filings.toolsItem 8. Financial Statements and Supplementary Data.
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Item 8. Financial Statements and Supplementary Data.
Financial Statements and Supplementary Data are comprised of the following sections:
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for us. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.
There are inherent limitations to the effectiveness of any control system, however well designed, including the possibility of human error and the possible circumvention or overriding of controls. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Management must make judgments with respect to the relative cost and expected benefits of any specific control measure. The design of a control system also is based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that a control will be effective under all potential future conditions. As a result, even an effective system of internal control over financial reporting can provide no more than reasonable assurance with respect to the fair presentation of financial statements and the processes under which they were prepared.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on this assessment, our management believes that, as of December 31, 2018, our internal control over financial reporting was effective.
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the Company’s internal control over financial reporting. The report of Deloitte & Touche LLP follows this Report.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Loews Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Loews Corporation and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 13, 2019, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in its method of accounting for recognition and measurement of equity securities in 2018.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, NY
February 13, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Loews Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Loews Corporation and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedules listed in the Index at Item 15 (a) 2 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2019, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for recognition and measurement of equity securities in 2018.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New York, NY
February 13, 2019
We have served as the Company’s auditor since 1969.
Loews Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| Assets: | ||||||||
| December 31 | 2018 | 2017 | ||||||
| (Dollar amounts in millions, except per share data) | ||||||||
| Investments: | ||||||||
| Fixed maturities, amortized cost of $38,234 and $38,861 | $ | 39,699 | $ | 42,133 | ||||
| Equity securities, cost of $1,479 and $1,177 | 1,293 | 1,224 | ||||||
| Limited partnership investments | 2,424 | 3,278 | ||||||
| Other invested assets, primarily mortgage loans | 901 | 945 | ||||||
| Short term investments | 3,869 | 4,646 | ||||||
| Total investments | 48,186 | 52,226 | ||||||
| Cash | 405 | 472 | ||||||
| Receivables | 7,960 | 7,613 | ||||||
| Property, plant and equipment | 15,511 | 15,427 | ||||||
| Goodwill | 665 | 659 | ||||||
| Deferred non-insurance warranty acquisition expenses (Note 1) | 2,513 | 212 | ||||||
| Deferred acquisition costs of insurance subsidiaries | 633 | 634 | ||||||
| Other assets | 2,443 | 2,343 | ||||||
| Total assets | $ | 78,316 | $ | 79,586 |
See Notes to Consolidated Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| Liabilities and Equity: | ||||||||
| December 31 | 2018 | 2017 | ||||||
| (Dollar amounts in millions, except per share data) | ||||||||
| Insurance reserves: | ||||||||
| Claim and claim adjustment expense | $ | 21,984 | $ | 22,004 | ||||
| Future policy benefits | 10,597 | 11,179 | ||||||
| Unearned premiums | 4,183 | 4,029 | ||||||
| Total insurance reserves | 36,764 | 37,212 | ||||||
| Payable to brokers | 42 | 60 | ||||||
| Short term debt | 17 | 280 | ||||||
| Long term debt | 11,359 | 11,253 | ||||||
| Deferred income taxes | 841 | 749 | ||||||
| Deferred non-insurance warranty revenue (Note 1) | 3,402 | 972 | ||||||
| Other liabilities | 4,505 | 4,494 | ||||||
| Total liabilities | 56,930 | 55,020 | ||||||
| Commitments and contingent liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $0.10 par value: | ||||||||
| Authorized – 100,000,000 shares | ||||||||
| Common stock, $0.01 par value: | ||||||||
| Authorized – 1,800,000,000 shares | ||||||||
| Issued – 312,169,189 and 332,487,815 shares | 3 | 3 | ||||||
| Additional paid-in capital | 3,627 | 3,151 | ||||||
| Retained earnings | 15,773 | 16,096 | ||||||
| Accumulated other comprehensive loss | (880 | ) | (26 | ) | ||||
| 18,523 | 19,224 | |||||||
| Less treasury stock, at cost (100,000 and 400,000 shares) | (5 | ) | (20 | ) | ||||
| Total shareholders’ equity | 18,518 | 19,204 | ||||||
| Noncontrolling interests | 2,868 | 5,362 | ||||||
| Total equity | 21,386 | 24,566 | ||||||
| Total liabilities and equity | $ | 78,316 | $ | 79,586 |
See Notes to Consolidated Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions, except per share data) | ||||||||||||
| Revenues: | ||||||||||||
| Insurance premiums | $ | 7,312 | $ | 6,988 | $ | 6,924 | ||||||
| Net investment income | 1,817 | 2,182 | 2,135 | |||||||||
| Investment gains (losses): | ||||||||||||
| Other-than-temporary impairment losses | (21 | ) | (14 | ) | (81 | ) | ||||||
| Other net investment gains (losses) | (36 | ) | 136 | 131 | ||||||||
| Total investment gains (losses) | (57 | ) | 122 | 50 | ||||||||
| Non-insurance warranty revenue (Notes 1 and 13) | 1,007 | 390 | 361 | |||||||||
| Operating revenues and other | 3,987 | 4,053 | 3,635 | |||||||||
| Total | 14,066 | 13,735 | 13,105 | |||||||||
| Expenses: | ||||||||||||
| Insurance claims and policyholders’ benefits | 5,572 | 5,310 | 5,283 | |||||||||
| Amortization of deferred acquisition costs | 1,335 | 1,233 | 1,235 | |||||||||
| Non-insurance warranty expense (Notes 1 and 13) | 923 | 299 | 271 | |||||||||
| Operating expenses and other (Note 6) | 4,828 | 4,665 | 4,844 | |||||||||
| Interest | 574 | 646 | 536 | |||||||||
| Total | 13,232 | 12,153 | 12,169 | |||||||||
| Income before income tax | 834 | 1,582 | 936 | |||||||||
| Income tax expense | (128 | ) | (170 | ) | (220 | ) | ||||||
| Net income | 706 | 1,412 | 716 | |||||||||
| Amounts attributable to noncontrolling interests | (70 | ) | (248 | ) | (62 | ) | ||||||
| Net income attributable to Loews Corporation | $ | 636 | $ | 1,164 | $ | 654 | ||||||
| Basic net income per common share | $ | 1.99 | $ | 3.46 | $ | 1.93 | ||||||
| Diluted net income per common share | $ | 1.99 | $ | 3.45 | $ | 1.93 | ||||||
| Basic weighted average number of shares outstanding | 319.06 | 336.61 | 337.95 | |||||||||
| Diluted weighted average number of shares outstanding | 319.93 | 337.50 | 338.31 |
See Notes to Consolidated Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Net income | $ | 706 | $ | 1,412 | $ | 716 | ||||||
| Other comprehensive income (loss), after tax | ||||||||||||
| Changes in: | ||||||||||||
| Net unrealized gains (losses) on investments with other-than-temporary impairments | (14 | ) | (5 | ) | 3 | |||||||
| Net other unrealized gains (losses) on investments | (798 | ) | 108 | 257 | ||||||||
| Total unrealized gains (losses) on investments | (812 | ) | 103 | 260 | ||||||||
| Unrealized gains on cash flow hedges | 6 | 3 | 2 | |||||||||
| Pension liability | (2 | ) | 12 | 5 | ||||||||
| Foreign currency translation | (84 | ) | 100 | (114 | ) | |||||||
| Other comprehensive income (loss) | (892 | ) | 218 | 153 | ||||||||
| Comprehensive income (loss) | (186 | ) | 1,630 | 869 | ||||||||
| Amounts attributable to noncontrolling interests | 25 | (269 | ) | (81 | ) | |||||||
| Total comprehensive income (loss) attributable to Loews Corporation | $ | (161 | ) | $ | 1,361 | $ | 788 | |||||
See Notes to Consolidated Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
| Loews Corporation Shareholders | ||||||||||||||||||||||||||||
| Accumulated | Common | |||||||||||||||||||||||||||
| Additional | Other | Stock | ||||||||||||||||||||||||||
| Common | Paid-in | Retained | Comprehensive | Held in | Noncontrolling | |||||||||||||||||||||||
| Total | Stock | Capital | Earnings | Income (Loss) | Treasury | Interests | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
| Balance, January 1, 2016 | $ | 22,810 | $ | 3 | $ | 3,184 | $ | 14,731 | $ | (357 | ) | $ | - | $ | 5,249 | |||||||||||||
| Net income | 716 | 654 | 62 | |||||||||||||||||||||||||
| Other comprehensive income | 153 | 134 | 19 | |||||||||||||||||||||||||
| Dividends paid ($0.25 per share) | (218 | ) | (84 | ) | (134 | ) | ||||||||||||||||||||||
| Purchases of subsidiary stock from noncontrolling interests | (9 | ) | 3 | (12 | ) | |||||||||||||||||||||||
| Purchases of Loews treasury stock | (134 | ) | (134 | ) | ||||||||||||||||||||||||
| Retirement of treasury stock | - | (32 | ) | (102 | ) | 134 | ||||||||||||||||||||||
| Stock-based compensation | 47 | 45 | 2 | |||||||||||||||||||||||||
| Other | (4 | ) | (13 | ) | (3 | ) | 12 | |||||||||||||||||||||
| Balance, December 31, 2016 | $ | 23,361 | $ | 3 | $ | 3,187 | $ | 15,196 | $ | (223 | ) | $ | - | $ | 5,198 | |||||||||||||
| Net income | 1,412 | 1,164 | 248 | |||||||||||||||||||||||||
| Other comprehensive income | 218 | 197 | 21 | |||||||||||||||||||||||||
| Dividends paid ($0.25 per share) | (223 | ) | (84 | ) | (139 | ) | ||||||||||||||||||||||
| Purchases of Loews treasury stock | (237 | ) | (237 | ) | ||||||||||||||||||||||||
| Retirement of treasury stock | 1 | (41 | ) | (175 | ) | 217 | ||||||||||||||||||||||
| Stock-based compensation | 35 | 2 | 33 | |||||||||||||||||||||||||
| Other | (1 | ) | 3 | (5 | ) | 1 | ||||||||||||||||||||||
| Balance, December 31, 2017 | $ | 24,566 | $ | 3 | $ | 3,151 | $ | 16,096 | $ | (26 | ) | $ | (20 | ) | $ | 5,362 | ||||||||||||
See Notes to Consolidated Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
| Loews Corporation Shareholders | ||||||||||||||||||||||||||||
| Accumulated | Common | |||||||||||||||||||||||||||
| Additional | Other | Stock | ||||||||||||||||||||||||||
| Common | Paid-in | Retained | Comprehensive | Held in | Noncontrolling | |||||||||||||||||||||||
| Total | Stock | Capital | Earnings | Income (Loss) | Treasury | Interests | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
| Balance, December 31, 2017 | $ | 24,566 | $ | 3 | $ | 3,151 | $ | 16,096 | $ | (26 | ) | $ | (20 | ) | $ | 5,362 | ||||||||||||
| Cumulative effect adjustments from changes in accounting standards (Note 1) | (91 | ) | (43 | ) | (28 | ) | (20 | ) | ||||||||||||||||||||
| Balance, January 1, 2018, as adjusted | 24,475 | 3 | 3,151 | 16,053 | (54 | ) | (20 | ) | 5,342 | |||||||||||||||||||
| Net income | 706 | 636 | 70 | |||||||||||||||||||||||||
| Other comprehensive loss | (892 | ) | (797 | ) | (95 | ) | ||||||||||||||||||||||
| Dividends paid ($0.25 per share) | (201 | ) | (80 | ) | (121 | ) | ||||||||||||||||||||||
| Purchase of Boardwalk Pipeline common units | (1,718 | ) | 658 | (29 | ) | (2,347 | ) | |||||||||||||||||||||
| Purchases of Loews treasury stock | (1,011 | ) | (1,011 | ) | ||||||||||||||||||||||||
| Retirement of treasury stock | - | (195 | ) | (831 | ) | 1,026 | ||||||||||||||||||||||
| Stock-based compensation | 31 | 19 | 12 | |||||||||||||||||||||||||
| Other | (4 | ) | (6 | ) | (5 | ) | 7 | |||||||||||||||||||||
| Balance, December 31, 2018 | $ | 21,386 | $ | 3 | $ | 3,627 | $ | 15,773 | $ | (880 | ) | $ | (5 | ) | $ | 2,868 | ||||||||||||
See Notes to Consolidated Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Operating Activities: | ||||||||||||
| Net income | $ | 706 | $ | 1,412 | $ | 716 | ||||||
| Adjustments to reconcile net income to net cash provided (used) by operating activities: | ||||||||||||
| Investment (gains) losses | 57 | (122 | ) | (50 | ) | |||||||
| Equity method investees | 572 | 25 | 221 | |||||||||
| Amortization of investments | (70 | ) | (40 | ) | (27 | ) | ||||||
| Depreciation and amortization | 912 | 874 | 841 | |||||||||
| Asset impairments | 44 | 106 | 697 | |||||||||
| Provision for deferred income taxes | 86 | (47 | ) | 102 | ||||||||
| Other non-cash items | 72 | 164 | 73 | |||||||||
| Changes in operating assets and liabilities, net: | ||||||||||||
| Receivables | (131 | ) | 93 | 24 | ||||||||
| Deferred acquisition costs | (6 | ) | (24 | ) | (8 | ) | ||||||
| Insurance reserves | 482 | 22 | 237 | |||||||||
| Other assets | (102 | ) | (95 | ) | (71 | ) | ||||||
| Other liabilities | (102 | ) | 114 | 26 | ||||||||
| Trading securities | 1,702 | 108 | (528 | ) | ||||||||
| Net cash flow operating activities | 4,222 | 2,590 | 2,253 | |||||||||
| Investing Activities: | ||||||||||||
| Purchases of fixed maturities | (10,785 | ) | (9,065 | ) | (9,827 | ) | ||||||
| Proceeds from sales of fixed maturities | 8,408 | 5,438 | 5,332 | |||||||||
| Proceeds from maturities of fixed maturities | 2,370 | 3,641 | 3,219 | |||||||||
| Purchases of limited partnership investments | (420 | ) | (171 | ) | (355 | ) | ||||||
| Proceeds from sales of limited partnership investments | 470 | 212 | 327 | |||||||||
| Purchases of property, plant and equipment | (995 | ) | (1,031 | ) | (1,450 | ) | ||||||
| Acquisitions | (37 | ) | (1,218 | ) | (79 | ) | ||||||
| Dispositions | 113 | 79 | 330 | |||||||||
| Change in short term investments | (339 | ) | (167 | ) | 158 | |||||||
| Other, net | (229 | ) | (373 | ) | 158 | |||||||
| Net cash flow investing activities | (1,444 | ) | (2,655 | ) | (2,187 | ) |
Loews Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Financing Activities: | ||||||||||||
| Dividends paid | $ | (80) | $ | (84) | $ | (84 | ) | |||||
| Dividends paid to noncontrolling interests | (121 | ) | (139 | ) | (134 | ) | ||||||
| Purchase of Boardwalk Pipeline common units | (1,504 | ) | ||||||||||
| Purchases of Loews treasury stock | (1,026 | ) | (216 | ) | (134 | ) | ||||||
| Principal payments on debt | (1,043 | ) | (2,411 | ) | (3,418 | ) | ||||||
| Issuance of debt | 865 | 3,067 | 3,614 | |||||||||
| Other, net | 74 | (16 | ) | (10 | ) | |||||||
| Net cash flow financing activities | (2,835 | ) | 201 | (166 | ) | |||||||
| Effect of foreign exchange rate on cash | (10 | ) | 9 | (13 | ) | |||||||
| Net change in cash | (67 | ) | 145 | (113 | ) | |||||||
| Cash, beginning of year | 472 | 327 | 440 | |||||||||
| Cash, end of year | $ | 405 | $ | 472 | $ | 327 | ||||||
See Notes to Consolidated Financial Statements.
Loews Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of presentation – Loews Corporation is a holding company. Its subsidiaries are engaged in the following lines of business: commercial property and casualty insurance (CNA Financial Corporation (“CNA”), a 89% owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (“Diamond Offshore”), a 53% owned subsidiary); transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”), a wholly owned subsidiary); the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels & Co”), a wholly owned subsidiary); and the manufacture of rigid plastic packaging solutions (Consolidated Container Company LLC (“Consolidated Container”), a 99% owned subsidiary). Unless the context otherwise requires, the terms “Company,” “Loews” and “Registrant” as used herein mean Loews Corporation excluding its subsidiaries and the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders.
Principles of consolidation – The Consolidated Financial Statements include all subsidiaries and intercompany accounts and transactions have been eliminated. The equity method of accounting is used for investments in associated companies in which the Company generally has an interest of 20% to 50%.
Accounting estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. Actual results could differ from those estimates.
Investments – The Company classifies its fixed maturity securities as either available-for-sale or trading, and as such, they are carried at fair value. Short term investments are carried at fair value. Changes in fair value of trading securities are reported within Net investment income on the Consolidated Statements of Income. Changes in fair value related to available-for-sale securities are reported as a component of Other comprehensive income. Losses may be recognized within the Consolidated Statements of Income when a decline in value is determined by the Company to be other-than-temporary.
The cost of fixed maturity securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts, which are included in Net investment income on the Consolidated Statements of Income. The amortization of premium and accretion of discount for fixed maturity securities takes into consideration call and maturity dates that produce the lowest yield.
For asset-backed securities included in fixed maturity securities, the Company recognizes income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments.
To the extent that unrealized gains on fixed maturity securities supporting long term care products and structured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (“Shadow Adjustments”). Shadow Adjustments decreased $298 million (after tax and noncontrolling interests) and increased $355 million (after tax and noncontrolling interests) for the years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, net unrealized gains on investments included in Accumulated other comprehensive income (“AOCI”) were correspondingly reduced by Shadow Adjustments of $964 million and $1.3 billion (after tax and noncontrolling interests).
Equity securities are carried at fair value. CNA’s non-redeemable preferred stock investments contain characteristics of debt securities, are priced similarly to bonds and are held primarily for income generation through periodic dividends. While recognition of gains and losses on these securities is not discretionary, CNA does not consider the changes in fair value of non-redeemable preferred stock to be reflective of its primary operations. As such, the changes in the fair value of these securities are recorded through Net realized investments gains (losses).
The Company owns certain common stock with the intention of holding the securities primarily for market appreciation and as such, the changes in the fair value of these securities are recorded through Net investment income (loss). Prior to 2018, a portfolio of equity securities were considered available-for-sale with changes in fair value reported as a component of Other comprehensive income (loss).
The Company’s carrying value of investments in limited partnerships is its share of the net asset value of each partnership, as determined by the general partner. Certain partnerships for which results are not available on a timely basis are reported on a lag, primarily three months or less. These investments are accounted for under the equity method and changes in net asset values are recorded within Net investment income on the Consolidated Statements of Income.
Investments in derivative securities are carried at fair value with changes in fair value reported as a component of Investment gains (losses), Income (loss) from trading portfolio, or Other comprehensive income (loss), depending on their hedge designation. A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument, index or rate, has a notional amount, requires little or no initial investment and can be net settled. Derivatives include, but are not limited to, the following types of investments: interest rate swaps, interest rate caps and floors, put and call options, warrants, futures, forwards, commitments to purchase securities, credit default swaps and combinations of the foregoing. Derivatives embedded within non-derivative instruments (such as call options embedded in convertible bonds) must be split from the host instrument when the embedded derivative is not clearly and closely related to the host instrument.
An available-for-sale security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded other-than-temporary impairment (“OTTI”) losses, otherwise defined as an unrealized loss. When a security is impaired, the impairment is evaluated to determine whether it is temporary or other-than-temporary.
Significant judgment is required in the determination of whether an OTTI loss has occurred for a security. CNA follows a consistent and systematic process for determining and recording an OTTI loss including the evaluation of securities in an unrealized loss position on at least a quarterly basis.
CNA’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that CNA intends to sell, or it more likely than not will be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. The factors considered include: (i) the financial condition and near term and long term prospects of the issuer, (ii) whether the debtor is current on interest and principal payments, (iii) credit ratings of the securities and (iv) general market conditions and industry or sector specific outlook. CNA also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities.
The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is significantly less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as OTTI in Other comprehensive income. In subsequent reporting periods, a change in intent to sell or further credit impairment on a security whose fair value has not deteriorated will cause the non-credit component originally recorded as OTTI in Other comprehensive income to be recognized as an OTTI loss in earnings.
CNA performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability. Significant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers and credit support from lower level tranches.
Prior to 2018, CNA applied the same impairment model as described above for the majority of its non-redeemable preferred stock securities on the basis that these securities possess characteristics similar to debt securities. For all other equity securities, in determining whether the security was other-than-temporarily impaired, CNA considered a number of factors including, but not limited to: (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near term prospects of the issuer, (iii) the intent and ability of CNA to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (iv) general market conditions and industry or sector specific outlook.
Joint venture investments – The Company had approximately 20% to 50% interests in operating joint ventures related to hotel properties that are accounted for under the equity method. The Company’s investment in these entities was $312 million and $237 million for the years ended December 31, 2018 and 2017 and reported in Other assets on the Company’s Consolidated Balance Sheets. Equity income for these investments was $73 million, $81 million and $41 million for the years ended December 31, 2018, 2017 and 2016 and reported in Operating expenses and other on the Company’s Consolidated Statements of Income.
The following tables present summarized financial information for these joint ventures:
| Year Ended December 31 | 2018 | 2017 | ||||||||||
| (In millions) | ||||||||||||
| Total assets | $ | 1,924 | $ | 1,703 | ||||||||
| Total liabilities | 1,451 | 1,347 | ||||||||||
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| Revenues | $ | 731 | $ | 731 | $ | 693 | ||||||
| Net income | 114 | 261 | 80 |
Hedging – The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedging transactions. The Company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative for which hedge accounting has been designated is not (or ceases to be) highly effective, the Company discontinues hedge accounting prospectively. See Note 3 for additional information on the Company’s use of derivatives.
Securities lending activities – The Company lends securities for the purpose of enhancing income or to finance positions to unrelated parties who have been designated as primary dealers by the Federal Reserve Bank of New York. Borrowers of these securities must deposit and maintain collateral with the Company of no less than 100% of the fair value of the securities loaned. United States of America (“U.S.”) Government securities and cash are accepted as collateral. The Company maintains effective control over loaned securities and, therefore, continues to report such securities as investments on the Consolidated Balance Sheets.
Securities lending is typically done on a matched-book basis where the collateral is invested to substantially match the term of the loan. This matching of terms tends to limit risk. In accordance with the Company’s lending agreements, securities on loan are returned immediately to the Company upon notice. Collateral is not reflected as an asset of the Company. There was no collateral held at December 31, 2018 and 2017.
Revenue recognition – Premiums on property and casualty insurance contracts are recognized in proportion to the underlying risk insured and are principally earned ratably over the term of the policies. Premiums on long term care contracts are earned ratably over the policy year in which they are due. The reserve for unearned premiums represents the portion of premiums written relating to the unexpired terms of coverage.
Insurance receivables include balances due currently or in the future, including amounts due from insureds related to losses under high deductible policies, and are presented at unpaid balances, net of an allowance for doubtful accounts. Amounts are considered past due based on policy payment terms. The allowance is determined based on periodic evaluations of aged receivables, historical business default data, management’s experience and current economic conditions. Insurance receivables and any related allowance are written off after collection efforts are exhausted or a negotiated settlement is reached.
Property and casualty contracts that are retrospectively rated contain provisions that result in an adjustment to the initial policy premium depending on the contract provisions and loss experience of the insured during the experience period. For such contracts, CNA estimates the amount of ultimate premiums that it may earn upon completion of the experience period and recognizes either an asset or a liability for the difference between the initial policy premium and the estimated ultimate premium. CNA adjusts such estimated ultimate premium amounts during the course of the experience period based on actual results to date. The resulting adjustment is recorded as either a reduction of or an increase to the earned premiums for the period.
CNA’s non-insurance warranty revenues are primarily generated from separately-priced service contracts that provide mechanical breakdown and other coverages to vehicle or consumer goods owners, which generally provide coverage from one month to ten years. For warranty products where CNA acts as the principal in the transaction, non-insurance warranty revenues are reported on a gross basis, with amounts paid by customers reported as Non-insurance warranty revenue and commissions paid to agents reported as Non-insurance warranty expense on the Consolidated Statements of Income. Additionally, CNA provides warranty administration services for dealer and manufacturer warranty products. Non-insurance revenues are recognized when obligations under the terms of the contract with CNA’s customers are satisfied, which is generally over time as obligations are fulfilled. CNA recognizes non-insurance warranty revenues over the service period in proportion to the actuarially determined expected claims emergence pattern. Customers pay in full at the inception of the warranty contract. The liability for unearned warranty revenue, reported as Deferred non-insurance warranty revenue on the Consolidated Balance Sheets, represents the unearned portion of revenue in advance of CNA’s performance, including amounts which are refundable upon cancellation.
Diamond Offshore’s contract drilling revenues primarily result from providing a drilling rig and the crew and supplies necessary to operate the rig, mobilizing and demobilizing the rig to and from the drill site and performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue for the purchase of supplies, equipment, personnel services and other services requested by the customer. Diamond Offshore accounts for these integrated services provided within its drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which drilling services are provided. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. The standard contract term ranges from two to 60 months.
Boardwalk Pipeline primarily earns revenues by providing transportation and storage services for natural gas and natural gas liquids and hydrocarbons (referred to together as “NGLs”) on a firm and interruptible basis and provides interruptible natural gas parking and lending services. The majority of Boardwalk Pipeline’s operating subsidiaries are subject to Federal Energy Regulatory Commission (“FERC”) regulations and certain revenues collected, under certain circumstances, may be subject to possible refunds to its customers. An estimated refund liability is recorded considering regulatory proceedings, advice of counsel and estimated total exposure. The majority of Boardwalk Pipeline’s revenues are from firm service contracts which are accounted for as a single promise to stand ready each month of the contract term to provide the committed capacity for either transportation or storage services. The transaction price is comprised of a fixed fee based on the capacity reserved plus a usage fee paid on the volume of commodity transported or injected and withdrawn from storage. Both the fixed and the usage fees are allocated to the single performance obligation of providing transportation or storage service and recognized over time as control is passed to the customer. These service contracts can range in term from one to 20 years and are invoiced monthly.
Loews Hotels & Co provides lodging and related goods and services as well as management and marketing services. Loews Hotels & Co allocates the lodging transaction price to the distinct goods and services based on the market price. Lodging and related revenues are recognized as the guest takes possession of the goods or receives the services.
Management and marketing services revenues are recognized as the services are provided and billed on a monthly basis. In addition, Loews Hotels & Co recognizes revenue for the reimbursement of payroll expenses incurred on behalf of the owners of joint venture and managed hotel properties.
Consolidated Container manufactures rigid plastic packaging to provide packaging solutions to end markets such as beverage, food and household chemicals through a network of manufacturing locations across North America. In addition, Consolidated Container manufactures commodity and differentiated plastic resins from recycled plastic materials for a variety of end markets. Consolidated Container recognizes revenue as control is transferred to the customer.
Contract costs – Costs to obtain or fulfill contracts with customers are deferred and reported as Deferred non-insurance warranty acquisition expenses on the Consolidated Balance Sheets. These costs are expected to be recoverable over the term of the contract and are amortized in the same manner the related revenue is recognized. For CNA’s deferred non-insurance warranty acquisition expenses, losses under warranty contracts would be recognized when it is probable that estimated future costs exceed unrecognized revenue. CNA evaluates deferred costs for recoverability including consideration of anticipated investment income. Adjustments to deferred costs, if necessary, are recorded in the current period results of operations.
Claim and claim adjustment expense reserves – Claim and claim adjustment expense reserves, except reserves for structured settlements not associated with asbestos and environmental pollution (“A&EP”), workers’ compensation lifetime claims and long term care claims, are not discounted and are based on (i) case basis estimates for losses reported on direct business, adjusted in the aggregate for ultimate loss expectations; (ii) estimates of incurred but not reported losses; (iii) estimates of losses on assumed reinsurance; (iv) estimates of future expenses to be incurred in the settlement of claims; (v) estimates of salvage and subrogation recoveries and (vi) estimates of amounts due from insureds related to losses under high deductible policies. Management considers current conditions and trends as well as past CNA and industry experience in establishing these estimates. The effects of inflation, which can be significant, are implicitly considered in the reserving process and are part of the recorded reserve balance. Ceded claim and claim adjustment expense reserves are reported as a component of Receivables on the Consolidated Balance Sheets.
Claim and claim adjustment expense reserves are presented net of anticipated amounts due from insureds related to losses under deductible policies of $1.2 billion as of December 31, 2018 and 2017. A significant portion of these amounts are supported by collateral. CNA also has an allowance for uncollectible deductible amounts, which is presented as a component of the allowance for doubtful accounts included in Receivables on the Consolidated Balance Sheets.
Structured settlements have been negotiated for certain property and casualty insurance claims. Structured settlements are agreements to provide fixed periodic payments to claimants. CNA’s obligations for structured settlements not funded by annuities are included in claim and claim adjustment expense reserves and carried at present values determined using interest rates ranging from 5.5% to 8.0% as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, the discounted reserves for unfunded structured settlements were $512 million and $527 million, net of discount of $760 million and $798 million. For the years ended December 31, 2018, 2017 and 2016, the amount of interest recognized on the discounted reserves of unfunded structured settlements was $40 million, $41 million and $42 million. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income but is excluded from the disclosure of prior year loss reserve development.
Workers’ compensation lifetime claim reserves are calculated using mortality assumptions determined through statutory regulation and economic factors. At December 31, 2018 and 2017, workers’ compensation lifetime claim reserves are discounted at a 3.5% interest rate. As of December 31, 2018 and 2017, the discounted reserves for workers’ compensation lifetime claim reserves were $343 million and $346 million, net of discount of $168 million and $190 million. For the years ended December 31, 2018, 2017 and 2016, the amount of interest accretion recognized on the discounted reserves of workers’ compensation lifetime claim reserves was $16 million, $19 million and $17 million. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income, but is excluded from the Company’s disclosure of prior year loss reserve development.
Long term care claim reserves are calculated using mortality and morbidity assumptions based on CNA and industry experience. Long term care claim reserves are discounted at an interest rate of 6.0% as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, such discounted reserves totaled $2.6 billion and $2.4 billion, net of discount of $460 million and $446 million.
Future policy benefit reserves – Future policy benefit reserves represent the active life reserves related to CNA’s long term care policies and are computed using the net level premium method, which incorporates actuarial assumptions as to morbidity, persistency, inclusive of mortality, discount rate, future premium rate adjustments and expenses. Expense assumptions primarily relate to claim adjudication. CNA’s future policy benefit reserves are based on best estimate actuarial assumptions as of the most recent date of loss recognition, which occurred in 2015. If a premium deficiency were to emerge in the future, the assumptions would be unlocked, and the future policy benefit reserves would be adjusted. The gross premium valuation (“GPV”) process was performed in the third quarter of 2018 as compared to the fourth quarter in 2017. The GPV as of September 30, 2018 and December 31, 2017 indicated the carried reserves were sufficient, therefore there was no unlocking of assumptions. Interest rates for long term care active life reserves range from 6.6% to 7.0% as of September 30, 2018 and December 31, 2017.
CNA’s most recent GPV indicated the future policy benefit reserves for the long term care business were not deficient in the aggregate, but profits are expected to be recognized in early years followed by losses in later years. In that circumstance, future policy benefit reserves are increased in the profitable years by an amount necessary to offset losses that are projected to be recognized in later years. The amount of the additional future policy benefit reserves recorded in each quarterly period is determined by applying the ratio of the present value of future losses divided by the present value of future profits from the most recently completed GPV to long term care core income in that period.
Guaranty fund and other insurance-related assessments – Liabilities for guaranty fund and other insurance-related assessments are accrued when an assessment is probable, when it can be reasonably estimated and when the event obligating the entity to pay an imposed or probable assessment has occurred. Liabilities for guaranty funds and other insurance-related assessments are not discounted and are included as part of Other liabilities on the Consolidated Balance Sheets. As of December 31, 2018 and 2017, the liability balances were $108 million and $121 million.
Reinsurance – Reinsurance accounting allows for contractual cash flows to be reflected as premiums and losses. To qualify for reinsurance accounting, reinsurance agreements must include risk transfer. To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity.
Reinsurance receivables related to paid losses are presented at unpaid balances. Reinsurance receivables related to unpaid losses are estimated in a manner consistent with claim and claim adjustment expense reserves or future policy benefit reserves. Reinsurance receivables are reported net of an allowance for doubtful accounts on the Consolidated Balance Sheets. The cost of reinsurance is primarily accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies or over the reinsurance contract period. The ceding of insurance does not discharge the primary liability of CNA.
CNA has established an allowance for doubtful accounts on reinsurance receivables which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. The allowance for doubtful accounts on reinsurance receivables is estimated on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, industry experience and current economic conditions. Reinsurer financial strength ratings are updated and reviewed on an annual basis or sooner if CNA becomes aware of significant changes related to a reinsurer. Because billed receivables generally approximate 5% or less of total reinsurance receivables, the age of the reinsurance receivables related to paid losses is not a significant input into the allowance analysis. Changes in the allowance for doubtful accounts on reinsurance receivables are presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income.
Amounts are considered past due based on the reinsurance contract terms. Reinsurance receivables related to paid losses and any related allowance are written off after collection efforts have been exhausted or a negotiated settlement is reached with the reinsurer. Reinsurance receivables from insolvent insurers related to paid losses are written off when the settlement due from the estate can be reasonably estimated. At the time reinsurance receivables related to
paid losses are written off, any required adjustment to reinsurance receivables related to unpaid losses is recorded as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income.
Reinsurance contracts that do not effectively transfer the economic risk of loss on the underlying policies are recorded using the deposit method of accounting, which requires that premium paid or received by the ceding company or assuming company be accounted for as a deposit asset or liability. CNA had $3 million and $8 million recorded as deposit assets as of December 31, 2018 and 2017, and $3 million and $4 million recorded as deposit liabilities as of December 31, 2018 and 2017. Income on reinsurance contracts accounted for under the deposit method is recognized using an effective yield based on the anticipated timing of payments and the remaining life of the contract. When the anticipated timing of payments changes, the effective yield is recalculated to reflect actual payments to date and the estimated timing of future payments. The deposit asset or liability is adjusted to the amount that would have existed had the new effective yield been applied since the inception of the contract.
A loss portfolio transfer is a retroactive reinsurance contract. If the cumulative claim and allocated claim adjustment expenses ceded under a loss portfolio transfer exceed the consideration paid, the resulting gain from such excess is deferred and amortized into earnings in future periods in proportion to actual recoveries under the loss portfolio transfer. In any period in which there is a revised estimate of claim and allocated claim adjustment expenses and the loss portfolio transfer is in a gain position, the deferred gain is recalculated as if the revised estimate was available at the inception date of the loss portfolio transfer and the change in the deferred gain is recognized in earnings.
Deferred acquisition costs – Deferrable acquisition costs include commissions, premium taxes and certain underwriting and policy issuance costs which are incremental direct costs of successful contract acquisitions. Acquisition costs related to property and casualty business are deferred and amortized ratably over the period the related premiums are earned. Deferred acquisition costs are presented net of ceding commissions and other ceded acquisition costs.
CNA evaluates deferred acquisition costs for recoverability. Anticipated investment income is considered in the determination of the recoverability of deferred acquisition costs. Adjustments, if necessary, are recorded in current period results of operations.
Goodwill and other intangible assets – Goodwill represents the excess of purchase price over fair value of net assets of acquired entities. Goodwill is tested for impairment annually or when certain triggering events require additional tests. Subsequent reversal of a goodwill impairment charge is not permitted.
Other intangible assets are reported within Other assets. Finite-lived intangible assets are amortized over their estimated useful lives. Indefinite-lived other intangible assets are tested for impairment annually or when certain triggering events require such tests. See Note 7 for additional information on the Company’s goodwill and other intangible assets.
Property, plant and equipment – Property, plant and equipment is carried at cost less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the various classes of properties. Leaseholds and leasehold improvements are depreciated or amortized over the terms of the related leases (including optional renewal periods, where appropriate) or the estimated lives of improvements, if less than the lease term.
The principal service lives used in computing provisions for depreciation are as follows:
| Years | ||||
| Pipeline equipment | 30 to 50 | |||
| Offshore drilling equipment | 15 to 30 | |||
| Other | 3 to 40 |
Impairment of long-lived assets –Long-lived and finite-lived intangible assets are reviewed for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets and intangibles with finite lives, under certain circumstances, are reported at the lower of carrying amount or fair value.
Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value less cost to sell.
Income taxes – The Company and its eligible subsidiaries file a consolidated tax return. Deferred income taxes are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities, based on enacted tax rates and other provisions of the tax law. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in which such change is enacted. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes may not be realized.
The Company recognizes uncertain tax positions that it has taken or expects to take on a tax return. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. See Note 10 for additional information on the provision for income taxes.
Pension and postretirement benefits – The Company recognizes the overfunded or underfunded status of its defined benefit plans in Other assets or Other liabilities in the Consolidated Balance Sheets. Changes in funded status related to prior service costs and credits and actuarial gains and losses are recognized in the year in which the changes occur through Accumulated other comprehensive income (loss). The Company measures its benefit plan assets and obligations at December 31. Annual service cost, interest cost, expected return on plan assets, amortization of prior service costs and credits and amortization of actuarial gains and losses are recognized in the Consolidated Statements of Income.
Stock-based compensation – The Company records compensation expense upon issuance, modification or cancellation of all share-based payment awards granted, primarily on a straight-line basis over the requisite service period, generally three to four years. Stock Appreciation Rights (“SARs”) are valued using the Black-Scholes option pricing model. The application of this valuation model involves assumptions that are judgmental and highly sensitive. These assumptions include the term that the awards are expected to be outstanding, an estimate of the volatility of the underlying stock price, applicable risk-free interest rates and the dividend yield of the Company’s stock. Restricted Stock Units are valued using the grant-date fair value of the Company’s stock.
Net income per share – Companies with complex capital structures are required to present basic and diluted net income per share. Basic net income per share excludes dilution and is computed by dividing net income attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net income 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 each of the years ended December 31, 2018, 2017 and 2016, approximately 0.9 million, 0.9 million and 0.4 million potential shares attributable to issuances and exercises under the Loews Corporation 2016 Incentive Compensation Plan and the prior plan were included in the calculation of diluted net income per share. For those same periods, there were no shares and approximately 0.4 million and 3.7 million shares attributable to employee stock-based compensation awards excluded from the calculation of diluted net income per share because the effect would have been antidilutive.
Foreign currency – Foreign currency translation gains and losses are reflected in Shareholders’ equity as a component of Accumulated other comprehensive income (loss). The Company’s foreign subsidiaries’ balance sheet accounts are translated at the exchange rates in effect at each reporting date and income statement accounts are translated at the average exchange rates during the reporting period. There were no foreign currency transaction gains (losses) for the year ended December 31, 2018 and $26 million and $(21) million for the years ended December 31, 2017 and 2016 included in the Consolidated Statements of Income.
Regulatory accounting – The majority of Boardwalk Pipeline’s operating subsidiaries are regulated by FERC. GAAP for regulated entities requires Texas Gas Transmission, LLC (“Texas Gas”), a wholly owned subsidiary of Boardwalk Pipeline, to report certain assets and liabilities consistent with the economic effect of the manner in which independent third party regulators establish rates. Effective April 1, 2016, Gulf South Pipeline, LP (“Gulf South”), a wholly owned subsidiary of Boardwalk Pipeline, implemented a fuel tracker pursuant to a FERC rate case settlement,
for which Gulf South applies regulatory accounting. Accordingly, certain costs and benefits are capitalized as regulatory assets and liabilities in order to provide for recovery from or refund to customers in future periods. Other than as described for Texas Gas and Gulf South, regulatory accounting is not applicable to Boardwalk Pipeline’s other FERC regulated entities or operations.
Supplementary cash flow information – Cash payments made for interest on long term debt, net of capitalized interest, amounted to $558 million, $533 million and $511 million for the years ended December 31, 2018, 2017 and 2016. Cash payments for federal, foreign, state and local income taxes amounted to $101 million, $166 million and $114 million for the years ended December 31, 2018, 2017 and 2016. Investing activities exclude $15 million and $18 million of accrued capital expenditures for the years ended December 31, 2018 and 2016 and include $87 million of previously accrued capital expenditures for the year ended December 31, 2017.
Accounting changes – In May of 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The core principle of the new accounting guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new accounting guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires enhanced disclosures about revenue. The standard excludes from its scope the accounting for insurance contracts, financial instruments and certain other agreements that are subject to other guidance in the FASB Accounting Standards Codification, which limits the impact of this change in accounting for the Company.
On January 1, 2018, the Company adopted the updated accounting guidance using the modified retrospective method, with a cumulative effect adjustment to the opening balance sheet. Upon adoption, the new guidance was applied to all contracts subject to the standard that were not completed as of the date of adoption. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. At adoption, the cumulative effect adjustment decreased beginning Retained earnings by $62 million (after tax and noncontrolling interests), resulted in a deferred tax asset of $23 million and increased Deferred non-insurance warranty acquisition expenses by approximately $1.9 billion and Deferred non-insurance warranty revenue by approximately $2.0 billion.
The impact of the new guidance is primarily related to revenue on CNA’s non-insurance warranty products and services, which is recognized more slowly as compared to the historic revenue recognition pattern. For the warranty products where CNA acts as principal, Non-insurance warranty revenue and Non-insurance warranty expense on the Consolidated Statements of Income are increased to reflect the gross amount paid by consumers, including the retail seller’s markup, which is considered a commission to the Company’s agent. This gross-up of revenues and expenses resulted in an increase to Deferred non-insurance warranty acquisition expenses and Deferred non-insurance warranty revenue on the Consolidated Balance Sheets, as the revenue and expense are recognized over the actuarially determined expected claims emergence pattern. Prior to the adoption of ASU 2014-09, Deferred non-insurance warranty acquisition expenses and Deferred non-insurance warranty revenue would have been $234 million and $1.0 billion as of December 31, 2018, as compared to $212 million and $972 million as of December 31, 2017. The impact of adopting the new guidance resulted in an increase to Non-insurance warranty revenue and Non-insurance warranty expense of $587 and $595 million for the year ended December 31, 2018. See Note 13 for additional information on revenues from contracts with customers.
In January of 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The updated accounting guidance requires changes to the reporting model for financial instruments. The guidance primarily changes the model for equity securities by requiring changes in the fair value of equity securities (except those accounted for under the equity method of accounting, those without readily determinable fair values and those that result in consolidation of the investee) to be recognized through the income statement. With the adoption of the new guidance, equity securities are no longer classified as available-for-sale or trading. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. As of January 1, 2018, the Company adopted the updated accounting guidance and recognized a cumulative effect adjustment of $25 million (after tax and noncontrolling interests) as an increase to beginning Retained earnings. For the year ended December 31, 2018, the Company recognized pretax losses of approximately $96 million in the Consolidated Statements of Income for the decrease in the fair value of equity securities as a result of this change. For the years ended December
31, 2017 and 2016, an increase of $33 million and a decrease of $2 million in the fair value of equity securities was recognized in Other comprehensive income (“OCI”).
In October of 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The updated guidance amends the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. As of January 1, 2018, the Company adopted this updated guidance using the modified retrospective approach with a cumulative effect adjustment of $9 million (after noncontrolling interests) as a decrease to beginning Retained earnings with an offset to a deferred income tax liability.
In February of 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). Current accounting guidance requires the remeasurement of deferred tax liabilities and assets due to a change in tax laws or rates with the effect included in Net income in the reporting period that includes the enactment date. Because the remeasurement of deferred taxes due to a reduction in the federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) is required to be included in Net income, the tax effects of items within Accumulated Other Comprehensive Income (“AOCI”) do not reflect the appropriate rate (referred to as “stranded tax effects”). The updated accounting guidance allows a reclassification from AOCI to Retained earnings for the stranded tax effects resulting from the Tax Act. The Company early adopted the updated guidance effective January 1, 2018 and elected to reclassify the stranded tax effects from AOCI to Retained earnings. The impact of the change resulted in a $3 million (after noncontrolling interests) increase in Retained earnings and a corresponding decrease in AOCI. The decrease in AOCI is comprised of a $130 million (after noncontrolling interests) decrease in pension liability and a $127 million (after noncontrolling interests) increase in unrealized gains (losses) on investments. The Company releases tax effects from AOCI utilizing the security-by-security approach for investments and using enacted tax rates based on the pretax adjustments for pension and postretirement benefits.
In August of 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The updated accounting guidance requires changes to the disclosures for fair value measurement by adding, removing and modifying certain disclosures. The Company early adopted the updated guidance in September of 2018 and modified the fair value disclosures in Note 4, including added disclosures on changes in unrealized gains (losses) on Level 3 assets recognized in Other comprehensive income as well as the weighted average rate used to develop significant inputs utilized in the fair value measurements of Level 3 assets. The Company also eliminated disclosures on transfers between Level 1 and Level 2 assets and the policy for timing of transfers between levels.
In August of 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” The updated accounting guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing, adding and clarifying certain disclosures. The Company early adopted this standard in December of 2018 and modified the pension disclosures in Note 15.
Recently issued ASUs – In February of 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and in July of 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance provides lessors with an election to combine the lease and non-lease components of a contract, if certain conditions are met, and account for the combined component in accordance with the new revenue guidance in ASU 2014-09 if the non-lease component is the prominent component of the contract. The updated guidance is effective for interim and annual periods beginning after December 15, 2018 and requires using a modified retrospective transition method. However, the Company has elected to apply a practical expedient offered in the updated guidance which allows entities to apply the guidance on January 1, 2019 and comparative periods are not restated. The Company also expects to elect the transition practical expedient package available in the guidance whereby we will not reassess whether any of our expired or existing contracts contain a lease, the classification for any expired or existing leases or the initial direct costs for any existing leases. The Company is finalizing its evaluation of its operating lease inventory and other provisions of the updated guidance, but currently anticipates that the lease asset and lease liability will be approximately $620 million at the adoption date. Based on the Company’s assessment, the impact of adoption of the updated guidance is not expected to have a material effect on its results of operations.
In June of 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. The guidance is effective for interim and annual periods beginning after December 15, 2019. The guidance will be applied using the modified retrospective method with a cumulative effect adjustment to beginning retained earnings. A prospective transition method is required for debt securities that have recognized an other-than-temporary impairment prior to the effective date. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements and expects the primary changes to be the use of the expected credit loss model for the mortgage loan portfolio, reinsurance and insurance receivables and other financing receivables and the use of the allowance method rather than the write-down method for credit losses within the available-for-sale fixed maturities portfolio. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. Under the allowance method for available-for-sale debt securities the Company will record reversals of credit losses if the estimate of credit losses declines.
In August of 2018, the FASB issued ASU 2018-12, “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.” The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entities to annually update cash flow assumptions, including morbidity and persistency and update discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in Net income and the effect of changes in discount rate assumptions will be recorded in OCI.
This guidance is effective for interim and annual periods beginning after December 15, 2020, and requires restatement of the prior periods presented. Early adoption is permitted. The Company is currently evaluating the method and timing of adoption and the effect the updated guidance will have on its consolidated financial statements. The annual updating of cash flow assumptions is expected to increase income statement volatility. The quarterly change in the discount rate is expected to increase volatility in the Company’s Shareholders’ equity, but that will be somewhat mitigated because Shadow Adjustments are eliminated under the new guidance. See Note 3 for further information on Shadow Adjustments. While the requirements of the new guidance represent a material change from existing accounting guidance, the underlying economics of CNA’s business and related cash flows are unchanged.
Note 2. Acquisitions and Divestitures
Loews Corporation
On June 29, 2018, Boardwalk GP, LP (“General Partner”), the general partner of Boardwalk Pipeline and an indirect wholly owned subsidiary of the Company, elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipeline not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of Boardwalk Pipeline’s Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”) for a cash purchase price, determined in accordance with the Limited Partnership Agreement, of $12.06 per unit, or approximately $1.5 billion, in the aggregate. The purchase price of the common units was lower than the carrying value of the noncontrolling interests for Boardwalk Pipeline, resulting in an increase to Additional paid-in capital of $658 million, an increase to deferred income tax liabilities of $213 million and a decrease to AOCI of $29 million.
Following completion of the transaction on July 18, 2018, Boardwalk Pipelines Holding Corp. (“BPHC”), a wholly owned subsidiary of Loews Corporation, holds, directly or indirectly, all of the limited partnership interests of Boardwalk Pipeline. As a result of the transaction, Boardwalk Pipeline has withdrawn the common units from listing on the New York Stock Exchange and from registration under Section 12(b) of the Securities Exchange Act of 1934.
On May 22, 2017, the Company acquired CCC Acquisition Holdings, Inc. for $1.2 billion. CCC Acquisition Holdings, Inc., through its wholly owned subsidiary, Consolidated Container, is a rigid plastic packaging and recycled resins manufacturer that provides packaging solutions to end markets such as beverage, food and household chemicals through a network of manufacturing locations across North America. The results of Consolidated Container are included in the Consolidated Financial Statements since the acquisition date in the Corporate segment. Consolidated Container’s revenues were $868 million in 2018 and $498 million in 2017 for the period since the acquisition date. Net income for 2018 and 2017 was not significant.
The acquisition was funded with approximately $620 million of Parent Company cash and debt financing proceeds at Consolidated Container of $600 million. The following table summarizes the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value as of the acquisition date.
| (In millions) | ||||
| Cash | $ | 5 | ||
| Property, plant and equipment | 389 | |||
| Goodwill | 310 | |||
| Other assets: | ||||
| Inventory | 57 | |||
| Customer relationships | 459 | |||
| Trade name | 43 | |||
| Other | 127 | |||
| Deferred income taxes | (27 | ) | ||
| Other liabilities: | ||||
| Accounts payable | (52 | ) | ||
| Pension liability | (27 | ) | ||
| Other | (61 | ) | ||
| $ | 1,223 | |||
Customer relationships were valued using an income approach, which values the intangible asset at the present value of the related incremental after tax cash flows. The customer relationships intangible asset will be amortized over a useful life of 21 years. The trade name was valued using an income approach, which values the intangible asset based on an estimate of cost savings, or a relief from royalty. The trade name will be amortized over a useful life of 10 years. Goodwill includes value associated with the assembled workforce and Consolidated Container’s future growth and profitability. The assets acquired and liabilities assumed as part of the acquisition did not result in a step up of tax basis and approximately $94 million of goodwill is deductible for tax purposes. See Note 7 for additional information on goodwill and intangible assets.
Loews Hotels & Co
In 2018, Loews Hotels & Co received proceeds of $40 million for the sale of a hotel. In 2017, Loews Hotels & Co received proceeds of $31 million for the sale of two hotels, in which Loews Hotels & Co had joint venture interests. Loews Hotels & Co paid approximately $84 million to acquire a hotel in 2016. This acquisition was funded with a combination of cash and property-level debt.
Consolidated Container
In 2018, Consolidated Container paid approximately $40 million to complete three acquisitions of plastic packaging manufacturers located in the U.S. and Canada, resulting in recognition of approximately $10 million of goodwill and approximately $15 million of intangible assets, primarily customer relationships.
Note 3. Investments
Net investment income is as follows:
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Fixed maturity securities | $ | 1,795 | $ | 1,812 | $ | 1,819 | ||||||
| Limited partnership investments | 22 | 277 | 199 | |||||||||
| Short term investments | 43 | 18 | 9 | |||||||||
| Equity securities | 18 | 12 | 10 | |||||||||
| Income (loss) from trading portfolio (a) | (54 | ) | 87 | 112 | ||||||||
| Other | 54 | 35 | 45 | |||||||||
| Total investment income | 1,878 | 2,241 | 2,194 | |||||||||
| Investment expenses | (61 | ) | (59 | ) | (59 | ) | ||||||
| Net investment income | $ | 1,817 | $ | 2,182 | $ | 2,135 | ||||||
| (a) | Net unrealized gains (losses) related to changes in fair value on securities still held were $(121), $39 and $44 for the years ended December 31, 2018, 2017 and 2016. |
|---|
As of December 31, 2018, the Company held no non-income producing fixed maturity securities. As of December 31, 2017, the Company held $2 million of non-income producing fixed maturity securities. As of December 31, 2018 and 2017, no investments in a single issuer exceeded 10% of shareholders’ equity, other than investments in securities issued by the U.S. Treasury and obligations of government-sponsored enterprises.
Investment gains (losses) are as follows:
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Fixed maturity securities | $ | 4 | $ | 122 | $ | 54 | ||||||
| Equity securities | (74 | ) | (5 | ) | ||||||||
| Derivative instruments | 9 | (4 | ) | (2 | ) | |||||||
| Short term investments and other | 4 | 4 | 3 | |||||||||
| Investment gains (losses) (a) | $ | (57 | ) | $ | 122 | $ | 50 | |||||
| (a) | Gross realized gains on available-for-sale securities were $168, $187 and $209 for the years ended December 31, 2018, 2017 and 2016. Gross realized losses on available-for-sale securities were $164, $65 and $160 for the years ended December 31, 2018, 2017 and 2016. Net realized losses of $73 were recognized due to the change in fair value of non-redeemable preferred stock still held for the year ended December 31, 2018. |
|---|
Net change in unrealized gains (losses) on investments is as follows:
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Fixed maturity securities | $ | (1,811) | $ | 728 | $ | 225 | ||||||
| Equity securities | 32 | (2) | ||||||||||
| Other | (2 | ) | 1 | |||||||||
| Total net change in unrealized gains (losses) on investments | $ | (1,811 | ) | $ | 758 | $ | 224 | |||||
The components of OTTI losses recognized in earnings by asset type are as follows:
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Fixed maturity securities available-for-sale: | ||||||||||||
| Corporate and other bonds | $ | 12 | $ | 12 | $ | 59 | ||||||
| Asset-backed | 9 | 1 | 13 | |||||||||
| Total fixed maturity securities available-for-sale | 21 | 13 | 72 | |||||||||
| Equity securities available-for-sale | 1 | 9 | ||||||||||
| Net OTTI losses recognized in earnings | $ | 21 | $ | 14 | $ | 81 | ||||||
The amortized cost and fair values of fixed maturity and equity securities are as follows:
| December 31, 2018 | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Unrealized OTTI Losses (Gains) | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||
| Corporate and other bonds | $ | 18,764 | $ | 791 | $ | 395 | $ | 19,160 | ||||||||||||
| States, municipalities and political subdivisions | 9,681 | 1,076 | 9 | 10,748 | ||||||||||||||||
| Asset-backed: | ||||||||||||||||||||
| Residential mortgage-backed | 4,815 | 68 | 57 | 4,826 | $ | (20 | ) | |||||||||||||
| Commercial mortgage-backed | 2,200 | 28 | 32 | 2,196 | ||||||||||||||||
| Other asset-backed | 1,975 | 11 | 24 | 1,962 | ||||||||||||||||
| Total asset-backed | 8,990 | 107 | 113 | 8,984 | (20 | ) | ||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 156 | 3 | 159 | |||||||||||||||||
| Foreign government | 480 | 5 | 4 | 481 | ||||||||||||||||
| Redeemable preferred stock | 10 | 10 | ||||||||||||||||||
| Fixed maturities available-for-sale | 38,081 | 1,982 | 521 | 39,542 | (20 | ) | ||||||||||||||
| Fixed maturities trading | 153 | 4 | 157 | |||||||||||||||||
| Total fixed maturities | $ | 38,234 | $ | 1,986 | $ | 521 | $ | 39,699 | $ | (20 | ) | |||||||||
| December 31, 2017 | ||||||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||
| Corporate and other bonds | $ | 17,210 | $ | 1,625 | $ | 28 | $ | 18,807 | ||||||||||||
| States, municipalities and political subdivisions | 12,478 | 1,551 | 2 | 14,027 | $ | (11 | ) | |||||||||||||
| Asset-backed: | ||||||||||||||||||||
| Residential mortgage-backed | 5,043 | 109 | 32 | 5,120 | (27 | ) | ||||||||||||||
| Commercial mortgage-backed | 1,840 | 46 | 14 | 1,872 | ||||||||||||||||
| Other asset-backed | 1,083 | 16 | 5 | 1,094 | ||||||||||||||||
| Total asset-backed | 7,966 | 171 | 51 | 8,086 | (27 | ) | ||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 111 | 2 | 4 | 109 | ||||||||||||||||
| Foreign government | 437 | 9 | 2 | 444 | ||||||||||||||||
| Redeemable preferred stock | 10 | 1 | 11 | |||||||||||||||||
| Fixed maturities available-for-sale | 38,212 | 3,359 | 87 | 41,484 | (38 | ) | ||||||||||||||
| Fixed maturities trading | 649 | 2 | 2 | 649 | ||||||||||||||||
| Total fixed maturities | 38,861 | 3,361 | 89 | 42,133 | (38 | ) | ||||||||||||||
| Equity securities: | ||||||||||||||||||||
| Common stock | 21 | 7 | 1 | 27 | ||||||||||||||||
| Preferred stock | 638 | 31 | 1 | 668 | ||||||||||||||||
| Equity securities available-for-sale | 659 | 38 | 2 | 695 | - | |||||||||||||||
| Equity securities trading | 518 | 92 | 81 | 529 | ||||||||||||||||
| Total equity securities | 1,177 | 130 | 83 | 1,224 | - | |||||||||||||||
| Total fixed maturity and equity securities | $ | 40,038 | $ | 3,491 | $ | 172 | $ | 43,357 | $ | (38 | ) | |||||||||
The available-for-sale securities in a gross unrealized loss position are as follows:
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| December 31, 2018 | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||
| Corporate and other bonds | $ | 8,543 | $ | 340 | $ | 825 | $ | 55 | $ | 9,368 | $ | 395 | ||||||||||||
| States, municipalities and political subdivisions | 517 | 8 | 5 | 1 | 522 | 9 | ||||||||||||||||||
| Asset-backed: | ||||||||||||||||||||||||
| Residential mortgage-backed | 1,932 | 23 | 1,119 | 34 | 3,051 | 57 | ||||||||||||||||||
| Commercial mortgage-backed | 728 | 10 | 397 | 22 | 1,125 | 32 | ||||||||||||||||||
| Other asset-backed | 834 | 21 | 125 | 3 | 959 | 24 | ||||||||||||||||||
| Total asset-backed | 3,494 | 54 | 1,641 | 59 | 5,135 | 113 | ||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 21 | 19 | 40 | |||||||||||||||||||||
| Foreign government | 114 | 2 | 124 | 2 | 238 | 4 | ||||||||||||||||||
| Total fixed maturity securities | $ | 12,689 | $ | 404 | $ | 2,614 | $ | 117 | $ | 15,303 | $ | 521 | ||||||||||||
| December 31, 2017 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||
| Corporate and other bonds | $ | 1,354 | $ | 21 | $ | 168 | $ | 7 | $ | 1,522 | $ | 28 | ||||||||||||
| States, municipalities and political subdivisions | 72 | 1 | 85 | 1 | 157 | 2 | ||||||||||||||||||
| Asset-backed: | ||||||||||||||||||||||||
| Residential mortgage-backed | 1,228 | 5 | 947 | 27 | 2,175 | 32 | ||||||||||||||||||
| Commercial mortgage-backed | 403 | 4 | 212 | 10 | 615 | 14 | ||||||||||||||||||
| Other asset-backed | 248 | 3 | 18 | 2 | 266 | 5 | ||||||||||||||||||
| Total asset-backed | 1,879 | 12 | 1,177 | 39 | 3,056 | 51 | ||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 49 | 2 | 21 | 2 | 70 | 4 | ||||||||||||||||||
| Foreign government | 166 | 2 | 4 | 170 | 2 | |||||||||||||||||||
| Total fixed maturity securities | 3,520 | 38 | 1,455 | 49 | 4,975 | 87 | ||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||
| Common stock | 7 | 1 | 7 | 1 | ||||||||||||||||||||
| Preferred stock | 93 | 1 | 93 | 1 | ||||||||||||||||||||
| Total equity securities | 100 | 2 | - | - | 100 | 2 | ||||||||||||||||||
| Total fixed maturity and equity securities | $ | 3,620 | $ | 40 | $ | 1,455 | $ | 49 | $ | 5,075 | $ | 89 | ||||||||||||
Based on current facts and circumstances, the Company believes the unrealized losses presented in the December 31, 2018 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. 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 at December 31, 2018.
The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at December 31, 2018, 2017 and 2016 for which a portion of an OTTI loss was recognized in Other comprehensive income.
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Beginning balance of credit losses on fixed maturity securities | $ | 27 | $ | 36 | $ | 53 | ||||||
| Reductions for securities sold during the period | (9 | ) | (9 | ) | (16) | |||||||
| Reductions for securities the Company intends to sell or more likely than not will be required to sell | (1) | |||||||||||
| Ending balance of credit losses on fixed maturity securities | $ | 18 | $ | 27 | $ | 36 | ||||||
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
| December 31 | 2018 | 2017 | ||||||||||||||
| Cost or Amortized Cost | Estimated Fair Value | Cost or Amortized Cost | Estimated Fair Value | |||||||||||||
| (In millions) | ||||||||||||||||
| Due in one year or less | $ 1,350 | $ 1,359 | $ 1,135 | $ 1,157 | ||||||||||||
| Due after one year through five years | 7,979 | 8,139 | 8,165 | 8,501 | ||||||||||||
| Due after five years through ten years | 16,859 | 16,870 | 16,060 | 16,718 | ||||||||||||
| Due after ten years | 11,893 | 13,174 | 12,852 | 15,108 | ||||||||||||
| Total | $ 38,081 | $ 39,542 | $ 38,212 | $ 41,484 | ||||||||||||
Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Limited Partnerships
The carrying value of limited partnerships as of December 31, 2018 and 2017 was approximately $2.4 billion and $3.3 billion, which includes net undistributed earnings of $208 million and $903 million. Limited partnerships comprising 67.6% of the total carrying value are reported on a current basis through December 31, 2018 with no reporting lag, 11.4% of the total carrying value are reported on a one month lag and the remainder are reported on more than a one month lag. The number of limited partnerships held and the strategies employed provide diversification to the limited partnership portfolio and the overall invested asset portfolio.
Limited partnerships comprising 71.3% and 78.8% of the carrying value as of December 31, 2018 and 2017 employ hedge fund strategies. Limited partnerships comprising 24.3% and 18.1% of the carrying value at December 31, 2018 and 2017 were invested in private debt and equity. The remainder was primarily invested in real estate strategies. Hedge fund strategies include both long and short positions in fixed income, equity and derivative instruments. These hedge fund strategies may seek to generate gains from mispriced or undervalued securities, price differentials between securities, distressed investments, sector rotation or various arbitrage disciplines. Within hedge fund strategies, approximately 55.9% were equity related, 26.4% pursued a multi-strategy approach, 14.4% were focused on distressed investments and 3.3% were fixed income related as of December 31, 2018.
The ten largest limited partnership positions held totaled $1.1 billion and $1.5 billion as of December 31, 2018 and 2017. Based on the most recent information available regarding the Company’s percentage ownership of the individual limited partnerships, the carrying value reflected on the Consolidated Balance Sheets represents approximately 2.6% and 2.9% of the aggregate partnership equity at December 31, 2018 and 2017, and the related income reflected on the Consolidated Statements of Income represents approximately 3.3%, 3.0% and 4.0% of the changes in aggregate partnership equity for the years ended December 31, 2018, 2017 and 2016.
While the Company generally does not invest in highly leveraged partnerships, there are risks inherent in limited partnership investments which may result in losses due to short-selling, derivatives or other speculative investment practices. The use of leverage increases volatility generated by the underlying investment strategies.
The Company’s limited partnership investments contain withdrawal provisions that generally limit liquidity for a period of thirty days up to one year and in some cases do not permit withdrawals until the termination of the partnership. Typically, withdrawals require advance written notice of up to 90 days.
Derivative Financial Instruments
The Company may use derivatives in the normal course of business, primarily in an attempt to reduce exposure to market risk (principally interest rate risk, credit risk, equity price risk, commodity price risk and foreign currency risk) stemming from various assets and liabilities. The principal objective under such strategies is to achieve the desired reduction in economic risk, even if the position does not receive hedge accounting treatment.
The Company may enter into interest rate swaps, futures and forward commitments to purchase securities to manage interest rate risk. Credit derivatives such as credit default swaps may be entered into to modify the credit risk inherent in certain investments. Forward contracts, futures, swaps and options may be used to manage foreign currency and commodity price risk.
In addition to the derivatives used for risk management purposes described above, the Company may also use derivatives for purposes of income enhancement. Income enhancement transactions include but are not limited to interest rate swaps, call options, put options, credit default swaps, index futures and foreign currency forwards. See Note 4 for information regarding the fair value of derivative instruments.
The following tables present the aggregate contractual or notional amount and estimated fair value related to derivative financial instruments.
| December 31 | 2018 | 2017 | ||||||||||||||||||||||
| Contractual/ Notional Amount | Contractual/ Notional Amount | |||||||||||||||||||||||
| Estimated Fair Value | Estimated Fair Value | |||||||||||||||||||||||
| Asset | (Liability) | Asset | (Liability) | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| With hedge designation: | ||||||||||||||||||||||||
| Interest rate swaps | $ | 500 | $ | 11 | $ | 500 | $ | 4 | ||||||||||||||||
| Without hedge designation: | ||||||||||||||||||||||||
| Equity markets: | ||||||||||||||||||||||||
| Options – purchased | 213 | 18 | 224 | 12 | ||||||||||||||||||||
| – written | 239 | $ (17) | 290 | $ (7) | ||||||||||||||||||||
| Futures – short | 265 | 1 | ||||||||||||||||||||||
| Commodity futures – long | 32 | 44 | ||||||||||||||||||||||
| Embedded derivative on funds withheld liability | 172 | 4 | 167 | (3) |
Investment Commitments
As of December 31, 2018, the Company had committed approximately $574 million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships.
The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. Purchases and sales of privately placed debt securities are recorded once funded. As of December 31, 2018, the Company had commitments to purchase or fund additional amounts of $230 million and sell $78 million under the terms of such securities.
Investments on Deposit
Securities with carrying values of approximately $2.5 billion and $2.6 billion were deposited by CNA’s insurance subsidiaries under requirements of regulatory authorities and others as of December 31, 2018 and 2017.
Cash and securities with carrying values of approximately $1.0 billion and $1.1 billion were deposited with financial institutions in trust accounts or as collateral for letters of credit to secure obligations with various third parties as of December 31, 2018 and 2017.
Note 4. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
| 🌑 | Level 1 – Quoted prices for identical instruments in active markets. |
|---|
| 🌑 | Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. |
|---|
| 🌑 | Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable. |
|---|
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include: (i) the review of pricing service methodologies or broker pricing qualifications, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, (iv) detailed analysis, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and (v) pricing validation, where prices received are compared to prices independently estimated by the Company.
Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
| December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Corporate bonds and other | $ | 196 | $ | 19,392 | $ | 222 | $ | 19,810 | ||||||||
| States, municipalities and political subdivisions | 10,748 | 10,748 | ||||||||||||||
| Asset-backed | 8,787 | 197 | 8,984 | |||||||||||||
| Fixed maturities available-for-sale | 196 | 38,927 | 419 | 39,542 | ||||||||||||
| Fixed maturities trading | 151 | 6 | 157 | |||||||||||||
| Total fixed maturities | $ | 196 | $ | 39,078 | $ | 425 | $ | 39,699 | ||||||||
| Equity securities | $ | 704 | $ | 570 | $ | 19 | $ | 1,293 | ||||||||
| Short term and other | 2,647 | 1,111 | 3,758 | |||||||||||||
| Receivables | 11 | 11 | ||||||||||||||
| Payable to brokers | (23 | ) | (23) | |||||||||||||
| December 31, 2017 | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Corporate bonds and other | $ | 128 | $ | 19,145 | $ | 98 | $ | 19,371 | ||||||||
| States, municipalities and political subdivisions | 14,026 | 1 | 14,027 | |||||||||||||
| Asset-backed | 7,751 | 335 | 8,086 | |||||||||||||
| Fixed maturities available-for-sale | 128 | 40,922 | 434 | 41,484 | ||||||||||||
| Fixed maturities trading | 10 | 635 | 4 | 649 | ||||||||||||
| Total fixed maturities | $ | 138 | $ | 41,557 | $ | 438 | $ | 42,133 | ||||||||
| Equity securities available-for-sale | $ | 91 | $ | 584 | $ | 20 | $ | 695 | ||||||||
| Equity securities trading | 527 | 2 | 529 | |||||||||||||
| Total equity securities | $ | 618 | $ | 584 | $ | 22 | $ | 1,224 | ||||||||
| Short term and other | $ | 3,669 | $ | 958 | $ | 4,627 | ||||||||||
| Receivables | 1 | 4 | 5 | |||||||||||||
| Payable to brokers | (12 | ) | (12) |
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2018 and 2017:
| Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
| Gains | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized | (Losses) | |||||||||||||||||||||||||||||||||||||||||||
| Gains | Recognized in | |||||||||||||||||||||||||||||||||||||||||||
| (Losses) | Other | |||||||||||||||||||||||||||||||||||||||||||
| Recognized in | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||
| Net Realized Gains | Net Income | Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
| (Losses) and Net Change | (Loss) on Level | on Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| in Unrealized Gains | 3 Assets and | Assets and | ||||||||||||||||||||||||||||||||||||||||||
| (Losses) | Transfers | Transfers | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||
| Balance, | Included in | Included in | into | out of | Balance, | Held at | Held at | |||||||||||||||||||||||||||||||||||||
| 2018 | January 1 | Net Income | OCI | Purchases | Sales | Settlements | Level 3 | Level 3 | December 31 | December 31 | December 31 | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 98 | $ | (1 | ) | $ | (4 | ) | $ | 117 | $ | (5 | ) | $ | (9 | ) | $ | 35 | $ | (9 | ) | $ | 222 | $ | (5) | |||||||||||||||||||
| States, municipalities and political subdivisions | 1 | (1 | ) | - | ||||||||||||||||||||||||||||||||||||||||
| Asset-backed | 335 | 5 | (8 | ) | 162 | (72 | ) | (64 | ) | 42 | (203 | ) | 197 | $ | (2) | (4) | ||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 434 | 4 | (12 | ) | 279 | (77 | ) | (74 | ) | 77 | (212 | ) | 419 | (2) | (9) | |||||||||||||||||||||||||||||
| Fixed maturities trading | 4 | 3 | (1 | ) | 6 | 2 | ||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 438 | $ | 7 | $ | (12 | ) | $ | 279 | $ | (78 | ) | $ | (74 | ) | $ | 77 | $ | (212 | ) | $ | 425 | $ | - | $ | (9) | ||||||||||||||||||
| Equity securities | $ | 22 | $ | (2) | $ | (1) | $ | 19 | $ | (2) |
| Purchases | Sales | Settlements | Transfers into Level 3 | Transfers out of Level 3 | Balance, December 31 | Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities Held at December 31 | ||||||||||||||||||||||||||||||||||
| Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses) | ||||||||||||||||||||||||||||||||||||||||
| 2017 | Balance, January 1 | Included in Net Income | Included in OCI | |||||||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 130 | $ | 3 | $ | 18 | $ | (5 | ) | $ | (54 | ) | $ | 16 | $ | (10 | ) | $ | 98 | |||||||||||||||||||||
| States, municipalities and political subdivisions | 1 | 1 | ||||||||||||||||||||||||||||||||||||||
| Asset-backed | 199 | $ | 2 | 3 | 107 | (43 | ) | 153 | (86 | ) | 335 | |||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 330 | 2 | 6 | 125 | (5 | ) | (97 | ) | 169 | (96 | ) | 434 | $ | - | ||||||||||||||||||||||||||
| Fixed maturities trading | 6 | (2 | ) | 4 | (2) | |||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 336 | $ | - | $ | 6 | $ | 125 | $ | (5 | ) | $ | (97 | ) | $ | 169 | $ | (96 | ) | $ | 438 | $ | (2) | |||||||||||||||||
| Equity securities available-for-sale | $ | 19 | $ | 3 | $ | 1 | $ | (3 | ) | $ | 20 | |||||||||||||||||||||||||||||
| Equity securities trading | 1 | $ | (1 | ) | 2 | 2 | ||||||||||||||||||||||||||||||||||
| Total equity securities | $ | 20 | $ | (1 | ) | $ | 3 | $ | 3 | $ | (3 | ) | $ | - | $ | - | $ | - | $ | 22 | $ | - | ||||||||||||||||||
| Life settlement contracts | $ | 58 | $ | 6 | $ | (59 | ) | $ | (5 | ) | $ | - | ||||||||||||||||||||||||||||
| Derivative financial instruments, net | - | 1 | (1 | ) | - |
Net realized and unrealized gains and losses are reported in Net income as follows:
| Major Category of Assets and Liabilities | Consolidated Statements of Income Line Items | |
| Fixed maturity securities available-for-sale | Investment gains (losses) | |
| Fixed maturity securities trading | Net investment income | |
| Equity securities | Investment gains (losses) and Net investment income | |
| Other invested assets | Investment gains (losses) and Net investment income | |
| Derivative financial instruments held in a trading portfolio | Net investment income | |
| Derivative financial instruments, other | Investment gains (losses) and Operating revenues and other | |
| Life settlement contracts | Operating revenues and other |
Securities 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.
Valuation Methodologies and Inputs
The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.
Fixed Maturity Securities
Level 1 securities include highly liquid and exchange traded bonds and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with inputs that are not market observable.
Equity Securities
Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with inputs that are not market observable.
Derivative Financial Instruments
Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace.
Short Term and Other Invested Assets
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded open-end funds valued using quoted market prices. 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 in the Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
Life Settlement Contracts
CNA sold its life settlement contracts to a third party in 2017. The valuation of the life settlement contracts was based on the terms of sale. The contracts were classified as Level 3 as there was not an active market for life settlement contracts.
Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurement of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available to the Company. The weighted average rate is calculated based on fair value.
| December 31, 2018 | Estimated Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) | ||||||||
| (In millions) | ||||||||||||
| Fixed maturity securities | $ | 228 | Discounted cash flow | Credit spread | 1% – 12% | (3%) | ||||||
| December 31, 2017 | ||||||||||||
| Fixed maturity securities | $ | 136 | Discounted cash flow | Credit spread | 1% – 12% | (3%) |
For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.
Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial assets and liabilities which are not measured at fair value on the Consolidated Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude capital lease obligations. The carrying amounts reported on the Consolidated Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.
| Carrying | Estimated Fair Value | |||||||||||||||||||
| December 31, 2018 | Amount | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 839 | $ | 827 | $ | 827 | ||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Short term debt | 15 | $ | 14 | 14 | ||||||||||||||||
| Long term debt | 11,345 | 10,111 | 653 | 10,764 | ||||||||||||||||
| December 31, 2017 | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 839 | $ | 844 | $ | 844 | ||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Short term debt | 278 | $ | 156 | 122 | 278 | |||||||||||||||
| Long term debt | 11,236 | 10,966 | 525 | 11,491 |
The fair values of mortgage loans, included in Other invested assets, were based on the present value of the expected future cash flows discounted at the current interest rate for similar financial instruments, adjusted for specific loan risk.
The fair values of debt were based on observable market prices when available. When observable market prices were not available, the fair values of debt were based on observable market prices of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.
Note 5. Receivables
| December 31 | 2018 | 2017 | ||||||
| (In millions) | ||||||||
| Reinsurance (Note 16) | $ | 4,455 | $ | 4,290 | ||||
| Insurance | 2,365 | 2,336 | ||||||
| Receivable from brokers | 296 | 69 | ||||||
| Accrued investment income | 394 | 413 | ||||||
| Federal income taxes | 52 | 52 | ||||||
| Other, primarily customer accounts | 477 | 533 | ||||||
| Total | 8,039 | 7,693 | ||||||
| Less: allowance for doubtful accounts on reinsurance receivables | 29 | 29 | ||||||
| allowance for other doubtful accounts | 50 | 51 | ||||||
| Receivables | $ | 7,960 | $ | 7,613 | ||||
Note 6. Property, Plant and Equipment
| December 31 | 2018 | 2017 | ||||||
| (In millions) | ||||||||
| Pipeline equipment (net of accumulated depreciation of $2,761 and $2,453) | $ | 8,238 | $ | 7,857 | ||||
| Offshore drilling equipment (net of accumulated depreciation of $3,067 and $2,797) | 5,144 | 5,226 | ||||||
| Other (net of accumulated depreciation of $1,056 and $1,009) | 1,812 | 1,886 | ||||||
| Construction in process | 317 | 458 | ||||||
| Property, plant and equipment | $ | 15,511 | $ | 15,427 | ||||
The balance of other property, plant and equipment as of December 31, 2017 includes $366 million for Consolidated Container.
Depreciation expense and capital expenditures are as follows:
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||||||||||||||
| Depre- ciation | Capital Expend. | Depre- ciation | Capital Expend. | Depre- ciation | Capital Expend. | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| CNA Financial | $ | 76 | $ | 99 | $ | 80 | $ | 101 | $ | 67 | $ | 128 | ||||||||||||
| Diamond Offshore | 332 | 222 | 349 | 113 | 384 | 629 | ||||||||||||||||||
| Boardwalk Pipeline | 346 | 487 | 325 | 689 | 321 | 648 | ||||||||||||||||||
| Loews Hotels & Co | 67 | 139 | 63 | 57 | 63 | 164 | ||||||||||||||||||
| Corporate | 59 | 48 | 37 | 30 | 6 | 3 | ||||||||||||||||||
| Total | $ | 880 | $ | 995 | $ | 854 | $ | 990 | $ | 841 | $ | 1,572 | ||||||||||||
Capitalized interest related to the construction and upgrade of qualifying assets amounted to approximately $27 million, $37 million and $51 million for the years ended December 31, 2018, 2017 and 2016.
Diamond Offshore
Asset Impairments
During 2018, Diamond Offshore recorded an asset impairment charge of $27 million ($12 million after tax and noncontrolling interests) to recognize a reduction in fair value of the Ocean Scepter. Diamond Offshore estimated the fair value of the impaired rig using a market approach based on a signed agreement to sell the rig, less estimated costs to sell. This valuation approach is considered to be a Level 3 fair value measurement due to the level of estimation involved as the sale had not yet been completed at the time of the analysis. At December 31, 2018, Diamond Offshore evaluated one drilling rig with indicators of impairment. Based on the assumptions and analysis, Diamond Offshore determined that the undiscounted probability-weighted cash flow of the rig was in excess of its carrying value. As a result, Diamond Offshore concluded that no impairment of the rig had occurred at December 31, 2018. As of December 31, 2018, there were 12 rigs in the drilling fleet not previously written down to scrap, for which there were no current indicators that their carrying amounts may not be recoverable and, thus, were not evaluated for impairment. If market fundamentals in the offshore oil and gas industry deteriorate further or a projected market recovery is further delayed, Diamond Offshore may be required to recognize additional impairment losses in future periods.
During 2017, Diamond Offshore evaluated ten of its drilling rigs with indicators of impairment and determined that the carrying values of three rigs were impaired. Diamond Offshore estimated the fair value of two of these rigs using an income approach, whereby the fair value of each rig was estimated based on a calculation of the rig’s future net cash flows. These calculations utilized significant unobservable inputs, including estimated proceeds that may be received on ultimate disposition of each rig. The fair value of the remaining rigs was estimated using a market approach, which required Diamond Offshore to estimate the value that would be received for the rig in the principal or most advantageous market for that rig in an orderly transaction between market participants. This estimate was primarily based on an indicative bid to purchase the rig, as well as the evaluation of other market data points. The fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. Diamond Offshore recorded aggregate asset impairment charges of $100 million ($32 million after tax and noncontrolling interests) for the year ended December 31, 2017.
During 2016, Diamond Offshore evaluated 15 of its drilling rigs with indications that their carrying amounts may not be recoverable. Based on the assumptions and analyses, Diamond Offshore determined that the carrying values of eight of these rigs were impaired, including one rig that had been previously impaired in a prior year. Diamond Offshore estimated the fair value of these rigs using an income approach, as described above. The fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. Diamond Offshore recorded aggregate asset impairment charges of $672 million ($263 million after tax and noncontrolling interests) for the year ended December 31, 2016. The asset impairment charges recorded during the years ended December 31, 2018, 2017 and 2016 are reported within Operating expenses and other on the Consolidated Statements of Income.
Boardwalk Pipeline
Sale of Assets
During 2017, Boardwalk Pipeline sold a processing plant and related assets for approximately $64 million, including customary adjustments. The sale resulted in a loss of $47 million ($15 million after tax and noncontrolling interests) and is reported within Operating expenses and other on the Consolidated Statements of Income.
Note 7. Goodwill and Other Intangible Assets
A summary of the changes in the carrying amount of goodwill is as follows:
| CNA | Diamond | Boardwalk | Loews | |||||||||||||||||||||
| Total | Financial | Offshore | Pipeline | Hotels & Co | Corporate | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Balance, December 31, 2016 | $ | 346 | $ | 109 | $ | - | $ | 237 | $ | - | $ | - | ||||||||||||
| Acquisition | 310 | 310 | ||||||||||||||||||||||
| Other adjustments | 3 | 3 | ||||||||||||||||||||||
| Balance, December 31, 2017 | 659 | 112 | - | 237 | - | 310 | ||||||||||||||||||
| Acquisition | 8 | 8 | ||||||||||||||||||||||
| Other adjustments | (2 | ) | (2 | ) | ||||||||||||||||||||
| Balance, December 31, 2018 | $ | 665 | $ | 110 | $ | - | $ | 237 | $ | - | $ | 318 | ||||||||||||
The increase in the goodwill balance as of December 31, 2017 primarily reflects the acquisition of Consolidated Container in 2017. The increase as of December 31, 2018 reflects the acquisitions made by Consolidated Container in 2018. See Note 2 for further discussion on these acquisitions.
A summary of the net carrying amount of other intangible assets is as follows:
| December 31, 2018 | December 31, 2017 | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
| (In millions) | ||||||||||||||||
| Finite-lived intangible assets: | ||||||||||||||||
| Customer relationships | $ | 532 | $ | 47 | $ | 518 | $ | 22 | ||||||||
| Other | 72 | 20 | 74 | 13 | ||||||||||||
| Total finite-lived intangible assets | 604 | 67 | 592 | 35 | ||||||||||||
| Indefinite-lived intangible assets | 74 | 81 | ||||||||||||||
| Total other intangible assets | $ | 678 | $ | 67 | $ | 673 | $ | 35 | ||||||||
The balance of finite-lived intangible assets as of December 31, 2017 includes assets from the acquisition of Consolidated Container. The balance as of December 31, 2018 includes assets from acquisitions made by Consolidated Container.
Amortization expense for the years ended December 31, 2018, 2017 and 2016 of $32 million, $20 million and $3 million is reported in Operating expenses and other on the Company’s Consolidated Statements of Income. At December 31, 2018, estimated amortization expense in each of the next five years is approximately $34 million in 2019, $33 million in 2020, $32 million in 2021, $31 million in 2022 and $31 million in 2023.
Note 8. Claim and Claim Adjustment Expense Reserves
CNA’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. CNA’s reserve projections are based primarily on detailed analysis of the facts in each case, CNA’s experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and 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 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 CNA’s ultimate cost for insurance losses will not exceed current estimates.
Liability for Unpaid Claim and Claim Adjustment Expenses
The table below reconciles the net liability for unpaid claim and claim adjustment expenses to the amount presented in the Consolidated Balance Sheets.
| December 31 | 2018 | |||
| (In millions) | ||||
| Net liability for unpaid claim and claim adjustment expenses: | ||||
| Property & Casualty Operations | $ | 14,353 | ||
| Other Insurance Operations (a) | 3,612 | |||
| Total net claim and claim adjustment expenses | 17,965 | |||
| Reinsurance receivables: (b) | ||||
| Property & Casualty Operations | 1,605 | |||
| Other Insurance Operations (c) | 2,414 | |||
| Total reinsurance receivables | 4,019 | |||
| Total gross liability for unpaid claims and claims adjustment expenses | $ | 21,984 | ||
| (a) | Other Insurance Operations amounts are primarily related to long term care claim reserves, which are long duration insurance contracts, but also include amounts related to unfunded structured settlements arising from short duration insurance contracts. |
|---|
| (b) | Reinsurance receivables presented do not include reinsurance receivables related to paid losses. |
|---|
| (c) | The Other Insurance Operations reinsurance receivables are primarily related to A&EP claims covered under the loss portfolio transfer. |
|---|
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of Other Insurance Operations.
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Reserves, beginning of year: | ||||||||||||
| Gross | $ | 22,004 | $ | 22,343 | $ | 22,663 | ||||||
| Ceded | 3,934 | 4,094 | 4,087 | |||||||||
| Net reserves, beginning of year | 18,070 | 18,249 | 18,576 | |||||||||
| Net incurred claim and claim adjustment expenses: | ||||||||||||
| Provision for insured events of current year | 5,358 | 5,201 | 5,025 | |||||||||
| Decrease in provision for insured events of prior years | (179 | ) | (381 | ) | (342 | ) | ||||||
| Amortization of discount | 176 | 179 | 175 | |||||||||
| Total net incurred (a) | 5,355 | 4,999 | 4,858 | |||||||||
| Net payments attributable to: | ||||||||||||
| Current year events | (1,046 | ) | (975 | ) | (967 | ) | ||||||
| Prior year events | (4,285 | ) | (4,366 | ) | (4,167 | ) | ||||||
| Total net payments | (5,331 | ) | (5,341 | ) | (5,134 | ) | ||||||
| Foreign currency translation adjustment and other | (129 | ) | 163 | (51 | ) | |||||||
| Net reserves, end of year | 17,965 | 18,070 | 18,249 | |||||||||
| Ceded reserves, end of year | 4,019 | 3,934 | 4,094 | |||||||||
| Gross reserves, end of year | $ | 21,984 | $ | 22,004 | $ | 22,343 | ||||||
| (a) | Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Statements of Income due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and loss deductible receivables and benefit expenses related to future policy benefits, which are not reflected in the table above. |
|---|
Reserving Methodology
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, CNA’s actuaries perform detailed reserve analyses that are staggered throughout the year. Every reserve group is reviewed at least once during the year, but most are reviewed more frequently. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. Factors considered include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in CNA’s pricing and underwriting, pricing and underwriting trends in the insurance market and legal, judicial, social and economic trends. In addition to the detailed analyses, CNA reviews actual loss emergence for all products each quarter. In developing the loss reserve estimates for property and casualty contracts, CNA generally projects ultimate losses using several common actuarial methods as listed below. CNA reviews the various indications from the various methods and applies judgment to select an actuarial point estimate. The carried reserve may differ from the actuarial point estimate as the result of CNA’s consideration of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors affecting claims costs that may not be quantifiable through traditional actuarial analysis. The indicated required reserve is the difference between the selected ultimate loss and the inception-to-date paid losses. The difference between the selected ultimate loss and the case incurred or reported loss is IBNR. IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Further, CNA does not establish case reserves for allocated loss adjustment expenses (ALAE), therefore ALAE reserves are included in CNA’s estimate of IBNR. The most frequently utilized methods to project ultimate losses include the following:
| 🌑 | Paid development: The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid losses. |
|---|
| 🌑 | Incurred development: The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses. |
|---|
| 🌑 | Loss ratio: The loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. |
|---|
| 🌑 | Bornhuetter-Ferguson using premiums and paid loss: The Bornhuetter-Ferguson using premiums and paid loss method is a combination of the paid development approach and the loss ratio approach. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method. |
|---|
| 🌑 | Bornhuetter-Ferguson using premiums and incurred loss: The Bornhuetter-Ferguson using premiums and incurred loss method is similar to the Bornhuetter-Ferguson using premiums and paid loss method except that it uses case incurred losses. |
|---|
| 🌑 | Frequency times severity: The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates. |
|---|
| 🌑 | Stochastic modeling: The stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular product being modeled. |
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For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, CNA’s actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method. For most of CNA’s products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, CNA may not assign any weight to the paid and incurred development methods. CNA may use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because CNA’s history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, CNA may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, CNA uses additional methods tailored to the characteristics of the specific situation.
Certain claim liabilities are more difficult to estimate or have differing methodologies and considerations which are described below.
Mass Tort and A&EP Reserves
CNA’s reserving methodologies for mass tort and A&EP are similar as both are based on detailed reviews of large accounts with estimates of ultimate payments based on the facts in each case and CNA’s view of applicable law and coverage litigation.
Other Insurance Operations
Other Insurance Operations includes CNA’s run-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and CNA has the ability to increase policy premiums, subject to state regulatory approval.
CNA maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for CNA’s Other Insurance Operations. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have
been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for the long term care policies, CNA’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. CNA’s recorded claim and claim adjustment expense reserves reflect management’s best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. Both elements of the Other Insurance Operations reserves are discounted as discussed in Note 1.
Gross and Net Carried Reserves
The following tables present the gross and net carried reserves:
| Property | Other | |||||||||||
| and Casualty | Insurance | |||||||||||
| December 31, 2018 | Operations | Operations | Total | |||||||||
| (In millions) | ||||||||||||
| Gross Case Reserves | $ | 6,671 | $ | 4,724 | $ | 11,395 | ||||||
| Gross IBNR Reserves | 9,287 | 1,302 | 10,589 | |||||||||
| Total Gross Carried Claim and Claim Adjustment Expense Reserves | $ | 15,958 | $ | 6,026 | $ | 21,984 | ||||||
| Net Case Reserves | $ | 6,063 | $ | 3,460 | $ | 9,523 | ||||||
| Net IBNR Reserves | 8,290 | 152 | 8,442 | |||||||||
| Total Net Carried Claim and Claim Adjustment Expense Reserves | $ | 14,353 | $ | 3,612 | $ | 17,965 | ||||||
| December 31, 2017 | ||||||||||||
| (In millions) | ||||||||||||
| Gross Case Reserves | $ | 6,913 | $ | 4,757 | $ | 11,670 | ||||||
| Gross IBNR Reserves | 9,156 | 1,178 | 10,334 | |||||||||
| Total Gross Carried Claim and Claim Adjustment Expense Reserves | $ | 16,069 | $ | 5,935 | $ | 22,004 | ||||||
| Net Case Reserves | $ | 6,343 | $ | 3,302 | $ | 9,645 | ||||||
| Net IBNR Reserves | 8,232 | 193 | 8,425 | |||||||||
| Total Net Carried Claim and Claim Adjustment Expense Reserves | $ | 14,575 | $ | 3,495 | $ | 18,070 | ||||||
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (“development”). These changes can be favorable or unfavorable.
The following table and discussion presents detail of the development in CNA’s Property & Casualty Operations:
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||
| (In millions) | ||||||||||||
| Medical professional liability | $ | 47 | $ | 30 | $ | 9 | ||||||
| Other professional liability and management liability | (127 | ) | (126 | ) | (14 | 0) | ||||||
| Surety | (70 | ) | (84 | ) | (6 | 3) | ||||||
| Commercial auto | 1 | (35 | ) | (4 | 7) | |||||||
| General liability | 32 | (24 | ) | (6 | 5) | |||||||
| Workers’ compensation | (32 | ) | (63 | ) | 14 | 5 | ||||||
| Other | (32 | ) | (6 | ) | (12 | 7) | ||||||
| Total pretax (favorable) unfavorable development | $ | (181 | ) | $ | (308 | ) | $ | (28 | 8) | |||
Favorable net prior year loss reserve development of $19 million, $72 million and $46 million was recorded for Other Insurance Operations for the years ended December 31, 2018, 2017 and 2016. The favorable net prior year loss reserve development for the year ended December 31, 2018 was driven by lower than expected claim severity.
Development Tables
For CNA’s Property & Casualty Operations, the following tables present further detail and commentary on the development reflected in the financial statements for each of the periods presented. Also presented are loss reserve development tables that illustrate the change over time of reserves established for claim and allocated claim adjustment expenses arising from short duration insurance contracts for certain lines of business within CNA’s commercial property and casualty insurance operations (“Property & Casualty Operations”). Not all lines of business are presented based on their context to CNA’s overall loss reserves, calendar year reserve development, or calendar year net earned premiums. Insurance contracts are considered to be short duration contracts when the contracts are not expected to remain in force for an extended period of time. The Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative net incurred claim and allocated claim adjustment expenses relating to each accident year at the end of the stated calendar year. Changes in the cumulative amount across time are the result of CNA’s expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims in each accident year as of the end of the stated calendar year. The Net Strengthening or (Releases) of Prior Accident Year Reserves tables, reading across, show the net increase or decrease in the cumulative net incurred accident year claim and allocated claim adjustment expenses during each stated calendar year and indicates whether the reserves for that accident year were strengthened or released.
The information in the tables is reported on a net basis after reinsurance and does not include the effects of discounting. The information contained in calendar years 2017 and prior is unaudited. To the extent CNA enters into a commutation, the transaction is reported on a prospective basis. To the extent that CNA enters into a disposition, the effects of the disposition are reported on a retrospective basis by removing the balances associated with it.
The amounts reported for the cumulative number of reported claims include direct and assumed open and closed claims by accident year at the claimant level. The number excludes claim counts for claims within a policy deductible where the insured is responsible for payment of losses in the deductible layer. Claim count data for certain assumed reinsurance contracts is unavailable.
In the loss reserve development tables, IBNR includes reserves for incurred but not reported losses and expected development on case reserves.
2018
Unfavorable development in medical professional liability was primarily due to higher than expected severity in accident years 2014 and 2017 in CNA’s hospitals business. In addition, there was higher than expected frequency and severity in aging services in accident years 2014 through 2017 combined, partially offset by lower than expected frequency in accident year 2015.
Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency in recent accident years related to financial institutions and professional liability errors and omissions (“E&O”), favorable severity in accident years 2015 and prior related to professional liability E&O and favorable outcomes on individual claims in financial institutions in accident years 2013 and prior.
Favorable development in surety was due to lower than expected loss emergence for accident years 2017 and prior.
Unfavorable development in general liability was driven by higher than expected claim severity in unsupported umbrella in accident years 2013 through 2016.
Favorable development in workers’ compensation was driven by lower frequency and severity experience and favorable impacts from California reforms.
Favorable development in other coverages was driven by lower than expected claim severity in catastrophes in accident year 2017 for property in Commercial, better than expected frequency in the liability portion of the package business in Canada and general liability in Europe in casualty and better than expected large loss frequency in the energy book in accident year 2017, as well as a reduction in incurred losses within the Europe marine discontinued portfolio in energy and marine and lower than expected frequency in accident years 2015 and prior in Europe in healthcare and technology for International. This was partially offset by unfavorable development primarily driven by higher than expected severity in Canada and higher than expected frequency in Hardy, both in accident year 2017 in property and increased loss severity in the accident year 2017 in Europe professional indemnity in specialty for International.
2017
Unfavorable development in medical professional liability was primarily due to continued higher than expected frequency in aging services and higher than expected severity for hospitals in recent accident years. This was partially offset by favorable development in hospitals in prior accident years as well as favorable development related to unallocated claim adjustment expenses.
Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and a lower frequency of large losses for accident years 2011 through 2015 for professional and management liability, lower than expected claim frequency in accident years 2012 through 2015 for professional liability and lower than expected severity in accident years 2014 through 2015 for professional liability.
Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2015 and prior.
Favorable development in commercial auto was primarily due to lower than expected severity in accident years 2013 through 2016, as well as a large favorable recovery on a claim in accident year 2012.
Favorable development in general liability was due to lower than expected severity in life sciences.
Favorable development in workers’ compensation was primarily related to decreases in frequency and severity in recent accident years, partially attributable to California reforms impacting medical costs. This was partially offset by unfavorable development related to an adverse arbitration ruling on reinsurance recoverables from older accident years as well as the recognition of loss estimates associated with earned premium from a prior exposure year.
Unfavorable development for other coverages was primarily due to higher than expected severity in accident year 2015 arising from the management liability business, partially offset by favorable development in accident years 2014 and prior. Additional unfavorable development was related to adverse large claims experience in the CNA Hardy political risks portfolio, relating largely to accident year 2016. This was partially offset by favorable development related to better than expected frequency in accident years 2014 through 2016 in property and in energy and marine.
2016
Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and lower than expected frequency of claims in accident years 2010 through 2014 related to professional services and financial institutions. This was partially offset by unfavorable development related to a specific financial institutions claim in accident year 2014, higher management liability severities in accident year 2015 and deterioration on credit crises-related claims in accident year 2009.
Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2014 and prior.
Favorable development in commercial auto was primarily due to favorable settlements on claims in accident years 2010 through 2014 and lower than expected severities in accident years 2012 through 2015.
Favorable development in general liability was primarily due to better than expected claim settlements in accident years 2012 through 2014, better than expected severity on umbrella claims in accident years 2010 through 2013 and better than expected severity in medical products liability in accident years 2010 through 2015. This was partially offset by unfavorable development related to an increase in reported claims prior to the closing of the three year window set forth by the Minnesota Child Victims Act in accident years 2006 and prior.
Unfavorable development in workers’ compensation was primarily due to higher than expected severity for Defense Base Act contractors that largely resulted from a reduction of expected future recoveries from the U.S. Department of Labor under the War Hazard Act. Further unfavorable development was due to the impact of recent Florida court rulings for accident years 2008 through 2015. These were partially offset by favorable development related to lower than expected frequencies related to the ongoing Middle Market and Small Business results for accident years 2009 through 2014.
Favorable development in other coverages was due to better than expected claim frequency and claim severity in accident years 2010 through 2015, better than expected loss frequency in accident years 2013 through 2015, better than expected severity on the December 2015 United Kingdom floods, better than expected attritional losses and large loss experience on accident years 2013 through 2015 for Hardy business and favorable settlements on claims in accident years 2013 and prior related to CNA’s Canadian package business. Additional favorable development was due to a commutation of exposures in marine run-off classes on CNA’s Europe business and lower than expected frequency of large losses related to CNA’s Europe business in accident year 2013. This was partially offset by unfavorable development related to higher than expected severity from a fourth quarter 2015 catastrophe event.
Property & Casualty Operations – Line of Business Composition
The table below presents the net liability for unpaid claim and claim adjustment expenses, by line of business for Property & Casualty Operations:
| December 31 | 2018 | |||
| (In millions) | ||||
| Medical professional liability | $ | 1,457 | ||
| Other professional liability and management liability | 2,849 | |||
| Surety | 379 | |||
| Commercial auto | 412 | |||
| General liability | 3,195 | |||
| Workers’ compensation | 3,968 | |||
| Other | 2,093 | |||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 14,353 | ||
| Medical Professional Liability | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses | Cumulative | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | 2009 (a) | 2010 (a) | 2011 (a) | 2012 (a) | 2013 (a) | 2014 (a) | 2015 (a) | 2016 (a) | 2017 (a) | 2018 | IBNR | Claims | ||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 389 | $ | 390 | $ | 392 | $ | 392 | $ | 366 | $ | 346 | $ | 336 | $ | 309 | $ | 302 | $ | 310 | $ | - | 14,716 | |||||||||||||||||||||||||
| 2010 | 402 | 412 | 423 | 426 | 415 | 395 | 365 | 360 | 356 | - | 14,615 | |||||||||||||||||||||||||||||||||||||
| 2011 | 429 | 437 | 443 | 468 | 439 | 434 | 437 | 437 | 8 | 16,505 | ||||||||||||||||||||||||||||||||||||||
| 2012 | 464 | 469 | 508 | 498 | 493 | 484 | 493 | 10 | 17,691 | |||||||||||||||||||||||||||||||||||||||
| 2013 | 462 | 479 | 500 | 513 | 525 | 535 | 28 | 19,442 | ||||||||||||||||||||||||||||||||||||||||
| 2014 | 450 | 489 | 537 | 530 | 535 | 30 | 19,602 | |||||||||||||||||||||||||||||||||||||||||
| 2015 | 433 | 499 | 510 | 494 | 78 | 17,835 | ||||||||||||||||||||||||||||||||||||||||||
| 2016 | 427 | 487 | 485 | 120 | 15,427 | |||||||||||||||||||||||||||||||||||||||||||
| 2017 | 412 | 449 | 217 | 13,777 | ||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 404 | 333 | 11,205 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,498 | $ | 824 | ||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 9 | $ | 63 | $ | 143 | $ | 211 | $ | 247 | $ | 269 | $ | 280 | $ | 288 | $ | 291 | $ | 300 | ||||||||||||||||||||||||||||
| 2010 | 10 | 86 | 173 | 257 | 306 | 326 | 337 | 346 | 350 | |||||||||||||||||||||||||||||||||||||||
| 2011 | 17 | 109 | 208 | 295 | 347 | 375 | 398 | 409 | ||||||||||||||||||||||||||||||||||||||||
| 2012 | 14 | 117 | 221 | 323 | 388 | 427 | 457 | |||||||||||||||||||||||||||||||||||||||||
| 2013 | 17 | 119 | 255 | 355 | 414 | 462 | ||||||||||||||||||||||||||||||||||||||||||
| 2014 | 23 | 136 | 258 | 359 | 417 | |||||||||||||||||||||||||||||||||||||||||||
| 2015 | 22 | 101 | 230 | 313 | ||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 18 | 121 | 246 | |||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 19 | 107 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 21 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,082 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 1,416 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009 | 18 | |||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | 23 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 1,457 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Strengthening or (Releases) of Prior Accident Year Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 1 | $ | 2 | $ | - | $ | (26 | ) | $ | (20 | ) | $ | (10 | ) | $ | (27 | ) | $ | (7 | ) | $ | 8 | $ | (79 | ) | ||||||||||||||||||||||
| 2010 | 10 | 11 | 3 | (11 | ) | (20 | ) | (30 | ) | (5 | ) | (4 | ) | (46 | ) | |||||||||||||||||||||||||||||||||
| 2011 | 8 | 6 | 25 | (29 | ) | (5 | ) | 3 | - | 8 | ||||||||||||||||||||||||||||||||||||||
| 2012 | 5 | 39 | (10 | ) | (5 | ) | (9 | ) | 9 | 29 | ||||||||||||||||||||||||||||||||||||||
| 2013 | 17 | 21 | 13 | 12 | 10 | 73 | ||||||||||||||||||||||||||||||||||||||||||
| 2014 | 39 | 48 | (7 | ) | 5 | 85 | ||||||||||||||||||||||||||||||||||||||||||
| 2015 | 66 | 11 | (16 | ) | 61 | |||||||||||||||||||||||||||||||||||||||||||
| 2016 | 60 | (2 | ) | 58 | ||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 37 | 37 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for the accident years presented above | 60 | 58 | 47 | |||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2009 | (51 | ) | (21 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | - | (7 | ) | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 9 | $ | 30 | $ | 47 | ||||||||||||||||||||||||||||||||||||||||||
| (a) | Data presented for these calendar years is required supplemental information, which is unaudited. |
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| Other Professional Liability and Management Liability | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses | Cumulative | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | 2009 (a) | 2010 (a) | 2011 (a) | 2012 (a) | 2013 (a) | 2014 (a) | 2015 (a) | 2016 (a) | 2017 (a) | 2018 | IBNR | Claims | ||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 831 | $ | 875 | $ | 908 | $ | 903 | $ | 893 | $ | 903 | $ | 897 | $ | 906 | $ | 904 | $ | 892 | $ | 18 | 17,374 | |||||||||||||||||||||||||
| 2010 | 828 | 828 | 848 | 848 | 847 | 837 | 824 | 827 | 821 | 19 | 17,888 | |||||||||||||||||||||||||||||||||||||
| 2011 | 880 | 908 | 934 | 949 | 944 | 911 | 899 | 888 | 39 | 18,728 | ||||||||||||||||||||||||||||||||||||||
| 2012 | 923 | 909 | 887 | 878 | 840 | 846 | 833 | 41 | 18,491 | |||||||||||||||||||||||||||||||||||||||
| 2013 | 884 | 894 | 926 | 885 | 866 | 863 | 65 | 17,918 | ||||||||||||||||||||||||||||||||||||||||
| 2014 | 878 | 898 | 885 | 831 | 835 | 88 | 17,515 | |||||||||||||||||||||||||||||||||||||||||
| 2015 | 888 | 892 | 877 | 832 | 194 | 17,333 | ||||||||||||||||||||||||||||||||||||||||||
| 2016 | 901 | 900 | 900 | 279 | 17,787 | |||||||||||||||||||||||||||||||||||||||||||
| 2017 | 847 | 845 | 479 | 17,780 | ||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 850 | 726 | 16,564 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 8,559 | $ | 1,948 | ||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 37 | $ | 195 | $ | 361 | $ | 553 | $ | 641 | $ | 722 | $ | 772 | $ | 801 | $ | 825 | $ | 844 | ||||||||||||||||||||||||||||
| 2010 | 31 | 204 | 405 | 541 | 630 | 670 | 721 | 752 | 784 | |||||||||||||||||||||||||||||||||||||||
| 2011 | 71 | 314 | 503 | 605 | 683 | 726 | 781 | 796 | ||||||||||||||||||||||||||||||||||||||||
| 2012 | 56 | 248 | 400 | 573 | 651 | 711 | 755 | |||||||||||||||||||||||||||||||||||||||||
| 2013 | 54 | 249 | 447 | 618 | 702 | 754 | ||||||||||||||||||||||||||||||||||||||||||
| 2014 | 51 | 223 | 392 | 515 | 647 | |||||||||||||||||||||||||||||||||||||||||||
| 2015 | 60 | 234 | 404 | 542 | ||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 64 | 248 | 466 | |||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 57 | 222 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 54 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 5,864 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 2,695 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009 | 90 | |||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | 64 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 2,849 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Strengthening or (Releases) of Prior Accident Year Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended December 31 | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 44 | $ | 33 | $ | (5 | ) | $ | (10 | ) | $ | 10 | $ | (6 | ) | $ | 9 | $ | (2 | ) | $ | (12 | ) | $ | 61 | |||||||||||||||||||||||
| 2010 | - | 20 | - | (1 | ) | (10 | ) | (13 | ) | 3 | (6 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||
| 2011 | 28 | 26 | 15 | (5 | ) | (33 | ) | (12 | ) | (11 | ) | 8 | ||||||||||||||||||||||||||||||||||||
| 2012 | (14 | ) | (22 | ) | (9 | ) | (38 | ) | 6 | (13 | ) | (90 | ) | |||||||||||||||||||||||||||||||||||
| 2013 | 10 | 32 | (41 | ) | (19 | ) | (3 | ) | (21 | ) | ||||||||||||||||||||||||||||||||||||||
| 2014 | 20 | (13 | ) | (54 | ) | 4 | (43 | ) | ||||||||||||||||||||||||||||||||||||||||
| 2015 | 4 | (15 | ) | (45 | ) | (56 | ) | |||||||||||||||||||||||||||||||||||||||||
| 2016 | (1 | ) | - | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||
| 2017 | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Total net development for the accident years presented above | (125 | ) | (94 | ) | (88 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2009 | (15 | ) | (25 | ) | (32 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | - | (7 | ) | (7 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (140 | ) | $ | (126 | ) | $ | (127 | ) | |||||||||||||||||||||||||||||||||||||||
| (a) | Data presented for these calendar years is required supplemental information, which is unaudited. |
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| Surety | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses | Cumulative | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | 2009 (a) | 2010 (a) | 2011 (a) | 2012 (a) | 2013 (a) | 2014 (a) | 2015 (a) | 2016 (a) | 2017 (a) | 2018 | IBNR | Claims | ||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 114 | $ | 114 | $ | 103 | $ | 85 | $ | 68 | $ | 59 | $ | 52 | $ | 53 | $ | 53 | $ | 52 | $ | 1 | 6,688 | |||||||||||||||||||||||||
| 2010 | 112 | 112 | 111 | 84 | 76 | 66 | 63 | 59 | 61 | 1 | 5,971 | |||||||||||||||||||||||||||||||||||||
| 2011 | 120 | 121 | 116 | 87 | 75 | 70 | 66 | 62 | 1 | 5,808 | ||||||||||||||||||||||||||||||||||||||
| 2012 | 120 | 122 | 98 | 70 | 52 | 45 | 39 | 2 | 5,559 | |||||||||||||||||||||||||||||||||||||||
| 2013 | 120 | 121 | 115 | 106 | 91 | 87 | 6 | 5,039 | ||||||||||||||||||||||||||||||||||||||||
| 2014 | 123 | 124 | 94 | 69 | 60 | 19 | 5,036 | |||||||||||||||||||||||||||||||||||||||||
| 2015 | 131 | 131 | 104 | 79 | 36 | 4,887 | ||||||||||||||||||||||||||||||||||||||||||
| 2016 | 124 | 124 | 109 | 60 | 5,185 | |||||||||||||||||||||||||||||||||||||||||||
| 2017 | 120 | 115 | 78 | 4,936 | ||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 114 | 101 | 3,105 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 778 | $ | 305 | ||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 13 | $ | 24 | $ | 34 | $ | 41 | $ | 43 | $ | 45 | $ | 46 | $ | 47 | $ | 47 | $ | 47 | ||||||||||||||||||||||||||||
| 2010 | 13 | 34 | 50 | 55 | 57 | 58 | 55 | 52 | 52 | |||||||||||||||||||||||||||||||||||||||
| 2011 | 19 | 42 | 55 | 58 | 60 | 60 | 56 | 57 | ||||||||||||||||||||||||||||||||||||||||
| 2012 | 5 | 32 | 34 | 35 | 35 | 36 | 37 | |||||||||||||||||||||||||||||||||||||||||
| 2013 | 16 | 40 | 69 | 78 | 78 | 78 | ||||||||||||||||||||||||||||||||||||||||||
| 2014 | 7 | 30 | 38 | 36 | 38 | |||||||||||||||||||||||||||||||||||||||||||
| 2015 | 7 | 26 | 38 | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 5 | 37 | 45 | |||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 23 | 37 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 436 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 342 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 379 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Strengthening or (Releases) of Prior Accident Year Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | - | $ | (11 | ) | $ | (18 | ) | $ | (17 | ) | $ | (9 | ) | $ | (7 | ) | $ | 1 | $ | - | $ | (1 | ) | $ | (62 | ) | |||||||||||||||||||||
| 2010 | - | (1 | ) | (27 | ) | (8 | ) | (10 | ) | (3 | ) | (4 | ) | 2 | (51 | ) | ||||||||||||||||||||||||||||||||
| 2011 | 1 | (5 | ) | (29 | ) | (12 | ) | (5 | ) | (4 | ) | (4 | ) | (58 | ) | |||||||||||||||||||||||||||||||||
| 2012 | 2 | (24 | ) | (28 | ) | (18 | ) | (7 | ) | (6 | ) | (81 | ) | |||||||||||||||||||||||||||||||||||
| 2013 | 1 | (6 | ) | (9 | ) | (15 | ) | (4 | ) | (33 | ) | |||||||||||||||||||||||||||||||||||||
| 2014 | 1 | (30 | ) | (25 | ) | (9 | ) | (63 | ) | |||||||||||||||||||||||||||||||||||||||
| 2015 | - | (27 | ) | (25 | ) | (52 | ) | |||||||||||||||||||||||||||||||||||||||||
| 2016 | - | (15 | ) | (15 | ) | |||||||||||||||||||||||||||||||||||||||||||
| 2017 | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Total net development for the accident years presented above | (64 | ) | (82 | ) | (67 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2009 | 1 | 1 | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | - | (3 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (63 | ) | $ | (84 | ) | $ | (70 | ) | |||||||||||||||||||||||||||||||||||||||
| (a) | Data presented for these calendar years is required supplemental information, which is unaudited. |
|---|
| Commercial Auto | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses | Cumulative | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | 2009 (a) | 2010 (a) | 2011 (a) | 2012 (a) | 2013 (a) | 2014 (a) | 2015 (a) | 2016 (a) | 2017 (a) | 2018 | IBNR | Claims | ||||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 291 | $ | 276 | $ | 280 | $ | 282 | $ | 285 | $ | 281 | $ | 278 | $ | 276 | $ | 276 | $ | 277 | $ | - | 48,499 | |||||||||||||||||||||||||||
| 2010 | 267 | 283 | 287 | 291 | 298 | 293 | 289 | 288 | 288 | 1 | 48,030 | |||||||||||||||||||||||||||||||||||||||
| 2011 | 268 | 281 | 288 | 302 | 300 | 294 | 294 | 294 | 4 | 47,905 | ||||||||||||||||||||||||||||||||||||||||
| 2012 | 275 | 289 | 299 | 303 | 307 | 299 | 299 | 6 | 46,288 | |||||||||||||||||||||||||||||||||||||||||
| 2013 | 246 | 265 | 265 | 249 | 245 | 245 | 7 | 39,429 | ||||||||||||||||||||||||||||||||||||||||||
| 2014 | 234 | 223 | 212 | 205 | 205 | 9 | 33,609 | |||||||||||||||||||||||||||||||||||||||||||
| 2015 | 201 | 199 | 190 | 190 | 22 | 30,388 | ||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 198 | 186 | 186 | 27 | 30,342 | |||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 199 | 198 | 45 | 30,580 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 229 | 118 | 28,602 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,411 | $ | 239 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 73 | $ | 130 | $ | 191 | $ | 233 | $ | 261 | $ | 272 | $ | 274 | $ | 274 | $ | 275 | $ | 277 | ||||||||||||||||||||||||||||||
| 2010 | 74 | 141 | 203 | 246 | 271 | 281 | 286 | 287 | 287 | |||||||||||||||||||||||||||||||||||||||||
| 2011 | 79 | 145 | 199 | 248 | 274 | 284 | 287 | 289 | ||||||||||||||||||||||||||||||||||||||||||
| 2012 | 78 | 160 | 220 | 259 | 282 | 285 | 290 | |||||||||||||||||||||||||||||||||||||||||||
| 2013 | 74 | 135 | 168 | 200 | 225 | 234 | ||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 64 | 102 | 137 | 166 | 187 | |||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 52 | 96 | 130 | 153 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 52 | 93 | 126 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 58 | 107 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 66 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,016 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 395 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009 | 6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 412 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Strengthening or (Releases) of Prior Accident Year Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended December 31 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | (15 | ) | $ | 4 | $ | 2 | $ | 3 | $ | (4 | ) | $ | (3 | ) | $ | (2 | ) | $ | - | $ | 1 | $ | (14 | ) | |||||||||||||||||||||||||
| 2010 | 16 | 4 | 4 | 7 | (5 | ) | (4 | ) | (1 | ) | - | 21 | ||||||||||||||||||||||||||||||||||||||
| 2011 | 13 | 7 | 14 | (2 | ) | (6 | ) | - | - | 26 | ||||||||||||||||||||||||||||||||||||||||
| 2012 | 14 | 10 | 4 | 4 | (8 | ) | - | 24 | ||||||||||||||||||||||||||||||||||||||||||
| 2013 | 19 | - | (16 | ) | (4 | ) | - | (1 | ) | |||||||||||||||||||||||||||||||||||||||||
| 2014 | (11 | ) | (11 | ) | (7 | ) | - | (29 | ) | |||||||||||||||||||||||||||||||||||||||||
| 2015 | (2 | ) | (9 | ) | - | (11 | ) | |||||||||||||||||||||||||||||||||||||||||||
| 2016 | (12 | ) | - | (12 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| 2017 | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for the accident years presented above | (37 | ) | (41 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2009 | (10 | ) | 4 | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | - | 2 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (47 | ) | $ | (35 | ) | $ | 1 | ||||||||||||||||||||||||||||||||||||||||||
(a) Data presented for these calendar years is required supplemental information, which is unaudited.
| General Liability | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses | Cumulative | |||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | 2009 (a) | 2010 (a) | 2011 (a) | 2012 (a) | 2013 (a) | 2014 (a) | 2015 (a) | 2016 (a) | 2017 (a) | 2018 | IBNR | Claims | ||||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 662 | $ | 716 | $ | 733 | $ | 755 | $ | 752 | $ | 756 | $ | 755 | $ | 754 | $ | 755 | $ | 755 | $ | 16 | 44,934 | |||||||||||||||||||||||||||
| 2010 | 646 | 664 | 658 | 709 | 750 | 726 | 697 | 691 | 691 | 24 | 44,144 | |||||||||||||||||||||||||||||||||||||||
| 2011 | 591 | 589 | 631 | 677 | 676 | 681 | 670 | 669 | 26 | 39,283 | ||||||||||||||||||||||||||||||||||||||||
| 2012 | 587 | 611 | 639 | 636 | 619 | 635 | 635 | 46 | 35,083 | |||||||||||||||||||||||||||||||||||||||||
| 2013 | 650 | 655 | 650 | 655 | 613 | 623 | 51 | 33,420 | ||||||||||||||||||||||||||||||||||||||||||
| 2014 | 653 | 658 | 654 | 631 | 635 | 71 | 27,736 | |||||||||||||||||||||||||||||||||||||||||||
| 2015 | 581 | 576 | 574 | 589 | 122 | 23,471 | ||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 623 | 659 | 667 | 265 | 23,078 | |||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 632 | 632 | 412 | 19,716 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 653 | 553 | 13,336 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 6,549 | $ | 1,586 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 33 | $ | 124 | $ | 305 | $ | 468 | $ | 576 | $ | 625 | $ | 663 | $ | 701 | $ | 721 | $ | 727 | ||||||||||||||||||||||||||||||
| 2010 | 27 | 145 | 280 | 429 | 561 | 611 | 642 | 652 | 656 | |||||||||||||||||||||||||||||||||||||||||
| 2011 | 28 | 148 | 273 | 411 | 517 | 568 | 602 | 622 | ||||||||||||||||||||||||||||||||||||||||||
| 2012 | 28 | 132 | 247 | 374 | 454 | 510 | 559 | |||||||||||||||||||||||||||||||||||||||||||
| 2013 | 31 | 128 | 240 | 352 | 450 | 510 | ||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 31 | 119 | 247 | 376 | 481 | |||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 19 | 110 | 230 | 357 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 32 | 163 | 279 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 23 | 118 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 33 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,342 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 2,207 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009 | 927 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | 61 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 3,195 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Strengthening or (Releases) of Prior Accident Year Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended December 31 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 54 | $ | 17 | $ | 22 | $ | (3 | ) | $ | 4 | $ | (1 | ) | $ | (1 | ) | $ | 1 | $ | - | $ | 93 | |||||||||||||||||||||||||||
| 2010 | 18 | (6 | ) | 51 | 41 | (24 | ) | (29 | ) | (6 | ) | - | 45 | |||||||||||||||||||||||||||||||||||||
| 2011 | (2 | ) | 42 | 46 | (1 | ) | 5 | (11 | ) | (1 | ) | 78 | ||||||||||||||||||||||||||||||||||||||
| 2012 | 24 | 28 | (3 | ) | (17 | ) | 16 | - | 48 | |||||||||||||||||||||||||||||||||||||||||
| 2013 | 5 | (5 | ) | 5 | (42 | ) | 10 | (27 | ) | |||||||||||||||||||||||||||||||||||||||||
| 2014 | 5 | (4 | ) | (23 | ) | 4 | (18 | ) | ||||||||||||||||||||||||||||||||||||||||||
| 2015 | (5 | ) | (2 | ) | 15 | 8 | ||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 36 | 8 | 44 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for the accident years presented above | (46 | ) | (31 | ) | 36 | |||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2009 | (19 | ) | (1 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | - | 8 | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (65 | ) | $ | (24 | ) | $ | 32 | ||||||||||||||||||||||||||||||||||||||||||
(a) Data presented for these calendar years is required supplemental information, which is unaudited.
| Workers’ Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses | Cumulative | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31 | 2009 (a) | 2010 (a) | 2011 (a) | 2012 (a) | 2013 (a) | 2014 (a) | 2015 (a) | 2016 (a) | 2017 (a) | 2018 | IBNR | Claims | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 592 | $ | 599 | $ | 609 | $ | 611 | $ | 616 | $ | 626 | $ | 631 | $ | 638 | $ | 649 | $ | 650 | $ | 46 | 51,822 | |||||||||||||||||||||||||||||
| 2010 | 583 | 632 | 654 | 676 | 698 | 710 | 730 | 733 | 732 | 44 | 49,106 | |||||||||||||||||||||||||||||||||||||||||
| 2011 | 607 | 641 | 647 | 659 | 651 | 676 | 676 | 674 | 27 | 45,637 | ||||||||||||||||||||||||||||||||||||||||||
| 2012 | 601 | 627 | 659 | 669 | 678 | 673 | 671 | 59 | 42,477 | |||||||||||||||||||||||||||||||||||||||||||
| 2013 | 537 | 572 | 592 | 618 | 593 | 582 | 86 | 38,665 | ||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 467 | 480 | 479 | 452 | 450 | 104 | 33,465 | |||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 422 | 431 | 406 | 408 | 146 | 31,828 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 426 | 405 | 396 | 171 | 31,905 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 440 | 432 | 171 | 32,811 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 450 | 276 | 30,399 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 5,445 | $ | 1,130 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 89 | $ | 227 | $ | 321 | $ | 388 | $ | 443 | $ | 476 | $ | 503 | $ | 525 | $ | 549 | $ | 557 | ||||||||||||||||||||||||||||||||
| 2010 | 97 | 251 | 359 | 442 | 510 | 542 | 577 | 615 | 625 | |||||||||||||||||||||||||||||||||||||||||||
| 2011 | 99 | 249 | 358 | 438 | 478 | 522 | 564 | 571 | ||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 87 | 232 | 342 | 416 | 470 | 509 | 524 | |||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 80 | 213 | 300 | 370 | 417 | 419 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 61 | 159 | 215 | 258 | 282 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 51 | 131 | 180 | 212 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 53 | 129 | 169 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 63 | 151 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 68 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,578 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 1,867 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009 | 2,131 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other (b) | (32 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 3,968 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Strengthening or (Releases) of Prior Accident Year Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended December 31 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | $ | 7 | $ | 10 | $ | 2 | $ | 5 | $ | 10 | $ | 5 | $ | 7 | $ | 11 | $ | 1 | 58 | |||||||||||||||||||||||||||||||||
| 2010 | 49 | 22 | 22 | 22 | 12 | 20 | 3 | (1 | ) | 149 | ||||||||||||||||||||||||||||||||||||||||||
| 2011 | 34 | 6 | 12 | (8 | ) | 25 | - | (2 | ) | 67 | ||||||||||||||||||||||||||||||||||||||||||
| 2012 | 26 | 32 | 10 | 9 | (5 | ) | (2 | ) | 70 | |||||||||||||||||||||||||||||||||||||||||||
| 2013 | 35 | 20 | 26 | (25 | ) | (11 | ) | 45 | ||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 13 | (1 | ) | (27 | ) | (2 | ) | (17 | ) | |||||||||||||||||||||||||||||||||||||||||||
| 2015 | 9 | (25 | ) | 2 | (14 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | (21 | ) | (9 | ) | (30 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for the accident years presented above | 95 | (89 | ) | (32 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment for development on a discounted basis | (3 | ) | (3 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2009 | 53 | 28 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | - | 1 | (7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 145 | $ | (63 | ) | $ | (32 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | Data presented for these calendar years is required supplemental information, which is unaudited. |
|---|
| (b) | Other includes the effect of discounting lifetime claim reserves. |
|---|
The table below presents information about average historical claims duration as of December 31, 2018 and is presented as required supplementary information, which is unaudited.
| Average Annual Percentage Payout of Ultimate Net Incurred Claim and Allocated Claim Adjustment Expenses in Year: | ||||||||||||||||||||||||||||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Total | ||||||||||||||||||||||||||||||||||
| Medical professional liability | 3.8 | % | 19.7 | % | 24.3 | % | 20.1 | % | 12.1 | % | 7.2 | % | 4.5 | % | 2.5 | % | 1.0 | % | 2.9 | % | 98.1 | % | ||||||||||||||||||||||
| Other professional liability | ||||||||||||||||||||||||||||||||||||||||||||
| and management liability | 6.2 | % | 21.5 | % | 21.3 | % | 17.4 | % | 10.7 | % | 6.4 | % | 5.8 | % | 2.9 | % | 3.3 | % | 2.1 | % | 97.6 | % | ||||||||||||||||||||||
| Surety (a) | 21.6 | % | 37.9 | % | 21.0 | % | 7.9 | % | 2.1 | % | 1.6 | % | (1.7 | )% | (0.5 | )% | - | - | 89.9 | % | ||||||||||||||||||||||||
| Commercial auto | 28.0 | % | 23.0 | % | 18.5 | % | 14.2 | % | 9.3 | % | 3.1 | % | 1.3 | % | 0.3 | % | 0.2 | % | 0.7 | % | 98.6 | % | ||||||||||||||||||||||
| General liability | 4.3 | % | 15.9 | % | 19.5 | % | 20.5 | % | 15.7 | % | 8.0 | % | 5.6 | % | 3.2 | % | 1.6 | % | 0.8 | % | 95.1 | % | ||||||||||||||||||||||
| Workers’ compensation | 13.7 | % | 21.1 | % | 13.9 | % | 10.6 | % | 7.5 | % | 4.4 | % | 4.4 | % | 3.2 | % | 2.5 | % | 1.2 | % | 82.5 | % |
| (a) | Due to the nature of the Surety business, average annual percentage payout of ultimate net incurred claim and allocated claim adjustment expenses has been calculated using only the payouts of mature accident years presented in the loss reserve development tables. |
|---|
A&EP Reserves
In 2010, Continental Casualty Company (“CCC”) together with several of CNA’s insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of CNA’s legacy A&EP liabilities were ceded to NICO (“loss portfolio transfer” or “LPT”). At the effective date of the transaction, CNA 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 $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. CNA paid NICO a reinsurance premium of $2.0 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.
In years subsequent to the effective date of the LPT, CNA recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which CNA recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits on the Consolidated Statements of Income.
The following table presents the impact of the loss portfolio transfer on the Consolidated Statements of Income.
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Additional amounts ceded under LPT: | ||||||||||||||||||||||||
| Net A&EP adverse development before consideration of LPT | $ | 178 | $ | 60 | $ | 200 | ||||||||||||||||||
| Provision for uncollectible third-party reinsurance on A&EP | (16 | ) | ||||||||||||||||||||||
| Total additional amounts ceded under LPT | 162 | 60 | 200 | |||||||||||||||||||||
| Retroactive reinsurance benefit recognized | (114 | ) | (68 | ) | (107 | ) | ||||||||||||||||||
| Pretax impact of deferred retroactive reinsurance | $ | 48 | $ | (8 | ) | $ | 93 | |||||||||||||||||
CNA completed reserve reviews in both the first and fourth quarters of 2018 and going forward, intends to perform a single annual review in the fourth quarter. Net unfavorable prior year development of $178 million, $60 million and $200 million was recognized before consideration of cessions to the LPT for the years ended December 31, 2018, 2017 and 2016. Additionally, in 2018, CNA released a portion of its provision for uncollectible third party reinsurance.
The 2018 unfavorable development was driven by higher than anticipated defense and indemnity costs on known direct asbestos and environmental accounts and by paid losses on assumed reinsurance exposures. The 2017 unfavorable development of $60 million was driven by modestly higher anticipated payouts on claims from known sources of asbestos exposure. The 2016 unfavorable development of $200 million was driven by an increase in anticipated future expenses associated with determination of coverage, higher anticipated payouts associated with a limited number of historical accounts having significant asbestos exposures and higher than expected severity on pollution claims.
As of December 31, 2018 and 2017, the cumulative amounts ceded under the LPT were $3.1 billion and $2.9 billion. The unrecognized deferred retroactive reinsurance benefit was $374 million and $326 million as of December 31, 2018 and 2017 and is included within Other liabilities on the Consolidated Balance Sheets.
NICO established a collateral trust account as security for its obligations to CNA. The fair value of the collateral trust account was $2.7 billion and $3.1 billion as of December 31, 2018 and 2017. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the 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 CNA’s A&EP claims.
Note 9. Leases
Leases primarily cover office facilities, machinery and computer equipment. Hotel properties, in some instances, are constructed on leased land. Rent expense amounted to $120 million, $113 million and $97 million for the years ended December 31, 2018, 2017 and 2016. The table below presents the future minimum lease payments to be made under non-cancelable operating leases along with lease and sublease minimum receipts to be received on owned and leased properties.
| Future Minimum Lease | ||||||||
| Year Ended December 31 | Payments | Receipts | ||||||
| (In millions) | ||||||||
| 2019 | $ | 75 | $ | 6 | ||||
| 2020 | 79 | 5 | ||||||
| 2021 | 79 | 5 | ||||||
| 2022 | 68 | 4 | ||||||
| 2023 | 57 | 4 | ||||||
| Thereafter | 344 | 14 | ||||||
| Total | $ | 702 | $ | 38 | ||||
Note 10. Income Taxes
The Company and its eligible subsidiaries file a consolidated federal income tax return. The Company has entered into a separate tax allocation agreement with CNA, a majority-owned subsidiary in which its ownership exceeds 80%. The agreement provides that the Company will: (i) pay to CNA the amount, if any, by which the Company’s consolidated federal income tax is reduced by virtue of inclusion of CNA in the Company’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 2016 through 2018, the Internal Revenue Service (“IRS”) has accepted the Company into the Compliance Assurance Process (“CAP”), which is a voluntary program for large corporations. Under CAP, the IRS conducts a real-time audit and works contemporaneously with the Company to resolve any issues prior to the filing of the tax return. The Company believes 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 2014.
Diamond Offshore, which is not included in the Company’s consolidated federal income tax return, files income tax returns in the U.S. federal and various state and foreign jurisdictions. Tax years that remain subject to examination by these jurisdictions include years 2006 to 2017.
On December 22, 2017, H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018,” previously known as “The Tax Cuts and Jobs Act” was signed into law (the “Tax Act”).
The Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”) allowed companies to report the income tax effects of the Tax Act as a provisional amount based on a reasonable estimate, subject to adjustment during a reasonable measurement period, not to exceed twelve months, until the accounting and analysis under ASC 740 is complete. Although further guidance and clarification from the relevant authorities is expected to continue into 2019, in accordance with SAB 118’s twelve month measurement period, we have completed our analysis of the income tax effect of the Tax Act including: (i) the amount of deferred tax assets and liabilities subject to the income tax rate change from 35% to 21%, including, but not limited to, the calculation of the mandatory deemed repatriation aspect of the Tax Act and the state tax effect of adjustments made to federal temporary differences, (ii) the ability to more likely than not realize the benefit of deferred tax assets, including net operating losses and foreign tax credits, (iii) the effect of re-computing CNA’s insurance reserves and the transition adjustment from existing law, the effects of which had no impact on the effective tax rate and (iv) the special accounting method provisions for recognizing income for U.S. federal income tax purposes no later than financial accounting purposes and the transition adjustment from existing law, which also had no impact on the effective tax rate.
The Company recorded a one-time non-cash provisional $200 million increase to net income (net of noncontrolling interests) for the year ended December 31, 2017 related to the Tax Act. This increase included a $268 million income tax benefit due to the adjustment of net deferred tax assets and liabilities related to the reduction of the U.S. federal corporate income tax rate from 35% to 21% partially offset by a $78 million charge mostly related to the one-time mandatory repatriation of previously deferred earnings of certain of Diamond Offshore’s non-U.S. subsidiaries inclusive of the utilization of certain tax attributes offset by a provisional liability for uncertain tax positions related to such attributes. Due to the timing of the enactment of the Tax Act, there has been and continues to be a significant amount of uncertainty as to the appropriate application of a number of the underlying provisions, pending further guidance and clarification from the relevant authorities. In 2018, the U.S. Department of the Treasury and Internal Revenue Service issued additional guidance which the Company believes clarified certain of our tax positions taken in 2017 and, consequently, during 2018, the Company recorded a $6 million reduction to net income (net of noncontrolling interests).
The current and deferred components of income tax expense (benefit) are as follows:
| Year Ended December 31 | 2018 | 2017 | 2016 | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Income tax expense (benefit): | ||||||||||||||||||||||||
| Federal: | ||||||||||||||||||||||||
| Current | $ | 6 | $ | 157 | $ | 71 | ||||||||||||||||||
| Deferred | 85 | (63 | ) | 102 | ||||||||||||||||||||
| State and city: | ||||||||||||||||||||||||
| Current | 15 | 22 | 13 | |||||||||||||||||||||
| Deferred | 9 | 17 | 13 | |||||||||||||||||||||
| Foreign | 13 | 37 | 21 | |||||||||||||||||||||
| Total | $ | 128 | $ | 170 | $ | 220 | ||||||||||||||||||
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 | 2018 | 2017 | 2016 | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Income before income tax: | ||||||||||||||||||||||||
| U.S. | $ | 775 | $ | 1,322 | $ | 1,207 | ||||||||||||||||||
| Foreign | 59 | 260 | (271 | ) | ||||||||||||||||||||
| Total | $ | 834 | $ | 1,582 | $ | 936 | ||||||||||||||||||
| Income tax expense at statutory rate | $ | 175 | $ | 554 | $ | 328 | ||||||||||||||||||
| Increase (decrease) in income tax expense resulting from: | ||||||||||||||||||||||||
| Effect of the Tax Act | (6 | ) | (190 | ) | ||||||||||||||||||||
| Exempt investment income | (64 | ) | (134 | ) | (126 | ) | ||||||||||||||||||
| Foreign related tax differential | 1 | (36 | ) | 40 | ||||||||||||||||||||
| Taxes related to domestic affiliate | (7 | ) | 1 | (14 | ) | |||||||||||||||||||
| Partnership earnings not subject to taxes | (14 | ) | (51 | ) | (52 | ) | ||||||||||||||||||
| Valuation allowance | 12 | 7 | 62 | |||||||||||||||||||||
| Unrecognized tax positions, settlements and adjustments relating to prior years | 2 | (8 | ) | (42 | ) | |||||||||||||||||||
| State taxes | 20 | 23 | 18 | |||||||||||||||||||||
| Other | 9 | 4 | 6 | |||||||||||||||||||||
| Income tax expense (benefit) | $ | 128 | $ | 170 | $ | 220 | ||||||||||||||||||
The deferred foreign earnings of certain international subsidiaries were deemed to be repatriated under the Tax Act and consequently the Company will no longer permanently reinvest earnings of its foreign subsidiaries. The Company has not provided income tax on the outside basis difference of its foreign subsidiaries since there is no intention to dispose of these subsidiaries and structuring alternatives exist to mitigate any potential liability. The potential unrecorded liability associated with the outside basis difference is approximately $116 million.
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 | 2018 | 2017 | 2016 | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Balance at January 1 | $ | 84 | $ | 35 | $ | 54 | ||||||||||||||||||
| Additions for tax positions related to the current year | 3 | 51 | 4 | |||||||||||||||||||||
| Additions for tax positions related to a prior year | 20 | 5 | 1 | |||||||||||||||||||||
| Reductions for tax positions related to a prior year | (48 | ) | (1 | ) | (20 | ) | ||||||||||||||||||
| Lapse of statute of limitations | (1 | ) | (6 | ) | (4 | ) | ||||||||||||||||||
| Balance at December 31 | $ | 58 | $ | 84 | $ | 35 | ||||||||||||||||||
The 2018 addition to prior year tax positions is primarily due to recent proposed regulations on the offsetting of the deemed repatriation with certain tax attributes and the reduction for prior year tax positions is due to clarification issued by the Internal Revenue Service regarding tax attributes available to offset the deemed repatriation. The $51 million addition to current year tax positions for 2017 is attributable to a provisional liability associated with the use of tax attributes on the deemed, mandatory repatriation of the Tax Act. In 2016, the $20 million in reductions for tax positions related to a prior year, is primarily from the devaluation of the Egyptian pound. At December 31, 2018, 2017 and 2016, $82 million, $102 million and $36 million of unrecognized tax benefits related to Diamond Offshore would affect the effective tax rate if recognized.
The Company recognizes interest accrued related to: (i) unrecognized tax benefits in Interest expense and (ii) tax refund claims in Operating revenues and other on the Consolidated Statements of Income. The Company recognizes penalties in Income tax expense on the Consolidated Statements of Income. Interest amounts recorded by the Company were insignificant for the years ended December 31, 2018, 2017 and 2016. The Company recorded income tax expense of $1 million for the year ended December 31, 2018 and a benefit of $2 million and $23 million for the years ended December 31, 2017 and 2016 related to penalties.
The following table summarizes deferred tax assets and liabilities:
| December 31 | 2018 | 2017 | ||||||||||||||
| (In millions) | ||||||||||||||||
| Deferred tax assets: | ||||||||||||||||
| Insurance reserves: | ||||||||||||||||
| Property and casualty claim and claim adjustment expense reserves | $ | 108 | $ | 74 | ||||||||||||
| Unearned premium reserves | 108 | 142 | ||||||||||||||
| Receivables | 13 | 13 | ||||||||||||||
| Employee benefits | 222 | 243 | ||||||||||||||
| Deferred retroactive reinsurance benefit | 79 | 68 | ||||||||||||||
| Net operating loss carryforwards | 251 | 169 | ||||||||||||||
| Tax credit carryforwards | 101 | 199 | ||||||||||||||
| Net unrealized losses | 24 | |||||||||||||||
| Basis differential in investment in subsidiary | 8 | 15 | ||||||||||||||
| Other | 197 | 211 | ||||||||||||||
| Total deferred tax assets | 1,111 | 1,134 | ||||||||||||||
| Valuation allowance | (175 | ) | (169 | ) | ||||||||||||
| Net deferred tax assets | 936 | 965 | ||||||||||||||
| Deferred tax liabilities: | ||||||||||||||||
| Deferred acquisition costs | (78 | ) | (77 | ) | ||||||||||||
| Net unrealized gains | (263 | ) | ||||||||||||||
| Property, plant and equipment | (840 | ) | (765 | ) | ||||||||||||
| Basis differential in investment in subsidiary | (586 | ) | (364 | ) | ||||||||||||
| Other liabilities | (236 | ) | (220 | ) | ||||||||||||
| Total deferred tax liabilities | (1,740 | ) | (1,689 | ) | ||||||||||||
| Net deferred tax liabilities (a) | $ | (804 | ) | $ | (724 | ) | ||||||||||
| (a) | Includes $37 and $25 of deferred tax assets reflected in Other assets in the Consolidated Balance Sheets at December 31, 2018 and 2017. |
|---|
Federal net operating loss carryforwards of $83 million expire between 2034 and 2038 and $35 million can be carried forward indefinitely. Net operating loss carryforwards in foreign tax jurisdictions of $37 million expire between 2021 and 2028 and $83 million can be carried forward indefinitely. Federal tax credit carryforwards of $57 million can be utilized to offset future current tax liabilities or will ultimately be refundable no later than 2021. Foreign tax credit carryforwards of $43 million will expire in 2020 and 2024 to 2027.
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. As of December 31, 2018, Diamond Offshore recorded a valuation allowance of $175 million related to net operating losses of $98 million, foreign tax credits of $45 million, and other deferred tax assets of $32 million.
Note 11. Debt
| December 31 | 2018 | 2017 | ||||||
| (In millions) | ||||||||
| Loews Corporation (Parent Company): | ||||||||
| Senior: | ||||||||
| 2.6% notes due 2023 (effective interest rate of 2.8%) (authorized, $500) | $ | 500 | $ | 500 | ||||
| 3.8% notes due 2026 (effective interest rate of 3.9%) (authorized, $500) | 500 | 500 | ||||||
| 6.0% notes due 2035 (effective interest rate of 6.2%) (authorized, $300) | 300 | 300 | ||||||
| 4.1% notes due 2043 (effective interest rate of 4.3%) (authorized, $500) | 500 | 500 | ||||||
| CNA Financial: | ||||||||
| Senior: | ||||||||
| 7.0% notes due 2018 (effective interest rate of 7.1%) (authorized, $150) | 150 | |||||||
| 5.9% notes due 2020 (effective interest rate of 6.0%) (authorized, $500) | 500 | 500 | ||||||
| 5.8% notes due 2021 (effective interest rate of 5.9%) (authorized, $400) | 400 | 400 | ||||||
| 7.3% debentures due 2023 (effective interest rate of 7.3%) (authorized, $250) | 243 | 243 | ||||||
| 4.0% notes due 2024 (effective interest rate of 4.0%) (authorized, $550) | 550 | 550 | ||||||
| 4.5% notes due 2026 (effective interest rate of 4.5%) (authorized, $500) | 500 | 500 | ||||||
| 3.5% notes due 2027 (effective interest rate of 3.6%) (authorized, $500) | 500 | 500 | ||||||
| Variable rate note due 2036 (effective interest rate of 4.9%) | 30 | |||||||
| Capital lease obligation | 1 | 3 | ||||||
| Diamond Offshore: | ||||||||
| Senior: | ||||||||
| 3.5% notes due 2023 (effective interest rate of 3.6%) (authorized, $250) | 250 | 250 | ||||||
| 7.9% notes due 2025 (effective interest rate of 8.0%) (authorized, $500) | 500 | 500 | ||||||
| 5.7% notes due 2039 (effective interest rate of 5.8%) (authorized, $500) | 500 | 500 | ||||||
| 4.9% notes due 2043 (effective interest rate of 5.0%) (authorized, $750) | 750 | 750 | ||||||
| Boardwalk Pipeline: | ||||||||
| Senior: | ||||||||
| Variable rate revolving credit facility due 2022 (effective interest rate of 3.7% and 2.7%) | 580 | 385 | ||||||
| 5.2% notes due 2018 (effective interest rate of 5.4%) (authorized, $185) | 185 | |||||||
| 5.8% notes due 2019 (effective interest rate of 5.9%) (authorized, $350) | 350 | 350 | ||||||
| 4.5% notes due 2021 (effective interest rate of 5.0%) (authorized, $440) | 440 | 440 | ||||||
| 4.0% notes due 2022 (effective interest rate of 4.4%) (authorized, $300) | 300 | 300 | ||||||
| 3.4% notes due 2023 (effective interest rate of 3.5%) (authorized, $300) | 300 | 300 | ||||||
| 5.0% notes due 2024 (effective interest rate of 5.2%) (authorized, $600) | 600 | 600 | ||||||
| 6.0% notes due 2026 (effective interest rate of 6.2%) (authorized, $550) | 550 | 550 | ||||||
| 4.5% notes due 2027 (effective interest rate of 4.6%) (authorized, $500) | 500 | 500 | ||||||
| 7.3% debentures due 2027 (effective interest rate of 8.1%) (authorized, $100) | 100 | 100 | ||||||
| Capital lease obligation | 8 | 9 | ||||||
| Loews Hotels & Co: | ||||||||
| Senior debt, principally mortgages (effective interest rates approximate 4.4%) | 653 | 648 | ||||||
| Consolidated Container: | ||||||||
| Senior: | ||||||||
| Variable rate asset based lending facility due 2022 (effective interest rate of 5.5%) | 9 | |||||||
| Variable rate term loan due 2024 (effective interest rate of 5.0% and 5.5%) | 597 | 604 | ||||||
| Capital lease obligation | 7 | 6 | ||||||
| 11,488 | 11,653 | |||||||
| Less unamortized discount and issuance costs | 112 | 120 | ||||||
| Debt | $ | 11,376 | $ | 11,533 | ||||
| December 31, 2018 | Principal | Unamortized Discount and Issuance Costs | Net | Short Term Debt | Long Term Debt | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Loews Corporation | $ | 1,800 | $ | 22 | $ | 1,778 | $ | 1,778 | ||||||||||||
| CNA Financial | 2,694 | 13 | 2,681 | 2,681 | ||||||||||||||||
| Diamond Offshore | 2,000 | 26 | 1,974 | 1,974 | ||||||||||||||||
| Boardwalk Pipeline | 3,728 | 26 | 3,702 | $ | 1 | 3,701 | ||||||||||||||
| Loews Hotels & Co | 653 | 11 | 642 | 642 | ||||||||||||||||
| Consolidated Container | 613 | 14 | 599 | 16 | 583 | |||||||||||||||
| Total | $ | 11,488 | $ | 112 | $ | 11,376 | $ | 17 | $ | 11,359 | ||||||||||
At December 31, 2018, the aggregate long term debt maturing in each of the next five years is approximately as follows: $17 million in 2019, $605 million in 2020, $846 million in 2021, $1.3 billion in 2022, $1.3 billion in 2023 and $7.4 billion thereafter. Long term debt is generally redeemable in whole or in part at the greater of the principal amount or the net present value of remaining scheduled payments discounted at the specified treasury rate plus a margin.
CNA Financial
CNA is a member of the Federal Home Loan Bank of Chicago (“FHLBC”). FHLBC membership provides participants with access to additional sources of liquidity through various programs and services. As a requirement of membership in the FHLBC, CNA held $5 million of FHLBC stock as of December 31, 2018, giving it access to approximately $111 million of additional liquidity. As of December 31, 2018 and 2017, CNA had no outstanding borrowings from the FHLBC.
In 2018, CNA retired at maturity the $150 million outstanding aggregate principal amount of its 7.0% senior notes, CNA also redeemed the $30 million outstanding aggregate principal amount of its variable rate senior notes due September 15, 2036.
CNA has a five-year $250 million senior unsecured revolving credit facility with a syndicate of banks which may be used for general corporate purposes. As of December 31, 2018, CNA had no outstanding borrowings under the credit agreement and was in compliance with all covenants.
Diamond Offshore
In 2018, Diamond Offshore entered into a new senior five-year revolving credit agreement with maximum borrowings available of $950 million which may be used for general corporate purposes, including investments, acquisitions and capital expenditures. The new credit agreement, which expires on October 2, 2023, provides for a swingline subfacility of $100 million and a letter of credit subfacility in the amount of $250 million. Diamond Offshore also amended its existing credit agreement to reduce the aggregate principal amounts of commitments to $325 million, of which, $40 million matures in March of 2019, $60 million matures in October of 2019 and $225 million matures in October of 2020. As of December 31, 2018, Diamond Offshore had no outstanding borrowings under its credit agreements and was in compliance with all covenant requirements under its credit agreements.
Boardwalk Pipeline
In 2018, Boardwalk Pipeline retired at maturity the $185 million outstanding aggregate principal amount of its 5.2% senior notes with borrowings under its credit facility.
Boardwalk Pipeline has a revolving credit facility having aggregate lending commitments of $1.5 billion maturing May 26, 2022. As of December 31, 2018, Boardwalk Pipeline had $580 million of outstanding borrowings under its credit agreement and was in compliance with all covenants.
Consolidated Container
Consolidated Container has a $125 million asset based lending facility (“ABL facility”) maturing May 23, 2022. As of December 31, 2018, Consolidated Container had $9 million of outstanding borrowings under its ABL facility and was in compliance with all covenants.
Note 12. Shareholders’ Equity
Accumulated other comprehensive income (loss)
The tables below present the changes in AOCI by component for the years ended December 31, 2016, 2017 and 2018:
| OTTI Gains (Losses) | Unrealized Gains (Losses) on Investments | Cash Flow Hedges | Pension Liability | Foreign Currency Translation | Total Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Balance, January 1, 2016 | $ | 24 | $ | 347 | $ | (3 | ) | $ | (649 | ) | $ | (76 | ) | $ | (357) | |||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $(4), $(133), $0, $9 and $0 | 9 | 283 | (22 | ) | (114 | ) | 156 | |||||||||||||||||
| Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $3, $16, $0, $(15) and $0 | (6 | ) | (26) | 2 | 27 | (3) | ||||||||||||||||||
| Other comprehensive income (loss) | 3 | 257 | 2 | 5 | (114 | ) | 153 | |||||||||||||||||
| Amounts attributable to noncontrolling interests | (28) | (1 | ) | (2 | ) | 12 | (19) | |||||||||||||||||
| Balance, December 31, 2016 | 27 | 576 | (2 | ) | (646 | ) | (178 | ) | (223) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $1, $(106), $(2), $4 and $0 | (3 | ) | 190 | 1 | (18 | ) | 100 | 270 | ||||||||||||||||
| Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $1, $38, $0, $(16) and $0 | (2 | ) | (82) | 2 | 30 | (52) | ||||||||||||||||||
| Other comprehensive income (loss) | (5 | ) | 108 | 3 | 12 | 100 | 218 | |||||||||||||||||
| Amounts attributable to noncontrolling interests | (11) | (1 | ) | 1 | (10 | ) | (21) | |||||||||||||||||
| Balance, December 31, 2017 | 22 | 673 | - | (633 | ) | (88 | ) | (26) | ||||||||||||||||
| Cumulative effect adjustment for adoption of ASU 2016-01 (a), after tax of $0, $8, $0, $0 and $0 | (25) | (25) | ||||||||||||||||||||||
| Cumulative effect adjustment for adoption of ASU 2018-02 (a) | 4 | 123 | (130 | ) | (3) | |||||||||||||||||||
| Balance, January 1, 2018, as adjusted | 26 | 771 | - | (763 | ) | (88 | ) | (54) | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $2, $213, $(2), $9 and $0 | (7 | ) | (801) | 4 | (34 | ) | (84 | ) | (922) | |||||||||||||||
| Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $2, $(2), $0, $(6) and $0 | (7 | ) | 3 | 2 | 32 | 30 | ||||||||||||||||||
| Other comprehensive income (loss) | (14 | ) | (798) | 6 | (2 | ) | (84 | ) | (892) | |||||||||||||||
| Amounts attributable to noncontrolling interests | 2 | 84 | 9 | 95 | ||||||||||||||||||||
| Purchase of Boardwalk Pipeline common units | (1 | ) | (28 | ) | (29) | |||||||||||||||||||
| Balance, December 31, 2018 | $ | 14 | $ | 57 | $ | 5 | $ | (793 | ) | $ | (163 | ) | $ | (880) | ||||||||||
| (a) | See Note 1 for information regarding this accounting standard. |
|---|
Amounts reclassified from AOCI shown above are reported in Net income as follows:
| Major Category of AOCI | Affected Line Item | |
| OTTI gains (losses) | Investment gains (losses) | |
| Unrealized gains (losses) on investments | Investment gains (losses) | |
| Cash flow hedges | Operating revenues and other, Interest expense and Operating expenses and other | |
| Pension liability | Operating expenses and other |
Common Stock Dividends
Dividends of $0.25 per share on the Company’s common stock were declared and paid in 2018, 2017 and 2016.
There are no restrictions on the Company’s retained earnings or net income with regard to payment of dividends. However, as a holding company, Loews Corporation relies upon invested cash balances and distributions from its subsidiaries to generate the funds necessary to declare and pay any dividends to holders of its common stock. The ability of the Company’s subsidiaries to pay dividends is subject to, among other things, the availability of sufficient earnings and funds in such subsidiaries, compliance with covenants in their respective credit agreements and applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies. See Note 14 for a discussion of the regulatory restrictions on CNA’s availability to pay dividends.
Treasury Stock
The Company repurchased 20.3 million, 4.8 million and 3.4 million shares of its common stock at aggregate costs of $1.0 billion, $237 million and $134 million during the years ended December 31, 2018, 2017 and 2016. As of December 31, 2018, 20.6 million shares were retired. The remaining 0.1 million shares will be retired in 2019. Upon retirement, treasury stock was eliminated through a reduction to common stock, APIC and retained earnings.
Note 13. Revenue from Contracts with Customers
Disaggregation of revenues – Revenue from contracts with customers, other than insurance premiums, is reported as Non-insurance warranty revenue and within Operating revenues and other on the Consolidated Statements of Income. The following table presents revenues from contracts with customers disaggregated by revenue type along with the reportable segment and a reconciliation to Operating revenues and other as reported in Note 20:
| Year Ended December 31 | 2018 | 2017 (a) | 2016 (a) | |||||||||
| (In millions) | ||||||||||||
| Non-insurance warranty – CNA Financial | $ | 1,007 | $ | 390 | $ | 361 | ||||||
| Contract drilling – Diamond Offshore | $ | 1,083 | $ | 1,486 | $ | 1,600 | ||||||
| Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipeline | 1,206 | 1,298 | 1,291 | |||||||||
| Lodging and related services – Loews Hotels & Co | 730 | 682 | 667 | |||||||||
| Rigid plastic packaging and recycled resin – Corporate | 867 | 498 | ||||||||||
| Total revenues from contracts with customers | 3,886 | 3,964 | 3,558 | |||||||||
| Other revenues | 101 | 89 | 77 | |||||||||
| Operating revenues and other | $ | 3,987 | $ | 4,053 | $ | 3,635 | ||||||
| (a) | Prior period amounts have not been adjusted under the modified retrospective method of adoption for ASU 2014-09. |
|---|
Receivables from contracts with customers – As of December 31, 2018 and January 1, 2018, receivables from contracts with customers were approximately $434 million and $488 million and are included within Receivables on the Consolidated Balance Sheets.
Deferred revenue – As of December 31, 2018 and January 1, 2018, deferred revenue resulting from contracts with customers was approximately $3.5 billion and $3.0 billion and is reported as Deferred non-insurance warranty revenue and within Other liabilities on the Consolidated Balance Sheets. The increase in deferred revenue is primarily due to deferrals outpacing revenue recognized in the period, specifically reflecting growth in CNA’s business. Approximately $886 million of revenues recognized during the year ended December 31, 2018 were included in deferred revenue as of January 1, 2018.
Contract costs – As of December 31, 2018, the Company had approximately $2.6 billion of costs to obtain contracts with customers, primarily related to CNA for amounts paid to dealers and other agents to obtain non-insurance warranty contracts, which are reported as Deferred non-insurance warranty acquisition expenses on the Consolidated Balance Sheets. For the year ended December 31, 2018, amortization expense totaled $744 million is included in Non-insurance warranty expense and Operating expenses and other in the Consolidated Statement of Income. There were no adjustments to deferred costs recorded for the year ended December 31, 2018.
Performance obligations – As of December 31, 2018, approximately $12.4 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to revenues for transportation and storage of natural gas and NGLs at Boardwalk Pipeline and non-insurance warranty services at CNA. Approximately $2.1 billion will be recognized during 2019, $1.7 billion in 2020 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company has elected to exclude variable consideration related entirely to wholly unsatisfied performance obligations and contracts where revenue is recognized based upon the right to invoice the customer. Therefore, the estimated operating revenues exclude contract drilling dayrate revenue at Diamond Offshore and interruptible service contract revenue at Boardwalk Pipeline.
Note 14. Statutory Accounting Practices
CNA’s insurance subsidiaries are domiciled in various jurisdictions. These subsidiaries prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the respective jurisdictions’ insurance regulators. Domestic prescribed statutory accounting practices are set forth in a variety of publications of the National Association of Insurance Commissioners (“NAIC”) as well as state laws, regulations and general administrative rules. These statutory accounting principles vary in certain respects from GAAP. In converting from statutory accounting principles to GAAP, the more significant adjustments include deferral of policy acquisition costs and the inclusion of net unrealized holding gains or losses in shareholders’ equity relating to certain fixed maturity securities.
CNA has a prescribed practice as it relates to the accounting under Statement of Statutory Accounting Principles No. 62R (“SSAP No. 62R”), Property and Casualty Reinsurance, paragraphs 67 and 68 in conjunction with the 2010 loss portfolio transfer with NICO which is further discussed in Note 8. The prescribed practice allows CNA to aggregate all third party A&EP reinsurance balances administered by NICO in Schedule F and to utilize the LPT as collateral for the underlying third-party reinsurance balances for purposes of calculating the statutory reinsurance penalty. This prescribed practice increased statutory capital and surplus by $88 million and $63 million at December 31, 2018 and 2017.
The payment of dividends by CNA’s insurance subsidiaries without prior approval of the insurance department of each subsidiary’s domiciliary jurisdiction is generally limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective insurance regulator.
Dividends from CCC are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the “Department”) are determined based on the greater of the prior year’s statutory net income or 10% of statutory surplus as of the end of the prior year, as well as the timing and amount of dividends paid in the preceding 12 months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of December 31, 2018, CCC is in a positive earned surplus position. The maximum allowable dividend CCC could pay during 2019 that would not be subject to the Department’s prior approval is $1.4 billion, less dividends paid during the preceding 12 months measured at that point in time. CCC paid dividends of $1.0 billion in 2018. The actual level of dividends paid in any year is determined
after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.
Combined statutory capital and surplus and statutory net income for the Combined Continental Casualty Companies are presented in the table below, determined in accordance with accounting practices prescribed or permitted by insurance and/or other regulatory authorities.
| Statutory Capital and Surplus | Statutory Net Income | |||||||||||||
| December 31 | Year Ended December 31 | |||||||||||||
| 2018(a) | 2017 | 2018(a) | 2017 | 2016 | ||||||||||
| (In millions) | ||||||||||||||
| Combined Continental Casualty Companies | $ 10,411 | $ 10,726 | $ | 1,405 | $ 1,029 | $ 1,033 |
| (a) | Information derived from the statutory-basis financial statements to be filed with insurance regulators. |
|---|
CNA’s domestic insurance subsidiaries are subject to risk-based capital (“RBC”) requirements. RBC is a method developed by the NAIC to determine the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. The formula for determining the amount of RBC specifies various factors, weighted based on the perceived degree of risk, which are applied to certain financial balances and financial activity. The adequacy of a company’s actual capital is evaluated by a comparison to the RBC results, as determined by the formula. Companies below minimum RBC requirements are classified within certain levels, each of which requires specified corrective action.
The statutory capital and surplus presented above for CCC was approximately 266% and 264% of company action level RBC at December 31, 2018 and 2017. Company action level RBC is the level of RBC which triggers a heightened level of regulatory supervision. The statutory capital and surplus of CCC’s foreign insurance subsidiaries, which is not significant to the overall statutory capital and surplus, also met or exceeded their respective regulatory and other capital requirements.
Note 1 5. Benefit Plans
Pension Plans – The Company and its subsidiaries have several non-contributory defined benefit plans for eligible employees. Benefits for certain plans are determined annually based on a specified percentage of annual earnings (based on the participant’s age or years of service) and a specified interest rate (which is established annually for all participants) applied to accrued balances. The benefits for another plan which covers salaried employees are based on formulas which include, among others, years of service and average pay. The Company and its subsidiaries’ funding policy is to make contributions in accordance with applicable governmental regulatory requirements.
Other Postretirement Benefit Plans – The Company and its subsidiaries have several postretirement benefit plans covering eligible employees and retirees. Participants generally become eligible after reaching age 55 with required years of service. Actual requirements for coverage vary by plan. Benefits for retirees who were covered by bargaining agreements vary by each unit and contract. Benefits for certain retirees are in the form of a Company health care account.
Benefits for retirees reaching age 65 are generally integrated with Medicare. Other retirees, based on plan provisions, must use Medicare as their primary coverage, with the Company and its subsidiaries reimbursing a portion of the unpaid amount; or are reimbursed for the Medicare Part B premium or have no Company coverage. The benefits provided by the Company and its subsidiaries are basically health and, for certain retirees, life insurance type benefits.
The Company and its subsidiaries fund certain of these benefit plans, and accrue postretirement benefits during the active service of those employees who would become eligible for such benefits when they retire. The Company and its subsidiaries use December 31 as the measurement date for their plans.
Weighted average assumptions used to determine benefit obligations:
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
| December 31 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||||||||||||||||||
| Discount rate | 4.1% | 3.5% | 3.9% | 4.1% | 3.4% | 3.7% | ||||||||||||||||||
| Expected long term rate of return on plan assets | 7.5% | 7.5% | 7.5% | 5.3% | 5.3% | 5.3% | ||||||||||||||||||
| Interest crediting rate | 3.8% | 3.7% | 3.7% | |||||||||||||||||||||
| Rate of compensation increase | 3.9% to 5.5% | 3.9% to 5.5% | 3.9% to 5.5% |
Weighted average assumptions used to determine net periodic benefit cost:
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
| Year Ended December 31 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||||||||||||||||||
| Discount rate | 3.6% | 3.8% | 4.0% | 3.4% | 3.7% | 3.7% | ||||||||||||||||||
| Expected long term rate of return on plan assets | 7.5% | 7.5% | 7.5% | 5.3% | 5.3% | 5.3% | ||||||||||||||||||
| Interest crediting rate | 3.7% | 3.7% | 3.7% | |||||||||||||||||||||
| Rate of compensation increase | 3.9% to 5.5% | 3.9% to 5.5% | 3.5% to 5.5% |
In determining the discount rate assumption, we utilize current market and liability information, including a discounted cash flow analysis of our pension and postretirement obligations. In particular, the basis for our discount rate selection was the yield on indices of highly rated fixed income debt securities with durations comparable to that of our plan liabilities. The yield curve was applied to expected future retirement plan payments to adjust the discount rate to reflect the cash flow characteristics of the plans. The yield curves and indices evaluated in the selection of the discount rate are comprised of high quality corporate bonds that are rated AA by an accepted rating agency.
The expected long term rate of return for plan assets is determined based on widely-accepted capital market principles, long term return analysis for global fixed income and equity markets as well as the active total return oriented portfolio management style. Long term trends are evaluated relative to market factors such as inflation, interest rates and fiscal and monetary policies, in order to assess the capital market assumptions as applied to the plan. Consideration of diversification needs and rebalancing is maintained.
Assumed health care cost trend rates:
| December 31 | 2018 | 2017 | 2016 | |||||||||
| Health care cost trend rate assumed for next year | 4.0% to 6.5% | 4.0% to 7.0% | 4.0% to 7.0% | |||||||||
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.0% to 5.0% | 4.0% to 5.0% | 4.0% to 5.0% | |||||||||
| Year that the rate reaches the ultimate trend rate | 2019-2022 | 2018-2022 | 2017-2021 |
Net periodic benefit cost components:
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||||
| Year Ended December 31 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Service cost | $ | 8 | $ | 8 | $ | 8 | $ 1 | $ | 1 | $ 1 | ||||||||||||||||
| Interest cost | 110 | 119 | 128 | 2 | 2 | 3 | ||||||||||||||||||||
| Expected return on plan assets | (179 | ) | (173 | ) | (177 | ) | (5 | ) | (5 | ) | (5) | |||||||||||||||
| Amortization of unrecognized net loss | 42 | 43 | 46 | (1 | ) | |||||||||||||||||||||
| Amortization of unrecognized prior service benefit | (1 | ) | (2 | ) | (2 | ) | (3) | |||||||||||||||||||
| Settlement | 9 | 11 | 3 | |||||||||||||||||||||||
| Net periodic benefit cost | $ | (10) | $ | 8 | $ | 7 | $ (5 | ) | $ | (4 | ) | $ (4) | ||||||||||||||
The following provides a reconciliation of benefit obligations and plan assets:
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (In millions) | ||||||||||||||||
| Change in benefit obligation: | ||||||||||||||||
| Benefit obligation at January 1 | $ | 3,242 | $ | 3,131 | $ | 62 | $ | 66 | ||||||||
| Acquisitions | 103 | |||||||||||||||
| Service cost | 8 | 8 | 1 | 1 | ||||||||||||
| Interest cost | 110 | 119 | 2 | 2 | ||||||||||||
| Plan participants’ contributions | 4 | 5 | ||||||||||||||
| Amendments | ||||||||||||||||
| Actuarial (gain) loss | (212 | ) | 100 | (6 | ) | (1) | ||||||||||
| Benefits paid from plan assets | (187 | ) | (192 | ) | (10 | ) | (11) | |||||||||
| Settlements | (35 | ) | (37 | ) | ||||||||||||
| Foreign exchange | (7 | ) | 10 | |||||||||||||
| Benefit obligation at December 31 | 2,919 | 3,242 | 53 | 62 | ||||||||||||
| Change in plan assets: | ||||||||||||||||
| Fair value of plan assets at January 1 | 2,577 | 2,423 | 88 | 86 | ||||||||||||
| Acquisitions | 75 | |||||||||||||||
| Actual return on plan assets | (83 | ) | 247 | 5 | ||||||||||||
| Company contributions | 39 | 51 | 3 | 3 | ||||||||||||
| Plan participants’ contributions | 4 | 5 | ||||||||||||||
| Benefits paid from plan assets | (187 | ) | (192 | ) | (10 | ) | (11) | |||||||||
| Settlements | (35 | ) | (37 | ) | ||||||||||||
| Foreign exchange | (7 | ) | 10 | |||||||||||||
| Fair value of plan assets at December 31 | 2,304 | 2,577 | 85 | 88 | ||||||||||||
| Funded status | $ | (615 | ) | $ | (665 | ) | $ | 32 | $ | 26 | ||||||
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (In millions) | ||||||||||||||||
| Amounts recognized in the Consolidated Balance Sheets consist of: | ||||||||||||||||
| Other assets | $ 9 | $ 4 | $ 49 | $ 47 | ||||||||||||
| Other liabilities | (624) | (669) | (17 | ) | (21) | |||||||||||
| Net amount recognized | $ (615) | $ (665) | $ 32 | $ 26 | ||||||||||||
| Amounts recognized in Accumulated other comprehensive income (loss), not yet recognized in net periodic (benefit) cost: | ||||||||||||||||
| Prior service credit | $ (2) | $ (3) | $ (1) | $ (3) | ||||||||||||
| Net actuarial loss | 1,065 | 1,069 | (3) | (3) | ||||||||||||
| Net amount recognized | $ 1,063 | $ 1,066 | $ (4) | $ (6) | ||||||||||||
| Information for plans with projected and accumulated benefit obligations in excess of plan assets: | ||||||||||||||||
| Projected benefit obligation | $ 2,825 | $ 3,132 | ||||||||||||||
| Accumulated benefit obligation | 2,813 | 3,117 | $ 18 | $ 21 | ||||||||||||
| Fair value of plan assets | 2,201 | 2,462 |
The accumulated benefit obligation for all defined benefit pension plans was $2.9 billion and $3.2 billion at December 31, 2018 and 2017. Changes for the years ended December 31, 2018 and 2017 include actuarial (gains) losses of $(212) million and $100 million primarily driven by changes in the discount rate used to determine the benefit obligations.
The Company and its subsidiaries employ a total return approach whereby a mix of equity and fixed maturity securities are used to maximize the long term return of plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. The intent of this strategy is to minimize expenses by generating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. The investment portfolio contains a diversified blend of fixed maturity, equity and short term securities. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2018, the Company and its subsidiaries had committed $99 million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships. Investment risk is monitored through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
The table below presents the estimated future minimum benefit payments at December 31, 2018.
| Expected future benefit payments | Pension Benefits | Other Postretirement Benefits | ||||||
| (In millions) | ||||||||
| 2019 | $ 218 | $ 5 | ||||||
| 2020 | 223 | 5 | ||||||
| 2021 | 210 | 5 | ||||||
| 2022 | 218 | 4 | ||||||
| 2023 | 214 | 4 | ||||||
| 2024 – 2028 | 1,026 | 16 |
In 2019, it is expected that contributions of approximately $14 million will be made to pension plans and $2 million to postretirement health care and life insurance benefit plans.
Pension plan assets measured at fair value on a recurring basis are summarized below.
| December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
| Plan assets at fair value: | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Corporate and other bonds | $ | 472 | $ | 10 | $ | 482 | ||||||||||
| States, municipalities and political subdivisions | 58 | 58 | ||||||||||||||
| Asset-backed | 165 | 165 | ||||||||||||||
| Total fixed maturities | $ | - | 695 | 10 | 705 | |||||||||||
| Equity securities | 406 | 110 | 516 | |||||||||||||
| Short term investments | 36 | 54 | 90 | |||||||||||||
| Fixed income mutual funds | 120 | 120 | ||||||||||||||
| Other assets | 9 | 9 | ||||||||||||||
| Total plan assets at fair value | $ | 562 | $ | 868 | $ | 10 | $ | 1,440 | ||||||||
| Plan assets at net asset value: (a) | ||||||||||||||||
| Limited partnerships | 864 | |||||||||||||||
| Total plan assets | $ | 562 | $ | 868 | $ | 10 | $ | 2,304 | ||||||||
| December 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
| Plan assets at fair value: | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Corporate and other bonds | $ | 522 | $ | 10 | $ | 532 | ||||||||||
| States, municipalities and political subdivisions | 62 | 62 | ||||||||||||||
| Asset-backed | 182 | 182 | ||||||||||||||
| Total fixed maturities | $ | - | 766 | 10 | 776 | |||||||||||
| Equity securities | 449 | 122 | 571 | |||||||||||||
| Short term investments | 29 | 11 | 40 | |||||||||||||
| Fixed income mutual funds | 96 | 96 | ||||||||||||||
| Other assets | 13 | 9 | 22 | |||||||||||||
| Total plan assets at fair value | $ | 587 | $ | 908 | $ | 10 | $ | 1,505 | ||||||||
| Plan assets at net asset value: (a) | ||||||||||||||||
| Limited partnerships | 990 | |||||||||||||||
| Collective investment trust funds | 82 | |||||||||||||||
| Total plan assets | $ | 587 | $ | 908 | $ | 10 | $ | 2,577 | ||||||||
| (a) | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table for these investments are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. |
|---|
The limited partnership investments held within the plans are recorded at fair value, which represents the plans’ shares of the net asset value of each partnership, as determined by the general partner. Limited partnerships comprising 82% and 86% of the carrying value as of December 31, 2018 and 2017 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets and the remainder were primarily invested in private debt and equity. Within hedge fund strategies, approximately 66% were equity related, 28% pursued a multi-strategy approach and 6% were focused on distressed investments at December 31, 2018.
For a discussion of the valuation methodologies used to measure fixed maturity securities, equities and short term investments, see Note 4.
Other postretirement benefits plan assets measured at fair value on a recurring basis are summarized below.
| December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| (In millions) | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Corporate and other bonds | $ | 24 | $ | 24 | ||||||||||||
| States, municipalities and political subdivisions | 11 | 11 | ||||||||||||||
| Asset-backed | 30 | 30 | ||||||||||||||
| Total fixed maturities | $ | - | 65 | $ | - | 65 | ||||||||||
| Short term investments | 4 | 4 | ||||||||||||||
| Fixed income mutual funds | 16 | 16 | ||||||||||||||
| Total | $ | 20 | $ | 65 | $ | - | $ | 85 | ||||||||
| December 31, 2017 | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Corporate and other bonds | $ | 18 | $ | 18 | ||||||||||||
| States, municipalities and political subdivisions | 42 | 42 | ||||||||||||||
| Asset-backed | 12 | 12 | ||||||||||||||
| Total fixed maturities | $ | - | 72 | $ | - | 72 | ||||||||||
| Short term investments | 2 | 2 | ||||||||||||||
| Fixed income mutual funds | 14 | 14 | ||||||||||||||
| Total | $ | 16 | $ | 72 | $ | - | $ | 88 | ||||||||
There were no Level 3 assets at December 31, 2018 and 2017.
Savings Plans – The Company and its subsidiaries have several contributory savings plans which allow employees to make regular contributions based upon a percentage of their salaries. Matching contributions are made up to specified percentages of employees’ contributions. The contributions by the Company and its subsidiaries to these plans amounted to $100 million, $105 million and $107 million for the years ended December 31, 2018, 2017 and 2016.
Stock-based Compensation – In 2016, shareholders approved the Loews Corporation 2016 Incentive Compensation Plan (the “2016 Loews Plan”) which replaced a previously existing plan. The aggregate number of shares of Loews common stock authorized under the 2016 Loews Plan is 6,000,000 shares, plus up to 3,000,000 shares that may be forfeited under the prior plan. The maximum number of shares of Loews common stock with respect to which awards may be granted to any individual in any calendar year is 500,000 shares. In accordance with the 2016 Loews Plan and the prior plan, the Company’s stock-based compensation consists of the following:
SARs: SARs were granted under the prior plan. The exercise price per share may not be less than the fair market value of the common stock on the date of grant. Generally, SARs vest ratably over a four-year period and expire in ten years.
Time-based Restricted Stock Units: Time-based restricted stock units (“RSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested RSU. Generally, RSUs vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.
Performance-based Restricted Stock Units: Performance-based RSUs (“PSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested PSU, subject to the achievement of specified performance goals by the Company. Generally, performance-based RSUs vest, if performance goals are satisfied, 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.
In 2018, the Company granted an aggregate of 235,231 RSUs and PSUs at a weighted average grant-date fair value of $47.71 per unit. 33,923 RSUs were forfeited during the year. 3,470,953 SARs were outstanding at December 31, 2018 with a weighted average exercise price of $39.90.
The Company recognized compensation expense that decreased net income by $35 million, $33 million and $32 million for the years ended December 31, 2018, 2017 and 2016. Several of the Company’s subsidiaries also maintain their own stock-based compensation plans. Such amounts include the Company’s share of expense related to its subsidiaries’ plans.
Note 16. Reinsurance
CNA cedes insurance to reinsurers to limit its maximum loss, provide greater diversification of risk, minimize exposures on larger risks and to exit certain lines of business. The ceding of insurance does not discharge the primary liability of CNA. A credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet its obligations. A collectability exposure also exists to the extent that the reinsurer disputes the liabilities assumed under reinsurance agreements. Property and casualty reinsurance coverages are tailored to the specific risk characteristics of each product line and CNA’s retained amount varies by type of coverage. Reinsurance contracts are purchased to protect specific lines of business such as property and workers’ compensation. Corporate catastrophe reinsurance is also purchased for property and workers’ compensation exposure. CNA also utilizes facultative reinsurance in certain lines. In addition, CNA assumes reinsurance, primarily through Hardy and as a member of various reinsurance pools and associations.
The following table presents the amounts receivable from reinsurers:
| December 31 | 2018 | 2017 | ||||||
| (In millions) | ||||||||
| Reinsurance receivables related to insurance reserves: | ||||||||
| Ceded claim and claim adjustment expenses | $ | 4,019 | $ | 3,934 | ||||
| Ceded future policy benefits | 233 | 230 | ||||||
| Reinsurance receivables related to paid losses | 203 | 126 | ||||||
| Reinsurance receivables | 4,455 | 4,290 | ||||||
| Less allowance for doubtful accounts | 29 | 29 | ||||||
| Reinsurance receivables, net of allowance for doubtful accounts | $ | 4,426 | $ | 4,261 | ||||
CNA has established an allowance for doubtful accounts on reinsurance receivables related to credit risk. CNA reviews the allowance quarterly and adjusts the allowance as necessary to reflect changes in estimates of uncollectible balances. The allowance may also be reduced by write-offs of reinsurance receivable balances.
CNA attempts to mitigate its credit risk related to reinsurance by entering into reinsurance arrangements with reinsurers that have credit ratings above certain levels and by obtaining collateral. On a limited basis, CNA may enter into reinsurance agreements with reinsurers that are not rated, primarily captive reinsurers. The primary methods of obtaining collateral are through reinsurance trusts, letters of credit and funds withheld balances. Such collateral was approximately $3.2 billion and $2.9 billion at December 31, 2018 and 2017.
CNA’s largest recoverables from a single reinsurer, including ceded unearned premium reserves as of December 31, 2018 were approximately $2.2 billion from a subsidiary of Berkshire Hathaway Insurance Group, $278 million from the Gateway Rivers Insurance Company and $233 million from subsidiaries of Wilton Re. These amounts are substantially collateralized. The recoverable from the Berkshire Hathaway Insurance Group includes amounts related to third party reinsurance for which NICO has assumed the credit risk under the terms of the loss portfolio transfer as discussed in Note 8.
The effects of reinsurance on earned premiums are presented in the following table:
| Assumed/ | ||||||||||||||||||||
| Direct | Assumed | Ceded | Net | Net % | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Year Ended December 31, 2018 | ||||||||||||||||||||
| Property and casualty | $ | 10,857 | $ | 305 | $ | 4,380 | $ | 6,782 | 4.5 | % | ||||||||||
| Long term care | 480 | 50 | 530 | 9.4 | ||||||||||||||||
| Earned premiums | $ | 11,337 | $ | 355 | $ | 4,380 | $ | 7,312 | 4.9 | % | ||||||||||
| Year Ended December 31, 2017 | ||||||||||||||||||||
| Property and casualty | $ | 10,447 | $ | 317 | $ | 4,315 | $ | 6,449 | 4.9 | % | ||||||||||
| Long term care | 489 | 50 | 539 | 9.3 | ||||||||||||||||
| Earned premiums | $ | 10,936 | $ | 367 | $ | 4,315 | $ | 6,988 | 5.3 | % | ||||||||||
| Year Ended December 31, 2016 | ||||||||||||||||||||
| Property and casualty | $ | 10,400 | $ | 258 | $ | 4,270 | $ | 6,388 | 4.0 | % | ||||||||||
| Long term care | 486 | 50 | 536 | 9.3 | ||||||||||||||||
| Earned premiums | $ | 10,886 | $ | 308 | $ | 4,270 | $ | 6,924 | 4.4 | % | ||||||||||
Included in the direct and ceded earned premiums for the years ended December 31, 2018, 2017 and 2016 are $3.7 billion, $3.9 billion and $3.9 billion related to property business that is 100% reinsured under a significant third party captive program. The third party captives that participate in this program are affiliated with the non-insurance company policyholders, therefore this program provides a means for the policyholders to self-insure this property risk. CNA receives and retains a ceding commission.
Long term care premiums are from long duration contracts; property and casualty premiums are from short duration contracts.
Insurance claims and policyholders’ benefits reported on the Consolidated Statements of Income are net of reinsurance recoveries of $2.8 billion, $3.1 billion and $3.0 billion for the years ended December 31, 2018, 2017 and 2016, including $1.9 billion, $2.5 billion and $2.6 billion related to the significant third party captive program discussed above.
Note 17. Quarterly Financial Data (Unaudited)
| 2018 Quarter Ended | Dec. 31 | Sept. 30 | June 30 | March 31 | ||||||||||||
| (In millions, except per share data) | ||||||||||||||||
| Total revenues | $ | 3,287 | $ | 3,608 | $ | 3,590 | $ | 3,581 | ||||||||
| Net income (loss) (a) | (165 | ) | 278 | 230 | 293 | |||||||||||
| Per share-basic and diluted | (0.53 | ) | 0.88 | 0.72 | 0.89 | |||||||||||
| 2017 Quarter Ended | ||||||||||||||||
| Total revenues (b) | $ | 3,555 | $ | 3,521 | $ | 3,359 | $ | 3,300 | ||||||||
| Net income (c) | 481 | 157 | 231 | 295 | ||||||||||||
| Per share-basic | 1.43 | 0.46 | 0.69 | 0.88 | ||||||||||||
| Per share-diluted | 1.43 | 0.46 | 0.69 | 0.87 |
The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.
| (a) | Net loss for the fourth quarter of 2018 includes a loss on limited partnership and common stock investments of $97 million (after tax and noncontrolling interests), catastrophe losses of $96 million (after tax and noncontrolling interests) and net investment losses of $57 million (after tax). |
|---|
| (b) | Prior period amounts have not been adjusted under the modified retrospective method of adoption of ASU 2014-09 or under the adoption of ASU 2016-01. See Note 1 for more information on these accounting standards. |
|---|
| (c) | Net income for the fourth quarter of 2017 includes the impact of a $200 million net benefit resulting from the enactment of the Tax Act. |
|---|
Note 18. Legal Proceedings
Boardwalk Pipeline
On May 25, 2018, plaintiffs Tsemach Mishal and Paul Berger (on behalf of themselves and the purported class, “Plaintiffs”) initiated a purported class action in the Court of Chancery of the State of Delaware (the “Court”) against the following defendants, Boardwalk Pipeline, the General Partner, Boardwalk GP, LLC and BPHC (together, “Defendants”), regarding the potential exercise by the General Partner of its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipeline not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of the Limited Partnership Agreement. On June 25, 2018, Plaintiffs and Defendants entered into a Stipulation and Agreement of Compromise and Settlement, subject to the approval of the Court (the “Proposed Settlement”). Under the terms of the Proposed Settlement, the lawsuit would be dismissed, and related claims against the Defendants would be released by the Plaintiffs, if BPHC, the sole member of the General Partner, elected to cause the General Partner to exercise its right to purchase the issued and outstanding common units of the Partnership within a period specified by the Proposed Settlement. As discussed in Note 2, on June 29, 2018, the General Partner elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipeline not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of the Limited Partnership Agreement within the period specified by the Proposed Settlement. The transaction was completed on July 18, 2018. On September 28, 2018, the Court denied approval of the Proposed Settlement. On February 11, 2019, a substitute verified class action complaint was filed in this proceeding. The Company is evaluating its response to this new complaint.
The Company and its subsidiaries are from time to time parties to other litigation arising in the ordinary course of business. While it is difficult to predict the outcome or effect of any such litigation, management does not believe that the outcome of any such pending litigation will materially affect the Company’s results of operations or equity.
Note 19. Commitments and Contingencies
CNA Guarantees
In the course of selling business entities and assets to third parties, CNA agreed to guarantee the performance of certain obligations of previously owned subsidiaries and to indemnify purchasers for losses arising out of breaches of representations and warranties with respect to the business entities or assets sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such guarantee and indemnification agreements in effect for sales of business entities, assets and third party loans may include provisions that survive indefinitely. As of December 31, 2018, the aggregate amount related to quantifiable guarantees was $375 million and the aggregate amount related to quantifiable indemnification agreements was $252 million. In certain cases, should CNA be required to make payments under any such guarantee, it would have the right to seek reimbursement from an affiliate of a previously owned subsidiary.
In addition, CNA has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of December 31, 2018, CNA 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.
CNA also provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities provided by a previously owned subsidiary. As of December 31, 2018, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $1.8 billion, which will be paid over the lifetime of the annuitants. CNA does not believe any payment is likely under these guarantees, as CNA is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.
CNA Small Business Premium Rate Adjustment
In 2016 and 2017, CNA identified rating errors related to its multi-peril package product and workers’ compensation policies within its Small Business unit and determined that it would voluntarily issue premium refunds along with interest on affected policies. After the rating errors were identified, written and earned premium were reported net of any impact from the premium rate adjustments.
The policyholder refunds for the multi-peril package product were completed in the third quarter of 2017. The policyholder refunds for workers’ compensation policies were completed in the fourth quarter of 2018.
For the year ended December 31, 2016, CNA recorded a charge which reduced earned premium by $16 million. For the year ended December 31, 2017, earned premium was reduced by $36 million. For the year ended December 31, 2018 earned premium increased by $6 million, as a result of a change in estimate of the refund payments to policyholders. Additionally, Interest expense recognized for interest due to policyholders on the premium rate adjustments was $1 million and $7 million for the years ended December 31, 2018 and 2017.
Note 20. Segments
The Company has five reportable segments comprised of four individual operating subsidiaries, CNA, Diamond Offshore, Boardwalk Pipeline and Loews Hotels & Co; and the Corporate segment. The operations of Consolidated Container since the acquisition date are included in the Corporate segment. Each of the operating subsidiaries is headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position.
CNA’s business is the sale of property and casualty insurance coverage primarily through a network of independent agents, brokers and managing general underwriters. CNA’s operations also include its long term care business that is in run-off, certain corporate expenses, including interest on CNA’s corporate debt, and certain property and casualty businesses in run-off, including CNA Re and A&EP.
Diamond Offshore provides contract drilling services to the energy industry around the world with a fleet of 17 offshore drilling rigs consisting of four drillships and 13 semisubmersible rigs.
Boardwalk Pipeline is engaged in the interstate transportation and storage of natural gas and NGLs. This segment consists of interstate natural gas pipeline systems located in the Gulf Coast region, Oklahoma, Arkansas and the midwestern states of Tennessee, Kentucky, Illinois, Indiana and Ohio, natural gas storage facilities in four states and NGL pipelines and storage facilities in Louisiana and Texas, with approximately 14,230 miles of pipeline.
Loews Hotels & Co operates a chain of 24 hotels, 22 of which are in the United States and two of which are in Canada.
The Corporate segment consists of investment income from the Parent Company’s cash and investments, interest expense, other unallocated expenses and the results of Consolidated Container since the acquisition date. Purchase accounting adjustments have been pushed down to the appropriate subsidiary.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1.
In the following tables certain financial measures are presented to provide information used by management to monitor the Company’s operating performance. These schedules present the reportable segments of the Company and their contribution to the consolidated financial statements. Amounts presented will not necessarily be the same as those in the individual financial statements of the Company’s subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling interests.
Statements of Income and Total assets by segment are presented in the following tables.
| CNA | Diamond | Boardwalk | Loews | |||||||||||||||||||||
| Year Ended December 31, 2018 | Financial | Offshore | Pipeline | Hotels & Co | Corporate | Total | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Insurance premiums | $ | 7,312 | $ | 7,312 | ||||||||||||||||||||
| Net investment income (loss) | 1,817 | $ | 8 | $ | 2 | $ | (10 | ) | 1,817 | |||||||||||||||
| Investment losses | (57) | (57) | ||||||||||||||||||||||
| Non-insurance warranty revenue (Notes 1 and 13) | 1,007 | 1,007 | ||||||||||||||||||||||
| Operating revenues and other | 55 | 1,085 | $ | 1,227 | 753 | 867 | 3,987 | |||||||||||||||||
| Total | 10,134 | 1,093 | 1,227 | 755 | 857 | 14,066 | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 5,572 | 5,572 | ||||||||||||||||||||||
| Amortization of deferred acquisition costs | 1,335 | 1,335 | ||||||||||||||||||||||
| Non-insurance warranty expense (Notes 1 and 13) | 923 | 923 | ||||||||||||||||||||||
| Operating expenses and other | 1,203 | 1,196 | 820 | 653 | 956 | 4,828 | ||||||||||||||||||
| Interest | 138 | 123 | 176 | 29 | 108 | 574 | ||||||||||||||||||
| Total | 9,171 | 1,319 | 996 | 682 | 1,064 | 13,232 | ||||||||||||||||||
| Income (loss) before income tax | 963 | (226 | ) | 231 | 73 | (207 | ) | 834 | ||||||||||||||||
| Income tax (expense) benefit | (151) | 30 | (28 | ) | (25 | ) | 46 | (128) | ||||||||||||||||
| Net income (loss) | 812 | (196 | ) | 203 | 48 | (161 | ) | 706 | ||||||||||||||||
| Amounts attributable to noncontrolling interests | (86) | 84 | (68 | ) | (70) | |||||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 726 | $ | (112 | ) | $ | 135 | $ | 48 | $ | (161 | ) | $ | 636 | ||||||||||
| December 31, 2018 | ||||||||||||||||||||||||
| Total assets | $ | 57,123 | $ | 6,036 | $ | 9,131 | $ | 1,812 | $ | 4,214 | $ | 78,316 |
| CNA | Diamond | Boardwalk | Loews | |||||||||||||||||||||
| Year Ended December 31, 2017 | Financial | Offshore | Pipeline | Hotels & Co | Corporate | Total | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Insurance premiums | $ | 6,988 | $ | 6,988 | ||||||||||||||||||||
| Net investment income | 2,034 | $ | 2 | $ | 146 | 2,182 | ||||||||||||||||||
| Investment gains | 122 | 122 | ||||||||||||||||||||||
| Non-insurance warranty revenue (Notes 1 and 13) | 390 | 390 | ||||||||||||||||||||||
| Operating revenues and other | 49 | 1,498 | $ | 1,325 | $ | 682 | 499 | 4,053 | ||||||||||||||||
| Total | 9,583 | 1,500 | 1,325 | 682 | 645 | 13,735 | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 5,310 | 5,310 | ||||||||||||||||||||||
| Amortization of deferred acquisition costs | 1,233 | 1,233 | ||||||||||||||||||||||
| Non-insurance warranty expense (Notes 1 and 13) | 299 | 299 | ||||||||||||||||||||||
| Operating expenses and other | 1,224 | 1,373 | 861 | 589 | 618 | 4,665 | ||||||||||||||||||
| Interest | 203 | 149 | 171 | 28 | 95 | 646 | ||||||||||||||||||
| Total | 8,269 | 1,522 | 1,032 | 617 | 713 | 12,153 | ||||||||||||||||||
| Income (loss) before income tax | 1,314 | (22 | ) | 293 | 65 | (68 | ) | 1,582 | ||||||||||||||||
| Income tax (expense) benefit | (419 | ) | 4 | 232 | (1 | ) | 14 | (170 | ) | |||||||||||||||
| Net income (loss) | 895 | (18 | ) | 525 | 64 | (54 | ) | 1,412 | ||||||||||||||||
| Amounts attributable to noncontrolling interests | (94 | ) | (9 | ) | (145 | ) | (248 | ) | ||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 801 | $ | (27 | ) | $ | 380 | $ | 64 | $ | (54 | ) | $ | 1,164 | ||||||||||
| December 31, 2017 | ||||||||||||||||||||||||
| Total assets | $ | 56,539 | $ | 6,251 | $ | 8,972 | $ | 1,558 | $ | 6,266 | $ | 79,586 |
| CNA | Diamond | Boardwalk | Loews | |||||||||||||||||||||
| Year Ended December 31, 2016 | Financial | Offshore | Pipeline | Hotels & Co | Corporate | Total | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Insurance premiums | $ | 6,924 | $ | 6,924 | ||||||||||||||||||||
| Net investment income | 1,988 | $ | 1 | $ | 146 | 2,135 | ||||||||||||||||||
| Investment gains (losses) | 62 | (12 | ) | 50 | ||||||||||||||||||||
| Non-insurance warranty revenue (Notes 1 and 13) | 361 | 361 | ||||||||||||||||||||||
| Operating revenues and other | 49 | 1,600 | $ | 1,316 | $ | 667 | 3 | 3,635 | ||||||||||||||||
| Total | 9,384 | 1,589 | 1,316 | 667 | 149 | 13,105 | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 5,283 | 5,283 | ||||||||||||||||||||||
| Amortization of deferred acquisition costs | 1,235 | 1,235 | ||||||||||||||||||||||
| Non-insurance warranty expense (Notes 1 and 13) | 271 | 271 | ||||||||||||||||||||||
| Operating expenses and other | 1,287 | 1,970 | 835 | 621 | 131 | 4,844 | ||||||||||||||||||
| Interest | 167 | 90 | 183 | 24 | 72 | 536 | ||||||||||||||||||
| Total | 8,243 | 2,060 | 1,018 | 645 | 203 | 12,169 | ||||||||||||||||||
| Income (loss) before income tax | 1,141 | (471 | ) | 298 | 22 | (54 | ) | 936 | ||||||||||||||||
| Income tax (expense) benefit | (279 | ) | 111 | (61 | ) | (10 | ) | 19 | (220 | ) | ||||||||||||||
| Net income (loss) | 862 | (360 | ) | 237 | 12 | (35 | ) | 716 | ||||||||||||||||
| Amounts attributable to noncontrolling interests | (88 | ) | 174 | (148 | ) | (62 | ) | |||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 774 | $ | (186 | ) | $ | 89 | $ | 12 | $ | (35 | ) | $ | 654 | ||||||||||
Previous: Item 7A. Quantitative and Qualitative Disclosures about Market Risk. · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.