 13,680
 13,670
 
 
 
 
 
 
 
Eight years later14,073
 13,245
 14,409
 
 
 
 
 
 
 
 
Nine years later14,713
 13,916
 
 
 
 
 
 
 
 
 
Ten years later15,337
 
 
 
 
 
 
 
 
 
 
Net reserves re-estimated as of:                     
End of initial year$17,437
 $17,522
 $20,256
 $21,381
 $21,470
 $21,262
 $21,188
 $19,352
 $19,261
 $19,621
 $19,104
One year later17,671
 18,513
 20,588
 21,601
 21,463
 21,021
 20,643
 18,923
 19,081
 19,506
 
Two years later19,120
 19,044
 20,975
 21,706
 21,259
 20,472
 20,237
 18,734
 18,946
 
 
Three years later19,760
 19,631
 21,408
 21,609
 20,752
 20,014
 20,012
 18,514
 
 
 
Four years later20,425
 20,212
 21,432
 21,286
 20,350
 19,784
 19,758
 
 
 
 
Five years later21,060
 20,301
 21,326
 20,982
 20,155
 19,597
 
 
 
 
 
Six years later21,217
 20,339
 21,060
 20,815
 20,021
 
 
 
 
 
 
Seven years later21,381
 20,142
 20,926
 20,755
 
 
 
 
 
 
 
Eight years later21,199
 20,023
 20,900
 
 
 
 
 
 
 
 
Nine years later21,100
 20,054
 
 
 
 
 
 
 
 
 
Ten years later21,135
 
 
 
 
 
 
 
 
 
 
Total net (deficiency) redundancy$(3,698) $(2,532) $(644) $626
 $1,449
 $1,665
 $1,430
 $838
 $315
 $115
 $
Reconciliation to gross re-estimated reserves:                     
Net reserves re-estimated$21,135
 $20,054
 $20,900
 $20,755
 $20,021
 $19,597
 $19,758
 $18,514
 $18,946
 $19,506
 $
Re-estimated ceded recoverable15,852
 14,706
 12,025
 9,697
 8,293
 7,252
 6,593
 7,093
 5,850
 5,531
 
Total gross re-estimated reserves$36,987
 $34,760
 $32,925
 $30,452
 $28,314
 $26,849
 $26,351
 $25,607
 $24,796
 $25,037
 $
Total gross (deficiency) redundancy$(5,703) $(3,556) $(2,231) $(993) $101
 $626
 $361
 $(195) $(568) $(341) $
Net (deficiency) redundancy related to:                     
Asbestos$(177) $(123) $(113) $(112) $(107) $(79) $
 $
 $
 $
 $
Environmental pollution(209) (209) (159) (159) (159) (76) 
 
 
 
 
Total asbestos and environmental pollution(386) (332) (272) (271) (266) (155) 
 
 
 
 
Core (Non-asbestos & environmental pollution)(3,312) (2,200) (372) 897
 1,715
 1,820
 1,430
 838
 315
 115
 
Total net (deficiency) redundancy$(3,698) $(2,532) $(644) $626
 $1,449
 $1,665
 $1,430
 $838
 $315
 $115
 $


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Table of Contents

(a)
Effective January 1, 2010, we ceded our net asbestos and environmental pollution claim and allocated claim adjustment expense reserves under a retroactive reinsurance agreement, as further discussed in Note F to the Consolidated Financial Statements included under Item 8.
(b)On July 2, 2012, we acquired Hardy Underwriting Bermuda Limited. As a result of this acquisition, net reserves were increased by $291 million.
Additional information regarding our property and casualty claim and claim adjustment expense reserves and reserve development is set forth in the MD&A included under Item 7 and in Notes A and F to the Consolidated Financial Statements included under Item 8.
Available Information
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act). The public may read and copy any materials that we file with the SEC at the SEC's Public Reference RoomReading Rooms at 100 F Street NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference RoomReading Rooms by calling the SEC at 1-800-SEC-0330.1-202-551-8090. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers, including CNA, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov.
We also make available free of charge on or through our internet website at www.cna.com our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Copies of these reports may also be obtained, free of charge, upon written request to: CNA Financial Corporation, 333 S. Wabash Avenue, Chicago, IL 60604, Attn: Jonathan D. Kantor, Executive Vice President, General Counsel and Secretary.

7


ITEM 1A. RISK FACTORS
Our business faces many risks. Each of therisks and uncertainties. These risks and uncertainties described below could lead to events or circumstances that have a material adverse effect on our results of operations, equity, business and insurer financial strength and corporate debt ratings. We have described below the most significant risks facing us. There may be additional risks that we do not yet know of or that we do not currently perceive to be as significant that may also impact our business. You should carefully consider and evaluate all of the information included in this Reportreport and any subsequent reports we may file with the SEC or make available to the public before investing in any securities we issue.
If we determine that our recorded insurance reserves are insufficient to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, we may need to increase our insurance reserves which would result in a charge to our earnings.
We maintain insurance reserves to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, including the estimated cost of the claims adjudication process, for reported and unreported claims and for future policy benefits.claims. Insurance reserves are not an exact calculation of liability but instead are complex management estimates derived by us, generallydeveloped utilizing a variety of actuarial reserve estimation techniques from numerous assumptionsas of a given reporting date. The reserve estimation process involves a high degree of judgment and expectations about future events, manyvariability and is subject to a number of factors which are highly uncertain, such as estimates ofuncertain. These variables can be affected by both changes in internal processes and external events. Key variables include claims severity, frequency of claims, mortality, morbidity, discount rates, inflation, claims handling case reserving policies and procedures, case reserving approach, underwriting and pricing policies, changes in the legal and regulatory environment and the lag time between the occurrence of an insured event and the time of its ultimate settlement. Mortality is the relative incidence of death. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Many
There is generally a higher degree of these uncertaintiesvariability in estimating required reserves for long-tail coverages, such as general liability and workers' compensation, as they require a relatively longer period of time for claims to be reported and settled. The impact of changes in inflation and medical costs are not precisely quantifiable and require significant judgment on our part. As trends in underlying claims develop, particularly in so-called “long tail” or long durationalso more pronounced for long-tail coverages we are sometimes requireddue to add to our reserves. This is called unfavorable net prior year development and results in a charge to our earnings in the amount of the added reserves, recorded in the period the change in estimate is made. These charges can be substantial.longer settlement period.
We are subject to the uncertain effects of emerging or potential claims and coverage issues that arise as industry practices and legal, judicial, social, economic and other environmental conditions change. These issues have had, and may continue to have, a negative effect on our business by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims, resulting in further increases in our reserves. The effects of these and other unforeseen emerging claim and coverage issues are extremely difficult to predict. Examples of emerging
Emerging or potential claims and coverage issues include:
include, but are not limited to, uncertainty in future medical costs in workers' compensation. In particular, medical cost inflation could be greater than expected due to new treatments, drugs and devices; increased healthcare utilization; and/or the future costs of healthcare facilities. In addition, the relationship between workers' compensation and government and private healthcare providers could change, potentially shifting costs to workers' compensation;
increased uncertainty related to medical professional liability, medical products liability and workers’ compensation coverages resulting from the Patient Protection and Affordable Care Act;
significant class action litigation; and
mass tort claims, including bodily injury claims related to benzene, lead, noise induced hearing loss, injuries from various medical products including pharmaceuticals, and various other chemical and radiation exposure claims.compensation.
In light of the many uncertainties associated with establishing the estimates and making the assumptionsjudgments necessary to establish reserve levels, we continually review and change our reserve estimates in a regular and ongoing process as experience develops from the actual reporting and furthersettlement of claims are reported and settled.as the legal, regulatory and economic environment evolves. If estimatedour recorded reserves are insufficient for any reason, the required increase in reserves would be recorded as a charge against our earnings in the period in which reserves are determined to be insufficient. These charges could be substantial.

8


Our actual experience could vary from the key assumptions used to determine active life reserves for long term care products and payout annuity contracts could vary significantly from actual experience.policies.
Our active life reserves for long term care productspolicies are based on keyour best estimate assumptions includingas of December 31, 2015, due to an unlocking at that date. Key assumptions include morbidity, mortality, policy persistency (the percentage of policies remaining in force), discount rate and discount rate.future premium rate increases. These assumptions, which are critical bases for our reserve estimates, and, while monitored consistently, are inherently uncertain. If actual experience varies from these assumptions or the future outlook for these assumptions changes, we may be required to increase our reserves. See the Life & Group Non-

Core Policyholder Reserves portion of Reserves - Estimates and Uncertainties section of MD&A in Item 7 for more information.
Estimating future experience for long term care policies is highly uncertain, due tobecause the required projection period is very long and there is limited historical data and industry data available to us, as only a small portion of the long term care policies which have been written to date are in claims paying status,status. Morbidity and the potential changingpersistency trends can be volatile and may be negatively affected by many factors including, but not limited to, policyholder behavior, judicial decisions regarding policy terms, socioeconomic factors, cost of care inflation, changes in morbidityhealth trends and mortality over time. Assumptions relating to mortality and discount rate also form the basis for reserve determination for payout annuity products.advances in medical care.
A prolonged period during which interest rates remain at levels lower than those anticipated in our reserving would result in shortfalls in investment income on assets supporting our obligations under long term care policies, and payout annuity contracts, which may also require changes to our reserves. This risk is more significant for our long term care products because the long potential duration of the policy obligations exceeds the duration of the supporting investment assets. Further, changes to the corporate tax code may also impact the rate at which we discount our reserves. In addition, we may not receive regulatory approval for the level of premium rate increases we request. Any adverse deviation between the level of future premium rate increases approved and the level included in our reserving assumptions may require an increase to our reserves.
If our estimated reserves are insufficient for any reason, including changes in assumptions, the required increase in reserves would be recorded as a charge against our earnings in the period in which reserves are determined to be insufficient. These charges could be substantial.
Catastrophe losses are unpredictable and could result in material losses.
Catastrophe losses are an inevitable part of our business. Various events can cause catastrophe losses. These events can be natural or man-made, and may include hurricanes, windstorms, earthquakes, hail, severe winter weather, fires, floods, riots, strikes, civil commotion and acts of terrorism. The frequency and severity of these catastrophe events are inherently unpredictable. In addition, longer-term natural catastrophe trends may be changing and new types of catastrophe losses may be developing due to climate change, a phenomenon that has been associated with extreme weather events linked to rising temperatures and includes effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow.
The extent of our losses from catastrophes is a function of the total amount of our insured exposures in the affected areas, the frequency and severity of the events themselves, the level of reinsurance assumed and ceded, and reinsurance reinstatement premiums and state residual market assessments, if any. As in the case of catastrophe losses generally, itIt can take a long time for the ultimate cost of any catastrophe losses to us to be finally determined, as a multitude of factors contribute to such costs, including evaluation of general liability and pollution exposures, additional living expenses, infrastructure disruption, business interruption and reinsurance collectibility. Reinsurance coverage for terrorism events is provided only in limited circumstances, especially in regard to “unconventional” terrorism acts, such as nuclear, biological, chemical or radiological attacks. As a result of the items discussed above, catastrophe losses are particularly difficult to estimate.
Additionally, claim frequency and severity for some lines of business can be correlated to an external factor such as economic activity, financial market volatility, increasing health care costs or changes in the U.S. government currently provideslegal or regulatory environment. Claim frequency and severity can also be correlated to insureds' use of common business practices, equipment, vendors or software. This can result in multiple insured losses emanating out of the same underlying cause. In these instances, we may be subject to increased claim frequency and severity across multiple policies or lines of business concurrently. While we do not define such instances as catastrophes for financial protection throughreporting purposes, they are similar to catastrophes in terms of the Terrorism Risk Insurance Program Reauthorization Act, which is set to expire December 31, 2014. Should that act expire without reauthorization or be reauthorized under materially different terms,uncertainty and potential impact on our net exposure to a significant terrorist event could increase.results.
We have exposures related to asbestos and environmental pollution (A&EP) claims, which could result in material losses.
Our property and casualty insurance subsidiaries have exposures related to A&EP claims. Our experience has been that establishing claim and claim adjustment expense reserves for casualty coverages relating to A&EP claims is subject to uncertainties that are greater than those presented by other claims. Additionally, traditional actuarial methods and techniques employed to estimate the ultimate cost of claims for more traditional property and casualty exposures are less precise in estimating claim and claim adjustment expense reserves for A&EP. As a result,

estimating the ultimate cost of both reported and unreported A&EP claims is subject to a higher degree of variability.
On August 31, 2010, we completed a retroactive reinsurance transaction under which substantially all of our legacy A&EP liabilities were ceded to National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., subject to an aggregate limit of $4 billion (Loss Portfolio Transfer). The cumulative amount ceded under the Loss Portfolio Transfer as of December 31, 2016 is $2.8 billion. If the other parties to the Loss Portfolio Transfer do not fully perform their obligations, our liabilities fornet losses incurred on A&EP claims covered by the Loss Portfolio Transfer exceed the aggregate limit of $4 billion, or we determine we have exposures to A&EP claims not covered by the Loss Portfolio Transfer, we may need to increase our recorded net reserves which would result in a charge against our earnings. These charges could be substantial.

We use analytical models to assist our decision making in key areas such as pricing, reserving and capital modeling and may be adversely affected if actual results differ materially from the model outputs and related analyses.
9

TableWe use various modeling techniques and data analytics (e.g., scenarios, predictive, stochastic and/or forecasting) to analyze and estimate exposures, loss trends and other risks associated with our assets and liabilities. This includes both proprietary and third party modeled outputs and related analyses to assist us in decision-making related to underwriting, pricing, capital allocation, reserving, investing, reinsurance and catastrophe risk, among other things. We incorporate numerous assumptions and forecasts about the future level and variability of Contents

Our premium writingspolicyholder behavior, loss frequency and severity, interest rates, equity markets, inflation, capital requirements, and currency exchange rates, among others. The modeled outputs and related analyses from both proprietary and third parties are subject to the inherent limitations of any statistical analysis, including those arising from the use of historical internal and industry data and assumptions.
In addition, the effectiveness of any model can be degraded by operational risks including, but not limited to, the improper use of the model, including input errors, data errors and human error. As a result, actual results may differ materially from our modeled results. The profitability and financial condition of the Company substantially depends on the extent to which our actual experience is consistent with assumptions we use in our models and ultimate model outputs. If, based upon these models or other factors, we misprice our products or fail to appropriately estimate the risks we are exposed to, our business, financial condition, results of operations or liquidity may be adversely affected.
We face intense competition in our industry; we may be adversely affected by the cyclical nature of the property and casualty business, the evolving landscape of our distribution network, as well as the availability and cost of reinsurance.
All aspects of the insurance industry are highly competitive and we must continuously allocate resources to refine and improve our insurance products and services to remain competitive. We compete with a large number of stock and mutual insurance companies and other entities, some of which may be larger or have greater financial or other resources than we do, for both distributors and customers. This includes agents and brokers who may increasingly compete with us to the extent that markets continue to provide them with direct access to providers of capital seeking exposure to insurance risk. Insurers compete on the basis of many factors, including products, price, services, ratings and financial strength. The competitor insurer landscape has evolved substantially in recent years, with significant consolidation and new market entrants, resulting in increased pressures on our ability to remain competitive, particularly in implementing pricing that is both attractive to our customer base and risk-appropriate to the Company.
In addition, the property and casualty market is cyclical and has experienced periods characterized by relatively high levels of price competition, resulting in less restrictive underwriting standards and relatively low premium rates, followed by periods of relatively lower levels of competition, more selective underwriting standards and relatively high premium rates. During periods in which price competition is high, we may lose business to competitors offering competitive insurance products at lower prices. As a result, our premium levels and expense ratio could be materially adversely impacted.
We market our insurance products worldwide primarily through independent insurance agents and insurance brokers, who also promote and distribute the products of our competitors. Any change in our relationships with our distribution network agents and brokers, including as a result of consolidation and their increased promotion

and distribution of our competitors' products, could adversely affect our ability to sell our products. As a result, our business volume and results of operations could be materially adversely impacted.
We purchase reinsurance to help manage our exposure to risk. Under our ceded reinsurance arrangements, another insurer assumes a specified portion of our exposure in exchange for a specified portion of policy premiums. Market conditions determine the availability and cost of the reinsurance protection we purchase, which affects the level of our business and profitability, as well as the level and types of risk we retain. If we are unable to obtain sufficient reinsurance at a cost we deem acceptable, we may be unwilling to bear the increased risk and would reduce the level of our underwriting commitments.
We may be adversely affected by technological changes or disruptions in the insurance marketplace.
Technological changes in the way insurance transactions are completed in the marketplace, and our ability to react effectively to such change, may present significant competitive risks. For example, more insurers are utilizing "big data" analytics to make underwriting and other decisions that impact product design and pricing. If such utilization is more effective than how we use similar data and information, we will be at a competitive disadvantage. There can be no assurance that we will continue to compete effectively with our industry peers due to technological changes; accordingly, this may have a material adverse effect on our business and results of operations.
In addition, agents and brokers, technology companies, or other third parties may create alternate distribution channels for commercial business that may adversely impact product differentiation and pricing. For example, they may create a digitally enabled distribution channel that may adversely impact our competitive position. Our efforts or the efforts of agents and brokers with respect to new products or alternate distribution channels, as well as changes in the way agents and brokers utilize greater levels of data and technology, could adversely impact our business relationship with independent agents and brokers who currently market our products, resulting in a lower volume and/or profitability of business generated from these sources.
We may not be able to collect amounts owed to us by reinsurers, which could result in higher net incurred losses.
We have significant amounts recoverable from reinsurers which are reported as receivables on our Consolidated Balance Sheets and are estimated in a manner consistent with claim and claim adjustment expense reserves or future policy benefits reserves. The ceding of insurance does not, however, discharge our primary liability for claims. As a result, we are subject to credit risk relating to our ability to recover amounts due from reinsurers. In the past, certainCertain of our reinsurance carriers have experienced credit downgrades by rating agencies within the term of our contractual relationship. Such action increasesrelationship, which indicates an increase in the likelihood that we will not be able to recover amounts due. In addition, reinsurers could dispute amounts which we believe are due to us. If the amounts we collectdue from reinsurers that we are able to collect are less than the amount recorded for any of the foregoing reasons,by us with respect to such amounts due, our net incurred losses will be higher.
We may not be able to collect amounts owed to us by policyholders who hold deductible policies and/or who purchase retrospectively rated policies, which could result in higher net incurred losses.
A portion of our business is written under deductible policies. Under these policies, we are obligated to pay the related insurance claims and are reimbursed by the policyholder to the extent of the deductible, which may be significant.
Moreover, certain policyholders purchase retrospectively rated workers' compensation policies (i.e., policies in which premiums are adjusted after the policy period based on the actual loss experience of the policyholder during the policy period). Retrospectively rated policies expose us to additional credit risk to the extent that the adjusted premium is greater than the original premium, which may be significant. As a result, we are exposed to policyholder credit risk torisk. If the policyholder. Ifamounts due from policyholders that we are not able to collect are less than the amounts duerecorded with respect to us from policyholders,such amounts due, our incurred losses will be higher.
We may incur significant realized and unrealized investment losses and volatility in net investment income arising from changes in the financial markets.
Our investment portfolio is exposed to various risks, such as interest rate, credit spread, issuer default, equity prices and foreign currency, risks, many of which are unpredictable. Financial markets are highly sensitive to changes in economic

conditions, monetary policies, tax policies, domestic and international geopolitical issues and many other factors. Changes in financial markets including fluctuations in interest rates, credit, equity prices and foreign currency prices and many other factors beyond our control can adversely affect the value of our investments, and the realization of investment income.income and the rate at which we discount certain liabilities.
We have significant holdings in fixed maturity investments that are sensitive to changes in interest rates. A decline in interest rates may reduce the returns earned on new fixed maturity investments, thereby reducing our net investment income, while an increase in interest rates may reduce the value of our existing fixed maturity investments. The value of our fixed maturity investments is also subject to risk that certain investments may default or become impaired due to deterioration in the financial condition of issuers of the investments we hold.hold or in the underlying collateral of the security. Any such impairments which we deem to be other-than-temporary would result in a charge to our earnings.
In addition, we invest a portion of our assets in equity securities and limited partnerships which are subject to greater market volatility than our fixed maturity investments. Limited partnership investments generally provide a lower level of liquidity than fixed maturity or equity investments and thereforewhich may also limit our ability to withdraw assets.
Further, we hold a portfolio of commercial mortgage loans. We are subject to credit risk relating to our ability to recover amounts due from the borrowers as a result of the creditworthiness of the borrowers or tenants of credit tenant loan properties. If the amounts we collect from the borrowers are less than the amount recorded, it would result in a charge to our earnings.
As a result of all of these factors, we may not earn an adequate return on our investments, may incur losses on the disposition of our investments, and may be required to write down the value of our investments.
Our valuation of investments and impairment of securities requires significant judgment, which is inherently uncertain.
We exercise significant judgment in analyzing and validating fair values, which are primarily provided by third parties, for securities in our investment portfolio, including those that are not regularly traded in active markets. We also exercise significant judgment in determining whether the impairment of particular investments is temporary or other-than-temporary. The valuation of residential and commercial mortgage and other asset-backed securities can be particularly sensitive to fairly small changes in collateral performance.

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Due to the inherent uncertainties involved with these judgments, we may incur unrealized losses and conclude that other-than-temporary write downson the disposition of our investments are required.investments.
Changes in U.S. tax laws or in the tax laws of other jurisdictions in which we operate could adversely impact our results of operations.
Federal, and/state or stateforeign tax legislation that would lessen or eliminate some or all of the tax attributes currently affecting us could materially and adversely impact our results of operations, in particular, changes to tax laws governing tax credits. Other potential tax law changes, including modification of the corporate tax rate and the taxation of interest from municipal bonds, could also adversely affect the value of our investment portfoliothe tax benefit received on tax exempt municipal investments and thus the rate at which we discount certain liabilities.our long term care active life reserves.
Any significant interruption in the operation of our facilities, systems and business functions or breach in our data security infrastructure could result in a materially adverse effect on our operations.
Our business is highly dependent upon our ability to perform, in an efficient and uninterrupted manner, through our employees or vendor relationships, necessary business functions (such as internet support and 24-hour call centers), processing new and renewal business and processing and paying claims and other obligations. Our facilities and systems could become unavailable, inoperable, or otherwise impaired from a variety of causes, including, without limitation, natural events, such as hurricanes, tornadoes, windstorms, earthquakes, severe winter weather and fires, or other events, such as explosions, terrorist attacks, computer security breaches or cyber attacks, riots, hazardous material releases, medical epidemics, utility outages, interruptions of our data processing and storage systems or the systems of third-party vendors, or unavailability of communications facilities. Likewise, we could experience a significant failure or corruption of one or more of our information technology, telecommunications, or other systems for various reasons, including significant failures that might occur as existing systems are replaced or upgraded.
The shut-down or unavailability of one or more of our systems or facilities for any reason could significantly impair our ability to perform critical business functions on a timely basis. In addition, because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such events could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner, or perform other necessary business functions, including the ability to issue financial statements in a timely manner. This could result in a materially adverse effect on our business results, prospects and liquidity, as well as damage to customer goodwill.
Failure
A significant breach of our data security infrastructure, resulting from actions by our employees, vendors, third-party administrators or by unknown third parties, that impacts our data framework or causes a failure to protect personal information of our customers, claimants or employees may result in operational impairments and financial losses, as well as significant harm to our reputation.
The foregoing risks relating to disruption of service, interruption of operations and data loss could expose us to monetary and reputational damages. In addition, potential exposures include substantially increased compliance costs and required computer system upgrades and security-related investments. The breach of confidential information also could give rise to legal liability and regulatory action under data protection and privacy laws and regulations, both in the U.S. and foreign jurisdictions. Any such legal or regulatory action could have a material adverse effect on our operations.
Inability to detect and prevent significant employee or third party service provider misconduct or inadvertent errors and omissions could result in a materially adverse effect on our operations.
We may incur losses which arise from employees or third party service providers engaging in intentional misconduct, fraud, errors and omissions, failure to comply with internal guidelines, including with respect to underwriting authority, or failure to comply with regulatory requirements. Our controls may not be able to detect all possible circumstances of employee and third party service provider non-compliant activity and the internal structures in place to prevent this activity may not be effective in all cases. Any losses relating to such non-compliant activity could adversely affect our results of operations.
Loss of key vendor relationships, issues relating to the transitioning of vendor relationships or exposure relating to claim administration and claim adjudication functions performed by a vendor could result in a materially adverse effect on our operations.
If a vendor, third-party administrator or employee fails to protect personal information of our customers, claimants or employees, we may suffer operational impairments and financial losses, as well as significant harm to our reputation.
In the event that one or more of our vendors suffers a bankruptcy, is sold to another entity, sustains a significant business interruption or otherwise becomes unable to continue to provide products or services at the requisite level, we may be adversely affected. We may suffer operational impairments and financial losses associated with transferring business to a new vendor, assisting a vendor with rectifying operational difficulties, failure by vendors to properly perform service functions or assuming previously outsourced operations ourselves. Our inability to provide for appropriate servicing if a vendor becomes unable to fulfill its contractual obligations to us, either through transitioning to another service provider temporarily or permanently or assuming servicing internally, may have a materially adverse effect on our operations.
Additionally, we rely on certain third-party claims administrators, including the administratoradministrators of our long term care claims, to perform significant claim administration and claim adjudication functions. Any failure by such administrator to properly perform service functions may result in losses as a result of over-payment of claims, legal claims against us and adverse regulatory enforcement exposure.
We face considerable competition within our industry for qualified, specialized talent and any significant inability to attract and retain talent may adversely affect the execution of our business strategies.
The successful execution of our business plan depends on our ability to attract and retain qualified talent. Due to the intense competition in our industry and may be adversely affected by the cyclical nature of the property and casualty business.
All aspects of the insurancefor qualified employees with specialized industry are highly competitive and we must continuously allocate resources to refine and improve our insurance products and services. We compete with a large number of stock and mutual insurance companies and other entities for both distributors and customers. Insurers compete on the basis of factors including

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products, price, services, ratings and financial strength. The property and casualty market is cyclical and has experienced periods characterized by relatively high levels of price competition, resulting in less restrictive underwriting standards and relatively low premium rates, followed by periods of relatively lower levels of competition, more selective underwriting standards and relatively high premium rates. During periods in which price competition is high,experience, we may lose businessencounter obstacles to competitors offering competitive insurance products at lower prices. As a result, our premium levelsability to attract and expense ratioretain such employees, which could be materially adversely impacted.impact our results of operations.
We are subject to capital adequacy requirements and, if we are unable to maintain or raise sufficient capital to meet these requirements, regulatory agencies may restrict or prohibit us from operating our business.
Insurance companies such as ours are subject to capital adequacy standards set by regulators to help identify companies that merit further regulatory attention. These standards apply specified risk factors to various asset, premium and reserve components of statutory capital and surplus reported in our legal entity statutory basis of accounting financial statements. Current rules, including those promulgated by insurance regulators and specialized markets, such as Lloyd's, require companies to maintain statutory capital and surplus at a specified minimum level determined using the applicable jurisdiction's regulatory capital adequacy formula. If we do not meet these minimum requirements, we may be restricted or prohibited from operating our business.business in the applicable jurisdictions and specialized markets. If we are required to record a material charge against earnings in connection with a change in estimate orestimated insurance reserves, the occurrence of ana catastrophic event, or if we incur significant losses related to our investment portfolio, which

severely deteriorate our capital position, we may violate these minimum capital adequacy requirements unless we are able to raise sufficient additional capital. We may be limited in our ability to raise significant amounts of capital on favorable terms or at all.
Globally, insurance regulators are working cooperatively to develop a common framework for the supervision of internationally active insurance groups. Finalization and adoption of this framework could increase our minimum regulatory capital requirement as well as significantly increase our cost of regulatory compliance.
Our insurance subsidiaries, upon whom we depend for dividends in order to fund our working capital needs,corporate obligations, are limited by insurance regulators in their ability to pay dividends.
We are a holding company and are dependent upon dividends, loans and other sources of cash from our subsidiaries in order to meet our obligations. Ordinary dividend payments, or dividends that do not require prior approval by the insurance subsidiaries' domiciliary insurance regulator, are generally limited to amounts determined by formula which variesformulas that vary by jurisdiction. The formula for the majority of domestic states is the greater of 10% of the prior year statutory surplus or the prior year statutory net income, less the aggregate of all dividends paid during the twelve months prior to the date of payment. Some jurisdictions, including certain domestic states, however, have an additional stipulation that dividends cannot exceed the prior year's earned surplus. If we are restricted by regulatory rule or otherwise, from paying or receiving intercompany dividends, by regulatory rule or otherwise, we may not be able to fund our working capital needscorporate obligations and debt service requirements from available cash. As a result, we would need to look to other sources of capital which may be more expensive or may not be available at all.
Rating agencies may downgrade their ratings of us and thereby adversely affect our ability to write insurance at competitive rates or at all.
Ratings are an important factor in establishing the competitive position of insurance companies. Our insurance company subsidiaries, as well as our public debt, are rated by rating agencies, namely,including, A.M. Best Company (A.M. Best), Moody's Investors Service, Inc. (Moody's) and Standard & Poor's (S&P). Ratings reflect the rating agency's opinions of an insurance company's or insurance holding company's financial strength, capital adequacy, operating performance, strategic position and ability to meet its obligations to policyholders and debt holders.
DueThe rating agencies may take action to the intense competitive environment in which we operate, the uncertainty in determining reserves and the potential for us to take material unfavorable net prior year developmentlower our ratings in the future andas a result of any significant financial loss or possible changes in the methodology or criteria applied by the rating agencies, the rating agencies may take action to lower our ratings in the future.agencies. The severity of the impact on our business is dependent on the level of downgrade and, for certain products, which rating agency takes the rating action. Among the adverse effects in the event of such downgrades would be the inability to obtain a material volume of business from certain major insurance brokers, the inability to sell a material volume of our insurance products to certain markets and the required collateralization of certain future payment obligations or reserves.
In addition, it is possible that a significant lowering of the corporate debt ratings of Loews by certain of the rating agencies could result in an adverse impact on our ratings, independent of any change in our circumstances.

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We are subject to extensive existing state, local, federal and foreign governmental regulations that restrict our ability to do business and generate revenues.revenues; additional regulation or significant modification to existing regulations or failure to comply with regulatory requirements may have a materially adverse effect on our business, our operations and financial condition.
The insurance industry is subject to comprehensive and detailed regulation and supervision. Most insurance regulations are designed to protect the interests of our policyholders and third-party claimants, rather than our investors. Each jurisdiction in which we do business has established supervisory agencies that regulate the manner in which we do business, generally at the state level.business. Any changes in federal regulation could also impose significant burdens on us. In addition, the Lloyd's marketplace sets rules under which its members, including our Hardy syndicate, operate.
These rules and regulations relate to, among other things, the following:
standards of solvency including(including risk-based capital measurements;
restrictions on the nature, quality and concentration of investments;
restrictions on our ability to withdraw from unprofitable lines of insurance or unprofitable market areas;
the required use ofmeasures), government-supported backstops for certain methods ofcatastrophic events (including terrorism), investment restrictions, accounting and reporting;
thereporting methodology, establishment of reserves for unearned premiums, losses and other purposes;
potential assessments forof funds necessary to settle covered claims against impaired, insolvent or failed private or quasi-governmental insurers;
licensing of insurers and agents;
approval of policy forms;
limitations on the ability of our insurance subsidiaries to pay dividends to us; and
limitations on the ability to non-renew, cancel, increase rates or change terms and conditions in policies.insurers.
Regulatory powers also extend to premium rate regulations which require that rates not be excessive, inadequate or unfairly discriminatory. State jurisdictions ensure compliance with such regulations through market conduct exams, which may result in losses to the extent non-compliance is ascertained, either as a result of failure to document transactions properly or failure to comply with internal guidelines, or otherwise. The jurisdictions in which we do business may also require us to provide coverage to persons whom we would not otherwise consider eligible.

eligible or restrict us from withdrawing from unprofitable lines of business or unprofitable market areas. Each jurisdiction dictates the types of insurance and the level of coverage that must be provided to such involuntary risks. Our share of these involuntary risks is mandatory and generally a function of our respective share of the voluntary market by line of insurance in each jurisdiction.

13


ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
TheOur Chicago location owned by CCC, houses our principal executive offices. Our subsidiaries own orWe lease office space in various cities throughout the United States and in other countries. The following table sets forth certain information with respect to our principal office locations.
LocationAmount (Square Feet) of Building Owned and Occupied orSpace Leased and Occupied by CNAPrincipal Usage
333 S. Wabash Avenue, Chicago, Illinois639,553602,483
 Principal executive offices of CNAF
2405 Lucien Way, Maitland, Florida113,084108,062
 Property and casualty insurance offices
125 S. Broad Street, New York, New York71,84766,810
Property and casualty insurance offices
1 Meridian Boulevard, Wyomissing, Pennsylvania59,161
 Property and casualty insurance offices
101 S. Reid Street, Sioux Falls, South Dakota61,63158,917
 Property and casualty insurance offices
4150 N. Drinkwater Boulevard, Scottsdale, Arizona56,281
 Property and casualty insurance offices
401 Penn Street, Reading, Pennsylvania56,009
Property and casualty insurance offices
10375 Park Meadows Drive, Littleton, Colorado42,968
Property and casualty insurance offices
675 Placentia Avenue, Brea, California41,340
Property and casualty insurance offices
700 N. Pearl Street, Dallas, Texas37,87035,316
 Property and casualty insurance offices
1249 S. River Road, Cranbury, New Jersey36,94634,666
Property and casualty insurance offices
555 Mission Street, San Francisco, California32,892
Property and casualty insurance offices
10375 Park Meadows Drive, Littleton, Colorado28,589
 Property and casualty insurance offices
We lease all of the office space described above, except forincluding the building in Chicago, Illinois, which is owned.was sold by CCC during the first quarter of 2016. We consider that our properties areto be in generally in good condition, are well maintained and are suitable and adequate to carry on our business.
ITEM 3. LEGAL PROCEEDINGS
Information on our legal proceedings is set forth in Note GF to the Consolidated Financial Statements included under Item 8.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

14


PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange and the Chicago Stock Exchange under the symbol CNA.
As of February 14, 2014,10, 2017, we had 269,824,832270,621,400 shares of common stock outstanding. Approximatelyoutstanding and approximately 90% of our outstanding common stock iswas owned by Loews. We had 1,2301,042 stockholders of record as of February 14, 201410, 2017 according to the records maintained by our transfer agent.
Our Board of Directors has approved an authorization to purchase, in the open market or through privately negotiated transactions, our outstanding common stock, as our management deems appropriate. No repurchases were made in the fourth quarter of 20132016. or 2015.
The table below shows the high and low salesclosing prices for our common stock based on the New York Stock Exchange Composite Transactions.
Common Stock InformationTransactions, as well as the dividends declared on our common stock.
2013 20122016 2015
Quarter:High Low 
Dividends
Declared
 High Low 
Dividends
Declared
High Low 
Dividends
Declared
 High Low 
Dividends
Declared
First$32.69
 $28.89
 $0.20
 $29.73
 $26.70
 $0.15
$34.60
 $28.21
 $2.25
 $43.40
 $36.61
 $2.25
Second35.27
 30.71
 0.20
 30.67
 26.87
 0.15
33.07
 29.42
 0.25
 41.82
 37.91
 0.25
Third38.30
 32.66
 0.20
 28.35
 25.91
 0.15
34.86
 30.37
 0.25
 40.43
 34.29
 0.25
Fourth42.89
 37.44
 0.20
 29.57
 27.06
 0.15
42.07
 34.04
 0.25
 37.05
 34.24
 0.25
The following graph compares the five-year total return of our common stock, the Standard & Poor's 500 (S&P 500) Index and the S&P 500 Property & Casualty Insurance Index for the five year period from December 31, 2008 through December 31, 2013.Index. The graph assumes that the value of the investment in our common stock and for each index was $100 on December 31, 2008at the base period, January 1, 2012, and that dividends, if any, were reinvested.
Stock Price Performance Graph
Company / Index2008 2009 2010 2011 2012 2013
CNA Financial Corporation100.00
 145.99
 164.54
 165.10
 176.65
 276.68
S&P 500 Index100.00
 126.46
 145.51
 148.59
 172.37
 228.19
S&P 500 Property & Casualty Insurance Index100.00
 112.35
 122.38
 122.08
 146.63
 202.78

15

Company / IndexBase Period 2012 2013 2014 2015 2016
CNA Financial Corporation$100.00
 $107.00
 $167.58
 $158.80
 $155.04
 $201.57
S&P 500 Index100.00
 116.00
 153.57
 174.60
 177.01
 198.18
S&P 500 Property & Casualty Insurance Index100.00
 120.11
 166.10
 192.25
 210.57
 243.65
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data. On July 2, 2012, we acquired Hardy Underwriting Bermuda Limited and its subsidiaries.Hardy. The results of Hardy are included from the date of acquisition. The table should be read in conjunction with Item 7.7 Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8.8 Financial Statements and Supplementary Data of this Form 10-K.
Selected The comparative period Financial DataCondition data through 2013 includes CAC assets and liabilities.
As of or for the years ended December 31                  
(In millions, except per share data)2013 2012 2011 2010 20092016 2015 2014 2013 2012
Results of Operations:                  
Revenues$10,113
 $9,547
 $8,949
 $9,209
 $8,472
$9,366
 $9,101
 $9,692
 $9,932
 $9,364
Income (loss) from continuing operations, net of tax$937
 $628
 $629
 $780
 $482
$859
 $479
 $888
 $915
 $620
Income (loss) from discontinued operations, net of tax
 
 (1) (21) (2)
Net (income) loss attributable to noncontrolling interests, net of tax
 
 (16) (68) (62)
(Loss) income from discontinued operations, net of tax
 
 (197) 22
 8
Net income (loss) attributable to CNA$937
 $628
 $612
 $691
 $418
$859
 $479
 $691
 $937
 $628
Basic Earnings (Loss) Per Share Attributable to CNA Common Stockholders:         
Income (loss) from continuing operations attributable to CNA common stockholders$3.48
 $2.33
 $2.27
 $2.36
 $1.11
Income (loss) from discontinued operations attributable to CNA common stockholders
 
 
 (0.08) (0.01)
Basic earnings (loss) per share attributable to CNA common stockholders$3.48
 $2.33
 $2.27
 $2.28
 $1.10
Diluted Earnings (Loss) Per Share Attributable to CNA Common Stockholders:         
Income (loss) from continuing operations attributable to CNA common stockholders$3.47
 $2.33
 $2.27
 $2.36
 $1.11
Income (loss) from discontinued operations attributable to CNA common stockholders
 
 
 (0.08) (0.01)
Diluted earnings (loss) per share attributable to CNA common stockholders$3.47
 $2.33
 $2.27
 $2.28
 $1.10
Basic Earnings (Loss) Per Share:         
Income (loss) from continuing operations$3.18
 $1.77
 $3.29
 $3.39
 $2.30
(Loss) income from discontinued operations
 
 (0.73) 0.09
 0.03
Basic earnings (loss) per share$3.18
 $1.77
 $2.56
 $3.48
 $2.33
Diluted Earnings (Loss) Per Share:         
Income (loss) from continuing operations$3.17
 $1.77
 $3.28
 $3.39
 $2.30
(Loss) income from discontinued operations
 
 (0.73) 0.08
 0.03
Diluted earnings (loss) per share$3.17
 $1.77
 $2.55
 $3.47
 $2.33
Dividends declared per common share$0.80
 $0.60
 $0.40
 $
 $
$3.00
 $3.00
 $2.00
 $0.80
 $0.60
Financial Condition:                  
Total investments$46,107
 $47,636
 $44,373
 $42,655
 $41,996
$45,420
 $44,699
 $46,262
 $46,107
 $47,636
Total assets57,194
 58,522
 55,110
 55,252
 55,218
55,233
 55,045
 55,564
 57,192
 58,520
Insurance reserves38,394
 40,005
 37,554
 37,590
 38,263
36,431
 36,486
 36,380
 38,394
 40,005
Long and short term debt2,560
 2,570
 2,608
 2,651
 2,303
2,710
 2,560
 2,557
 2,558
 2,568
Total CNA stockholders' equity12,651
 12,314
 11,488
 10,882
 10,587
11,969
 11,756
 12,794
 12,651
 12,314
Book value per common share$46.91
 $45.71
 $42.66
 $40.44
 $35.64
$44.25
 $43.49
 $47.39
 $46.91
 $45.71


16


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Index to this MD&A
Management's discussion and analysis of financial condition and results of operations is comprised of the following sections:
 Page No.

17


OVERVIEW
The following discussion should be read in conjunction with Item 1A.1A Risk Factors, Item 6.6 Selected Financial Data and Item 8.8 Financial Statements and Supplementary Data of this Form 10-K. References
CRITICAL ACCOUNTING ESTIMATES
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the amount of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. In general, our estimates are based on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.
The accounting estimates discussed below are considered by us to be critical to an understanding of our Consolidated Financial Statements as their application places the most significant demands on our judgment. Note A to the Consolidated Financial Statements included under Item 8 should be read in conjunction with this section to assist with obtaining an understanding of the underlying accounting policies related to these estimates. Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from estimates and may have a material adverse impact on our results of operations, equity, business, and insurer financial strength and corporate debt ratings.
Insurance Reserves
Insurance reserves are established for both short and long-duration insurance contracts. Short-duration contracts are primarily related to property and casualty insurance policies where the reserving process is based on actuarial estimates of the amount of loss, including amounts for known and unknown claims. Long-duration contracts are primarily related to long term care policies and are estimated using actuarial estimates about morbidity and persistency as well as assumptions about expected investment returns and future premium rate increases. The reserve for unearned premiums on property and casualty contracts represents the portion of premiums written related to the unexpired terms of coverage. The reserving process is discussed in further detail in the Reserves-Estimates and Uncertainties section below.
Reinsurance and Insurance Receivables
Exposure exists with respect to the collectibility of ceded property and casualty and life reinsurance to the extent that any reinsurer is unable to meet its obligations or disputes the liabilities we have ceded under reinsurance agreements. An allowance for uncollectible reinsurance is recorded on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, our past experience and current economic conditions. Further information on our reinsurance receivables is in Note G to the Consolidated Financial Statements included under Item 8.
Additionally, exposure exists with respect to the collectibility of amounts due from policyholders related to insurance contracts, including amounts due from insureds under high deductible policies and retrospectively rated policies. An allowance for uncollectible insurance receivables is recorded on the basis of periodic evaluations of balances due from insureds, currently as well as in the future, management's experience and current economic conditions.
If actual experience differs from the estimates made by management in determining the allowances for uncollectible reinsurance and insurance receivables, net operating income (loss), net realizedreceivables as reflected on our Consolidated Balance Sheets may not be collected. Therefore, our results of operations or equity could be materially adversely affected.

Valuation of Investments and Impairment of Securities
We classify our fixed maturity securities and equity securities as either available-for-sale or trading, which are both carried at fair value on the balance sheet. Fair value represents the price that would be received in a sale of an asset in an orderly transaction between market participants on the measurement date, the determination of which requires us to make a significant number of assumptions and judgments. Securities with the greatest level of subjectivity around valuation are those that rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs are based on assumptions consistent with what we believe other market participants would use to price such securities. Further information on our fair value measurements is in Note C to the Consolidated Financial Statements included under Item 8.
Our investment gains (losses)portfolio is subject to market declines below amortized cost that may be other-than-temporary and net income (loss) usedtherefore result in this MD&A reflect amounts attributable to CNA, unless otherwise noted.
Subsequent Event
On February 10, 2014, we entered intothe recognition of impairment losses in earnings. Factors considered in the determination of whether or not a definitive agreementdecline is other-than-temporary include a current intention or need to sell the majoritysecurity or an indication that a credit loss exists. Significant judgment exists regarding the evaluation of our run-off annuitythe financial condition and pension deposit business.expected near-term and long-term prospects of the issuer, the relevant industry conditions and trends and whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. Further information on the saleour process for evaluating impairments is set forth in Note RA to the Consolidated Financial Statements included under Item 8.
Long Term Care Policies
Future policy benefits reserves for our long term care policies are based on certain assumptions, including morbidity, persistency, discount rates and future premium rate increases. The adequacy of the reserves is contingent upon actual experience and our future expectations related to these key assumptions. If actual or expected future experience differs from these assumptions, the reserves may not be adequate, requiring us to add to reserves.
A prolonged period during which interest rates remain at levels lower than those anticipated in our reserving discount rate assumption could result in shortfalls in investment income on assets supporting our obligations under long term care policies, which may also require an increase to our reserves. In addition, we may not receive regulatory approval for the premium rate increases we request.
These changes to our reserves could materially adversely impact our results of operations and equity. The reserving process is discussed in further detail in the Reserves - Estimates and Uncertainties section below.
Pension and Postretirement Benefit Obligations
We make a significant number of assumptions in estimating the liabilities and costs related to our pension and postretirement benefit obligations. The assumptions that most affect these costs are the discount rate and the expected long term rate of return on plan assets. These assumptions are based on, among other things, current economic factors such as inflation, interest rates and broader capital market expectations. Changes in these assumptions can have a material impact on pension obligations and pension expense.
To determine the discount rate assumption as of the year-end measurement date for our CNA Retirement Plan and CNA Health and Group Benefits Program, we considered the estimated timing of plan benefit payments and available yields on high quality fixed income debt securities. For this purpose, high quality is considered a rating of Aa or better by Moody's or a rating of AA or better from S&P. We reviewed several yield curves constructed using the cash flow characteristics of the plans as well as bond indices as of the measurement date. The trend of those data points was also considered.
In determining the expected long term rate of return on plan assets assumption for our CNA Retirement Plan, we considered the historical performance of the investment portfolio as well as the long term market return expectations based on the investment mix of the portfolio and the expected investment horizon.
Further information on our pension and postretirement benefit obligations is in Note I to the Consolidated Financial Statements included under Item 8.

Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial statement and tax return basis of assets and liabilities. Any resulting future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes will not be realized. The assessment of the need for a valuation allowance requires management to make estimates and assumptions about future earnings, reversal of existing temporary differences and available tax planning strategies. If actual experience differs from these estimates and assumptions, the recorded deferred tax asset may not be fully realized resulting in an increase to income tax expense in our results of operations. In addition, the ability to record deferred tax assets in the future could be limited, resulting in a higher effective tax rate in that future period.

RESERVES - ESTIMATES AND UNCERTAINTIES
The level of reserves we maintain represents our best estimate, as of a particular point in time, of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances known at that time. Reserves are not an exact calculation of liability but instead are complex estimates that we derive, generally utilizing a variety of actuarial reserve estimation techniques, from numerous assumptions and expectations about future events, both internal and external, many of which are highly uncertain. As noted below, we review our reserves for each segment of our business periodically, and any such review could result in the need to increase reserves in amounts which could be material and could adversely affect our results of operations, equity, business and insurer financial strength and corporate debt ratings. Further information on reserves is provided in Note E to the Consolidated Financial Statements included under Item 8.
Property and Casualty Claim and Claim Adjustment Expense Reserves
We maintain loss reserves to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, including the estimated cost of the claims adjudication process, for claims that have been reported but not yet settled (case reserves) and claims that have been incurred but not reported (IBNR). IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Claim and claim adjustment expense reserves are reflected as liabilities and are included on the Consolidated Balance Sheets under the heading “Insurance Reserves.” Adjustments to prior year reserve estimates, if necessary, are reflected in results of operations in the period that the need for such adjustments is determined. The carried case and IBNR reserves as of each balance sheet date are provided in the Segment Results section of this MD&A and in Note E to the Consolidated Financial Statements included under Item 8.
As discussed in the Risk Factors discussion within Item 1A, there is a risk that our recorded reserves are insufficient to cover our estimated ultimate unpaid liability for claims and claim adjustment expenses. Unforeseen emerging or potential claims and coverage issues are difficult to predict and could materially adversely affect the adequacy of our claim and claim adjustment expense reserves and could lead to future reserve additions.
In addition, our property and casualty insurance subsidiaries also have actual and potential exposures related to A&EP claims, which could result in material losses. To mitigate the risks posed by our exposure to A&EP claims and claim adjustment expenses, we completed a transaction with NICO under which substantially all of our legacy A&EP liabilities were ceded to NICO effective January 1, 2010. See Note E to the Consolidated Financial Statements included under Item 8 for further discussion about the transaction with NICO, its impact on our results of operations and the deferred retroactive reinsurance gain.
Establishing Property & Casualty Reserve Estimates
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, our actuaries perform detailed reserve analyses that are staggered throughout the year. The data is organized at a reserve group level. A reserve group can be a line of business covering a subset of insureds such as commercial automobile liability for small or middle market customers, it can encompass several lines of business provided to a specific set of customers such as dentists, or it can be a particular type of claim such as construction defect. Every reserve group is reviewed at least once during the year. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. In addition to the detailed analyses, we review actual loss emergence for all products each quarter.
Most of our business can be characterized as long-tail. For long-tail business, it will generally be several years between the time the business is written and the time when all claims are settled. Our long-tail exposures include commercial automobile liability, workers' compensation, general liability, medical professional liability, other professional liability and management liability coverages, assumed reinsurance run-off and products liability. Short-tail exposures include property, commercial automobile physical damage, marine, surety and warranty. Specialty, Commercial and International contain both long-tail and short-tail exposures. Corporate & Other Non-Core contains long-tail exposures.
Various methods are used to project ultimate losses for both long-tail and short-tail exposures.
The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident or policy years with further expected changes in paid losses. Selection of the paid loss pattern may require

consideration of several factors, including the impact of inflation on claims costs, the rate at which claims professionals make claim payments and close claims, the impact of judicial decisions, the impact of underwriting changes, the impact of large claim payments and other factors. Claim cost inflation itself may require evaluation of changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors. Because this method assumes that losses are paid at a consistent rate, changes in any of these factors can impact the results. Since the method does not rely on case reserves, it is not directly influenced by changes in their adequacy.
For many reserve groups, paid loss data for recent periods may be too immature or erratic for accurate predictions. This situation often exists for long-tail exposures. In addition, changes in the factors described above may result in inconsistent payment patterns. Finally, estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail products such as workers' compensation.
The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses.  Since the method uses more data (case reserves in addition to paid losses) than the paid development method, the incurred development patterns may be less variable than paid patterns. However, selection of the incurred loss pattern typically requires analysis of all of the same factors described above. In addition, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place, and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available.
The loss ratio method multiplies earned premiums by an expected loss ratio to produce ultimate loss estimates for each accident or policy year. This method may be useful for immature accident or policy periods or if loss development patterns are inconsistent, losses emerge very slowly or there is relatively little loss history from which to estimate future losses. The selection of the expected loss ratio typically requires analysis of loss ratios from earlier accident or policy years or pricing studies and analysis of inflationary trends, frequency trends, rate changes, underwriting changes and other applicable factors.
The Bornhuetter-Ferguson method using paid loss is a combination of the paid development method and the loss ratio method. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method and typically requires analysis of the same factors described above. This method assumes that future losses will develop at the expected loss ratio level. The percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid. The use of the pattern from the paid development method typically requires consideration of the same factors listed in the description of the paid development method. The estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each year. For long-tail lines, this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation.
The Bornhuetter-Ferguson method using incurred loss is similar to the Bornhuetter-Ferguson method using paid loss except that it uses case incurred losses. The use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid patterns. However, the inclusion of case reserves can lead to distortions if changes in case reserving have taken place, and the method typically requires analysis of the same factors that need to be reviewed for the loss ratio and incurred development methods.
The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident or policy year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve groups where loss development patterns are inconsistent or too variable to be relied on exclusively. In addition, this method can more directly account for changes in coverage that impact the number and size of claims. However, this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes. Projecting the ultimate number of claims may require analysis of several factors, including the rate at which policyholders report claims to us, the impact of judicial decisions, the impact of underwriting changes and other factors. Estimating the ultimate average loss may require analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing

property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors.
Stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular reserve group being modeled. For some reserve groups, we use models which rely on historical development patterns at an aggregate level, while other reserve groups are modeled using individual claim variability assumptions supplied by the claims department. In either case, multiple simulations using varying assumptions are run and the results are analyzed to produce a range of potential outcomes. The results will typically include a mean and percentiles of the possible reserve distribution which aid in the selection of a point estimate.
For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, our actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method.  For most of our products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, we may not assign any weight to the paid and incurred development methods. We will use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods.  For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because our history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, we may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures.
For other more complex reserve groups where the above methods may not produce reliable indications, we use additional methods tailored to the characteristics of the specific situation.
Periodic Reserve Reviews
The reserve analyses performed by our actuaries result in point estimates. Each quarter, the results of the detailed reserve reviews are summarized and discussed with senior management to determine the best estimate of reserves. Senior management considers many factors in making this decision. Our recorded reserves reflect our best estimate as of a particular point in time based upon known facts and circumstances, consideration of the factors cited above and our judgment. The carried reserve may differ from the actuarial point estimate. See Note E to the Consolidated Financial Statements included under Item 8 for further discussion of the factors considered in determining management’s best estimate.
Currently, our recorded reserves are modestly higher than the actuarial point estimate. For Commercial, Specialty and International, the difference between our reserves and the actuarial point estimate is primarily driven by uncertainty with respect to immature accident years,claim cost inflation, changes in claims handling, changes to the tort environment which may adversely impact claim costs and the effects from the economy. For Corporate & Other Non-Core, the difference between our reserves and the actuarial point estimate is primarily driven by the potential tail volatility of run-off exposures.
The key assumptions fundamental to the reserving process are often different for various reserve groups and accident or policy years. Some of these assumptions are explicit assumptions that are required of a particular method, but most of the assumptions are implicit and cannot be precisely quantified. An example of an explicit assumption is the pattern employed in the paid development method. However, the assumed pattern is itself based on several implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals close claims. As a result, the effect on reserve estimates of a particular change in assumptions typically cannot be specifically quantified, and changes in these assumptions cannot be tracked over time.
Our recorded reserves are management's best estimate. In order to provide an indication of the variability associated with our net reserves, the following discussion provides a sensitivity analysis that shows the approximate estimated impact of variations in significant factors affecting our reserve estimates for particular types of business. These significant factors are the ones that we believe could most likely materially affect the reserves. This discussion covers the major types of business for which we believe a material deviation to our reserves is reasonably possible. There can be no assurance that actual experience will be consistent with the current assumptions or with the variation

indicated by the discussion. In addition, there can be no assurance that other factors and assumptions will not have a material impact on our reserves.
The three areas for which we believe a significant deviation to our net reserves is reasonably possible are (i) professional liability, management liability and surety products; (ii) workers' compensation; and (iii) general liability.
Professional liability, management liability and surety products include professional liability coverages provided to various professional firms, including architects, real estate agents, small and mid-sized accounting firms, law firms and other professional firms. They also include directors and officers (D&O), employment practices, fiduciary, fidelity and surety coverages, as well as insurance products serving the healthcare delivery system. The most significant factor affecting reserve estimates for these liability coverages is claim severity. Claim severity is driven by the cost of medical care, the cost of wage replacement, legal fees, judicial decisions, legislative changes and other factors. Underwriting and claim handling decisions such as the classes of business written and individual claim settlement decisions can also impact claim severity. If the estimated claim severity increases by 9%, we estimate that net reserves would increase by approximately $450 million. If the estimated claim severity decreases by 3%, we estimate that net reserves would decrease by approximately $150 million. Our net reserves for these products were approximately $5.2 billion as of December 31, 2016.
For workers' compensation, since many years will pass from the time the business is written until all claim payments have been made, the most significant factor affecting workers' compensation reserve estimates is claim cost inflation on claim payments. Workers' compensation claim cost inflation is driven by the cost of medical care, the cost of wage replacement, expected claimant lifetimes, judicial decisions, legislative changes and other factors. If estimated workers' compensation claim cost inflation increases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would increase by approximately $400 million. If estimated workers' compensation claim cost inflation decreases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would decrease by approximately $350 million. Our net reserves for workers' compensation were approximately $4.3 billion as of December 31, 2016.
For general liability, the most significant factor affecting reserve estimates is claim severity. Claim severity is driven by changes in the cost of repairing or replacing property, the cost of medical care, the cost of wage replacement, judicial decisions, legislation and other factors. If the estimated claim severity for general liability increases by 6%, we estimate that our net reserves would increase by approximately $200 million. If the estimated claim severity for general liability decreases by 3%, we estimate that our net reserves would decrease by approximately $100 million. Our net reserves for general liability were approximately $3.4 billion as of December 31, 2016.
Given the factors described above, it is not possible to quantify precisely the ultimate exposure represented by claims and related litigation. As a result, we regularly review the adequacy of our reserves and reassess our reserve estimates as historical loss experience develops, additional claims are reported and settled and additional information becomes available in subsequent periods. In reviewing our reserve estimates, we make adjustments in the period that the need for such adjustments is determined. These reviews have resulted in our identification of information and trends that have caused us to change our reserves in prior periods and could lead to our identification of a need for additional material increases or decreases in claim and claim adjustment expense reserves, which could materially affect our results of operations, equity, business and insurer financial strength and corporate debt ratings positively or negatively. See discussion within Note E to the Consolidated Financial Statements included under Item 8 for additional information about reserve development and the Ratings section of this MD&A for further information regarding our financial strength and corporate debt ratings.
Life & Group Non-Core Policyholder Reserves
Our Life and Group Non-Core segment includes our run-off long term care business as well as structured settlement obligations related to certain property and casualty claimants not funded by annuities. Long term care policies provide benefits for nursing homes, assisted living and home health care subject to various daily and lifetime caps. Policyholders must continue to make periodic premium payments to keep the policy in force. Generally we have the ability to increase policy premiums, subject to state regulatory approval.

We maintain both claim and claim adjustment expense reserves as well as future policy benefits reserves for policyholder benefits for our Life & Group Non-Core segment. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for our long term care policies, our actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. Our recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. Future policy benefits reserves represent the active life reserves related to our long term care policies and are the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves is fundamental to our financial results and requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rate and anticipated future premium rate increases. Persistency can be affected by policy lapses and death. Discount rate is influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be impacted by changes to the corporate tax code. There is limited historical company and industry data available to us for long term care morbidity and mortality, as only a portion of the policies written to date are in claims paying status. As a result of this variability, our long term care reserves may be subject to material increases if actual experience develops adversely to our expectations.
Annually, management assesses the adequacy of its GAAP long term care future policy benefits reserves as well as the claim and claim adjustment expense reserves for structured settlement obligations by performing a gross premium valuation (GPV) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV reserves are then compared to the recorded reserves. If the GPV reserves are greater than the existing net GAAP reserves (i.e. reserves net of any deferred acquisition costs asset), the existing net GAAP reserves are unlocked and are increased to the greater amount. Any such increase is reflected in our results of operations in the period in which the need for such adjustment is determined, and could materially adversely affect our results of operations, equity and business and insurer financial strength and corporate debt ratings.
The December 31, 2016 GPV indicated carried reserves included a margin of approximately $255 million. A summary of the changes in the GPV results is presented in the table below:
18

Long Term Care Active Life Reserve - Change in GPV (In millions) 
December 31, 2015 Margin$
Changes in underlying morbidity assumptions(130)
Changes in underlying persistency assumptions25
Changes in underlying discount rate assumptions(45)
Changes in underlying premium rate action assumptions350
Changes in underlying expense and other assumptions55
December 31, 2016 Margin$255
The increase in the margin in 2016 was driven by expected rate increases from near-term future rate filings on segments of our individual long term care block of business as well as higher than expected premium rate increase achievement on rate filings related to our group long term care block.  This improvement from rate actions was partially offset by minor changes in morbidity assumptions. The effects of persistency and discount rates were relatively small and largely offset one another.  Additionally, in 2016 our annual experience study of long term care claim reserves resulted in a release of $30 million due to favorable severity relative to expectations.
The December 31, 2015 GPV indicated a premium deficiency of $296 million resulting in the unlocking of reserves and the resetting of actuarial assumptions to best estimate assumptions at that date. The indicated premium deficiency necessitated a charge to income of $296 million. In addition to the premium deficiency, our annual

experience study of claim reserves resulted in reserve strengthening of $9 million. The total after-tax impact of the premium deficiency and claim reserve strengthening was $198 million.
The table below summarizes the estimated pretax impact on our results of operations from various hypothetical revisions to our active life reserve assumptions. We have assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy group and would occur absent any changes, mitigating or otherwise, in the other assumptions. Although such hypothetical revisions are not currently required or anticipated, we believe they could occur based on past variances in experience and our expectations of the ranges of future experience that could reasonably occur. Any required increase in the net GAAP reserves resulting from the hypothetical revision in the table below would first reduce the margin in our carried reserves before it would affect results of operations. The estimated impacts to results of operations in the table below are after consideration of the existing margin.
As referenced in Item 1A Risk Factors, modification of Contentsthe corporate tax rate could adversely affect the value of the tax benefit received on tax exempt municipal investments and thus the rate at which we discount our long term care active life reserves. For illustrative reference, absent a change in investment strategy, a reduction in the corporate tax rate to 20% would require an increase to our existing net GAAP reserves for the LTC business and an estimated reduction to pretax income of approximately $700 million.
Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized above.


CONSOLIDATED OPERATIONS
Results of OperationsCRITICAL ACCOUNTING ESTIMATES
The following table includespreparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the consolidatedUnited States of America (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the amount of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. In general, our estimates are based on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.
The accounting estimates discussed below are considered by us to be critical to an understanding of our operations. For more detailed components ofConsolidated Financial Statements as their application places the most significant demands on our business operations and the net operating income financial measure, see the segment discussions within this MD&A.
Years ended December 31     
(In millions)2013 2012 2011
Operating Revenues     
Net earned premiums$7,271
 $6,882
 $6,603
Net investment income2,450
 2,282
 2,054
Other revenues361
 320
 294
Total operating revenues10,082
 9,484
 8,951
Claims, Benefits and Expenses     
Net incurred claims and benefits5,927
 5,867
 5,476
Policyholders' dividends20
 29
 13
Amortization of deferred acquisition costs1,362
 1,274
 1,176
Other insurance related expenses1,017
 1,049
 980
Other expenses474
 456
 433
Total claims, benefits and expenses8,800
 8,675
 8,078
Operating income from continuing operations before income tax1,282
 809
 873
Income tax expense on operating income(365) (222) (247)
Net operating (income) loss attributable to noncontrolling interests
 
 (16)
Net operating income from continuing operations attributable to CNA917
 587
 610
Net realized investment gains (losses), pretax31
 63
 (2)
Income tax (expense) benefit on net realized investment gains (losses)(11) (22) 5
Net realized investment gains20
 41
 3
Income from continuing operations attributable to CNA937
 628
 613
Loss from discontinued operations attributable to CNA
 
 (1)
Net income attributable to CNA$937
 $628
 $612
2013 Compared with 2012
Net income increased $309 million in 2013 as compared with 2012, driven by higher net operating income.
Net realized investment gains decreased $21 million in 2013 as compared with 2012. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.
Net operating income increased $330 million in 2013 as compared with 2012. Net operating income increased $427 million for our core segments, CNA Specialty, CNA Commercial and Hardy. This increase was primarily due to improved current accident year underwriting results and higher net investment income. These favorable items were partially offset by lower favorable net prior year development. Catastrophe losses were $111 million after-tax in 2013 as compared to catastrophe impacts of $270 million after-tax in 2012 as further discussed below. Net operating results decreased $97 million for our non-core segments, primarily driven by results in our Corporate & Other Non-Core segment related to retroactive reinsurance accounting. See the Life & Group Non-Core and Corporate & Other Non-Core sections of this MD&A for further discussion of our non-core results.
Aggregate favorable net prior year development of $160 million and $251 million was recorded in 2013 and 2012 related to our CNA Specialty, CNA Commercial, Hardy and Corporate & Other Non-Core segments. Further information on net prior year development is included injudgment. Note FA to the Consolidated Financial Statements included under Item 8.

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Net earned premiums increased $389 million in 2013 as compared with 2012 driven by the acquisition of Hardy in July of 2012, a $106 million increase in CNA Specialty and a $44 million increase in CNA Commercial. See the Segment Results section of this MD&A for further discussion.
2012 Compared with 2011
Net income increased $16 million in 2012 as compared with 2011, driven by increased net realized investment gains, partially offset by lower net operating income.
Net realized investment gains increased $38 million in 2012 as compared with 2011. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.
Net operating income decreased $23 million in 2012 as compared with 2011. Net operating income decreased $126 million for our core segments, CNA Specialty, CNA Commercial and Hardy. This decrease was primarily due to higher catastrophe impacts and decreased favorable net prior year development. These unfavorable impacts were partially offset by higher net investment income, driven by significantly favorable limited partnership results. Catastrophe impacts were $270 million after-tax in 2012 as compared to $144 million after-tax in 2011. Catastrophe impacts in 2012 reflect $190 million after-taxunderlying accounting policies related to Storm Sandy, including reinstatement premiumsthese estimates. Due to the inherent uncertainties involved with these types of $10 million after-tax. Net operatingjudgments, actual results improved $103 millioncould differ significantly from estimates and may have a material adverse impact on our results of operations, equity, business, and insurer financial strength and corporate debt ratings.
Insurance Reserves
Insurance reserves are established for our non-core segments,both short and long-duration insurance contracts. Short-duration contracts are primarily related to results in our Life & Group Non-Core segment. Seeproperty and casualty insurance policies where the Life & Group Non-Corereserving process is based on actuarial estimates of the amount of loss, including amounts for known and Corporate & Other Non-Core sections of this MD&A for further discussion of our non-core results.
Aggregate favorable net prior year development of $251 million and $431 million was recorded in 2012 and 2011unknown claims. Long-duration contracts are primarily related to long term care policies and are estimated using actuarial estimates about morbidity and persistency as well as assumptions about expected investment returns and future premium rate increases. The reserve for unearned premiums on property and casualty contracts represents the portion of premiums written related to the unexpired terms of coverage. The reserving process is discussed in further detail in the Reserves-Estimates and Uncertainties section below.
Reinsurance and Insurance Receivables
Exposure exists with respect to the collectibility of ceded property and casualty and life reinsurance to the extent that any reinsurer is unable to meet its obligations or disputes the liabilities we have ceded under reinsurance agreements. An allowance for uncollectible reinsurance is recorded on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, our CNA Specialty, CNA Commercial, Hardypast experience and Corporate & Other Non-Core segments.current economic conditions. Further information on net prior year developmentour reinsurance receivables is included in Note FG to the Consolidated Financial Statements included under Item 8.
Net earned premiums increased $279 millionAdditionally, exposure exists with respect to the collectibility of amounts due from policyholders related to insurance contracts, including amounts due from insureds under high deductible policies and retrospectively rated policies. An allowance for uncollectible insurance receivables is recorded on the basis of periodic evaluations of balances due from insureds, currently as well as in the future, management's experience and current economic conditions.
If actual experience differs from the estimates made by management in determining the allowances for uncollectible reinsurance and insurance receivables, net receivables as reflected on our Consolidated Balance Sheets may not be collected. Therefore, our results of operations or equity could be materially adversely affected.

Valuation of Investments and Impairment of Securities
We classify our fixed maturity securities and equity securities as either available-for-sale or trading, which are both carried at fair value on the balance sheet. Fair value represents the price that would be received in a sale of an asset in an orderly transaction between market participants on the measurement date, the determination of which requires us to make a significant number of assumptions and judgments. Securities with the greatest level of subjectivity around valuation are those that rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs are based on assumptions consistent with what we believe other market participants would use to price such securities. Further information on our fair value measurements is in Note 2012C to the Consolidated Financial Statements included under Item 8.
Our investment portfolio is subject to market declines below amortized cost that may be other-than-temporary and therefore result in the recognition of impairment losses in earnings. Factors considered in the determination of whether or not a decline is other-than-temporary include a current intention or need to sell the security or an indication that a credit loss exists. Significant judgment exists regarding the evaluation of the financial condition and expected near-term and long-term prospects of the issuer, the relevant industry conditions and trends and whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. Further information on our process for evaluating impairments is in Note A to the Consolidated Financial Statements included under Item 8.
Long Term Care Policies
Future policy benefits reserves for our long term care policies are based on certain assumptions, including morbidity, persistency, discount rates and future premium rate increases. The adequacy of the reserves is contingent upon actual experience and our future expectations related to these key assumptions. If actual or expected future experience differs from these assumptions, the reserves may not be adequate, requiring us to add to reserves.
A prolonged period during which interest rates remain at levels lower than those anticipated in our reserving discount rate assumption could result in shortfalls in investment income on assets supporting our obligations under long term care policies, which may also require an increase to our reserves. In addition, we may not receive regulatory approval for the premium rate increases we request.
These changes to our reserves could materially adversely impact our results of operations and equity. The reserving process is discussed in further detail in the Reserves - Estimates and Uncertainties section below.
Pension and Postretirement Benefit Obligations
We make a significant number of assumptions in estimating the liabilities and costs related to our pension and postretirement benefit obligations. The assumptions that most affect these costs are the discount rate and the expected long term rate of return on plan assets. These assumptions are based on, among other things, current economic factors such as compared with 2011 driveninflation, interest rates and broader capital market expectations. Changes in these assumptions can have a material impact on pension obligations and pension expense.
To determine the discount rate assumption as of the year-end measurement date for our CNA Retirement Plan and CNA Health and Group Benefits Program, we considered the estimated timing of plan benefit payments and available yields on high quality fixed income debt securities. For this purpose, high quality is considered a rating of Aa or better by Moody's or a rating of AA or better from S&P. We reviewed several yield curves constructed using the acquisitioncash flow characteristics of Hardy, a $102 million increasethe plans as well as bond indices as of the measurement date. The trend of those data points was also considered.
In determining the expected long term rate of return on plan assets assumption for our CNA Retirement Plan, we considered the historical performance of the investment portfolio as well as the long term market return expectations based on the investment mix of the portfolio and the expected investment horizon.
Further information on our pension and postretirement benefit obligations is in CNA SpecialtyNote I to the Consolidated Financial Statements included under Item 8.

Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial statement and tax return basis of assets and liabilities. Any resulting future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a $66 millionvaluation allowance is established for any portion of a deferred tax asset that management believes will not be realized. The assessment of the need for a valuation allowance requires management to make estimates and assumptions about future earnings, reversal of existing temporary differences and available tax planning strategies. If actual experience differs from these estimates and assumptions, the recorded deferred tax asset may not be fully realized resulting in an increase to income tax expense in CNA Commercial. Seeour results of operations. In addition, the ability to record deferred tax assets in the future could be limited, resulting in a higher effective tax rate in that future period.

RESERVES - ESTIMATES AND UNCERTAINTIES
The level of reserves we maintain represents our best estimate, as of a particular point in time, of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances known at that time. Reserves are not an exact calculation of liability but instead are complex estimates that we derive, generally utilizing a variety of actuarial reserve estimation techniques, from numerous assumptions and expectations about future events, both internal and external, many of which are highly uncertain. As noted below, we review our reserves for each segment of our business periodically, and any such review could result in the need to increase reserves in amounts which could be material and could adversely affect our results of operations, equity, business and insurer financial strength and corporate debt ratings. Further information on reserves is provided in Note E to the Consolidated Financial Statements included under Item 8.
Property and Casualty Claim and Claim Adjustment Expense Reserves
We maintain loss reserves to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, including the estimated cost of the claims adjudication process, for claims that have been reported but not yet settled (case reserves) and claims that have been incurred but not reported (IBNR). IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Claim and claim adjustment expense reserves are reflected as liabilities and are included on the Consolidated Balance Sheets under the heading “Insurance Reserves.” Adjustments to prior year reserve estimates, if necessary, are reflected in results of operations in the period that the need for such adjustments is determined. The carried case and IBNR reserves as of each balance sheet date are provided in the Segment Results section of this MD&A and in Note E to the Consolidated Financial Statements included under Item 8.
As discussed in the Risk Factors discussion within Item 1A, there is a risk that our recorded reserves are insufficient to cover our estimated ultimate unpaid liability for claims and claim adjustment expenses. Unforeseen emerging or potential claims and coverage issues are difficult to predict and could materially adversely affect the adequacy of our claim and claim adjustment expense reserves and could lead to future reserve additions.
In addition, our property and casualty insurance subsidiaries also have actual and potential exposures related to A&EP claims, which could result in material losses. To mitigate the risks posed by our exposure to A&EP claims and claim adjustment expenses, we completed a transaction with NICO under which substantially all of our legacy A&EP liabilities were ceded to NICO effective January 1, 2010. See Note E to the Consolidated Financial Statements included under Item 8 for further discussion.discussion about the transaction with NICO, its impact on our results of operations and the deferred retroactive reinsurance gain.
Establishing Property & Casualty Reserve Estimates
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, our actuaries perform detailed reserve analyses that are staggered throughout the year. The data is organized at a reserve group level. A reserve group can be a line of business covering a subset of insureds such as commercial automobile liability for small or middle market customers, it can encompass several lines of business provided to a specific set of customers such as dentists, or it can be a particular type of claim such as construction defect. Every reserve group is reviewed at least once during the year. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. In addition to the detailed analyses, we review actual loss emergence for all products each quarter.
Most of our business can be characterized as long-tail. For long-tail business, it will generally be several years between the time the business is written and the time when all claims are settled. Our long-tail exposures include commercial automobile liability, workers' compensation, general liability, medical professional liability, other professional liability and management liability coverages, assumed reinsurance run-off and products liability. Short-tail exposures include property, commercial automobile physical damage, marine, surety and warranty. Specialty, Commercial and International contain both long-tail and short-tail exposures. Corporate & Other Non-Core contains long-tail exposures.
Various methods are used to project ultimate losses for both long-tail and short-tail exposures.
The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident or policy years with further expected changes in paid losses. Selection of the paid loss pattern may require

consideration of several factors, including the impact of inflation on claims costs, the rate at which claims professionals make claim payments and close claims, the impact of judicial decisions, the impact of underwriting changes, the impact of large claim payments and other factors. Claim cost inflation itself may require evaluation of changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors. Because this method assumes that losses are paid at a consistent rate, changes in any of these factors can impact the results. Since the method does not rely on case reserves, it is not directly influenced by changes in their adequacy.
For many reserve groups, paid loss data for recent periods may be too immature or erratic for accurate predictions. This situation often exists for long-tail exposures. In addition, changes in the factors described above may result in inconsistent payment patterns. Finally, estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail products such as workers' compensation.
The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses.  Since the method uses more data (case reserves in addition to paid losses) than the paid development method, the incurred development patterns may be less variable than paid patterns. However, selection of the incurred loss pattern typically requires analysis of all of the same factors described above. In addition, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place, and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available.
The loss ratio method multiplies earned premiums by an expected loss ratio to produce ultimate loss estimates for each accident or policy year. This method may be useful for immature accident or policy periods or if loss development patterns are inconsistent, losses emerge very slowly or there is relatively little loss history from which to estimate future losses. The selection of the expected loss ratio typically requires analysis of loss ratios from earlier accident or policy years or pricing studies and analysis of inflationary trends, frequency trends, rate changes, underwriting changes and other applicable factors.
The Bornhuetter-Ferguson method using paid loss is a combination of the paid development method and the loss ratio method. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method and typically requires analysis of the same factors described above. This method assumes that future losses will develop at the expected loss ratio level. The percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid. The use of the pattern from the paid development method typically requires consideration of the same factors listed in the description of the paid development method. The estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each year. For long-tail lines, this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation.
The Bornhuetter-Ferguson method using incurred loss is similar to the Bornhuetter-Ferguson method using paid loss except that it uses case incurred losses. The use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid patterns. However, the inclusion of case reserves can lead to distortions if changes in case reserving have taken place, and the method typically requires analysis of the same factors that need to be reviewed for the loss ratio and incurred development methods.
The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident or policy year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve groups where loss development patterns are inconsistent or too variable to be relied on exclusively. In addition, this method can more directly account for changes in coverage that impact the number and size of claims. However, this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes. Projecting the ultimate number of claims may require analysis of several factors, including the rate at which policyholders report claims to us, the impact of judicial decisions, the impact of underwriting changes and other factors. Estimating the ultimate average loss may require analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing

property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors.
Stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular reserve group being modeled. For some reserve groups, we use models which rely on historical development patterns at an aggregate level, while other reserve groups are modeled using individual claim variability assumptions supplied by the claims department. In either case, multiple simulations using varying assumptions are run and the results are analyzed to produce a range of potential outcomes. The results will typically include a mean and percentiles of the possible reserve distribution which aid in the selection of a point estimate.
For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, our actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method.  For most of our products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, we may not assign any weight to the paid and incurred development methods. We will use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods.  For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because our history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, we may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures.
For other more complex reserve groups where the above methods may not produce reliable indications, we use additional methods tailored to the characteristics of the specific situation.
Periodic Reserve Reviews
The reserve analyses performed by our actuaries result in point estimates. Each quarter, the results of the detailed reserve reviews are summarized and discussed with senior management to determine the best estimate of reserves. Senior management considers many factors in making this decision. Our recorded reserves reflect our best estimate as of a particular point in time based upon known facts and circumstances, consideration of the factors cited above and our judgment. The carried reserve may differ from the actuarial point estimate. See Note E to the Consolidated Financial Statements included under Item 8 for further discussion of the factors considered in determining management’s best estimate.
Currently, our recorded reserves are modestly higher than the actuarial point estimate. For Commercial, Specialty and International, the difference between our reserves and the actuarial point estimate is primarily driven by uncertainty with respect to immature accident years,claim cost inflation, changes in claims handling, changes to the tort environment which may adversely impact claim costs and the effects from the economy. For Corporate & Other Non-Core, the difference between our reserves and the actuarial point estimate is primarily driven by the potential tail volatility of run-off exposures.
The key assumptions fundamental to the reserving process are often different for various reserve groups and accident or policy years. Some of these assumptions are explicit assumptions that are required of a particular method, but most of the assumptions are implicit and cannot be precisely quantified. An example of an explicit assumption is the pattern employed in the paid development method. However, the assumed pattern is itself based on several implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals close claims. As a result, the effect on reserve estimates of a particular change in assumptions typically cannot be specifically quantified, and changes in these assumptions cannot be tracked over time.
Our recorded reserves are management's best estimate. In order to provide an indication of the variability associated with our net reserves, the following discussion provides a sensitivity analysis that shows the approximate estimated impact of variations in significant factors affecting our reserve estimates for particular types of business. These significant factors are the ones that we believe could most likely materially affect the reserves. This discussion covers the major types of business for which we believe a material deviation to our reserves is reasonably possible. There can be no assurance that actual experience will be consistent with the current assumptions or with the variation

indicated by the discussion. In addition, there can be no assurance that other factors and assumptions will not have a material impact on our reserves.
The three areas for which we believe a significant deviation to our net reserves is reasonably possible are (i) professional liability, management liability and surety products; (ii) workers' compensation; and (iii) general liability.
Professional liability, management liability and surety products include professional liability coverages provided to various professional firms, including architects, real estate agents, small and mid-sized accounting firms, law firms and other professional firms. They also include directors and officers (D&O), employment practices, fiduciary, fidelity and surety coverages, as well as insurance products serving the healthcare delivery system. The most significant factor affecting reserve estimates for these liability coverages is claim severity. Claim severity is driven by the cost of medical care, the cost of wage replacement, legal fees, judicial decisions, legislative changes and other factors. Underwriting and claim handling decisions such as the classes of business written and individual claim settlement decisions can also impact claim severity. If the estimated claim severity increases by 9%, we estimate that net reserves would increase by approximately $450 million. If the estimated claim severity decreases by 3%, we estimate that net reserves would decrease by approximately $150 million. Our net reserves for these products were approximately $5.2 billion as of December 31, 2016.
For workers' compensation, since many years will pass from the time the business is written until all claim payments have been made, the most significant factor affecting workers' compensation reserve estimates is claim cost inflation on claim payments. Workers' compensation claim cost inflation is driven by the cost of medical care, the cost of wage replacement, expected claimant lifetimes, judicial decisions, legislative changes and other factors. If estimated workers' compensation claim cost inflation increases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would increase by approximately $400 million. If estimated workers' compensation claim cost inflation decreases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would decrease by approximately $350 million. Our net reserves for workers' compensation were approximately $4.3 billion as of December 31, 2016.
For general liability, the most significant factor affecting reserve estimates is claim severity. Claim severity is driven by changes in the cost of repairing or replacing property, the cost of medical care, the cost of wage replacement, judicial decisions, legislation and other factors. If the estimated claim severity for general liability increases by 6%, we estimate that our net reserves would increase by approximately $200 million. If the estimated claim severity for general liability decreases by 3%, we estimate that our net reserves would decrease by approximately $100 million. Our net reserves for general liability were approximately $3.4 billion as of December 31, 2016.
Given the factors described above, it is not possible to quantify precisely the ultimate exposure represented by claims and related litigation. As a result, we regularly review the adequacy of our reserves and reassess our reserve estimates as historical loss experience develops, additional claims are reported and settled and additional information becomes available in subsequent periods. In reviewing our reserve estimates, we make adjustments in the period that the need for such adjustments is determined. These reviews have resulted in our identification of information and trends that have caused us to change our reserves in prior periods and could lead to our identification of a need for additional material increases or decreases in claim and claim adjustment expense reserves, which could materially affect our results of operations, equity, business and insurer financial strength and corporate debt ratings positively or negatively. See discussion within Note E to the Consolidated Financial Statements included under Item 8 for additional information about reserve development and the Ratings section of this MD&A for further information regarding our financial strength and corporate debt ratings.
Life & Group Non-Core Policyholder Reserves
Our Life and Group Non-Core segment includes our run-off long term care business as well as structured settlement obligations related to certain property and casualty claimants not funded by annuities. Long term care policies provide benefits for nursing homes, assisted living and home health care subject to various daily and lifetime caps. Policyholders must continue to make periodic premium payments to keep the policy in force. Generally we have the ability to increase policy premiums, subject to state regulatory approval.

We maintain both claim and claim adjustment expense reserves as well as future policy benefits reserves for policyholder benefits for our Life & Group Non-Core segment. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for our long term care policies, our actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. Our recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. Future policy benefits reserves represent the active life reserves related to our long term care policies and are the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves is fundamental to our financial results and requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rate and anticipated future premium rate increases. Persistency can be affected by policy lapses and death. Discount rate is influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be impacted by changes to the corporate tax code. There is limited historical company and industry data available to us for long term care morbidity and mortality, as only a portion of the policies written to date are in claims paying status. As a result of this variability, our long term care reserves may be subject to material increases if actual experience develops adversely to our expectations.
Annually, management assesses the adequacy of its GAAP long term care future policy benefits reserves as well as the claim and claim adjustment expense reserves for structured settlement obligations by performing a gross premium valuation (GPV) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV reserves are then compared to the recorded reserves. If the GPV reserves are greater than the existing net GAAP reserves (i.e. reserves net of any deferred acquisition costs asset), the existing net GAAP reserves are unlocked and are increased to the greater amount. Any such increase is reflected in our results of operations in the period in which the need for such adjustment is determined, and could materially adversely affect our results of operations, equity and business and insurer financial strength and corporate debt ratings.
The December 31, 2016 GPV indicated carried reserves included a margin of approximately $255 million. A summary of the changes in the GPV results is presented in the table below:
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Long Term Care Active Life Reserve - Change in GPV (In millions) 
December 31, 2015 Margin$
Changes in underlying morbidity assumptions(130)
Changes in underlying persistency assumptions25
Changes in underlying discount rate assumptions(45)
Changes in underlying premium rate action assumptions350
Changes in underlying expense and other assumptions55
December 31, 2016 Margin$255
The increase in the margin in 2016 was driven by expected rate increases from near-term future rate filings on segments of our individual long term care block of business as well as higher than expected premium rate increase achievement on rate filings related to our group long term care block.  This improvement from rate actions was partially offset by minor changes in morbidity assumptions. The effects of persistency and discount rates were relatively small and largely offset one another.  Additionally, in 2016 our annual experience study of long term care claim reserves resulted in a release of $30 million due to favorable severity relative to expectations.
The December 31, 2015 GPV indicated a premium deficiency of $296 million resulting in the unlocking of reserves and the resetting of actuarial assumptions to best estimate assumptions at that date. The indicated premium deficiency necessitated a charge to income of $296 million. In addition to the premium deficiency, our annual

experience study of claim reserves resulted in reserve strengthening of $9 million. The total after-tax impact of the premium deficiency and claim reserve strengthening was $198 million.
The table below summarizes the estimated pretax impact on our results of operations from various hypothetical revisions to our active life reserve assumptions. We have assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy group and would occur absent any changes, mitigating or otherwise, in the other assumptions. Although such hypothetical revisions are not currently required or anticipated, we believe they could occur based on past variances in experience and our expectations of the ranges of future experience that could reasonably occur. Any required increase in the net GAAP reserves resulting from the hypothetical revision in the table below would first reduce the margin in our carried reserves before it would affect results of operations. The estimated impacts to results of operations in the table below are after consideration of the existing margin.
As referenced in Item 1A Risk Factors, modification of Contentsthe corporate tax rate could adversely affect the value of the tax benefit received on tax exempt municipal investments and thus the rate at which we discount our long term care active life reserves. For illustrative reference, absent a change in investment strategy, a reduction in the corporate tax rate to 20% would require an increase to our existing net GAAP reserves for the LTC business and an estimated reduction to pretax income of approximately $700 million.
Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized above.


CRITICAL ACCOUNTING ESTIMATES
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the amountsamount of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. In general, our estimates are based on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.
The accounting estimates discussed below are considered by us to be critical to an understanding of our Consolidated Financial Statements as their application places the most significant demands on our judgment. Note A to the Consolidated Financial Statements included under Item 8 should be read in conjunction with this section to assist with obtaining an understanding of the underlying accounting policies related to these estimates. Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from estimates and may have a material adverse impact on our results of operations, or equity.equity, business, and insurer financial strength and corporate debt ratings.
Insurance Reserves
Insurance reserves are established for both short and long-duration insurance contracts. Short-duration contracts are primarily related to property and casualty insurance policies where the reserving process is based on actuarial estimates of the amount of loss, including amounts for known and unknown claims. Long-duration contracts includeare primarily related to long term care products and payout annuity contractspolicies and are estimated using actuarial estimates about mortality, morbidity and persistency as well as assumptions about expected investment returns.returns and future premium rate increases. The reserve for unearned premiums on property and casualty contracts represents the portion of premiums written related to the unexpired terms of coverage. The reserving process is discussed in further detail in the Reserves - EstimatesReserves-Estimates and Uncertainties section below.
Reinsurance and Insurance Receivables
An exposureExposure exists with respect to the collectibility of ceded property and casualty and life reinsurance to the extent that any reinsurer is unable to meet its obligations or disputes the liabilities we have ceded under reinsurance agreements. An allowance for uncollectible reinsurance is recorded on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, our past experience and current economic conditions. Further information on our reinsurance receivables is included in Note HG to the Consolidated Financial Statements included under Item 8.
Additionally, an exposure exists with respect to the collectibility of amounts due from policyholders related to insurance contracts, including amounts due from insureds under high deductible policies and retrospectively rated policies. An allowance for uncollectible insurance receivables is recorded on the basis of periodic evaluations of balances due from insureds, currently oras well as in the future, management's experience and current economic conditions.
If actual experience differs from the estimates made by management in determining the allowances for uncollectible reinsurance and insurance receivables, net receivables as reflected on our Consolidated Balance Sheets may not be collected. Therefore, our results of operations or equity could be materially adversely impacted.affected.

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Valuation of Investments and Impairment of Securities
We classify our fixed maturity securities and equity securities as either available-for-sale or trading, which are both carried at fair value on the balance sheet. Fair value represents the price that would be received in a sale of an asset in an orderly transaction between market participants on the measurement date, the determination of which requires us to make a significant number of assumptions and judgments. Securities with the greatest level of subjectivity around valuation are those that rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs are based on assumptions consistent with what we believe other market participants would use to price such securities. Further information on our fair value measurements is included in Note DC to the Consolidated Financial Statements included under Item 8.
Our investment portfolio is subject to market declines below amortized cost that may be other-than-temporary and therefore result in the recognition of impairment losses in earnings. Factors considered in the determination of whether or not a decline is other-than-temporary include a current intention or need to sell the security or an indication that a credit loss exists. Significant judgment exists regarding the evaluation of the financial condition and expected near-term and long-term prospects of the issuer, the relevant industry conditions and trends and whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We have an Impairment Committee which reviews the investment portfolio on at least a quarterly basis, with ongoing analysis as new information becomes available. Further information on our process for evaluating impairments is included in Note A to the Consolidated Financial Statements included under Item 8.
Long Term Care Products and Payout Annuity ContractsPolicies
Future policy benefitbenefits reserves for our life and group productslong term care policies are based on certain assumptions, including morbidity, mortality, policy persistency, discount rates and discount rates.future premium rate increases. The adequacy of the reserves is contingent onupon actual experience and our future expectations related to these key assumptions, which were generally established at time of issue.assumptions. If actual or expected future experience differs from these assumptions, the reserves may not be adequate, requiring us to add to reserves.
A prolonged period during which interest rates remain at levels lower than those anticipated in our reserving discount rate assumption could result in shortfalls in investment income on assets supporting our obligations under long term care policies, and payout annuity contracts, which may also require changesan increase to our reserves. In addition, we may not receive regulatory approval for the premium rate increases we request.
These changes to our reserves could materially adversely impact our results of operations and equity. The reserving process is discussed in further detail in the Reserves - Estimates and Uncertainties section below.
Pension and Postretirement Benefit Obligations
We make a significant number of assumptions in estimating the liabilities and costs related to our pension and postretirement benefit obligations under our benefit plans.obligations. The assumptions that most impactaffect these costs are the discount rate and the expected long term rate of return on plan assets. These assumptions are evaluated relative tobased on, among other things, current economic factors such as inflation, interest rates and fiscal and monetary policies.broader capital market expectations. Changes in these assumptions can have a material impact on pension obligations and pension expense.
To determine the discount rate assumption as of the year-end measurement date for our CNA Retirement Plan and CNA Health and Group Benefits Program, we considered the estimated timing of plan benefit payments and available yields on high quality fixed income debt securities. For this purpose, high quality is considered a rating of Aa or better by Moody's or a rating of AA or better from S&P. We reviewed several yield curves constructed using the cash flow characteristics of the plans as well as bond indices as of the measurement date. The year-over-year changetrend of those data points was also considered.
In determining the expected long term rate of return on plan assets assumption for our CNA Retirement Plan, we considered the historical performance of the investment portfolio as well as the long term market return expectations based on the investment mix of the portfolio.portfolio and the expected investment horizon.
Further information on our pension and postretirement benefit obligations is included in Note JI to the Consolidated Financial Statements included under Item 8.

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Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial statement and tax return basis of assets and liabilities. Any resulting future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes will not be realized. The assessment of the need for a valuation allowance requires management to make estimates and assumptions about future earnings, reversal of existing temporary differences and available tax planning strategies. If actual experience differs from these estimates and assumptions, the recorded deferred tax asset may not be fully realized resulting in an increase to income tax expense in our results of operations. In addition, the ability to record deferred tax assets in the future could be limited, resulting in a higher effective tax rate in that future period.

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RESERVES - ESTIMATES AND UNCERTAINTIES
The level of reserves we maintain represents our best estimate, as of a particular point in time, of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances known at that time. Reserves are not an exact calculation of liability but instead are complex estimates that we derive, generally utilizing a variety of actuarial reserve estimation techniques, from numerous assumptions and expectations about future events, both internal and external, many of which are highly uncertain. As noted below, we review our reserves for each segment of our business periodically, and any such review could result in the need to increase reserves in amounts which could be material and could adversely impactaffect our results of operations, equity, business and insurer financial strength and corporate debt ratings. Further information on reserves is provided in Note FE to the Consolidated Financial Statements included under Item 8.
Property and Casualty Claim and Claim Adjustment Expense Reserves
We maintain loss reserves to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, including the estimated cost of the claims adjudication process, for claims that have been reported but not yet settled (case reserves) and claims that have been incurred but not reported (IBNR). IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Claim and claim adjustment expense reserves are reflected as liabilities and are included on the Consolidated Balance Sheets under the heading “Insurance Reserves.” Adjustments to prior year reserve estimates, if necessary, are reflected in results of operations in the period that the need for such adjustments is determined. The carried case and IBNR reserves as of each balance sheet date are provided in the Segment Results section of this MD&A and in Note FE to the Consolidated Financial Statements included under Item 8.
WeAs discussed in the Risk Factors discussion within Item 1A, there is a risk that our recorded reserves are subjectinsufficient to the uncertain effects ofcover our estimated ultimate unpaid liability for claims and claim adjustment expenses. Unforeseen emerging or potential claims and coverage issues that arise as industry practices and legal, judicial, social, economic and other environmental conditions change. These issues have had, and may continue to have, a negative effect on our business by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims. Examples of emerging or potential claims and coverage issues include:
uncertainty in future medical costs in workers' compensation. In particular, medical cost inflation could be greater than expected due to new treatments, drugs, and devices; increased healthcare utilization; and/or the future costs of healthcare facilities. In addition, the relationship between workers' compensation and government and private healthcare providers could change, potentially shifting costs to workers' compensation;
increased uncertainty related to medical professional liability, medical products liability and workers’ compensation coverages resulting from the Patient Protection and Affordable Care Act;
significant class action litigation; and
mass tort claims, including bodily injury claims related to benzene, lead, noise induced hearing loss, injuries from various medical products including pharmaceuticals, and various other chemical and radiation exposure claims.
The impact of these and other unforeseen emerging or potential claims and coverage issues isare difficult to predict and could materially adversely affect the adequacy of our claim and claim adjustment expense reserves and could lead to future reserve additions.
OurIn addition, our property and casualty insurance subsidiaries also have actual and potential exposures related to A&EP claims. Our experience has been that establishing reserves for casualty coverages relating to A&EP claims, and the related claim adjustment expenses are subject to uncertainties that are greater than those presented by other claims. Additionally, traditional actuarial methods and techniques employed to estimate the ultimate cost of claims for more traditional property and casualty exposures are less precisewhich could result in estimating claim and claim adjustment reserves for A&EP. As a result, estimating the ultimate cost of both reported and unreported A&EP claims are subject to a higher degree of variability.
material losses. To mitigate the risks posed by our exposure to A&EP claims and claim adjustment expenses, as further discussed in Note F to the Consolidated Financial Statements included under Item 8, on August 31, 2010 we completed a

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transaction with NICO a subsidiary of Berkshire Hathaway Inc., under which substantially all of our legacy A&EP liabilities were ceded to NICO effective January 1, 2010 (Loss Portfolio Transfer).
The Loss Portfolio Transfer is a retroactive reinsurance contract. During 20132010. See Note E to the cumulative amounts cededConsolidated Financial Statements included under Item 8 for further discussion about the Loss Portfolio Transfer exceededtransaction with NICO, its impact on our results of operations and the consideration paid, resulting in a $189 million deferred retroactive reinsurance gain. This deferred benefit will be recognized in earnings in future periods in proportion to actual recoveries under the Loss Portfolio Transfer. Over the life of the contract, there is no economic impact as long as any additional losses are within the limit under the contract.
Establishing Property & Casualty Reserve Estimates
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, our actuaries perform detailed reserve analyses that are staggered throughout the year. The data is organized at a “product”reserve group level. A productreserve group can be a line of business covering a subset of insureds such as commercial automobile liability for small or middle market customers, it can encompass several lines of business provided to a specific set of customers such as dentists, or it can be a particular type of claim such as construction defect. Every productreserve group is reviewed at least once during the year. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. In addition to the detailed analyses, we review actual loss emergence for all products each quarter.
The detailed analyses use a variety of generally accepted actuarial methods and techniques to produce a number of estimates of ultimate loss. Our actuaries determine a point estimate of ultimate loss by reviewing the various estimates and assigning weight to each estimate given the characteristics of the product being reviewed. The reserve estimate is the difference between the estimated ultimate loss and the losses paid to date. The difference between the estimated ultimate loss and the case incurred loss (paid loss plus case reserve) is IBNR. IBNR calculated as such includes a provision for development on known cases (supplemental development) as well as a provision for claims that have occurred but have not yet been reported (pure IBNR).
Most of our business can be characterized as long-tail. For long-tail business, it will generally be several years between the time the business is written and the time when all claims are settled. Our long-tail exposures include commercial automobile liability, workers' compensation, general liability, medical professional liability, other professional liability and management liability coverages, assumed reinsurance run-off and products liability. Short-tail exposures include property, commercial automobile physical damage, marine, surety and warranty. CNA Specialty, Commercial and CNA CommercialInternational contain both long-tail and short-tail exposures. Hardy contains primarily short-tail exposures. Corporate & Other Non-Core contains long-tail exposures.
Various methods are used to project ultimate losslosses for both long-tail and short-tail exposures including, but not limited to, the following:
paid development;
incurred development;
loss ratio;
Bornhuetter-Ferguson using paid loss;
Bornhuetter-Ferguson using incurred loss;
frequency times severity; and
stochastic modeling.exposures.
The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident or policy years with further expected changes in paid loss.losses. Selection of the paid loss pattern may require

consideration of several factors, including the impact of inflation on claims costs, the rate at which claims professionals make claim payments and close claims, the impact of judicial decisions, the impact of underwriting changes, the impact of large claim payments and other factors. Claim cost inflation itself may require evaluation of changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors. Because this method assumes that

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losses are paid at a consistent rate, changes in any of these factors can impact the results. Since the method does not rely on case reserves, it is not directly influenced by changes in the adequacy of case reserves.their adequacy.
For many products,reserve groups, paid loss data for recent periods may be too immature or erratic for accurate predictions. This situation often exists for long-tail exposures. In addition, changes in the factors described above may result in inconsistent payment patterns. Finally, estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail products such as workers' compensation.
The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses.  Since the method uses more data (case reserves in addition to paid losses) than the paid development method, the incurred development patterns may be less variable than paid patterns. However, selection of the incurred loss pattern typically requires analysis of all of the same factors described above. In addition, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place, and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available.
The loss ratio method multiplies earned premiums by an expected loss ratio to produce ultimate loss estimates for each accident or policy year. This method may be useful for immature accident or policy periods or if loss development patterns are inconsistent, losses emerge very slowly or there is relatively little loss history from which to estimate future losses. The selection of the expected loss ratio typically requires analysis of loss ratios from earlier accident or policy years or pricing studies and analysis of inflationary trends, frequency trends, rate changes, underwriting changes and other applicable factors.
The Bornhuetter-Ferguson method using paid loss is a combination of the paid development method and the loss ratio method. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method and typically requires analysis of the same factors described above. This method assumes that future losses will develop at the expected loss ratio level. The percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid. The use of the pattern from the paid development method typically requires consideration of the same factors listed in the description of the paid development method. The estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each year. For long-tail lines, this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation.
The Bornhuetter-Ferguson method using incurred loss is similar to the Bornhuetter-Ferguson method using paid loss except that it uses case incurred losses. The use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid patterns. However, the inclusion of case reserves can lead to distortions if changes in case reserving have taken place, and the method typically requires analysis of the same factors that need to be reviewed for the loss ratio and incurred development methods.
The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident or policy year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for productsreserve groups where loss development patterns are inconsistent or too variable to be relied on exclusively. In addition, this method can more directly account for changes in coverage that impact the number and size of claims. However, this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes. Projecting the ultimate number of claims may require analysis of several factors, including the rate at which policyholders report claims to us, the impact of judicial decisions, the impact of underwriting changes and other factors. Estimating the ultimate average loss may require analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing

property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors.
Stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular productreserve group being modeled. For some products,reserve groups, we use models which rely on historical development patterns at an aggregate level, while other productsreserve groups are modeled using individual claim variability assumptions supplied by the claims department. In either case, multiple simulations using varying assumptions are run and the results are analyzed to produce a range of

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potential outcomes. The results will typically include a mean and percentiles of the possible reserve distribution which aid in the selection of a point estimate.
For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, our actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method.  For most of our products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, we willmay not assign any weight to the paid and incurred development methods. We will use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods.  For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because our history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, we may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures.
For other more complex productsreserve groups where the above methods may not produce reliable indications, we use additional methods tailored to the characteristics of the specific situation.
Periodic Reserve Reviews
The reserve analyses performed by our actuaries result in point estimates. Each quarter, the results of the detailed reserve reviews are summarized and discussed with our senior management to determine the best estimate of reserves. This groupSenior management considers many factors in making this decision. The factors include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in our pricing and underwriting, pricing and underwriting trends in the insurance market, and legal, judicial, social and economic trends.
Our recorded reserves reflect our best estimate as of a particular point in time based upon known facts and circumstances, consideration of the factors cited above and our judgment. The carried reserve may differ from the actuarial point estimate asestimate. See Note E to the result of our considerationConsolidated Financial Statements included under Item 8 for further discussion of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors impacting claims costs that may not be quantifiable through traditional actuarial analysis. This process resultsconsidered in management'sdetermining management’s best estimate which is then recorded as the loss reserve.estimate.
Currently, our recorded reserves are modestly higher than the actuarial point estimate. For CNA Commercial, CNA Specialty and Hardy,International, the difference between our reserves and the actuarial point estimate is primarily driven by uncertainty with respect to immature accident years, claim cost inflation, changes in claims handling, changes to the tort environment which may adversely impact claim costs and the effects from the economy. For Corporate & Other Non-Core, the difference between our reserves and the actuarial point estimate is primarily driven by the potential tail volatility of run-off exposures.
The key assumptions fundamental to the reserving process are often different for various productsreserve groups and accident or policy years. Some of these assumptions are explicit assumptions that are required of a particular method, but most of the assumptions are implicit and cannot be precisely quantified. An example of an explicit assumption is the pattern employed in the paid development method. However, the assumed pattern is itself based on several implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals close claims. As a result, the effect on reserve estimates of a particular change in assumptions typically cannot be specifically quantified, and changes in these assumptions cannot be tracked over time.
Our recorded reserves are management's best estimate. In order to provide an indication of the variability associated with our net reserves, the following discussion provides a sensitivity analysis that shows the approximate estimated impact of variations in significant factors affecting our reserve estimates for particular types of business. These significant factors are the ones that we believe could most likely materially impactaffect the reserves. This discussion covers the major types of business for which we believe a material deviation to our reserves is reasonably possible. There can be no assurance that actual experience will be consistent with the current assumptions or with the variation

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indicated by the discussion. In addition, there can be no assurance that other factors and assumptions will not have a material impact on our reserves.
Within CNA Specialty,The three areas for which we believe a materialsignificant deviation to our net reserves is reasonably possible forare (i) professional liability, and management liability and surety products; (ii) workers' compensation; and (iii) general liability.
Professional liability, management liability and surety products and Surety products. This includesinclude professional liability coverages provided to various professional firms, including architects, real estate agents, small and mid-sized accounting firms, law firms and other professional firms. ThisThey also includesinclude directors and officers (D&O), employment practices, fiduciary, fidelity and surety coverages, as well as insurance products serving the healthcare delivery system. The most significant factor affecting reserve estimates for these productsliability coverages is claim severity. Claim severity is driven by the cost of medical care, the cost of wage replacement, legal fees, judicial decisions, legislative changes and other factors. Underwriting and claim handling decisions such as the classes of business written and individual claim settlement decisions can also impact claim severity. If the estimated claim severity increases by 9%, we estimate that the net reserves would increase by approximately $550$450 million. If the estimated claim severity decreases by 3%, we estimate that net reserves would decrease by approximately $200$150 million. Our net reserves for these products were approximately $5.9$5.2 billion at as of December 31, 2013.2016.
Within CNA Commercial, the two types of business for which we believe a significant deviation to our net reserves is reasonably possible are workers' compensation and general liability.
For CNA Commercial workers' compensation, since many years will pass from the time the business is written until all claim payments have been made, claim cost inflation on claim payments is the most significant factor affecting workers' compensation reserve estimates.estimates is claim cost inflation on claim payments. Workers' compensation claim cost inflation is driven by the cost of medical care, the cost of wage replacement, expected claimant lifetimes, judicial decisions, legislative changes and other factors. If estimated workers' compensation claim cost inflation increases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would increase by approximately $400 million. If estimated workers' compensation claim cost inflation decreases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would decrease by approximately $400$350 million. Our net reserves for CNA Commercial workers' compensation were approximately $4.6$4.3 billion at as of December 31, 2013.2016.
For CNA Commercial general liability, the most significant factor affecting reserve estimates is claim severity. Claim severity is driven by changes in the cost of repairing or replacing property, the cost of medical care, the cost of wage replacement, judicial decisions, legislation and other factors. If the estimated claim severity for general liability increases by 6%, we estimate that our net reserves would increase by approximately $200 million. If the estimated claim severity for general liability decreases by 3%, we estimate that our net reserves would decrease by approximately $100 million. Our net reserves for CNA Commercial general liability were approximately $3.7$3.4 billion at as of December 31, 2013.2016.
Given the factors described above, it is not possible to quantify precisely the ultimate exposure represented by claims and related litigation. As a result, we regularly review the adequacy of our reserves and reassess our reserve estimates as historical loss experience develops, additional claims are reported and settled and additional information becomes available in subsequent periods.
In light of the many uncertainties associated with establishing the estimates and making the assumptions necessary to establish reserve levels, we reviewreviewing our reserve estimates, on a regular basis andwe make adjustments in the period that the need for such adjustments is determined. These reviews have resulted in our identification of information and trends that have caused us to change our reserves in prior periods and could lead to theour identification of a need for additional material increases or decreases in claim and claim adjustment expense reserves, which could materially affect our results of operations, equity, business and insurer financial strength and corporate debt ratings positively or negatively. See discussion within Note E to the Consolidated Financial Statements included under Item 8 for additional information about reserve development and the Ratings section of this MD&A for further information regarding our financial strength and corporate debt ratings.
Life & Group Non-Core Policyholder Reserves
We calculateOur Life and maintain reserves for policyholder claims and benefits for our Life & Group Non-Core segment based on actuarial assumptions. The determination of these reserves is fundamental toincludes our financial results and requires management to make assumptions about expected investment and policyholder experience over the life

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of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions represent management's best estimates at the date the contract was issued plus a margin for adverse deviation. Actuarial assumptions include estimates of morbidity, mortality, policy persistency, discount rates and expenses over the life of the contracts. Under GAAP, these assumptions are locked in throughout the life of the contract unless a premium deficiency develops. The impact of differences between the actuarial assumptions and actual experience is reflected in results of operations each period.
Annually, management assesses the adequacy of its GAAP reserves by product group by performing premium deficiency testing. In this test, reserves computed using best estimate assumptionsrun-off long term care business as of the date of the test without provisions for adverse deviation are compared to the recorded reserves. If reserves determined based on management's current best estimate assumptions are greater than the existing net GAAP reserves (i.e. reserves net of any Deferred acquisition costs asset), the existing net GAAP reserves would be increased to the greater amount. Any such increase would be reflected in our results of operations in the period in which the need for such adjustment is determined, and could materially adversely affect our results of operations, equity and business and insurer financial strength and corporate debt ratings.
Payout Annuity Reserves
Our payout annuity reserves consist primarily of single premium group andwell as structured settlement annuities. The annuity payments are generally fixedobligations related to certain property and are either for a specified period or contingent on the survival of the payee. These reserves are discounted except for reserves for loss adjustment expenses on structured settlementscasualty claimants not funded by annuities in our property and casualty insurance companies. In 2012 and 2011, we recognized a premium deficiency on our payout annuity reserves. Therefore, the actuarial assumptions established at time of issue have been unlocked and updated to management's then current best estimate. The actuarial assumptions that management believes are subject to the most variability are discount rate and mortality.
The table below summarizes the estimated pretax impact on our results of operations from various hypothetical revisions to our assumptions. We have assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy group. Although such hypothetical revisions are not currently required or anticipated, we believe they could occur based on past variances in experience and our expectations of the ranges of future experience that could reasonably occur.
It should be noted that our current GAAP payout annuity reserves contain a level of margin in excess of management's current best estimates. Any required increase in the net GAAP reserves resulting from the hypothetical revisions in the table below would first reduce the margin before they would affect results of operations. The estimated impacts to results of operations in the table below are after consideration of the existing margin.
Sensitivity Analysis
December 31, 2013 
 Estimated reduction to pretax income
Hypothetical revisions (In millions)
Discount rate: 
50 basis point decline$106
100 basis point decline$247
Mortality: 
5% decline$5
10% decline$31
Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized above.

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Long Term Care Reserves
annuities. Long term care policies provide benefits for nursing home,homes, assisted living and home health care subject to various daily and lifetime caps. Policyholders must continue to make periodic premium payments to keep the policy in force. Generally we have the ability to increase policy premiums, subject to state regulatory approval.
Our
We maintain both claim and claim adjustment expense reserves as well as future policy benefits reserves for policyholder benefits for our Life & Group Non-Core segment. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for our long term care policies, our actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves consistfor policyholders currently on claim and includes an evaluation of anexpected benefit utilization and claim duration. Our recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. Future policy benefits reserves represent the active life reserve, a liability for duereserves related to our long term care policies and unpaid claims, claims in the course of settlement and incurred but not reported claims. The active life reserve representsare the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves is fundamental to our financial results and requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rate morbidity, and persistency, whichanticipated future premium rate increases. Persistency can be affected by policy lapses and death. Discount rate is influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be impacted by changes to the corporate tax code. There is limited historical datacompany and industry data available to us for these reserves,long term care morbidity and mortality, as only a small portion of the long term care policies which have been written to date are in claims paying status and trends in morbidity and mortality change over time.status. As a result of this variability, our long term care reserves may be subject to material increases if these trends developactual experience develops adversely to our expectations.
Annually, management assesses the adequacy of its GAAP long term care future policy benefits reserves as well as the claim and claim adjustment expense reserves for structured settlement obligations by performing a gross premium valuation (GPV) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV reserves are then compared to the recorded reserves. If the GPV reserves are greater than the existing net GAAP reserves (i.e. reserves net of any deferred acquisition costs asset), the existing net GAAP reserves are unlocked and are increased to the greater amount. Any such increase is reflected in our results of operations in the period in which the need for such adjustment is determined, and could materially adversely affect our results of operations, equity and business and insurer financial strength and corporate debt ratings.
The December 31, 2016 GPV indicated carried reserves included a margin of approximately $255 million. A summary of the changes in the GPV results is presented in the table below:
Long Term Care Active Life Reserve - Change in GPV (In millions) 
December 31, 2015 Margin$
Changes in underlying morbidity assumptions(130)
Changes in underlying persistency assumptions25
Changes in underlying discount rate assumptions(45)
Changes in underlying premium rate action assumptions350
Changes in underlying expense and other assumptions55
December 31, 2016 Margin$255
The increase in the margin in 2016 was driven by expected rate increases from near-term future rate filings on segments of our individual long term care block of business as well as higher than expected premium rate increase achievement on rate filings related to our group long term care block.  This improvement from rate actions was partially offset by minor changes in morbidity assumptions. The effects of persistency and discount rates were relatively small and largely offset one another.  Additionally, in 2016 our annual experience study of long term care claim reserves resulted in a release of $30 million due to favorable severity relative to expectations.
The December 31, 2015 GPV indicated a premium deficiency of $296 million resulting in the unlocking of reserves and the resetting of actuarial assumptions to best estimate assumptions at that date. The indicated premium deficiency necessitated a charge to income of $296 million. In addition to the premium deficiency, our annual

experience study of claim reserves resulted in reserve strengthening of $9 million. The total after-tax impact of the premium deficiency and claim reserve strengthening was $198 million.
The table below summarizes the estimated pretax impact on our results of operations from various hypothetical revisions to our active life reserve assumptions. We have assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy group.group and would occur absent any changes, mitigating or otherwise, in the other assumptions. Although such hypothetical revisions are not currently required or anticipated, we believe they could occur based on past variances in experience and our expectations of the ranges of future experience that could reasonably occur.
It should be noted that our current GAAP long term care reserves contain a level of margin in excess of management's current best estimates. Any required increase in the net GAAP reserves resulting from the hypothetical revisionsrevision in the table below would first reduce the margin in our carried reserves before theyit would affect results of operations. The estimated impacts to results of operations in the table below are after consideration of the existing margin.
Sensitivity Analysis
December 31, 2013 
 Estimated reduction to pretax income
Hypothetical revisions (In millions)
Discount rate: 
50 basis point decline$305
100 basis point decline$1,041
Morbidity: 
5% increase$188
10% increase$724
Persistency: 
5% decline in voluntary lapse and mortality$18
10% decline in voluntary lapse and mortality$418
December 31, 2016 
 Estimated reduction to pretax income
Hypothetical revisions (In millions)
Morbidity: 
5% increase in morbidity$372
10% increase in morbidity999
Persistency: 
5% decrease in active life mortality and lapse$
10% decrease in active life mortality and lapse163
Discount Rates:

50 basis point decline in future interest rates$156
100 basis point decline in future interest rates664
Premium Rate Actions: 
25% decrease in anticipated future rate increases premium$
50% decrease in anticipated future rate increases premium142
As referenced in Item 1A Risk Factors, modification of the corporate tax rate could adversely affect the value of the tax benefit received on tax exempt municipal investments and thus the rate at which we discount our long term care active life reserves. For illustrative reference, absent a change in investment strategy, a reduction in the corporate tax rate to 20% would require an increase to our existing net GAAP reserves for the LTC business and an estimated reduction to pretax income of approximately $700 million.
Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized above.

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SEGMENT RESULTS

The following discusses the results of continuing operations for our operating segments.CONSOLIDATED OPERATIONS
Our core property and casualty commercial insurance operations are reported in three business segments: CNA Specialty, CNA Commercial and Hardy. CNA Specialty provides a broad array of professional, financial and specialty property and casualty products and services, primarily through insurance brokers and managing general underwriters. CNA Commercial includes property and casualty coverages sold to small businesses and middle market entities and organizations primarily through an independent agency distribution system. CNA Commercial also includes commercial insurance and risk management products sold to large corporations primarily through insurance brokers. Hardy underwrites primarily short-tail exposures in marine and aviation, non-marine property, specialty lines and property treaty reinsurance. The Company acquired Hardy on July 2, 2012.
Our non-core operations are managed in two segments: Life & Group Non-Core and Corporate & Other Non-Core. Life & Group Non-Core primarily includes the results of the life and group lines of business that are in run-off. Corporate & Other Non-Core primarily includes certain corporate expenses, including interest on corporate debt, and the results of certain property and casualty business in run-off, including CNA Re and A&EP. Intersegment eliminations are also included in this segment.
Our property and casualty field structure consists of 49 underwriting locations across the United States. In addition, there are five centralized processing operations which handle policy processing, billing and collection activities, and also act as call centers to optimize service. The claims structure consists of two regional claim centers designed to efficiently handle the high volume of low severity claims including property damage, liability, and workers' compensation medical only claims, and 16 principal claim offices handling the more complex claims. In addition, we have underwriting and claim capabilities in Canada and Europe.
We utilize the net operating income financial measure to monitor our operations. Net operating income (loss) is calculated by excluding from net income (loss) attributable to CNA the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting guidance. See further discussion regarding how we manage our business in Note O to the Consolidated Financial Statements included under Item 8. In evaluating the results of our CNA Specialty, CNA Commercial and Hardy segments, we utilize the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios.
Changes in estimates of claim and allocated claim adjustment expense reserves and premium accruals, net of reinsurance, for prior years are defined as net prior year development within this MD&A. These changes can be favorable or unfavorable. Net prior year development does not include the impact of related acquisition expenses. Further information on our reserves is provided in Note F to the Consolidated Financial Statements included under Item 8.

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CNA Specialty
Business Overview
CNA Specialty provides management and professional liability and other coverages through property and casualty products and services, both domestically and abroad, through a network of brokers, independent agencies and managing general underwriters. CNA Specialty provides solutions for managing the risks of its clients, including architects, lawyers, accountants, health care professionals, financial intermediaries and public and private companies. Product offerings also include surety and fidelity bonds and warranty services.
CNA Specialty includes the following business groups:
Management & Professional Liability provides management and professional liability insurance and risk management services and other specialized property and casualty coverages in the United States. This group provides professional liability coverages to various professional firms, including architects, real estate agents, small and mid-sized accounting firms, law firms and other professional firms. Management & Professional Liability also provides D&O, employment practices, fiduciary and fidelity coverages. Specific areas of focus include small and mid-size firms, public as well as privately held firms, and not-for-profit organizations, where tailored products for these client segments are offered. Products within Management & Professional Liability are distributed through brokers, independent agents and managing general underwriters. Management & Professional Liability, through CNA HealthPro, alsooffers insurance products to serve the healthcare industry. Products include professional and general liability as well as associated standard property and casualty coverages, and are distributed on a national basis through brokers, independent agents and managing general underwriters. Key customer segments include aging services, allied medical facilities, life sciences, dentists, doctors, hospitals, and nurses and other medical practitioners.
International provides similar management and professional liability insurance and other specialized property and casualty coverages, through similar distribution channels, in Canada and Europe.
Surety offers small, medium and large contract and commercial surety bonds. Surety provides surety and fidelity bonds in all 50 states through a network of independent agencies. On June 10, 2011, CNA completed the acquisition of the noncontrolling interest of Surety.
Warranty and Alternative Risks provides extended service contracts and related products that provide protection from the financial burden associated with mechanical breakdown and other related losses, primarily for vehicles and portable electronic communication devices.

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The following table details the results of operations for CNA Specialty.
Results of Operations
Years ended December 31     
(In millions, except ratios)2013 2012 2011
Net written premiums$3,091
 $2,924
 $2,872
Net earned premiums3,004
 2,898
 2,796
Net investment income657
 592
 500
Net operating income707
 504
 517
Net realized investment gains (losses)(2) 13
 (3)
Net income705
 517
 514
Ratios     
Loss and loss adjustment expense56.7% 63.2% 59.3 %
Expense30.0
 31.5
 30.7
Dividend0.2
 0.1
 (0.1)
Combined86.9% 94.8% 89.9 %
2013 Compared with 2012
Net written premiums for CNA Specialty increased $167 million in 2013 as compared with 2012, primarily driven by increased rate. Net earned premiums increased $106 million in 2013 as compared with 2012, consistent with increases in net written premiums.
CNA Specialty's average rate increased 6% for 2013, as compared with an increase of 5% in 2012 for the policies that renewed in each period. Retention of 85% and 86% was achieved in each period.
Net income increased $188 million in 2013 as compared with 2012. This increase was driven by higher net operating income.
Net operating income increased $203 million in 2013 as compared with 2012, primarily due to improved underwriting results and higher net investment income.
The combined ratio improved 7.9 points in 2013 as compared with 2012. The loss ratio improved 6.5 points, primarily due to an improved current accident year loss ratio and higher favorable net prior year development. The expense ratio improved 1.5 points in 2013 as compared with 2012, primarily due to the impact of lower underwriting expenses and a higher net earned premium base.
Favorable net prior year development of $247 million and $150 million was recorded in 2013 and 2012. Further information on net prior year development is included in Note F to the Consolidated Financial Statements included under Item 8.

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The following table summarizes the gross and net carried reserves as of December 31, 2013 and 2012 for CNA Specialty.
Gross and Net Carried Claim and Claim Adjustment Expense Reserves
December 31   
(In millions)2013 2012
Gross Case Reserves$2,270
 $2,292
Gross IBNR Reserves4,419
 4,456
Total Gross Carried Claim and Claim Adjustment Expense Reserves$6,689
 $6,748
Net Case Reserves$2,024
 $2,008
Net IBNR Reserves4,142
 4,104
Total Net Carried Claim and Claim Adjustment Expense Reserves$6,166
 $6,112
2012 Compared with 2011
Net written premiums for CNA Specialty increased $52 million in 2012 as compared with 2011, primarily driven by positive rate achievement, partially offset by lower new business levels in certain lines. Net earned premiums increased $102 million in 2012 as compared with 2011, consistent with increases in net written premiums.
CNA Specialty's average rate increased 5% for 2012, as compared to flat average rate in 2011 for the policies that renewed during those periods. Retention of 86% and 87% was achieved in each period.
Net income increased $3 million in 2012 as compared with 2011. This increase was due to improved net realized investment results, partially offset by lower net operating income.
Net operating income decreased $13 million in 2012 as compared with 2011, primarily due to decreased favorable net prior year development and decreased current accident year underwriting results, partially offset by higher investment income and the inclusion of our Surety business on a wholly-owned basis in 2012.
The combined ratio increased 4.9 points in 2012 as compared with 2011. The loss ratio increased 3.9 points, primarily due to decreased favorable net prior year development as well as the impact of a higher current accident year loss ratio. The expense ratio increased 0.8 points in 2012 as compared with 2011, primarily due to increased acquisition and underwriting expenses.
Favorable net prior year development of $150 million and $245 million was recorded in 2012 and 2011. Further information on net prior year development is included in Note F to the Consolidated Financial Statements included under Item 8.


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CNA Commercial
Business Overview
CNA Commercial works with an independent agency distribution system and a network of brokers to market a broad range of property and casualty insurance products and services to small, middle-market and large businesses and organizations domestically and abroad. Property products include standard and excess property coverages, as well as marine coverage, and boiler and machinery. Casualty products include standard casualty insurance products such as workers' compensation, general and product liability, commercial auto and umbrella coverages. Most insurance programs are provided on a guaranteed cost basis; however, we also offer specialized loss-sensitive insurance programs to those customers viewed as higher risk and less predictable in exposure.
These property and casualtyproducts are offered as part of our SmallBusiness,Commercial and International insurance groups. Our Small Business insurance group serves our smaller commercial accounts and the Commercial insurance group serves our middle markets and larger risks. In addition, CNA Commercial provides total risk management services relating to claim and information services to the large commercial insurance marketplace, through a wholly-owned subsidiary, CNA ClaimPlus, Inc., a third-party administrator. We also provide specialized insurance to customers who are generally viewed as higher risk and less predictable in exposure than those covered by standard insurance markets. The International insurance group primarily consists of the commercial product lines of our operations in Europe and Canada. During the fourth quarter of 2011, we sold our 50% ownership interest in First Insurance Company of Hawaii (FICOH).
The following table details the results of operations for CNA Commercial.
Results of Operations
Years ended December 31     
(In millions, except ratios)2013 2012 2011
Net written premiums$3,312
 $3,373
 $3,350
Net earned premiums3,350
 3,306
 3,240
Net investment income927
 854
 763
Net operating income468
 277
 367
Net realized investment gains (losses)
(9) 27
 14
Net income459
 304
 381
Ratios   
  
Loss and loss adjustment expense73.9% 77.9% 70.9%
Expense34.2
 35.3
 34.6
Dividend0.2
 0.3
 0.3
Combined108.3% 113.5% 105.8%
2013 Compared with 2012
Net written premiums for CNA Commercial decreased $61 million in 2013 as compared with 2012 primarily driven by previous underwriting actions taken in certain business classes. These underwriting actions were partially offset by continued strong rate increases. Net earned premiums increased $44 million in 2013 as compared with 2012 consistent with increased net written premiums in earlier periods.
CNA Commercial's average rate increased 8% in 2013, as compared with an increase of 7% in 2012 for the policies that renewed in each period. Retention of 74% and 77% was achieved in each period.
Net income increased $155 million in 2013 as compared with 2012. This increase was due to higher net operating income, partially offset by decreased net realized investment results.
Net operating income increased $191 million in 2013 as compared with 2012. This increase was primarily due to improved current accident year underwriting results, higher net investment income, and a settlement benefit of $31 million after-tax. These favorable items were partially offset by the unfavorable impact of net prior year development.

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The combined ratio improved 5.2 points in 2013 as compared with 2012. The loss ratio improved 4.0 points, primarily due to decreased catastrophe losses and an improved current accident year non-catastrophe loss ratio, partially offset by the unfavorable impact of net prior year development. Catastrophe losses were $142 million, or 4.2 points of the loss ratio for 2013, as compared to $356 million, or 10.9 points of the loss ratio for 2012.
The expense ratio improved 1.1 points in 2013 as compared with 2012, primarily due to decreased expenses including favorable changes in estimates of insurance assessment liabilities.
Unfavorable net prior year development of $95 million was recorded in 2013, compared to favorable net prior year development of $81 million for 2012. Further information on net prior year development is included in Note F to the Consolidated Financial Statements included under Item 8.
The following table summarizes the gross and net carried reserves as of December 31, 2013 and 2012 for CNA Commercial.
Gross and Net Carried Claim and Claim Adjustment Expense Reserves
December 31   
(In millions)2013 2012
Gross Case Reserves$5,829
 $6,146
Gross IBNR Reserves4,820
 5,180
Total Gross Carried Claim and Claim Adjustment Expense Reserves$10,649
 $11,326
Net Case Reserves$5,358
 $5,611
Net IBNR Reserves4,269
 4,600
Total Net Carried Claim and Claim Adjustment Expense Reserves$9,627
 $10,211
2012 Compared with 2011
Net written premiums for CNA Commercial increased $23 million in 2012 as compared with 2011. Net written premiums for 2011 included $128 million related to FICOH. Excluding FICOH, the increase in net written premiums was primarily driven by positive rate achievement. Net earned premiums increased $66 million in 2012 as compared with 2011. Net earned premium for 2011 included $125 million related to FICOH. Excluding FICOH, the increase in net earned premiums was driven by the increase in net written premiums and the impact of favorable premium development in 2012 as compared with unfavorable premium development in 2011.
CNA Commercial's average rate increased 7% in 2012, as compared with an increase of 2% in 2011 for the policies that renewed in each period. Retention of 77% and 78% was achieved in each period.
Net income decreased $77 million in 2012 as compared with 2011. This decrease was due to lower net operating income, partially offset by improved net realized investment results.
Net operating income decreased $90 million in 2012 as compared with 2011. This decrease was primarily due to higher catastrophe losses and decreased favorable net prior year development. These unfavorable impacts were partially offset by higher net investment income, as well as an unfavorable tax expense item in 2011 due to an increase in the tax rate applicable to a sold subsidiary.
The combined ratio increased 7.7 points in 2012 as compared with 2011. The loss ratio increased 7.0 points, primarily due to the impacts of higher catastrophe losses and decreased favorable net prior year development, partially offset by an improved current accident year non-catastrophe loss ratio. Catastrophe losses were $356 million, or 10.9 points of the loss ratio for 2012, as compared to $208 million, or 6.4 points of the loss ratio for 2011. Catastrophe losses in 2012 included $241 million related to Storm Sandy.
The expense ratio increased 0.7 points in 2012 as compared with 2011, primarily due to the favorable impact of recoveries in 2011 on insurance receivables written off in prior years.
Favorable net prior year development of $81 million and $183 million was recorded in 2012 and 2011. Further information on net prior year development is included in Note F to the Consolidated Financial Statements included under Item 8.

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Hardy
Business Overview
On July 2, 2012, we completed the acquisition of Hardy. Through Lloyd's Syndicate 382, Hardy underwrites primarily short-tail exposures in the following coverages.
Marine & Aviation provides coverage for a variety of large risks including energy, cargo and specie, marine hull, and general aviation. Energy covers participants in the energy supply, generation and delivery chain, with a primary focus on worldwide upstream oil and gas operations. Products primarily include offshore and onshore property damage, loss of production income and business interruption, construction abandonment, and seepage and pollution. Cargo covers the transportation and storage of a wide range of products and commodities and specie offers coverage for jewelers block and fine art. Marine hull provides coverage for ocean and brown water hull, fishing vessels, yachts and other marine related risks. General aviation primarily consists of rotor wing aircraft.
Non-Marine Property comprises direct and facultative property, including construction insurance of industrial and commercial risks (heavy industry, general manufacturing, commercial property portfolios), together with residential and small commercial risks.
Property Treaty Reinsurance offers catastrophe reinsurance on an excess of loss basis, proportional treaty and excess of loss coverages and crop reinsurance.
Specialty Lines offers coverage for a variety of risks including political violence, accident and health, and financial institutions.
The results below reflect Hardy's share of Syndicate 382's results. Third-party capital providers provided 7.5% of the syndicate's capital for the 2011 year of account and 25% for the 2012 year of account. We provided all of the syndicate's capital for the 2013 year of account.
In the fourth quarter of 2013, we commuted with a third-party capital provider that had a 15% share of the 2012 year of account. As a result, we now provide 90% of the capital for the 2012 year of account. The commutation resulted in a gain of $1 million and recognition of the 15% share of the 2012 year of account results in premiums, losses and expenses.

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The following table details the results of operations for Hardy.
Results of Operations
Years ended December 31   
(In millions, except ratios)2013 2012
Net written premiums$396
 $117
Net earned premiums361
 120
Net investment income4
 3
Net operating income (loss)10
 (23)
Net realized investment gains (losses)1
 (1)
Net income (loss)11
 (24)
Ratios   
Loss and loss adjustment expense44.8% 60.3%
Expense48.6
 57.2
Dividend
 
Combined93.4% 117.5%
2013 Compared with 2012
Results for 2012 are reflected from the date of acquisition. Net written premiums increased $279 million and net earned premiums increased $241 million in 2013 as compared with 2012. These significant premium increases are primarily driven by Hardy providing all of the capital support for the 2013 year of account and the commutation noted above. The commutation increased 2013 net written premiums by $51 million, net earned premiums by $45 million and net incurred losses by $22 million.
Hardy's average rate decreased 2% in 2013, as compared with an increase of 1% in 2012 for the policies that renewed in each period. Retention of 70% and 68% was achieved in each period.
Net results increased $35 million and net operating results increased $33 million in 2013 as compared with 2012, primarily due to improved underwriting results.
The combined ratio improved 24.1 points in 2013 as compared with 2012. The loss ratio improved 15.5 points, primarily due to the impact of Storm Sandy in 2012. Catastrophe losses related to Storm Sandy were $17 million, or 17.3 points of the loss ratio and 21.4 points of the combined ratio in 2012, reflecting the impact of reinstatement premiums. Catastrophe losses in 2013 were $5 million, or 1.3 points of the loss ratio. The expense ratio improved 8.6 points in 2013 as compared with 2012, primarily due to the higher net earned premium base.
Favorable net prior year development of $3 million and $8 million was recorded in 2013 and 2012. Further information on net prior year development is included in Note F to the Consolidated Financial Statements included under Item 8.
Gross and Net Carried Claim and Claim Adjustment Expense Reserves
December 31   
(In millions)2013 2012
Gross Case Reserves$275
 $333
Gross IBNR Reserves111
 188
Total Gross Carried Claim and Claim Adjustment Expense Reserves$386
 $521
Net Case Reserves$159
 $192
Net IBNR Reserves75
 82
Total Net Carried Claim and Claim Adjustment Expense Reserves$234
 $274

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Life & Group Non-Core
Business Overview
The Life & Group Non-Core segment primarily includes the results of the life and group lines of business that are in run-off. We continue to service our existing individual long term care commitments, our payout annuity business and our pension deposit business. We also retain a block of group reinsurance and life settlement contracts. These businesses are being managed as a run-off operation. Our group long term care business, while considered non-core, continues to accept new employees in existing groups.
On February 10, 2014, we entered into a definitive agreement to sell the majority of our run-off annuity and pension deposit business. Further information on the sale is set forth in Note R to the Consolidated Financial Statements included under Item 8.
The following table summarizes the results of operations for Life & Group Non-Core.
Results of Operations
The following table includes the consolidated results of our operations. For more detailed components of our business operations and the net operating income financial measure, see the segment discussions within this MD&A. For further discussion of Net investment income and Net realized investment results, see the Investments section of this MD&A.
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Operating Revenues     
Net earned premiums$559
 $560
 $569
$6,924
 $6,921
 $7,212
Net investment income830
 801
 759
1,988
 1,840
 2,067
Net operating loss(58) (90) (208)
Other revenues404
 407
 356
Total operating revenues9,316
 9,168
 9,635
Claims, Benefits and Expenses     
Net incurred claims and benefits5,270
 5,372
 5,577
Policyholders' dividends13
 12
 14
Amortization of deferred acquisition costs1,235
 1,540
 1,317
Other insurance related expenses1,122
 1,093
 1,029
Other expenses589
 535
 548
Total claims, benefits and expenses8,229
 8,552
 8,485
Operating income before income tax1,087
 616
 1,150
Income tax expense on operating income(263) (101) (301)
Net operating income824
 515
 849
Net realized investment gains (losses)24
 
 (5)50
 (67) 57
Net loss(34) (90) (213)
Income tax (expense) benefit on net realized investment gains (losses)(15) 31
 (18)
Net realized investment gains (losses), after tax35
 (36) 39
Income from continuing operations859
 479
 888
Loss from discontinued operations, net of tax
 
 (197)
Net income$859
 $479
 $691
20132016 Compared with 20122015
Net operating income increased $309 million in 2016 as compared with 2015. Net operating results increased $293 million for our non-core segments primarily as a result of a $198 million after-tax charge in 2015 related to increasing long term care active life and claim reserves. As our active life reserve assumptions were unlocked in 2015, long term care results in 2016 improved significantly. Net operating income increased $16 million for our core segments due to higher favorable net prior year reserve development and net investment income, partially offset by an increase in the current accident year loss ratio and higher underwriting expenses. Catastrophe losses were $111 million after tax in 2016 as compared to $95 million after tax in 2015.
Favorable net prior year development of $314 million and $218 million was recorded in 2016 and 2015 related to our Specialty, Commercial, International and Corporate & Other Non-Core segments. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.

2015 Compared with 2014
Net operating income decreased $334 million in 2015 as compared with 2014. Net operating income decreased $44 million for our core segments due to a decrease in net investment income driven by lower limited partnership returns, partially offset by improved underwriting results. Catastrophe losses were $95 million after tax in 2015 as compared to $102 million after tax in 2014. Net operating results decreased $290 million for our non-core segments driven by a $198 million after-tax charge related to recognition of a premium deficiency and a small deficiency in claim reserves in our long term care business, as further discussed in Reserves-Estimates and Uncertainties within this MD&A, as well as in Note A to the Consolidated Financial Statements included under Item 8. Additionally, results in 2015 decreased $51 million as compared to 2014 as a result of the application of retroactive reinsurance accounting to adverse reserve development ceded under the 2010 A&EP Loss Portfolio Transfer, as further discussed at Note E to the Consolidated Financial Statements included under Item 8.
Favorable net prior year development of $218 million and $53 million was recorded in 2015 and 2014 related to our Specialty, Commercial, International and Corporate & Other Non-Core segments. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.


SEGMENT RESULTS
The following discusses the results of operations for our business segments.
Our core property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International. Specialty provides a broad array of professional, financial and specialty property and casualty products and services through a network of independent agents, brokers and managing general underwriters. Commercial includes property and casualty coverages sold to small businesses and middle market entities and organizations primarily through an independent agency distribution system. Commercial also includes commercial insurance and risk management products sold to large corporations primarily through insurance brokers. International provides management and professional liability coverages as well as a broad range of other property and casualty insurance products and services abroad through a network of brokers, independent agencies and managing general underwriters, as well as the Lloyd’s marketplace.
Our non-core operations are managed and reported in two segments: Life & Group Non-Core and Corporate & Other Non-Core. Life & Group Non-Core primarily includes the results of our long term care business that is in run-off. Corporate & Other Non-Core primarily includes certain corporate expenses, including interest on corporate debt, and the results of certain property and casualty business in run-off, including CNA Re and A&EP. Intersegment eliminations are also included in this segment.
Our property and casualty field structure consists of 49 underwriting locations across the United States. In addition, there are five centralized processing operations which handle policy processing, billing and collection activities and also act as call centers to optimize service. The claims structure consists of a national claim center designed to efficiently handle the high volume of low severity claims, including property damage, liability and workers' compensation medical only claims, and 16 principal claim offices handling the more complex claims. We also have a presence in Canada, Europe, China and Singapore consisting of 17 branch operations and access to business placed at Lloyd's of London through Hardy Syndicate 382.
We utilize the net operating income (loss) financial measure to monitor our operations. Net operating income (loss) is calculated by excluding from net income (loss) the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting guidance. The calculation of net operating income (loss) excludes net realized investment gains or losses because net realized investment gains or losses are largely discretionary, except for some losses related to other-than-temporary impairment (OTTI) losses, and are generally driven by economic factors that are not necessarily consistent with key drivers of underwriting performance, and are therefore not considered an indication of trends in insurance operations. Management monitors net operating income (loss) for each business segment to assess segment performance. Presentation of consolidated net operating income (loss) is deemed to be a non-GAAP financial measure. See further discussion regarding how we manage our business and reconciliations of non-GAAP measures to the most comparable GAAP measures and other information in Note O to the Consolidated Financial Statements included under Item 8.
In evaluating the results of our Specialty, Commercial and International segments, we utilize the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. In addition we also utilize rate, retention and new business in evaluating operating trends. Rate represents the average change in price on policies that renew excluding exposure change. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. New business represents premiums from policies written with new customers and additional policies written with existing customers.
Changes in estimates of claim and allocated claim adjustment expense reserves and premium accruals, net of reinsurance, for prior years are defined as net prior year development within this MD&A. These changes can be favorable or unfavorable. Net prior year development does not include the impact of related acquisition expenses. Further information on our reserves is provided in Note E to the Consolidated Financial Statements included under Item 8.

Specialty
Specialty provides management and professional liability and other coverages through property and casualty products and services using a network of brokers, independent agencies and managing general underwriters. Specialty includes the following business groups:
Management & Professional Liability provides management and professional liability insurance and risk management services and other specialized property and casualty coverages. This group provides professional liability coverages to various professional firms, including architects, real estate agents, accounting firms, law firms and other professional firms. Management & Professional Liability also provides D&O, employment practices, fiduciary and fidelity coverages. Specific areas of focus include small and mid-size firms, public as well as privately held firms and not-for-profit organizations, where tailored products for these client segments are offered. Products within Management & Professional Liability are distributed through brokers, independent agents and managing general underwriters. Management & Professional Liability, through CNA HealthCare, alsooffers insurance products to serve the healthcare industry. Products include professional and general liability as well as associated standard property and casualty coverages, and are distributed on a national basis through brokers, independent agents and managing general underwriters. Key customer groups include aging services, allied medical facilities, life sciences, dentists, physicians, hospitals and nurses and other medical practitioners.
Surety offers small, medium and large contract and commercial surety bonds. Surety provides surety and fidelity bonds in all 50 states through a network of independent agencies and brokers.
Warranty and Alternative Risks provides extended service contracts and related products that provide protection from the financial burden associated with mechanical breakdown and other related losses, primarily for vehicles and portable electronic communication devices.

The following table details the results of operations for Specialty.
Years ended December 31     
(In millions, except ratios, rate and retention)2016 2015 2014
Net written premiums$2,780
 $2,781
 $2,839
Net earned premiums2,779
 2,782
 2,838
Net investment income516
 474
 560
Net operating income650
 560
 634
Net realized investment gains (losses), after tax3
 (22) 10
Net income653
 538
 644
      
Other performance metrics:     
Loss and loss adjustment expense ratio52.8% 57.4% 57.3%
Expense ratio32.0
 31.1
 30.1
Dividend ratio0.2
 0.2
 0.2
Combined ratio85.0% 88.7% 87.6%
      
Rate1% 1% 3%
Retention87% 87% 87%
New Business$252
 $279
 $309
2016 Compared with 2015
Net written premiums for Specialty in 2016 were consistent with 2015 as growth in warranty was offset by a decrease in management and professional liability and healthcare due to underwriting actions undertaken in certain business lines. The trend in net earned premiums was consistent with net written premiums.
Net operating income increased $90 million in 2016 as compared with 2015, primarily due to higher favorable net prior year reserve development and net investment income partially offset by higher underwriting expenses and current accident year net loss and loss adjustment expenses.
The combined ratio decreased 3.7 points in 2016 as compared with 2015. The loss ratio decreased 4.6 points due to higher favorable net prior year reserve development partially offset by a higher current accident year loss ratio. Catastrophe losses were $18 million, or 0.6 points of the loss ratio, for 2016, as compared to $13 million, or 0.4 points of the loss ratio, for 2015. The expense ratio increased 0.9 points in 2016 as compared with 2015, due to higher employee costs and higher IT spending primarily related to new underwriting platforms.
Favorable net prior year development of $305 million and $152 million was recorded in 2016 and 2015. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.

The following table summarizes the gross and net carried reserves for Specialty.
December 31   
(In millions)2016 2015
Gross case reserves$1,871
 $2,011
Gross IBNR reserves4,278
 4,258
Total gross carried claim and claim adjustment expense reserves$6,149
 $6,269
Net case reserves$1,681
 $1,810
Net IBNR reserves3,723
 3,758
Total net carried claim and claim adjustment expense reserves$5,404
 $5,568
2015 Compared with 2014
Net written premiums for Specialty decreased $58 million in 2015 as compared with 2014, driven by lower new business. The decrease in net earned premiums was consistent with the trend in net written premiums.
Net operating income decreased $74 million in 2015 as compared with 2014, primarily due to lower net investment income.
The combined ratio increased 1.1 points in 2015 as compared with 2014. The loss ratio increased 0.1 points due to deterioration in the current accident year loss ratio, primarily offset by higher net favorable prior year development. Catastrophe losses were $13 million, or 0.4 points of the loss ratio, for 2015 as compared to $21 million, or 0.7 points of the loss ratio, for 2014. The expense ratio increased 1.0 point in 2015 as compared with 2014, driven by increased underwriting expenses and the unfavorable effect of lower net earned premiums.
Favorable net prior year development of $152 million and $149 million was recorded in 2015 and 2014. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.



Commercial
Commercial works with a network of brokers and independent agents to market a broad range of property and casualty insurance products and services to small, middle-market and large businesses. Property products include standard and excess property, marine and boiler and machinery coverages. Casualty products include standard casualty insurance products such as workers' compensation, general and product liability, commercial auto and umbrella coverages. Most insurance programs are provided on a guaranteed cost basis; however, we also offer specialized loss-sensitive insurance programs and total risk management services relating to claim and information services to the large commercial insurance marketplace through a wholly-owned subsidiary, CNA ClaimPlus, Inc., a third-party administrator.
These property and casualtyproducts are offered through our Middle Market, Small Business and Other Commercial insurance groups.
The following table details the results of operations for Commercial.
Years ended December 31     
(In millions, except ratios, rate and retention)2016 2015 2014
Net written premiums$2,841
 $2,818
 $2,817
Net earned premiums2,804
 2,788
 2,906
Net investment income638
 593
 723
Net operating income311
 369
 307
Net realized investment gains (losses), after tax2
 (31) 10
Net income313
 338
 317
    
  
Other performance metrics:     
Loss and loss adjustment expense ratio68.7 % 65.1% 75.3%
Expense ratio36.8
 36.1
 33.7
Dividend ratio0.3
 0.3
 0.3
Combined ratio105.8 % 101.5% 109.3%
      
Rate(2)% 1% 5%
Retention84 % 78% 73%
New Business$524
 $552
 $491
2016 Compared with 2015
Net written premiums for Commercial increased $23 million in 2016 as compared with 2015, driven by strong retention in middle markets partially offset by a decrease in small business, which included a premium rate adjustment more fully discussed in Note F to the Consolidated Financial Statements under Item 8.  The increase in net earned premium was consistent with the trend in net written premiums.
Net operating income decreased $58 million in 2016 as compared with 2015, due to a higher underwriting loss partially offset by an increase in net investment income.

The combined ratio increased 4.3 points in 2016 as compared to 2015. The loss ratio increased 3.6 points due to the unfavorable period over period effect of net prior year reserve development and a higher current accident year loss ratio due to higher large losses. Catastrophe losses were $116 million, or 4.1 points of the loss ratio, for 2016 primarily driven by U.S. weather-related events, as compared to $101 million, or 3.6 points of the loss ratio, for 2015. The expense ratio increased 0.7 points in 2016 as compared with 2015, due to higher employee costs and higher IT spending primarily related to a new underwriting platform.
Unfavorable net prior year development of $53 million was recorded in 2016 as compared with favorable net prior year development of $30 million in 2015. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.
The following table summarizes the gross and net carried reserves for Commercial.
December 31   
(In millions)2016 2015
Gross case reserves$4,661
 $4,975
Gross IBNR reserves4,233
 4,208
Total gross carried claim and claim adjustment expense reserves$8,894
 $9,183
Net case reserves$4,353
 $4,651
Net IBNR reserves3,952
 3,925
Total net carried claim and claim adjustment expense reserves$8,305
 $8,576
2015 Compared with 2014
Net written premiums for Commercial were consistent in 2015 as compared with 2014. Positive rate and higher retention and new business were offset by the residual effect of previous underwriting actions undertaken in certain business classes. Net earned premiums decreased $118 million in 2015 as compared with 2014, consistent with the trend in recent quarters in net written premiums.
Net operating income increased $62 million in 2015 as compared with 2014. This increase was primarily due to improved underwriting results partially offset by lower net investment income.
The combined ratio improved 7.8 points in 2015 as compared to 2014. The loss ratio improved 10.2 points, due to favorable net prior year development for 2015 as compared to unfavorable net prior year development for 2014 and an improved current accident year loss ratio. Catastrophe losses were $101 million, or 3.6 points of the loss ratio, for 2015, as compared to $125 million, or 4.4 points of the loss ratio, for 2014. The expense ratio increased 2.4 points in 2015 as compared with 2014, due to higher expenses, including increased commissions, the favorable impact in 2014 of recoveries on insurance receivables written off in prior years and the unfavorable effect of lower net earned premiums.
Favorable net prior year development of $30 million was recorded in 2015 as compared with unfavorable net prior year development of $156 million in 2014. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.


International
International provides property and casualty and specialty coverages on a global basis through its operations in Canada, the United Kingdom, Continental Europe, China and Singapore, as well as through its presence at Lloyd’s of London.
The International business is grouped into broad business units which include Energy & Marine, Property, Casualty, Specialty, and Healthcare & Technology. International is managed across three territorial platforms from Head Offices in London and Toronto.
Canada provides standard commercial and specialty insurance products, primarily in the marine, oil & gas, construction, manufacturing and life science industries.
CNA Europe provides a diverse range of specialty products as well as commercial insurance products primarily in the marine, property, financial services and healthcare & technology industries throughout Europe on both a domestic and cross border basis.
Hardy operates through Lloyd’s Syndicate 382 underwriting primarily short-tail exposures in energy, marine, property, casualty and specialty lines with risks located in many countries around the world. The capacity of and results from the syndicate are 100% attributable to CNA.




The following table details the results of operations for International.
Years ended December 31     
(In millions, except ratios, rate and retention)2016 2015 2014
Net written premiums$821
 $822
 $880
Net earned premiums806
 804
 913
Net investment income51
 52
 61
Net operating income21
 37
 69
Net realized investment gains, after tax15
 1
 
Net income36
 38
 69
      
Other performance metrics:     
Loss and loss adjustment expense ratio61.0 % 59.5 % 53.5 %
Expense ratio38.1
 38.1
 38.9
Combined ratio99.1 % 97.6 % 92.4 %
      
Rate(1)% (1)% (1)%
Retention76 % 76 % 74 %
New Business(1)
$240
 $111
 $115
(1) Beginning in 2016, new business includes Hardy. New business for Hardy was $133 million for the year ended December 31, 2016.
2016 Compared with 2015
Net written premiums for International in 2016 were consistent with 2015 and includes favorable period over period premium development of $24 million. Excluding the effect of foreign currency exchange rates and premium development, net written premiums increased 1.4% in 2016. Excluding the effect of foreign currency exchange rates and premium development, the increase in net earned premiums was consistent with the trend in net written premiums.
Net operating income decreased $16 million in 2016 as compared with 2015, primarily due to a lower underwriting profit and foreign currency exchange losses.
The combined ratio increased 1.5 points in 2016 as compared with 2015. The loss ratio increased 1.5 points, primarily due to an increase in the current accident year loss ratio driven by a higher level of large losses related to political risk, property and financial institutions, partially offset by higher favorable net prior year development. Catastrophe losses were $31 million, or 3.9 points of the loss ratio, for 2016 primarily driven by the Fort McMurray wildfires, as compared to $27 million, or 3.3 point of the loss ratio, for 2015. The expense ratio was consistent with 2015.
Favorable net prior year development of $64 million and $36 million was recorded in 2016 and 2015. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.








The following table summarizes the gross and net carried reserves for International.
December 31   
(In millions)2016 2015
Gross case reserves$632
 $622
Gross IBNR reserves696
 725
Total gross carried claim and claim adjustment expense reserves$1,328
 $1,347
Net case reserves$548
 $531
Net IBNR reserves653
 688
Total net carried claim and claim adjustment expense reserves$1,201
 $1,219

2015 Compared with 2014

Net written premiums for International decreased $58 million in 2015 as compared with 2014, driven by the unfavorable effect of foreign currency exchange rates, the 2014 termination of a specialty product managing general underwriter relationship in Canada and unfavorable premium development at Hardy. Excluding the effect of foreign currency exchange rates, net written premiums increased 2.4% in 2015 as compared with 2014. Net earned premiums decreased $109 million in 2015 as compared with 2014, consistent with the trend in net written premiums.
Net operating income decreased $32 million in 2015 as compared with 2014. This decrease was due to less favorable underwriting results, partially offset by less unfavorable effects of foreign currency exchange rates.
The combined ratio increased 5.2 points in 2015 as compared with 2014. The loss ratio increased 6.0 points, primarily due to less favorable net prior year development and an increase in the current accident year loss ratio driven by large losses. Catastrophe losses were $27 million, or 3.3 points of the loss ratio, for 2015, as compared to $10 million, or 1.0 point of the loss ratio, for 2014. The expense ratio improved 0.8 points in 2015 as compared with 2014 due to lower expenses, partially offset by the unfavorable effect of lower net earned premiums.
Favorable net prior year development of $36 million and $57 million was recorded in 2015 and 2014. Further information on net prior year development is in Note E to the Consolidated Financial Statements included under Item 8.



Life & Group Non-Core
The Life & Group Non-Core segment primarily includes the results of our long term care business that is in run-off. Long term care policies were sold on both an individual and group basis. While considered non-core, new enrollees in existing groups were accepted through February 1, 2016.
On August 1, 2014, we closed the sale of the common stock of CAC, our life insurance subsidiary. In connection with the sale, we recorded an after-tax loss on sale of $211 million, which is reflected in Loss from discontinued operations. Further information is provided in Notes A and P to the Consolidated Financial Statements included under Item 8.
In connection with the sale of CAC, we entered into a 100% coinsurance agreement on a separate small block of annuity business outside of CAC. As a result of the funds withheld basis used in this transaction, we recognized an after-tax operating loss of $34 million in 2014. Further information is provided in Note A to the Consolidated Financial Statements under Item 8.
The following table summarizes the results of operations for Life & Group Non-Core decreased $1Non-Core.
Years ended December 31     
(In millions)2016 2015 2014
Net earned premiums$536
 $548
 $556
Net investment income767
 704
 700
Net operating income (loss)20
 (314) (69)
Net realized investment gains, after tax16
 8
 7
Net income (loss)36
 (306) (62)
In 2015, we recognized a $198 million in 2013 as compared with 2012. Net earned premiums relate primarily after-tax charge relating to a premium deficiency and claim reserve strengthening. The December 31, 2015 GPV indicated a premium deficiency of $296 million. The indicated premium deficiency necessitated a charge to income that was affected by the individual and groupwrite off of the entire long term care business.
Net loss decreased $56deferred acquisition cost of $289 million in 2013 as compared with 2012. Results in 2012 included a $44 million after-tax charge dueand an increase to unlocking actuarial assumptions on our payout annuity businessactive life reserves of $7 million. Due to the recognition of the premium deficiency and long term care claim reserve strengthening. In 2013, payout annuity reserves were determined to be adequate, therefore no unlockingresetting of actuarial assumptions was required. Ourin the fourth quarter of 2015, the operating results of our long term care business in 2016 reflect the variance between actual experience and the expected results contemplated in our best estimate reserves. In 2015, results of our long term care business reflected variances between actual experience and actuarial assumptions that were locked-in at policy issuance. As a result of the reserve assumption unlocking, the 2016 and 2015 results are not comparable.
2016
Net operating income of $20 million was positively impacteddriven by a favorable release of claim reserves resulting from the annual claims experience study and higher net investment income due to an increase in 2013 by the effect of rate increase actions.invested asset base. The favorablelong term care results were generally in line with expectations, as the impact of rate increase actionsfavorable morbidity was more thanpartially offset by unfavorable morbidity.persistency.


39


The following table summarizes policyholder reserves for Life & Group Non-Core Policyholder ReservesNon-Core.
December 31, 2013         
December 31, 2016     
(In millions)Claim and claim adjustment expenses Future policy benefits Policyholders' funds Separate account business TotalClaim and claim adjustment expenses Future policy benefits Total
Long term care$1,889
 $7,329
 $
 $
 $9,218
$2,426
 $8,654
 $11,080
Payout annuities613
 1,990
 
 
 2,603
Institutional markets1
 9
 57
 181
 248
Structured settlement annuities565
 
 565
Other37
 4
 
 
 41
17
 
 17
Total2,540
 9,332
 57
 181
 12,110
3,008
 8,654
 11,662
Shadow adjustments (1)
83
 406
 
 
 489
101
 1,459
 1,560
Ceded reserves435
 733
 35
 
 1,203
Ceded reserves (2)
249
 213
 462
Total gross reserves$3,058
 $10,471
 $92
 $181
 $13,802
$3,358
 $10,326
 $13,684
December 31, 2012         
December 31, 2015     
(In millions)Claim and claim adjustment expenses Future policy benefits Policyholders' funds Separate account business TotalClaim and claim adjustment expenses Future policy benefits Total
Long term care$1,683
 $6,879
 $
 $
 $8,562
$2,229
 $8,335
 $10,564
Payout annuities637
 2,008
 
 
 2,645
Institutional markets1
 12
 100
 312
 425
Structured settlement annuities581
 
 581
Other45
 4
 
 
 49
21
 
 21
Total2,366
 8,903
 100
 312
 11,681
2,831
 8,335
 11,166
Shadow adjustments (1)
162
 1,812
 
 
 1,974
99
 1,610
 1,709
Ceded reserves478
 760
 34
 
 1,272
Ceded reserves (2)
290
 207
 497
Total gross reserves$3,006
 $11,475
 $134
 $312
 $14,927
$3,220
 $10,152
 $13,372
(1) To the extent that unrealized gains on fixed income securities supporting long term care products and payout annuity contracts would result in a premium deficiency if those gains were realized, a related decrease in Deferred acquisition costs and/oran increase in Insurance reserves areis recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). The Shadow adjustments presented above do not include $342 million and $369 million related
(2) Ceded reserves relate to Deferred acquisition costs at December 31, 2013 and 2012.claim or policy reserves fully reinsured in connection with a sale or exit from the underlying business.
20122015 Compared with 2011
2014
Net earned premiums for Life & Group Non-Core decreased $9$8 million in 20122015 as compared with 2011. 2014. The effect of policy lapses was substantially offset by premium rate increases.
Net earned premiums relate primarilyoperating loss increased $245 million in 2015 as compared with 2014. The increase was driven by a $296 million charge related to the individualrecognition of a premium deficiency and groupa $9 million deficiency in claim reserves in our long term care businesses.business. The decreaseafter-tax impact of both of these items was $198 million. Excluding the effects of these items, results in earned premiums was primarily due to lapsing of policies2015 were also negatively affected by higher morbidity in our individual long term care business, which isbusiness. Results in run-off, partially offset2014 were negatively affected by increased premiums resulting from rate increase actionsa $34 million after-tax loss on a coinsurance transaction related to this business.
Net loss decreased $123 million in 2012 as compared with 2011. The results included the unfavorable impactsale of a $24 million after-tax charge in 2012 as compared to a $115 million after-tax charge in 2011 related to our payout annuity business, due to unlocking actuarial reserve assumptions. The initial reserving assumptions for these contracts were determined at issuance, including a margin for adverse deviation, and were locked in throughout the lifeCAC. For further discussion of drivers of the contract unless a premium deficiency, developed. The increase tosee the related reserves in 2012 related to anticipated adverse changes in discount rates, which reflected the low interest rate environmentReserves - Estimates and our viewUncertainties section of expected future investment yields. The increase in 2011 related to anticipated adverse changes in mortality and discount rates. Additionally, long term care claim reserves were increased by $20 million after-tax in 2012 and $33 million after-tax in 2011.
The decrease in net loss was also driven by improved results in our life settlement contracts business and the impact of unfavorable performance in 2011 on our remaining pension deposit business.this MD&A.


40


Corporate & Other Non-Core
Overview
Corporate & Other Non-Core primarily includes certain corporate expenses, including interest on corporate debt and the results of certain property and casualty business in run-off, including CNA Re and A&EP.
The following table summarizes the results of operations for the Corporate & Other Non-Core segment, including A&EP and intersegment eliminations.
Results of Operations
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Net investment income$32
 $32
 $32
$16
 $17
 $23
Interest expense155
 154
 182
Net operating loss(210) (81) (66)(178) (137) (92)
Net realized investment gains (losses)6
 2
 (3)
Net realized investment (losses) gains, after tax(1) 8
 12
Net loss(204) (79) (69)(179) (129) (80)
20132016 Compared with 20122015
Net operating loss increased $125$41 million in 20132016 as compared with 20122015, primarily driven. Results in both periods were negatively affected by after-tax charges related to the impactapplication of a $123 million after-tax deferred gain under retroactive reinsurance accounting related to adverse reserve development ceded under the 2010 A&EP Loss Portfolio Transfer. The Loss Portfolio Transfer asdrove $18 million of the year over year change. This is further discussed in Note FE to the Consolidated Financial Statements included under Item 8.
Favorable net prior year development of $5 million and $12 million was recorded in 2013 and 2012.
The following table summarizes the gross and net carried reserves as of December 31, 2013 and 2012for Corporate & Other Non-Core.
Gross and Net Carried Claim and Claim Adjustment Expense Reserves
December 31   
(In millions)2013 2012
Gross Case Reserves$1,140
 $1,207
Gross IBNR Reserves2,167
 1,955
Total Gross Carried Claim and Claim Adjustment Expense Reserves$3,307
 $3,162
Net Case Reserves$283
 $292
Net IBNR Reserves184
 220
Total Net Carried Claim and Claim Adjustment Expense Reserves$467
 $512
December 31   
(In millions)2016 2015
Gross case reserves$1,524
 $1,521
Gross IBNR reserves1,090
 1,123
Total gross carried claim and claim adjustment expense reserves$2,614
 $2,644
Net case reserves$94
 $130
Net IBNR reserves136
 153
Total net carried claim and claim adjustment expense reserves$230
 $283
20122015 Compared with 20112014
Net operating loss increased $10$45 million in 20122015 as compared with 2011, primarily driven2014. Results in 2015 were negatively affected by an increase in gross A&EP claim reserves. While all of this reserve development is reinsured under the favorable impactLoss Portfolio Transfer, only a portion of the reinsurance recovery is currently recognized because of the application of retroactive reinsurance accounting. As a result, the net operating loss comparison was negatively affected by $51 million, as further discussed in 2011Note E to the Consolidated Financial Statements included under Item 8. Results in 2015 benefited from lower interest expense due to the maturity of higher coupon debt in the fourth quarter of 2014. Results in 2014 included a $22$56 million after-tax curtailment gain related to a change in postretirement benefits, substantially offset by a $55 million after-tax lump sum pension plan settlement, as further discussed in Note I to the Consolidated Financial Statements included under Item 8.
No net prior year tax amount, partially offset by increaseddevelopment was recorded for the year ended December 31, 2015 as compared with favorable net prior year development and improved net realized investment results.
Favorable net prior year development of $12 million and $3 million was recorded in 2012 and 2011.for the year ended December 31, 2014.


41


INVESTMENTS
Net Investment Income
The significant components of pretax netNet investment income are presented in the following table.
Net Investment Income
Years ended December 31     
(In millions)2013 2012 2011
Fixed maturity securities$1,998
 $2,022
 $2,011
Short term investments3
 5
 8
Limited partnership investments451
 251
 48
Equity securities12
 12
 20
Mortgage loans23
 17
 9
Trading portfolio17
 24
 9
Other2
 7
 7
Gross investment income2,506
 2,338
 2,112
Investment expense(56) (56) (58)
Net investment income$2,450
 $2,282
 $2,054
Years ended December 31     
(In millions)2016 2015 2014
Fixed maturity securities:     
    Taxable$1,414
 $1,375
 $1,399
    Tax-Exempt405
 376
 404
Total fixed maturity securities1,819
 1,751
 1,803
Limited partnership investments155
 92
 263
Other, net of investment expense14
 (3) 1
Net investment income$1,988
 $1,840
 $2,067
Net investment income, after tax$1,427
 $1,329
 $1,473
      
Effective income yield for the fixed maturity securities portfolio, pretax4.8% 4.7% 4.8%
Effective income yield for the fixed maturity securities portfolio, after tax3.5% 3.4% 3.5%
Net investment income, for the year ended December 31, 2013after tax, increased $168$98 million in 2016 as compared with the same period in 2012.2015. The increase was driven by limited partnership investments, which returned 6.3% in 2016 as compared with 3.0% in the prior year. Income from fixed maturity securities, after tax, increased $44 million primarily due to an increase in the invested asset base and a charge in 2015 related to a change in estimate effected by a change in accounting principle.
Net investment income, after tax, decreased $144 million in 2015 as compared with 2014. The decrease was driven by limited partnership investments, which returned 3.0% in 2015 as compared with 9.7% in the prior year. Income from fixed maturity securities, after tax, decreased $34 million driven by a significant increase$25 million change in limited partnership investment income, partially offsetestimate effected by a decreasechange in accounting principle to better reflect the yield on fixed maturity securities income. Limited partnership results were positively impacted by more favorable equity market returns. The decrease inthat have call provisions. Additionally income from fixed maturity securities income wasdecreased due to the effect of reinvesting at lower market interestreinvestment rates, partially offset by a higher invested asset base.
Net investment income increased $228 million in 2012 as compared with 2011. The increase was primarily driven by a significant increase in limited partnership investment income, increased trading portfolio income and an increase in fixed maturity securities income. The increase in fixed maturity securities income was driven by a higher invested asset base and the favorable net impact of changes in estimates offor prepayments for asset-backed securities. These favorable impacts were partially offset bySee further discussion of the effect of investing at lower market interest rates.accounting change in Note A to the Consolidated Financial Statements included under Item 8.
The fixed maturity investment portfolio provided a pretax effective income yield of 5.1%, 5.3% and 5.5% for the years ended December 31, 2013, 2012 and 2011. Tax-exempt municipal bonds generated $317 million of net investment income for the year ended December 31, 2013, compared with $274 million and $240 million of net investment income for the same periods in 2012 and 2011.

42


Net Realized Investment Gains (Losses)
The components of netNet realized investment results are presented in the following table.
Net Realized Investment Gains (Losses)
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Fixed maturity securities:          
Corporate and other bonds$55
 $106
 $48
$31
 $(55) $67
States, municipalities and political subdivisions36
 (4) 5
29
 (22) (7)
Asset-backed(39) (26) (82)(2) 10
 (21)
Foreign government3
 1
 2
U.S. Treasury and obligations of government-sponsored enterprises
 3
 1
5
 
 
Foreign government4
 4
 3
Redeemable preferred stock(1) 
 3
Total fixed maturity securities55
 83
 (22)66
 (66) 41
Equity securities(22) (23) (1)(5) (23) 1
Derivative securities(9) (2) 
(2) 10
 (1)
Short term investments and other7
 5
 21
(9) 12
 16
Net realized investment gains (losses), pretax31
 63
 (2)
Net realized investment gains (losses)50
 (67) 57
Income tax (expense) benefit on net realized investment gains (losses)(11) (22) 5
(15) 31
 (18)
Net realized investment gains (losses)$20
 $41
 $3
Net realized investment gains (losses), after tax$35
 $(36) $39
Net realized investment gains decreased $21results, after tax, increased $71 million for 20132016 as compared with 2012,2015, driven by lower OTTI losses recognized in earnings and higher net realized investment gains on sales of securities. Net realized investment results, after tax, decreased $75 million for 2015 as compared with 2014, driven by higher OTTI losses recognized in earnings and lower net realized investment gains on sales of securities, partially offset by lower other-than-temporary impairment (OTTI) losses recognized in earnings. Net realized investment gains increased $38 million for 2012 as compared with 2011. securities.
Further information on our realized gains and losses, including our OTTI losses and derivative gains (losses), as well as our impairment decision process, is set forth in Notes A and B to the Consolidated Financial Statements included under Item 8.

Portfolio Quality
OurThe following table presents the estimated fair value and net unrealized gains (losses) of our fixed maturity portfolio consists primarilysecurities by rating distribution.
December 312016 2015

(In millions)
Estimated Fair Value Net Unrealized Gains (Losses) Estimated Fair Value Net Unrealized Gains (Losses)
U.S. Government, Government agencies and Government-sponsored enterprises$4,212
 $32
 $3,910
 $101
AAA1,881
 110
 1,938
 123
AA8,911
 750
 8,919
 900
A9,866
 832
 10,044
 904
BBB12,802
 664
 11,595
 307
Non-investment grade3,233
 156
 3,166
 (16)
Total$40,905
 $2,544
 $39,572
 $2,319
As of high quality bonds, 92% of which were rated as investment grade (rated BBB- or higher) at December 31, 20132016 and 2012. The classification between investment grade2015, only 2% and non-investment grade is based on a ratings methodology that takes into account ratings from S&P and Moody's, in that order1% of preference. If a security is not rated by these agencies, we formulate an internal rating. At December 31, 2013 and 2012, approximately 99% and 98% of theour fixed maturity portfolio was rated by S&P or Moody's, or was issued or guaranteed by the U.S. Government, Government agencies or Government-sponsored enterprises.internally.

43


The following table summarizes the ratings of our fixed maturity portfolio at fair value.
Fixed Maturity Ratings
December 31       
(In millions)2013 % 2012 %
U.S. Government, Government agencies and Government-sponsored enterprises$3,683
 9% $4,540
 11%
AAA rated2,776
 7
 3,224
 8
AA and A rated20,353
 49
 19,305
 45
BBB rated11,171
 27
 11,997
 28
Non-investment grade3,250
 8
 3,567
 8
Total$41,233
 100% $42,633
 100%
Non-investment grade fixed maturity securities, as presented in the table below, include high-yield securities rated below BBB- by bond rating agencies and other unrated securities that, according to our analysis, are below investment grade. Non-investment grade securities generally involve a greater degree of risk than investment grade securities. The amortized cost of our non-investment grade fixed maturity bond portfolio was $3,097 million and $3,355 million at December 31, 2013 and 2012. The following table summarizes the ratings of this portfolio at fair value.
Non-investment Grade
December 31       
(In millions)2013 % 2012 %
BB$1,393
 43% $1,529
 43%
B967
 30
 1,075
 30
CCC - C649
 20
 724
 20
D241
 7
 239
 7
Total$3,250
 100% $3,567
 100%
The following table summarizespresents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution as of December 31, 2013.
Gross Unrealized Losses by Ratings Distributiondistribution.
December 31, 2013Estimated Fair Value % Gross Unrealized Losses %
December 31, 2016
(In millions)Estimated Fair Value % Gross Unrealized Losses %Estimated Fair Value Gross Unrealized Losses
U.S. Government, Government agencies and Government-sponsored enterprises $2,033
 $44
AAA711
 7
 33
 6
363
 9
AA2,282
 23
 192
 36
744
 20
A2,302
 24
 94
 18
851
 22
BBB2,526
 26
 104
 20
2,791
 74
Non-Investment Grade648
 7
 27
 5
Non-investment grade766
 23
Total$9,713
 100% $528
 100%$7,548
 $192

44


The following table providespresents the maturity profile for these available-for-sale fixed maturity securities. Securities not due to mature on a single date are allocated based on weighted average life.
Gross Unrealized Losses by Maturity Profile
December 31, 2013Estimated Fair Value % Gross Unrealized Losses %
December 31, 2016
(In millions)Estimated Fair Value Gross Unrealized Losses
Due in one year or less$186
 2% $2
 %$125
 $2
Due after one year through five years1,252
 13
 32
 6
909
 12
Due after five years through ten years4,326
 44
 186
 35
4,775
 109
Due after ten years3,949
 41
 308
 59
1,739
 69
Total$9,713
 100% $528
 100%$7,548
 $192

Duration
A primary objective in the management of the investment portfolio is to optimize return relative to corresponding liabilities and respective liquidity needs. Our views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions and the domestic and global economic conditions, are some of the factors that enter into an investment decision. We also continually monitor exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on our views of a specific issuer or industry sector.
A further consideration in the management of the investment portfolio is the characteristics of the corresponding liabilities and the ability to align the duration of the portfolio to those liabilities and to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios where future liability cash flows are determinable and typically long term in nature, we segregate investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in the Life & Group Non-Core segment including annuities, structured settlements and long term care products.segment.
The effective durations of fixed maturity securities and short term investments and interest rate derivatives are presented in the table below. Short term investmentsfollowing table. Amounts presented are net of payable and receivable amounts for securities purchased and sold, but not yet settled.
Effective Durations
December 31, 2013 December 31, 2012
December 312016 2015
(In millions)Fair Value 
Effective
Duration
(In years)
 Fair Value 
Effective
Duration
(In years)
Estimated Fair Value 
Effective
Duration
(In years)
 Estimated Fair Value 
Effective
Duration
(In years)
Investments supporting Life & Group Non-Core$15,009
 11.3
 $15,590
 11.3
$15,724
 8.7
 $14,879
 9.6
Other interest sensitive investments27,766
 4.4
 28,855
 3.9
26,669
 4.6
 26,435
 4.3
Total$42,775
 6.9
 $44,445
 6.5
$42,393
 6.1
 $41,314
 6.2
The duration of the total fixed income portfolio is in line with portfolio targets. The duration of the assets supporting the Life and Group Non-Core business has declined, reflective of increases in expected bond call activity in our municipal bond portfolio and the low interest rate environment.
The investment portfolio is periodically analyzed for changes in duration and related price risk. Additionally, we periodically review the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included herein.under Item 7A.

45


Short Term Investments
The carrying value of the components of the shortShort term investment portfolio isinvestments are presented in the following table.
Short Term Investments
December 31      
(In millions)2013 20122016 2015
Short term investments:      
Commercial paper$549
 $751
$733
 $998
U.S. Treasury securities636
 617
433
 411
Money market funds94
 301
44
 60
Other128
 163
197
 191
Total short term investments$1,407
 $1,832
$1,407
 $1,660

46


LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary operating cash flow sources are premiums and investment income from our insurance subsidiaries. Our primary operating cash flow uses are payments for claims, policy benefits and operating expenses, including interest expense on corporate debt. Additionally, cash may be paid or received for income taxes.
For 2013,2016, net cash provided by operating activities was $1,204$1,416 million as compared with $1,250$1,387 million and $1,440 million for 2012. Tax payments were $129 million in 2013 as compared to tax recoveries of $29 million in 2012. Additionally, increased premium receipts were partially offset by increased claim payments.
Net2015 and 2014, respectively. In 2016, cash provided by operating activities was $1,702 million in 2011. Cash flows resulting from reinsurance contract commutations are reported as operating activities.reflected lower income taxes paid and increased receipts relating to returns on limited partnerships offset by higher net claim and expense payments. Operating cash flows werein 2015 reflected lower premiums collected and decreased receipts relating to returns on limited partnerships offset by lower net claim payments. Operating cash flows in 2014 reflected increased receipts relating to returns on limited partnerships and lower net claim payments, substantially offset by $547 million in 2011 related to net cash inflows from commutations.increased income tax payments.
Cash flows from investing activities include the purchase and disposition of available-for-sale financial instruments. Additionally, cash flows from investing activitiesinstruments and may include the purchase and sale of businesses, land, buildings, equipment and other assets not generally held for resale.
Net cash used by investing activities was $898$846 million for 2013,2016, as compared with net cash used of $934$372 million and $1,060$918 million for 20122015 and 2011.2014. The cash flow from investing activities is impactedaffected by various factors such as the anticipated payment of claims, financing activity, asset/liability management and individual security buy and sell decisions made in the normal course of portfolio management. In the first quarter of 2016, we sold the principal executive offices of CNAF for $107 million.
Cash flows from financing activities may include proceeds from the issuance of debt and equity securities, outflows for stockholder dividends or repayment of debt and outlays to reacquire equity instruments. securities.
Net cash used by financing activities was $264$673 million,, $239 $807 million and $644$519 million for 2016, 2015 and 2014. In the first quarter of 2016, we issued $500 million of 4.50% senior notes due March 1, 2026 and redeemed the $350 million outstanding aggregate principal balance of our 6.50% 2013, 2012 and 2011.senior notes due August 15, 2016.
Liquidity
We believe that our present cash flows from operations, investing activities and financing activities are sufficient to fund our current and expected working capital and debt obligation needs and we do not expect this to change in the near term. There are currently no amounts outstanding under our $250 million senior unsecured revolving credit facility and no borrowings outstanding through our membership in the Federal Home Loan Bank of Chicago (FHLBC).
During 2013 and 2012 CCC paid dividends of $400$765 million, $900 million and $450$650 million to CNAF.CNAF during 2016, 2015 and 2014.
We have an effective automatic shelf registration statement under which we may publicly issue debt, equity or hybrid securities.securities from time to time.


47


Common Stock Dividends
Dividends of $0.80$3.00 per share ofon our common stock, including a special dividend of $2.00 per share, were declared and paid in 2013.2016. On February 7, 2014,3, 2017, our Board of Directors declared a quarterly dividend of $0.25 per share and a special dividend of $1.00$2.00 per share, payable March 12, 20148, 2017 to stockholders of record on February 24, 2014.20, 2017. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition, business needs and regulatory constraints.
Our ability to pay dividends and other credit obligations is significantly dependent on receipt of dividends from our subsidiaries. The payment of dividends to us by our insurance subsidiaries without prior approval of the insurance department of each subsidiary's domiciliary jurisdiction is limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective state insurance departments.
Further information on our dividends from subsidiaries is provided in Note M to the Consolidated Financial Statements included under Item 8.
Commitments, Contingencies and Guarantees
We have various commitments, contingencies and guarantees which arose in the ordinary course of business. The impact of these commitments, contingencies and guarantees should be considered when evaluating our liquidity and capital resources.
A summary of our commitments as of December 31, 2013 is presented in the following table.
Contractual Commitments
December 31, 2013         
December 31, 2016         
(In millions)Total Less than 1 year 1-3 years 3-5 years More than 5 yearsTotal Less than 1 year 1-3 years 3-5 years More than 5 years
Debt (a)$3,412
 $711
 $603
 $355
 $1,743
$3,519
 $153
 $781
 $1,082
 $1,503
Lease obligations208
 37
 61
 40
 70
426
 48
 67
 67
 244
Claim and claim adjustment expense reserves (b)25,630
 5,939
 7,458
 3,816
 8,417
24,005
 5,114
 6,551
 3,173
 9,167
Future policy benefits reserves (c)37,749
 205
 583
 826
 36,135
31,133
 (422) (196) 499
 31,252
Policyholder funds reserves (c)86
 30
 5
 (1) 52
Total (d), (e)$67,085
 $6,922
 $8,710
 $5,036
 $46,417
$59,083
 $4,893
 $7,203
 $4,821
 $42,166
(a)Includes estimated future interest payments.
(b)
Claim and claim adjustment expense reserves are not discounted and represent our estimate of the amount and timing of the ultimate settlement and administration of gross claims based on our assessment of facts and circumstances known as of December 31, 2013.2016. See the Reserves - Estimates and Uncertainties section of this MD&A for further information.
(c)
Future policy benefits and policyholders' funds reserves are not discounted and represent our estimate of the ultimate amount and timing of the settlement of benefits based on our assessment of facts and circumstances known as of December 31, 2013. Future policy benefit reserves of $673 million and policyholders' fund reserves of $34 million related to business which has been 100% ceded to unaffiliated parties in connection with the sale of our individual life business in 2004 are not included.2016. See the Reserves - Estimates and Uncertainties section of this MD&A for further information.
(d)
Does not include expected estimated contribution of $61$15 million to our pension and postretirement plans in 2014.
(e)Does not include investment commitments of $532 million related to limited partnerships and privately placed debt securities.2017.
(e) Does not include investment commitments of $530 million related to limited partnerships, privately placed debt securities and mortgage loans.
Further information on our commitments, contingencies and guarantees is provided in Notes A,, B,, C, E, F,, G, I, J H and LI to the Consolidated Financial Statements included under Item 8.

48


Ratings
Ratings are an important factor in establishing the competitive position of insurance companies. Our insurance company subsidiaries are rated by major rating agencies and these ratings reflect the rating agency's opinion of the insurance company's financial strength, operating performance, strategic position and ability to meet our obligations to policyholders. Agency ratings are not a recommendation to buy, sell or hold any security and may be revised or withdrawn at any time by the issuing organization. Each agency's rating should be evaluated independently of any other agency's rating. One or more of these agencies could take action in the future to change the ratings of our insurance subsidiaries.
The table below reflects the various group ratings issued by A.M. Best, Moody's and S&P for the property and casualty and life companies.&P. The table also includes the ratings for CNAF senior debt.
December 31, 2016Insurance Financial Strength Ratings Corporate Debt Ratings
 Property & CasualtyLifeCNAF
CCC Group Western Surety Group CACCNAF - Senior Debt
A.M. BestA A A-bbb
Moody'sA3Not rated Not rated Baa2
S&PA ANot rated BBB
A.M. Best, Moody’s and S&P each maintain a stable outlook on the Company. In June 2013,
CNA Insurance Company Limited is included within the CCC group as part of S&P upgraded our property and casualty insurance financial strength ratings to A and upgraded the credit rating on the senior debt of CNAF to BBB. In December 2013, Moody's revised their outlook on our financial strength rating to stable from positive.
&P’s rating. Hardy, through Syndicate 382, benefits from the collective financial strength of the Lloyd’s market, which is rated A+ by S&P with a stable outlook and A by A.M. Best. The outlook by both rating agencies is positive.Best with a stable outlook.


ACCOUNTING STANDARDS UPDATE
49For a discussion of Accounting Standards Updates adopted as of January 1, 2016 and that will be adopted in the future, see Note A to the Consolidated Financial Statements included under Item 8.



FORWARD-LOOKING STATEMENTS
This report contains a number of forward-looking statements which relate to anticipated future events rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates,” and similar expressions. Forward-looking statements in this report include any and all statements regarding expected developments in our insurance business, including losses and loss reserves for asbestos and environmental pollutionA&EP and other mass tort claims which are more uncertain, and therefore more difficult to estimate than loss reserves respecting traditional property and casualty exposures; the impact of routine ongoing insurance reserve reviews we are conducting; our expectations concerning our revenues, earnings, expenses and investment activities; volatility in investment returns; expected cost savings and other results from our expense reduction activities; and our proposed actions in response to trends in our business. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected in the forward-looking statement. We cannot control many of these risks and uncertainties. These risks and uncertainties include, but are not limited to, the following:
Company-Specific Factors
the risks and uncertainties associated with our lossinsurance reserves, as outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of this Report,report, including the sufficiency of the reserves and the possibility for future increases, which would be reflected in the results of operations in the period that the need for such adjustment is determined;
the risk that the other parties to the transaction in which, subject to certain limitations, we ceded our legacy A&EP liabilities will not fully perform their obligations to CNA, the uncertainty in estimating loss reserves for A&EP liabilities and the possible continued exposure of CNA to liabilities for A&EP claims that are not covered under the terms of the transaction;
the performance of reinsurance companies under reinsurance contracts with us; and
the risks and uncertainties associated with potential acquisitions and divestitures, including the consummation of contemplatedsuch transactions, and the successful integration of acquired operations.operations and the potential for subsequent impairment of goodwill or intangible assets.
Industry and General Market Factors
the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;
product and policy availability and demand and market responses, including the level of ability to obtain rate increases and decline or non-renew under pricedunderpriced accounts, to achieve premium targets and profitability and to realize growth and retention estimates;
general economic and business conditions, including recessionary conditions that may decrease the size and number of our insurance customers and create additional losses to our lines of business, especially those that provide management and professional liability insurance, as well as surety bonds, to businesses engaged in real estate, financial services and professional services and inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;
conditions in the capital and credit markets, including continuing uncertainty and instability in these markets, as well as the overall economy, and their impact on the returns, types, liquidity and valuation of our investments;
conditions in the capital and credit markets that may limit our ability to raise significant amounts of capital on favorable terms; and
the possibility of changes in our ratings by ratings agencies, including the inability to access certain markets or distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices.

50


Regulatory Factors
regulatory initiatives and compliance with governmental regulations, judicial interpretations within the regulatory framework, including interpretation of policy provisions, decisions regarding coverage and theories of liability, legislative actions that increase claimant activity, trends in litigation and the outcome of any litigation involving us and rulings and changes in tax laws and regulations;
regulatory limitations, impositions and restrictions upon us, including with respect to our ability to increase premium rates, and the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies; and
regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our insurance subsidiaries, imposed by regulatory authorities, including regulatory capital adequacy standards.
Impact of Catastrophic Events and Related Developments
weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow;
regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
man-made disasters, including the possible occurrence of terrorist attacks, the unpredictability of the nature, targets, severity or frequency of such events, and the effect of the absence or insufficiency of applicable terrorism legislation on coverages;
the unpredictability of the nature, targets, severity or frequency of potential terrorist events, as well as the uncertainty as to our ability to contain our terrorism exposure effectively; and
the occurrence of epidemics.
Referendum on the United Kingdom's Membership in the European Union
on June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union (E.U.), commonly referred to as "Brexit". As a result of the referendum, it is currently expected that the British government will formally commence the process to leave the E.U. and begin negotiating the terms of treaties that will govern the U.K.'s future relationship with the E.U. in the first quarter of 2017. Although the terms of any future treaties are unknown, changes in our international operating platform may be required to allow us to continue to write business in the E.U. after the completion of Brexit. As a result of these changes, the complexity and cost of regulatory compliance of our European business is likely to increase.
Our forward-looking statements speak only as of the date of the filing of this Annual Report on which they are madeForm 10-K and we do not undertake any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of the statement, even if our expectations or any related events or circumstances change.

51


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments are exposed to various market risks, such as interest rate risk, equity price risk and foreign currency risk. Due to the level of risk associated with certain invested assets and the level of uncertainty related to changes in the value of these assets, it is possible that changes in these risks in the near term could have a material adverse impact on our results of operations or equity.
Discussions herein regarding market risk focus on only one element of market risk, which is price risk. Price risk relates to changes in the level of prices due to changes in interest rates, equity prices, foreign exchange rates or other factors such as credit spreads and market liquidity.spreads. The fair value of theour financial instruments is generally adversely affected when interest rates rise, equity markets decline andor the dollar strengthens against foreign currency.
Active management of market risk is integral to our operations. We may take the following actions to manage our exposure to market risk within defined tolerance ranges: (1) change the character of future investments purchased or sold or (2) use derivatives to offset the market behavior of existing assets and liabilities or assets expected to be purchased and liabilities to be incurred, or (3) rebalance our existing asset and liability portfolios.incurred.
Sensitivity Analysis
We monitor our sensitivity to interest rate changes by revaluing financial assets and liabilities using a variety of different interest rates. The Company uses duration and convexity at the security level to estimate the change in fair value that would result from a change in each security's yield. Duration measures the price sensitivity of an asset to changes in the yield rate. Convexity measures how the duration of the asset changes with interest rates. The duration and convexity analysis takes into account the unique characteristics (e.g., call and put options and prepayment expectations) of each security in determining the hypothetical change in fair value. The analysis is performed at the security level and aggregated up to the asset category levels for reporting in the tables below.
The evaluation is performed by applying an instantaneous change in yield rates of varying magnitudes on a static balance sheet to determine the effect such a change in rates would have on our fair value at risk and the resulting effect on stockholders' equity. The analysis presents the sensitivity of the fair value of our financial instruments to selected changes in capital market rates and prices.index levels. The range of change chosen reflects our view of changes that are reasonably possible over a one-year period. The selection of the range of values chosen to represent changes in interest rates should not be construed as our prediction of future market events, but rather an illustration of the impact of such events.
The sensitivity analysis estimates the decline in the fair value of our interest sensitive assets and liabilities that were held onas of December 31, 20132016 and 20122015 due to an instantaneous change in the yield of the security at the end of the period of 100 and 150 basis points.points, with all other variables held constant.
The sensitivity analysis also assumes an instantaneous 10% and 20% decline in the foreign currency exchange rates versus the United States dollar from their levels atas of December 31, 20132016 and 20122015, with all other variables held constant.
Equity price risk was measured assuming an instantaneous 10% and 25% decline in the S&P 500 from its level atas of December 31, 20132016 and 20122015, with all other variables held constant. Our equity holdings were assumed to be highly and positively correlated with the S&P 500.500 index.
The value of limited partnerships can be affected by changes in equity markets as well as changes in interest rates.markets. A model was developed to analyze the observed changes in the value of limited partnerships held by the Company over a multiple year period along with the corresponding changes in various equity indices and interest rates.the S&P 500 index. The result of the model allowed us to estimate the change in value of limited partnerships when equity markets decline by 10% and 25% and interest rates increase by 100 and 150 basis points., with all other variables held constant.


52


Our sensitivity analysis has also been applied to the assets supporting our separate account business because certain of our separate account products guarantee principal and a minimum rate of interest. All or a portion of these decreases related to the separate account assets may be offset by decreases in related separate account liabilities to customers, but that is dependent on the position of the separate account in relation to the specific guarantees at the time of the interest rate or price decline. Similarly, increases in the fair value of the separate account investments would also be offset by increases in the same related separate account liabilities by the same approximate amounts.
The following tables present the estimated effects on the fair value of our financial instruments atas of December 31, 20132016 and 20122015, due to an increase in yield rates of 100 basis points, a 10% decline in foreign currency exchange rates and a 10% decline in the S&P 500.500, with all other variables held constant.
Market Risk Scenario 1
December 31, 2013  Increase (Decrease)
December 31, 2016  Increase (Decrease)
(In millions)Estimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price RiskEstimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price Risk
General account:       
Assets:       
Fixed maturity securities available-for-sale:              
Corporate and other bonds$20,862
 $(1,145) $(173) $
$18,958
 $(1,148) $(151) $
States, municipalities and political subdivisions11,557
 (1,293) 
 
13,240
 (1,004) 
 
Asset-backed7,989
 (348) (6) 
8,138
 (395) 
 
U.S. Treasury and obligations of government-sponsored enterprises144
 (2) 
 
93
 (2) 
 
Foreign government543
 (15) (52) 
445
 (22) (38) 
Redeemable preferred stock102
 (5) 
 (4)19
 
 
 (1)
Total fixed maturity securities available-for-sale41,197
 (2,808) (231) (4)40,893
 (2,571) (189) (1)
Fixed maturity securities trading36
 
 
 
12
 
 
 
Equity securities available-for-sale185
 (11) 
 (18)110
 (7) (1) (11)
Limited partnership investments2,720
 
 
 (109)2,371
 
 
 (95)
Other invested assets54
 
 (4) 
36
 
 (3) 
Mortgage loans (a)(1)515
 (24) 
 
594
 (30) 
 
Short term investments1,407
 (2) (6) 
1,407
 (1) (9) 
Total general account46,114
 (2,845) (241) (131)
Separate accounts:       
Fixed maturity securities149
 (3) 
 
Short term investments28
 
 
 
Total separate accounts177
 (3) 
 
Total assets45,423
 (2,609) (202) (107)
Derivative financial instruments, included in Other liabilities
 
 
 
3
 13
 
 
Total securities$46,291
 $(2,848) $(241) $(131)$45,426
 $(2,596) $(202) $(107)
Long term debt (a)$2,328
 $(113) $
 $
Long term debt (1)
$2,952
 $(137) $
 $
___________________
(a)(1)    Reported at amortized value in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.

53


Market Risk Scenario 1
December 31, 2012  Increase (Decrease)
December 31, 2015  Increase (Decrease)
(In millions)Estimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price RiskEstimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price Risk
General account:       
Assets:       
Fixed maturity securities available-for-sale:              
Corporate and other bonds$22,207
 $(1,294) $(150) $
$17,757
 $(1,051) $(153) $
States, municipalities and political subdivisions10,783
 (1,141) 
 
13,174
 (1,137) 
 
Asset-backed8,694
 (354) (7) 
8,190
 (355) (2) 
U.S. Treasury and obligations of government-sponsored enterprises182
 (4) 
 
67
 (2) 
 
Foreign government613
 (18) (60) 
346
 (16) (31) 
Redeemable preferred stock125
 (7) 
 (5)35
 
 
 (1)
Total fixed maturity securities available-for-sale42,604
 (2,818) (217) (5)39,569
 (2,561) (186) (1)
Fixed maturity securities trading29
 
 
 
3
 
 
 
Equity securities available-for-sale249
 (11) (1) (25)197
 (8) (1) (20)
Limited partnership investments2,462
 1
 
 (55)2,548
 
 
 (115)
Other invested assets59
 
 (5) 
44
 
 
 
Mortgage loans (a)(1)418
 (18) 
 
688
 (31) 
 
Short term investments1,832
 (3) (22) 
1,660
 (2) (5) 
Total general account47,653
 (2,849) (245) (85)
Separate accounts:       
Fixed maturity securities288
 (5) 
 
Short term investments21
 
 
 
Total separate accounts309
 (5) 
 
Total assets44,709
 (2,602) (192) (136)
Derivative financial instruments, included in Other liabilities(3) 
 
 
5
 13
 
 
Total securities$47,959
 $(2,854) $(245) $(85)$44,714
 $(2,589) $(192) $(136)
Long term debt (a)$3,016
 $(144) $
 $
Long term debt (1)
$2,433
 $(117) $
 $
___________________
(a)(1)    Reported at amortized value in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.

54


The following tables present the estimated effects on the fair value of our financial instruments atas of December 31, 20132016 and 20122015, due to an increase in yield rates of 150 basis points, a 20% decline in foreign currency exchange rates and a 25% decline in the S&P 500.500, with all other variables held constant.
Market Risk Scenario 2
December 31, 2013  Increase (Decrease)
December 31, 2016  Increase (Decrease)
(In millions)Estimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price RiskEstimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price Risk
General account:       
Assets:       
Fixed maturity securities available-for-sale:              
Corporate and other bonds$20,862
 $(1,663) $(347) $
$18,958
 $(1,720) $(302) $
States, municipalities and political subdivisions11,557
 (1,903) 
 
13,240
 (1,506) 
 
Asset-backed7,989
 (522) (12) 
8,138
 (593) 
 
U.S. Treasury and obligations of government-sponsored enterprises144
 (3) 
 
93
 (3) 
 
Foreign government543
 (22) (104) 
445
 (33) (77) 
Redeemable preferred stock102
 (8) 
 (10)19
 
 
 (2)
Total fixed maturity securities available-for-sale41,197
 (4,121) (463) (10)40,893
 (3,855) (379) (2)
Fixed maturity securities trading36
 
 
 
12
 
 
 
Equity securities available-for-sale185
 (18) 
 (47)110
 (11) (3) (28)
Limited partnership investments2,720
 
 
 (272)2,371
 
 
 (237)
Other invested assets54
 
 (7) 
36
 
 (5) 
Mortgage loans (a)(1)515
 (36) 
 
594
 (45) 
 
Short term investments1,407
 (4) (12) 
1,407
 (2) (17) 
Total general account46,114
 (4,179) (482) (329)
Separate accounts:       
Fixed maturity securities149
 (3) 
 
Short term investments28
 
 
 
Total separate accounts177
 (3) 
 
Total assets45,423
 (3,913) (404) (267)
Derivative financial instruments, included in Other liabilities
 
 
 
3
 20
 
 
Total securities$46,291
 $(4,182) $(482) $(329)$45,426
 $(3,893) $(404) $(267)
Long term debt (a)$2,328
 $(167) $
 $
Long term debt (1)
$2,952
 $(205) $
 $
____________________
(a)    Reported at amortized value in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.

55


Market Risk Scenario 2
December 31, 2012  Increase (Decrease)
(In millions)Estimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price Risk
General account:       
Fixed maturity securities available-for-sale:       
Corporate and other bonds$22,207
 $(1,876) $(301) $
States, municipalities and political subdivisions10,783
 (1,704) 
 
Asset-backed8,694
 (562) (14) 
U.S. Treasury and obligations of government-sponsored enterprises182
 (6) 
 
Foreign government613
 (26) (119) 
Redeemable preferred stock125
 (12) 
 (13)
Total fixed maturity securities available-for-sale42,604
 (4,186) (434) (13)
Fixed maturity securities trading29
 
 
 
Equity securities available-for-sale249
 (19) (1) (62)
Limited partnership investments2,462
 1
 
 (138)
Other invested assets59
 
 (11) 
Mortgage loans (a)418
 (27) 
 
Short term investments1,832
 (4) (44) 
Total general account47,653
 (4,235) (490) (213)
Separate accounts:       
Fixed maturity securities288
 (6) 
 
Short term investments21
 
 
 
Total separate accounts309
 (6) 
 
Derivative financial instruments, included in Other liabilities(3) 
 
 
Total securities$47,959
 $(4,241) $(490) $(213)
Long term debt (a)$3,016
 $(212) $
 $
____________________
(a)(1)    Reported at amortized value in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.


Market Risk Scenario 2
56

December 31, 2015  Increase (Decrease)
(In millions)Estimated Fair Value Interest Rate Risk Foreign Currency Risk Equity Price Risk
Assets:       
Fixed maturity securities available-for-sale:       
Corporate and other bonds$17,757
 $(1,575) $(307) $
States, municipalities and political subdivisions13,174
 (1,707) 
 
Asset-backed8,190
 (533) (3) 
U.S. Treasury and obligations of government-sponsored enterprises67
 (3) 
 
Foreign government346
 (24) (61) 
Redeemable preferred stock35
 (1) 
 (4)
Total fixed maturity securities available-for-sale39,569
 (3,843) (371) (4)
Fixed maturity securities trading3
 
 
 
Equity securities available-for-sale197
 (11) (3) (49)
Limited partnership investments2,548
 
 
 (287)
Other invested assets44
 
 
 
Mortgage loans (1)
688
 (47) 
 
Short term investments1,660
 (3) (9) 
Total assets44,709
 (3,904) (383) (340)
Derivative financial instruments, included in Other liabilities5
 20
 
 
Total securities$44,714
 $(3,884) $(383) $(340)
Long term debt (1)
$2,433
 $(175) $
 $
(1)    Reported at amortized value in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CNA Financial Corporation
Consolidated Statements of Operations
Years ended December 31          
(In millions, except per share data)2013 2012 20112016 2015 2014
Revenues          
Net earned premiums$7,271
 $6,882
 $6,603
$6,924
 $6,921
 $7,212
Net investment income2,450
 2,282
 2,054
1,988
 1,840
 2,067
Net realized investment gains (losses):   
     
  
Other-than-temporary impairment losses(76) (129) (175)(81) (156) (77)
Portion of other-than-temporary impairments recognized in Other comprehensive income(2) (25) (41)
Net other-than-temporary impairment losses recognized in earnings(78) (154) (216)
Other net realized investment gains109
 217
 214
131
 89
 134
Net realized investment gains (losses)31
 63
 (2)50
 (67) 57
Other revenues361
 320
 294
404
 407
 356
Total revenues10,113
 9,547
 8,949
9,366
 9,101
 9,692
Claims, Benefits and Expenses          
Insurance claims and policyholders’ benefits5,947
 5,896
 5,489
5,283
 5,384
 5,591
Amortization of deferred acquisition costs1,362
 1,274
 1,176
1,235
 1,540
 1,317
Other operating expenses1,325
 1,335
 1,238
1,552
 1,473
 1,394
Interest166
 170
 175
159
 155
 183
Total claims, benefits and expenses8,800
 8,675
 8,078
8,229
 8,552
 8,485
Income from continuing operations before income tax1,313
 872
 871
1,137
 549
 1,207
Income tax expense(376) (244) (242)(278) (70) (319)
Income from continuing operations937
 628
 629
859
 479
 888
Loss from discontinued operations, net of income tax benefit of -, - and $0
 
 (1)
Loss from discontinued operations, net of income tax benefit of $-, $- and $34
 
 (197)
Net income937
 628
 628
$859
 $479
 $691
Net (income) loss attributable to noncontrolling interests
 
 (16)
Net income attributable to CNA$937
 $628
 $612
          
Basic Earnings Per Share Attributable to CNA     
Income from continuing operations attributable to CNA$3.48
 $2.33
 $2.27
Loss from discontinued operations attributable to CNA
 
 
Basic earnings per share attributable to CNA$3.48
 $2.33
 $2.27
Basic Earnings Per Share     
Income from continuing operations$3.18
 $1.77
 $3.29
Loss from discontinued operations
 
 (0.73)
Basic earnings per share$3.18
 $1.77
 $2.56
          
Diluted Earnings Per Share Attributable to CNA     
Income from continuing operations attributable to CNA$3.47
 $2.33
 $2.27
Loss from discontinued operations attributable to CNA
 
 
Diluted earnings per share attributable to CNA$3.47
 $2.33
 $2.27
Diluted Earnings Per Share     
Income from continuing operations$3.17
 $1.77
 $3.28
Loss from discontinued operations
 
 (0.73)
Diluted earnings per share$3.17
 $1.77
 $2.55
          
Dividends per share$0.80
 $0.60
 $0.40
Dividends declared per share$3.00
 $3.00
 $2.00
          
Weighted Average Outstanding Common Stock and Common Stock Equivalents          
Basic269.7
 269.4
 269.3
270.4
 270.2
 269.9
Diluted270.2
 269.8
 269.6
271.1
 270.7
 270.6
The accompanying Notes are an integral part of these Consolidated Financial Statements.



57


CNA Financial Corporation
Consolidated Statements of Comprehensive Income (Loss)
Years ended December 31     
(In millions)2013 2012 2011
Other Comprehensive Income, Net of Tax     
Changes in:     
Net unrealized gains on investments with other-than-temporary impairments$6
 $84
 $10
Net unrealized gains on other investments(679) 339
 365
Net unrealized gains on investments(673) 423
 375
Net unrealized gains (losses) on discontinued operations and other
 
 (1)
Foreign currency translation adjustment(11) 40
 (15)
Pension and postretirement benefits295
 (112) (208)
Other comprehensive income (loss), net of tax(389) 351
 151
Net income937
 628
 628
Comprehensive income548
 979
 779
Changes in:     
Net unrealized (gains) losses on investments attributable to noncontrolling interests
 
 (8)
Other comprehensive (income) loss attributable to noncontrolling interests
 
 (8)
Net (income) loss attributable to noncontrolling interests
 
 (16)
Comprehensive (income) loss attributable to noncontrolling interests
 
 (24)
Total comprehensive income attributable to CNA$548
 $979
 $755
The accompanying Notes are an integral part of these Consolidated Financial Statements.

58


CNA Financial Corporation
Consolidated Balance Sheets
December 31   
(In millions, except share data)2013 2012
Assets   
Investments:   
Fixed maturity securities at fair value (amortized cost of $39,311 and $38,170)$41,233
 $42,633
Equity securities at fair value (cost of $179 and $228)185
 249
Limited partnership investments2,720
 2,462
Other invested assets54
 59
Mortgage loans508
 401
Short term investments1,407
 1,832
Total investments46,107
 47,636
Cash195
 156
Reinsurance receivables (less allowance for uncollectible receivables of $71 and $73)6,017
 6,158
Insurance receivables (less allowance for uncollectible receivables of $84 and $101)1,979
 1,882
Accrued investment income443
 434
Deferred acquisition costs624
 598
Deferred income taxes220
 93
Property and equipment at cost (less accumulated depreciation of $365 and $404)304
 326
Goodwill155
 154
Other assets (includes $0 and $4 due from Loews Corporation)969
 773
Separate account business181
 312
Total assets$57,194
 $58,522
Liabilities 
  
Insurance reserves: 
  
Claim and claim adjustment expenses$24,089
 $24,763
Unearned premiums3,718
 3,610
Future policy benefits10,471
 11,475
Policyholders’ funds116
 157
Short term debt549
 13
Long term debt2,011
 2,557
Other liabilities (includes $178 and $0 due to Loews Corporation)3,408
 3,321
Separate account business181
 312
Total liabilities44,543
 46,208
Commitments and contingencies (Notes B, G and L)

 

Stockholders' Equity 
  
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 269,717,583 and 269,399,390 shares outstanding)683
 683
Additional paid-in capital2,145
 2,146
Retained earnings9,495
 8,774
Accumulated other comprehensive income442
 831
Treasury stock (3,322,660 and 3,640,853 shares), at cost(91) (99)
Notes receivable for the issuance of common stock(23) (21)
Total stockholders’ equity12,651
 12,314
Total liabilities and stockholders' equity$57,194
 $58,522
The accompanying Notes are an integral part of these Consolidated Financial Statements.

59


CNA Financial Corporation
Consolidated Statements of Cash Flows
Years ended December 31     
(In millions)2013 2012 2011
Cash Flows from Operating Activities     
Net income$937
 $628
 $628
Adjustments to reconcile net income to net cash flows provided by operating activities:  

 

Loss from discontinued operations
 
 1
Loss on disposal of property and equipment
 4
 9
Deferred income tax expense77
 147
 188
Trading portfolio activity(10) (23) 1
Net realized investment (gains) losses(31) (63) 2
Equity method investees(323) (89) 97
Amortization of investments(24) (55) (64)
Depreciation and amortization101
 125
 79
Changes in:  

 

Receivables, net44
 49
 1,020
Accrued investment income(9) 4
 (17)
Deferred acquisition costs2
 (16) (1)
Insurance reserves(68) 430
 (237)
Other assets(27) 144
 175
Other liabilities525
 (49) (187)
Other, net10
 14
 10
Total adjustments267
 622
 1,076
Net cash flows provided by operating activities-continuing operations$1,204
 $1,250
 $1,704
Net cash flows used by operating activities-discontinued operations$
 $
 $(2)
Net cash flows provided by operating activities-total$1,204
 $1,250
 $1,702
Cash Flows from Investing Activities 
  
  
Dispositions:     
Fixed maturity securities - sales$6,869
 $6,123
 $7,579
Fixed maturity securities - maturities, calls and redemptions3,271
 3,699
 3,055
Equity securities103
 86
 178
Limited partnerships108
 165
 57
Mortgage loans22
 7
 2
Purchases:  

 

Fixed maturity securities(11,197) (10,299) (12,168)
Equity securities(77) (54) (72)
Limited partnerships(223) (228) (215)
Mortgage loans(129) (174) (149)
Change in other investments(22) 22
 17
Change in short term investments425
 (7) 566
Purchase of Hardy
 (197) 
Purchases of property and equipment(91) (94) (84)
Other dispositions32
 1
 171
Other, net11
 16
 1
Net cash flows used by investing activities-continuing operations$(898) $(934) $(1,062)
Net cash flows provided by investing activities-discontinued operations$
 $
 $2
Net cash flows used by investing activities-total$(898) $(934) $(1,060)
The accompanying Notes are an integral part of these Consolidated Financial Statements.

60


Years ended December 31     
(In millions)2013 2012 2011
Cash Flows from Financing Activities     
Acquisition of CNA Surety noncontrolling interest$
 $
 $(475)
Dividends paid to common stockholders(216) (162) (108)
Proceeds from the issuance of debt
 
 396
Repayment of debt(13) (70) (451)
Stock options exercised2
 1
 2
Other, net(37) (8) (8)
Net cash flows used by financing activities-continuing operations$(264) $(239) $(644)
Net cash flows provided (used) by financing activities-discontinued operations$
 $
 $
Net cash flows used by financing activities-total$(264) $(239) $(644)
Effect of foreign exchange rate changes on cash$(3) $4
 $
Net change in cash$39
 $81
 $(2)
Cash, beginning of year156
 75
 77
Cash, end of year$195
 $156
 $75
Years ended December 31     
(In millions)2016 2015 2014
Comprehensive Income     
Net income$859
 $479
 $691
Other Comprehensive Income (Loss), Net of Tax     
Changes in:     
Net unrealized gains on investments with other-than-temporary impairments3
 (9) 15
Net unrealized gains on other investments252
 (552) 267
Net unrealized gains on investments255
 (561) 282
Net unrealized losses on discontinued operations
 
 (22)
Foreign currency translation adjustment(114) (139) (95)
Pension and postretirement benefits1
 (15) (207)
Other comprehensive income (loss), net of tax142
 (715) (42)
Total comprehensive income (loss)$1,001
 $(236) $649
The accompanying Notes are an integral part of these Consolidated Financial Statements.


CNA Financial Corporation
Consolidated Balance Sheets
61

December 31   
(In millions, except share data)2016 2015
Assets   
Investments:   
Fixed maturity securities at fair value (amortized cost of $38,361 and $37,253)$40,905
 $39,572
Equity securities at fair value (cost of $106 and $191)110
 197
Limited partnership investments2,371
 2,548
Other invested assets36
 44
Mortgage loans591
 678
Short term investments1,407
 1,660
Total investments45,420
 44,699
Cash271
 387
Reinsurance receivables (less allowance for uncollectible receivables of $37 and $38)4,416
 4,453
Insurance receivables (less allowance for uncollectible receivables of $46 and $51)2,209
 2,078
Accrued investment income405
 404
Deferred acquisition costs600
 598
Deferred income taxes379
 638
Property and equipment at cost (less accumulated depreciation of $254 and $382)310
 343
Goodwill145
 150
Other assets1,078
 1,295
Total assets$55,233
 $55,045
Liabilities 
  
Insurance reserves:   
Claim and claim adjustment expenses$22,343
 $22,663
Unearned premiums3,762
 3,671
Future policy benefits10,326
 10,152
Short term debt
 350
Long term debt2,710
 2,210
Other liabilities (includes $50 and $82 due to Loews Corporation)4,123
 4,243
Total liabilities43,264
 43,289
Commitments and contingencies (Notes B, F and L)   
Stockholders' Equity 
  
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 270,495,998 and 270,274,361 shares outstanding)
683
 683
Additional paid-in capital2,173
 2,153
Retained earnings9,359
 9,313
Accumulated other comprehensive income(173) (315)
Treasury stock (2,544,245 and 2,765,882 shares), at cost(73) (78)
Total stockholders’ equity11,969
 11,756
Total liabilities and stockholders' equity$55,233
 $55,045
TableThe accompanying Notes are an integral part of Contentsthese Consolidated Financial Statements.


CNA Financial Corporation
Consolidated Statements of Stockholders' EquityCash Flows
Years ended December 31     
(In millions)2013 2012 2011
Common Stock     
Balance, beginning of year$683
 $683
 $683
Balance, end of year683
 683
 683
Additional Paid-in Capital     
Balance, beginning of year2,146
 2,141
 2,200
Stock-based compensation(1) 5
 4
Acquisition of CNA Surety noncontrolling interest
 
 (65)
Other
 
 2
Balance, end of year2,145
 2,146
 2,141
Retained Earnings     
Balance, beginning of year8,774
 8,308
 7,804
Dividends paid to common stockholders(216) (162) (108)
Net income attributable to CNA937
 628
 612
Balance, end of year9,495
 8,774
 8,308
Accumulated Other Comprehensive Income     
Balance, beginning of year831
 480
 326
Other comprehensive income (loss) attributable to CNA
(389) 351
 143
Acquisition of CNA Surety noncontrolling interest
 
 19
Disposition of FICOH ownership interest
 
 (8)
Balance, end of year442
 831
 480
Treasury Stock     
Balance, beginning of year(99) (102) (105)
Stock-based compensation8
 3
 3
Balance, end of year(91) (99) (102)
Notes Receivable for the Issuance of Common Stock     
Balance, beginning of year(21) (22) (26)
(Increase) decrease in notes receivable for the issuance of common stock(2) 1
 4
Balance, end of year(23) (21) (22)
Total CNA Stockholders’ Equity12,651
 12,314
 11,488
Noncontrolling Interests     
Balance, beginning of year
 
 563
Net income
 
 16
Other comprehensive income
 
 8
Acquisition of CNA Surety noncontrolling interest
 
 (429)
Disposition of FICOH ownership interest
 
 (147)
Other
 
 (11)
Balance, end of year
 
 
Total Stockholders' Equity$12,651
 $12,314
 $11,488
Years ended December 31     
(In millions)2016 2015 2014
Cash Flows from Operating Activities     
Net income$859
 $479
 $691
Adjustments to reconcile net income to net cash flows provided by operating activities:     
Loss on sale of subsidiaries
 
 251
Deferred income tax expense (benefit) 
136
 (150) 3
Trading portfolio activity(9) 17
 16
Net realized investment (gains) losses
(50) 67
 (60)
Equity method investees238
 195
 83
Net amortization of investments(27) 17
 3
Depreciation and amortization77
 84
 83
Changes in:     
Receivables, net(130) 82
 731
Accrued investment income(3) (1) 
Deferred acquisition costs(8) 311
 44
Insurance reserves237
 241
 (363)
Other assets(95) (79) (48)
Other liabilities162
 126
 (48)
Other, net29
 (2) 54
Total adjustments557
 908
 749
Net cash flows provided by operating activities1,416
 1,387
 1,440
Cash Flows from Investing Activities 
  
  
Dispositions:     
Fixed maturity securities - sales5,328
 4,390
 4,914
Fixed maturity securities - maturities, calls and redemptions3,219
 4,095
 3,983
Equity securities81
 57
 31
Limited partnerships290
 174
 167
Mortgage loans207
 26
 57
Purchases:     
Fixed maturity securities(9,827) (8,675) (9,365)
Equity securities
 (62) (67)
Limited partnerships(252) (188) (271)
Mortgage loans(120) (123) (137)
Change in other investments7
 4
 15
Change in short term investments258
 34
 (388)
Purchases of property and equipment(146) (125) (71)
Disposals of property and equipment107
 
 
Proceeds from sale of subsidiaries
 
 198
Other, net2
 21
 16
Net cash flows (used) by investing activities$(846) $(372) $(918)
The accompanying Notes are an integral part of these Consolidated Financial Statements.

Years ended December 31     
(In millions)2016 2015 2014
Cash Flows from Financing Activities     
Dividends paid to common stockholders$(813) $(811) $(541)
Proceeds from the issuance of debt498
 
 546
Repayment of debt(358) 
 (549)
Other, net
 4
 25
Net cash flows (used) by financing activities(673)
(807) (519)
Effect of foreign exchange rate changes on cash(13) (11) (8)
Net change in cash(116) 197
 (5)
Cash, beginning of year387
 190
 195
Cash, end of year$271
 $387
 $190
The accompanying Notes are an integral part of these Consolidated Financial Statements.



CNA Financial Corporation
Consolidated Statements of Stockholders' Equity
62

Years ended December 31     
(In millions)2016 2015 2014
Common Stock     
Balance, beginning of year$683
 $683
 $683
Balance, end of year683
 683
 683
Additional Paid-in Capital     
Balance, beginning of year2,153
 2,151
 2,145
Stock-based compensation20
 2
 6
Balance, end of year2,173
 2,153
 2,151
Retained Earnings     
Balance, beginning of year9,313
 9,645
 9,495
Dividends paid to common stockholders(813) (811) (541)
Net income859
 479
 691
Balance, end of year9,359
 9,313
 9,645
Accumulated Other Comprehensive Income (Loss)     
Balance, beginning of year(315) 400
 442
Other comprehensive income (loss)142
 (715) (42)
Balance, end of year(173) (315) 400
Treasury Stock     
Balance, beginning of year(78) (84) (91)
Stock-based compensation5
 6
 7
Balance, end of year(73) (78) (84)
Notes Receivable for the Issuance of Common Stock     
Balance, beginning of year
 (1) (23)
Decrease in notes receivable for common stock

 1
 22
Balance, end of year
 
 (1)
Total stockholders' equity$11,969
 $11,756
 $12,794
TableThe accompanying Notes are an integral part of Contentsthese Consolidated Financial Statements.



CNA Financial Corporation
Notes to Consolidated Financial Statements
Note A.A. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of CNA Financial Corporation (CNAF) and its subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. Loews Corporation (Loews) owned approximately 90% of the outstanding common stock of CNAF as of December 31, 2013.2016.
The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany amounts have been eliminated. The preparation of consolidated financial statementsConsolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
TheSale of Continental Assurance Company has historically reported certain run-off insurance operations acquired in its merger with The Continental Corporation in 1995 as discontinued operations. Due to the immateriality of the remaining liabilities, effective in the third quarter of 2011,(CAC)
On August 1, 2014, the Company is no longer reporting these run-off operations as discontinued operations.
Business
completed the sale of CAC. The Company's core property and casualty insurance operations arebusiness sold, which was previously reported in three business segments: CNA Specialty, CNA Commercial and Hardy. The Company's non-core operations are managed in two segments:within the Life & Group Non-Core and Corporate & Other Non-Core.
segment, is reported as discontinued operations. The Company serves a wide variety of customers, including small, medium and large businesses; insurance companies; associations; professionals; groups; and individuals with a broad range of insurance and risk management products and services.
Core insurance productselected to include commercial property and casualty coverages, including surety. Non-core insurance products, which primarily have been placed in run-off, include life, long term care and retirement products and annuities. CNA services include risk management, information services, warranty and claims administration. The Company's products and services are primarily marketed through independent agents, brokers, and managing general underwriters.
Hardy
On July 2, 2012, the Company completed the acquisition of all outstanding shares of Hardy, a specialized Lloyd's of London (Lloyd's) underwriter. Through Lloyd's Syndicate 382, Hardy underwrites primarily short-tail exposures in marine and aviation, non-marine property, specialty lines and property treaty reinsurance. The results of Hardy from July 2, 2012 are includedCAC cash flow activity in the resultscomparative Consolidated Statements of our core property and casualty insurance operations as a separate segment.
The purchase price for Hardy was $231 million. AcquisitionCash Flow. Further information related expenses of $4 million were incurred during the year ended December 31, 2012, including investment advisory, legal and other expenses, and were recorded in the Corporate and Other Non-Core segment.
Noncontrolling Interests
Net income attributable to noncontrolling interests for the year ended December 31, 2011 represented the noncontrolling interests in CNA Surety Corporation (Surety) and First Insurance Company of Hawaii (FICOH). On June 10, 2011, CNA completed the acquisition of the noncontrolling interest of Surety and on November 29, 2011, CNA completed the sale of its 50%CAC is provided in Note P to the Consolidated Financial Statements.
In connection with the sale of CAC, the Company entered into a 100% coinsurance agreement on a separate small block of annuity business outside of CAC. The coinsurance agreement required the transfer of assets with a book value equal to the ceded reserves on the inception date of the contract. Because a substantial portion of the assets supporting these liabilities are held in trust for the benefit of the original cedant, those assets were transferred on a funds withheld basis. Under this approach the Company maintains legal ownership interestof the assets, but the investment income and realized gains and losses on those assets inure to the reinsurer. As a result, the $34 million difference between market value and book value of the funds withheld assets at the coinsurance contract's inception was recognized as a loss in FICOH.


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TableOther operating expenses in 2014. The funds withheld aspect of Contentsthe agreement is considered an embedded derivative. The embedded derivative is separately accounted for at fair value and reported with the host contract in Other liabilities on the Company's Consolidated Balance Sheet. The Company recognizes Other operating expense equal to the Net investment income generated by these trust assets.

Insurance Operations
Premiums: Insurance premiums on property and casualty insurance contracts are recognized in proportion to the underlying risk insured whichand are principally are earned ratably over the duration of the policies. Premiums on long term care contracts are earned ratably over the policy year in which they are due. The reserve for unearned premiums represents the portion of premiums written relating to the unexpired terms of coverage.
Insurance receivables include balances due currently or in the future, including amounts due from insureds related to losses under high deductible policies, and are presented at unpaid balances, net of an allowance for uncollectible receivables. Amounts are considered past due based on policy payment terms. ThatThe allowance is determined based on periodic evaluations of aged receivables, management's experience and current economic conditions. Insurance receivables and any related allowance are written off after collection efforts are exhausted or a negotiated settlement is reached.
Property and casualty contracts that are retrospectively rated contain provisions that result in an adjustment to the initial policy premium depending on the contract provisions and loss experience of the insured during the experience period. For such contracts, the Company estimates the amount of ultimate premiums that the Company may earn upon completion of the experience period and recognizes either an asset or a liability for the difference between the initial policy premium and the estimated ultimate premium. The Company adjusts such estimated ultimate premium amounts during the course of the experience period based on actual results to date. The resulting adjustment is recorded as either a reduction of or an increase to the earned premiums for the period.

Claim and claim adjustment expense reserves: Claim and claim adjustment expense reserves, except reserves for structured settlements not associated with asbestos and environmental pollution (A&EP), workers' compensation lifetime claims and accident and healthlong term care claims, are not discounted and are based on 1) case basis estimates for losses reported on direct business, adjusted in the aggregate for ultimate loss expectations; 2) estimates of incurred but not reported (IBNR) losses; 3) estimates of losses on assumed reinsurance; 4) estimates of future expenses to be incurred in the settlement of claims; 5) estimates of salvage and subrogation recoveries and 6) estimates of amounts due from insureds related to losses under high deductible policies. Management considers current conditions and trends as well as past Company and industry experience in establishing these estimates. The effects of inflation, which can be significant, are implicitly considered in the reserving process and are part of the recorded reserve balance. Ceded claim and claim adjustment expense reserves are reported as a component of Reinsurance receivables on the Consolidated Balance Sheets.
Claim and claim adjustment expense reserves are presented net of anticipated amounts due from insureds related to losses under deductible policies of $1.3$1.2 billion and $1.2 billion as of December 31, 20132016 and 2012.2015. A significant portion of these amounts are supported by collateral. The Company has an allowance for uncollectible deductible amounts, which is presented as a component of the allowance for doubtful accounts included in Insurance receivables on the Consolidated Balance Sheets.
Structured settlements have been negotiated for certain property and casualty insurance claims. Structured settlements are agreements to provide fixed periodic payments to claimants. Certain structured settlements are funded by annuities purchased from Continental Assurance Company (CAC) for which the related annuityThe Company's obligations are reported in Future policy benefits reserves. Obligations for structured settlements not funded by annuities are included in claim and claim adjustment expense reserves and carried at present values determined using interest rates ranging from 7.1%to 9.7% at 5.5% to 8.0% as of December 31, 20132016 and 2012. At 2015. As of December 31, 20132016 and 2012,2015, the discounted reserves for unfunded structured settlements were $580$544 million and $602$560 million,, net of discount of $969$841 million and $1.0 billion.$880 million. For the years ended December 31, 2016, 2015 and 2014, the amount of interest recognized on the discounted reserves of unfunded structured settlements was $42 million, $42 million and $43 million, respectively. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Operations, but is excluded from the Company’s disclosure of prior year development.
Workers' compensation lifetime claim reserves are calculated using mortality assumptions determined through statutory regulation and economic factors. AccidentAt December 31, 2016 and health2015, workers' compensation lifetime claim reserves are discounted at a 3.5% interest rate. As of December 31, 2016 and 2015, the discounted reserves for workers’ compensation lifetime claim reserves were $371 million and $396 million, net of discount of $202 million and $218 million. For the years ended December 31, 2016, 2015 and 2014 the amount of interest accretion recognized on the discounted reserves of workers’ compensation lifetime claim reserves was $17 million, $20 million and $22 million, respectively.
Long term care claim reserves are calculated using mortality and morbidity assumptions based on Company and industry experience. Workers' compensation lifetime claim reserves and accident and healthLong term care claim reserves are discounted at interest rates ranging from 3.0%4.5% to 6.8% at as of December 31, 20132016 and 3.0% to 6.5% at2015. As of December 31, 2012. At December 31, 20132016 and 2012,2015, such discounted reserves totaled $2.4$2.2 billion and $2.2$2.2 billion,, net of discount of $617$529 million and $837 million.$435 million.
Future policy benefits reserves: Reserves forFuture policy benefits reserves represent the active life reserves related to the Company's long term care productspolicies and payout annuity contracts are computed using the net level premium method, which incorporates actuarial assumptions as to morbidity, mortality,

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persistency, discount rate and expenses. Expense assumptions include the estimated effects of expensesprimarily relate to be incurred beyond the premium paying period.claim adjudication. Actuarial assumptions generally vary by plan, age at issue, policy duration and policy duration.gender. The initial assumptions are determined at issuance, include a margin for adverse deviation and are locked in throughout the life of the contract unless a premium deficiency develops. If a premium deficiency emerges, the assumptions are unlocked and deferred acquisition costs, if any, and the future policy benefitbenefits reserves are adjusted. The December 31, 2015 gross premium valuation (GPV) indicated a premium deficiency of $296 million. The indicated premium deficiency necessitated a charge to income that was affected by the write off of the entire long term care deferred acquisition cost asset of $289 million and an increase to active life reserves of $7 million. As a result, the long term care active life reserves carried as of December 31, 2015 represent management’s best estimate assumptions at that date with no margin for adverse deviation. The December 31, 2016 GPV indicated the carried reserves were sufficient, therefore there was no unlocking of assumptions. Interest rates for long-termlong term care productsactive life reserves range from 4.5%6.6% to 7.9% at 7.0% as of December 31, 20132016 and from 5.0% to 7.4% at December 31, 2012. Interest rates for payout annuity contracts range from 5.0% to 8.7% at December 31, 2013 and 2012. In 2012, the Company unlocked assumptions related to its payout annuity contracts due to anticipated adverse changes in discount rates, which reflected the then current low interest rate environment and our view of expected investment yields, resulting in loss recognition which increased insurance liabilities by $33 million.2015.
Policyholders' funds reserves: Policyholders' funds reserves primarily include reserves for investment contracts without life contingencies. For these contracts, policyholder liabilities are generally equal to the accumulated policy account values, which consist of an accumulation of deposit payments plus credited interest, less withdrawals and amounts assessed through the end of the period.
Guaranty fund and other insurance-related assessments: Liabilities for guaranty fund and other insurance-related assessments are accrued when an assessment is probable, when it can be reasonably estimated and when the event obligating the entity to pay an imposed or probable assessment has occurred. Liabilities for guaranty funds and other insurance-related assessments are not discounted and are included as part of Other liabilities on the Consolidated Balance Sheets. As of December 31, 20132016 and 2012,2015, the liability balances were $143$125 million. As of December 31, 2013 and 2012, included in Other assets on the Consolidated Balance Sheets were $1 million and $2 million of related assets for premium tax offsets. This asset is limited to the amount that is able to be offset against premium tax on future premium collections from business written or committed to be written.$129 million.
Reinsurance: Reinsurance accounting allows for contractual cash flows to be reflected as premiums and losses. To qualify for reinsurance accounting, reinsurance agreements must include risk transfer. To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity.
Reinsurance receivables related to paid losses are presented at unpaid balances. Reinsurance receivables related to unpaid losses are estimated in a manner consistent with claim and claim adjustment expense reserves or future policy benefits reserves. Reinsurance receivables are reported net of an allowance for uncollectible amounts on the Consolidated Balance Sheets. The cost of reinsurance is primarily accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies or over the reinsurance contract period. The ceding of insurance does not discharge the primary liability of the Company.
The Company has established an allowance for uncollectible reinsurance receivables which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. The allowance for uncollectible reinsurance receivables is estimated on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, management's experience and current economic conditions. Reinsurer financial strength ratings are updated and reviewed on an annual basis or sooner if the Company becomes aware of significant changes related to a reinsurer. Because billed receivables generally approximate 5%3% or less of total reinsurance receivables, the age of the reinsurance receivables related to paid losses is not a significant input into the allowance analysis. Changes in the allowance for uncollectible reinsurance receivables are presented as a component of Insurance claims and policyholders' benefits on the Consolidated Statements of Operations.
Amounts are considered past due based on the reinsurance contract terms. Reinsurance receivables related to paid losses and any related allowance are written off after collection efforts have been exhausted or a negotiated settlement is reached with the reinsurer. Reinsurance receivables related to paid losses from insolvent insurers are written off when the settlement due from the estate can be reasonably estimated. At the time reinsurance receivables related to paid losses are written off, any required adjustment to reinsurance receivables related to unpaid losses is recorded as a component of Insurance claims and policyholders' benefits on the Consolidated Statements of Operations.
Reinsurance contracts that do not effectively transfer the economic risk of loss on the underlying policies are recorded using the deposit method of accounting, which requires that premium paid or received by the ceding

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company or assuming company be accounted for as a deposit asset or liability. The Company had $3$3 million recorded as deposit assets atas of December 31, 20132016 and 2012,2015, and $130$6 million and $125$8 million recorded as deposit liabilities atas of December 31, 20132016 and 2012.2015. Income on reinsurance contracts accounted for under the deposit method is recognized using an effective yield based on the anticipated timing of payments and the remaining life of the contract. When the anticipated timing of payments changes, the effective yield is recalculated to reflect actual payments to date and the estimated timing of future payments. The deposit asset or liability is adjusted to the amount that would have existed had the new effective yield been applied since the inception of the contract.
A loss portfolio transfer is a retroactive reinsurance contract. If the cumulative claim and allocated claim adjustment expenses ceded under a loss portfolio transfer exceed the consideration paid, the resulting gain from such excess is deferred and amortized into earnings in future periods in proportion to actual recoveries under the loss portfolio transfer. In any period in which there is a gain position and a revised estimate of claim and allocated claim adjustment expenses, a portion of the deferred gain is cumulatively recognized in earnings as if the revised estimate was available at the inception date of the loss portfolio transfer.

Deferred acquisition costs: AcquisitionDeferrable acquisition costs include commissions, premium taxes and certain underwriting and policy issuance costs which are incremental direct costs of successful contract acquisitions. Deferred acquisition costs related to long term care contracts issued prior to January 1, 2004 include costs which vary with and are primarily related to the acquisition of business.
Acquisition costs related to property and casualty business are deferred and amortized ratably over the period the related premiums are earned.
Deferred acquisition costs related to long term care contracts are amortized over the premium-paying period of the related policies using assumptions consistent with those used for computing future policy benefit reserves for such contracts. Assumptions are made at the date of policy issuance or acquisition and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in results of operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. At December 31, 2013 and 2012, Deferred acquisition costs were presented net of Shadow Adjustments, as defined later in this note, of $342 millionceding commissions and $369 million.other ceded acquisition costs.
The Company evaluates deferred acquisition costs for recoverability. Anticipated investment income is considered in the determination of the recoverability of deferred acquisition costs. Adjustments, if necessary, are recorded in current period results of operations.
Deferred acquisition costs related to long term care contracts issued prior to January 1, 2004 include costs which vary with and are presented netprimarily related to the acquisition of ceding commissions and other ceded acquisition costs. Unamortizedbusiness. As noted under Future policy benefits reserves, all of the long term care deferred acquisition costs relating to contracts that have been substantially changed byof $289 million were written off as of December 31, 2015 in recognition of a modification in benefits, features, rights or coverages that were not anticipated in the original contract are not deferred and are included as a charge to operations in the period during which the contract modification occurred.premium deficiency.
Investments in life settlement contracts and related revenue recognition: Prior to 2002, the Company purchased investments in life settlement contracts. A life settlement contract is a contract between the owner of a life insurance policy (the policy owner) and a third-party investor (investor). Under a life settlement contract, theThe Company obtainsobtained the ownership and beneficiary rights of an underlying life insurance policy.policy through a life settlement contract with the owner of the life insurance contract.
The Company accounts for its investments in life settlement contracts using the fair value method. Under the fair value method, each life settlement contract is carried at its fair value at the end of each reporting period. The change in fair value estimated through the Company's internal valuation process, life insurance proceeds received and periodic maintenance costs, such as premiums, necessary to keep the underlying policy in force, are recorded in Other revenues on the Consolidated Statements of Operations.
In December 2016, the Company reached agreement on terms to sell the entire portfolio of life settlement contracts to a third party. The Company expects to consummate this transaction in 2017. As a result, the portfolio, which is included within Life & Group Non-Core segment, was determined to be held for sale as of December 31, 2016. Therefore, the contracts were measured at the lower of the carrying amount or the fair value per the agreed terms. This resulted in a $10 million loss recognized within Net realized investment gains. The fair value of the Company's investments in life settlement contracts were $88$58 million and $100$74 million at as of December 31, 20132016 and 2012,2015, and are included in Other assets on the Consolidated Balance Sheets. The cash receipts and payments related to life settlement contracts are included in Cash flows from operating activities on the Consolidated Statements of Cash Flows.

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The following table details the values for life settlement contracts. The determination of fair value is discussed in Note D.C to the Consolidated Financial Statements.
December 31, 2013Number of Life Settlement Contracts 
Fair Value of Life Settlement Contracts
(In millions)
 
Face Amount of Life Insurance Policies
(In millions)
Estimated maturity during:     
201460
 $13
 $39
201560
 11
 35
201650
 9
 32
201750
 8
 29
201840
 7
 26
Thereafter364
 40
 217
Total624
 $88
 $378
December 31, 2016Number of Life Settlement Contracts 
Fair Value of Life Settlement Contracts
(In millions)
 
Face Amount of Life Insurance Policies
(In millions)
Estimated settlements during:     
201763
 $10
 $34
201855
 8
 30
201949
 7
 26
202043
 6
 23
202136
 4
 19
Thereafter280
 23
 153
Total526
 $58
 $285
The Company uses an actuarial model to estimate the aggregate face amount of life insurance that isare expected to maturesettle in each future year and the corresponding fair value. This model projects the likelihood of the insured's death for each inforce policy based upon the Company's estimated mortality rates, which may vary due to the relatively small size of the portfolio of life settlement contracts. The number of life settlement contracts presented in the table above is based upon the average face amount of inforce policies estimated to maturesettle in each future year.

The increase (decrease) in fair value recognized in Other revenues for the years ended December 31, 2013, 20122016, 2015 and 20112014 on contracts still being held at each respective period-end was $(2)$7 million, $11$1 million and $5$8 million. The gains recognized during the years ended December 31, 2013, 20122016, 2015 and 20112014 on contracts that settled were $15$8 million,, $42 $24 million and $28 million.
Separate Account Business: Separate account assets and liabilities represent contract holder funds related to investment and annuity products for which the policyholder assumes substantially all the risk and reward. The assets are segregated into accounts with specific underlying investment objectives and are legally segregated from the Company. All assets of the separate account business are carried at fair value with an equal amount recorded for separate account liabilities. Fee income accruing to the Company related to separate accounts is primarily included within Other revenues on the Consolidated Statements of Operations.
A number of separate account pension deposit contracts guarantee principal and an annual minimum rate of interest. If aggregate contract value in the separate account exceeds the fair value of the related assets, an additional Policyholders' funds liability is established. Certain of these contracts are subject to a fair value adjustment if terminated by the policyholder.$25 million.
Investments
The Company classifies its fixed maturity securities and its equity securities as either available-for-sale or trading, and as such, they are carried at fair value. Changes in fair value of trading securities are reported within Net investment income on the Consolidated Statements of Operations. Changes in fair value related to available-for-sale securities are reported as a component of Other comprehensive income. The cost of fixed maturity securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, which are included in Net investment income on the Consolidated Statements of Operations. Losses may be recognized within Net realized investment gains (losses) on the Consolidated Statements of Operations when a decline in value is determined by the Company to be other-than-temporary.
The cost of fixed maturity securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts, which are included in Net investment income on the Consolidated Statements of Operations. The amortization of premium and accretion of discount for fixed maturity securities takes into consideration call and maturity dates that produce the lowest yield. In 2015 the Company changed its accounting principle as previously the amortization of premiums was to maturity. This change in estimate effected by a change in accounting principle was adopted in the fourth quarter of 2015 and decreased Net investment income and the amortized cost of fixed maturity securities by $39 million in the Consolidated Statement of Operations for the year-ended December 31, 2015 and the Consolidated Balance Sheet as of December 31, 2015. The $39 million decrease to Net investment income included a $22 million cumulative adjustment relating to prior periods. The total adjustment decreased Basic and Diluted earnings per share by $0.09 for the year ended December 31, 2015.
To the extent that unrealized gains on fixed income securities supporting long term care products and payout annuity contractsstructured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related decrease in Deferred acquisition costs and/or increase in Insurance reserves areis recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (Shadow Adjustments). Shadow Adjustments, net of tax, decreased $979$97 million and increased $789$177 million for the years ended December 31, 20132016 and 2012. At2015. As of December 31, 20132016 and 2012,2015, net unrealized gains on investments included in Accumulated other comprehensive income (AOCI) were correspondingly reduced by $532Shadow Adjustments of $1,014 million and $1,511 million.$1,111 million.

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For asset-backed securities included in fixed maturity securities, the Company recognizes income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The amortized cost of high credit quality fixed rate securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the securities. Such adjustments are reflected in Net investment income on the Consolidated Statements of Operations. Interest income on lower rated and variable rate securities is determined using the prospective yield method.
The Company's carrying value of investments in limited partnerships is its share of the net asset value of each partnership, as determined by the General Partner.general partner. Certain partnerships for which results are not available on a timely basis are reported on a lag, primarily three months or less. Changes in net asset values are accounted for under the equity method and recorded within Net investment income on the Consolidated Statements of Operations.
Mortgage loans are commercial in nature, are carried at unpaid principal balance, net of unamortized fees and any valuation allowance, and are recorded once funded. Mortgage loans are considered to be impaired loans when it is probable that contractual principal and interest payments will not be collected. A valuation allowance is established for impaired loans to the extent that the present value of expected future cash flows discounted at the loan's original effective interest rate is less than the carrying value of the loan. Interest income from mortgage loans is recognized on an accrual basis using the effective yield method. Accrual of income is generally suspended for mortgage loans that are impaired and collection of principal and interest payments is unlikely. Mortgage loans are considered past due when full principal or interest payments have not been received according to contractual terms.

Other invested assets are carried at fair value and include overseas deposits and certain derivative securities.Federal Home Loan Bank of Chicago (FHLBC) stock. FHLBC stock is carried at fair value. Overseas deposits are valued using the net asset value per share (or equivalent) practical expedient. They are primarily short-term government securities, agency securities and corporate bonds held in trusts that are managed by Lloyd's.Lloyd's of London. These funds are required of Lloyd's syndicates to protect policyholders in overseas markets and may be denominated in local currency.
Short term investments are carried at fair value, with the exception of cash accounts earning interest, which are carried at cost and approximate fair value. Changes in fair value are reported as a component of Other comprehensive income.
Purchases and sales of all securities are recorded on the trade date, except for private placement debt securities, including bank loan participations, which are recorded once funded. Realized investment gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.
In the normal course of investing activities, the Company enters into relationships with variable interest entities (VIEs), primarily as a passiveboth an investor in certain limited partnerships and asset-backed securities issued by third-party VIEs. The Company is not the primary beneficiary of these VIEs, and therefore does not consolidate them. The Company determines whether it is the primary beneficiary of a VIE based on a qualitative assessment of the entity’s purpose, the nature of its operations, its capital structure, its contractual termsrelative power and the Company’s relative exposure to the related risksbenefits of the VIE.Company and our venture partners. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying values included in the Company’s Consolidated Balance Sheets and any unfunded commitments.
A security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded other-than-temporary impairment (OTTI) losses, otherwise defined as an unrealized loss. When a security is impaired, the impairment is evaluated to determine whether it is temporary or other-than-temporary.
Significant judgment is required in the determination of whether an OTTI loss has occurred for a security. The Company follows a consistent and systematic process for determining and recording an OTTI loss. The Company has established a committee responsible for the OTTI process. This committee,process referred to as the Impairment Committee, is made up of three officers appointed by the Company’s Chief Financial Officer.Committee. The Impairment Committee is responsible for evaluating all securities in an unrealized loss position on at least a quarterly basis.
The Impairment Committee’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that the Company intends to sell, or it more likely than not will

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be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. The factors considered by the Impairment Committee include (a) the financial condition and near termnear-term and long-term prospects of the issuer, (b) whether the debtor is current on interest and principal payments, (c) credit ratings of the securities and (d) general market conditions and industry or sector specific outlook. The Company also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities. The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is significantly less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as OTTI in Other comprehensive income. In subsequent reporting periods, a change in intent to sell or further credit impairment on a security whose fair value has not deteriorated will cause the non-credit component originally recorded as OTTI in Other comprehensive income to be recognized as an OTTI loss in earnings.
The Company performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability. For asset-backed securities, significantSignificant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers and credit support from lower level tranches.

The Company applies the same impairment model as described above for the majority of its non-redeemable preferred stock securities on the basis that these securities possess characteristics similar to debt securities and that the issuers maintain their ability to pay dividends. For all other equity securities, in determining whether the security is other-than-temporarily impaired, the Impairment Committee considers a number of factors including, but not limited to: (a) the length of time and the extent to which the fair value has been less than amortized cost, (b) the financial condition and near term prospects of the issuer, (c) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (d) general market conditions and industry or sector specific outlook.
Income Taxes
The Company and its eligible subsidiaries (CNA Tax Group) are included in the consolidated federal income tax return of Loews and its eligible subsidiaries. The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities, based on enacted tax rates and other provisions of the tax law. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in which such change is enacted. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes will not be realized.
Pension and Postretirement Benefits
The Company recognizes the overfunded or underfunded status of its defined benefit plans in Other assets or Other liabilities on the Consolidated Balance Sheets. Changes in funded status related to prior service costs and credits and actuarial gains and losses are recognized in the year in which the changes occur through Other comprehensive income. Annual service cost, interest cost, expected return on plan assets, amortization of prior service costs and credits and amortization of actuarial gains and losses are recognized in the Consolidated Statements of Operations. The vested benefit obligation for the CNA Retirement Plan is determined based on eligible compensation and accrued service for previously entitled employees. Effective June 30, 2015, future benefit accruals under the CNA Retirement Plan were eliminated and the benefit obligations were frozen.
Stock-Based Compensation
The Company records compensation expense using the fair value method for all awards it grants, modifies or cancels primarily on a straight-line basis over the requisite service period, generally three to four years.



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Foreign Currency
Foreign currency translation gains and losses are reflected in Stockholders' equity as a component of Accumulated other comprehensive income.AOCI. The Company's foreign subsidiaries' balance sheet accounts are translated at the exchange rates in effect at each reporting date and income statement accounts are either translated at the exchange rate on the date of the transaction or at the average exchange rates. Foreign currency transaction gains (losses) of $2$(9) million,, $12 $(11) million and $4$(25) million were included in determining netNet income (loss) for the years ended December 31, 2013, 20122016, 2015 and 2011.2014.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is based on the estimated useful lives of the various classes of property and equipment and is determined principally on the straight-line method. Furniture and fixtures are depreciated over seven years. Office equipment is depreciated over five years. The estimated lives for data processing equipment and software generally range from three to five years, but can be as long as ten years. Leasehold improvements are depreciated over the corresponding lease terms not to exceed the underlying asset life. The Company's previously owned buildings,building and related capital improvements arewere depreciated over periods not to exceed fifty years.
Goodwill
Goodwill represents the excess of purchase price over the fair value of the net assets of acquired entities and businesses. Goodwill related to Hardyin the International segment may change from period to period as a result of foreign currency translation.

Goodwill is tested for impairment annually or when certain triggering events require such tests. As a result of reviews completed for the year ended December 31, 2013,2016, the Company determined that the estimated fair value of the reporting units were in excess of their carrying value including Goodwill. Changes in future periods in assumptions about the level of economic capital, business growth, earnings projections or the weighted average cost of capital could result in a goodwill impairment.
Other Intangible Assets
IntangibleOther intangible assets are reported within Other assets. Finite-lived intangible assets are amortized over their estimated useful lives. Indefinite-lived other intangible assets are tested for impairment annually or when certain triggering events require such tests.
Earnings (Loss) Per Share Data
Earnings (loss) per share attributable to the Company's common stockholders is based on weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing Net income (loss) attributable to CNA by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the years ended December 31, 2013, 20122016, 2015 and 2011,2014, approximately 552678 thousand,, 417 534 thousand and 290675 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, approximately 111102 thousand,, 730 106 thousand and 1.1 million170 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because the effect would have been antidilutive.
Supplementary Cash Flow Information
Cash payments made for interest were $164$157 million,, $170 $152 million and $175$179 million for the years ended December 31, 2013, 20122016, 2015 and 2011.2014. Cash payments made for income taxes were $129$170 million, $310 million and $61$313 million for the years ended December 31, 20132016, 2015 and 2014.
Recently Adopted Accounting Standards Updates (ASU)
In April 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-03, and 2011. Cash refunds receivedInterest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The updated accounting guidance requires debt issuance costs to be presented as a deduction from the corresponding debt liability instead of the historical presentation as an unamortized debt issuance asset. As of January 1, 2016, the Company adopted the updated accounting guidance retrospectively. The Company adjusted its previously reported financial information included herein to reflect the change in accounting guidance for income taxes were $29 million fordebt issuance costs. The impacts of adopting the year endednew accounting standard on the Company’s Consolidated Balance Sheet as of December 31, 2012.2015, were a decrease in Other assets and a decrease in Long term debt of $2 million.
In May 2015, the FASB issued ASU No. 2015-09, Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts. The updated accounting guidance requires enhanced disclosures to provide additional information about insurance liabilities for short-duration contracts. The updated guidance is effective for annual financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within the annual periods beginning after December 15, 2016. The Company has adopted the change in disclosure requirements for short-duration contracts.
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The updated accounting guidance removes the requirement to categorize assets measured at fair value utilizing the net asset value per share (or equivalent) practical expedient within the fair value hierarchy. As of January 1, 2016, the Company adopted the updated accounting guidance retrospectively. The Company adjusted its previously reported financial information included herein to reflect the change in accounting guidance for assets measured using the net asset value. The impact of adopting the new accounting standard resulted in excluding overseas deposits of $31 million and $27 million and limited partnership investments held within the pension plan of $876 million and $935 million from the fair value level disclosures as of December 31, 2016 and December 31, 2015.


Accounting Standards Pending Adoption
70

TableIn May 2014, the FASB issued ASU No. 2014-09, Revenue Recognition (Topic 606): Revenue from Contracts with Customers. The standard excludes from its scope the accounting for insurance contracts, financial instruments, and certain other agreements that are governed under other GAAP guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in an amount that reflects the consideration the entity is entitled to receive for the transfer of Contentsthe promised goods or services. The standard is effective for interim and annual reporting periods beginning after December 15, 2017 and may be applied retrospectively or through a cumulative effect adjustment to retained earnings at the date of adoption. The Company has not made a decision on the method of adoption and is currently evaluating the effect the updated guidance will have on the Company’s financial statements.  While the Company anticipates some changes to revenue recognition for certain of our warranty products and services, we do not currently believe ASU 2014-09 will have a material effect on our Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated accounting guidance requires changes to the reporting model for financial instruments. The guidance is effective for interim and annual periods beginning after December 15, 2017. The Company is currently evaluating the effect the guidance will have on the Company's financial statements, and expects the primary change for the Company to be the requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Accounting for Leases. The updated accounting guidance requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by all leases, including those historically accounted for as operating leases. The guidance is effective for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the effect the updated guidance will have on the Company's financial statements. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date; however, this is not expected to be material to the Company's results of operations or financial position.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvementsto Employee Share-Based Payment Accounting. The updated accounting guidance simplifies the accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the effect the updated guidance will have on the Company’s financial statements, but anticipates the primary change to be the recognition of excess tax benefits or deficiencies on vesting or settlement of awards as an income tax benefit or expense within net income and the related cash flows classified within operating activities.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurementof Credit Losses on Financial Instruments. The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. The guidance is effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the effect the guidance will have on the Company's financial statements, but expects the primary changes to be the use of the expected credit loss model for its mortgage loan portfolio and reinsurance receivables and the presentation of credit losses within the available-for-sale fixed maturities portfolio through an allowance method rather than as a direct write-down. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. The allowance method for available-for-sale debt securities will allow the Company to record reversals of credit losses if the estimate of credit losses declines.

Note B. Investments
The significant components of netNet investment income are presented in the following table.
Net Investment Income
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Fixed maturity securities$1,998
 $2,022
 $2,011
$1,819
 $1,751
 $1,803
Equity securities10
 12
 12
Limited partnership investments155
 92
 263
Mortgage loans41
 33
 31
Short term investments3
 5
 8
8
 6
 3
Limited partnership investments451
 251
 48
Equity securities12
 12
 20
Mortgage loans23
 17
 9
Trading portfolio17
 24
 9
10
 8
 10
Other2
 7
 7
4
 1
 3
Gross investment income2,506
 2,338
 2,112
2,047
 1,903
 2,125
Investment expense(56) (56) (58)(59) (63) (58)
Net investment income$2,450
 $2,282
 $2,054
$1,988
 $1,840
 $2,067
As of December 31, 2013,2016, the Company held no non-income producing fixed maturity securities. As of December 31, 2012,2015, the Company held nine$54 million of non-income producing fixed maturity securities aggregating $1 million of fair value.securities. As of December 31, 20132016 and 2012, 2015, no investments in a single issuer exceeded 10% of stockholders' equity, other than investments in securities issued by the U.S. Treasury and obligations of government-sponsored enterprises.
Net realized investment gains (losses) are presented in the following table.
Net Realized Investment Gains (Losses)
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Net realized investment gains (losses):          
Fixed maturity securities:          
Gross realized gains$201
 $232
 $289
$204
 $131
 $170
Gross realized losses(146) (149) (311)(138) (197) (129)
Net realized investment gains (losses) on fixed maturity securities55
 83
 (22)66
 (66) 41
Equity securities:   
  
   
  
Gross realized gains13
 19
 10
5
 2
 8
Gross realized losses(35) (42) (11)(10) (25) (7)
Net realized investment gains (losses) on equity securities(22) (23) (1)(5) (23) 1
Derivatives(9) (2) 
(2) 10
 (1)
Short term investments and other7
 5
 21
(9) 12
 16
Net realized investment gains (losses)$31
 $63
 $(2)$50
 $(67) $57

71


Net change in unrealized gains on investments is presented in the following table.
Net Change in Unrealized Gains
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Net change in unrealized gains on investments:          
Fixed maturity securities$(2,541) $1,871
 $1,442
$225
 $(1,114) $1,511
Equity securities(15) 5
 (2)(2) (6) 6
Other
 (1) (3)1
 1
 
Total net change in unrealized gains on investments$(2,556) $1,875
 $1,437
$224
 $(1,119) $1,517
The components of OTTI losses recognized in earnings by asset type are summarizedpresented in the following table.
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Fixed maturity securities available-for-sale:     
    
Corporate and other bonds$22
 $27
 $95
$59
 $104
 $18
States, municipalities and political subdivisions
 34
 

 18
 46
Asset-backed:   
  
   
  
Residential mortgage-backed19
 50
 105
10
 8
 5
Other asset-backed2
 
 6
3
 1
 1
Total asset-backed21
 50
 111
13
 9
 6
U.S. Treasury and obligations of government-sponsored enterprises
 1
 
Total fixed maturity securities available-for-sale43
 112
 206
72
 131
 70
Equity securities available-for-sale:     
Common stock8
 6
 8
Preferred stock26
 36
 1
Total equity securities available-for-sale34
 42
 9
Short term investments1
 
 1
Equity securities available-for-sale -- Common stock9
 25
 7
OTTI losses recognized in earnings$78
 $154
 $216
$81
 $156
 $77


72


The following tables providepresent a summary of fixed maturity and equity securities.
Summary of Fixed Maturity and Equity Securities
December 31, 2013
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
December 31, 2016
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
(In millions)
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
 
Fixed maturity securities available-for-sale:          
Corporate and other bonds$19,352
 $1,645
 $135
 $20,862
 $
$17,711
 $1,323
 $76
 $18,958
 $(1)
States, municipalities and political subdivisions11,281
 548
 272
 11,557
 
12,060
 1,213
 33
 13,240
 (16)
Asset-backed:                  
Residential mortgage-backed4,940
 123
 92
 4,971
 (37)5,004
 120
 51
 5,073
 (28)
Commercial mortgage-backed1,995
 90
 22
 2,063
 (3)2,016
 48
 24
 2,040
 
Other asset-backed945
 13
 3
 955
 
1,022
 8
 5
 1,025
 
Total asset-backed7,880
 226
 117
 7,989
 (40)8,042
 176
 80
 8,138
 (28)
U.S. Treasury and obligations of government-sponsored enterprises139
 6
 1
 144
 
83
 10
 
 93
 
Foreign government531
 15
 3
 543
 
435
 13
 3
 445
 
Redeemable preferred stock92
 10
 
 102
 
18
 1
 
 19
 
Total fixed maturity securities available-for-sale39,275
 2,450
 528
 41,197
 $(40)38,349
 2,736
 192
 40,893
 $(45)
Total fixed maturity securities trading36
 
 
 36
  12
 

 

 12
  
Equity securities available-for-sale:                  
Common stock36
 9
 
 45
  13
 6
 
 19
  
Preferred stock143
 1
 4
 140
  93
 2
 4
 91
  
Total equity securities available-for-sale179
 10
 4
 185
  106
 8
 4
 110
  
Total$39,490
 $2,460
 $532
 $41,418
  $38,467
 $2,744
 $196
 $41,015
  

December 31, 2012
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
December 31, 2015
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
(In millions)
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
 
Fixed maturity securities available-for-sale:          
Corporate and other bonds$19,530
 $2,698
 $21
 $22,207
 $
$17,080
 $1,019
 $342
 $17,757
 $
States, municipalities and political subdivisions9,372
 1,455
 44
 10,783
 
11,729
 1,453
 8
 13,174
 (4)
Asset-backed:                  
Residential mortgage-backed5,745
 246
 71
 5,920
 (28)4,935
 154
 17
 5,072
 (37)
Commercial mortgage-backed1,692
 147
 17
 1,822
 (3)2,154
 55
 12
 2,197
 
Other asset-backed929
 23
 
 952
 
923
 6
 8
 921
 
Total asset-backed8,366
 416
 88
 8,694
 (31)8,012
 215
 37
 8,190
 (37)
U.S. Treasury and obligations of government-sponsored enterprises172
 11
 1
 182
 
62
 5
 
 67
 
Foreign government588
 25
 
 613
 
334
 13
 1
 346
 
Redeemable preferred stock113
 13
 1
 125
 
33
 2
 
 35
 
Total fixed maturity securities available-for-sale38,141
 4,618
 155
 42,604
 $(31)37,250
 2,707
 388
 39,569
 $(41)
Total fixed maturity securities trading29
 
 
 29
  3
 

 

 3
  
Equity securities available-for-sale:                  
Common stock38
 14
 
 52
  46
 3
 1
 48
  
Preferred stock190
 7
 
 197
  145
 7
 3
 149
  
Total equity securities available-for-sale228
 21
 
 249
  191
 10
 4
 197
  
Total$38,398
 $4,639
 $155
 $42,882
  $37,444
 $2,717
 $392
 $39,769
  

73


The following tables summarizepresent the estimated fair value and gross unrealized losses of available-for-sale fixed maturity and equity securities in a gross unrealized loss position by the length of time in which the securities have continuously been in that position.
Securities in a Gross Unrealized Loss Position
Less than 12 Months 12 Months or Longer TotalLess than 12 Months 12 Months or Longer Total
December 31, 2013
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
December 31, 2016
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Fixed maturity securities available-for-sale:            
Corporate and other bonds$3,592
 $129
 $72
 $6
 $3,664
 $135
$2,615
 $61
 $254
 $15
 $2,869
 $76
States, municipalities and political subdivisions3,251
 197
 129
 75
 3,380
 272
959
 32
 23
 1
 982
 33
Asset-backed:                      
Residential mortgage-backed1,293
 29
 343
 63
 1,636
 92
2,136
 44
 201
 7
 2,337
 51
Commercial mortgage-backed640
 22
 
 
 640
 22
756
 22
 69
 2
 825
 24
Other asset-backed269
 3
 
 
 269
 3
398
 5
 24
 
 422
 5
Total asset-backed2,202
 54
 343
 63
 2,545
 117
3,290
 71
 294
 9
 3,584
 80
U.S. Treasury and obligations of government-sponsored enterprises13
 1
 
 
 13
 1
5
 
 
 
 5
 
Foreign government111
 3
 
 
 111
 3
108
 3
 
 
 108
 3
Redeemable preferred stock
 
 
 
 
 
Total fixed maturity securities available-for-sale9,169
 384
 544
 144
 9,713
 528
6,977
 167
 571
 25
 7,548
 192
Equity securities available-for-sale:           
Preferred stock87
 4
 
 
 87
 4
Equity securities available-for-sale -- Preferred stock12
 
 13
 4
 25
 4
Total$9,256
 $388
 $544
 $144
 $9,800
 $532
$6,989

$167

$584

$29

$7,573

$196

Less than 12 Months 12 Months or Longer TotalLess than 12 Months 12 Months or Longer Total
December 31, 2012
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
December 31, 2015
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Fixed maturity securities available-for-sale:            
Corporate and other bonds$846
 $13
 $108
 $8
 $954
 $21
$4,882
 $302
 $162
 $40
 $5,044
 $342
States, municipalities and political subdivisions254
 5
 165
 39
 419
 44
338
 8
 75
 
 413
 8
Asset-backed:                      
Residential mortgage-backed583
 5
 452
 66
 1,035
 71
963
 9
 164
 8
 1,127
 17
Commercial mortgage-backed85
 2
 141
 15
 226
 17
652
 10
 96
 2
 748
 12
Other asset-backed552
 8
 5
 
 557
 8
Total asset-backed668
 7
 593
 81
 1,261
 88
2,167
 27
 265
 10
 2,432
 37
U.S. Treasury and obligations of government-sponsored enterprises23
 1
 
 
 23
 1
4
 
 
 
 4
 
Foreign government54
 1
 
 
 54
 1
Redeemable preferred stock28
 1
 
 
 28
 1
3
 
 
 
 3
 
Total fixed maturity securities available-for-sale7,448
 338
 502
 50
 7,950
 388
Equity securities available-for-sale:           
Common Stock3
 1
 
 
 3
 1
Preferred stock13
 3
 
 
 13
 3
Total equity securities available-for-sale16
 4
 
 
 16
 4
Total$1,819
 $27
 $866
 $128
 $2,685
 $155
$7,464
 $342
 $502
 $50
 $7,966
 $392

Based on current facts and circumstances, the Company believes the unrealized losses presented in the December 31, 2013 Securities2016 securities in a Gross Unrealized Loss Positiongross unrealized loss position table above are primarily attributable to broader economic conditions, changes in interest rates and credit spreads, market illiquidity and other market factors, but are not indicative of the ultimate collectibility of the current amortized cost of the securities. The investments with longer duration, primarily included within the states, municipalities and political subdivision asset category, were more significantly impacted bysecurities, but rather are attributable to changes in market interest rates.rates, credit spreads and other factors. The Company has no current intent to sell these securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded atas of December 31, 2013.2016.

74


The following table summarizespresents the activity for the years ended December 31, 2013, 2012 and 2011 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held atas of December 31, 20132016, 20122015 and 20112014 for which a portion of an OTTI loss was recognized in Other comprehensive income.income (loss).
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Beginning balance of credit losses on fixed maturity securities$95
 $92
 $141
$53
 $62
 $74
Additional credit losses for securities for which an OTTI loss was previously recognized2
 23
 39
Credit losses for securities for which an OTTI loss was not previously recognized
 2
 11
Reductions for securities sold during the period(23) (14) (67)(16) (9) (9)
Reductions for securities the Company intends to sell or more likely than not will be required to sell
 (8) (32)(1) 
 (3)
Ending balance of credit losses on fixed maturity securities$74
 $95
 $92
$36
 $53
 $62
Contractual Maturity
The following table summarizes available-for-sale fixed maturity securities by contractual maturity at December 31, 2013 and 2012. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life.
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
December 31, 2013 December 31, 2012
December 312016 2015
(In millions)
Cost or
Amortized
Cost
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Estimated
Fair
Value
Cost or
Amortized
Cost
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Estimated
Fair
Value
Due in one year or less$2,420
 $2,455
 $1,648
 $1,665
$1,779
 $1,828
 $1,574
 $1,595
Due after one year through five years9,496
 10,068
 13,603
 14,442
7,566
 7,955
 7,721
 8,070
Due after five years through ten years11,667
 11,954
 8,726
 9,555
15,892
 16,332
 14,652
 14,915
Due after ten years15,692
 16,720
 14,164
 16,942
13,112
 14,778
 13,303
 14,989
Total$39,275
 $41,197
 $38,141
 $42,604
$38,349
 $40,893
 $37,250
 $39,569
Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Limited Partnerships
The carrying value of limited partnerships as of December 31, 20132016 and 20122015 was $2,720$2,371 million and $2,462$2,548 million,, which includes undistributed earnings of $969$523 million and $768687 million. Limited partnerships comprising 67%60% of the total carrying value are reported on a current basis through December 31, 20132016 with no reporting lag, 16%18% are reported on a one month lag and the remainder are reported on more than a one month lag. As of December 31, 2013 and 2012, the Company had 87 and 79 active limited partnership investments. The number of limited partnerships held and the strategies employed provide diversification to the limited partnership portfolio and the overall invested asset portfolio.
OfLimited partnerships comprising 68% and 70% of the limited partnerships held,carrying value as of 74%December 31, 2016 and 80% at December 31, 2013 and 20122015 employ hedge fund strategies that generate returns through investingstrategies. Limited partnerships comprising 27% and 26% of the carrying value as of December 31, 2016 and 2015 were invested in securities that are marketable while engaging in various management techniques primarily in public fixed incomeprivate debt and equity markets. These hedgeand the remainder were primarily invested in real estate strategies. Hedge fund strategies include both long and short positions in fixed income, equity and derivative instruments. TheThese hedge fund strategies may seek to generate gains from mispriced or undervalued securities, price differentials between securities, distressed investments, sector rotation or various arbitrage disciplines. Within hedge fund strategies, approximately 51%55% were equity related, 28%26% pursued a multi-strategy approach, 17% were focused on distressed investments and 4%2% were fixed income related atas of December 31, 20132016.

Limited partnerships representing 22% and 16% at December 31, 2013 and 2012 were invested in private debt and equity. The remaining were invested in various other partnerships including real estate. The ten largest limited partnership positions held totaled $1,471$1,168 million and $1,3091,221 million as of December 31, 20132016 and 20122015. Based

75


on the most recent information available regarding the Company’s percentage ownership of the individual limited partnerships, the carrying value reflected on the Consolidated Balance Sheets represents approximately 4% and 3% of the aggregate partnership equity at as of December 31, 20132016 and 2012,2015, and the related income reflected on the Consolidated Statements of Operations represents approximately 4%, 3%, and 4% of the changes in totalaggregate partnership equity for the years ended December 31, 20132016, 20122015 and 20112014.
While the Company generally does not invest in highly leveraged partnerships, there are risks inherent in limited partnership investments which may result in losses due to short-selling, derivatives or other speculative investment practices. The use of leverage increases volatility generated by the underlying investment strategies.
The Company’s limited partnership investments contain withdrawal provisions that generally limit liquidity for a period of thirty days up to one year and in some cases do not permit withdrawals until the termination of the partnership. Typically, withdrawals require advance written notice of up to 90 days.
Derivative Financial Instruments
The Company may use derivatives in the normal course of business, primarily in an attempt to reduce its exposure to market risk (principally interest rate risk, credit risk, equity price risk and foreign currency risk) stemming from various assets and liabilities. The Company's principal objective under such strategies is to achieve the desired reduction in economic risk, even if the position does not receive hedge accounting treatment.
The Company may enter into interest rate swaps, futures and forward commitments to purchase securities to manage interest rate risk. The Company may use foreign currency forward contracts to manage foreign currency risk.
Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to the instruments recognized on the Consolidated Balance Sheets. The Company generally requires that all over-the-counter derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement, and exchanges collateral under the terms of these agreements with its derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty. Gross estimated fair values of derivative positions are presented in Other invested assets and Other liabilities on the Consolidated Balance Sheet. The Company does not offset derivative positions against the fair value of collateral provided or positions subject to netting arrangements. There would be no significant difference in the balance included in such accounts if the estimated fair values were presented net for the periods ended December 31, 2016 and 2015.
There was no cash collateral provided by the Company as of December 31, 2016 or 2015. There was no cash collateral received from counterparties held as of December 31, 2016 or 2015.
The Company holds an embedded derivative on funds withheld liability with a notional value of $174 million and $179 million as of December 31, 2016 and 2015 and a fair value of $3 million and $5 million as of December 31, 2016 and 2015. The embedded derivative on funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Consolidated Balance Sheets.
Commercial Mortgage Loans
Risks related to the recoverability of loan balances include declines in the estimated cash flows from underlying property leases, fair value of collateral and creditworthiness of tenants of credit tenant loan properties, where lease payments directly service the loan. The Company evaluates loans for impairment on a specific loan basis and identifies loans for evaluation of impairment based on the collection experience of each loan and other credit quality indicators such as debt service coverage ratio and the creditworthiness of the borrower or tenants of credit tenant loan properties. As of December 31, 20132016 and 2012,2015, there were no loans past due or in non-accrual status, and no valuation allowance was recorded.

Investment Commitments
As of December 31, 2013,2016, the Company had committed approximately $381$380 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.
As of December 31, 2016, the Company had mortgage loan commitments of $20 million representing signed loan applications received and accepted.
The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. Purchases and sales of privately placed debt securities are recorded once funded. As of December 31, 2013,2016, the Company had commitments to purchase or fund additional amounts of $151$130 million and sell $145$121 million under the terms of such securities.
Investments on Deposit
Securities with carrying values of approximately $3.3$2.3 billion and $3.6$2.8 billion were deposited by the Company’s insurance subsidiaries under requirements of regulatory authorities and others as of December 31, 20132016 and 2012.2015.
Cash and securities with carrying values of approximately $353$514 million and $4$364 million were deposited with financial institutions as collateral for letters of credit as of December 31, 20132016 and 2012.2015. In addition, cash and securities were deposited in trusts with financial institutions to secure reinsurance and other obligations with various third parties. The carrying values of these deposits were approximately $294$261 million and $277$263 million as of December 31, 20132016 and 2012.2015.

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Note C. Derivative Financial Instruments
The Company may use derivatives in the normal course of business, primarily in an attempt to reduce its exposure to market risk (principally interest rate risk, credit risk, equity price risk and foreign currency risk) stemming from various assets and liabilities. The Company's principal objective under such strategies is to achieve the desired reduction in economic risk, even if the position does not receive hedge accounting treatment.
The Company may enter into interest rate swaps, futures and commitments to purchase securities to manage interest rate risk. Credit derivatives such as credit default swaps (CDS) are entered into to modify the credit risk inherent in certain investments. The Company may use foreign currency forward contracts to manage foreign currency risk.
In addition to the derivatives used for risk management purposes described above, the Company may also use derivatives for purposes of income enhancement. Income enhancement transactions are limited in scope and primarily involve the sale of covered options in which the Company receives a premium in exchange for selling a call or put option.
Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to the instruments recognized on the Consolidated Balance Sheets. The Company generally requires that all over-the-counter derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement, and exchanges collateral under the terms of these agreements with its derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty. Gross estimated fair values of derivative positions are presented in Other invested assets and Other liabilities on the Consolidated Balance Sheet. The Company does not offset derivative positions against the fair value of collateral provided or positions subject to netting arrangements. There would be no significant difference in the balance included in such accounts if the estimated fair values were presented net for the periods ended December 31, 2013 and 2012. There was no cash collateral provided by the Company at December 31, 2013. The fair value of cash collateral provided by the Company was $1 million at December 31, 2012. There was no cash collateral received from counterparties held at December 31, 2013 or 2012.
A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments reported as Other invested assets or Other liabilities on the Consolidated Balance Sheets follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments.
Derivative Financial Instruments
December 31, 2013
Contractual/
Notional
Amount
 Estimated Fair Value
(In millions) Asset (Liability)
Without hedge designation     
Equity warrants$5
 $
 $

December 31, 2012
Contractual/
Notional
Amount
 Estimated Fair Value
(In millions) Asset (Liability)
Without hedge designation     
Credit default swaps - purchased protection$20
 $
 $(1)
Currency forwards59
 
 (2)
Equity warrants5
 
 
Total$84
 $
 $(3)

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During the year ended December 31, 2013, new derivative transactions entered into totaled $2,743 million in notional value while derivative termination activity totaled $2,822 million. This activity was primarily attributable to forward commitments for mortgage-backed securities, options, interest rate futures, and foreign currency forwards. During the year ended December 31, 2012, new derivative transactions entered into totaled $1,581 million in notional value while derivative termination activity totaled $1,543 million. This activity was primarily attributable to interest rate futures, forward commitments for mortgage-backed securities and foreign currency forwards.

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Note D. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodologiesmethodology and inputs used to estimate fair value for each specific security. In general the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using methodologiesa methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include i) the review of pricing service methodologies or broker pricing methodologies,qualifications, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where period-over-period changes in price period-over-period, are reviewed and challenged with the pricing service or broker based on exception criteria, iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and v) pricing validation, where prices received are compared to prices independently estimated by the Company.

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Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are summarized below.presented in the following tables.
December 31, 2016      
Total
Assets/Liabilities
at Fair Value
(In millions)Level 1 Level 2 Level 3 
Assets       
Fixed maturity securities:       
Corporate and other bonds$
 $18,840
 $130
 $18,970
States, municipalities and political subdivisions
 13,239
 1
 13,240
Asset-backed:       
Residential mortgage-backed
 4,944
 129
 5,073
Commercial mortgage-backed
 2,027
 13
 2,040
Other asset-backed
 968
 57
 1,025
Total asset-backed
 7,939
 199
 8,138
U.S. Treasury and obligations of government-sponsored enterprises93
 
 
 93
Foreign government
 445
 
 445
Redeemable preferred stock19
 
 
 19
Total fixed maturity securities112
 40,463
 330
 40,905
Equity securities91
 
 19
 110
Other invested assets
 5
 
 5
Short term investments475
 853
 
 1,328
Life settlement contracts, included in Other assets
 
 58
 58
Total assets$678
 $41,321
 $407
 $42,406
Liabilities     
  
Other liabilities$
 $(3) $
 $(3)
Total liabilities$
 $(3) $
 $(3)
December 31, 2013      
Total
Assets/(Liabilities)
at Fair Value
(In millions)Level 1 Level 2 Level 3 
Assets       
Fixed maturity securities:       
Corporate and other bonds$33
 $20,661
 $204
 $20,898
States, municipalities and political subdivisions
 11,486
 71
 11,557
Asset-backed:       
Residential mortgage-backed
 4,640
 331
 4,971
Commercial mortgage-backed
 1,912
 151
 2,063
Other asset-backed
 509
 446
 955
Total asset-backed
 7,061
 928
 7,989
U.S. Treasury and obligations of government-sponsored enterprises116
 28
 
 144
Foreign government81
 462
 
 543
Redeemable preferred stock45
 57
 
 102
Total fixed maturity securities275
 39,755
 1,203
 41,233
Equity securities126
 48
 11
 185
Other invested assets
 54
 
 54
Short term investments769
 563
 
 1,332
Life settlement contracts, included in Other assets
 
 88
 88
Separate account business9
 171
 1
 181
Total assets$1,179
 $40,591
 $1,303
 $43,073
Liabilities     
  
Derivative financial instruments, included in Other liabilities$
 $
 $
 $
Total liabilities$
 $
 $
 $

80


December 31, 2015      
Total
Assets/Liabilities
at Fair Value
(In millions)Level 1 Level 2 Level 3 
Assets       
Fixed maturity securities:       
Corporate and other bonds$
 $17,592
 $168
 $17,760
States, municipalities and political subdivisions
 13,172
 2
 13,174
Asset-backed:       
Residential mortgage-backed
 4,938
 134
 5,072
Commercial mortgage-backed
 2,175
 22
 2,197
Other asset-backed
 868
 53
 921
Total asset-backed
 7,981
 209
 8,190
U.S. Treasury and obligations of government-sponsored enterprises66
 1
 
 67
Foreign government
 346
 
 346
Redeemable preferred stock35
 
 
 35
Total fixed maturity securities101
 39,092
 379
 39,572
Equity securities177
 
 20
 197
Other invested assets
 17
 
 17
Short term investments448
 1,134
 
 1,582
Life settlement contracts, included in Other assets
 
 74
 74
Total assets$726
 $40,243
 $473
 $41,442
Liabilities     
  
Other liabilities$
 $(5) $
 $(5)
Total liabilities$
 $(5) $
 $(5)
December 31, 2012      
Total
Assets/(Liabilities)
at Fair Value
(In millions)Level 1 Level 2 Level 3 
Assets       
Fixed maturity securities:       
Corporate and other bonds$6
 $22,011
 $219
 $22,236
States, municipalities and political subdivisions
 10,687
 96
 10,783
Asset-backed:       
Residential mortgage-backed
 5,507
 413
 5,920
Commercial mortgage-backed
 1,693
 129
 1,822
Other asset-backed
 584
 368
 952
Total asset-backed
 7,784
 910
 8,694
U.S. Treasury and obligations of government-sponsored enterprises158
 24
 
 182
Foreign government140
 473
 
 613
Redeemable preferred stock40
 59
 26
 125
Total fixed maturity securities344
 41,038
 1,251
 42,633
Equity securities117
 98
 34
 249
Other invested assets
 58
 1
 59
Short term investments987
 799
 6
 1,792
Life settlement contracts, included in Other assets
 
 100
 100
Separate account business4
 306
 2
 312
Total assets$1,452
 $42,299
 $1,394
 $45,145
Liabilities 
  
  
  
Derivative financial instruments, included in Other liabilities$
 $(2) $(1) $(3)
Total liabilities$
 $(2) $(1) $(3)


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The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012.
Level 3
(In millions)
Balance at
January 1,
2013
 Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss)* Net change in unrealized appreciation (depreciation) included in other comprehensive income (loss) Purchases Sales Settlements 
Transfers into
Level 3
 
Transfers out
of Level 3
 
Balance at
December 31,
2013
 Unrealized gains (losses) on Level 3 assets and liabilities held at December 31, 2013 recognized in net income (loss)*
Balance as of
January 1,
2016
 Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss)* Net change in unrealized appreciation (depreciation) included in Other comprehensive income (loss) Purchases Sales Settlements 
Transfers into
Level 3
 
Transfers out
of Level 3
 
Balance as of
December 31,
2016
 Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2016 recognized in Net income (loss)*
Fixed maturity securities:                                      
Corporate and other bonds$219
 $3
 $
 $142
 $(116) $(44) $51
 $(51) $204
 $(2)$168
 $1
 $1
 $163
 $(36) $(103) $
 $(64) $130
 $
States, municipalities and political subdivisions96
 (2) 4
 122
 (79) (61) 18
 (27) 71
 
2
 
 
 
 
 (1) 
 
 1
 
Asset-backed:                 
                   
  
Residential mortgage-backed413
 4
 (14) 116
 (10) (75) 4
 (107) 331
 (3)134
 3
 (5) 15
 
 (14) 56
 (60) 129
 
Commercial mortgage-backed129
 
 11
 107
 (3) (11) 21
 (103) 151
 
22
 (1) (1) 32
 
 (17) 3
 (25) 13
 
Other asset-backed368
 5
 (4) 314
 (197) (35) 
 (5) 446
 (2)53
 (2) 1
 86
 (25) (1) 2
 (57) 57
 
Total asset-backed910
 9
 (7) 537
 (210) (121) 25
 (215) 928
 (5)209
 
 (5) 133
 (25) (32) 61
 (142) 199
 
Redeemable preferred stock26
 (1) 
 
 
 (25) 
 
 
 
Total fixed maturity securities1,251
 9
 (3) 801
 (405) (251) 94
 (293) 1,203
 (7)379
 1
 (4) 296
 (61) (136) 61
 (206) 330
 
Equity securities34
 (27) 3
 2
 
 
 
 (1) 11
 (27)20
 (1) 
 
 
 
 
 
 19
 (2)
Other invested assets, including derivatives, net
 
 
 
 (1) 1
 
 
 
 
Short term investments6
 
 
 
 (6) 
 
 
 
 
Life settlement contracts100
 13
 
 
 
 (25) 
 
 88
 (2)74
 5
 
 
 
 (21) 
 
 58
 (3)
Separate account business2
 
 
 1
 (2) 
 
 
 1
 
Total$1,393
 $(5) $
 $804
 $(414) $(275) $94
 $(294) $1,303
 $(36)$473
 $5
 $(4) $296
 $(61) $(157) $61
 $(206) $407
 $(5)

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Level 3
(In millions)
Balance at
January 1,
2012
 Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss)* Net change in unrealized appreciation (depreciation) included in other comprehensive income (loss) Purchases Sales Settlements 
Transfers into
Level 3
 
Transfers out
of Level 3
 
Balance at
December 31,
2012
 Unrealized gains (losses) on Level 3 assets and liabilities held at December 31, 2012 recognized in net income (loss)*
Balance as of
January 1,
2015
 Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss)* Net change in unrealized appreciation (depreciation) included in Other comprehensive income (loss) Purchases Sales Settlements 
Transfers into
Level 3
 
Transfers out
of Level 3
 
Balance as of
December 31,
2015
 Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2015 recognized in Net income (loss)*
Fixed maturity securities:                                      
Corporate and other bonds$482
 $6
 $4
 $231
 $(136) $(88) $45
 $(325) $219
 $(3)$162
 $(2) $(3) $65
 $(13) $(35) $40
 $(46) $168
 $(2)
States, municipalities and political subdivisions171
 
 
 14
 
 (89) 
 
 96
 
94
 1
 
 
 
 (10) 
 (83) 2
 
Asset-backed:                 
                   
  
Residential mortgage-backed452
 (14) 2
 97
 
 (40) 
 (84) 413
 (18)189
 5
 (3) 81
 
 (35) 14
 (117) 134
 
Commercial mortgage-backed59
 8
 14
 165
 (12) (28) 13
 (90) 129
 
83
 7
 (4) 23
 
 (17) 17
 (87) 22
 
Other asset-backed343
 11
 8
 615
 (365) (128) 
 (116) 368
 
655
 3
 3
 130
 (263) (52) 7
 (430) 53
 
Total asset-backed854
 5
 24
 877
 (377) (196) 13
 (290) 910
 (18)927
 15
 (4) 234
 (263) (104) 38
 (634) 209
 
Redeemable preferred stock
 
 (1) 53
 (26) 
 
 
 26
 
Total fixed maturity securities1,507
 11
 27
 1,175
 (539) (373) 58
 (615) 1,251
 (21)1,183
 14
 (7) 299
 (276) (149) 78
 (763) 379
 (2)
Equity securities67
 (36) 6
 27
 (16) 
 
 (14) 34
 (38)16
 
 (1) 4
 
 
 1
 
 20
 
Other invested assets, including derivatives, net10
 
 
 
 
 (10) 
 
 
 
Short term investments27
 
 
 23
 (4) (41) 1
 
 6
 
Life settlement contracts117
 53
 
 
 
 (70) 
 
 100
 11
82
 25
 
 
 
 (33) 
 
 74
 1
Separate account business23
 
 
 
 (21) 
 
 
 2
 
Total$1,751
 $28
 $33
 $1,225
 $(580) $(494) $59
 $(629) $1,393
 $(48)$1,281
 $39
 $(8) $303
 $(276) $(182) $79
 $(763) $473
 $(1)

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*Net realized and unrealized gains and losses shown abovefrom Level 3 securities and derivatives are reported in Net income (loss) as follows:
Major Category of Assets and Liabilities Consolidated Statements of Operations Line Items
Fixed maturity securities available-for-sale(1)
 Net realized investment gains (losses)
Fixed maturity securities trading Net investment income
Equity securities(1)
 Net realized investment gains (losses)
Other invested assets - Derivative financial instruments held in a trading portfolio Net investment income
Other invested assets - Derivative financial instruments not held in a trading portfolio Net realized investment gains (losses)
Other invested assets - Overseas depositsNet investment income
Life settlement contracts Other revenues
Other liabilities - Derivative financial instrumentsNet realized investment gains (losses)
(1) Unrealized gains and losses are reported within AOCI.
Securities shown in the Level 3 tables on the previous pagespage may be transferred in or out of Level 3levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume and may cause securities to move in and out of Level 3 from reporting period to reporting period. Therevolume. During the year ended December 31, 2016 there were no transfers between Level 1 and Level 2 during the year ended December 31, 2013.2. There were $106$63 million of transfers from Level 2 to Level 1 and $72$52 million of transfers from Level 1 to Level 2during the year ended December 31, 20122015. The Company's policy is to recognize transfers between levels at the beginning of quarterly reporting periods.
Valuation Methodologies and Inputs
The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.
Fixed Maturity Securities
FixedLevel 1 securities include highly liquid and exchange traded bonds and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using methodologies that modela methodology based on information generated by market transactions involving identical or comparable assets, as well asa discounted cash flow methodologies.methodology, or a combination of both when necessary. Common inputs include:for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, broker/dealermarketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data.
Level 1 securities include exchange traded bonds, highly liquid U.S. and foreign government bonds, and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed Fixed maturity securities as the significant inputs are observable in the marketplace. Securities are generallyprimarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include tax-exempt auction rate certificates and private placement debt securities. Fair value of auction rate securities is determined utilizing a pricing model with three primary inputs. The interest rate and spread inputs are observable from like instruments while the expected call date assumption is unobservable due to the uncertain nature of principal prepayments prior to maturity and the credit spread adjustment that is security specific. Fair value of certain private placement debt securities whose fair value is determined using internal models with inputs that are not market observable.
Equity Securities
Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily non-redeemable preferred stocks and common stocks valued using pricing for similar securities, recently executed transactions broker/dealer quotes and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with inputs that are not market observable.


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Other Invested Assets
The fair value of Federal Home Loan Bank of Chicago (FHLBC) stock is equal to par because it can only be redeemed by the FHLBC at par or sold to another member of the FHLBC at par and is classified as Level 1 securities include exchange traded derivatives, primarily futures, valued using quoted market prices. Level 2 securities include2.
As of December 31, 2016 and December 31, 2015, there were approximately $31 million and $27 million respectively of overseas deposits within other invested assets, which can be redeemed at net asset value in 90 days or less, and derivatives, primarily currency forwards valuedless. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, credit default swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 3 of the valuation hierarchy due to a lack of transparency as to whether these quotes are based on information that is observable in the marketplace.net asset value per share (or equivalent) practical expedient.
Short Term Investments
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented on the Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
Life Settlement Contracts
TheHistorically, the fair values of life settlement contracts arewere determined as the present value of the anticipated death benefits less anticipated premium payments based on contract terms that are distinct for each insured, as well as the Company's own assumptions for mortality, premium expense and the rate of return that a buyer would require on the contracts. As discussed in Note A, Summary of Significant Accounting Policies, because the Company has reached agreement on terms to sell the portfolio of life settlement contracts to a third party, the fair value was written down to reflect the value determined per the agreed terms of sale. Despite the pending sale, as no comparablethere is not an active market pricing datafor life settlement contracts, they have been classified as Level 3.
Derivative Financial Investments
Level 2 securities primarily include the embedded derivative on funds withheld liability. The embedded derivative on funds withheld liability is available.
Separate Account Business
Separate account business includesvalued using the change in fair value of the assets supporting the funds withheld liability, which are fixed maturity securities equities and short term investments. The valuation methodologies and inputs for these asset types have been described above.valued with observable inputs.
Significant Unobservable Inputs
The table below presentsfollowing tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the tabletables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to the Company. The valuation of life settlement contracts as of December 31, 2016 was based on the terms of the pending sale of the contracts to a third party, therefore the contracts are not included in the table below.
Assets
(In millions)
Fair Value at December 31, 2013 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$142
 Discounted cash flow Credit spread 1.74% - 19.90% (3.98%)
Equity securities$10
 Market approach Private offering price $360.12 - $4,267.66 per share ($1,147.95)
Life settlement contracts$88
 Discounted cash flow Discount rate risk premium 9%
     Mortality assumption 70% - 743% (191.6%)
December 31, 2016
Estimated Fair Value
(In millions)
 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$106
 Discounted cash flow Credit spread 2% - 40% (4%)
Assets
(In millions)
Fair Value at December 31, 2012 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
December 31, 2015Estimated Fair Value
(In millions)
 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$121
 Discounted cash flow Expected call date 3.3 - 5.3 years (4.3 years)$138
 Discounted cash flow Credit spread 3% - 184% (6%)
  Credit spread adjustment 0.02% - 0.48% (0.17%)
$72
 Market approach Private offering price $42.39 - $102.32 ($100.11)
Equity securities$34
 Market approach Private offering price $4.54 - $3,842.00 per share
($571.17 per share)
Life settlement contracts$100
 Discounted cash flow Discount rate risk premium 9%74
 Discounted cash flow Discount rate risk premium 9%
  Mortality assumption 69% - 883% (208.9%)

 Mortality assumption 55% - 1676% (164%)

85


For fixed maturity securities, an increase to the expected call date and credit spread assumptions would result in a lower fair value measurement. For equity securities, an increase in the private offering price would result in a higher fair value measurement. For life settlement contracts, an increase in the discount rate risk premium or decrease in the mortality assumption would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount and estimated fair value of the Company's financial instrument assets and liabilities which are not measured at fair value on the Consolidated Balance Sheets are listedpresented in the tables below.following tables.
December 31, 2013
Carrying
Amount
 Estimated Fair Value
(In millions) Level 1 Level 2 Level 3 Total
Financial assets         
Notes receivable for the issuance of common stock$23
 $
 $
 $23
 $23
Mortgage loans508
 
 
 515
 515
Financial liabilities         
Premium deposits and annuity contracts$57
 $
 $
 $58
 $58
Short term debt549
 
 575
 
 575
Long term debt2,011
 
 2,328
 
 2,328
December 31, 2016
Carrying
Amount
 Estimated Fair Value
(In millions) Level 1 Level 2 Level 3 Total
Assets         
Mortgage loans$591
 $
 $
 $594
 $594
Liabilities         
Long term debt$2,710
 $
 $2,952
 $
 $2,952

December 31, 2012Carrying
Amount
 Estimated Fair Value
(In millions) Level 1 Level 2 Level 3 Total
Financial assets         
Notes receivable for the issuance of common stock$21
 $
 $
 $21
 $21
Mortgage loans401
 
 
 418
 418
Financial liabilities         
Premium deposits and annuity contracts$100
 $
 $
 $104
 $104
Short term debt13
 
 13
 
 13
Long term debt2,557
 
 3,016
 
 3,016
December 31, 2015Carrying
Amount
 Estimated Fair Value
(In millions) Level 1 Level 2 Level 3 Total
Assets         
Mortgage loans$678
 $
 $
 $688
 $688
Liabilities         
Short term debt$350
 $
 $360
 $
 $360
Long term debt2,210
 
 2,433
 
 2,433
The following methods and assumptions were used to estimate the fair value of these financial assets and liabilities.
The fair values of Notes receivable for the issuance of common stock were estimated using discounted cash flows utilizing interest rates currently offered for obligations securitized with similar collateral, adjusted for specific note receivable risk.
The fair values of Mortgagemortgage loans were based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk.
Premium deposits and annuity contracts were valued based on cash surrender values or estimated fair values of policyholder liabilities, net of amounts ceded related to sold business.
The Company's senior notes and debentures were valued based on observable market prices. The fair value for other debt was estimated using discounted cash flows based on current incremental borrowing rates for similar borrowing arrangements.
The carrying amounts reported on the Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain otherOther assets and otherOther liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.


86


Note ED. 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 yearyears ended December 31, 20132016, 2015 and 2014, the Company paid $89$142 million, $256 million and $287 million to Loews related to federal income taxes.
For the years ended December 31, 20122014 and 2011,through 2016, the Company received from Loews $75 million and $10 million related to federal income taxes.
For 2011 through 2013, the IRSInternal 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.
AtAs of December 31, 20132016 and 20122015, 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 2013, the Company did not recognize any interest or penalties. During 2012,2016, 2015 and 2014 the Company recognized $2 million ofno interest income and no penalties. During 2011, the Company did not recognize any interest or penalties. There were no amounts accrued for interest or penalties atas of December 31, 20132016 or 20122015.
The following table providespresents a reconciliation between the Company's federal income tax (expense) benefitexpense at statutory rates and the recorded income tax (expense) benefit.
Tax Reconciliationexpense, excluding discontinued operations.
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Income tax expense at statutory rates$(460) $(305) $(305)$(398) $(192) $(423)
Tax benefit from tax exempt income97
 84
 74
124
 123
 119
Foreign taxes and credits(1) (13) (3)3
 9
 (6)
Taxes related to domestic affiliate
 
 (21)
Prior year tax adjustment
 
 20
Other tax expense(12) (10) (7)(7) (10) (9)
Income tax expense$(376) $(244) $(242)$(278)
$(70) $(319)
At December 31, 2013, no deferred taxes are required onProvision 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 subsidiaries subjectDecember 31, 2016, the Company has not provided deferred taxes of $1 million on $3 million of undistributed earnings related to tax.a foreign subsidiary.

87


The following table providespresents the current and deferred components of the Company's income tax (expense) benefit.
Current and Deferred Taxesexpense, excluding discontinued operations.
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Current tax expense$(299) $(97) $(54)$(142) $(220) $(318)
Deferred tax expense(77) (147) (188)
Deferred tax benefit (expense)(136) 150
 (1)
Total income tax expense$(376) $(244) $(242)$(278) $(70) $(319)
Total income tax presented above includes foreign tax expense of approximately $24$9 million,, $34 $14 million and $27$24 million related to income from continuing foreign operations of approximately $101$51 million,, $88 $71 million and $75$66 million for the years ended December 31, 2013, 20122016, 2015 and 2011.2014.

The deferred tax effects of the significant components of the Company's deferred tax assets and liabilities are set forthpresented in the table below.
Components of Net Deferred Tax Assetfollowing table.
December 31      
(In millions)2013 20122016 2015
Deferred Tax Assets:      
Insurance reserves:      
Property and casualty claim and claim adjustment expense reserves$289
 $352
$125
 $178
Unearned premium reserves178
 162
206
 230
Receivables50
 60
27
 29
Employee benefits187
 384
272
 281
Life settlement contracts46
 45
56
 48
Deferred retroactive reinsurance benefit66
 
117
 84
Investment valuation differences
 29
Other assets149
 160
148
 142
Gross deferred tax assets965
 1,163
951
 1,021
Deferred Tax Liabilities:      
Investment valuation differences68
 38
57
 
Deferred acquisition costs232
 238
120
 117
Net unrealized gains383
 737
309
 202
Other liabilities62
 57
86
 64
Gross deferred tax liabilities745
 1,070
572
 383
Net deferred tax asset$220
 $93
$379
 $638
At As of December 31, 2013,2016, 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 as of December 31, 20132016 or 2012.2015.

88


Note FE. Claim and Claim Adjustment Expense Reserves
The Company's property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including IBNR claims as of the reporting date. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to such historical patterns as fieldclaim reserving trends and claims settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions, including inflation, and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.
Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can all affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers' compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the Company's ultimate cost for insurance losses will not exceed current estimates.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company's results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $169$165 million,, $391 $141 million and $222$156 million for the years ended December 31, 20132016, 20122015 and 20112014. Catastrophe losses in 2016 related primarily to U.S. weather-related events and the Fort McMurray wildfires.
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, our actuaries perform detailed reserve analyses that are staggered throughout the year. Every reserve group is reviewed at least once during the year. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. In addition to the detailed analyses, we review actual loss emergence for all products each quarter. In developing the loss reserve estimates for property and casualty contracts, we generally project ultimate losses using several common actuarial methods as listed below. We review the various indications from the various methods and apply judgment to select an actuarial point estimate. The indicated required reserve is the difference between the selected ultimate loss and the inception-to-date paid losses. The difference between the selected ultimate loss and the case incurred or reported loss is IBNR. IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Further, the Company does not establish case reserves for allocated loss adjustment expenses (ALAE), therefore all ALAE reserves are included in our estimate of IBNR. The most frequently utilized methods to project ultimate losses include the following:
2012paid development;
included Storm Sandy.incurred development;

loss ratio;
89Bornhuetter-Ferguson using premiums and paid loss;
Bornhuetter-Ferguson using premiums and incurred loss;

frequency times severity; and
Table of Contentsstochastic modeling.

The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss. The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses. The loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. The Bornhuetter-Ferguson using premiums and paid loss method is a combination of the paid development approach and the loss ratio approach. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method. The Bornhuetter-Ferguson using premiums and incurred loss method

is similar to the Bornhuetter-Ferguson using premiums and paid loss method except that it uses case incurred losses. The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates. Stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular product being modeled.
For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, our actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method. For most of our products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, we may not assign any weight to the paid and incurred development methods. We will use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because our history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, we may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, we use additional methods tailored to the characteristics of the specific situation.
Reserves for policyholder benefits for our Life & Group Non-Core segment, which primarily includes long term care, are based on actuarial assumptions which include estimates of morbidity, persistency, discount rates and expenses over the life of the contracts. Under GAAP, the best estimates of the actuarial assumptions at the date the contract was issued are locked-in throughout the life of the contract, unless a premium deficiency develops, which occurred in 2015. As a result, the Company updated the assumptions to represent management’s best estimates at the time of the premium deficiency and these revised assumptions are locked-in unless another premium deficiency is identified.
Certain claim liabilities are more difficult to estimate and have differing methodologies and considerations which are described below.
Our mass tort and A&EP reserving methodologies are similar as both are based on detailed account reviews of all large accounts with estimates based on ultimate payments considering the applicable law and coverage litigation. These reserves are subject to greater inherent variability than is typical of the remainder of the Company’s reserves due to, among other things, a general lack of sufficiently detailed data, expansion of the population being held responsible for these exposures and significant unresolved legal issues such as the existence of coverage and the definition of an occurrence.
Our actuarial reserve analyses result in point estimates. Each quarter, the results of detailed reserve reviews are summarized and discussed with our senior management to determine management's best estimate of reserves. Senior management considers many factors in making this decision. The factors include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in our pricing and underwriting, pricing and underwriting trends in the insurance market and legal, judicial, social and economic trends. Our recorded reserves reflect our best estimate as of a particular point in time based upon known facts, consideration of the factors cited above and our judgment. The carried reserve may differ from the actuarial point estimate as the result of our consideration of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors affecting claims costs that may not be quantifiable through traditional actuarial analysis.
The loss reserve development tables presented herein illustrate the change over time of reserves established for claim and allocated claim adjustment expenses arising from short duration insurance contracts for certain lines of business within our property & casualty segments. Not all lines of business or segments are presented based on their context to the Company's overall loss reserves, calendar year reserve development, or calendar year net earned premiums. Insurance contracts are considered to be short duration contracts when the contracts are not expected to remain in force for an extended period of time. The Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative net incurred claim and allocated claim adjustment expenses relating to each accident year at the end of the stated calendar year. Changes in the cumulative amount

across time are the result of the Company's expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims in each accident year as of the end of the stated calendar year. The Net Strengthening or (Releases) of Prior Accident Year Reserves tables, reading across, show the net increase or decrease in the cumulative net incurred accident year claim and allocated claim adjustment expenses during each stated calendar year and indicates whether the reserves for that accident year were strengthened or released.
The information in the tables is reported on a net basis after reinsurance and does not include unallocated claim and claim adjustment expenses or the effects of discounting. The information contained in the years preceding the current calendar year is unaudited. Information contained in the tables pertaining to our International segment has been presented at the year-end 2016 foreign currency exchange rates for all periods presented to remove the effects of foreign currency exchange rate changes between calendar years. The Company has presented development information for the Hardy business prospectively from the date of acquisition and is presented as a separate table below provideswithin our International segment. To the extent the Company enters into a commutation, the transaction is reported on a prospective basis. To the extent that the Company enters into a disposition, the effects of the disposition are reported on a retrospective basis by removing the balances associated with the disposed of business.
The amounts reported for the cumulative number of reported claims include direct and assumed open and closed claims by accident year at the claimant level. The number excludes claim counts for claims within a policy deductible where the insured is responsible for payment of losses in the deductible layer. Claim count data for certain assumed reinsurance contracts is unavailable.
In the loss reserve development tables, IBNR includes reserves for incurred but not reported losses and expected development on case reserves. The Company does not case reserve ALAE, therefore all ALAE reserves are also included in the estimate of IBNR.

Liability for Unpaid Claim and Claim Adjustment Expenses Rollforward
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of the life company.
Reconciliation of Claim and Claim Adjustment Expense ReservesLife & Group Non-Core segment.
As of and for the years ended December 31     
As of or for the years ended December 31     
(In millions)2013 2012 20112016 2015 2014
Reserves, beginning of year:          
Gross$24,763
 $24,303
 $25,496
$22,663
 $23,271
 $24,089
Ceded5,126
 5,020
 6,122
4,087
 4,344
 4,972
Net reserves, beginning of year19,637
 19,283
 19,374
18,576
 18,927
 19,117
Change in net reserves due to acquisition (disposition) of subsidiaries
 291
 (277)
 
 (13)
Net incurred claim and claim adjustment expenses:          
Provision for insured events of current year5,114
 5,273
 4,904
5,025
 4,934
 5,043
Decrease in provision for insured events of prior years(115) (182) (429)(342) (255) (36)
Amortization of discount154
 145
 135
175
 166
 161
Total net incurred (a)(1)5,153
 5,236
 4,610
4,858
 4,845
 5,168
Net payments attributable to:          
Current year events(981) (988) (1,029)(967) (856) (945)
Prior year events(4,588) (4,280) (3,473)(4,167) (4,089) (4,355)
Total net payments(5,569) (5,268) (4,502)(5,134) (4,945) (5,300)
Foreign currency translation adjustment and other(104) 95
 78
(51) (251) (45)
Net reserves, end of year19,117
 19,637
 19,283
18,249
 18,576
 18,927
Ceded reserves, end of year4,972
 5,126
 5,020
4,094
 4,087
 4,344
Gross reserves, end of year$24,089
 $24,763
 $24,303
$22,343
 $22,663
 $23,271
(a)(1)Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and loss deductible receivables, and benefit expenses related to future policy benefits, and policyholders' funds, which are not reflected in the table above.
The changes in provision for insured events of prior years (net prior year claim and claim adjustment expense reserve development) were as follows.
Reserve Development
Years ended December 31     
(In millions)2013 2012 2011
Property and casualty reserve development$(115) $(180) $(429)
Life reserve development in life company
 (2) 
Total$(115) $(182) $(429)

90


The following tables summarizepresent the gross and net carried reserves as of December 31, 2013 and 2012.
Gross and Net Carried Claim and Claim Adjustment Expense Reservesreserves.
December 31, 2013CNA Specialty CNA Commercial Hardy 
Life &
Group Non-Core
 
Corporate
& Other Non-Core
 Total
December 31, 2016 Specialty  Commercial International 
Life &
Group Non-Core
 
Corporate
& Other Non-Core
 Total
(In millions)CNA Specialty CNA Commercial Hardy 
Life &
Group Non-Core
 
Corporate
& Other Non-Core
 Total 
Gross Case Reserves $1,871
 $4,661
 $632
 $3,172
 $1,524
 $11,860
Gross IBNR Reserves4,419
 4,820
 111
 310
 2,167
 11,827
4,278
 4,233
 696
 186
 1,090
 10,483
Total Gross Carried Claim and Claim Adjustment Expense Reserves$6,689
 $10,649
 $386
 $3,058
 $3,307
 $24,089
$6,149
 $8,894
 $1,328
 $3,358
 $2,614
 $22,343
Net Case Reserves$2,024
 $5,358
 $159
 $2,352
 $283
 $10,176
$1,681
 $4,353
 $548
 $2,951
 $94
 $9,627
Net IBNR Reserves4,142
 4,269
 75
 271
 184
 8,941
3,723
 3,952
 653
 158
 136
 8,622
Total Net Carried Claim and Claim Adjustment Expense Reserves$6,166
 $9,627
 $234
 $2,623
 $467
 $19,117
$5,404
 $8,305
 $1,201
 $3,109
 $230
 $18,249

December 31, 2012CNA Specialty CNA Commercial Hardy 
Life &
Group Non-Core
 
Corporate
& Other Non-Core
 Total
(In millions)     
Gross Case Reserves$2,292
 $6,146
 $333
 $2,690
 $1,207
 $12,668
Gross IBNR Reserves4,456
 5,180
 188
 316
 1,955
 12,095
Total Gross Carried Claim and Claim Adjustment Expense Reserves$6,748
 $11,326
 $521
 $3,006
 $3,162
 $24,763
Net Case Reserves$2,008
 $5,611
 $192
 $2,253
 $292
 $10,356
Net IBNR Reserves4,104
 4,600
 82
 275
 220
 9,281
Total Net Carried Claim and Claim Adjustment Expense Reserves$6,112
 $10,211
 $274
 $2,528
 $512
 $19,637

91


Net Prior Year Development
December 31, 2015 Specialty  Commercial International 
Life &
Group Non-Core
 
Corporate
& Other Non-Core
 Total
(In millions)     
Gross Case Reserves$2,011
 $4,975
 $622
 $2,973
 $1,521
 $12,102
Gross IBNR Reserves4,258
 4,208
 725
 247
 1,123
 10,561
Total Gross Carried Claim and Claim Adjustment Expense Reserves$6,269
 $9,183
 $1,347
 $3,220
 $2,644
 $22,663
Net Case Reserves$1,810
 $4,651
 $531
 $2,714
 $130
 $9,836
Net IBNR Reserves3,758
 3,925
 688
 216
 153
 8,740
Total Net Carried Claim and Claim Adjustment Expense Reserves$5,568
 $8,576
 $1,219
 $2,930
 $283
 $18,576
Changes in estimates of claim and allocated claim adjustment expense reserves and premium accruals, net of reinsurance, for prior years are defined as net prior year development. These changes can be favorable or unfavorable. The following tables and discussion include the net prior year development recorded for CNA Specialty, CNA Commercial, Hardy and Corporate & Other Non-Core segments for the years ended December 31, 2013, 2012 and 2011.
Favorable net prior year development of $9 million, $11 million and $29 million was recorded in the Life & Group Non-Core segment for the years ended December 31, 2013, 2012 and 2011.
Net Prior Year Development
Year ended December 31, 2013         
(In millions)
CNA
Specialty
 CNA Commercial Hardy 
Corporate
& Other
Non-Core
 Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$(230) $104
 $14
 $(6) $(118)
Pretax (favorable) unfavorable premium development(17) (9) (17) 1
 (42)
Total pretax (favorable) unfavorable net prior year development$(247) $95
 $(3) $(5) $(160)

Changes in estimates of claim and allocated claim adjustment expense reserves and premium accruals, net of reinsurance, for prior years are defined as net prior year development. These changes can be favorable or unfavorable. The following tables and discussion present the net prior year development recorded for Specialty, Commercial, International and Corporate & Other Non-Core segments.
Year ended December 31, 2012         
Year ended December 31, 2016         
(In millions)
CNA
Specialty
 CNA Commercial Hardy 
Corporate
& Other
Non-Core
 Total

Specialty
  Commercial International 
Corporate
& Other
Non-Core
 Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$(135) $(46) $(11) $(13) $(205)$(287) $55
 $(58) $2
 $(288)
Pretax (favorable) unfavorable premium development(15) (35) 3
 1
 (46)(18) (2) (6) 
 (26)
Total pretax (favorable) unfavorable net prior year development$(150) $(81) $(8) $(12) $(251)$(305) $53
 $(64) $2
 $(314)
Year ended December 31, 2011       
Year ended December 31, 2015         
(In millions)
CNA
Specialty
 CNA Commercial 
Corporate
& Other
Non-Core
 Total

Specialty
  Commercial International 
Corporate
& Other
Non-Core
 Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$(217) $(204) $(2) $(423)$(141) $(15) $(54) $
 $(210)
Pretax (favorable) unfavorable premium development(28) 21
 (1) (8)(11) (15) 18
 
 (8)
Total pretax (favorable) unfavorable net prior year development$(245) $(183) $(3) $(431)$(152) $(30) $(36) $
 $(218)
For
Year ended December 31, 2014         
(In millions)

Specialty
  Commercial International 
Corporate
& Other
Non-Core
 Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$(136) $176
 $(59) $(2) $(21)
Pretax (favorable) unfavorable premium development(13) (20) 2
 (1) (32)
Total pretax (favorable) unfavorable net prior year development$(149) $156
 $(57) $(3) $(53)
Favorable net prior year development of $45 million, $50 million and $14 million was recorded in the Life & Group Non-Core segment for the years ended December 31, 2016, 2015 and 2014. The favorable net prior year development for the year ended December 31, 2013, favorable premium2016 was driven by a reserve release resulting from the annual experience study of long term care claim reserves which indicated lower than expected claim severity.
Premium development for Hardy was recorded related tocan occur in the property and casualty business when there is a commutation as discussed laterchange in this note.
For the year ended December 31, 2012, favorable premium development was recorded for CNA Commercial primarily due to premium adjustmentsexposure on auditable policies arisingor when premium accruals differ from increased exposures.processed premium.  Audits on policies usually occur in a period after the expiration date of the policy.
For the year ended December 31, 2011, favorable premium development was recorded for CNA









Specialty primarily due to changes in estimates of exposures in medical professional liability tail coverages. Unfavorable premium development for CNA Commercial was recorded due to a reduction of ultimate premium estimates relating to retrospectively rated policies, partially offset by premium adjustments on auditable policies due to increased exposures.

92


CNA Specialty
The following table providespresents further detail of the net prior year claim and allocated claim adjustment expense reserve development (development) recorded for the CNA Specialty segment for the years ended segment.December 31, 2013, 2012 and 2011.
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:     
Pretax (favorable) unfavorable development:     
Medical Professional Liability$(35) $(32) $(92)$(37) $(43) $39
Other Professional Liability and Management Liability(101) (22) (78)(130) 
 (87)
Surety(74) (63) (47)(63) (69) (82)
Warranty(3) (5) (13)4
 (2) (2)
Other(17) (13) 13
(61) (27) (4)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$(230) $(135) $(217)
Total pretax (favorable) unfavorable development$(287) $(141) $(136)
2016
Favorable development for medical professional liability was primarily due to lower than expected severities for individual healthcare professionals, allied facilities and hospitals in accident years 2011 and prior and better than expected severity in medical products liability in accident years 2010 through 2015. This was partially offset by unfavorable development in accident years 2012 and 2013
related to higher than expected large loss emergence in hospitals and higher than expected frequency and severity in accident years 2014 and 2015 in our aging services business.
Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and lower than expected frequency of claims in accident years 2010 through 2014 related to professional services and financial institutions. This was partially offset by unfavorable development related to a specific financial institutions claim in accident year 2014, higher management liability severities in accident year 2015, and deterioration on credit crises-related claims in accident year 2009.
Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2014 and prior.
Favorable development for other coverages provided to Specialty customers was due to better than expected claim frequency and claim severity in commercial lines coverages in accident years 2010 through 2015.
2015
Overall, favorable development for medical professional liability reflects favorable experiencewas related to lower than expected severity in accident years 20092012 and prior. Unfavorable development was recorded forrelated to increased claim frequency and severity in the aging services business in accident years 20102013 and 2011 due2014.
Favorable development in other professional liability and management liability related to higherbetter than expected large loss activity.emergence in financial institutions primarily in accident years 2011 through 2014. Additional favorable development related to lower than expected severity for professional services in accident years 2011 and prior. Unfavorable development was recorded related to increased frequency of large claims on public company management liability in accident years 2012 through 2014.
Favorable development for surety coverages was primarily due to lower than expected frequency of large losses in accident years 2013 and prior.
Favorable development for other coverages was due to better than expected claim frequency in property coverages provided to Specialty customers in accident year 2014.



2014
Unfavorable development for medical professional liability was primarily related to increased frequency of large medical products liability class action lawsuits in accident years 2012 and prior and increased frequency of other large medical professional liability losses in accident years 2011 through 2013.
Overall, favorable development for other professional liability and management liability was related to better than expected loss emergenceseverity in accident years 2010 and prior.2008 through 2011, including favorable outcomes on individual large claims. Additional favorable development related to lower than expected frequency in accident years 2011 through 2013. Unfavorable development was recorded due to higher than expected severity in financial institution and professional service coverages in accident year 2011 related to an increase in severity in management liability.years 2009 through 2011.
Favorable development for surety coverages was primarily due to better than expected large loss emergence in accident years 20112012 and prior.
Specialty - Line of Business Composition
The table below provides the line of business composition of the net liability for unpaid claim and claim adjustment expenses for the Specialty segment.
As of December 31 
(In millions)2016
Net liability for unpaid claim and claim adjustment expenses: 
Medical Professional Liability$1,779
Other Professional Liability and Management Liability3,063
Surety394
Warranty37
Other131
Total net liability for unpaid claim and claim adjustment expenses$5,404



Specialty - Medical Professional Liability
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year As of December 31, 2016
(In millions, except reported claims data)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                       
2007$448
 $452
 $444
 $427
 $395
 $391
 $390
 $401
 $399
 $385
 $9
 12,122
2008  426
 451
 496
 480
 468
 468
 467
 455
 442
 9
 14,094
2009    462
 469
 494
 506
 480
 471
 463
 432
 12
 15,573
2010      483
 478
 478
 486
 470
 446
 403
 16
 15,206
2011        486
 492
 507
 533
 501
 491
 23
 17,428
2012          526
 529
 575
 567
 559
 47
 18,375
2013            534
 540
 560
 567
 95
 19,565
2014              511
 548
 585
 165
 19,286
2015                480
 539
 278
 16,798
2016                  469
 400
 11,600
                 Total
 $4,872
 $1,054
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016
Accident Year                   
2007$11
 $68
 $134
 $201
 $247
 $296
 $326
 $352
 $364
 $365
2008  9
 90
 207
 282
 332
 377
 395
 409
 428
2009    9
 75
 180
 278
 328
 353
 377
 396
2010      11
 93
 186
 273
 338
 361
 371
2011        18
 121
 225
 315
 379
 407
2012          15
 121
 236
 359
 428
2013            18
 121
 259
 364
2014              25
 149
 274
2015                22
 105
2016                  18
                 Total
 $3,156
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented  $1,716
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007  30
Liability for unallocated claim adjustment expenses for accident years presented  33
Total net liability for unpaid claim and claim adjustment expenses  $1,779
Net strengthening or (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31  Calendar Year  
(In millions)  
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 Total
Accident Year                     
2007  $4
 $(8) $(17) $(32) $(4) $(1) $11
 $(2) $(14) $(63)
2008  

 25
 45
 (16) (12) 
 (1) (12) (13) 16
2009    

 7
 25
 12
 (26) (9) (8) (31) (30)
2010      

 (5) 
 8
 (16) (24) (43) (80)
2011        

 6
 15
 26
 (32) (10) 5
2012          

 3
 46
 (8) (8) 33
2013            

 6
 20
 7
 33
2014              

 37
 37
 74
2015                

 59
 59
Total net development for the accident years presented above  $63
 $(29) $(16)  
Total net development for accident years prior to 2007  (24) (14) (21)  
Total  $39
 $(43) $(37)  
(1) Data presented for these calendar years is required supplemental information, which is unaudited.


Specialty - Other includes standard propertyProfessional Liability and casualty coverages provided to CNA Management Liability
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year As of December 31, 2016
(In millions, except reported claims data)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                       
2007$804
 $817
 $806
 $754
 $734
 $724
 $704
 $681
 $662
 $662
 $13
 16,011
2008  916
 933
 954
 924
 915
 880
 850
 845
 827
 35
 16,326
2009    829
 873
 903
 898
 891
 900
 895
 903
 50
 17,263
2010      825
 827
 850
 848
 846
 836
 823
 39
 17,796
2011        876
 904
 933
 948
 944
 910
 107
 18,620
2012          907
 894
 876
 870
 833
 107
 18,228
2013            844
 841
 879
 840
 137
 17,324
2014              841
 859
 854
 306
 16,886
2015                847
 851
 478
 16,391
2016                  859
 742
 15,045
                 Total
 $8,362
 $2,014
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016
Accident Year                   
2007$32
 $162
 $307
 $397
 $472
 $524
 $564
 $585
 $593
 $614
2008  39
 181
 376
 515
 600
 641
 678
 719
 741
2009    37
 195
 358
 550
 638
 719
 769
 798
2010      31
 203
 404
 541
 630
 670
 721
2011        71
 313
 502
 604
 682
 726
2012          57
 248
 398
 570
 648
2013            51
 240
 426
 583
2014              51
 212
 375
2015                48
 209
2016                  60
                 Total
 $5,475
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented  $2,887
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007  104
Liability for unallocated claim adjustment expenses for accident years presented  72
Total net liability for unpaid claim and claim adjustment expenses  $3,063
Net strengthening or (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31  Calendar Year  
(In millions)  
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 Total
Accident Year                     
2007
 $13
 $(11) $(52) $(20) $(10) $(20) $(23) $(19) $
 $(142)
2008  

 17
 21
 (30) (9) (35) (30) (5) (18) (89)
2009    

 44
 30
 (5) (7) 9
 (5) 8
 74
2010      

 2
 23
 (2) (2) (10) (13) (2)
2011        

 28
 29
 15
 (4) (34) 34
2012          

 (13) (18) (6) (37) (74)
2013            

 (3) 38
 (39) (4)
2014              

 18
 (5) 13
2015                

 4
 4
Total net development for the accident years presented above  $(52) $7
 $(134) 

Total net development for accident years prior to 2007  (35) (7) 4
  
Total  $(87) $
 $(130)  
(1) Data presented for these calendar years is required supplemental information, which is unaudited.



Specialty customers. - Surety
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year As of December 31, 2016
(In millions, except reported claims data)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                       
2007$98
 $107
 $81
 $57
 $59
 $56
 $51
 $49
 $49
 $50
 $
 6,270
2008  114
 114
 73
 68
 61
 52
 48
 45
 44
 
 7,153
2009    114
 114
 103
 85
 68
 59
 52
 53
 1
 6,654
2010      112
 112
 111
 84
 76
 66
 63
 8
 5,943
2011        120
 121
 116
 87
 75
 70
 9
 5,760
2012          120
 122
 98
 70
 52
 16
 5,473
2013            120
 121
 115
 106
 24
 4,890
2014              123
 124
 94
 51
 4,737
2015                131
 131
 100
 4,279
2016                  124
 110
 2,902
                 Total
 $787
 $319
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016
Accident Year                   
2007$12
 $30
 $40
 $45
 $46
 $46
 $46
 $48
 $49
 $50
2008  9
 27
 35
 39
 42
 43
 43
 43
 43
2009    13
 24
 34
 41
 43
 45
 46
 47
2010      13
 34
 50
 55
 57
 58
 55
2011        19
 42
 55
 58
 60
 60
2012          5
 32
 34
 35
 35
2013            16
 40
 69
 78
2014              7
 30
 38
2015                7
 26
2016                  5
                 Total
 $437
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented  $350
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007  16
Liability for unallocated claim adjustment expenses for accident years presented  28
Total net liability for unpaid claim and claim adjustment expenses  $394
Net strengthening or (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31  Calendar Year  
(In millions)  
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 Total
Accident Year                     
2007
 $9
 $(26) $(24) $2
 $(3) $(5) $(2) $
 $1
 $(48)
2008  

 
 (41) (5) (7) (9) (4) (3) (1) (70)
2009    

 
 (11) (18) (17) (9) (7) 1
 (61)
2010      

 
 (1) (27) (8) (10) (3) (49)
2011        

 1
 (5) (29) (12) (5) (50)
2012          

 2
 (24) (28) (18) (68)
2013            

 1
 (6) (9) (14)
2014              

 1
 (30) (29)
2015                

 
 
Total net development for the accident years presented above  $(75) $(65) $(64)  
Total net development for accident years prior to 2007  (7) (4) 1
  
Total  $(82) $(69) $(63)  
(1) Data presented for these calendar years is required supplemental information, which is unaudited.



Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Years ended December 31     
(In millions)2016 2015 2014
Pretax (favorable) unfavorable development:     
Commercial Auto$(46) $(22) $31
General Liability(28) (33) 45
Workers' Compensation150
 80
 139
Property and Other(21) (40) (39)
Total pretax (favorable) unfavorable development$55
 $(15) $176
2016
Favorable development for commercial auto was primarily due to favorable settlements on claims in accident years 2010 through 2014 and lower than expected severities in accident years 2012 through 2015.
Favorable development for general liability was primarily due to better than expected claim settlements in accident years 2012 through 2014 and better than expected severity on umbrella claims in accident years 2010 through 2013. This was partially offset by unfavorable development related to an increase in reported claims prior to the closing of the three year window set forth by the Minnesota Child Victims Act in accident years 2006 and prior.
Unfavorable development for workers' compensation was primarily due to higher than expected severity for Defense Base Act contractors that largely resulted from a reduction of expected future recoveries from the US Department of Labor under the War Hazard Act. Further unfavorable development was due to the impact of recent Florida court rulings for accident years 2008 through 2015. These were partially offset by favorable development related to lower than expected frequencies related to our ongoing Middle Market and Small Business results for accident years 2009 through 2014.
Favorable development for property and other coverages was primarily due to better than expected loss emergencefrequency in property coveragesaccident years 2013 through 2015. This was partially offset by unfavorable development related to higher than expected severity from a fourth quarter 2015 catastrophe event.
2015
Favorable development for commercial auto was primarily due to lower than expected severity in accident years 2009 through 2014.
Favorable development for general liability was primarily due to favorable settlements on claims in accident years 2010 and subsequent.through 2013.
2012
Unfavorable development for workers’ compensation was primarily due to higher than expected severity related to Defense Base Act contractors in accident years 2008 through 2014.
Favorable development for medical professional liabilityproperty and other was primarily due to better than expected lossclaim emergence in accident years 2008from 2012 and prior.
Overall, favorable development for other professional liability and management liability was primarily due to better than expected loss emergence in accident years 2003 through 2007. Unfavorable development was recorded in our lawyer coverages in accident years 2010 and 2011 primarily due to increased frequency and severity.
Favorable development for surety coverages was primarily due to better than expected loss emergence in accident years 2010 and prior.
Overall, favorable development for other coverages was primarily due to favorable loss emergence in property and workers' compensation coverages in accident years 2005 and subsequent. Unfavorable development was recorded in accident year 2009 primarily due to an unfavorable outcome on an individual general liability claim.


93


2011
Favorable development for medical professional liability was primarily due to favorable case incurred emergence in nurses, physicians, excess institutions and primary institutions in accident years 2008 and prior.
Favorable development for other professional liability and management liability was driven by better than expected loss emergence in the life agents, accountants, and architects & engineers business in accident years 2008 and prior. In addition, favorable development in the Company's European book of business was primarily due to favorable outcomes on several large losses in financial directors and officers and errors and omissions coverages in accident years 2003 and prior.
Favorable development for surety coverages was primarily due to a decrease in the estimated loss on a large national contractor in accident year 20052014 catastrophe events and better than expected loss emergence in accident years 2009 and prior.
Favorable development in warranty was driven by favorable policy year experience on an aggregate stop loss policy covering the Company's non-insurance warranty subsidiary.
Unfavorable development for other coverages was primarily due to increased frequency of large claims in auto and workers' compensation coverages in accident years 2009 and 2010.year 2014.


94


CNA Commercial
The following table provides further detail of the development recorded for the CNA Commercial segment for the yearsyear ended December 31, 2013, 20122015 also included unfavorable loss development related to extra contractual obligation losses and 2011.losses associated with premium development.

Years ended December 31


  
(In millions)2013
2012 2011
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:     
Commercial Auto$15
 $27
 $(98)
General Liability59
 (64) (39)
Workers' Compensation92
 15
 36
Property and Other(62) (24) (103)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$104
 $(46) $(204)

2013
2014
Unfavorable development for commercial auto coverages was primarily duerelated to higher than expected frequency in accident years 2011 and 2012 and large loss emergence2013 and higher than expected severity for liability coverages in accident years 20092010 through 2013. Favorable development was recorded related to fewer large claims than expected in accident years 2008 and 2010.2009.
UnfavorableOverall, unfavorable development for general liability coverages was primarily related to increased incurred losshigher than expected severity in accident years 2010 through 2012.
Unfavorable development for workers' compensation includes the Company's response to legislation enacted during 2013 related to the New York Fund for Reopened Cases. The law change necessitated an increase in reserves as re-opened workers' compensation claims can no longer be turned over to the state for handling and payment after December 31, 2013. Additional unfavorableFavorable development was recorded in accident year 2012 related to increased frequency and severity on claims related to Defense Base Act contractors and in accident year 2010 due to higher than expected large losses and increased severity in the state of California.
Favorable development for property and other coverages was primarily related to favorable outcomes on litigated catastrophe claimslower than expected frequency of large losses in accident years 2005 and 2010 as well as favorable loss emergence in non-catastrophe losses in accident years 2010 through 2012.
2012
Unfavorable development for commercial auto coverages was primarily due to higher than expected loss emergence in accident years 2007 and subsequent and higher than expected frequency in accident year 2011.
Overall, favorable development for general liability coverages was primarily due to better than expected loss emergence in accident years 2006 and subsequent related to umbrella business and 2003 and prior related to large account business. Unfavorable development was recorded in accident years 2009 through 2011 related to several large losses.2009.
Overall, unfavorable development for workers'workers’ compensation was primarily due to increased medical severity in accident years 2010 and 2011prior, higher than expected severity related to Defense Base Act contractors in accident years 2010 through 2013 and the recognition of losses related to favorable premium development in accident year 2011.2013. Favorable development of $26 million was recorded in accident years 20011996 and prior reflecting favorable experience.related to the commutation of a workers’ compensation reinsurance pool.
Overall, favorableFavorable development for property and other first-party coverages was due to a favorable outcome on an individual claim in accident year 2005 and favorable loss emergence in non-catastrophe losses in accident years 2009 and 2010. Unfavorable development was recorded in accident year 2011years 2013 and prior, primarily related to several large losses.fewer claims than expected and favorable individual claim settlements.
Commercial - Line of Business Composition
The table below provides the line of business composition of the net liability for unpaid claim and claim adjustment expenses for the Commercial segment.
As of December 31 
(In millions)2016
Net Claim and claim adjustment expenses: 
Commercial Auto$424
General Liability3,248
Workers' Compensation4,306
Property and Other327
Total net liability for claim and claim adjustment expenses$8,305


95


2011
Favorable development for commercial auto coverages was due to lower than expected severity on bodily injury claimsCommercial - Commercial Auto
Cumulative Net Incurred Claim and favorable claim emergence on umbrella policies in accident years 2006 and prior.
Favorable developmentAllocated Claim Adjustment Expenses are presented in the general liability coverages was primarily due to favorable claim emergencefollowing table.
As of December 31Calendar Year As of December 31, 2016
(In millions, except reported claims data)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                       
2007$348
 $367
 $368
 $360
 $355
 $358
 $356
 $355
 $354
 $352
 $
 67,473
2008  322
 323
 316
 306
 309
 305
 298
 298
 296
 
 56,407
2009    287
 272
 274
 278
 281
 277
 275
 272
 
 47,325
2010      262
 274
 279
 283
 291
 286
 281
 1
 46,324
2011        262
 273
 279
 293
 290
 285
 5
 46,676
2012          270
 282
 292
 296
 300
 11
 45,279
2013            242
 259
 257
 241
 20
 38,513
2014              231
 221
 210
 40
 32,958
2015                199
 197
 65
 29,714
2016                  196
 105
 25,196
                 Total
 $2,630
 $247
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in accident years 2007 andthe following table.
As of December 31Calendar Year
(In millions)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016
Accident Year                   
2007$93
 $185
 $250
 $295
 $329
 $340
 $348
 $349
 $350
 $351
2008  83
 158
 210
 244
 274
 289
 291
 292
 293
2009    72
 128
 188
 229
 257
 269
 270
 270
2010      72
 137
 197
 240
 265
 274
 279
2011        78
 141
 193
 241
 264
 275
2012          77
 157
 214
 253
 276
2013            73
 132
 164
 195
2014              63
 100
 135
2015                52
 95
2016                  51
                 Total
 $2,220
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented  $410
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007  4
Liability for unallocated claim adjustment expenses for accident years presented  10
Total net liability for unpaid claim and claim adjustment expenses  $424
Net strengthening or (releases) of prior related to both primary and umbrella liability coverages.
Unfavorable development for workers' compensation was related to increased medical severity in accident year 2010.reserves is presented in the following table.
Overall, favorable development
For the years ended December 31  Calendar Year  
(In millions)  
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 Total
Accident Year                     
2007
 $19
 $1
 $(8) $(5) $3
 $(2) $(1) $(1) $(2) $4
2008  

 1
 (7) (10) 3
 (4) (7) 
 (2) (26)
2009    

 (15) 2
 4
 3
 (4) (2) (3) (15)
2010      

 12
 5
 4
 8
 (5) (5) 19
2011        

 11
 6
 14
 (3) (5) 23
2012          

 12
 10
 4
 4
 30
2013            

 17
 (2) (16) (1)
2014              

 (10) (11) (21)
2015                

 (2) (2)
Total net development for the accident years presented above  $37
 $(19) $(42) 

Total net development for accident years prior to 2007  (6) (3) (4)  
Total  $31
 $(22) $(46)  
(1) Data presented for propertythese calendar years is required supplemental information, which is unaudited.


Commercial - General Liability
Cumulative Net Incurred Claim and other coverages was due to decreased frequencyAllocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year As of December 31, 2016
(In millions, except reported claims data)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                       
2007$774
 $673
 $678
 $639
 $610
 $600
 $559
 $545
 $548
 $540
 $28
 53,553
2008  611
 604
 630
 647
 633
 632
 613
 600
 591
 18
 44,586
2009    591
 637
 634
 633
 629
 623
 619
 622
 16
 43,955
2010      566
 597
 599
 649
 695
 675
 659
 25
 43,378
2011        537
 534
 564
 610
 611
 621
 41
 38,101
2012          539
 563
 579
 570
 558
 63
 34,037
2013            615
 645
 634
 643
 142
 32,897
2014              627
 634
 635
 224
 26,744
2015                573
 574
 330
 21,687
2016                  622
 495
 16,720
                 Total
 $6,065
 $1,382
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016
Accident Year                   
2007$30
 $130
 $236
 $328
 $413
 $458
 $481
 $492
 $497
 $504
2008  31
 129
 261
 390
 473
 528
 550
 560
 567
2009    33
 112
 270
 392
 486
 532
 557
 584
2010      27
 139
 267
 414
 530
 577
 608
2011        27
 135
 253
 389
 484
 534
2012          27
 127
 233
 340
 417
2013            33
 135
 257
 377
2014              29
 115
 245
2015                31
 132
2016                  34
                 Total
 $4,002
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented  $2,063
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007  1,130
Liability for unallocated claim adjustment expenses for accident years presented  55
Total net liability for unpaid claim and claim adjustment expenses  $3,248
Net strengthening or (releases) of large losses in commercial multi-peril coverages primarily inprior accident year 2010, favorable loss emergence related to catastrophe claimsreserves is presented in the following table.
For the years ended December 31  Calendar Year  
(In millions)  
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 Total
Accident Year                     
2007
 $(101) $5
 $(39) $(29) $(10) $(41) $(14) $3
 $(8) $(234)
2008  

 (7) 26
 17
 (14) (1) (19) (13) (9) (20)
2009    

 46
 (3) (1) (4) (6) (4) 3
 31
2010      

 31
 2
 50
 46
 (20) (16) 93
2011        

 (3) 30
 46
 1
 10
 84
2012          

 24
 16
 (9) (12) 19
2013            

 30
 (11) 9
 28
2014              

 7
 1
 8
2015                

 1
 1
Total net development for the accident years presented above  $99
 $(46) $(21) 

Total net development for accident years prior to 2007  (54) 13
 (7)  
Total  $45
 $(33) $(28)  
(1) Data presented for these calendar years is required supplemental information, which is unaudited.




Commercial - Workers' Compensation
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year As of December 31, 2016
(In millions, except reported claims data)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                       
2007$568
 $580
 $596
 $604
 $603
 $603
 $604
 $610
 $608
 $627
 $32
 71,049
2008  558
 575
 593
 606
 608
 612
 622
 630
 638
 36
 59,883
2009    583
 587
 594
 596
 600
 611
 617
 625
 46
 51,111
2010      576
 619
 641
 663
 683
 697
 717
 45
 48,056
2011        593
 628
 637
 648
 642
 666
 52
 44,571
2012          589
 616
 648
 661
 671
 86
 41,683
2013            528
 563
 584
 610
 121
 38,102
2014              459
 474
 474
 157
 32,996
2015                416
 426
 206
 31,296
2016                  421
 287
 27,042
                 Total
 $5,875
 $1,068
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016
Accident Year                   
2007$100
 $246
 $337
 $390
 $429
 $471
 $502
 $522
 $533
 $535
2008  92
 233
 323
 381
 425
 461
 489
 505
 520
2009    88
 223
 315
 381
 435
 468
 495
 516
2010      94
 245
 352
 433
 500
 531
 565
2011        97
 245
 353
 432
 471
 515
2012          86
 229
 338
 411
 465
2013            79
 211
 297
 366
2014              60
 157
 213
2015                50
 130
2016                  52
                 Total
 $3,877
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented  $1,998
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007  2,334
Other (2)
  (30)
Liability for unallocated claim adjustment expenses for accident years presented  4
Total net liability for unpaid claim and claim adjustment expenses  $4,306
(2) Other includes the effect of discounting lifetime claim reserves.
Net strengthening or (releases) of prior accident year 2008 and favorable loss emergence related to non-catastrophe claimsreserves is presented in accidentthe following table.
For the years ended December 31  Calendar Year  
(In millions)  
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 Total
Accident Year                     
2007
 $12
 $16
 $8
 $(1) $
 $1
 $6
 $(2) $19
 $59
2008  

 17
 18
 13
 2
 4
 10
 8
 8
 80
2009    

 4
 7
 2
 4
 11
 6
 8
 42
2010      

 43
 22
 22
 20
 14
 20
 141
2011        

 35
 9
 11
 (6) 24
 73
2012          

 27
 32
 13
 10
 82
2013            

 35
 21
 26
 82
2014              

 15
 
 15
2015                

 10
 10
Total net development for the accident years presented above  $125
 $69
 $125
 

Adjustment for development on a discounted basis  1
 (4) 1
  
Total net development for accident years prior to 2007  13
 15
 24
  
Total  $139
 $80
 $150
  
(1) Data presented for these calendar years 2010 and prior. This development amount also included unfavorable development related to unallocated claim adjustment expenses.is required supplemental information, which is unaudited.

International
96


Hardy
The following table providespresents further detail of the development recorded for the Hardy segment for the International segment.years ended December 31, 2013 and 2012.
Years ended December 31   
(In millions)2013 2012
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:   
Marine and Aviation$2
 $
Non-Marine Property12
 (7)
Property Treaty(5) (3)
Specialty(6) (1)
Commutation11
 
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$14
 $(11)
Years ended December 31     
(In millions)2016 2015 2014
Pretax (favorable) unfavorable development:     
Medical Professional Liability$(5) $(9) $(7)
Other Professional Liability12
 (16) (26)
Liability(30) (17) (13)
Property & Marine(34) (29) (4)
Other(1) 17
 (9)
Total pretax (favorable) unfavorable development$(58) $(54) $(59)
20132016
Unfavorable development for non-marine propertyother professional liability was primarily due to higher than expected large loss emergence in accident years 2011 catastrophe events, including the Thailand floodsthrough 2015 associated with our Commercial Institutions business, partially offset by favorable settlements on claims in accident years 2013 and the New Zealand Lyttelton earthquake,prior.
Favorable development for liability was primarily due to favorable settlements on claims in accident years 2013 and oneprior related to our Canadian package business. Additional favorable development in accident years 2013 and 2015 was primarily due to lower than expected frequency of large non-catastrophe claim.losses related to our Europe business.
Favorable development for property treatyand marine was due to better than expected severity on the December 2015 UK Floods and better than expected attritional losses and large loss experience on accident years 2013 through 2015 for Hardy business. Additional favorable emergencedevelopment was due to a commutation of exposures in marine run-off classes on our Europe business.
2015
Favorable development in medical professional liability was due to better than expected frequency of losses from catastrophein accident years 2011 to 2013.
Favorable development in other professional liability was due to better than expected large loss emergence in accident years 2011 and non-catastropheprior.
Favorable development in liability was due to better than expected large loss emergence in accident years 2012 and prior.
Favorable development in property and marine was due to better than expected individual large loss emergence and favorable settlements on large claims in 2011accident years 2013 and 2012.2014.
Unfavorable development in other is due to higher than expected large losses in financial institutions and political risk, primarily in accident year 2014.


2014
Overall, favorable development for other professional liability was primarily related to better than expected severity in accident years 2012 and prior. Unfavorable development was recorded in accident year 2008 due to financial crisis claims.
Favorable development for specialtyliability was primarily duerelated to favorable outcomes on severalbetter than expected frequency and severity in accident years 2009 and subsequent.
Favorable development for property and marine coverages primarily related to better than expected frequency of large claims in accident years 2012 and prior. Reinsurance commutations in the first quarter of 2014 reduced ceded losses and favorable claim emergence.from prior years. Overall the commutations increased net operating income because of the release of the related allowance for uncollectible reinsurance.
Favorable development for other coverages was a result of better than expected frequency in Hardy, primarily in financial institution coverages.
International - Line of Business Composition
The commutationtable below provides the composition of a third-party capital provider's 15% participationthe net liability for unpaid claim and claim adjustment expenses for the International segment.
As of December 31 
(In millions)2016
Net Claim and claim adjustment expenses: 
International excluding Hardy$881
Hardy320
Total net liability for claim and claim adjustment expenses$1,201


International - Excluding Hardy
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the 2012following table.
As of December 31Calendar Year As of December 31, 2016
(In millions, except reported claims data)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                       
2007$204
 $219
 $213
 $194
 $181
 $172
 $164
 $162
 $160
 $159
 $4
 27,149
2008  223
 226
 214
 207
 207
 200
 209
 210
 207
 7
 25,119
2009    249
 245
 247
 247
 234
 231
 222
 213
 13
 21,362
2010      226
 223
 217
 211
 203
 196
 190
 18
 22,877
2011        259
 260
 253
 233
 223
 216
 14
 25,361
2012          259
 266
 252
 245
 244
 34
 25,306
2013            281
 282
 275
 256
 56
 23,999
2014              269
 284
 284
 82
 24,859
2015                282
 297
 107
 22,873
2016                  276
 149
 15,564
                 Total
 $2,342
 $484
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
As of December 31Calendar Year
(In millions)
2007(1)
 
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016
Accident Year                   
2007$31
 $99
 $112
 $124
 $133
 $140
 $144
 $148
 $150
 $152
2008  34
 84
 126
 135
 143
 151
 165
 172
 190
2009    38
 90
 119
 134
 149
 159
 170
 181
2010      47
 93
 115
 130
 143
 151
 160
2011        44
 111
 133
 146
 159
 171
2012          42
 109
 142
 161
 176
2013            49
 109
 135
 152
2014              51
 119
 145
2015                55
 130
2016                  64
Total  $1,521
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented  $821
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2007  38
Liability for unallocated claim adjustment expenses for accident years presented  22
Total net liability for unpaid claim and claim adjustment expenses  $881
Net strengthening or (releases) of prior accident year reserves is presented in the following table.
For the years ended December 31  Calendar Year  
(In millions)  
2008(1)
 
2009(1)
 
2010(1)
 
2011(1)
 
2012(1)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 
Total (2)
Accident Year                     
2007
 $15
 $(6) $(19) $(13) $(9) $(8) $(2) $(2) $(1) $(45)
2008  

 3
 (12) (7) 
 (7) 9
 1
 (3) (16)
2009    

 (4) 2
 
 (13) (3) (9) (9) (36)
2010      

 (3) (6) (6) (8) (7) (6) (36)
2011        

 1
 (7) (20) (10) (7) (43)
2012          

 7
 (14) (7) (1) (15)
2013            

 1
 (7) (19) (25)
2014              

 15
 
 15
2015                

 15
 15
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
(2) The amounts included in the loss reserve development tables above are presented at the year-end 2016 foreign currency exchange rates for all periods presented to remove the effects of account resulted in recognitionforeign currency exchange rate fluctuations between calendar years. The amounts included within the table on page 102 presenting the detail of the 15% sharedevelopment recorded within the International segment include the impact of year of account premiums, losses and expenses.fluctuations in foreign currency exchange rates.


International - Hardy
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
97

As of December 31     Calendar Year As of December 31, 2016
(In millions, except reported claims data)Net Claim and Allocated Claim Adjustment Expense Reserves at Acquisition 
Net Incurred Claim and Allocated Claim Adjustment Expenses in 2012(1)(2)
 Total Acquired Net Claim and Allocated Claim Adjustment Expense Reserves and 2012 Incurreds 
2013(1)
 
2014(1)
 
2015(1)
 2016 IBNR Cumulative Number of Claims
Accident Year                 
2007$5
 $7
 $12
 $11
 $16
 $10
 $15
 $
 4,249
200818
 (4) 14
 11
 12
 13
 13
 
 4,234
200911
 1
 12
 6
 (4) 1
 (2) 
 3,840
201046
 (10) 36
 46
 50
 44
 50
 
 4,495
2011121
 
 121
 130
 130
 134
 132
 (2) 6,193
201233
 69
 102
 102
 110
 117
 110
 (1) 6,758
2013      127
 144
 136
 137
 
 7,392
2014        182
 180
 174
 7
 7,656
2015          187
 176
 18
 7,669
2016            225
 101
 5,274
           Total
 $1,030
 $123
  
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
Net strengthening or (releases) of Contentsprior accident year reserves is presented in the following table.
For the years ended December 31Calendar Year  
(In millions)
2012(1)(2)
 
2013(1)
 
2014(1)
 
2015(1)
 2016 
Total (3)
Accident Year           
2007$7
 $(1) $5
 $(6) $5
 $10
2008(4) (3) 1
 1
 
 (5)
20091
 (6) (10) 5
 (3) (13)
2010(10) 10
 4
 (6) 6
 4
2011
 9
 
 4
 (2) 11
2012  
 8
 7
 (7) 8
2013    17
 (8) 1
 10
2014      (2) (6) (8)
2015        (11) (11)
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
(2) Data presented for this calendar year is post-acquisition of Hardy.
(3) The amounts included in the loss reserve development tables above are presented at the year-end 2016 foreign currency exchange rates for all periods presented to remove the effects of foreign currency exchange rate fluctuations between calendar years. The amounts included within the table on page 102 presenting the detail of the development recorded within the International segment include the impact of fluctuations in foreign currency exchange rates.

The table below reconciles the net liability for unpaid claim and claim adjustment expenses for the property and casualty segments to the amount presented in the Consolidated Balance Sheets.
As of December 31 
(In millions)2016
Net liability for unpaid claim and claim adjustment expenses 
Specialty$5,404
Commercial8,305
International1,201
Corporate & Other Non-Core230
Life & Group Non-Core (1)
3,109
Total net claim and claim adjustment expenses18,249
Reinsurance receivables (2)
 
Specialty745
Commercial589
International127
Corporate & Other Non-Core2,384
Life & Group Non-Core249
Total reinsurance receivables4,094
Total gross liability for unpaid claim and claim adjustment expenses$22,343
(1) The Life & Group Non-Core segment amount is primarily related to long term care claim reserves, but does include amounts related to unfunded structured settlements arising from short duration contracts. Long term care policies are long duration contracts.
(2) Reinsurance receivables presented do not include reinsurance receivables related to paid losses.



The table below presents information about average historical claims duration as of December 31, 2016 and is presented as required supplementary information, which is unaudited.
Average Annual Percentage Payout of Ultimate Net Incurred Claim and Allocated Claim Adjustment Expenses in Year:
 1 2 3 4 5 6 7 8 9 10 Total
Specialty                     
Medical Professional Liability3.1% 18.2% 22.3% 19.6% 12.7% 8.0% 5.0 % 4.8% 3.7% 0.3% 97.7%
Other Professional Liability and Management Liability5.7% 20.6% 21.0% 17.0% 10.0% 6.3% 5.6 % 3.8% 1.9% 3.2% 95.1%
Surety(1)
23.4% 32.8% 20.2% 8.9% 3.7% 1.5% (0.7)% 2.0% 1.0% 2.0% 94.8%
                      
Commercial                     
Commercial Auto27.2% 23.1% 18.3% 13.9% 9.1% 3.9% 1.3 % 0.2% 0.3% 0.3% 97.6%
General Liability5.0% 16.3% 20.5% 20.1% 15.3% 8.0% 4.2 % 2.7% 1.1% 1.3% 94.5%
Workers' Compensation13.5% 21.4% 14.6% 10.5% 7.5% 5.7% 4.6 % 3.0% 2.1% 0.3% 83.2%
                      
International                     
International - Excluding Hardy19.5% 27.4% 12.1% 6.8% 5.9% 4.5% 4.8 % 3.7% 5.0% 1.3% 91.0%
International - Hardy (2)
25.7% 40.9% 12.1% 4.4%             83.1%
(1) Due to the nature of the Surety business, average annual percentage payout of ultimate net incurred claim and allocated claim adjustment expenses has been calculated using only the payouts of mature accident years presented in the loss reserve development tables.
(2) Average historical claims duration for Hardy is presented prospectively beginning with the first full year subsequent to acquisition, 2013.

A&EP Reserves
In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO (Lossthrough a Loss Portfolio Transfer or LPT)(LPT). UnderAt the termseffective date of the NICO transaction, the Company ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third-party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third-party reinsurance related to these liabilities. The Company paid NICO a reinsurance premium of $2 billion and transferred to NICO billed third-party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.

The following table displaysSubsequent to the impacteffective date of the Loss Portfolio Transfer on the Consolidated Statements of Operations.

Years ended December 31     
(In millions)2013 2012 2011
Net A&EP adverse development before consideration of LPT$363
 $261
 $84
Provision for uncollectible third-party reinsurance on A&EP140
 
 
Additional amounts ceded under LPT503
 261
 84
Retroactive reinsurance benefit recognized(314) (261) (84)
Pretax impact of unrecognized deferred retroactive reinsurance benefit$189
 $
 $

During 2013, 2012, and 2011, unfavorable development was recorded for accident years 2000 and prior related to A&EP claims due to an increase in ultimate claim severity and higher than anticipated claim reporting, as well as increased defense costs. Additionally, in 2013LPT, the Company recognized a provision for uncollectible third-party reinsuranceadverse prior year development on its A&EP reserves which increased the expected recovery from NICO.
The Loss Portfolio Transfer is a retroactive reinsurance contract. In the event that the cumulative claim and allocated claim adjustment expensesresulted in additional amounts ceded under the Loss Portfolio Transfer exceed the consideration paid, the resulting gain from such excess is deferred. A portion of the deferred gain is cumulatively recognized in earnings in the period such excess arises as if the revised estimate was available at the inception date of the Loss Portfolio Transfer.
In the fourth quarter of 2013,LPT. As a result, the cumulative amounts ceded under the Loss Portfolio Transfer of $2.5 billionLPT exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a $189 million deferredgain position, requiring retroactive reinsurance gain. Thisaccounting. Under retroactive reinsurance accounting, this gain is deferred benefit will beand only recognized in earnings in future periods in proportion to actual paid recoveries under the Loss Portfolio Transfer.LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which the Company recognizes a change in the estimate of A&EP reserves that increases the amounts ceded under the contract.LPT, the proportion of actual paid recoveries to total ceded losses is impacted and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders' benefits in the Consolidated Statement of Operations.
The following table presents the impact of the Loss Portfolio Transfer on the Consolidated Statements of Operations.
Years ended December 31     
(In millions)2016 2015 2014
Net A&EP adverse development before consideration of LPT$200
 $150
 $
Retroactive reinsurance benefit recognized(107) (85) (13)
Pretax impact of A&EP reserve development and the LPT$93
 $65
 $(13)
Based upon the Company's 2016 A&EP reserve review, net unfavorable prior year development of $200 million was recognized before consideration of cessions to the LPT. The unfavorable development was driven by an increase in anticipated future expenses associated with determination of coverage, higher anticipated payouts associated with a limited number of historical accounts having significant asbestos exposures and higher than expected severity on pollution claims. An A&EP reserve review was not completed in 2014 because additional information and analysis on inuring third-party reinsurance recoveries were needed to finalize the review. The review was finalized in the second quarter of 2015 and management has adopted the first quarter of the year as the timing for all future annual A&EP claims actuarial reviews, subject to the timing of the corresponding review performed by NICO. Unfavorable development of $150 million was recorded in 2015 to reflect a decrease in anticipated future reinsurance recoveries related to asbestos claims and higher than expected severity on pollution claims. While this unfavorable development was ceded to NICO in 2016 and 2015 under the LPT, the Company’s Net income in both periods was negatively affected due to the application of retroactive reinsurance accounting.
As of December 31, 2016 and 2015, the cumulative amounts ceded under the LPT were $2.8 billion and $2.6 billion. The unrecognized deferred retroactive reinsurance benefit was $334 million and $241 million as of December 31, 2016 and 2015.
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account atwas $2.8 billion as of December 31, 2013 was $3.1 billion.2016 and 2015. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the full aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the Company’s A&EP claims.



98


Note GF. Legal Proceedings, Commitments and Contingent LiabilitiesContingencies, and Guarantees
CNA 401(k) Plus Plan Litigation
In September 2016, a class action lawsuit was filed against CCC, Continental Assurance Company (CAC), CNAF, the Investment Committee of the CNA 401(k) Plus Plan, The Northern Trust Company and John Does 1-10 (collectively Defendants) over the CNA 401(k) Plus Plan. The complaint alleges that defendants breached fiduciary duties to the CNA 401(k) Plus Plan and caused prohibited transactions in violation of the Employee Retirement Income Security Act of 1974 when the CNA 401(k) Plus Plan's Fixed Income Fund’s annuity contract with CAC was canceled. The plaintiff alleges he and a proposed class of the CNA 401(k) Plus Plan participants who had invested in the Fixed Income Fund suffered lower returns in their CNA 401(k) Plus Plan investments as a consequence of these alleged violations and seeks relief on behalf of the putative class. Management has only recently begun evaluating the lawsuit as this litigation is in its preliminary stages, and as of yet no class has been certified. CCC and the other defendants are contesting the case and management currently is unable to predict the final outcome or the impact on the Company’s financial condition, results of operations, or cash flows. As of December 31, 2016, the likelihood of loss is reasonably possible, but the amount of loss, if any, cannot be estimated at this stage of the litigation.
Small Business Premium Rate Adjustment Contingency
The Company recently identified rating errors related to its multi-peril package product within its Small Business unit.  The Company recorded a charge which reduced Earned premium by $16 million in anticipation of voluntarily issuing $30 million of premium refunds related to affected policies written from December 1, 2015 through December 31, 2016.  Earned premium in 2017 will be negatively impacted by the portion of the $30 million that has not yet been earned through December 31, 2016 and the expected refund amount will increase further because of premium written in 2017 prior to the Company’s actions to correct its rating process. The Company is currently in dialogue with state regulators and providing them with details regarding the anticipated premium refunds and other corrective actions.  The Company is reviewing other business lines to determine whether other similar issues exist. Fines or penalties related to the foregoing or further refunds which may be required are reasonably possible, but the amount of such losses, if any, cannot be estimated at this time.
Other Litigation
The Company is a party to other routine litigation incidental to its business, which, based on the facts and circumstances currently known, is not material to the Consolidated Financial Statements.
Commitments and Contingencies
The Company holds an investment in a real estate joint venture in which the Company, on a joint and several basis with the other unrelated shareholders, guaranteed to fund operating deficits of the joint venture and an operating lease for an office building entered into by the venture. The lease was terminated in March 2016. In the event that the other parties to the joint venture are unable to meet their commitments in funding this joint venture, the Company would be required to assume future obligations, primarily related to the wind-down of the lease and joint venture. The Company does not believe it is likely that it will be required to do so. However, as of December 31, 2016, the maximum potential loss that the Company could be required to pay under this guarantee, in excess of amounts already recorded, was approximately $11 million. If the Company were required to assume future obligations, the Company would have the right to pursue reimbursement from the other shareholders.

Guarantees
As of December 31, 2016 and December 31, 2015, the Company had recorded liabilities of approximately $5 million related to guarantee and indemnification agreements. Management believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.
In the course of selling business entities and assets to third parties, the Company agreed to guarantee the performance of certain obligations of a previously owned subsidiary and to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such guarantee and indemnification agreements in effect for sales of business entities, assets and third-party loans may include provisions that survive indefinitely. As of December 31, 2016, the aggregate amount related to quantifiable guarantees was $375 million and the aggregate amount related to quantifiable indemnification agreements was $258 million. Should the Company be required to make payments under the guarantee, it would have the right to seek reimbursement in certain cases from an affiliate of a previously owned subsidiary.
In addition, the Company has agreed to provide indemnification to third-party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of December 31, 2016, the Company had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser's ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. Certain provisions of the indemnification agreements survive indefinitely, while others survive until the applicable statutes of limitation expire, or until the agreed-upon contract terms expire.
The Company also provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities provided by a previously owned subsidiary. As of December 31, 2016, the potential amount of future payments the Company could be required to pay under these guarantees was approximately $1.9 billion, which will be paid over the lifetime of the annuitants. The Company does not believe any payment is likely under these guarantees, as the Company is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.

Note HG. Reinsurance
The Company cedes insurance to reinsurers to limit its maximum loss, provide greater diversification of risk, minimize exposures on larger risks and to exit certain lines of business. The ceding of insurance does not discharge the primary liability of the Company. A credit exposure exists with respect to property and casualty and life reinsurance ceded to the extent that any reinsurer is unable to meet its obligations orobligations. A collectibility exposure also exists to the extent that the reinsurer disputes the liabilities assumed under reinsurance agreements. Property and casualty reinsurance coverages are tailored to the specific risk characteristics of each product line and the Company's retained amount varies by type of coverage. Reinsurance contracts are purchased to protect specific lines of business such as property and workers' compensation. Corporate catastrophe reinsurance is also purchased for property and workers' compensation exposure. Currently, most reinsurance contracts are purchased on an excess of loss basis. The Company also utilizes facultative reinsurance in certain lines. In addition, the Company assumes reinsurance, primarily through Hardy and as a member of various reinsurance pools and associations.
The following table summarizespresents the amounts receivable from reinsurers at December 31, 2013 and 2012.
Components of Reinsurance Receivablesreinsurers.
December 31      
(In millions)2013 20122016 2015
Reinsurance receivables related to insurance reserves:      
Ceded claim and claim adjustment expenses$4,972
 $5,126
$4,094
 $4,087
Ceded future policy benefits733
 759
212
 207
Ceded policyholders' funds35
 35
Reinsurance receivables related to paid losses348
 311
147
 197
Reinsurance receivables6,088
 6,231
4,453
 4,491
Allowance for uncollectible reinsurance(71) (73)(37) (38)
Reinsurance receivables, net of allowance for uncollectible reinsurance$6,017
 $6,158
$4,416
 $4,453
The Company has established an allowance for uncollectible reinsurance receivables.receivables related to credit risk. The Company reviews the allowance quarterly and adjusts the allowance as necessary to reflect changes in estimates of uncollectible balances. The allowance may also be reduced related toby write-offs of reinsurance receivable balances.
The Company attempts to mitigate its credit risk related to reinsurance by entering into reinsurance arrangements with reinsurers that have credit ratings above certain levels and by obtaining collateral. On a limited basis, the Company may enter into reinsurance agreements with reinsurers that are not rated, primarily captive reinsurers. The primary methods of obtaining collateral are through reinsurance trusts, letters of credit and funds withheld balances. Such collateral was approximately $3.0 billion and $3.93.2 billion as of December 31, 2016 and $3.7 billion at December 31, 2013 and 20122015.
The Company's largest recoverables from a single reinsurer at including ceded unearned premium reserves, as of December 31, 2013, including prepaid reinsurance premiums,2016, were approximately $2.9 billion$2,353 million from subsidiariesa subsidiary of Berkshire Hathaway Group, $850$350 million from the Gateway Rivers Insurance Company and $212 million from subsidiaries of Swiss Re Group, and $350 million from subsidiaries of the Hartford Insurance Group.Wilton Re. These amounts are substantially collateralized. The recoverable from the Berkshire Hathaway Group includes amounts related to third-party reinsurance for which NICO has assumed the credit risk under the terms of the Loss Portfolio Transfer as discussed in Note FE. to the Consolidated Financial Statements.

99


The effects of reinsurance on earned premiums and written premiums for the years ended December 31, 2013, 2012 and 2011are shownpresented in the following tables.
Components of Earned Premiums
(In millions)Direct Assumed Ceded Net 
Assumed/
Net %
2013 Earned Premiums         
Property and casualty$9,063
 $258
 $2,609
 $6,712
 3.8%
Accident and health512
 48
 1
 559
 8.6%
Life49
 
 49
 
 
Total earned premiums$9,624
 $306
 $2,659
 $7,271
 4.2%
          
2012 Earned Premiums         
Property and casualty$8,354
 $197
 $2,229
 $6,322
 3.1%
Accident and health514
 47
 1
 560
 8.4%
Life51
 
 51
 
 
Total earned premiums$8,919
 $244
 $2,281
 $6,882
 3.5%
          
2011 Earned Premiums         
Property and casualty$7,858
 $95
 $1,919
 $6,034
 1.6%
Accident and health521
 50
 2
 569
 8.8%
Life55
 
 55
 
 
Total earned premiums$8,434
 $145
 $1,976
 $6,603
 2.2%
Components of Written Premiums
(In millions)Direct Assumed Ceded Net 
Assumed/
Net %
2016 Earned Premiums         
Property and casualty$10,400
 $258
 $4,270
 $6,388
 4.0%
Long term care486
 50
 
 536
 9.3%
Total earned premiums$10,886
 $308
 $4,270
 $6,924
 4.4%
          
2015 Earned Premiums         
Property and casualty$9,853
 $274
 $3,754
 $6,373
 4.3%
Long term care498
 50
 
 548
 9.1%
Total earned premiums$10,351
 $324
 $3,754
 $6,921
 4.7%
          
2014 Earned Premiums         
Property and casualty$9,452
 $277
 $3,073
 $6,656
 4.2%
Long term care508
 48
 
 556
 8.6%
Total earned premiums$9,960
 $325
 $3,073
 $7,212
 4.5%
(In millions)Direct Assumed Ceded Net 
Assumed/
Net %
2013 Written Premiums         
Property and casualty$9,103
 $249
 $2,556
 $6,796
 3.7%
Accident and health506
 47
 1
 552
 8.5%
Life49
 
 49
 
 
Total written premiums$9,658
 $296
 $2,606
 $7,348
 4.0%
          
2012 Written Premiums         
Property and casualty$8,467
 $169
 $2,225
 $6,411
 2.6%
Accident and health507
 47
 1
 553
 8.5%
Life51
 
 51
 
 
Total written premiums$9,025
 $216
 $2,277
 $6,964
 3.1%
          
2011 Written Premiums         
Property and casualty$7,976
 $102
 $1,857
 $6,221
 1.6%
Accident and health529
 50
 2
 577
 8.7%
Life55
 
 55
 
 
Total written premiums$8,560
 $152
 $1,914
 $6,798
 2.2%
(In millions)Direct Assumed Ceded Net 
Assumed/
Net %
2016 Written Premiums         
Property and casualty$10,451
 $245
 $4,255
 $6,441
 3.8%
Long term care495
 52
 
 547
 9.5%
Total written premiums$10,946
 $297
 $4,255
 $6,988
 4.3%
          
2015 Written Premiums         
Property and casualty$9,852
 $270
 $3,702
 $6,420
 4.2%
Long term care493
 49
 
 542
 9.0%
Total written premiums$10,345
 $319
 $3,702
 $6,962
 4.6%
          
2014 Written Premiums         
Property and casualty$9,283
 $276
 $3,024
 $6,535
 4.2%
Long term care504
 49
 
 553
 8.9%
Total written premiums$9,787
 $325
 $3,024
 $7,088
 4.6%
Included in the direct and ceded earned premiums for the years ended December 31, 2013, 20122016, 2015 and 20112014 are $2,156$3,865 million,, $1,794 $3,344 million and $1,500$2,643 million related to property business that is 100% reinsured under a significant third-party captive program. The third-party captives that participate in this program are affiliated with the non-insurance company policyholders, therefore this program provides a means for the policyholders to self-insure this property risk. The Company receives and retains a ceding commission.

100


Life and accident and healthLong term care premiums are primarily from long duration contracts; property and casualty premiums are primarily from short duration contracts.
Insurance claims and policyholders' benefits reported on the Consolidated Statements of Operations are net of reinsurance recoveries of $1,527$3,016 million,, $1,514 $2,601 million and $1,285$1,379 million for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, including $712$2,621 million,, $814 $2,282 million and $790$1,458 million, respectively, related to the significant third-party captive program discussed above. Reinsurance recoveries in 2014 were unfavorably affected by the commutation of a workers’ compensation reinsurance pool.
The impact of reinsurance on life insurance inforce at December 31, 2013, 2012 and 2011 is shown in the following table.
Components of Life Insurance Inforce
(In millions)Direct Assumed Ceded Net
2013$5,127
 $
 $5,118
 $9
20125,713
 
 5,702
 11
20116,528
 
 6,515
 13
As of December 31, 2013 and 2012, the Company has ceded $1,066 million and $1,131 million of claim and claim adjustment expense reserves, future policy benefits and policyholders' funds as a result of business operations sold in prior years. Subject to certain exceptions, the purchasers assumed the third-party reinsurance credit risk of the sold business.

101


Note IH. Debt
Debt is composed of the following obligations.
Debt
December 31      
(In millions)2013 20122016 2015
Short term debt:      
Senior notes of CNAF, 5.850%, face amount of $549, due December 15, 2014$549
 $
Other debt
 13
Total short term debt549
 13
Senior notes of CNAF, 6.500%, face amount of $350, due August 15, 2016$
 $350
      
Long term debt:      
Senior notes of CNAF:      
5.850%, face amount of $549, due December 15, 2014
 548
6.500%, face amount of $350, due August 15, 2016349
 348
6.950%, face amount of $150, due January 15, 2018149
 149
150
 150
7.350%, face amount of $350, due November 15, 2019348
 348
349
 349
5.875%, face amount of $500, due August 15, 2020497
 496
498
 497
5.750%, face amount of $400, due August 15, 2021397
 397
398
 397
3.950%, face amount of $550, due May 15, 2024546
 546
4.500%, face amount of $500, due March 1, 2026498
 
Debenture of CNAF, 7.250%, face amount of $243, due November 15, 2023241
 241
241
 241
Subordinated variable rate debt of Hardy, face amount of $30, due September 15, 203630
 30
30
 30
Total long term debt2,011
 2,557
2,710
 2,210
Total debt$2,560
 $2,570
$2,710
 $2,560
In 2013, CCC becameis a member of the Federal Home Loan Bank of Chicago (FHLBC).FHLBC. FHLBC membership provides participants with access to additional sources of liquidity through various programs and services. As a requirement of membership in the FHLBC, CCC acquired $16held $5 million of FHLBC stock as of December 31, 2016 giving it access to approximately $330$111 million of additional liquidity. As of December 31, 2013,2016 and 2015, CCC hashad no outstanding borrowings from the FHLBC.
In 2012,During 2015, the Company entered into a credit agreement with a syndicate of banks. The credit agreement established a four-year $250five-year $250 million senior unsecured revolving credit facility with a syndicate of banks which is intended tomay be used for general corporate purposes. At the Company's election, the commitments under the credit agreement may be increased from time to time up to an additional aggregate amount of $100$100 million, and there is an option to extend the facility for an additional yearcredit agreement includes two optional one-year extensions prior to the first and second anniversary of the closing date, subject to applicable consents. Under the credit agreement, the Company is required to pay a facility fee which would adjust automatically in the event of a change in the Company's financial ratings. The credit agreement includes several covenants, including maintenance of a minimum consolidated net worth and a specifieddefined ratio of consolidated indebtedness to consolidated total capitalization. The minimum consolidated net worth, as defined as of December 31, 2013,2016, was $8.2$8.7 billion. As of December 31, 20132016, we and 2015, the Company had no outstanding borrowings under the credit agreement.agreements.
The Company's remaining debt obligations contain customary covenants for investment grade issuers. The Company iswas in compliance with all covenants as of and for the yearyears ended December 31, 2013.2016 and 2015.

102


The combined aggregate maturities for debt atas of December 31, 20132016 are presented in the following table.
Maturity of Debt
(In millions)  
2014$549
2015
2016350
2017
$
2018150
150
2019350
2020500
2021400
Thereafter1,523
1,323
Less discount(12)(13)
Total$2,560
$2,710

103


Note JI. Benefit Plans
Pension and Postretirement Health Care Benefit Plans
CNA sponsors noncontributory defined benefit pension plans, primarily through the CNA Retirement Plan, typically covering full-time employees age 21 and over that have completed at least one year or 1,000 hourscertain eligible employees. These plans were closed to new entrants. CNA's funding policy for defined benefit pension plans is to make contributions in accordance with applicable governmental regulatory requirements with consideration of service.the funded status of the plans.
Effective January 1, 2000, the CNA Retirement Plan was closed to new participants. Existing participants at that time were given a choice to either continue to accrue benefits under the CNA Retirement Plan or to cease accruals ateffective December 31, 1999. Employees who chose to continue to accrue benefits under the plan will receive a benefit based on their years of credited service and highest 60 months of compensation at termination. Compensation is definedreceived benefits in accordance with plan provisions through June 30, 2015 as regular salary, eligible bonuses and overtime.discussed further below. Employees who elected to cease accruals ateffective December 31, 1999 received the present value of their accrued benefit in an accrued pension account that is credited with interest based on the annual rate of interest on 30-year Treasury securities. These employees also receive certain enhanced employer contributions in the CNA Savings401(k) Plus Plan.
In 2016, the CNA Retirement Plan paid $88 million to settle its obligation to certain retirees through the purchase of a group annuity contract from a third party insurance company. This transaction reduced the plan’s projected benefit obligation by $86 million.
In the second quarter of 2015, the Company eliminated future benefit accruals associated with the CNA Retirement Plan effective June 30, 2015.  Employees who were continuing to accrue under the CNA Retirement Plan up until that date are entitled to an accrued benefit payable based on their eligible compensation and Capital Accumulation Plan.
CNA's funding policy for defined benefit pension plans is to make contributionsaccrued service through June 30, 2015, in accordance with applicable governmental regulatory requirements with considerationthe terms of the funded statusCNA Retirement Plan. Starting with the first pay period after July 1, 2015, affected employees began receiving enhanced employer contributions in the CNA 401(k) Plus Plan similar to employees who elected to cease accruals effective December 31, 1999. Employees who elected to cease accruals effective December 31, 1999 are not affected by this curtailment. This curtailment resulted in a $55 million decrease in the CNA Retirement Plan benefit obligation liability and a reduction of the plans.unrecognized actuarial losses included in AOCI. In connection with the curtailment, the Company remeasured the plan benefit obligation which resulted in an increase in the discount rate used to determine the benefit obligation from 3.85% to 4.00%.
During 2014, the CNA Retirement Plan offered a limited-time lump sum settlement payment opportunity to the majority of the terminated vested participants of the plan. The lump sum settlements reduced the Company’s risk and volatility related to funding the CNA Retirement Plan. The number of participants that elected to accept the lump sum opportunity was approximately 20% of the then total participants in the plan. Settlement payments of $253 million were made from CNA Retirement Plan assets. The $84 million settlement charge recorded by the Company in the fourth quarter of 2014 represents recognition of a portion of the unrecognized actuarial losses previously reflected in AOCI. This settlement charge is included in Other operating expenses within the Corporate & Other Non-Core segment.
CNA provides certain health care benefits to eligible retired employees, their covered dependents and their beneficiaries primarily through the CNA Health and Group Benefits Program. These postretirement benefits have largely been eliminated for active employees.

104

TableIn the second quarter of Contents2014, the Company eliminated certain postretirement medical benefits associated with the CNA Health and Group Benefits Program. This change was a negative plan amendment which resulted in an $86 million curtailment gain reported in Other operating expenses within the Corporate & Other Non-Core segment. In connection with the plan amendment, the Company remeasured the plan benefit obligation which resulted in a decrease in the discount rate used to determine the benefit obligation from 3.60% to 3.10%.


The following table providespresents a reconciliation of benefit obligations and plan assets for the years ended December 31, 2013 and 2012.
Funded Statusassets.
Pension Benefits Postretirement BenefitsPension Benefits Postretirement Benefits
(In millions)2013 2012 2013 20122016 2015 2016 2015
Benefit obligation at January 1$3,271
 $3,003
 $47
 $49
Benefit obligation as of January 1$2,821
 $3,019
 $23
 $29
Changes in benefit obligation:              
Service cost12
 12
 1
 

 4
 
 
Interest cost121
 135
 1
 2
113
 112
 
 1
Participants' contributions
 
 5
 5

 
 4
 4
Plan amendments
 (55) 
 
Actuarial (gain) loss(289) 266
 (3) 3
68
 (79) (6) (3)
Benefits paid(165) (164) (12) (12)(173) (173) (7) (8)
Settlements(8) 
 
 
Foreign currency translation and other1
 19
 1
 
(14) (7) 1
 
Benefit obligation at December 312,943
 3,271

40

47
Fair value of plan assets at January 12,425
 2,212
 
 
Settlement through group annuity purchase(86) 
 
 
Benefit obligation as of December 312,729
 2,821

15

23
Fair value of plan assets as of January 12,267
 2,456
 
 
Change in plan assets:              
Actual return on plan assets311
 245
 
 
193
 (18) 
 
Company contributions92
 115
 7
 7
9
 10
 3
 4
Participants' contributions
 
 5
 5

 
 4
 4
Benefits paid(165) (164) (12) (12)(173) (173) (7) (8)
Settlements(8) 
 
 
Foreign currency translation and other1
 17
 
 
(15) (8) 
 
Fair value of plan assets at December 312,656
 2,425
 
 
Settlement through group annuity purchase(88) 
 
 
Fair value of plan assets as of December 312,193
 2,267
 
 
Funded status$(287) $(846) $(40) $(47)$(536) $(554) $(15) $(23)
Amounts recognized on the Consolidated Balance Sheets at December 31:       
Amounts recognized on the Consolidated Balance Sheets as of December 31:       
Other assets$9
 $
 $
 $
$4
 $12
 $
 $
Other liabilities(296) (846) (40) (47)(540) (566) (15) (23)
Net amount recognized$(287) $(846) $(40) $(47)$(536) $(554) $(15) $(23)
Amounts recognized in Accumulated other comprehensive income, not yet recognized in net periodic cost (benefit):              
Prior service credit$
 $
 $(98) $(116)$
 $
 $(4) $(6)
Net actuarial loss745
 1,213
 8
 11
999
 999
 (3) 3
Net amount recognized$745
 $1,213
 $(90) $(105)$999
 $999
 $(7) $(3)
The accumulated benefit obligation for all defined benefit pension plans was $2,729 million and $2,8892,821 million as of December 31, 2016 and $3,187 million at December 31, 2013 and 20122015.

105


The components of net periodic cost (benefit) are presented in the following table.
Net Periodic Cost (Benefit)
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Pension cost (benefit)          
Service cost$12
 $12
 $13
$
 $4
 $9
Interest cost on projected benefit obligation121
 135
 146
113
 112
 132
Expected return on plan assets(181) (171) (172)(160) (174) (191)
Amortization of net actuarial (gain) loss47
 39
 25
Amortization of net actuarial loss37
 34
 25
Settlement loss3
 
 

 
 84
Net periodic pension cost (benefit)$2
 $15
 $12
$(10) $(24) $59
          
Postretirement cost (benefit)          
Service cost$1
 $
 $1
Interest cost on projected benefit obligation1
 2
 3
$
 $1
 $1
Amortization of prior service credit(18) (18) (19)(2) (3) (10)
Amortization of net actuarial (gain) loss2
 1
 
Amortization of net actuarial loss
 1
 1
Curtailment gain



(86)
Net periodic postretirement cost (benefit)$(14) $(15) $(15)$(2) $(1) $(94)
The amounts recognized in Other comprehensive income are presented in the following table.
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Pension and postretirement benefits          
Amounts arising during the period$422
 $(195) $(325)$(29) $(111) $(337)
Curtailment and other
 56
 (81)
Settlement
 
 84
Reclassification adjustment relating to prior service credit(18) (18) (19)(2) (3) (10)
Reclassification adjustment relating to actuarial loss49
 40
 25
37
 35
 26
Settlement through group annuity purchase(2) 
 
Total increase (decrease) in Other comprehensive income$453
 $(173) $(319)$4
 $(23) $(318)
The table below presents the estimated amounts to be recognized from Accumulated other comprehensive incomeAOCI into net periodic cost (benefit) during 2014.2017.
(In millions)
Pension
Benefits
 Postretirement Benefits
Amortization of prior service credit$
 $(2)
Amortization of net actuarial loss36
 
Total estimated amounts to be recognized$36
 $(2)
(In millions) 
Pension
Benefits
 Postretirement Benefits
Amortization of prior service credit $
 $(18)
Amortization of net actuarial loss 25
 
Total estimated amounts to be recognized $25
 $(18)


106


Actuarial assumptions used for the CNA Retirement Plan and CNA Health and Group Benefits Program to determine benefit obligations are set forthpresented in the following table.
Actuarial Assumptions for Benefit Obligations
December 312013 20122016 2015
Pension benefits      
Discount rate4.650% 3.800%3.950% 4.150%
Expected long term rate of return7.500
 7.750
7.500
 7.500
Rate of compensation increases3.990
 4.066
Postretirement benefits      
Discount rate3.600% 2.800%2.750% 2.750%
Actuarial assumptions used for the CNA Retirement Plan and CNA Health and Group Benefits Program to determine net cost or benefit are set forthpresented in the following table.
Actuarial Assumptions for Net Cost or Benefit
Years ended December 312013 2012 20112016 2015 2014
Pension benefits          
Discount rate3.800% 4.600% 5.375%4.150% 3.850%/4.000%
 4.650%
Expected long term rate of return7.750
 8.000
 8.000
7.500
 7.500
 7.500
Rate of compensation increases4.066
 4.125
 5.030
N/A
 3.920
 3.990
Postretirement benefits       ��  
Discount rate2.800% 3.750% 4.375%2.750% 2.500% 3.600%/3.100%
In determining the expected long term rate of return on plan assets assumption for the CNA Retirement Plan, CNA considered the historical performance of the benefit plan investment portfolio as well as long term market return expectations based on the investment mix of the portfolio.portfolio and the expected investment horizon.
The CNA Health and Group Benefits Program has limited its share of the health care trend rate to a cost-of-living adjustment of 4% per year. For all participants, the employer subsidy on health care costs will not increase by more than 4% per year. As a result, the assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the CNA Health and Group Benefits Program was 4% per year in 20132016, 20122015 and 20112014.
CNA employs a total return approach whereby a mix of equity, limited partnerships and fixed maturity securities are used to maximize the long term return of retirement plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. The intent of this strategy is to minimize the Company's expense related to funding the plan by outperforminggenerating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. In addition, alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At
As of December 31, 20132016, the plan had committed approximately $102$113 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships. Derivatives may be used to gain market exposure in an efficient and timely manner. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

107


Pension plan assets measured at fair value on a recurring basis as well as cash are summarized below.presented in the following tables.
December 31, 2016        
(In millions) Level 1 Level 2 Level 3 Total
Assets        
Fixed maturity securities:        
Corporate and other bonds $
 $500
 $10
 $510
States, municipalities and political subdivisions 
 63
 
 63
Asset-backed:        
Residential mortgage-backed 
 109
 
 109
Commercial mortgage-backed 
 66
 
 66
Other asset-backed 
 4
 
 4
Total asset-backed 
 179
 
 179
Total fixed maturity securities 
 742
 10
 752
Equity securities 363
 105
 
 468
Derivative financial instruments 
 
 
 
Short term investments 11
 35
 
 46
Other assets 
 37
 
 37
Cash 14
 
 
 14
Total assets measured at fair value $388
 $919
 $10
 1,317
Total limited partnerships measured at net asset value (1)
       876
Total plan assets       $2,193
December 31, 2015        
(In millions) Level 1 Level 2 Level 3 Total Assets
Assets        
Fixed maturity securities:        
Corporate and other bonds $
 $455
 $10
 $465
States, municipalities and political subdivisions 
 106
 
 106
Asset-backed:        
Residential mortgage-backed 
 133
 
 133
Commercial mortgage-backed 
 69
 
 69
   Other asset-backed 
 11
 
 11
Total asset-backed 
 213
 
 213
Total fixed maturity securities 
 774
 10
 784
Equity securities 336
 107
 
 443
Derivative financial instruments 1
 
 
 1
Short term investments 24
 28
 
 52
Other assets 
 52
 
 52
Total assets measured at fair value $361
 $961
 $10
 1,332
Total limited partnerships measured at net asset value (1)
 

 

 

 935
Total plan assets 
 
 
 $2,267
December 31, 2013        
(In millions) Level 1 Level 2 Level 3 
Total Assets
at Fair Value
Assets        
Fixed maturity securities:        
Corporate and other bonds $
 $505
 $15
 $520
States, municipalities and political subdivisions 
 73
 
 73
Asset-backed:        
Residential mortgage-backed 
 130
 
 130
Commercial mortgage-backed 
 106
 
 106
Other asset-backed 
 12
 
 12
Total asset-backed 
 248
 
 248
Total fixed maturity securities 
 826
 15
 841
Equity securities 480
 117
 8
 605
Derivative financial instruments 2
 
 
 2
Short term investments 45
 49
 
 94
Limited partnerships:        
Hedge funds 
 647
 322
 969
Private equity 
 
 114
 114
Total limited partnerships 
 647
 436
 1,083
Other assets 
 31
 
 31
Total assets $527
 $1,670
 $459
 $2,656
(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

December 31, 2012        
(In millions) Level 1 Level 2 Level 3 
Total Assets
at Fair Value
Assets        
Fixed maturity securities:        
Corporate and other bonds $
 $436
 $11
 $447
States, municipalities and political subdivisions��
 91
 
 91
Asset-backed:        
Residential mortgage-backed 
 161
 
 161
Commercial mortgage-backed 
 105
 
 105
Total asset-backed 
 266
 
 266
Total fixed maturity securities 
 793
 11
 804
Equity securities 386
 102
 5
 493
Derivative financial instruments 1
 
 
 1
Short term investments 37
 82
 
 119
Limited partnerships:       

Hedge funds 
 537
 359
 896
Private equity 
 
 62
 62
Total limited partnerships 
 537
 421
 958
Other assets 
 40
 
 40
Investment contracts with insurance company 
 
 10
 10
Total assets $424
 $1,554
 $447
 $2,425

108


The limited partnership investments held within the plan are recorded at fair value, which represents the plan's share of net asset value of each partnership, as determined by the General Partner. Level 2 includes limited partnership investments which can be redeemed at net asset value in 90 days or less. Level 3 includes limited partnership investments with withdrawal provisions greater than 90 days, or for which withdrawals are not permitted until the terminationgeneral partner. Limited partnerships comprising 86% and 87% of the partnership.carrying value as of December 31, 2016 and 2015 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets and the remainder were primarily invested in private debt and equity. Within hedge fund strategies, approximately 58% are57% were equity related, 37% pursue38% pursued a multi-strategy approach and 5% are were focused on distressed investments atas of December 31, 20132016.
The fair value of the insurance company guaranteed investment contracts is an estimate of the amount that would be received in an orderly sale to a market participant at the measurement date. The amount the plan would receive from the contract holder if the contracts were terminated is the primary input and is unobservable. The guaranteed investment contracts are therefore classified as Level 3 investments.
For a discussion of the fair value levels and the valuation methodologies used to measure fixed maturity securities, equities, derivatives and short term investments, see Note DC. to the Consolidated Financial Statements.

109


The tables below present a reconciliation for all pension plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012.
Level 3
(In millions)
Balance at January 1, 2013 Actual return on assets still held at December 31, 2013 Actual return on assets sold during the year ended December 31, 2013 Purchases, sales, and settlements Net transfers into (out of) Level 3 Balance at December 31, 2013
Fixed maturity securities:           
Corporate and other bonds$11
 $(1) $
 $5
 $
 $15
Equity securities5
 3
 
 
 
 8
Limited partnerships:           
Hedge funds359
 56
 
 (77) (16) 322
Private equity62
 
 
 52
 
 114
Total limited partnerships421
 56
 
 (25) (16) 436
Investment contracts with insurance company10
 
 
 (10) 
 
Total$447
 $58
 $
 $(30) $(16) $459

Level 3
(In millions)
Balance as of January 1, 2016 
Actual return on assets still held as of
December 31, 2016
 Actual return on assets sold during the year ended December 31, 2016 Purchases, sales and settlements Net transfers into (out of) Level 3 Balance as of December 31, 2016
Fixed maturity securities:           
Corporate and other bonds$10
 $
 $
 $
 $
 $10
Total$10

$

$

$

$

$10
Level 3
(In millions)
Balance at January 1, 2012 Actual return on assets still held at December 31, 2012 Actual return on assets sold during the year ended December 31, 2012 Purchases, sales, and settlements Net transfers into (out of) Level 3 Balance at December 31, 2012
Fixed maturity securities:           
Corporate and other bonds$10
 $1
 $
 $
 $
 $11
Equity securities5
 
 
 
 
 5
Limited partnerships:           
Hedge funds330
 41
 3
 (15) 
 359
Private equity65
 8
 
 (11) 
 62
Total limited partnerships395
 49
 3
 (26) 
 421
Investment contracts with insurance company10
 
 
 
 
 10
Total$420
 $50
 $3
 $(26) $
 $447
Level 3
(In millions)
Balance as of January 1, 2015 Actual return on assets still held as of
December 31, 2015
 Actual return on assets sold during the year ended December 31, 2015 Purchases, sales and settlements Net transfers into (out of) Level 3 Balance as of December 31, 2015
Fixed maturity securities:           
Corporate and other bonds$15
 $
 $
 $
 $(5) $10
Total$15
 $
 $
 $
 $(5) $10

110


The table below presents the estimated future minimum benefit payments to participants at as of December 31, 2013.2016.
Estimated Future Minimum Benefit Payments to Participants
(In millions)Pension Benefits Postretirement Benefits
2014$189
 $5
2015191
 4
2016194
 5
2017199
 4
2018203
 4
2019-20231,013
 14
(In millions)Pension Benefits Postretirement Benefits
2017$178
 $3
2018178
 2
2019177
 2
2020178
 2
2021178
 2
2022-2026883
 3
In 2014,2017, CNA expects to contribute $56$12 million to its pension plans and $5$3 million to its postretirement health care benefit plans.
Savings Plans
CNA sponsors savings plans, which are generally contributory plans that allow most employees to contribute a maximum of 20%50% of their eligible compensation, subject to certain limitations prescribed by the IRS. The Company contributes matching amounts to participants, amounting to 70% of the first 6% (35% of the first 6% in the first year of employment) of eligible compensation contributed by the employee. EmployeesMatching contributions vest in these contributions ratably over participants first five years.years of service.
The CNA Savings and Capital Accumulation Plan allowsEligible employees to make contributions to an investment fund that is supported in part by an investment contract purchased from CAC. CAC will not accept any further deposits under this contract. The liability to the CNA Savings and Capital Accumulation Plan is included in Separate account liabilities on the Consolidated Balance Sheets, and was $129 million and $256 million at December 31, 2013 and 2012.
As noted above, during 2000, CCC employees were required to make a choice regarding their continued participation in CNA's defined benefit pension plan. Employees who elected to forgo earning additional benefits in the defined benefit pension plan and all employees hired by CCC on or after January 1, 2000also receive a Company contribution of 3% or 5% of their eligible compensation, depending on their age. In addition, these employees are eligible to receive additional discretionary contributions of up to 2% of eligible compensation and an additional Company match of up to 80% of the first 6% of eligible compensation contributed by the employee. These additional contributions are made at the discretion of management and are contributed to participant accounts in the first quarter of the year following management's determination of the discretionary amounts. EmployeesMatching contributions vest in these contributions ratably over participants first five years.years of service.
Benefit expense for the Company's savings plans was $75 million, $71 million, $70 million and $6069 million for the years ended December 31, 20132016, 20122015 and 20112014.


Note J. Stock-Based Compensation
The CNAF Incentive Compensation Plan (the Plan), as amended and restated on January 1, 2010, as amended, authorizes the grant of stock-based compensation to certain management personnel for up to 611 million shares of CNAF's common stock. The Plan currently provides for awards of stock options, stock appreciation rights (SARs), restricted shares, performance-based restricted sharestock units (RSUs), performance-based RSUs and performance share units. The number of shares available for the granting of stock-based compensation under the Plan as of December 31, 20132016 was approximately 1.5 million.3.7 million.
The Company recorded stock-based compensation expense related to the Plan of $10$36 million,, $9 $14 million and $6$11 million for the years ended December 31, 2013, 20122016, 2015 and 2011.2014. The related income tax benefit recognized was $3$12 million,, $3 $5 million and $2$4 million. for the years ended December 31, 2016, 2015, and 2014. The compensation cost related to nonvestednon-vested awards not yet recognized was $14$32 million,, and the weighted average period over which it is expected to be recognized is 1.71.9 years at as of December 31, 2013.2016.
Equity based compensation that is not fully vested prior to termination is generally forfeited upon termination, except as otherwise provided by contractual obligations. In addition, any such compensation that vested prior to termination is generally canceled immediately, except in cases of retirement, death or disability, and as otherwise provided by contractual obligations.

Share Awards
The fair value of share awards is based on the market value of the Company's common stock as of the date of grant. Share awards currently granted under the Plan include RSUs, performance-based RSUs and performance share units. Generally, RSU's vest over a two or three year service period following the date of grant. Performance-based RSUs generally become payable within a range of 0% to 100% of the number of shares initially granted based upon the attainment of specific annual performance goals and vest ratably over a four-year service period following the date of grant.
In 2016, CNA adopted the Annual Performance Share Plan (PSP). The PSP provides officers with an opportunity to earn an award based upon attainment of specific performance goals achieved over a one-year performance period. Awards are granted at the beginning of each performance year and are subject to a two-year cliff vesting period after the Company’s annual performance has been determined. Prior to the PSP, CNA issued performance share units under the Long Term Incentive Plan (LTI). The LTI Plan has a three year performance period and will continue to have outstanding awards through 2017. In both plans, the performance share units become payable within a range of 0% to 200% of the number of performance share units initially granted.
In 2016, CNA granted Special Supplemental Equity Awards (SSE). The awards consist of restricted stock units subject to both Company performance in 2016 and service-based vesting up to two years. Payments made under the PSP and SSE are made entirely in shares of common stock, except for awards made to non-U.S. participants, which are paid in cash.
The following table presents activity for non-vested RSUs, performance-based RSUs and performance share units under the Plan in 2016.
111


Number of Awards
Weighted-Average Grant Date Fair Value
Balance as of January 1, 2016735,263

$36.53
Awards granted2,545,624

32.27
Awards vested(371,443)
33.33
Awards forfeited, canceled or expired(186,932)
32.80
Performance-based adjustment(590,730)
33.10
Balance as of December 31, 20162,131,782

$33.28

Stock Options and SARs
The exercise price of all stock options and SARs granted is based on the market value of the Company's common stock as of the date of grant. Stock options and SARs generally vest ratably over a four-year service period following date of grant and have a maximum term of ten years.

The fair value of granted stock options and SARs was estimated at the grant date using the Black-Scholes option-pricing model. The Black-Scholes model incorporates a risk free rate of return and various assumptions regarding the underlying common stock and the expected life of the securities granted. Different interest rates and assumptions were used for each grant, as appropriate based on date of grant.
There were no stock options or SARs granted for the year ended December 31, 2013. The following table presents the significant assumptions used to estimate the fair value of granted stock options and SARs for the years ended December 31, 20122016 and 2011.
Years ended December 312012 2011
Weighted average expected life of the securities granted (in years)5.68
 5.61
Estimate of the underlying common stock's volatility40.39% 39.88%
Expected dividend yield2.1% 1.5%
Risk free interest rate1.0% 2.2%
The following table presents activity for stock options2015. As of December 31, 2016, there were approximately 1 million awards outstanding, fully vested or expected to vest and SARs under the Plan in 2013.
  Number of Awards Weighted-Average Exercise Price per Award Aggregate Intrinsic Value Weighted-Average Remaining Contractual Term (in years)
Outstanding at January 1, 2013 1,158,700
 $25.93
    
Awards granted 
 
    
Awards exercised (117,950) 21.19
    
Awards forfeited, canceled or expired (4,100) 30.66
    
Outstanding at December 31, 2013 1,036,650
 $26.45
 $17 million 4.16
Outstanding, fully vested and expected to vest 1,032,849
 $26.45
 $17 million 4.15
Outstanding, exercisable 936,650
 $26.42
 $15 million 3.87
be exercisable. The following table presents weighted-average grant date fair value for awards granted, total intrinsic value for awards exercised and total fair value for awardsof SARs vested was $1 million for the yearsyear ended December 31, 2013, 2012 and 2011.2014.

Years ended December 312013 2012 2011
Weighted-average grant date fair value
 $8.81
 $9.38
Total intrinsic value of awards exercised$1,495 thousand $548 thousand $481 thousand
Fair value of awards vested$1 million $1 million $2 million

112


Share Awards
The fair value of share awards is based on the market value of the Company's common stock as of the date of grant. Share awards currently granted under the Plan include restricted shares, performance-based RSUs, and performance share units. Generally, restricted shares vest ratably over a four-year service period following the date of grant. Performance-based RSUs generally become payable within a range of 0% to 100% of the number of shares initially granted based upon the attainment of specific annual performance goals and vest ratably over a four-year service period following the date of grant. Performance share units become payable within a range of 0% to 200% of the number of shares initially granted based upon the attainment of specific performance goals achieved over a three year period.
The following table presents activity for restricted shares, performance-based RSUs and performance share units under the Plan in 2013.
 Number of Awards Weighted-Average Grant Date Fair Value
Balance at January 1, 2013882,321
 $26.15
Awards granted351,364
 31.80
Awards vested(417,955) 24.04
Awards forfeited, canceled or expired(13,770) 28.72
Performance-based adjustment45,714
 28.39
Balance at December 31, 2013847,674
 $29.61

113


Note K. Other Intangible Assets
Other intangible assets are presented in the following table.
 December 31, 2013 December 31, 2012
December 31 2016 2015
(In millions)Economic Useful Life Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated AmortizationEconomic Useful Life Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Finite-lived intangible assets:                
Value of business acquired1 - 4 years $64
 $63
 $62
 $43
1 - 4 years $48
 $48
 $57
 $57
Trade name8 years 8
 2
 8
 
8 years 6
 3
 7
 3
Distribution channel15 years 13
 1
 13
 
15 years 10
 3
 12
 3
Total finite-lived intangible assets 85
 66
 83
 43
 64
 54
 76
 63
Indefinite-lived intangible assets:                
Syndicate capacity 58
   57
   43
   52
  
Agency force 16
   16
   16
   16
  
Total indefinite-lived intangible assets 74
   73
   59
   68
  
Total other intangible assets $159
 $66
 $156
 $43
 $123
 $54
 $144
 $63
The Company's other intangible assets primarily relate to the purchase of Hardy, and the amortization of these intangible assets is included in the Statement of Operations for the International segment. For the yearsyear ended December 31, 2013 and 2012,2014 amortization expense of $15 million and $33$2 million was included in Amortization of deferred acquisition costscosts. For the years ended December 31, 2016, 2015 and $5 million and $102014 amortization expense of $1 million was included in Other operating expenses in the Statement of Operations for the Hardy segment.expenses. The gross carrying amounts and accumulated amortization in the table above may change from period to period as a result of foreign currency translation. Estimated future amortization expense for other intangible assets is $4$1 million annually in 2014, $1 million in 2015 and $2 million in years 2016, 2017 and 2018.through 2021.
Note L. Operating Leases Commitments and Contingencies, and Guarantees
Operating Leases
The Company occupies office facilities under lease agreements that expire at various dates. In addition, data processing, office and transportation equipment is leased under agreements that expire at various dates. Most leases contain renewal options that provide for rent increases based on prevailing market conditions. Lease expenses for the years ended December 31, 20132016, 20122015 and 20112014 were $46$60 million,, $52 $46 million and $50 million.$55 million. Sublease revenuesrevenue for the yearsyear ended December 31, 2013, 2012 and 2011 were $3 million, $2 million and $2 million.2014 was $1 million.
The table below presents the expected future minimum lease payments to be made under non-cancelable operating leases along with future minimum sublease receipts to be received on owned and leased properties at as of December 31, 2013.
Future Minimum Lease Payments and Sublease Receipts2016.
(In millions)Future Minimum Lease Payments Future Minimum Sublease Receipts
2014$37
 $2
201532
 
201629
 
201723
 
201817
 
Thereafter70
 
Total$208
 $2

114


Commitments and Contingencies
(In millions)Future Minimum Lease Payments
2017$48
201837
201930
202033
202134
Thereafter244
Total$426
The Company holds an investment in a real estate joint venture. In the normal course of business, the Company, on a joint and several basis with other unrelated insurance company shareholders, has committed to continue funding the operating deficits of this joint venture. Additionally, the Company and the other unrelated shareholders, on a joint and several basis, have guaranteed an operating lease for an office building, which expires in 2016. The guarantee of the operating lease is a parallel guarantee to the commitment to fund operating deficits; consequently, the separate guarantee to the lessor is not expected to be triggered as long as the joint venture continues to be funded by its shareholders which provide liquidity to make its annual lease payments.
In the event that the other parties to the joint venture are unable to meet their commitments in funding the operations of this joint venture, the Company would be required to assume the obligation for the entire office building operating lease. The Company does not believe it is likely that it will be required to do so.  However, the maximum potential future lease payments and other related costs at December 31, 2013 that the Company could be required to pay under this guarantee, in excess of amounts already recorded, were approximately $84 million. If the Company were required to assume the entire lease obligation, the Company would have the right to pursue reimbursement from the other shareholders and the right to all sublease revenues.
Guarantees
In the course of selling business entities and assets to third parties, the Company has agreed to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such indemnification agreements may include provisions that survive indefinitely. As of December 31, 2013, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities, assets and third-party loans was $702 million.
In addition, the Company has agreed to provide indemnification to third-party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of December 31, 2013, the Company had outstanding unlimited indemnifications in connection with the salesplanned relocation of certainthe Company's global headquarters, on March 24, 2016, the Company sold the building in which it maintains the current principal executive offices of its business entities or assets that included tax liabilities arising priorCNAF. Concurrently, the Company agreed to a purchaser's ownership of an entity or asset, defects in title atlease back the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. These indemnification agreements survivecurrent office space until the applicable statutesrelocation of limitation expire or until the agreed upon contract terms expire.global headquarters under a separate lease agreement, which is expected to occur in 2018. The sale-leaseback agreement includes expected future minimum lease payments of $10 million in 2017 and $4 million in 2018.
As of December 31, 2013 and 2012, the Company had recorded liabilities of approximately $7 million related to indemnification agreements and management believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.

115


Note M. Stockholders’ Equity and Statutory Accounting Practices
Common Stock Dividends
There are no restrictions on the retained earnings or net income of CNAF with regard to payment of dividends to its stockholders. However, given the holding company nature of CNAF, its ability to pay a dividend is significantly dependent on the receipt of dividends from its subsidiaries, particularly CCC, which directly or indirectly owns all significant subsidiaries. See the Statutory Accounting Practices section below for a discussion of the regulatory restrictions on CCC's availability to pay dividends.
CNAF's ability to pay dividends is indirectly limited by the minimum consolidated net worth covenant in the Company's line of credit agreement. See Note IH to the Consolidated Financial Statements for further discussion of the Company's debt obligations.
Statutory Accounting Practices
CNAF’s insurance subsidiaries are domiciled in various jurisdictions. These subsidiaries prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the respective jurisdictions’ insurance regulators. Domestic prescribed statutory accounting practices are set forth in a variety of publications of the National Association of Insurance Commissioners (NAIC) as well as state laws, regulations and general administrative rules. These statutory accounting principles vary in certain respects from GAAP. In converting from statutory accounting principles to GAAP, the more significant adjustments include deferral of policy acquisition costs and the inclusion of net unrealized holding gains or losses in stockholders’ equity relating to certain fixed maturity securities.
The Company has a prescribed practice as it relates to the accounting under Statement of Statutory Accounting Principles No. 62R (SSAP No. 62R), Property and Casualty Reinsurance, paragraphs 67 and 68 in conjunction with the 2010 Loss Portfolio Transfer with NICO which is further discussed in Note E.  The prescribed practice allows the Company to aggregate all third party AE&P reinsurance balances administered by NICO in Schedule F and to utilize the Loss Portfolio Transfer as collateral for the underlying third party reinsurance balances for purposes of calculating the statutory reinsurance penalty. This prescribed practice increased statutory capital and surplus by $67 million and $90 million at December 31, 2016 and 2015.
The 2015 long term care premium deficiency discussed in Note A was recorded on a GAAP basis. There was no premium deficiency for statutory accounting purposes. Statutory accounting principles requires the use of prescribed discount rates in calculating the reserves for long term care future policy benefits which are lower than the discount rates used on a GAAP basis and results in higher carried reserves relative to GAAP reserves.
The payment of dividends by CNAF's insurance subsidiaries without prior approval of the insurance department of each subsidiary’s domiciliary jurisdiction is generally limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective insurance regulator.
Dividends from CCC are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the Department), are determined based on the greater of the prior year's statutory net income or 10% of statutory surplus as of the end of the prior year, as well as timing and amount of dividends paid in the preceding twelve months. Additionally, ordinary dividends may only be paid only from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of December 31, 20132016, CCC is in a positive earned surplus position, enablingposition. The maximum allowable dividend CCC tocould pay approximately $715 million of dividend payments during 20142017 that would not be subject to the Department’s prior approval.approval is $1,075 million, less dividends paid during the preceding twelve months measured at that point in time. CCC paid dividends of $765 million in 2016. The actual level of dividends paid in any year is determined after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.


Combined statutory capital and surplus and statutory net income (loss), determined in accordance with accounting practices prescribed or permitted by insurance and/or other regulatory authorities for the Combined Continental Casualty Companies, andare presented in the life company, were as follows.
Statutory Informationtable below.
 Statutory Capital and Surplus Statutory Net Income (Loss)
 December 31 Years ended December 31
(In millions)2013 (b) 2012 2013 (b) 2012 2011
Combined Continental Casualty Companies (a)$11,137
 $9,998
 $913
 $391
 $954
Life company597
 556
 48
 44
 29
________________
(a)Represents the combined statutory surplus of CCC and its subsidiaries, including the life company.
(b)Information derived from the statutory-basis financial statements to be filed with insurance regulators.

116

 Statutory Capital and Surplus Statutory Net Income (Loss)
 December 31 Years ended December 31
(In millions)
2016 (1)
 2015 
2016 (1)
 2015 2014
Combined Continental Casualty Companies$10,748
 $10,723
 $1,033
 $1,148
 $914
Table of Contents(1) Information derived from the statutory-basis financial statements to be filed with insurance regulators.

CNAF’s domestic insurance subsidiaries are subject to risk-based capital (RBC) requirements. RBC is a method developed by the NAIC to determine the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. The formula for determining the amount of RBC specifies various factors, weighted based on the perceived degree of risk, which are applied to certain financial balances and financial activity. The adequacy of a company's actual capital is evaluated by a comparison to the RBC results, as determined by the formula. Companies below minimum RBC requirements are classified within certain levels, each of which requires specified corrective action.
The statutory capital and surplus presented above for CCC was approximately 265%270% and 240%266% of company action level RBC atas of December 31, 20132016 and 20122015. Company action level RBC is the level of RBC which triggers a heightened level of regulatory supervision. The statutory capital and surplus of the Company's foreign insurance subsidiaries, which is not significant to the overall statutory capital and surplus, also met or exceeded their respective regulatory and other capital requirements.
The Hardy insurance entities are not owned by CCC, therefore their regulatory capital is not included in the Statutory Capital and Surplus of the Combined Continental Casualty Companies presented in the table above. At December 31, 2013, Hardy's portion of Syndicate 382's capital requirement included $148 million of capital provided by CCC which is included in Combined Continental Casualty Companies' Statutory Capital and Surplus above.

117


Note N. Accumulated Other Comprehensive Income (Loss) by Component
The table below displays the changes in Accumulated other comprehensive income (loss) by component for the year ended December 31, 2013.component.
 Net unrealized gains (losses) on investments with OTTI losses Net unrealized gains (losses) on other investments Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance at December 31, 2012$20
 $1,371
 $(721) $161
 $831
Other comprehensive income (loss) before reclassifications6
 (658) 275
 (11) (388)
Amounts reclassified from accumulated other comprehensive income (loss) after tax of $0, $(10), $11, $0, and $1
 21
 (20) 
 1
Other comprehensive income (loss) after tax of $(3), $364, $(158), $0, and $2036
 (679) 295
 (11) (389)
Balance at December 31, 2013$26
 $692
 $(426) $150
 $442
The following table displays the components of AOCI included on the Consolidated Balance Sheet for the year ended December 31, 2012.
(In millions)Net unrealized gains (losses) on investments with OTTI losses Net unrealized gains (losses) on other investments Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of December 31, 2015$27
 $390
 $(648) $(84) $(315)
Other comprehensive income (loss) before reclassifications9
 290
 (22) (114) 163
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $(3), $(16), $12, $- and $(7)6
 38
 (23) 
 21
Other comprehensive income (loss) net of tax (expense) benefit of $(1), $(117), $(3), $- and $(121)3
 252
 1
 (114) 142
Balance as of December 31, 2016$30
 $642
 $(647) $(198) $(173)
December 312012
(In millions)Tax After-tax
Cumulative foreign currency translation adjustment$
 $161
Pension and postretirement benefits387
 (721)
Net unrealized gains (losses) on investments with OTTI losses(11) 20
Net unrealized gains (losses) on other investments(721) 1,371
Accumulated other comprehensive income (loss)$(345) $831
The amount of pretax net unrealized gains (losses) on available-for-sale securities with OTTI losses reclassified out of AOCI into earnings was $(28) million and $(83) million for the years ended December 31, 2012 and 2011, with related tax benefit of $10 million and $29 million. The amount of pretax net unrealized gains (losses) on other available-for-sale securities reclassified out of AOCI into earnings was $89 million and $60 million for the years ended December 31, 2012 and 2011, with related tax (expense) benefit of $(31) million and $(21) million.
(In millions)Net unrealized gains (losses) on investments with OTTI losses Net unrealized gains (losses) on other investments Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of December 31, 2014$36
 $942
 $(633) $55
 $400
Other comprehensive income (loss) before reclassifications(23) (595) (36) (139) (793)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $8, $30, $11, $- and $49(14) (43) (21) 
 (78)
Other comprehensive income (loss) net of tax (expense) benefit of $5, $282, $8, $- and $295(9) (552) (15) (139) (715)
Balance as of December 31, 2015$27
 $390
 $(648) $(84) $(315)
Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:
Component of AOCI Consolidated Statements of Operations Line Item Affected by Reclassifications
Net unrealized gains (losses) on investments with OTTI losses Net realized investment gains (losses)
Net unrealized gains (losses) on other investments Net realized investment gains (losses)
Pension and postretirement benefits Other operating expenses


118


Note O. Business Segments
The Company's core property and casualty commercial insurance operations are managed and reported in three business segments: CNA Specialty, CNA Commercial and Hardy. CNAInternational. Specialty provides a broad array of professional, financial and specialty property and casualty products and services primarily through insurancea network of independent agents, brokers and managing general underwriters. CNA Commercial includes property and casualty coverages sold to small businesses and middle market entities and organizations primarily through an independent agency distribution system. CNA Commercial also includes commercial insurance and risk management products sold to large corporations primarily through insurance brokers. Hardy,International provides management and professional liability coverages as well as a specialized Lloyd's underwriter, underwrites primarily short-tail exposures in marinebroad range of other property and aviation, non-marine property, specialty linescasualty insurance products and property treaty reinsurance.services abroad through a network of brokers, independent agencies and managing general underwriters, as well as the Lloyd’s of London marketplace.
The Company's non-core operations are managed and reported in two segments: Life & Group Non-Core and Corporate & Other Non-Core. Life & Group Non-Core primarily includes the results of the lifeour individual and group lines of businesslong term care businesses that are in run-off. Corporate & Other Non-Core primarily includes certain corporate expenses, including interest on corporate debt, and the results of certain property and casualty business in run-off, including CNA Re and A&EP.
The accounting policies of the segments are the same as those described in Note A. to the Consolidated Financial Statements. The Company manages most of its assets on a legal entity basis, while segment operations are generally conducted across legal entities. As such, only insuranceInsurance and reinsuranceReinsurance receivables, insuranceInsurance reserves, deferredDeferred acquisition costs and goodwillGoodwill are readily identifiable for all individual segments. Distinct investment portfolios are not maintained for every individual segment; accordingly, allocation of assets to each segment is not performed. Therefore, a significant portion of netNet investment income and realizedRealized investment gains or losses are allocated primarily based on each segment's net carried insurance reserves, as adjusted. All significant intersegment income and expense has been eliminated. Income taxes have been allocated on the basis of the taxable income of the segments.
Approximately 8.9%7.9%, 9.2%8.0% and 8.8% of the Company's direct written premiums were derived from outside the United States for the years ended December 31, 20132016, 20122015 and 20112014.
In the following tables, certain financial measures are presented to provide information used by management to monitor the Company's operating performance. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio. Net operating income (loss), which is derived from certain income statement amounts, is used by management to monitor performance of the Company's insurance operations. The Company's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk. Based on such analyses, the Company may recognize an OTTI loss on an investment security in accordance with its policy, or sell a security, which may produce realized gains and losses.
Net operating income (loss) is calculated by excluding from net income (loss) attributable to CNA the after-tax effects of 1)i) net realized investment gains or losses, 2)(losses) ii) income or loss from discontinued operations and 3)iii) any cumulative effects of changes in accounting guidance. The calculation of net operating income excludes net realized investment gains or losses(losses) because net realized investment gains or losses(losses) are largely discretionary, except for some losses related to OTTI, and are generally driven by economic factors that are not necessarily consistent with key drivers of underwriting performance, and are therefore not considered an indication of trends in insurance operations.









The Company's results of continuing operations and selected balance sheet items by segment are presented in the following tables.


119

Table of Contents
Year ended December 31, 2016

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
(In millions)     Eliminations Total
Net written premiums$2,780
 $2,841
 $821
 $547
 $
 $(1) $6,988
Operating revenues 
  
    
  
  
  
Net earned premiums$2,779
 $2,804
 $806
 $536
 $
 $(1) $6,924
Net investment income516
 638
 51
 767
 16
 
 1,988
Other revenues362
 32
 
 (2) 12
 
 404
Total operating revenues3,657
 3,474
 857
 1,301
 28
 (1) 9,316
Claims, Benefits and Expenses 
  
    
  
  
  
Net incurred claims and benefits1,467
 1,927
 492
 1,286
 98
 
 5,270
Policyholders’ dividends4
 9
 
 
 
 
 13
Amortization of deferred acquisition costs591
 470
 174
 
 
 
 1,235
Other insurance related expenses301
 560
 133
 132
 (3) (1) 1,122
Other expenses312
 36
 24
 8
 209
 
 589
Total claims, benefits and expenses2,675
 3,002
 823
 1,426
 304
 (1) 8,229
Operating income (loss) before income tax982
 472
 34
 (125) (276) 
 1,087
Income tax (expense) benefit on operating income (loss)(332) (161) (13) 145
 98
 
 (263)
Net operating income (loss) 650
 311
 21
 20
 (178) 
 824
Net realized investment gains (losses)5
 4
 18
 25
 (2) 
 50
Income tax (expense) benefit on net realized investment gains (losses)(2) (2) (3) (9) 1
 
 (15)
Net realized investment gains (losses), after tax3
 2
 15
 16
 (1) 
 35
Net income (loss) from continuing operations$653
 $313
 $36
 $36
 $(179) $
 $859

Year ended December 31, 2013
CNA
Specialty
 
CNA
Commercial
 Hardy 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
(In millions)     Eliminations Total
Net written premiums (a)$3,091
 $3,312
 $396
 $552
 $(1) $(2) $7,348
Operating revenues 
  
    
  
  
  
Net earned premiums$3,004
 $3,350
 $361
 $559
 $(1) $(2) $7,271
Net investment income657
 927
 4
 830
 32
 
 2,450
Other revenues257
 96
 
 (2) 12
 (2) 361
Total operating revenues3,918
 4,373
 365
 1,387
 43
 (4) 10,082
Claims, Benefits and Expenses 
  
    
  
  
  
Net incurred claims and benefits1,704
 2,475
 162
 1,395
 191
 
 5,927
Policyholders’ dividends6
 7
 
 7
 
 
 20
Amortization of deferred acquisition costs628
 600
 106
 28
 
 
 1,362
Other insurance related expenses272
 547
 69
 134
 (3) (2) 1,017
Other expenses236
 26
 19
 12
 183
 (2) 474
Total claims, benefits and expenses2,846
 3,655
 356
 1,576
 371
 (4) 8,800
Operating income (loss) from continuing operations before income tax1,072
 718
 9
 (189) (328) 
 1,282
Income tax (expense) benefit on operating income (loss)(365) (250) 1
 131
 118
 
 (365)
Net operating income (loss) from continuing operations attributable to CNA707
 468
 10
 (58) (210) 
 917
Net realized investment gains (losses), pretax(3) (13) 1
 37
 9
 
 31
Income tax (expense) benefit on net realized investment gains (losses)1
 4
 
 (13) (3) 
 (11)
Net realized investment gains (losses)(2) (9) 1
 24
 6
 
 20
Net income (loss) from continuing operations attributable to CNA$705
 $459
 $11
 $(34) $(204) $
 $937
____________________
(a)Related to business in property and casualty companies only.

December 31, 2016             
(In millions)             
Reinsurance receivables$760
 $621
 $131
 $462
 $2,479
 $
 $4,453
Insurance receivables982
 1,021
 233
 17
 2
 
 2,255
Deferred acquisition costs310
 214
 76
 
 
 
 600
Goodwill117
 
 28
 
 
 
 145
Insurance reserves             
Claim and claim adjustment expenses6,149
 8,894
 1,328
 3,358
 2,614
 
 22,343
Unearned premiums1,911
 1,323
 396
 132
 
 
 3,762
Future policy benefits
 
 
 10,326
 
 
 10,326

December 31, 2013             
(In millions)             
Reinsurance receivables$546
 $1,075
 $197
 $1,203
 $3,067
 $
 $6,088
Insurance receivables$775
 $1,099
 $176
 $11
 $2
 $
 $2,063
Deferred acquisition costs$318
 $257
 $49
 $
 $
 $
 $624
Goodwill$117
 $
 $38
 $
 $
 $
 $155
Insurance reserves             
Claim and claim adjustment expenses$6,689
 $10,649
 $386
 $3,058
 $3,307
 $
 $24,089
Unearned premiums1,805
 1,536
 249
 128
 
 
 3,718
Future policy benefits
 
 
 10,471
 
 
 10,471
Policyholders’ funds9
 15
 
 92
 
 
 116
Year ended December 31, 2015

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
(In millions)    Eliminations Total
Net written premiums$2,781
 $2,818
 $822
 $542
 $1
 $(2) $6,962
Operating revenues 
  
    
  
  
  
Net earned premiums$2,782
 $2,788
 $804
 $548
 $1
 $(2) $6,921
Net investment income474
 593
 52
 704
 17
 
 1,840
Other revenues356
 37
 (1) 7
 11
 (3) 407
Total operating revenues3,612
 3,418
 855
 1,259
 29
 (5) 9,168
Claims, Benefits and Expenses 
      
  
  
  
Net incurred claims and benefits1,597
 1,814
 479
 1,421
 61
 
 5,372
Policyholders’ dividends4
 8
 
 
 
 
 12
Amortization of deferred acquisition costs589
 469
 168
 314
 
 
 1,540
Other insurance related expenses278
 538
 138
 142
 (1) (2) 1,093
Other expenses301
 28
 12
 11
 186
 (3) 535
Total claims, benefits and expenses2,769
 2,857
 797
 1,888
 246
 (5) 8,552
Operating income (loss) before income tax843
 561
 58
 (629) (217) 
 616
Income tax (expense) benefit on operating income (loss)(283) (192) (21) 315
 80
 
 (101)
Net operating income (loss)560
 369
 37
 (314) (137) 
 515
Net realized investment gains (losses)(33) (47) 1
 (1) 13
 
 (67)
Income tax (expense) benefit on net realized investment gains (losses)11
 16
 
 9
 (5) 
 31
Net realized investment gains (losses), after tax(22) (31) 1
 8
 8
 
 (36)
Net income (loss) from continuing operations$538
 $338
 $38
 $(306) $(129) $
 $479

120


Year ended December 31, 2012
CNA
Specialty
 
CNA
Commercial
 
Hardy(b)
 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
(In millions)    Eliminations Total
Net written premiums (a)$2,924
 $3,373
 $117
 $553
 $(1) $(2) $6,964
Operating revenues 
  
    
  
  
  
Net earned premiums$2,898
 $3,306
 $120
 $560
 $
 $(2) $6,882
Net investment income592
 854
 3
 801
 32
 
 2,282
Other revenues230
 40
 1
 34
 16
 (1) 320
Total operating revenues3,720
 4,200
 124
 1,395
 48
 (3) 9,484
Claims, Benefits and Expenses 
      
  
  
  
Net incurred claims and benefits1,831
 2,574
 72
 1,406
 (16) 
 5,867
Policyholders’ dividends2
 11
 
 16
 
 
 29
Amortization of deferred acquisition costs614
 588
 44
 28
 
 
 1,274
Other insurance related expenses301
 578
 25
 144
 3
 (2) 1,049
Other expenses206
 36
 9
 23
 183
 (1) 456
Total claims, benefits and expenses2,954
 3,787
 150
 1,617
 170
 (3) 8,675
Operating income (loss) from continuing operations before income tax766
 413
 (26) (222) (122) 
 809
Income tax (expense) benefit on operating income (loss)(262) (136) 3
 132
 41
 
 (222)
Net operating income (loss) from continuing operations attributable to CNA504
 277
 (23) (90) (81) 
 587
Net realized investment gains (losses), pretax22
 38
 (1) 
 4
 
 63
Income tax (expense) benefit on net realized investment gains (losses)(9) (11) 
 
 (2) 
 (22)
Net realized investment gains (losses) 13
 27
 (1) 
 2
 
 41
Net income (loss) from continuing operations attributable to CNA$517
 $304
 $(24) $(90) $(79) $
 $628
____________________
(a)Related to business in property and casualty companies only.
(b)Included from date of acquisition.

December 31, 2012             
December 31, 2015             
(In millions)                          
Reinsurance receivables$665
 $1,155
 $294
 $1,273
 $2,844
 $
 $6,231
$724
 $639
 $144
 $497
 $2,487
 $
 $4,491
Insurance receivables$673
 $1,116
 $181
 $9
 $4
 $
 $1,983
890
 993
 233
 11
 2
 
 2,129
Deferred acquisition costs$300
 $269
 $29
 $
 $
 $
 $598
307
 213
 78
 
 
 
 598
Goodwill$117
 $
 $37
 $
 $
 $
 $154
117
 
 33
 
 
 
 150
Insurance reserves             
             
Claim and claim adjustment expenses$6,748
 $11,326
 $521
 $3,006
 $3,162
 $
 $24,763
6,269
 9,183
 1,347
 3,220
 2,644
 
 22,663
Unearned premiums1,685
 1,569
 222
 134
 
 
 3,610
1,839
 1,297
 415
 120
 
 
 3,671
Future policy benefits
 
 
 11,475
 
 
 11,475

 
 
 10,152
 
 
 10,152
Policyholders’ funds8
 15
 
 134
 
 
 157

121


Year ended December 31, 2011
CNA
Specialty
 
CNA
Commercial
 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
Year ended December 31, 2014

Specialty
 

Commercial
   
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
(In millions)
CNA
Specialty
 
CNA
Commercial
 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
 Eliminations Total International Eliminations Total
Net written premiums (a) $(3) $6,798
$2,839
 $2,817
 $880
 $553
 $1
 $(2) $7,088
Operating revenues 
  
  
  
  
  
 
  
    
  
  
  
Net earned premiums$2,796
 $3,240
 $569
 $1
 $(3) $6,603
$2,838
 $2,906
 $913
 $556
 $1
 $(2) $7,212
Net investment income500
 763
 759
 32
 
 2,054
560
 723
 61
 700
 23
 
 2,067
Other revenues221
 54
 13
 6
 
 294
295
 38
 
 16
 12
 (5) 356
Total operating revenues3,517
 4,057
 1,341
 39
 (3) 8,951
3,693
 3,667
 974
 1,272
 36
 (7) 9,635
Claims, Benefits and Expenses 
    
  
  
  
 
      
  
  
  
Net incurred claims and benefits1,657
 2,296
 1,526
 (3) 
 5,476
1,627
 2,187
 488
 1,304
 (29) 
 5,577
Policyholders’ dividends(3) 8
 8
 
 
 13
6
 8
 
 
 
 
 14
Amortization of deferred acquisition costs568
 585
 23
 
 
 1,176
592
 493
 204
 28
 
 
 1,317
Other insurance related expenses294
 540
 143
 6
 (3) 980
262
 487
 151
 130
 1
 (2) 1,029
Other expenses191
 53
 19
 170
 
 433
254
 31
 28
 30
 210
 (5) 548
Total claims, benefits and expenses2,707
 3,482
 1,719
 173
 (3) 8,078
2,741
 3,206
 871
 1,492
 182
 (7) 8,485
Operating income (loss) from continuing operations before income tax810
 575
 (378) (134) 
 873
Operating income (loss) before income tax952
 461
 103
 (220) (146) 
 1,150
Income tax (expense) benefit on operating income (loss)(281) (204) 170
 68
 
 (247)(318) (154) (34) 151
 54
 
 (301)
Net operating (income) loss, after-tax, attributable to noncontrolling interests(12) (4) 
 
 
 (16)
Net operating income (loss) from continuing operations attributable to CNA517
 367
 (208) (66) 
 610
Net realized investment gains (losses), pretax(5) 16
 (7) (6) 
 (2)
Net operating income (loss)634
 307
 69
 (69) (92) 
 849
Net realized investment gains (losses)15
 16
 (1) 7
 20
 
 57
Income tax (expense) benefit on net realized investment gains (losses)2
 (2) 2
 3
 
 5
(5) (6) 1
 
 (8) 
 (18)
Net realized investment gains (losses)(3) 14
 (5) (3) 
 3
Net income (loss) from continuing operations attributable to CNA$514
 $381
 $(213) $(69) $
 $613
Net realized investment gains (losses), after tax10
 10
 
 7
 12
 
 39
Net income (loss) from continuing operations$644
 $317
 $69
 $(62) $(80) $
 $888
____________________
(a)Related to business in property and casualty companies only.


122


The following table providespresents revenue by line of business for each reportable segment. Revenues are comprised of operating revenues and net realized investment gains and losses.
Revenues by Line
Years ended December 31     
(In millions)2016 2015 2014
Specialty     
Management & Professional Liability$2,620
 $2,617
 $2,818
Surety532
 502
 509
Warranty & Alternative Risks510
 460
 381
Specialty revenues3,662
 3,579
 3,708
Commercial 
  
  
Middle Market1,769
 1,623
 1,631
Small Business583
 616
 709
Other Commercial Insurance1,126
 1,132
 1,343
Commercial revenues3,478
 3,371
 3,683
International

 

 

Canada203
 214
 273
CNA Europe319
 309
 335
Hardy353
 333
 365
International revenues875
 856
 973
Life & Group Non-Core revenues1,326
 1,258
 1,279
Corporate & Other Non-Core revenues26
 42
 56
Eliminations(1) (5) (7)
Total revenues$9,366
 $9,101
 $9,692


Note P. Discontinued Operations
The results of Businessdiscontinued operations reflected in the Consolidated Statements of Operations were as follows:
Years ended December 31     
(In millions)2013 2012 2011
CNA Specialty     
International$239
 $220
 $210
Management & Professional Liability2,836
 2,723
 2,541
Surety490
 485
 472
Warranty & Alternative Risks350
 314
 289
CNA Specialty revenues3,915
 3,742
 3,512
CNA Commercial 
  
  
Commercial Insurance3,230
 3,200
 2,953
International376
 369
 539
Small Business754
 669
 581
CNA Commercial revenues4,360
 4,238
 4,073
Hardy revenues366
 123
  
Life & Group Non-Core 
  
  
Health1,192
 1,120
 1,093
Life & Annuity232
 239
 229
Other
 36
 12
Life & Group Non-Core revenues1,424
 1,395
 1,334
Corporate & Other Non-Core revenues52
 52
 33
Eliminations(4) (3) (3)
Total revenues$10,113
 $9,547
 $8,949
Year ended December 31 
(In millions)2014
Revenues 
Net earned premiums$
Net investment income94
Net realized investment gains3
Other revenues
Total revenues97
Claims, Benefits and Expenses 
Insurance claims and policyholders' benefits75
Other operating expenses2
Total claims, benefits and expenses77
Income before income tax20
Income tax expense(6)
Income from operations of discontinued operations, net of income tax14
Loss on sale, net of income tax benefit of $40(211)
Loss from discontinued operations$(197)

The disposal group included $3,550 million of assets and $3,297 million of liabilities as of August 1, 2014.
Note P.Q. Quarterly Financial Data (Unaudited)
The following tables set forthpresent unaudited quarterly financial data for the years ended December 31, 2013 and 2012.
Quarterly Financial Datadata.
2013         
(In millions, except per share data)First Second Third Fourth Full Year
Revenues$2,503
 $2,493
 $2,504
 $2,613
 $10,113
Net income (loss) attributable to CNA$250
 $194
 $272
 $221
 $937
Basic earnings (loss) per share attributable to CNA common stockholders$0.93
 $0.72
 $1.01
 $0.82
 $3.48
Diluted earnings (loss) per share attributable to CNA common stockholders (a)$0.93
 $0.72
 $1.01
 $0.82
 $3.47

2016         
(In millions, except per share data)First Second Third Fourth Full Year
Revenues$2,195
 $2,348
 $2,433
 $2,390
 $9,366
Net income (loss) (1)
$66
 $209
 $343
 $241
 $859
Basic earnings (loss) per share$0.25
 $0.77
 $1.27
 $0.89
 $3.18
Diluted earnings (loss) per share$0.24
 $0.77
 $1.26
 $0.89
 $3.17
2012         
(In millions, except per share data)First Second Third Fourth Full Year
Revenues$2,401
 $2,246
 $2,466
 $2,434
 $9,547
Net income (loss) attributable to CNA$250
 $166
 $221
 $(9) $628
Basic and diluted earnings (loss) per share attributable to CNA common stockholders (a)$0.93
 $0.62
 $0.82
 $(0.03) $2.33
____________________
2015         
(In millions, except per share data)First Second Third Fourth Full Year
Revenues$2,352
 $2,327
 $2,153
 $2,269
 $9,101
Net income (loss) (1) (2)
$233
 $138
 $178
 $(70) $479
Basic earnings (loss) per share$0.86
 $0.51
 $0.66
 $(0.26) $1.77
Diluted earnings (loss) per share$0.86
 $0.51
 $0.66
 $(0.26) $1.77
(a)(1)DueNet income (loss) in the first quarter of 2016 and the second quarter of 2015 included a charge related to the averagingapplication of shares, quarterly earnings per share do not addretroactive reinsurance accounting to adverse reserve development ceded under the total for the full year.2010 A&EP Loss Portfolio Transfer in our Corporate & Other Non-Core segment.
(2)Net income (loss) in the fourth quarter of 2015 included a charge related to recognition of a premium deficiency in our long term care business.

123


Note Q.R. Related Party Transactions
The Company reimburses Loews for, or pays directly, for management fees, travel and related expenses, software fees and expenses of investment facilities and services provided to the Company. The amounts reimbursed or paidincurred by the Company for these fees and expenses were $39$43 million, $39 million and $39 million for the years ended December 31, 20132016, 2015 and 20122014, and $38amounts due to Loews, included in Other liabilities and payable in the first quarter of the subsequent year, were $23 million and $21 million as of December 31, 2016 and 2015. In addition, the Company reimbursed Loews for general corporate services and related travel expenses of $1 million for the year ended December 31, 2011.2016. The CNA Tax Group is included in the consolidated federal income tax return of Loews and its eligible subsidiaries. See Note E forsubsidiaries, and the related payable to Loews, included in Other liabilities, was $28 million and $61 million as of December 31, 2016 and 2015. For a detailed description of the income tax agreement with Loews.Loews see Note D to the Consolidated Financial Statements. In addition, the Company writes, at standard rates, a limited amount of insurance for Loews and its subsidiaries. The earned premiums for the years ended December 31, 20132016, 20122015 and 20112014 were $2 million in each year.$2 million.
CNA previously sponsored a stock ownership plan whereby the Company financed the purchase of Company common stock by certain former officers, including executive officers. Interest charged on the principal amount of these outstanding stock purchase loans is generally equivalent to the short term applicable federal rate compounded semi-annually, in effect on the disbursement date of the loan.loan, compounded semi-annually. Loans made pursuant to the plan are generallywere full recourse and are secured by the stock purchased.
Note S. Organization Review
In 2016, the Company completed a comprehensive organization review intended to improve effectiveness and efficiency. The loans were originally issued withreview resulted in the elimination of approximately 370 positions. The Company incurred employee termination costs as a ten-year maturityresult of these actions totaling approximately $19 million during the year ended December 31, 2016. The costs incurred to date are included in Total claims, benefits, and expenses on the majorityconsolidated Statements of the remaining loansOperations and have been extendedallocated to the Company's reportable segments in a manner consistent with the Company's current terms maturing through May 2016.
Note R. Subsequent Event
On February 10, 2014, the Company entered into a definitive agreement to sell the majorityallocation of its run-off annuity and pension deposit business, through the sale of the common stock of CAC, and a 100% coinsurance agreement on a separate small block of annuity business outside of CAC.
personnel costs. The business being sold is currently reported within the Life & Group Non-Core segment. As of December 31, 2013, gross insurance reserves for this business were approximately $3.4 billion. Results for this business were net income of approximately $31 million and $8 million for the years ended December 31, 2013 and 2012, and a net loss of approximately $124 millioncosts by reportable segment for the year ended December 31, 2011.
The sale is subject to regulatory approvals and other customary closing conditions and is expected to close2016, are presented in the first half of 2014. An impairment loss of approximately $220 million, after-tax, will be recorded in the first quarter of 2014.  This business will be reported as discontinued operations in the first quarter of 2014.following table.

124

Year ended December 31 
(In millions)2016
Specialty$4
Commercial14
International
Life & Group Non-Core1
Corporate & Other Non-Core
Total organization review costs$19


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CNA Financial Corporation
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of CNA Financial Corporation (an affiliate of Loews Corporation) and subsidiaries (the “Company”) as of December 31, 20132016 and 2012,2015, and the related consolidated statements of operations, comprehensive (loss) income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2013.2016. Our audits also included the financial statement schedules listed in the Index at Item 15. We also have audited the Company's internal control over financial reporting as of December 31, 2013,2016, based on criteria established in Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedules and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

125


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20132016 and 2012,2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013,2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013,2016, based on the criteria established in Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 15, 2017

February 19, 2014

126


MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of CNA Financial Corporation (CNAF or the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. CNAF's internal control system was designed to provide reasonable assurance to the Company's management, its Audit Committee and Board of Directors regarding the preparation and fair presentation of published financial statements.
There are inherent limitations to the effectiveness of any internal control or system of control, however well designed, including the possibility of human error and the possible circumvention or overriding of such controls or systems. Moreover, because of changing conditions the reliability of internal controls may vary over time. As a result even effective internal controls can provide no more than reasonable assurance with respect to the accuracy and completeness of financial statements and their process of preparation.
CNAF management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2013.2016. In making this assessment, it has used the criteria set forth by the 19922013 Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on those criteria and our assessment we believe that, as of December 31, 2013,2016, the Company's internal control over financial reporting was effective.
CNAF's independent registered public accountant, Deloitte & Touche LLP, has issued an audit report on the Company's internal control over financial reporting. This report appears on page 125.135.

CNA Financial Corporation
Chicago, Illinois
February 19, 201415, 2017

127


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 20132016, the Company's management, including the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, and the implementing rules of the Securities and Exchange Commission, the Company included a report of management's assessment of the design and effectiveness of its internal controls as part of this Annual Report on Form 10-K for the fiscal year ended December 31, 2013.2016. Management's report and the independent registered public accounting firm's attestation report are included in Part II, Item 8 under the captions entitled “Management's Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” and are incorporated herein by reference.
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15 (f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 20132016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.

128


PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE OFFICERS OF THE REGISTRANT
NAMEPOSITION AND OFFICES HELD WITH REGISTRANTAGEFIRST BECAME EXECUTIVE OFFICER OF CNAPRINCIPAL OCCUPATION DURING PAST FIVE YEARSPOSITION AND OFFICES HELD WITH REGISTRANTAGEFIRST BECAME EXECUTIVE OFFICER OF CNAPRINCIPAL OCCUPATION DURING PAST FIVE YEARS
Thomas F. MotamedChief Executive Officer, CNA Financial Corporation65
2009Chief Executive Officer of CNA Financial Corporation since January 1, 2009. From December 2002 to June 2008, Vice Chairman and Chief Operating Officer of The Chubb Corporation and President and Chief Operating Officer of Chubb & Son.
Dino E. Robusto (1)
Chief Executive Officer, CNA Financial Corporation582016
Chairman of the Board and Chief Executive Officer of CNA Financial Corporation since November 2016. President of Commercial and Specialty Lines of the Chubb Group of Insurance Companies and Executive Vice President of Chubb Limited from 2013 through November 2015. President of Personal Lines and Claims of Chubb Limited from 2011 through 2013.
D. Craig MenseExecutive Vice President & Chief Financial Officer, CNA Financial Corporation62
2004Executive Vice President and Chief Financial Officer of CNA Financial Corporation.Executive Vice President & Chief Financial Officer, CNA Financial Corporation652004Executive Vice President and Chief Financial Officer of CNA Financial Corporation.
George R. FayExecutive Vice President, Worldwide Property & Casualty Claim of the CNA insurance companies65
2010Executive Vice President, Worldwide Property & Casualty Claim of the CNA insurance companies.
David BrosnanChief Executive, CNA Europe and Hardy542015Chief Executive of CNA Europe since August 2014 and Chief Executive of Hardy since February 2014. Senior Vice President, Commercial from May 2013 through February 2014. President and CEO, ACE INA Insurance Canada and ACE INA Life Insurance, Canada from 2008 through May 2013.
Larry A. HaefnerExecutive Vice President & Chief Actuary of the CNA insurance companies57
2008Executive Vice President & Chief Actuary of the CNA insurance companies since April 2008. From October 2004 to April 2008, Vice President & Chief Actuary, Middle Market Business of The Travelers Insurance Companies.Executive Vice President & Chief Actuary of the CNA insurance companies602008Executive Vice President & Chief Actuary of the CNA insurance companies.
Mark I. HermanPresident and Chief Operating Officer, Specialty of the CNA insurance companies582013President and Chief Operating Officer, Specialty of the CNA insurance companies since January 1, 2013. Insurance Industry Consultant from June 2011 to December 2012.
Jonathan D. KantorExecutive Vice President, General Counsel and Secretary, CNA Financial Corporation58
1997Executive Vice President, General Counsel and Secretary of CNA Financial Corporation.Executive Vice President, General Counsel and Secretary, CNA Financial Corporation611997Executive Vice President, General Counsel and Secretary of CNA Financial Corporation.
Robert A. LindemannPresident and Chief Operating Officer, CNA Commercial of the CNA insurance companies60
2010President and Chief Operating Officer, CNA Commercial of the CNA insurance companies since August 2009. From September 2004 to August 2009, Chief Operating Officer, Commercial Markets and President, Middle Markets of Zurich Financial Services North America.
Thomas PontarelliExecutive Vice President & Chief Administration Officer of the CNA insurance companies64
2009Executive Vice President & Chief Administration Officer of the CNA insurance companies.
Kevin Leidwinger
President and Chief Operating Officer, Commercial of the CNA insurance companies

532015President and Chief Operating Officer, Commercial of the CNA insurance companies since June 2015. Global Casualty Manager for Chubb Commercial Insurance from April 2013 to June 2015. Global Liability Product Line Manager for Chubb Commercial Insurance from 2002 to 2013.
Albert J. MirallesPresident, Long Term Care of the CNA insurance companies472014President, Long Term Care of the CNA insurance companies since March 2014. Senior Vice President and Treasurer of the CNA insurance companies from 2011 to March 2014.
Andrew J. PinkesExecutive Vice President, Worldwide Property & Casualty Claim of the CNA insurance companies542015Executive Vice President, Worldwide Property & Casualty Claim of the CNA insurance companies since May 2015. Executive Vice President, Global Head of Claims for the XL Group from May 2013 to May 2015. Executive Vice President, Claims for The Hartford Financial Services Group, Inc. and President, Heritage Holdings, Inc. for Hartford from 2008 to 2013.
Timothy J. SzerlongPresident, Worldwide Field Operations of the CNA insurance companies61
2010President, Worldwide Field Operations of the CNA insurance companies since September 2009. From June 1974 to August 2009, held various positions at The Chubb Corporation including Senior Vice President and Eastern U.S. Field Operations Officer.President, Worldwide Field Operations of the CNA insurance companies642010President, Worldwide Field Operations of the CNA insurance companies.
Mark I. HermanPresident and Chief Operating Officer, CNA Specialty of the CNA insurance companies55
2013President and Chief Operating Officer, CNA Specialty of the CNA insurance companies since January 1, 2013. Insurance Industry Consultant from June 2011 to December 2012. Chief Executive Officer at Everest National Insurance Company from July 2010 through May 2011. President of Everest Specialty Underwriters from March 2009 to July 2010. Non-Executive Chairman of Valiant Insurance Group from March 2008 until March 2009.
(1) Mr. Robusto assumed this role on November 21, 2016. Prior to this date, Thomas F. Motamed held this office.
Officers are elected annually and hold office until their successors are elected and qualified, and are subject to removal by the Board of Directors.
Additional information required in Part III, Item 10 has been omitted as we intend to include such information in our definitive proxy statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2013.2016.

129


ITEM 11. EXECUTIVE COMPENSATION
Information required in Part III, Item 11 has been omitted as we intend to include such information in our definitive proxy statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 20132016.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan
The table below providespresents the securities authorized for issuance under equity compensation plans. Performance share units are included at the maximum potential payout percentage.
Executive Compensation Information
December 31, 2013Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
December 31, 2016Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan Category(a) (b) (c)(a) (b) (c)
Equity compensation plans approved by security holders2,385,448
 $28.04
 1,456,438
3,797,239
 $32.84
 3,669,736
Equity compensation plans not approved by security holders
 
 

 
 
Total2,385,448
 $28.04
 1,456,438
3,797,239
 $32.84
 3,669,736
Additional information required in Part III, Item 12 has been omitted as we intend to include such information in our definitive proxy statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2013.2016.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required in Part III, Item 13 has been omitted as we intend to include such information in our definitive proxy statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 20132016.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required in Part III, Item 14 has been omitted as we intend to include such information in our definitive proxy statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 20132016.

130



PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(1)    FINANCIAL STATEMENTS:
(2)    FINANCIAL STATEMENT SCHEDULES:
(3)    EXHIBITS:
 Description of ExhibitExhibit Number 
(3)Articles of incorporation and by-laws:  
    
 Certificate of Incorporation of CNA Financial Corporation, as amended May 6, 1987 (Exhibit 3.1 to Form S-8 filed October 9, 1998 incorporated herein by reference)3.1
 
    
 
Certificate of Amendment of Certificate of Incorporation, dated May 14, 1998 (Exhibit 3.1a to 2006 Form 10-K incorporated herein by reference)

3.1.1
 
    
 Certificate of Amendment of Certificate of Incorporation, dated May 10, 1999 (Exhibit 3.1 to 1999 Form 10-K incorporated herein by reference)3.1.2
 
    
 By-Laws of CNA Financial Corporation, as amended October 24, 2012 (Exhibit 3.1 to Form 8-K filed October 24, 2012 incorporated herein by reference)3.2
 

131


    
(4)Instruments defining the rights of security holders, including indentures:*  
    
 Registration Rights Agreement, dated August 8, 2006, between CNA Financial Corporation and Loews Corporation (Exhibit 10.1 to August 8, 2006 Form 8-K incorporated herein by reference)4.1
 
    

(10)Material contracts:  
    
 Credit Agreement among CNA Financial Corporation, Wells Fargo Securities, LLC, J.P. Morgan Securities LLC, Wells Fargo Bank, N.A.,National Association, JPMorgan Chase Bank, N.A., Citibank, N.A., U.S. Bank N.A., The Northern Trust Company, U.S. Bank National Association and other lenders named therein, dated April 19, 2012August 28, 2015 (Exhibit 99.1 to April 19, 2012August 28, 2015 Form 8-K incorporated herein by reference)10.1
 
    
 Federal Income Tax Allocation Agreement, dated February 29, 1980 between CNA Financial Corporation and Loews Corporation (Exhibit 10.2 to 1987 Form 10-K incorporated herein by reference)10.2
 
    
 Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial Corporation and the Participating Subsidiaries (Exhibit 10.3 to 2007 Form 10-K incorporated herein by reference)10.3
 
    
 Amendment to Investment Facilities and Services Agreement, dated January 1, 2007, by and among Loews/CNA Holdings, Inc. and CNA Financial Corporation (Exhibit 10.3.1 to 2007 Form 10-K incorporated herein by reference)10.3.1
 
    
 CNA Financial Corporation Incentive Compensation Plan, as amended and restated, effective as of January 1, 2010 (Exhibit A to Form DEF 14A, filed April 2, 2010, incorporated herein by reference)10.4
+ 
    
 First Amendment to the CNA Financial Corporation Incentive Compensation Plan, effective as of April 27, 201610.4.1
CNA Supplemental Executive Retirement Plan, restated as of January 1, 20092015 (Exhibit 10.710.5 to 2008June 30, 2015 Form 10-K10-Q incorporated herein by reference)10.5
+ 
    
 First Amendment toCNA Non-Qualified Savings Plan (formerly known as the CNA Supplemental Executive Retirement Plan, dated December 23, 2009 (Exhibit 10.8.1 to 2009 Form 10-K incorporated herein by reference)10.5.1
+
Second Amendment to the CNA Supplemental Executive Retirement Plan, dated February 25, 2010 (Exhibit 10.7.2 to 2011 Form 10-K incorporated herein by reference)10.5.2
+
CNA Supplemental Executive Savings and Capital Accumulation Plan,Plan), restated as of January 1, 20092014 (Exhibit 10.810.6 to 2008June 30, 2015 Form 10-K10-Q incorporated herein by reference)10.6
+ 
    
 First Amendment to the CNA Supplemental ExecutiveNon-Qualified Savings and Capital Accumulation Plan, dated JulyMay 28, 20092015 (Exhibit 10.8.110.6.1 to 2011June 30, 2015 Form 10-K10-Q incorporated herein by reference)10.6.1
+ 
    

132


 Second Amendment to the CNA Supplemental ExecutiveNon-Qualified Savings and Capital Accumulation Plan, dated December 14, 2010July 22, 2015 (Exhibit 10.8.210.6.2 to 2011September 30, 2015 Form 10-K10-Q incorporated herein by reference)10.6.2
+
Third Amendment to the CNA Supplemental Executive Savings and Capital Accumulation Plan, dated November 29, 2011 (Exhibit 10.8.3 to 2011 Form 10-K incorporated herein by reference)10.6.3
+
CNA Supplemental Executive Savings and Capital Accumulation Plan Trust, dated November 29, 2011 (Exhibit 10.9 to 2011 Form 10-K incorporated herein by reference)10.7
+ 
    
 Award Letter and Award Terms to Thomas F. Motamed for Restricted Stock Units (Exhibit 10.10 to 2010 Form 10-K incorporated herein by reference)10.810.7
+ 
    
 Form of Award Letter to Executive Officers, along with Form of Award Terms, for the Long-Term Incentive Cash Plan (Exhibit 10.1 to June 30, 2010 Form 10-Q incorporated herein by reference)10.910.8
+ 
    
 Form of Award Letter to Executive Officers, along with Form of Award Terms, relating to Stock Appreciation Rights (Exhibit 10.11.2 to 2010 Form 10-K incorporated herein by reference)10.1010.9
+ 
    
 Employment Agreement, dated May 22, 2008, by and between CNA Financial Corporation and Thomas F. Motamed (Exhibit 10.1 to June 30, 2008 Form 10-Q incorporated herein by reference)10.1110.10
+ 
    
 First Amendment to Employment Agreement, dated October 24, 2008, by and between CNA Financial Corporation and Thomas F. Motamed (Exhibit 10.6 to September 30, 2008 Form 10-Q incorporated herein by reference)10.11.110.10.1
+ 
    

 Second Amendment to Employment Agreement, dated March 3, 2010, by and between CNA Financial Corporation and Thomas F. Motamed (Exhibit 10.1 to March 31, 2010 Form 10-Q incorporated herein by reference)10.11.210.10.2
+ 
    
 Third Amendment to Employment Agreement, dated September 8, 2011, by and between CNA Financial Corporation and Thomas F. Motamed (Exhibit 10.1 to Form 8-K filed September 8, 2011 incorporated herein by reference)10.11.310.10.3
+ 
    
 LetterFourth Amendment to Employment Agreement, dated October 24, 2016, between CNA Financial Corporation and Thomas F. Motamed (Exhibit 99.2 to Form 8-K filed October 24, 2016 incorporated herein by reference)10.10.4
+
Employment Agreement, dated November 13, 2015, between CNA Financial Corporation and Dino E. Robusto (Exhibit 10.1 to Form 8-K filed November 16, 2015 incorporated herein by reference)10.11
+
Retention Agreement, dated February 22, 2011, by and4, 2016, between Continental Casualty Company and D. Craig Mense (Exhibit 10.1 to Form 8-K filed February 25, 20119, 2016 incorporated herein by reference)10.12
+ 
    
Letter Agreement, dated April 4, 2011, by and between Continental Casualty Company and Jonathan D. Kantor (Exhibit 10.1 to Form 8-K filed April 6, 2011 incorporated herein by reference)10.13
+
General Release and Settlement Agreement, dated December 26, 2012, by and between Continental Casualty Company and Peter W. Wilson (Exhibit 10.1 to Form 8-K filed December 28, 2012 incorporated herein by reference)10.14
+
Letter Agreement, dated August 25, 2009, by and between Continental Casualty Company and Timothy Szerlong10.15
+

133


 Master Transaction Agreement, dated July 14, 2010, among Continental Casualty Company, The Continental Insurance Company, Continental Reinsurance Corporation International, Ltd., CNA Insurance Company Limited, National Indemnity Company and, solely for purposes of Sections 5.19 and 7.3(b) thereof, Berkshire Hathaway Inc. (Exhibit 10.1 to Form 8-K filed July 16, 2010 incorporated herein by reference)10.1610.13
 
    
 Administrative Services Agreement, dated August 31, 2010, among Continental Casualty Company, The Continental Insurance Company, Continental Reinsurance Corporation International, Ltd., CNA Insurance Company Limited and National Indemnity Company (Exhibit 10.1 to Form 8-K filed September 1, 2010 incorporated herein by reference)10.1710.14
 
    
 Collateral Trust Agreement, dated August 31, 2010, among Continental Casualty Company, The Continental Insurance Company, Continental Reinsurance Corporation International, Ltd., CNA Insurance Company Limited, National Indemnity Company and Wells Fargo Bank, National Association (Exhibit 10.2 to Form 8-K filed September 1, 2010 incorporated herein by reference)10.1810.15
 
    
 Loss Portfolio Transfer Reinsurance Agreement, dated August 31, 2010, among Continental Casualty Company, The Continental Insurance Company, Continental Reinsurance Corporation International, Ltd., CNA Insurance Company Limited and National Indemnity Company (Exhibit 10.3 to Form 8-K filed September 1, 2010 incorporated herein by reference)10.1910.16
 
    
 Amendment No. 1 to the Master Transaction Agreement, dated August 31, 2010, among Continental Casualty Company, The Continental Insurance Company, Continental Reinsurance Corporation International, Ltd., CNA Insurance Company Limited and National Indemnity Company (Exhibit 10.4 to Form 8-K filed September 1, 2010 incorporated herein by reference)10.2010.17
 
    
 Parental Guarantee Agreement, dated August 31, 2010, made by Berkshire Hathaway Inc. in favor of Continental Casualty Company, The Continental Insurance Company, Continental Reinsurance Corporation International, Ltd. and CNA Insurance Company Limited (Exhibit 10.5 to Form 8-K filed September 1, 2010 incorporated herein by reference)10.2110.18
 
    
(21)Subsidiaries of the Registrant  
    
 List of subsidiaries of the Registrant21.1
 
    

(23)Consent of Experts and Counsel  
    
 Consent of Independent Registered Public Accounting Firm23.1
 
    
(31)Rule 13a-14(a)/15d-14(a) Certifications  
    
 Certification of Chief Executive Officer31.1
 
   
 
 Certification of Chief Financial Officer31.2
 
   
 
(32)Section 1350 Certifications  
    
 Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)32.1
 

134


   
 
 Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)32.2
 
    
(101)XBRL - Interactive Data File  
    
 XBRL Instance Document101.INS
 
    
 XBRL Taxonomy Extension Schema101.SCH
 
    
 XBRL Taxonomy Extension Calculation Linkbase101.CAL
 
    
 XBRL Taxonomy Extension Definition Linkbase101.DEF
 
    
 XBRL Taxonomy Label Linkbase101.LAB
 
    
 XBRL Taxonomy Extension Presentation Linkbase101.PRE
 
    
 * CNA Financial Corporation hereby agrees to furnish to the Commission upon request copies of instruments with respect to long term debt, pursuant to Item 601(b)(4) (iii) of Regulation S-K. 
    
 
+ Management contract or compensatory plan or arrangement.
 
    
 Except for Exhibits 10.15, 21.1, 23.1, 31.1, 31.2, 32.1, 32.2 and the XBRL documents as discussed in the note above, the exhibits above are not included in this Report,report, but are on file with the SEC. 


135


SCHEDULE I. SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
Incorporated herein by reference to Note B to the Consolidated Financial Statements included under Item 8.
SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
CNA Financial Corporation
Statements of Operations and Comprehensive Income (Loss)
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Revenues          
Net investment income$1
 $1
 $1
$3
 $1
 $1
Net realized investment gains (losses)4
 4
 (9)
Other income
 9
 40
Net realized investment (losses) gains(7) 5
 4
Total revenues5
 14
 32
(4) 6
 5
Expenses          
Administrative and general(7) 1
 3
1
 1
 5
Interest165
 164
 167
155
 154
 182
Total expenses158
 165
 170
156
 155
 187
Loss from operations before income taxes and equity in net income of subsidiaries(153) (151) (138)(160) (149) (182)
Income tax benefit22
 144
 46
41
 34
 35
Loss before equity in net income of subsidiaries(131) (7) (92)(119) (115) (147)
Equity in net income of subsidiaries1,068
 635
 704
978
 594
 838
Net income937
 628
 612
859
 479
 691
Equity in other comprehensive income of subsidiaries(389) 351
 143
142
 (715) (42)
Total Comprehensive Income$548
 $979
 $755
Total Comprehensive Income (Loss)$1,001
 $(236) $649
See accompanying Notes to Condensed Financial Information as well as the
Consolidated Financial Statements and accompanying Notes.

136


CNA Financial Corporation
Balance Sheets
December 31      
(In millions, except share data)2013 20122016 2015
Assets      
Investment in subsidiaries$14,708
 $14,427
$14,202
 $13,851
Cash1
 
1
 4
Fixed maturity securities available-for-sale, at fair value (amortized cost of $1 and $2)1
 2
Short term investments505
 448
487
 478
Amounts due from subsidiaries3
 2
Amounts due from affiliates6
 
Other assets3
 5
1
 1
Total assets$15,221
 $14,884
$14,697
 $14,334
Liabilities      
Short term debt$549
 $3
$
 $350
Long term debt1,981
 2,527
2,680
 2,180
Other liabilities40
 40
48
 48
Total liabilities2,570
 2,570
2,728
 2,578
Stockholders' Equity      
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 269,717,583 and 269,399,390 shares outstanding)683
 683
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 270,495,998 and 270,274,361 shares outstanding)683
 683
Additional paid-in capital2,145
 2,146
2,173
 2,153
Retained earnings9,495
 8,774
9,359
 9,313
Accumulated other comprehensive income442
 831
(173) (315)
Treasury stock (3,322,660 and 3,640,853 shares), at cost(91) (99)
Notes receivable for the issuance of common stock(23) (21)
Treasury stock (2,544,245 and 2,765,882 shares), at cost(73) (78)
Total stockholders' equity12,651
 12,314
11,969
 11,756
Total liabilities and stockholders' equity$15,221
 $14,884
$14,697
 $14,334
See accompanying Notes to Condensed Financial Information as well as the
Consolidated Financial Statements and accompanying Notes.

137


CNA Financial Corporation
Statements of Cash Flows
Years ended December 31          
(In millions)2013 2012 20112016 2015 2014
Cash Flows from Operating Activities          
Net income$937
 $628
 $612
$859
 $479
 $691
Adjustments to reconcile net income to net cash flows provided (used) by operating activities:     
Adjustments to reconcile net income to net cash flows provided by operating activities:     
Equity in net income of subsidiaries(1,068) (635) (704)(978) (594) (838)
Dividends received from subsidiaries400
 450
 
765
 900
 650
Net realized investment (gains) losses(4) (4) 9
Net realized investment losses (gains)7
 (5) (4)
Other, net8
 19
 55
21
 4
 14
Total adjustments(664) (170) (640)(185) 305
 (178)
Net cash flows provided (used) by operating activities$273
 $458
 $(28)
Net cash flows provided by operating activities674
 784
 513
Cash Flows from Investing Activities          
Proceeds from fixed maturity securities$1
 $1
 $1
Change in short term investments(57) (156) (77)(9) 21
 6
Capital contributions to subsidiaries(12) (399) (38)
 
 (10)
Return of capital from subsidiaries
 
 6
Repayment of surplus note by subsidiary
 250
 250
Other, net4
 4
 1
4
 7
 5
Net cash flows provided (used) by investing activities$(64) $(300) $143
Net cash flows (used) provided by investing activities(5) 28
 1
Cash Flows from Financing Activities          
Dividends paid to common stockholders$(216) $(162) $(108)(813) (811) (541)
Proceeds from the issuance of debt
 
 396
498
 
 546
Repayment of debt(3) 
 (409)(358) 
 (549)
Stock options exercised2
 1
 5

 1
 5
Other, net9
 3
 1
1
 1
 25
Net cash flows used by financing activities$(208) $(158) $(115)(672) (809) (514)
Net change in cash$1
 $
 $
(3) 3
 
Cash, beginning of year
 
 
4
 1
 1
Cash, end of year$1
 $
 $
$1
 $4
 $1
See accompanying Notes to Condensed Financial Information as well as the
Consolidated Financial Statements and accompanying Notes.

138


Notes to Condensed Financial Information
A. Summary of Significant Accounting Policies
Basis of Presentation
The condensed financial information of CNA Financial Corporation (CNAF or the Parent Company) should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K. CNAF’s subsidiaries are accounted for using the equity method of accounting. Equity in net income of these subsidiaries is presented on the Condensed Statements of Operations as Equity in net income of subsidiaries. Loews owned approximately 90% of the outstanding common stock of CNAF as of December 31, 20132016.
Recently Adopted Accounting Standards Updates (ASU)
In April 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The updated accounting guidance requires debt issuance costs to be presented as a deduction from the corresponding debt liability instead of the historical presentation as an unamortized debt issuance asset. As of January 1, 2016, the Parent Company adopted the updated accounting guidance retrospectively. The Parent Company adjusted its previously reported financial information included herein to reflect the change in accounting guidance for debt issuance costs. The impacts of adopting the new accounting standard on the Parent Company’s Consolidated Balance Sheet as of December 31, 2015, were a decrease in Other assets and a decrease in Long term debt of $2 million.
B. Commitments, Contingencies and Guarantees
As of December 31, 2016 and 2015 CNAF had recorded liabilities of approximately $5 million related to guarantee agreements. The Parent Company believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.
In the course of selling business entities and assets to third parties, CNAF has agreed to guarantee the performance of certain obligations of both a previously owned subsidiary and a current subsidiary. Such obligations include agreement to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such indemnificationThe guarantee agreements may include provisions that survive indefinitely. As of December 31, 20132016, the aggregate amount of quantifiable indemnificationguarantee agreements in effect for sales of business entities, assets and third-party loans was $255 million.$625 million. Should the company be required to make payments under the guarantee, it would have the right to seek reimbursement in certain cases from an affiliate of a previously owned subsidiary.
In addition, CNAF has agreed to provide indemnification to third-party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of December 31, 20132016, CNAF had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser’s ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. These indemnification agreements survive until the applicable statutes of limitation expire or until the agreed upon contract terms expire. As of December 31, 2013, CNAF has no recorded liabilities related to indemnification agreements. The Parent Company does not believe that any indemnity claim payments are likely.
InCNAF also provided guarantees, if the normal course of business, CNAF has provided guaranteesprimary obligor fails to perform, to holders of structured settlement annuities (SSA) provided by certaina previously owned subsidiary. As of its subsidiaries, which expire through 2120. CNAF would be required to remit SSA payments due to claimants ifDecember 31, 2016, the primary obligor failed to perform on these contracts. The potential amount of future payments that CNAF could be required to pay under these guarantees arewas approximately $2$1.9 billion, at December 31, 2013. which will be paid over the lifetime of the annuitants. The Parent Company does not believe that a payable is likely under these guarantees.

139

Tableguarantees, as it is the beneficiary of Contentsa trust that must be maintained at a level that approximates the discounted reserves for these annuities.


SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION
Incorporated herein by reference to Note O to the Consolidated Financial Statements included under Item 8.
SCHEDULE IV. REINSURANCE
Incorporated herein by reference to Note HG to the Consolidated Financial Statements included under Item 8.
SCHEDULE V. VALUATION AND QUALIFYING ACCOUNTS
(In millions)Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts (a) Deductions Balance at End of PeriodBalance at Beginning of Period Charged to Costs and Expenses 
Charged to Other Accounts (1)
 Deductions Balance at End of Period
Year ended December 31, 2013         
Year ended December 31, 2016         
Deducted from assets:                  
Allowance for doubtful accounts:                  
Insurance and reinsurance receivables$174
 $(6) $(3) $(10) $155
$89
 $(2) $(1) $(3) $83
Year ended December 31, 2012         
Year ended December 31, 2015         
Deducted from assets:                  
Allowance for doubtful accounts:                  
Insurance and reinsurance receivables$203
 $(23) $5
 $(11) $174
$109
 $(12) $
 $(8) $89
Year ended December 31, 2011         
Year ended December 31, 2014         
Deducted from assets:                  
Allowance for doubtful accounts:                  
Insurance and reinsurance receivables$285
 $(55) $
 $(27) $203
$155
 $(40) $(1) $(5) $109

(a)(1)    Amount includes effects of foreign currency translation.

140


SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
As of and for the years ended December 31Consolidated Property and Casualty OperationsConsolidated Property and Casualty Operations
(In millions)2013 2012 20112016 2015 2014
Balance Sheet Data     
Deferred acquisition costs$624
 $598
 

$599
 $597
 

Reserves for unpaid claim and claim adjustment expenses24,015
 24,696
 

22,343
 22,663
 

Discount deducted from claim and claim adjustment expense reserves above (based on interest rates ranging from 3.0% to 9.7%)
1,586
 1,850
 

Discount deducted from claim and claim adjustment expense reserves above (based on interest rates ranging from 3.5% to 8.0%)1,572
 1,534
 

Unearned premiums3,718
 3,610
 

3,762
 3,671
 

Statement of Operations Data     
Net written premiums7,348
 6,964
 $6,798
$6,988
 $6,962
 $7,088
Net earned premiums7,271
 6,881
 6,603
6,924
 6,921
 7,212
Net investment income2,240
 2,074
 1,845
1,952
 1,807
 2,031
Incurred claim and claim adjustment expenses related to current year5,113
 5,266
 4,901
5,025
 4,934
 5,043
Incurred claim and claim adjustment expenses related to prior years(115) (180) (429)(342) (255) (39)
Amortization of deferred acquisition costs1,362
 1,274
 1,176
1,235
 1,540
 1,317
Paid claim and claim adjustment expenses5,566
 5,257
 4,499
5,134
 4,945
 5,297

141


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  CNA Financial Corporation
   
Dated: February 19, 201415, 2017By/s/ Thomas F. MotamedDino E. Robusto
  
Thomas F. MotamedDino E. Robusto
Chief Executive Officer
(Principal Executive Officer)
   
Dated: February 19, 201415, 2017By/s/ D. Craig Mense
  
D. Craig Mense
Executive Vice President and
Chief Financial Officer
(Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Dated: February 19, 201415, 2017By/s/ Thomas F. MotamedDino E. Robusto
  (Thomas F. Motamed,Dino E. Robusto, Chief Executive Officer and Chairman of the Board of Directors)
   
Dated: February 19, 2014By/s/ Paul J. Liska
(Paul J. Liska, Director)
Dated: February 19, 201415, 2017By/s/ Jose O. Montemayor
  (Jose O. Montemayor, Director)
   
Dated: February 19, 201415, 2017By/s/ Don M. Randel
  (Don M. Randel, Director)
   
Dated: February 19, 201415, 2017By/s/ Joseph Rosenberg
  (Joseph Rosenberg, Director)
   
Dated: February 19, 201415, 2017By/s/ Andrew H. Tisch
  (Andrew H. Tisch, Director)
   
Dated: February 19, 201415, 2017By/s/ James S. Tisch
  (James S. Tisch, Director)
   
Dated: February 19, 201415, 2017By/s/ Marvin Zonis
  (Marvin Zonis, Director)


142151