Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes [Abstract]

Income Taxes

Note 10.  Income Taxes

Loews Corporation and its eligible subsidiaries file a consolidated federal income tax return. Loews Corporation has entered into a separate tax allocation agreement with CNA, a majority-owned subsidiary in which its ownership exceeds 80%. The agreement provides that Loews Corporation will: (i) pay to CNA the amount, if any, by which Loews Corporation’s consolidated federal income tax is reduced by virtue of inclusion of CNA in Loews Corporation’s return or (ii) be paid by CNA an amount, if any, equal to the federal income tax that would have been payable by CNA if it had filed a separate consolidated return. The agreement may be canceled by either of the parties upon thirty days written notice.

For 2018 through 2020, the Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Process (“CAP”), which is a voluntary program for large corporations. Under CAP, the IRS conducted a real-time audit and worked contemporaneously with the Company to resolve any issues prior to the filing of the 2018 and 2019 tax returns. The 2018 and 2019 examinations are completed. For 2020, the Company was selected to participate in the phase of CAP reserved for taxpayers whose risk of noncompliance does not support use of IRS resources. The Company believes this approach should reduce tax-related uncertainties, if any. Although the outcome of tax audits is always uncertain, the Company believes that any adjustments resulting from audits will not have a material impact on its results of operations, financial position or cash flows. The Company and/or its subsidiaries also file income tax returns in various state, local and foreign jurisdictions. These returns, with few exceptions, are no longer subject to examination by the various taxing authorities before 2016.

The current and deferred components of income tax expense (benefit) are as follows:

Year Ended December 31	2020			2019		2018
(In millions)
Income tax expense (benefit):
Federal:
Current	$	43		$	108	$	6
Deferred		(260	)		47		85
State and city:
Current		1			18		15
Deferred		13			22		9
Foreign		30			53		13
Total	$	(173	)	$	248	$	128

The components of U.S. and foreign income before income tax and a reconciliation between the federal income tax expense at statutory rates and the actual income tax expense (benefit) is as follows:

Year Ended December 31	2020			2019			2018
(In millions)
Income (loss) before income tax:
U.S.	$	(768	)	$	1,145		$	775
Foreign		(696	)		(26	)		59
Total	$	(1,464	)	$	1,119		$	834
Income tax expense (benefit) at statutory rate	$	(307	)	$	235		$	175
Increase (decrease) in income tax expense (benefit) resulting from:
Effect of the 2017 tax act					(14	)		(6	)
Exempt investment income		(49	)		(50	)		(64	)
Foreign related tax differential		63			(55	)		1
Taxes related to domestic affiliate					(15	)		(7	)
Partnership earnings not subject to taxes								(14	)
Valuation allowance		55			12			12
Unrecognized tax positions, settlements and adjustments relating to prior years		68			97			2
State taxes		4			37			20
Other		(7	)		1			9
Income tax expense (benefit)	$	(173	)	$	248		$	128

As of December 31, 2020, no deferred taxes are required on the undistributed earnings of subsidiaries subject to tax.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding tax carryforwards and interest and penalties, is as follows:

Year Ended December 31	2020			2019			2018
(In millions)
Balance at January 1	$	121		$	58		$	84
Additions for tax positions related to the current year		68			86			3
Additions for tax positions related to a prior year					2			20
Reductions for tax positions related to a prior year					(23	)		(48	)
Lapse of statute of limitations					(2	)		(1	)
Reduction due to deconsolidation of Diamond Offshore		(187	)
Balance at December 31	$	2		$	121		$	58

As of December 31, 2020, $2 million of unrecognized tax benefits would affect the effective tax rate if recognized. The amount of related accrued interest and penalties was insignificant.

The Company recognizes interest accrued related to unrecognized tax benefits and tax refund claims in Income tax expense (benefit) on the Consolidated Statements of Operations. The Company recognizes penalties in Income tax expense (benefit) on the Consolidated Statements of Operations. Interest expense (benefit) amounts recorded by the Company were insignificant for the years ended December 31, 2020, 2019 and 2018. Penalty amounts recorded by the Company were insignificant for the years ended December 31, 2020, 2019 and 2018.

The following table summarizes deferred tax assets and liabilities:

December 31	2020			2019
(In millions)
Deferred tax assets:
Insurance reserves:
Property and casualty claim and claim adjustment expense reserves	$	157		$	129
Unearned premium reserves		174			153
Receivables		11			11
Employee benefits		197			212
Deferred retroactive reinsurance benefit		83			82
Net operating loss carryforwards		13			275
Tax credit carryforwards		11			47
Basis differential in investment in subsidiary		8			8
Disallowed interest deduction					41
Other		189			179
Total deferred tax assets		843			1,137
Valuation allowance		(13	)		(187	)
Net deferred tax assets		830			950
Deferred tax liabilities:
Deferred acquisition costs		(93	)		(83	)
Net unrealized gains		(441	)		(263	)
Property, plant and equipment		(721	)		(848	)
Basis differential in investment in subsidiary		(432	)		(679	)
Other liabilities		(165	)		(208	)
Total deferred tax liabilities		(1,852	)		(2,081	)
Net deferred tax liabilities (a)	$	(1,022	)	$	(1,131	)

(a) Includes $43 and $37 of deferred tax assets reflected in Other assets in the Consolidated Balance Sheets at December 31, 2020 and 2019.

Net operating loss carryforwards in foreign tax jurisdictions of $2 million expire between 2037 and 2039, and $11 million has no expiration. Foreign tax credit carryforwards of $8 million will expire between 2029 and 2030, and $3 million has no expiration.

Although realization of deferred tax assets is not assured, management believes it is more likely than not that the recognized deferred tax assets will be realized through recoupment of ordinary and capital taxes paid in prior carryback years and through future earnings, reversal of existing temporary differences and available tax planning strategies. Due to the mix of state tax jurisdictions in which our subsidiaries operate, as of December 31, 2020, a valuation allowance of $13 million was recorded related primarily to state net operating losses.