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, | ||||||||||
| 2023 | 2022 | ||||||||||
| (Dollar amounts in millions, except per share data) | |||||||||||
| Assets: | |||||||||||
| Investments: | |||||||||||
| Fixed maturities, amortized cost of $41,899 and $41,102, less allowance for credit loss of $2 and $1 | $ | 39,349 | $ | 37,697 | |||||||
| Equity securities, cost of $1,082 and $1,161 | 1,057 | 1,139 | |||||||||
| Limited partnership investments | 2,011 | 1,954 | |||||||||
| Other invested assets, primarily mortgage loans, less allowance for credit loss of $24 and $24 | 1,093 | 1,124 | |||||||||
| Short term investments | 4,079 | 4,854 | |||||||||
| Total investments | 47,589 | 46,768 | |||||||||
| Cash | 594 | 532 | |||||||||
| Receivables | 9,416 | 9,403 | |||||||||
| Property, plant and equipment | 10,098 | 10,027 | |||||||||
| Goodwill | 346 | 346 | |||||||||
| Deferred non-insurance warranty acquisition expenses | 3,671 | 3,671 | |||||||||
| Deferred acquisition costs of insurance subsidiaries | 852 | 806 | |||||||||
| Other assets | 3,994 | 4,014 | |||||||||
| Total assets | $ | 76,560 | $ | 75,567 | |||||||
| Liabilities and Equity: | |||||||||||
| Insurance reserves: | |||||||||||
| Claim and claim adjustment expense | $ | 22,409 | $ | 22,120 | |||||||
| Future policy benefits | 13,976 | 13,480 | |||||||||
| Unearned premiums | 6,581 | 6,374 | |||||||||
| Total insurance reserves | 42,966 | 41,974 | |||||||||
| Payable to brokers | 220 | 133 | |||||||||
| Short term debt | 908 | 854 | |||||||||
| Long term debt | 8,150 | 8,165 | |||||||||
| Deferred income taxes | 251 | 243 | |||||||||
| Deferred non-insurance warranty revenue | 4,710 | 4,714 | |||||||||
| Other liabilities | 4,041 | 4,283 | |||||||||
| Total liabilities | 61,246 | 60,366 | |||||||||
| 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 – 236,270,711 and 236,159,866 shares | 2 | 2 | |||||||||
| Additional paid-in capital | 2,716 | 2,748 | |||||||||
| Retained earnings | 15,293 | 14,931 | |||||||||
| Accumulated other comprehensive loss | (3,062) | (3,320) | |||||||||
| 14,949 | 14,361 | ||||||||||
| Less treasury stock, at cost (8,372,525 and 198,875 shares) | (498) | (12) | |||||||||
| Total shareholders’ equity | 14,451 | 14,349 | |||||||||
| Noncontrolling interests | 863 | 852 | |||||||||
| Total equity | 15,314 | 15,201 | |||||||||
| Total liabilities and equity | $ | 76,560 | $ | 75,567 |
See accompanying Notes to Consolidated Condensed Financial Statements.
| 3 |
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31 | 2023 | 2022 | ||||||||||||||||||||||||
| (In millions, except per share data) | ||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Insurance premiums | $ | 2,248 | $ | 2,059 | ||||||||||||||||||||||
| Net investment income | 569 | 432 | ||||||||||||||||||||||||
| Investment losses | (35) | (11) | ||||||||||||||||||||||||
| Non-insurance warranty revenue | 407 | 382 | ||||||||||||||||||||||||
| Operating revenues and other | 594 | 540 | ||||||||||||||||||||||||
| Total | 3,783 | 3,402 | ||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits (re-measurement gain of $1 and $5) | 1,653 | 1,478 | ||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 379 | 344 | ||||||||||||||||||||||||
| Non-insurance warranty expense | 384 | 354 | ||||||||||||||||||||||||
| Operating expenses and other | 781 | 716 | ||||||||||||||||||||||||
| Equity method income | (28) | (25) | ||||||||||||||||||||||||
| Interest | 95 | 96 | ||||||||||||||||||||||||
| Total | 3,264 | 2,963 | ||||||||||||||||||||||||
| Income before income tax | 519 | 439 | ||||||||||||||||||||||||
| Income tax expense | (115) | (87) | ||||||||||||||||||||||||
| Net income | 404 | 352 | ||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | (29) | (30) | ||||||||||||||||||||||||
| Net income attributable to Loews Corporation | $ | 375 | $ | 322 | ||||||||||||||||||||||
| Basic net income per share | $ | 1.61 | $ | 1.30 | ||||||||||||||||||||||
| Diluted net income per share | $ | 1.61 | $ | 1.29 | ||||||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Shares of common stock | 233.30 | 247.97 | ||||||||||||||||||||||||
| Dilutive potential shares of common stock | 0.32 | 0.51 | ||||||||||||||||||||||||
| Total weighted average shares outstanding assuming dilution | 233.62 | 248.48 |
See accompanying Notes to Consolidated Condensed Financial Statements.
| 4 |
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended March 31 | 2023 | 2022 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Net income | $ | 404 | $ | 352 | ||||||||||||||||||||||
| Other comprehensive income (loss), after tax | ||||||||||||||||||||||||||
| Changes in: | ||||||||||||||||||||||||||
| Net unrealized losses on investments with an allowance for credit losses | (8) | (4) | ||||||||||||||||||||||||
| Net unrealized gains (losses) on other investments | 670 | (2,643) | ||||||||||||||||||||||||
| Total unrealized gains (losses) on investments | 662 | (2,647) | ||||||||||||||||||||||||
| Impact of changes in discount rates used to measure long-duration contract liabilities | (396) | 1,635 | ||||||||||||||||||||||||
| Unrealized gains (losses) on cash flow hedges | (2) | 18 | ||||||||||||||||||||||||
| Pension and postretirement benefits | 9 | 7 | ||||||||||||||||||||||||
| Foreign currency translation | 16 | (15) | ||||||||||||||||||||||||
| Other comprehensive income (loss) | 289 | (1,002) | ||||||||||||||||||||||||
| Comprehensive income (loss) | 693 | (650) | ||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | (60) | 76 | ||||||||||||||||||||||||
| Total comprehensive income (loss) attributable to Loews Corporation | $ | 633 | $ | (574) |
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, 2022, as reported | $ | 19,175 | $ | 2 | $ | 2,885 | $ | 14,776 | $ | 186 | $ | (3) | $ | 1,329 | ||||||||||||||||||||||||||||||||||||
| Cumulative effect adjustments from changes in accounting standards (Note 1) | (1,704) | (22) | (1,506) | (176) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022, as adjusted | 17,471 | 2 | 2,885 | 14,754 | (1,320) | (3) | 1,153 | |||||||||||||||||||||||||||||||||||||||||||
| Net income | 352 | 322 | 30 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (1,002) | (896) | (106) | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 16,576 | $ | 2 | $ | 2,859 | $ | 15,059 | $ | (2,216) | $ | (132) | $ | 1,004 | ||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023, as reported | $ | 15,478 | $ | 2 | $ | 2,748 | $ | 15,144 | $ | (3,284) | $ | (12) | $ | 880 | ||||||||||||||||||||||||||||||||||||
| Cumulative effect adjustments from changes in accounting standards (Note 1) | (277) | (213) | (36) | (28) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023, as adjusted | 15,201 | 2 | 2,748 | 14,931 | (3,320) | (12) | 852 | |||||||||||||||||||||||||||||||||||||||||||
| Net income | 404 | 375 | 29 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 289 | 258 | 31 | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid ($0.0625 per share) | (59) | (15) | (44) | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of subsidiary stock from noncontrolling interests | (24) | (24) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Loews Corporation treasury stock | (486) | (486) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | (4) | (26) | 22 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | (7) | (6) | 2 | (3) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | 15,314 | $ | 2 | $ | 2,716 | $ | 15,293 | $ | (3,062) | $ | (498) | $ | 863 |
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 | 2023 | 2022 | |||||||||
| (In millions) | |||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 404 | $ | 352 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities, net | 204 | 328 | |||||||||
| Changes in operating assets and liabilities, net: | |||||||||||
| Receivables | 5 | (28) | |||||||||
| Deferred acquisition costs | (45) | (31) | |||||||||
| Insurance reserves | 432 | 512 | |||||||||
| Other assets | (85) | (134) | |||||||||
| Other liabilities | (238) | (202) | |||||||||
| Trading securities | 42 | (374) | |||||||||
| Net cash flow provided by operating activities | 719 | 423 | |||||||||
| Investing Activities: | |||||||||||
| Purchases of fixed maturities | (2,258) | (2,547) | |||||||||
| Proceeds from sales of fixed maturities | 1,414 | 803 | |||||||||
| Proceeds from maturities of fixed maturities | 317 | 916 | |||||||||
| Purchases of equity securities | (82) | (75) | |||||||||
| Proceeds from sales of equity securities | 62 | 77 | |||||||||
| Purchases of limited partnership investments | (116) | (85) | |||||||||
| Proceeds from sales of limited partnership investments | 75 | 113 | |||||||||
| Purchases of property, plant and equipment | (159) | (121) | |||||||||
| Change in short term investments | 647 | 696 | |||||||||
| Other, net | (34) | 36 | |||||||||
| Net cash flow used by investing activities | (134) | (187) | |||||||||
| Financing Activities: | |||||||||||
| Dividends paid | (15) | (16) | |||||||||
| Dividends paid to noncontrolling interests | (44) | (68) | |||||||||
| Purchases of Loews Corporation treasury stock | (462) | (132) | |||||||||
| Purchases of subsidiary stock from noncontrolling interests | (24) | (21) | |||||||||
| Principal payments on debt | (1) | (300) | |||||||||
| Issuance of debt | 37 | 495 | |||||||||
| Other, net | (15) | (14) | |||||||||
| Net cash flow used by financing activities | (524) | (56) | |||||||||
| Effect of foreign exchange rate on cash | 1 | (3) | |||||||||
| Net change in cash | 62 | 177 | |||||||||
| Cash, beginning of period | 532 | 621 | |||||||||
| Cash, end of period | $ | 594 | $ | 798 |
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”), a 90.0% 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, as used herein, the term “Company” 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” means Net income (loss) attributable to Loews Corporation shareholders and the term “subsidiaries” means Loews Corporation’s consolidated subsidiaries.
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, 2023 and December 31, 2022 and results of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for the three months ended March 31, 2023 and 2022, in each case in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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, 2022.
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, 2023 and 2022 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.
Accounting changes – 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. Entities are required to review, and update if there is a change, cash flow assumptions (including morbidity and persistency) used to measure the liability for future policyholder benefits (“LFPB”) at least annually. The LFPB must also be updated for actual experience at least annually. The LFPB is reflected as Future policy benefits on the Consolidated Condensed Balance Sheets. The discount rate assumption used to measure the LFPB must be updated quarterly using an upper-medium grade (low credit risk) fixed-income instrument yield, commonly interpreted as a single-A rate. The effect of changes in cash flow assumptions and actual variances from expected experience are recorded in results of operations within Insurance claims and policyholders’ benefits. The effect of changes in discount rate assumptions are recorded in Other comprehensive income (loss) (“OCI”). In contrast, under legacy accounting guidance, cash flow and discount rate assumptions were locked in unless a premium deficiency emerged. The discount rate assumption under legacy accounting guidance was determined using CNA’s internal investment portfolio yield, which was generally higher than a single-A yield.
The new guidance eliminates the need to hold shadow reserves associated with long term care reserves. Under legacy accounting guidance, to the extent that unrealized gains on fixed maturity securities supporting long term care reserves would have resulted in a premium deficiency if realized, a related increase to Insurance reserves was recorded, net of tax, as a reduction of net unrealized gains (losses), through Other comprehensive income (loss) (shadow reserves).
| 8 |
The unit of account is the level at which reserves are measured. Under the new guidance, the unit of account used to measure the LFPB is the cohort. Cohorts are comprised of insurance contracts issued no more than one year apart, and must be further disaggregated according to policy benefit and insurance risk characteristics. Under legacy accounting guidance, the LFPB was generally measured at the individual policy level.
Under the new guidance, the net premium ratio (“NPR”) is capped at 100%. To the extent that NPR would otherwise exceed 100%, the LFPB is increased, and a loss is recognized immediately in the results of operations. The NPR cap is applied at the cohort level each quarter when NPR is updated. In contrast, under legacy accounting guidance, premium deficiency testing was performed annually at the product level. See Note 5 to the Consolidated Condensed Financial Statements for further explanation of the NPR and LFPB calculations.
The Company adopted the new guidance effective January 1, 2023, using the modified retrospective method applied as of the transition date of January 1, 2021. CNA’s run-off long term care business is in scope of the new guidance. All prior periods presented in the financial statements have been adjusted to reflect application of the new guidance. The original locked in discount rate, utilized for purposes of calculating the NPR under the new guidance, was based on the discount rate assumption used to calculate the LFPB immediately prior to the transition date. While the requirements of the new guidance represent a material change from legacy accounting, the new guidance does not impact capital and surplus under statutory accounting practices, cash flows or the underlying economics of the business.
In December of 2022, the FASB issued ASU 2022-05, “Financial Services-Insurance (Topic 944): Transition for Sold Contracts” (“ASU 2022-05”). This guidance permits companies to make an election to exclude from the scope of ASU 2018-12 any insurance contracts that have been de-recognized prior to the effective date of ASU 2018-12, assuming that the company has no significant continuing involvement with the de-recognized contracts. In the fourth quarter of 2022, CNA novated its block of legacy annuity business, which was fully-ceded prior to novation. The Company has elected the ASU 2022-05 transition relief, and has excluded the novated legacy annuity business from the scope of ASU 2018-12.
Explanation of ASU 2018-12 Transition Impacts:
The following table presents a roll-forward of the pre-transition LFPB balance as of January 1, 2021:
| (In millions) | |||||
| Balance as of December 31, 2020, as reported | $ | 13,318 | |||
| Reclassification of reserves for policyholders currently receiving benefits to Future policy benefits (a) | 2,844 | ||||
| De-recognition of shadow reserves | (3,293) | ||||
| Re-measurement using an upper-medium grade fixed income instrument yield discount rate | 6,255 | ||||
| Other adjustments | 8 | ||||
| Balance as of January 1, 2021, as adjusted | $ | 19,132 |
| (a) | In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the long term care reserves for policyholders currently receiving benefits were reclassified from Claim and claim adjustment expense to Future policy benefits. This change was applied retrospectively as of January 1, 2021. |
Shadow reserves associated with the long term care business were de-recognized as of the transition date in Accumulated other comprehensive income (“AOCI”). The effect of re-measuring the LFPB at the single-A discount rate as of the transition date was similarly recorded in AOCI. There are no cohorts for which the NPR exceeded 100% at the transition date.
CNA’s practice under legacy accounting guidance was to calculate and record premium deficiency reserves at the policy level. Accordingly, an allocation methodology was not required to assign historical premium deficiency reserves to cohorts upon transition to ASU 2018-12.
| 9 |
The following table presents after tax adjustments to the opening balance of Shareholders’ equity and Noncontrolling interests resulting from adoption of ASU 2018-12:
| Accumulated other comprehensive income (loss) | Retained earnings | Noncontrolling interests | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance as of December 31, 2020, as reported | $ | 581 | $ | 14,150 | $ | 1,321 | |||||||||||
| De-recognition of shadow reserves | 2,331 | 270 | |||||||||||||||
| Re-measurement of LFPB using an upper-medium grade fixed income instrument yield discount rate | (4,428) | (513) | |||||||||||||||
| Other adjustments | (5) | (1) | |||||||||||||||
| Balance as of January 1, 2021, as adjusted | $ | (1,516) | $ | 14,145 | $ | 1,077 |
The effects of adoption of ASU 2018-12 on the Consolidated Condensed Statement of Operations were as follows:
| Three Months Ended March 31, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Insurance claims and policyholders’ benefits (a) | $ | 1,455 | $ | 23 | $ | 1,478 | |||||||||||
| Income before income tax | 462 | (23) | 439 | ||||||||||||||
| Income tax expense | (92) | 5 | (87) | ||||||||||||||
| Net income | 370 | (18) | 352 | ||||||||||||||
| Amounts attributable to noncontrolling interests | (32) | 2 | (30) | ||||||||||||||
| Net income attributable to Loews Corporation | 338 | (16) | 322 | ||||||||||||||
| Basic net income per share | 1.36 | (0.06) | 1.30 | ||||||||||||||
| Diluted net income per share | 1.36 | (0.07) | 1.29 |
| (a) | The effect of adopting ASU 2018-12 on Insurance claims and policyholders’ benefits is inclusive of the re-measurement gain of $5 million, which is presented parenthetically on the Consolidated Condensed Statement of Operations. |
| 10 |
The effects of adoption of ASU 2018-12 on the Consolidated Condensed Balance Sheet were as follows:
| December 31, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Other assets | $ | 3,941 | $ | 73 | $ | 4,014 | |||||||||||
| Total assets | 75,494 | 73 | 75,567 | ||||||||||||||
| Claim and claim adjustment expenses (a) | 25,099 | (2,979) | 22,120 | ||||||||||||||
| Future policy benefits (a) | 10,151 | 3,329 | 13,480 | ||||||||||||||
| Total liabilities | 60,016 | 350 | 60,366 | ||||||||||||||
| Retained earnings | 15,144 | (213) | 14,931 | ||||||||||||||
| Accumulated other comprehensive income (loss) | (3,284) | (36) | (3,320) | ||||||||||||||
| Noncontrolling interests | 880 | (28) | 852 | ||||||||||||||
| Total equity | 15,478 | (277) | 15,201 |
| (a) | In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the long term care reserves for policyholders currently receiving benefits were reclassified from Claim and claim adjustment expense to Future policy benefits. This change was applied retrospectively as of January 1, 2021. |
The effects of adoption of ASU 2018-12 on the Consolidated Condensed Statement of Comprehensive Income (Loss) were as follows:
| Three Months Ended March 31, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Changes in: Net unrealized losses on other investments | $ | (1,611) | $ | (1,032) | $ | (2,643) | |||||||||||
| Total unrealized losses on investments | (1,615) | (1,032) | (2,647) | ||||||||||||||
| Impact of changes in discount rates used to measure long-duration contract liabilities | 1,635 | 1,635 | |||||||||||||||
| Other comprehensive loss | (1,605) | 603 | (1,002) | ||||||||||||||
| Comprehensive loss | (1,235) | 585 | (650) | ||||||||||||||
| Amounts attributable to noncontrolling interests | 136 | (60) | 76 | ||||||||||||||
| Total comprehensive loss attributable to Loews Corporation | (1,099) | 525 | (574) |
The effects of adoption of ASU 2018-12 on the Consolidated Condensed Statements of Cash Flows were as follows:
| Three Months Ended March 31, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Net income | $ | 370 | $ | (18) | $ | 352 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities, net | 333 | (5) | 328 | ||||||||||||||
| Changes in: Insurance reserves | 489 | 23 | 512 |
| 11 |
The effects of adoption of ASU 2018-12 on segment results of operations of CNA were as follows:
| Three Months Ended March 31, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Insurance claims and policyholders’ benefits (a) | $ | 1,455 | $ | 23 | $ | 1,478 | |||||||||||
| Income before income tax | 378 | (23) | 355 | ||||||||||||||
| Income tax expense | (65) | 5 | (60) | ||||||||||||||
| Net income | 313 | (18) | 295 | ||||||||||||||
| Amounts attributable to noncontrolling interests | (32) | 2 | (30) | ||||||||||||||
| Net income attributable to Loews Corporation | 281 | (16) | 265 |
| (a) | The effect of adopting ASU 2018-12 on Insurance claims and policyholders’ benefits is inclusive of the re-measurement gain of $5 million, which is presented parenthetically on the Consolidated Condensed Statement of Operations. |
2. Investments
Net investment income is as follows:
| Three Months Ended March 31 | 2023 | 2022 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Fixed maturity securities | $ | 470 | $ | 429 | ||||||||||||||||||||||
| Limited partnership investments | 27 | 20 | ||||||||||||||||||||||||
| Short term investments | 16 | |||||||||||||||||||||||||
| Equity securities (a) | 12 | 2 | ||||||||||||||||||||||||
| Income (loss) from trading portfolio (a) | 45 | (15) | ||||||||||||||||||||||||
| Other | 20 | 15 | ||||||||||||||||||||||||
| Total investment income | 590 | 451 | ||||||||||||||||||||||||
| Investment expenses | (21) | (19) | ||||||||||||||||||||||||
| Net investment income | $ | 569 | $ | 432 | ||||||||||||||||||||||
| (a) Net investment income (loss) recognized due to the change in fair value of equity and trading portfolio securities held as of March 31, 2023 and 2022 | $ | 11 | $ | (31) |
| 12 |
Investment gains (losses) are as follows:
| Three Months Ended March 31 | 2023 | 2022 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||
| Gross gains | $ | 35 | $ | 26 | ||||||||||||||||||||||
| Gross losses | (57) | (28) | ||||||||||||||||||||||||
| Investment losses on fixed maturity securities | (22) | (2) | ||||||||||||||||||||||||
| Equity securities (a) | (14) | (38) | ||||||||||||||||||||||||
| Derivative instruments | 29 | |||||||||||||||||||||||||
| Short term investments and other | 1 | |||||||||||||||||||||||||
| Investment losses | $ | (35) | $ | (11) | ||||||||||||||||||||||
| (a) Investment losses recognized due to the change in fair value of non-redeemable preferred stock included within equity securities held as of March 31, 2023 and 2022 | $ | (2) | $ | (38) |
The components of available-for-sale impairment losses (gains) recognized in earnings by asset type are presented in the following table. The table includes losses (gains) 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 | 2023 | 2022 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | ||||||||||||||||||||||||||
| Corporate and other bonds | $ | 8 | $ | 8 | ||||||||||||||||||||||
| Asset-backed | 2 | |||||||||||||||||||||||||
| Impairment losses recognized in earnings | $ | 8 | $ | 10 |
There were no losses recognized on mortgage loans during the three months ended March 31, 2023 and 2022.
| 13 |
The following tables present a summary of fixed maturity securities:
| March 31, 2023 | 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 | $ | 24,140 | $ | 437 | $ | 1,675 | $ | 1 | $ | 22,901 | |||||||||||||||||||
| States, municipalities and political subdivisions | 8,332 | 410 | 741 | 8,001 | |||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||
| Residential mortgage-backed | 3,066 | 6 | 413 | 2,659 | |||||||||||||||||||||||||
| Commercial mortgage-backed | 1,868 | 5 | 242 | 1,631 | |||||||||||||||||||||||||
| Other asset-backed | 3,464 | 8 | 306 | 1 | 3,165 | ||||||||||||||||||||||||
| Total asset-backed | 8,398 | 19 | 961 | 1 | 7,455 | ||||||||||||||||||||||||
| U.S. Treasury and obligations of government sponsored enterprises | 126 | 2 | 124 | ||||||||||||||||||||||||||
| Foreign government | 647 | 1 | 39 | 609 | |||||||||||||||||||||||||
| Redeemable preferred stock | 3 | 3 | |||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 41,646 | 867 | 3,418 | 2 | 39,093 | ||||||||||||||||||||||||
| Fixed maturities trading | 253 | 3 | 256 | ||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 41,899 | $ | 870 | $ | 3,418 | $ | 2 | $ | 39,349 |
| December 31, 2022 | |||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 23,137 | $ | 301 | $ | 2,009 | $ | 21,429 | |||||||||||||||||||||
| States, municipalities and political subdivisions | 8,918 | 338 | 939 | 8,317 | |||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||
| Residential mortgage-backed | 3,073 | 5 | 447 | 2,631 | |||||||||||||||||||||||||
| Commercial mortgage-backed | 1,886 | 4 | 255 | 1,635 | |||||||||||||||||||||||||
| Other asset-backed | 3,287 | 2 | 361 | $ | 1 | 2,927 | |||||||||||||||||||||||
| Total asset-backed | 8,246 | 11 | 1,063 | 1 | 7,193 | ||||||||||||||||||||||||
| U.S. Treasury and obligations of government sponsored enterprises | 111 | 1 | 2 | 110 | |||||||||||||||||||||||||
| Foreign government | 617 | 1 | 43 | 575 | |||||||||||||||||||||||||
| Redeemable preferred stock | 3 | 3 | |||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 41,032 | 652 | 4,056 | 1 | 37,627 | ||||||||||||||||||||||||
| Fixed maturities trading | 70 | 70 | |||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 41,102 | $ | 652 | $ | 4,056 | $ | 1 | $ | 37,697 |
| 14 |
The available-for-sale fixed maturity 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, 2023 | 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 | $ | 10,753 | $ | 545 | $ | 6,184 | $ | 1,130 | $ | 16,937 | $ | 1,675 | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 1,708 | 87 | 2,347 | 654 | 4,055 | 741 | |||||||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | 741 | 28 | 1,784 | 385 | 2,525 | 413 | |||||||||||||||||||||||||||||
| Commercial mortgage-backed | 474 | 36 | 1,072 | 206 | 1,546 | 242 | |||||||||||||||||||||||||||||
| Other asset-backed | 1,073 | 86 | 1,474 | 220 | 2,547 | 306 | |||||||||||||||||||||||||||||
| Total asset-backed | 2,288 | 150 | 4,330 | 811 | 6,618 | 961 | |||||||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 57 | 1 | 41 | 1 | 98 | 2 | |||||||||||||||||||||||||||||
| Foreign government | 231 | 7 | 327 | 32 | 558 | 39 | |||||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 15,037 | $ | 790 | $ | 13,229 | $ | 2,628 | $ | 28,266 | $ | 3,418 | |||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 15,946 | $ | 1,585 | $ | 1,634 | $ | 424 | $ | 17,580 | $ | 2,009 | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 4,079 | 769 | 456 | 170 | 4,535 | 939 | |||||||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | 1,406 | 144 | 1,143 | 303 | 2,549 | 447 | |||||||||||||||||||||||||||||
| Commercial mortgage-backed | 1,167 | 159 | 408 | 96 | 1,575 | 255 | |||||||||||||||||||||||||||||
| Other asset-backed | 2,087 | 262 | 542 | 99 | 2,629 | 361 | |||||||||||||||||||||||||||||
| Total asset-backed | 4,660 | 565 | 2,093 | 498 | 6,753 | 1,063 | |||||||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 76 | 1 | 16 | 1 | 92 | 2 | |||||||||||||||||||||||||||||
| Foreign government | 473 | 26 | 78 | 17 | 551 | 43 | |||||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 25,234 | $ | 2,946 | $ | 4,277 | $ | 1,110 | $ | 29,511 | $ | 4,056 |
| 15 |
The following table presents the estimated fair value and gross unrealized losses of available-for-sale 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, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| U.S. Government, Government agencies and Government-sponsored enterprises | $ | 2,357 | $ | 302 | $ | 2,355 | $ | 337 | |||||||||||||||
| AAA | 1,424 | 260 | 1,559 | 298 | |||||||||||||||||||
| AA | 4,053 | 670 | 4,327 | 817 | |||||||||||||||||||
| A | 6,440 | 619 | 6,615 | 749 | |||||||||||||||||||
| BBB | 12,651 | 1,360 | 13,226 | 1,621 | |||||||||||||||||||
| Non-investment grade | 1,341 | 207 | 1,429 | 234 | |||||||||||||||||||
| Total | $ | 28,266 | $ | 3,418 | $ | 29,511 | $ | 4,056 |
Based on current facts and circumstances, the unrealized losses presented in the March 31, 2023 securities in the 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 a general market widening of credit spreads. In reaching this determination, the continued volatility in risk-free rates and credit 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, 2023.
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 $407 million, $394 million and $389 million as of March 31, 2023, December 31, 2022 and March 31, 2022 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, 2023 | Corporate and Other Bonds | Asset-backed | Total | ||||||||||||||
| (In millions) | |||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||
| Balance as of January 1, 2023 | $ | — | $ | 1 | $ | 1 | |||||||||||
| Additions to the allowance for credit losses: | |||||||||||||||||
| Available-for-sale securities accounted for as PCD assets | 9 | 9 | |||||||||||||||
| 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 | 3 | 3 | |||||||||||||||
| 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 | $ | 1 | $ | 1 | $ | 2 |
| 16 |
| 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 |
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Cost or Amortized Cost | Estimated Fair Value | Cost or Amortized Cost | Estimated Fair Value | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Due in one year or less | $ | 1,009 | $ | 989 | $ | 1,012 | $ | 1,001 | |||||||||||||||
| Due after one year through five years | 10,486 | 10,035 | 9,880 | 9,399 | |||||||||||||||||||
| Due after five years through ten years | 13,763 | 12,702 | 13,788 | 12,453 | |||||||||||||||||||
| Due after ten years | 16,388 | 15,367 | 16,352 | 14,774 | |||||||||||||||||||
| Total | $ | 41,646 | $ | 39,093 | $ | 41,032 | $ | 37,627 |
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.
| 17 |
| Mortgage Loans Amortized Cost Basis by Origination Year (a) | |||||||||||||||||||||||||||||||||||||||||
| As of March 31, 2023 | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | ||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||
| DSCR ≥1.6x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | $ | 9 | $ | 13 | $ | 112 | $ | 41 | $ | 280 | $ | 455 | |||||||||||||||||||||||||||||
| LTV 55% to 65% | — | ||||||||||||||||||||||||||||||||||||||||
| LTV greater than 65% | 31 | 11 | 42 | ||||||||||||||||||||||||||||||||||||||
| DSCR 1.2x - 1.6x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | 5 | 49 | 13 | 43 | 47 | 157 | |||||||||||||||||||||||||||||||||||
| LTV 55% to 65% | $ | 12 | 44 | 24 | 8 | 88 | |||||||||||||||||||||||||||||||||||
| LTV greater than 65% | 58 | 58 | |||||||||||||||||||||||||||||||||||||||
| DSCR ≤1.2x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | 34 | 35 | 69 | ||||||||||||||||||||||||||||||||||||||
| LTV 55% to 65% | 41 | 43 | 84 | ||||||||||||||||||||||||||||||||||||||
| LTV greater than 65% | 27 | 21 | 22 | 7 | 77 | ||||||||||||||||||||||||||||||||||||
| Total | $ | 12 | $ | 249 | $ | 94 | $ | 149 | $ | 184 | $ | 342 | $ | 1,030 |
| (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.
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 142 | $ | 6 | |||||||||||||||||||||||||||||||
| Futures – short | 102 | $ | (1) | $ | 169 | ||||||||||||||||||||||||||||||
| Warrants | 117 | 6 | 117 | $ | 6 | ||||||||||||||||||||||||||||||
| Interest rate swaps | 240 | 16 | 240 | 19 | |||||||||||||||||||||||||||||||
| Currency forwards | 13 | (1) | 12 | $ | (1) | ||||||||||||||||||||||||||||||
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, 2023, commitments to purchase or fund were approximately $1.7 billion and to sell were approximately $125 million under the terms of these investments.
| 18 |
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 United States of America (“U.S.”) Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
| March 31, 2023 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||
| Corporate bonds and other | $ | 135 | $ | 22,590 | $ | 912 | $ | 23,637 | |||||||||||||||
| States, municipalities and political subdivisions | 7,957 | 44 | 8,001 | ||||||||||||||||||||
| Asset-backed | 6,596 | 859 | 7,455 | ||||||||||||||||||||
| Fixed maturities available-for-sale | 135 | 37,143 | 1,815 | 39,093 | |||||||||||||||||||
| Fixed maturities trading | 203 | 53 | 256 | ||||||||||||||||||||
| Total fixed maturities | $ | 338 | $ | 37,196 | $ | 1,815 | $ | 39,349 | |||||||||||||||
| Equity securities | $ | 607 | $ | 421 | $ | 29 | $ | 1,057 | |||||||||||||||
| Short term and other | 3,854 | 68 | 3,922 | ||||||||||||||||||||
| Receivables | 17 | 17 | |||||||||||||||||||||
| Payable to brokers | (81) | (81) | |||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||
| Corporate bonds and other | $ | 120 | $ | 21,187 | $ | 810 | $ | 22,117 | |||||||||||||||
| States, municipalities and political subdivisions | 8,274 | 43 | 8,317 | ||||||||||||||||||||
| Asset-backed | 6,405 | 788 | 7,193 | ||||||||||||||||||||
| Fixed maturities available-for-sale | 120 | 35,866 | 1,641 | 37,627 | |||||||||||||||||||
| Fixed maturities trading | 1 | 69 | 70 | ||||||||||||||||||||
| Total fixed maturities | $ | 121 | $ | 35,935 | $ | 1,641 | $ | 37,697 | |||||||||||||||
| Equity securities | $ | 669 | $ | 435 | $ | 35 | $ | 1,139 | |||||||||||||||
| Short term and other | 4,539 | 167 | 4,706 | ||||||||||||||||||||
| Receivables | 19 | 19 | |||||||||||||||||||||
| Payable to brokers | (82) | (82) |
| 19 |
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, 2023 and 2022:
| 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 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 | $ | 810 | $ | 24 | $ | 81 | $ | (3) | $ | 912 | $ | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| States, municipalities and political | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| subdivisions | 43 | 1 | 44 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed | 788 | $ | 5 | 7 | 55 | (9) | $ | 23 | $ | (10) | 859 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale | 1,641 | 5 | 32 | 136 | $ | — | (12) | 23 | (10) | 1,815 | $ | — | 32 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturities trading | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 1,641 | $ | 5 | $ | 32 | $ | 136 | $ | — | $ | (12) | $ | 23 | $ | (10) | $ | 1,815 | $ | — | $ | 32 | |||||||||||||||||||||||||||||||||||||||||||
| Equity securities | $ | 35 | $ | (6) | $ | 29 | $ | (6) |
| 20 |
| 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 |
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 |
| 21 |
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, 2023 | Estimated Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) | ||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Fixed maturity securities | $ | 1,340 | Discounted cash flow | Credit spread | 1% | — | 8% | (3%) | ||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||
| Fixed maturity securities | $ | 1,177 | Discounted cash flow | Credit spread | 1% | — | 8% | (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, 2023 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 1,006 | $ | 958 | $ | 958 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Short term debt | 907 | $ | 742 | 166 | 908 | ||||||||||||||||||||||||
| Long term debt | 8,146 | 7,167 | 568 | 7,735 | |||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Other invested assets, primarily mortgage loans | $ | 1,040 | $ | 973 | $ | 973 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Short term debt | 853 | $ | 744 | 111 | 855 | ||||||||||||||||||||||||
| Long term debt | 8,160 | 7,035 | 586 | 7,621 |
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4. Claim and Claim Adjustment Expense Reserves
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, economic, medical and social 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. Claim and claim adjustment expense reserves are also maintained for structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, actuaries review mortality experience on an annual basis. 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 $52 million and $19 million for the three months ended March 31, 2023 and 2022 primarily related to severe weather related events.
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Liability for Unpaid Claim and Claim Adjustment Expenses
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves.
| Three Months Ended March 31 | 2023 | 2022 (a) | |||||||||||||||
| (In millions) | |||||||||||||||||
| Reserves, beginning of year: | |||||||||||||||||
| Gross | $ | 22,120 | $ | 21,269 | |||||||||||||
| Ceded | 5,191 | 4,969 | |||||||||||||||
| Net reserves, beginning of year | 16,929 | 16,300 | |||||||||||||||
| Net incurred claim and claim adjustment expenses: | |||||||||||||||||
| Provision for insured events of current year | 1,326 | 1,188 | |||||||||||||||
| Increase (decrease) in provision for insured events of prior years | 13 | (7) | |||||||||||||||
| Amortization of discount | 11 | 12 | |||||||||||||||
| Total net incurred (b) | 1,350 | 1,193 | |||||||||||||||
| Net payments attributable to: | |||||||||||||||||
| Current year events | (72) | (68) | |||||||||||||||
| Prior year events | (1,042) | (920) | |||||||||||||||
| Total net payments | (1,114) | (988) | |||||||||||||||
| Foreign currency translation adjustment and other | 35 | (92) | |||||||||||||||
| Net reserves, end of period | 17,200 | 16,413 | |||||||||||||||
| Ceded reserves, end of period | 5,209 | 5,002 | |||||||||||||||
| Gross reserves, end of period | $ | 22,409 | $ | 21,415 |
| (a) | In conjunction with the adoption of ASU 2018-22, at January 1, 2023, long term care reserves for policyholders currently receiving benefits were reclassified from Claim and claim adjustment expenses into Future policy benefits and this change was applied retrospectively as of January 1, 2021. For additional information see Note 1. | ||||
| (b) | 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 and uncollectible reinsurance, 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.
For commercial property and casualty operations (“Property & Casualty Operations”) unfavorable net prior year development of $13 million was recorded for the three months ended March 31, 2023 and favorable net prior year development of $12 million was recorded for the three months ended March 31, 2022.
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The following table presents details of the net prior year loss reserve development in Property & Casualty Operations:
| Three Months Ended March 31 | 2023 | 2022 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Medical professional liability | $ | 9 | $ | 8 | ||||||||||||||||||||||
| Surety | (9) | |||||||||||||||||||||||||
| Workers’ compensation | (2) | (2) | ||||||||||||||||||||||||
| Property and other | 6 | (9) | ||||||||||||||||||||||||
| Total pretax (favorable) unfavorable development | $ | 13 | $ | (12) |
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 $12 million for the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, the cumulative amounts ceded under the LPT were $3.5 billion. The unrecognized deferred retroactive reinsurance benefit was $417 million and $425 million as of March 31, 2023 and December 31, 2022 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 $2.5 billion as of March 31, 2023. 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 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.
5. Future Policy Benefits Reserves
Future policy benefits reserves are related to CNA’s run-off long term care business, which is included in Other Insurance Operations.
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The determination of Future policy benefits reserves requires management to make estimates and assumptions about expected policyholder experience over the remaining life of the policy. Since policies may be in force for several decades, these assumptions are subject to significant estimation risk. As a result of this variability, CNA’s future policy benefits reserves may be subject to material increases if actual experience develops adversely to its expectations.
The LFPB is computed using the net level premium method, which incorporates cash flow assumptions and discount rate assumptions. Under the net level premium method, the LFPB is equal to the present value of future benefits and claim settlement expenses less the present value of future net premiums. Net premiums are equal to gross premiums multiplied by the NPR. The NPR is generally the ratio of the present value of benefits and expense payments to the present value of gross premiums, expected over the lifetime of the policy. As a result of the modified retrospective adoption of ASU 2018-12, the NPR calculation incorporates the original locked in discount rate and the reserve balance as of the transition date of January 1, 2021.
The key cash flow assumptions used to estimate the LFPB are morbidity, persistency (inclusive of mortality), anticipated future premium rate increases and expenses. 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. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. Expense assumptions relate to claim adjudication. The practical expedient that allows locking in the expense assumption has not been elected. The discount rate is determined using the upper-medium grade fixed income instrument yield curve.
CNA has elected to update the NPR and the LFPB for actual experience on a quarterly basis. A quarterly assessment is also made as to whether evidence suggests that cash flow assumptions should be updated. Annually in the third quarter, actuarial analysis is performed on policyholder morbidity, persistency, premium rate increases and expense experience. This analysis, combined with judgment, informs the setting of updated cash flow assumptions used to estimate the LFPB. Actuarial analysis includes predictive modeling, actual to expected experience comparisons and trend analysis. Applicable industry research is also considered.
Quarterly, to derive the upper-medium grade fixed income instrument yield discount rate assumption, a published spot rate curve constructed from single-A rated U.S. dollar denominated corporate bonds is used. Linear interpolation is used to determine yield assumptions for tenors that fall between points for which observable rates are available. For cash flows that are projected to occur beyond the tenor for which market-observable rates are available, judgment is applied to estimate a normative rate which is graded to over 10 years.
Quarterly, the updated NPR is used to derive an updated LFPB as of the beginning of the current quarter measured at the original locked in discount rate. The updated LFPB is then compared to the existing carrying amount of the liability as of the same date (measured at the original locked in discount rate) to determine the re-measurement gain (loss), which is presented parenthetically within the Insurance claims and policyholders’ benefits line on the Consolidated Condensed Statements of Operations.
Insurance contracts are grouped into cohorts according to issue year. Contracts assumed through reinsurance are generally included within the same cohorts as contracts issued directly by CNA, according to issue year. The issue year for assumed contracts is defined according to the date that the assumption of insurance risk incepted. For assumed contracts that were reinsured concurrently with the issuance of the underlying direct contract, issue year is defined as the year that the underlying policy was issued. For contracts that were already in-force when assumed, issue year is defined as the year in which the reinsurance agreement incepted. For group long term care business, issue year is defined as the year the individual insurance certificate was issued. Long term care is CNA’s only long-duration product line, therefore, cohorts are not further disaggregated by product.
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The following table summarizes balances and changes in the LFPB.
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Present value of future net premiums | |||||||||||
| Balance, January 1 | $ | 3,993 | $ | 4,735 | |||||||
| Effect of changes in discount rate | (74) | (880) | |||||||||
| Balance, January 1, at original locked in discount rate | 3,919 | 3,855 | |||||||||
| Effect of changes in cash flow assumptions (a) | |||||||||||
| Effect of actual variances from expected experience (a) | (49) | (18) | |||||||||
| Adjusted balance, January 1 | 3,870 | 3,837 | |||||||||
| Interest accrual | 52 | 53 | |||||||||
| Net premiums: earned during period | (111) | (112) | |||||||||
| Balance, end of period at original locked in discount rate | 3,811 | 3,778 | |||||||||
| Effect of changes in discount rate | 154 | 525 | |||||||||
| Balance, March 31 | $ | 3,965 | $ | 4,303 | |||||||
| Present value of future benefits & expenses | |||||||||||
| Balance, January 1 | $ | 17,472 | $ | 22,745 | |||||||
| Effect of changes in discount rate | (125) | (5,942) | |||||||||
| Balance, January 1, at original locked in discount rate | 17,347 | 16,803 | |||||||||
| Effect of changes in cash flow assumptions (a) | |||||||||||
| Effect of actual variances from expected experience (a) | (50) | (23) | |||||||||
| Adjusted balance, January 1 | 17,297 | 16,780 | |||||||||
| Interest accrual | 242 | 241 | |||||||||
| Benefit & expense payments | (302) | (233) | |||||||||
| Balance, end of period at original locked in discount rate | 17,237 | 16,788 | |||||||||
| Effect of changes in discount rate | 704 | 3,517 | |||||||||
| Balance, March 31 | $ | 17,941 | $ | 20,305 | |||||||
| Net LFPB | $ | 13,976 | $ | 16,002 |
| (a) | As of March 31, 2023 and 2022, the re-measurement gain of $1 million and $5 million presented parenthetically on the Consolidated Condensed Statement of Operations is comprised of the effect of changes in cash flow assumptions and the effect of actual variances from expected experience. |
Earned premiums associated with the long term care business were $115 million and $120 million for the three months ended March 31, 2023 and 2022.
The following table presents undiscounted expected future benefit and expense payments and undiscounted expected future gross premiums.
| Three Months Ended March 31 | 2023 | 2022 | |||||||||
| (In millions) | |||||||||||
| Expected future benefit and expense payments | $ | 33,759 | $ | 33,674 | |||||||
| Expected future gross premiums | 5,729 | 5,969 |
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Discounted expected future gross premiums at the upper-medium grade fixed income instrument yield discount rate were $4.0 billion and $4.6 billion as of March 31, 2023 and 2022.
The weighted average effective duration of the LFPB calculated using the original locked in discount rate was 12 years as of March 31, 2023 and 2022.
The weighted average interest rates in the table below are calculated based on the rate used to discount all future cash flows.
| March 31, | December 31, | ||||||||||||||||
| 2023 | 2022 | 2022 | |||||||||||||||
| Original locked in discount rate | 5.26 | % | 5.31 | % | 5.27 | % | |||||||||||
| Upper-medium grade fixed income instrument discount rate | 4.92 | 3.67 | 5.23 |
For the three months ended March 31, 2023, immediate charges to net income resulting from adverse development that caused NPR to exceed 100% were $13 million. There were no such charges for the three months ended March 31, 2022. The portion of losses recognized in a prior period due to NPR exceeding 100% which, due to favorable development, was reversed through net income for the three months ended March 31, 2023 and 2022 was $11 million and $1 million.
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6. Shareholders’ Equity
Accumulated other comprehensive income (loss)
The tables below present the changes in AOCI by component for the three months ended March 31, 2022 and 2023:
| 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 | Cumulative impact of changes in discount rates used to measure long duration contracts | Foreign Currency Translation | Total Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022, as reported | $ | (2) | $ | 930 | $ | (6) | $ | (636) | $ | — | $ | (100) | $ | 186 | |||||||||||||||||||||||||||
| Cumulative effect adjustments from changes in accounting standards (Note 1), after tax of $0, $617, $0, $0, $(1,063) and $0 | 2,079 | (3,585) | (1,506) | ||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022, as adjusted | (2) | 3,009 | (6) | (636) | (3,585) | (100) | (1,320) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $1, $699, $(2), $(2), $(435)and $0 | (4) | (2,644) | 15 | 2 | 1,635 | (15) | (1,011) | ||||||||||||||||||||||||||||||||||
| Reclassification of losses from accumulated other comprehensive loss, after tax of $0, $(1), $(1), $(2), $0 and $0 | 1 | 3 | 5 | 9 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (4) | (2,643) | 18 | 7 | 1,635 | (15) | (1,002) | ||||||||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | 275 | (1) | (169) | 1 | 106 | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | (6) | $ | 641 | $ | 12 | $ | (630) | $ | (2,119) | $ | (114) | $ | (2,216) | |||||||||||||||||||||||||||
| Balance, January 1, 2023, as reported | $ | (7) | $ | (2,469) | $ | 14 | $ | (622) | $ | — | $ | (200) | $ | (3,284) | |||||||||||||||||||||||||||
| Cumulative effect adjustments from changes in accounting standards (Note 1), after tax of $0, $0, $0, $0, $11 and $0 | (36) | (36) | |||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2023, as adjusted | (7) | (2,469) | 14 | (622) | (36) | (200) | (3,320) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, after tax of $2, $(176), $1, $0, $105 and $0 | (8) | 652 | (2) | (396) | 16 | 262 | |||||||||||||||||||||||||||||||||||
| Reclassification of losses from accumulated other comprehensive loss, after tax of $0, $(4), $0, $(2), $0 and $0 | 18 | 9 | 27 | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (8) | 670 | (2) | 9 | (396) | 16 | 289 | ||||||||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | 1 | (68) | (1) | 39 | (2) | (31) | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | (14) | $ | (1,867) | $ | 12 | $ | (614) | $ | (393) | $ | (186) | $ | (3,062) |
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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 8.2 million and 2.1 million shares of its common stock at aggregate costs of $486 million and $129 million during the three months ended March 31, 2023 and 2022.
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 | 2023 | 2022 | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Non-insurance warranty – CNA Financial | $ | 407 | $ | 382 | ||||||||||||||||||||||
| Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipelines | $ | 386 | $ | 370 | ||||||||||||||||||||||
| Lodging and related services – Loews Hotels & Co | 185 | 146 | ||||||||||||||||||||||||
| Total revenues from contracts with customers | 571 | 516 | ||||||||||||||||||||||||
| Other revenues | 23 | 24 | ||||||||||||||||||||||||
| Operating revenues and other | $ | 594 | $ | 540 |
Receivables from contracts with customers – As of March 31, 2023 and December 31, 2022, receivables from contracts with customers were approximately $160 million and $168 million and are included within Receivables on the Consolidated Condensed Balance Sheets.
Deferred revenue – As of March 31, 2023 and December 31, 2022, deferred revenue resulting from contracts with customers was approximately $4.8 billion and is reported as Deferred non-insurance warranty revenue and within Other liabilities on the Consolidated Condensed Balance Sheets. Approximately $397 million and $374 million of revenues recognized during the three months ended March 31, 2023 and 2022 were included in deferred revenue as of December 31, 2022 and 2021.
Performance obligations – As of March 31, 2023, approximately $13.5 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 $2.1 billion will be recognized during the remaining nine months of 2023, $2.3 billion in 2024 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 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Service cost | $ | 1 | $ | 1 | |||||||||||||||||||||||||||||||
| Interest cost | 28 | 19 | $ | 1 | |||||||||||||||||||||||||||||||
| Expected return on plan assets | (32) | (43) | (1) | ||||||||||||||||||||||||||||||||
| Amortization of unrecognized net loss | 9 | 8 | |||||||||||||||||||||||||||||||||
| Settlements | 1 | ||||||||||||||||||||||||||||||||||
| Regulatory asset decrease | 1 | ||||||||||||||||||||||||||||||||||
| Net periodic (benefit) cost | $ | 6 | $ | (13) | $ | — | $ | — |
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 believed that the Trial Court ruling included 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. Oral arguments were held on September 14, 2022, and on December 19, 2022, the Supreme Court reversed the Trial Court’s ruling and remanded the case to the Trial Court for further proceedings related to claims not decided by the
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Trial Court’s ruling. Briefing by the parties at the Trial Court on the remanded issues is scheduled to be completed in July 2023.
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 pending litigation, including the Boardwalk Pipelines matter described above, 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, 2023, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $1.5 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, and the equity method of accounting for Altium Packaging LLC. 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, 2022.
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, 2023 | CNA Financial | Boardwalk Pipelines | Loews Hotels & Co | Corporate | Total | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Insurance premiums | $ | 2,248 | $ | 2,248 | |||||||||||||||||||||||||||||||
| Net investment income | 525 | $ | 1 | $ | 1 | $ | 42 | 569 | |||||||||||||||||||||||||||
| Investment losses | (35) | (35) | |||||||||||||||||||||||||||||||||
| Non-insurance warranty revenue | 407 | 407 | |||||||||||||||||||||||||||||||||
| Operating revenues and other | 7 | 396 | 191 | 594 | |||||||||||||||||||||||||||||||
| Total | 3,152 | 397 | 192 | 42 | 3,783 | ||||||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||
| Insurance claims and policyholders’ benefits | 1,653 | 1,653 | |||||||||||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 379 | 379 | |||||||||||||||||||||||||||||||||
| Non-insurance warranty expense | 384 | 384 | |||||||||||||||||||||||||||||||||
| Operating expenses and other | 337 | 242 | 183 | 19 | 781 | ||||||||||||||||||||||||||||||
| Equity method (income) loss | (31) | 3 | (28) | ||||||||||||||||||||||||||||||||
| Interest | 28 | 39 | 6 | 22 | 95 | ||||||||||||||||||||||||||||||
| Total | 2,781 | 281 | 158 | 44 | 3,264 | ||||||||||||||||||||||||||||||
| Income (loss) before income tax | 371 | 116 | 34 | (2) | 519 | ||||||||||||||||||||||||||||||
| Income tax expense | (74) | (30) | (10) | (1) | (115) | ||||||||||||||||||||||||||||||
| Net income (loss) | 297 | 86 | 24 | (3) | 404 | ||||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | (29) | (29) | |||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 268 | $ | 86 | $ | 24 | $ | (3) | $ | 375 |
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| Three Months Ended March 31, 2022 | CNA Financial (a) | Boardwalk Pipelines | Loews Hotels & Co | Corporate | Total (a) | ||||||||||||||||||||||||||||||
| (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 | 1,478 | 1,478 | |||||||||||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 344 | 344 | |||||||||||||||||||||||||||||||||
| Non-insurance warranty expense | 354 | 354 | |||||||||||||||||||||||||||||||||
| Operating expenses and other | 326 | 217 | 152 | 21 | 716 | ||||||||||||||||||||||||||||||
| Equity method (income) loss | (26) | 1 | (25) | ||||||||||||||||||||||||||||||||
| Interest | 28 | 42 | 4 | 22 | 96 | ||||||||||||||||||||||||||||||
| Total | 2,530 | 259 | 130 | 44 | 2,963 | ||||||||||||||||||||||||||||||
| Income (loss) before income tax | 355 | 122 | 22 | (60) | 439 | ||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (60) | (31) | (7) | 11 | (87) | ||||||||||||||||||||||||||||||
| Net income (loss) | 295 | 91 | 15 | (49) | 352 | ||||||||||||||||||||||||||||||
| Amounts attributable to noncontrolling interests | (30) | (30) | |||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 265 | $ | 91 | $ | 15 | $ | (49) | $ | 322 |
| (a) | As of January 1, 2023, ASU 2018-12 was adopted using the modified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts in the financial statements have been adjusted to reflect application of the new standard. For additional information see Note 1. |
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