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 June 30, 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 July 31, 2015
Common Stock, Par value $2.50
 
270,260,295


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


2

Table of Contents

Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
CNA Financial Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Periods ended June 30
Three Months
 
Six Months
(In millions, except per share data)
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Net earned premiums
$
1,735

 
$
1,811

 
$
3,422

 
$
3,617

Net investment income
500

 
550

 
1,058

 
1,076

Net realized investment gains (losses):
 
 
 
 
 
 
 
Other-than-temporary impairment losses
(31
)
 
(5
)
 
(43
)
 
(7
)
Portion of other-than-temporary impairments recognized in Other comprehensive income
—

 
—

 
—

 
—

Net other-than-temporary impairment losses recognized in earnings
(31
)
 
(5
)
 
(43
)
 
(7
)
Other net realized investment gains (losses)
31

 
(9
)
 
53

 
39

Net realized investment gains (losses)
—

 
(14
)
 
10

 
32

Other revenues
92

 
93

 
189

 
178

Total revenues
2,327

 
2,440

 
4,679

 
4,903

Claims, Benefits and Expenses
 
 
 
 
 
 
 
Insurance claims and policyholders’ benefits
1,469

 
1,441

 
2,808

 
2,887

Amortization of deferred acquisition costs
314

 
335

 
617

 
664

Other operating expenses
341

 
254

 
699

 
600

Interest
39

 
46

 
78

 
90

Total claims, benefits and expenses
2,163

 
2,076

 
4,202

 
4,241

Income from continuing operations before income tax
164

 
364

 
477

 
662

Income tax expense
(26
)
 
(103
)
 
(106
)
 
(181
)
Income from continuing operations
138

 
261

 
371

 
481

Income (loss) from discontinued operations, net of income tax (expense) benefit of $-, $(1), $- and $37
—

 
6

 
—

 
(201
)
Net income
$
138

 
$
267

 
$
371

 
$
280

 
 
 
 
 
 
 
 
Basic Earnings Per Share
 
 
 
 
 
 
 
Income from continuing operations
$
0.51

 
$
0.97

 
$
1.37

 
$
1.78

Income (loss) from discontinued operations
—

 
0.02

 
—

 
(0.74
)
Basic earnings per share
$
0.51

 
$
0.99

 
$
1.37

 
$
1.04

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
 
 
 
 
 
 
 
Income from continuing operations
$
0.51

 
$
0.97

 
$
1.37

 
$
1.78

Income (loss) from discontinued operations
—

 
0.01

 
—

 
(0.75
)
Diluted earnings per share
$
0.51

 
$
0.98

 
$
1.37

 
$
1.03

 
 
 
 
 
 
 
 
Dividends per share
$
0.25

 
$
0.25

 
$
2.50

 
$
1.50

 
 
 
 
 
 
 
 
Weighted Average Outstanding Common Stock and Common Stock Equivalents
 
 
 
 
 
 
 
Basic
270.3

 
269.9

 
270.2

 
269.9

Diluted
270.7

 
270.6

 
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 (Loss) (Unaudited)
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Other Comprehensive Income (Loss), Net of Tax
 
 
 
 
 
 
 
Changes in:
 
 
 
 
 
 
 
Net unrealized gains on investments with other-than-temporary impairments
$
(4
)
 
$
2

 
$
(5
)
 
$
14

Net unrealized gains on other investments
(365
)
 
270

 
(253
)
 
507

Net unrealized gains on investments
(369
)
 
272

 
(258
)
 
521

Net unrealized gains on discontinued operations
—

 
7

 
—

 
15

Foreign currency translation adjustment
49

 
42

 
(47
)
 
34

Pension and postretirement benefits
42

 
(51
)
 
48

 
(50
)
Other comprehensive income (loss), net of tax
(278
)
 
270

 
(257
)
 
520

Net income
138

 
267

 
371

 
280

Total comprehensive income (loss)
$
(140
)
 
$
537

 
$
114

 
$
800


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)
June 30, 2015 (Unaudited)
 
December 31,
2014
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities at fair value (amortized cost of $37,199 and $37,335)
$
39,849

 
$
40,768

Equity securities at fair value (cost of $208 and $210)
216

 
222

Limited partnership investments
2,930

 
2,937

Other invested assets
43

 
41

Mortgage loans
622

 
588

Short term investments
1,672

 
1,706

Total investments
45,332

 
46,262

Cash
145

 
190

Reinsurance receivables (less allowance for uncollectible receivables of $48 and $48)
4,654

 
4,694

Insurance receivables (less allowance for uncollectible receivables of $58 and $61)
2,187

 
1,936

Accrued investment income
397

 
405

Deferred acquisition costs
621

 
600

Deferred income taxes
255

 
191

Property and equipment at cost (less accumulated depreciation of $376 and $364)
317

 
295

Goodwill
153

 
152

Other assets
961

 
841

Total assets
$
55,022

 
$
55,566

Liabilities
 

 
 

Insurance reserves:
 
 
 

Claim and claim adjustment expenses
$
23,193

 
$
23,271

Unearned premiums
3,815

 
3,592

Future policy benefits
9,360

 
9,490

Policyholders' funds
—

 
27

Long term debt
2,560

 
2,559

Other liabilities (i ncludes $72 and $1 53 due to Loews Corporation)
3,860

 
3,833

Total liabilities
42,788

 
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; 270,259,928 and 269,980,202 shares outstanding)
683

 
683

Additional paid-in capital
2,146

 
2,151

Retained earnings
9,340

 
9,645

Accumulated other comprehensive income
143

 
400

Treasury stock (2,780,315 and 3,060,041 shares), at cost
(78
)
 
(84
)
Notes receivable for the issuance of common stock
—

 
(1
)
Total stockholders’ equity
12,234

 
12,794

Total liabilities and stockholders' equity
$
55,022

 
$
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)
Six months ended June 30
 
 
 
(In millions)
2015
 
2014
Cash Flows from Operating Activities
 
 
 
Net income
$
371

 
$
280

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

 
255

Deferred income tax expense
32

 
48

Trading portfolio activity
1

 
17

Net realized investment gains
(10
)
 
(34
)
Equity method investees
(48
)
 
75

Net amortization of investments
(13
)
 
—

Depreciation and amortization
39

 
42

Changes in:
 
 
 
Receivables, net
(211
)
 
6

Accrued investment income
8

 
(3
)
Deferred acquisition costs
(8
)
 
(10
)
Insurance reserves
451

 
234

Other assets
(60
)
 
(50
)
Other liabilities
(94
)
 
(201
)
Other, net
82

 
(72
)
Total adjustments
169

 
307

Net cash flows provided by operating activities
540

 
587

Cash Flows from Investing Activities
 

 
 

Dispositions:
 
 
 
Fixed maturity securities - sales
2,859

 
2,919

Fixed maturity securities - maturities, calls and redemptions
2,304

 
1,954

Equity securities
33

 
14

Limited partnerships
85

 
118

Mortgage loans
19

 
33

Purchases:
 
 
 
Fixed maturity securities
(5,029
)
 
(4,921
)
Equity securities
(30
)
 
(11
)
Limited partnerships
(78
)
 
(109
)
Mortgage loans
(60
)
 
(43
)
Change in other investments
8

 
10

Change in short term investments
33

 
(678
)
Purchases of property and equipment
(57
)
 
(27
)
Other, net
—

 
7

Net cash flow s provided ( used) by investing activities
$
87

 
$
(734
)

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


6

Table of Contents

Six months ended June 30
 
 
 
(In millions)
2015
 
2014
Cash Flows from Financing Activities
 
 
 
Dividends paid to common stockholders
$
(676
)
 
$
(406
)
Proceeds from the issuance of debt
—

 
546

Other, net
6

 
23

Net cash flows p rovided (used)  by financing activities
(670
)

163

Effect of foreign exchange rate changes on cash
(2
)
 
2

Transfer of cash to assets held for sale
—

 
(9
)
Net change in cash
(45
)
 
9

Cash, beginning of year
190

 
195

Cash, end of period
$
145

 
$
204


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)
Six months ended June 30
 
 
 
(In millions)
2015
 
2014
Common Stock
 
 
 
Balance, beginning of year
$
683

 
$
683

Balance, end of period
683

 
683

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

 
2,145

Stock-based compensation
(5
)
 
1

Balance, end of period
2,146

 
2,146

Retained Earnings
 
 
 
Balance, beginning of year
9,645

 
9,495

Dividends paid to common stockholders
(676
)
 
(406
)
Net income
371

 
280

Balance, end of period
9,340

 
9,369

Accumulated Other Comprehensive Income
 
 
 
Balance, beginning of year
400

 
442

Other comprehensive income (loss)
(257
)
 
520

Balance, end of period
143

 
962

Treasury Stock
 
 
 
Balance, beginning of year
(84
)
 
(91
)
Stock-based compensation
6

 
6

Balance, end of period
(78
)
 
(85
)
Notes Receivable for the Issuance of Common Stock
 
 
 
Balance, beginning of year
(1
)
 
(23
)
Decrease   in notes receivable for common stock
1

 
22

Balance, end of period
—

 
(1
)
Total Stockholders' Equity
$
12,234

 
$
13,074


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 June 30, 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 June 30, 2015 and for the three and six months ended June 30, 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.
Recently Issued Accounting Standards Update - Disclosures about Short-Duration Contracts
In May of 2015, the Financial Accounting Standards Board issued updated accounting guidance requiring enhanced disclosures to provide additional information about insurance liabilities for short-duration contracts. The updated guidance is effective for annual financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within the annual periods beginning after December 15, 2016. The Company is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.

9


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 and six months ended June 30, 2015 , approximately 423 thousand and 543 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 238 thousand and 208 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.
For the three and six months ended June 30, 2014 , approximately 622 thousand and 644 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 180 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.

10


Note C . Investments
The significant components of Net investment income are presented in the following table.
Periods ended June 30
Three Months

Six Months
(In millions)
2015

2014

2015

2014
Fixed maturity securities
$
452

 
$
451

 
$
895

 
$
903

Short term investments
—

 
—

 
2

 
1

Limited partnership investments
48

 
97

 
162

 
170

Equity securities
3

 
3

 
6

 
5

Mortgage loans
9

 
9

 
17

 
15

Trading portfolio
3

 
3

 
5

 
6

Other
—

 
1

 
—

 
3

Gross investment income
515

 
564

 
1,087

 
1,103

Investment expense
(15
)
 
(14
)
 
(29
)
 
(27
)
Net investment income
$
500

 
$
550

 
$
1,058

 
$
1,076

Net realized investment gains (losses) are presented in the following table.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Net realized investment gains (losses):
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Gross realized gains
$
36

 
$
20

 
$
69

 
$
73

Gross realized losses
(48
)
 
(39
)
 
(69
)
 
(54
)
Net realized investment gains (losses) on fixed maturity securities
(12
)
 
(19
)
 
—

 
19

Equity securities:
 
 
 
 
 
 
 

Gross realized gains
—

 
—

 
1

 
5

Gross realized losses
(1
)
 
—

 
(2
)
 
—

Net realized investment gains (losses) on equity securities
(1
)
 
—

 
(1
)
 
5

Derivative financial instruments
11

 
1

 
10

 
1

Short term investments and other
2

 
4

 
1

 
7

Net realized investment gains (losses)
$
—

 
$
(14
)
 
$
10

 
$
32

The components of Net other-than-temporary impairment (OTTI) losses recognized in earnings by asset type are presented in the following table.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
Corporate and other bonds
$
11

 
$
2

 
$
16

 
$
3

States, municipalities and political subdivisions
13

 
—

 
18

 
—

Asset-backed:
 
 
 
 
 
 
 
Residential mortgage-backed
5

 
1

 
6

 
2

Other asset-backed
1

 
1

 
1

 
1

Total asset-backed
6

 
2

 
7

 
3

Total fixed maturity securities available-for-sale
30

 
4

 
41

 
6

Equity securities available-for-sale -- Common stock
—

 
1

 
1

 
1

Short term investments
1

 
—

 
1

 
—

Net OTTI losses recognized in earnings
$
31

 
$
5

 
$
43

 
$
7


11


The following tables present a summary of fixed maturity and equity securities.
June 30, 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
$
16,863

 
$
1,337

 
$
88

 
$
18,112

 
$
—

States, municipalities and political subdivisions
11,707

 
1,186

 
40

 
12,853

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
4,940

 
175

 
15

 
5,100

 
(46
)
Commercial mortgage-backed
2,186

 
77

 
12

 
2,251

 
(2
)
Other asset-backed
1,044

 
12

 
1

 
1,055

 
—

Total asset-backed
8,170

 
264

 
28

 
8,406

 
(48
)
U.S. Treasury and obligations of government-sponsored enterprises
24

 
5

 
—

 
29

 
—

Foreign government
387

 
13

 
1

 
399

 
—

Redeemable preferred stock
33

 
2

 
—

 
35

 
—

Total fixed maturity securities available-for-sale
37,184

 
2,807

 
157

 
39,834

 
$
(48
)
Total fixed maturity securities trading
15

 


 


 
15

 
 
Equity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Common stock
54

 
8

 
2

 
60

 


Preferred stock
154

 
4

 
2

 
156

 


Total equity securities available-for-sale
208

 
12

 
4

 
216

 


Total
$
37,407

 
$
2,819

 
$
161

 
$
40,065

 



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

 




12


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 June 30, 2015 and December 31, 2014 , the net unrealized gains on investments included in AOCI were net of after-tax Shadow Adjustments of $1,022 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).

13


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
June 30, 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
$
3,201

 
$
73

 
$
152

 
$
15

 
$
3,353

 
$
88

States, municipalities and political subdivisions
1,523

 
34

 
143

 
6

 
1,666

 
40

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
451

 
6

 
167

 
9

 
618

 
15

Commercial mortgage-backed
557

 
9

 
61

 
3

 
618

 
12

Other asset-backed
135

 
1

 
18

 
—

 
153

 
1

Total asset-backed
1,143

 
16

 
246

 
12

 
1,389

 
28

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

 
—

 
—

 
—

 
3

 
—

Foreign government
20

 
1

 
1

 
—

 
21

 
1

Total fixed maturity securities available-for-sale
5,890

 
124

 
542

 
33

 
6,432

 
157

Equity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Common Stock
21

 
2

 
—

 
—

 
21

 
2

Preferred stock
17

 
2

 
—

 
—

 
17

 
2

Total
$
5,928

 
$
128

 
$
542

 
$
33

 
$
6,470

 
$
161


 
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





14


Based on current facts and circumstances, the Company believes the unrealized losses presented in the June 30, 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 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 June 30, 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 June 30, 2015 and 2014 for which a portion of an OTTI loss was recognized in Other comprehensive income.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Beginning balance of credit losses on fixed maturity securities
$
61

 
$
69

 
$
62

 
$
74

Reductions for securities sold during the period
(2
)
 
(3
)
 
(3
)
 
(5
)
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
$
59

 
$
66

 
$
59

 
$
66

Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
 
June 30, 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
$
1,539

 
$
1,559

 
$
2,479

 
$
2,511

Due after one year through five years
7,507

 
7,956

 
9,054

 
9,605

Due after five years through ten years
14,099

 
14,549

 
12,055

 
12,584

Due after ten years
14,039

 
15,770

 
13,728

 
16,049

Total
$
37,184

 
$
39,834

 
$
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.

15


Derivative Financial Instruments
The following tables present the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments.
June 30, 2015
Contractual/
Notional
Amount
 
Estimated Fair Value
(In millions)
 
Asset
 
Liability
Without hedge designation
 
 
 
 
 
Equity warrants
$
5

 
$
—

 
$
—

Embedded derivative on funds withheld liability
183

 
—

 
(6
)
Total
 
 
$
—

 
$
(6
)

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 June 30, 2015 and December 31, 2014 . The embedded derivative on funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.
Investment Commitments
As of June 30, 2015 , the Company had committed approximately $295 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.
As of June 30, 2015 , the Company had a mortgage loan commitment of $6 million representing a signed loan application 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 June 30, 2015 , the Company had commitments to purchase or fund additional amounts of $134 million and sell $79 million under the terms of such securities.

16


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 methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures 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 period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and v) pricing validation, where prices received are compared to prices independently estimated by the Company.

17


Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are presented in the following tables.
June 30, 2015
 
 
 
 
 
 
Total
Assets/ Liabilities
at Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate and other bonds
$
28

 
$
17,958

 
$
141

 
$
18,127

States, municipalities and political subdivisions
—

 
12,768

 
85

 
12,853

Asset-backed:
 
 
 
 
 
 
 
Residential mortgage-backed
—

 
4,893

 
207

 
5,100

Commercial mortgage-backed
—

 
2,164

 
87

 
2,251

Other asset-backed
—

 
565

 
490

 
1,055

Total asset-backed
—

 
7,622

 
784

 
8,406

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

 
1

 
—

 
29

Foreign government
32

 
367

 
—

 
399

Redeemable preferred stock
24

 
11

 
—

 
35

Total fixed maturity securities
112

 
38,727

 
1,010

 
39,849

Equity securities
139

 
61

 
16

 
216

Other invested assets
—

 
43

 
—

 
43

Short term investments
692

 
900

 
—

 
1,592

Life settlement contracts, included in Other assets
—

 
—

 
75

 
75

Total assets
$
943

 
$
39,731

 
$
1,101

 
$
41,775

Liabilities
 
 
 
 
 

 
 

Other liabilities
$
—

 
$
(6
)
 
$
—

 
$
(6
)
Total liabilities
$
—

 
$
(6
)
 
$
—

 
$
(6
)

18


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


19


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
April 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
June 30,
2015
 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2015 recognized in Net income (loss)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
186

 
$
(2
)
 
$
(1
)
 
$
—

 
$
—

 
$
(7
)
 
$
—

 
$
(35
)
 
$
141

 
$
(3
)
States, municipalities and political subdivisions
86

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
—

 
85

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Residential mortgage-backed
232

 
1

 
(2
)
 
—

 
—

 
(11
)
 
—

 
(13
)
 
207

 
—

Commercial mortgage-backed
64

 
1

 
(1
)
 
9

 
—

 
(1
)
 
17

 
(2
)
 
87

 
—

Other asset-backed
553

 
2

 
1

 
47

 
(90
)
 
(17
)
 
—

 
(6
)
 
490

 
—

Total asset-backed
849

 
4

 
(2
)
 
56

 
(90
)
 
(29
)
 
17

 
(21
)
 
784

 
—

Total fixed maturity securities
1,121

 
2

 
(3
)
 
56

 
(90
)
 
(37
)
 
17

 
(56
)
 
1,010

 
(3
)
Equity securities
13

 
—

 
3

 
—

 
—

 
—

 
—

 
—

 
16

 
—

Life settlement contracts
79

 
4

 
—

 
—

 
—

 
(8
)
 
—

 
—

 
75

 
(2
)
Total
$
1,213

 
$
6

 
$
—

 
$
56

 
$
(90
)
 
$
(45
)
 
$
17

 
$
(56
)
 
$
1,101

 
$
(5
)

20


Level 3
(In millions)
Balance as of April 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
June 30,
2014
 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2014 recognized in Net income (loss)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
189

 
$
1

 
$
—

 
$
21

 
$
(6
)
 
$
(5
)
 
$
5

 
$
(11
)
 
$
194

 
$
—

States, municipalities and political subdivisions
86

 
1

 
1

 
1

 
(10
)
 
—

 
—

 
—

 
79

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
359

 
(24
)
 
47

 
22

 
(174
)
 
(19
)
 
—

 
(26
)
 
185

 
—

Commercial mortgage-backed
126

 
1

 
1

 
—

 
(60
)
 
(1
)
 
12

 
(20
)
 
59

 
—

Other asset-backed
439

 
—

 
4

 
229

 
(28
)
 
(18
)
 
—

 
—

 
626

 
(1
)
Total asset-backed
924

 
(23
)
 
52

 
251

 
(262
)
 
(38
)
 
12

 
(46
)
 
870

 
(1
)
Total fixed maturity securities
1,199

 
(21
)
 
53

 
273

 
(278
)
 
(43
)
 
17

 
(57
)
 
1,143

 
(1
)
Equity securities
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2

 
—

Life settlement contracts
87

 
12

 
—

 
—

 
—

 
(13
)
 
—

 
—

 
86

 
1

Total
$
1,288

 
$
(9
)
 
$
53

 
$
273

 
$
(278
)
 
$
(56
)
 
$
17

 
$
(57
)
 
$
1,231

 
$
—






21


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
June 30,
2015
 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2015 recognized in Net income (loss)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
162

 
$
(1
)
 
$
(1
)
 
$
12

 
$
(12
)
 
$
(21
)
 
$
37

 
$
(35
)
 
$
141

 
$
(3
)
States, municipalities and political subdivisions
94

 
1

 
—

 
—

 
—

 
(10
)
 
—

 
—

 
85

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Residential mortgage-backed
189

 
2

 
(2
)
 
72

 
—

 
(21
)
 
—

 
(33
)
 
207

 
—

Commercial mortgage-backed
83

 
2

 
—

 
15

 
—

 
(2
)
 
17

 
(28
)
 
87

 
—

Other asset-backed
655

 
3

 
10

 
82

 
(234
)
 
(20
)
 
—

 
(6
)
 
490

 
—

Total asset-backed
927

 
7

 
8

 
169

 
(234
)
 
(43
)
 
17

 
(67
)
 
784

 
—

Total fixed maturity securities
1,183

 
7

 
7

 
181

 
(246
)
 
(74
)
 
54

 
(102
)
 
1,010

 
(3
)
Equity securities
16

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
16

 
—

Life settlement contracts
82

 
17

 
—

 
—

 
—

 
(24
)
 
—

 
—

 
75

 
(1
)
Total
$
1,281

 
$
24

 
$
7

 
$
181

 
$
(246
)
 
$
(98
)
 
$
54

 
$
(102
)
 
$
1,101

 
$
(4
)

22


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
June 30,
2014
 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2014 recognized in Net income (loss)
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
204

 
$
2

 
$
1

 
$
26

 
$
(10
)
 
$
(10
)
 
$
8

 
$
(27
)
 
$
194

 
$
—

States, municipalities and political subdivisions
71

 
1

 
2

 
1

 
(10
)
 
—

 
14

 
—

 
79

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
331

 
(23
)
 
62

 
47

 
(174
)
 
(40
)
 
21

 
(39
)
 
185

 
—

Commercial mortgage-backed
151

 
2

 
—

 
—

 
(60
)
 
(2
)
 
12

 
(44
)
 
59

 
—

Other asset-backed
446

 
1

 
4

 
377

 
(111
)
 
(90
)
 
—

 
(1
)
 
626

 
(1
)
Total asset-backed
928

 
(20
)
 
66

 
424

 
(345
)
 
(132
)
 
33

 
(84
)
 
870

 
(1
)
Total fixed maturity securities
1,203

 
(17
)
 
69

 
451

 
(365
)
 
(142
)
 
55

 
(111
)
 
1,143

 
(1
)
Equity securities
11

 
3

 
(4
)
 
—

 
(8
)
 
—

 
—

 
—

 
2

 
—

Life settlement contracts
88

 
22

 
—

 
—

 
—

 
(24
)
 
—

 
—

 
86

 
2

Separate account business
1

 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
—

Total
$
1,303

 
$
8

 
$
65

 
$
451

 
$
(373
)
 
$
(166
)
 
$
55

 
$
(112
)
 
$
1,231

 
$
1





23


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 and six months ended June 30, 2015 there were no transfers between Level 1 and Level 2. During the three months ended June 30, 2014 there were $1 million of transfers from Level 2 to Level 1 and no transfers from Level 1 to Level 2. During the six months ended June 30, 2014 , there were $24 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 a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology, or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are 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.

24


Derivative Financial Investments
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 liability, which are fixed maturity securities valued with observable inputs. Currency forwards are valued using observable market forward rates.
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.
June 30, 2015
Estimated Fair Value
 (In millions)
 
Valuation Technique(s)
 
Unobservable Input(s)
 
Range
 (Weighted Average)
Fixed maturity securities
$
97

 
Discounted cash flow
 
Credit spread
 
2% - 13% (3%)
Life settlement contracts
75

 
Discounted cash flow
 
Discount rate risk premium
 
9%
 
 
 
 
 
Mortality assumption
 
55% - 1676% (165%)
December 31, 2014
Estimated Fair Value
(In millions)
 
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%)
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.

25


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.
June 30, 2015
Carrying
Amount
 
Estimated Fair Value
(In millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
Mortgage loans
$
622

 
$
—

 
$
—

 
$
640

 
$
640

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt
$
2,560

 
$
—

 
$
2,843

 
$
—

 
$
2,843


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.


26


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 can contribute 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 $60 million and $89 million for the three and six months ended June 30, 2015 . Catastrophe losses in 2015 related primarily to U.S. weather-related events. The Company reported catastrophe losses, net of reinsurance, of $56 million and $130 million for the three and six months ended June 30, 2014 .

27


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 June 30, 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
$
(13
)
 
$
16

 
$
(8
)
 
$
—

 
$
(5
)
Pretax (favorable) unfavorable premium development
(2
)
 
(11
)
 
(2
)
 
—

 
(15
)
Total pretax (favorable) unfavorable net prior year development
$
(15
)
 
$
5

 
$
(10
)
 
$
—

 
$
(20
)

Three months ended June 30, 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
$
(41
)
 
$
90

 
$
(25
)
 
$
—

 
$
24

Pretax (favorable) unfavorable premium development
(2
)
 
(6
)
 
6

 
—

 
(2
)
Total pretax (favorable) unfavorable net prior year development
$
(43
)
 
$
84

 
$
(19
)
 
$
—

 
$
22


Six months ended June 30, 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
$
(11
)
 
$
11

 
$
(12
)
 
$
—

 
$
(12
)
Pretax (favorable) unfavorable premium development
(8
)
 
(12
)
 
14

 
—

 
(6
)
Total pretax (favorable) unfavorable net prior year development
$
(19
)
 
$
(1
)
 
$
2

 
$
—

 
$
(18
)

Six months ended June 30, 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
$
(44
)
 
$
108

 
$
(15
)
 
$
—

 
$
49

Pretax (favorable) unfavorable premium development
(8
)
 
(24
)
 
(1
)
 
—

 
(33
)
Total pretax (favorable) unfavorable net prior year development
$
(52
)
 
$
84

 
$
(16
)
 
$
—

 
$
16




28


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.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
 
 
 
 
 
 
 
Medical Professional Liability
$
(6
)
 
$
1

 
$
8

 
$
1

Other Professional Liability and Management Liability
(1
)
 
(44
)
 
(4
)
 
(50
)
Surety
—

 
—

 
1

 
1

Warranty
1

 
—

 
1

 
—

Other
(7
)
 
2

 
(17
)
 
4

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(13
)
 
$
(41
)
 
$
(11
)
 
$
(44
)
Three Months
2015
Overall, favorable development in medical professional liability was primarily due to lower than expected severity for individual healthcare professionals and allied facilities in accident years 2009 through 2012. Unfavorable development was recorded related to increased claim frequency in the aging services business in accident years 2009 and 2010.
Favorable development of $38 million was recorded in other professional liability and management liability related to lower than expected severity for professional services primarily in accident years 2010 and prior. Unfavorable development of $37 million was recorded primarily related to increased claim frequency on public company management liability in accident years 2012 through 2014.
Favorable development for other coverages was primarily due to better than expected claim frequency in property coverages provided to Specialty customers in accident year 2014.
2014
Favorable development for other professional liability and management liability was primarily related to favorable outcomes on individual large claims in accident years 2009 and prior, which contributed to a lower estimate of ultimate severity. Additionally, there was lower than expected severity in accident years 2008 through 2011.













29


Six Months
2015
Overall, unfavorable development for medical professional liability was primarily related to increased claim frequency in the aging services business for accident years 2009 through 2014, partially offset by lower than expected severity in accident years 2010 and prior. Additional favorable development was due to lower than expected severity for individual healthcare professionals and allied facilities in accident years 2009 through 2012.
Favorable development of $41 million was recorded in other professional liability and management liability primarily related to lower than expected severity in accident years 2010 and prior for professional services. Unfavorable development of $37 million was recorded primarily related to increased claim frequency on public company management liability in accident years 2012 through 2014.
Favorable development for other coverages was primarily due to better than expected claim frequency in property coverages provided to Specialty customers in accident year 2014.
2014
Favorable development for other professional liability and management liability was primarily related to favorable outcomes on individual large claims in accident years 2009 and prior, which contributed to a lower estimate of ultimate severity. Additionally, there was lower than expected severity in accident years 2008 through 2011.


30


Commercial
The following table presents further detail of the development recorded for the Commercial segment. The majority of the 2014 unfavorable development relates to business classes which the Company has exited, but also includes Small Business where the Company has taken underwriting actions in an effort to improve profitability.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015

2014
 
2015
 
2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
 
 
 
 
 
 
 
Commercial Auto
$
7

 
$
19

 
$
7

 
$
39

General Liability
1

 
32

 
5

 
32

Workers' Compensation
24

 
39

 
23

 
50

Property and Other
(16
)
 
—

 
(24
)
 
(13
)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
16

 
$
90

 
$
11

 
$
108

Three Months
2015
In the aggregate, the unfavorable loss development of $16 million was driven by an extra contractual obligation loss and losses associated with premium development. The reserve development discussed below was largely offsetting.
Unfavorable development for workers’ compensation was primarily due to higher than expected severity related to Defense Base Act contractors in accident years 2008 through 2013.
Favorable development for property and other was primarily due to better than expected loss emergence from 2012 catastrophe events and better than expected claim frequency of large claims in accident year 2014.
2014
Unfavorable development for commercial auto was primarily related to increased claim frequency of large losses in accident years 2010 through 2013.
Unfavorable development for general liability was primarily related to higher than expected severity in accident years 2009 through 2011. In addition, there was higher than expected severity in accident year 2013 related to Small Business.
Unfavorable development for workers’ compensation was primarily due to higher than expected severity related to Defense Base Act contractors in accident years 2012 and 2013.

31


Six Months
2015
In addition to the favorable property development noted in the three month discussion, there was additional favorable development for property related to better than expected loss emergence from 2014 catastrophe events.
2014
Unfavorable development for commercial auto was primarily related to increased claim frequency of large losses in accident years 2010 through 2013. Additionally, unfavorable development was recorded for increased claim frequency in accident years 2012 and 2013 and higher than expected severity in accident years 2010 and 2011.
Unfavorable development for general liability was primarily related to higher than expected severity in accident years 2009 through 2011. In addition, there was higher than expected severity in accident year 2013 related to Small Business.
Unfavorable development for workers’ compensation was primarily due to higher than expected severity related to Defense Base Act contractors in accident years 2012 and 2013 and the recognition of losses related to favorable premium development in accident year 2013.
Overall, favorable development for property and other coverages in accident years 2011 and prior primarily related to fewer claims than expected and favorable individual claim settlements. Additionally, there was favorable development due to better than expected loss emergence in catastrophe losses in accident year 2013. Unfavorable development was recorded in accident year 2012 primarily related to higher than expected loss emergence in catastrophe losses.


32


International
The following table presents further detail of the development recorded for the International segment.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
 
 
 
 
 
 
 
Medical Professional Liability
$
—

 
$
—

 
$
—

 
$
1

Other Professional Liability
(5
)
 
(14
)
 
(5
)
 
(15
)
Liability
(2
)
 
(4
)
 
(7
)
 
(6
)
Property & Marine
(8
)
 
(7
)
 
(14
)
 
1

Other
7

 
—

 
14

 
(6
)
Commutations
—

 
—

 
—

 
10

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development
$
(8
)
 
$
(25
)
 
$
(12
)
 
$
(15
)
Three Months
2015
Favorable development in property and marine was due to better than expected emergence in accident years 2012 through 2014.
Unfavorable development in other is due to large losses in financial institutions and political risk primarily in accident year 2014.
2014
Favorable development for other professional liability was primarily related to lower than expected severity in accident years 2011 and prior.
Six Months
2015
Favorable development in property and marine was due to better than expected emergence in accident years 2012 through 2014.
Unfavorable development in other is due to large losses in financial institutions and political risk primarily in accident year 2014.
2014
Favorable development for other professional liability was primarily related to lower than expected severity in accident years 2011 and prior.
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.

33


Asbestos and Environmental Pollution (A&EP) Reserves
In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO (Loss Portfolio Transfer or LPT). At the transaction effective date, the Company ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 billion . The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third-party reinsurance contracts. The NICO aggregate reinsurance limit also covers credit risk on the existing third-party reinsurance related to these liabilities. The Company paid NICO a reinsurance premium of $2 billion and transferred to NICO billed third-party reinsurance receivables related to A&EP claims with a net book value of $215 million , resulting in total consideration of $2.2 billion .
Through December 31, 2013, the Company recorded $0.9 billion of additional amounts ceded under LPT. As a result, the cumulative amounts ceded under the Loss Portfolio Transfer exceeded the $2.2 billion consideration paid, resulting in a deferred retroactive reinsurance gain. This deferred gain is recognized in earnings in proportion to actual recoveries under the Loss Portfolio Transfer. Over the life of the contract, there is no economic impact as long as any additional losses are within the limit under the contract. In a period in which the estimate of ceded losses is changed, the required change to the deferred gain is cumulatively recognized in earnings as if the revised estimate was available at the inception of the LPT.
The following table displays the impact of the Loss Portfolio Transfer on the Condensed Consolidated Statements of Operations.

Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Net A&EP adverse development before consideration of LPT
$
150

 
$
—

 
$
150

 
$
—

Provision for uncollectible third-party reinsurance on A&EP
—

 
—

 
—

 
—

Additional amounts ceded under LPT
150

 
—

 
150

 
—

Retroactive reinsurance benefit recognized
(66
)
 
(1
)
 
(71
)
 
(5
)
Pretax impact of unrecognized deferred retroactive reinsurance benefit
$
84

 
$
(1
)
 
$
79

 
$
(5
)

The fourth quarter of 2014 A&EP reserve review was not completed in 2014 because additional information and analysis on inuring third-party reinsurance recoveries were needed to finalize the review. The review was finalized in the second quarter of 2015 . Unfavorable development was due to a decrease in anticipated future reinsurance recoveries related to asbestos claims and higher than expected severity on pollution claims. The effect of the unrecognized deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders' benefits in the Condensed Consolidated Statement of Operations.
As of June 30, 2015 and December 31, 2014, the cumulative amounts ceded under the LPT were $2.6 billion and $2.5 billion . The unrecognized deferred retroactive reinsurance benefit was $255 million and $176 million as of June 30, 2015 and December 31, 2014 .
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $3.1 billion and $3.4 billion as of June 30, 2015 and December 31, 2014 . In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the full aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the Company’s A&EP claims.



34


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.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Pension cost (benefit)
 
 
 
 
 
 
 
Service cost
$
2

 
$
1

 
$
4

 
$
4

Interest cost on projected benefit obligation
28

 
33

 
56

 
66

Expected return on plan assets
(44
)
 
(48
)
 
(87
)
 
(96
)
Amortization of net actuarial loss
10

 
7

 
19

 
13

Net periodic pension cost (benefit)
$
(4
)
 
$
(7
)
 
$
(8
)
 
$
(13
)
 
 
 
 
 
 
 
 
Postretirement cost (benefit)
 
 
 
 
 
 
 
Interest cost on projected benefit obligation
$
—

 
$
1

 
$
—

 
$
1

Amortization of prior service credit
(1
)
 
(5
)
 
(1
)
 
(9
)
Amortization of net actuarial loss
1

 
—

 
1

 
—

Curtailment gain
—

 
(86
)
 
—

 
(86
)
Net periodic postretirement cost (benefit)
$
—

 
$
(90
)
 
$
—

 
$
(94
)
In the second quarter of 2015 , the Company eliminated future benefit accruals associated with the CNA Retirement Plan (Plan) effective June 30, 2015 .  Employees who were continuing to accrue under this Plan up until that date are entitled to an accrued benefit payable based on their eligible compensation and accrued service through June 30, 2015 , in accordance with the terms of the Plan. Starting with the first pay period after July 1, 2015, affected employees began receiving enhanced employer contributions in the CNA Savings and Capital Accumulation Plan similar to employees who elected to cease accruals effective December 31, 1999. Employees who elected to cease accruals effective December 31, 1999 are not affected by this curtailment. This curtailment resulted in a $55 million decrease in the plan benefit obligation liability and a reduction of the unrecognized actuarial losses included in AOCI. In connection with the curtailment, the Company remeasured the plan benefit obligation which resulted in an increase in the discount rate used to determine the benefit obligation from 3.85% to 4.00% .
In the second quarter of 2014 , the Company eliminated certain postretirement medical benefits associated with the CNA Health and Group Benefits Program. This change was a negative plan amendment that resulted in an $86 million curtailment gain which was included in Other operating expenses within the Corporate & Other Non-Core segment. In connection with the plan amendment, the Company remeasured the plan benefit obligation which resulted in a decrease in the discount rate used to determine the benefit obligation from 3.60% to 3.10% .


35


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 June 30, 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 $37 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 June 30, 2015 and December 31, 2014 , the Company had recorded liabilities of approximately $5 million related to guarantee and indemnification agreements. Management believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.
In the course of selling business entities and assets to third parties, the Company agreed to guarantee the performance of certain obligations of a previously owned subsidiary and to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets 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 June 30, 2015 , the aggregate amount related to quantifiable guarantees was $375 million and the aggregate amount related to indemnification agreements was $260 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 June 30, 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 June 30, 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.

36


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 April 1, 2015
$
35

 
$
1,054

 
$
(627
)
 
$
(41
)
 
$
421

Other comprehensive income (loss) before reclassifications
(4
)
 
(372
)
 
36

 
49

 
(291
)
Amounts reclassified from Accumulated other comprehensive income (loss) after tax (expense) benefit of   $-, $5, $4, $- and $9
—

 
(7
)
 
(6
)
 
—

 
(13
)
Other comprehensive income (loss) after tax (expense) benefit of $2, $181, $(23), $- and $160
(4
)
 
(365
)
 
42

 
49

 
(278
)
Balance as of June 30, 2015
$
31

 
$
689

 
$
(585
)
 
$
8

 
$
143

(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 April 1, 2014
$
33

 
$
912

 
$
30

 
$
(425
)
 
$
142

 
$
692

Other comprehensive income (loss) before reclassifications
2

 
257

 
7

 
—

 
42

 
308

Amounts reclassified from Accumulated other comprehensive income (loss) after tax (expense) benefit of $-, $6, $-, $(28), $- and $(22)
—

 
(13
)
 
—

 
51

 
—

 
38

Other comprehensive income (loss) after tax (expense) benefit of $(1), $(146), $(5), $28, $- and $(124)
2

 
270

 
7

 
(51
)
 
42

 
270

Balance as of June 30, 2014
$
35

 
$
1,182

 
$
37

 
$
(476
)
 
$
184

 
$
962














37


(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
(5
)
 
(251
)
 
36

 
(47
)
 
(267
)
Amounts reclassified from Accumulated other comprehensive income (loss) after tax (expense) benefit of $-, $5, $7, $- and $12
—

 
2

 
(12
)
 
—

 
(10
)
Other comprehensive income (loss) after tax (expense) benefit of $2, $119, $(26), $- and $95
(5
)
 
(253
)
 
48

 
(47
)
 
(257
)
Balance as of June 30, 2015
$
31

 
$
689

 
$
(585
)
 
$
8

 
$
143

(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
14

 
521

 
15

 
—

 
34

 
584

Amounts reclassified from Accumulated other comprehensive income (loss) after tax (expense) benefit of $-, $(8), $-, $(27), $- and $(35)
—

 
14

 
—

 
50

 
—

 
64

Other comprehensive income (loss) after tax (expense) benefit of $(7),   $(273), $(10),   $27,   $-   and $(263)
14

 
507

 
15

 
(50
)
 
34

 
520

Balance as of June 30, 2014
$
35

 
$
1,182

 
$
37

 
$
(476
)
 
$
184

 
$
962

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

38


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.

39


The Company's results of continuing operations and selected balance sheet items by segment are presented in the following tables.
Three months ended June 30, 2015

Specialty
 

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

 
 

 
 
 
 

 
 

 
 

 
 

Net earned premiums
$
689

 
$
703

 
$
207

 
$
137

 
$
—

 
$
(1
)
 
$
1,735

Net investment income
134

 
169

 
13

 
179

 
5

 
—

 
500

Other revenues
81

 
9

 
(1
)
 
—

 
3

 
—

 
92

Total operating revenues
904

 
881

 
219

 
316

 
8

 
(1
)
 
2,327

Claims, Benefits and Expenses
 

 
 

 
 
 
 

 
 

 
 

 
 

Net incurred claims and benefits
416

 
507

 
114

 
344

 
85

 
—

 
1,466

Policyholders’ dividends
1

 
2

 
—

 
—

 
—

 
—

 
3

Amortization of deferred acquisition costs
146

 
117

 
45

 
6

 
—

 
—

 
314

Other insurance related expenses
66

 
130

 
31

 
34

 
(1
)
 
(1
)
 
259

Other expenses
69

 
5

 
(5
)
 
5

 
47

 
—

 
121

Total claims, benefits and expenses
698

 
761

 
185

 
389

 
131

 
(1
)
 
2,163

Operating income (loss) before income tax
206

 
120

 
34

 
(73
)
 
(123
)
 
—

 
164

Income tax (expense) benefit on operating income (loss)
(69
)
 
(42
)
 
(12
)
 
49

 
42

 
—

 
(32
)
Net operating income (loss)
137

 
78

 
22

 
(24
)
 
(81
)
 
—

 
132

Net realized investment gains (losses)
—

 
2

 
1

 
(5
)
 
2

 
—

 
—

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

 
2

 
(1
)
 
6

 
(1
)
 
—

 
6

Net realized investment gains (losses), after tax
—

 
4

 
—

 
1

 
1

 
—

 
6

Net income (loss) from continuing operations
$
137

 
$
82

 
$
22

 
$
(23
)
 
$
(80
)
 
$
—

 
$
138


















40



Three months ended June 30, 2014

Specialty
 

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

 
 

 
 
 
 

 
 

 
 

 
 

Net earned premiums
$
709

 
$
732

 
$
231

 
$
139

 
$
—

 
$
—

 
$
1,811

Net investment income
153

 
201

 
16

 
173

 
7

 
—

 
550

Other revenues
74

 
8

 
—

 
8

 
5

 
(2
)
 
93

Total operating revenues
936

 
941

 
247

 
320

 
12

 
(2
)
 
2,454

Claims, Benefits and Expenses
 

 
 

 
 
 
 

 
 

 
 

 
 

Net incurred claims and benefits
404

 
610

 
118

 
304

 
1

 
—

 
1,437

Policyholders’ dividends
1

 
3

 
—

 
—

 
—

 
—

 
4

Amortization of deferred acquisition costs
148

 
126

 
54

 
7

 
—

 
—

 
335

Other insurance related expenses
67

 
125

 
36

 
31

 
—

 
—

 
259

Other expenses
65

 
7

 
5

 
(3
)
 
(31
)
 
(2
)
 
41

Total claims, benefits and expenses
685

 
871

 
213

 
339

 
(30
)
 
(2
)
 
2,076

Operating income (loss) before income tax
251

 
70

 
34

 
(19
)
 
42

 
—

 
378

Income tax (expense) benefit on operating income (loss)
(84
)
 
(21
)
 
(14
)
 
28

 
(15
)
 
—

 
(106
)
Net operating income (loss)
167

 
49

 
20

 
9

 
27

 
—

 
272

Net realized investment gains (losses)
(5
)
 
(5
)
 
(3
)
 
(4
)
 
3

 
—

 
(14
)
Income tax (expense) benefit on net realized investment gains (losses)
1

 
(2
)
 
4

 
1

 
(1
)
 
—

 
3

Net realized investment gains (losses), after tax
(4
)
 
(7
)
 
1

 
(3
)
 
2

 
—

 
(11
)
Net income (loss) from continuing operations
$
163

 
$
42

 
$
21

 
$
6

 
$
29

 
$
—

 
$
261












41


Six months ended June 30, 2015

Specialty
 

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

 
 

 
 
 
 

 
 

 
 

 
 

Net earned premiums
$
1,369

 
$
1,381

 
$
398

 
$
275

 
$
—

 
$
(1
)
 
$
3,422

Net investment income
289

 
373

 
27

 
358

 
11

 
—

 
1,058

Other revenues
159

 
18

 
(1
)
 
9

 
5

 
(1
)
 
189

Total operating revenues
1,817

 
1,772

 
424

 
642

 
16

 
(2
)
 
4,669

Claims, Benefits and Expenses
 

 
 

 
 
 
 

 
 

 
 

 
 

Net incurred claims and benefits
845

 
961

 
230

 
684

 
81

 
—

 
2,801

Policyholders’ dividends
2

 
5

 
—

 
—

 
—

 
—

 
7

Amortization of deferred acquisition costs
290

 
234

 
80

 
13

 
—

 
—

 
617

Other insurance related expenses
135

 
257

 
68

 
69

 
(1
)
 
(1
)
 
527

Other expenses
136

 
13

 
—

 
9

 
93

 
(1
)
 
250

Total claims, benefits and expenses
1,408

 
1,470

 
378

 
775

 
173

 
(2
)
 
4,202

Operating income (loss) before income tax
409

 
302

 
46

 
(133
)
 
(157
)
 
—

 
467

Income tax (expense) benefit on operating income (loss)
(137
)
 
(104
)
 
(15
)
 
92

 
54

 
—

 
(110
)
Net operating income (loss)
272

 
198

 
31

 
(41
)
 
(103
)
 
—

 
357

Net realized investment gains (losses)
4

 
6

 
2

 
(4
)
 
2

 
—

 
10

Income tax (expense) benefit on net realized investment gains (losses)
(1
)
 
(1
)
 
(1
)
 
8

 
(1
)
 
—

 
4

Net realized investment gains (losses), after tax
3

 
5

 
1

 
4

 
1

 
—

 
14

Net income (loss) from continuing operations
$
275

 
$
203

 
$
32

 
$
(37
)
 
$
(102
)
 
$
—

 
$
371



June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance receivables
$
697

 
$
660

 
$
192

 
$
534

 
$
2,619

 
$
—

 
$
4,702

Insurance receivables
862

 
1,068

 
302

 
10

 
3

 
—

 
2,245

Deferred acquisition costs
306

 
224

 
91

 
—

 
—

 
—

 
621

Goodwill
117

 
—

 
36

 
—

 
—

 
—

 
153

Insurance reserves
 
 
 
 
 
 
 
 
 
 
 
 
 

Claim and claim adjustment expenses
6,365

 
9,391

 
1,401

 
3,248

 
2,788

 
—

 
23,193

Unearned premiums
1,794

 
1,384

 
506

 
132

 
—

 
(1
)
 
3,815

Future policy benefits
—

 
—

 
—

 
9,360

 
—

 
—

 
9,360


42


Six months ended June 30, 2014

Specialty
 

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

 
 

 
 
 
 

 
 

 
 

 
 

Net earned premiums
$
1,401

 
$
1,467

 
$
472

 
$
278

 
$
—

 
$
(1
)
 
$
3,617

Net investment income
297

 
392

 
31

 
344

 
12

 
—

 
1,076

Other revenues
142

 
18

 
—

 
13

 
7

 
(2
)
 
178

Total operating revenues
1,840

 
1,877

 
503

 
635

 
19

 
(3
)
 
4,871

Claims, Benefits and Expenses
 

 
 
 
 
 
 

 
 

 
 

 
 

Net incurred claims and benefits
846

 
1,178

 
248

 
610

 
(2
)
 
—

 
2,880

Policyholders’ dividends
2

 
5

 
—

 
—

 
—

 
—

 
7

Amortization of deferred acquisition costs
291

 
249

 
109

 
15

 
—

 
—

 
664

Other insurance related expenses
132

 
251

 
76

 
63

 
—

 
(1
)
 
521

Other expenses
126

 
15

 
12

 
(2
)
 
20

 
(2
)
 
169

Total claims, benefits and expenses
1,397

 
1,698

 
445

 
686

 
18

 
(3
)
 
4,241

Operating income (loss) before income tax
443

 
179

 
58

 
(51
)
 
1

 
—

 
630

Income tax (expense) benefit on operating income (loss)
(147
)
 
(56
)
 
(22
)
 
58

 
(1
)
 
—

 
(168
)
Net operating income (loss)
296

 
123

 
36

 
7

 
—

 
—

 
462

Net realized investment gains (losses)
6

 
5

 
—

 
12

 
9

 
—

 
32

Income tax (expense) benefit on net realized investment gains (losses)
(2
)
 
(4
)
 
1

 
(5
)
 
(3
)
 
—

 
(13
)
Net realized investment gains (losses), after tax
4

 
1

 
1

 
7

 
6

 
—

 
19

Net income (loss) from continuing operations
$
300

 
$
124

 
$
37

 
$
14

 
$
6

 
$
—

 
$
481



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





43


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.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Specialty
 
 
 
 
 
 
 
Management & Professional Liability
$
674

 
$
710

 
$
1,371

 
$
1,414

Surety
125

 
125

 
245

 
247

Warranty & Alternative Risks
105

 
96

 
205

 
185

Specialty revenues
904

 
931

 
1,821

 
1,846

Commercial
 

 
 

 
 
 
 
Middle Market
412

 
412

 
821

 
815

Small Business
158

 
181

 
323

 
365

Other Commercial Insurance
313

 
343

 
634

 
702

Commercial revenues
883

 
936

 
1,778

 
1,882

International


 


 
 
 
 
Canada
54

 
70

 
109

 
141

CNA Europe
77

 
83

 
154

 
171

Hardy
89

 
91

 
163

 
191

International revenues
220

 
244

 
426

 
503

Life & Group Non-Core revenues
311

 
316

 
638

 
647

Corporate & Other Non-Core revenues
10

 
15

 
18

 
28

Eliminations
(1
)
 
(2
)
 
(2
)
 
(3
)
Total revenues
$
2,327

 
$
2,440

 
$
4,679

 
$
4,903



44


Note K . Discontinued Operations
The results of discontinued operations reflected in the Condensed Consolidated Statements of Operations are presented in the following table.

Periods ended June 30, 2014
(In millions)
Three Months
 
Six Months
Revenues
 
 
 
Net investment income
$
39

 
$
80

Net realized investment gains
1

 
2

Total revenues
40

 
82

Claims, Benefits and Expenses
 
 
 
Insurance claims and policyholders' benefits
32

 
63

Other operating expenses
1

 
2

Total claims, benefits and expenses
33

 
65

Income before income tax
7

 
17

Income tax expense
(1
)
 
(4
)
Income from discontinued operations, net of income tax
6

 
13

Impairment loss on sale, net of income tax benefit of $- and $41
—

 
(214
)
Income (loss) from discontinued operations
$
6

 
$
(201
)

45


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 13 th 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 core Specialty, Commercial and International segments, we utilize the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios.
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.

46

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.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Operating Revenues
 
 
 
 
 
 
 
Net earned premiums
$
1,735

 
$
1,811

 
$
3,422

 
$
3,617

Net investment income
500

 
550

 
1,058

 
1,076

Other revenues
92

 
93

 
189

 
178

Total operating revenues
2,327

 
2,454

 
4,669

 
4,871

Claims, Benefits and Expenses
 
 
 
 
 
 
 
Net incurred claims and benefits
1,466

 
1,437

 
2,801

 
2,880

Policyholders' dividends
3

 
4

 
7

 
7

Amortization of deferred acquisition costs
314

 
335

 
617

 
664

Other insurance related expenses
259

 
259

 
527

 
521

Other expenses
121

 
41

 
250

 
169

Total claims, benefits and expenses
2,163

 
2,076

 
4,202

 
4,241

Operating income before income tax
164

 
378

 
467

 
630

Income tax expense on operating income
(32
)
 
(106
)
 
(110
)
 
(168
)
Net operating income
132

 
272

 
357

 
462

Net realized investment gains (losses)
—

 
(14
)
 
10

 
32

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

 
3

 
4

 
(13
)
Net realized investment gains (losses), after tax
6

 
(11
)
 
14

 
19

Income from continuing operations
138

 
261

 
371

 
481

Income (loss) from discontinued operations, net of tax
—

 
6

 
—

 
(201
)
Net income
$
138

 
$
267

 
$
371

 
$
280

Three Month Comparison
Income from continuing operations decreased $123 million for the three months ended June 30, 2015 as compared with the same period in 2014 . The decrease was driven by lower net operating income, partially offset by improved net realized investment results.
Net realized investment results, after tax, improved $17 million for the three months ended June 30, 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 decreased $140 million for the three months ended June 30, 2015 as compared with the same period in 2014 . Net operating results for each period were affected by significant items in our Corporate and Other Non-Core segment. Results in 2015 were negatively affected by a $54 million after-tax charge related to the application of retroactive reinsurance accounting to adverse reserve development ceded under the 2010 A&EP Loss Portfolio Transfer, as further discussed in Note E to the Condensed Consolidated Financial Statements included under Part 1, Item 1. Results in 2014 benefited from a $56 million after-tax curtailment gain related to a change in postretirement benefits, as further discussed in Note G to the Condensed Consolidated Financial Statements included under Part 1, Item 1. Excluding the effect of these two significant items, net operating income decreased $30 million for the three months ended June 30, 2015 as compared with the same period in 2014 . Improved underwriting results in our core property and casualty segments were more than offset by lower investment income and decreased results in our long term care business. Catastrophe losses were $39 million after tax for the three months ended June 30, 2015 as compared to $37 million after tax for the same period in 2014 .

47

Table of Contents

Favorable net prior year development of $20 million was recorded for the three months ended June 30, 2015 as compared with unfavorable net prior year development of $22 million in our core Specialty, Commercial and International segments for the three months ended June 30, 2014 . Further information on net prior year development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Six Month Comparison
Income from continuing operations decreased $110 million for the six months ended June 30, 2015 as compared with the same period in 2014 . The decrease was primarily due to lower net operating income.
Loss from discontinued operations, net of tax, for the six months ended June 30, 2014 included an impairment loss of $214 million related to the sale of CAC.
Net operating income decreased $105 million for the six months ended June 30, 2015 as compared with the same period in 2014 . Excluding the effect of the two significant items discussed in the three month comparison, net operating income increased $5 million . Net operating income increased $46 million for our core segments. The increase was primarily driven by improved underwriting results. Catastrophe losses were $58 million after tax for the six months ended June 30, 2015 as compared to $85 million after tax for the same period in 2014 .
Favorable net prior year development of $18 million was recorded for the six months ended June 30, 2015 as compared with unfavorable net prior year development of $16 million for the six months ended June 30, 2014 related to our core 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.

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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.


49

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.
Periods ended June 30
Three Months
 
Six Months
(In millions, except ratios)
2015
 
2014
 
2015
 
2014
Net written premiums
$
672

 
$
701

 
$
1,370

 
$
1,414

Net earned premiums
689

 
709

 
1,369

 
1,401

Net investment income
134

 
153

 
289

 
297

Net operating income
137

 
167

 
272

 
296

Net realized investment gains (losses), after tax
—

 
(4
)
 
3

 
4

Net income
137

 
163

 
275

 
300

Ratios
 
 
 
 
 
 
 
Loss and loss adjustment expense
60.3
%
 
57.0
%
 
61.7
%
 
60.4
%
Expense
30.7

 
30.3

 
31.0

 
30.2

Dividend
0.2

 
0.2

 
0.2

 
0.2

Combined
91.2
%
 
87.5
%
 
92.9
%
 
90.8
%
Three Month Comparison
Net written premiums for Specialty for the three months ended June 30, 2015 decreased $29 million from the prior year period, primarily due to lower retention and new business. The decrease in net earned premiums was consistent with the trend in net written premiums.
Average rate increased 1% for the three months ended June 30, 2015 , as compared with an increase of 3% for the three months ended June 30, 2014 for the policies that renewed in each period. Retention of 85% and 87% was achieved in each period.
Net income decreased $26 million for the three months ended June 30, 2015 as compared with the same period in 2014 , due to lower net operating income.
Net operating income decreased $30 million for the three months ended June 30, 2015 as compared with the same period in 2014 , driven by less favorable net prior year development and lower net investment income.
The combined ratio increased 3.7 points for the three months ended June 30, 2015 as compared with the same period in 2014 . The loss ratio increased 3.3 points due to less favorable net prior year development, which more than offset an improved current accident year loss ratio. Catastrophe losses were $5 million , or 0.7 points of the loss ratio for the three months ended June 30, 2015 , as compared to $5 million , or 0.6 points of the loss ratio for the three months ended June 30, 2014 . The expense ratio increased 0.4 points for the three months ended June 30, 2015 , as compared with the same period in 2014 , due to the unfavorable effect of lower net earned premiums.
Favorable net prior year development of $15 million and $43 million was recorded for the three months ended June 30, 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.

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Table of Contents

Six Month Comparison
Net written premiums for Specialty for the six months ended June 30, 2015 decreased $44 million from the prior year period, primarily due to lower retention and new business. The decrease in net earned premiums was consistent with the trend in net written premiums.
Average rate increased 1% for the six months ended June 30, 2015 , as compared with an increase of 3% for the six months ended June 30, 2014 for the policies that renewed in each period. Retention of 86% and 87% was achieved in each period.
Net income decreased $25 million for the six months ended June 30, 2015 as compared with the same period in 2014 , due to lower net operating income.
Net operating income decreased $24 million for the six months ended June 30, 2015 as compared with the same period in 2014 , primarily due to less favorable net prior year development and lower net investment income.
The combined ratio increased 2.1 points for the six months ended June 30, 2015 as compared with the same period in 2014 . The loss ratio increased 1.3 points due to less favorable net prior year development, partially offset by an improved current accident year loss ratio. Catastrophe losses were $12 million , or 0.9 points of the loss ratio for the six months ended June 30, 2015 , as compared to $16 million , or 1.2 points of the loss ratio for the six months ended June 30, 2014 . The expense ratio increased 0.8 points for the six months ended June 30, 2015 as compared with the same period in 2014 , primarily driven by increased underwriting expenses and the unfavorable effect of lower net earned premiums.
Favorable net prior year development of $19 million and $52 million was recorded for the six months ended June 30, 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.
 
June 30,
2015
 
December 31,
2014
(In millions)
 
Gross Case Reserves
$
2,072

 
$
2,136

Gross IBNR Reserves
4,293

 
4,093

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
6,365

 
$
6,229

Net Case Reserves
$
1,838

 
$
1,929

Net IBNR Reserves
3,840

 
3,726

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
5,678

 
$
5,655


51

Table of Contents

Commercial
The following table presents the results of operations.
Periods ended June 30
Three Months
 
Six Months
(In millions, except ratios)
2015
 
2014
 
2015
 
2014
Net written premiums
$
717

 
$
692

 
$
1,476

 
$
1,499

Net earned premiums
703

 
732

 
1,381

 
1,467

Net investment income
169

 
201

 
373

 
392

Net operating income
78

 
49

 
198

 
123

Net realized investmen t gains (losses) , after tax
4

 
(7
)
 
5

 
1

Net income
82

 
42

 
203

 
124

Ratios
 
 
 

 
 

 
 
Loss and loss adjustment expense
72.1
%
 
83.7
%
 
69.6
%
 
80.4
%
Expense
34.9

 
34.1

 
35.4

 
34.0

Dividend
0.2

 
0.3

 
0.3

 
0.3

Combined
107.2
%
 
118.1
%
 
105.3
%
 
114.7
%
Three Month Comparison
Net written premiums for Commercial increased $25 million for the three months ended June 30, 2015 as compared with the same period in 2014 . This increase was driven by higher retention and new business, partially offset by underwriting actions taken in certain business classes. Net earned premiums decreased $29 million for the three months ended June 30, 2015 as compared with the same period 2014 , consistent with the trend in net written premiums in recent quarters.
Average rate increased 2% for the three months ended June 30, 2015 , as compared with an increase of 5% for the three months ended June 30, 2014 for the policies that renewed in each period. Retention of 79% and 69% was achieved in each period.
Net income increased $40 million for the three months ended June 30, 2015 as compared with the same period in 2014 , driven by higher net operating income.
Net operating income increased $29 million for the three months ended June 30, 2015 as compared with the same period in 2014 , due to improved underwriting results, partially offset by lower net investment income.
The combined ratio improved 10.9 points for the three months ended June 30, 2015 as compared with the same period in 2014 . The loss ratio improved 11.6 points, due to less unfavorable net prior year development coupled with an improved current accident year loss ratio. Catastrophe losses were $54 million , or 7.7 points of the loss ratio for the three months ended June 30, 2015 , as compared to $47 million , or 6.4 points of the loss ratio for the three months ended June 30, 2014 . The expense ratio increased 0.8 points for the three months ended June 30, 2015 as compared with the same period in 2014 , driven by the unfavorable effect of lower net earned premiums.
Unfavorable net prior year development of $5 million and $84 million was recorded for the three months ended June 30, 2015 and 2014 . The majority of the 2014 unfavorable development relates to business classes which we have exited, but also includes Small Business where we are taking underwriting actions in an effort to improve profitability. Further information on net prior year development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

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Table of Contents

Six Month Comparison
Net written premiums for Commercial decreased $23 million for the six months ended June 30, 2015 as compared with the same period in 2014 , driven by underwriting actions taken in certain business classes, partially offset by positive rate and higher retention. Net earned premiums decreased $86 million for the six months ended June 30, 2015 as compared with the same period 2014 , consistent with the trend in net written premiums.
Average rate increased 2% for the six months ended June 30, 2015 , as compared with an increase of 5% for the six months ended June 30, 2014 for the policies that renewed in each period. Retention of 77% and 72% was achieved in each period.
Net income increased $79 million for the six months ended June 30, 2015 as compared with the same period in 2014 , driven by higher net operating income.
Net operating income increased $75 million for the six months ended June 30, 2015 as compared with the same period in 2014 , due to improved underwriting results, partially offset by lower net investment income.
The combined ratio improved 9.4 points for the six months ended June 30, 2015 as compared with the same period in 2014 . The loss ratio improved 10.8 points, primarily due to the absence of unfavorable net prior year development and an improved current accident year loss ratio. Catastrophe losses were $73 million , or 5.3 points of the loss ratio for the six months ended June 30, 2015 , as compared to $107 million , or 7.4 points of the loss ratio for the six months ended June 30, 2014 . The expense ratio increased 1.4 points for the six months ended June 30, 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 $1 million was recorded for the six months ended June 30, 2015 , as compared with unfavorable net prior year development of $84 million for the six months ended June 30, 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.
 
June 30,
2015
 
December 31,
2014
(In millions)
 
Gross Case Reserves
$
5,264

 
$
5,298

Gross IBNR Reserves
4,127

 
4,216

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
9,391

 
$
9,514

Net Case Reserves
$
4,889

 
$
4,947

Net IBNR Reserves
3,867

 
3,906

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
8,756

 
$
8,853


53

Table of Contents

International
The following table presents the results of operations.
Periods ended June 30
Three Months
 
Six Months
(In millions, except ratios)
2015
 
2014
 
2015
 
2014
Net written premiums
$
249

 
$
261

 
$
461

 
$
508

Net earned premiums
207

 
231

 
398

 
472

Net investment income
13

 
16

 
27

 
31

Net operating income
22

 
20

 
31

 
36

Net realized investment gains, after tax
—

 
1

 
1

 
1

Net income
22

 
21

 
32

 
37

Ratios
 
 
 
 
 
 
 
Loss and loss adjustment expense
55.0
%
 
50.8
%
 
57.7
%
 
52.5
%
Expense
37.2

 
39.1

 
37.4

 
39.2

Dividend
—

 
—

 
—

 
—

Combined
92.2
%
 
89.9
%
 
95.1
%
 
91.7
%
Three Month Comparison
Net written premiums for International decreased $12 million for the three months ended June 30, 2015 as compared with the same period in 2014 . The decrease was driven by the unfavorable effect of foreign currency exchange rates. Excluding the effect of foreign currency exchange rates, net written premiums increased 5% for the three months ended June 30, 2015 as compared with the same period in 2014 . Net earned premiums decreased $24 million for the three months ended June 30, 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 June 30, 2015 , as compared with a decrease of 3% for the three months ended June 30, 2014 for the policies that renewed in each period. Retention of 71% and 74% was achieved in each period.
The combined ratio increased 2.3 points for the three months ended June 30, 2015 as compared with the same period in 2014 . The loss ratio increased 4.2 points, primarily due to less favorable net prior year development. Catastrophe losses were $1 million , or 0.8 points of the loss ratio for the three months ended June 30, 2015 , as compared to $4 million , or 1.8 points of the loss ratio for the three months ended June 30, 2014 . The expense ratio improved 1.9 points for the three months ended June 30, 2015 as compared with the same period in 2014 due to decreased expenses, partially offset by the unfavorable effect of lower net earned premiums.
Favorable net prior year development of $10 million and $19 million was recorded for the three months ended June 30, 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.








54

Table of Contents

Six Month Comparison
Net written premiums for International decreased $47 million for the six months ended June 30, 2015 as compared with the same period in 2014 . The decrease was 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 $74 million for the six months ended June 30, 2015 as compared with the same period in 2014 , consistent with the trend in net written premiums.
Average rate decreased 1% for the six months ended June 30, 2015 and 2014 for the policies that renewed in each respective period. Retention of 74% and 78% was achieved in each period.
The combined ratio increased 3.4 points for the six months ended June 30, 2015 as compared with the same period in 2014 . The loss ratio increased 5.2 points, primarily due to the unfavorable effect of net prior year development. Catastrophe losses were $4 million , or 1.0 points of the loss ratio for the six months ended June 30, 2015 , as compared to $7 million , or 1.6 points of the loss ratio for the six months ended June 30, 2014 . The expense ratio improved 1.8 points for the six months ended June 30, 2015 as compared with the same period in 2014 due to decreased expenses, partially offset by the unfavorable effect of lower earned premiums.
Unfavorable net prior year development of $2 million was recorded for the six months ended June 30, 2015 as compared with favorable net prior year development of $16 million the six months ended June 30, 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.
 
June 30,
2015
 
December 31,
2014
(In millions)
 
Gross Case Reserves
$
644

 
$
752

Gross IBNR Reserves
757

 
689

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
1,401

 
$
1,441

Net Case Reserves
$
525

 
$
598

Net IBNR Reserves
722

 
663

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
1,247

 
$
1,261


55

Table of Contents

Life & Group Non-Core
The following table presents the results of operations.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Net earned premiums
$
137

 
$
139

 
$
275

 
$
278

Net investment income
179

 
173

 
358

 
344

Net operating income (loss)
(24
)
 
9

 
(41
)
 
7

Net realized investment gains (losses), after tax
1

 
(3
)
 
4

 
7

Net income (loss)
(23
)
 
6

 
(37
)
 
14

Three Month Comparison
Net earned premiums for Life & Group Non-Core were unchanged for the three months ended June 30, 2015 as compared with the same period in 2014 , as the effect of policy lapses was substantially offset by rate increases.
Net results decreased $29 million for the three months ended June 30, 2015 as compared with the same period in 2014 , driven by an increase in the net operating loss.
Net operating results decreased $33 million for the three months ended June 30, 2015 as compared with the same period in 2014 . Results in 2014 benefited from unusually favorable morbidity and persistency experience in our long term care business as compared to modestly unfavorable morbidity experience in the current year period.
Six Month Comparison
Net earned premiums for Life & Group Non-Core were unchanged for the six months ended June 30, 2015 as compared with the same period in 2014 , primarily due to the same reasons discussed above in the three month comparison.
Net results decreased $51 million for the six months ended June 30, 2015 as compared with the same period in 2014 , primarily due to an increase in the net operating loss.
Net operating results decreased $48 million for the six months ended June 30, 2015 as compared with the same period in 2014 , due to the same reasons discussed above in the three month comparison.

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Table of Contents

Corporate & Other Non-Core
The following table presents the results of operations.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Net investment income
$
5

 
$
7

 
$
11

 
$
12

Interest expense
39

 
46

 
78

 
90

Net operating income (loss)
(81
)
 
27

 
(103
)
 
—

Net realized investment gains (losses), after tax
1

 
2

 
1

 
6

Net income (loss)
(80
)
 
29

 
(102
)
 
6

Three Month Comparison
Net results decreased $109 million for the three months ended June 30, 2015 as compared with the same period in 2014 . Results in 2015 were negatively affected by a $54 million after-tax charge related to the application of retroactive reinsurance accounting to adverse reserve development ceded under the 2010 A&EP Loss Portfolio Transfer, as further discussed in Note E to the Condensed Consolidated Financial Statements included under Part 1, Item 1. Results in 2014 benefited from a $56 million after-tax curtailment gain related to a change in postretirement benefits, as further discussed in Note G to the Condensed Consolidated Financial Statements included under Part 1, Item 1. Additionally, 2015 benefited from 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 June 30, 2015 and 2014 .
Six Month Comparison
Net results decreased $108 million for the six months ended June 30, 2015 as compared with the same period in 2014 , primarily due to the same reasons discussed above in the three month comparison.
No net prior year development was recorded for the six months ended June 30, 2015 and 2014 .
The following table presents the gross and net carried reserves.
(In millions)
June 30,
2015
 
December 31,
2014
Gross Case Reserves
$
1,586

 
$
1,189

Gross IBNR Reserves
1,202

 
1,715

Total Gross Carried Claim and Claim Adjustment Expense Reserves
$
2,788

 
$
2,904

Net Case Reserves
$
142

 
$
144

Net IBNR Reserves
162

 
171

Total Net Carried Claim and Claim Adjustment Expense Reserves
$
304

 
$
315


57

Table of Contents

INVESTMENTS
Net Investment Income
The significant components of Net investment income are presented in the following table.
Periods ended June 30
Three Months
 
Six Months
(In millions, except yields)
2015
 
2014
 
2015
 
2014
Fixed maturity securities:
 
 
 
 
 
 
 
    Taxable
$
352

 
$
350

 
$
694

 
$
702

    Tax-Exempt
100

 
101

 
201

 
201

Total fixed maturity securities
452

 
451

 
895

 
903

Limited partnership investments
48

 
97

 
162

 
170

Other, net of investment expense
—

 
2

 
1

 
3

Pretax net investment income
$
500

 
$
550

 
$
1,058

 
$
1,076

After-tax net investment income
$
356

 
$
391

 
$
750

 
$
762

 
 
 
 
 
 
 
 
Effective income yield for the fixed maturity securities portfolio, pretax
4.9
%
 
4.9
%
 
4.8
%
 
4.9
%
Effective income yield for the fixed maturity securities portfolio, after tax
3.5
%
 
3.5
%
 
3.5
%
 
3.5
%
After-tax net investment income for the three months ended June 30, 2015 decreased $35 million as compared with the same period in 2014 . The decrease was driven by limited partnerships, which returned 1.6% as compared with 3.5% in the prior year period. Income for the quarter from fixed maturity securities was favorably affected by changes in estimates for prepayments for asset-backed securities, offset by a decline in the effective income yield excluding these changes.
After-tax net investment income for the six months ended June 30, 2015 decreased $12 million as compared with the same period in 2014 . The decrease was primarily driven by limited partnerships, which returned 5.5% as compared with 6.3% in the prior year period.


58

Table of Contents

Net Realized Investment Gains (Losses)
The components of Net realized investment gains (losses) are presented in the following table.
Periods ended June 30
Three Months
 
Six Months
(In millions)
2015
 
2014
 
2015
 
2014
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate and other bonds
$
3

 
$
8

 
$
16

 
$
22

States, municipalities and political subdivisions
(16
)
 
(5
)
 
(20
)
 
18

Asset-backed
—

 
(24
)
 
3

 
(23
)
Foreign government
1

 
2

 
1

 
2

Total fixed maturity securities
(12
)
 
(19
)
 
—

 
19

Equity securities
(1
)
 
—

 
(1
)
 
5

Derivative financial instruments
11

 
1

 
10

 
1

Short term investments and other
2

 
4

 
1

 
7

Net realized investment gains (losses)
—

 
(14
)
 
10

 
32

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

 
3

 
4

 
(13
)
Net realized investment gains (losses), after tax
$
6

 
$
(11
)
 
$
14

 
$
19

Net realized investment results, after tax, improved $17 million for the three months ended June 30, 2015 as compared with the same period in 2014 . This improvement was driven by higher net realized investment gains, including gains on sales of securities and derivative gains, partially offset by higher OTTI losses recognized in earnings.
Net realized investment gains, after tax, decreased $5 million for the six months ended June 30, 2015 as compared with the same period in 2014 . This decrease was driven by higher OTTI losses recognized in earnings, partially offset by higher net realized investment gains, including derivative gains and gains on sales of securities.
Further information on our realized gains and losses, including our OTTI losses and derivative gains, is included in Note C to the Condensed Consolidated Financial Statements included under Part I, Item 1.



59

Table of Contents

Portfolio Quality
Our fixed maturity portfolio consists primarily of high quality bonds, 92% and 93% of which were rated as investment grade (rated BBB- or higher) as of June 30, 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 June 30, 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.
 
June 30, 2015
 
December 31, 2014
(In millions)
Estimated Fair Value
 
%
 
Estimated Fair Value
 
%
U.S. Government, Government agencies and Government-sponsored enterprises
$
3,722

 
9
%
 
$
3,882

 
10
%
AAA rated
2,697

 
7

 
2,850

 
7

AA and A rated
19,080

 
48

 
19,998

 
49

BBB rated
11,305

 
28

 
11,093

 
27

Non-investment grade
3,045

 
8

 
2,945

 
7

Total
$
39,849

 
100
%
 
$
40,768

 
100
%
The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.
June 30, 2015
Estimated Fair Value
 
%
 
Gross Unrealized Losses
 
%
(In millions)
 
 
 
U.S. Government, Government agencies and Government-sponsored enterprises
$
126

 
2
%
 
$
2

 
1
%
AAA
384

 
6

 
11

 
7

AA
1,289

 
20

 
29

 
18

A
1,096

 
17

 
25

 
16

BBB
2,577

 
40

 
59

 
38

Non-Investment Grade
960

 
15

 
31

 
20

Total
$
6,432

 
100
%
 
$
157

 
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.
June 30, 2015
Estimated Fair Value

%

Gross Unrealized Losses

%
(In millions)
 
 
 
Due in one year or less
$
113

 
2
%
 
$
4

 
3
%
Due after one year through five years
808

 
13

 
18

 
11

Due after five years through ten years
3,376

 
52

 
72

 
46

Due after ten years
2,135

 
33

 
63

 
40

Total
$
6,432

 
100
%
 
$
157

 
100
%


60

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.
 
June 30, 2015
 
December 31, 2014
(In millions)
Estimated Fair Value
 
Effective
Duration
(In years)
 
Estimated Fair Value
 
Effective
Duration
(In years)
Investments supporting Life & Group Non-Core
$
14,540

 
10.5

 
$
14,668

 
10.5

Other interest sensitive investments
26,906

 
4.4

 
27,748

 
4.0

Total
$
41,446

 
6.6

 
$
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)
June 30,
2015
 
December 31,
2014
Short term investments:
 
 
 
Commercial paper
$
882

 
$
922

U.S. Treasury securities
501

 
466

Money market funds
150

 
206

Other
139

 
112

Total short term investments
$
1,672

 
$
1,706


61

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. Cash receipts and cash payments resulting from purchases and sales of trading securities are reported as cash flows related to operating activities. Additionally, cash may be paid or received for income taxes.
For the six months ended June 30, 2015 , net cash provided by operating activities was $540 million as compared with $587 million for the same period in 2014 . This reduction reflected lower premiums collected and decreased receipts relating to returns on limited partnerships, partially offset by lower net claim payments.
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 $87 million for the six months ended June 30, 2015 , as compared with net cash used of $734 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 six months ended June 30, 2015 , net cash used by financing activities was $670 million as compared with net cash provided of $163 million for the same period in 2014 . Cash used by financing activities reflected an increased special stockholder dividend in the first quarter of 2015 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
Dividends of $2.50 per share of our common stock, including a special dividend of $2.00 per share, were declared and paid during the six months ended June 30, 2015 . On July 31, 2015 , our Board of Directors declared a quarterly dividend of $0.25 per share, payable September 2, 2015 to stockholders of record on August 17, 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 six months ended June 30, 2015 , CCC paid a dividend of $700 million to its parent. As of June 30, 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.

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ACCOUNTING STANDARDS UPDATE
For discussion of accounting standards update that will be adopted in the future, see Note A to the Condensed Consolidated Financial Statements.
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.

63

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.

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Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our market risk components for the six months ended June 30, 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 June 30, 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 June 30, 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 June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

65

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 6. Exhibits
See Exhibit Index.

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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: August 4, 2015
By
/s/ D. Craig Mense
 
 
D. Craig Mense
Executive Vice President and
Chief Financial Officer

67

Table of Contents

EXHIBIT INDEX

Description of Exhibit
Exhibit Number
 
 
CNA Supplemental Executive Retirement Plan, restated as of January 1, 2015
10.5
 
 
CNA Supplemental Executive Savings and Capital Accumulation Plan, restated as of January 1, 2014
10.6
 
 
First Amendment to the CNA Supplemental Executive Savings and Capital Accumulation Plan, dated May 28, 2015
10.6.1
 
 
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


68



EXHIBIT 10.5

CNA SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Restated as of January 1, 2015















































CNA SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Table of Contents
ARTICLE I   GENERAL PROVISIONS ..........................................................................
1

1.1     Purpose .................................................................................................................
1

1.2     Effective Date .......................................................................................................
1

1.3     Company and Employers ......................................................................................
1

1.4     Plan Year ...............................................................................................................
1

1.5     Definitions and Rules of Construction .................................................................
1

 
 
ARTICLE II   ELIGIBILITY AND BENEFITS ...............................................................
4

2.1     Eligibility ..............................................................................................................
4

2.2     Benefits .................................................................................................................
4

2.3     Vesting ..................................................................................................................
5

2.4     Time and Form of Payment ..................................................................................
6

2.5     Death Benefits ......................................................................................................
8

 
 
ARTICLE III   PAYMENT OF BENEFITS .......................................................................
11

3.1     Source of Payment ................................................................................................
11

3.2     Establishment of Trust ..........................................................................................
11

3.3     Withholding and Payroll Taxes .............................................................................
11

3.4     Payment on Behalf of Disabled or Incompetent Persons .....................................
12

3.5     Missing Participants or Beneficiaries ...................................................................
12

3.6     Other Permitted Distributions ...............................................................................
12

3.7     Recovery of Erroneous Distributions ...................................................................
12

 
 
ARTICLE IV   ADMINISTRATION .................................................................................
14

4.1     Plan Administrator ................................................................................................
14

4.2     Administrator’s Powers ........................................................................................
14

4.3     Binding Effect of Rulings .....................................................................................
15

4.4     Claims Procedure ..................................................................................................
15

4.5     Indemnity ..............................................................................................................
17

 
 
ARTICLE V   AMENDMENT AND TERMINATION OF PLAN ...................................
18

5.1     Amendment ..........................................................................................................
18

5.2     Termination ...........................................................................................................
18

 
 
ARTICLE VI   MISCELLANEOUS ..................................................................................
19

6.1     Status of Plan ........................................................................................................
19

6.2     Nonassignability ...................................................................................................
19

6.3     No Contract of Employment .................................................................................
19

6.4     Participant Litigation ............................................................................................
19

6.5     Participant and Beneficiary Duties .......................................................................
19

6.6     Governing Law .....................................................................................................
20

6.7     Validity ..................................................................................................................
20

6.8     Notices ..................................................................................................................
20

6.9     Successors .............................................................................................................
20




APPENDIX A FULL VESTING OF PARTICIPANTS AFFECTED BY CERTAIN EVENTS............................................................................................................................
22








        

    
 



ii

CNA SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
GENERAL PROVISIONS

1.1 Purpose . The purpose of this CNA Supplemental Executive Retirement Plan (the “Plan”) is to enable selected Employees and former senior Employees of CNA Financial Corporation (the “Company”) or its subsidiaries (the “Employers”) to receive additional retirement benefits, to compensate them for the limitations imposed upon their benefits under the CNA Employees Retirement Plan (the “Retirement Plan”) in order to comply with the requirements of the Internal Revenue Code (the “Code”), and also to permit the Employers to provide additional benefits for other key Employees and former Employees.
1.2      Effective Date . Except as otherwise explicitly provided below, the rights of a Participant whose employment terminated, or who otherwise became entitled to receive benefits, under the Plan prior to January 1, 2015, shall be determined under the terms of the Plan as in effect at such time; provided that any provision of this amended and restated plan that is required to be effective prior to such date in order for the Plan to comply with Section 409A of the Code shall be effective as of such prior date.
1.3     Company and Employers . The Plan is adopted for the benefit of selected Employees and former Employees of subsidiaries of the Company (the “Employers”). As of the effective date of this restatement, Continental Casualty Company is the only Employer participating in the Plan. The Administrator may permit any other company that is an affiliate or subsidiary of the Company to participate in the Plan in such manner as the Administrator may determine. Each Employer is liable for the payment of benefits to a Participant that is or was an Employee of such Employer. The Company is the sponsor of the Plan for purposes of ERISA and the issuer of all interests in the Plan for securities laws purposes.
1.4     Plan Year . The Plan Year of the Plan shall coincide with the calendar year, except as the Administrator shall otherwise determine.
1.5     Definitions and Rules of Construction . As used in this Plan, certain capitalized terms shall have the meanings set forth below. Capitalized terms not defined herein shall have the meaning set forth in the Retirement Plan, if applicable. Nouns and pronouns which are of one gender shall be construed to include all genders, and the singular shall include the plural and vice-versa, except as the context otherwise clearly requires. Article and Section headings are for ease of reference only and shall have no substantive meaning.
(a)    “Administrator” means Continental Casualty Company or such other person as the Company shall designate pursuant to Section 4.1.
(b)    “Board” means the Board of Directors of the Company.
(c)    “Choice 1 Participant” means a Participant who is treated as a “Choice 1 Participant” under the Retirement Plan.



(d)    “Choice 2 Participant” means a Participant who is treated as a “Choice 2 Participant” under the Retirement Plan.
(e)    “CIC SERP” means The Supplemental Retirement Plan of the Continental Corporation, as in effect on December 31, 1997.
(f)    “Code” means the Internal Revenue Code of 1986, and any treasury regulations, rulings or other authoritative administrative pronouncements interpreting the Code. If any provision of the Code specifically referred to herein is amended or replaced, the reference shall be deemed to be to the provision as so amended, or to the new provision, if such reference is consistent with the purposes of the Plan.
(g)    “Company” means CNA Financial Corporation, and any successor thereto that assumes the obligations of the Company under this Plan.
(h)    “Employee” means any person employed by any Employer and classified as an Employee by such Employer. The term “Employee” shall not include a person who is retained to provide services for an Employer as an independent contractor, or who provides services for an Employer pursuant to an agreement or understanding, written or unwritten, with a third party that such person shall be treated as an employee of the third partly, but who is subsequently determined to be an employee at common law, for purposes of any federal or state tax or employment law, or for any other purpose.
(i)    “Employer” means any subsidiary of the Company that adopts the Plan and is the employer or former employer of a Participant.
(j)    “ERISA” means the Employee Retirement Income Security Act of 1974, and any Labor Department regulations, rulings or other authoritative administrative pronouncements interpreting ERISA. If any provision of ERISA specifically referred to herein is amended or replaced, the reference shall be deemed to be to the provision as so amended, or to the new provision, if such reference is consistent with the purposes of the Plan.
(k)    “Participant” means an Employee or former Employee designated to participate in the Plan pursuant to Section 2.1, while he has the right to any benefits under the Plan.
(l)“Plan” means this CNA Supplemental Executive Retirement Plan, as amended from time to time.
(m)    “Retirement Plan” means the CNA Retirement Plan, as amended and restated effective as of January 1, 2014, and including all subsequent amendments thereto.
(n)    “SERP Accrued Pension Account” means a bookkeeping account established on behalf of a Choice 2 Participant to reflect the amount of such Participant’s benefit under this Plan, as described more fully in Section 2.2(b). Such accounts are for bookkeeping purposes only, and shall not be construed to require the segregation of any assets of the Employer or to give a Choice 2 Participant any rights greater than those of an unsecured creditor.



2


(o)    “SERP Agreement” means an agreement entered into between an Employer and a Participant pursuant to Section 2.1(c) providing for the Participant to receive benefits under this Plan which are different from the benefits received by Participants generally by reason of the application of the Tax Limits. A SERP Agreement may take the form of, or be included within, an employment agreement or settlement agreement.
(p)    “Tax Limits” means the limitations imposed on a Participant’s benefits under the Retirement Plan to satisfy the requirements of §401(a)(17) or §415 of the Code.

3


ARTICLE II
ELIGIBILITY AND BENEFITS

2.1     Eligibility .
(a)    Only selected management and highly compensated Employees and former Employees who are designated as provided herein shall be eligible to participate in the Plan. The Employees and former Employees who are so designated to participate in the Plan shall be referred to herein as “Participants.”
(b)    Initially, all Employees who are eligible to participate in the Retirement Plan and whose accrued benefit under the Retirement Plan is restricted by either or both of the Tax Limits, shall be eligible to participate in the Plan. Notwithstanding the foregoing, the Administrator may, in its sole discretion, determine at any time that any Employee or group of Employees described in the preceding sentence shall no longer be eligible to participate; provided that such determination shall not have the effect of reducing a Participant’s benefit previously accrued under this Plan.
(c)    Any Employer, with the consent of the Administrator, may enter into a SERP Agreement with any person, whether or not such person is described in paragraph (b), who may be either an Employee or a former Employee, providing for such person to receive a nonqualified retirement benefit pursuant to Section 2(c), and such person shall thereupon become a Participant. To the extent necessary or appropriate, any reference in this Plan to “employment” shall be modified and interpreted in the case of a former Employee in a manner consistent with the intent of the Plan.
(d)    A person who was a participant in the CIC SERP at any time prior to December 31, 1997, and who accrued any benefit under the CIC SERP that was not paid prior to December 31, 1997, shall be a Participant in this Plan as of December 31, 1997, but only with respect to the benefit described in Section 2.2(d). If such person was also eligible to participate in the Plan by reason of service performed for an Employer after December 31, 1997, the benefit accrued during such period of participation shall be treated as a separate benefit and administered separately under the Plan.
2.2     Benefits .
(a)    Each Choice 1 Participant who retires and becomes eligible to receive a benefit under the Retirement Plan, whether a normal, early, late, disability, or deferred vested benefit, shall receive a benefit from this Plan equal to the excess, if any, of the amount the Participant would have received from the Retirement Plan if neither of the Tax Limits applied over the Participant’s actual Retirement Plan benefit. The amount of the benefit the Participant would have received under the Retirement Plan shall be determined on the same basis as the Participant’s actual Retirement Plan benefit, taking into account the Participant’s age, compensation history, service, and normal form of benefit under the Retirement Plan, but shall not be subject to any actuarial adjustment solely by reason of the fact that the Participant retired after his normal retirement age. Effective July 1, 2015, the amount of the benefit the Choice 1

4


Participant would have received under the Retirement Plan shall be based only upon Accrual Service completed, and Compensation paid, through June 30, 2015.
(b)    A Choice 2 Participant who becomes entitled to a benefit under the Retirement Plan shall receive a benefit under this Plan equal to the greater of the balance in his SERP Accrued Pension Account or the present value of the excess, if any, of the amount that would have been the Participant’s Accrued Benefit under the Retirement Plan as of December 31, 1999 if neither of the Tax Limits applied over the Participant’s actual Accrued Benefit under the Retirement Plan on such date. The SERP Accrued Pension Account of each Choice 2 Participant was initially established as of December 31, 1999, in an amount equal to the excess, if any, of the amount of the Accrued Pension Account that would have been established for such Participant under the Retirement Plan if his accrued benefit had not been subject to either of the Tax Limits, and such SERP Accrued Pension Account shall be credited with interest not less often than annually at the rate, and in the manner, used to credit interest to Accrued Pension Accounts under the Retirement Plan. In the case of a Choice 2 Participant who was an Employee of RSKCO Claims Services, Inc., December 31, 1998, shall be substituted for December 31, 1999, in both of the preceding sentences.
(c)    The benefit provided to a Participant who becomes a Participant by virtue of a SERP Agreement shall be determined as provided in the applicable SERP Agreement. In general, it is intended that SERP Agreements shall provide such Participants with benefits computed in the manner provided in the Retirement Plan, but which cannot be provided under the Retirement Plan for reasons other than the Tax Limits. By way of illustration and not limitation, a SERP Agreement may provide for a Participant hired after December 31, 1999, to receive a benefit computed as if he were a participant in the Retirement Plan, or may provide for a Participant to receive a supplemental benefit determined as if he were credited with additional service under the Retirement Plan.
(d)    A Participant who is a participant by reason of having participated in the CIC SERP as described in Section 2.1(d) shall be entitled to a benefit equal to the excess of the amount of the Frozen CIC Benefit, as defined in Appendix D of the Retirement Plan, to which the participant would be entitled if the Frozen CIC Benefit were determined without application of the Tax Limits, over the Participant’s actual Frozen CIC Benefit, reduced by any benefit actually paid to the Participant under the CIC SERP. The benefit of a Participant who also participated in the Deferred Compensation Plan of The Continental Company and/or the Supplemental Savings Plan of The Continental Company shall also be increased by the amount by which his Frozen CIC Benefit would have been increased had the amount of compensation deferred under such plans been included in the calculation his Frozen CIC Benefit, as provided in the CIC SERP. To the extent that compensation records from The Continental Corporation are not available, the Administrator shall use commercially reasonable methods to estimate the amount of the Participant’s benefit based upon the records available, and shall not be liable to the Participant for any additional amount.
2.3     Vesting . Except as otherwise provided in a SERP Agreement, a Participant’s benefit under this Plan shall be vested if, and only if, his benefit under the Retirement Plan is vested; provided, however, that an event that results in the Retirement Plan benefits of

5


a group of Participants being vested without regard to their years of service, including but not limited to the sale of a business unit or a determination that a partial termination of the Retirement Plan has occurred, shall apply to this Plan if and only if such event is listed in Appendix A to this Plan.
2.4     Time and Form of Payment .
(a)    Except as otherwise provided in a SERP Agreement, the Post-2004 portion of a Participant’s benefit under this Plan shall be paid in a single lump sum equal to the actuarial equivalent of such portion as soon as practicable after the date the Participant terminates employment; provided that if the sum of the Participant’s Rule of 65 Service (as defined under the terms of the Retirement Plan as in effect on April 1, 2008) and age on the termination date do not equal at least 65, it shall be paid on the later of the date the Participant terminates employment or the date he reaches age 55 or, in the case of a Participant who had not completed at least 10 years of Rule of 65 Service on the earlier of his termination date (regardless of whether he is subsequently reemployed) or December 31, 2008, the later of the date the Participant terminates employment or the date he reaches age 65.
(b)    Notwithstanding paragraph (a), payment of the benefit of a Participant who terminated employment prior to April 1, 2008, and whose benefit payment date as determined under paragraph (a) would have already been reached on such date (a “transitional Participant”), shall commence on June 1, 2009. The total benefit of a transitional Participant (including the Pre-2005 portion as described in paragraph (c), shall be paid in a single lump sum on June 1, 2009, if the present value of the benefit, calculated as of April 1, 2009, using the actuarial assumptions provided in the Retirement Plan (the “lump sum value”) does not exceed $100,000.00. If the lump sum value exceeds $100,000.00, then three equal installments shall be paid on each of June 1, 2009, June 1, 2010, and June 1, 2011, calculated so that the present value of the three installments as of April 1, 2009, using the applicable interest rate specified in the Retirement Plan but no mortality assumption, equals the lump sum value. If the Participant dies before all three installments have been paid, the remaining installments shall be paid at the same time to the Participant’s Beneficiary. If the Participant was a Choice 1 Participant not otherwise permitted to designate a Beneficiary, the Administrator may permit the Participant to designate a Beneficiary for this purpose, and otherwise the benefit shall be paid to the Participant’s surviving spouse, if any, and otherwise to the Participant’s estate.
(c)     The Pre-2005 portion of a Participant’s benefit shall be paid in the same manner as his Retirement Plan benefit, provided that the Administrator may elect to pay the Pre-2005 portion of the benefit of a Choice 1 Participant (as hereinafter defined) in a single lump sum equal to the actuarial equivalent of the Pre-2005 portion, and may also decide to pay the Pre-2005 portion of a Choice 2 Participant in any of the forms of annuity available under the Retirement Plan that are actuarially equivalent. As of December 31, 2008, the Administrator has elected to pay the Pre-2005 portion of all benefits in the form of a lump sum paid at the same time that the Post-2004 portion is payable pursuant to paragraph (a) or (b), but the Administrator may pay any or all Pre-2005 portions that would otherwise be payable in a lump sum in the form of a monthly annuity. All determinations by the Administrator as to the form of payment shall be made by the Administrator in its sole and absolute discretion, which may

6


be exercised in an arbitrary and capricious manner, and in no event shall any Participant be considered to have a vested interest in the payment of the Pre-2005 Portion of his benefit in any particular form. Actuarial equivalence shall be determined in accordance with the applicable actuarial assumptions provided under the Retirement Plan. Payment of a Participant’s benefit in the form of a lump sum shall fully discharge all amounts owed to the Participant and to his heirs or beneficiaries under the Plan.
(d)    Anything else in this Plan, or a SERP Agreement, to the contrary notwithstanding:
(i)
Except as otherwise provided below, no part of the Post-2004 Portion of a Participant’s benefit shall be payable to any Participant until he has incurred a separation from service as defined in Code §409A.
(ii)
No Post-2004 portion of a benefit shall be payable to a Participant who is a designated employee, as defined in Code §409A, until the first day of the seventh month after the month in which he has incurred a separation from service. Any portion of benefit payable to a designated employee that is required to be delayed by reason of this paragraph (c)(ii) shall be calculated as of the date on which it would otherwise have been paid and shall bear interest from such date until the date of payment at the applicable interest rate used to calculate the amount of the benefit. If the Participant dies before the benefit is paid, the benefit shall be paid to the Participant’s Beneficiary not more than ninety (90) days after the date of death. If the Participant was a Choice 1 Participant not otherwise permitted to designate a Beneficiary, the Administrator may permit the Participant to designate a Beneficiary for this purpose, and otherwise the benefit shall be paid to the Participant’s surviving spouse, if any, and otherwise to the Participant’s estate. The identification of Participants as designated employees shall be made as of December 31 of each year by Loews Corporation based upon the employees of the controlled group of which Loews Corporation is the common parent, and a Participant identified as a designated employee as of any December 31 shall be subject to this provisions of this paragraph (c)(ii) if the Participant incurs a separation from service during the twelve month period commencing on the following April 1.
(iii)
In no event shall the distribution of any Post-2004 benefit be accelerated to a time earlier than which it would otherwise have been paid, whether by amendment of the Plan, exercise of the Administrator’s discretion, or otherwise, except as permitted by regulations issued pursuant to Code §409A.
(iv)
In the event that the Administrator, in its sole discretion, determines that any time or form of distribution provided for in the Plan, or the existence of a right to elect a different time or form of distribution, would cause the Plan to fail to meet the requirements of Code §409A, or otherwise

7


cause Participants to be subject to any adverse federal income tax consequences, the Administrator shall adopt procedures modifying or removing the form of distribution or election right, which shall be deemed an amendment to the Plan.
(v)
Any SERP Agreement that provides for a different form or time of payment shall specify the time and manner of payment, without Employer or Participant discretion, at the time the SERP Agreement is entered into, and shall otherwise comply with the requirements of this paragraph (d); provided that, in addition to a severance from service, a SERP Agreement may provide for benefits to be paid at a specified time or pursuant to a fixed schedule set forth in the SERP Agreement, upon the occurrence of a change in ownership or control of the Participant’s Employer, or in a substantial portion of its assets, as defined in Code §409A, or upon the occurrence of an unforeseeable emergency, as defined in Code §409A; and provided further that a SERP Agreement may permit a Participant to elect to further defer the payment of his benefit, or a SERP Agreement may be amended after December 31, 2008, to change the time or form of payment, provided that any such change does not take effect for at least twelve months and the payment is deferred by at least five years, and otherwise complies with the requirements of Code §409A.
(vi)
A Participant’s benefit accrued under the CIC SERP, as described in Section 2.2(d), shall be paid at the same time and in the same form as the Participant’s Frozen CIC Benefit, subject to the discretion of the Administrator, as successor to the Continental Corporation Retirement Plan Committee, to pay such benefit in a lump sum at any time pursuant to Section 3.4 of the CIC SERP (without regard to the provisions thereof relating to lump sum payments within 30 days following a Change in Control.) The entire amount of a Participant’s CIC SERP benefit shall be considered part of the pre-2005 portion of the Participant’s benefit.
(e)    For purposes of this Plan, the “Pre-2005 portion” of a Participant’s benefit shall be equal to the present value calculated as of the day on which the benefit is paid of the vested benefit, if any, to which the Participant would have been entitled under the Plan if the Participant had terminated employment on December 31, 2004, and received a payment of his benefit on the earliest date on which the Participant would have been eligible to begin receiving a normal, early, late, or deferred vested benefit under the Retirement Plan, and received his benefit under this Plan in the form with the maximum value. The Post-2004 portion of the Participant’s benefit shall mean any portion of his benefit that is not part of the Pre-2005 portion.
2.5     Death Benefits .
(a)    If a Choice 1 Participant dies prior to payment of his benefit, and at the time of death has been married for at least one year, his surviving spouse shall be entitled to a survivorship benefit if, and only if, the spouse is entitled to a preretirement survivorship pension under the Retirement Plan. The benefit payable to a Choice 1 Participant’s spouse shall be a

8


lump sum equal to the present value of the excess, if any, of the amount the spouse would have received from the Retirement Plan (taking into account only Accrual Service completed, and Compensation paid, through June 30, 2015) as a preretirement survivor annuity if the Tax Limits had not applied to the Participant’s benefit over the amount actually received from the Retirement Plan. The death benefit shall be calculated as of the first day of the first month following the Participant’s death, or, if the Participant had not attained the age of 55 prior to his death, the first day of the month following the day he would have attained age 55, and in either case shall be calculated as if the preretirement survivor annuity under the Retirement Plan commenced on the same date, and paid not more than 90 days after the calculation date set forth in the preceding sentence.
(b)    If a Choice 2 Participant dies prior to payment of his benefit, and at the time of death has been married for at least one year, his surviving spouse shall be entitled to a survivorship benefit if the Participant was vested at the time of his death. The benefit payable to a Choice 2 Participant’s spouse shall be a lump sum equal to the greater of his SERP Accrued Pension Account or present value of the excess, if any, of the amount the spouse would have received from the Retirement Plan as a preretirement survivor annuity, based upon the Participant’s Accrued Benefit as of December 31, 1999 (December 31, 1998, in the case of a former Employee of RSKCO Claims Services, Inc.) if the Tax Limits had not applied to the Participant’s benefit, over the amount to which the spouse is actually entitled as a pretirement survivor annuity based on the Participant’s Accrued Benefit as of such date. Such benefit shall be calculated as of the first day of the month following the Participant’s death, as if the spouse’s preretirement survivor annuity commenced on such date, and paid within 90 days of such date, regardless of the Participant’s age at the time of death. If the Participant does not have a surviving spouse, or has designated a Beneficiary other than his surviving spouse, the Beneficiary shall receive a lump sum equal to the Participant’s SERP Accrued Pension Account, paid within 90 days following the date of the Participant’s death. All designations of Beneficiaries, and revocations or changes in designations, shall be made in accordance with rules, procedures and limitations prescribed by the Administrator. No designation of a Beneficiary, and no revocation or change in a designation, shall be effective until actually received by the Administrator in writing, and the Administrator’s determination of a Participant’s Beneficiary, if made in good faith, shall be final and conclusive on all parties. If there is no designated Beneficiary living at the time of the Participant’s death, his Beneficiary shall be the person designated as his beneficiary under the Retirement Plan (regardless of whether such designation is invalid solely by reason of §401(a)(11) of the Code or §205 of the ERISA by reason of the failure of the Participant’s spouse to consent) or, if no beneficiary is designated under the Retirement Plan, his estate.
(c)    If a Participant’s benefit is paid in the form of an annuity, the only survivorship benefit, if any, paid to his spouse or other Beneficiary upon the Participant’s death shall be the survivorship benefits, if any, provided under the terms of the annuity.
(d)    If a Participant entitled to a benefit under the CIC SERP dies, his surviving spouse or other beneficiary shall receive either a preretirement survivor annuity or, if payment of the benefit has commenced, the form of survivor benefit provided under the form of annuity elected, as provided by the CIC SERP.

9


(e)    A SERP Agreement may provide for other types of death or survivorship benefits in addition to those described in this Section, but shall not be construed to provide for such benefits unless it specifically so provides. Any SERP Agreement that provides for a death or survivorship benefit shall specify the form in which the benefit shall be paid, and the time at which the benefit shall be paid, not later than the later of the date upon which the SERP Agreement is executed or December 31, 2008, and may not thereafter be changed unless the change becomes legally binding not later than one year prior to the date of the Participant’s death and otherwise satisfies the requirements of Code §409A.

10


ARTICLE III
PAYMENT OF BENEFITS

3.1     Source of Payment . All payment of benefits under the Plan shall be made directly from the general funds of the Participant’s Employer. Each Employer shall establish separate bookkeeping accounts to reflect its liability under the Plan and may, but shall not be obligated to, invest in insurance or annuity contracts or other assets to assure a source of funds for the payment of benefits, but any such bookkeeping account, insurance or annuity contracts, or other investment shall constitute assets solely of such Employer, and Participants shall have no right, title or interest therein prior to payment of their benefits hereunder. The right of any Participant or other person to receive benefit payments under the provisions of this Plan shall be no greater than the right of any unsecured general creditor of the Participant’s Employer. This Plan shall not create nor be construed to create a trust or fiduciary relationship in favor of any person whatsoever.
3.2     Establishment of Trust . The Company may, but shall in no event be required to, establish one or more trusts and contribute, or cause Employers to contribute, amounts to such trusts to be used for the payment of benefits under this Plan. Any such trust shall be of the type commonly referred to as a “rabbi trust”, and the Company or Employer shall be treated as the owner of the assets of such trust for tax purposes in accordance with §671-§678 of the Code. The assets of any such trust shall remain subject to the claims of creditors of the Company or the Employer contributing such assets, and no Participant or any other person shall have any beneficial interest in or other claim to the assets of any such trust beyond that of a general creditor as provided in Section 3.1. Any payments made to or on behalf of a Participant or Beneficiary from any such trust shall fully discharge the liability of the Company or Employer to such Participant or Beneficiary under the Plan to the extent of the amount so paid. The Administrator shall have the right to select, remove, and replace the trustee thereof at any time in its sole discretion, and shall enter into one or more agreements governing such trust containing such terms as it determines, and may modify, amend or revoke any such agreements, all in its sole discretion.
3.3     Withholding and Payroll Taxes . The Administrator shall withhold, or shall direct the person making any payment to withhold, from payments made hereunder any taxes required to be withheld from a Participant’s wages for the federal or any state or local government. To the extent that benefits hereunder are subject to tax under the Federal Insurance Contributions Act that they become payable, the payment of the Participant’s benefit shall be accelerated to the extent necessary to pay the amount of such tax, plus any federal, state or local income tax withholding required by reason of such acceleration (including the income tax payable upon the amount of income tax withholding) in accordance with Treasury Regulation §1.409A-3(j)(4)(vi), and the benefit subsequently payable to such Participant pursuant to Section 2.5 shall be reduced by an amount equal to the benefit payable under Section 2.5 multiplied by a fraction, the numerator of which is the amount of such acceleration and the denominator of which is the lump sum value of the Participant’s benefit on the date as of which the FICA tax is paid (or, if the Administrator elects to pay a Pre-2005 Benefit as an annuity, each annuity payment will be reduced by the actuarial equivalent of such reduction). The Administrator may,

11


in its discretion, direct the Participant’s Employer to withhold, all or a portion of such taxes from any other compensation or other amounts payable to the Participant in lieu of accelerating payment of the Participant’s benefit; provided that the Administrator shall not allow Participants to pay such taxes to the Employer, or otherwise provide Participants, directly or indirectly, with an election as to whether the Participant’s benefit shall be accelerated. The Administrator’s determination of the amount to be withheld, and the manner of satisfying the withholding obligation shall be final and binding on all parties.
3.4     Payment on Behalf of Disabled or Incompetent Persons . If a Plan benefit is payable to a minor or a person declared incompetent or to a person whom the Administrator, in its sole discretion, determines to be incapable of handling the disposition of property, the Administrator may direct payment of such Plan benefit to the guardian, legal representative or person having the care and custody of such minor or incompetent person, or to any other person, including any family member, whom the Administrator determines in its sole discretion to be best suited to receive and apply the payment for the benefit of such person. The Administrator may require proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the Plan benefit. Such distribution shall completely discharge the Company and the Participant’s Employer from all liability with respect to such benefit.
3.5     Missing Participants or Beneficiaries . If the Administrator is unable to locate any Participant, beneficiary or other person entitled to benefits under this Plan, the Administrator may, in its sole discretion, either cause all or a portion of such payment to be forfeited and to reduce its obligations under this Plan, or may pay all or a portion of such benefit to members of the missing person’s family or such other person as it may determine in its sole discretion to be fair and equitable. Any payment made pursuant to this Section 3.5 shall fully discharge the obligation of the Company and all Employers under this Plan with respect to the amount so paid.
3.6     Other Permitted Distributions . Notwithstanding the foregoing provisions of this Article III, the Administrator in its sole discretion may provide for all or a portion of the balance in a Participant’s Account to be distributed to the Participant, provided that no Participant may be allowed to elect to receive such a distribution:
(a)    If the total present value of a Participant’s benefit does not exceed the limit in effect under §402(g) of the Code, the Administrator may direct that the present value be paid to the Participant in full satisfaction of his or her interest in the Plan, provided that the present value of the Participant’s benefit in all other non-account balance deferred compensation plans maintained by any member of the Controlled Group is also distributed to the Participant (and is taken into account in determining whether the total present value exceeds the limit in effect under §402(g)).
(b)    If the present value of any portion of a Participant’s benefit is determined to be includible in the Participant’s taxable income by reason of the operation of §409A of the Code, the amount includible in income shall be distributed to the Participant as soon as practical.
3.7     Recovery of Erroneous Distributions . If the Administrator determines that the amount paid to any Participant or Beneficiary exceeded the amount that should have

12


been paid pursuant to the terms of the Plan, the Participant or Beneficiary shall repay the amount of the excess to the Plan upon demand, and the Administrator may, on behalf of the Plan, pursue offset the amount of such excess against any other amount owed by an Employer to the Participant or Beneficiary to the maximum extent permitted by law, or pursue any other remedy available at law or equity for the recovery of such excess. Each Participant or Beneficiary who receives an excess distribution shall hold such distribution in trust for the benefit of the Plan.

13


ARTICLE IV
ADMINISTRATION

4.1     Plan Administrator . This Plan shall be administered by Continental Casualty Company, which shall be the “administrator” for purposes of §3(16)(A) of the Employee Retirement Income Security Act of 1974. The Company may designate one or more persons who may be officers or Employees of any Employer, to exercise any of its authority or carry out any of its duties under the Plan, but such person shall not be considered the “administrator” unless specifically so designated in a resolution of the Board. In the absence of any other designation, the senior officer of Continental Casualty Company responsible for human resources, or persons acting under his supervision, shall be so designated. In addition, Continental Casualty Company has established an Employee Benefits Committee to oversee the operation of various retirement plans, and the Employee Benefits Committee shall have the authority on behalf of the Administrator to adopt rules, regulations and procedures, to hear all appeals from denied claims under Section 4.4, and to consider all other issues related to the administration of the Plan referred to it by the senior officer of Continental Casualty Company responsible for human resources and his delegates.
4.2     Administrator’s Powers . The Administrator shall have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers, rights and duties:
(a)     Interpretation of Plan . The Administrator shall have the power, right and duty to construe and interpret the Plan provisions and to determine all questions arising under the Plan including questions of Plan participation, eligibility for Plan benefits and the rights of Employees, participants, beneficiaries and other persons to benefits under the Plan and to determine the amount, manner and time of payment of any benefits hereunder.
(b)     Plan Procedures . The Administrator shall have the power, right and duty to adopt procedures, rules, regulations and forms to be followed by Employees, participants, beneficiaries and other persons or to be otherwise utilized in the efficient administration of the Plan and as are consistent with the Plan.
(c)     Benefit Determinations . The Administrator shall have the power, right and duty to make determinations as to the rights of Employees, Participants, Beneficiaries and other persons to benefits under the Plan and to afford any Participant or Beneficiary dissatisfied with such determination with rights pursuant to a claims procedure adopted by the Administrator.
(d)     Enforcement of the Plan . The Administrator shall have the power, right and duty to enforce the Plan in accordance with the terms of the Plan and to enforce its procedures, rules or regulations.
(e)     Maintenance of Plan Records . The Administrator shall be responsible for preparing and maintaining records necessary to determine the

14


rights and benefits of Employees, Participants and Beneficiaries or other persons under the Plan.
(f)     Allocation of Duties . The Administrator shall be empowered to allocate fiduciary responsibilities and the right to employ agents (who may also be Employees of the Company) and to delegate to them any of the administrative duties imposed upon the Administrator.
(g)     Correction of Errors . To correct any errors made in the computation of benefits under the Plan, and, if a trust has been established, to recover any contributions made to such trust by mistake of fact or law.
4.3     Binding Effect of Rulings . Any ruling, regulation, procedure or decision of the Administrator, including any interpretation of the Plan, which is made in good faith shall be conclusive and binding upon all persons affected by it. There shall be no appeal from any ruling by Administrator, except as provided in Section 4.4 below. When making a determination or a calculation, the Administrator shall be entitled to rely on information supplied by investment managers, insurance institutions, accountants and other professionals including legal counsel for the Administrator. Any rule or procedure established by the Administrator may alter any provision of this Plan that is ministerial or procedural in nature without the necessity for a formal amendment of the Plan.
4.4     Claims Procedure .
(a)    Any Participant or Beneficiary, or any other person asserting the right to receive a benefit under this Plan by virtue of his relationship to a Participant or Beneficiary (the “Claimant”), who believes that he has the right to a benefit that has not been paid, must file a written claim for such benefit in accordance with the procedures established by the Administrator. All such claims shall be filed not more than one year after the Claimant knows, or with the exercise of reasonable diligence would have known, of the basis for such claim. The preceding sentence shall not be construed to require a Participant or Beneficiary to file a formal claim for the payment of undisputed benefits in the normal course, but any claim that relates to the amount of any benefit shall in any event be filed not more than one year after payment of such benefit commences. The Administrator may retain third party administrators and recordkeepers for the purpose of processing routine matters relating to the payment of benefits, but correspondence between a Participant, Beneficiary or other person and such third parties shall not be considered claims for purposes of this Section, and a person shall not be considered a Claimant until he has filed a written claim for benefits with the Administrator.
(b)    All claims for benefits shall be processed by the Administrator, and the Administrator shall furnish the Claimant within 90 days after receipt of such claim a written notice that specifies the reason for the denial, refers to the pertinent provisions of the Plan on which the denial is based, describes any additional material or information necessary for properly completing the claim and explains why such material or information is necessary, and explains the claim review procedures of this Section 4.4, and the Claimant’s right to bring an action under §502 of ERISA, subject to the restrictions of paragraph (e) if the request for review is unsuccessful. The 90 day period may be extended by up to an additional 90 days if the

15


Administrator so notifies the Claimant prior to the end of the initial 90 day period, which notice shall include an explanation of the reason for the extension and an estimate of when the processing of the claim will be complete. If the Administrator determines that additional information is necessary to process the claim, the Claimant shall be given a period not less than 45 days to furnish the information, and the time for responding to the claim shall be tolled during the period of time beginning on the date on which the Claimant is notified of the need for the additional information and the day on which the information is furnished (or if earlier the end of the period for furnishing the information).
(c)    If the claim is denied in whole or in part, or if the decision on the claim is otherwise adverse, the Claimant may, within 60 days after receipt of such notice, request a review of the decision in writing. If the claimant requests a review, the Employee Benefits Committee (or such other fiduciary as the Administrator may appoint for such purpose) shall review such decision. The Employee Benefits Committee’s decision on review shall be in writing and furnished not more than five days after the meeting at which the review is completed, and shall include specific reasons for the decision, written in a manner calculated to be understood by the Claimant, shall include specific references to the pertinent provisions of the Plan on which the decision is based, and shall advise the Claimant of his right to bring an action under §502 of ERISA, subject to the limitations of paragraph (e).
(d)    The Employee Benefits Committee shall complete its review of the claim not later than its first meeting that is held at least 30 days after the request for review is received. If special circumstances require, the decision may be made by the Employee Benefits Committee not later than its third meeting held after the request for review is received, in which event the Claimant shall be notified of the reason for the delay not later than five days after the meeting at which the review would otherwise have been completed, which notice shall explain the reason for the delay and include an estimate of the time at which the review will be complete. Notwithstanding the foregoing, if at any time the Employee Benefits Committee (or any other fiduciary designated to review appeals) is not scheduled to meet at least quarterly, the decision on review shall be delivered to the Claimant not more than 60 days after the request for review is received, which may be extended to not more than 120 days if special circumstances require and the notice of extension described above is furnished by the end of the initial 60 day period.
(e)    No action at law or in equity shall be brought to recover benefits under this Plan until the claim and appeal rights herein provided have been exercised and the Plan benefits requested in such claim and appeal have been denied in whole or in part. After exhaustion of the Plan’s claim procedures, any further legal action taken against the Plan or its fiduciaries by a claimant must be filed in a court of law no later than 120 days after the final adverse benefit determination of the Employee Benefits Committee (or other final appeals fiduciary) is communicated to the claimant or his or her legal representative, notwithstanding any other statute of limitations. In the event a claimant wishes to bring a legal action against the Plan or one of its fiduciaries, such legal action must be filed in the United States District Court for the Northern District of Illinois (Eastern Division) and shall be governed by the procedural and substantive laws of the State of Illinois, to the extent such laws are not preempted by ERISA, notwithstanding any conflict of laws principles.

16


(f)    The provisions of this Section are intended to comply with ERISA §503 and the Department of Labor regulations issued pursuant thereto, and shall be so construed and applied. Consistent with such regulations, each Claimant shall have the right to have an authorized representative act on his behalf, to submit arguments and information in support of his claim, and to receive, upon written request and without charge, copies of all documents, records, or other information that either (i) were relied upon in determining his benefit under the Plan, (ii) were submitted, considered, or generated in the course of making the benefit determination, even if not relied upon, or (iii) demonstrate compliance with the administrative processes and safeguards of the claim and review procedure.
4.5     Indemnity . To the extent permitted by applicable law and to the extent that they are not indemnified or saved harmless under any liability insurance contracts, any present or former officers, Employees or directors of the Company, and each of them shall be indemnified and saved harmless by the Company from and against any and all liabilities or allegations of liability to which they may be subjected by reason of any act done or omitted to be done in good faith in the administration of the Plan, including all expenses reasonably incurred in their defense in the event that the Company fails to provide such defense after having been requested in writing to do so.

17


ARTICLE V
AMENDMENT AND TERMINATION OF PLAN

5.1     Amendment . The Company may amend the Plan at any time by action of the Board, or any person to whom the Board may delegate such authority, except that no amendment shall decrease the vested Account balance of any Participant as of the effective date of the amendment. The Board has delegated the authority to amend the Plan, with certain exceptions, to the senior officer of Continental Casualty Company responsible for human resources, and any amendment executed by such officer shall be binding on all parties. In addition, the Administrator is authorized pursuant to Section 4.3 to adopt rules and procedures that have the effect of amending technical, administrative or ministerial provisions of the Plan. By their execution of this amendment and restatement of the Plan, each Employer ratifies and accepts all prior amendments to the Plan, and agrees that in the future the Plan may be amended by action of the Company without consent of the other Employers.
5.2     Termination . The Company may at any time terminate the Plan by action of the Board. Upon termination, no benefits shall be accrued, but benefits accrued through the date of termination shall continue to be paid in accordance with the provisions of the Plan; provided, however, that upon termination, the Company may, but shall not be obligated to, amend the Plan to provide that the accrued benefits of some or all Participants shall be fully vested and paid to such Participants in a lump sum, which shall fully discharge all obligations owed to such Participants under the Plan; provided that such amendment shall apply to the Post-2004 portion of benefits only if all such benefits are fully vested and distributed and the amendment otherwise complies with the requirements of §409A of the Code. Any Employer may at any time withdraw from the Plan by written notice to the Administrator, in which event the Plan shall be considered terminated with respect to the Participants employed by such Employer (or who were so employed at the time of their termination of employment), and the provisions of this Section 5.2 shall apply to such Participants only.

18


ARTICLE VI
MISCELLANEOUS

6.1     Status of Plan . This Plan is intended to be an unfunded plan maintained primarily to provide retirement benefits for a select group of management Employees or highly compensated Employees within the meaning of §201(1), §301(a)(3), and §401(a)(1) of ERISA and Department of Labor Regulations 29 C.F.R. §2520.104-23, and shall be so construed.
6.2     Nonassignability . Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be nonassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to garnishment, seizure or sequestration for the payment of any debts owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency. Nothing contained herein shall be construed as a waiver of the Company’s or any Employer’s right of setoff.
6.3     No Contract of Employment . The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company or any Employer and the Participant, and neither the Participant nor the Participant’s beneficiary shall have any rights against the Company or any Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or any Employer or to interfere with the right of the Company and each Employer to discipline or discharge him at any time.
6.4     Participant Litigation . In any action or proceeding regarding the Plan, Participants, Employees or former Employees of the Company or an Employer, their beneficiaries or any other persons having or claiming to have an interest in this Plan shall not be necessary parties and shall not be entitled to any notice or process. Any final judgment which is not appealed or appealable and may be entered in any such action or proceeding shall be binding and conclusive on the parties hereto and all persons having or claiming to have any interest in this Plan. To the extent permitted by law, if a legal action is begun against the Company, an Employer, the Administrator, the trustee of any trust established hereunder, or any person acting on the behalf or under the direction of any of the foregoing persons, by or on behalf of any person and such action results adversely to such person or if a legal action arises because of conflicting claims to a Participant’s or other person’s benefits, the costs to any such person of defending the action will be charged to the amounts, if any, which were involved in the action or were payable to the Participant or other person concerned. To the extent permitted by applicable law, acceptance of participation in this Plan shall constitute a release of the Company, each Employer, the Administrator and such trustee and their respective agents from any and all liability and obligation not involving willful misconduct or gross neglect.
6.5     Participant and Beneficiary Duties . Persons entitled to benefits under the Plan shall file with the Administrator from time to time such person’s post office address and each change of post office address. Each such person entitled to benefits under the Plan

19


also shall furnish the Administrator with all appropriate documents, evidence, data or information which the committee considers necessary or desirable in administering the Plan.
6.6     Governing Law . The provisions of this Plan shall be construed and interpreted according to the laws of the State of Illinois to the extent not pre-empted by the laws of the United States.
6.7     Validity . In case any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.
6.8     Notices . Any notice or filing required or permitted to be given to the Administrator or the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Company at its principal executive offices, or to Company’s statutory agent. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice required or permitted to be given to a Participant shall be sufficient if in writing and hand delivered or sent by first class mail to the Participant at the last address listed on the records of the Company or such Participant’s Employer.
6.9     Successors . The provisions of this Plan shall bind and inure to the benefit of Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Company, and successors of any such corporation or other business entity.
[SIGNATURE ON FOLLOWING PAGE]

20


IN WITNESS WHEREOF, the Company has caused this amendment and restatement of the Plan to be executed on May 28, 2015.
CNA FINANCIAL CORPORATION


By: /s/ Thomas Pontarelli          Thomas Pontarelli, Executive Vice President & Chief Administration Officer, Continental Casualty Company


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APPENDIX A
FULL VESTING OF PARTICIPANTS AFFECTED BY CERTAIN EVENTS

A.1     Sales of Business Units
In accordance with Section 2.3, Participants whose employment is terminated in connection with the following sales or other dispositions of business units shall be fully vested in their benefits regardless of their years of service. Except as otherwise provided below, the Participants who qualify for full vesting with respect to any transaction shall be those, and only those, who qualify as an “Affected Member” with respect to such transaction in accordance with Appendix I of the Retirement Plan.
Transaction
Closing Date
Exceptions/Special Rules
Sale of Life Reinsurance Business Unit to MARC
12/31/00
None
Sale of CNA Credit Collection Agency, Inc., to Coface
12/31/02
None
Sale of CNA Group Operations to Hartford Financial Services Group
12/31/03
None
Sale of individual life insurance business to Swiss Re Life & Health America
App. 3/31/04
None






22

EXHIBIT 10.6







CNA SUPPLEMENTAL EXECUTIVE SAVINGS
AND CAPITAL ACCUMULATION PLAN
Restated as of January 1, 2014



CNA SUPPLEMENTAL EXECUTIVE SAVINGS
AND CAPITAL ACCUMULATION PLAN

TABLE OF CONTENTS
ARTICLE I   GENERAL PROVISIONS ...........................................................................
1

1.1      Purpose .......................................................................................................
1

1.2      Effective Date .............................................................................................
1

1.3      Company and Employers ............................................................................
1

1.4      Plan Year .....................................................................................................
1

1.5      Definitions and Rules of Construction .......................................................
1

 
 
ARTICLE II   ELIGIBILITY AND BENEFITS ...............................................................
5

2.1      Eligibility ....................................................................................................
5

2.2      Elective Deferrals .......................................................................................
6

2.3      Employer Contributions .............................................................................
8

2.4      Earnings ......................................................................................................
9

2.5      Vesting ........................................................................................................
10

2.6      Time and Form of Payment ........................................................................
10

2.7      Death Benefits ............................................................................................
12

2.8      Excess Benefit Plan Participants ................................................................
13

2.9      Former Participants in Surety Plans ...........................................................
13

 
 
ARTICLE III   PAYMENT OF BENEFITS .......................................................................
16

3.1      Source of Payment ......................................................................................
16

3.2      Establishment of Trust ................................................................................
16

3.3      Withdrawals for Financial Emergency .......................................................
16

3.4      Withholding and Payroll Taxes ...................................................................
17

3.5      Payment on Behalf of Disabled or Incompetent Persons ...........................
17

3.6      Missing Participants or Beneficiaries .........................................................
18

3.7      Other Permitted Distributions .....................................................................
18

3.8      Recovery of Erroneous Distributions .........................................................
18

 
 
ARTICLE IV   ADMINISTRATION .................................................................................
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4.1      Administrator ..............................................................................................
19

4.2      Administrator’s Powers ...............................................................................
19

4.3      Binding Effect of Rulings ............................................................................
20

4.4      Claims Procedure ........................................................................................
20

4.5      Indemnity ....................................................................................................
22

 
 
ARTICLE V   AMENDMENT AND TERMINATION OF PLAN ...................................
23

5.1      Amendment ................................................................................................
23

5.2      Termination .................................................................................................
23







ARTICLE VI   MISCELLANEOUS ..................................................................................
24

6.1      Status of Plan ..............................................................................................
24

6.2      Nonassignability .........................................................................................
24

6.3      No Contract of Employment .......................................................................
24

6.4      Participant Litigation ..................................................................................
24

6.5      Participant and Beneficiary Duties .............................................................
24

6.6      Governing Law ...........................................................................................
25

6.7      Validity ........................................................................................................
25

6.8      Notices ........................................................................................................
25

6.9      Successors ...................................................................................................
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Appendix A  FULL VESTING OF PARTICIPANTS AFFECTED BY CERTAIN EVENTS.............................................................................................................................
27

 
 
Appendix B  EXCESS BENEFIT PLAN...........................................................................
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ii

CNA SUPPLEMENTAL EXECUTIVE SAVINGS
AND CAPITAL ACCUMULATION PLAN

ARTICLE I
GENERAL PROVISIONS

1.1 Purpose . The purpose of this CNA Supplemental Executive Savings and Capital Accumulation Plan (the “Plan”) is to enable selected Employees and former senior Employees of CNA Financial Corporation (the “Company”) or its subsidiaries (the “Employers”) to elect to defer additional compensation, and receive additional matching and other employer contributions, to compensate them for the limitations imposed upon their benefits under the CNA Savings and Capital Accumulation Plan in order to comply with the requirements of the Internal Revenue Code (the “Code”), and also to permit the Employers to provide additional amounts of deferred compensation for other key Employees and former Employees. The Plan was originally adopted jointly by the Company and Continental Casualty Company, one of the Employers, effective as of January 1, 1987, under the name of the CNA Employees’ Supplemental Savings Plan, and has been amended from time to time. The Plan was most recently restated as of January 1, 2009, pursuant to which restatement the Company was granted the authority to adopt further amendments to the Plan. The Plan is hereby further amended to incorporate certain amendments made since the last restatement, and to make other changes.
1.2     Effective Date . The Plan was originally effective as of January 1, 1987, and was most recently restated as of January 1, 2009, in order to comply with the final regulations under §409A of the Code. This amendment and restatement of the Plan shall be effective as of January 1, 2014. Except as otherwise explicitly provided below, the rights of a Participant whose employment terminated, or who otherwise became entitled to receive benefits, under the Plan prior to January 1, 2014, shall be determined under the terms of the Plan as in effect at such time.
1.3     Company and Employers . The Plan is adopted for the benefit of selected Employees and former Employees of the Company and the Employers. As of the effective date of this restatement, Continental Casualty Company is the only Employer participating in the Plan. The Administrator may permit any other company that is an affiliate or subsidiary of the Company to participate in the Plan in such manner as the Administrator may determine. Each Employer is liable for the payment of benefits to a Participant that is or was an Employee of such Employer. The Company is the sponsor of the Plan for purposes of ERISA and the issuer of all interests in the Plan for securities laws purposes.
1.4     Plan Year . The Plan Year of the Plan shall coincide with the calendar year, except as the Administrator shall otherwise determine.
1.5     Definitions and Rules of Construction . As used in this Plan, certain capitalized terms shall have the meanings set forth below. Capitalized terms not defined herein shall have the meaning set forth in the S-CAP, if applicable. Nouns and pronouns which are of one gender shall be construed to include all genders, and the singular shall include the plural


and vice-versa, except as the context otherwise clearly requires. Article and Section headings are for ease of reference only and shall have no substantive meaning.
(a)    “Account” means the separate bookkeeping account maintained on the books of a Participant’s Employer to reflect the amount owed to him pursuant to this Plan. Each Account shall be divided into the following subaccounts:
(i)    The Deferred Account shall include the amounts deferred by the Participant pursuant to Section 2.2 and the income attributable thereto.
(ii)    The Matching Account shall include any amounts credited to the Participant pursuant to Section 2.3(a) or (b) and the income attributable thereto.
(iii)    The Employer Account shall include any amounts credited to the Participant pursuant to Section 2.3(c) and the income attributable thereto.
Each Account of each Participant who participated in the Plan prior to January 1, 2005, shall be divided into a Pre-2005 and a Post-2004 portion, as follows:
(iv)    The Pre-2005 portion of the Deferred Account shall consist of all amounts allocated to the Deferred Account on or before December 31, 2004, and any earnings thereon.
(v)    The Pre-2005 portion of the Matching Account and the Employer Account shall consist of the vested portions of such Accounts as of December 31, 2004, and any earnings thereon.
(vi)    The Post-2004 portion of each Account shall consist of any amount not included in the Pre-2005 Portion.
The Administrator may establish additional subaccounts within a Participant’s Account, or may combine two or more subaccounts. The term “Account”, when not otherwise specified, shall refer collectively to all of the subaccounts comprising a Participant’s Account, and the terms “Pre-2005 Account” and “Post-2004 Account” shall mean, respectively, the Pre-2005 and Post-2004 Portions of a Participant’s Accounts.
If a Participant participates in the Plan both as an Employee and subsequently as a former Employee, he or she shall have two separate Accounts, and any election made by him with respect to one Account shall have no effect on the other Account.
(b)    “Administrator” means the Company or such other person as the Company shall designate pursuant to Section 4.1.
(c)    “Beneficiary” means the person or persons designated to receive the Participant’s Account in the event of his or her death pursuant to Section 2.7.
(d)    “Board” means the Board of Directors of the Company.

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(e)    “Choice 2 Participant” means a Participant who is treated as a “Choice 2 Participant” under the S-CAP.
(f)    “Code” means the Internal Revenue Code of 1986, and any treasury regulations, rulings or other authoritative administrative pronouncements interpreting the Code. If any provision of the Code specifically referred to herein is amended or replaced, the reference shall be deemed to be to the provision as so amended, or to the new provision, if such reference is consistent with the purposes of the Plan.
(g)    “Company” means CNA Financial Corporation, and any successor thereto that assumes the obligations of the Company under this Plan.
(h)    “Compensation” means Compensation as defined in Section 2.1(j) of the S-CAP for purposes of determining a Participant’s Before-Tax, After-Tax and Matching Contributions, but without regard to any limits on includable compensation imposed by the Tax Limits.
(i)    “Controlled Group” means the Company and all other entities that are part of a controlled group of corporations, or group of trades or businesses under common control, that includes the Company as defined in §414(b) or (c) of the Code; including, for avoidance of doubt, Loews Corporation and its respective 80% owned subsidiaries.
(j)    “Deferral Agreement” means an agreement between an Active Participant and his or her Employer specifying that a portion of his or her Compensation shall be withheld and credited to his or her Account in the Plan pursuant to Section 2.2, or providing that additional amounts will be credited to his or her Account pursuant to Section 2.3, or both, and any amendment thereto. To the extent determined by the Administrator, a Deferral Agreement may take the form of an election made by the Participant either in writing or through electronic communications, and a Participant’s election to participate in the S-CAP may be treated as a Deferral Agreement under this Plan in the absence of a contrary election. The term “Deferral Agreement” may also refer to any provision of an employment, consulting, severance, or other agreement for the performance of services that makes specific reference to this Plan and provides for deferred compensation.
(k)    “Employee” means any person employed by any Employer and classified as an Employee by such Employer. Except as otherwise provided in Section 2.1(c), the term “Employee” shall not include a person who is retained to provide services for an Employer as an independent contractor, or who provides services for an Employer pursuant to an agreement or understanding, written or unwritten, with a third party that such person shall be treated as an employee of the third party, but who is subsequently determined to be an employee at common law, for purposes of any federal or state tax or employment law, or for any other purpose.
(l)    “Employer” means any subsidiary of the Company that adopts the Plan and is the employer or former employer of a Participant.


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(m)    “ERISA” means the Employee Retirement Income Security Act of 1974, and any Labor Department regulations, rulings or other authoritative administrative pronouncements interpreting ERISA. If any provision of ERISA specifically referred to herein is amended or replaced, the reference shall be deemed to be to the provision as so amended, or to the new provision, if such reference is consistent with the purposes of the Plan.
(n)    Excess Benefit Plan” means the separable portion of the Plan contained in Appendix B.
(o)    “Participant” means an Employee or former key Employee designated to participate in the Plan pursuant to Section 2.1, while he or she has the right to any benefits under the Plan. Participants are divided in Active Participants and Inactive Participants, as described in Section 2.1, and the term “Participant”, when not modified, shall refer to both Active and Inactive Participants, unless clearly inconsistent with the context.
(p)    “Plan” means this CNA Supplemental Executive Savings and Capital Accumulation Plan, as amended from time to time.
(q)    “Retirement Plan Compensation” means Retirement Plan Compensation as defined in the S-CAP for purposes of determining a Choice 2 Participant’s Basic and Performance Contributions, but without regard to any limits on includible compensation imposed by the Tax Limits.
(r)    “S-CAP” means the CNA Savings and Capital Accumulation Plan, as amended from time to time, and, if appropriate, any new plan adopted by the Company to replace the S-CAP. In the case of a Participant who participates in a plan maintained by his or her Employer other than the CNA Savings and Capital Accumulation Plan, which plan is qualified under §401(a) of the Code and includes a cash or deferred feature qualified under §401(k) of the Code, the term “S-CAP” with respect to such Participant shall mean such other plan.
(s)    “Tax Limits” means the limitations imposed on a Participant’s benefits under the Plan to satisfy the requirements of §401(a)(17), §402(g), or §415 of the Code.

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ARTICLE II
ELIGIBIILTY AND BENEFITS

2.1     Eligibility
(a)    Only selected management and highly compensated Employees and former Employees who are designated as provided herein shall be eligible to participate in the Plan. The Employees and former Employees who are so designated to participate in the Plan shall be referred to herein as “Active Participants” for so long as they have the right to have additional amounts credited to their Accounts pursuant to Section 2.2 or 2.3. A person who is no longer an Active Participant, but who still has an undistributed Account in the Plan, shall be referred to as an “Inactive Participant.”
(b)    Unless otherwise determined by the Administrator, only the following Employees who are eligible to participate in the S-CAP are eligible to participate in the Plan:
(i)    An Employee whose Compensation for the Plan Year exceeds (or, as determined by the Administrator, is expected to exceed) the limitation of Code §401(a)(17);
(ii)    An Employee hired during the Plan Year with a base salary that exceeds the limitation of Code §401(a)(17) (without regard to whether the Employee’s total Compensation for the Plan Year is expected to exceed such limitation shall be eligible to participate on his or her date of hire); provided that such Employee has not participated (other than through accrual of earnings on amounts previously deferred) in any account balance nonqualified deferred compensation arrangement sponsored by the Company or any member of the Controlled Group during the 24 month period prior to the date he or she is hired, unless the employee received a distribution of his or her entire balance in such plan during such 24 month period, and immediately prior to such distribution was not eligible to continue to participate in such plan. An Employee whose Compensation unexpectedly exceeds the limitation of §401(a)(17) during a Plan Year, and who otherwise satisfies the requirements of the preceding sentence (including any Basic or Performance Contributions under this Plan during such 24 month period) may, if permitted by the Administrator, be treated as have been hired on the date that his or her Compensation exceeds such limit; and
(iii)    An Employee who will be a Choice 2 Participant shall be eligible to participate, solely for purposes of being credited with Basic and Performance Contributions, in the first Plan Year in which his or her Retirement Plan Compensation exceeds the limitation of Code §401(a)(17).

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Notwithstanding the foregoing, the Administrator may, in its sole discretion, determine at any time that any Employee or group of Employees described in this paragraph (b) shall no longer be eligible to participate.
(c)    Any Employer, with the consent of the Administrator, may enter into a Deferral Agreement with a person not described in paragraphs (a) or (b), who may be either an Employee, a former Employee, or a consultant or independent contractor, and such person shall thereby become an Active Participant. To the extent necessary or appropriate, any reference in this Plan to “employment” shall be modified and interpreted in the case of a former Employee or independent consultant in a manner consistent with the intent of the Plan.
(d)    Any Employee who becomes a Participant, but who becomes ineligible to enter into a Deferral Agreement for any subsequent Plan Year by reason of a decrease in Compensation, shall remain a Participant, and shall be credited with Employer Contributions pursuant to Section 2.3, for so long as he remains an Employee, unless otherwise determined by the Administrator.
2.2     Elective Deferrals .
(a)    Each Active Participant may, for any Plan Year in which he or she is also a participant in the S-CAP, elect in his or her Deferral Agreement to accept a reduction in his or her Compensation from his or her Employer equal to a whole percentage (not to exceed the maximum percentage described below) of his or her Compensation. At present, the terms of the S-CAP do not permit a Participant who is participating in the SES-CAP during a Plan Year to change his or her Before-Tax Deferral election during the Plan Year; however, if the S-CAP is amended or terminated, or if for any other reason a Participant is permitted to change his or her S-CAP Before-Tax Deferral election during a Plan Year, the percentage withheld and credited to the Participant’s Deferral Account shall be calculated as if the S-CAP Before-Tax Deferral election had not changed. Eligible Participants may make either an excess deferral election that does not go into effect until contributions to the S-CAP have been discontinued because of a Tax Limit, or a simultaneous deferral election that applies at the same time that contributions are being made to the S-CAP, or both. Only Participants who have elected to contribute the maximum amount of Before-Tax Contributions and Roth Contributions to the S-CAP that are permitted for the Plan Year (9% for 2014) may make simultaneous deferral elections:
(i)    The maximum percentage for a simultaneous contribution election shall be equal to the difference between highest percentage of Compensation that non-Highly Compensated Employees are permitted to defer for the Plan Year (50% in 2014) and the highest percentage that Highly-Compensated Employees are permitted to defer (9% in 2014), so that the maximum simultaneous contribution elect for 2014 is 41%. If a Participant makes a simultaneous contribution election, the elected percentage will be withheld from the Participant’s Compensation beginning with the first paycheck in the Plan Year (or the first paycheck after the Participant makes a deferral election in the case of a Participant hired during the Plan Year) until the Participant’s Before Tax Contributions and Roth Contributions to the S-CAP must be discontinued

6

by reason of one of the Tax Limits, and thereafter the percentage withheld from the Participant’s compensation for the remainder of the Plan Year will be equal to the percentage, if any, elected for excess contributions under subsection (a)(ii).
(ii)    The maximum percentage for an excess contribution election shall be equal to the highest percentage of Compensation that a non-Highly Compensated Employee is permitted to defer as Before-Tax Contributions under the S-CAP (50% in 2014). If a Participant makes an excess contribution election, the elected percentage will be withheld from the Participant’s Compensation beginning with the first paycheck in the Plan Year in which the Participant’s Before Tax Contributions to the S-CAP must be discontinued by reason of one of the Tax Limits, and for the remainder of the Plan Year.
(iii)    The increase in the maximum permitted Before-Tax Contributions under the S-CAP from 9% to 12% on July 1, 2014, will not affect contributions made prior to that date. For 2015, an eligible Participant must elect to contribute at least 12% in Before Tax Contributions and Roth Contributions to the S-CAP to be eligible to make a simultaneous deferral election under this Plan, and the maximum simultaneous deferral election will be 38%. The same limits will apply to a Participant permitted to make a deferral election after July 1, 2014, and any subsequent change in the maximum deferral elections permitted under the S-CAP will take effect under this Plan for future elections only. The highest percentage of Compensation that a Participant can elect to contribute to the S-CAP shall be determined without regard to Catch-Up Contributions, and any election, or change in election, that a Participant makes during a Plan Year with respect to Catch-Up Contributions under the S-CAP shall have no effect on the amount deferred by the Participant pursuant to this Plan.
(b)    All deferral elections shall be made in accordance with procedures established by the Administrator during the periods described below, and shall be irrevocable after the end of the period during which the election may be made. Except as otherwise provided in procedures established by the Administrator, a deferral election for one Plan Year shall apply to all future Plan Years unless changed by the Participant during the applicable election period:
(i)    Except as otherwise provided below, all deferral elections shall be made not later than the last day of the Plan Year immediately preceding the Plan Year to which the deferral election shall apply.
(ii)    An Employee who first becomes eligible to participate during a Plan Year pursuant to Section 2.1(b)(ii) may make a deferral election not later than 30 days after he or she becomes eligible, which deferral election shall apply only to Compensation earned after the date of the election.

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(c)    Any Employer, with the consent of the Administrator, may enter into a Deferral Agreement with an Active Participant (including but not limited to a person described in Section 2.1(b)) which provides for Compensation to be withheld and credited to the Active Participant’s Deferral Account on a basis different from that described in paragraph (a). Such a Deferral Agreement may provide for the deferral of forms or amounts of compensation different from those defined as Compensation in Section 1.5(h), including payments to a former Employee or independent contractor, in which event such compensation shall be considered Compensation for all purposes of this Plan. Notwithstanding the foregoing, effective January 1, 2005, if any Deferral Agreement permits a Participant to defer any form of incentive compensation, as defined in Code §409A, that is measured over a period of twelve months or more, the deferral election must be made not less than six months before the end of the measurement period.
(d)    Amounts deferred pursuant to paragraph (a) shall be credited to the Active Participant’s Deferral Account as of the date on which the deferred Compensation would otherwise have been paid. No election, and no provision of any Deferral Agreement, shall permit a Participant to defer Compensation already earned when the election is made. Effective January 1, 2005, all deferral elections, including those under a Deferral Agreement, must be made not later than December 31 of the immediately preceding year (except as otherwise provided in paragraph (b)(ii), or in paragraph (c) with respect to deferrals of incentive compensation), and may thereafter be revoked or modified only as permitted in regulations issued pursuant to Code §409A.
2.3     Employer Contributions .
(a)    For each payroll period, the Employer of an Active Participant shall credit to the Active Participant’s Matching Account an amount equal to the amount deferred by the Active Participant for such payroll period under Section 2.2 multiplied by the Fixed Matching Contribution percentage applicable to such Active Participant under the S-CAP. The Company shall also credit to the Matching Account of an Active Participant any Fixed Matching Contribution that relates to a Before-Tax made under the S-CAP, but which Fixed Matching Contribution cannot be allocated to such Active Participant’s S-CAP account without exceeding the Tax Limits. The total amount of Fixed Matching Contributions credited to an Active Participant’s Matching Account under this Section 2.3 for each Plan Year shall not exceed the excess of 6% the Active Participant’s total Compensation for the Plan Year reduced by all Fixed Matching Contributions allocated to his or her account in the S-CAP for the same Plan Year.
(b)    In addition to the amounts set forth above, at the end of each Plan Year the Employer of an Active Participant who is a Choice 2 Participant shall credit to the Active Participant’s Matching Account an amount equal to the amount deferred by the Active Participant for the Plan Year pursuant to Section 2.2, multiplied by the Variable Matching Contribution percentage applicable to such Active Participant under the S-CAP. The Company shall also credit to the Matching Account of an Active Participant any Variable Matching Contribution that relates to a Before-Tax Contribution made under the S-CAP, but which Matching Contribution cannot be allocated to such Active Participant’s S-CAP account without exceeding the Tax Limits.

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(c)    In addition to the amounts set forth above, at the end of each Plan Year or pay period, as applicable, the Employer of an Active Participant who is a Choice 2 Participant shall credit to the Active Participant’s Employer Contribution Account an amount equal to the portion of the Active Participant’s Retirement Plan Compensation that exceeds the Tax Limits multiplied by the applicable Basic and Performance Contribution percentages applicable to such Active Participant under the S-CAP. The Company shall also credit to the Employer Contribution Account of an Active Participant any Basic or Performance Contribution that cannot be allocated to such Active Participant’s S-CAP account without exceeding the Tax Limits.
(d)    Anything else contained herein to the contrary notwithstanding, the amount credited to an Active Participant’s Matching Account or Employer Contribution Account pursuant to paragraph (a), (b) or (c) for any Plan Year shall not exceed the amount of additional Fixed Matching, Variable Matching, Basic or Performance Contributions, as the case may be, that would have been allocated to the Active Participant’s S-CAP account for the same Plan Year if the Tax Limits did not apply.
(e)    Any Employer, with the consent of the Administrator, may enter into an employment agreement, or adopt employment policies, with or applicable to an Active Participant (including but not limited to a person described in Section 2.1(b)) which provides for amounts to be credited to the Active Participant’s Matching or Employer Account on a basis different from that described in paragraph (a), (b) or (c). Such an agreement or policy shall specify the basis upon which the amount to be so credited shall be determined, and may also specify a vesting schedule different than that specified in Section 2.5.
2.4     Earnings .
(a)    Except as otherwise provided in paragraph (b), earnings shall be credited to each Participant’s Account at the projected rate of return on the Fixed Income Fund established under the S-CAP. In the event that the Fixed Income Fund is no longer offered as an investment alternative under the S-CAP, the Administrator shall designate a reasonably equivalent investment option under the S-CAP to be used to measure the rate at which earnings shall be credited.
(b)    At any time after the effective date of this restatement, the Administrator may designate selected mutual funds or other investment media (“funds”), and each Participant shall have the right to have earnings (including realized and unrealized gains and losses) on his or her Account computed as if it had been invested in such funds in such proportions as the Participant shall elect. The funds may be the same as the Investment Funds designated under the S-CAP, or may exclude some or all of such Investment Funds or include other funds as the Administrator may determine. The portion of each Participant’s Account that is deemed to be invested in each fund shall be a whole percentage, and elections may be changed at such intervals and in such manner as the Administrator may determine. The Administrator shall have the authority to select and discontinue funds at any time, to establish a rate at which interest shall be credited on Accounts with respect to which no fund election is in effect, and otherwise to establish rules and procedures with respect to the calculation and crediting of earnings, including

9

changing the intervals at which fund elections may be made or at which earnings are posted, and establishing a minimum or maximum percentage that may be deemed invested in any fund.
(c)    Anything else contained herein to the contrary, in no event shall any Participant be allowed to elect a rate of return on his or her Account retroactively, and in all cases earnings shall be computed in such a manner that they shall not be considered additional deferred compensation for purposes of FICA withholding under §3121(v) of the Code.
2.5     Vesting . The balance in a Participant’s Deferral Account shall be fully vested and nonforfeitable at all times. The balance in a Participant’s Matching Account or Employer Account (or any subaccount thereof) shall be vested at the same times and to the same extent as the Participant’s analogous account in the S-CAP (except as otherwise provided in a Deferral Agreement with respect to amounts credited pursuant to Section 2.3(b)); provided, however, that an event that results in the S-CAP accounts of a group of Participants being vested without regard to their years of service, including but not limited to the sale of a business unit or a determination that a partial termination of the S-CAP has occurred, shall apply to this Plan if and only if such event is listed in Appendix A to this Plan. To the extent a Participant’s Account is not vested at the time of his or her termination of employment for any reason, the non-vested portion shall be forfeited, and neither the Company nor any Employer shall have any further obligation to him whatsoever with respect to the forfeited portion.
2.6     Time and Form of Payment .
(a)    Except as otherwise provided in paragraph (c), the vested balance in a Participant’s Account shall be paid to the Participant in one of the following manners, as elected by the Participant in accordance with paragraph (b):
(i)    In a single lump sum, paid as soon as practical, but in no event more than 90 days following the Participant’s termination of employment;
(ii)    In a single lump sum, paid during January of the year following the year that includes the Participant’s termination of employment; or
(iii)    In a series of not more than 10 annual installments, payable during January of each year commencing with the year following the year that includes the Participant’s termination of employment. Each such installment shall be equal to the remaining balance in Participant’s Account immediately prior to the payment of such installment divided by the number of installments remaining to be paid.
(b)    The time and method of payment shall be elected by the Participant in accordance with the procedures established by the Administrator at the earlier of the following times:
(i)    When the Participant enters into his or her first Deferral Agreement or,


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(ii)    In the case of a Choice 2 Participant, not later than 30 days after the date of the paycheck that causes his or her Retirement Plan Compensation to exceed the §401(a)(17) limit in the first year in which his or her Retirement Plan Compensation exceeds such limit; provided, however, that if such Participant has deferred compensation or accrued a benefit under any nonqualified deferred compensation plan in any prior year (within the meaning of the last sentence of Treasury Regulation §1.409A-2(a)(7)(iii)), the payment election shall not apply to any deferred compensation for services provided prior to the date of the election (including the Participant’s annual bonus for the prior year), and such deferred compensation and the earnings thereon shall instead be paid as if no election had been made.
If the Participant does not specify a time and method of payment, the vested balance in his or her Account shall be distributed in a single lump sum as soon as administratively feasible, but not more than 90 days, following his or her termination of employment. The initial election or deemed election as to the time and form of distribution cannot be changed.
(c)    Anything else in this Plan, or a Deferral Agreement, to the contrary notwithstanding:
(i)    Except as otherwise provided below, no part of a Participant’s Post-2004 Account shall be payable until the Participant has incurred a separation from service as defined in Code §409A.
(ii)    No part of a Participant’s Post-2004 Account shall be payable to a Participant who is a specified employee, as defined in Code §409A, until the first business day that is at least six months after he or she has incurred a separation from service. The identification of Participants as specified employees shall be made as of December 31 of each year by Loews Corporation based upon the employees of the controlled group of which Loews Corporation is the common parent, and a Participant identified as a specified employee as of any December 31 shall be subject to the provisions of this paragraph (c)(ii) if the Participant incurs a separation from service during the twelve month period commencing on the following April 1.
(iii)    In no event shall the distribution of any Post-2004 Account be accelerated to a time earlier than which it would otherwise have been paid, whether by amendment of the Plan, exercise of the Employee Benefits Committee’s discretion, or otherwise, except as permitted by regulations issued pursuant to Code §409A.
(iv)    In the event that the Administrator, in its sole discretion, determines that any time or form of distribution provided for in the Plan, or the existence of a right to elect a different time or form of distribution, would cause

11

the Plan to fail to meet the requirements of Code §409A, or otherwise cause Participants to be subject to any adverse federal income tax consequences, the Administrator shall adopt procedures modifying or removing the form of distribution or election right, which shall be deemed an amendment to the Plan.
(v)    Any Deferral Agreement that provides for a different form or time of payment shall specify the time and manner of payment, without Employer or Participant discretion, at the time the Deferral Agreement is entered into, and shall otherwise comply with the requirements of this paragraph (b); provided that, in addition to a severance from service, a Deferral Agreement may provide for benefits to be paid at a specified time or pursuant to a fixed schedule set forth in the Deferral Agreement, or upon the occurrence of a change in ownership or control of the Participant’s Employer, or in a substantial portion of its assets, as defined in Code §409A, and provided further that a Deferral Agreement may permit a Participant to elect to further defer the distribution of his or her Account if the election does not take effect for at least twelve months and the distribution of the Post-2004 Account is deferred by at least five years.
2.7     Death Benefits .
(a)    If a Participant dies while still employed, his or her Account shall be fully vested and shall be paid to his or her Beneficiary in a single lump sum. If a Participant dies after his or her employment has been terminated but before his or her Account has been paid in full, the remaining balance in his or her Account shall be paid to his or her Beneficiary in a single lump sum, regardless of whether the Participant has elected payment in installments (and regardless of whether the Participant was a specified employee at the time of his separation from service as provided in Section 2.6(c)(ii)). All payments to Beneficiaries shall be within 90 days following the Participant’s death.
(b)    A Participant’s Beneficiary shall be the person or persons designated by the Participant in his or her Deferral Agreement. A Participant may change his or her Beneficiary from time to time without the consent of the Beneficiary. Subject to rules, procedures, and limitations established by the Administrator, a Beneficiary may be an entity (including a trust or nonprofit organization), and the Participant may designate multiple or contingent Beneficiaries and specify the manner in which his or her Account will be divided among them. All designations of Beneficiaries, and revocations or changes in designations, shall be made in accordance with rules, procedures and limitations prescribed by the Administrator. No designation of a Beneficiary, and no revocation or change in a designation, shall be effective until actually received by the Administrator in writing, and the Administrator’s determination of a Participant’s Beneficiary, if made in good faith, shall be final and conclusive on all parties.
(c)    The determination of the Participant’s Beneficiary shall be made at the time of his or her death. If there is no designated Beneficiary living at the time of the Participant’s death, his or her Beneficiary shall be the person designated as his or her beneficiary under the S-CAP, or any similar retirement plan which permits the Participant to designate a beneficiary,

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as determined by the Administrator in its sole discretion (regardless of whether such designation is invalid solely by reason of §401(a)(11) of the Code or Section 205 of ERISA by reason of the failure of the Participant’s spouse to consent) or, if no beneficiary is designated under the S-CAP or any such other plan, his or her estate. If the Participant has designated more than one Beneficiary and not specified the manner in which his or her Account shall be divided, it shall be divided among all living Beneficiaries at the time of his or her death, per stirpes.
2.8     Excess Benefit Plan Participants . If an Employee who has been a Participant in the Excess Benefit Plan becomes eligible pursuant to Section 2.1, such Employee shall become a Participant, and his Account under the Excess Benefit Plan shall be transferred to and become a part of his Account under the Plan. Such Participant shall not be eligible to make a new payment election under Section 2.6(b), but any election made by the Participant under the Excess Benefit Plan shall be treated as having been made under Section 2.6(b) and shall apply to his entire Account.
2.9     Former Participants in Surety Plans .
(a)    Effective as of December 25, 2011, the employees of Western Surety Company, a subsidiary of CNA Surety Corporation, became employees of Continental Casualty Company. CNA Surety Corporation sponsored two nonqualified deferred compensation plans for the benefit of employees of Western Surety Company: the CNA Surety Corporation Deferred Corporation Plan (the “2000 Surety Plan”), which provided for the deferral of compensation earned prior to 2005, and the CNA Surety Corporation 2005 Deferred Corporation Plan (the “2005 Surety Plan”, and, collectively with the 2000 Surety Plan, the “Surety Plans”), which provides for the deferral of compensation earned beginning in 2005. Effective January 3, 2012, each of the Surety Plans was merged with and into the Plan in accordance with the provisions of this Section 2.9.
(b)    Effective January 3, 2012, each person who has an account in either of the Surety Plan (a “Surety Participant”) became a Participant. Each Surety Participant’s account in the applicable Surety Plan, valued as of such date, became an Account in the Plan, and the Plan hereby assumes the obligation to pay such Account, subject to the terms of the Plan. If a Surety Participant had an account in the 2005 Surety Plan, such account became his Account in this Plan, any future contributions shall be credited to such Account, and the entire balance in such Account shall be considered a Post-2004 Account for all purposes of the Plan. If a Surety Participant has an account in the 2000 Surety Plan, whether or not he also has an account in the 2005 Surety Plan, such account shall be treated as a separate Account or subaccount which is a Pre-2005 Account for all purposes of the Plan, and no further contributions shall be allocated to such Account.
(c)    Contributions to the Plan on behalf of Surety Participants were determined as follows:
(i)    Elective Contributions, Matching Contributions, and Basic Contributions for the final Western Surety Company payroll period


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ending prior to December 25, 2011, were calculated in accordance with the terms of the 2005 Surety Plan, credited initially to the Surety Participant’s account in the 2005 Surety Plan, and were transferred to the Plan on January 3, 2012, as described in Section 2.9(b) above.
(ii)    Performance Contributions for 2011 were calculated in accordance with the terms of the 2005 Surety Plan (based upon the 2011 performance of CNA Surety Corporation), and credited to each eligible Surety Participants’ Post-2004 Account in this Plan.
(iii)    Surety Participants shall be considered Active Participants, and eligible to enter into a Deferral Agreement for 2012 and subsequent years, if and only if they otherwise satisfy the requirements of Section 2.1.
(iv)    Surety Participants who became employees of Continental Casualty Company shall be eligible to be credited with employer contributions pursuant to Section 2.3 if they are Active Participants in this Plan, or pursuant to the Excess Benefit Plan set forth in Appendix B if they are not Active Participants.
(d)    All Accounts transferred from the Surety Plans shall be credited with earnings in accordance with Section 2.4 beginning on January 3, 2012, and Surety Participants shall have no right to elect investment funds after such date.
(e)    The entire Post-2004 Account of a Surety Participant, including any amount transferred from the 2005 Surety Plan and all subsequent contributions, shall be distributed in a single lump sum as soon as reasonably practical after the date that is six months after the Surety Participant incurs a separation from service as defined in Code §409A, in accordance with Article VI of the 2005 Surety Plan.
(f)    The Pre-2005 Account of a Surety Plan that was transferred from the 2000 Surety Plan shall be distributed in accordance with the Surety Participant’s election made under the terms of the 2000 Plan, in accordance with Article VI of the 2000 Surety Plan.
(g)    The right of a Surety Participant to withdraw a portion of his Account by reason of unforeseeable financial emergency pursuant to Section 5.6 of the 2000 Surety Plan or 6.5 of the 2005 Surety Plan shall be governed exclusively by Section 3.3 of the Plan. A Surety Participant whose balance in the 2000 Surety Plan is transferred to a Pre-2005 Account in this Plan shall retain the right to an early distribution pursuant to Section 5.5 of the 2000 Surety Plan, but only with respect to such Pre-2005 Account.
(h)    The Administrator may treat any Beneficiary of a Surety Participant designated pursuant to one of the Surety Plans as the Participant’s Beneficiary under this Plan, subject to each Participant’s right to designate a new Beneficiary in accordance with the Plan.
(i)    Surety Participants shall be fully vested in their Accounts, including both amounts transferred to the Plan from the Surety Plans, and all subsequent contributions, subject

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to the provisions of Sections 4.9 of the 2000 Surety Plan and 5.8 of the 2005 Surety Plan relating to forfeiture for misconduct.
(j)    Except as otherwise provided herein, Surety Participants shall be considered Participants, and the portion of their Accounts representing amounts transferred from the Surety Plans shall be treated in the same manner as other Accounts, for all purposes of the Plan. Any former employee of Western Surety who was not a Surety Participant, and becomes an employee of Continental Casualty Company on December 25, 2011 or thereafter, shall be treated in the same manner as any newly hired employee for purposes of the Plan, but shall be given credit for Vesting Service earned as an employee of Western Surety Company.

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ARTICLE III
PAYMENTS OF BENEFITS

3.1     Source of Payment . All payment of benefits under the Plan shall be made directly from the general funds of the Participant’s Employer. Each Employer shall establish separate bookkeeping accounts to reflect its liability under the Plan and may, but shall not be obligated to, invest in insurance or annuity contracts or other assets to assure a source of funds for the payment of benefits, but any such bookkeeping account, insurance or annuity contracts, or other investment shall constitute assets solely of such Employer, and Participants shall have no right, title or interest therein prior to payment of their benefits hereunder. The right of any Participant or other person to receive benefit payments under the provisions of this Plan shall be no greater than the right of any unsecured general creditor of the Participant’s Employer. This Plan shall not create nor be construed to create a trust or fiduciary relationship in favor of any person whatsoever.
3.2     Establishment of Trust . The Company may, but shall in no event be required to, establish one or more trusts and contribute, or cause Employers to contribute, amounts to such trusts to be used for the payment of benefits under this Plan. Any such trust shall be of the type commonly referred to as a “rabbi trust”, and the Company or Employer shall be treated as the owner of the assets of such trust for tax purposes in accordance with §671-§678 of the Code. The assets of any such trust shall remain subject to the claims of creditors of the Company or the Employer contributing such assets, and no Participant or any other person shall have any beneficial interest in or other claim to the assets of any such trust beyond that of a general creditor as provided in Section 3.1. Any payments made to or on behalf of a Participant or Beneficiary from any such trust shall fully discharge the liability of the Company or Employer to such Participant or Beneficiary under the Plan to the extent of the amount so paid. The Administrator shall have the right to select, remove, and replace the trustee thereof at any time in its sole discretion, and shall enter into one or more agreements governing such trust containing such terms as it determines, and may modify, amend or revoke any such agreements, all in its sole discretion. Without limiting the generality of the foregoing, the Administrator is hereby authorized and directed to enter into an agreement with one or more trustees designated by it establishing such a trust to accept the transfer of assets from the trust established by an agreement dated August 1, 2000, between CNA Surety Corporation and First National Bank in Sioux Falls to fund the 2000 Surety Plan (as defined in Section 2.9), and from the trust established by an agreement dated March 28, 2005, between the same parties to fund the 2005 Surety Plan (as defined in Section 2.9), and to commingle such assets into a single trust fund to be used to pay any benefits accrued under the Plan, including but not limited to accounts transferred from the Surety Plans, and to pay expenses of such trust and the Plan.
3.3     Withdrawals for Financial Emergency . A Participant may withdraw part or all of the vested portion of his or her Account if the amount withdrawn is reasonably necessary to satisfy an unforeseeable financial emergency. Any such withdrawals shall be subject to such rules, procedures and limitations as the Administrator may, in its sole discretion, determine. For purposes of this Section 3.3, an unforeseeable financial emergency means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the

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Participant, one of his or her dependents (as defined in §152(a) of the Code), or the person designated as the Participant’s primary Beneficiary, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. A financial hardship that is foreseeable or within the Participant’s control, such as the need or desire to purchase a residence or to send a child to college, shall not be considered an unforeseeable financial emergency. The determination of whether a Participant’s need for funds constitutes an unforeseeable financial emergency shall be made in accordance with the requirements of §409A of the Code. The amount withdrawn may not exceed the amount necessary to satisfy the financial hardship (taking into account any tax payable on the withdrawal), determined after taking into account other sources of funds available to the Participant, including but not limited to reimbursement or compensation by insurance or otherwise, and the liquidation of other assets to the extent that such liquidation would not itself cause severe financial hardship. If a Participant has a financial hardship, the Participant’s Deferral Agreement, if any, shall be revoked for the Plan Year (and no subsequent Deferral Agreement may be made for the same Plan Year), and the additional income resulting from such revocation shall be taken into account in determining the amount of distribution reasonably necessary to relieve the financial hardship. A Participant shall not be required to take any hardship withdrawal or loan to which he or she is entitled under the S-CAP or any other tax qualified retirement plan as a condition of receiving a distribution pursuant to this Section 3.3, but if a Participant receives a hardship withdrawal from the S-CAP or any other tax-qualified §401(k) plan maintained by an Employer and the terms of such plan require a suspension of the Participant’s deferrals for six months following the date of the distribution, then the Participant’s Deferral Agreement shall be permanently revoked with respect to any compensation paid or payable to the Participant during such six month period. Upon completion of the six month suspension period, the Participant’s Deferral Agreement will be reinstated according to the election made during the most recent annual election period.
3.4     Withholding and Payroll Taxes . The Administrator shall withhold, or shall direct the person making any payment to withhold, from payments made hereunder any taxes required to be withheld from a Participant’s wages for the federal or any state or local government. To the extent that benefits hereunder are subject to tax under the Federal Insurance Contributions Act or any other law prior to the time that they become payable, the Administrator may either withhold, or direct the Participant’s Employer to withhold, the amount of such taxes from any other compensation or other amounts payable to the Participant, or may deduct the amount of such tax from the Participant’s Account in accordance with Section 3.7(c). The Administrator’s determination of the amount to be so withheld or deducted shall be final and binding on all parties.
3.5     Payment on Behalf of Disabled or Incompetent Persons . If a Plan benefit is payable to a minor or a person declared incompetent or to a person whom the Administrator, in its sole discretion, determines to be incapable of handling the disposition of property, the Administrator may direct payment of such Plan benefit to the guardian, legal representative or person having the care and custody of such minor or incompetent person, or to any other person, including any family member, whom the Administrator determines in its sole discretion to be best suited to receive and apply the payment for the benefit of such person. The Administrator may require proof of incompetency, minority, incapacity or guardianship as it may deem

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appropriate prior to distribution of the Plan benefit. Such distribution shall completely discharge the Company and the Participant’s Employer from all liability with respect to such benefit.
3.6     Missing Participants or Beneficiaries . If the Administrator is unable to locate any Participant, Beneficiary or other person entitled to benefits under this Plan, the Administrator may, in its sole discretion, either cause all or a portion of such payment to be forfeited and to reduce its obligations under this Plan, or may pay all or a portion of such benefit to members of the missing person’s family or such other person as it may determine in its sole discretion to be fair and equitable. Any payment made pursuant to this Section 3.6 shall fully discharge the obligation of the Company and all Employers under this Plan with respect to the amount so paid.
3.7     Other Permitted Distributions . Notwithstanding the foregoing provisions of this Article III, the Administrator in its sole discretion may provide for all or a portion of the balance in a Participant’s Account to be distributed to the Participant, provided that no Participant may be allowed to elect to receive such a distribution:
(a)    If the total balance in a Participant’s Account does not exceed the limit in effect under §402(g) of the Code, the Administrator may direct that the entire balance be distributed to the Participant in full satisfaction of his or her interest in the Plan, provided that the Participant’s entire balance in all other account balance deferred compensation plans maintained by any member of the Controlled Group is also distributed to the Participant (and is taken into account in determining whether the total balance exceeds the limit in effect under §402(g)).
(b)    If any portion of a Participant’s Account is determined to be includible in the Participant’s taxable income by reason of the operation of §409A of the Code, the amount includible in income shall be distributed to the Participant as soon as practical.
(c)    The Administrator may direct that the Participant’s portion of the FICA tax imposed on amounts deferred under the Plan pursuant to §3121 of the Code be charged to the Participant’s Account, provided that the total amount charged to the Account shall not exceed the FICA tax plus income tax withholding on the amount applied to payment of the FICA tax.
3.8     Recovery of Erroneous Distributions . If the Administrator determines that the amount paid to any Participant or Beneficiary exceeded the amount that should have been paid pursuant to the terms of the Plan, the Participant or Beneficiary shall repay the amount of the excess to the Plan upon demand, and the Administrator may, on behalf of the Plan, pursue offset the amount of such excess against any other amount owed by an Employer to the Participant or Beneficiary to the maximum extent permitted by law, or pursue any other remedy available at law or equity for the recovery of such excess. Each Participant or Beneficiary who receives an excess distribution shall hold such distribution in trust for the benefit of the Plan.

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ARTICLE IV
ADMINISTRATION

4.1     Administrator . This Plan shall be administered by Continental Casualty Company, which shall be the “administrator” for purposes of Section 3(16)(A) of the Employee Retirement Income Security Act of 1974. The Company may designate one or more persons who may be officers or Employees of any Employer, to exercise any of its authority or carry out any of its duties under the Plan, but such person shall not be considered the “administrator” unless specifically so designated in a resolution of the Board. In the absence of any other designation, the senior officer of Continental Casualty Company responsible for human resources, or persons acting under his or her supervision, shall be so designated. In addition, Continental Casualty Company has established an Employee Benefits Committee to oversee the operation of various retirement plans, and the Employee Benefits Committee shall have the authority on behalf of the Administrator to adopt rules, regulations and procedures, to hear all appeals from denied claims under Section 4.4, and to consider all other issues related to the administration of the Plan referred to it by senior officer of Continental Casualty Company responsible for human resources and his or her delegates.
4.2     Administrator’s Powers . The Administrator shall have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers, rights and duties:
(a)     Interpretation of Plan . The Administrator shall have the power, right and duty to construe and interpret the Plan provisions and to determine all questions arising under the Plan including questions of Plan participation, eligibility for Plan benefits and the rights of Employees, Participants, Beneficiaries and other persons to benefits under the Plan and to determine the amount, manner and time of payment of any benefits hereunder.
(b)     Plan Procedures . The Administrator shall have the power, right and duty to adopt procedures, rules, regulations and forms to be followed by Employees, Participants, Beneficiaries and other persons or to be otherwise utilized in the efficient administration of the Plan and as are consistent with the Plan.
(c)     Benefit Determinations . The Administrator shall have the power, right and duty to make determinations as to the rights of Employees, Participants, Beneficiaries and other persons to benefits under the Plan and to afford any Participant or Beneficiary dissatisfied with such determination with rights pursuant to a claims procedure adopted by the Administrator in accordance with Section 4.4.
(d)     Enforcement of the Plan . The Administrator shall have the power, right and duty to enforce the Plan in accordance with the terms of the Plan and to enforce its procedures, rules or regulations.

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(e)     Maintenance of Plan Records . The Administrator shall be responsible for preparing and maintaining records necessary to determine the rights and benefits of Employees, Participants and Beneficiaries or other persons under the Plan.
(f)     Allocation of Duties . The Administrator shall be empowered to allocate fiduciary responsibilities and the right to employ agents (who may also be Employees of the Company) and to delegate to them any of the administrative duties imposed upon the Administrator.
(g)     Correction of Errors . To correct any errors made in the computation of benefits under the Plan, and, if a trust has been established, to recover any contributions made to such trust by mistake of fact or law.
4.3     Binding Effect of Rulings . Any ruling, regulation, procedure or decision of the Administrator, including any interpretation of the Plan, which is made in good faith shall be conclusive and binding upon all persons affected by it. There shall be no appeal from any ruling by Administrator, except as provided in Section 4.4 below. When making a determination or a calculation, the Administrator shall be entitled to rely on information supplied by investment managers, insurance institutions, accountants and other professionals including legal counsel for the Administrator. Any rule or procedure established by the Administrator may alter any provision of this Plan that is ministerial or procedural in nature without the necessity for a formal amendment of the Plan.
4.4     Claims Procedure .
(a)    Any Participant or Beneficiary, or any other person asserting the right to receive a benefit under this Plan by virtue of his or her relationship to a Participant or Beneficiary (the “Claimant”), who believes that he or she has the right to a benefit that has not been paid, must file a written claim for such benefit in accordance with the procedures established by the Administrator. All such claims shall be filed not more than one year after the Claimant knows, or with the exercise of reasonable diligence would have known, of the basis for such claim. The preceding sentence shall not be construed to require a Participant or Beneficiary to file a formal claim for the payment of undisputed benefits in the normal course, but any claim that relates to the amount of any benefit shall in any event be filed not more than one year after payment of such benefit commences. The Administrator may retain third party administrators and recordkeepers for the purpose of processing routine matters relating to the payment of benefits, but correspondence between a Participant, Beneficiary or other person and such third parties shall not be considered claims for purposes of this Section, and a person shall not be considered a Claimant until he or she has filed a written claim for benefits with the Administrator.
(b)    All claims for benefits shall be processed by the Administrator, and the Administrator shall furnish the Claimant within 90 days after receipt of such claim a written notice that specifies the reason for the denial, refers to the pertinent provisions of the Plan on which the denial is based, describes any additional material or information necessary for properly completing the claim and explains why such material or information is necessary, and explains the claim review procedures of this Section 4.4, and the Claimant’s right to bring an action under

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Section 502 of ERISA, subject to the restrictions of paragraph (e) if the request for review is unsuccessful. The 90 day period may be extended by up to an additional 90 days if the Administrator so notifies the Claimant prior to the end of the initial 90 day period, which notice shall include an explanation of the reason for the extension and an estimate of when the processing of the claim will be complete. If the Administrator determines that additional information is necessary to process the claim, the Claimant shall be given a period not less than 45 days to furnish the information, and the time for responding to the claim shall be tolled during the period of time beginning on the date on which the Claimant is notified of the need for the additional information and the day on which the information is furnished (or if earlier the end of the period for furnishing the information).
(c)    If the claim is denied in whole or in part, or if the decision on the claim is otherwise adverse, the Claimant may, within 60 days after receipt of such notice, request a review of the decision in writing. If the claimant requests a review, the Employee Benefits Committee (or such other fiduciary as the Administrator may appoint for such purpose) shall review such decision. The Employee Benefits Committee’s decision on review shall be in writing and furnished not more than five days after the meeting at which the review is completed, and shall include specific reasons for the decision, written in a manner calculated to be understood by the Claimant, shall include specific references to the pertinent provisions of the Plan on which the decision is based, and shall advise the Claimant of his or her right to bring an action under Section 502 of ERISA, subject to the limitations of paragraph (e).
(d)    The Employee Benefits Committee shall complete its review of the claim not later than its first meeting that is held at least 30 days after the request for review is received. If special circumstances require, the decision may be made by the Employee Benefits Committee not later than its third meeting held after the request for review is received, in which event the Claimant shall be notified of the reason for the delay not later than five days after the meeting at which the review would otherwise have been completed, which notice shall explain the reason for the delay and include an estimate of the time at which the review will be complete. Notwithstanding the foregoing, if at any time the Employee Benefits Committee (or any other fiduciary designated to review appeals) is not scheduled to meet at least quarterly, the decision on review shall be delivered to the Claimant not more than 60 days after the request for review is received, which may be extended to not more than 120 days if special circumstances require and the notice of extension described above is furnished by the end of the initial 60 day period.
(e)    No action at law or in equity shall be brought to recover benefits under this Plan until the claim and appeal rights herein provided have been exercised and the Plan benefits requested in such claim and appeal have been denied in whole or in part. After exhaustion of the Plan’s claim procedures, any further legal action taken against the Plan or its fiduciaries by a claimant must be filed in a court of law no later than 120 days after the final adverse benefit determination of the Employee Benefits Committee (or other final appeals fiduciary) is communicated to the claimant or his or her legal representative, notwithstanding any other statute of limitations. In the event a claimant wishes to bring a legal action against the Plan or one of its fiduciaries, such legal action must be filed in the United States District Court for the Northern District of Illinois (Eastern Division) and shall be governed by the

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procedural and substantive laws of the State of Illinois, to the extent such laws are not preempted by ERISA, notwithstanding any conflict of laws principles.
(f)    The provisions of this Section are intended to comply with ERISA Section 503 and the Department of Labor regulations issued pursuant thereto, and shall be so construed and applied. Consistent with such regulations, each Claimant shall have the right to have an authorized representative act on his or her behalf, to submit arguments and information in support of his or her claim, and to receive, upon written request and without charge, copies of all documents, records, or other information that either (i) were relied upon in determining his or her benefit under the Plan, (ii) were submitted, considered, or generated in the course of making the benefit determination, even if not relied upon, or (iii) demonstrate compliance with the administrative processes and safeguards of the claim and review procedure.
4.5     Indemnity . To the extent permitted by applicable law and to the extent that they are not indemnified or saved harmless under any liability insurance contracts, any present or former officers, Employees or directors of the Company, and each of them shall be indemnified and saved harmless by the Company from and against any and all liabilities or allegations of liability to which they may be subjected by reason of any act done or omitted to be done in good faith in the administration of the Plan, including all expenses reasonably incurred in their defense in the event that the Company fails to provide such defense after having been requested in writing to do so.

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ARTICLE V
AMENDMENT AND TERMINATION OF PLAN

5.1     Amendment . The Company may amend the Plan at any time by action of the Board, or any person to whom the Board may delegate such authority, except that no amendment shall decrease the vested Account balance of any Participant as of the effective date of the amendment. The Board has delegated the authority to amend the Plan, with certain exceptions, to the Executive Vice President-Human Resources and Corporate Services of Continental Casualty Company, and any amendment executed by such officer shall be binding on all parties. In addition, the Administrator is authorized pursuant to Section 4.3 to adopt rules and procedures that have the effect of amendment technical, administrative or ministerial provisions of the Plan. By their execution of this amendment and restatement of the Plan, each Employer ratifies and accepts all prior amendments to the Plan, and agrees that in the future the Plan may be amended by action of the Company without consent of the other Employers.
5.2     Termination . The Company may at any time terminate the Plan by action of the Board. Upon termination, no further allocations shall be made to Accounts, but Accounts shall continue to be credited with earnings and shall be paid in accordance with the provisions of the Plan; provided, however, that upon termination, the Company may, but shall not be obligated to, amend the Plan to provide that the Accounts of some or all Participants shall be fully vested and paid to such Participants in a lump sum, which shall fully discharge all obligations owed to such Participants under the Plan; provided that such amendment shall apply to the Post-2004 Accounts only if all such Accounts are fully vested and distributed and the amendment otherwise complies with the requirements of §409A of the Code. Any Employer may at any time withdraw from the Plan by written notice to the Administrator, in which event the Plan shall be considered terminated with respect to the Participants employed by such Employer (or who were so employed at the time of their termination of employment), and the provisions of this Section 5.2 shall apply to such Participants only.

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ARTICLE VI
MISCELLANEOUS

6.1     Status of Plan . This Plan is intended to be an unfunded plan maintained primarily to provide retirement benefits for a select group of management Employees or highly compensated Employees within the meaning of Section 201(1), Section 301(a)(3), and §401(a)(1) of ERISA and Department of Labor Regulations 29 C.F.R. Section 2520.104-23, and shall be so construed.
6.2     Nonassignability . Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be nonassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to garnishment, seizure or sequestration for the payment of any debts owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency. Nothing contained herein shall be construed as a waiver of the Company’s or any Employer’s right of setoff.
6.3     No Contract of Employment . The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company or any Employer and the Participant, and neither the Participant nor the Participant’s Beneficiary shall have any rights against the Company or any Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or any Employer or to interfere with the right of the Company and each Employer to discipline or discharge him at any time.
6.4     Participant Litigation . In any action or proceeding regarding the Plan, Participants, Employees or former Employees of the Company or an Employer, their Beneficiaries or any other persons having or claiming to have an interest in this Plan shall not be necessary parties and shall not be entitled to any notice or process. Any final judgment which is not appealed or appealable and may be entered in any such action or proceeding shall be binding and conclusive on the parties hereto and all persons having or claiming to have any interest in this Plan. To the extent permitted by law, if a legal action is begun against the Company, an Employer, the Administrator, the trustee of any trust established hereunder, or any person acting on the behalf or under the direction of any of the foregoing persons, by or on behalf of any person and such action results adversely to such person or if a legal action arises because of conflicting claims to a Participant’s or other person’s benefits, the costs to any such person of defending the action will be charged to the amounts, if any, which were involved in the action or were payable to the Participant or other person concerned. To the extent permitted by applicable law, acceptance of participation in this Plan shall constitute a release of the Company, each Employer, the Administrator and such trustee and their respective agents from any and all liability and obligation not involving willful misconduct or gross neglect.
6.5     Participant and Beneficiary Duties . Persons entitled to benefits under the Plan shall file with the Administrator from time to time such person’s post office address

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and each change of post office address. Each such person entitled to benefits under the Plan also shall furnish the Administrator with all appropriate documents, evidence, data or information which the committee considers necessary or desirable in administering the Plan.
6.6     Governing Law . The provisions of this Plan shall be construed and interpreted according to the laws of the State of Illinois to the extent not pre-empted by the laws of the United States. The Plan is intended to comply with all requirements of §409A, and to the maximum extent permitted by law shall be construed in a manner that is consistent with such intent, provided that in no event shall the Company, any Employer, the Administrator, or any of their respective employees, agents or representatives have any liability to any person for any additional tax imposed upon such person pursuant to §409A of the Code or any comparable federal, state or local income tax law.
6.7     Validity . In case any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.
6.8     Notices . Any notice or filing required or permitted to be given to the Administrator or the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Company at its principal executive offices, or to Company’s statutory agent. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice required or permitted to be given to a Participant shall be sufficient if in writing and hand delivered or sent by first class mail to the Participant at the last address listed on the records of the Company or such Participant’s Employer.
6.9     Successors . The provisions of this Plan shall bind and inure to the benefit of each Employer and its respective successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of an Employer, and successors of any such corporation or other business entity.
[SIGNATURE ON FOLLOWING PAGE]

25

IN WITNESS WHEREOF, the Company has caused this amendment and restatement of the Plan to be executed on June 9, 2014.
CNA FINANCIAL CORPORATION


By: /s/ Thomas Pontarelli          Thomas Pontarelli, Executive Vice President & Chief Administration Officer, Continental Casualty Company

26

APPENDIX A
FULL VESTING OF PARTICIPANTS AFFECTED BY CERTAIN EVENTS

A.1     Sales of Business Units
In accordance with Section 2.5, Participants whose employment is terminated in connection with the following sales or other dispositions of business units shall be fully vested in their Account balance regardless of their years of service. Except as otherwise provided below, the Participants who qualify for full vesting with respect to any transaction shall be those, and only those, who qualify as an “Affected Member” with respect to such transaction in accordance with Appendix F of the S-CAP.
Transaction
Closing Date
Exceptions/Special Rules
Sale of Life Reinsurance Business Unit to MARC
12/31/00
None
Sale of CNA Credit Collection Agency, Inc., to Coface
12/31/02
None
Sale of unbundled risk management business of RSKCo Services, Inc to Cunningham Lindsey US
6/2/03
None
Sale of Smith System to McFadden Brothers
4/29/03
None
Sale of CNA Group Operations to Hartford Financial Services Group
12/31/03
None
Sale of individual life insurance business to Swiss Re Life & Health America
App. 3/31/04
None

27

APPENDIX B
EXCESS BENEFIT PLAN

B1.     Purpose and Interpretation . The purpose of this Appendix B is to establish a separable portion of the Plan, referred to herein as the “Excess Benefit Plan”, solely for the purpose of providing benefits for Employees whose benefits under the S-CAP are restricted by Code §415. Except as otherwise specifically provided in this Appendix B, all provisions of the Plan shall apply to Participants in the Excess Benefit Plan to the same extent and in the same manner such provisions apply to Participants in the Plan. All capitalized terms used in this Appendix B shall have the same meaning as such terms as defined in the Plan. It is the Company’s intent that the benefits accrued for Participants solely under this Appendix B shall constitute a separable part of the Plan that constitutes an “excess benefit plan” as defined in §3(36) of ERISA.
B2.     Eligibility . The Employees who are eligible to participate in the Excess Benefit Plan shall be those Employees whose benefits under the S-CAP are restricted solely by Code §415, and who are not, and never have been, eligible to participate in the Plan pursuant to Section 2.1 thereof. An Employee shall become a Participant in the Excess Benefit Plan on the first payroll date on which an amount that would otherwise have been credited to his account in the S-CAP cannot be credited solely by reason of Code §415, and shall remain a Participant in the Excess Benefit Plan until either his Account is fully distributed, or he transfers to the Plan pursuant to Section B4 below.
B3.     Benefits Credited to Account . The amount credited to the Account of a Participant in the Excess Benefit Plan in each Plan Year shall be equal to the amount that would have been credited to his Account in the Plan pursuant to Section 2.3 (other than the first sentence of Section 2.3(a)) for such Plan Year if he were eligible to participate in the Plan for such Plan Year, but taking into account only the Tax Limit imposed by Code §415. A Participant’s Account in the Excess Benefit Plan shall be treated as an Account in the Plan for all purposes of the Plan.
B4.     Payment Election . When an Employee first becomes eligible to participate in the Excess Benefit Plan, but not more than 30 days after such date, the Administrator may permit the Employee to make an election as to the form of payment of his benefit in accordance with Section 2.6(b) (provided that the Employee is not described in the provision to Section 2.6(b)(ii)), which election shall thereafter be treated as an election made under Section 2.6(b).
B5.     Transfer to Plan . If an Employee who has been a Participant in the Excess Benefit Plan in any Plan Year subsequently becomes eligible to participate in the Plan pursuant to Section 2.1, his Account under the Excess Benefit Plan shall be transferred to the Plan, and he shall thereafter be considered a Participant in the Plan and shall be ineligible to again participate in the Excess Benefit Plan for so long as he remains an Employee, even if he subsequently becomes ineligible to participate in the Plan.




28

Exhibit 10.6.1
FIRST AMENDMENT TO THE
CNA SUPPLEMENTAL EXECUTIVE SAVINGS
AND CAPITAL ACCUMULATION PLAN
The CNA SUPPLEMENTAL EXECUTIVE SAVINGS AND CAPITAL
ACCUMULATION PLAN, as restated by CNA effective January 1, 2014, is hereby further
amended as follows:
1.      Effective July 1, 2015, Section 2.1(b)(iii) is amended to read as follows:
“(iii)
An Employee who will be a Choice 2 Participant shall be eligible to participate, solely for purposes of being credited with Basic and Performance Contributions, in the first Plan Year in which his or her Retirement Plan Compensation exceeds the limitation of Code §401(a)(17). Effective July 1, 2015, Employees who are Choice 1 Participants are also eligible to participate for such purpose in the first Plan Year in which his or her Retirement Plan Compensation exceeds the limitation of Code §401(a)(17) (or if his or her Retirement Plan Compensation in 2015 exceeds such limit, including the portion paid prior to July 1, 2015, regardless of whether it exceeded such limit in prior Plan Years).”
2.
Effective July 1, 2015, Section 2.3(b) and (c) are amended to read as follows:
“(b)      In addition to the amounts set forth above, at the end of each Plan Year the Employer of an Active Participant who is a Choice 2 Participant shall credit to the Active Participant’s Matching Account an amount equal to the amount deferred by the Active Participant for the Plan Year pursuant to Section 2.2, multiplied by the Variable Matching Contribution percentage applicable to such Active Participant under the S-CAP. The Company shall also credit to the Matching Account of an Active Participant any Variable Matching Contribution that relates to a Before-Tax Contribution made under the S-CAP, but which Matching Contribution cannot be allocated to such Active Participant’s S-CAP account without exceeding the Tax Limits. Commencing in 2015, the same amount shall be credited to the Matching Account of an Active Participant who is a Choice 1 Participant, but for 2015 such amount shall be based on Before-Tax Contributions made in payroll periods beginning on or after July 1, 2015.
(c)      In addition to the amounts set forth above, at the end of each Plan Year or pay period, as applicable, the Employer of an Active Participant who is a Choice 2 Participant shall credit to the Active Participant’s Employer Contribution Account an amount equal to the portion of the Active Participant’s Retirement Plan Compensation that exceeds the Tax Limits multiplied by the applicable Basic and Performance Contribution percentages applicable to such Active Participant under the S-CAP. The Company shall also credit to the Employer Contribution Account of an Active Participant any Basic or Performance Contribution that cannot be allocated to such Active Participant’s S-CAP account without exceeding the Tax Limits. Commencing in 2015, the same amount shall be credited to the Employer Contribution Account of an Active Participant who is a Choice 1 Participant, but for 2015 such amount shall be based on the lesser of the amount of the Active Participant’s Retirement Plan Compensation that exceeds the Tax



Limits or the amount paid after June 30, 2015 (not including base salary earned in a payroll period beginning before June 30, 2015, regardless of when paid).”
3.      Effective July 1, 2015, Section 2.6(b)(ii) is amended to read as follows:
“(ii)
In the case of (A) a Choice 2 Participant, not later than 30 days after the date of the paycheck that causes his or her Retirement Plan Compensation to exceed the §401(a)(17) limit in the first year in which his or her Retirement Plan Compensation exceeds such limit or (B) a Choice 1 Participant, not later than 30 days after the date of the paycheck that causes his or her Retirement Plan Compensation to exceed such limit in the first year beginning with 2015 in which his or her Retirement Plan Compensation exceeds such limit or, if later, July 1, 2015; provided in either case, however, that if such Participant has deferred compensation or accrued a benefit under any nonqualified deferred compensation plan in any prior year (within the meaning of the last sentence of Treasury Regulation §1.409A-2(a)(7)(iii)), the payment election shall not apply to any deferred compensation for services provided prior to the date of the election (including the Participant’s annual bonus for the prior year), and such deferred compensation and the earnings thereon shall instead be paid as if no election had been made. ”
4.      Effective July 1, 2015, Section 5.1 is amended to read as follows:
“5.1      Amendment . The Company may amend the Plan at any time by action of the Board, or any person to whom the Board may delegate such authority, except that no amendment shall decrease the vested Account balance of any Participant as of the effective date of the amendment. The Board has delegated the authority to amend the Plan, with certain exceptions, to the senior officer of the Company responsible for human resources, and any amendment executed by such officer shall be binding on all parties. In addition, the Administrator is authorized pursuant to Section 4.3 to adopt rules and procedures that have the effect of amending technical, administrative or ministerial provisions of the Plan. By their execution of this amendment and restatement of the Plan, each Employer ratifies and accepts all prior amendments to the Plan, and agrees that in the future the Plan may be amended by action of the Company without consent of the other Employers.”
5. Except as otherwise provided herein, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, CNA Financial Corporation has caused this Amendment to be executed this 28 th day of May, 2015.
CNA FINANCIAL CORPORATION

By: /s/Thomas Pontarelli
Thomas Pontarelli, Executive Vice President & Chief Administration Officer, Continental Casualty Company

2


EXHIBIT 31.1
SARBANES-OXLEY ACT SECTION 302
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Thomas F. Motamed, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of CNA Financial Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Dated:
August 4, 2015
By  
/s/ Thomas F. Motamed  
 
 
 
 
Thomas F. Motamed 
 
 
 
 
Chief Executive Officer 
 





EXHIBIT 31.2
SARBANES-OXLEY ACT SECTION 302
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, D. Craig Mense, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of CNA Financial Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:
August 4, 2015
By  
/s/ D. Craig Mense  
 
 
 
 
D. Craig Mense 
 
 
 
 
Chief Financial Officer 
 




EXHIBIT 32.1
Written Statement of the Chief Executive Officer
of CNA Financial Corporation
Pursuant to 18 U.S.C. § 1350
(As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
The undersigned, the Chief Executive Officer of CNA Financial Corporation (the Company), hereby certifies that, to his knowledge:
•
the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated:
August 4, 2015
By  
/s/ Thomas F. Motamed  
 
 
 
 
Thomas F. Motamed 
 
 
 
 
Chief Executive Officer 
 
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.




EXHIBIT 32.2
Written Statement of the Chief Financial Officer
of CNA Financial Corporation
Pursuant to 18 U.S.C. § 1350
(As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
The undersigned, the Chief Financial Officer of CNA Financial Corporation (the Company), hereby certifies that, to his knowledge:
•
the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated:
August 4, 2015
By  
/s/ D. Craig Mense  
 
 
 
 
D. Craig Mense 
 
 
 
 
Chief Financial Officer 
 
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.