UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20162017
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)
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated
filer [x]
 Accelerated filer [ ] 
Non-accelerated
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
 Smaller reporting company [ ]Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at April 29, 201627, 2017
Common Stock, Par value $2.50 270,479,961270,980,108





Item Number 
Page
Number
 
Page
Number
PART I. Financial Information
 
PART I. Financial Information
 
1.
Condensed Consolidated Financial Statements:
 
Condensed Consolidated Financial Statements:
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (Unaudited)
3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 (Unaudited)
3
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015 (Unaudited)
4
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016 (Unaudited)
4
Condensed Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015
5
Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016
5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (Unaudited)
6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (Unaudited)
6
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2016 and 2015 (Unaudited)
8
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2017 and 2016 (Unaudited)
8
Notes to Condensed Consolidated Financial Statements (Unaudited)
9
Notes to Condensed Consolidated Financial Statements (Unaudited)
9
2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
36
Management's Discussion and Analysis of Financial Condition and Results of Operations
37
3.
Quantitative and Qualitative Disclosures About Market Risk
52
Quantitative and Qualitative Disclosures About Market Risk
53
4.
Controls and Procedures
52
Controls and Procedures
53
PART II. Other Information
 
PART II. Other Information
 
1.
Legal Proceedings
53
Legal Proceedings
54
6.
Exhibits
53
Exhibits
54

PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
CNA Financial Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Three months ended March 31      
(In millions, except per share data)2016 20152017 2016
Revenues      
Net earned premiums$1,699
 $1,687
$1,645
 $1,699
Net investment income435
 558
545
 435
Net realized investment (losses) gains:   
Net realized investment gains (losses):   
Other-than-temporary impairment losses(23) (12)(2) (23)
Other net realized investment (losses) gains(13) 22
Net realized investment (losses) gains
(36) 10
Other net realized investment gains (losses)38
 (13)
Net realized investment gains (losses)36
 (36)
Other revenues97
 97
104
 97
Total revenues2,195
 2,352
2,330
 2,195
Claims, Benefits and Expenses      
Insurance claims and policyholders’ benefits1,408
 1,339
1,293
 1,408
Amortization of deferred acquisition costs307
 303
305
 307
Other operating expenses381
 358
346
 381
Interest42
 39
43
 42
Total claims, benefits and expenses2,138
 2,039
1,987
 2,138
Income before income tax57
 313
343
 57
Income tax benefit (expense)9
 (80)
Income tax (expense) benefit(83) 9
Net income$66
 $233
$260
 $66
      
Basic earnings per share$0.25
 $0.86
$0.96
 $0.25
      
Diluted earnings per share$0.24
 $0.86
$0.96
 $0.24
      
Dividends declared per share$2.25
 $2.25
$2.25
 $2.25
      
Weighted Average Outstanding Common Stock and Common Stock Equivalents      
Basic270.3
 270.1
270.7
 270.3
Diluted270.9
 270.7
271.7
 270.9
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).



CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three months ended March 31      
(In millions)2016 20152017 2016
Comprehensive Income      
Net income$66
 $233
$260
 $66
Other Comprehensive Income, Net of Tax      
Changes in:      
Net unrealized gains on investments with other-than-temporary impairments5
 (1)(4) 5
Net unrealized gains on other investments234
 112
67
 234
Net unrealized gains on investments239
 111
63
 239
Foreign currency translation adjustment14
 (96)11
 14
Pension and postretirement benefits6
 6
7
 6
Other comprehensive income, net of tax259
 21
81
 259
Total comprehensive income$325
 $254
$341
 $325
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

CNA Financial Corporation
Condensed Consolidated Balance Sheets
(In millions, except share data)March 31,
2016 (Unaudited)		 December 31,
2015		March 31, 2017 (Unaudited) December 31,
2016
Assets      
Investments:      
Fixed maturity securities at fair value (amortized cost of $37,271 and $37,253)$40,252
 $39,572
Equity securities at fair value (cost of $182 and $191)189
 197
Fixed maturity securities at fair value (amortized cost of $38,269 and $38,361)$40,980
 $40,905
Equity securities at fair value (cost of $112 and $106)120
 110
Limited partnership investments2,562
 2,548
2,389
 2,371
Other invested assets45
 44
40
 36
Mortgage loans675
 678
611
 591
Short term investments1,648
 1,660
1,139
 1,407
Total investments45,371
 44,699
45,279
 45,420
Cash242
 387
299
 271
Reinsurance receivables (less allowance for uncollectible receivables of $38 and $38)4,692
 4,453
Insurance receivables (less allowance for uncollectible receivables of $50 and $51)2,151
 2,078
Reinsurance receivables (less allowance for uncollectible receivables of $38 and $37)4,395
 4,416
Insurance receivables (less allowance for uncollectible receivables of $47 and $46)2,144
 2,209
Accrued investment income426
 404
431
 405
Deferred acquisition costs622
 598
626
 600
Deferred income taxes461
 638
267
 379
Property and equipment at cost (less accumulated depreciation of $214 and $382)263
 343
Property and equipment at cost (less accumulated depreciation of $255 and $254)324
 310
Goodwill150
 150
146
 145
Other assets (includes $66 and $- due from Loews Corporation)1,124
 1,295
Other assets1,290
 1,078
Total assets$55,502
 $55,045
$55,201
 $55,233
Liabilities 
  
 
  
Insurance reserves:   
   
Claim and claim adjustment expenses$23,018
 $22,663
$22,260
 $22,343
Unearned premiums3,807
 3,671
3,912
 3,762
Future policy benefits10,500
 10,152
10,491
 10,326
Short term debt—
 350
150
 —
Long term debt2,708
 2,210
2,560
 2,710
Other liabilities (includes $7 and $82 due to Loews Corporation)3,999
 4,243
Other liabilities (includes $41 and $50 due to Loews Corporation)
4,135
 4,123
Total liabilities44,032
 43,289
43,508
 43,264
Commitments and contingencies (Notes C, F and H)   
Commitments and contingencies (Notes C and F)

 

Stockholders' Equity 
  
 
  
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 270,479,961 and 270,274,361 shares outstanding)683
 683
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 270,978,126 and 270,495,998 shares outstanding)683
 683
Additional paid-in capital2,146
 2,153
2,161
 2,173
Retained earnings8,770
 9,313
9,006
 9,359
Accumulated other comprehensive income(56) (315)(92) (173)
Treasury stock (2,560,282 and 2,765,882 shares), at cost(73) (78)
Treasury stock (2,062,117 and 2,544,245 shares), at cost(65) (73)
Total stockholders’ equity11,470
 11,756
11,693
 11,969
Total liabilities and stockholders' equity$55,502
 $55,045
$55,201
 $55,233
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31      
(In millions)2016 20152017 2016
Cash Flows from Operating Activities      
Net income$66
 $233
$260
 $66
Adjustments to reconcile net income to net cash flows provided by operating activities:      
Deferred income tax expense55
 71
72
 55
Trading portfolio activity(3) 13
(6) (3)
Net realized investment losses (gains)36
 (10)
Net realized investment (gains) losses(36) 36
Equity method investees262
 (91)38
 262
Net amortization of investments(4) —
(12) (4)
Depreciation and amortization21
 19
21
 21
Changes in:      
Receivables, net(317) (157)89
 (317)
Accrued investment income(22) (25)(26) (22)
Deferred acquisition costs(23) (13)(24) (23)
Insurance reserves511
 304
135
 511
Other assets(89) (34)(37) (89)
Other liabilities(168) (235)(206) (168)
Other, net9
 19
14
 9
Total adjustments268
 (139)22
 268
Net cash flows provided by operating activities334
 94
Net cash flows provided by operating activities
282
 334
Cash Flows from Investing Activities 
  
   
Dispositions:      
Fixed maturity securities - sales1,722
 1,144
1,359
 1,722
Fixed maturity securities - maturities, calls and redemptions490
 1,144
823
 490
Equity securities4
 2
16
 4
Limited partnerships89
 20
57
 89
Mortgage loans22
 3
3
 22
Purchases:      
Fixed maturity securities(2,238) (1,919)(2,097) (2,238)
Equity securities—
 (5)(7) —
Limited partnerships(169) (34)(18) (169)
Mortgage loans(19) (8)(23) (19)
Change in other investments—
 7
(1) —
Change in short term investments16
 190
271
 16
Purchases of property and equipment(33) (20)(30) (33)
Disposals of property and equipment107
 —
—
 107
Other, net—
 2
1
 —
Net cash flows (used) provided by investing activities$(9) $526
Net cash flows provided (used) by investing activities
$354
 $(9)
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

Three months ended March 31      
(In millions)2016 20152017 2016
Cash Flows from Financing Activities      
Dividends paid to common stockholders$(609) $(608)$(609) $(609)
Proceeds from the issuance of debt498
 —
—
 498
Repayment of debt(358) —
—
 (358)
Other, net—
 5
—
 —
Net cash flows used by financing activities(469)
(603)(609)
(469)
Effect of foreign exchange rate changes on cash(1) (6)1
 (1)
Net change in cash(145) 11
28
 (145)
Cash, beginning of year387
 190
271
 387
Cash, end of period$242
 $201
$299
 $242
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended March 31      
(In millions)2016 20152017 2016
Common Stock      
Balance, beginning of period$683
 $683
$683
 $683
Balance, end of period683
 683
683
 683
Additional Paid-in Capital      
Balance, beginning of period2,153
 2,151
2,173
 2,153
Stock-based compensation(7) (8)(12) (7)
Balance, end of period2,146
 2,143
2,161
 2,146
Retained Earnings      
Balance, beginning of period9,313
 9,645
9,359
 9,313
Dividends paid to common stockholders(609) (608)(613) (609)
Net income66
 233
260
 66
Balance, end of period8,770
 9,270
9,006
 8,770
Accumulated Other Comprehensive Income   
Accumulated Other Comprehensive Loss   
Balance, beginning of period(315) 400
(173) (315)
Other comprehensive income259
 21
81
 259
Balance, end of period(56) 421
(92) (56)
Treasury Stock      
Balance, beginning of period(78) (84)(73) (78)
Stock-based compensation5
 5
8
 5
Balance, end of period(73) (79)(65) (73)
Notes Receivable for the Issuance of Common Stock   
Balance, beginning of period—
 (1)
Balance, end of period—
 (1)
Total stockholders' equity$11,470
 $12,437
$11,693
 $11,470
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).



CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A.A. General
Basis of Presentation
The Condensed 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 March 31, 2016.2017.
The accompanying Condensed 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. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, including certain financial statement notes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2015,2016, including the summary of significant accounting policies in Note A. The preparation of Condensed Consolidated 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 Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
The interim financial data as of March 31, 20162017 and for the three months ended March 31, 20162017 and 20152016 is unaudited. However, in the opinion of management, the interim data includes all adjustments, including normal recurring adjustments, necessary for a fair statement of the Company's results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Recently Adopted Accounting Standards Updates (ASU)
In April 2015,March 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-03,2016-09, Interest-Imputation of Interest (Subtopic 835-30)Compensation-Stock Compensation (Topic 718): Simplifying the Presentation of Debt Issuance CostsImprovementsto Employee Share-Based Payment Accounting. . The updated accounting guidance requires debt issuance costs to be presentedsimplifies the accounting for share-based payment award transactions, including income tax consequences, classification of awards as a deduction fromeither equity or liabilities and classification on the corresponding debt liability insteadstatement of the historical presentation as an unamortized debt issuance asset.cash flows. As of January 1, 2016,2017, the Company adopted the updated accounting guidance retrospectively.and began recognizing excess tax benefits or deficiencies on vesting or settlement of awards as an income tax benefit or expense within net income, instead of additional paid-in capital as required under previous guidance. The Company adjusted its previously reported financial informationrelated cash flows are now classified within operating activities. As a result of this change, excess tax benefits are no longer included herein to reflectin assumed proceeds under the treasury stock method of calculating earnings per share. The impact of the accounting change resulted in accounting guidance for debt issuance costs. The impacts of adopting the new accounting standard on the 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.$3 million to income tax expense for the three months ended March 31, 2017.

Accounting Standards Pending Adoption
In May 2015,2014, the FASB issued ASU No. 2015-07, Fair Value Measurement2014-09, Revenue Recognition (Topic 820)606): DisclosuresRevenue from Contracts with Customers. The standard excludes from its scope the accounting for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). insurance contracts, financial instruments, and certain other agreements that are governed under other GAAP guidance. 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 impacts of adopting the new accounting standard resulted in excluding overseas deposits of $28 million and $27 million from the fair value level disclosure as of March 31, 2016 and December 31, 2015.

Recently Issued ASUs
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 disclosuresan entity to provide additional information about insurance liabilitiesrecognize revenue as performance obligations are met, in an amount that reflects the consideration the entity is entitled to receive for short-duration contracts.the transfer of the promised goods or services. The guidancestandard is effective for interim and annual reporting periods beginning after December 15, 2015,2017 and interim periods withinmay be applied retrospectively or through a cumulative effect adjustment to retained earnings at the annual periods beginning after December 15, 2016.date of adoption. As insurance contracts are out of scope, the Company anticipates the primary change will be to revenue recognition for certain of our warranty products and services. 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, but we do not currently believe ASU 2014-09 will have a material effect on the Company's results of operations or financial statement disclosures.position.
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 MarchJune 2016, the FASB issued ASU No. 2016-09,2016-13, Compensation-Stock CompensationFinancial Instruments-Credit Losses (Topic 718)326): Improvements to Employee Share-Based Payment Accounting.Measurementof Credit Losses on Financial Instruments. The updated accounting guidance simplifiesrequires changes to the accountingrecognition of credit losses on financial instruments not accounted 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.at fair value through net income. The guidance is effective for interim and annual periods beginning after December 15, 2017, and interim periods within annual periods beginning December 15, 2018.2019. The Company is currently evaluating the effect the updated guidance will have on the Company’sCompany'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.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The updated accounting guidance requires changes to the presentation of the components of net periodic benefit cost on the income statement by requiring service cost to be presented with other employee compensation costs and other components of net periodic pension cost to be presented outside of any subtotal of operating income. The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization. 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.

Note B. Earnings Per Share
Earnings per share is based on the weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the effect of dilutive securities and is computed by dividing Net income (loss) 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 three months ended March 31, 2017 and 2016, and 2015, approximately 542974 thousand and 654542 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 180148 thousand and 182180 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.



Note C.C. Investments
The significant components of Net investment income are presented in the following table.
Three months ended March 31      
(In millions)2016 20152017 2016
Fixed maturity securities$446
 $443
$455
 $446
Equity securities3
 3
1
 3
Limited partnership investments(14) 114
90
 (14)
Mortgage loans9
 8
7
 9
Short term investments3
 2
3
 3
Trading portfolio2
 2
2
 2
Other1
 —
Gross investment income449
 572
559
 449
Investment expense(14) (14)(14) (14)
Net investment income$435
 $558
$545
 $435
Net realized investment gains (losses) are presented in the following table.
Three months ended March 31      
(In millions)2016 20152017 2016
Net realized investment gains (losses):      
Fixed maturity securities:      
Gross realized gains$45
 $33
$49
 $45
Gross realized losses(62) (21)(17) (62)
Net realized investment gains (losses) on fixed maturity securities(17) 12
32
 (17)
Equity securities:   
   
Gross realized gains—
 1
—
 —
Gross realized losses(5) (1)—
 (5)
Net realized investment gains (losses) on equity securities(5) —
—
 (5)
Derivative financial instruments(7) (1)
Derivatives1
 (7)
Short term investments and other(7) (1)3
 (7)
Net realized investment gains (losses)$(36) $10
$36
 $(36)
Net realized investment losses for the three months ended March 31, 2016 include $8 million related to the first quarter 2016 redemption of the Company's $350 million senior notes due August 2016.
The components of Net other-than-temporaryOther-than-temporary impairment (OTTI) losses recognized in earnings by asset type are presented in the following table.
Three months ended March 31      
(In millions)2016 20152017 2016
Fixed maturity securities available-for-sale:
  
  
Corporate and other bonds$16
 $5
$2
 $16
States, municipalities and political subdivisions—
 5
Asset-backed:   
   
Residential mortgage-backed—
 1
—
 —
Other asset-backed2
 —
—
 2
Total asset-backed2
 1
—
 2
Total fixed maturity securities available-for-sale18
 11
2
 18
Equity securities available-for-sale:   
Common stock5
 1
Total equity securities available-for-sale5
 1
Equity securities available-for-sale -- Common stock—
 5
OTTI losses recognized in earnings$23
 $12
$2
 $23

The following tables present a summary of fixed maturity and equity securities.
March 31, 2016
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
March 31, 2017
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$17,076
 $1,255
 $224
 $18,107
 $—
$17,838
 $1,428
 $37
 $19,229
 $(1)
States, municipalities and political subdivisions11,478
 1,704
 3
 13,179
 (15)12,261
 1,219
 31
 13,449
 (12)
Asset-backed:                  
Residential mortgage-backed5,028
 197
 19
 5,206
 (33)4,672
 121
 50
 4,743
 (27)
Commercial mortgage-backed2,137
 78
 16
 2,199
 —
1,902
 52
 19
 1,935
 —
Other asset-backed937
 4
 20
 921
 —
1,043
 10
 4
 1,049
 —
Total asset-backed8,102
 279
 55
 8,326
 (33)7,617
 183
 73
 7,727
 (27)
U.S. Treasury and obligations of government-sponsored enterprises133
 7
 —
 140
 —
95
 8
 —
 103
 —
Foreign government447
 17
 1
 463
 —
419
 14
 1
 432
 —
Redeemable preferred stock33
 2
 —
 35
 —
19
 1
 —
 20
 —
Total fixed maturity securities available-for-sale37,269
 3,264
 283
 40,250
 $(48)38,249
 2,853
 142
 40,960
 $(40)
Total fixed maturity securities trading2
 

 

 2
  20
 

 

 20
  
Equity securities available-for-sale:                  
Common stock37
 6
 2
 41
  20
 5
 —
 25
  
Preferred stock145
 5
 2
 148
  92
 5
 2
 95
  
Total equity securities available-for-sale182
 11
 4
 189
  112
 10
 2
 120
  
Total$37,453
 $3,275
 $287
 $40,441
 

$38,381
 $2,863
 $144
 $41,100
  

December 31, 2015
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$17,080
 $1,019
 $342
 $17,757
 $—
$17,711
 $1,323
 $76
 $18,958
 $(1)
States, municipalities and political subdivisions11,729
 1,453
 8
 13,174
 (4)12,060
 1,213
 33
 13,240
 (16)
Asset-backed:                  
Residential mortgage-backed4,935
 154
 17
 5,072
 (37)5,004
 120
 51
 5,073
 (28)
Commercial mortgage-backed2,154
 55
 12
 2,197
 —
2,016
 48
 24
 2,040
 —
Other asset-backed923
 6
 8
 921
 —
1,022
 8
 5
 1,025
 —
Total asset-backed8,012
 215
 37
 8,190
 (37)8,042
 176
 80
 8,138
 (28)
U.S. Treasury and obligations of government-sponsored enterprises62
 5
 —
 67
 —
83
 10
 —
 93
 —
Foreign government334
 13
 1
 346
 —
435
 13
 3
 445
 —
Redeemable preferred stock33
 2
 —
 35
 —
18
 1
 —
 19
 —
Total fixed maturity securities available-for-sale37,250
 2,707
 388
 39,569
 $(41)38,349
 2,736
 192
 40,893
 $(45)
Total fixed maturity securities trading3
 

 

 3
  12
 

 

 12
  
Equity securities available-for-sale:                  
Common stock46
 3
 1
 48
  13
 6
 —
 19
  
Preferred stock145
 7
 3
 149
  93
 2
 4
 91
  
Total equity securities available-for-sale191
 10
 4
 197
  106
 8
 4
 110
  
Total$37,444
 $2,717
 $392
 $39,769
  $38,467
 $2,744
 $196
 $41,015
  


The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (AOCI). When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group Non-Core segment would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). As of March 31, 20162017 and December 31, 2015,2016, the net unrealized gains on investments included in AOCI were net of after-taxcorrespondingly reduced by Shadow Adjustments of $1,311$1,060 million and $1,111$1,014 million.


The following tables present the estimated fair value and gross unrealized losses of 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.
Less than 12 Months 12 Months or Longer TotalLess than 12 Months 12 Months or Longer Total
March 31, 2016
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
March 31, 2017
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$2,669
 $174
 $274
 $50
 $2,943
 $224
$1,915
 $29
 $134
 $8
 $2,049
 $37
States, municipalities and political subdivisions90
 3
 64
 —
 154
 3
845
 31
 33
 —
 878
 31
Asset-backed:                      
Residential mortgage-backed376
 11
 159
 8
 535
 19
2,188
 44
 170
 6
 2,358
 50
Commercial mortgage-backed505
 14
 102
 2
 607
 16
590
 15
 139
 4
 729
 19
Other asset-backed572
 20
 5
 —
 577
 20
256
 4
 28
 —
 284
 4
Total asset-backed1,453
 45
 266
 10
 1,719
 55
3,034
 63
 337
 10
 3,371
 73
U.S. Treasury and obligations of government-sponsored enterprises23
 —
 —
 —
 23
 —
31
 —
 —
 —
 31
 —
Foreign government54
 1
 —
 —
 54
 1
89
 1
 —
 —
 89
 1
Redeemable preferred stock2
 —
 —
 —
 2
 —
Total fixed maturity securities available-for-sale4,291
 223
 604
 60
 4,895
 283
5,914
 124
 504
 18
 6,418
 142
Equity securities available-for-sale:                   

 

Common stock6
 2
 —
 —
 6
 2
2
 —
 —
 —
 2
 —
Preferred stock17
 2
 —
 —
 17
 2
15
 2
 —
 —
 15
 2
Total equity securities available-for-sale23
 4
 —
 —
 23
 4
17
 2
 —
 —
 17
 2
Total$4,314
 $227
 $604
 $60
 $4,918
 $287
$5,931

$126

$504

$18

$6,435

$144

Less than 12 Months 12 Months or Longer TotalLess than 12 Months 12 Months or Longer Total
December 31, 2015
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$4,882
 $302
 $162
 $40
 $5,044
 $342
$2,615
 $61
 $254
 $15
 $2,869
 $76
States, municipalities and political subdivisions338
 8
 75
 —
 413
 8
959
 32
 23
 1
 982
 33
Asset-backed:                      
Residential mortgage-backed963
 9
 164
 8
 1,127
 17
2,136
 44
 201
 7
 2,337
 51
Commercial mortgage-backed652
 10
 96
 2
 748
 12
756
 22
 69
 2
 825
 24
Other asset-backed552
 8
 5
 —
 557
 8
398
 5
 24
 —
 422
 5
Total asset-backed2,167
 27
 265
 10
 2,432
 37
3,290
 71
 294
 9
 3,584
 80
U.S. Treasury and obligations of government-sponsored enterprises4
 —
 —
 —
 4
 —
5
 —
 —
 —
 5
 —
Foreign government54
 1
 —
 —
 54
 1
108
 3
 —
 —
 108
 3
Redeemable preferred stock3
 —
 —
 —
 3
 —
Total fixed maturity securities available-for-sale7,448
 338
 502
 50
 7,950
 388
6,977
 167
 571
 25
 7,548
 192
Equity securities available-for-sale:           
Common stock3
 1
 —
 —
 3
 1
Preferred stock13
 3
 —
 —
 13
 3
Total equity securities available-for-sale16
 4
 —
 —
 16
 4
Equity securities available-for-sale -- Preferred stock12
 —
 13
 4
 25
 4
Total$7,464
 $342
 $502
 $50
 $7,966
 $392
$6,989
 $167
 $584
 $29
 $7,573
 $196

Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 20162017 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors, including volatility in the energy and metals and mining sectors. As of March 31, 2016, the Company held fixed maturity securities and equity securities with an estimated fair value of $2,446 million and a cost or amortized cost of $2,464 million in the energy and metals and mining sectors. The portion of these securities in a gross unrealized loss position had an estimated fair value of $1,069 million and a cost or amortized cost of $1,202 million.factors. The Company has no current intent to sell 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 as of March 31, 2016.2017.
The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held as of March 31, 20162017 and 20152016 for which a portion of an OTTI loss was recognized in Other comprehensive income (loss).
Three months ended March 31      
(In millions)2016 20152017 2016
Beginning balance of credit losses on fixed maturity securities$53
 $62
$36
 $53
Additional credit losses for securities for which an OTTI loss was previously recognized—
 —
Reductions for securities sold during the period(5) (1)(4) (5)
Reductions for securities the Company intends to sell or more likely than not will be required to sell—
 —
Ending balance of credit losses on fixed maturity securities$48
 $61
$32
 $48
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
March 31, 2016 December 31, 2015March 31, 2017 December 31, 2016
(In millions)
Amortized
Cost
 
Estimated
Fair
Value
 
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$1,747
 $1,773
 $1,574
 $1,595
$1,655
 $1,701
 $1,779
 $1,828
Due after one year through five years8,335
 8,748
 7,721
 8,070
7,539
 7,918
 7,566
 7,955
Due after five years through ten years14,587
 15,129
 14,652
 14,915
15,645
 16,176
 15,892
 16,332
Due after ten years12,600
 14,600
 13,303
 14,989
13,410
 15,165
 13,112
 14,778
Total$37,269
 $40,250
 $37,250
 $39,569
$38,249
 $40,960
 $38,349
 $40,893
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.
Derivative Financial Instruments
The Company holds an embedded derivative on a funds withheld liability with a notional value of $178$172 million and $179$174 million as of March 31, 20162017 and December 31, 20152016 and a fair value of $1$2 million and $(5)$3 million as of March 31, 20162017 and December 31, 2015.2016. The embedded derivative on funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.

Investment Commitments
As of March 31, 2016,2017, the Company had committed approximately $371$394 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.
As of March 31, 2016,2017, the Company had a mortgage loan commitmentcommitments of $10$46 million representing a signed loan applicationapplications 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 March 31, 2016,2017, the Company had commitments to purchase or fund additional amounts of $163$217 million and sell $166$196 million under the terms of such securities.


Note D.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 methodology 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 a 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 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.

Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are presented in the following tables.
March 31, 2016      
Total
Assets/Liabilities
at Fair Value
March 31, 2017      
Total
Assets/Liabilities
at Fair Value
(In millions)Level 1 Level 2 Level 3 
Total
Assets/Liabilities
at Fair Value
Level 1 Level 2 Level 3 
Assets             
Fixed maturity securities:              
Corporate and other bonds$—
 $17,916
 $193
 $18,109
$—
 $19,125
 $121
 $19,246
States, municipalities and political subdivisions—
 13,177
 2
 13,179
—
 13,451
 1
 13,452
Asset-backed:              
Residential mortgage-backed—
 5,078
 128
 5,206
—
 4,617
 126
 4,743
Commercial mortgage-backed—
 2,172
 27
 2,199
—
 1,922
 13
 1,935
Other asset-backed—
 871
 50
 921
—
 932
 117
 1,049
Total asset-backed—
 8,121
 205
 8,326
—
 7,471
 256
 7,727
U.S. Treasury and obligations of government-sponsored enterprises139
 1
 —
 140
103
 —
 —
 103
Foreign government—
 463
 —
 463
—
 432
 —
 432
Redeemable preferred stock35
 —
 —
 35
20
 —
 —
 20
Total fixed maturity securities174
 39,678
 400
 40,252
123
 40,479
 378
 40,980
Equity securities170
 —
 19
 189
101
 —
 19
 120
Other invested assets—
 17
 —
 17
—
 5
 —
 5
Short term investments508
 1,064
 —
 1,572
225
 829
 —
 1,054
Life settlement contracts, included in Other assets—
 —
 72
 72
—
 —
 46
 46
Total assets$852
 $40,759
 $491
 $42,102
$449
 $41,313
 $443
 $42,205
Liabilities     
  
     
  
Other liabilities$—
 $1
 $—
 $1
$—
 $(2) $—
 $(2)
Total liabilities$—
 $1
 $—
 $1
$—
 $(2) $—
 $(2)
December 31, 2015      
Total
Assets/Liabilities
at Fair Value
December 31, 2016      
Total
Assets/Liabilities
at Fair Value
(In millions)Level 1 Level 2 Level 3 
Total
Assets/Liabilities
at Fair Value
Level 1 Level 2 Level 3 
Assets             
Fixed maturity securities:              
Corporate and other bonds$—
 $17,592
 $168
 $17,760
$—
 $18,840
 $130
 $18,970
States, municipalities and political subdivisions—
 13,172
 2
 13,174
—
 13,239
 1
 13,240
Asset-backed:       
       
Residential mortgage-backed—
 4,938
 134
 5,072
—
 4,944
 129
 5,073
Commercial mortgage-backed—
 2,175
 22
 2,197
—
 2,027
 13
 2,040
Other asset-backed—
 868
 53
 921
—
 968
 57
 1,025
Total asset-backed—
 7,981
 209
 8,190
—
 7,939
 199
 8,138
U.S. Treasury and obligations of government-sponsored enterprises66
 1
 —
 67
93
 —
 —
 93
Foreign government—
 346
 —
 346
—
 445
 —
 445
Redeemable preferred stock35
 —
 —
 35
19
 —
 —
 19
Total fixed maturity securities101
 39,092
 379
 39,572
112
 40,463
 330
 40,905
Equity securities177
 —
 20
 197
91
 —
 19
 110
Other invested assets—
 17
 —
 17
—
 5
 —
 5
Short term investments448
 1,134
 —
 1,582
475
 853
 —
 1,328
Life settlement contracts, included in Other assets—
 —
 74
 74
—
 —
 58
 58
Total assets$726
 $40,243
 $473
 $41,442
$678
 $41,321
 $407
 $42,406
Liabilities     
  
     
  
Other liabilities$—
 $(5) $—
 $(5)$—
 $(3) $—
 $(3)
Total liabilities$—
 $(5) $—
 $(5)$—
 $(3) $—
 $(3)

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).
Level 3
(In millions)
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
March 31,
2016
 Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2016 recognized in Net income (loss)*
Balance as of
January 1,
2017
 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
March 31,
2017
 Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2017 recognized in Net income (loss)*
Fixed maturity securities:                                      
Corporate and other bonds$168
 $(1) $4
 $53
 $(16) $(3) $—
 $(12) $193
 $—
$130
 $—
 $1
 $5
 $(1) $(14) $—
 $—
 $121
 $—
States, municipalities and political subdivisions2
 —
 —
 —
 —
 —
 —
 —
 2
 —
1
 —
 —
 —
 —
 —
 —
 —
 1
 —
Asset-backed:                 
                   
  
Residential mortgage-backed134
 1
 —
 —
 —
 (5) —
 (2) 128
 —
129
 1
 2
 —
 —
 (6) —
 —
 126
 —
Commercial mortgage-backed22
 —
 —
 9
 —
 —
 —
 (4) 27
 —
13
 —
 —
 —
 —
 —
 —
 —
 13
 —
Other asset-backed53
 —
 —
 —
 —
 —
 2
 (5) 50
 —
57
 (1) —
 38
 —
 —
 28
 (5) 117
 —
Total asset-backed209
 1
 —
 9
 —
 (5) 2
 (11) 205
 —
199
 —
 2
 38
 —
 (6) 28
 (5) 256
 —
Total fixed maturity securities379
 —
 4
 62
 (16) (8) 2
 (23) 400
 —
330
 —
 3
 43
 (1) (20) 28
 (5) 378
 —
Equity securities20
 —
 (1) —
 —
 —
 —
 —
 19
 —
19
 —
 1
 1
 (2) —
 —
 —
 19
 —
Derivative financial instruments—
 1
 —
 —
 (1) —
 —
 —
 —
 —
Life settlement contracts74
 4
 —
 —
 —
 (6) —
 —
 72
 1
58
 6
 —
 —
 (13) (5) —
 —
 46
 —
Total$473
 $4
 $3
 $62
 $(16) $(14) $2
 $(23) $491
 $1
$407
 $7
 $4
 $44
 $(17) $(25) $28
 $(5) $443
 $—

Level 3
(In millions)
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
March 31,
2015
 Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2015 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
March 31,
2016
 Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2016 recognized in Net income (loss)*
Fixed maturity securities:                                      
Corporate and other bonds$162
 $1
 $—
 $12
 $(12) $(14) $37
 $—
 $186
 $—
$168
 $(1) $4
 $53
 $(16) $(3) $—
 $(12) $193
 $—
States, municipalities and political subdivisions94
 1
 —
 —
 —
 (9) —
 —
 86
 —
2
 —
 —
 —
 —
 —
 —
 —
 2
 —
Asset-backed:                 
                   
  
Residential mortgage-backed189
 1
 —
 72
 —
 (10) —
 (20) 232
 —
134
 1
 —
 —
 —
 (5) —
 (2) 128
 —
Commercial mortgage-backed83
 1
 1
 6
 —
 (1) —
 (26) 64
 —
22
 —
 —
 9
 —
 —
 —
 (4) 27
 —
Other asset-backed655
 1
 9
 35
 (144) (3) —
 —
 553
 —
53
 —
 —
 —
 —
 —
 2
 (5) 50
 —
Total asset-backed927
 3
 10
 113
 (144) (14) —
 (46) 849
 —
209
 1
 —
 9
 —
 (5) 2
 (11) 205
 —
Total fixed maturity securities1,183
 5
 10
 125
 (156) (37) 37
 (46) 1,121
 —
379
 —
 4
 62
 (16) (8) 2
 (23) 400
 —
Equity securities16
 —
 (3) —
 —
 —
 —
 —
 13
 —
20
 —
 (1) —
 —
 —
 —
 —
 19
 —
Life settlement contracts82
 13
 —
 —
 —
 (16) —
 —
 79
 1
74
 4
 —
 —
 —
 (6) —
 —
 72
 1
Total$1,281
 $18
 $7
 $125
 $(156) $(53) $37
 $(46) $1,213
 $1
$473
 $4
 $3
 $62
 $(16) $(14) $2
 $(23) $491
 $1

*Net realized and unrealized gains and losses from Level 3 securities and derivatives are reported in Net income (loss) as follows:
Major Category of Assets and Liabilities Condensed 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)
Life settlement contracts Other revenues
Other liabilities - Derivative financial instruments Net realized investment gains (losses)
(1) Unrealized gains and losses are reported within AOCI.
Securities shown on the previous pages may be transferred in or out of levels 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. During the three months ended March 31, 20162017 and 20152016 there were no transfers between Level 1 and Level 2. 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
Level 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 a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology, or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace 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. Fixed maturity securities are primarily 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 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 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.

Derivative Financial Investments
Level 2 securities primarily include the embedded derivative on funds withheld liability.

Other Invested Assets
The embedded derivative on funds withheld liability is valued using the change in 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 2.
As of March 31, 2017 and December 31, 2016, there were approximately $35 million and $31 million respectively of overseas deposits within other invested assets, supportingwhich can be redeemed at net asset value in 90 days or less. Overseas deposits are excluded from the funds withheld liability, which are fixed maturity securities valued with observable inputs.fair value hierarchy, because their fair value is recorded using the 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 Condensed Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
Life Settlement Contracts
The Company accounts for its investment in life settlement contracts using the fair valuesvalue method. Historically, the fair value of life settlement contracts arewas 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.
The entire portfolio of life settlement contracts, which is included within the Life and Group Non-Core segment, was determined to be held for sale as no comparable market pricing dataof December 31, 2016 as the Company reached an agreement on terms to sell the portfolio. As such, the Company adjusted the fair value to the estimated sales proceeds less cost to sell. The definitive Purchase and Sale Agreement (PSA) related to the portfolio was executed on March 7, 2017 (sale date). In connection therewith, the life settlement contracts and related sale proceeds were placed in escrow until the buyer is available.
recognized as the owner and beneficiary of each individual life settlement contract by the life insurance company that issued the policy. A number of contracts have been released from escrow as of March 31, 2017. The Company derecognized these contracts and recorded the consideration, including a note receivable, which is payable over three years and is carried at amortized cost less any valuation allowance. The note receivable is included within Other invested assets - Federal Home Loan Bankon the Condensed Consolidated Balance Sheets and interest income is accreted to the principal balance of Chicago (FHLBC) Stockthe note receivable. The remaining contracts still in escrow have not been derecognized and were measured at the fair value per the PSA.
The fair value of FHLBC stock is equal to par because it can only be redeemed by the FHLBC at par or sold to another memberCompany's investments in life settlement contracts were $46 million and $58 million as of March 31, 2017 and December 31, 2016, and are included in Other assets on the FHLBC at par and isCondensed Consolidated Balance Sheets. Despite the sale, the contracts have been classified as Level 2.3 as there is not an active market for life settlement contracts. The cash receipts and payments related to the life settlement contracts prior to the sale date are included in Cash Flows from operating activities on the Condensed Consolidated Statements of Cash Flows. Cash receipts related to the sale of the life settlement contracts, as well as principal payments on the note receivable, are included in Cash Flows from investing activities.
Other invested assets - Overseas DepositsDerivative Financial Investments
As of March 31, 2016 and December 31, 2015, there were approximately $28 million and $27 million respectively of overseas deposits, which can be redeemed at net asset valueLevel 2 securities primarily include the embedded derivative on the funds withheld liability. The embedded derivative on funds withheld liability is valued using the change in 90 days or less. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded usingof the net asset value per share (or equivalent) practical expedient.assets supporting the funds withheld liability, which are fixed maturity securities valued with observable inputs.





Significant Unobservable Inputs
The following 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 tables 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 was based on the terms of the sale of the contracts to a third party, therefore, the contracts are not included in the table below.
March 31, 2016
Estimated Fair Value
(In millions)
 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$142
 Discounted cash flow Credit spread 0% - 20% (4%)
Life settlement contracts72
 Discounted cash flow Discount rate risk premium 9%
     Mortality assumption 55% - 1676% (164%)
March 31, 2017
Estimated Fair Value
(In millions)
 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$122
 Discounted cash flow Credit spread 2% - 40% (4%)
December 31, 2015Estimated Fair Value
(In millions)		 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$138
 Discounted cash flow Credit spread 3% - 184% (6%)
Life settlement contracts74
 Discounted cash flow Discount rate risk premium 9%
     Mortality assumption 55% - 1676% (164%)
December 31, 2016Estimated 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%)
For fixed maturity securities, an increase to the credit spread assumptions would result in a lower 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 assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are presented in the following tables.
March 31, 2016
Carrying
Amount
 Estimated Fair Value
March 31, 2017
Carrying
Amount
 Estimated Fair Value
(In millions)
Carrying
Amount
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets                 
Mortgage loans$675
 $—
 $—
 $697
 $697
$611
 $—
 $—
 $616
 $616
Note receivable10
 —
 —
 10
 10
Liabilities                  
Short term debt$150
 $—
 $156
 $—
 $156
Long term debt$2,708
 $—
 $2,943
 $—
 $2,943
2,560
 —
 2,811
 —
 2,811
December 31, 2015Carrying
Amount		 Estimated Fair Value
December 31, 2016Carrying
Amount		 Estimated Fair Value
(In millions)Carrying
Amount		 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets                 
Mortgage loans$678
 $—
 $—
 $688
 $688
$591
 $—
 $—
 $594
 $594
Liabilities                  
Short term debt$350
 $—
 $360
 $—
 $360
Long term debt2,210
 —
 2,433
 —
 2,433
$2,710
 $—
 $2,952
 $—
 $2,952
The following methods and assumptions were used to estimate the fair value of these financial assets and liabilities.
The fair valuevalues of Mortgagemortgage loans waswere 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.
The fair value of the note receivable was based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar notes, adjusted for specific credit risk.
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 Condensed Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain Other assets and Other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.


Note E. 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 incurred but not reported (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 $34 million and $36 million and $29 million for the three months ended March 31, 20162017 and 2015.2016. Catastrophe losses in 2016the first quarter of 2017 related primarily to U.S. weather-related events.

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 & Group Non-Core segment.
For the three months ended March 31   
(In millions)2017 2016
Reserves, beginning of year:   
Gross$22,343
 $22,663
Ceded4,094
 4,087
Net reserves, beginning of year18,249
 18,576
Net incurred claim and claim adjustment expenses:   
Provision for insured events of current year1,207
 1,224
Decrease in provision for insured events of prior years(82) (45)
Amortization of discount48
 48
Total net incurred (1)
1,173
 1,227
Net payments attributable to:   
Current year events(68) (76)
Prior year events(1,184) (1,147)
Total net payments(1,252) (1,223)
Foreign currency translation adjustment and other14
 39
Net reserves, end of period18,184
 18,619
Ceded reserves, end of period4,076
 4,399
Gross reserves, end of period$22,260
 $23,018
(1)Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Condensed 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, which are not reflected in the table above.

Net Prior Year Development
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.development recorded for Specialty, Commercial, International and Corporate & Other Non-Core segments.
Three months ended March 31, 2017         
(In millions)

Specialty
  Commercial International 
Corporate
& Other
Non-Core
 Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$(31) $(24) $(2) $—
 $(57)
Pretax (favorable) unfavorable premium development(5) 37
 (7) —
 25
Total pretax (favorable) unfavorable net prior year development$(36) $13
 $(9) $—
 $(32)
Three months ended March 31, 2016         
(In millions)

Specialty
  Commercial International 
Corporate
& Other
Non-Core
 Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$(34) $(14) $(4) $—
 $(52)
Pretax (favorable) unfavorable premium development(11) (2) (1) —
 (14)
Total pretax (favorable) unfavorable net prior year development$(45) $(16) $(5) $—
 $(66)
Three months ended March 31, 2015         
(In millions)

Specialty
  Commercial International 
Corporate
& Other
Non-Core
 Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development$2
 $(5) $(4) $—
 $(7)
Pretax (favorable) unfavorable premium development(6) (1) 16
 —
 9
Total pretax (favorable) unfavorable net prior year development$(4) $(6) $12
 $—
 $2


Premium development can occur in the property and casualty business when there is a change in exposure on auditable policies or when premium accruals differ from processed premium.  Audits on policies usually occur in a period after the expiration date of the policy. See further information on the premium development in the Commercial segment for the three months ended March 31, 2017 within Note F.

Specialty
The following table presents further detail of the net prior year claim and allocated claim adjustment expense reserve development (development) recorded for the Specialty segment.
Three months ended March 31      
(In millions)2016 20152017 2016
Pretax (favorable) unfavorable development:      
Medical Professional Liability$(7) $14
$1
 $(7)
Other Professional Liability and Management Liability(9) (3)(32) (9)
Surety—
 1
—
 —
Warranty2
 —
—
 2
Other(20) (10)—
 (20)
Total pretax (favorable) unfavorable development$(34) $2
$(31) $(34)
2017
Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and lower than expected frequency of large losses related to professional liability in accident years 2011 through 2016.
2016
Favorable development for medical professional liability was due to lower than expected severity in accident years 2011 and prior. This was partially offset by unfavorable development in accident years 2012 and 2013 recorded related to higher than expected large loss emergence and higher than expected severity in accident years 2014 and 2015.
Favorable development in other professional liability and management liability was primarily related to favorable settlements on claims in accident years 2011 through 2013. This was partially offset by unfavorable development recorded related to a specific financial institutions claim in accident year 2014 and continued deterioration on claims in accident year 2009 related to the credit crisis.
Favorable development for other coverages was primarily due to better than expected claim frequency in property coverages provided to Specialty customers in accident year 2015.
2015
Overall, unfavorable development for medical professional liability was primarily related to increased frequency in the Aging Services book for accident years 2013 and 2014, partially offset by better than expected severity in accident years 2010 and prior.
Favorable development for other coverage was primarily due to better than expected frequency in property coverages provided to Specialty customers in accident year 2014.

Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Three months ended March 31


   
(In millions)2016
20152017 2016
Pretax (favorable) unfavorable development:      
Commercial Auto$(15) $—
$(26) $(15)
General Liability(15) 4
—
 (15)
Workers' Compensation4
 (1)—
 4
Property and Other12
 (8)2
 12
Total pretax (favorable) unfavorable development$(14) $(5)$(24) $(14)
2017
Favorable development for commercial auto was primarily due to lower than expected severity in accident years 2013 through 2015.
2016
Favorable development for commercial auto was primarily due to favorable settlements on claims in accident years 2011 through 2014.
Favorable development for general liability was primarily due to favorable settlements on claims in accident years 2013 and 2014.
Unfavorable development for property and other was primarily due to higher than expected severity from a 2015 catastrophe event.
2015
Favorable development for property and other was due to lower than expected loss emergence from 2014 catastrophe events.
International
The following table presents further detail of the development recorded for the International segment.
Three months ended March 31      
(In millions)2016 20152017 2016
Pretax (favorable) unfavorable development:      
Medical Professional Liability$—
 $—
$—
 $—
Other Professional Liability(1) —
(1) (1)
Liability—
 (5)—
 —
Property & Marine(4) (6)1
 (4)
Other1
 7
(2) 1
Total pretax (favorable) unfavorable development$(4) $(4)$(2) $(4)



Asbestos and Environmental Pollution Reserves (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 the NICO through a Loss Portfolio Transfer (Loss Portfolio Transfer or LPT)(LPT). At the effective date of the 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.
Through December 31, 2013,Subsequent to the effective date of the LPT, the Company recognized $0.9 billion ofadverse prior year development on its A&EP reserves which resulted in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring deferredretroactive reinsurance accounting. Under retroactive reinsurance accounting, treatment. Thisthis gain is deferred gain isand only recognized in earnings in proportion to actual paid recoveries under the 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 incurredunder the LPT, the proportion of actual paid recoveries to total ceded losses is recognized,impacted and the change toin the deferred gain is cumulatively 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 Condensed Consolidated Statement of Operations.
The following table presents the impact of the Loss Portfolio Transfer on the Condensed Consolidated Statements of Operations.
Three months ended March 31    
(In millions)2016 20152017 2016
Net A&EP adverse development before consideration of LPT$200
 $—
$60
 $200
Provision for uncollectible third-party reinsurance on A&EP—
 —
Additional amounts ceded under LPT200
 —
Retroactive reinsurance benefit recognized(73) (5)(40) (73)
Pretax impact of unrecognized deferred retroactive reinsurance benefit$127
 $(5)
Pretax impact of A&EP reserve development and the LPT$20
 $127
The Company expected to complete its reserve review of A&EP reserves in the second quarter of 2016; however, during the first quarter of 2016 the Company received communication from NICO that their reserve review indicated a substantial increase in reserves. As a result, the Company accelerated and completed its reserve review during the first quarter. Based upon the Company's acceleratedannual A&EP reserve review, net unfavorable prior year development prior toof $60 million and $200 million was recognized before consideration of cessions to the LPT for the three months ended March 31, 2017 and 2016. The 2017 unfavorable development was driven by modestly higher anticipated payouts on claims from known sources of $200 million was recognized; $146 million related to asbestos claims and $54 million related to environmental pollution claims.exposure. The 2016 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. ThisWhile this unfavorable development was ceded to NICO under the LPT; howeverLPT, the Company’s reported earnings wereNet income in both periods was negatively affected due to the application of retroactive reinsurance accounting, as only a portion of the additional amounts ceded under the LPT were recognized in the current quarter. Retroactive reinsurance accounting resulted in the recognition of a reinsurance benefit of $73 million in the current quarter, while the remaining $127 million of incurred losses covered by the LPT will be recognized as a benefit through future earnings in proportion to the actual paid recoveries subject to the NICO LPT. All amounts recognized related to the LPT are recorded within Insurance claims and policyholders’ benefits in the Condensed Consolidated Statement of Operations.accounting.
As of March 31, 20162017 and December 31, 2015,2016, the cumulative amounts ceded under the LPT were $2.8$2.9 billion and $2.6$2.8 billion. Cumulative losses recognized in the Company's Condensed Consolidated Statement of Operations that are covered by the LPT were $368The unrecognized deferred retroactive reinsurance benefit was $354 million and $241$334 million as of March 31, 20162017 and December 31, 2015.2016.
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $2.7 billion and $2.8 billion as of March 31, 20162017 and December 31, 2015.2016. 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.

Note F. Legal Proceedings and Contingent LiabilitiesGuarantees
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. 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 March 31, 2017, 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
The Company identified rating errors related to its multi-peril package product within its Small Business unit in the fourth quarter of 2016 and recorded a charge which reduced Earned premium by $16 million in anticipation of voluntarily issuing premium refunds related to affected policies written from December 1, 2015.  The Company notified state regulators and provided them with details regarding these anticipated voluntary premium refunds and other corrective actions related to the multi-peril package product.  At that time, the Company also alerted regulators that it was reviewing other business lines to determine whether similar issues exist.
In the first quarter of 2017, the Company concluded its review and determined that there were also rating errors related to Small Business workers' compensation policies. Accordingly, the Company recorded a charge which reduced Earned premium by $42 million in anticipation of voluntarily issuing premium refunds related to affected policies written from March 1, 2014. The Company is currently in dialogue with state regulators regarding this matter.
The estimated refund liability for the multi-peril product and workers' compensations policies as of March 31, 2017 was $36 million and $50 million, respectively. In the first quarter of 2017, the Company also recorded a $5 million liability for interest due to policyholders on the aggregate refund amounts. Any fines or penalties related to the foregoing are reasonably possible, but are not expected to be material to the Company's Condensed Consolidated Financial Statements.
The amount of the refund and corresponding liability will continue to increase until required changes to the automated rating processes are fully implemented. The changes are expected to be implemented by the end of May for the multi-peril product and by the end of September for workers' compensation policies. Accordingly, subsequent to the periods discussed in the preceding paragraphs, written and earned premium for the subject product and policy lines are reported net of any impact from the premium rate adjustments.
Other Litigation
The Company is a party to other routine litigation incidental to its business, which, based on the facts and circumstances currently known, is not material to the Condensed Consolidated Financial Statements.
Note G. Benefit Plans
The components of net periodic cost (benefit) are presented in the following table.
Three months ended March 31   
(In millions)2016 2015
Pension cost (benefit)   
Service cost$—
 $2
Interest cost on projected benefit obligation28
 28
Expected return on plan assets(40) (43)
Amortization of net actuarial loss9
 9
Net periodic pension cost (benefit)$(3) $(4)


Note H. Commitments, Contingencies and Guarantees
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 March 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 $18 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 March 31, 20162017 and December 31, 2015,2016, the Company had recorded liabilities of approximately $5 million related to guarantee and indemnification agreements and managementagreements. 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 subsidiarysubsidiaries and to indemnify purchasers for losses arising out of breaches of representationrepresentations 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 March 31, 2016,2017, the aggregate amount related to quantifiable guarantees was $375$434 million and the aggregate amount related to quantifiable indemnification agreements was $259$254 million. ShouldIn certain cases, should the Company be required to make payments under theany such 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 March 31, 2016,2017, 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 March 31, 2016,2017, the potential amount of future payments the Company could be required to pay under these guarantees was approximately $2.0$1.8 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 G. Benefit Plans
The components of net periodic cost (benefit) are presented in the following table.
Three months ended March 31   
(In millions)2017 2016
Pension cost (benefit)   
Interest cost on projected benefit obligation$26
 $28
Expected return on plan assets(39) (40)
Amortization of net actuarial loss9
 9
Settlement loss2
 —
Net periodic pension cost (benefit)$(2) $(3)

Note I.H. Accumulated Other Comprehensive Income (Loss) by Component
The tabletables below displaysdisplay the changes in Accumulated other comprehensive income (loss) by component.
(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 January 1, 2016$27
 $390
 $(648) $(84) $(315)
Other comprehensive income (loss) before reclassifications3
 223
 —
 14
 240
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $7, $3, $- and $11(2) (11) (6) —
 (19)
Other comprehensive income (loss) net of tax (expense) benefit of $(3), $(116), $(3), $- and $(122)5
 234
 6
 14
 259
Balance as of March 31, 2016$32
 $624
 $(642) $(70) $(56)
(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 January 1, 2017$30
 $642
 $(647) $(198) $(173)
Other comprehensive income (loss) before reclassifications—
 85
 —
 11
 96
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $(2), $(9), $4, $- and $(7)4
 18
 (7) —
 15
Other comprehensive income (loss) net of tax (expense) benefit of $1, $(38), $(4), $- and $(41)(4) 67
 7
 11
 81
Balance as of March 31, 2017$26
 $709
 $(640) $(187) $(92)
(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 January 1, 2015$36
 $942
 $(633) $55
 $400
Other comprehensive income (loss) before reclassifications(1) 121
 —
 (96) 24
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $-, $-, $3, $- and $3—
 9
 (6) —
 3
Other comprehensive income (loss) net of tax (expense) benefit of $-, $(62), $(3), $- and $(65)(1) 112
 6
 (96) 21
Balance as of March 31, 2015$35
 $1,054
 $(627) $(41) $421
(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 January 1, 2016$27
 $390
 $(648) $(84) $(315)
Other comprehensive income (loss) before reclassifications3
 223
 —
 14
 240
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $7, $3, $- and $11(2) (11) (6) —
 (19)
Other comprehensive income (loss) net of tax (expense) benefit of $(3), $(116), $(3), $- and $(122)5
 234
 6
 14
 259
Balance as of March 31, 2016$32
 $624
 $(642) $(70) $(56)
Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:
Component of AOCI Condensed 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

Note J.I. Business Segments
The Company's core property and casualty commercial insurance operations are aggregatedmanaged and reported in three business segments: Specialty, Commercial and International. The Company's non-core operations are managed and reported in two segments: Life & Group Non-Core and Corporate & Other Non-Core.
The accounting policies of the segments are the same as those described in Note A to the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2015.2016. The Company manages most of its assets on a legal entity basis, while segment operations are generally conducted across legal entities. As such, only Insurance and Reinsurance receivables, Insurance reserves, Deferred acquisition costs and Goodwill 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 Net investment income and Realized 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.
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) the after-tax effects of 1)i) net realized investment gains (losses) 2)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 (losses) because net realized investment gains (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 operations and selected balance sheet items by segment are presented in the following tables.
Three months ended March 31, 2016

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
Three months ended March 31, 2017

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
(In millions)

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
 Eliminations Total Eliminations Total
Operating revenues  
  
 
  
    
  
  
  
Net earned premiums$682
 $688
 $198
 $131
 $—
 $—
 $1,699
$664
 $651
 $197
 $133
 $—
 $—
 $1,645
Net investment income107
 126
 12
 187
 3
 —
 435
153
 178
 12
 197
 5
 —
 545
Other revenues87
 6
 1
 —
 3
 —
 97
94
 9
 —
 1
 —
 —
 104
Total operating revenues876
 820
 211
 318
 6
 —
 2,231
911
 838
 209
 331
 5
 —
 2,294
Claims, Benefits and Expenses 
  
    
  
  
  
 
  
    
  
  
  
Net incurred claims and benefits390
 442
 121
 323
 128
 —
 1,404
386
 437
 115
 330
 21
 —
 1,289
Policyholders’ dividends1
 3
 —
 —
 —
 —
 4
1
 3
 —
 —
 —
 —
 4
Amortization of deferred acquisition costs144
 116
 47
 —
 —
 —
 307
143
 116
 46
 —
 —
 —
 305
Other insurance related expenses75
 141
 28
 33
 —
 —
 277
69
 126
 27
 32
 —
 —
 254
Other expenses75
 5
 9
 3
 54
 —
 146
81
 14
 (6) 2
 44
 —
 135
Total claims, benefits and expenses685
 707
 205
 359
 182
 —
 2,138
680
 696
 182
 364
 65
 —
 1,987
Operating income (loss) before income tax191
 113
 6
 (41) (176) —
 93
231
 142
 27
 (33) (60) —
 307
Income tax (expense) benefit on operating income (loss)(64) (39) —
 39
 62
 —
 (2)(77) (48) (7) 37
 23
 —
 (72)
Net operating income (loss) 127
 74
 6
 (2) (114) —
 91
154
 94
 20
 4
 (37) —
 235
Net realized investment gains (losses)(11) (18) 4
 (3) (8) —
 (36)7
 11
 6
 10
 2
 —
 36
Income tax (expense) benefit on net realized investment gains (losses)4
 6
 (1) —
 2
 —
 11
(3) (3) (1) (4) —
 —
 (11)
Net realized investment gains (losses), after tax(7) (12) 3
 (3) (6) —
 (25)4
 8
 5
 6
 2
 —
 25
Net income (loss)$120
 $62
 $9
 $(5) $(120) $—
 $66
$158
 $102
 $25
 $10
 $(35) $—
 $260
March 31, 2016             
March 31, 2017             
(In millions)                          
Reinsurance receivables$765
 $623
 $139
 $496
 $2,707
 $—
 $4,730
$817
 $616
 $133
 $448
 $2,419
 $—
 $4,433
Insurance receivables884
 1,025
 276
 14
 2
 —
 2,201
874
 1,048
 254
 12
 3
 —
 2,191
Deferred acquisition costs309
 225
 88
 —
 —
 —
 622
314
 225
 87
 —
 —
 —
 626
Goodwill117
 —
 33
 —
 —
 —
 150
117
 —
 29
 —
 —
 —
 146
Insurance reserves             
             
Claim and claim adjustment expenses6,325
 9,095
 1,395
 3,311
 2,892
 —
 23,018
6,224
 8,760
 1,343
 3,373
 2,560
 —
 22,260
Unearned premiums1,861
 1,347
 464
 136
 —
 (1) 3,807
1,941
 1,375
 450
 147
 —
 (1) 3,912
Future policy benefits—
 —
 —
 10,500
 —
 —
 10,500
—
 —
 —
 10,491
 —
 —
 10,491

Three months ended March 31, 2015

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
Three months ended March 31, 2016

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
    
(In millions)

Specialty
 

Commercial
 International 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
 Eliminations Total Eliminations Total
Operating revenues  
  
 
  
    
  
  
  
Net earned premiums$680
 $678
 $191
 $138
 $—
 $—
 $1,687
$682
 $688
 $198
 $131
 $—
 $—
 $1,699
Net investment income155
 204
 14
 179
 6
 —
 558
107
 126
 12
 187
 3
 —
 435
Other revenues78
 9
 —
 9
 2
 (1) 97
87
 6
 1
 —
 3
 —
 97
Total operating revenues913
 891
 205
 326
 8
 (1) 2,342
876
 820
 211
 318
 6
 —
 2,231
Claims, Benefits and Expenses 
      
  
  
  
 
      
  
  
  
Net incurred claims and benefits429
 454
 116
 340
 (4) —
 1,335
390
 442
 121
 323
 128
 —
 1,404
Policyholders’ dividends1
 3
 —
 —
 —
 —
 4
1
 3
 —
 —
 —
 —
 4
Amortization of deferred acquisition costs144
 117
 35
 7
 —
 —
 303
144
 116
 47
 —
 —
 —
 307
Other insurance related expenses69
 127
 37
 35
 —
 —
 268
75
 141
 28
 33
 —
 —
 277
Other expenses67
 8
 5
 4
 46
 (1) 129
75
 5
 9
 3
 54
 —
 146
Total claims, benefits and expenses710
 709
 193
 386
 42
 (1) 2,039
685
 707
 205
 359
 182
 —
 2,138
Operating income (loss) before income tax203
 182
 12
 (60) (34) —
 303
191
 113
 6
 (41) (176) —
 93
Income tax (expense) benefit on operating income (loss)(68) (62) (3) 43
 12
 —
 (78)(64) (39) —
 39
 62
 —
 (2)
Net operating income (loss)135
 120
 9
 (17) (22) —
 225
127
 74
 6
 (2) (114) —
 91
Net realized investment gains (losses)4
 4
 1
 1
 —
 —
 10
(11) (18) 4
 (3) (8) —
 (36)
Income tax (expense) benefit on net realized investment gains (losses)(1) (3) —
 2
 —
 —
 (2)4
 6
 (1) —
 2
 —
 11
Net realized investment gains (losses), after tax3
 1
 1
 3
 —
 —
 8
(7) (12) 3
 (3) (6) —
 (25)
Net income (loss)$138
 $121
 $10
 $(14) $(22) $—
 $233
$120
 $62
 $9
 $(5) $(120) $—
 $66

December 31, 2015             
March 31, 2016             
(In millions)                          
Reinsurance receivables$724
 $639
 $144
 $497
 $2,487
 $—
 $4,491
$765
 $623
 $139
 $496
 $2,707
 $—
 $4,730
Insurance receivables890
 993
 233
 11
 2
 —
 2,129
884
 1,025
 276
 14
 2
 —
 2,201
Deferred acquisition costs307
 213
 78
 —
 —
 —
 598
309
 225
 88
 —
 —
 —
 622
Goodwill117
 —
 33
 —
 —
 —
 150
117
 —
 33
 —
 —
 —
 150
Insurance reserves             
             
Claim and claim adjustment expenses6,269
 9,183
 1,347
 3,220
 2,644
 —
 22,663
6,325
 9,095
 1,395
 3,311
 2,892
 —
 23,018
Unearned premiums1,839
 1,297
 415
 120
 —
 —
 3,671
1,861
 1,347
 464
 136
 —
 (1) 3,807
Future policy benefits—
 —
 —
 10,152
 —
 —
 10,152
—
 —
 —
 10,500
 —
 —
 10,500




The following table presents revenue by line of business for each reportable segment. Revenues are comprised of Operatingoperating revenues and Netnet realized investment gains and losses.
Three months ended March 31      
(In millions)2016 20152017 2016
Specialty      
Management & Professional Liability$618
 $697
$661
 $618
Surety127
 120
123
 127
Warranty & Alternative Risks120
 100
134
 120
Specialty revenues865
 917
918
 865
Commercial 
  
 
  
Middle Market401
 409
458
 401
Small Business143
 165
97
 143
Other Commercial Insurance258
 321
294
 258
Commercial revenues802
 895
849
 802
International

 



 

Canada50
 55
51
 50
CNA Europe78
 77
73
 78
Hardy87
 74
91
 87
International revenues215
 206
215
 215
Life & Group Non-Core revenues315
 327
341
 315
Corporate & Other Non-Core revenues(2) 8
7
 (2)
Eliminations—
 (1)—
 —
Total revenues$2,195
 $2,352
$2,330
 $2,195


Item 2. Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
OverviewOVERVIEW
The following discussion highlights significant factors affecting the Company. References to “we,” “our,” “us” or like terms refer to the business of CNA. Based on 20142015 statutory net written premiums, we are the eighth largest commercial insurance writer and the 14th largest property and casualty insurance organization in the United States of America.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q and Item 1A Risk Factors and Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2015.2016.
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)i) net realized investment gains or losses, 2)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 because net realized investment gains or 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. 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 in Note JI to the Condensed Consolidated Financial Statements included under Part I, Item 1. For reconciliations of non-GAAP measures to the most comparable GAAP measures and other information, please refer herein and/or to CNA's most recent 10-K on file with the Securities and Exchange Commission.
In the evaluation ofevaluating the results of our core 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 effect of related acquisition expenses. Further information on our reserves is provided in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.


CONSOLIDATED 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.
Three months ended March 31   
(In millions)2016 2015
Operating Revenues   
Net earned premiums$1,699
 $1,687
Net investment income435
 558
Other revenues97
 97
Total operating revenues2,231
 2,342
Claims, Benefits and Expenses   
Net incurred claims and benefits1,404
 1,335
Policyholders' dividends4
 4
Amortization of deferred acquisition costs307
 303
Other insurance related expenses277
 268
Other expenses146
 129
Total claims, benefits and expenses2,138
 2,039
Operating income before income tax93
 303
Income tax expense on operating income(2) (78)
Net operating income91
 225
Net realized investment (losses) gains(36) 10
Income tax benefit (expense) on net realized investment (losses) gains11
 (2)
Net realized investment (losses) gains, after tax(25) 8
Net income$66
 $233
Net operating income decreased $134 million for the three months ended March 31, 2016 as compared with the same period 2015. Results in 2016 within our Corporate and Other Non-Core segment were negatively affected by an $83 million after-tax charge related to the application of retroactive reinsurance accounting to adverse reserve development ceded under the 2010 A&EP Loss Portfolio Transfer, as further discussed in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1. Net operating income decreased $57 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. Excluding the effect of the retroactive reinsurance charge, net operating results for our non-core segments improved $6 million primarily driven by our long term care business. Catastrophe losses were $24 million after tax for the three months ended March 31, 2016 as compared to $19 million after tax for the same period 2015.
Favorable net prior year development of $66 million was recorded for the three months ended March 31, 2016 as compared with unfavorable net prior year development of $2 million for the three months ended March 31, 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 Condensed Consolidated Financial Statements included under Part I, Item 1.


CRITICAL ACCOUNTING ESTIMATES
The preparation of the Condensed Consolidated Financial Statements in conformity with 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 Condensed Consolidated Financial Statements and the amounts of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Condensed 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 Condensed 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 below are considered by us to be critical to an understanding of our Condensed Consolidated Financial Statements as their application places the most significant demands on our judgment.judgment:
Insurance Reserves
Reinsurance and Insurance Receivables
Valuation of Investments and Impairment of Securities
Long Term Care Policies
Pension and Postretirement Benefit Obligations
Income Taxes
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. See the Critical Accounting Estimates section of our Management's Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20152016 for further information.


CONSOLIDATED 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.
Three months ended March 31   
(In millions)2017 2016
Operating Revenues   
Net earned premiums$1,645
 $1,699
Net investment income545
 435
Other revenues104
 97
Total operating revenues2,294
 2,231
Claims, Benefits and Expenses   
Net incurred claims and benefits1,289
 1,404
Policyholders' dividends4
 4
Amortization of deferred acquisition costs305
 307
Other insurance related expenses254
 277
Other expenses135
 146
Total claims, benefits and expenses1,987
 2,138
Operating income before income tax307
 93
Income tax expense on operating income(72) (2)
Net operating income235
 91
Net realized investment gains (losses)36
 (36)
Income tax (expense) benefit on net realized investment gains (losses)(11) 11
Net realized investment gains (losses), after tax25
 (25)
Net income$260
 $66
Net operating income increased $144 million for the three months ended March 31, 2017 as compared with the same period in 2016. Net operating income increased $61 million for our core segments primarily due to higher net investment income and lower underwriting expenses partially offset by unfavorable premium development. Net operating loss decreased $83 million for our non-core segments primarily due to lower adverse prior year reserve development recorded in the three months ended March 31, 2017 as compared to the same period in 2016 under the A&EP Loss Portfolio Transfer. Catastrophe losses were $24 million, after tax, for the three months ended March 31, 2017 and 2016.
Favorable net prior year development of $32 million and $66 million was recorded in the three months ended March 31, 2017 and 2016 related to our Specialty, Commercial and International segments. Further information on net prior year development is in Note E to the Condensed Consolidated Financial Statements included under Part 1, Item 1.


SEGMENT RESULTS
The following discusses the results for our operatingreporting segments. Our core property and casualty commercial insurance operations are aggregatedmanaged and reported in three business segments: Specialty, Commercial and International. Our non-core operations are managed and reported in two segments: Life & Group Non-Core and Corporate & Other Non-Core.


Specialty
The following table presents the results of operations.
Three months ended March 31      
(In millions, except ratios, rate and retention)2016 20152017 2016
Net written premiums$684
 $698
$679
 $684
Net earned premiums682
 680
664
 682
Net investment income107
 155
153
 107
Net operating income127
 135
154
 127
Net realized investment (losses) gains, after tax(7) 3
Net realized investment gains (losses), after tax4
 (7)
Net income120
 138
158
 120
      
Other performance metrics:      
Loss and loss adjustment expense ratio57.1% 63.1%58.2% 57.1%
Expense ratio32.1
 31.3
31.9
 32.1
Dividend ratio0.2
 0.2
0.1
 0.2
Combined ratio89.4% 94.6%90.2% 89.4%
      
Rate1% 1%1% 1%
Retention87
 86
88% 88%
New business$65
 $76
New Business$57
 $65
Net written premiums for Specialty decreased $14$5 million for the three months ended March 31, 20162017 as compared with the same period in 2015,2016, driven by lower new business due to competitive market conditions. Excluding premium development,business. The trend in net earned premiums decreased which was consistent with the trend in net written premiums.
Net operating income decreased $8increased $27 million for the three months ended March 31, 20162017 as compared with the same period in 2015. Lower2016, primarily due to higher net investment income was partially offset by higher net favorable prior year development.income.
The combined ratio improved 5.2increased 0.8 points for the three months ended March 31, 20162017 as compared with the same period in 2015.2016. The loss ratio improved 6.0increased 1.1 points primarily due to higherdriven by lower favorable net favorable prior year reserve development. Catastrophe losses were $4 million, or 0.5 points of the loss ratio, for the three months ended March 31, 2017, as compared to $4 million, or 0.6 points of the loss ratio, for the three months ended March 31, 2016, as compared to $7 million, or 1.1 points of the loss ratio for three months ended March 31, 2015.2016. The expense ratio increased 0.8improved 0.2 points for the three months ended March 31, 20162017 as compared with the same period in 2015 due to higher underwriting expenses.2016.
Favorable net prior year development of $45$36 million and $4$45 million was recorded in the three months ended March 31, 20162017 and 2015. Further information on net prior year development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table presents the gross and net carried reserves.
(In millions)March 31, 2016 December 31, 2015
Gross Case Reserves$1,999
 $2,011
Gross IBNR Reserves4,326
 4,258
Total Gross Carried Claim and Claim Adjustment Expense Reserves$6,325
 $6,269
Net Case Reserves$1,800
 $1,810
Net IBNR Reserves3,764
 3,758
Total Net Carried Claim and Claim Adjustment Expense Reserves$5,564
 $5,568



Commercial
The following table presents the results of operations.
Three months ended March 31   
(In millions, except ratios, rate and retention)2016 2015
Net written premiums$748
 $759
Net earned premiums688
 678
Net investment income126
 204
Net operating income74
 120
Net realized investment (losses) gains, after tax(12) 1
Net income62
 121
    
Other performance metrics:   
Loss and loss adjustment expense ratio64.2% 66.9%
Expense ratio37.3
 36.0
Dividend ratio0.4
 0.4
Combined ratio101.9% 103.3%
    
Rate—% 3%
Retention83
 76
New business$137
 $138
Net written premiums for Commercial decreased $11 million for the three months ended March 31, 2016 as compared with the same period in 2015. The increase in net earned premiums was consistent with the trend in recent quarters in net written premiums.
Net operating income decreased $46 million for the three months ended March 31, 2016 as compared with the same period in 2015. This decrease was due to lower net investment income partially offset by improved underwriting results.
The combined ratio improved 1.4 points for the three months ended March 31, 2016 as compared with the same period in 2015. The loss ratio improved 2.7 points due to an improved non-catastrophe current accident year loss ratio and higher favorable net prior year reserve development. Catastrophe losses were $28 million, or 4.1 points of the loss ratio for the three months ended March 31, 2016, as compared to $19 million, or 2.8 points of the loss ratio for the three months ended March 31, 2015. The expense ratio increased 1.3 points in the three months ended March 31, 2016 as compared with the same period in 2015, due to higher underwriting expenses and contingent commissions.
Favorable net prior year development of $16 million and $6 million was recorded in the three months ended March 31, 2016 and 2015.2016. Further information on net prior year development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table presents the gross and net carried reserves.
(In millions)March 31, 2016 December 31, 2015
Gross Case Reserves$4,856
 $4,975
Gross IBNR Reserves4,239
 4,208
Total Gross Carried Claim and Claim Adjustment Expense Reserves$9,095
 $9,183
Net Case Reserves$4,537
 $4,651
Net IBNR Reserves3,968
 3,925
Total Net Carried Claim and Claim Adjustment Expense Reserves$8,505
 $8,576
(In millions)March 31, 2017 December 31, 2016
Gross case reserves$1,842
 $1,871
Gross IBNR reserves4,382
 4,278
Total gross carried claim and claim adjustment expense reserves$6,224
 $6,149
Net case reserves$1,681
 $1,681
Net IBNR reserves3,731
 3,723
Total net carried claim and claim adjustment expense reserves$5,412
 $5,404

InternationalCommercial
The following table presents the results of operations.
Three months ended March 31      
(In millions, except ratios, rate and retention)2016 20152017 2016
Net written premiums$236
 $212
$715
 $748
Net earned premiums198
 191
651
 688
Net investment income12
 14
178
 126
Net operating income6
 9
94
 74
Net realized investment gains, after tax
3
 1
Net realized investment gains (losses), after tax8
 (12)
Net income9
 10
102
 62
      
Other performance metrics:      
Loss and loss adjustment expense ratio61.2% 60.7 %67.0% 64.2 %
Expense ratio37.8
 37.6
37.4
 37.3
Dividend ratio—
 —
0.5
 0.4
Combined ratio99.0% 98.3 %104.9% 101.9 %
      
Rate—% (1)%0% 0 %
Retention77
 78
83% 84 %
New business (a)
$60
 $35
New Business$139
 $137
(a) Beginning in 2016, new business includes Hardy. New businessNet written premiums for Hardy was $31Commercial decreased $33 million for the three months ended March 31, 2016.2017 as compared with the same period in 2016, due to unfavorable premium development driven by a premium rate adjustment within Small Business more fully discussed in Note F to the Condensed Consolidated Financial Statements under Part 1, Item 1. This was partially offset by higher new business within Middle Markets.
Net written premiums for Internationaloperating income increased $24$20 million for the three months ended March 31, 20162017 as compared with the same period 2015. Results in 2015 were negatively affected2016, due to higher net investment income, lower underwriting expenses and higher favorable net prior year loss reserve development, partially offset by $16 million of unfavorable premium development primarily at Hardy. Excludingdriven by the effect of foreign currency exchange rates,Small Business premium development and the timing of reinsurance spend, net written premiums for the three months ended March 31, 2016 were steady as compared to the same period in 2015. The increase in net earned premiums was consistent with the trend in net written premiums.rate adjustment.
The combined ratio increased 0.73.0 points for the three months ended March 31, 20162017, as compared with the same period in 2015. The2016, due to the unfavorable premium development. Excluding the impact of the Small Business premium rate adjustment on the ratios for both periods, the combined ratio decreased 3.6 points, driven by a 1.4 point decrease in the loss ratio increased 0.5 pointsprimarily due to an increase in the current accident year loss ratio driven by political risk losses which was substantially offset by thehigher favorable period over period effect of net prior year premium development. loss reserve development and a 2.3 point decrease in the expense ratio primarily due to lower employee costs.
Catastrophe losses were $4$27 million, or 2.14.0 points of the loss ratio, for the three months ended March 31, 2016,2017, as compared to $3$28 million, or 1.34.1 points of the loss ratio, for the three months ended March 31, 2015. The expense ratio increased 0.2 points for the three months ended March 31, 2016 as compared with the same period in 2015 due to higher expenses, partially offset by the favorable impact of higher net earned premiums.2016.
Favorable net prior year loss reserve development of $5$24 million and unfavorable premium development of $37 million was recorded for the three months ended March 31, 20162017 as compared with unfavorablefavorable net prior year loss reserve development of $12$14 million and favorable premium development of $2 million for the three months ended March 31, 2015.2016. Further information on net prior year development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

The following table presents the gross and net carried reserves.
(In millions)March 31, 2017 December 31, 2016
Gross case reserves$4,613
 $4,661
Gross IBNR reserves4,147
 4,233
Total gross carried claim and claim adjustment expense reserves$8,760
 $8,894
Net case reserves$4,322
 $4,353
Net IBNR reserves3,862
 3,952
Total net carried claim and claim adjustment expense reserves$8,184
 $8,305

International
The following table presents the results of operations.
Three months ended March 31   
(In millions, except ratios, rate and retention)2017 2016
Net written premiums$238
 $236
Net earned premiums197
 198
Net investment income12
 12
Net operating income20
 6
Net realized investment gains, after tax5
 3
Net income25
 9
    
Other performance metrics:   
Loss and loss adjustment expense ratio58.3 % 61.2%
Expense ratio36.8
 37.8
Combined ratio95.1 % 99.0%
    
Rate0 % 0%
Retention76 % 81%
New Business$65
 $60
Net written premiums for International for the three months ended March 31, 2017 were consistent with 2016. Excluding the effect of foreign currency exchange rates and premium development, net written premiums increased 1.1% and net earned premiums were flat for the three months ended March 31, 2017 as compared with the same period in 2016.
Net operating income increased $14 million for the three months ended March 31, 2017 as compared with 2016, due to the favorable period over period effect of foreign currency exchange gains and losses and improved underwriting results.
The combined ratio improved 3.9 points for the three months ended March 31, 2017 as compared with 2016. The loss ratio improved 2.9 points, primarily due to an improved current accident year loss ratio driven by a lower level of large losses and higher favorable premium development. Catastrophe losses were $3 million, or 1.7 points of the loss ratio, for three months ended March 31, 2017 as compared to $4 million, or 2.1 points of the loss ratio, for three months ended March 31, 2016. The expense ratio improved 1.0 point for three months ended March 31, 2017, as compared with the same period in 2016, primarily due to foreign currency fluctuations.
Favorable net prior year development of $9 million and $5 million was recorded for the three months ended March 31, 2017 and 2016. Further information on net prior year development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item I.
The following table presents the gross and net carried reserves.
(In millions)March 31, 2016 December 31, 2015
Gross Case Reserves$638
 $622
Gross IBNR Reserves757
 725
Total Gross Carried Claim and Claim Adjustment Expense Reserves$1,395
 $1,347
Net Case Reserves$558
 $531
Net IBNR Reserves692
 688
Total Net Carried Claim and Claim Adjustment Expense Reserves$1,250
 $1,219

(In millions)March 31, 2017 December 31, 2016
Gross case reserves$641
 $632
Gross IBNR reserves702
 696
Total gross carried claim and claim adjustment expense reserves$1,343
 $1,328
Net case reserves$559
 $548
Net IBNR reserves666
 653
Total net carried claim and claim adjustment expense reserves$1,225
 $1,201

Life & Group Non-Core
The following table presents the results of operations.
Three months ended March 31      
(In millions)2016 20152017 2016
Net earned premiums$131
 $138
$133
 $131
Net investment income187
 179
197
 187
Net operating loss(2) (17)
Net realized investment (losses) gains, after tax(3) 3
Net loss(5) (14)
Net operating income (loss)4
 (2)
Net realized investment gains (losses), after tax6
 (3)
Net income (loss)10
 (5)
Net earned premiums for Life & Group Non-Core decreased $7operating results improved $6 million for the three months ended March 31, 20162017 as compared with the same period in 2015.2016. The effect of policy lapsesimprovement was driven by higher net investment income and favorable morbidity partially offset by premium rate increases.
Due to the recognition of the premium deficiency and resetting of actuarial assumptionsunfavorable persistency in the fourth quarter of 2015, the operating results for our long term care business in 2016 now reflect the variance between actual experience and the expected results contemplated in our best estimate reserves. The net operating loss of $2 million for the three months ended March 31, 2016 is reflective of long term care business performance, generally in line with expectations.business.
Corporate & Other Non-Core
The following table presents the results of operations.
Three months ended March 31      
(In millions)2016 20152017 2016
Net investment income$3
 $6
$5
 $3
Interest expense42
 39
38
 42
Net operating loss
(114) (22)(37) (114)
Net realized investment losses, after tax(6) —
Net realized investment gains (losses), after tax2
 (6)
Net loss
(120) (22)(35) (120)
Net operating loss increased $92was $37 million for the three months ended March 31, 20162017, an improvement of $77 million as compared with the same period in 2015. During the three months ended March 31, 2016 we. This improvement was driven by lower adverse prior year reserve development recorded net unfavorable development of $200 million related to ourin 2017 for A&EP reserves. This unfavorable development was ceded to NICO under the 2010 Loss Portfolio Transfer, however the Company’s reported earnings were negatively affected by $83 million, after tax, due to the application of retroactive reinsurance accounting, asTransfer. This is further discussed in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table presents the gross and net carried reserves.
(In millions)March 31, 2016 December 31, 2015
Gross Case Reserves$1,490
 $1,521
Gross IBNR Reserves1,402
 1,123
Total Gross Carried Claim and Claim Adjustment Expense Reserves$2,892
 $2,644
Net Case Reserves$127
 $130
Net IBNR Reserves152
 153
Total Net Carried Claim and Claim Adjustment Expense Reserves$279
 $283
(In millions)March 31, 2017 December 31, 2016
Gross case reserves$1,458
 $1,524
Gross IBNR reserves1,102
 1,090
Total gross carried claim and claim adjustment expense reserves$2,560
 $2,614
Net case reserves$95
 $94
Net IBNR reserves132
 136
Total net carried claim and claim adjustment expense reserves$227
 $230


INVESTMENTS
Net Investment Income
The significant components of Net investment income are presented in the following table.
Three months ended March 31      
(In millions)2016 20152017 2016
Fixed maturity securities:      
Taxable$345
 $342
$347
 $345
Tax-Exempt101
 101
108
 101
Total fixed maturity securities446
 443
455
 446
Limited partnership investments(14) 114
90
 (14)
Other, net of investment expense3
 1
—
 3
Net investment income$435
 $558
$545
 $435
Net investment income, after tax$315
 $394
$389
 $315
      
Effective income yield for the fixed maturity securities portfolio, pretax4.8% 4.8%4.8% 4.8%
Effective income yield for the fixed maturity securities portfolio, after tax3.4% 3.4%3.4% 3.4%
Net investment income, after tax, for the three months ended March 31, 2016 decreased $792017 increased $74 million as compared with the same period in 2015.2016. The decreaseincrease was driven by limited partnership investments, which returned (0.6)%3.8% in 2017 as compared with 3.9%(0.6)% in the prior year period. Income from fixed maturity securities, after tax, for the three months ended March 31, 2017 increased $7 million as compared with the same period in 2016, primarily due to an increase in the invested asset base.
Net Realized Investment Gains (Losses)
The components of Net realized investment results are presented in the following table.
Three months ended March 31      
(In millions)2016 20152017 2016
Fixed maturity securities:      
Corporate and other bonds$(15) $13
$29
 $(15)
States, municipalities and political subdivisions3
 (4)6
 3
Asset-backed(6) 3
(4) (6)
U.S. Treasury and obligations of government-sponsored enterprises1
 —
1
 1
Total fixed maturity securities(17) 12
32
 (17)
Equity securities(5) —
—
 (5)
Derivative financial instruments(7) (1)
Derivative securities1
 (7)
Short term investments and other(7) (1)3
 (7)
Net realized investment (losses) gains(36) 10
Income tax benefit (expense) on net realized investment (losses) gains11
 (2)
Net realized investment (losses) gains, after tax$(25) $8
Net realized investment gains (losses)36
 (36)
Income tax (expense) benefit on net realized investment gains (losses)(11) 11
Net realized investment gains (losses), after tax$25
 $(25)
Net realized investment results, after tax, decreased $33improved $50 million for the three months ended March 31, 20162017 as compared with the same period in 2015,2016, driven by lowerthe favorable period over period effect of net realized investment gains on sales of securities and higherlower OTTI losses recognized in earnings. Additionally, the current period Net realized investment losses include $5 million, after tax, related to the redemption of our $350 million senior notes due August 2016. Further information on our realized gains and losses, including our OTTI losses, is set forth in Note C to the Condensed Consolidated Financial Statements included under Part I, Item 1.

Portfolio Quality
The following table presents the estimated fair value and net unrealized gains (losses) of our fixed maturity securities by rating distribution.
March 31, 2016 December 31, 2015March 31, 2017 December 31, 2016

(In millions)
Estimated Fair Value Net Unrealized Gains (Losses) Estimated Fair Value Net Unrealized Gains (Losses)Estimated Fair Value Net Unrealized Gains (Losses) Estimated Fair Value Net Unrealized Gains (Losses)
U.S. Government, Government agencies and Government-sponsored enterprises$4,177
 $154
 $3,910
 $101
$3,995
 $28
 $4,212
 $32
AAA1,960
 141
 1,938
 123
1,832
 117
 1,881
 110
AA8,758
 1,058
 8,919
 900
9,016
 761
 8,911
 750
A10,352
 1,061
 10,044
 904
9,705
 823
 9,866
 832
BBB11,898
 571
 11,595
 307
13,166
 815
 12,802
 664
Non-investment grade3,107
 (4) 3,166
 (16)3,266
 167
 3,233
 156
Total$40,252
 $2,981
 $39,572
 $2,319
$40,980
 $2,711
 $40,905
 $2,544
As of March 31, 20162017 and December 31, 2015,2016, only 2% and 1% of our fixed maturity portfolio was rated internally.
The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.
March 31, 2016March 31, 2017
(In millions)Estimated Fair Value Gross Unrealized LossesEstimated Fair Value Gross Unrealized Losses
U.S. Government, Government agencies and Government-sponsored enterprises$70
 $1
$2,154
 $44
AAA254
 4
284
 8
AA154
 2
591
 18
A687
 25
833
 20
BBB2,412
 125
1,819
 37
Non-investment grade1,318
 126
737
 15
Total$4,895
 $283
$6,418
 $142
The following table presents 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.
March 31, 2016March 31, 2017
(In millions)Estimated Fair Value Gross Unrealized LossesEstimated Fair Value Gross Unrealized Losses
Due in one year or less$323
 $3
$90
 $2
Due after one year through five years1,024
 38
816
 10
Due after five years through ten years2,689
 159
4,083
 82
Due after ten years859
 83
1,429
 48
Total$4,895
 $283
$6,418
 $142

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.
The effective durations of fixed maturity securities and short term investments are presented in the following table. Amounts presented are net of payable and receivable amounts for securities purchased and sold, but not yet settled.
March 31, 2016 December 31, 2015March 31, 2017 December 31, 2016
(In millions)Estimated Fair Value 
Effective
Duration
(In years)
 Estimated 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$15,344
 9.2
 $14,879
 9.6
$15,957
 8.8
 $15,724
 8.7
Other interest sensitive investments26,483
 4.1
 26,435
 4.3
26,218
 4.6
 26,669
 4.6
Total$41,827
 6.0
 $41,314
 6.2
$42,175
 6.2
 $42,393
 6.1
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 the Quantitative and Qualitative Disclosures About Market Risk included under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2015.2016.
Short Term Investments
The carrying valuesvalue of the components of the Short term investments are presented in the following table.
      
(In millions)March 31, 2016 December 31, 2015March 31, 2017 December 31, 2016
Short term investments:      
Commercial paper$945
 $998
$769
 $733
U.S. Treasury securities462
 411
175
 433
Money market funds64
 60
52
 44
Other177
 191
143
 197
Total short term investments$1,648
 $1,660
$1,139
 $1,407

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 the three months ended March 31, 2016,2017, net cash provided by operating activities was $334$282 million as compared with $94$334 million for the same period in 2015.2016. Cash provided by operating activities reflected increased receipts relating to returnsa lower level of distributions on limited partnerships.partnerships and higher net claim and expense payments partially offset by the timing of income tax payments and lower salaries and related expenses.
Cash flows from investing activities include the purchase and disposition of available-for-sale financial instruments and may include the purchase and sale of businesses, land, buildings, equipment and other assets not generally held for resale.
Net cash provided by investing activities was $354 million for the three months ended March 31, 2017, as compared with net cash used of $9 million for the same period in 2016. The cash flow from investing activities is affected 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.
Net cash used by investing activities was $9 million for the three months ended March 31, 2016, as compared with net cash provided of $526 million for the same period in 2015. 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.
For the three months ended March 31, 2016,2017, net cash used by financing activities was $469$609 million as compared with $603$469 million for the same period in 2015. 2016. In the first quarter of 2016, we issuedissued $500 million of 4.50% senior notes due March 1, 2026 and redeemed the $350 million outstanding aggregate principal balance of theour 6.50% senior notes due August 15, 2016.
Common Stock Dividends
A quarterly dividend of $0.25 per share and a special dividend of $2.00 per share ofon our common stock were declared and paid in the first quarter of 2016.2017. On April 29, 2016,28, 2017, our Board of Directors declared a quarterly dividend of $0.25 per share on our common stock, payable June 1, 2016May 31, 2017 to stockholders of record on May 16, 2016.15, 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.

Liquidity
We believe that our present cash flows from operating, investing 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).
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 yearsyear'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 from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of March 31, 20162017 CCC was in a positive earned surplus position. The maximum allowable dividend CCC could pay during 20162017 that would not be subject to the Department's prior approval is $1,079$1,075 million, less dividends paid during the preceding twelve months measured at that point in time. CCC paid dividends of $300$200 million during the nine months ended December 31, 20152016 and $565$675 million during the three months ended March 31, 2016.2017. As of March 31, 20162017 CCC is able to pay approximately $214$200 million of dividends that would not be subject to prior approval of the Department. 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.
We have an effective automatic shelf registration statement under which we may publicly issue debt, equity or hybrid securities.securities from time to time.


ACCOUNTING STANDARDS UPDATESUPDATE
For discussion of Accounting Standards Updates adopted in the current period and that will be adopted in the future, see Note A to the Condensed Consolidated Financial Statements.Statements included under Part I, Item 1.
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 A&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 insurance reserves, as outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of our Annual Report on Form 10-K, 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 such transactions, the successful integration of acquired 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 underpriced 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.

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; and
the occurrence of epidemics.
Referendum on the United Kingdom's Membership in the European Union
in 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, in 2017 the British government formally commenced the process to leave the E.U. and began negotiating the terms of treaties that will govern the U.K.'s future relationship with the E.U. 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 Quarterly Report on which they are madeForm 10-Q 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.


Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our market risk components for the three months ended March 31, 2016.2017. See the Quantitative and Qualitative Disclosures About Market Risk included in Item 7A onof our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 20152016 for further information. Additional information related to portfolio duration is discussed in the Investments section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including this report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management on a timely basis to allow decisions regarding required disclosure.
As of March 31, 2016,2017, 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 Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective as of March 31, 2016.2017.
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 March 31, 20162017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II. Other Information
Item 1. Legal Proceedings
Information on our legal proceedings is set forth in Note F to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Item 6. Exhibits
See Exhibit Index.


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: May 3, 20161, 2017By/s/ D. Craig Mense
  
D. Craig Mense
Executive Vice President and
Chief Financial Officer



EXHIBIT INDEX

Description of ExhibitExhibit Number
Form of Award Letter to Executive Officers, along with Form of Award Terms, under the Long-Term Incentive Cash Plan10.1
  
Certification of Chief Executive Officer31.1
  
Certification of Chief Financial Officer31.2
  
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
  
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
  
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





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