filings.toolsItem 1. Financial Statements.
137K characters. Original on sec.gov · Markdown
Item 1. Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||||
| (Dollar amounts in millions, except per share data) | ||||||||
| Assets: | ||||||||
| Investments: | ||||||||
| Fixed maturities, amortized cost of $40,342 and $38,963, less allowance for credit loss of $31 and $40 | $ | 45,069 | $ | 44,646 | ||||
| Equity securities, cost of $1,552 and $1,456 | 1,660 | 1,561 | ||||||
| Limited partnership investments | 1,996 | 1,798 | ||||||
| Other invested assets, primarily mortgage loans, less allowance for credit loss of $26 and $26 | 1,140 | 1,165 | ||||||
| Short term investments | 4,178 | 4,674 | ||||||
| Total investments | 54,043 | 53,844 | ||||||
| Cash | 811 | 478 | ||||||
| Receivables | 9,187 | 7,833 | ||||||
| Property, plant and equipment | 9,878 | 10,451 | ||||||
| Goodwill | 349 | 785 | ||||||
| Deferred non-insurance warranty acquisition expenses | 3,418 | 3,068 | ||||||
| Deferred acquisition costs of insurance subsidiaries | 721 | 708 | ||||||
| Other assets | 3,319 | 3,069 | ||||||
| Total assets | $ | 81,726 | $ | 80,236 | ||||
| Liabilities and Equity: | ||||||||
| Insurance reserves: | ||||||||
| Claim and claim adjustment expense | $ | 23,832 | $ | 22,706 | ||||
| Future policy benefits | 13,198 | 13,318 | ||||||
| Unearned premiums | 5,577 | 5,119 | ||||||
| Total insurance reserves | 42,607 | 41,143 | ||||||
| Payable to brokers | 665 | 92 | ||||||
| Short term debt | 187 | 37 | ||||||
| Long term debt | 8,925 | 10,072 | ||||||
| Deferred income taxes | 1,089 | 1,065 | ||||||
| Deferred non-insurance warranty revenue | 4,443 | 4,023 | ||||||
| Other liabilities | 4,680 | 4,623 | ||||||
| Total liabilities | 62,596 | 61,055 | ||||||
| Commitments and contingent liabilities | ||||||||
| Preferred stock, $0.10 par value: | ||||||||
| Authorized – 100,000,000 shares | ||||||||
| Common stock, $0.01 par value: | ||||||||
| Authorized – 1,800,000,000 shares | ||||||||
| Issued – 269,574,153 and 269,360,973 shares | 3 | 3 | ||||||
| Additional paid-in capital | 3,120 | 3,133 | ||||||
| Retained earnings | 15,336 | 14,150 | ||||||
| Accumulated other comprehensive income | 191 | 581 | ||||||
| 18,650 | 17,867 | |||||||
| Less treasury stock, at cost (15,807,106 and 150,000 shares) | (833 | ) | (7 | ) | ||||
| Total shareholders’ equity | 17,817 | 17,860 | ||||||
| Noncontrolling interests | 1,313 | 1,321 | ||||||
| Total equity | 19,130 | 19,181 | ||||||
| Total liabilities and equity | $ | 81,726 | $ | 80,236 |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions, except per share data) | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Insurance premiums | $ | 2,059 | $ | 1,953 | $ | 6,056 | $ | 5,672 | ||||||||
| Net investment income | 483 | 540 | 1,649 | 1,347 | ||||||||||||
| Investment gains (losses) (Note 2) | 22 | 46 | 657 | (1,312 | ) | |||||||||||
| Non-insurance warranty revenue | 357 | 317 | 1,054 | 926 | ||||||||||||
| Operating revenues and other | 450 | 609 | 1,580 | 2,241 | ||||||||||||
| Total | 3,371 | 3,465 | 10,996 | 8,874 | ||||||||||||
| Expenses: | ||||||||||||||||
| Insurance claims and policyholders’ benefits | 1,632 | 1,616 | 4,684 | 4,683 | ||||||||||||
| Amortization of deferred acquisition costs | 368 | 360 | 1,084 | 1,046 | ||||||||||||
| Non-insurance warranty expense | 330 | 293 | 973 | 859 | ||||||||||||
| Operating expenses and other | 638 | 876 | 2,208 | 3,894 | ||||||||||||
| Interest | 99 | 137 | 324 | 404 | ||||||||||||
| Total | 3,067 | 3,282 | 9,273 | 10,886 | ||||||||||||
| Income (loss) before income tax | 304 | 183 | 1,723 | (2,012 | ) | |||||||||||
| Income tax (expense) benefit | (58 | ) | (21 | ) | (391 | ) | 284 | |||||||||
| Net income (loss) | 246 | 162 | 1,332 | (1,728 | ) | |||||||||||
| Amounts attributable to noncontrolling interests | (26 | ) | (23 | ) | (97 | ) | 400 | |||||||||
| Net income (loss) attributable to Loews Corporation | $ | 220 | $ | 139 | $ | 1,235 | $ | (1,328 | ) | |||||||
| Basic net income (loss) per share | $ | 0.86 | $ | 0.50 | $ | 4.71 | $ | (4.70 | ) | |||||||
| Diluted net income (loss) per share | $ | 0.85 | $ | 0.50 | $ | 4.70 | $ | (4.70 | ) | |||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Shares of common stock | 256.76 | 279.40 | 262.27 | 282.63 | ||||||||||||
| Dilutive potential shares of common stock | 0.54 | 0.09 | 0.50 | |||||||||||||
| Total weighted average shares outstanding assuming dilution | 257.30 | 279.49 | 262.77 | 282.63 |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions) | ||||||||||||||||
| Net income (loss) | $ | 246 | $ | 162 | $ | 1,332 | $ | (1,728 | ) | |||||||
| Other comprehensive income (loss), after tax | ||||||||||||||||
| Changes in: | ||||||||||||||||
| Net unrealized gains (losses) on investments with an allowance for credit losses | 6 | (3 | ) | |||||||||||||
| Net unrealized gains (losses) on other investments | (138 | ) | 207 | (465 | ) | 354 | ||||||||||
| Total unrealized gains (losses) on investments | (138 | ) | 213 | (465 | ) | 351 | ||||||||||
| Unrealized gains (losses) on cash flow hedges | 2 | 1 | 14 | (18 | ) | |||||||||||
| Pension and postretirement benefits | 16 | 7 | 32 | 27 | ||||||||||||
| Foreign currency translation | (33 | ) | 38 | (19 | ) | (17 | ) | |||||||||
| Other comprehensive income (loss) | (153 | ) | 259 | (438 | ) | 343 | ||||||||||
| Comprehensive income (loss) | 93 | 421 | 894 | (1,385 | ) | |||||||||||
| Amounts attributable to noncontrolling interests | (9 | ) | (49 | ) | (49 | ) | 363 | |||||||||
| Total comprehensive income (loss) attributable to Loews Corporation | $ | 84 | $ | 372 | $ | 845 | $ | (1,022 | ) |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(Unaudited)
| 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, July 1, 2020 | $ | 18,413 | $ | 3 | $ | 3,371 | $ | 14,316 | $ | 5 | $ | (491 | ) | $ | 1,209 | |||||||||||||
| Net income | 162 | 139 | 23 | |||||||||||||||||||||||||
| Other comprehensive income | 259 | 233 | 26 | |||||||||||||||||||||||||
| Dividends paid ($0.0625 per share) | (27 | ) | (17 | ) | (10 | ) | ||||||||||||||||||||||
| Purchases of Loews Corporation treasury stock | (195 | ) | (195 | ) | ||||||||||||||||||||||||
| Stock-based compensation | 8 | 8 | ||||||||||||||||||||||||||
| Other | - | (1 | ) | 1 | ||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | 18,620 | $ | 3 | $ | 3,379 | $ | 14,437 | $ | 238 | $ | (685 | ) | $ | 1,248 | |||||||||||||
| Balance, July 1, 2021 | $ | 19,398 | $ | 3 | $ | 3,121 | $ | 15,132 | $ | 327 | $ | (500 | ) | $ | 1,315 | |||||||||||||
| Net income | 246 | 220 | 26 | |||||||||||||||||||||||||
| Other comprehensive loss | (153 | ) | (136 | ) | (17 | ) | ||||||||||||||||||||||
| Dividends paid ($0.0625 per share) | (27 | ) | (16 | ) | (11 | ) | ||||||||||||||||||||||
| Purchases of Loews Corporation treasury stock | (333 | ) | (333 | ) | ||||||||||||||||||||||||
| Stock-based compensation | (2 | ) | (2 | ) | ||||||||||||||||||||||||
| Other | 1 | 1 | ||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | 19,130 | $ | 3 | $ | 3,120 | $ | 15,336 | $ | 191 | $ | (833 | ) | $ | 1,313 |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(Unaudited)
| 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, 2020, as reported | $ | 21,930 | $ | 3 | $ | 3,374 | $ | 15,823 | $ | (68 | ) | $ | (13 | ) | $ | 2,811 | ||||||||||||
| Cumulative effect adjustment from change in accounting standards | (5 | ) | (5 | ) | ||||||||||||||||||||||||
| Balance, January 1, 2020, as adjusted | 21,925 | 3 | 3,374 | 15,818 | (68 | ) | (13 | ) | 2,811 | |||||||||||||||||||
| Net loss | (1,728 | ) | (1,328 | ) | (400 | ) | ||||||||||||||||||||||
| Other comprehensive income | 343 | 306 | 37 | |||||||||||||||||||||||||
| Dividends paid ($0.1875 per share) | (141 | ) | (53 | ) | (88 | ) | ||||||||||||||||||||||
| Deconsolidation of Diamond Offshore | (1,087 | ) | (1,087 | ) | ||||||||||||||||||||||||
| Purchases of Loews Corporation treasury stock | (673 | ) | (673 | ) | ||||||||||||||||||||||||
| Purchases of subsidiary stock from noncontrolling interests | (37 | ) | 5 | (42 | ) | |||||||||||||||||||||||
| Stock-based compensation | 17 | (1 | ) | 18 | ||||||||||||||||||||||||
| Other | 1 | 1 | 1 | (1 | ) | |||||||||||||||||||||||
| Balance, September 30, 2020 | $ | 18,620 | $ | 3 | $ | 3,379 | $ | 14,437 | $ | 238 | $ | (685 | ) | $ | 1,248 | |||||||||||||
| Balance, January 1, 2021 | $ | 19,181 | $ | 3 | $ | 3,133 | $ | 14,150 | $ | 581 | $ | (7 | ) | $ | 1,321 | |||||||||||||
| Net income | 1,332 | 1,235 | 97 | |||||||||||||||||||||||||
| Other comprehensive loss | (438 | ) | (390 | ) | (48 | ) | ||||||||||||||||||||||
| Dividends paid ($0.1875 per share) | (103 | ) | (49 | ) | (54 | ) | ||||||||||||||||||||||
| Purchases of Loews Corporation treasury stock | (826 | ) | (826 | ) | ||||||||||||||||||||||||
| Purchases of subsidiary stock from noncontrolling interests | (18 | ) | (18 | ) | ||||||||||||||||||||||||
| Stock-based compensation | 5 | (11 | ) | 16 | ||||||||||||||||||||||||
| Other | (3 | ) | (2 | ) | (1 | ) | ||||||||||||||||||||||
| Balance, September 30, 2021 | $ | 19,130 | $ | 3 | $ | 3,120 | $ | 15,336 | $ | 191 | $ | (833 | ) | $ | 1,313 |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30 | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||
| Operating Activities: | ||||||||
| Net income (loss) | $ | 1,332 | $ | (1,728 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities, net | (85 | ) | 2,503 | |||||
| Changes in operating assets and liabilities, net: | ||||||||
| Receivables | (1,115 | ) | (273 | ) | ||||
| Deferred acquisition costs | (15 | ) | (36 | ) | ||||
| Insurance reserves | 1,891 | 1,479 | ||||||
| Other assets | (853 | ) | (411 | ) | ||||
| Other liabilities | 701 | 238 | ||||||
| Trading securities | (180 | ) | (481 | ) | ||||
| Net cash flow provided by operating activities | 1,676 | 1,291 | ||||||
| Investing Activities: | ||||||||
| Purchases of fixed maturities | (7,127 | ) | (8,466 | ) | ||||
| Proceeds from sales of fixed maturities | 2,510 | 5,023 | ||||||
| Proceeds from maturities of fixed maturities | 3,360 | 2,706 | ||||||
| Purchases of equity securities | (242 | ) | (373 | ) | ||||
| Proceeds from sales of equity securities | 237 | 275 | ||||||
| Purchases of limited partnership investments | (281 | ) | (144 | ) | ||||
| Proceeds from sales of limited partnership investments | 239 | 305 | ||||||
| Purchases of property, plant and equipment | (327 | ) | (584 | ) | ||||
| Dispositions | 52 | 47 | ||||||
| Sale of interest in Altium Packaging | 417 | |||||||
| Deconsolidation of Diamond Offshore | (483 | ) | ||||||
| Change in short term investments | 725 | 706 | ||||||
| Other, net | 13 | (120 | ) | |||||
| Net cash flow used by investing activities | (424 | ) | (1,108 | ) | ||||
| Financing Activities: | ||||||||
| Dividends paid | (49 | ) | (53 | ) | ||||
| Dividends paid to noncontrolling interests | (54 | ) | (88 | ) | ||||
| Purchases of Loews Corporation treasury stock | (825 | ) | (678 | ) | ||||
| Purchases of subsidiary stock from noncontrolling interests | (18 | ) | (37 | ) | ||||
| Principal payments on debt | (1,154 | ) | (1,157 | ) | ||||
| Issuance of debt | 1,199 | 2,393 | ||||||
| Other, net | (12 | ) | (13 | ) | ||||
| Net cash flow (used) provided by financing activities | (913 | ) | 367 | |||||
| Effect of foreign exchange rate on cash | (6 | ) | ||||||
| Net change in cash | 333 | 550 | ||||||
| Cash, beginning of period | 478 | 336 | ||||||
| Cash, end of period | $ | 811 | $ | 886 |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
- Basis of Presentation
Loews Corporation is a holding company. Its consolidated subsidiaries are engaged in the following lines of business: commercial property and casualty insurance (CNA Financial Corporation (“CNA”), an 89.6% owned subsidiary); transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP (“Boardwalk Pipelines”), a wholly owned subsidiary); and the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels & Co”), a wholly owned subsidiary). Unless the context otherwise requires, the term “Company” as used herein means Loews Corporation including its consolidated subsidiaries, the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders and the term “subsidiaries” means Loews Corporation’s consolidated subsidiaries.
On April 1, 2021, Loews Corporation sold 47% of its interest in Altium Packaging, previously a 99% owned subsidiary. See Note 2 for further discussion.
In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2021 and December 31, 2020, results of operations, comprehensive income (loss) and changes in shareholders’ equity for the three and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 30, 2021 and 2020. Net income (loss) for the third quarter and first nine months of each of the years is not necessarily indicative of net income (loss) for that entire year. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The Company presents basic and diluted net income (loss) per share on the Consolidated Condensed Statements of Operations. Basic net income (loss) per share excludes dilution and is computed by dividing net income (loss) 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 the three and nine months ended September 30, 2021, there were no shares attributable to employee stock-based compensation awards excluded from the diluted weighted average shares outstanding amounts because the effect would have been antidilutive.
Recently issued ASUs – In August of 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 update annually cash flow assumptions, including morbidity and persistency, and update quarterly discount rate assumptions 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 Other comprehensive income (“OCI”). This guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The guidance may be applied using either a modified retrospective transition method or a full retrospective transition method. The guidance requires restatement of prior periods presented. The Company plans to adopt on the effective date, using the modified retrospective transition method and is currently evaluating the effect the updated guidance will have on its consolidated financial statements, including the increased disclosure requirements. The annual updating of cash flow assumptions is expected to increase income statement volatility. While the requirements of the new guidance represent a material change from existing accounting guidance, the underlying economics of the business and related cash flows will be unchanged.
- Significant Transactions
Altium Packaging
On April 1, 2021, Loews Corporation sold 47% of its interest in Altium Packaging to GIC, Singapore’s sovereign wealth fund, for $420 million in cash consideration. Loews Corporation shares certain participating rights with GIC related to capital allocation and other decisions by Altium Packaging. Therefore, in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation,” Altium Packaging was deconsolidated from Loews Corporation’s consolidated financial statements effective as of April 1, 2021. Effective April 1, 2021, Loews Corporation’s investment in Altium Packaging is accounted for under the equity method of accounting, with the investment reported in Other assets on the Consolidated Condensed Balance Sheets and equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations.
The transaction resulted in a gain of $555 million ($438 million after tax) for the nine months ended September 30, 2021, which is recorded in Investment gains (losses) on the Consolidated Condensed Statement of Operations. Loews Corporation’s retained investment in Altium Packaging was recorded at an estimated fair value of $473 million. The difference between the fair value of Loews Corporation’s investment in Altium Packaging and Loews Corporation’s 53% share of the carrying value of Altium Packaging’s net assets was attributed to definite lived intangible assets and goodwill. The amortization of the amounts attributed to definite lived intangible assets will be recognized as a component of equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations. The assets and liabilities deconsolidated from the Consolidated Condensed Balance Sheets were property, plant and equipment of $490 million, goodwill of $436 million, intangible assets of $488 million, other assets of approximately $370 million, long term debt of $1.1 billion and other liabilities of approximately $380 million.
Diamond Offshore
As a result of the April 26, 2020 (“the Filing Date”) bankruptcy filing of Diamond Offshore Drilling, Inc. (“Diamond Offshore”) and certain of its subsidiaries and applicable accounting principles generally accepted in the United States of America (“GAAP”), Diamond Offshore was deconsolidated from Loews Corporation’s consolidated financial statements in the second quarter of 2020. Through the Filing Date, Diamond Offshore’s results were included in Loews Corporation’s consolidated financial statements and Loews Corporation recognized in its earnings its proportionate share of Diamond Offshore’s losses through such date. The deconsolidation resulted in the recognition of a loss of $1.2 billion ($957 million after tax) during the nine months ended September 30, 2020, which is reported within Investment gains (losses) on the Consolidated Condensed Statements of Operations. During the nine months ended September 30, 2020, Diamond Offshore also recorded an aggregate asset impairment charge of $774 million ($408 million after tax and noncontrolling interests), which is reported within Operating expenses and other on the Consolidated Condensed Statements of Operations. For additional information regarding the deconsolidation of Diamond Offshore and the Diamond Offshore asset impairments, see Notes 2 and 6 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
- Investments
Net investment income is as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions) | ||||||||||||||||
| Fixed maturity securities | $ | 425 | $ | 432 | $ | 1,278 | $ | 1,300 | ||||||||
| Limited partnership investments | 89 | 71 | 285 | 26 | ||||||||||||
| Short term investments | 1 | 2 | 1 | 11 | ||||||||||||
| Equity securities | 4 | 18 | 53 | 24 | ||||||||||||
| Income (loss) from trading portfolio (a) | (30 | ) | 22 | 46 | ||||||||||||
| Other | 12 | 14 | 42 | 44 | ||||||||||||
| Total investment income | 501 | 559 | 1,705 | 1,405 | ||||||||||||
| Investment expenses | (18 | ) | (19 | ) | (56 | ) | (58 | ) | ||||||||
| Net investment income | $ | 483 | $ | 540 | $ | 1,649 | $ | 1,347 |
| (a) | Net investment income recognized due to the change in fair value on securities still held as of September 30, 2021 and 2020 was $(55) and $11 for the three months ended September 30, 2021 and 2020 and $(9) and $13 for the nine months ended September 30, 2021 and 2020. |
|---|
Investment gains (losses) are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions) | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Gross gains | $ | 50 | $ | 44 | $ | 159 | $ | 175 | ||||||||
| Gross losses | (28 | ) | (18 | ) | (68 | ) | (207 | ) | ||||||||
| Investment gains (losses) on fixed maturity securities | 22 | 26 | 91 | (32 | ) | |||||||||||
| Equity securities | (2 | ) | 25 | 17 | (45 | ) | ||||||||||
| Derivative instruments | 2 | (2 | ) | 7 | (7 | ) | ||||||||||
| Short term investments and other | (3 | ) | 2 | (17 | ) | |||||||||||
| Altium Packaging (see Note 2) | 555 | |||||||||||||||
| Diamond Offshore (see Note 2) | (15 | ) | (1,211 | ) | ||||||||||||
| Investment gains (losses) (a) | $ | 22 | $ | 46 | $ | 657 | $ | (1,312 | ) |
| (a) | During the three and nine months ended September 30, 2021, $2 of investment losses and $15 of investment gains were recognized due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2021. During the three and nine months ended September 30, 2020, $25 of investment gains and $44 of investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2020. |
|---|
The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and purchased credit-deteriorated (“PCD”) assets. Accrued interest receivables on available-for-sale fixed maturity securities totaled $387 million, $371 million and $390 million as of September 30, 2021, December 31, 2020 and September 30, 2020 and are excluded from the estimate of expected credit losses and the amortized cost basis in the tables within this Note.
| Corporate and | Asset- | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended September 30, 2021 | Other Bonds | backed | Total | |||||||||
| (In millions) | ||||||||||||
| Allowance for credit losses: | ||||||||||||
| Balance as of July 1, 2021 | $ | 24 | $ | 21 | $ | 45 | ||||||
| Additions to the allowance for credit losses: | ||||||||||||
| Securities for which credit losses were not previously recorded | ||||||||||||
| Available-for-sale securities accounted for as PCD assets | 2 | 2 | ||||||||||
| Reductions to the allowance for credit losses: | ||||||||||||
| Securities sold during the period (realized) | ||||||||||||
| Write-offs charged against the allowance | 16 | 16 | ||||||||||
| Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | ||||||||||||
| Total allowance for credit losses | $ | 10 | $ | 21 | $ | 31 |
| Three months ended September 30, 2020 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Allowance for credit losses: | ||||||||||||
| Balance as of July 1, 2020 | $ | 39 | $ | 12 | $ | 51 | ||||||
| Additions to the allowance for credit losses: | ||||||||||||
| Securities for which credit losses were not previously recorded | 4 | 4 | ||||||||||
| Available-for-sale securities accounted for as PCD assets | 1 | 1 | ||||||||||
| Reductions to the allowance for credit losses: | ||||||||||||
| Securities sold during the period (realized) | 9 | 9 | ||||||||||
| Write-offs charged against the allowance | ||||||||||||
| Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | (1 | ) | 1 | |||||||||
| Total allowance for credit losses | $ | 34 | $ | 13 | $ | 47 |
| Corporate and | Asset- | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine months ended September 30, 2021 | Other Bonds | backed | Total | |||||||||
| (In millions) | ||||||||||||
| Allowance for credit losses: | ||||||||||||
| Balance as of January 1, 2021 | $ | 23 | $ | 17 | $ | 40 | ||||||
| Additions to the allowance for credit losses: | ||||||||||||
| Securities for which credit losses were not previously recorded | 14 | 14 | ||||||||||
| Available-for-sale securities accounted for as PCD assets | 4 | 4 | 8 | |||||||||
| Reductions to the allowance for credit losses: | ||||||||||||
| Securities sold during the period (realized) | 6 | 6 | ||||||||||
| Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | ||||||||||||
| Write-offs charged against the allowance | 16 | 16 | ||||||||||
| Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period | (9 | ) | (9 | ) | ||||||||
| Total allowance for credit losses | $ | 10 | $ | 21 | $ | 31 |
| Nine months ended September 30, 2020 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Allowance for credit losses: | ||||||||||||
| Balance as of January 1, 2020 | $ | - | $ | - | $ | - | ||||||
| Additions to the allowance for credit losses: | ||||||||||||
| Impact of adopting ASC 326 | 6 | 6 | ||||||||||
| Securities for which credit losses were not previously recorded | 62 | 12 | 74 | |||||||||
| Available-for-sale securities accounted for as PCD assets | 3 | 3 | ||||||||||
| Reductions to the allowance for credit losses: | ||||||||||||
| Securities sold during the period (realized) | 15 | 15 | ||||||||||
| Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | 1 | 1 | ||||||||||
| Write-offs charged against the allowance | ||||||||||||
| Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period | (21 | ) | 1 | (20 | ) | |||||||
| Total allowance for credit losses | $ | 34 | $ | 13 | $ | 47 |
The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date:
| Three Months Ended | Nine Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions) | ||||||||||||||||
| Fixed maturity securities available-for-sale: | ||||||||||||||||
| Corporate and other bonds | $ | 4 | $ | 5 | $ | 94 | ||||||||||
| Asset-backed | $ | 11 | 1 | 11 | 14 | |||||||||||
| Impairment losses recognized in earnings | $ | 11 | $ | 5 | $ | 16 | $ | 108 |
There were $3 million and $16 million of losses on mortgage loans recognized during the three and nine months ended September 30, 2020 primarily due to changes in expected credit losses. There were no losses recognized on mortgage loans during the three and nine months ended September 30, 2021.
The amortized cost and fair values of fixed maturity securities are as follows:
| Cost or | Gross | Gross | Allowance | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amortized | Unrealized | Unrealized | for Credit | Estimated | ||||||||||||||||
| September 30, 2021 | Cost | Gains | Losses | Losses | Fair Value | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||
| Corporate and other bonds | $ | 21,608 | $ | 2,967 | $ | 42 | $ | 10 | $ | 24,523 | ||||||||||
| States, municipalities and political subdivisions | 10,384 | 1,610 | 15 | 11,979 | ||||||||||||||||
| Asset-backed: | ||||||||||||||||||||
| Residential mortgage-backed | 3,176 | 89 | 6 | 3,259 | ||||||||||||||||
| Commercial mortgage-backed | 2,064 | 85 | 16 | 17 | 2,116 | |||||||||||||||
| Other asset-backed | 2,429 | 76 | 4 | 4 | 2,497 | |||||||||||||||
| Total asset-backed | 7,669 | 250 | 26 | 21 | 7,872 | |||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 139 | 1 | 4 | 136 | ||||||||||||||||
| Foreign government | 521 | 19 | 2 | 538 | ||||||||||||||||
| Redeemable preferred stock | 12 | 12 | ||||||||||||||||||
| Fixed maturities available-for-sale | 40,333 | 4,847 | 89 | 31 | 45,060 | |||||||||||||||
| Fixed maturities trading | 9 | 9 | ||||||||||||||||||
| Total fixed maturity securities | $ | 40,342 | $ | 4,847 | $ | 89 | $ | 31 | $ | 45,069 |
| December 31, 2020 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fixed maturity securities: | ||||||||||||||||||||
| Corporate and other bonds | $ | 20,792 | $ | 3,578 | $ | 22 | $ | 23 | $ | 24,325 | ||||||||||
| States, municipalities and political subdivisions | 9,729 | 1,863 | 11,592 | |||||||||||||||||
| Asset-backed: | ||||||||||||||||||||
| Residential mortgage-backed | 3,442 | 146 | 1 | 3,587 | ||||||||||||||||
| Commercial mortgage-backed | 1,933 | 93 | 42 | 17 | 1,967 | |||||||||||||||
| Other asset-backed | 2,179 | 81 | 9 | 2,251 | ||||||||||||||||
| Total asset-backed | 7,554 | 320 | 52 | 17 | 7,805 | |||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 339 | 2 | 3 | 338 | ||||||||||||||||
| Foreign government | 512 | 32 | 544 | |||||||||||||||||
| Fixed maturities available-for-sale | 38,926 | 5,795 | 77 | 40 | 44,604 | |||||||||||||||
| Fixed maturities trading | 37 | 5 | 42 | |||||||||||||||||
| Total fixed maturity securities | $ | 38,963 | $ | 5,800 | $ | 77 | $ | 40 | $ | 44,646 |
The net unrealized gains on available-for-sale investments included in the tables above are recorded as a component of Accumulated other comprehensive income (loss) (“AOCI”). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent that unrealized gains on fixed income 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 (loss) (“Shadow Adjustments”). As of September 30, 2021 and December 31, 2020, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $2.2 billion and $2.5 billion (after tax and noncontrolling interests).
The available-for-sale securities in a gross unrealized loss position for which an allowance for credit losses has not been recorded are as follows:
| Less than | 12 Months | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12 Months | or Longer | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| September 30, 2021 | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||
| Corporate and other bonds | $ | 1,853 | $ | 37 | $ | 88 | $ | 5 | $ | 1,941 | $ | 42 | ||||||||||||
| States, municipalities and political subdivisions | 885 | 15 | 885 | 15 | ||||||||||||||||||||
| Asset-backed: | ||||||||||||||||||||||||
| Residential mortgage-backed | 1,295 | 6 | 1,295 | 6 | ||||||||||||||||||||
| Commercial mortgage-backed | 317 | 4 | 194 | 12 | 511 | 16 | ||||||||||||||||||
| Other asset-backed | 439 | 3 | 58 | 1 | 497 | 4 | ||||||||||||||||||
| Total asset-backed | 2,051 | 13 | 252 | 13 | 2,303 | 26 | ||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 65 | 4 | 1 | 66 | 4 | |||||||||||||||||||
| Foreign government | 73 | 2 | 73 | 2 | ||||||||||||||||||||
| Total fixed maturity securities | $ | 4,927 | $ | 71 | $ | 341 | $ | 18 | $ | 5,268 | $ | 89 | ||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||
| Corporate and other bonds | $ | 609 | $ | 21 | $ | 12 | $ | 1 | $ | 621 | $ | 22 | ||||||||||||
| States, municipalities and political subdivisions | 33 | 33 | ||||||||||||||||||||||
| Asset-backed: | ||||||||||||||||||||||||
| Residential mortgage-backed | 71 | 1 | 11 | 82 | 1 | |||||||||||||||||||
| Commercial mortgage-backed | 533 | 40 | 28 | 2 | 561 | 42 | ||||||||||||||||||
| Other asset-backed | 344 | 9 | 13 | 357 | 9 | |||||||||||||||||||
| Total asset-backed | 948 | 50 | 52 | 2 | 1,000 | 52 | ||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 63 | 3 | 63 | 3 | ||||||||||||||||||||
| Foreign government | 13 | 13 | ||||||||||||||||||||||
| Total fixed maturity securities | $ | 1,666 | $ | 74 | $ | 64 | $ | 3 | $ | 1,730 | $ | 77 |
Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 2021 securities in a gross unrealized loss position table above are not indicative of the ultimate collectability of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. There is no current intent to sell securities with unrealized losses, nor is it more likely than not that sale will be required prior to recovery of amortized cost; accordingly, it was determined that there are no additional impairment losses to be recorded at September 30, 2021.
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
| September 30, 2021 | December 31, 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cost or | Estimated | Cost or | Estimated | |||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| (In millions) | ||||||||||||||||
| Due in one year or less | $ | 1,648 | $ | 1,656 | $ | 1,456 | $ | 1,458 | ||||||||
| Due after one year through five years | 10,776 | 11,517 | 12,304 | 13,098 | ||||||||||||
| Due after five years through ten years | 13,628 | 14,794 | 12,319 | 13,878 | ||||||||||||
| Due after ten years | 14,281 | 17,093 | 12,847 | 16,170 | ||||||||||||
| Total | $ | 40,333 | $ | 45,060 | $ | 38,926 | $ | 44,604 |
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.
Mortgage Loans
The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination. The primary credit quality indicators utilized are debt service coverage ratios (“DSCR”) and loan-to-value (“LTV”) ratios.
| Mortgage Loans Amortized Cost Basis by Origination Year (a) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As of September 30, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total | |||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
| DSCR ≥1.6x | ||||||||||||||||||||||||||||
| LTV less than 55% | $ | 8 | $ | 75 | $ | 16 | $ | 37 | $ | 116 | $ | 203 | $ | 455 | ||||||||||||||
| LTV 55% to 65% | 38 | 15 | 18 | 1 | 72 | |||||||||||||||||||||||
| LTV greater than 65% | 17 | 14 | 7 | 23 | 61 | |||||||||||||||||||||||
| DSCR 1.2x - 1.6x | ||||||||||||||||||||||||||||
| LTV less than 55% | 13 | 15 | 95 | 5 | 58 | 186 | ||||||||||||||||||||||
| LTV 55% to 65% | 25 | 24 | 10 | 4 | 63 | |||||||||||||||||||||||
| LTV greater than 65% | 24 | 9 | 8 | 41 | ||||||||||||||||||||||||
| DSCR ≤1.2x | ||||||||||||||||||||||||||||
| LTV less than 55% | 35 | 30 | 65 | |||||||||||||||||||||||||
| LTV 55% to 65% | 42 | 42 | ||||||||||||||||||||||||||
| LTV greater than 65% | 9 | 56 | 7 | 72 | ||||||||||||||||||||||||
| Total | $ | 63 | $ | 161 | $ | 282 | $ | 86 | $ | 169 | $ | 296 | $ | 1,057 |
| (a) | The values in the table above reflect DSCR on a standardized amortization period and LTV ratios based on the most recent appraised values trended forward using changes in a commercial real estate price index. |
|---|
Derivative Financial Instruments
A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under related agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual/ | Contractual/ | |||||||||||||||||||||||
| Notional | Estimated Fair Value | Notional | Estimated Fair Value | |||||||||||||||||||||
| Amount | Asset | (Liability) | Amount | Asset | (Liability) | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| With hedge designation: | ||||||||||||||||||||||||
| Interest rate swaps | $ | 675 | $ | (26 | ) | |||||||||||||||||||
| Without hedge designation: | ||||||||||||||||||||||||
| Equity markets: | ||||||||||||||||||||||||
| Options – purchased | $ | 1 | 135 | $ | 3 | |||||||||||||||||||
| Interest rate swaps | 100 | $ | (1 | ) | 100 | (3 | ) | |||||||||||||||||
| Embedded derivative on funds withheld liability | 272 | (11 | ) | 190 | (19 | ) |
Investment Commitments
As part of the overall investment strategy, investments are made in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications and obligations related to private placement securities. As of September 30, 2021, commitments to purchase or fund were approximately $1.3 billion and to sell were approximately $55 million under the terms of these investments.
- 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, securities are priced 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 that market participants presumably would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted.
Control procedures are performed 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 and (iv) detailed analysis, where an independent analysis of the inputs and assumptions used to price individual securities is performed.
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.
| September 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| Corporate bonds and other | $ | 146 | $ | 24,186 | $ | 877 | $ | 25,209 | ||||||||
| States, municipalities and political subdivisions | 11,922 | 57 | 11,979 | |||||||||||||
| Asset-backed | 7,394 | 478 | 7,872 | |||||||||||||
| Fixed maturities available-for-sale | 146 | 43,502 | 1,412 | 45,060 | ||||||||||||
| Fixed maturities trading | 9 | 9 | ||||||||||||||
| Total fixed maturities | $ | 146 | $ | 43,511 | $ | 1,412 | $ | 45,069 | ||||||||
| Equity securities | $ | 890 | $ | 745 | $ | 25 | $ | 1,660 | ||||||||
| Short term and other | 4,063 | 4,063 | ||||||||||||||
| Payable to brokers | (118 | ) | (1 | ) | (119 | ) |
| December 31, 2020 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fixed maturity securities: | ||||||||||||||||
| Corporate bonds and other | $ | 355 | $ | 24,082 | $ | 770 | $ | 25,207 | ||||||||
| States, municipalities and political subdivisions | 11,546 | 46 | 11,592 | |||||||||||||
| Asset-backed | 7,497 | 308 | 7,805 | |||||||||||||
| Fixed maturities available-for-sale | 355 | 43,125 | 1,124 | 44,604 | ||||||||||||
| Fixed maturities trading | 34 | 8 | 42 | |||||||||||||
| Total fixed maturities | $ | 355 | $ | 43,159 | $ | 1,132 | $ | 44,646 | ||||||||
| Equity securities | $ | 796 | $ | 722 | $ | 43 | $ | 1,561 | ||||||||
| Short term and other | 4,538 | 39 | 4,577 | |||||||||||||
| Payable to brokers | (14 | ) | (29 | ) | (43 | ) |
The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2021 and 2020:
| Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gains | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized | (Losses) | |||||||||||||||||||||||||||||||||||||||||||
| Gains | Recognized in | |||||||||||||||||||||||||||||||||||||||||||
| Net Realized | (Losses) | Other | ||||||||||||||||||||||||||||||||||||||||||
| Investment Gains | Recognized in | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||
| (Losses) and Net Change | Net Income | Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
| in Unrealized Investment | (Loss) on Level | on Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) | 3 Assets and | Assets and | ||||||||||||||||||||||||||||||||||||||||||
| Included in | Transfers | Transfers | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||
| Balance, | Net Income | Included in | into | out of | Balance, | Held at | Held at | |||||||||||||||||||||||||||||||||||||
| 2021 | July 1 | (Loss) | OCI | Purchases | Sales | Settlements | Level 3 | Level 3 | September 30 | September 30 | September 30 | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 883 | $ | 1 | $ | 1 | $ | 55 | $ | (11 | ) | $ | (52 | ) | $ | 877 | $ | 2 | ||||||||||||||||||||||||||
| States, municipalities and political subdivisions | 57 | 57 | ||||||||||||||||||||||||||||||||||||||||||
| Asset-backed | 410 | 1 | 1 | 83 | $ | (9 | ) | (11 | ) | $ | 41 | (38 | ) | 478 | ||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 1,350 | 2 | 2 | 138 | (9 | ) | (22 | ) | 41 | (90 | ) | 1,412 | $ | - | 2 | |||||||||||||||||||||||||||||
| Fixed maturities trading | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 1,350 | $ | 2 | $ | 2 | $ | 138 | $ | (9 | ) | $ | (22 | ) | $ | 41 | $ | (90 | ) | $ | 1,412 | $ | - | $ | 2 | |||||||||||||||||||
| Equity securities | $ | 36 | $ | (2 | ) | $ | 1 | $ | (11 | ) | $ | 11 | $ | (10 | ) | $ | 25 | $ | (3 | ) |
| Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gains | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized | (Losses) | |||||||||||||||||||||||||||||||||||||||||||
| Gains | Recognized in | |||||||||||||||||||||||||||||||||||||||||||
| Net Realized | (Losses) | Other | ||||||||||||||||||||||||||||||||||||||||||
| Investment Gains | Recognized in | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||
| (Losses) and Net Change | Net Income | Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
| in Unrealized Investment | (Loss) on Level | on Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) | 3 Assets and | Assets and | ||||||||||||||||||||||||||||||||||||||||||
| Included in | Transfers | Transfers | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||
| Balance, | Net Income | Included in | into | out of | Balance, | Held at | Held at | |||||||||||||||||||||||||||||||||||||
| 2020 | July 1 | (Loss) | OCI | Purchases | Sales | Settlements | Level 3 | Level 3 | September 30 | September 30 | September 30 | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 555 | $ | 5 | $ | 129 | $ | (3 | ) | $ | 8 | $ | 694 | $ | 5 | |||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | - | 45 | 45 | |||||||||||||||||||||||||||||||||||||||||
| Asset-backed | 222 | 9 | 20 | (14 | ) | $ | (2 | ) | 235 | 8 | ||||||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 777 | $ | - | 14 | 194 | $ | - | (17 | ) | 8 | (2 | ) | 974 | $ | - | 13 | ||||||||||||||||||||||||||||
| Fixed maturities trading | 4 | 4 | 8 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 781 | $ | 4 | $ | 14 | $ | 194 | $ | - | $ | (17 | ) | $ | 8 | $ | (2 | ) | $ | 982 | $ | 4 | $ | 13 | ||||||||||||||||||||
| Equity securities | $ | 27 | $ | 12 | $ | 39 |
| Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gains | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized | (Losses) | |||||||||||||||||||||||||||||||||||||||||||
| Gains | Recognized in | |||||||||||||||||||||||||||||||||||||||||||
| Net Realized | (Losses) | Other | ||||||||||||||||||||||||||||||||||||||||||
| Investment Gains | Recognized in | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||
| (Losses) and Net Change | Net Income | Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
| in Unrealized Investment | (Loss) on Level | on Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) | 3 Assets and | Assets and | ||||||||||||||||||||||||||||||||||||||||||
| Included in | Transfers | Transfers | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||
| Balance, | Net Income | Included in | into | out of | Balance, | Held at | Held at | |||||||||||||||||||||||||||||||||||||
| 2021 | January 1 | (Loss) | OCI | Purchases | Sales | Settlements | Level 3 | Level 3 | September 30 | September 30 | September 30 | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 770 | $ | (9 | ) | $ | (23 | ) | $ | 219 | $ | (3 | ) | $ | (35 | ) | $ | 10 | $ | (52 | ) | $ | 877 | $ | (22 | ) | ||||||||||||||||||
| States, municipalities and political subdivisions | 46 | 12 | (1 | ) | 57 | |||||||||||||||||||||||||||||||||||||||
| Asset-backed | 308 | 4 | (4 | ) | 197 | (9 | ) | (38 | ) | 71 | (51 | ) | 478 | (5 | ) | |||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 1,124 | (5 | ) | (27 | ) | 428 | (12 | ) | (74 | ) | 81 | (103 | ) | 1,412 | $ | - | (27 | ) | ||||||||||||||||||||||||||
| Fixed maturities trading | 8 | (6 | ) | (2 | ) | - | ||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 1,132 | $ | (11 | ) | $ | (27 | ) | $ | 428 | $ | (12 | ) | $ | (76 | ) | $ | 81 | $ | (103 | ) | $ | 1,412 | $ | - | $ | (27 | ) | ||||||||||||||||
| Equity securities | $ | 43 | $ | (15 | ) | $ | 11 | $ | (15 | ) | $ | 11 | $ | (10 | ) | $ | 25 | $ | (1 | ) |
| Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gains | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized | (Losses) | |||||||||||||||||||||||||||||||||||||||||||
| Gains | Recognized in | |||||||||||||||||||||||||||||||||||||||||||
| Net Realized | (Losses) | Other | ||||||||||||||||||||||||||||||||||||||||||
| Investment Gains | Recognized in | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||
| (Losses) and Net Change | Net Income | Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||
| in Unrealized Investment | (Loss) on Level | on Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) | 3 Assets and | Assets and | ||||||||||||||||||||||||||||||||||||||||||
| Included in | Transfers | Transfers | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||
| Balance, | Net Income | Included in | into | out of | Balance, | Held at | Held at | |||||||||||||||||||||||||||||||||||||
| 2020 | January 1 | (Loss) | OCI | Purchases | Sales | Settlements | Level 3 | Level 3 | September 30 | September 30 | September 30 | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 468 | $ | 27 | $ | 200 | $ | (9 | ) | $ | 8 | $ | 694 | $ | 29 | |||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | - | 45 | 45 | |||||||||||||||||||||||||||||||||||||||||
| Asset-backed | 165 | 18 | 100 | $ | (9 | ) | (22 | ) | $ | (17 | ) | 235 | 19 | |||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 633 | $ | - | 45 | 345 | (9 | ) | (31 | ) | 8 | (17 | ) | 974 | $ | - | 48 | ||||||||||||||||||||||||||||
| Fixed maturities trading | 4 | 4 | 8 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 637 | $ | 4 | $ | 45 | $ | 345 | $ | (9 | ) | $ | (31 | ) | $ | 8 | $ | (17 | ) | $ | 982 | $ | 4 | $ | 48 | |||||||||||||||||||
| Equity securities | $ | 19 | $ | (7 | ) | $ | 12 | $ | 15 | $ | 39 | $ | (7 | ) |
Net investment gains and losses are reported in Net income (loss) as follows:
| Major Category of Assets and Liabilities | Consolidated Condensed Statements of Operations 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 |
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 government securities and exchange traded bonds 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 some 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 some inputs that are not market observable.
Derivative Financial Instruments
Equity options are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Over-the-counter derivatives, principally interest rate swaps, currency forwards, 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 Condensed Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized 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. The weighted average rate is calculated based on fair value.
| Range | ||||||||
|---|---|---|---|---|---|---|---|---|
| Estimated | Valuation | Unobservable | (Weighted | |||||
| September 30, 2021 | Fair Value | Techniques | Inputs | Average) | ||||
| (In millions) | ||||||||
| Fixed maturity securities | $ | 1,154 | Discounted cash flow | Credit spread | 1% – 7% (2%) | |||
| December 31, 2020 | ||||||||
| Fixed maturity securities | $ | 966 | Discounted cash flow | Credit spread | 1% – 8% (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 financial assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude finance lease obligations. The carrying amounts reported on the Consolidated Condensed 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 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | Amount | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 1,031 | $ | 1,106 | $ | 1,106 | ||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Short term debt | 186 | 190 | 190 | |||||||||||||||||
| Long term debt | 8,919 | $ | 9,319 | 554 | 9,873 | |||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 1,068 | $ | 1,151 | $ | 1,151 | ||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Short term debt | 35 | $ | 19 | 17 | 36 | |||||||||||||||
| Long term debt | 10,042 | 10,482 | 765 | 11,247 |
- Claim and Claim Adjustment Expense Reserves
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. Reserve projections are based primarily on detailed analysis of the facts in each case, 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 the ultimate cost for insurance losses will not exceed current estimates.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company’s results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $178 million and $160 million for the three months ended September 30, 2021 and 2020 and $357 million and $536 million for the nine months ended September 30, 2021 and 2020. Net catastrophe losses for the three months ended September 30, 2021 included $114 million for Hurricane Ida. Net catastrophe losses for the nine months ended September 30, 2021 were driven by severe weather-related events, primarily Hurricane Ida and Winter Storms Uri and Viola. Net catastrophe losses for the three months ended September 30, 2020 were driven by severe weather-related events, primarily Hurricanes Laura, Isaias and Sally and the Midwest derecho. Net catastrophe losses for the nine months ended September 30, 2020 included $273 million primarily related to severe weather-related events, $195 million related to the COVID-19 pandemic and $68 million related to civil unrest.
Liability for Unpaid Claim and Claim Adjustment Expenses
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.
| Nine Months Ended September 30 | 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||
| Reserves, beginning of year: | ||||||||
| Gross | $ | 22,706 | $ | 21,720 | ||||
| Ceded | 4,005 | 3,835 | ||||||
| Net reserves, beginning of year | 18,701 | 17,885 | ||||||
| Reduction of net reserves due to the excess workers’ compensation loss portfolio transfer | (632 | ) | ||||||
| Net incurred claim and claim adjustment expenses: | ||||||||
| Provision for insured events of current year | 4,474 | 4,425 | ||||||
| Increase (decrease) in provision for insured events of prior years | (130 | ) | (68 | ) | ||||
| Amortization of discount | 137 | 143 | ||||||
| Total net incurred (a) | 4,481 | 4,500 | ||||||
| Net payments attributable to: | ||||||||
| Current year events | (629 | ) | (556 | ) | ||||
| Prior year events | (2,874 | ) | (3,285 | ) | ||||
| Total net payments | (3,503 | ) | (3,841 | ) | ||||
| Foreign currency translation adjustment and other | (51 | ) | 39 | |||||
| Net reserves, end of period | 18,996 | 18,583 | ||||||
| Ceded reserves, end of period | 4,836 | 3,951 | ||||||
| Gross reserves, end of period | $ | 23,832 | $ | 22,534 |
| (a) | Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Condensed Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, the loss on the excess workers’ compensation loss portfolio transfer, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above. |
|---|
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves net of reinsurance, for prior years are defined as net prior year loss reserve development. These changes can be favorable or unfavorable.
Favorable net prior year loss reserve development of $10 million and $15 million was recorded for commercial property and casualty operations (“Property & Casualty Operations”) for the three months ended September 30, 2021 and 2020 and favorable net prior year loss reserve development of $36 million and $58 million was recorded for the nine months ended September 30, 2021 and 2020. Unfavorable net prior year loss reserve development of $40 million and $50 million was recorded in CNA’s operations outside of Property & Casualty Operations (“Other Insurance Operations”) for the nine months ended September 30, 2021 and 2020.
The following table and discussion present details of the net prior year loss reserve development in Property & Casualty Operations and Other Insurance Operations:
| Three Months Ended | Nine Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions) | ||||||||||||||||
| Medical professional liability | $ | 8 | $ | 25 | $ | 16 | $ | 35 | ||||||||
| Other professional liability and management liability | 10 | (6 | ) | |||||||||||||
| Surety | (15 | ) | (40 | ) | (53 | ) | (70 | ) | ||||||||
| Commercial auto | 9 | 30 | 33 | |||||||||||||
| General liability | 15 | 15 | ||||||||||||||
| Workers’ compensation | 2 | (23 | ) | (40 | ) | (97 | ) | |||||||||
| Property and other | (5 | ) | (1 | ) | 1 | 32 | ||||||||||
| Other insurance operations | 40 | 50 | ||||||||||||||
| Total pretax (favorable) unfavorable development | $ | (10 | ) | $ | (15 | ) | $ | 4 | $ | (8 | ) |
Three Months
2021
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
2020
Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years and unfavorable development on a latent claim for an older accident year.
Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior.
Unfavorable development in general liability was primarily due to increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in CNA’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Nine Months
2021
Unfavorable development in medical professional liability was due to higher than expected frequency of large losses in recent accident years.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Unfavorable development in commercial auto was due to higher than expected claim severity in CNA’s construction and middle market businesses in recent accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was due to higher than expected claim severity in CNA’s medical treatment business mostly offset by favorable development due to lower than expected loss emergence across multiple accident years in property, energy and marine.
Unfavorable development in other insurance operations was due to higher than expected emergence in mass tort exposures in older accident years primarily related to abuse.
2020
Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years, unfavorable development on a latent claim for an older accident year and unfavorable outcomes on specific claims in accident years 2015 and 2016 in CNA’s aging services business.
Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior.
Unfavorable development in commercial auto was due to unfavorable claim severity in CNA’s middle market and construction businesses in accident years 2017 through 2019.
Unfavorable development in general liability was driven by increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in CNA’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in CNA’s middle market, national accounts and marine business units in accident year 2019.
Unfavorable development in other insurance operations was due to higher than expected emergence in mass tort exposures in older accident years primarily related to abuse.
Asbestos & Environmental Pollution (“A&EP”) Reserves
In 2010, Continental Casualty Company (“CCC”) together with several insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of their legacy A&EP liabilities were ceded to NICO through a loss portfolio transfer (“LPT”). At the effective date of the transaction, approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves were ceded 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. NICO was paid a reinsurance premium of $2.0 billion and billed third party reinsurance receivables related to A&EP claims with a net book value of $215 million were transferred to NICO, resulting in total consideration of $2.2 billion.
In years subsequent to the effective date of the LPT, adverse prior year development on A&EP reserves was recognized 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 a change in the estimate of A&EP reserves is recognized 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 Condensed Statements of Operations.
The impact of the LPT on the Consolidated Condensed Statements of Operations was the recognition of a retroactive reinsurance benefit of $8 million and $9 million for the three months ended September 30, 2021 and 2020 and $30 million and $43 million for the nine months ended September 30, 2021 and 2020. As of September 30, 2021 and December 31, 2020, the cumulative amounts ceded under the LPT were $3.3 billion. The unrecognized deferred retroactive reinsurance benefit was $368 million and $398 million as of September 30, 2021 and December 31, 2020 and is included within Other liabilities on the Consolidated Condensed Balance Sheets.
NICO established a collateral trust account as security for its obligations under the LPT. The fair value of the collateral trust account was $2.9 billion as of September 30, 2021. 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 the majority of the A&EP claims.
Excess Workers’ Compensation LPT
On February 5, 2021, CNA completed a transaction with Cavello Bay Reinsurance Limited (“Cavello”), a subsidiary of Enstar Group Limited, under which certain legacy excess workers’ compensation (“EWC”) liabilities were ceded to Cavello. Under the terms of the transaction, based on reserves in place as of January 1, 2020, approximately $690 million of net EWC claim and allocated claim adjustment expense reserves were ceded to Cavello under a loss portfolio transfer (“EWC LPT”) with an aggregate limit of $1.0 billion. Cavello was paid a reinsurance premium of $697 million, less claims paid between January 1, 2020 and the closing date of the agreement of $64 million. After transaction costs, a loss of approximately $11 million (after tax and noncontrolling interest) was recognized in Other Insurance Operations in the first quarter of 2021 related to the EWC LPT.
As of September 30, 2021, the cumulative amount ceded under the EWC LPT was $690 million.
Cavello established a collateral trust account as security for its obligations, which will be maintained at 105% of outstanding reserves.
Credit Risk for Ceded Reserves
The majority of CNA’s outstanding voluntary reinsurance receivables are due from reinsurers with financial strength ratings of A- or higher. Receivables due from reinsurers with lower financial strength ratings are primarily due from captive reinsurers and are backed by collateral arrangements.
Life & Group Policyholder Reserves
CNA’s Life & Group business includes its 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 its Life & Group business. 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 long term care policies, CNA’s actuaries perform a detailed claim reserve review on an annual basis. The review analyzes the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. In addition, claim and claim adjustment expense reserves are also maintained for the
structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, CNA’s actuaries review mortality experience on an annual basis. CNA’s recorded claim and claim adjustment expense reserves reflect management’s best estimate after incorporating the results of the most recent reviews.
CNA completed its annual claim reserve reviews in the third quarters of 2021 and 2020 resulting in $40 million and $37 million pretax reductions in long term care reserves primarily due to lower claim severity than anticipated in the reserve estimates and $2 million and $46 million pretax increases in the structured settlement claim reserves primarily due to lower discount rate assumptions and mortality assumption changes.
Future policy benefit reserves consist of active life reserves related to CNA’s long term care policies for policyholders that are not currently receiving benefits and represent the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions that CNA believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, CNA’s long term care reserves may be subject to material increases if actual experience develops adversely to CNA’s expectations.
Annually, in the third quarter, CNA assesses the adequacy of its long term care future policy benefit reserves by performing a gross premium valuation (“GPV”) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in the Company’s results of operations in the period in which the need for such adjustment is determined. If the GPV required reserves are less than the existing recorded reserves, assumptions remain locked in and no adjustment is required.
The GPV for the long term care future policy benefit reserves, performed in the third quarter of 2021, indicated the recorded reserves included a pretax margin of approximately $72 million as of September 30, 2021.
The GPV for the long term care future policy benefit reserves performed in the third quarter of 2020 indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the premium deficiency resulted in a $74 million pretax increase in policyholders’ benefits reflected in the Company’s results of operations for the three and nine months ended September 30, 2020.
- Shareholders’ Equity
Accumulated other comprehensive income (loss)
The tables below present the changes in AOCI by component for the three and nine months ended September 30, 2020 and 2021:
| Net Unrealized | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gains (Losses) | Total | |||||||||||||||||||||||
| on Investments | Net Unrealized | Unrealized | Accumulated | |||||||||||||||||||||
| with an | Gains (Losses) | Gains (Losses) | Pension and | Foreign | Other | |||||||||||||||||||
| Allowance for | on Other | on Cash Flow | Postretirement | Currency | Comprehensive | |||||||||||||||||||
| Credit Losses | Investments | Hedges | Benefits | Translation | Income (Loss) | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Balance, July 1, 2020 | $ | (8 | ) | $ | 1,050 | $ | (25 | ) | $ | (837 | ) | $ | (175 | ) | $ | 5 | ||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $0, $(63), $0, $0 and $0 | 2 | 231 | (2 | ) | (2 | ) | 38 | 267 | ||||||||||||||||
| Reclassification of (income) losses from accumulated other comprehensive income, after tax of $(1), $7, $0, $(3) and $0 | 4 | (24 | ) | 3 | 9 | (8 | ) | |||||||||||||||||
| Other comprehensive income | 6 | 207 | 1 | 7 | 38 | 259 | ||||||||||||||||||
| Amounts attributable to noncontrolling interests | (1 | ) | (22 | ) | (3 | ) | (26 | ) | ||||||||||||||||
| Balance, September 30, 2020 | $ | (3 | ) | $ | 1,235 | $ | (24 | ) | $ | (830 | ) | $ | (140 | ) | $ | 238 |
| Balance, July 1, 2021 | $ | - | $ | 1,271 | $ | (11 | ) | $ | (863 | ) | $ | (70 | ) | $ | 327 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other comprehensive income (loss) before reclassifications, after tax of $0, $32, $0, $0 and $0 | (121 | ) | 1 | 3 | (33 | ) | (150 | ) | ||||||||||||||||
| Reclassification of (income) losses from accumulated other comprehensive income, after tax of $0, $5, $0, $(2) and $0 | (17 | ) | 1 | 13 | (3 | ) | ||||||||||||||||||
| Other comprehensive income (loss) | (138 | ) | 2 | 16 | (33 | ) | (153 | ) | ||||||||||||||||
| Amounts attributable to noncontrolling interests | 14 | (1 | ) | 4 | 17 | |||||||||||||||||||
| Balance, September 30, 2021 | $ | - | $ | 1,147 | $ | (9 | ) | $ | (848 | ) | $ | (99 | ) | $ | 191 |
| Net Unrealized | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gains (Losses) | Total | |||||||||||||||||||||||
| on Investments | Net Unrealized | Unrealized | Accumulated | |||||||||||||||||||||
| with an | Gains (Losses) | Gains (Losses) | Pension and | Foreign | Other | |||||||||||||||||||
| Allowance for | on Other | on Cash Flow | Postretirement | Currency | Comprehensive | |||||||||||||||||||
| Credit Losses | Investments | Hedges | Benefits | Translation | Income (Loss) | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | - | $ | 918 | $ | (6 | ) | $ | (855 | ) | $ | (125 | ) | $ | (68 | ) | ||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $13, $(97), $8, $0 and $0 | (48 | ) | 374 | (22 | ) | (3 | ) | (17 | ) | 284 | ||||||||||||||
| Reclassification of losses from accumulated other comprehensive income, after tax of $(12), $5, $(1), $(8) and $0 | 45 | (20 | ) | 4 | 30 | 59 | ||||||||||||||||||
| Other comprehensive income (loss) | (3 | ) | 354 | (18 | ) | 27 | (17 | ) | 343 | |||||||||||||||
| Amounts attributable to noncontrolling interests | (37 | ) | (2 | ) | 2 | (37 | ) | |||||||||||||||||
| Balance, September 30, 2020 | $ | (3 | ) | $ | 1,235 | $ | (24 | ) | $ | (830 | ) | $ | (140 | ) | $ | 238 |
| Balance, January 1, 2021 | $ | - | $ | 1,563 | $ | (23 | ) | $ | (877 | ) | $ | (82 | ) | $ | 581 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other comprehensive income (loss) before reclassifications, after tax of $1, $104, $(3), $0 and $0 | (2 | ) | (391 | ) | 12 | 1 | (19 | ) | (399 | ) | ||||||||||||||
| Reclassification of (income) losses from accumulated other comprehensive income, after tax of $(1), $20, $(2), $(7) and $0 | 2 | (74 | ) | 2 | 31 | (39 | ) | |||||||||||||||||
| Other comprehensive income (loss) | - | (465 | ) | 14 | 32 | (19 | ) | (438 | ) | |||||||||||||||
| Amounts attributable to noncontrolling interests | 49 | (3 | ) | 2 | 48 | |||||||||||||||||||
| Balance, September 30, 2021 | $ | - | $ | 1,147 | $ | (9 | ) | $ | (848 | ) | $ | (99 | ) | $ | 191 |
Amounts reclassified from AOCI shown above are reported in Net income (loss) as follows:
| Major Category of AOCI | Affected Line Item |
|---|---|
| Net unrealized gains (losses) on investments with an allowance for credit losses, Net | |
| unrealized gains (losses) on investments with OTTI losses and Net unrealized gains | |
| (losses) on other investments | Investment gains (losses) |
| Unrealized gains (losses) on cash flow hedges | Operating revenues and other, Interest expense and Operating expenses and other |
| Pension and postretirement benefits | Operating expenses and other |
Treasury Stock
Loews Corporation repurchased 15.7 million and 16.1 million shares of its common stock at an aggregate cost of $826 million and $673 million during the nine months ended September 30, 2021 and 2020.
- 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 Condensed Statements of Operations. 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 11:
| Three Months Ended | Nine Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions) | ||||||||||||||||
| Non-insurance warranty – CNA Financial | $ | 357 | $ | 317 | $ | 1,054 | $ | 926 | ||||||||
| Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipelines | 296 | 280 | 959 | 898 | ||||||||||||
| Lodging and related services – Loews Hotels & Co | 129 | 36 | 279 | 194 | ||||||||||||
| Rigid plastic packaging and recycled resin – Corporate (a) | 253 | 280 | 753 | |||||||||||||
| Contract drilling – Diamond Offshore (b) | 300 | |||||||||||||||
| Total revenues from contracts with customers | 425 | 569 | 1,518 | 2,145 | ||||||||||||
| Other revenues | 25 | 40 | 62 | 96 | ||||||||||||
| Operating revenues and other | $ | 450 | $ | 609 | $ | 1,580 | $ | 2,241 |
| (a) | Revenues presented for Corporate reflect the periods prior to the deconsolidation of Altium Packaging in the second quarter of 2021. See Note 2 for further discussion. |
|---|
| (b) | Revenues presented for Diamond Offshore reflect the period prior to its deconsolidation in the second quarter of 2020. See Note 2 for further discussion. |
|---|
Receivables from contracts with customers – As of September 30, 2021 and December 31, 2020, receivables from contracts with customers were approximately $118 million and $246 million and are included within Receivables on the Consolidated Condensed Balance Sheets.
Deferred revenue – As of September 30, 2021 and December 31, 2020, deferred revenue resulting from contracts with customers was approximately $4.5 billion and $4.1 billion and is reported as Deferred non-insurance warranty revenue and within Other liabilities on the Consolidated Condensed Balance Sheets. Approximately $916 million and $839 million of revenues recognized during the nine months ended September 30, 2021 and 2020 were included in deferred revenue as of December 31, 2020 and 2019.
Performance obligations – As of September 30, 2021, approximately $13.3 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to transportation and storage of natural gas and natural gas liquids and hydrocarbons (“NGLs”) services and non-insurance warranty revenue. Approximately $0.7 billion will be recognized during the remaining three months of 2021, $2.3 billion in 2022 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control.
- Benefit Plans
The Company has several non-contributory defined benefit plans and postretirement benefit plans covering eligible employees and retirees.
The following table presents the components of net periodic (benefit) cost for the defined benefit plans:
| Pension Benefits | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (In millions) | ||||||||||||||||
| Service cost | $ | 1 | $ | 2 | $ | 2 | ||||||||||
| Interest cost | 17 | $ | 24 | 53 | 70 | |||||||||||
| Expected return on plan assets | (41 | ) | (43 | ) | (127 | ) | (130 | ) | ||||||||
| Amortization of unrecognized net loss | 12 | 12 | 37 | 35 | ||||||||||||
| Amortization of unrecognized prior service cost | 1 | |||||||||||||||
| Settlement charge | 1 | 2 | 8 | |||||||||||||
| Regulatory asset decrease | 1 | 1 | ||||||||||||||
| Net periodic benefit | $ | (10 | ) | $ | (6 | ) | $ | (32 | ) | $ | (14 | ) |
The net periodic benefit for other postretirement benefits was $1 million for the three months ended September 30, 2021 and the nine months ended September 30, 2021 and 2020. There was no net periodic benefit for the three months ended September 30, 2020.
- Legal Proceedings
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 Pipelines, Boardwalk GP, LP (“General Partner”), Boardwalk GP, LLC and Boardwalk Pipelines Holding Corp. (“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 Pipelines not already owned by the General Partner or its affiliates.
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 Boardwalk Pipelines pursuant to Boardwalk Pipelines’ Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”), within a period specified by the Proposed Settlement. 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 Pipelines not already owned by the General Partner or its affiliates pursuant to 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 Defendants filed a motion to dismiss, which was heard by the Court in July of 2019. In October of 2019, the Court ruled on the motion and granted a partial dismissal, with certain aspects of the case proceeding to trial. A trial was held the week of February 22, 2021 and post-trial oral arguments were held on July 14, 2021.
The Company is from time to time party to other litigation arising in the ordinary course of business. While it is difficult to predict the outcome or effect of any litigation, management does not believe that the outcome of any pending litigation, including the Boardwalk Pipelines matter described above, will materially affect the Company’s results of operations or equity.
- Commitments and Contingencies
CNA Data Breach-related Contingency
As previously disclosed, CNA sustained a sophisticated cybersecurity attack in March of 2021 involving ransomware. CNA’s investigation revealed that an unauthorized third party copied some personal information relating to certain current and former employees, contractor workers and their dependents and certain other persons, including some policyholders. In July of 2021, CNA provided notifications to the impacted individuals and to regulators, in accordance with applicable law. CNA may be subject to subsequent investigations, fines or penalties, as well as other legal claims and actions, related to the foregoing. The likelihood is reasonably possible, but the amount of such fines, penalties or costs, if any, cannot be estimated at this time.
Based on the information currently known, CNA does not believe that the March 2021 cybersecurity attack will have a material impact on its business, results of operations or financial condition, but no assurances can be given as it continues to assess the full impact from the incident, including costs, expenses and insurance coverage.
CNA Guarantees
CNA has provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities issued by a previously owned subsidiary. As of September 30, 2021, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $1.6 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.
11. Segments
Loews Corporation has four reportable segments comprised of three individual consolidated operating subsidiaries, CNA, Boardwalk Pipelines and Loews Hotels & Co; and the Corporate segment. In the first quarter of 2020, Diamond Offshore was a reportable segment; it was deconsolidated during the second quarter of 2020. The Corporate segment is primarily comprised of Loews Corporation, excluding its subsidiaries, and the operations of Altium Packaging through March 31, 2021. On April 1, 2021, Loews Corporation sold 47% of its interest in Altium Packaging and as a result, Altium Packaging was deconsolidated from Loews Corporation’s consolidated financial results. Subsequent to deconsolidation, Loews Corporation’s investment in Altium Packaging is accounted for under the equity method of accounting, with Equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations in the Corporate segment. For further discussion on the deconsolidations of Diamond Offshore and Altium Packaging see Note 2.
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. For additional disclosures regarding the composition of Loews Corporation’s segments, see Note 20 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The following tables present the reportable segments and their contribution to the Consolidated Condensed Statements of Operations. Amounts presented will not necessarily be the same as those in the individual financial statements of the subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling interests.
Statements of Operations by segment are presented in the following tables.
| CNA | Boardwalk | Loews | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, 2021 | Financial | Pipelines | Hotels & Co | Corporate | Total | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Insurance premiums | $ | 2,059 | $ | 2,059 | ||||||||||||||||
| Net investment income (loss) | 513 | $ | (30 | ) | 483 | |||||||||||||||
| Investment gains | 22 | 22 | ||||||||||||||||||
| Non-insurance warranty revenue | 357 | 357 | ||||||||||||||||||
| Operating revenues and other | 8 | $ | 307 | $ | 134 | 1 | 450 | |||||||||||||
| Total | 2,959 | 307 | 134 | (29 | ) | 3,371 | ||||||||||||||
| Expenses: | ||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 1,632 | 1,632 | ||||||||||||||||||
| Amortization of deferred acquisition costs | 368 | 368 | ||||||||||||||||||
| Non-insurance warranty expense | 330 | 330 | ||||||||||||||||||
| Operating expenses and other | 287 | 215 | 109 | 27 | 638 | |||||||||||||||
| Interest | 28 | 40 | 8 | 23 | 99 | |||||||||||||||
| Total | 2,645 | 255 | 117 | 50 | 3,067 | |||||||||||||||
| Income (loss) before income tax | 314 | 52 | 17 | (79 | ) | 304 | ||||||||||||||
| Income tax (expense) benefit | (59 | ) | (14 | ) | (4 | ) | 19 | (58 | ) | |||||||||||
| Net income (loss) | 255 | 38 | 13 | (60 | ) | 246 | ||||||||||||||
| Amounts attributable to noncontrolling interests | (26 | ) | (26 | ) | ||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 229 | $ | 38 | $ | 13 | $ | (60 | ) | $ | 220 |
| CNA | Boardwalk | Loews | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, 2020 | Financial | Pipelines | Hotels & Co | Corporate (a) | Total | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Insurance premiums | $ | 1,953 | $ | 1,953 | ||||||||||||||||
| Net investment income | 517 | $ | 23 | 540 | ||||||||||||||||
| Investment gains | 46 | 46 | ||||||||||||||||||
| Non-insurance warranty revenue | 317 | 317 | ||||||||||||||||||
| Operating revenues and other | 7 | $ | 289 | $ | 60 | 253 | 609 | |||||||||||||
| Total | 2,840 | 289 | 60 | 276 | 3,465 | |||||||||||||||
| Expenses: | ||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 1,616 | 1,616 | ||||||||||||||||||
| Amortization of deferred acquisition costs | 360 | 360 | ||||||||||||||||||
| Non-insurance warranty expense | 293 | 293 | ||||||||||||||||||
| Operating expenses and other | 268 | 219 | 114 | 275 | 876 | |||||||||||||||
| Interest | 52 | 44 | 8 | 33 | 137 | |||||||||||||||
| Total | 2,589 | 263 | 122 | 308 | 3,282 | |||||||||||||||
| Income (loss) before income tax | 251 | 26 | (62 | ) | (32 | ) | 183 | |||||||||||||
| Income tax (expense) benefit | (36 | ) | (6 | ) | 15 | 6 | (21 | ) | ||||||||||||
| Net income (loss) | 215 | 20 | (47 | ) | (26 | ) | 162 | |||||||||||||
| Amounts attributable to noncontrolling interests | (23 | ) | (23 | ) | ||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 192 | $ | 20 | $ | (47 | ) | $ | (26 | ) | $ | 139 |
| (a) | Amounts presented for Corporate include the operating results of Altium Packaging prior to the deconsolidation. |
|---|
| CNA | Boardwalk | Loews | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, 2021 | Financial | Pipelines | Hotels & Co | Corporate (b) | Total | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Insurance premiums | $ | 6,056 | $ | 6,056 | ||||||||||||||||
| Net investment income | 1,608 | $ | 1 | $ | 40 | 1,649 | ||||||||||||||
| Investment gains | 117 | 540 | 657 | |||||||||||||||||
| Non-insurance warranty revenue | 1,054 | 1,054 | ||||||||||||||||||
| Operating revenues and other | 19 | $ | 991 | 288 | 282 | 1,580 | ||||||||||||||
| Total | 8,854 | 991 | 289 | 862 | 10,996 | |||||||||||||||
| Expenses: | ||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 4,684 | 4,684 | ||||||||||||||||||
| Amortization of deferred acquisition costs | 1,084 | 1,084 | ||||||||||||||||||
| Non-insurance warranty expense | 973 | 973 | ||||||||||||||||||
| Operating expenses and other | 874 | 641 | 328 | 365 | 2,208 | |||||||||||||||
| Interest | 85 | 121 | 25 | 93 | 324 | |||||||||||||||
| Total | 7,700 | 762 | 353 | 458 | 9,273 | |||||||||||||||
| Income (loss) before income tax | 1,154 | 229 | (64 | ) | 404 | 1,723 | ||||||||||||||
| Income tax (expense) benefit | (219 | ) | (59 | ) | 13 | (126 | ) | (391 | ) | |||||||||||
| Net income (loss) | 935 | 170 | (51 | ) | 278 | 1,332 | ||||||||||||||
| Amounts attributable to noncontrolling interests | (97 | ) | (97 | ) | ||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 838 | $ | 170 | $ | (51 | ) | $ | 278 | $ | 1,235 |
| (b) | Amounts presented for Corporate include the operating results of Altium Packaging through March 31, 2021. Beginning April 1, 2021, Altium Packaging is recorded as an equity method investment. |
|---|
| CNA | Boardwalk | Loews | Diamond | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, 2020 | Financial | Pipelines | Hotels & Co | Corporate (a) | Offshore (c) | Total | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Insurance premiums | $ | 5,672 | $ | 5,672 | ||||||||||||||||||||
| Net investment income (loss) | 1,380 | $ | (33 | ) | 1,347 | |||||||||||||||||||
| Investment losses | (101 | ) | (1,211 | ) | (1,312 | ) | ||||||||||||||||||
| Non-insurance warranty revenue | 926 | 926 | ||||||||||||||||||||||
| Operating revenues and other | 20 | $ | 926 | $ | 236 | 754 | $ | 305 | 2,241 | |||||||||||||||
| Total | 7,897 | 926 | 236 | (490 | ) | 305 | 8,874 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 4,683 | 4,683 | ||||||||||||||||||||||
| Amortization of deferred acquisition costs | 1,046 | 1,046 | ||||||||||||||||||||||
| Non-insurance warranty expense | 859 | 859 | ||||||||||||||||||||||
| Operating expenses and other | 851 | 633 | 404 | 810 | 1,196 | 3,894 | ||||||||||||||||||
| Interest | 114 | 127 | 24 | 96 | 43 | 404 | ||||||||||||||||||
| Total | 7,553 | 760 | 428 | 906 | 1,239 | 10,886 | ||||||||||||||||||
| Income (loss) before income tax | 344 | 166 | (192 | ) | (1,396 | ) | (934 | ) | (2,012 | ) | ||||||||||||||
| Income tax (expense) benefit | (40 | ) | (43 | ) | 48 | 293 | 26 | 284 | ||||||||||||||||
| Net income (loss) | 304 | 123 | (144 | ) | (1,103 | ) | (908 | ) | (1,728 | ) | ||||||||||||||
| Amounts attributable to noncontrolling interests | (32 | ) | 432 | 400 | ||||||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 272 | $ | 123 | $ | (144 | ) | $ | (1,103 | ) | $ | (476 | ) | $ | (1,328 | ) |
| (c) | Amounts presented for Diamond Offshore reflect the period prior to the deconsolidation. |
|---|
Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.