filings.toolsItem 1. Financial Statements.
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Item 1. Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| (Dollar amounts in millions, except per share data) | |||||||||||
| Assets: | |||||||||||
| Investments: | |||||||||||
| Fixed maturities, amortized cost of $40,928 and $39,952, less allowance for credit loss of $17 and $18 | $ | 41,945 | $ | 44,380 | |||||||
| Equity securities, cost of $1,496 and $1,546 | 1,515 | 1,674 | |||||||||
| Limited partnership investments | 1,917 | 1,933 | |||||||||
| Other invested assets, primarily mortgage loans, less allowance for credit loss of $16 and $16 | 1,070 | 1,091 | |||||||||
| Short term investments | 4,655 | 4,860 | |||||||||
| Total investments | 51,102 | 53,938 | |||||||||
| Cash | 798 | 621 | |||||||||
| Receivables | 9,259 | 9,273 | |||||||||
| Property, plant and equipment | 9,896 | 9,888 | |||||||||
| Goodwill | 348 | 349 | |||||||||
| Deferred non-insurance warranty acquisition expenses | 3,504 | 3,476 | |||||||||
| Deferred acquisition costs of insurance subsidiaries | 766 | 737 | |||||||||
| Other assets | 3,471 | 3,344 | |||||||||
| Total assets | $ | 79,144 | $ | 81,626 | |||||||
| Liabilities and Equity: | |||||||||||
| Insurance reserves: | |||||||||||
| Claim and claim adjustment expense | $ | 24,348 | $ | 24,174 | |||||||
| Future policy benefits | 11,938 | 13,236 | |||||||||
| Unearned premiums | 5,942 | 5,761 | |||||||||
| Total insurance reserves | 42,228 | 43,171 | |||||||||
| Payable to brokers | 396 | 90 | |||||||||
| Short term debt | 393 | 93 | |||||||||
| Long term debt | 8,883 | 8,986 | |||||||||
| Deferred income taxes | 715 | 1,079 | |||||||||
| Deferred non-insurance warranty revenue | 4,528 | 4,503 | |||||||||
| Other liabilities | 4,306 | 4,529 | |||||||||
| Total liabilities | 61,449 | 62,451 | |||||||||
| 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 – 248,596,343 and 248,467,051 shares | 2 | 2 | |||||||||
| Additional paid-in capital | 2,859 | 2,885 | |||||||||
| Retained earnings | 15,097 | 14,776 | |||||||||
| Accumulated other comprehensive income (loss) | (1,251) | 186 | |||||||||
| 16,707 | 17,849 | ||||||||||
| Less treasury stock, at cost (2,195,656 and 50,000 shares) | (132) | (3) | |||||||||
| Total shareholders’ equity | 16,575 | 17,846 | |||||||||
| Noncontrolling interests | 1,120 | 1,329 | |||||||||
| Total equity | 17,695 | 19,175 | |||||||||
| Total liabilities and equity | $ | 79,144 | $ | 81,626 |
See accompanying Notes to Consolidated Condensed Financial Statements.
| 3 |
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31 | 2022 | 2021 | |||||||||||||||
| (In millions, except per share data) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Insurance premiums | $ | 2,059 | $ | 1,962 | |||||||||||||
| Net investment income | 432 | 550 | |||||||||||||||
| Investment gains (losses) | (11) | 57 | |||||||||||||||
| Non-insurance warranty revenue | 382 | 338 | |||||||||||||||
| Operating revenues and other | 540 | 715 | |||||||||||||||
| Total | 3,402 | 3,622 | |||||||||||||||
| Expenses: | |||||||||||||||||
| Insurance claims and policyholders’ benefits | 1,455 | 1,506 | |||||||||||||||
| Amortization of deferred acquisition costs | 344 | 359 | |||||||||||||||
| Non-insurance warranty expense | 354 | 311 | |||||||||||||||
| Operating expenses and other | 691 | 914 | |||||||||||||||
| Interest | 96 | 125 | |||||||||||||||
| Total | 2,940 | 3,215 | |||||||||||||||
| Income before income tax | 462 | 407 | |||||||||||||||
| Income tax expense | (92) | (114) | |||||||||||||||
| Net income | 370 | 293 | |||||||||||||||
| Amounts attributable to noncontrolling interests | (32) | (32) | |||||||||||||||
| Net income attributable to Loews Corporation | $ | 338 | $ | 261 | |||||||||||||
| Basic net income per share | $ | 1.36 | $ | 0.98 | |||||||||||||
| Diluted net income per share | $ | 1.36 | $ | 0.97 | |||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||
| Shares of common stock | 247.97 | 267.39 | |||||||||||||||
| Dilutive potential shares of common stock | 0.51 | 0.37 | |||||||||||||||
| Total weighted average shares outstanding assuming dilution | 248.48 | 267.76 |
See accompanying Notes to Consolidated Condensed Financial Statements.
| 4 |
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended March 31 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Net income | $ | 370 | $ | 293 | |||||||||||||
| Other comprehensive loss, after tax | |||||||||||||||||
| Changes in: | |||||||||||||||||
| Net unrealized losses on investments with an allowance for credit losses | (4) | ||||||||||||||||
| Net unrealized losses on other investments | (1,611) | (627) | |||||||||||||||
| Total unrealized losses on investments | (1,615) | (627) | |||||||||||||||
| Unrealized gains on cash flow hedges | 18 | 4 | |||||||||||||||
| Pension and postretirement benefits | 7 | 9 | |||||||||||||||
| Foreign currency translation | (15) | 3 | |||||||||||||||
| Other comprehensive loss | (1,605) | (611) | |||||||||||||||
| Comprehensive loss | (1,235) | (318) | |||||||||||||||
| Amounts attributable to noncontrolling interests | 136 | 32 | |||||||||||||||
| Total comprehensive loss attributable to Loews Corporation | $ | (1,099) | $ | (286) |
See accompanying Notes to Consolidated Condensed Financial Statements.
| 5 |
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(Unaudited)
| Loews Corporation Shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Common Stock Held in Treasury | Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | 19,181 | $ | 3 | $ | 3,133 | $ | 14,150 | $ | 581 | $ | (7) | $ | 1,321 | ||||||||||||||||||||||||||||||||||||
| Net income | 293 | 261 | 32 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (611) | (547) | (64) | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid ($0.0625 per share) | (49) | (17) | (32) | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of subsidiary stock from noncontrolling interests | (3) | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Loews Corporation treasury stock | (274) | (274) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 4 | (11) | 15 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | (4) | (3) | 1 | (2) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | 18,537 | $ | 3 | $ | 3,119 | $ | 14,394 | $ | 34 | $ | (280) | $ | 1,267 | ||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | 19,175 | $ | 2 | $ | 2,885 | $ | 14,776 | $ | 186 | $ | (3) | $ | 1,329 | ||||||||||||||||||||||||||||||||||||
| Net income | 370 | 338 | 32 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (1,605) | (1,437) | (168) | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid ($0.0625 per share) | (84) | (16) | (68) | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of subsidiary stock from noncontrolling interests | (21) | (1) | (20) | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Loews Corporation treasury stock | (129) | (129) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | (10) | (25) | 15 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | (1) | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | 17,695 | $ | 2 | $ | 2,859 | $ | 15,097 | $ | (1,251) | $ | (132) | $ | 1,120 |
See accompanying Notes to Consolidated Condensed Financial Statements.
| 6 |
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31 | 2022 | 2021 | |||||||||
| (In millions) | |||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 370 | $ | 293 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities, net | 333 | 257 | |||||||||
| Changes in operating assets and liabilities, net: | |||||||||||
| Receivables | (28) | (736) | |||||||||
| Deferred acquisition costs | (31) | (32) | |||||||||
| Insurance reserves | 489 | 605 | |||||||||
| Other assets | (134) | (250) | |||||||||
| Other liabilities | (202) | 126 | |||||||||
| Trading securities | (374) | (129) | |||||||||
| Net cash flow provided by operating activities | 423 | 134 | |||||||||
| Investing Activities: | |||||||||||
| Purchases of fixed maturities | (2,547) | (2,203) | |||||||||
| Proceeds from sales of fixed maturities | 803 | 907 | |||||||||
| Proceeds from maturities of fixed maturities | 916 | 1,084 | |||||||||
| Purchases of equity securities | (75) | (81) | |||||||||
| Proceeds from sales of equity securities | 77 | 119 | |||||||||
| Purchases of limited partnership investments | (85) | (61) | |||||||||
| Proceeds from sales of limited partnership investments | 113 | 49 | |||||||||
| Purchases of property, plant and equipment | (121) | (87) | |||||||||
| Change in short term investments | 696 | 569 | |||||||||
| Other, net | 36 | 10 | |||||||||
| Net cash flow (used) provided by investing activities | (187) | 306 | |||||||||
| Financing Activities: | |||||||||||
| Dividends paid | (16) | (17) | |||||||||
| Dividends paid to noncontrolling interests | (68) | (32) | |||||||||
| Purchases of Loews Corporation treasury stock | (132) | (280) | |||||||||
| Purchases of subsidiary stock from noncontrolling interests | (21) | (3) | |||||||||
| Principal payments on debt | (300) | (1,073) | |||||||||
| Issuance of debt | 495 | 1,159 | |||||||||
| Other, net | (14) | (12) | |||||||||
| Net cash flow used by financing activities | (56) | (258) | |||||||||
| Effect of foreign exchange rate on cash | (3) | ||||||||||
| Net change in cash | 177 | 182 | |||||||||
| Cash, beginning of period | 621 | 478 | |||||||||
| Cash, end of period | $ | 798 | $ | 660 |
See accompanying Notes to Consolidated Condensed Financial Statements.
| 7 |
Loews Corporation and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Loews Corporation is a holding company. Its consolidated operating 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 “Parent Company” means Loews Corporation excluding its 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 Altium Packaging LLC (“Altium Packaging”), previously a 99% owned subsidiary, and following the transaction Loews Corporation deconsolidated Altium Packaging. For additional information regarding the deconsolidation of Altium Packaging, see Note 2 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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 March 31, 2022 and December 31, 2021 and results of operations, comprehensive loss and changes in shareholders’ equity and cash flows for the three months ended March 31, 2022 and 2021. Net income for the first quarter of each of the years is not necessarily indicative of net income 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, 2021.
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 months ended March 31, 2022 and 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 Accounting Standards Updates (“ASUs”) – In August of 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-12, “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.” The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. For the Company, this includes CNA’s Long term care and fully-ceded single premium immediate annuity business. Entities will be required to review, and update if there is a change, cash flow assumptions (including morbidity and persistency) at least annually and to 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”). The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted, and may be applied using either a modified retrospective transition method or a full retrospective transition method. Financial statements for prior periods presented will be adjusted to reflect the effects of applying the new accounting guidance.
The Company will adopt the new guidance effective January 1, 2023, using the modified retrospective method applied as of the transition date of January 1, 2021. A published spot rate curve constructed from A+, A and A- rated U.S. dollar denominated corporate bonds matched to the duration of the corresponding insurance liabilities will be used to calculate discount rates. Long-duration contracts will be grouped into calendar year cohorts based on the contract issue date and product line. Long term care contracts will be grouped separately from the fully-ceded single premium immediate annuity contracts.
The most significant impact at the transition date will be the effect of updating the discount rate assumption to reflect an upper-medium grade fixed-income instrument yield, which will be partially offset by the de-recognition of Shadow Adjustments associated with long-duration contracts. The Company expects the net impact of these changes will be a $2.0
| 8 |
billion - $2.3 billion (after tax and noncontrolling interests) decrease in Accumulated other comprehensive income (“AOCI”) as of the transition date of January 1, 2021. There is a minimal transition impact expected to retained earnings.
The requirement to review, and update if there is a change, cash flow assumptions at least annually is expected to change the pattern of earnings being recognized. Adoption will also significantly expand the Company’s disclosures, and will impact systems, processes and controls. While the requirements of the new guidance represent a material change from existing accounting guidance, the new guidance will not impact capital and surplus under statutory accounting practices, cash flows, or the underlying economics of the business.
The Company continues to make progress in connection with these matters and is in the process of refining key accounting policy decisions, technology solutions and updates to internal controls associated with adoption of the new guidance. These in-progress activities include modifications of actuarial valuation systems, data sourcing, analytical procedures and reporting processes.
2. Investments
Net investment income is as follows:
| Three Months Ended March 31 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Fixed maturity securities | $ | 429 | $ | 428 | |||||||||||||
| Limited partnership investments | 20 | 47 | |||||||||||||||
| Equity securities | 2 | 29 | |||||||||||||||
| Income (loss) from trading portfolio (a) | (15) | 50 | |||||||||||||||
| Other | 15 | 16 | |||||||||||||||
| Total investment income | 451 | 570 | |||||||||||||||
| Investment expenses | (19) | (20) | |||||||||||||||
| Net investment income | $ | 432 | $ | 550 |
| (a) | During the three months ended March 31, 2022 and 2021, $(31) and $32 of net investment income (loss) was recognized due to the change in fair value of securities still held as of March 31, 2022 and 2021. |
Investment gains (losses) are as follows:
| Three Months Ended March 31 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||
| Gross gains | $ | 26 | $ | 58 | |||||||||||||
| Gross losses | (28) | (20) | |||||||||||||||
| Investment gains (losses) on fixed maturity securities | (2) | 38 | |||||||||||||||
| Equity securities | (38) | 2 | |||||||||||||||
| Derivative instruments | 29 | 17 | |||||||||||||||
| Investment gains (losses) (a) | $ | (11) | $ | 57 |
| (a) | During the three months ended March 31, 2022 and 2021, $38 of investment losses and $2 of investment gains were recognized due to the change in fair value of non-redeemable preferred stock still held as of March 31, 2022 and 2021. |
| 9 |
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 $389 million, $369 million and $389 million as of March 31, 2022, December 31, 2021 and March 31, 2021 and are excluded from the estimate of expected credit losses and the amortized cost basis in the tables within this Note.
| Three months ended March 31, 2022 | Corporate and Other Bonds | Asset-backed | Total | ||||||||||||||
| (In millions) | |||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||
| Balance as of January 1, 2022 | $ | 11 | $ | 7 | $ | 18 | |||||||||||
| Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | 1 | (2) | (1) | ||||||||||||||
| Total allowance for credit losses | $ | 12 | $ | 5 | $ | 17 |
| Three months ended March 31, 2021 | |||||||||||||||||
| 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 | 2 | 2 | |||||||||||||||
| Reductions to the allowance for credit losses: | |||||||||||||||||
| Securities sold during the period (realized) | 6 | 6 | |||||||||||||||
| Additional decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period | (6) | (1) | (7) | ||||||||||||||
| Total allowance for credit losses | $ | 27 | $ | 16 | $ | 43 |
| 10 |
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 March 31 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||
| Corporate and other bonds | $ | 8 | $ | 7 | |||||||||||||
| Asset-backed | 2 | (1) | |||||||||||||||
| Impairment losses recognized in earnings | $ | 10 | $ | 6 |
There were no losses recognized on mortgage loans during the three months ended March 31, 2022 or 2021.
The amortized cost and fair values of fixed maturity securities are as follows:
| March 31, 2022 | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | ||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 22,001 | $ | 1,277 | $ | 486 | $ | 12 | $ | 22,780 | |||||||||||||||||||
| States, municipalities and political subdivisions | 10,516 | 862 | 319 | 11,059 | |||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||
| Residential mortgage-backed | 2,983 | 25 | 160 | 2,848 | |||||||||||||||||||||||||
| Commercial mortgage-backed | 2,008 | 13 | 81 | 1,940 | |||||||||||||||||||||||||
| Other asset-backed | 2,710 | 11 | 93 | 5 | 2,623 | ||||||||||||||||||||||||
| Total asset-backed | 7,701 | 49 | 334 | 5 | 7,411 | ||||||||||||||||||||||||
| U.S. Treasury and obligations of government sponsored enterprises | 125 | 5 | 120 | ||||||||||||||||||||||||||
| Foreign government | 559 | 3 | 13 | 549 | |||||||||||||||||||||||||
| Redeemable preferred stock | 20 | 20 | |||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 40,922 | 2,191 | 1,157 | 17 | 41,939 | ||||||||||||||||||||||||
| Fixed maturities trading | 6 | 6 | |||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 40,928 | $ | 2,191 | $ | 1,157 | $ | 17 | $ | 41,945 |
| 11 |
| December 31, 2021 | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | ||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 21,444 | $ | 2,755 | $ | 56 | $ | 11 | $ | 24,132 | |||||||||||||||||||
| States, municipalities and political subdivisions | 10,358 | 1,599 | 14 | 11,943 | |||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||
| Residential mortgage-backed | 2,893 | 71 | 8 | 2,956 | |||||||||||||||||||||||||
| Commercial mortgage-backed | 1,987 | 63 | 19 | 2,031 | |||||||||||||||||||||||||
| Other asset-backed | 2,561 | 54 | 10 | 7 | 2,598 | ||||||||||||||||||||||||
| Total asset-backed | 7,441 | 188 | 37 | 7 | 7,585 | ||||||||||||||||||||||||
| U.S. Treasury and obligations of government sponsored enterprises | 132 | 1 | 3 | 130 | |||||||||||||||||||||||||
| Foreign government | 570 | 15 | 2 | 583 | |||||||||||||||||||||||||
| Fixed maturities available-for-sale | 39,945 | 4,558 | 112 | 18 | 44,373 | ||||||||||||||||||||||||
| Fixed maturities trading | 7 | 7 | |||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 39,952 | $ | 4,558 | $ | 112 | $ | 18 | $ | 44,380 |
The net unrealized gains on available-for-sale investments included in the tables above are recorded as a component of 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 maturity securities supporting structured settlements not funded by annuities were realized, or that unrealized gains on fixed maturity securities supporting long term care products would result in a premium deficiency, or would impact the reserve balance, if 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 March 31, 2022 and December 31, 2021, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1.3 billion and $2.2 billion (after tax and noncontrolling interests).
| 12 |
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 | |||||||||||||||||||||||||||||||||
| March 31, 2022 | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 7,390 | $ | 441 | $ | 327 | $ | 45 | $ | 7,717 | $ | 486 | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 2,796 | 314 | 35 | 5 | 2,831 | 319 | |||||||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | 2,315 | 160 | 2,315 | 160 | |||||||||||||||||||||||||||||||
| Commercial mortgage-backed | 1,274 | 65 | 151 | 16 | 1,425 | 81 | |||||||||||||||||||||||||||||
| Other asset-backed | 1,717 | 90 | 67 | 3 | 1,784 | 93 | |||||||||||||||||||||||||||||
| Total asset-backed | 5,306 | 315 | 218 | 19 | 5,524 | 334 | |||||||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 94 | 5 | 5 | 99 | 5 | ||||||||||||||||||||||||||||||
| Foreign government | 327 | 11 | 26 | 2 | 353 | 13 | |||||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 15,913 | $ | 1,086 | $ | 611 | $ | 71 | $ | 16,524 | $ | 1,157 | |||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 2,389 | $ | 48 | $ | 136 | $ | 8 | $ | 2,525 | $ | 56 | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 730 | 14 | 730 | 14 | |||||||||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | 1,043 | 8 | 1,043 | 8 | |||||||||||||||||||||||||||||||
| Commercial mortgage-backed | 527 | 7 | 167 | 12 | 694 | 19 | |||||||||||||||||||||||||||||
| Other asset-backed | 840 | 10 | 62 | 902 | 10 | ||||||||||||||||||||||||||||||
| Total asset-backed | 2,410 | 25 | 229 | 12 | 2,639 | 37 | |||||||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 69 | 3 | 5 | 74 | 3 | ||||||||||||||||||||||||||||||
| Foreign government | 97 | 2 | 97 | 2 | |||||||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 5,695 | $ | 92 | $ | 370 | $ | 20 | $ | 6,065 | $ | 112 |
| 13 |
The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities in a gross unrealized loss position for which an allowance for credit loss has not been recorded, by ratings distribution.
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| U.S. Government, Government agencies and Government-sponsored enterprises | $ | 2,095 | $ | 116 | $ | 898 | $ | 8 | |||||||||||||||
| AAA | 993 | 105 | 368 | 6 | |||||||||||||||||||
| AA | 2,809 | 269 | 875 | 17 | |||||||||||||||||||
| A | 3,300 | 205 | 1,516 | 23 | |||||||||||||||||||
| BBB | 6,073 | 392 | 1,812 | 42 | |||||||||||||||||||
| Non-investment grade | 1,254 | 70 | 596 | 16 | |||||||||||||||||||
| Total | $ | 16,524 | $ | 1,157 | $ | 6,065 | $ | 112 |
Based on current facts and circumstances, the unrealized losses presented in the March 31, 2022 securities in a gross unrealized loss position table above are not believed to be indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are primarily attributable to changes in risk-free interest rates, and to a lesser extent credit spreads. In reaching this determination, the recent volatility in risk-free rates and spreads, as well as the fact that the unrealized losses are concentrated in investment grade issuers, were considered. Additionally, 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 March 31, 2022.
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Cost or Amortized Cost | Estimated Fair Value | Cost or Amortized Cost | Estimated Fair Value | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Due in one year or less | $ | 1,533 | $ | 1,546 | $ | 1,603 | $ | 1,624 | |||||||||||||||
| Due after one year through five years | 10,206 | 10,337 | 10,637 | 11,229 | |||||||||||||||||||
| Due after five years through ten years | 14,040 | 14,032 | 13,294 | 14,338 | |||||||||||||||||||
| Due after ten years | 15,143 | 16,024 | 14,411 | 17,182 | |||||||||||||||||||
| Total | $ | 40,922 | $ | 41,939 | $ | 39,945 | $ | 44,373 |
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.
| 14 |
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 March 31, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | ||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||
| DSCR ≥1.6x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | $ | 9 | $ | 94 | $ | 21 | $ | 54 | $ | 247 | $ | 425 | |||||||||||||||||||||||||||||
| LTV 55% to 65% | 5 | 19 | 8 | 24 | 56 | ||||||||||||||||||||||||||||||||||||
| LTV greater than 65% | $ | 18 | 11 | 29 | |||||||||||||||||||||||||||||||||||||
| DSCR 1.2x - 1.6x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | 13 | 14 | 95 | 10 | 56 | 188 | |||||||||||||||||||||||||||||||||||
| LTV 55% to 65% | 21 | 36 | 24 | 8 | 89 | ||||||||||||||||||||||||||||||||||||
| LTV greater than 65% | — | ||||||||||||||||||||||||||||||||||||||||
| DSCR ≤1.2x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | 52 | 30 | 82 | ||||||||||||||||||||||||||||||||||||||
| LTV 55% to 65% | 55 | 55 | |||||||||||||||||||||||||||||||||||||||
| LTV greater than 65% | 21 | 6 | 7 | 34 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 39 | $ | 95 | $ | 151 | $ | 237 | $ | 64 | $ | 372 | $ | 958 |
| (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.
| 15 |
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Contractual/Notional Amount | Estimated Fair Value | Contractual/Notional Amount | Estimated Fair Value | ||||||||||||||||||||||||||||||||
| Asset | (Liability) | Asset | (Liability) | ||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Without hedge designation: | |||||||||||||||||||||||||||||||||||
| Equity markets: | |||||||||||||||||||||||||||||||||||
| Options – purchased | $ | 76 | $ | 1 | |||||||||||||||||||||||||||||||
| Futures – short | 103 | 1 | |||||||||||||||||||||||||||||||||
| Interest rate swaps | 240 | 10 | $ | 100 | |||||||||||||||||||||||||||||||
| Forward commitments for mortgage-backed securities | 45 | ||||||||||||||||||||||||||||||||||
| Currency forwards | 13 | ||||||||||||||||||||||||||||||||||
| Embedded derivative on funds withheld liability | 268 | 16 | 270 | $ | (12) |
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 March 31, 2022, commitments to purchase or fund were approximately $1.3 billion and to sell were approximately $65 million under the terms of these investments.
3. Fair Value
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.
| March 31, 2022 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||
| Corporate bonds and other | $ | 129 | $ | 22,425 | $ | 915 | $ | 23,469 | |||||||||||||||
| States, municipalities and political subdivisions | 11,008 | 51 | 11,059 | ||||||||||||||||||||
| Asset-backed | 6,807 | 604 | 7,411 | ||||||||||||||||||||
| Fixed maturities available-for-sale | 129 | 40,240 | 1,570 | 41,939 | |||||||||||||||||||
| Fixed maturities trading | 6 | 6 | |||||||||||||||||||||
| Total fixed maturities | $ | 129 | $ | 40,246 | $ | 1,570 | $ | 41,945 | |||||||||||||||
| Equity securities | $ | 788 | $ | 683 | $ | 44 | $ | 1,515 | |||||||||||||||
| Short term and other | 4,530 | 30 | 4,560 | ||||||||||||||||||||
| Receivables | 12 | 12 | |||||||||||||||||||||
| Payable to brokers | (96) | (96) | |||||||||||||||||||||
| 16 |
| December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||
| Corporate bonds and other | $ | 140 | $ | 23,768 | $ | 937 | $ | 24,845 | |||||||||||||||
| States, municipalities and political subdivisions | 11,887 | 56 | 11,943 | ||||||||||||||||||||
| Asset-backed | 7,029 | 556 | 7,585 | ||||||||||||||||||||
| Fixed maturities available-for-sale | 140 | 42,684 | 1,549 | 44,373 | |||||||||||||||||||
| Fixed maturities trading | 7 | 7 | |||||||||||||||||||||
| Total fixed maturities | $ | 140 | $ | 42,691 | $ | 1,549 | $ | 44,380 | |||||||||||||||
| Equity securities | $ | 924 | $ | 721 | $ | 29 | $ | 1,674 | |||||||||||||||
| Short term and other | 4,696 | 74 | 4,770 | ||||||||||||||||||||
| Payable to brokers | (70) | (70) |
| 17 |
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 months ended March 31, 2022 and 2021:
| Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at March 31 | Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities Held at March 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | Balance, January 1 | Included in Net Income | Included in OCI | Purchases | Sales | Settlements | Transfers into Level 3 | Transfers out of Level 3 | Balance, March 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 937 | $ | (1) | $ | (71) | $ | 67 | $ | (5) | $ | (22) | $ | 10 | $ | 915 | $ | (72) | |||||||||||||||||||||||||||||||||||||||||||||||
| States, municipalities and political | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| subdivisions | 56 | (5) | 51 | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed | 556 | 3 | (32) | 140 | (17) | 5 | $ | (51) | 604 | (31) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 1,549 | 2 | (108) | 207 | (5) | (39) | 15 | (51) | 1,570 | $ | — | (108) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturities trading | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 1,549 | $ | 2 | $ | (108) | $ | 207 | $ | (5) | $ | (39) | $ | 15 | $ | (51) | $ | 1,570 | $ | — | $ | (108) | |||||||||||||||||||||||||||||||||||||||||||
| Equity securities | $ | 29 | $ | 3 | $ | 12 | $ | 44 | $ | 3 |
| 18 |
| Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at March 31 | Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities Held at March 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | Balance, January 1 | Included in Net Income | Included in OCI | Purchases | Sales | Settlements | Transfers into Level 3 | Transfers out of Level 3 | Balance, March 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds and other | $ | 770 | $ | (13) | $ | (40) | $ | 42 | $ | (2) | $ | 10 | $ | 767 | $ | (40) | |||||||||||||||||||||||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | 46 | (2) | 44 | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed | 308 | 2 | (9) | 30 | (17) | 9 | $ | (8) | 315 | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 1,124 | (11) | (51) | 72 | $ | — | (19) | 19 | (8) | 1,126 | $ | — | (51) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturities trading | 8 | (3) | 5 | (3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 1,132 | $ | (14) | $ | (51) | $ | 72 | $ | — | $ | (19) | $ | 19 | $ | (8) | $ | 1,131 | $ | (3) | $ | (51) | |||||||||||||||||||||||||||||||||||||||||||
| Equity securities | $ | 43 | $ | 2 | $ | 45 | $ | 2 |
Net investment gains and losses are reported in Net income 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 |
| 19 |
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.
| March 31, 2022 | Estimated Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) | ||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Fixed maturity securities | $ | 1,198 | Discounted cash flow | Credit spread | 1% | — | 7% | (3%) | ||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||
| Fixed maturity securities | $ | 1,225 | Discounted cash flow | Credit spread | 1% | — | 7% | (2%) |
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 Amount | Estimated Fair Value | ||||||||||||||||||||||||||||
| March 31, 2022 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 942 | $ | 940 | $ | 940 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Short term debt | 392 | $ | 302 | 93 | 395 | ||||||||||||||||||||||||
| Long term debt | 8,878 | 8,469 | 606 | 9,075 | |||||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 973 | $ | 1,018 | $ | 1,018 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Short term debt | 93 | 93 | 93 | ||||||||||||||||||||||||||
| Long term debt | 8,981 | $ | 9,170 | 611 | 9,781 |
| 20 |
4. 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 $19 million and $125 million for the three months ended March 31, 2022 and 2021. Catastrophe losses for the three months ended March 31, 2022 were primarily related to severe weather related events. Catastrophe losses for the three months ended March 31, 2021 were primarily driven by Winter Storms Uri and Viola.
| 21 |
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.
| Three Months Ended March 31 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Reserves, beginning of year: | |||||||||||||||||
| Gross | $ | 24,174 | $ | 22,706 | |||||||||||||
| Ceded | 4,969 | 4,005 | |||||||||||||||
| Net reserves, beginning of year | 19,205 | 18,701 | |||||||||||||||
| 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 | 1,448 | 1,474 | |||||||||||||||
| Increase (decrease) in provision for insured events of prior years | (45) | (54) | |||||||||||||||
| Amortization of discount | 47 | 50 | |||||||||||||||
| Total net incurred (a) | 1,450 | 1,470 | |||||||||||||||
| Net payments attributable to: | |||||||||||||||||
| Current year events | (70) | (85) | |||||||||||||||
| Prior year events | (1,147) | (1,067) | |||||||||||||||
| Total net payments | (1,217) | (1,152) | |||||||||||||||
| Foreign currency translation adjustment and other | (92) | (32) | |||||||||||||||
| Net reserves, end of period | 19,346 | 18,355 | |||||||||||||||
| Ceded reserves, end of period | 5,002 | 4,701 | |||||||||||||||
| Gross reserves, end of period | $ | 24,348 | $ | 23,056 |
| (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 development of $12 million and $15 million were recorded for commercial property and casualty operations (“Property & Casualty Operations”) for the three months ended March 31, 2022 and 2021.
| 22 |
The following table and discussion presents details of the net prior year loss reserve development in Property & Casualty Operations:
| Three Months Ended March 31 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Medical professional liability | $ | 8 | $ | 8 | |||||||||||||
| Surety | (9) | (15) | |||||||||||||||
| Workers’ compensation | (2) | ||||||||||||||||
| Property and other | (9) | (8) | |||||||||||||||
| Total pretax (favorable) unfavorable development | $ | (12) | $ | (15) |
2021
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
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 $12 million and $10 million for the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, the cumulative amounts ceded under the LPT were $3.4 billion. The unrecognized deferred retroactive reinsurance benefit was $417 million and $429 million as of March 31, 2022 and December 31, 2021 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 $3.1 billion as of March 31, 2022. 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.
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.
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5. Shareholders’ Equity
Accumulated other comprehensive income (loss)
The tables below present the changes in AOCI by component for the three months ended March 31, 2021 and 2022:
| Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses | Net Unrealized Gains (Losses) on Other Investments | Unrealized Gains (Losses) on Cash Flow Hedges | Pension and Postretirement Benefits | Foreign Currency Translation | Total Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | — | $ | 1,563 | $ | (23) | $ | (877) | $ | (82) | $ | 581 | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $1, $154, $(2), $0 and $0 | (3) | (593) | 3 | 3 | (590) | ||||||||||||||||||||||||||||||
| Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $(1), $8, $(1), $(2) and $0 | 3 | (34) | 1 | 9 | (21) | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | (627) | 4 | 9 | 3 | (611) | |||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | 66 | (1) | (1) | 64 | |||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | — | $ | 1,002 | $ | (19) | $ | (869) | $ | (80) | $ | 34 | |||||||||||||||||||||||
| Balance, January 1, 2022 | $ | (2) | $ | 930 | $ | (6) | $ | (636) | $ | (100) | $ | 186 | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $1, $425, $(2), $(2) and $0 | (4) | (1,612) | 15 | 2 | (15) | (1,614) | |||||||||||||||||||||||||||||
| Reclassification of losses from accumulated other comprehensive loss, after tax of $0, $(1), $(1), $(2) and $0 | 1 | 3 | 5 | 9 | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (4) | (1,611) | 18 | 7 | (15) | (1,605) | |||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | 168 | (1) | 1 | 168 | |||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | (6) | $ | (513) | $ | 12 | $ | (630) | $ | (114) | $ | (1,251) |
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 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 |
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Treasury Stock
Loews Corporation repurchased 2.1 million and 5.6 million shares of its common stock at aggregate costs of $129 million and $274 million during the three months ended March 31, 2022 and 2021.
6. Debt
In February of 2022, Boardwalk Pipelines completed a public offering of $500 million aggregate principal amount of its 3.6% senior notes due September 1, 2032. Boardwalk Pipelines used the proceeds to retire the outstanding $300 million aggregate principal amount of its 4.0% senior notes due June 2022 in March of 2022, to fund growth capital expenditures and for general corporate purposes.
7. 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 March 31 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Non-insurance warranty – CNA Financial | $ | 382 | $ | 338 | |||||||||||||
| Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipelines | $ | 370 | $ | 361 | |||||||||||||
| Lodging and related services – Loews Hotels & Co | 146 | 56 | |||||||||||||||
| Rigid plastic packaging and recycled resin – Corporate (a) | 280 | ||||||||||||||||
| Total revenues from contracts with customers | 516 | 697 | |||||||||||||||
| Other revenues | 24 | 18 | |||||||||||||||
| Operating revenues and other | $ | 540 | $ | 715 |
(a)Revenues reflect the consolidated results of Altium Packaging for the three months ended March 31, 2021.
Receivables from contracts with customers – As of March 31, 2022 and December 31, 2021, receivables from contracts with customers were approximately $149 million and $145 million and are included within Receivables on the Consolidated Condensed Balance Sheets.
Deferred revenue – As of March 31, 2022 and December 31, 2021, deferred revenue resulting from contracts with customers was approximately $4.6 billion and is reported as Deferred non-insurance warranty revenue and within Other liabilities on the Consolidated Condensed Balance Sheets. Approximately $374 million and $316 million of revenues recognized during the three months ended March 31, 2022 and 2021 were included in deferred revenue as of December 31, 2021 and 2020.
Performance obligations – As of March 31, 2022, approximately $13.2 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to revenues for transportation and storage services for natural gas and natural gas liquids and hydrocarbons (“NGLs”) at Boardwalk Pipelines and non-insurance warranty revenue at CNA. Approximately $1.9 billion will be recognized during the remaining nine months of 2022, $2.2 billion in 2023 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control.
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8. 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 | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||
| Three Months Ended March 31 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Service cost | $ | 1 | $ | 1 | |||||||||||||||||||||||||||||||
| Interest cost | 19 | 18 | |||||||||||||||||||||||||||||||||
| Expected return on plan assets | (43) | (43) | $ | (1) | |||||||||||||||||||||||||||||||
| Amortization of unrecognized net loss | 8 | 12 | |||||||||||||||||||||||||||||||||
| Settlements | 1 | ||||||||||||||||||||||||||||||||||
| Regulatory asset decrease | 1 | ||||||||||||||||||||||||||||||||||
| Net periodic benefit | $ | (13) | $ | (12) | $ | — | $ | (1) |
9. Legal Proceedings
Boardwalk Pipelines Litigation
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 “Trial 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 Trial 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 Trial Court denied approval of the Proposed Settlement. On February 11, 2019, a substitute verified class action complaint was filed in this proceeding, which among other things, added the Parent Company as a Defendant. The Defendants filed a motion to dismiss, which was heard by the Trial Court in July of 2019. In October of 2019, the Trial 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.
On November 12, 2021, the Trial Court issued a ruling in the case. The Trial Court held that the General Partner breached the Limited Partnership Agreement and awarded Plaintiffs approximately $690 million, plus pre-judgment interest (approximately $166 million), post-judgment interest and attorneys’ fees.
The Company believes that the Trial Court ruling includes factual and legal errors. Therefore on January 3, 2022, the Defendants appealed the Trial Court’s ruling to the Supreme Court of the State of Delaware (the “Supreme Court”). On January 17, 2022, the Plaintiffs filed a cross-appeal to the Supreme Court contesting the calculation of damages by the Trial Court.
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At this time, given the Trial Court’s ruling and the pending appeals, the Company believes that it is reasonably possible that a loss has occurred, although the Company is unable to estimate any potential loss as it may range from zero up to the full amount of the Trial Court’s award of $690 million, plus pre- and post-judgment interest and attorneys’ fees, or more, depending on the extent of the Defendants’ and Plaintiffs’ success on appeal. The Company has not recorded a liability related to this matter.
As litigation is inherently unpredictable, if an unfavorable final outcome occurs, there is a possibility of a material adverse impact to the Company’s consolidated financial statements in the period in which the effects become known.
Other Litigation
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 such pending litigation will materially affect the Company’s results of operations or equity.
10. Commitments and Contingencies
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 March 31, 2022, 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. The Corporate segment is primarily comprised of Loews Corporation, excluding its subsidiaries, the consolidated operations of Altium Packaging for the three months ended March 31, 2021 and the equity method of accounting for Altium Packaging for the three months ended March 31, 2022. 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 19 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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.
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Statements of Operations by segment are presented in the following tables.
| Three Months Ended March 31, 2022 | CNA Financial | Boardwalk Pipelines | Loews Hotels & Co | Corporate | Total | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Insurance premiums | $ | 2,059 | $ | 2,059 | |||||||||||||||||||||||||||||||
| Net investment income (loss) | 448 | $ | (16) | 432 | |||||||||||||||||||||||||||||||
| Investment losses | (11) | (11) | |||||||||||||||||||||||||||||||||
| Non-insurance warranty revenue | 382 | 382 | |||||||||||||||||||||||||||||||||
| Operating revenues and other | 7 | $ | 381 | $ | 152 | 540 | |||||||||||||||||||||||||||||
| Total | 2,885 | 381 | 152 | (16) | 3,402 | ||||||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 1,455 | 1,455 | |||||||||||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 344 | 344 | |||||||||||||||||||||||||||||||||
| Non-insurance warranty expense | 354 | 354 | |||||||||||||||||||||||||||||||||
| Operating expenses and other | 326 | 217 | 126 | 22 | 691 | ||||||||||||||||||||||||||||||
| Interest | 28 | 42 | 4 | 22 | 96 | ||||||||||||||||||||||||||||||
| Total | 2,507 | 259 | 130 | 44 | 2,940 | ||||||||||||||||||||||||||||||
| Income (loss) before income tax | 378 | 122 | 22 | (60) | 462 | ||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (65) | (31) | (7) | 11 | (92) | ||||||||||||||||||||||||||||||
| Net income (loss) | 313 | 91 | 15 | (49) | 370 | ||||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | (32) | (32) | |||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 281 | $ | 91 | $ | 15 | $ | (49) | $ | 338 |
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| Three Months Ended March 31, 2021 | CNA Financial | Boardwalk Pipelines | Loews Hotels & Co | Corporate (a) | Total | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Insurance premiums | $ | 1,962 | $ | 1,962 | |||||||||||||||||||||||||||||||
| Net investment income | 504 | $ | 46 | 550 | |||||||||||||||||||||||||||||||
| Investment losses | 57 | 57 | |||||||||||||||||||||||||||||||||
| Non-insurance warranty revenue | 338 | 338 | |||||||||||||||||||||||||||||||||
| Operating revenues and other | 5 | $ | 372 | $ | 57 | 281 | 715 | ||||||||||||||||||||||||||||
| Total | 2,866 | 372 | 57 | 327 | 3,622 | ||||||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 1,506 | 1,506 | |||||||||||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 359 | 359 | |||||||||||||||||||||||||||||||||
| Non-insurance warranty expense | 311 | 311 | |||||||||||||||||||||||||||||||||
| Operating expenses and other | 285 | 217 | 104 | 308 | 914 | ||||||||||||||||||||||||||||||
| Interest | 28 | 41 | 8 | 48 | 125 | ||||||||||||||||||||||||||||||
| Total | 2,489 | 258 | 112 | 356 | 3,215 | ||||||||||||||||||||||||||||||
| Income (loss) before income tax | 377 | 114 | (55) | (29) | 407 | ||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (66) | (29) | 12 | (31) | (114) | ||||||||||||||||||||||||||||||
| Net income (loss) | 311 | 85 | (43) | (60) | 293 | ||||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | (32) | (32) | |||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 279 | $ | 85 | $ | (43) | $ | (60) | $ | 261 |
| (a) | Amounts include the consolidated results of Altium Packaging for the three months ended March 31, 2021. |
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