CNA 2015 Q1


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, 2015
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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [x]
 
Accelerated filer [ ]
 
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
 
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 May 1, 2015
Common Stock, Par value $2.50
 
270,245,346


Item Number
 
Page
Number
 
PART I. Financial Information
 
1.
 
 
 
 
 
 
 
2.
3.
4.
 
PART II. Other Information
 
1.
4.
6.


2
Table of Contents

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)
2015
 
2014
Revenues
 
 
 
Net earned premiums
$
1,687

 
$
1,806

Net investment income
558

 
526

Net realized investment gains:
 
 
 
Other-than-temporary impairment losses
(12
)
 
(2
)
Portion of other-than-temporary impairments recognized in Other comprehensive income
—

 
—

Net other-than-temporary impairment losses recognized in earnings
(12
)
 
(2
)
Other net realized investment gains
22

 
48

Net realized investment gains
10

 
46

Other revenues
97

 
85

Total revenues
2,352

 
2,463

Claims, Benefits and Expenses
 
 
 
Insurance claims and policyholders’ benefits
1,339

 
1,446

Amortization of deferred acquisition costs
303

 
329

Other operating expenses
358

 
346

Interest
39

 
44

Total claims, benefits and expenses
2,039

 
2,165

Income from continuing operations before income tax
313

 
298

Income tax expense
(80
)
 
(78
)
Income from continuing operations
233

 
220

Loss from discontinued operations, net of income tax benefit of $0 and $38
—

 
(207
)
Net income
$
233

 
$
13

 
 
 
 
Basic Earnings Per Share
 
 
 
Income from continuing operations
$
0.86

 
$
0.82

Loss from discontinued operations
—

 
(0.77
)
Basic earnings per share
$
0.86

 
$
0.05

 
 
 
 
Diluted Earnings Per Share
 
 
 
Income from continuing operations
$
0.86

 
$
0.81

Loss from discontinued operations
—

 
(0.76
)
Diluted earnings per share
$
0.86

 
$
0.05

 
 
 
 
Dividends per share
$
2.25

 
$
1.25

 
 
 
 
Weighted Average Outstanding Common Stock and Common Stock Equivalents
 
 
 
Basic
270.1

 
269.8

Diluted
270.7

 
270.5


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).



3
Table of Contents

CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Other Comprehensive Income, Net of Tax
 
 
 
Changes in:
 
 
 
Net unrealized gains on investments with other-than-temporary impairments
$
(1
)
 
$
12

Net unrealized gains on other investments
112

 
237

Net unrealized gains on investments
111

 
249

Net unrealized gains on discontinued operations
—

 
8

Foreign currency translation adjustment
(96
)
 
(8
)
Pension and postretirement benefits
6

 
1

Other comprehensive income, net of tax
21

 
250

Net income
233

 
13

Total comprehensive income
$
254

 
$
263


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

4
Table of Contents

CNA Financial Corporation
Condensed Consolidated Balance Sheets
(In millions, except share data)
March 31, 2015 (Unaudited)
 
December 31,
2014
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities at fair value (amortized cost of $36,875 and $37,335)
$
40,605

 
$
40,768

Equity securities at fair value (cost of $213 and $210)
225

 
222

Limited partnership investments
2,967

 
2,937

Other invested assets
43

 
41

Mortgage loans
586

 
588

Short term investments
1,506

 
1,706

Total investments
45,932

 
46,262

Cash
201

 
190

Reinsurance receivables (less allowance for uncollectible receivables of $48 and $48)
4,720

 
4,694

Insurance receivables (less allowance for uncollectible receivables of $59 and $61)
2,050

 
1,936

Accrued investment income
430

 
405

Deferred acquisition costs
616

 
600

Deferred income taxes
57

 
191

Property and equipment at cost (less accumulated depreciation of $364 and $364)
298

 
295

Goodwill
151

 
152

Other assets
1,010

 
841

Total assets
$
55,465

 
$
55,566

Liabilities
 

 
 

Insurance reserves:
 
 
 

Claim and claim adjustment expenses
$
23,248

 
$
23,271

Unearned premiums
3,710

 
3,592

Future policy benefits
9,747

 
9,490

Policyholders' funds
—

 
27

Long term debt
2,560

 
2,559

Other liabilities (includes $6 and $153 due to Loews Corporation)
3,763

 
3,833

Total liabilities
43,028

 
42,772

Commitments and contingencies (Notes C, F and H)
 
 
 
Stockholders' Equity
 

 
 

Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 270,241,545 and 269,980,202 shares outstanding)
683

 
683

Additional paid-in capital
2,143

 
2,151

Retained earnings
9,270

 
9,645

Accumulated other comprehensive income
421

 
400

Treasury stock (2,798,698 and 3,060,041 shares), at cost
(79
)
 
(84
)
Notes receivable for the issuance of common stock
(1
)
 
(1
)
Total stockholders’ equity
12,437

 
12,794

Total liabilities and stockholders' equity
$
55,465

 
$
55,566


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


5
Table of Contents

CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Cash Flows from Operating Activities
 
 
 
Net income
$
233

 
$
13

Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 
 
Impairment loss on sale of subsidiary
—

 
255

Deferred income tax expense
71

 
25

Trading portfolio activity
13

 
21

Net realized investment gains
(10
)
 
(47
)
Equity method investees
(91
)
 
132

Net amortization of investments
—

 
(1
)
Depreciation and amortization
19

 
20

Changes in:
 
 
 
Receivables, net
(157
)
 
126

Accrued investment income
(25
)
 
(36
)
Deferred acquisition costs
(13
)
 
(21
)
Insurance reserves
304

 
85

Other assets
(34
)
 
(35
)
Other liabilities
(235
)
 
(372
)
Other, net
19

 
3

Total adjustments
(139
)
 
155

Net cash flows provided by operating activities
94

 
168

Cash Flows from Investing Activities
 

 
 

Dispositions:
 
 
 
Fixed maturity securities - sales
1,144

 
1,550

Fixed maturity securities - maturities, calls and redemptions
1,144

 
851

Equity securities
2

 
11

Limited partnerships
20

 
68

Mortgage loans
3

 
13

Purchases:


 
 
Fixed maturity securities
(1,919
)
 
(2,072
)
Equity securities
(5
)
 
(5
)
Limited partnerships
(34
)
 
(73
)
Mortgage loans
(8
)
 
—

Change in other investments
7

 
—

Change in short term investments
190

 
(688
)
Purchases of property and equipment
(20
)
 
(10
)
Other, net
2

 
1

Net cash flows provided (used) by investing activities
$
526

 
$
(354
)

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


6
Table of Contents

Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Cash Flows from Financing Activities
 
 
 
Dividends paid to common stockholders
$
(608
)
 
$
(338
)
Proceeds from the issuance of debt
—

 
546

Other, net
5

 
2

Net cash flows provided (used) by financing activities
(603
)

210

Effect of foreign exchange rate changes on cash
(6
)
 
1

Transfer of cash to assets held for sale
—

 
(14
)
Net change in cash
11

 
11

Cash, beginning of year
190

 
195

Cash, end of period
$
201

 
$
206


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).



7
Table of Contents

CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Common Stock
 
 
 
Balance, beginning of period
$
683

 
$
683

Balance, end of period
683

 
683

Additional Paid-in Capital
 
 
 
Balance, beginning of period
2,151

 
2,145

Stock-based compensation
(8
)
 
(1
)
Balance, end of period
2,143

 
2,144

Retained Earnings
 
 
 
Balance, beginning of period
9,645

 
9,495

Dividends paid to common stockholders
(608
)
 
(338
)
Net income
233

 
13

Balance, end of period
9,270

 
9,170

Accumulated Other Comprehensive Income
 
 
 
Balance, beginning of period
400

 
442

Other comprehensive income
21

 
250

Balance, end of period
421

 
692

Treasury Stock
 
 
 
Balance, beginning of period
(84
)
 
(91
)
Stock-based compensation
5

 
6

Balance, end of period
(79
)
 
(85
)
Notes Receivable for the Issuance of Common Stock
 
 
 
Balance, beginning of period
(1
)
 
(23
)
Decrease in notes receivable for common stock
—

 
1

Balance, end of period
(1
)
 
(22
)
Total Stockholders' Equity
$
12,437

 
$
12,582


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).




8
Table of Contents

CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A. General
Basis of Presentation
The Condensed Consolidated Financial Statements (Unaudited) 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, 2015.
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, 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, 2014, 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 periods. Actual results may differ from those estimates.
The interim financial data as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 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.
Sale of Continental Assurance Company (CAC)
On August 1, 2014, the Company completed the sale of the common stock of CAC, the Company's former life insurance subsidiary. In the first quarter of 2014, the Company recorded an after-tax impairment loss of $214 million related to the sale. The Company elected to include CAC cash flow activity in the comparative Condensed Consolidated Statement of Cash Flows. Further information on discontinued operations is provided in Note K to the Condensed Consolidated 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, 2015 and 2014, approximately 654 thousand and 660 thousand potential shares attributable to exercises under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, approximately 182 thousand and 110 thousand potential shares attributable to exercises under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because the effect would have been antidilutive.

9
Table of Contents

Note C. Investments
The significant components of Net investment income are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Fixed maturity securities
$
443

 
$
452

Short term investments
2

 
1

Limited partnership investments
114

 
73

Equity securities
3

 
2

Mortgage loans
8

 
6

Trading portfolio
2

 
3

Other
—

 
2

Gross investment income
572

 
539

Investment expense
(14
)
 
(13
)
Net investment income
$
558

 
$
526

Net realized investment gains (losses) are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Net realized investment gains (losses):
 
 
 
Fixed maturity securities:
 
 
 
Gross realized gains
$
33

 
$
53

Gross realized losses
(21
)
 
(15
)
Net realized investment gains (losses) on fixed maturity securities
12

 
38

Equity securities:
 
 
 

Gross realized gains
1

 
5

Gross realized losses
(1
)
 
—

Net realized investment gains (losses) on equity securities
—

 
5

Derivatives
(1
)
 
—

Short term investments and other
(1
)
 
3

Net realized investment gains (losses)
$
10

 
$
46

The components of Net other-than-temporary impairment (OTTI) losses recognized in earnings by asset type are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Fixed maturity securities available-for-sale:
 
 
 
Corporate and other bonds
$
5

 
$
1

States, municipalities and political subdivisions
5

 
—

Asset-backed - residential mortgage-backed
1

 
1

Total fixed maturity securities available-for-sale
11

 
2

Equity securities available-for-sale:
 
 
 
Common stock
1

 
—

Net OTTI losses recognized in earnings
$
12

 
$
2


10
Table of Contents

The following tables present a summary of fixed maturity and equity securities.
March 31, 2015
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
(In millions)
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
16,721

 
$
1,867

 
$
43

 
$
18,545

 
$
—

States, municipalities and political subdivisions
11,407

 
1,536

 
9

 
12,934

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
4,998

 
241

 
13

 
5,226

 
(51
)
Commercial mortgage-backed
2,151

 
114

 
5

 
2,260

 
(3
)
Other asset-backed
1,109

 
15

 
1

 
1,123

 
—

Total asset-backed
8,258

 
370

 
19

 
8,609

 
(54
)
U.S. Treasury and obligations of government-sponsored enterprises
24

 
6

 
—

 
30

 
—

Foreign government
390

 
19

 
—

 
409

 
—

Redeemable preferred stock
39

 
3

 
—

 
42

 
—

Total fixed maturity securities available-for-sale
36,839

 
3,801

 
71

 
40,569

 
$
(54
)
Total fixed maturity securities trading
36

 


 


 
36

 
 
Equity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Common stock
41

 
9

 
—

 
50

 
 
Preferred stock
172

 
7

 
4

 
175

 
 
Total equity securities available-for-sale
213

 
16

 
4

 
225

 
 
Total
$
37,088

 
$
3,817

 
$
75

 
$
40,830

 
 

December 31, 2014
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
(In millions)
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
17,210

 
$
1,721

 
$
61

 
$
18,870

 
$
—

States, municipalities and political subdivisions
11,285

 
1,463

 
8

 
12,740

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
5,028

 
218

 
13

 
5,233

 
(53
)
Commercial mortgage-backed
2,056

 
93

 
5

 
2,144

 
(2
)
Other asset-backed
1,234

 
11

 
10

 
1,235

 
—

Total asset-backed
8,318

 
322

 
28

 
8,612

 
(55
)
U.S. Treasury and obligations of government-sponsored enterprises
26

 
5

 
—

 
31

 
—

Foreign government
438

 
16

 
—

 
454

 
—

Redeemable preferred stock
39

 
3

 
—

 
42

 
—

Total fixed maturity securities available-for-sale
37,316

 
3,530

 
97

 
40,749

 
$
(55
)
Total fixed maturity securities trading
19

 


 


 
19

 
 
Equity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Common stock
38

 
9

 
—

 
47

 
 
Preferred stock
172

 
5

 
2

 
175

 
 
Total equity securities available-for-sale
210

 
14

 
2

 
222

 
 
Total
$
37,545

 
$
3,544

 
$
99

 
$
40,990

 
 


11
Table of Contents

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. As of March 31, 2015 and December 31, 2014, the net unrealized gains on investments included in AOCI were net of after-tax Shadow Adjustments of $1,370 million and $1,288 million. 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 decrease in Deferred acquisition costs and/or increase in Insurance reserves are recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).

12
Table of Contents

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
 
Total
March 31, 2015
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
840

 
$
31

 
$
139

 
$
12

 
$
979

 
$
43

States, municipalities and political subdivisions
479

 
6

 
100

 
3

 
579

 
9

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
318

 
5

 
148

 
8

 
466

 
13

Commercial mortgage-backed
175

 
3

 
62

 
2

 
237

 
5

Other asset-backed
187

 
1

 
5

 
—

 
192

 
1

Total asset-backed
680

 
9

 
215

 
10

 
895

 
19

U.S. Treasury and obligations of government-sponsored enterprises
3

 
—

 
—

 
—

 
3

 
—

Foreign government
13

 
—

 
1

 
—

 
14

 
—

Total fixed maturity securities available-for-sale
2,015

 
46

 
455

 
25

 
2,470

 
71

Equity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
15

 
4

 
—

 
—

 
15

 
4

Total
$
2,030

 
$
50

 
$
455

 
$
25

 
$
2,485

 
$
75


 
Less than 12 Months
 
12 Months or Longer
 
Total
December 31, 2014
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
1,330

 
$
46

 
$
277

 
$
15

 
$
1,607

 
$
61

States, municipalities and political subdivisions
335

 
5

 
127

 
3

 
462

 
8

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
293

 
5

 
189

 
8

 
482

 
13

Commercial mortgage-backed
264

 
2

 
99

 
3

 
363

 
5

Other asset-backed
607

 
10

 
7

 
—

 
614

 
10

Total asset-backed
1,164

 
17

 
295

 
11

 
1,459

 
28

U.S. Treasury and obligations of government-sponsored enterprises
3

 
—

 
4

 
—

 
7

 
—

   Foreign government
3

 
—

 
3

 
—

 
6

 
—

Redeemable preferred stock
3

 
—

 
—

 
—

 
3

 
—

Total fixed maturity securities available-for-sale
2,838

 
68

 
706

 
29

 
3,544

 
97

Equity securities available-for-sale:


 


 


 


 


 


   Preferred stock
17

 
2

 
1

 
—

 
18

 
2

Total
$
2,855

 
$
70

 
$
707

 
$
29

 
$
3,562

 
$
99




13
Table of Contents

Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 2015 table above, are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are primarily attributable to changes in interest rates and credit spreads, market illiquidity and other 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, 2015.
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, 2015 and 2014 for which a portion of an OTTI loss was recognized in Other comprehensive income.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Beginning balance of credit losses on fixed maturity securities
$
62

 
$
74

Reductions for securities sold during the period
(1
)
 
(2
)
Reductions for securities the Company intends to sell or more likely than not will be required to sell
—

 
(3
)
Ending balance of credit losses on fixed maturity securities
$
61

 
$
69

Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
 
March 31, 2015
 
December 31, 2014
(In millions)
Cost or
Amortized
Cost
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Estimated
Fair
Value
Due in one year or less
$
2,011

 
$
2,043

 
$
2,479

 
$
2,511

Due after one year through five years
8,760

 
9,340

 
9,054

 
9,605

Due after five years through ten years
12,401

 
13,108

 
12,055

 
12,584

Due after ten years
13,667

 
16,078

 
13,728

 
16,049

Total
$
36,839

 
$
40,569

 
$
37,316

 
$
40,749

Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life.

14
Table of Contents

Derivative Financial Instruments
The following tables present the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments.
March 31, 2015
Contractual/
Notional
Amount
 
Estimated Fair Value
(In millions)
 
Asset
 
Liability
Without hedge designation
 
 
 
 
 
Currency forwards
$
18

 
$
2

 
$
—

Equity warrants
5

 
—

 
—

Embedded derivative on funds withheld liability
184

 
—

 
5

Total
 
 
$
2

 
$
5


December 31, 2014
Contractual/
Notional
Amount
 
Estimated Fair Value
(In millions)
 
Asset
 
Liability
Without hedge designation
 
 
 
 
 
Currency forwards
$
9

 
$
—

 
$
—

Equity warrants
5

 
—

 
—

Embedded derivative on funds withheld liability
184

 
—

 
3

Total
 
 
$
—

 
$
3

Derivative financial instruments are presented gross in Other invested assets and Other liabilities on the Condensed Consolidated Balance Sheets. There would be no significant difference in the balance included in such accounts if the estimated fair values were presented net as of March 31, 2015 and December 31, 2014.
Investment Commitments
As of March 31, 2015, the Company had committed approximately $338 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, 2015, the Company had mortgage loan commitments of $41 million representing signed loan applications received and accepted.
The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. As of March 31, 2015, the Company had commitments to purchase or fund additional amounts of $82 million and sell $71 million under the terms of such securities.

15
Table of Contents

Note D. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodologies 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 methodologies 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 include i) the review of pricing service or broker pricing methodologies, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where changes in price, period-over-period, are reviewed and challenged with the pricing service or broker based on exception criteria, iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and v) pricing validation, where prices received are compared to prices independently estimated by the Company.

16
Table of Contents

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, 2015
 
 
 
 
 
 
Total
Assets/ Liabilities
at Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate and other bonds
$
29

 
$
18,337

 
$
186

 
$
18,552

States, municipalities and political subdivisions
—

 
12,877

 
86

 
12,963

Asset-backed:
 
 
 
 
 
 
 
Residential mortgage-backed
—

 
4,994

 
232

 
5,226

Commercial mortgage-backed
—

 
2,196

 
64

 
2,260

Other asset-backed
—

 
570

 
553

 
1,123

Total asset-backed
—

 
7,760

 
849

 
8,609

U.S. Treasury and obligations of government-sponsored enterprises
29

 
1

 
—

 
30

Foreign government
37

 
372

 
—

 
409

Redeemable preferred stock
30

 
12

 
—

 
42

Total fixed maturity securities
125

 
39,359

 
1,121

 
40,605

Equity securities
149

 
63

 
13

 
225

Derivative financial instruments
—

 
2

 
—

 
2

Other invested assets, excluding derivative financial instruments
—

 
41

 
—

 
41

Short term investments
742

 
678

 
—

 
1,420

Life settlement contracts, included in Other assets
—

 
—

 
79

 
79

Total assets
$
1,016

 
$
40,143

 
$
1,213

 
$
42,372

Liabilities
 
 
 
 
 

 
 

Other liabilities
$
—

 
$
5

 
$
—

 
$
5

Total liabilities
$
—

 
$
5

 
$
—

 
$
5


17
Table of Contents

December 31, 2014
 
 
 
 
 
 
Total
Assets/Liabilities
at Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate and other bonds
$
32

 
$
18,695

 
$
162

 
$
18,889

States, municipalities and political subdivisions
—

 
12,646

 
94

 
12,740

Asset-backed:
 
 
 
 
 
 
 

Residential mortgage-backed
—

 
5,044

 
189

 
5,233

Commercial mortgage-backed
—

 
2,061

 
83

 
2,144

Other asset-backed
—

 
580

 
655

 
1,235

Total asset-backed
—

 
7,685

 
927

 
8,612

U.S. Treasury and obligations of government-sponsored enterprises
28

 
3

 
—

 
31

Foreign government
41

 
413

 
—

 
454

Redeemable preferred stock
30

 
12

 
—

 
42

Total fixed maturity securities
131

 
39,454

 
1,183

 
40,768

Equity securities
145

 
61

 
16

 
222

Other invested assets
—

 
41

 
—

 
41

Short term investments
681

 
963

 
—

 
1,644

Life settlement contracts, included in Other assets
—

 
—

 
82

 
82

Total assets
$
957

 
$
40,519

 
$
1,281

 
$
42,757

Liabilities
 
 
 
 
 
 
 
Other liabilities
$
—

 
$
3

 
$
—

 
$
3

Total liabilities
$
—

 
$
3

 
$
—

 
$
3


18
Table of Contents

The following tables 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,
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)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
162

 
$
1

 
$
—

 
$
12

 
$
(12
)
 
$
(14
)
 
$
37

 
$
—

 
$
186

 
$
—

States, municipalities and political subdivisions
94

 
1

 
—

 
—

 
—

 
(9
)
 
—

 
—

 
86

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Residential mortgage-backed
189

 
1

 
—

 
72

 
—

 
(10
)
 
—

 
(20
)
 
232

 
—

Commercial mortgage-backed
83

 
1

 
1

 
6

 
—

 
(1
)
 
—

 
(26
)
 
64

 
—

Other asset-backed
655

 
1

 
9

 
35

 
(144
)
 
(3
)
 
—

 
—

 
553

 
—

Total asset-backed
927

 
3

 
10

 
113

 
(144
)
 
(14
)
 
—

 
(46
)
 
849

 
—

Total fixed maturity securities
1,183

 
5

 
10

 
125

 
(156
)
 
(37
)
 
37

 
(46
)
 
1,121

 
—

Equity securities
16

 
—

 
(3
)
 
—

 
—

 
—

 
—

 
—

 
13

 
—

Life settlement contracts
82

 
13

 
—

 
—

 
—

 
(16
)
 
—

 
—

 
79

 
1

Total
$
1,281

 
$
18

 
$
7

 
$
125

 
$
(156
)
 
$
(53
)
 
$
37

 
$
(46
)
 
$
1,213

 
$
1


19
Table of Contents

Level 3
(In millions)
Balance as of
January 1,
2014
 
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, 2014
 
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2014 recognized in Net income (loss)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
204

 
$
1

 
$
1

 
$
5

 
$
(4
)
 
$
(5
)
 
$
3

 
$
(16
)
 
$
189

 
$
—

States, municipalities and political subdivisions
71

 
—

 
1

 
—

 
—

 
—

 
14

 
—

 
86

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
331

 
1

 
15

 
25

 
—

 
(21
)
 
21

 
(13
)
 
359

 
—

Commercial mortgage-backed
151

 
1

 
(1
)
 
—

 
—

 
(1
)
 
—

 
(24
)
 
126

 
—

Other asset-backed
446

 
1

 
—

 
148

 
(83
)
 
(72
)
 
—

 
(1
)
 
439

 
—

Total asset-backed
928

 
3

 
14

 
173

 
(83
)
 
(94
)
 
21

 
(38
)
 
924

 
—

Total fixed maturity securities
1,203

 
4

 
16

 
178

 
(87
)
 
(99
)
 
38

 
(54
)
 
1,199

 
—

Equity securities
11

 
3

 
(4
)
 
—

 
(8
)
 
—

 
—

 
—

 
2

 
—

Life settlement contracts
88

 
10

 
—

 
—

 
—

 
(11
)
 
—

 
—

 
87

 
1

Separate account business
1

 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
—

Total
$
1,303

 
$
17

 
$
12

 
$
178

 
$
(95
)
 
$
(110
)
 
$
38

 
$
(55
)
 
$
1,288

 
$
1


20
Table of Contents

Net realized and unrealized gains and losses, including those shown above, 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
 
Net realized investment gains (losses)
Fixed maturity securities trading
 
Net investment income
Equity securities
 
Net realized investment gains (losses)
Other invested assets - Derivative financial instruments held in a trading portfolio
 
Net investment income
Other invested assets - Derivative financial instruments not held in a trading portfolio
 
Net realized investment gains (losses)
Other invested assets - Overseas deposits
 
Net investment income
Life settlement contracts
 
Other revenues
Other liabilities - Derivative financial instruments
 
Net realized investment gains (losses)
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, 2015 there were no transfers between Level 1 and Level 2. During the three months ended March 31, 2014 there were $23 million of transfers from Level 2 to Level 1 and $1 million from Level 1 to 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 exchange traded bonds, highly liquid U.S. and foreign government bonds and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. 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 generally 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, broker/dealer quotes and other pricing models utilizing market observable inputs. Level 3 securities are priced using internal models with inputs that are not market observable.

21
Table of Contents

Derivative Financial Investments
Level 1 securities include exchange traded derivatives, primarily futures, valued using quoted market prices. Level 2 securities primarily include the embedded derivative on funds withheld liability and currency forwards. The embedded derivative on funds withheld liability is valued using the change in fair value of the assets supporting the funds withheld payable, which are fixed maturity securities valued with observable inputs. Currency forwards are valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 3 of the valuation hierarchy due to a lack of transparency as to whether these quotes are based on information that is observable in the marketplace.
Overseas Deposits
Overseas deposits, which can be redeemed at net asset value in 90 days or less, are classified as Level 2.
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 fair values of life settlement contracts are determined as the present value of the anticipated death benefits less anticipated premium payments based on contract terms that are distinct for each insured, as well as the Company's own assumptions for mortality, premium expense and the rate of return that a buyer would require on the contracts, as no comparable market pricing data is available.
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 table 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.
March 31, 2015
 
 
 
 
 
 
 

(In millions)
Fair Value
 
Valuation Technique(s)
 
Unobservable Input(s)
 
Range
 (Weighted Average)
Fixed maturity securities
$
102

 
Discounted cash flow
 
Credit spread
 
2% - 13% (3%)
Equity securities
13

 
Market approach
 
Private offering price
 
$10 - $4,400 per share ($682)
Life settlement contracts
79

 
Discounted cash flow
 
Discount rate risk premium
 
9%
 
 
 
 
 
Mortality assumption
 
55% - 1676% (164%)
December 31, 2014
 
 
 
 
 
 
 

(In millions)
Fair Value
 
Valuation Technique(s)
 
Unobservable Input(s)
 
Range
 (Weighted Average)
Fixed maturity securities
$
101

 
Discounted cash flow
 
Credit spread
 
2% - 13% (3%)
Equity securities
16

 
Market approach
 
Private offering price
 
$12 - $4,391 per share ($600)
Life settlement contracts
82

 
Discounted cash flow
 
Discount rate risk premium
 
9%
 
 
 
 
 
Mortality assumption
 
55% - 1676% (163%)


22
Table of Contents

For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement. For equity securities, an increase in the private offering price would result in a higher fair value measurement. For life settlement contracts, an increase in the discount rate risk premium or decrease in the mortality assumption would result in a lower fair value measurement.
Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount and estimated fair value of the Company's financial assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are presented in the following tables.
March 31, 2015
Carrying
Amount
 
Estimated Fair Value
(In millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
Notes receivable for the issuance of common stock
$
1

 
$
—

 
$
—

 
$
1

 
$
1

Mortgage loans
586

 
—

 
—

 
612

 
612

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt
$
2,560

 
$
—

 
$
2,908

 
$
—

 
$
2,908


December 31, 2014
Carrying
Amount
 
Estimated Fair Value
(In millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
Notes receivable for the issuance of common stock
$
1

 
$
—

 
$
—

 
$
1

 
$
1

Mortgage loans
588

 
—

 
—

 
608

 
608

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt
$
2,559

 
$
—

 
$
2,883

 
$
—

 
$
2,883

The following methods and assumptions were used to estimate the fair value of these financial assets and liabilities.
The fair values of Mortgage loans were based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk.
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.


23
Table of Contents

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 field 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 $29 million for the three months ended March 31, 2015. Catastrophe losses in 2015 related primarily to U.S. weather-related events. The Company reported catastrophe losses, net of reinsurance, of $74 million for the three months ended March 31, 2014.
The fourth quarter of 2014 asbestos and environmental pollution (A&EP) reserve review was not completed because additional information and analysis on inuring third-party reinsurance recoveries were needed to finalize the review. The review and analysis of this information continues, and the Company expects to complete the review in the second quarter of 2015. Given the significance of the information and analysis needed to finalize the remaining elements of the review, the Company is not able to estimate the impact, if any, of this uncertainty on the Company's Condensed Consolidated Financial Statements.

24
Table of Contents

Net Prior Year Development
The following tables and discussion present net prior year development recorded for Specialty, Commercial, International and Corporate & Other Non-Core segments.
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


Three months ended March 31, 2014
 
 
 
 
 
 
 
 
 
(In millions)

Specialty
 
 Commercial
 
International
 
Corporate
& Other
Non-Core
 
Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(3
)
 
$
18

 
$
10

 
$
—

 
$
25

Pretax (favorable) unfavorable premium development
(6
)
 
(18
)
 
(7
)
 
—

 
(31
)
Total pretax (favorable) unfavorable net prior year development
$
(9
)
 
$
—

 
$
3

 
$
—

 
$
(6
)
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)
2015
 
2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
 
 
 
Medical Professional Liability
$
14

 
$
—

Other Professional Liability and Management Liability
(3
)
 
(6
)
Surety
1

 
1

Warranty
—

 
—

Other
(10
)
 
2

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
2

 
$
(3
)
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 coverages was primarily due to better than expected frequency in property coverages provided to Specialty customers in accident year 2014.
2014
Favorable development for other professional liability and management liability was related to better than expected loss emergence in accident years 2004 and prior.

25
Table of Contents

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



(In millions)
2015

2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:

 
 
 
Commercial Auto
$
—

 
$
20

General Liability
4

 
—

Workers' Compensation
(1
)
 
11

Property and Other
(8
)
 
(13
)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development

$
(5
)
 
$
18

2015
Favorable development for property and other was due to lower than expected loss emergence from 2014 catastrophe events.
2014
Unfavorable development for commercial auto was primarily related to higher than expected frequency in accident years 2012 and 2013 and higher than expected loss emergence in accident years 2010 and 2011.
Unfavorable development for workers' compensation was primarily due to the recognition of losses related to favorable premium development in accident year 2013.
Favorable development for property and other was primarily due to better than expected loss emergence in catastrophe losses in accident year 2013.
International
The following table presents further detail of the development recorded for the International segment.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:

 
 
 
Medical Professional Liability
$
—

 
$
1

Other Professional Liability
—

 
(1
)
Liability
(5
)
 
(2
)
Property & Marine
(6
)
 
8

Other
7

 
(6
)
Commutations
—

 
10

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development

$
(4
)
 
$
10

2014
Reinsurance commutations in the first quarter of 2014 reduced ceded losses from prior years. Overall the commutations increased net operating income because of the release of the related allowance for uncollectible reinsurance.


26
Table of Contents

Note F. Legal Proceedings and Contingent Liabilities
The Company is a party to 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)
2015
 
2014
Pension cost (benefit)
 
 
 
Service cost
$
2

 
$
3

Interest cost on projected benefit obligation
28

 
33

Expected return on plan assets
(43
)
 
(48
)
Amortization of net actuarial loss
9

 
6

Net periodic pension cost (benefit)
$
(4
)
 
$
(6
)
 
 
 
 
Postretirement cost (benefit)
 
 
 
Amortization of prior service credit
$
—

 
$
(4
)
Net periodic postretirement cost (benefit)
$
—

 
$
(4
)

27
Table of Contents

Note H. Commitments, Contingencies and Guarantees
Commitments and Contingencies
The Company holds an investment in a real estate joint venture. In the normal course of business, the Company, on a joint and several basis with other unrelated insurance company shareholders, has committed to continue funding the operating deficits of this joint venture. Additionally, the Company and the other unrelated shareholders, on a joint and several basis, have guaranteed an operating lease for an office building, which expires in 2016. The guarantee of the operating lease is a parallel guarantee to the commitment to fund operating deficits; consequently, the separate guarantee to the lessor is not expected to be triggered as long as the joint venture continues to be funded by its shareholders which provide liquidity to make its annual lease payments.
In the event that the other parties to the joint venture are unable to meet their commitments in funding the operations of this joint venture, the Company would be required to assume the obligation for the entire office building operating lease. The Company does not believe it is likely that it will be required to do so.  However, as of March 31, 2015, the maximum potential future lease payments and other related costs that the Company could be required to pay under this guarantee, in excess of amounts already recorded, were approximately $41 million. If the Company were required to assume the entire lease obligation, the Company would have the right to pursue reimbursement from the other shareholders and the right to all sublease revenues.
Guarantees
As of March 31, 2015 and December 31, 2014, the Company had recorded liabilities of approximately $5 million related to guarantee and indemnification agreements and management believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.
In the course of selling business entities and assets to third parties, the Company agreed to guarantee the performance of certain obligations of a previously owned subsidiary and to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being 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, 2015, the aggregate amount related to quantifiable guarantees was $375 million and the aggregate amount related to indemnification agreements was $324 million. Should the Company be required to make payments under the guarantee, it would have the right to seek reimbursement in certain cases from an affiliate of a previously owned subsidiary.
In addition, the Company has agreed to provide indemnification to third-party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of March 31, 2015, 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.
In the normal course of business, the Company also provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities provided by a previously owned subsidiary, which are estimated to mature through 2120. The potential amount of future payments the Company could be required to pay under these guarantees was approximately $2.0 billion as of March 31, 2015. The Company does not believe a payable 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.

28
Table of Contents

Note I. Accumulated Other Comprehensive Income (Loss) by Component
The following tables present 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, 2015
$
36

 
$
942

 
$
(633
)
 
$
55

 
$
400

Other comprehensive income (loss) before reclassifications
(1
)
 
121

 
—

 
(96
)
 
24

Amounts reclassified from Accumulated other comprehensive income (loss) after tax (expense) benefit of $0, $0, $3, $0 and $3
—

 
9

 
(6
)
 
—

 
3

Other comprehensive income (loss) after tax (expense) benefit of $0, $(62), $(3), $0 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
 
Net unrealized gains (losses) on discontinued operations
 
Pension and postretirement benefits
 
Cumulative foreign currency translation adjustment
 
Total
Balance as of January 1, 2014
$
26

 
$
692

 
$
—

 
$
(426
)
 
$
150

 
$
442

Transfer to net assets held for sale
(5
)
 
(17
)
 
22

 
—

 
—

 
—

Other comprehensive income (loss) before reclassifications
12

 
264

 
8

 
—

 
(8
)
 
276

Amounts reclassified from Accumulated other comprehensive income (loss) after tax (expense) benefit of $0, $(14), $0, $1, $0 and $(13)
—

 
27

 
—

 
(1
)
 
—

 
26

Other comprehensive income (loss) after tax (expense) benefit of $(6), $(127), $(5), $(1), $0 and $(139)
12

 
237

 
8

 
1

 
(8
)
 
250

Balance as of March 31, 2014
$
33

 
$
912

 
$
30

 
$
(425
)
 
$
142

 
$
692

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)
Net unrealized gains (losses) on discontinued operations
 
Income (loss) from discontinued operations
Pension and postretirement benefits
 
Other operating expenses

29
Table of Contents

Note J. Business Segments
The Company's core property and casualty commercial insurance operations are aggregated and reported in three business segments: Specialty, Commercial and International. The Company's non-core operations are managed 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, 2014. 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) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting guidance. The calculation of net operating income 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 continuing operations and selected balance sheet items by segment are presented in the following tables.

30
Table of Contents

Three months ended March 31, 2015

Specialty
 

Commercial
 
International
 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
 
 
 
 
(In millions)
 
 
 
 
 
Eliminations
 
Total
Operating revenues
 

 
 

 
 
 
 

 
 

 
 

 
 

Net earned premiums
$
680

 
$
678

 
$
191

 
$
138

 
$
—

 
$
—

 
$
1,687

Net investment income
155

 
204

 
14

 
179

 
6

 
—

 
558

Other revenues
78

 
9

 
—

 
9

 
2

 
(1
)
 
97

Total operating revenues
913

 
891

 
205

 
326

 
8

 
(1
)
 
2,342

Claims, Benefits and Expenses
 

 
 

 
 
 
 

 
 

 
 

 
 

Net incurred claims and benefits
429

 
454

 
116

 
340

 
(4
)
 
—

 
1,335

Policyholders’ dividends
1

 
3

 
—

 
—

 
—

 
—

 
4

Amortization of deferred acquisition costs
144

 
117

 
35

 
7

 
—

 
—

 
303

Other insurance related expenses
69

 
127

 
37

 
35

 
—

 
—

 
268

Other expenses
67

 
8

 
5

 
4

 
46

 
(1
)
 
129

Total claims, benefits and expenses
710

 
709

 
193

 
386

 
42

 
(1
)
 
2,039

Operating income (loss) before income tax
203

 
182

 
12

 
(60
)
 
(34
)
 
—

 
303

Income tax (expense) benefit on operating income (loss)
(68
)
 
(62
)
 
(3
)
 
43

 
12

 
—

 
(78
)
Net operating income (loss)
135

 
120

 
9

 
(17
)
 
(22
)
 
—

 
225

Net realized investment gains (losses)
4

 
4

 
1

 
1

 
—

 
—

 
10

Income tax (expense) benefit on net realized investment gains (losses)
(1
)
 
(3
)
 
—

 
2

 
—

 
—

 
(2
)
Net realized investment gains (losses), after tax
3

 
1

 
1

 
3

 
—

 
—

 
8

Net income (loss) from continuing operations
$
138

 
$
121

 
$
10

 
$
(14
)
 
$
(22
)
 
$
—

 
$
233



March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance receivables
$
671

 
$
675

 
$
207

 
$
543

 
$
2,672

 
$
—

 
$
4,768

Insurance receivables
808

 
1,004

 
282

 
13

 
2

 
—

 
2,109

Deferred acquisition costs
307

 
225

 
84

 
—

 
—

 
—

 
616

Goodwill
117

 
—

 
34

 
—

 
—

 
—

 
151

Insurance reserves
 
 
 
 
 
 
 
 
 
 
 
 
 

Claim and claim adjustment expenses
6,352

 
9,441

 
1,377

 
3,237

 
2,841

 
—

 
23,248

Unearned premiums
1,794

 
1,329

 
449

 
139

 
—

 
(1
)
 
3,710

Future policy benefits
—

 
—

 
—

 
9,747

 
—

 
—

 
9,747


31
Table of Contents

Three months ended March 31, 2014

Specialty
 

Commercial
 
International
 
Life &
Group
Non-Core
 
Corporate
& Other
Non-Core
 
 
 
 
(In millions)
 
 
 
 
Eliminations
 
Total
Operating revenues
 

 
 

 
 
 
 

 
 

 
 

 
 

Net earned premiums
$
692

 
$
735

 
$
241

 
$
139

 
$
—

 
$
(1
)
 
$
1,806

Net investment income
144

 
191

 
15

 
171

 
5

 
—

 
526

Other revenues
68

 
10

 
—

 
5

 
2

 
—

 
85

Total operating revenues
904

 
936

 
256

 
315

 
7

 
(1
)
 
2,417

Claims, Benefits and Expenses
 

 
 
 
 
 
 

 
 

 
 

 
 

Net incurred claims and benefits
442

 
568

 
130

 
306

 
(3
)
 
—

 
1,443

Policyholders’ dividends
1

 
2

 
—

 
—

 
—

 
—

 
3

Amortization of deferred acquisition costs
143

 
123

 
55

 
8

 
—

 
—

 
329

Other insurance related expenses
65

 
126

 
40

 
32

 
—

 
(1
)
 
262

Other expenses
61

 
8

 
7

 
1

 
51

 
—

 
128

Total claims, benefits and expenses
712

 
827

 
232

 
347

 
48

 
(1
)
 
2,165

Operating income (loss) before income tax
192

 
109

 
24

 
(32
)
 
(41
)
 
—

 
252

Income tax (expense) benefit on operating income (loss)
(63
)
 
(35
)
 
(8
)
 
30

 
14

 
—

 
(62
)
Net operating income (loss)
129

 
74

 
16

 
(2
)
 
(27
)
 
—

 
190

Net realized investment gains (losses)
11

 
10

 
3

 
16

 
6

 
—

 
46

Income tax (expense) benefit on net realized investment gains (losses)
(3
)
 
(2
)
 
(3
)
 
(6
)
 
(2
)
 
—

 
(16
)
Net realized investment gains (losses), after tax
8

 
8

 
—

 
10

 
4

 
—

 
30

Net income (loss) from continuing operations
$
137

 
$
82

 
$
16

 
$
8

 
$
(23
)
 
$
—

 
$
220



December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance receivables
$
567

 
$
690

 
$
207

 
$
525

 
$
2,753

 
$
—

 
$
4,742

Insurance receivables
778

 
954

 
250

 
13

 
2

 
—

 
1,997

Deferred acquisition costs
304

 
213

 
83

 
—

 
—

 
—

 
600

Goodwill
117

 
—

 
35

 
—

 
—

 
—

 
152

Insurance reserves
 
 
 
 
 
 
 
 
 
 
 
 
 

Claim and claim adjustment expenses
6,229

 
9,514

 
1,441

 
3,183

 
2,904

 
—

 
23,271

Unearned premiums
1,763

 
1,273

 
431

 
125

 
—

 
—

 
3,592

Future policy benefits
—

 
—

 
—

 
9,490

 
—

 
—

 
9,490

Policyholders’ funds
9

 
18

 
—

 
—

 
—

 
—

 
27





32
Table of Contents

The following table presents revenue by line of business for each reportable segment. Revenues are comprised of Operating revenues and Net realized investment gains and losses.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Specialty
 
 
 
Management & Professional Liability
$
697

 
$
704

Surety
120

 
122

Warranty & Alternative Risks
100

 
89

Specialty revenues
917

 
915

Commercial
 

 
 

Middle Market
409

 
403

Small Business
165

 
184

Other Commercial Insurance
321

 
359

Commercial revenues
895

 
946

International


 


Canada
55

 
71

CNA Europe
77

 
88

Hardy
74

 
100

International revenues
206

 
259

Life & Group Non-Core revenues
327

 
331

Corporate & Other Non-Core revenues
8

 
13

Eliminations
(1
)
 
(1
)
Total revenues
$
2,352

 
$
2,463



33
Table of Contents

Note K. Discontinued Operations
The results of discontinued operations reflected in the Condensed Consolidated Statements of Operations are presented in the following table.
Three months ended March 31
 
(In millions)
2014
Revenues
 
Net investment income
$
41

Net realized investment gains
1

Total revenues
42

Claims, Benefits and Expenses
 
Insurance claims and policyholders' benefits
31

Other operating expenses
1

Total claims, benefits and expenses
32

Income before income tax
10

Income tax expense
(3
)
Income from operations of discontinued operations, net of income tax
7

Impairment loss on sale, net of income tax benefit of $41
(214
)
Loss from discontinued operations
$
(207
)





34
Table of Contents

Item 2. Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
Overview
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 2013 statutory net written premiums, we are the eighth largest commercial insurance writer and the 13th 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, 2014.
We utilize the net operating income financial measure to monitor our operations. Net operating income (loss) is calculated by excluding from net income (loss) the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting guidance. See further discussion regarding how we manage our business in Note J to the Condensed Consolidated Financial Statements included under Part I, Item 1. In the evaluation of the results of our Specialty, Commercial and International segments, we utilize the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios.
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.

35
Table of Contents

CONSOLIDATED OPERATIONS
The following table presents 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.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Operating Revenues
 
 
 
Net earned premiums
$
1,687

 
$
1,806

Net investment income
558

 
526

Other revenues
97

 
85

Total operating revenues
2,342

 
2,417

Claims, Benefits and Expenses
 
 
 
Net incurred claims and benefits
1,335

 
1,443

Policyholders' dividends
4

 
3

Amortization of deferred acquisition costs
303

 
329

Other insurance related expenses
268

 
262

Other expenses
129

 
128

Total claims, benefits and expenses
2,039

 
2,165

Operating income before income tax
303

 
252

Income tax expense on operating income
(78
)
 
(62
)
Net operating income
225

 
190

Net realized investment gains
10

 
46

Income tax expense on net realized investment gains
(2
)
 
(16
)
Net realized investment gains, after tax
8

 
30

Income from continuing operations
233

 
220

Loss from discontinued operations, net of tax
—

 
(207
)
Net income
$
233

 
$
13

Income from continuing operations increased $13 million for the three months ended March 31, 2015 as compared with the same period in 2014. The increase was due to higher net operating income, partially offset by lower Net realized investment gains, after tax.
Loss from discontinued operations, net of tax, for the three months ended March 31, 2014 includes an impairment loss of $214 million related to the sale of CAC.
Net realized investment gains, after tax, decreased $22 million for the three months ended March 31, 2015 as compared with the same period in 2014. See the Investments section of this MD&A for further discussion of Net investment income and Net realized investment results.
Net operating income increased $35 million for the three months ended March 31, 2015 as compared with the same period in 2014. Net operating income increased $45 million for our core segments. The increase was primarily driven by improved current accident year underwriting results as well as higher limited partnership income. Catastrophe losses were $19 million after tax for the three months ended March 31, 2015 as compared to $48 million after tax for the same period in 2014. See the Specialty, Commercial, and International sections of this MD&A for further discussion of our core results. Net operating loss for our non-core segments increased $10 million driven by results in our long term care business. See the Life & Group Non-Core and Corporate & Other Non-Core sections of this MD&A for further discussion of our non-core results.
Unfavorable net prior year development of $2 million was recorded for the three months ended March 31, 2015 as compared with favorable net prior year development of $6 million for the three months ended March 31, 2014 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 I, Item 1.
Net earned premiums decreased $119 million for the three months ended March 31, 2015 as compared with the same period in 2014. See the Segment Results section of this MD&A for further discussion.

36
Table of Contents

CRITICAL ACCOUNTING ESTIMATES
The preparation of the Condensed Consolidated Financial Statements (Unaudited) 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.
•
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. 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, 2014 for further information.


37
Table of Contents

SEGMENT RESULTS
The following discusses the results of continuing operations for our operating segments.
Specialty
The following table presents the results of operations.
Three months ended March 31
 
 
 
(In millions, except ratios)
2015
 
2014
Net written premiums
$
698

 
$
713

Net earned premiums
680

 
692

Net investment income
155

 
144

Net operating income
135

 
129

Net realized investment gains (losses), after tax
3

 
8

Net income
138

 
137

Ratios
 
 
 
Loss and loss adjustment expense
63.1
%
 
63.9
%
Expense
31.3

 
30.0

Dividend
0.2

 
0.2

Combined
94.6
%
 
94.1
%
Net written premiums for Specialty for the three months ended March 31, 2015 declined $15 million from the prior year period, primarily due to lower retention. The decline in net earned premiums was consistent with the trend in net written premiums.
Average rate increased 2% for the three months ended March 31, 2015, as compared with an increase of 4% for the three months ended March 31, 2014 for the policies that renewed in each period. Retention of 84% and 86% was achieved in each period.
The combined ratio increased 0.5 points for the three months ended March 31, 2015 as compared with the same period in 2014. The loss ratio improved 0.8 points due to an improved current accident year loss ratio, partially offset by less favorable net prior year development. The expense ratio increased 1.3 points for the three months ended March 31, 2015 as compared with the same period in 2014, primarily driven by increased underwriting expenses.
Favorable net prior year development of $4 million and $9 million was recorded for the three months ended March 31, 2015 and 2014. 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.
 
March 31,
2015
 
December 31,
2014
(In millions)
 
Gross Case Reserves
$
2,113

 
$
2,136

Gross IBNR Reserves
4,239

 
4,093

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
6,352

 
$
6,229

Net Case Reserves
$
1,897

 
$
1,929

Net IBNR Reserves
3,787

 
3,726

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
5,684

 
$
5,655


38
Table of Contents

Commercial
The following table presents the results of operations.
Three months ended March 31
 
 
 
(In millions, except ratios)
2015
 
2014
Net written premiums
$
759

 
$
807

Net earned premiums
678

 
735

Net investment income
204

 
191

Net operating income
120

 
74

Net realized investment gains, after tax
1

 
8

Net income
121

 
82

Ratios
 
 
 

Loss and loss adjustment expense
66.9
%
 
77.1
%
Expense
36.0

 
33.9

Dividend
0.4

 
0.3

Combined
103.3
%
 
111.3
%
Net written premiums for Commercial decreased $48 million for the three months ended March 31, 2015 as compared with the same period in 2014, primarily driven by underwriting actions taken in certain business classes and a lower level of new business, reflecting competitive market conditions, partially offset by positive rate and higher retention. Net earned premiums decreased $57 million for the three months ended March 31, 2015 as compared with the same period 2014, consistent with the trend in net written premiums.
Average rate increased 3% for the three months ended March 31, 2015, as compared with an increase of 6% for the three months ended March 31, 2014 for the policies that renewed in each period. Retention of 76% and 74% was achieved in each period.
Net income increased $39 million for the three months ended March 31, 2015 as compared with the same period in 2014. This increase was driven by higher net operating income.
Net operating income increased $46 million for the three months ended March 31, 2015 as compared with the same period in 2014, primarily due to improved underwriting results.
The combined ratio improved 8.0 points for the three months ended March 31, 2015 as compared with the same period in 2014. The loss ratio improved 10.2 points, primarily due to an improved current accident year loss ratio. Catastrophe losses were $19 million, or 2.8 points of the loss ratio for the three months ended March 31, 2015, as compared to $60 million, or 8.4 points of the loss ratio for the three months ended March 31, 2014. The expense ratio increased 2.1 points for the three months ended March 31, 2015 as compared with the same period in 2014, primarily due to the unfavorable effect of lower net earned premiums.
Favorable net prior year development of $6 million was recorded for the three months ended March 31, 2015. No net prior year development was recorded for three months ended March 31, 2014. 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.
 
March 31,
2015
 
December 31,
2014
(In millions)
 
Gross Case Reserves
$
5,277

 
$
5,298

Gross IBNR Reserves
4,164

 
4,216

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
9,441

 
$
9,514

Net Case Reserves
$
4,896

 
$
4,947

Net IBNR Reserves
3,895

 
3,906

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
8,791

 
$
8,853


39
Table of Contents

International
The following table presents the results of operations.
Three months ended March 31
 
 
 
(In millions, except ratios)
2015
 
2014
Net written premiums
$
212

 
$
247

Net earned premiums
191

 
241

Net investment income
14

 
15

Net operating income
9

 
16

Net realized investment gains, after tax
1

 
—

Net income
10

 
16

Ratios
 
 
 
Loss and loss adjustment expense
60.7
%
 
54.2
%
Expense
37.6

 
39.3

Dividend
—

 
—

Combined
98.3
%
 
93.5
%
Net written premiums for International decreased $35 million for the three months ended March 31, 2015 as compared with the same period in 2014. The decrease was primarily driven by the unfavorable effect of foreign currency exchange rates, unfavorable premium development at Hardy and the 2014 termination of a specialty product managing general underwriter relationship in Canada. Net earned premiums decreased $50 million for the three months ended March 31, 2015 as compared with the same period in 2014, consistent with the trend in net written premiums.
Average rate decreased 1% for the three months ended March 31, 2015, as compared with no change for the three months ended March 31, 2014 for the policies that renewed in each period. Retention of 76% and 82% was achieved in each period.
Net operating income decreased $7 million for the three months ended March 31, 2015 as compared with the same period in 2014, primarily due to the lower level of net earned premiums. Reinsurance commutations in the first quarter of 2014 reduced ceded losses from prior years and resulted in a release of the related allowance for uncollectible reinsurance.
The combined ratio increased 4.8 points for the three months ended March 31, 2015 as compared with the same period in 2014. The loss ratio increased 6.5 points, due to the unfavorable effect of net prior year development and a higher current accident year loss ratio. The prior year period benefited from the favorable impact of commutations. The expense ratio improved 1.7 points for the three months ended March 31, 2015 as compared with the same period in 2014 due to decreased expenses, partially offset by the unfavorable effect of lower net earned premiums.
Unfavorable net prior year development of $12 million and $3 million was recorded for the three months ended March 31, 2015 and 2014. 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.
 
March 31,
2015
 
December 31,
2014
(In millions)
 
Gross Case Reserves
$
700

 
$
752

Gross IBNR Reserves
677

 
689

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
1,377

 
$
1,441

Net Case Reserves
$
561

 
$
598

Net IBNR Reserves
644

 
663

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
1,205

 
$
1,261


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Table of Contents

Life & Group Non-Core
The following table presents the results of operations.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Net earned premiums
$
138

 
$
139

Net investment income
179

 
171

Net operating loss
(17
)
 
(2
)
Net realized investment gains, after tax
3

 
10

Net income (loss)
(14
)
 
8

Net earned premiums for Life & Group Non-Core were largely consistent for the three months ended March 31, 2015 as compared with the same period in 2014, as the effect of policy lapses was substantially offset by rate increases.
Net results decreased $22 million in the three months ended March 31, 2015 as compared with the same period in 2014, primarily due to an increase in the net operating loss.
Net operating loss increased $15 million in the three months ended March 31, 2015 as compared with the same period in 2014. The increase was driven by unfavorable morbidity in our long term care business.
Corporate & Other Non-Core
The following table presents the results of operations.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Net investment income
$
6

 
$
5

Interest expense
39

 
44

Net operating loss
(22
)
 
(27
)
Net realized investment gains, after tax
—

 
4

Net loss
(22
)
 
(23
)
Results in 2015 included lower interest expense due to the maturity of higher coupon debt in the fourth quarter of 2014.
No net prior year development was recorded for the three months ended March 31, 2015 and 2014.
The following table presents the gross and net carried reserves.
(In millions)
March 31,
2015
 
December 31,
2014
Gross Case Reserves
$
1,381

 
$
1,189

Gross IBNR Reserves
1,460

 
1,715

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
2,841

 
$
2,904

Net Case Reserves
$
141

 
$
144

Net IBNR Reserves
168

 
171

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
309

 
$
315


41
Table of Contents

INVESTMENTS
Net Investment Income
The significant components of Net investment income are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Fixed maturity securities:
 
 
 
    Taxable
$
342

 
$
352

    Tax-Exempt
101

 
100

Total fixed maturity securities
443

 
452

Limited partnership investments
114

 
73

Other, net of investment expense
1

 
1

Pretax net investment income
$
558

 
$
526

After-tax net investment income
$
394

 
$
371

 
 
 
 
Effective income yield for the fixed maturity securities portfolio, pretax
4.8
%
 
4.9
%
Effective income yield for the fixed maturity securities portfolio, after tax
3.4
%
 
3.5
%
After-tax net investment income for the three months ended March 31, 2015 increased $23 million as compared with the same period in 2014. The increase was driven by limited partnerships, which returned 3.9% as compared with 2.7% in the prior year period.
Net Realized Investment Gains (Losses)
The components of Net realized investment gains (losses) are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2015
 
2014
Fixed maturity securities:
 
 
 
Corporate and other bonds
$
13

 
$
14

States, municipalities and political subdivisions
(4
)
 
23

Asset-backed
3

 
1

Total fixed maturity securities
12

 
38

Equity securities
—

 
5

Derivative securities
(1
)
 
—

Short term investments and other
(1
)
 
3

Net realized investment gains (losses)
10

 
46

Income tax (expense) benefit on net realized investment gains (losses)
(2
)
 
(16
)
Net realized investment gains (losses), after tax
$
8

 
$
30

Net realized investment gains, after tax, decreased $22 million for the three months ended March 31, 2015 as compared with the same period in 2014, driven by lower net realized investment gains on sales of securities and higher OTTI losses recognized in earnings. 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.



42
Table of Contents

Portfolio Quality
Our fixed maturity portfolio consists primarily of high quality bonds, 93% of which were rated as investment grade (rated BBB- or higher) as of March 31, 2015 and December 31, 2014. The classification between investment grade and non-investment grade is based on a ratings methodology that takes into account ratings from Standard & Poor's (S&P) and Moody's Investors Service, Inc. (Moody's), in that order of preference. If a security is not rated by these agencies, we formulate an internal rating. As of March 31, 2015 and December 31, 2014, approximately 98% and 99% of the fixed maturity portfolio was rated by S&P or Moody's, or was issued or guaranteed by the U.S. Government, Government agencies or Government-sponsored enterprises.
The following table presents the ratings of our fixed maturity portfolio at fair value.
(In millions)
March 31,
2015
 
%
 
December 31,
2014
 
%
U.S. Government, Government agencies and Government-sponsored enterprises
$
3,829

 
9
%
 
$
3,882

 
10
%
AAA rated
2,762

 
7

 
2,850

 
7

AA and A rated
19,732

 
49

 
19,998

 
49

BBB rated
11,277

 
28

 
11,093

 
27

Non-investment grade
3,005

 
7

 
2,945

 
7

Total
$
40,605

 
100
%
 
$
40,768

 
100
%
Non-investment grade fixed maturity securities, as presented in the table below, include securities rated below BBB- by bond rating agencies and other unrated securities that, according to our analysis, are below investment grade. Non-investment grade securities generally involve a greater degree of risk than investment grade securities. The amortized cost of our non-investment grade fixed maturity securities was $2,862 million and $2,828 million as of March 31, 2015 and December 31, 2014. The following table presents the ratings of these securities at fair value.
(In millions)
March 31,
2015
 
%
 
December 31,
2014
 
%
BB
$
1,337

 
45
%
 
$
1,264

 
43
%
B
833

 
28

 
847

 
29

CCC - C
613

 
20

 
616

 
21

D
222

 
7

 
218

 
7

Total
$
3,005

 
100
%
 
$
2,945

 
100
%

43
Table of Contents

The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.
March 31, 2015
Estimated Fair Value
 
%
 
Gross Unrealized Losses
 
%
(In millions)
 
 
 
U.S. Government, Government agencies and Government-sponsored enterprises
$
42

 
2
%
 
$
2

 
3
%
AAA
230

 
9

 
7

 
10

AA
483

 
20

 
8

 
11

A
433

 
17

 
6

 
9

BBB
724

 
29

 
20

 
28

Non-Investment Grade
558

 
23

 
28

 
39

Total
$
2,470

 
100
%
 
$
71

 
100
%
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, 2015







(In millions)
Estimated Fair Value
 
%
 
Gross Unrealized Losses
 
%
Due in one year or less
$
88

 
3
%
 
$
4

 
6
%
Due after one year through five years
515

 
21

 
18

 
25

Due after five years through ten years
1,059

 
43

 
26

 
37

Due after ten years
808

 
33

 
23

 
32

Total
$
2,470

 
100
%
 
$
71

 
100
%


44
Table of Contents

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, 2015
 
December 31, 2014
(In millions)
Fair Value
 
Effective
Duration
(In years)
 
Fair Value
 
Effective
Duration
(In years)
Investments supporting Life & Group Non-Core
$
14,928

 
10.3

 
$
14,668

 
10.5

Other interest sensitive investments
27,126

 
4.1

 
27,748

 
4.0

Total
$
42,054

 
6.3

 
$
42,416

 
6.3

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 in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2014.
Short Term Investments
The carrying values of the components of Short term investments are presented in the following table.
(In millions)
March 31,
2015
 
December 31,
2014
Short term investments:
 
 
 
Commercial paper
$
665

 
$
922

U.S. Treasury securities
529

 
466

Money market funds
171

 
206

Other
141

 
112

Total short term investments
$
1,506

 
$
1,706


45
Table of Contents

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 three months ended March 31, 2015, net cash provided by operating activities was $94 million as compared with $168 million for the same period in 2014. Cash provided by operating activities reflected decreased receipts relating to returns on limited partnerships, partially offset by lower net claim payments. Additionally, cash receipts and cash payments resulting from purchases and sales of trading securities are reported as cash flows related to operating activities.
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 $526 million for the three months ended March 31, 2015, as compared with net cash used of $354 million for the same period in 2014. 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.
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. For the three months ended March 31, 2015, net cash used by financing activities was $603 million as compared with net cash provided of $210 million for the same period in 2014. Cash used by financing activities reflected an increased special stockholder dividend as compared to the same period in 2014. Additionally, in the first quarter of 2014, we issued $550 million of senior notes.
Common Stock Dividends
A quarterly dividend of $0.25 per share and a special dividend of $2.00 per share of our common stock were declared and paid in the first quarter of 2015. On May 1, 2015, our Board of Directors declared a quarterly dividend of $0.25 per share, payable June 3, 2015 to stockholders of record on May 18, 2015. 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.
Dividends from Continental Casualty Company (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 Illinois Department of Insurance (the Department), are determined based on statutory net income and surplus as well as timing of dividends paid in the preceding twelve months. Ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. During the first quarter of 2015, CCC paid a dividend of $600 million to its parent. As of March 31, 2015, CCC is able to pay approximately $216 million of dividends that would not be subject to the prior approval of the Department.
We have an effective automatic shelf registration statement under which we may issue debt, equity or hybrid securities.

46
Table of Contents

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.

47
Table of Contents

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, 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.
Our forward-looking statements speak only as of the date on which they are made 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.

48
Table of Contents

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, 2015. See the Quantitative and Qualitative Disclosures About Market Risk included in Item 7A on our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2014 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, 2015, 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, 2015.
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, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

49
Table of Contents

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 4. Mine Safety Disclosures
Not applicable.
Item 6. Exhibits
See Exhibit Index.

50
Table of Contents

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 5, 2015
By
/s/ D. Craig Mense
 
 
D. Craig Mense
Executive Vice President and
Chief Financial Officer

51
Table of Contents

EXHIBIT INDEX

Description of Exhibit
Exhibit Number
 
 
Certification of Chief Executive Officer
31.1
 
 
Certification of Chief Financial Officer
31.2
 
 
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 Document
101.INS
 
 
XBRL Taxonomy Extension Schema
101.SCH
 
 
XBRL Taxonomy Extension Calculation Linkbase
101.CAL
 
 
XBRL Taxonomy Extension Definition Linkbase
101.DEF
 
 
XBRL Taxonomy Label Linkbase
101.LAB
 
 
XBRL Taxonomy Extension Presentation Linkbase
101.PRE


52