UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31,September 30, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to _____
Commission File Number 1-5823
 
CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-6169860
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
151 N. Franklin 60606
Chicago,Illinois (Zip Code)
(Address of principal executive offices)  
(312) 822-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, Par value $2.50 "CNA" New York Stock Exchange
    Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 30,October 29, 2020, 271,376,098271,388,678 shares of common stock were outstanding.




Item Number 
Page
Number
 
Page
Number
  
1.
2.
3.
4.
PART II PART II 
1.
1A.
2.
6.

PART I
Item 1. Condensed Consolidated Financial Statements
CNA Financial Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions, except per share data)2020 20192020 2019 2020 2019
Revenues          
Net earned premiums$1,869
 $1,803
$1,953
 $1,890
 $5,672
 $5,517
Net investment income329
 571
517
 487
 1,380
 1,573
Net investment (losses) gains(216) 31
Net investment gains (losses)27
 7
 (120) 20
Non-insurance warranty revenue301
 281
317
 292
 926
 858
Other revenues8
 9
6
 9
 19
 22
Total revenues2,291
 2,695
2,820

2,685

7,877
 7,990
Claims, Benefits and Expenses          
Insurance claims and policyholders’ benefits1,425
 1,357
1,616
 1,614
 4,683
 4,323
Amortization of deferred acquisition costs344
 342
360
 345
 1,046
 1,025
Non-insurance warranty expense281
 260
293
 278
 859
 801
Other operating expenses299
 283
269
 289
 852
 853
Interest31
 34
32
 32
 94
 100
Total claims, benefits and expenses2,380
 2,276
2,570
 2,558
 7,534
 7,102
(Loss) income before income tax(89) 419
Income tax benefit (expense)28
 (77)
Net (loss) income$(61) $342
Income before income tax250
 127
 343
 888
Income tax expense(37) (20) (40) (161)
Net income$213
 $107
 $303
 $727
          
Basic (loss) earnings per share$(0.23) $1.26
Basic earnings per share$0.79
 $0.39
 $1.12
 $2.68
          
Diluted (loss) earnings per share$(0.23) $1.25
Diluted earnings per share$0.79
 $0.39
 $1.11
 $2.67
          
Weighted Average Outstanding Common Stock and Common Stock Equivalents          
Basic271.5
 271.6
271.7
 271.6
 271.6
 271.6
Diluted271.5
 272.6
272.3
 272.6
 272.3
 272.5

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Comprehensive (Loss) Income   
Net (loss) income$(61) $342
Other Comprehensive (Loss) Income, net of tax   
Comprehensive Income       
Net income$213
 $107
 $303
 $727
Other Comprehensive Income, net of tax       
Changes in:          
Net unrealized gains and losses on investments with an allowance for credit losses(11) 
6
 0
 (3) 0
Net unrealized gains and losses on other investments(1,044) 530
207
 41
 354
 1,007
Net unrealized gains and losses on investments(1,055) 530
213
 41
 351
 1,007
Foreign currency translation adjustment(77) 17
37
 (29) (16) (12)
Pension and postretirement benefits11
 7
7
 7
 25
 22
Other comprehensive (loss) income, net of tax(1,121) 554
Total comprehensive (loss) income$(1,182) $896
Other comprehensive income, net of tax257
 19
 360
 1,017
Total comprehensive income$470
 $126
 $663
 $1,744
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

CNA Financial Corporation
Condensed Consolidated Balance Sheets
(In millions, except share data)March 31, 2020 (Unaudited) December 31,
2019
September 30, 2020 (Unaudited) December 31,
2019
Assets      
Investments:      
Fixed maturity securities at fair value (amortized cost of $38,034 and $38,126, less allowance for credit loss of $49 and $-)$40,098
 $42,207
Equity securities at fair value (cost of $936 and $820)799
 865
Fixed maturity securities at fair value (amortized cost of $38,969 and $38,126, less allowance for credit loss of $47 and $-)$43,901
 $42,207
Equity securities at fair value (cost of $927 and $820)919
 865
Limited partnership investments1,509
 1,752
1,567
 1,752
Other invested assets63
 65
69
 65
Mortgage loans (less allowance for uncollectible receivables of $20 and $-)1,021
 994
Mortgage loans (less allowance for uncollectible receivables of $21 and $-)1,088
 994
Short term investments596
 1,861
1,462
 1,861
Total investments44,086
 47,744
49,006
 47,744
Cash857
 242
442
 242
Reinsurance receivables (less allowance for uncollectible receivables of $23 and $25)4,328
 4,179
Insurance receivables (less allowance for uncollectible receivables of $30 and $32)2,502
 2,449
Reinsurance receivables (less allowance for uncollectible receivables of $24 and $25)4,370
 4,179
Insurance receivables (less allowance for uncollectible receivables of $32 and $32)2,527
 2,449
Accrued investment income402
 395
401
 395
Deferred acquisition costs683
 662
697
 662
Deferred income taxes518
 199
144
 199
Property and equipment at cost (less accumulated depreciation of $224 and $215)271
 282
256
 282
Goodwill145
 147
146
 147
Deferred non-insurance warranty acquisition expense2,905
 2,840
2,998
 2,840
Other assets (includes $15 and $21 due from Loews Corporation)1,708
 1,473
Other assets (includes $- and $21 due from Loews Corporation)1,788
 1,473
Total assets$58,405
 $60,612
$62,775
 $60,612
Liabilities 
  
 
  
Insurance reserves:   
   
Claim and claim adjustment expenses$21,872
 $21,720
$22,534
 $21,720
Unearned premiums4,745
 4,583
5,020
 4,583
Future policy benefits11,734
 12,311
12,978
 12,311
Long term debt2,680
 2,679
2,776
 2,679
Deferred non-insurance warranty revenue3,848
 3,779
3,951
 3,779
Other liabilities (includes $7 and $21 due to Loews Corporation)3,164
 3,325
Other liabilities (includes $47 and $21 due to Loews Corporation)3,495
 3,325
Total liabilities48,043
 48,397
50,754
 48,397
Commitments and contingencies (Notes C and F)

 




 


Stockholders' Equity 
  
 
  
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 271,370,988 and 271,412,591 shares outstanding)683
 683
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 271,387,058 and 271,412,591 shares outstanding)683
 683
Additional paid-in capital2,187
 2,203
2,202
 2,203
Retained earnings8,634
 9,348
8,796
 9,348
Accumulated other comprehensive (loss) income(1,070) 51
Treasury stock (1,669,255 and 1,627,652 shares), at cost(72) (70)
Accumulated other comprehensive income411
 51
Treasury stock (1,653,185 and 1,627,652 shares), at cost(71) (70)
Total stockholders’ equity10,362
 12,215
12,021
 12,215
Total liabilities and stockholders' equity$58,405
 $60,612
$62,775
 $60,612
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31   
Nine months ended September 30   
(In millions)2020 20192020 2019
Cash Flows from Operating Activities      
Net (loss) income$(61) $342
Adjustments to reconcile net (loss) income to net cash flows provided by operating activities:   
Deferred income tax (benefit) expense(37) 32
Net income$303
 $727
Adjustments to reconcile net income to net cash flows provided by operating activities:   
Deferred income tax benefit(41) (72)
Trading portfolio activity7
 (3)2
 (1)
Net investment losses (gains)216
 (31)120
 (20)
Equity method investees98
 14
12
 48
Net amortization of investments(15) (25)(51) (64)
Depreciation and amortization16
 19
46
 52
Changes in:      
Receivables, net(229) 44
(271) 207
Accrued investment income(8) (15)(6) (18)
Deferred acquisition costs(27) (30)(36) (37)
Insurance reserves510
 57
1,479
 337
Other, net(258) (117)(149) (179)
Net cash flows provided by operating activities212
 287
1,408
 980
Cash Flows from Investing Activities 
  
 
  
Dispositions:      
Fixed maturity securities - sales823
 2,259
5,023
 4,872
Fixed maturity securities - maturities, calls and redemptions799
 576
2,706
 2,116
Equity securities98
 64
275
 171
Limited partnerships204
 186
281
 417
Mortgage loans15
 35
41
 109
Purchases:      
Fixed maturity securities(1,818) (2,447)(8,466) (7,053)
Equity securities(220) (36)(373) (140)
Limited partnerships(32) (114)(144) (167)
Mortgage loans(61) (59)(154) (193)
Change in other investments(6) (6)(4) (8)
Change in short term investments1,267
 (177)403
 (180)
Purchases of property and equipment(3) (8)(16) (20)
Other, net21
 16
21
 16
Net cash flows provided by investing activities1,087
 289
Net cash flows used by investing activities(407) (60)
Cash Flows from Financing Activities      
Dividends paid to common stockholders(649) (643)(850) (834)
Proceeds from the issuance of debt495
 496
Repayment of debt(419) (520)
Purchase of treasury stock(18) (14)(18) (18)
Other, net(8) (8)(9) (11)
Net cash flows used by financing activities(675) (665)(801) (887)
Effect of foreign exchange rate changes on cash(9) 2
0
 (3)
Net change in cash615
 (87)200
 30
Cash, beginning of year242
 310
242
 310
Cash, end of period$857
 $223
$442
 $340
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Common Stock          
Balance, beginning of period$683
 $683
$683
 $683
 $683
 $683
Balance, end of period683
 683
683
 683
 683
 683
Additional Paid-in Capital          
Balance, beginning of period2,203
 2,192
2,196
 2,190
 2,203
 2,192
Stock-based compensation(16) (8)6
 7
 (1) 5
Balance, end of period2,187
 2,184
2,202
 2,197
 2,202
 2,197
Retained Earnings          
Balance, beginning of period, as previously reported9,348
 9,277
8,683
 9,159
 9,348
 9,277
Cumulative effect adjustments from changes in accounting guidance, net of tax(5) 

 
 (5) 
Balance, beginning of period, as adjusted9,343
 9,277
8,683
 9,159
 9,343
 9,277
Dividends to common stockholders ($2.37 and $2.35 per share)(648) (643)
Net (loss) income(61) 342
Dividends to common stockholders ($0.37, $0.35, $3.11 and $3.05 per share)(100) (95) (850) (833)
Net income213
 107
 303
 727
Balance, end of period8,634
 8,976
8,796
 9,171
 8,796
 9,171
Accumulated Other Comprehensive (Loss) Income   
Accumulated Other Comprehensive Income       
Balance, beginning of period51
 (878)154
 120
 51
 (878)
Other comprehensive (loss) income(1,121) 554
Other comprehensive income257
 19
 360
 1,017
Balance, end of period(1,070) (324)411
 139
 411
 139
Treasury Stock          
Balance, beginning of period(70) (57)(71) (65) (70) (57)
Stock-based compensation16
 7
0
 0
 17
 8
Purchase of treasury stock(18) (14)
 (2) (18) (18)
Balance, end of period(72) (64)(71) (67) (71) (67)
Total stockholders' equity$10,362
 $11,455
$12,021
 $12,123
 $12,021
 $12,123
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A. General
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of CNA Financial Corporation (CNAF) and its subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. Loews Corporation (Loews) owned approximately 89%89.6% of the outstanding common stock of CNAF as of March 31,September 30, 2020.
The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany amounts have been eliminated. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, including certain financial statement notes, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2019, including the summary of significant accounting policies in Note A. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
The interim financial data as of March 31,September 30, 2020 and for the three and nine months ended March 31,September 30, 2020 and 2019 is unaudited. However, in the opinion of management, the interim data includes all adjustments, including normal recurring adjustments, necessary for a fair statement of the Company's results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Recently Adopted Accounting Standards Updates (ASU)
ASU 2016-13: In June 2016 the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through the Company’s results of operations. For financial assets measured at cost, the expected credit loss model requires immediate recognition of estimated credit losses over the life of the asset and presentation of the asset at the net amount expected to be collected. This new guidance applies to mortgage loan investments, reinsurance and insurance receivables and other financing receivables. For available-for-sale fixed maturity securities carried at fair value, estimated credit losses will continue to be measured at the present value of expected cash flows, however, the other than temporary impairment (OTTI) concept has been eliminated. Under the previous guidance, estimated credit impairments resulted in a write-down of amortized cost. Under the new guidance, estimated credit losses are recognized through an allowance and reversals of the allowance are permitted if the estimate of credit losses declines. For available-for-sale fixed maturity securities where the Company has an intent to sell, impairment will continue to result in a write-down of amortized cost.
On January 1, 2020, the Company adopted the updated guidance using a modified retrospective method with a cumulative effect adjustment recorded to beginning Retained earnings. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. A prospective transition approach is required for available-for-sale fixed maturity securities that were purchased with credit deterioration (PCD assets) or have recognized an OTTI write-down prior to the effective date. The cumulative effect of the accounting change resulted in a $5 million decrease in Retained earnings, with a corresponding $7 million allowance for credit losses recorded for Mortgage loans partially offset by a $2 million tax impact.

The allowance for uncollectible insurance and reinsurance receivables was unchanged as a result of adopting the new guidance. At adoption, an allowance for credit losses of $6 million was established for available-for-sale fixed maturity securities that were PCD assets, with a corresponding increase to amortized cost, resulting in no adjustment to the carrying value of the securities. Below is a summary of the significant accounting policies impacted by the adoption of ASU 2016-13.
The allowance for credit losses is a valuation account that is reported as a reduction of a financial asset’s cost basis and is measured on a pool basis when similar risk characteristics exist. Management estimates the allowance using relevant available information from both internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses and adjustments may be made to reflect current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made for any additional factors that come to the Company’s attention. This could include significant shifts in counterparty financial strength ratings, aging of past due receivables, amounts sent to collection agencies, or other underlying portfolio changes. Amounts are considered past due when payments have not been received according to contractual terms. The Company also considers current and forecast economic conditions, using a variety of economic metrics and forecast indices. The sensitivity of expected credit losses relative to changes to these forecast economic conditions can vary by financial asset class. The Company considers a reasonable and supportable forecast period to be up to 24 months from the balance sheet date. After the forecast period, the Company reverts to historical credit experience. The Company uses collateral arrangements such as letters of credit and amounts held in beneficiary trusts to mitigate credit risk, which are considered in the estimate of net amount expected to be collected.
The Company has made a policy election to present accrued interest balances separately from the amortized cost basis of assets and has elected the practical expedient to exclude the accrued interest from the tabular disclosures for mortgage loans and available-for-sale securities. The Company has elected not to estimate an allowance for credit losses on accrued interest receivable. The accrual of interest income is discontinued and the asset is placed on nonaccrual status inwithin 90 days of the quarter that payment becomesinterest becoming delinquent. Interest accrued but not received for assets on nonaccrual status is reversed through investment income. Interest received for assets that are on nonaccrual status is recognized as payment is received. The asset is returned to accrual status when the principal and interest amounts contractually due are brought current and future payments are expected. Interest receivable is presented as a component of accrued investment income on the Condensed Consolidated Balance Sheet.
See Note C and Note K to the Condensed Consolidated Financial Statements for additional information regarding credit losses.
Accounting Standards Pending Adoption
In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long Duration Contracts. The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entities to annually update cash flow assumptions, including morbidity and persistency, and update discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in the Company's results of operations and the effect of changes in discount rate assumptions will be recorded in Other comprehensive income. This guidance is effective for interim and annual periods beginning after December 15, 2021, andhowever the FASB has approved a one year deferral of the effective date. Early adoption is permitted. The Company will adopt it on January 1, 2022.may elect to apply the guidance using either a modified retrospective transition method or a full retrospective transition method. The guidance requires restatement of prior periods presented. The Company plans to adopt using the modified retrospective transition method and is currently evaluating the method of adoption and the effect the updated guidance will have on its financial statements, including the increased disclosure requirements. The annual updating of cash flow assumptions is expected to increase income statement volatility. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the business and related cash flows will be unchanged.

Note B. Earnings (Loss) Per Share
Earnings (loss) per share is based on weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing Net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the three and nine months ended March 31,September 30, 2020, approximately 1,015620 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were excluded from the calculation of diluted loss per share because the effect would have been antidilutive due to the net loss position of the Company. For the three months ended March 31, 2019, approximately 971and 730 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, 9 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share, because the effect would have been antidilutive.
For the three and nine months ended March 31,September 30, 2019, thereapproximately 1 million and 920 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were 0 antidilutive shares.included in the calculation of diluted earnings per share. For those same periods, less than 1 thousand and approximately 3 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share, because the effect would have been antidilutive.
The Company repurchased 435,376 and 317,508415,695 shares of CNAF common stock at an aggregate cost of $18 million and $14 million during each of the threenine months ended March 31,September 30, 2020 and 2019.

Note C. Investments
The significant components of Net investment income are presented in the following table.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Fixed maturity securities$438
 $455
$432
 $452
 $1,300
 $1,362
Equity securities(44) 30
18
 16
 24
 62
Limited partnership investments(70) 76
64
 12
 38
 125
Mortgage loans14
 12
14
 13
 42
 37
Short term investments7
 10
1
 8
 9
 27
Trading portfolio1
 2
4
 2
 13
 6
Other
 2
0
 0
 2
 2
Gross investment income346
 587
533
 503
 1,428
 1,621
Investment expense(17) (16)(16) (16) (48) (48)
Net investment income$329
 $571
$517
 $487
 $1,380
 $1,573

During the three and nine months ended March 31,September 30, 2020, and 2019, $(45)$4 million and $17$9 million of Net investment income was recognized due to the change in fair value of common stock still held as of March 31, 2020 and 2019.September 30, 2020. During the three and nine months ended March 31, 2020 andSeptember 30, 2019, $(2)$5 million and less than $1$26 million of Net investment income was recognized due to the change in fair value of trading securitiescommon stock still held as of March 31, 2020 andSeptember 30, 2019.
Net investment gains (losses) are presented in the following table.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Net investment gains (losses):          
Fixed maturity securities:          
Gross gains$29
 $36
$44
 $34
 $175
 $98
Gross losses(104) (42)(18) (31) (207) (104)
Net investment gains (losses) on fixed maturity securities(75) (6)26
 3
 (32) (6)
Equity securities(133) 42
25
 7
 (45) 60
Derivatives5
 (5)(2) (2) (7) (13)
Mortgage loans(13) 
(3) 0
 (16) 0
Short term investments and other
 
(19) (1) (20) (21)
Net investment gains (losses)$(216) $31
$27
 $7
 $(120) $20

During the three and nine months ended March 31,September 30, 2020, $25 million of gains and 2019, $(133)$44 million of losses were recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2020. During the three and $42nine months ended September 30, 2019, $7 million and $60 million of gains were recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of March 31,September 30, 2019. Short term investments and other included a $20 million loss for the three and nine months ended September 30, 2020 related to the third quarter 2020 redemption of the Company's $400 million senior notes due August 2021 and 2019.a $21 million loss for the nine months ended September 30, 2019 related to the second quarter 2019 redemption of the Company's $500 million senior notes due August 2020.
For available-for-sale fixed maturity securities, a credit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis. The allowance for credit loss related to available-for-sale fixed maturity securities is the difference between present value of cash flows expected to be collected and the amortized cost basis, limited by the amount that the fair value is less than the amortized cost basis. The Company considers all available evidence when determining whether an investment requires a credit loss write-down or allowance to be recorded. Examples of such evidence may include the financial condition and near term prospects of the issuer, whether the issuer is current with interest and principal payments, credit ratings on the security or changes in ratings

over time, general market conditions and industry, sector or other specific factors and whether it is likely that the Company will recover its amortized cost through the collection of cash flows. Changes in the allowance since acquisition are presented as a component of Net investment gains (losses) on the Condensed Consolidated Statements of Operations.

The following table presentstables present the activity related to the allowance on available-for-sale securities with credit impairments and PCD assets for the three months ended March 31, 2020.assets. Accrued interest receivable on available-for-sale fixed maturity securities totaled $390 million and is excluded from the estimate of expected credit losses and the amortized cost basis in the tables included within this Note.
Three months ended March 31 
(in millions)Corporate and other bonds
Allowance for credit losses: 
Beginning balance$
Additions to the allowance for credit losses: 
Impact of adopting ASC 3266
For securities for which credit losses were not previously recorded48
For available-for-sale securities accounted for as PCD assets1
  
Reductions to the allowance for credit losses: 
Securities sold during the period (realized)5
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis1
Write-offs charged against the allowance
Recoveries of amounts previously written off
  
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period
Ending balance as of March 31, 2020$49
Three months ended September 30     
(In millions)Corporate and other bonds Asset-backed Total
Allowance for credit losses:     
Beginning balance$39
 $12
 $51
Additions to the allowance for credit losses:     
For securities for which credit losses were not previously recorded4
 0
 4
For available-for-sale securities accounted for as PCD assets1
 0
 1
      
Reductions to the allowance for credit losses:     
Securities sold during the period (realized)9
 0
 9
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis0
 0
 0
Write-offs charged against the allowance0
 0
 0
Recoveries of amounts previously written off0
 0
 0
      
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period(1) 1
 0
Ending balance as of September 30, 2020$34
 $13
 $47
Nine months ended September 30     
(In millions)Corporate and other bonds Asset-backed Total
Allowance for credit losses:     
Beginning balance$0
 $0
 $0
Additions to the allowance for credit losses:     
Impact of adopting ASC 3266
 0
 6
For securities for which credit losses were not previously recorded62
 12
 74
For available-for-sale securities accounted for as PCD assets3
 0
 3
      
Reductions to the allowance for credit losses:     
Securities sold during the period (realized)15
 0
 15
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis1
 0
 1
Write-offs charged against the allowance0
 0
 0
Recoveries of amounts previously written off0
 0
 0
      
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period(21) 1
 (20)
Ending balance as of September 30, 2020$34
 $13
 $47




The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date.
Three Months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Fixed maturity securities available-for-sale:          
Corporate and other bonds$91
 $6
$4
 $12
 $94
 $24
Asset-backed1
 8
1
 2
 14
 10
Impairment losses recognized in earnings$92
 $14
$5
 $14
 $108
 $34


The following tables present a summary of fixed maturity securities.
March 31, 2020Cost or
Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 
Allowance for Credit Losses(1)
 Estimated
Fair
Value
September 30, 2020Cost or
Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 
Allowance for Credit Losses(1)
 Estimated
Fair
Value
(In millions)Cost or
Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 
Allowance for Credit Losses(1)
 Estimated
Fair
Value
 
Fixed maturity securities available-for-sale:          
Corporate and other bonds$20,181
 $1,419
 $817
 $49
 $20,734
$20,734
 $3,047
 $89
 $34
 $23,658
States, municipalities and political subdivisions8,957
 1,536
 2
 
 10,491
9,459
 1,766
 1
 0
 11,224
Asset-backed:                  
Residential mortgage-backed4,198
 207
 8
 
 4,397
3,796
 153
 1
 0
 3,948
Commercial mortgage-backed2,207
 36
 153
 
 2,090
2,048
 85
 70
 13
 2,050
Other asset-backed1,868
 9
 133
 
 1,744
2,097
 76
 19
 0
 2,154
Total asset-backed8,273
 252
 294
 
 8,231
7,941
 314
 90
 13
 8,152
U.S. Treasury and obligations of government-sponsored enterprises147
 8
 
 
 155
347
 4
 1
 0
 350
Foreign government452
 15
 4
 
 463
481
 29
 0
 0
 510
Redeemable preferred stock9
 
 
 
 9
0
 0
 0
 0
 0
Total fixed maturity securities available-for-sale38,019
 3,230
 1,117
 49
 40,083
38,962
 5,160
 181
 47
 43,894
Total fixed maturity securities trading15
 
 
 
 15
7
 
 
 
 7
Total fixed maturity securities$38,034
 $3,230
 $1,117
 $49
 $40,098
$38,969
 $5,160
 $181
 $47
 $43,901
(1) As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Unrealized OTTI Losses (Gains) column that tracked subsequent valuation changes on securities for which a credit loss had previously been recorded has been replaced with the Allowance for Credit Losses column.
December 31, 2019Cost or
Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Estimated
Fair
Value
 Unrealized
OTTI
Losses (Gains)
Cost or
Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Estimated
Fair
Value
 Unrealized
OTTI
Losses (Gains)
(In millions)  
Fixed maturity securities available-for-sale:                  
Corporate and other bonds$19,789
 $2,292
 $32
 $22,049
 $
$19,789
 $2,292
 $32
 $22,049
 $0
States, municipalities and political subdivisions9,093
 1,559
 
 10,652
 
9,093
 1,559
 0
 10,652
 0
Asset-backed:                  
Residential mortgage-backed4,387
 133
 1
 4,519
 (17)4,387
 133
 1
 4,519
 (17)
Commercial mortgage-backed2,265
 86
 5
 2,346
 1
2,265
 86
 5
 2,346
 1
Other asset-backed1,925
 41
 4
 1,962
 (3)1,925
 41
 4
 1,962
 (3)
Total asset-backed8,577
 260
 10
 8,827
 (19)8,577
 260
 10
 8,827
 (19)
U.S. Treasury and obligations of government-sponsored enterprises146
 1
 2
 145
 
146
 1
 2
 145
 0
Foreign government491
 14
 1
 504
 
491
 14
 1
 504
 0
Redeemable preferred stock10
 
 
 10
 
10
 0
 0
 10
 0
Total fixed maturity securities available-for-sale38,106
 4,126
 45
 42,187
 $(19)38,106
 4,126
 45
 42,187
 $(19)
Total fixed maturity securities trading20
 
 
 20
  20
 
 
 20
  
Total fixed maturity securities$38,126
 $4,126
 $45
 $42,207
  $38,126
 $4,126
 $45
 $42,207
  

The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (AOCI). When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group segment would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). As of March 31,September 30, 2020 and December 31, 2019, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1,700$2,559 million and $2,198 million.

The following tables present 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 the length of time in which the securities have continuously been in that position.
Less than 12 Months 12 Months or Longer TotalLess than 12 Months 12 Months or Longer Total
March 31, 2020
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
September 30, 2020
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Fixed maturity securities available-for-sale:            
Corporate and other bonds$7,036
 $804
 $44
 $13
 $7,080
 $817
$1,579
 $86
 $56
 $3
 $1,635
 $89
States, municipalities and political subdivisions82
 2
 
 
 82
 2
154
 1
 0
 0
 154
 1
Asset-backed:                      
Residential mortgage-backed166
 7
 22
 1
 188
 8
98
 1
 13
 0
 111
 1
Commercial mortgage-backed1,185
 151
 12
 2
 1,197
 153
693
 69
 19
 1
 712
 70
Other asset-backed1,510
 131

9

2
 1,519
 133
432
 18

13

1
 445
 19
Total asset-backed2,861
 289
 43
 5
 2,904
 294
1,223
 88
 45
 2
 1,268
 90
U.S. Treasury and obligations of government-sponsored enterprises2
 
 
 
 2
 
25
 1
 0
 0
 25
 1
Foreign government76
 4
 
 
 76
 4
20
 0
 0
 0
 20
 0
Redeemable preferred stock9







9


Total$10,066

$1,099

$87

$18

$10,153

$1,117
$3,001

$176

$101

$5

$3,102

$181
Less than 12 Months 12 Months or Longer TotalLess than 12 Months 12 Months or Longer Total
December 31, 2019
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)  
Fixed maturity securities available-for-sale:                      
Corporate and other bonds$914
 $21
 $186
 $11
 $1,100
 $32
$914
 $21
 $186
 $11
 $1,100
 $32
States, municipalities and political subdivisions34
 
 
 
 34
 
34
 0
 0
 0
 34
 
Asset-backed:                      
Residential mortgage-backed249
 1
 30
 
 279
 1
249
 1
 30
 0
 279
 1
Commercial mortgage-backed381
 3
 20
 2
 401
 5
381
 3
 20
 2
 401
 5
Other asset-backed449
 3
 33
 1
 482
 4
449
 3
 33
 1
 482
 4
Total asset-backed1,079
 7
 83
 3
 1,162
 10
1,079
 7
 83
 3
 1,162
 10
U.S. Treasury and obligations of government-sponsored enterprises62
 2
 2
 
 64
 2
62
 2
 2
 0
 64
 2
Foreign government59
 1
 1
 
 60
 1
59
 1
 1
 0
 60
 1
Total$2,148
 $31
 $272
 $14
 $2,420
 $45
$2,148
 $31
 $272
 $14
 $2,420
 $45


The following tables present the estimated fair value and gross unrealized losses of available-for-sale Corporate and other bonds in a gross unrealized loss position at March 31, 2020 across industry sectors and by rating distributions.
March 31, 2020Estimated
Fair
Value
 Gross
Unrealized
Losses
(In millions)
Corporate and other bonds:   
Basic Materials$727
 $78
Communications349
 27
Consumer, cyclical - Other390
 56
Consumer, non-cyclical - Other401
 27
Energy - Oil & Gas575
 191
Energy - Pipelines523
 112
Entertainment148
 23
Financial - Other1,711
 89
Financial - Real Estate/REITS599
 45
Industrial468
 55
Retail150
 18
Technology290
 30
Transportation73
 5
Travel & Related269
 37
Utilities407
 24
Total Corporate and other bonds$7,080
 $817
March 31, 2020Estimated
Fair
Value
 Gross
Unrealized
Losses
(In millions) 
Corporate and other bonds:   
AAA$8
 $
AA134
 4
A608
 17
BBB4,987
 516
Below investment grade1,343
 280
Total Corporate and other bonds$7,080
 $817


The following tables present the estimated fair value and gross unrealized losses of available-for-sale Commercial mortgage-backed securities in a gross unrealized loss position at March 31, 2020 by property type and by rating distributions.
March 31, 2020Estimated
Fair
Value
 Gross
Unrealized
Losses
(In millions) 
Commercial mortgage-backed:   
Conduits (multi property, multi borrower pools)$211
 $11
Single asset, single borrower986
 142
Total Commercial mortgage-backed$1,197
 $153
March 31, 2020Estimated
Fair
Value
 Gross
Unrealized
Losses
(In millions) 
Commercial mortgage-backed:   
US Government, Government agencies and Government sponsored enterprises$1
 $
AAA60
 1
AA245
 17
A214
 22
BBB484
 78
Below investment grade193
 35
Total Commercial mortgage-backed$1,197
 $153
The following tables present the estimated fair value and gross unrealized losses of available-for-sale Other asset-backed securities in a gross unrealized loss position at March 31, 2020 by underlying collateral and by rating distributions.
March 31, 2020Estimated
Fair
Value
 Gross
Unrealized
Losses
(In millions) 
Other asset-backed:   
Auto$290
 $6
Collateralized loan obligations418
 60
Franchise414
 39
Other397
 28
Total Other asset-backed$1,519
 $133

March 31, 2020Estimated
Fair
Value
 Gross
Unrealized
Losses
(In millions) 
Other asset-backed:   
AAA$49
 $1
AA83
 2
A821
 74
BBB566
 56
Below investment grade
 
Total Other asset-backed$1,519
 $133


Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31,September 30, 2020 securities in a gross unrealized loss position tablestable above are not indicative of the ultimate collectibility of the current amortized cost of the securities. Rather, the Company believes the gross unrealized lossessecurities, but rather are attributable primarily to wideningchanges in interest rates, credit spreads over risk free rates beyond historic norms, as a result of market uncertainties stemming from the COVID-19 pandemic, as well as supply shocks in the energy sector coupled with demand shocks in multiple sectors from the COVID-19 pandemic, that originated during the first quarter of 2020.and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional impairment losses to be recorded as of March 31,September 30, 2020.

Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019
(In millions)
Cost or
Amortized
Cost
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Estimated
Fair
Value
Cost or
Amortized
Cost
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Estimated
Fair
Value
Due in one year or less$1,331
 $1,325
 $1,334
 $1,356
$1,372
 $1,392
 $1,334
 $1,356
Due after one year through five years11,554
 11,812
 9,746
 10,186
11,955
 12,625
 9,746
 10,186
Due after five years through ten years13,078
 13,069
 14,892
 15,931
13,026
 14,359
 14,892
 15,931
Due after ten years12,056
 13,877
 12,134
 14,714
12,609
 15,518
 12,134
 14,714
Total$38,019
 $40,083
 $38,106
 $42,187
$38,962
 $43,894
 $38,106
 $42,187

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.
Derivative Financial Instruments
The Company holds an embedded derivative on a funds withheld liability with a notional value of $196$193 million and $182 million as of March 31,September 30, 2020 and December 31, 2019 and a fair value of $(1)$(16) million and $(7) million as of March 31,September 30, 2020 and December 31, 2019. The embedded derivative on the funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.
Investment Commitments
As part of its overall investment strategy, the Company invests 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 privately placed debtprivate placement securities. As of March 31,September 30, 2020, the Company had commitments to purchase or fund approximately $1,025$1,170 million and sell approximately $85$55 million under the terms of these investments.
Mortgage Loans
The allowance for expected credit losses is developed by assessing the credit quality of pools of mortgage loans in good standing using debt service coverage ratios (DSCR) and loan-to-value ratios (LTV). The DSCR compares a property’s net operating income to its debt service payments, including principal and interest. The LTV ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. The pools developed to measure the credit loss allowance use increments of DSCR and LTV to draw distinctions between risk levels. Changes in the allowance for mortgage loans are presented as a component of Net investment gains (losses) on the Condensed Consolidated Statements of Operations. The Company has adjusted the historical loss rate applied to mortgage loans over the forecast period to reflect higher expected credit losses based on observable economic forecasts, which increased the allowance by $13 million for the period ended March 31, 2020.

The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination as of March 31, 2020:origination.
Mortgage Loans Amortized Cost Basis by Origination Year (1)
As of March 31, 20202020 2019 2018 2017 2016 Prior Total
September 30, 2020
Mortgage Loans Amortized Cost Basis by Origination Year (1)
(In millions)2020 2019 2018 2017 2016 Prior Total
DSCR ≥1.6x                          
LTV less than 55%$60
 $32
 $19
 $92
 $41
 $130
 $374
$75
 $33
 $19
 $85
 $33
 $161
 $406
LTV 55% to 65%
 32
 29
 55
 4
 
 120
0
 33
 29
 55
 12
 0
 129
LTV greater than 65%
 5
 
 
 
 
 5
0
 5
 0
 0
 0
 12
 17
DSCR 1.2x - 1.6x                          
LTV less than 55%
 33
 10
 13
 16
 126
 198
0
 31
 10
 13
 16
 79
 149
LTV 55% to 65%
 73
 32
 32
 
 
 137
20
 54
 32
 24
 0
 0
 130
LTV greater than 65%
 85
 
 
 
 
 85
48
 103
 0
 0
 0
 0
 151
DSCR ≤1.2                          
LTV less than 55%
 1
 11
 27
 
 9
 48
0
 0
 0
 0
 0
 0
 0
LTV 55% to 65%
 14
 14
 
 
 
 28
0
 14
 14
 0
 0
 0
 28
LTV greater than 65%
 22
 
 
 24
 
 46
0
 23
 0
 45
 24
 7
 99
Total$60
 $297
 $115
 $219
 $85
 $265
 $1,041
$143
 $296
 $104
 $222
 $85
 $259
 $1,109

(1)The values in the table above reflect DSCR on a standardized amortization period and LTV based on the most recent appraised values trended forward using changes in a commercial real estate price index.
As of March 31,September 30, 2020, accrued interest receivable on mortgage loans totaled $4 million and is excluded from the amortized cost basis disclosed in the table above and the estimate of expected credit losses. There were no loans that were past due or placed in nonaccrual status as of March 31, 2020. NaN interest income was written off for the period ended March 31, 2020.


Note D. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include i) the review of pricing service methodologies or broker pricing qualifications, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, and iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities.

Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are presented 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, 2020      
Total
Assets/Liabilities
at Fair Value
September 30, 2020      
Total
Assets/Liabilities
at Fair Value
(In millions)Level 1 Level 2 Level 3 
Total
Assets/Liabilities
at Fair Value
Level 1 Level 2 Level 3 
Assets             
Fixed maturity securities:              
Corporate bonds and other$175
 $20,705
 $496
 $21,376
$372
 $23,459
 $694
 $24,525
States, municipalities and political subdivisions
 10,491
 
 10,491
0
 11,179
 45
 11,224
Asset-backed
 8,034
 197
 8,231
0
 7,917
 235
 8,152
Total fixed maturity securities175
 39,230
 693
 40,098
372
 42,555
 974
 43,901
Equity securities:              
Common stock187
 
 4
 191
157
 0
 16
 173
Non-redeemable preferred stock59
 538
 11
 608
65
 674
 7
 746
Total equity securities246
 538
 15
 799
222
 674
 23
 919
Short term and other135
 365
 
 500
1,301
 25
 0
 1,326
Total assets$556
 $40,133

$708

$41,397
$1,895
 $43,254

$997

$46,146
Liabilities     
  
     
  
Other liabilities$
 $1
 $
 $1
$0
 $16
 $0
 $16
Total liabilities$
 $1
 $
 $1
$0
 $16
 $0
 $16
December 31, 2019      
Total
Assets/Liabilities
at Fair Value
      
Total
Assets/Liabilities
at Fair Value
(In millions)Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 
Assets              
Fixed maturity securities:              
Corporate bonds and other$175
 $22,085
 $468
 $22,728
$175
 $22,085
 $468
 $22,728
States, municipalities and political subdivisions
 10,652
 
 10,652
0
 10,652
 0
 10,652
Asset-backed
 8,662
 165
 8,827
0
 8,662
 165
 8,827
Total fixed maturity securities175
 41,399
 633
 42,207
175
 41,399
 633
 42,207
Equity securities:              
Common stock135
 
 7
 142
135
 0
 7
 142
Non-redeemable preferred stock54
 658
 11
 723
54
 658
 11
 723
Total equity securities189
 658
 18
 865
189
 658
 18
 865
Short term and other397
 1,344
 
 1,741
397
 1,344
 0
 1,741
Total assets$761

$43,401

$651

$44,813
$761

$43,401

$651

$44,813
Liabilities     
  
     
  
Other liabilities$
 $7
 $
 $7
$0
 $7
 $0
 $7
Total liabilities$
 $7
 $
 $7
$0
 $7
 $0
 $7


The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Level 3
(In millions)
Corporate bonds and other States, municipalities and political subdivisions Asset-backed Equity securities TotalCorporate bonds and other States, municipalities and political subdivisions Asset-backed Equity securities Total
Balance as of January 1, 2020$468
 $
 $165
 $18
 $651
Balance as of July 1, 2020$555
 $0
 $222
 $11
 $788
Total realized and unrealized investment gains (losses):                  
Reported in Net investment gains (losses)
 
 
 
 
0
 0
 0
 0
 0
Reported in Net investment income
 
 
 (3) (3)0
 0
 0
 0
 0
Reported in Other comprehensive income (loss)(37) 
 (9) 
 (46)5
 0
 9
 0
 14
Total realized and unrealized investment gains (losses)(37)


(9)
(3) (49)5
 0
 9
 0
 14
Purchases67
 
 45
 
 112
129
 45
 20
 12
 206
Sales
 
 
 
 
0
 0
 0
 0
 0
Settlements(2) 
 (3) 
 (5)(3) 0
 (14) 0
 (17)
Transfers into Level 3
 
 
 
 
8
 0
 0
 0
 8
Transfers out of Level 3
 
 (1) 
 (1)0
 0
 (2) 0
 (2)
Balance as of March 31, 2020$496
 $
 $197
 $15
 $708
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2020 recognized in Net income (loss) in the period$
 $
 $
 $(3) $(3)
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2020 recognized in Other comprehensive income (loss) in the period(35) 
 (9) 
 (44)
Balance as of September 30, 2020$694
 $45
 $235
 $23
 $997
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Net income (loss) in the period$0
 $0
 $0
 $0
 $0
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Other comprehensive income (loss) in the period5
 0
 8
 0
 13

Level 3
(In millions)
Corporate bonds and other States, municipalities and political subdivisions Asset-backed Equity securities TotalCorporate bonds and other Asset-backed Equity securities Total
Balance as of January 1, 2019$222
 $
 $197
 $18
 $437
Balance as of July 1, 2019$338
 $193
 $22
 $553
Total realized and unrealized investment gains (losses):        

       
Reported in Net investment gains (losses)
 
 
 2
 2
0
 0
 0
 0
Reported in Net investment income
 
 
 
 
0
 0
 0
 0
Reported in Other comprehensive income (loss)8
 
 3
 
 11
14
 1
 0
 15
Total realized and unrealized investment gains (losses)8



3

2
 13
14
 1
 0
 15
Purchases56
 
 20
 
 76
79
 22
 0
 101
Sales
 
 
 
 
0
 0
 0
 0
Settlements(2) 
 (4) 
 (6)(3) (4) 0
 (7)
Transfers into Level 3
 
 5
 
 5
0
 0
 0
 0
Transfers out of Level 3(31) 
 (37) 
 (68)0
 (16) 0
 (16)
Balance as of March 31, 2019$253
 $
 $184
 $20
 $457
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2019 recognized in Net income (loss) in the period$
 $
 $
 $2
 $2
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2019 recognized in Other comprehensive income (loss) in the period7
 
 3
 
 10
Balance as of September 30, 2019$428
 $196
 $22
 $646
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Net income (loss) in the period$0
 $0
 $0
 $0
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Other comprehensive income (loss) in the period14
 2
 0
 16


Level 3
(In millions)
Corporate bonds and other States, municipalities and political subdivisions Asset-backed Equity securities Total
Balance as of January 1, 2020$468
 $0
 $165
 $18
 $651
Total realized and unrealized investment gains (losses):         
Reported in Net investment gains (losses)0
 0
 0
 (4) (4)
Reported in Net investment income0
 0
 0
 (3) (3)
Reported in Other comprehensive income (loss)27
 0
 18
 0
 45
Total realized and unrealized investment gains (losses)27
 0
 18
 (7) 38
Purchases200
 45
 100
 12
 357
Sales0
 0
 (9) 0
 (9)
Settlements(9) 0
 (22) 0
 (31)
Transfers into Level 38
 0
 0
 0
 8
Transfers out of Level 30
 0
 (17) 0
 (17)
Balance as of September 30, 2020$694
 $45
 $235
 $23
 $997
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Net income (loss) in the period$0
 $0
 $0
 $(7) $(7)
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Other comprehensive income (loss) in the period29
 0
 19
 0
 48

Level 3
(In millions)
Corporate bonds and other Asset-backed Equity securities Total
Balance as of January 1, 2019$222
 $197
 $18
 $437
Total realized and unrealized investment gains (losses):       
Reported in Net investment gains (losses)0
 0
 2
 2
Reported in Net investment income0
 0
 0
 0
Reported in Other comprehensive income (loss)34
 8
 0
 42
Total realized and unrealized investment gains (losses)34
 8
 2
 44
Purchases211
 42
 2
 255
Sales0
 0
 0
 0
Settlements(7) (12) 0
 (19)
Transfers into Level 30
 45
 0
 45
Transfers out of Level 3(32) (84) 0
 (116)
Balance as of September 30, 2019$428
 $196
 $22
 $646
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Net income (loss) in the period$0
 $0
 $2
 $2
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Other comprehensive income (loss) in the period29
 9
 0
 38

Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume.

Valuation Methodologies and Inputs
The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.
Fixed Maturity Securities
Level 1 securities include highly liquid government securities and exchange traded bonds, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology, or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable.
Equity Securities
Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with some inputs that are not market observable.
Short Term and Other Invested Assets
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented on the Condensed Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
As of March 31,September 30, 2020 and December 31, 2019, there were $58$64 million and $60 million of overseas deposits within Other invested assets, which can be redeemed at net asset value in 90 days or less. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded using the net asset value per share (or equivalent) practical expedient.
Derivative Financial Investments
The embedded derivative on funds withheld liability is valued using the change in fair value of the assets supporting the funds withheld liability, which are fixed maturity securities primarily valued with observable inputs.

Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements 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 these unobservable inputs is neither provided nor reasonably available to the Company. The weighted average rate is calculated based on fair value.
March 31, 2020
Estimated Fair Value
(In millions)
 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
September 30, 2020
Estimated Fair Value
(In millions)
 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$583
 Discounted cash flow Credit spread 1% - 10% (4%)$888
 Discounted cash flow Credit spread 1% - 10% (3%)
December 31, 2019Estimated Fair Value
(In millions)
 Valuation Technique(s) Unobservable Input(s) 
Range
 (Weighted Average)
Fixed maturity securities$525
 Discounted cash flow Credit spread 1% - 6% (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 and estimated fair value of the Company's financial assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are presented in the following tables.
March 31, 2020
Carrying
Amount
 Estimated Fair Value
September 30, 2020
Carrying
Amount
 Estimated Fair Value
(In millions)
Carrying
Amount
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets                 
Mortgage loans$1,021
 $
 $
 $1,036
 $1,036
$1,088
 $0
 $0
 $1,159
 $1,159
Liabilities                  
Long term debt$2,680
 $
 $2,730
 $
 $2,730
$2,776
 $0
 $3,118
 $0
 $3,118
December 31, 2019Carrying
Amount
 Estimated Fair ValueCarrying
Amount
 Estimated Fair Value
(In millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets                  
Mortgage loans$994
 $
 $
 $1,025
 $1,025
$994
 $0
 $0
 $1,025
 $1,025
Note receivable21
 
 
 21
 21
21
 0
 0
 21
 21
Liabilities                  
Long term debt$2,679
 $
 $2,906
 $
 $2,906
$2,679
 $0
 $2,906
 $0
 $2,906

The following methods and assumptions were used to estimateIn the fair valuefirst quarter of these financial assets and liabilities.
The fair value of mortgage loans was based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk.
The fair value of the note receivable was based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar notes, adjusted for specific credit risk. During the three months ended March 31, 2020, the note receivable was repaid in full. As of December 31, 2019, the note receivable was included within Other assets on the Condensed Consolidated Balance Sheets.
The Company's senior notes and debentures were valued based on observable market prices. The fair value for other debt was estimated using discounted cash flows based on current incremental borrowing rates for similar borrowing arrangements.
The carrying amounts reported on the Condensed Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain Other assets and Other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.

Note E. 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. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions, including inflation, and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.
Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers' compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the Company's 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 our results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $75$160 million and $58$536 million for the three and nine months ended March 31, 2020 and 2019.September 30, 2020. Net catastrophe losses for the three months ended March 31,September 30, 2020 were driven by severe weather related events, primarily Hurricanes Laura, Isaias and Sally, and the Midwest derecho. Net catastrophe losses for the nine months ended September 30, 2020 included $13$273 million related primarily to severe weather related events, $195 million related to the COVID-19 pandemic with the remaining $62and $68 million related primarily to U.S. weather related events. Netcivil unrest. The Company reported catastrophe losses, net of reinsurance, of $32 million and $128 million for the three and nine months ended March 31,September 30, 2019 related primarily to U.S. weather related events.

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 the Life & Group segment.
For the three months ended March 31   
For the nine months ended September 30   
(In millions)2020 20192020 2019
Reserves, beginning of year:      
Gross$21,720
 $21,984
$21,720
 $21,984
Ceded3,835
 4,019
3,835
 4,019
Net reserves, beginning of year17,885
 17,965
17,885
 17,965
Net incurred claim and claim adjustment expenses:      
Provision for insured events of current year1,355
 1,309
4,425
 3,968
Increase (decrease) in provision for insured events of prior years(8) 8
(68) (65)
Amortization of discount51
 50
143
 143
Total net incurred (1)
1,398
 1,367
4,500
 4,046
Net payments attributable to:      
Current year events(72) (100)(556) (599)
Prior year events(1,218) (1,309)(3,285) (3,547)
Total net payments(1,290) (1,409)(3,841) (4,146)
Foreign currency translation adjustment and other(88) 13
39
 29
Net reserves, end of period17,905
 17,936
18,583
 17,894
Ceded reserves, end of period3,967
 3,900
3,951
 3,702
Gross reserves, end of period$21,872
 $21,836
$22,534
 $21,596

(1)Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Condensed Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, 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 (development). These changes can be favorable or unfavorable. The following table presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Pretax (favorable) unfavorable development:          
Specialty$(11) $(20)$(16) $(20) $(47) $(58)
Commercial(4) (8)1
 35
 42
 15
International
 14
0
 1
 (3) 14
Corporate & Other
 
0
 0
 0
 0
Total pretax (favorable) unfavorable development$(15) $(14)$(15) $16
 $(8) $(29)


Specialty
The following table presents further detail of the development recorded for the Specialty segment.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Pretax (favorable) unfavorable development:          
Medical Professional Liability$10
 $15
$25
 $29
 $35
 $59
Other Professional Liability and Management Liability3
 (12)0
 (18) (6) (37)
Surety(30) (25)(40) (43) (70) (83)
Warranty
 
0
 0
 (3) (7)
Other6
 2
(1) 12
 (3) 10
Total pretax (favorable) unfavorable development$(11) $(20)$(16) $(20) $(47) $(58)

Three Months
2020
Unfavorable development in medical professional liability was primarily due to unfavorable outcomes on specific claimshigher than expected frequency of large losses in recent accident years 2015 and 2016 in our aging services business.unfavorable development on a latent claim for an older accident year.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity for accident years 20172019 and prior.
2019
Unfavorable development in medical professional liability was primarily due to higher than expected indemnity severity in accident years 2016 through 2018 in the Company's aging services business.
Favorable development in other professional liability and management liability was due to lower than expected large claim losses in recent accident years in the Company's public company directors and officers liability (D&O) business.
Favorable development in surety was due to lower than expected frequency for accident years 2015 through 2018.
Unfavorable development in other was primarily due to higher than expected severity in aging services related to auto liability coverages.

Nine Months
2020
Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years, unfavorable development on a latent claim for an older accident year and unfavorable outcomes on specific claims in accident years 2015 and 2016 in the Company's aging services business.

Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior.
2019
Unfavorable development in medical professional liability was primarily due to higher than expected indemnity severity in accident years 2016 through 2018 in the Company's aging services business, higher than expected severity in accident year 2013 in ourthe Company's allied healthcare business, unfavorable outcomes on individual claims and higher than expected severity in accident year 2017 in the Company's dentists business.
Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency and favorable outcomes on individual claims in accident years 2017 and prior related to financial institutions. This was partially offset by unfavorable development in management liability in accident year 2014 due toinstitutions and lower than expected large claim activity.losses in recent accident years in the Company's public company D&O business.
Favorable development in surety was due to lower than expected frequency for accident years 20162018 and prior.
Unfavorable development in other was primarily due to higher than expected severity in aging services related to auto liability coverages.

Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Pretax (favorable) unfavorable development:          
Commercial Auto$9
 $(5)$9
 $(16) $33
 $(24)
General Liability
 (20)15
 43
 65
 36
Workers' Compensation(13) 2
(23) 7
 (97) 2
Property and Other
 15
0
 1
 41
 1
Total pretax (favorable) unfavorable development$(4) $(8)$1
 $35
 $42
 $15

Three Months
2020
Unfavorable development in general liability was primarily due to increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in the Company’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years 2016 through 2018.years.
2019
Favorable development in commercial auto was primarily due to a decline in bodily injury frequency in accident year 2018 and continued lower than expected severity across accident years 2013 through 2016.
Unfavorable development in general liability was primarily due to higher than expected emergence in mass tort exposures related to accident years 2009 and prior, 2015 and 2016.
Nine Months
2020
Unfavorable development in commercial auto was due to unfavorable claim severity in the Company's middle market and construction business in accident years 2017 through 2019.
Unfavorable development in general liability was driven by higher than expected emergence in mass tort exposures, primarily due to New York reviver statute-related claims from accident years prior to 2010, increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in the Company’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected frequency on latent construction defect claimsseverity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected frequency and large loss activity in accident year 2019 in the Company's middle market, national accounts and marine business units.
2019
Favorable development in commercial auto was primarily due to a decline in bodily injury frequency in accident year 2018 and continued lower than expected severity across accident years 2016 and prior.
Unfavorable development in our marine business.general liability was primarily due to higher than expected emergence in mass tort exposures as well as higher than expected large loss experience in the Company's excess and umbrella business in accident year 2017.

International
The following table presents further detail of the development recorded for the International segment.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Pretax (favorable) unfavorable development:          
Casualty$
 $
$(5) $(6) $(11) $(11)
Property, Energy and Marine(1)

 14
9
 4
 10
 23
Specialty
 
(4) 3
 (2) 2
Total pretax (favorable) unfavorable development$
 $14
$0
 $1
 $(3) $14

(1)
Effective January 1, 2020 the Property and Energy and Marine lines of business have been combined in the International segment. Prior period information has been conformed to the new line of business presentation.
Nine Months
2020
Favorable development in casualty was primarily driven by better than expected loss experience across Europe and Canada in multiple accident years.
Unfavorable development in property, energy and marine was driven by adverse attritional and large loss experience on discontinued lines, primarily in the Company’s construction and renewable energy business in recent accident years.
2019
Favorable development in casualty was driven by lower than expected large losses and claim severity in accident years 2014 and prior in Hardy and Europe.
Unfavorable development in property, energy and marine was driven by higher than expected claims in Hardy foron 2018 accident year catastrophes.


Asbestos and Environmental Pollution (A&EP) Reserves
In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO through a Loss Portfolio Transfer (LPT). At the effective date of the transaction, the Company ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 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. The Company paid NICO a reinsurance premium of $2 billion and transferred to NICO billed third-party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.
In years subsequent to the effective date of the LPT, the Company recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which the Company recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders' benefits in the Condensed Consolidated Statements of Operations.
The impact of the LPT on the Condensed Consolidated Statements of Operations was the recognition of a retroactive reinsurance benefit of $14$9 million and $22$7 million for the three months ended March 31,September 30, 2020 and 2019 and $43 million for the nine months ended September 30, 2020 and 2019. As of March 31,September 30, 2020 and December 31, 2019, the cumulative amounts ceded under the LPT were $3.2 billion. The unrecognized deferred retroactive reinsurance benefit was $378$349 million and $392 million as of March 31,September 30, 2020 and December 31, 2019 and is included within Other liabilities on the Condensed Consolidated Balance Sheets.
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $2.7$3.5 billion and $3.7 billion as of March 31,September 30, 2020 and December 31, 2019. The decrease in the fair value of the trust was driven by overall declines in equity markets. As of March 31, 2020, the fair market value of the trust represented more than 150% of the gross LPT reserves. 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 Company’s A&EP claims.

Life & Group Policyholder Reserves
The Company’s Life & Group segment includes its run-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and the Company has the ability to increase policy premiums, subject to state regulatory approval.
The Company maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for the Life & Group segment. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for long term care policies, the Company’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, the Company's actuaries monitor mortality experience on an annual basis. The Company’s recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent studies.
The Company's most recent annual claim experience studies were completed in the third quarter of 2020 and resulted in a $46 million pretax increase in claim and claim adjustment expense reserve estimates for structured settlement obligations primarily due to lower discount rate assumptions and mortality assumption changes and a $37 million pretax reduction in claim and claim adjustment expense reserves for long term care policies primarily due to lower claim severity than anticipated in the reserve estimates. The Company's 2019 annual claim experience studies were completed in the third quarter of 2019 and resulted in a $56 million pretax reduction in claim and claim adjustment expense reserves for long term care policies primarily due to lower claim severity than anticipated in the reserve estimates.
Future policy benefit reserves represent the active life reserves related to the Company’s long term care policies for policyholders that are not currently receiving benefits, which represent the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, the Company’s long term care future policy benefit reserves may be subject to material increases if actual experience develops adversely to the Company’s expectations.
Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a gross premium valuation (GPV) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in the Company’s results of operations in the period in which the need for such adjustment is determined. If the GPV required reserves are less than the existing recorded reserves, assumptions remain locked in and no adjustment is required. Periodically, management engages independent third parties to assess the appropriateness of its best estimate assumptions. The most recent third party assessment, performed in 2019, validated the assumption setting process and confirmed the best estimate assumptions appropriately reflected the experience data at that time.

The GPV for the long term care future policy benefit reserves, performed in the third quarter of 2020 and 2019, indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the premium deficiency resulted in a $74 million and a $216 million pretax increase in policyholders' benefits reflected in the Company's results of operations for the three and nine months ended September 30, 2020 and 2019.

Note F. Legal Proceedings, Contingencies and Guarantees
The Company is a party to various claims and litigation incidental to its business, which, based on the facts and circumstances currently known, are not material to the Company's results of operations or financial position.
Guarantees
As of March 31,September 30, 2020 and December 31, 2019, the Company had recorded liabilities of approximately $5 million related to guarantee and indemnification agreements. Management does not believe that any future indemnity claims will be significantly greater than the amounts recorded.
The Company 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,September 30, 2020, the potential amount of future payments the Company could be required to pay under these guarantees was approximately $1.7 billion, which will be paid over the lifetime of the annuitants. The Company does not believe any payment is likely under these guarantees, as the Company is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.

Note G. Benefit Plans
The components of net periodic pension cost (benefit) are presented in the following table.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Net periodic pension cost (benefit)          
Interest cost on projected benefit obligation$20
 $25
$20
 $25
 $60
 $75
Expected return on plan assets(39) (36)(38) (36) (116) (107)
Amortization of net actuarial (gain) loss11
 10
11
 10
 33
 30
Settlement loss1
 
0
 0
 2
 0
Total net periodic pension cost (benefit)$(7) $(1)$(7) $(1) $(21) $(2)

For the three and nine months ended March 31,September 30, 2020, the Company recognized $2 million and $6 million of non-service benefit in Insurance claims and policyholders' benefits and $5 million and $15 million of non-service benefit in Other operating expenses. For the three and nine months ended March 31,September 30, 2019, the Company recognized less than $1 million and $1 million of non-service benefit in Insurance claims and policyholders' benefits and less than $1 million and $1 million of non-service benefit in Other operating expenses.


Note H. Accumulated Other Comprehensive Income (Loss) by Component
The tables below display the changes in Accumulated other comprehensive income (loss) by component.
(In millions)
Net unrealized gains (losses) on investments with an allowance for credit losses(1)
 
Net unrealized gains (losses) on other investments(1)
 Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of January 1, 2020$
 $1,025
 $(833) $(141) $51
Other comprehensive income (loss) before reclassifications(48) (1,066) 1
 (77) (1,190)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $10, $6, $3, $- and $19(37) (22) (10) 
 (69)
Other comprehensive income (loss) net of tax (expense) benefit of $3, $281, $(3), $- and $281(11) (1,044) 11
 (77) (1,121)
Balance as of March 31, 2020$(11) $(19) $(822) $(218) $(1,070)
(In millions)
Net unrealized gains (losses) on investments with an allowance for credit losses(1)
 
Net unrealized gains (losses) on other investments(1)
 Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of July 1, 2020$(9) $1,172
 $(815) $(194) $154
Other comprehensive income (loss) before reclassifications2
 231
 (2) 37
 268
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $(7), $2, $- and $(4)(4) 24
 (9) 0
 11
Other comprehensive income (loss) net of tax (expense) benefit of $(1), $(56), $(3), $- and $(60)6
 207
 7
 37
 257
Balance as of September 30, 2020$(3) $1,379
 $(808) $(157) $411
(In millions)
Net unrealized gains (losses) on investments with OTTI losses(1)
 
Net unrealized gains (losses) on other investments(1)
 Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of July 1, 2019$20
 $1,023
 $(760) $(163) $120
Other comprehensive income (loss) before reclassifications0
 44
 0
 (29) 15
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $-, $-, $2, $- and $20
 3
 (7) 0
 (4)
Other comprehensive income (loss) net of tax (expense) benefit of $-, $(11), $(2), $- and $(13)0
 41
 7
 (29) 19
Balance as of September 30, 2019$20
 $1,064
 $(753) $(192) $139

(1)
As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Net unrealized gains (losses) on investments with OTTI losses column that tracked the change in unrealized gains (losses) on investments with OTTI losses has been replaced with the Net unrealized gains (losses) on investments with an allowance for credit losses column. The balance as of January 1, 2020balances previously reported in the Net unrealized gains (losses) on investments with OTTI losses column isare now reported in the Net unrealized gains (losses) on other investments column.

(In millions)Net unrealized gains (losses) on investments with OTTI losses Net unrealized gains (losses) on other investments Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of January 1, 2019$16
 $61
 $(775) $(180) $(878)
Other comprehensive income (loss) before reclassifications4
 521
 (1) 17
 541
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $-, $1, $2, $- and $3
 (5) (8) 
 (13)
Other comprehensive income (loss) net of tax (expense) benefit of $(1), $(141), $(2), $- and $(144)4
 526
 7
 17
 554
Balance as of March 31, 2019$20
 $587
 $(768) $(163) $(324)
(In millions)
Net unrealized gains (losses) on investments with an allowance for credit losses(1)
 
Net unrealized gains (losses) on other investments(1)
 Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of January 1, 2020$0
 $1,025
 $(833) $(141) $51
Other comprehensive income (loss) before reclassifications(48) 374
 (3) (16) 307
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $12, $(5), $7, $- and $14(45) 20
 (28) 0
 (53)
Other comprehensive income (loss) net of tax (expense) benefit of $1, $(92), $(7), $- and $(98)(3) 354
 25
 (16) 360
Balance as of September 30, 2020$(3) $1,379
 $(808) $(157) $411
(In millions)
Net unrealized gains (losses) on investments with OTTI losses(1)
 
Net unrealized gains (losses) on other investments(1)
 Pension and postretirement benefits Cumulative foreign currency translation adjustment Total
Balance as of January 1, 2019$16
 $61
 $(775) $(180) $(878)
Other comprehensive income (loss) before reclassifications3
 999
 (1) (12) 989
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $-, $1, $6, $- and $7(1) (4) (23) 0
 (28)
Other comprehensive income (loss) net of tax (expense) benefit of $(2), $(266), $(6), $- and $(274)4
 1,003
 22
 (12) 1,017
Balance as of September 30, 2019$20
 $1,064
 $(753) $(192) $139
(1)
As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Net unrealized gains (losses) on investments with OTTI losses column that tracked the change in unrealized gains (losses) on investments with OTTI losses has been replaced with the Net unrealized gains (losses) on investments with an allowance for credit losses column. The balances previously reported in the Net unrealized gains (losses) on investments with OTTI losses column are now reported in the Net unrealized gains (losses) on other investments column.

Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:
Component of AOCI Condensed Consolidated Statements of Operations Line Item Affected by Reclassifications
Net unrealized gains (losses) on investments with an allowance for credit losses, Net unrealized gains (losses) on investments with OTTI losses and Net unrealized gains (losses) on other investments Net investment gains (losses)
Pension and postretirement benefits Other operating expenses and Insurance claims and policyholders' benefits


Note I. Business Segments
The Company's property and casualty commercial insurance operations are managed and reported in 3 business segments: Specialty, Commercial and International. These 3 segments are collectively referred to as Property & Casualty Operations. The Company's operations outside of Property & Casualty Operations are managed and reported in 2 segments: Life & Group and Corporate & Other.
The accounting policies of the segments are the same as those described in Note A to the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2019. The Company manages most of its assets on a legal entity basis, while segment operations are generally conducted across legal entities. As such, only Insurance and Reinsurance receivables, Insurance reserves, Deferred acquisition costs, Goodwill and Deferred non-insurance warranty acquisition expense and revenue are readily identifiable for individual segments. Distinct investment portfolios are not maintained for every individual segment; accordingly, allocation of assets to each segment is not performed. Therefore, a significant portion of Net investment income and Net investment gains or losses are allocated primarily based on each segment's net carried insurance reserves, as adjusted. All significant intersegment income and expense have been eliminated. Income taxes have been allocated on the basis of the taxable income of the segments.
In the following tables, certain financial measures are presented to provide information used by management to monitor the Company's operating performance. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio.
The performance of the Company's insurance operations is monitored by management through core income (loss), which is derived from certain income statement amounts. The Company's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk.
Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of net investment gains or losses and any cumulative effects of changes in accounting guidance. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not necessarily reflective of our primary operations.


The Company's results of operations and selected balance sheet items by segment are presented in the following tables.
Three months ended March 31, 2020

Specialty
 

Commercial
 International 
Life &
Group
 
Corporate
& Other
    
(In millions)     Eliminations Total
Operating revenues             
Net earned premiums$685
 $818
 $239
 $127
 $
 $
 $1,869
Net investment income56
 47
 15
 208
 3
 
 329
Non-insurance warranty revenue301
 
 
 
 
 
 301
Other revenues1
 7
 
 
 2
 (2) 8
Total operating revenues1,043
 872
 254
 335
 5
 (2) 2,507
Claims, benefits and expenses 
  
    
  
  
  
Net incurred claims and benefits405
 558
 154
 316
 (14) 
 1,419
Policyholders’ dividends1
 5
 
 
 
 
 6
Amortization of deferred acquisition costs151
 144
 49
 
 
 
 344
Non-insurance warranty expense281
 
 
 
 
 
 281
Other insurance related expenses69
 127
 36
 26
 
 
 258
Other expenses13
 6
 13
 3
 39
 (2) 72
Total claims, benefits and expenses920
 840
 252
 345
 25
 (2) 2,380
Core income (loss) before income tax123
 32
 2
 (10) (20) 
 127
Income tax (expense) benefit on core income (loss)(27) (8) 
 14
 2
 
 (19)
Core income (loss) $96
 $24
 $2
 $4
 $(18) $
 108
Net investment gains (losses)            (216)
Income tax (expense) benefit on net investment gains (losses)            47
Net investment gains (losses), after tax            (169)
Net income (loss)            $(61)
March 31, 2020             
(In millions)             
Reinsurance receivables$793
 $883
 $233
 $370
 $2,072
 $
 $4,351
Insurance receivables953
 1,267
 302
 8
 2
 
 2,532
Deferred acquisition costs316
 277
 90
 
 
 
 683
Goodwill117
 
 28
 
 
 
 145
Deferred non-insurance warranty acquisition expense2,905
 
 
 
 
 
 2,905
Insurance reserves             
Claim and claim adjustment expenses5,472
 8,704
 1,818
 3,712
 2,166
 
 21,872
Unearned premiums2,363
 1,751
 495
 137
 
 (1) 4,745
Future policy benefits
 
 
 11,734
 
 
 11,734
Deferred non-insurance warranty revenue3,848
 
 
 
 
 
 3,848
Three months ended September 30, 2020

Specialty
 

Commercial
 International 
Life &
Group
 
Corporate
& Other
    
(In millions)     Eliminations Total
Operating revenues             
Net earned premiums$734
 $857
 $236
 $127
 $0
 $(1) $1,953
Net investment income126
 165
 15
 208
 3
 0
 517
Non-insurance warranty revenue317
 0
 0
 0
 0
 0
 317
Other revenues0
 6
 0
 0
 0
 0
 6
Total operating revenues1,177
 1,028
 251
 335
 3
 (1) 2,793
Claims, benefits and expenses 
  
    
  
  
  
Net incurred claims and benefits433
 673
 150
 363
 (8) 0
 1,611
Policyholders’ dividends0
 5
 0
 0
 0
 0
 5
Amortization of deferred acquisition costs158
 150
 52
 0
 0
 0
 360
Non-insurance warranty expense293
 0
 0
 0
 0
 0
 293
Other insurance related expenses66
 127
 31
 28
 0
 (1) 251
Other expenses14
 7
 (8) 3
 34
 0
 50
Total claims, benefits and expenses964
 962
 225
 394
 26
 (1) 2,570
Core income (loss) before income tax213
 66
 26
 (59) (23) 0
 223
Income tax (expense) benefit on core income (loss)(45) (14) 1
 24
 4
 0
 (30)
Core income (loss) $168
 $52
 $27
 $(35) $(19) $0
 193
Net investment gains (losses)            27
Income tax (expense) benefit on net investment gains (losses)            (7)
Net investment gains (losses), after tax            20
Net income (loss)            $213

Three months ended September 30, 2019

Specialty
 

Commercial
 International 
Life &
Group
 
Corporate
& Other
    
(In millions)     Eliminations Total
Operating revenues             
Net earned premiums$712
 $813
 $236
 $130
 $0
 $(1) $1,890
Net investment income121
 136
 17
 207
 6
 0
 487
Non-insurance warranty revenue292
 0
 0
 0
 0
 0
 292
Other revenues1
 10
 (1) (1) 1
 (1) 9
Total operating revenues1,126
 959
 252
 336
 7
 (2) 2,678
Claims, benefits and expenses 
  
    
  
  
  
Net incurred claims and benefits411
 564
 163
 476
 (7) 0
 1,607
Policyholders’ dividends2
 5
 0
 0
 0
 0
 7
Amortization of deferred acquisition costs155
 134
 56
 0
 0
 0
 345
Non-insurance warranty expense278
 0
 0
 0
 0
 0
 278
Other insurance related expenses71
 123
 35
 29
 0
 (1) 257
Other expenses13
 9
 7
 1
 35
 (1) 64
Total claims, benefits and expenses930
 835
 261
 506
 28
 (2) 2,558
Core income (loss) before income tax196
 124
 (9) (170) (21) 0
 120
Income tax (expense) benefit on core income (loss)(43) (27) 0
 48
 4
 0
 (18)
Core income (loss) $153
 $97
 $(9) $(122) $(17) $0
 102
Net investment gains (losses)            7
Income tax (expense) benefit on net investment gains (losses)            (2)
Net investment gains (losses), after tax            5
Net income (loss)            $107


















Nine months ended September 30, 2020

Specialty
 

Commercial
 International 
Life &
Group
 
Corporate
& Other
    
(In millions)     Eliminations Total
Operating revenues             
Net earned premiums$2,124
 $2,470
 $699
 $380
 $0
 $(1) $5,672
Net investment income315
 389
 44
 622
 10
 0
 1,380
Non-insurance warranty revenue926
 0
 0
 0
 0
 0
 926
Other revenues1
 18
 0
 0
 3
 (3) 19
Total operating revenues3,366
 2,877
 743
 1,002
 13
 (4) 7,997
Claims, benefits and expenses 
  
    
  
  
  
Net incurred claims and benefits1,346
 1,897
 480
 983
 (40) 0
 4,666
Policyholders’ dividends2
 15
 0
 0
 0
 0
 17
Amortization of deferred acquisition costs462
 441
 143
 0
 0
 0
 1,046
Non-insurance warranty expense859
 0
 0
 0
 0
 0
 859
Other insurance related expenses208
 378
 106
 79
 (1) (1) 769
Other expenses37
 26
 3
 6
 108
 (3) 177
Total claims, benefits and expenses2,914
 2,757
 732
 1,068
 67
 (4) 7,534
Core income (loss) before income tax452
 120
 11
 (66) (54) 0
 463
Income tax (expense) benefit on core income (loss)(98) (24) 4
 49
 6
 0
 (63)
Core income (loss) $354
 $96
 $15
 $(17) $(48) $0
 400
Net investment gains (losses)            (120)
Income tax (expense) benefit on net investment gains (losses)            23
Net investment gains (losses), after tax            (97)
Net income (loss)            $303
September 30, 2020             
(In millions)             
Reinsurance receivables$855
 $948
 $253
 $401
 $1,937
 $0
 $4,394
Insurance receivables1,015
 1,267
 269
 7
 1
 0
 2,559
Deferred acquisition costs324
 285
 88
 0
 0
 0
 697
Goodwill117
 0
 29
 0
 0
 0
 146
Deferred non-insurance warranty acquisition expense2,998
 0
 0
 0
 0
 0
 2,998
Insurance reserves             
Claim and claim adjustment expenses5,698
 9,054
 1,975
 3,766
 2,041
 0
 22,534
Unearned premiums2,550
 1,847
 502
 121
 0
 0
 5,020
Future policy benefits0
 0
 0
 12,978
 0
 0
 12,978
Deferred non-insurance warranty revenue3,951
 0
 0
 0
 0
 0
 3,951

Three months ended March 31, 2019

Specialty
 

Commercial
 International 
Life &
Group
 
Corporate
& Other
    
Nine months ended September 30, 2019

Specialty
 

Commercial
 International 
Life &
Group
 
Corporate
& Other
    
(In millions)

Specialty
 

Commercial
 International 
Life &
Group
 
Corporate
& Other
 Eliminations Total Eliminations Total
Operating revenues    
             
Net earned premiums$661
 $763
 $250
 $130
 $
 $(1) $1,803
$2,061
 $2,339
 $729
 $390
 $0
 $(2) $5,517
Net investment income155
 190
 15
 204
 7
 
 571
410
 480
 47
 616
 20
 0
 1,573
Non-insurance warranty revenue281
 
 
 
 
 
 281
858
 0
 0
 0
 0
 0
 858
Other revenues1
 7
 
 1
 2
 (2) 9
1
 20
 0
 0
 5
 (4) 22
Total operating revenues1,098
 960
 265
 335
 9
 (3) 2,664
3,330
 2,839
 776
 1,006
 25
 (6) 7,970
Claims, benefits and expenses 
      
    
  
 
      
    
  
Net incurred claims and benefits392
 510
 162
 308
 (21) 
 1,351
1,198
 1,581
 472
 1,093
 (40) 0
 4,304
Policyholders’ dividends1
 5
 
 
 
 
 6
4
 15
 0
 0
 0
 0
 19
Amortization of deferred acquisition costs147
 127
 68
 
 
 
 342
454
 391
 180
 0
 0
 0
 1,025
Non-insurance warranty expense260
 
 
 
 
 
 260
801
 0
 0
 0
 0
 0
 801
Other insurance related expenses70
 130
 25
 28
 (1) (1) 251
217
 372
 94
 87
 (2) (2) 766
Other expenses12
 11
 4
 2
 39
 (2) 66
37
 27
 14
 5
 108
 (4) 187
Total claims, benefits and expenses882
 783
 259
 338
 17
 (3) 2,276
2,711
 2,386
 760
 1,185
 66
 (6) 7,102
Core income (loss) before income tax216
 177
 6
 (3) (8) 
 388
619
 453
 16
 (179) (41) 0
 868
Income tax (expense) benefit on core income (loss)(47) (38) 
 13
 2
 
 (70)(136) (97) (2) 74
 7
 0
 (154)
Core income (loss)$169
 $139
 $6
 $10
 $(6) $
 318
$483
 $356
 $14
 $(105) $(34) $0
 714
Net investment gains (losses)            31
            20
Income tax (expense) benefit on net investment gains (losses)            (7)            (7)
Net investment gains (losses), after tax            24
            13
Net income (loss)            $342
            $727

December 31, 2019                          
(In millions)                          
Reinsurance receivables$575
 $855
 $247
 $385
 $2,142
 $
 $4,204
$575
 $855
 $247
 $385
 $2,142
 $0
 $4,204
Insurance receivables971
 1,210
 284
 16
 
 
 2,481
971
 1,210
 284
 16
 0
 0
 2,481
Deferred acquisition costs311
 257
 94
 
 
 
 662
311
 257
 94
 0
 0
 0
 662
Goodwill117
 
 30
 
 
 
 147
117
 0
 30
 0
 0
 0
 147
Deferred non-insurance warranty acquisition expense2,840
 
 
 
 
 
 2,840
2,840
 0
 0
 0
 0
 0
 2,840
Insurance reserves             
             
Claim and claim adjustment expenses5,238
 8,656
 1,876
 3,716
 2,234
 
 21,720
5,238
 8,656
 1,876
 3,716
 2,234
 0
 21,720
Unearned premiums2,337
 1,626
 495
 125
 
 
 4,583
2,337
 1,626
 495
 125
 0
 0
 4,583
Future policy benefits
 
 
 12,311
 
 
 12,311
0
 0
 0
 12,311
 0
 0
 12,311
Deferred non-insurance warranty revenue3,779
 
 
 
 
 
 3,779
3,779
 0
 0
 0
 0
 0
 3,779



The following table presents operating revenue by line of business for each reportable segment.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Specialty          
Management & Professional Liability$568
 $636
$668
 $638
 $1,881
 $1,903
Surety138
 139
153
 156
 444
 446
Warranty & Alternative Risks337
 323
356
 332
 1,041
 981
Specialty revenues1,043
 1,098
1,177
 1,126
 3,366
 3,330
Commercial  

      

Middle Market335
 357
381
 357
 1,071
 1,065
Construction (1)
250
 248
298
 265
 823
 754
Small Business112
 131
126
 124
 352
 377
Other Commercial175
 224
223
 213
 631
 643
Commercial revenues872
 960
1,028
 959
 2,877
 2,839
International

 

    

 

Canada73
 66
73
 70
 214
 204
Europe92
 91
96
 91
 282
 270
Hardy89
 108
82
 91
 247
 302
International revenues254
 265
251
 252
 743
 776
Life & Group revenues335
 335
335
 336
 1,002
 1,006
Corporate & Other revenues5
 9
3
 7
 13
 25
Eliminations(2) (3)(1) (2) (4) (6)
Total operating revenues2,507
 2,664
2,793
 2,678
 7,997
 7,970
Net investment gains (losses)(216) 31
27
 7
 (120) 20
Total revenues$2,291
 $2,695
$2,820
 $2,685
 $7,877
 $7,990

(1)Effective January 1, 2020, the Construction line of business is presented separately in the Commercial segment to better align with ourthe Company's underwriting expertise and the manner in which the products are sold. Prior period information has been conformed to the new line of business presentation.

Note J. Non-Insurance Revenues from Contracts with Customers
The Company had $3.8reported $4.0 billion reported inof Deferred non-insurance warranty revenue as of March 31,September 30, 2020 and $3.8 billion as of December 31, 2019. For the three and nine months ended March 31,September 30, 2020, the Company recognized $286$262 million and $826 million of revenues that were included in the deferred revenue balance as of January 1, 2020. For the three and nine months ended March 31,September 30, 2019, the Company recognized $265$236 million and $747 million of revenues that were included in the deferred revenue balance as of January 1, 2019. For the three and nine months ended March 31,September 30, 2020 and 2019, Non-insurance warranty revenue recognized from performance obligations related to prior periods due to a change in estimate was not material. The Company expects to recognize approximately $831 million$0.3 billion of the deferred revenue in the remainder of 2020, $951 million$1.1 billion in 2021, $735 million$0.9 billion in 2022 and $1.3$1.7 billion thereafter.

Note K. Expected Credit Losses - Uncollectible Reinsurance and Insurance Receivables
The Company has established an allowance for uncollectible reinsurance receivables which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. For assessing expected credit losses, the Company separates reinsurance receivables into two pools;pools: voluntary reinsurance receivables and involuntary reinsurance exposures to mandatory pools. The Company has not recorded an allowance for involuntary pools as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on voluntary reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. If the reinsurer is unrated, an internal financial strength rating is assigned based on the Company’s historical loss experience and the Company’s assessment of reinsurance counterparty risk profile, which generally corresponds with a B rating. Changes in the allowance are presented as a component of Insurance claims and policyholders' benefits on the Condensed Consolidated Statements of Operations.
The following table summarizes the outstanding amount of voluntary reinsurance receivables, gross of any collateral arrangements, by financial strength rating as of March 31, 2020:rating.
(In millions)March 31, 2020September 30, 2020
A- to A++$2,662
$2,729
B- to B++859
874
Insolvent4
4
Total voluntary reinsurance outstanding balance(1)
$3,525
$3,607
(1)Expected credit losses for legacy A&EP receivables are ceded to NICO and the reinsurance limit on the LPT has not been exhausted, therefore no allowance is recorded for these receivables and they are excluded from the table above. Refer to Note E for information regarding the LPT. The Company has also excluded receivables from involuntary pools.
Voluntary reinsurance receivables within the B- to B++ rating distribution are primarily due from captive reinsurers and backed by collateral arrangements.
The Company has established an allowance for uncollectible insurance receivables. A loss rate methodology is used to determine expected credit losses for premium receivables. This methodology uses the Company’s historical annual credit losses relative to gross premium written to develop a range of credit loss rates for each dollar of gross written premium underwritten. The expected credit loss for loss sensitive business in good standing is calculated on a pool basis, using historical default rate data obtained from major rating agencies. Changes in the allowance are presented as a component of Other operating expenses on the Condensed Consolidated Statements of Operations.

Item 2. Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
OVERVIEW
The following discussion highlights significant factors affecting the Company. References to “we,” “our,” “us” or like terms refer to the business of CNA.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q, as well as the supplemental risk factor regarding the COVID-19 pandemic disclosed under Part II, Item 1A of this Form 10-Q. The following discussion should also be read in conjunction with Item 1A Risk Factors and Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2019.
We utilize the core income (loss) financial measure to monitor our operations. Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of net investment gains or losses and any cumulative effects of changes in accounting guidance. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not necessarily reflective of our primary operations. Management monitors core income (loss) for each business segment to assess segment performance. Presentation of consolidated core income (loss) is deemed to be a non-GAAP financial measure. See further discussion regarding how we manage our business in Note I to the Condensed Consolidated Financial Statements included under Part I, Item 1. For reconciliations of non-GAAP measures to the most comparable GAAP measures and other information, please refer herein and/or to CNA's most recent Annual Report on Form 10-K on file with the Securities and Exchange Commission.
In evaluating the results of our Specialty, Commercial and International segments, we utilize the loss ratio, the loss ratio excluding catastrophes and development, the expense ratio, the dividend ratio, the combined ratio and the combined ratio.ratio excluding catastrophes and development. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The loss ratio excluding catastrophes and development excludes net catastrophes losses and changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years from the loss ratio. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. The combined ratio excluding catastrophes and development is the sum of the loss ratio excluding catastrophes and development, the expense ratio and the dividend ratio. In addition we also utilize renewal premium change, rate, retention and new business in evaluating operating trends. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. Rate represents the average change in price on policies that renew excluding exposure change. For certain products within Small Business, where quantifiable, rate includes the influence of new business as well. Exposure represents the measure of risk used in the pricing of the insurance product. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. Renewal premium change, rate and retention presented for the prior year are updated to reflect subsequent activity on policies written in the period. New business represents premiums from policies written with new customers and additional policies written with existing customers. Gross written premiums, excluding third party captives, excludes business which is mostly ceded to third party captives, including business related to large warranty programs.
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 within this MD&A. These changes can be favorable or unfavorable. Net prior year loss reserve development does not include the effect of any related acquisition expenses. Further information on our reserves is provided in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

CRITICAL ACCOUNTING ESTIMATES
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the amount of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Condensed Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. We continually evaluate the accounting policies and estimates used to prepare the Condensed Consolidated Financial Statements. In general, our estimates are based on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.
The accounting estimates discussed below are considered by us to be critical to an understanding of our Condensed Consolidated Financial Statements as their application places the most significant demands on our judgment:
Insurance Reserves
Long Term Care Reserves
Reinsurance and Insurance Receivables
Valuation of Investments and Impairment of Securities
Income Taxes
Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from our estimates and may have a material adverse impact on our results of operations, equity, business, and insurer financial strength and corporate debt ratings. See the Critical Accounting Estimates section of our Management's Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019 for further information.

CONSOLIDATED OPERATIONS
Results of Operations
In March 2020, the World Health Organization declared COVID-19 to be a pandemic. The COVID-19 pandemic, andtogether with global, national, regional and local efforts to mitigate the spread of the virus, have rapidly evolved and led to severely depressed economic conditions and financial market disruption, primarily beginning in the month of March. Thesedisruption. While these conditions have had ana significant impact across our enterprise during 2020, COVID-19 impacts to our results for the three months ended September 30, 2020 were more limited. During the first quarter of 2020. While the impact to our underwriting results was limited,2020 we experienced significant declines in the value of our investment portfolio, and during the first quarter. Currently,second quarter of 2020 we believerecorded significant underwriting losses. While financial markets have broadly recovered during the future impact acrosssecond and third quarters of 2020, our operations is likely to be reflectedNet investment income and Net investment gains (losses) are lower for the nine months ended September 30, 2020 as compared with the same period in continued volatility in our investment portfolio, and adverse effects on our underwriting results including decreased premiums, elevated expenses in the form of credit losses for uncollectible receivables, and increased claims reporting activity and related litigation, due to both the pandemic and depressed economic conditions. 2019.
For morea further discussion of COVID-19 impacts on our underwriting results and detailed components of our business operations and a discussion of the core income (loss) financial measure, see the segment sectionsExpected impact of COVID-19 on underwriting results within this MD&A. For further discussion of Net investment income and Net investment gains or losses, see the InvestmentsSegment Results section of this MD&A. For a further discussion of the risks to our business associated with COVID-19, see the Risk Factor included under Part II, Item 1A of this Form 10-Q.
For more detailed components of our business operations and a discussion of the core income (loss) financial measure, see the Segment Results section within this MD&A. For further discussion of Net investment income and Net investment gains or losses, see the Investments section of this MD&A.
The following table includes the consolidated results of our operations including our financial measure, core income (loss).
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Operating Revenues          
Net earned premiums$1,869
 $1,803
$1,953
 $1,890
 $5,672
 $5,517
Net investment income329
 571
517
 487
 1,380
 1,573
Non-insurance warranty revenue301
 281
317
 292
 926
 858
Other revenues8
 9
6
 9
 19
 22
Total operating revenues2,507
 2,664
2,793
 2,678
 7,997
 7,970
Claims, Benefits and Expenses          
Net incurred claims and benefits1,419
 1,351
1,611
 1,607
 4,666
 4,304
Policyholders' dividends6
 6
5
 7
 17
 19
Amortization of deferred acquisition costs344
 342
360
 345
 1,046
 1,025
Non-insurance warranty expense281
 260
293
 278
 859
 801
Other insurance related expenses258
 251
251
 257
 769
 766
Other expenses72
 66
50
 64
 177
 187
Total claims, benefits and expenses2,380
 2,276
2,570
 2,558
 7,534
 7,102
Core income before income tax127
 388
223
 120
 463
 868
Income tax expense on core income(19) (70)(30) (18) (63) (154)
Core income108

318
193
 102
 400

714
Net investment (losses) gains(216) 31
Income tax benefit (expense) on net investment (losses) gains47
 (7)
Net investment (losses) gains, after tax(169) 24
Net (loss) income$(61) $342
Net investment gains (losses)27
 7
 (120) 20
Income tax (expense) benefit on net investment gains (losses)(7) (2) 23
 (7)
Net investment gains (losses), after tax20
 5
 (97) 13
Net income$213
 $107
 $303
 $727



Three Month Comparison
Core income decreased $210increased $91 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019. Core income for our Property & Casualty Operations increased $6 million primarily due to improved non-catastrophe current accident year underwriting results, higher net investment income driven by limited partnership and common stock returns and favorable net prior year loss reserve development in the current year period. These results were largely offset by higher net catastrophe losses. Core loss for our Life & Group segment improved $87 million. Results for the three months ended September 30, 2020 include a $59 million charge related to recognition of a premium deficiency as a result of the third quarter 2020 gross premium valuation (GPV) compared to a $170 million charge related to recognition of a premium deficiency as a result of the third quarter 2019 GPV. Core loss for our Corporate & Other segment increased $2 million.
Net catastrophe losses were $160 million and $32 million for the three months ended September 30, 2020 and 2019. Net catastrophe losses for the three months ended September 30, 2020 were driven by severe weather related events, primarily Hurricanes Laura, Isaias and Sally, and the Midwest derecho.
Favorable net prior year loss reserve development of $15 million was recorded for the three months ended September 30, 2020 as compared with unfavorable net prior year loss reserve development of $16 million for the three months ended September 30, 2019 related to our Specialty, Commercial, International and Corporate & Other segments. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Nine Month Comparison
Core income decreased $314 million for the nine months ended September 30, 2020 as compared with the same period in 2019. Core income for our Property & Casualty Operations decreased $192$388 million primarily due to higher net catastrophe losses and lower net investment income driven by limited partnership and common stock returns. Our underwriting results for the three months ended March 31, 2020 included a $15 million pretax ($12 million after-tax)Core loss related to COVID-19 comprised of claims activity included in catastrophe losses and an increase in our allowance for uncollectible insurance receivables. Core income for our Life & Group segment decreased $6improved $88 million. Results for the nine months ended September 30, 2020 include a $59 million whilecharge related to recognition of a premium deficiency as a result of the corethird quarter 2020 GPV compared to a $170 million charge related to recognition of a premium deficiency as a result of the third quarter 2019 GPV. Core loss for our Corporate & Other segment increased $12$14 million.
Net catastrophe losses were $75$536 million and $58$128 million for the threenine months ended March 31,September 30, 2020 and 2019. Catastrophe losses for the threenine months ended March 31,September 30, 2020 include $13$273 million related primarily to severe weather related events, $195 million related to COVID-19 and $68 million related to civil unrest. The COVID-19 losses, which is being trackedwere recognized in the first half of 2020, followed a detailed review and analysis of existing and potential exposures in light of current information, and represent the Company's best estimate of its ultimate insurance losses and loss adjustment expenses, including defense costs resulting from the pandemic and the consequent economic crisis. The losses were substantially driven by healthcare professional liability with additional impacts from workers' compensation, management liability, commercial property, trade credit and surety. Due to the timing and fluidity of the events, emergence pattern of claims and long tail nature of certain exposures the losses are substantially classified as incurred but not reported (IBNR) reserves. The COVID-19 catastrophe losses do not include the benefits of lower current accident year losses associated with lower loss frequency in certain lines of business as a separate catastrophe event. result of shelter in place restrictions. Those benefits are modest and are partially offset by the impact of a reduction in our estimated audit premiums and an increase in our credit allowance for premiums receivables resulting from the depressed economic conditions.
Favorable net prior year loss reserve development of $15$8 million and $14$29 million was recorded infor the threenine months ended March 31,September 30, 2020 and 2019 related to our Specialty, Commercial, International and Corporate & Other segments. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.


SEGMENT RESULTS
TheExpected impact of COVID-19 had on our insuranceProperty & Casualty underwriting results
Our underwriting results was more limitedfor the first nine months of 2020 were negatively impacted by COVID-19 and the related depressed economic conditions. In many geographic locations, the virus continues to spread. Accordingly, it remains the case that months past the initial identification of the threat, all of the direct and indirect consequences and implications of COVID-19 are not yet known and may not emerge for some time. Until the virus is brought under control, the timing of any economic recovery remains uncertain. As a result, the impact to our results in the first quarter of 2020 than we anticipate occurring in the second and thirdthree quarters of 2020 and possibly thereafter, asmay not be indicative of its impacts for the situation continues to evolve. Currently, we believe the future impact on our underwriting results is likely to include declines in premium volume, driven by slower growth, especially for linesremainder of business that are sensitive to rates of economic growth, as well as policy cancellations, refunds2020 or return of premiums, as a result of decreased insured exposures for our current policyholders. In addition, many of our customers, across a broad spectrum of industries, are likely to be impacted by lost business, which may affect our ability to collect amounts owed to us, increasing our expenses for credit losses for uncollectible premiums. Lower premiums and higher expenses will result in an increase to our expense ratio. Further, while loss frequency may decrease related to lower exposures in certain lines, we expect an overall increase in insurance claims reporting activity and related litigation due to both the pandemic and depressed economic conditions. This includes increased frequency in claim submissions in lines that are implicated by the virus and the mitigating activities taken by our customers and governmental authorities in response to its spread. These include workers’ compensation, healthcare, commercial property coverage, and directors’ and officers’ liability and employment practices liability lines. In addition, our surety lines may experience increased losses, particularly in construction surety, where there is risk that contractors will be adversely impacted by general economic conditions. The costs associated with claims handling and defense, as well as the payment of claims for covered exposures, will likely increase our loss ratio.thereafter. For further discussion of the risks to our business associated with COVID-19 and measures to mitigate the spread of the virus, see the Investments and Liquidity and Capital Resources sections of this MD&A and the Risk Factor included under Part II, Item 1A of this Form 10-Q.
We experienced year-over-year growth in gross and net written premiums, excluding third party captives, driven by rate increases across property and casualty lines of business. However, depressed economic conditions generally have had an unfavorable impact on premium exposures, resulting in a decrease in our estimated audit premiums during the second quarter of 2020 and causing an unfavorable impact on our net earned premiums. Additionally, in the second quarter of 2020 we renewed multiple property and casualty reinsurance treaties at higher costs as well as purchased additional coverage, which had an unfavorable impact on net written premiums and will have an unfavorable impact on our net earned premiums in future quarters. Lower net earned premiums have had and may continue to have an unfavorable impact on our expense ratio. Our expense ratio has also been unfavorably impacted by increases in our allowance for uncollectible insurance receivables, more than offset by lower travel-related expenses. If general economic conditions do not improve in the remainder of 2020 or thereafter, our net written premiums, net earned premiums and our expense ratio may continue to be unfavorably impacted as a result.
While our losses incurred during the first nine months of 2020 related to COVID-19 represent our best estimate of ultimate insurance losses resulting from events occurring in the first nine months of 2020 due to the pandemic and the consequent economic crisis, given the unprecedented nature of this event, a high level of uncertainty exists as to the potential impact on insurance losses from these events or other events that might occur for the remainder of the year and thereafter. The scope, duration and magnitude of the direct and indirect effects could continue to evolve through the remainder of 2020, and possibly thereafter, and could materially impact our ultimate loss estimate, including in lines of business where losses have already been incurred as well as the potential for impacts in other lines unknown at this time. Continued spread of the virus, as well as new or extended shelter in place restrictions and business closures, could cause us to experience additional COVID-19 related catastrophe losses in future quarters.
We have also experienced modest benefits in certain lines of business as a result of lower loss frequency from shelter in place restrictions. Those benefits only apply to a portion of our portfolio, as our larger portfolios, including healthcare, construction and property coverages, have seen limited benefit. In addition, the impact from lower frequency is mostly offset by higher severity in certain areas of the portfolio.
The following discusses the results of operations for our business segments during the first quarter of 2020.segments. Our property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International, which we refer to collectively as Property & Casualty Operations. Our operations outside of Property & Casualty Operations are managed and reported in two segments: Life & Group and Corporate & Other.


Specialty
The following table details the results of operations for Specialty.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions, except ratios, rate, renewal premium change and retention)2020 20192020 2019 2020 2019
Gross written premiums$1,714
 $1,701
$1,855
 $1,766
 $5,331
 $5,191
Gross written premiums excluding third party captives741
 730
861
 778
 2,413
 2,263
Net written premiums694
 698
795
 732
 2,231
 2,143
Net earned premiums685
 661
734
 712
 2,124
 2,061
Net investment income56
 155
126
 121
 315
 410
Core income96
 169
168
 153
 354
 483
          
Other performance metrics:          
Loss and loss adjustment expense ratio59.1% 59.3%
Loss ratio excluding catastrophes and development60.0 % 60.1 % 59.8 % 60.2 %
Effect of catastrophe impacts1.0
 0.5
 5.7
 0.8
Effect of development-related items(2.0) (2.8) (2.1) (2.9)
Loss ratio59.0 % 57.8 % 63.4 % 58.1 %
Expense ratio32.0
 32.8
30.5
 31.8
 31.5
 32.6
Dividend ratio0.2
 0.2

 0.2
 0.1
 0.2
Combined ratio91.3% 92.3%89.5 % 89.8 % 95.0 % 90.9 %
Combined ratio excluding catastrophes and development90.5 % 92.1 % 91.4 % 93.0 %
          
Rate9% 3%13 % 6 % 11 % 4 %
Renewal premium change9
 6
12
 9
 11
 7
Retention84
 89
86
 87
 85
 88
New business$74
 $86
$104
 $91
 $275
 $274
Three Month Comparison
Gross written premiums, excluding third party captives, for Specialty increased $11$83 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019 driven by strong rate.rate and higher new business. Net written premiums for Specialty decreased $4increased $63 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019 driven by a higher level of ceded reinsurance.2019. The increase in net earned premiums was consistent with the trend in net written premiums in recent quarters.
Core income decreased $73increased $15 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019 primarily due to lower net investment income driven by limited partnership and common stock returns partially offset by improved non-catastrophe current accident year underwriting results.
The combined ratio of 91.3%89.5% improved 1.0 point0.3 points for the three months ended March 31,September 30, 2020 as compared with the same period in 2019.2019 primarily due to a 1.3 point improvement in the expense ratio largely offset by a 1.2 point increase in the loss ratio. The expense ratio improvement was driven by lower underwriting expenses and higher net earned premiums. The increase in the loss ratio improved 0.2 pointswas driven by improved current accident year underwriting results largely offset by lower favorable net prior year loss reserve development in the current period.and higher net catastrophe losses. Net catastrophe losses were $8$7 million, or 1.11.0 point of the loss ratio, for the three months ended September 30, 2020, as compared with $3 million, or 0.5 points of the loss ratio, for the three months ended March 31, 2020, as compared with $12 million, or 1.8 points of the loss ratio, for the three months ended March 31,September 30, 2019. Net catastrophe losses for the three months ended March 31,September 30, 2020 included $6 million related primarily to the COVID-19 pandemic. The expense ratio improved 0.8 points for the three months ended March 31, 2020 as compared with the same period in 2019 driven by higher net earned premiums.severe weather related events.
Favorable net prior year loss reserve development of $11$16 million and $20 million was recorded for the three months ended March 31,September 30, 2020 and 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

Nine Month Comparison
Gross written premiums, excluding third party captives, for Specialty increased $150 million for the nine months ended September 30, 2020 as compared with the same period in 2019 driven by strong rate. Net written premiums for Specialty increased $88 million for the nine months ended September 30, 2020 as compared with the same period in 2019. The increase in net earned premiums was consistent with the trend in net written premiums in recent quarters.
Core income decreased $129 million for the nine months ended September 30, 2020 as compared with the same period in 2019 primarily due to higher net catastrophe losses and lower net investment income driven by limited partnership and common stock returns.
The combined ratio of 95.0% increased 4.1 points for the nine months ended September 30, 2020 as compared with the same period in 2019 primarily due to a 5.3 point increase in the loss ratio partially offset by a 1.1 point improvement in the expense ratio. The increase in the loss ratio was primarily due to higher net catastrophe losses. Net catastrophe losses were $120 million, or 5.7 points of the loss ratio, for the nine months ended September 30, 2020, as compared with $16 million, or 0.8 points of the loss ratio, for the nine months ended September 30, 2019. Net catastrophe losses for the nine months ended September 30, 2020 included $109 million related to the COVID-19 pandemic and $11 million related primarily to severe weather related events. The improvement in the expense ratio was driven by lower underwriting expenses and higher net earned premiums.
Favorable net prior year loss reserve development of $47 million and $58 million was recorded for the nine months ended September 30, 2020 and 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for Specialty.
(In millions)March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019
Gross case reserves$1,527
 $1,481
$1,580
 $1,481
Gross IBNR reserves3,945
 3,757
4,118
 3,757
Total gross carried claim and claim adjustment expense reserves$5,472
 $5,238
$5,698
 $5,238
Net case reserves$1,385
 $1,343
$1,412
 $1,343
Net IBNR reserves3,310
 3,333
3,464
 3,333
Total net carried claim and claim adjustment expense reserves$4,695
 $4,676
$4,876
 $4,676

Commercial
The following table details the results of operations for Commercial.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions, except ratios, rate, renewal premium change and retention)2020 20192020 2019 2020 2019
Gross written premiums$1,062
 $941
$915
 $860
 $3,103
 $2,825
Gross written premiums excluding third party captives1,059
 932
915
 852
 3,018
 2,742
Net written premiums950
 849
804
 775
 2,703
 2,536
Net earned premiums818
 763
857
 813
 2,470
 2,339
Net investment income47
 190
165
 136
 389
 480
Core income24
 139
52
 97
 96
 356
          
Other performance metrics:          
Loss and loss adjustment expense ratio68.1% 66.9%
Loss ratio excluding catastrophes and development61.0% 61.5% 60.4% 61.8%
Effect of catastrophe impacts17.0
 3.0
 14.3
 4.3
Effect of development-related items0.6
 4.8
 2.1
 1.5
Loss ratio78.6% 69.3% 76.8% 67.6%
Expense ratio33.2
 33.8
32.3
 31.7
 33.2
 32.7
Dividend ratio0.6
 0.6
0.6
 0.6
 0.6
 0.6
Combined ratio101.9% 101.3%111.5% 101.6% 110.6% 100.9%
Combined ratio excluding catastrophes and development93.9% 93.8% 94.2% 95.1%
          
Rate8% 2%11% 4% 9% 3%
Renewal premium change9
 4
8
 5
 8
 5
Retention85
 85
81
 86
 84
 86
New business$198
 $163
$168
 $173
 $564
 $522
Three Month Comparison
Gross written premiums for Commercial increased $121$55 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019 driven by higher new business andstrong rate. Net written premiums for Commercial increased $101$29 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019. The increase in net earned premiumpremiums was consistent with the trend in net written premiums.premiums in recent quarters.
Core income decreased $115$45 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019 primarily due to lowerdriven by higher net catastrophe losses partially offset by less unfavorable net prior year loss reserve development in the current year period and higher net investment income driven by limited partnership and common stock returns.
The combined ratio of 101.9%111.5% increased 0.69.9 points for the three months ended March 31,September 30, 2020 as compared with the same period in 2019 due to a 9.3 point increase in the loss ratio and a 0.6 point increase in the expense ratio. The increase in the loss ratio was driven by higher net catastrophe losses partially offset by less unfavorable net prior year loss reserve development in the current year period. Net catastrophe losses were $146 million, or 17.0 points of the loss ratio, for the three months ended September 30, 2020, as compared with $25 million, or 3.0 points of the loss ratio, for the three months ended September 30, 2019. Net catastrophe losses for the three months ended September 30, 2020 related primarily to severe weather related events. The increase in the expense ratio was driven by higher acquisition expenses partially offset by higher net earned premiums.
Unfavorable net prior year loss reserve development of $1 million and $35 million was recorded for the three months ended September 30, 2020 and 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.




Nine Month Comparison
Gross written premiums for Commercial increased $278 million for the nine months ended September 30, 2020 as compared with the same period in 2019 driven by strong rate and higher new business. Net written premiums for Commercial increased $167 million for the nine months ended September 30, 2020 as compared with the same period in 2019. The loss ratio increased 1.2 points driven by higherincrease in net catastrophe lossesearned premiums was consistent with the trend in net written premiums in recent quarters partially offset by lower claim handling expenses. Net catastrophe losses were $57 million, or 7.0 pointsa reduction in estimated audit premiums as a result of the loss ratio,economic slowdown arising from COVID-19.
Core income decreased $260 million for the threenine months ended March 31,September 30, 2020 as compared with $40 million, or 5.2 points of the loss ratio, for the three months ended March 31, 2019. Net catastrophe losses for three months ended March 31, 2020 included $5 million related to the COVID-19 pandemic. The expense ratio for the three months ended March 31, 2020 improved 0.6 point as compared with the same period in 2019 primarily due to higher net catastrophe losses, lower net investment income driven by limited partnership and common stock returns and unfavorable net prior year loss reserve development in the current year period, including a $50 million charge for mass tort exposures primarily due to New York reviver statute-related claims.
The combined ratio of 110.6% increased 9.7 points for the nine months ended September 30, 2020 as compared with the same period in 2019 due to a 9.2 point increase in the loss ratio and a 0.5 point increase in the expense ratio. The increase in the loss ratio was driven by higher net catastrophe losses. Net catastrophe losses were $354 million, or 14.3 points of the loss ratio, for the nine months ended September 30, 2020, as compared with $102 million, or 4.3 points of the loss ratio, for the nine months ended September 30, 2019. Net catastrophe losses for the nine months ended September 30, 2020 included $240 million related primarily to severe weather related events, $66 million related to civil unrest and $48 million related to the COVID-19 pandemic. The increase in the expense ratio was driven by higher acquisition expenses partially offset by higher net earned premiums.
FavorableUnfavorable net prior year loss reserve development of $4$42 million and $8$15 million was recorded for the threenine months ended March 31,September 30, 2020 and 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for Commercial.
(In millions)March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019
Gross case reserves$3,914
 $3,937
$3,776
 $3,937
Gross IBNR reserves4,790
 4,719
5,278
 4,719
Total gross carried claim and claim adjustment expense reserves$8,704
 $8,656
$9,054
 $8,656
Net case reserves$3,477
 $3,543
$3,378
 $3,543
Net IBNR reserves4,414
 4,306
4,819
 4,306
Total net carried claim and claim adjustment expense reserves$7,891
 $7,849
$8,197
 $7,849

International
The following table details the results of operations for International.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions, except ratios, rate, renewal premium change and retention)2020 20192020 2019 2020 2019
Gross written premiums$307
 $324
$238
 $226
 $822
 $837
Net written premiums219
 259
222
 201
 680
 709
Net earned premiums239
 250
236
 236
 699
 729
Net investment income15
 15
15
 17
 44
 47
Core income2
 6
Core income (loss)27
 (9) 15
 14
          
Other performance metrics:          
Loss and loss adjustment expense ratio64.5% 64.8%
Loss ratio excluding catastrophes and development60.1% 67.3% 60.1 % 61.4%
Effect of catastrophe impacts3.0
 1.7
 8.9
 1.4
Effect of development-related items0.1
 0.4
 (0.4) 1.9
Loss ratio63.2% 69.4% 68.6 % 64.7%
Expense ratio35.4
 37.1
34.9
 38.0
 35.6
 37.5
Combined ratio99.9% 101.9%98.1% 107.4% 104.2 % 102.2%
Combined ratio excluding catastrophes and development95.0% 105.3% 95.7 % 98.9%
          
Rate8% 5%16% 10% 12 % 7%
Renewal premium change8
 2
14
 6
 11
 5
Retention72
 69
70
 74
 71
 70
New business$68
 $80
$58
 $52
 $187
 $207
Three Month Comparison
Gross written premiums for International decreased $17increased $12 million for the three months ended March 31,September 30, 2020 as compared with the same period in 20192019. Excluding the effect of foreign currency exchange rates, gross written premiums increased $9 million driven by growth in Europe and Canada partially offset by the continued impact of the strategic exit from certain Lloyd’s business classes, offset by growth in Canada.classes. Net written premiums decreased $40increased $21 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019. The decrease in net earned premiums was consistent withExcluding the trend ineffect of foreign currency exchange rates, net written premiums.
Core income decreased $4premiums increased $18 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019. Net earned premiums were consistent with the same period in 2019.
Core results improved $36 million for the three months ended September 30, 2020 as compared with the same period in 2019 driven byprimarily due to improved non-catastrophe current accident year underwriting results.
The combined ratio of 99.9%98.1% improved 2.09.3 points for the three months ended March 31,September 30, 2020 as compared with the same period in 2019. The2019 due to a 6.2 point improvement in the loss ratio improved 0.3 points driven by the absence of unfavorable net prior year loss reserve developmentand a 3.1 point improvement in the current period partially offset by lowerexpense ratio. The improvement in the loss ratio was primarily due to improved non-catastrophe current accident year underwriting results.results driven by lower large losses partially offset by higher net catastrophe losses. Net catastrophe losses were $10$7 million, or 4.33.0 points of the loss ratio, for the three months ended March 31,September 30, 2020, as compared with $6$4 million, or 2.31.7 points of the loss ratio, for the three months ended March 31,September 30, 2019. Net catastrophe losses for the three months ended March 31,September 30, 2020 included $2 million related primarily to severe weather related events. The improvement in the COVID-19 pandemic. The expense ratio improved 1.7 points for the three months ended March 31, 2020 as compared with the same period in 2019was driven by lower acquisition expenses and employee costs.underwriting expenses.
There was no prior year loss reserve development recorded for the three months ended March 31,September 30, 2020 as compared with unfavorable development of $14$1 million for the three months ended March 31,September 30, 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

Nine Month Comparison
Gross written premiums for International decreased $15 million for the nine months ended September 30, 2020 as compared with the same period in 2019. Excluding the effect of foreign currency exchange rates, gross written premiums decreased $10 million driven by the continued impact of the strategic exit from certain Lloyd’s business classes partially offset by growth in Canada and Europe. Net written premiums decreased $29 million for the nine months ended September 30, 2020 as compared with the same period in 2019. Excluding the effect of foreign currency exchange rates, net written premiums decreased $24 million for the nine months ended September 30, 2020 as compared with the same period in 2019. The decrease in net earned premiums was consistent with the trend in net written premiums in recent quarters.
Core income for the nine months ended September 30, 2020 was generally consistent with the same period in 2019.
The combined ratio of 104.2% increased 2.0 points for the nine months ended September 30, 2020 as compared with the same period in 2019 due to a 3.9 point increase in the loss ratio partially offset by a 1.9 point improvement in the expense ratio. The increase in the loss ratio was driven by higher net catastrophe losses partially offset by favorable net prior year loss reserve development in the current year period. Net catastrophe losses were $62 million, or 8.9 points of the loss ratio, for the nine months ended September 30, 2020, as compared with $10 million, or 1.4 points of the loss ratio, for the nine months ended September 30, 2019. Net catastrophe losses for the nine months ended September 30, 2020 included $38 million related to the COVID-19 pandemic and $24 million related primarily to severe weather related events. The improvement in the expense ratio was driven by lower acquisition and underwriting expenses.
Favorable net prior year loss reserve development of $3 million was recorded for the nine months ended September 30, 2020 as compared with unfavorable development of $14 million for the nine months ended September 30, 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for International.
(In millions)March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019
Gross case reserves$807
 $858
$821
 $858
Gross IBNR reserves1,011
 1,018
1,154
 1,018
Total gross carried claim and claim adjustment expense reserves$1,818
 $1,876
$1,975
 $1,876
Net case reserves$719
 $759
$718
 $759
Net IBNR reserves864
 869
997
 869
Total net carried claim and claim adjustment expense reserves$1,583
 $1,628
$1,715
 $1,628

Life & Group
The following table summarizes the results of operations for Life & Group.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Net earned premiums$127
 $130
$127
 $130
 $380
 $390
Net investment income208
 204
208
 207
 622
 616
Core loss before income tax(10) (3)(59) (170) (66) (179)
Income tax benefit on core loss14
 13
24
 48
 49
 74
Core income4
 10
Core loss(35) (122) (17) (105)
Due to the recognition of the active life reserve premium deficiency and resetting of actuarial assumptions in the third quarter of 2019, the operating results for our long term care business in 2020 now reflect the variance between actual experience and the expected results contemplated in our best estimate reserves. Three Month Comparison
Core income of $4loss improved $87 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019. Core loss for the three months ended September 30, 2020 included a $59 million charge related to the recognition of an active life reserve premium deficiency for long term care policies primarily driven by actions taken on discount rate assumptions. The normative risk free rate (the projection of the 10-year U.S. Treasury rate in the long term) was lowered by 100 basis points to 2.75% and the time period to grade up to the normative rate was extended from 6 years to 10 years. Core loss for the three months ended September 30, 2020 also included a $36 million increase in the structured settlement claim reserves and a $30 million reduction in long term care claim reserves, both resulting from the annual claim experience studies in the third quarter of 2020. Excluding the impacts of the GPV and claim reserve reviews, core results were favorable driven by better than expected morbidity in the long term care business. During the third quarter of 2020, relative to expectations, we experienced lower new claim frequency, higher claim terminations and more favorable claim severity amid the effects of COVID-19. Given the uncertainty of these trends, we increased our IBNR reserves in anticipation of increased claim activity as the COVID-19 pandemic abates.
Core loss for the three months ended September 30, 2019 included a $170 million charge related to the recognition of an active life reserve premium deficiency partially offset by a $44 million reduction in long term care claim reserves resulting from the annual claim experience study in the third quarter of 2019.
Nine Month Comparison
Core loss improved $88 million for the nine months ended September 30, 2020 as compared with the same period in 2019. The drivers of core loss for the nine month period were generally consistent with the three month summary noted above.
Life & Group Policyholder Reserves
Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a GPV to determine if there is a premium deficiency. See Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1 for further information on the reserving process.










The September 30, 2020 GPV indicated a premium deficiency of $74 million and future policy benefit reserves were increased accordingly. As a result, the long term care active life reserves carried as of September 30, 2020 represent management's best estimate assumptions at that date with no margin for adverse deviation. A summary of the changes in linethe GPV results is presented in the table below:
Long Term Care Active Life Reserve - Change in estimated reserve margin (In millions) 
September 30, 2019 Estimated Margin$
Changes in underlying discount rate assumptions(609)
Changes in underlying morbidity assumptions51
Changes in underlying persistency assumptions152
Changes in underlying premium rate action assumptions318
Changes in underlying expense and other assumptions14
September 30, 2020 Premium Deficiency$(74)
The premium deficiency was primarily driven by changes in discount rate assumptions due to lower expected reinvestment rates, contemplating both near-term market indications and long-term normative assumptions. This unfavorable driver was significantly offset by higher than previously estimated rate increases on active rate increase programs, new planned rate increase filings and favorable changes to the underlying persistency and morbidity assumptions.
Our projections do not indicate a pattern of expected profits in earlier future years followed by expected losses in later future years. As such, we will not establish additional future policy benefit reserves for profits followed by losses in periods where the long term care business generates core income. The need for these additional future policy benefit reserves will be re-evaluated in connection with expectations.the next GPV, which is expected to be completed in the third quarter of 2021.
The table below summarizes the estimated pretax impact on our results of operations from various hypothetical revisions to our active life reserve assumptions. The annual GPV process involves updating all assumptions to management's then current best estimate, and historically all significant assumptions have been revised each year. In the Hypothetical revisions table below, we have assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy group and would occur absent any changes, mitigating or otherwise, in the other assumptions. Although such hypothetical revisions are not currently required or anticipated, we believe they could occur based on past variances in experience and our expectations of the ranges of future experience that could reasonably occur. Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized below.
September 30, 2020 
 Estimated reduction to pretax income
Hypothetical revisions (In millions)
Morbidity: 
2.5% increase in morbidity$339
5% increase in morbidity677
Persistency: 
5% decrease in active life mortality and lapse$254
10% decrease in active life mortality and lapse469
Discount Rates: 
25 basis point decline in new money interest rates$175
50 basis point decline in new money interest rates356
Premium Rate Actions: 
25% decrease in anticipated future premium rate increases$66
50% decrease in anticipated future premium rate increases132

The following table summarizes policyholder reserves for Life & Group.
September 30, 2020     
(In millions)Claim and claim adjustment expenses Future policy benefits Total
Long term care$2,866
 $9,678
 $12,544
Structured settlement annuities547
 
 547
Other12
 
 12
Total3,425
 9,678
 13,103
Shadow adjustments (1)
204
 3,035
 3,239
Ceded reserves (2)
137
 265
 402
Total gross reserves$3,766
 $12,978
 $16,744
December 31, 2019     
(In millions)Claim and claim adjustment expenses Future policy benefits Total
Long term care$2,863
 $9,470
 $12,333
Structured settlement annuities515
 
 515
Other12
 
 12
Total3,390
 9,470
 12,860
Shadow adjustments (1)
167
 2,615
 2,782
Ceded reserves (2)
159
 226
 385
Total gross reserves$3,716
 $12,311
 $16,027
(1)To the extent that unrealized gains on fixed income securities supporting long term care products and annuity contracts would result in a premium deficiency if those gains were realized, an increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).
(2)Ceded reserves relate to claim or policy reserves fully reinsured in connection with a sale or exit from the underlying business.


Corporate & Other
The following table summarizes the results of operations for the Corporate & Other segment, including intersegment eliminations.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Net investment income$3
 $7
$3
 $6
 $10
 $20
Interest expense31
 34
32
 31
 94
 99
Core loss(18) (6)(19) (17) (48) (34)
Core loss increased $12 millionThree Month Comparison
Results for the three months ended March 31,September 30, 2020 as comparedwere generally consistent with the same period in 20192019.
Nine Month Comparison
Core loss is driven by lowerinterest expense on corporate debt partially offset by amortization of the deferred gain related to the A&EP Loss Portfolio Transfer (LPT). The A&EP LPT is further discussed in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for Corporate & Other.
(In millions)March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019
Gross case reserves$1,185
 $1,137
$1,147
 $1,137
Gross IBNR reserves981
 1,097
894
 1,097
Total gross carried claim and claim adjustment expense reserves$2,166
 $2,234
$2,041
 $2,234
Net case reserves$92
 $92
$90
 $92
Net IBNR reserves78
 83
76
 83
Total net carried claim and claim adjustment expense reserves$170
 $175
$166
 $175


INVESTMENTS
The financial market disruption in the first quarter of 2020 significantly impacted our investment portfolio during the period.portfolio. Losses from our limited partnership and common and preferred equity portfolios, as well as the recognition of impairment losses on certain fixed maturity holdings, have negatively impacted our net income. Additionally,Net income for the overall fair valuethree months ended March 31, 2020. While financial markets have broadly recovered during the second and third quarters of our available for sale fixed maturity portfolio has declined, primarily as a result of credit spread widening. We currently expect some level of2020, there could be continued volatility in our investment portfolio as the situation continues to evolve.portfolio.
Net Investment Income
The significant components of Net investment income are presented in the following table. Fixed income securities, as presented, include both fixed maturity securities and non-redeemable preferred stock.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Fixed income securities:          
Taxable fixed income securities$371
 $383
$363
 $383
 $1,094
 $1,151
Tax-exempt fixed income securities78
 82
80
 79
 238
 241
Total fixed income securities449
 465
443
 462
 1,332
 1,392
Limited partnership investments(70) 76
64
 12
 38
 125
Common stock(55) 20
7
 6
 (8) 32
Other, net of investment expense5
 10
3
 7
 18
 24
Pretax net investment income$329
 $571
$517
 $487
 $1,380
 $1,573
Fixed income securities, after tax$367
 $380
$364
 $378
 $1,092
 $1,140
Net investment income, after tax279
 465
421
 399
 1,130
 1,284
          
Effective income yield for the fixed income securities portfolio, pretax4.6 % 4.8%4.5% 4.8% 4.6% 4.8%
Effective income yield for the fixed income securities portfolio, after tax3.8 % 3.9%3.7% 3.9% 3.7% 3.9%
Limited partnership and common stock return(7.0)% 4.5%4.1% 0.9% 1.7% 7.7%
NetPretax net investment income after tax, decreased $186increased $30 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019 driven by limited partnership and common stock returns. Thereturns partially offset by lower yields in our fixed income portfolio.
Pretax net investment income decreased $193 million for the nine months ended September 30, 2020 as compared with the same period in 2019 driven by limited partnership and common stock returns for the three months ended March 31, 2020 include limited partnerships representing 51% reporting on a current basis with no reporting lag and 49% reporting on a lag, primarily three months or less. Limited partnerships reporting on a current basis include substantially all of the Company's hedge funds.lower yields in our fixed income portfolio.

Net Investment Gains (Losses)
The components of Net investment gains (losses) are presented in the following table.
Three months ended March 31   
Periods ended September 30Three Months Nine Months
(In millions)2020 20192020 2019 2020 2019
Fixed maturity securities:
      
  
Corporate and other bonds$(79) $
$14
 $7
 $(105) $
States, municipalities and political subdivisions
 8
6
 1
 39
 13
Asset-backed4
 (14)6
 (5) 34
 (19)
Total fixed maturity securities(75) (6)26
 3
 (32) (6)
Non-redeemable preferred stock(133) 42
25
 7
 (45) 60
Short term and other5
 (5)(21) (3) (27) (34)
Mortgage loans(13) 
(3) 
 (16) 
Net investment (losses) gains(216) 31
Income tax benefit (expense) on net investment (losses) gains47
 (7)
Net investment (losses) gains, after tax$(169) $24
Net investment gains (losses)27
 7
 (120) 20
Income tax (expense) benefit on net investment gains (losses)(7) (2) 23
 (7)
Net investment gains (losses), after tax$20
 $5
 $(97) $13
Net investment results, after tax, decreased $193gains (losses) increased $20 million for the three months ended March 31,September 30, 2020 as compared with the same period in 2019. The increase was driven by the favorable change in fair value of non-redeemable preferred stock and higher net realized investment gains on sales of fixed maturity securities partially offset by a loss on the third quarter 2020 redemption of our $400 million senior notes due August 2021. Pretax impairment losses of $5 million on available-for-sale securities and $3 million of credit losses on mortgage loans were recognized in the currentquarter.
Net investment gains (losses) decreased $140 million for the nine months ended September 30, 2020 as compared with the same period in 2019. The decrease was driven by higher impairment losses and the unfavorable change in fair value of non-redeemable preferred stock andpartially offset by higher impairment losses for the quarter.net realized investment gains on sales of fixed maturity securities. Pretax impairment losses of $92$108 million on available-for-sale securities and $16 million of credit losses on mortgage loans were recognized infor the currentquarter, which includes $77 million related to the energy sector.nine months ended September 30, 2020.
Further information on our investment gains and losses is set forth in Note C to the Condensed Consolidated Financial Statements included under Part 1, Item 1.

Portfolio Quality
The following table presents the estimated fair value and net unrealized gains (losses) of our fixed maturity securities by rating distribution.
March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019

(In millions)
Estimated Fair Value Net Unrealized Gains (Losses) Estimated Fair Value Net Unrealized Gains (Losses)Estimated Fair Value Net Unrealized Gains (Losses) Estimated Fair Value Net Unrealized Gains (Losses)
U.S. Government, Government agencies and Government-sponsored enterprises$4,073
 $198
 $4,136
 $95
$4,026
 $127
 $4,136
 $95
AAA3,529
 381
 3,254
 349
3,623
 452
 3,254
 349
AA6,328
 747
 6,663
 801
6,773
 961
 6,663
 801
A8,751
 819
 9,062
 1,051
9,470
 1,296
 9,062
 1,051
BBB15,284
 255
 16,839
 1,684
17,488
 2,105
 16,839
 1,684
Non-investment grade2,133
 (287) 2,253
 101
2,521
 38
 2,253
 101
Total$40,098
 $2,113
 $42,207
 $4,081
$43,901
 $4,979
 $42,207
 $4,081
As of March 31,September 30, 2020 and December 31, 2019, 1% of our fixed maturity portfolio was rated internally. AAA rated securities included $1.9 billion and $1.5 billion of pre-funded municipal bonds as of March 31,September 30, 2020 and December 31, 2019.
The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.
March 31, 2020September 30, 2020
(In millions)Estimated Fair Value Gross Unrealized LossesEstimated Fair Value Gross Unrealized Losses
U.S. Government, Government agencies and Government-sponsored enterprises$6
 $
$99
 $1
AAA196
 4
37
 1
AA481
 25
244
 9
A1,762
 117
642
 21
BBB6,102
 652
1,264
 71
Non-investment grade1,606
 319
816
 78
Total$10,153
 $1,117
$3,102
 $181
The following table presents the maturity profile for these available-for-sale fixed maturity securities. Securities not due to mature on a single date are allocated based on weighted average life.
March 31, 2020September 30, 2020
(In millions)Estimated Fair Value Gross Unrealized LossesEstimated Fair Value Gross Unrealized Losses
Due in one year or less$321
 $26
$142
 $8
Due after one year through five years2,780
 199
819
 54
Due after five years through ten years5,418
 632
1,479
 83
Due after ten years1,634
 260
662
 36
Total$10,153
 $1,117
$3,102
 $181


The following table summarizes the available-for-sale Corporate and other bonds at March 31, 2020 across industry sectors.
March 31, 2020Cost or
Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Allowance for Credit Losses Estimated
Fair
Value
(In millions)    
Corporate and other bonds:         
Basic Materials$1,615
 $95
 $78
 $
 $1,632
Communications1,429
 193
 27
 
 1,595
Consumer, cyclical - Other605
 16
 56
 
 565
Consumer, non-cyclical - Other1,641
 195
 27
 
 1,809
Energy - Oil & Gas1,170
 40
 191
 37
 982
Energy - Other23
 7
 
 
 30
Energy - Pipelines1,056
 43
 112
 11
 976
Entertainment177
 
 23
 
 154
Financial - Other5,748
 308
 89
 
 5,967
Financial - Real Estate/REITS1,455
 30
 45
 
 1,440
Industrial1,481
 135
 55
 
 1,561
Retail527
 67
 18
 
 576
Technology853
 38
 30
 1
 860
Transportation331
 35
 5
 
 361
Travel & Related490
 26
 37
 
 479
Utilities1,580
 191
 24
 
 1,747
Total Corporate and other bonds$20,181
 $1,419
 $817
 $49
 $20,734



Duration
A primary objective in the management of the investment portfolio is to optimize return relative to the corresponding liabilities and respective liquidity needs. Our views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions as well as domestic and global economic conditions, are some of the factors that enter into an investment decision. We also continually monitor exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on our views of a specific issuer or industry sector.
A further consideration in the management of the investment portfolio is the characteristics of the corresponding liabilities and the ability to align the duration of the portfolio to those liabilities and to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios where future liability cash flows are determinable and typically long term in nature, we segregate investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in the Life & Group segment.
The effective durations of fixed income securities and short term investments are presented in the following table. Amounts presented are net of payable and receivable amounts for securities purchased and sold, but not yet settled.
March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019
(In millions)Estimated Fair Value 
Effective
Duration
(In years)
 Estimated Fair Value 
Effective
Duration
(In years)
Estimated Fair Value 
Effective
Duration
(In years)
 Estimated Fair Value 
Effective
Duration
(In years)
Investments supporting Life & Group$17,201
 8.7
 $18,015
 8.9
$18,700
 9.0
 $18,015
 8.9
Other investments24,237
 4.1
 26,813
 4.1
27,408
 4.5
 26,813
 4.1
Total$41,438
 6.0
 $44,828
 6.0
$46,108
 6.3
 $44,828
 6.0
The investment portfolio is periodically analyzed for changes in duration and related price risk. Certain securities have duration characteristics that are variable based on market interest rates, credit spreads and other factors that may drive variability in the amount and timing of cash flows. Additionally, we periodically review the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures About Market Risk included under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019.
Short Term Investments
The carrying value of the components of the Short term investments are presented in the following table.
(In millions)March 31, 2020 December 31, 2019September 30, 2020 December 31, 2019
Short term investments:      
Commercial paper$326
 $1,181
$
 $1,181
U.S. Treasury securities103
 364
1,247
 364
Other167
 316
215
 316
Total short term investments$596
 $1,861
$1,462
 $1,861

During 2020, we shifted our commercial paper holdings to U.S. Treasury securities.
In addition to Short term investments, the Company held $857$442 million and $242 million of Cash as of March 31,September 30, 2020 and December 31, 2019.

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary operating cash flow sources are premiums and investment income from our insurance subsidiaries. Our primary operating cash flow uses are payments for claims, policy benefits and operating expenses, including interest expense on corporate debt. Additionally, cash may be paid or received for income taxes.
Related to the COVID-19 pandemic and efforts to mitigate the spread of the virus, as the situation continues to evolve through the remainder of 2020, and possibly thereafter, uncertainty exists as to the potential impacts on our operating cash flows may be adversely impacted by lower premium volumes, suspensions and cancellations of policies, return of premiums or premium refunds, and increased claim and defense cost payments in future quarters.flows. At this time, we do not believe these impacts would give rise to a material liquidity concern given our overall liquid assets and anticipated future cash flows.
For the threenine months ended March 31,September 30, 2020, net cash provided by operating activities was $212$1,408 million as compared with $287$980 million for the same period in 2019. The decreaseincrease in cash provided by operating activities was driven by higheran increase in premiums collected, lower net claim payments and lower income taxes paid, partially offset by a lower level of distributions from limited partnerships partially offset by an increase in premiums collected.partnerships.
Cash flows from investing activities include the purchase and disposition of financial instruments, excluding those held as trading, and may include the purchase and sale of businesses, equipment and other assets not generally held for resale.
Net cash providedused by investing activities was $1,087$407 million for the threenine months ended March 31,September 30, 2020, as compared with $289$60 million for the same period in 2019. The cash flow from investing activities is affected by various factors such as the anticipated payment of claims, financing activity, asset/liability management and individual security buy and sell decisions made in the normal course of portfolio management.
Cash flows from financing activities may include proceeds from the issuance of debt and equity securities, and outflows for stockholder dividends, repayment of debt and purchases of treasury stock.
For the threenine months ended March 31,September 30, 2020, net cash used by financing activities was $675$801 million as compared with $665$887 million for the same period 2019. InFinancing activities for the first quarter ofperiods presented include:
During the nine months ended September 30, 2020, we paid dividends of $649$850 million and repurchased 435,376 shares of our common stock at an aggregate cost of $18 million.
In the firstthird quarter of 2020, we issued $500 million of 2.05% senior notes due August 15, 2030 and redeemed the $400 million outstanding aggregate principal balances of our 5.750% senior notes due August 15, 2021.
During the nine months ended September 30, 2019, we paid dividends of $643$834 million and repurchased 317,508415,695 shares of our common stock at an aggregate cost of $14$18 million.
In the second quarter of 2019, we issued $500 million of 3.90% senior notes due May 1, 2029 and redeemed the $500 million outstanding aggregate principal balances of our 5.875% senior notes due August 15, 2020.
Common Stock Dividends
A quarterly dividendDividends of $0.37$3.11 per share andon our common stock, including a special dividend of $2.00 per share, of our common stock were declared and paid induring the first quarter ofnine months ended September 30, 2020. On May 1,October 30, 2020, our Board of Directors declared a quarterly dividend of $0.37 per share, payable June 4,December 3, 2020 to stockholders of record on May 18,November 16, 2020. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition, business needs and regulatory constraints.

Liquidity
We believe that our present cash flows from operating, investing and financing activities are sufficient to fund our current and expected working capital and debt obligation needs and we do not expect this to change in the near term. In addition, we held $5$5.5 billion of cash, short term investments and highly liquid securities issued by USthe U.S. government and its agencies as of March 31,September 30, 2020, of which $506$517 million was held at the CNAF holding company. There are currently no amounts outstanding under our $250 million senior unsecured revolving credit facility and no borrowings outstanding through our membership in the Federal Home Loan Bank of Chicago (FHLBC).
Dividends from CCC are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the Department), are determined based on the greater of the prior year's statutory net income or 10% of statutory surplus as of the end of the prior year, as well as timing and amount of dividends paid in the preceding twelve months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of March 31,September 30, 2020, CCC was in a positive earned surplus position. The maximum allowable dividend CCC could pay during 2020 that would not be subject to the Department's prior approval is $1,078 million, less dividends paid during the preceding twelve months measured at that point in time. CCC paid dividends of $125$855 million and $940 million during the three months ended June 30, 2019, $135 million during the threenine months ended September 30, 2019, $125 million during the three months ended December 31, 20192020 and $670 million during the three months ended March 31, 2020. As of March 31, 2020, CCC is able to pay approximately $23 million of dividends that would not be subject to prior approval of the Department.2019. The actual level of dividends paid in any year is determined after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.
We have an effective automatic shelf registration statement under which we may publicly issue debt, equity or hybrid securities from time to time.

ACCOUNTING STANDARDS UPDATE
For a discussion of Accounting Standards Updates adopted in the current period and that will be adopted in the future, see Note A to the Condensed Consolidated Financial Statements included under Part I, Item 1.
FORWARD-LOOKING STATEMENTS
This report contains a number of forward-looking statements which relate to anticipated future events rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions. Forward-looking statements in this report include any and all statements regarding expected developments in our insurance business, including losses and loss reserves (note that loss reserves for long term care, A&EP and other mass tort claims which are more uncertain, and therefore more difficult to estimate than loss reserves respecting traditional property and casualty exposures;exposures); the impact of routine ongoing insurance reserve reviews we are conducting; our expectations concerning our revenues, earnings, expenses and investment activities; volatility in investment returns; and our proposed actions in response to trends in our business. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected in the forward-looking statement. We cannot control many of these risks and uncertainties. These risks and uncertainties include, but are not limited to, the following:
Company-Specific Factors
the risks and uncertainties associated with our insurance reserves, as outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of our 2019 Annual Report on Form 10-K and this report, including the sufficiency of the reserves and the possibility for future increases, which would be reflected in the results of operations in the period that the need for such adjustment is determined;
the risk that the other parties to the transaction in which, subject to certain limitations, we ceded our legacy A&EP liabilities will not fully perform their obligations to CNA, the uncertainty in estimating loss reserves for A&EP liabilities and the possible continued exposure of CNA to liabilities for A&EP claims that are not covered under the terms of the transaction;
the performance of reinsurance companies under reinsurance contracts with us; and
the risks and uncertainties associated with potential acquisitions and divestitures, including the consummation of such transactions, the successful integration of acquired operations and the potential for subsequent impairment of goodwill or intangible assets.
Industry and General Market Factors
the COVID-19 pandemic, and actions seeking to mitigate the spread of the virus, have resulted in significant risk across our enterprise, as economic uncertainty and depressed business conditions brought on by the crisis may materially and adversely impact our business, drivingdrive significant decreases in our premium volume and resultingresult in significant losses in our investment portfolio, increased claim and litigation activity and unfavorable regulatory outcomes.
the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;
product and policy availability and demand and market responses, including the level of ability to obtain rate increases and decline or non-renew underpriced accounts, to achieve premium targets and profitability and to realize growth and retention estimates;
general economic and business conditions, including recessionary conditions that may decrease the size and number of our insurance customers and create additional losses to our lines of business, especially those that provide management and professional liability insurance, as well as surety bonds, to businesses engaged in real estate, financial services and professional services and inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;
conditions in the capital and credit markets, including uncertainty and instability in these markets, as well as the overall economy, and their impact on the returns, types, liquidity and valuation of our investments;
conditions in the capital and credit markets that may limit our ability to raise significant amounts of capital on favorable terms; and

the possibility of changes in our ratings by ratings agencies, including the inability to access certain markets or distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices.
Regulatory Factors
regulatory and legal initiatives and compliance with governmental regulations and other legal requirements, including with respect to cyber security protocols, legal inquiries by state authorities, judicial interpretations within the regulatory framework, including interpretation of policy provisions, decisions regarding coverage and theories of liability, legislative actions that increase claimant activity, including those revising applicability of statutes of limitations, trends in litigation and the outcome of any litigation involving us and rulings and changes in tax laws and regulations;
regulatory limitations, impositions and restrictions upon us, including with respect to our ability to increase premium rates, and the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies; and
regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our insurance subsidiaries, imposed by regulatory authorities, including regulatory capital adequacy standards.
Impact of Natural and Man-Made Disasters and Mass Tort Claims
weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, wildfires, rain, hail and snow;
regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
man-made disasters, including the possible occurrence of terrorist attacks, the unpredictability of the nature, targets, severity or frequency of such events, and the effect of the absence or insufficiency of applicable terrorism legislation on coverages;
the occurrence of epidemics and pandemics; and
mass tort claims, including those related to exposure to potentially harmful products or substances such as glyphosate, lead paint and opioids; and claims arising from changes that repeal or weaken tort reforms, such as those related to abuse reviver statutes.
Referendum on the United Kingdom's Membership in the European Union
in 2016, the U.K. approved an exit from the E.U., commonly referred to as "Brexit.” While the withdrawal of the U.K. from the E.U. was official as of January 31, 2020, until the transition period ends, there remains a lack of specificity and detail regarding the long term relationship between the two sides and how businesses operating in both jurisdictions may be affected. In any event, effective January 1, 2019, our E.U. business is no longer handled out of our U.K.-domiciled subsidiary, but through our European subsidiary in Luxembourg, which was established specifically to address the departure of the U.K. from the E.U. and to seek to ensure the Company’s ability to operate effectively throughout the E.U. As a result, the complexity and cost of regulatory compliance of our European business has increased and will likely continue to result in elevated expenses.
Our forward-looking statements speak only as of the date of the filing of this Quarterly Report on Form 10-Q and we do not undertake any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of the statement, even if our expectations or any related events or circumstances change.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our market risk components for the threenine months ended March 31,September 30, 2020. See the Quantitative and Qualitative Disclosures About Market Risk included in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019 for further information. Additional information related to portfolio duration is discussed in the Investments section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including this report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management on a timely basis to allow decisions regarding required disclosure.
As of March 31,September 30, 2020, the Company's management, including the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective as of March 31,September 30, 2020.
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15 (f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31,September 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. Other Information
Item 1. Legal Proceedings
Information on our legal proceedings is set forth in Note F to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended December 31, 2019 includes aand our Quarterly Reports on Form 10-Q for each of the first two quarters of 2020, include detailed discussiondiscussions of certain material risk factors facing us. The information presented below describes updates and additions to such risk factors and should be read in conjunction with the risk factors and information disclosed in our Form 10-K.10-K and restates in their entirety the risk factors contained in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
The COVID-19 pandemic and mitigating actionsmeasures to mitigate the spread of the virus have resulted in significant risk across our enterprise, which have had, and may continue to have, a material adverse impactimpacts on our business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.
The COVID-19 outbreak, and actions seeking to mitigate the spread of the virus, accelerated in both breadth and scope through the month of February, with the World Health Organization declaring it a pandemic on March 11, 2020. The situation has continued to evolve exponentially with implicated exposures increasing given sustained uncertainties across the global marketplace. Because ofBoth the extensiveness of the pandemic itself, as well as the measures taken to mitigate the virus' spread globally, are unprecedented and their effects continue to be pervasive. In many geographic locations, the virus continues to spread. Accordingly, it remains the case that months past the initial identification of the threat, all of the direct and indirect consequences and implications of COVID-19 and measures to mitigate its spread are not yet known and may not emerge for some time.
Risks presented by the ongoing effects of COVID-19 that are known at this time include the following:
Broad economic impact
The economic effect of the pandemic has been broad in nature and has significantly impacted business operations across all industries, including ours. Depressed economic conditions have led to and may continue to lead to decreased insured exposures causing us to experience declines in premium volume, especially for lines of business that are sensitive to rates of economic growth.growth and those that are impacted by audit premium adjustments. Significant decreases in premium volume would also directly and adversely impactimpacts our underwriting expense ratio. In addition, many of ourcertain customers, representingacross a broad spectrum of industries and markets, may potentiallyhave been and continue to be impacted by lost business, which may affect our ability to collect amounts owed to us by policyholders. We recorded a decrease in our estimated audit premiums during the second quarter of 2020 impacting our net earned premium and if general economic conditions do not improve in the remainder of 2020 or thereafter, our net written premiums and net earned premiums may be depressed, which may have a material impact on our business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.
While our losses incurred during the first nine months of 2020 related to COVID-19 and measures to mitigate its spread represent our best estimate of our ultimate insurance losses resulting from events occurring in the first nine months of 2020 due to the pandemic and the consequent economic crisis, given the unprecedented nature of this event, a high level of uncertainty exists as to the potential impact on insurance losses from these events or other events that might occur for the remainder of the year and thereafter. The scope, duration and magnitude of the direct and indirect effects could continue to evolve through the remainder of 2020, and possibly thereafter, and could materially impact our ultimate loss estimate, including in lines of business where losses have already been incurred, as well as the potential for impacts in other lines unknown at this time. Continued spread of the virus, as well as new or extended shelter in place restrictions and business closures, could cause us to experience additional COVID-19 related catastrophe losses in future quarters, which could be material.



Financial Markets and Investments
The COVID-19 pandemic has also significantly impacted the financial markets.  As investors embarkhave embarked on a flight to quality, risk free rates have decreased.  In addition, extreme market volatility due to liquidity concerns and overall economic uncertainties have driven wideningdrove increased volatility in credit spreads and declining equity markets.  These conditionsWhile government actions to date have impactedprovided some stability to financial markets, economic prospects in the short term continue to be depressed and we remain in a historically low interest rate environment. The unabated spread of the virus and the extension of efforts to mitigate the spread in numerous geographic areas will continue to cause substantial uncertainty on the timing and strength of any economic recovery and could continue to impact our investment portfolio results and valuations, and may continue to do so, resultingresult in additional volatility or losses in our investment portfolio. portfolio, which could be material.
The value of our fixed maturity investments is subject to risk that certain investments may default or become impaired due to deterioration in the financial condition of issuers of the investments we hold or in the underlying collateral of the security or loan, particularly in industries heavily impacted by COVID-19 and mitigating actions, including energy, retail, travel, entertainment, and real estate.  Our municipal bond portfolio is also subject to risks of default by state and local governments and agencies that are under increased strain related to the pandemic.
These significant economic and financial market disruptions may have a material impact on our business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.

Claims and related litigation
Claims activity
Another aspect is claimClaim activity and related litigation whichhas increased, and may continue to increase significantly, in certain of our lines of business as a result of the pandemic and mitigating actions. We mayhave experienced, and are likely to continue to experience, increased frequency in claim submissions in product lines that are implicated by the virus and the mitigating activities taken by our customers and governmental authorities in response to its spread, as well as potential regulatory or legislative actions that are further described below under Regulatory impact.increased litigation related to denial of claims based on policy coverage. These lines include workers’ compensation,primarily healthcare commercial property coverage, and directors’ and officers’professional liability and workers' compensation, as well as commercial property-related business interruption coverage, management liability (directors and officers, employment practices, and professional liability lines.lines) and trade credit. In addition, our surety lines may continue to experience increased losses, particularly in construction surety, where there is significant risk that contractors will be adversely and materially impacted by general economic conditions. We have recorded significant losses in these areas in the first nine months of 2020 and may experience continued losses, which could be material.
Increased frequency or severity in any or all of the foregoing lines, or others where the exposure has yet to emerge, may have a material effectimpact on our business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.
We have also begun to incur substantial expenses related to litigation activity in connection with COVID-related legal claims. These actions primarily relate to denial of claims submitted as a result of the pandemic and the mitigating actions under commercial property policies for business interruption coverage, including lockdowns and closing of certain businesses. The significance of such litigation, both in substance and volume, and the resultant activities we have initiated, including external counsel engagement, and the costs related thereto, may have a material impact on our business, results of operation and financial condition, the extent of which cannot be determined with any certainty at this time.
Regulatory impact
The regulatory environment is rapidly evolving in direct response to the pandemic and the mitigating actions being taken. Numerous regulatory authorities to which our business is subject have implemented or are contemplating broad and significant regulations restricting and governing insurance company operations during the pandemic crisis. Such actions include, but are not limited to, premium moratoriums, premium refunds and reductions, restrictions on policy cancellations and potential legislation-driven expansion of policy terms. To date, certain state authorities have ordered premium refunds and certain regulatory and legislative bodies have proposed requiring insurers to cover business interruption under policies that were not written to provide for such coverage under the current circumstances. In addition, certain states have directed expansion of workers’ compensation coverage through presumption of compensability of claims for a broad category of workers. This highly fluid and challenging regulatory environment, and the new regulations we are now, and may be, subject to may have a

material impact on our business, results of operation and financial condition, the extent of which cannot be determined with any certainty at this time.
Business operational impact
Beginning on March 17, 2020, we instituted mandatory work from home for all of our employees, across the United States and globally, including Canada, the United Kingdom and Europe, and moved to teleconference meetings only across the enterprise. As of the date of this report, the work from home mandate remains in place across the majority of our global workforce. Mandatory work from home may impact the productivity of our workforce, and increases the risk of information security exposure. Disruptions to our employees’ productivity, as well as their health and welfare, especially in the context of accelerated contagion of the virus (which has not occurred across our employee population at this time), along with the heightened security risks presented by widespread remote access to our computer systems, may have a material impact on our business operations, the extent of which cannot be determined with any certainty at this time.
In addition, in virtually all cases, our critical vendors have also had to impose workplace restrictions or work from home mandates on their employees, which may result in interruption in service delivery or failure by vendors to properly perform required services, including delivery in a manner more susceptible to significant information security risk. Such vendor issues may result in a material impact on our business operations, the extent of which cannot be determined with any certainty at this time.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Items 2 (a) and (b) are not applicable.
(c) The table below details repurchases of our common stock made during the three months ended March 31, 2020.
Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced plans or programs (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (in millions)
February 1, 2020 - February 29, 2020 88,848
 $45.24
 N/A N/A
March 1, 2020 - March 31, 2020 346,528
 40.74
 N/A N/A
Total 435,376
 

 N/A N/A
Item 6. Exhibits
See Exhibit Index.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  CNA Financial Corporation
   
Dated: May 4,November 2, 2020By/s/ Albert J. Miralles
  
Albert J. Miralles
Executive Vice President and
Chief Financial Officer
(Duly authorized officer and principal financial and accounting officer)

EXHIBIT INDEX
Description of ExhibitExhibit Number
10.1
10.2
31.1
  
31.2
  
32.1
  
32.2
  
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document101.INS
  
Inline XBRL Taxonomy Extension Schema101.SCH
  
Inline XBRL Taxonomy Extension Calculation Linkbase101.CAL
  
Inline XBRL Taxonomy Extension Definition Linkbase101.DEF
  
Inline XBRL Taxonomy Label Linkbase101.LAB
  
Inline XBRL Taxonomy Extension Presentation Linkbase101.PRE
  
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)104.1

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