Item 2. Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with our Consolidated Condensed Financial Statements included under Item 1 of this Report, Risk Factors included under Part II, Item 1A of this Report, Risk Factors included in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20202021 and June 30, 20202021 and the Consolidated Financial Statements, Risk Factors, and MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. This MD&A is comprised of the following sections:
| Page No. |
| |
Overview | 3937 |
Results of Operations | 4038 |
Consolidated Financial Results | 4038 |
CNA Financial | 4139 |
Boardwalk Pipelines | 5148 |
Loews Hotels & Co | 5349 |
Corporate | 5450 |
Diamond Offshore | 5551 |
Liquidity and Capital Resources | 5651 |
Parent Company | 5651 |
Subsidiaries | 5652 |
Investments | 5753 |
Critical Accounting Estimates | 6156 |
Accounting Standards Update | 6157 |
Forward-Looking Statements | 6157 |
OVERVIEW
Loews Corporation is a holding company and has fivefour reportable segments comprised of three individual consolidated operating subsidiaries, CNA Financial Corporation (“CNA”), Boardwalk Pipeline Partners, LP (“Boardwalk Pipelines”) and Loews Hotels Holding Corporation (“Loews Hotels & Co”); and the Corporate segment andsegment. In the first quarter of 2020, Diamond Offshore Drilling Inc. (“Diamond Offshore”). was a reportable segment; Diamond Offshore was deconsolidated during the second quarter of 2020. The Corporate segment is primarily comprised of Loews Corporation, excluding its subsidiaries, and the operations of Altium Packaging LLC (“Altium Packaging”). Diamond Offshore was deconsolidated during the second quarter of 2020. Each of the operating subsidiaries and Diamond Offshore are headed by a chief executive officer who is responsible for the operation through March 31, 2021. On April 1, 2021, Loews Corporation sold 47% of its business and has the duties and authority commensurate with that position.
On April 26, 2020 (the “Filing Date”), Diamond Offshore and certain of its direct and indirect subsidiaries filed voluntary petitionsinterest in the United States Bankruptcy CourtAltium Packaging to GIC, Singapore’s sovereign wealth fund, for the Southern District of Texas seeking relief under Chapter 11 of the United States Bankruptcy Code (the “Chapter 11 Filing”).$420 million in cash consideration. As a result of the Chapter 11 Filing and applicable U.S. generally accepted accounting principles,terms of this transaction, Loews Corporation no longer controls Diamond Offshore for accounting purposes,shares certain participating rights with GIC related to capital allocation and other decisions and was therefore Diamond Offshore was deconsolidated from its consolidated financial statements effectiverequired to deconsolidate Altium Packaging as of the Filing Date.date of the sale under accounting principles generally accepted in the United States of America (“GAAP”). Subsequent to deconsolidation, Loews Corporation’s investment in Altium Packaging is accounted for under the equity method of accounting, with Equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations in the Corporate segment. For further information on the deconsolidations of Diamond Offshore and Altium Packaging see Note 2 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report.
Unless the context otherwise requires, the term “Company” as used herein means Loews Corporation including its consolidated subsidiaries, the terms “Parent Company,” “we,” “our,” “us” or like terms as used herein mean Loews Corporation excluding its subsidiaries, and the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders.shareholders and the term “subsidiaries” means Loews Corporation’s consolidated subsidiaries.
We rely upon our invested cash balances and distributions from our subsidiaries to generate the funds necessary to meet our obligations and to declare and pay any dividends to shareholders. The ability of subsidiaries to pay dividends is subject to, among other things, the availability of sufficient earnings and funds in such subsidiaries, applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies (see Note 14 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2019)2020) and compliance with covenants in their respective loan agreements. Claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and those of our creditors and shareholders.
RESULTS OF OPERATIONS
Consolidated Financial Results
The following table summarizes net income (loss) attributable to Loews Corporation by segment and net income (loss) per share attributable to Loews Corporation for the three and nine months ended September 30, 20202021 and 2019:2020:
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
(In millions, except per share data) | | | | | | | | | | | | |
| | | | | | | | | | | | |
CNA Financial | | $ | 192 | | | $ | 96 | | | $ | 272 | | | $ | 650 | |
Boardwalk Pipelines | | | 20 | | | | 29 | | | | 123 | | | | 161 | |
Loews Hotels & Co | | | (47 | ) | | | 3 | | | | (144 | ) | | | 28 | |
Corporate | | | (26 | ) | | | (8 | ) | | | (1,103 | ) | | | 13 | |
Diamond Offshore (a) | | | | | | | (48 | ) | | | (476 | ) | | | (137 | ) |
Net income (loss) attributable to Loews Corporation | | $ | 139 | | | $ | 72 | | | $ | (1,328 | ) | | $ | 715 | |
| | | | | | | | | | | | | | | | |
Basic and diluted net income (loss) per share | | $ | 0.50 | | | $ | 0.24 | | | $ | (4.70 | ) | | $ | 2.34 | |
(a) | Amounts presented for Diamond Offshore reflect the periods prior to deconsolidation. See Notes 2 and 14 of the Notes to the Consolidated Condensed Financial Statements included under Item 1. |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions, except per share data) | | | | | | | | | | | | |
| | | | | | | | | | | | |
CNA Financial | | $ | 229 | | | $ | 192 | | | $ | 838 | | | $ | 272 | |
Boardwalk Pipelines | | | 38 | | | | 20 | | | | 170 | | | | 123 | |
Loews Hotels & Co | | | 13 | | | | (47 | ) | | | (51 | ) | | | (144 | ) |
Corporate | | | (60 | ) | | | (26 | ) | | | 278 | | | | (1,103 | ) |
Diamond Offshore | | | | | | | | | | | | | | | (476 | ) |
Net income (loss) attributable to Loews Corporation | | $ | 220 | | | $ | 139 | | | $ | 1,235 | | | $ | (1,328 | ) |
| | | | | | | | | | | | | | | | |
Basic net income (loss) per share | | $ | 0.86 | | | $ | 0.50 | | | $ | 4.71 | | | $ | (4.70 | ) |
| | | | | | | | | | | | | | | | |
Diluted net income (loss) per share | | $ | 0.85 | | | $ | 0.50 | | | $ | 4.70 | | | $ | (4.70 | ) |
Net income attributable to Loews Corporation for the three months ended September 30, 20202021 was $220 million, or $0.85 per share, compared to $139 million, or $0.50 per share compared to net income of $72 million, or $0.24 per share in the comparable 20192020 period. Net lossincome attributable to Loews Corporation for the nine months ended September 30, 20202021 was $1.33$1.2 billion, or $4.70 per share, compared to a net incomeloss of $715 million,$1.3 billion, or $2.34$4.70 per share in the comparable 20192020 period.
Each of the company’s consolidated subsidiaries, CNA Financial Corporation, Boardwalk Pipelines, and Loews Hotels & Co, contributed meaningfully to the year-over-year increase in Loews’s 2021 third quarter net income as compared to the comparable 2020 period. As compared to the third quarter of 2020, CNA benefited from higher Property & Casualty non-catastrophe current accident year underwriting results and improved Life & Group business results primarily due to the absence of the active life premium deficiency charge recorded in the third quarter of 2020, partially offset by higher net catastrophe losses and lower investment gains. Loews Hotels & Co posted significantly improved year-over-year third quarter results due to the continuing rebound in leisure travel, especially at resort destinations. Boardwalk Pipelines revenues for the third quarter of 2021 increased compared to the comparable prior year period, reflecting the impact of recently completed growth projects and higher system utilization. The parent company investment portfolio experienced lower net investment income in the third quarter of 2021 compared to the comparable prior year period.
The increase in net income for the three months ended September 30, 2020 as compared to the 2019 period was driven by CNA. Property and casualty underwriting income before catastrophe losses and prior year development rose, as CNA posted an underlying combined ratio of 92.6%, down from 94.6% in the prior year period. CNA also benefited from higher net investment income, more net investment gains, and reduced net reserve charges in its Life & Group business. Offsetting these improvements were increased net catastrophe losses primarily from severe weather-related events.
Additionally, Loews Hotels & Co reported a net loss for the three months ended September 30, 2020 due to the revenue impact of the COVID-19 pandemic, and Boardwalk Pipelines’ net income also declined compared to the prior year period. The three months ended September 30, 2019 included a net loss from Diamond Offshore.
The net lossimproved results for the nine months ended September 30, 2021 compared to the comparable 2020 was driven by six main factors: (i) an investment loss caused byperiod are due to higher Property & Casualty non-catastrophe current accident year underwriting results at CNA, improved results for CNA’s Life & Group business which benefited from the write downabsence of the carrying valueactive life premium deficiency charge recorded in the third quarter of our interest in Diamond Offshore as a result of its bankruptcy filing on April 26, 2020; (ii) drilling rig impairment charges at Diamond Offshore; (iii) operating2020, lower net catastrophe losses at Loews Hotels; (iv) a reduction in CNA’sCNA, significantly higher net investment income at CNA and the parent company’s netcompany, and investment income; (v) net investment losses at CNAgains in 2021 as compared to net investment gainslosses in 2019; and (vi) lower property and casualty underwriting income2020 at CNA caused mainly by higher catastrophe losses.
The economic disruption caused byand in the COVID-19 pandemic and measures to mitigateparent company investment portfolio. All other segment improvements for the spread of the virus have significantly affected Loews’s results in 2020. The full impact of COVID-19 on Loews will depend on the duration of mandated and voluntary containment efforts, related economic policies, and other societal responsesnine months ended September 31, 2021 as compared to the pandemic.comparable 2020 period are primarily due to the reasons discussed in the three month comparison above. In addition, the nine months ended September 30, 2021 include a gain of $438 million (after tax) related to the sale of 47% of Altium Packaging and its deconsolidation on April 1, 2021. The nine months ended September 30, 2020 included a loss of $957 million (after tax), related to the bankruptcy filing and deconsolidation of Diamond Offshore, and impairment charges totaling $774 million ($408 million after tax and noncontrolling interests) at Diamond Offshore in the first quarter of 2020, prior to deconsolidation.
CNA Financial
The following table summarizes the results of operations for CNA for the three and nine months ended September 30, 20202021 and 20192020 as presented in Note 1411 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report. For further discussion of Net investment income and Investment gains (losses), see the Investments section of this MD&A.
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Insurance premiums | | $ | 1,953 | | | $ | 1,890 | | | $ | 5,672 | | | $ | 5,517 | | | $ | 2,059 | | | $ | 1,953 | | | $ | 6,056 | | | $ | 5,672 | |
Net investment income | | | 517 | | | | 487 | | | | 1,380 | | | | 1,573 | | | 513 | | | 517 | | | 1,608 | | | 1,380 | |
Investment gains (losses) | | | 46 | | | | 8 | | | | (101 | ) | | | 41 | | | 22 | | | 46 | | | 117 | | | (101 | ) |
Non-insurance warranty revenue | | | 317 | | | | 292 | | | | 926 | | | | 858 | | | 357 | | | 317 | | | 1,054 | | | 926 | |
Other revenues | | | 7 | | | | 9 | | | | 20 | | | | 22 | | | | 8 | | | | 7 | | | | 19 | | | | 20 | |
Total | | | 2,840 | | | | 2,686 | | | | 7,897 | | | | 8,011 | | | 2,959 | | | 2,840 | | | 8,854 | | | 7,897 | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Insurance claims and policyholders’ benefits | | | 1,616 | | | | 1,614 | | | | 4,683 | | | | 4,323 | | | 1,632 | | | 1,616 | | | 4,684 | | | 4,683 | |
Amortization of deferred acquisition costs | | | 360 | | | | 345 | | | | 1,046 | | | | 1,025 | | | 368 | | | 360 | | | 1,084 | | | 1,046 | |
Non-insurance warranty expense | | | 293 | | | | 278 | | | | 859 | | | | 801 | | | 330 | | | 293 | | | 973 | | | 859 | |
Other operating expenses | | | 268 | | | | 291 | | | | 851 | | | | 854 | | | 287 | | | 268 | | | 874 | | | 851 | |
Interest | | | 52 | | | | 31 | | | | 114 | | | | 120 | | | 28 | | | 52 | | | 85 | | | 114 | |
Total | | | 2,589 | | | | 2,559 | | | | 7,553 | | | | 7,123 | | | | 2,645 | | | | 2,589 | | | | 7,700 | | | | 7,553 | |
Income before income tax | | | 251 | | | | 127 | | | | 344 | | | | 888 | | | 314 | | | 251 | | | 1,154 | | | 344 | |
Income tax expense | | | (36 | ) | | | (20 | ) | | | (40 | ) | | | (161 | ) | | | (59 | ) | | | (36 | ) | | | (219 | ) | | | (40 | ) |
Net income | | | 215 | | | | 107 | | | | 304 | | | | 727 | | | 255 | | | 215 | | | 935 | | | 304 | |
Amounts attributable to noncontrolling interests | | | (23 | ) | | | (11 | ) | | | (32 | ) | | | (77 | ) | | | (26 | ) | | | (23 | ) | | | (97 | ) | | | (32 | ) |
Net income attributable to Loews Corporation | | $ | 192 | | | $ | 96 | | | $ | 272 | | | $ | 650 | | | $ | 229 | | | $ | 192 | | | $ | 838 | | | $ | 272 | |
Three Months Ended September 30, 20202021 Compared to 2019the Comparable 2020 Period
Net income attributable to Loews Corporation increased $96$37 million for the three months ended September 30, 20202021 as compared with the 2019 period. The increase wascomparable 2020 period primarily due to improved non-catastrophe current accident year underwriting results, higher net investment income driven by limited partnership returns, higher investment gains and favorable net prior year loss reserve development in the current year period. Investment gains were driven by the favorable change in fair valueabsence of non-redeemable preferred stock and higher gains on sales of fixed maturity securities. Results for the three months ended September 30, 2020 also included a $74 million charge ($52 million after tax and noncontrolling interests) related to the recognition of aan active life reserve premium deficiency as a result offor long term care policies in the third quarter of 2020. Results for the three months ended September 30, 2021 also included improved non-catastrophe current accident year underwriting results. The three months ended September 30, 2020 gross premium valuation (“GPV”) in the long term care business as compared toalso included a $216$14 million charge ($151 million after(after tax and noncontrolling interests) related to recognitionthe early retirement of a premium deficiency as a result of the third quarter 2019 GPV. debt. These increases to net income were partially offset by lower investment gains and net catastrophe losses of $160$178 million ($112125 million after tax and noncontrolling interests) for the three months ended September 30, 20202021 as compared to $32$160 million ($22112 million after tax and noncontrolling interests) in the 2019comparable 2020 period. Net catastrophe losses for the three months ended September 30, 2021 included $114 million for Hurricane Ida. 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. In addition, there was a $14 million charge (after tax and noncontrolling interests) related to the early retirement of debt for the three months ended September 30, 2020.
Nine Months Ended September 30, 20202021 Compared to 2019the Comparable 2020 Period
Net income attributable to Loews Corporation decreased $378increased $566 million for the nine months ended September 30, 20202021 as compared with the 2019 period. The decrease wascomparable 2020 period primarily due to netimproved current accident year underwriting results. Net catastrophe losses of $536were $357 million ($377251 million after tax and noncontrolling interests) for the nine months ended September 30, 20202021 as compared to $128$536 million ($90377 million after tax and noncontrolling interests) in the prior year period, lower net investment income and investment losses in the first nine months ofcomparable 2020 as compared with investment gains in the prior year period. Net catastrophe losses infor the first nine months ofended September 30, 2021 were driven by severe weather-related events, primarily Hurricane Ida and Winter Storms Uri and Viola. Net catastrophe losses for the nine months ended September 30, 2020 includeincluded $273 million primarily related to severe weather-related events, $195 million related to COVID-19 and $68 million related to civil unrest. The decreaseResults also reflect higher net investment income and investment gains during the nine months ended September 30, 2021 as compared with investment losses in the comparable 2020 period. Higher net investment income was driven by lower limited partnership and common stock returns and lower yields on the fixed income portfolio. Investment lossesinvestment gains were driven by higherlower impairment losses and the unfavorablefavorable change in fair value of non-non-redeemable preferred stock for the nine months ended September 30, 2021 as compared with the comparable 2020
redeemable preferred stock, partially offset by higher gains on salesperiod. Results for the nine months ended September 30, 2021 also reflect the absence of fixed maturity securities. These decreases were partially offset by a $74 million charge ($52 million after tax and noncontrolling interests) related to the recognition of an active life reserve premium deficiency for long term care policies in the third quartercomparable 2020 as compared to a $216 million charge ($151 million after tax and noncontrolling interests) in the third quarter 2019 related to recognition of a premium deficiency as a result of the GPV review.
Recent Developments
CNA’s underwriting results for 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 CNA’s results in the first three quarters of 2020 may not be indicative of its impacts for the remainder of 2020 or thereafter. See the Liquidity and Capital Resources and Investments sections of this MD&A and Risk Factors included under Part II, Item 1A of this Report for further discussion of the risks associated with COVID-19 and measures to mitigate the spread of the virus.
CNA experienced year-over-year growth in gross and net written premiums, excluding third party captives driven by rate increases across its property and casualty insurance lines of business. However, depressed economic conditions generally have had an unfavorable impact on premium exposures, resulting in a decrease in CNA’s estimated audit premiums during the second quarter of 2020 and causing an unfavorable impact on its net earned premiums. Additionally, in the second quarter of 2020, CNA 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 CNA’s net earned premiums in future quarters. Lower net earned premiums have had and may continue to have an unfavorable impact on CNA’s expense ratio. CNA’s expense ratio has also been unfavorably impacted by increases in its allowance for doubtful accounts for insurance receivables, more than offset by lower travel-related expenses. If general economic conditions do not improve in the remainder of 2020 or thereafter, CNA’s net written premiums, net earned premiums and expense ratio may continue to be unfavorably impacted as a result.
While CNA’s losses incurred during the first nine months of 2020 related to COVID-19 represent CNA’s 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 CNA’s 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 CNA to experience additional COVID-19 related catastrophe losses in future quarters.
CNA has 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 CNA’s portfolio, as its 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.period.
CNA’s Property & Casualty and Other Insurance Operations
CNA’s commercial property and casualty insurance operations (“Property & Casualty Operations”) include its Specialty, Commercial and International lines of business. CNA’s Other Insurance Operations outside of Property & Casualty Operations include its long term care business that is in run-off, certain corporate expenses, including interest on CNA’s corporate debt, and certain property and casualty businesses in run-off, including CNA Re, Asbestos & Environmental Pollution (“A&EP”), excess workers’ compensation and A&EP.legacy mass tort. We believe the presentation of CNA as one reportable segment is appropriate in accordance with applicable accounting standards on segment reporting. However, for purposes of this discussion and analysis of the results of operations, we provide greater detail with respect to CNA’s Property & Casualty Operations and Other Insurance Operations to enhance the reader’s understanding and to provide further transparency into key drivers of CNA’s financial results.
42
Effective January 1, 2021, and in connection with the ceding of certain legacy reserves under a retroactive reinsurance agreement executed in February 2021, CNA changed the presentation of a legacy portfolio of excess workers’ compensation policies relating to business written in 2007 and prior. This business, which was previously reported as part of the Commercial business, is now reported as part of the Other Insurance Operations business. See Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report for further information on this retroactive reinsurance agreement. In addition, a determination was made to change the presentation of certain legacy mass tort reserves. Similar to the aforementioned excess workers’ compensation legacy business, these legacy mass tort reserves were previously reported in the Commercial business and are now reported as part of the Other Insurance Operations business. These changes were made to better reflect the manner in which CNA is organized for purposes of making operating decisions and assessing performance. Prior period information has been conformed to the new presentation.
In assessing its insurance operations, CNA utilizes the core income (loss) financial measure. Core income (loss) is calculated by excluding from net income (loss), investment gains or losses and any cumulative effects of changes in accounting guidance. In addition, core income (loss) excludes the effects of noncontrolling interests. The calculation of core income (loss) excludes investment gains or losses because investment gains or losses are generally driven by economic factors that are not necessarily reflective of CNA’s primary insurance operations. Core income (loss) is deemed to be a non-GAAP financial measure and management believes this measure is useful for investors to evaluate its insurance operations. Please see the non-GAAP reconciliation of core income (loss) to net income (loss) that follows in this MD&A.
Recent Developments
As previously disclosed, CNA sustained a sophisticated cybersecurity attack in March of 2021 involving ransomware that caused a network disruption and impacted certain of its systems. CNA has incurred expenses within Other Insurance Operations related to the cybersecurity attack and expects these expenses will continue. Additionally, CNA anticipates making continued investments in technology to improve its security and infrastructure, which will increase expenses in future periods. While CNA does not believe that the March 2021 cybersecurity attack will have a material impact on its business, results of operations or financial condition, no assurances can be given at this time as it continues to assess the full impact from the incident, including costs, expenses and insurance coverage.
Property & Casualty Operations
In evaluating the results of Property & Casualty Operations, CNA utilizes the loss ratio, the loss ratio excluding catastrophes and development, the expense ratio, the dividend ratio, the combined ratio and the combined 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, renewal premium change, rate, retention and new business are also utilized 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 period 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, represents gross written premiums excluding business which is ceded to third party captives, including business related to large warranty programs.
The following tables summarize the results of CNA’s Property & Casualty Operations for the three and nine months ended September 30, 20202021 and 2019:2020:
Three Months Ended September 30, 2020 | | Specialty | | | Commercial | | | International | | | Total | | |
Three Months Ended September 30, 2021 | | | Specialty | | | Commercial | | | International | | | Total | |
(In millions, except %) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 1,855 | | | $ | 915 | | | $ | 238 | | | $ | 3,008 | | | $ | 1,953 | | | $ | 1,010 | | | $ | 276 | | | $ | 3,239 | |
Gross written premiums excluding third | | | | | | | | | | | | | | | | | |
party captives | | | 861 | | | | 915 | | | | 238 | | | | 2,014 | | |
Gross written premiums excluding third party captives | | | 943 | | | 1,005 | | | 276 | | | 2,224 | |
Net written premiums | | | 795 | | | | 804 | | | | 222 | | | | 1,821 | | | 822 | | | 831 | | | 256 | | | 1,909 | |
Net earned premiums | | | 734 | | | | 857 | | | | 236 | | | | 1,827 | | | 773 | | | 893 | | | 271 | | | 1,937 | |
Net investment income | | | 126 | | | | 165 | | | | 15 | | | | 306 | | | 116 | | | 141 | | | 14 | | | 271 | |
Core income | | | 168 | | | | 52 | | | | 27 | | | | 247 | | | 173 | | | 27 | | | 17 | | | 217 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss ratio excluding catastrophes | | | | | | | | | | | | | | | | | |
and development | | | 60.0 | % | | | 61.0 | % | | | 60.1 | % | | | 60.5 | % | |
Loss ratio excluding catastrophes and development | | | 59.1 | % | | 61.5 | % | | 58.9 | % | | 60.2 | % |
Effect of catastrophe impacts | | | 1.0 | | | | 17.0 | | | | 3.0 | | | | 8.7 | | | 0.4 | | | 18.6 | | | 3.4 | | | 9.2 | |
Effect of development-related items | | | (2.0 | ) | | | 0.6 | | | | 0.1 | | | | (0.4 | ) | | | (1.8 | ) | | | 0.5 | | | | 1.1 | | | | (0.3 | ) |
Loss ratio | | | 59.0 | % | | | 78.6 | % | | | 63.2 | % | | | 68.8 | % | | 57.7 | % | | 80.6 | % | | 63.4 | % | | 69.1 | % |
Expense ratio | | | 30.5 | | | | 32.3 | | | | 34.9 | | | | 31.8 | | | 30.6 | | | 30.4 | | | 32.1 | | | 30.7 | |
Dividend ratio | | | | | | | 0.6 | | | | | | | | 0.3 | | | (0.1 | ) | | 0.6 | | | | | | 0.2 | |
Combined ratio | | | 89.5 | % | | | 111.5 | % | | | 98.1 | % | | | 100.9 | % | | | 88.2 | % | | | 111.6 | % | | | 95.5 | % | | | 100.0 | % |
Combined ratio excluding catastrophes and development | | | 90.5 | % | | | 93.9 | % | | | 95.0 | % | | | 92.6 | % | | 89.6 | % | | 92.5 | % | | 91.0 | % | | 91.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rate | | | 13 | % | | | 11 | % | | | 16 | % | | | 12 | % | | 9 | % | | 6 | % | | 13 | % | | 8 | % |
Renewal premium change | | | 12 | | | | 8 | | | | 14 | | | | 10 | | | 8 | | | 8 | | | 12 | | | 9 | |
Retention | | | 86 | | | | 81 | | | | 70 | | | | 82 | | | 80 | | | 83 | | | 79 | | | 81 | |
New business | | $ | 104 | | | $ | 168 | | | $ | 58 | | | $ | 330 | | | $ | 147 | | | $ | 204 | | | $ | 54 | | | $ | 405 | |
Three Months Ended September 30, 2019 | | Specialty | | | Commercial | | | International | | | Total | | |
Three Months Ended September 30, 2020 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 1,766 | | | $ | 860 | | | $ | 226 | | | $ | 2,852 | | | $ | 1,855 | | | $ | 915 | | | $ | 238 | | | $ | 3,008 | |
Gross written premiums excluding third | | | | | | | | | | | | | | | | | |
party captives | | | 778 | | | | 852 | | | | 226 | | | | 1,856 | | |
Gross written premiums excluding third party captives | | | 861 | | | 915 | | | 238 | | | 2,014 | |
Net written premiums | | | 732 | | | | 775 | | | | 201 | | | | 1,708 | | | 795 | | | 804 | | | 222 | | | 1,821 | |
Net earned premiums | | | 712 | | | | 813 | | | | 236 | | | | 1,761 | | | 734 | | | 857 | | | 236 | | | 1,827 | |
Net investment income | | | 121 | | | | 136 | | | | 17 | | | | 274 | | | 126 | | | 151 | | | 15 | | | 292 | |
Core income (loss) | | | 153 | | | | 97 | | | | (9 | ) | | | 241 | | |
Core income | | | 168 | | | 41 | | | 27 | | | 236 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss ratio excluding catastrophes | | | | | | | | | | | | | | | | | |
and development | | | 60.1 | % | | | 61.5 | % | | | 67.3 | % | | | 61.7 | % | |
Loss ratio excluding catastrophes and development | | | 60.0 | % | | 60.8 | % | | 60.1 | % | | 60.5 | % |
Effect of catastrophe impacts | | | 0.5 | | | | 3.0 | | | | 1.7 | | | | 1.8 | | | 1.0 | | | 17.0 | | | 3.0 | | | 8.7 | |
Effect of development-related items | | | (2.8 | ) | | | 4.8 | | | | 0.4 | | | | 1.2 | | | | (2.0 | ) | | | 0.6 | | | | 0.1 | | | | (0.4 | ) |
Loss ratio | | | 57.8 | % | | | 69.3 | % | | | 69.4 | % | | | 64.7 | % | | 59.0 | % | | 78.4 | % | | 63.2 | % | | 68.8 | % |
Expense ratio | | | 31.8 | | | | 31.7 | | | | 38.0 | | | | 32.5 | | | 30.5 | | | 32.3 | | | 34.9 | | | 31.8 | |
Dividend ratio | | | 0.2 | | | | 0.6 | | | | | | | | 0.4 | | | | | | 0.6 | | | | | | 0.3 | |
Combined ratio | | | 89.8 | % | | | 101.6 | % | | | 107.4 | % | | | 97.6 | % | | | 89.5 | % | | | 111.3 | % | | | 98.1 | % | | | 100.9 | % |
Combined ratio excluding catastrophes and development | | | 92.1 | % | | | 93.8 | % | | | 105.3 | % | | | 94.6 | % | | 90.5 | % | | 93.7 | % | | 95.0 | % | | 92.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rate | | | 6 | % | | | 4 | % | | | 10 | % | | | 6 | % | | 13 | % | | 11 | % | | 17 | % | | 12 | % |
Renewal premium change | | | 9 | | | | 5 | | | | 6 | | | | 7 | | | 15 | | | 9 | | | 15 | | | 12 | |
Retention | | | 87 | | | | 86 | | | | 74 | | | | 84 | | | 87 | | | 82 | | | 69 | | | 82 | |
New business | | $ | 91 | | | $ | 173 | | | $ | 52 | | | $ | 316 | | | $ | 105 | | | $ | 168 | | | $ | 54 | | | $ | 327 | |
Nine Months Ended September 30, 2021 | | Specialty | | | Commercial | | | International | | | Total | |
(In millions, except %) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Gross written premiums | | $ | 5,650 | | | $ | 3,284 | | | $ | 958 | | | $ | 9,892 | |
Gross written premiums excluding third party captives | | | 2,656 | | | | 3,176 | | | | 958 | | | | 6,790 | |
Net written premiums | | | 2,350 | | | | 2,622 | | | | 783 | | | | 5,755 | |
Net earned premiums | | | 2,270 | | | | 2,629 | | | | 789 | | | | 5,688 | |
Net investment income | | | 367 | | | | 463 | | | | 42 | | | | 872 | |
Core income | | | 531 | | | | 233 | | | | 67 | | | | 831 | |
| | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | |
Loss ratio excluding catastrophes and development | | | 59.1 | % | | | 60.8 | % | | | 59.2 | % | | | 59.9 | % |
Effect of catastrophe impacts | | | 0.4 | | | | 12.6 | | | | 2.0 | | | | 6.3 | |
Effect of development-related items | | | (1.7 | ) | | | 0.6 | | | | 0.3 | | | | (0.4 | ) |
Loss ratio | | | 57.8 | % | | | 74.0 | % | | | 61.5 | % | | | 65.8 | % |
Expense ratio | | | 30.4 | | | | 31.4 | | | | 33.3 | | | | 31.3 | |
Dividend ratio | | | 0.1 | | | | 0.6 | | | | | | | | 0.3 | |
Combined ratio | | | 88.3 | % | | | 106.0 | % | | | 94.8 | % | | | 97.4 | % |
Combined ratio excluding catastrophes and development | | | 89.6 | % | | | 92.8 | % | | | 92.5 | % | | | 91.5 | % |
| | | | | | | | | | | | | | | | |
Rate | | | 10 | % | | | 8 | % | | | 13 | % | | | 10 | % |
Renewal premium change | | | 10 | | | | 9 | | | | 12 | | | | 10 | |
Retention | | | 84 | | | | 82 | | | | 76 | | | | 82 | |
New business | | $ | 370 | | | $ | 615 | | | $ | 204 | | | $ | 1,189 | |
Nine Months Ended September 30, 2020 | | Specialty | | | Commercial | | | International | | | Total | |
(In millions, except %) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Gross written premiums | | $ | 5,331 | | | $ | 3,103 | | | $ | 822 | | | $ | 9,256 | |
Gross written premiums excluding third party captives | | | 2,413 | | | | 3,018 | | | | 822 | | | | 6,253 | |
Net written premiums | | | 2,231 | | | | 2,703 | | | | 680 | | | | 5,614 | |
Net earned premiums | | | 2,124 | | | | 2,470 | | | | 699 | | | | 5,293 | |
Net investment income | | | 315 | | | | 389 | | | | 44 | | | | 748 | |
Core income | | | 354 | | | | 96 | | | | 15 | | | | 465 | |
| | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | |
Loss ratio excluding catastrophes | | | | | | | | | | | | | | | | |
and development | | | 59.8 | % | | | 60.4 | % | | | 60.1 | % | | | 60.1 | % |
Effect of catastrophe impacts | | | 5.7 | | | | 14.3 | | | | 8.9 | | | | 10.1 | |
Effect of development-related items | | | (2.1 | ) | | | 2.1 | | | | (0.4 | ) | | | 0.1 | |
Loss ratio | | | 63.4 | % | | | 76.8 | % | | | 68.6 | % | | | 70.3 | % |
Expense ratio | | | 31.5 | | | | 33.2 | | | | 35.6 | | | | 32.9 | |
Dividend ratio | | | 0.1 | | | | 0.6 | | | | | | | | 0.3 | |
Combined ratio | | | 95.0 | % | | | 110.6 | % | | | 104.2 | % | | | 103.5 | % |
Combined ratio excluding catastrophes and development | | | 91.4 | % | | | 94.2 | % | | | 95.7 | % | | | 93.3 | % |
| | | | | | | | | | | | | | | | |
Rate | | | 11 | % | | | 9 | % | | | 12 | % | | | 11 | % |
Renewal premium change | | | 11 | | | | 8 | | | | 11 | | | | 9 | |
Retention | | | 85 | | | | 84 | | | | 71 | | | | 82 | |
New business | | $ | 275 | | | $ | 564 | | | $ | 187 | | | $ | 1,026 | |
Nine Months Ended September 30, 2019 | | | | | | | | | | | | | |
Nine Months Ended September 30, 2020 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 5,191 | | | $ | 2,825 | | | $ | 837 | | | $ | 8,853 | | | $ | 5,331 | | | $ | 3,103 | | | $ | 822 | | | $ | 9,256 | |
Gross written premiums excluding third | | | | | | | | | | | | | | | | | |
party captives | | | 2,263 | | | | 2,742 | | | | 837 | | | | 5,842 | | |
Gross written premiums excluding third party captives | | | 2,413 | | | 3,018 | | | 822 | | | 6,253 | |
Net written premiums | | | 2,143 | | | | 2,536 | | | | 709 | | | | 5,388 | | | 2,231 | | | 2,703 | | | 680 | | | 5,614 | |
Net earned premiums | | | 2,061 | | | | 2,339 | | | | 729 | | | | 5,129 | | | 2,124 | | | 2,470 | | | 699 | | | 5,293 | |
Net investment income | | | 410 | | | | 480 | | | | 47 | | | | 937 | | | 315 | | | 354 | | | 44 | | | 713 | |
Core income | | | 483 | | | | 356 | | | | 14 | | | | 853 | | | 354 | | | 113 | | | 15 | | | 482 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss ratio excluding catastrophes | | | | | | | | | | | | | | | | | |
and development | | | 60.2 | % | | | 61.8 | % | | | 61.4 | % | | | 61.1 | % | |
Loss ratio excluding catastrophes and development | | | 59.8 | % | | 60.1 | % | | 60.1 | % | | 59.9 | % |
Effect of catastrophe impacts | | | 0.8 | | | | 4.3 | | | | 1.4 | | | | 2.5 | | | 5.7 | | | 14.3 | | | 8.9 | | | 10.1 | |
Effect of development-related items | | | (2.9 | ) | | | 1.5 | | | | 1.9 | | | | (0.2 | ) | | | (2.1 | ) | | | 0.1 | | | | (0.4 | ) | | | (0.8 | ) |
Loss ratio | | | 58.1 | % | | | 67.6 | % | | | 64.7 | % | | | 63.4 | % | | 63.4 | % | | 74.5 | % | | 68.6 | % | | 69.2 | % |
Expense ratio | | | 32.6 | | | | 32.7 | | | | 37.5 | | | | 33.3 | | | 31.5 | | | 33.2 | | | 35.6 | | | 32.9 | |
Dividend ratio | | | 0.2 | | | | 0.6 | | | | | | | | 0.4 | | | 0.1 | | | 0.6 | | | | | | 0.3 | |
Combined ratio | | | 90.9 | % | | | 100.9 | % | | | 102.2 | % | | | 97.1 | % | | | 95.0 | % | | | 108.3 | % | | | 104.2 | % | | | 102.4 | % |
Combined ratio excluding catastrophes and development | | | 93.0 | % | | | 95.1 | % | | | 98.9 | % | | | 94.8 | % | | 91.4 | % | | 93.9 | % | | 95.7 | % | | 93.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rate | | | 4 | % | | | 3 | % | | | 7 | % | | | 4 | % | | 12 | % | | 10 | % | | 13 | % | | 11 | % |
Renewal premium change | | | 7 | | | | 5 | | | | 5 | | | | 6 | | | 13 | | | 9 | | | 11 | | | 11 | |
Retention | | | 88 | | | | 86 | | | | 70 | | | | 84 | | | 86 | | | 84 | | | 71 | | | 83 | |
New business | | $ | 274 | | | $ | 522 | | | $ | 207 | | | $ | 1,003 | | | $ | 275 | | | $ | 564 | | | $ | 184 | | | $ | 1,023 | |
Three Months Ended September 30, 20202021 Compared to 2019the Comparable 2020 Period
Total gross written premiums increased $156 million for the three months ended September 30, 2020 as compared with the 2019 period. Total net written premiums increased $113 million for the three months ended September 30, 2020 as compared with the 2019 period.
Gross written premiums, excluding third party captives, for Specialty increased $83$82 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period driven by strong rate and higher new business. Net written premiums for Specialty increased $63$27 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. The increase in net earned premiums for the three months ended September 30, 20202021 was consistent with the trend in net written premiums in recent quarters for Specialty.
Gross written premiums for Commercial increased $55$95 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period driven by strong rate.rate and higher new business. Net written premiums for Commercial increased $29$27 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. The increase in net earned premiums for the three months ended September 30, 20202021 was consistent with the trend in net written premiums in recent quarters for Commercial.
Gross written premiums for International increased $12$38 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. Excluding the effect of foreign currency exchange rates, gross written premiums increased $9$26 million driven by growth in Europerate and Canada, partially offset by the continued impact of the strategic exit from certain Lloyd’s business classes.retention. Net written premiums for International increased $21$34 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. Excluding the effect of foreign currency exchange rates, net written premiums increased $18$23 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. NetThe increase in net earned premiums for the three months ended September 30, 2020 were2021 was consistent with the same periodtrend in 2019net written premiums for International.
CoreTotal core income increased $6decreased $19 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period primarily due to higher net catastrophe losses and lower net investment income, partially offset by improved non-catastrophe current accident year underwriting results, higher net investment income driven by limited partnership returns and favorable net prior year loss reserve development for the three months ended September 30, 2020 as compared with unfavorable net prior year loss reserve development in the 2019 period, largely offset by higher net catastrophe losses.results.
NetTotal net catastrophe losses were $160$178 million for the three months ended September 30, 20202021 as compared with $32$160 million in the 2019 period and primarily related to severe weather-related events.comparable 2020 period. For the three months ended September 30, 20202021 and 2019,2020, Specialty had net catastrophe losses of $7$3 million and $3$7 million, Commercial had net catastrophe losses of $146$166 million and $25$146 million and International had net catastrophe losses of $7$9 million and $4$7 million.
Favorable net prior year loss reserve development of $10 million and $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, 2019.2021 and 2020. For the three months ended September 30, 20202021 and 2019,2020, Specialty recorded favorable net prior year loss reserve development of $16$15 million and $20$16 million, and Commercial recorded unfavorable net prior year loss reserve development of $2 million and $1 million and $35 million.International recorded unfavorable net prior year loss reserve development of $3 million and no net prior year loss reserve development. Further information on net prior year loss reserve development is included in Note 65 of the Notes to Consolidated Condensed Financial Statements included under Item 1.1 of this Report.
Specialty’s combined ratio improved 1.3 points for the three months ended September 30, 2021 as compared with the comparable 2020 period due to a 1.3 point improvement in the loss ratio driven by improved current accident year underwriting results.
Commercial’s combined ratio increased 0.3 points for the three months ended September 30, 20202021 as compared with the 2019 period 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 was driven by lower favorable net prior year loss reserve development and higher net catastrophe losses.
Commercial’s combined ratio increased 9.9 points for the three months ended September 30,comparable 2020 as compared with the 2019 period due to a 9.32.2 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, which were 17.0 points of the loss ratio for the three months ended September 30, 2020, as compared with 3.0 points of the loss ratio in the 2019 period, partially offset by lower unfavorable net prior year loss reserve development in the current year period. The increase in the expense ratio was driven by higher acquisition expenses partially offset by higher net earned premiums.
International’s combined ratio improved 9.3 points for the three months ended September 30, 2020 as compared with the 2019 period due to a 6.2 point improvement in the loss ratio and a 3.1 point improvement in the expense ratio. The improvement in the loss ratio was primarily due to improved non-catastrophe current accident year underwriting results driven by lower large losses, partially offset by higher net catastrophe losses. The improvement in the expense ratio was driven by lower acquisition and underwriting expenses.
Nine Months Ended September 30, 2020 Compared to 2019
Total gross written premiums increased $403 million for the nine months ended September 30, 2020 as compared with the 2019 period. Total net written premiums increased $226 million for the nine months ended September 30, 2020 as compared with the 2019 period.
Gross written premiums, excluding third party captives, for Specialty increased $150 million for the nine months ended September 30, 2020 as compared with the 2019 period driven by strong rate. Net written premiums for Specialty increased $88 million for the nine months ended September 30, 2020 as compared with the 2019 period. The increase in net earned premiums for the nine months ended September 30, 2020 was consistent with the trend in net written premiums in recent quarters for Specialty.
Gross written premiums for Commercial increased $278 million for the nine months ended September 30, 2020 as compared with the 2019 period 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 2019 period. The increase in net earned premiums for the nine months ended September 30, 2020 was consistent with the trend in net written premiums in recent quarters partiallylargely offset by a reduction in the estimated audit premiums as a result of the economic slowdown arising from COVID-19 for Commercial.
Gross written premiums for International decreased $15 million for the nine months ended September 30, 2020 as compared with the 2019 period. 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 2019 period. 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 2019 period. The decrease in net earned premiums for the nine months ended September 30, 2020 was consistent with the trend in net written premiums in recent quarters for International.
Core income decreased $388 million for the nine months ended September 30, 2020 as compared with the 2019 period primarily due to higher net catastrophe losses and lower net investment income driven by limited partnership and common stock returns.
Net catastrophe losses were $536 million for the nine months ended September 30, 2020 as compared with $128 million in the 2019 period. Net catastrophe losses for the nine months ended September 30, 2020 include $273 million primarily related to severe weather-related events, $195 million related to COVID-19 and $68 million related to civil unrest. Specialty net catastrophe losses of $120 million for the nine months ended September 30, 2020 included $109 million related to the COVID-19 pandemic and $11 million primarily related to severe weather-related events. Specialty net catastrophe losses were $16 million for the nine months ended September 30, 2019. Commercial net catastrophe losses of $354 million for the nine months ended September 30, 2020 included $240 million primarily related to severe weather-related events, $66 million related to civil unrest and $48 million related to the COVID-19 pandemic. Commercial net catastrophe losses were $102 million for the nine months ended September 30, 2019. International net catastrophe losses of $62 million for the nine months ended September 30, 2020 included $38 million related to the COVID-19 pandemic and $24 million primarily related to severe weather-related events. International net catastrophe losses were $10 million for the nine months ended September 30, 2019.
The COVID-19 catastrophe losses, which were 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 CNA’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 result of shelter in place restrictions. Those benefits are modest and are partially offset by the impact of a reduction in the estimated audit premiums and an increase in the credit allowance for premiums receivables resulting from the depressed economic conditions.
Favorable net prior year loss reserve development of $8 million and $29 million was recorded for the nine months ended September 30, 2020 and 2019. For the nine months ended September 30, 2020 and 2019, Specialty recorded favorable net prior year loss reserve development of $47 million and $58 million and Commercial recorded unfavorable net prior year loss reserve development of $42 million and $15 million. For the nine months ended September 30, 2020, International recorded favorable net prior year loss reserve development of $3 million as compared with unfavorable net prior year loss reserve development of $14 million in the 2019 period. Further information on net prior year loss reserve development is included in Note 6 of the Notes to Consolidated Condensed Financial Statements included under Item 1.
Specialty’s combined ratio increased 4.1 points for the nine months ended September 30, 2020 as compared with the 2019 period 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, which were 5.7 points of the loss ratio for the nine months ended September 30, 2020, as compared with 0.8 points of the loss ratio in the 2019 period. The improvement in the expense ratio was driven by lower underwriting expenses and higher net earned premiums.
Commercial’s combined ratio increased 9.7 points for the nine months ended September 30, 2020 as compared with the 2019 period 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, which were 14.3 points of the loss ratio for the nine months ended September 30, 2020, as compared with 4.3 point of the loss ratio in the 2019 period. The increase in the expense ratio was driven by higher acquisition expenses partially offset by higher net earned premiums.
International’s combined ratio increased 2.0 points for the nine months ended September 30, 2020 as compared with the 2019 period 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, which were 8.918.6 points of the loss ratio for the three months ended September 30, 2021 as compared with 17.0 points of the loss ratio in the comparable 2020 period. The improvement in the expense ratio was primarily due to higher net earned premiums and lower acquisition costs driven by ceded commissions.
International’s combined ratio improved 2.6 points for the three months ended September 30, 2021 as compared with the comparable 2020 period primarily due to a 2.8 point improvement in the expense ratio. The improvement in the expense ratio was driven by higher net earned premiums and lower acquisition costs.
Nine Months Ended September 30, 2021 Compared to the Comparable 2020 Period
Gross written premiums, excluding third party captives, for Specialty increased $243 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period driven by rate and higher new business. Net written premiums for Specialty increased $119 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the nine months ended September 30, 2021 was consistent with the trend in net written premiums for Specialty.
Gross written premiums for Commercial increased $181 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period driven by rate and higher new business. Net written premiums for Commercial decreased $81 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period driven by the impact of the June 1, 2021 written premium catch-up resulting from the addition of the quota share treaty to the property reinsurance program. Excluding the impact of the June 1, 2021 written premium catch-up, net written premiums increased $31 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period. Net earned premiums for Commercial increased $159 million for the nine months
ended September 30, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the nine months ended September 30, 2021 was partially impacted by a reduction in estimated audit premiums related to COVID-19 in 2020 for Commercial.
Gross written premiums for International increased $136 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period. Excluding the effect of foreign currency exchange rates, gross written premiums increased $82 million driven by rate and higher new business. Net written premiums for International increased $103 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period. Excluding the effect of foreign currency exchange rates, net written premiums increased $57 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the nine months ended September 30, 2021 was consistent with the trend in net written premiums for International.
Total core income increased $349 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period primarily due to improved current accident year underwriting results and higher net investment income driven by limited partnership and common stock returns.
Total net catastrophe losses were $357 million for the nine months ended September 30, 2021 as compared with $536 million in the comparable 2020 period. For the nine months ended September 30, 2021 and 2020, Specialty had net catastrophe losses of $9 million and $120 million, Commercial had net catastrophe losses of $332 million and $354 million and International had net catastrophe losses of $16 million and $62 million.
Favorable net prior year loss reserve development of $36 million and $58 million was recorded for the nine months ended September 30, 2021 and 2020. For the nine months ended September 30, 2021 and 2020, Specialty recorded favorable net prior year loss reserve development of $40 million and $47 million, Commercial recorded unfavorable net prior loss reserve development of $2 million and favorable net prior year loss reserve development of $8 million and International recorded unfavorable net prior year loss reserve development of $2 million and favorable net prior year loss reserve development of $3 million. Further information on net prior year loss reserve development is included in Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report.
Specialty’s combined ratio improved 6.7 points for the nine months ended September 30, 2021 as compared with the comparable 2020 period due to a 5.6 point improvement in the loss ratio and a 1.1 point improvement in the expense ratio. The improvement in the loss ratio was primarily due to lower net catastrophe losses and improved non-catastrophe current accident year underwriting results. Net catastrophe losses were 0.4 points of the loss ratio for the nine months ended September 30, 2020,2021, as compared with 1.45.7 points of the loss ratio in the 2019 period, partially offset by favorable net prior year loss reserve development in the current yearcomparable 2020 period. The improvement in the expense ratio was driven by lower acquisition and underwriting expenses.higher net earned premiums.
Commercial’s combined ratio improved 2.3 points for the nine months ended September 30, 2021 as compared with the comparable 2020 period primarily due to a 1.8 point improvement in the expense ratio. The improvement in the expense ratio was primarily due to higher net earned premiums and a favorable acquisition ratio. Net catastrophe losses were 12.6 points of the loss ratio for the nine months ended September 30, 2021 as compared with 14.3 points of the loss ratio for the comparable 2020 period.
International’s combined ratio improved 9.4 points for the nine months ended September 30, 2021 as compared with the comparable 2020 period due to a 7.1 point improvement in the loss ratio and a 2.3 point improvement in the expense ratio. The improvement in the loss ratio was driven by lower net catastrophe losses, which were 2.0 points of the loss ratio for the nine months ended September 30, 2021 as compared with 8.9 points of the loss ratio in the comparable 2020 period, and improved non-catastrophe current accident year underwriting results. The improvement in the expense ratio was driven by a favorable acquisition ratio and higher net earned premiums.
Other Insurance Operations
The following table summarizes the results of CNA’s Other Insurance Operations for the three and nine months ended September 30, 20202021 and 2019:2020:
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earned premiums | | $ | 127 | | | $ | 130 | | | $ | 380 | | | $ | 390 | | | $ | 123 | | | $ | 127 | | | $ | 369 | | | $ | 380 | |
Net investment income | | | 211 | | | | 213 | | | | 632 | | | | 636 | | | 242 | | | 225 | | | 736 | | | 667 | |
Core loss | | | (54 | ) | | | (139 | ) | | | (65 | ) | | | (139 | ) | |
Core income (loss) | | | 20 | | | (43 | ) | | 10 | | | (82 | ) |
Three Months Ended September 30, 20202021 Compared to 2019the Comparable 2020 Period
Core lossresults improved $85$63 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. Results for the three months ended September 30, 2021 included no unlocking event for active life reserves as a result of the gross premium valuation (“GPV”). Core lossresults for the three months ended September 30, 2021 included a $31 million favorable impact from the reduction in long term care claim reserves resulting from the annual claim reserve reviews in the third quarter of 2021. Core results 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.policies. 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 lossresults for the three months ended September 30, 2020 also included a $36 million charge related to the increase in the structured settlement claim reserves andpartially offset by a $30 million favorable impact from the reduction in long term care claim reserves, both resulting from the annual claim experience studiesreserve reviews 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, CNA 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 CNA increased its 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 Months Ended September 30, 20202021 Compared to 2019the Comparable 2020 Period
Core lossresults improved $74$92 million for the nine months ended September 30, 20202021 as compared with the 2019comparable 2020 period. The drivers of the core loss decreaseimproved results were generally consistent with the three month discussion above. In addition, core results for the nine months ended September 30, 2021 included lower unfavorable net prior year loss reserve development related to legacy mass tort exposures as compared with the comparable 2020 period. Core results for the nine months ended September 30, 2021 also reflect expenses related to the March 2021 cybersecurity attack, the recognition of a $12 million loss resulting from the legacy excess workers’ compensation loss portfolio transfer (“EWC LPT”) and lower amortization of the deferred gain related to the A&EP Loss Portfolio Transfer (“LPT”) as compared with the comparable 2020 period. For further information on the A&EP LPT, EWC LPT and net prior year loss reserve development see Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report.
Life & Group Policyholder Reserves
Annually, in the third quarter, CNA assesses the adequacy of its long term care future policy benefit reserves by performing a gross premium valuation (“GPV”)GPV to determine if there is a premium deficiency. See the Insurance Reserves section of our MD&A included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20192020 for further information on the reserving process.
The September 30, 20202021 GPV indicated that the recorded reserves included a premium deficiencymargin 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 CNA’s best estimate assumptions at that date with no margin for adverse deviation.approximately $72 million. A summary of the changes in the GPV resultsestimated reserve margin is presented in the table below:
(In millions) | | | | | | |
| | | | | | |
Long term care active life reserve - change in estimated reserve margin | | | | | | |
| | | | | | |
September 30, 2019 estimated margin | | $ | - | | |
September 30, 2020 estimated margin | | | $ | - | |
| | | | | | | |
Changes in underlying discount rate assumptions(a) | | | (609 | ) | | 65 | |
Changes in underlying morbidity assumptions | | | 51 | | | 205 | |
Changes in underlying persistency assumptions | | | 152 | | | (233 | ) |
Changes in underlying premium rate action assumptions | | | 318 | | | 27 | |
Changes in underlying expense and other assumptions | | | 14 | | | | 8 | |
| | | | | | | |
September 30, 2020 Premium Deficiency | | $ | (74 | ) | |
September 30, 2021 Estimated Margin | | | $ | 72 | |
(a) | Including cost of care inflation assumption. |
The premium deficiencyincrease in the margin in 2021 was primarily driven by changes in discount rate assumptions due to lowerhigher near term 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 theunderlying morbidity assumptions. These favorable drivers were partially offset by unfavorable changes to underlying persistency and morbidity assumptions.
CNA’s projections do not indicate a pattern of expected profits in earlier future years followed by expected losses in later future years. As such, CNA will not establishhas determined that additional future policy benefit reserves for profits followed by losses in periods whereare not currently required based on the long term care business generates core income. The need for these additional future policy benefit reserves will be re-evaluated in connection with the next GPV, which is expected to be completed in the third quarter of 2021.most recent projections.
The table below summarizes the estimated pretax impact on CNA’s results of operations from various hypothetical revisions to its 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, CNA has 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, CNA believes they could occur based on past variances in experience and its expectations of the ranges of future experience that could reasonably occur. Any required increase in the recorded reserves resulting from a hypothetical revision in the table below would first reduce the margin in the carried reserves before it would affect results from operations. Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized below. The estimated impacts to results of operations in the table below are after consideration of the existing margin.
September 30, 2020 | | Estimated Reduction to Pretax Income | |
(In millions) | | | |
| | | |
Hypothetical revisions | | | |
Morbidity: | | | |
2.5% increase in morbidity | | $ | 339 | |
5% increase in morbidity | | | 677 | |
Persistency: | | | | |
5% decrease in active life mortality and lapse | | $ | 254 | |
10% decrease in active life mortality and lapse | | | 469 | |
Discount rates: | | | | |
25 basis point decline in new money interest rates | | $ | 175 | |
50 basis point decline in new money interest rates | | | 356 | |
Premium rate actions: | | | | |
25% decrease in anticipated future premium rate increases | | $ | 66 | |
50% decrease in anticipated future premium rate increases | | | 132 | |
The following table summarizes policyholder reserves for CNA’s long term care operations:
September 30, 2020 | | Claim and claim adjustment expenses | | | Future policy benefits | | | Total | |
(In millions) | | | | | | | | | |
| | | | | | | | | |
Long term care | | $ | 2,866 | | | $ | 9,678 | | | $ | 12,544 | |
Structured settlement annuities | | | 547 | | | | | | | | 547 | |
Other | | | 12 | | | | | | | | 12 | |
Total | | | 3,425 | | | | 9,678 | | | | 13,103 | |
Shadow adjustments (a) | | | 204 | | | | 3,035 | | | | 3,239 | |
Ceded reserves (b) | | | 137 | | | | 265 | | | | 402 | |
Total gross reserves | | $ | 3,766 | | | $ | 12,978 | | | $ | 16,744 | |
December 31, 2019 | | | | | | | | | |
| | | | | | | | | |
Long term care | | $ | 2,863 | | | $ | 9,470 | | | $ | 12,333 | |
Structured settlement annuities | | | 515 | | | | | | | | 515 | |
Other | | | 12 | | | | | | | | 12 | |
Total | | | 3,390 | | | | 9,470 | | | | 12,860 | |
Shadow adjustments (a) | | | 167 | | | | 2,615 | | | | 2,782 | |
Ceded reserves (b) | | | 159 | | | | 226 | | | | 385 | |
Total gross reserves | | $ | 3,716 | | | $ | 12,311 | | | $ | 16,027 | |
(a) | 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, after tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (loss) (“Shadow Adjustments”). |
(b) | Ceded reserves relate to claim or policy reserves fully reinsured in connection with a sale or exit from the underlying business. |
September 30, 2021 | | Estimated Reduction to Pretax Income | |
(In millions) | | | |
| | | |
Hypothetical revisions | | | |
Morbidity: | | | |
2.5% increase in morbidity | | $ | 300 | |
5% increase in morbidity | | | 600 | |
Persistency: | | | | |
5% decrease in active life mortality and lapse | | $ | 100 | |
10% decrease in active life mortality and lapse | | | 300 | |
Discount rates: | | | | |
25 basis point decline in new money interest rates | | $ | 100 | |
50 basis point decline in new money interest rates | | | 200 | |
Premium rate actions: | | | | |
25% decrease in anticipated future premium rate increases | | $ | - | |
50% decrease in anticipated future premium rate increases | | | - | |
Non-GAAP Reconciliation of Core Income (Loss) to Net Income
The following table reconciles core income (loss) to net income attributable to Loews Corporation for the three and nine months ended September 30, 20202021 and 2019:2020:
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Core income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Property & Casualty Operations | | $ | 247 | | | $ | 241 | | | $ | 465 | | | $ | 853 | | | $ | 217 | | | $ | 236 | | | $ | 831 | | | $ | 482 | |
Other Insurance Operations | | | (54 | ) | | | (139 | ) | | | (65 | ) | | | (139 | ) | | 20 | | | (43 | ) | | 10 | | | (82 | ) |
Total core income | | | 193 | | | | 102 | | | | 400 | | | | 714 | | | 237 | | | 193 | | | 841 | | | 400 | |
Investment gains (losses) | | | 36 | | | | 6 | | | | (81 | ) | | | 30 | | | 18 | | | 36 | | | 94 | | | (81 | ) |
Consolidating adjustments including noncontrolling interests | | | (37 | ) | | | (12 | ) | | | (47 | ) | | | (94 | ) | | (26 | ) | | (37 | ) | | (97 | ) | | (47 | ) |
Net income attributable to Loews Corporation | | $ | 192 | | | $ | 96 | | | $ | 272 | | | $ | 650 | | | $ | 229 | | | $ | 192 | | | $ | 838 | | | $ | 272 | |
Boardwalk Pipelines
Current Events
In the third quarter of 2020, the COVID-19 pandemic and measures to mitigate the spread of COVID-19 continued to impact the world and the United States. An excess supply of energy products has also led to disruptions in the energy sector and volatility in energy prices during 2020. Boardwalk Pipelines’ operations are considered essential critical infrastructure under current Cybersecurity and Infrastructure Security Agency guidelines and the impacts from COVID-19 and the volatile energy prices have not beenA significant to Boardwalk Pipelines’ business, though some of its customers have been and continue to be directly impacted by COVID-19 and the volatility in commodity prices.
The safety of Boardwalk Pipelines’ employees and operations while providing uninterrupted service to its customers remains its primary focus. Although it is difficult to reasonably determine the ongoing and future impacts of the COVID-19 pandemic and the volatility in energy prices, an extended downturn in the economy and depressed energy prices could negatively affect Boardwalk Pipelines’ customers and their businesses and could in turn have a material adverse effect on Boardwalk Pipelines’ business.
Firm Agreements
A substantial portion of Boardwalk Pipelines’ transportation and storage capacity is contracted for under firm agreements. For the twelve months ended September 30, 2020, approximately 90% of Boardwalk Pipelines’ revenues wereare fee-based, being derived from fixed fees under firm agreements. Boardwalk Pipelines expects to earn revenues of approximately $9.2 billion from fixed fees under committed firm agreements in place as of September 30, 2020, including agreements for transportation, storage and other services, over the remaining term of those agreements. For the nine months ended September 30, 2020, Boardwalk Pipelines added approximately $643 million from the comparable amount at December 31, 2019, from contracts entered into during 2020. For Boardwalk Pipelines’ customers that are charged its maximum applicable tariff rates related to its Federal Energy Regulatory Commission (“FERC”) regulated operating subsidiaries, the revenues expected to be earned from fixed fees under committed firm agreements reflect the current tariff rate for such services for the term of the agreements, however, the tariff rates may be subject to future adjustment. The estimated revenues from fixed fees under committed firm agreements may also include estimated revenues that are anticipated under executed precedent transportation agreements for projects that are subject to regulatory approvals. The revenues expected to be earned from fixed fees under committed firm agreements do not include additional revenues Boardwalk Pipelines has recognized and may recognizecapacity reservation charges under firm agreements based on actual utilization of the contracted pipeline or storage capacity, any expected revenues for periods after the expiration dates of the existing agreements, execution of precedent agreements associated with growth projects or other events that occurred or will occur subsequentcustomers, which do not vary significantly period to September 30, 2020.
Contract Renewals
Each year a portion of Boardwalk Pipelines’ firm transportation and storage agreements expire. The rates Boardwalk Pipelines is able to charge customersperiod, but are heavily influencedimpacted by marketlonger term trends (both short and longer term), including the available supply, geographical location of natural gas production, the competition between producing basins, competition with other pipelines for supply and markets, the demand for gas by end-usersin its business such as power plants,
petrochemical facilitieslower pricing on contract renewals and liquefied natural gas export facilities and the price differentials between the gas supplies and the market demand for the gas (basis differentials). Boardwalk Pipelines’ storage rates are additionally impacted by natural gas price differentials between time periods, such as winter to summer (time period price spreads), and the volatility in time period price spreads. Demand for firm service is primarily based on market conditions which can vary across Boardwalk Pipelines’ pipeline systems. While Boardwalk Pipelines has not seen a significant change in the demand for its transportation services as a result of the COVID-19 pandemic or the volatility in energy prices and excess supply of energy products, if these conditions remain for an extended period of time or re-occur, Boardwalk Pipelines could see a decline in the demand for its services. Boardwalk Pipelines focuses its marketing efforts on enhancing the value of the capacity that is up for renewal and works with customers to match gas supplies from various basins to new and existing customers and markets, including aggregating supplies at key locations along its pipelines to provide end-use customers with attractive and diverse supply options. If the market perceives the value of Boardwalk Pipelines’ available capacity to be lower than its long term view of the capacity, Boardwalk Pipelines may seek to shorten contract terms until market perception improves.
Over the past several years, as a result of market conditions, Boardwalk Pipelines has renewed some expiring contracts at lower rates or for shorter terms than in the past. In addition to normal contract expirations, in the 2018 to 2020 timeframe, transportation agreements associated with its significant pipeline expansion projects that were placed into service in the 2007-2009 timeframe, have expired. A substantial portion of the capacity associated with the pipeline expansion projects was recontracted, usually at lower rates or lower volumes, which has negatively impactedother factors. Boardwalk Pipelines’ operating revenues.
Resultscosts and expenses do not vary significantly based upon the amount of Operationsproducts transported, with the exception of costs recorded in fuel and transportation expense, which are netted with fuel retained on our Consolidated Condensed Statements of Operations. For further information on Boardwalk Pipelines’ revenue recognition policies see Note 1 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
The following table summarizes the results of operations for Boardwalk Pipelines for the three and nine months ended September 30, 20202021 and 20192020 as presented in Note 1411 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report:
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenues and other | | $ | 289 | | | $ | 296 | | | $ | 926 | | | $ | 969 | | | $ | 307 | | | $ | 289 | | | $ | 991 | | | $ | 926 | |
Total | | | 289 | | | | 296 | | | | 926 | | | | 969 | | | 307 | | | 289 | | | 991 | | | 926 | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating and other | | | 219 | | | | 212 | | | | 633 | | | | 616 | | | 215 | | | 219 | | | 641 | | | 633 | |
Interest | | | 44 | | | | 45 | | | | 127 | | | | 136 | | | | 40 | | | | 44 | | | | 121 | | | | 127 | |
Total | | | 263 | | | | 257 | | | | 760 | | | | 752 | | | 255 | | | 263 | | | 762 | | | 760 | |
Income before income tax | | | 26 | | | | 39 | | | | 166 | | | | 217 | | | 52 | | | 26 | | | 229 | | | 166 | |
Income tax expense | | | (6 | ) | | | (10 | ) | | | (43 | ) | | | (56 | ) | | (14 | ) | | (6 | ) | | (59 | ) | | (43 | ) |
Net income attributable to Loews Corporation | | $ | 20 | | | $ | 29 | | | $ | 123 | | | $ | 161 | | | $ | 38 | | | $ | 20 | | | $ | 170 | | | $ | 123 | |
Three Months Ended September 30, 20202021 Compared to 2019the Comparable 2020 Period
Total revenues decreased $7increased $18 million for the three months ended September 30, 20202021 as compared with the 2019 periodcomparable 2020 period. Including fuel and transportation expense, revenues increased $21 million, primarily driven by contract expirations that were recontracted at overall lower average rates and lower utilization-related revenues, partially offset by revenues from recently completed growth projects and higher storage and parking and lending (“PAL”) revenues due to favorable market conditions.utilization-based revenues.
Operating and other expenses increased $7decreased $4 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. Excluding fuel and transportation expense, which was offset with operating revenues, operating and other expenses were essentially flat.
Interest expenses decreased $4 million for the three months ended September 30, 2021 as compared with the comparable 2020 period, primarily due to lower average interest rates and lower average outstanding long term debt balances.
Nine Months Ended September 30, 2021 Compared to the Comparable 2020 Period
Total revenues increased $65 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period, primarily driven by recently completed growth projects and higher system utilization from colder winter weather experienced during the first quarter of 2021.
Operating and other expenses increased $8 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period, primarily due to an increased asset base from recently completed growth projects and the expiration of property tax abatements, partially offset by the timing of maintenance projects and lower employee-related costs.projects.
Nine Months Ended September 30, 2020 Compared to 2019
Total revenuesInterest expense decreased $43$6 million for the nine months ended September 30, 20202021 as compared with the 2019 period. Including the effect of items in fuel and transportation expense and excluding net proceeds of approximately $24 million as a result of drawing on letters of credit due to a customer bankruptcy in the 2019 period, operating revenues decreased $24 million driven by contract expirations that were recontracted at overall lower average rates, partially offset by revenues from recently completed growth projects and higher storage and PAL revenues due to favorable market conditions.
Operating expenses increased $17 million for the nine months ended September 30,comparable 2020 as compared with the 2019 period. Excluding items offset in operating revenues, operating expenses increased $14 million, primarily due to an increased asset base from recently completed growth projects and the expiration of property tax abatements. Interest expense decreased $9 million for the nine months ended September 30, 2020 as compared with the 2019 period, primarily due to lower average interest rates and lower average outstanding debt.long term debt balances.
Loews Hotels & Co
The following table summarizes the results of operations for Loews Hotels & Co for the three and nine months ended September 30, 20202021 and 20192020 as presented in Note 1411 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report:
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenue | | $ | 22 | | | $ | 127 | | | $ | 140 | | | $ | 437 | | | $ | 107 | | | $ | 22 | | | $ | 222 | | | $ | 140 | |
Gain on sale of assets | | | 24 | | | | | | | | 37 | | | | | | | | | | 24 | | | | | | 37 | |
Revenues related to reimbursable expenses | | | 14 | | | | 29 | | | | 59 | | | | 85 | | | | 27 | | | | 14 | | | | 67 | | | | 59 | |
Total | | | 60 | | | | 156 | | | | 236 | | | | 522 | | | 134 | | | 60 | | | 289 | | | 236 | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating and other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating | | | 53 | | | | 113 | | | | 219 | | | | 372 | | | 93 | | | 53 | | | 231 | | | 219 | |
Asset impairments | | | 10 | | | | | | | | 30 | | | | 11 | | | | | | 10 | | | | | | 30 | |
Reimbursable expenses | | | 14 | | | | 29 | | | | 59 | | | | 85 | | | 27 | | | 14 | | | 67 | | | 59 | |
Depreciation | | | 15 | | | | 14 | | | | 45 | | | | 45 | | | 15 | | | 15 | | | 47 | | | 45 | |
Equity (income) loss from joint ventures | | | 22 | | | | (11 | ) | | | 51 | | | | (49 | ) | | (26 | ) | | 22 | | | (17 | ) | | 51 | |
Interest | | | 8 | | | | 6 | | | | 24 | | | | 16 | | | 8 | | | 8 | | | 25 | | | 24 | |
Total | | | 122 | | | | 151 | | | | 428 | | | | 480 | | | | 117 | | | | 122 | | | | 353 | | | | 428 | |
Income (loss) before income tax | | | (62 | ) | | | 5 | | | | (192 | ) | | | 42 | | | 17 | | | (62 | ) | | (64 | ) | | (192 | ) |
Income tax (expense) benefit | | | 15 | | | | (2 | ) | | | 48 | | | | (14 | ) | | | (4 | ) | | | 15 | | | | 13 | | | | 48 | |
Net income (loss) attributable to Loews Corporation | | $ | (47 | ) | | $ | 3 | | | $ | (144 | ) | | $ | 28 | | | $ | 13 | | | $ | (47 | ) | | $ | (51 | ) | | $ | (144 | ) |
Due toLoews Hotels & Co’s results have been significantly impacted by the COVID-19 pandemicpandemic. By April 2020, most hotel properties owned and/or operated by Loews Hotels & Co had temporarily suspended operations. These hotel properties gradually resumed operations at various times, culminating with all hotels having resumed operations by June 30, 2021. During 2021, occupancy rates have gradually improved as social distancing restrictions were scaled back and efforts to mitigate the spread of the virus, twentyvaccinations helped reduce infection rates, with hotel properties located in resort destinations improving sooner than hotel properties located in city centers. However, occupancy levels have not reached pre-pandemic levels at many hotels owned and/or operated by Loews Hotels & Co temporarily suspended operations in March of 2020, with two additional hotels suspending operations in April of 2020. Of these twenty-two hotels, five were not operational as of September 30, 2020. Additionally, two hotels completed construction prior to the pandemic; one delayed opening until June of 2020, and the opening date of the second continues to be evaluated. However, occupancy rates at the operational hotels remain lower than those from the prior year, or even occupancy rates prior to March of 2020. Although Loews Hotels & Co has enacted significant measures to adjust the operating cost structure of each hotel during these suspensions and subsequent resumptions of operations, deferred most capital expenditures and reduced the operating costs of its management company, these measures could not offset the impact of significant lost revenues. Loews Hotels & Co has therefore incurred significant operating losses since the start of the pandemic.
The resumption of operations for the remaining hotels that continue to have suspended operations, as well as the potential for hotels which have resumed operations to re-suspend operations, will depend on numerous factors, many of which are outside Loews Hotels & Co’s control. Although occupancy at operational hotel properties has increased, and is expected to increase, gradually, it is nonetheless highly dependent on the travel behavior of potential hotel guests, driven largely by factors outside Loews Hotels & Co’s control, including government capacity restrictions, travel restrictions and the duration and scope of the COVID-19 pandemic. While the duration of the COVID-19 outbreak and related financial impact cannot be estimated at this time, Loews Hotels & Co’s results of operations,Co.
financial condition and cash flows will be materially adversely affected for the remainderThe increase in operating revenues of 2020, and likely thereafter. The severity of the impact on Loews Hotels & Co will depend in large part on the duration of containment efforts, either mandated or voluntary,$85 million and the perceptionsincrease in operating expenses of health risks associated with COVID-19 related to business and leisure travel. In addition, once the COVID-19 outbreak is mitigated or contained, whenever that may be, historical travel patterns, both domestic and international, may continue to be disrupted either on a temporary basis or with longer term effects. These factors have contributed to impairment charges$40 million for the three andmonths ended September 30, 2021 as compared with the comparable 2020 period, when operations were significantly impacted by the pandemic, was due to improved performance. For the nine months ended September 30, 2020, and may lead to additional impairment charges in future periods.
Reduced occupancy and average daily rates caused by the COVID-19 pandemic and resulting mitigation efforts and operating cost reduction measures are the primary reasons for the decrease in2021 operating revenues of $105 million and $297improved by $82 million and operating expenses increased $12 million as compared with the comparable 2020 period. The nine-month comparison is impacted by pre-pandemic business levels prior to mid-March 2020 followed by results that were significantly impacted by the pandemic for the remainder of $602020. Through 2021, occupancy levels have gradually increased leading to improved revenues at most hotel properties, with operating expenses also increasing to support the increased demand levels. As all properties have not resumed all levels of pre-pandemic service offerings, hotel operating expenses, including staffing levels, will increase as those return.
Equity (income) loss from joint ventures improved $48 million and $153$68 million for the three and nine months ended September 30, 20202021 as compared with the 2019 periods. Additionally,comparable 2020 periods driven by the resumption of operations and associated occupancy improvement at all joint venture hotels. The three months ended September 30, 2021 was the first quarter during which all 9,000 rooms that are part of the Universal Orlando Resort joint ventures were open for the full quarter. In addition, pre-opening costs included in equity income(income) loss from joint ventures decreased $33$1 million and $100$8 million for the three and nine months ended September 30, 20202021 as compared with the 2019 periods driven primarily by the COVID-19 pandemic.comparable 2020 periods.
Loews Hotels & Co considers events or changes in circumstances that indicate the carrying amount of its assets may not be recoverable. For the three and nine months ended September 30, 2020, Loews Hotels & Co recorded impairment charges of $10 million and $30 million to reduce the carrying value of certain assets to their estimated fair value. The nine months ended September 30, 2019 includes impairment charges of $11 million.
Loews Hotels & Co recorded gains on the sale of assets of $24 million and $37 million for the three and nine months ended September 30, 2020 related to sales of an office building in the third quarter and an owned hotel in the second quarter.
Interest expense for the three and nine months ended September 30, 2020 increased $2 million and $8 million primarily due to the increase in debt balances and less capitalized interest related to recently completed hotel development projects as compared with the 2019 periods.quarter.
Corporate
Corporate operations consist primarily of investment income, interest expense and administrative costs at the Parent Company, operating results of Altium Packaging, Parent Company interest expense and other Parent Company administrative costs.Company. Investment income includes earnings on cash and short term investments held at the Parent Company to meet current and future liquidity needs, as well as results of limited partnership investments and the trading portfolio held at the Parent Company. Corporate also includes the operating results of Altium Packaging through March 31, 2021 and the loss related to the Parent Company’s equity method investment in Altium Packaging beginning on April 1, 2021, as a result of the sale of 47% of the Parent Company’s interest in Altium Packaging and the resulting deconsolidation. See Note 2 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report for further information.
The following table summarizes the results of operations for Corporate for the three and nine months ended September 30, 20202021 and 20192020 as presented in Note 1411 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report:
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | 23 | | | $ | 36 | | | $ | (33 | ) | | $ | 153 | | | $ | (30 | ) | | $ | 23 | | | $ | 40 | | | $ | (33 | ) |
Investment loss | | | | | | | | | | | (1,211 | ) | | | | | |
Investment gains (losses) | | | | | | | | | 540 | | | (1,211 | ) |
Operating revenues and other | | | 253 | | | | 250 | | | | 754 | | | | 689 | | | | 1 | | | | 253 | | | | 282 | | | | 754 | |
Total | | | 276 | | | | 286 | | | | (490 | ) | | | 842 | | | (29 | ) | | 276 | | | 862 | | | (490 | ) |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating and other | | | 275 | | | | 264 | | | | 810 | | | | 740 | | | 27 | | | 275 | | | 365 | | | 810 | |
Interest | | | 33 | | | | 31 | | | | 96 | | | | 85 | | | | 23 | | | | 33 | | | | 93 | | | | 96 | |
Total | | | 308 | | | | 295 | | | | 906 | | | | 825 | | | 50 | | | 308 | | | 458 | | | 906 | |
Income (loss) before income tax | | | (32 | ) | | | (9 | ) | | | (1,396 | ) | | | 17 | | | (79 | ) | | (32 | ) | | 404 | | | (1,396 | ) |
Income tax (expense) benefit | | | 6 | | | | 1 | | | | 293 | | | | (4 | ) | | 19 | | | 6 | | | (126 | ) | | 293 | |
Net income (loss) attributable to Loews Corporation | | $ | (26 | ) | | $ | (8 | ) | | $ | (1,103 | ) | | $ | 13 | | | $ | (60 | ) | | $ | (26 | ) | | $ | 278 | | | $ | (1,103 | ) |
Net investment incomeloss for the Parent Company decreased $13was $30 million for the three months ended September 30, 20202021 as compared with net investment income of $23 million for the 2019comparable 2020 period, primarily due to decreased earnings from short term investments and lower results from equity based investments in the Parent Company trading portfolio. Net investment income for the Parent Company for the nine months ended September 30, 2021 was $40 million as compared with a net investment loss wasof $33 million for the comparable 2020 period, primarily due to improved results from equity based investments in the Parent Company trading portfolio.
Investment gains of $540 million for the nine months ended September 30, 2020 as compared with net investment income2021 were primarily due to a gain of $153$555 million in($438 million after tax) on the 2019 period as a resultsale of the significant decline in equity based investments in response to the COVID-19 pandemic and related containment measures.
47% of Altium Packaging. Investment loss of $1.2 billion ($957 million after tax) for the nine months ended September 30, 2020 was due to the loss recognized upon deconsolidation of Diamond Offshore as a result of its Chapter 11 Filing.
Operating revenues and other include Altium Packaging revenues of $280 million for 2021, prior to its deconsolidation on April 1, 2021, and $253 million and $252 million for the three months ended September 30, 2020 and 2019 and $753 million and $689 million for the nine months ended September 30, 2020 and 2019. The increase of $1 million for the three months ended September 30, 2020 as compared with the 2019 period reflects higher volumes, largely offset by the pass-through effect of lower year-over-year resin prices. The increase of $64 million for the nine months ended September 30, 2020 as compared with the 2019 period reflects an increase of $60 million related to acquisitions in 2019 and higher volumes as a result of higher COVID-19 related demand for household chemicals, water and beverage, partially offset by the pass-through effect of lower year-over-year resin prices. Altium Packaging’s contracts generally provide for resin price changes to be passed through to its customers on a short-term lag, generally about one month. When a pass-through occurs, revenues and expenses generally change by the same amount so that Altium Packaging’s gross margin returns to the same level as prior to the change in prices.
Operating and other expenses include Altium Packaging operating expenses of $247 million for the three months ended September 30, 2020 and 2019 and $729 million and $675 million for the nine months ended September 30, 2020 and 2019, which include depreciation and amortization expense. The increase in operating expenses of $54 million for the nine months ended September 30, 2020 as compared with the 2019 period is primarily due to acquisitions in 2019.
Corporate Operating and other expenses were $28 million and $17 million for the three months ended September 30, 2020 and 2019 and $81 million and $65 million for the nine months ended September 30, 2020 and 2019. The increases of $11 million and $16 million for the three and nine months ended September 30, 20202020.
Operating and other expenses decreased by $248 million and $445 million for the three and nine months ended September 30, 2021 as compared with the 2019comparable 2020 periods are primarily due to the deconsolidation of Altium Packaging as the three and nine months ended September 30, 2020 included $247 million and $729 million of Operating and other expenses for Altium Packaging. Operating and other expenses also include legal and other corporate overhead expenses at the Parent Company. In addition, pursuant to the deconsolidation of Altium Packaging, the related loss related to the Parent Company’s investment in Altium Packaging is included in Operating and other expenses.
Interest expenses increased $2decreased $10 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period primarily due to the deconsolidation of Altium Packaging as the three months ended September 30, 2020 included $12 million of interest expense for Altium packaging. Interest expenses decreased $3 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period primarily due to the deconsolidation of Altium Packaging as of April 1, 2021, partially offset by the May of 2020 issuance of the Parent Company’s $500 million aggregate principal amount of 3.2% senior notes due May 15, 2030. Interest expenses increased $11and a charge of approximately $14 million to write off debt issuance costs for the early retirement of debt at Altium Packaging in the first quarter of 2021.
Income tax expense was $126 million for the nine months ended September 30, 20202021 as compared with an income tax benefit of $293 million for the 2019 periodcomparable 2020 period. The income tax expense for the nine months ended September 30, 2021 is primarily due to the issuance byrecognition of $117 million of taxes on the Parent Company mentioned above and incremental borrowings byinvestment gain related to the sale of 47% of Altium Packaging and also includes the recognition of a $40 million deferred tax liability resulting from the asset held for sale designation of Altium Packaging in the first quarter of 2021. The income tax benefit for the nine months ended September 30, 2020 is primarily due to fund its 2019 acquisitions.the recognition of taxes on the investment loss related to the deconsolidation of Diamond Offshore.
Diamond Offshore
Amounts presented for Diamond Offshore for the nine months ended September 30, 2020 reflect the periods prior to its deconsolidation in the second quarter of 2020. Contract drilling revenues and contract drilling expenses were $287 million and $676$254 million for the nine months ended September 30, 2020 and 2019. Contract drilling expenses were $254 million and $594 million for the nine months ended September 30, 2020 and 2019. Results for the nine months ended September 30, 2020 included in our Consolidated Condensed Financial Statements reflect only the period through the April 26, 2020 deconsolidation and also reflect lower average daily revenue earned as compared with the 2019 period.2020. Operating and other expenses for the nine months ended September 30, 2020 includesincluded an aggregate asset impairment charge of $774 million ($408 million after tax and noncontrolling interests) recognized in the first quarter of 2020. For more information on the deconsolidation of Diamond Offshore see Note 2 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report.
LIQUIDITY AND CAPITAL RESOURCES
Parent Company
Parent Company cash and investments, net of receivables and payables, totaled $3.5$3.6 billion at September 30, 20202021 as compared to $3.3$3.5 billion at December 31, 2019.2020. During the nine months ended September 30, 2020,2021, we received $755$460 million in dividends from CNA, including a special dividend of $485$182 million. We also received a $199 million dividend from Altium Packaging in February of 2021. Cash outflows during the nine months ended September 30, 20202021 included the payment of $678$825 million to fund treasury stock purchases, $53$49 million of cash dividends to our shareholders $123and $32 million of cash contributions to Loews Hotels & CoCo. On April 1, 2021, Loews Corporation sold its 47% interest in Altium Packaging to GIC and $19received $420 million to purchase common shares of CNA.in cash consideration. As a holding company we depend on dividends from our subsidiaries and returns on our investment portfolio to fund our obligations. We
also have an effective Registration Statement on file with the Securities and Exchange Commission (“SEC”) registering the future sale of an unlimited amount of our debt and equity securities from time to time. We are not responsible for the liabilities and obligations of our subsidiaries and there are no Parent Company guarantees.
In May of 2020, we completed a public offering of $500 million aggregate principal amount of 3.2% senior notes due May 15, 2030. The proceeds of this offering are available for general corporate purposes.
Depending on market and other conditions, we may purchase our shares and shares of our subsidiariessubsidiaries’ outstanding common stock in the open market, in privately negotiated transactions or otherwise. During the nine months ended September 30, 2020,2021, we purchased 16.115.7 million shares of Loews Corporation common stock. As of October 29, 2021, we had purchased an additional 0.1 million shares of Loews Corporation common stock and 564,430in 2021 at an aggregate cost of $5 million. As of October 29, 2021, there were 253,684,412 shares of CNALoews Corporation common stock.stock outstanding.
Future uses of our cash may include investing in our subsidiaries, new acquisitions, dividends and/or repurchases of our and our subsidiaries’ outstanding common stock. 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 and business needs.
Subsidiaries
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 CNA’s cash flows. At this time, CNA does not believe these impacts would give rise to a material liquidity concern given its overall liquid assets and anticipated future cash flows.
CNA’s cash provided by operating activities was $1.4 billion for the nine months ended September 30, 2020 and $980$1,354 million for the nine months ended September 30, 2019.2021 and $1,408 million for the comparable 2020 period. The increasedecrease in cash provided by operating activities was driven by an increase inthe payment of the EWC LPT premium, increased ceded premiums collected, lower net claim paymentspaid and lower incomehigher taxes paid, partially offset by an increase in gross premiums collected, lower claim payments and a lowerhigher level of distributions from limited partnerships. For further information on the EWC LPT see Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report.
CNA paid cash dividends of $3.11$1.89 per share on its common stock, including a special cash dividend of $2.00$0.75 per share, induring the nine months ended September 30, 2020.2021. On October 30, 2020,29, 2021, CNA’s Board of Directors declared a quarterly cash dividend of $0.37$0.38 per share, payable December 3, 20202, 2021 to shareholders of record on November 16, 2020.15, 2021. CNA’s declaration and payment of future dividends is at the discretion of its Board of Directors and will depend on many factors, including CNA’s earnings, financial condition, business needs and regulatory constraints.
In August of 2020, CNA completed a public offering of $500 million aggregate principal amount of its 2.1% senior notes due August 15, 2030 and used the net proceeds to redeem the entire $400 million outstanding aggregate principal balance of its 5.8% senior notes due August 15, 2021 and for general corporate purposes. CNA has an effective shelf registration statement under which it may publicly issue debt, equity or hybrid securities from time to time.
Dividends from Continental Casualty Company (“CCC”), a subsidiary of CNA, are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the “Department”), are determined based on the greater of the prior year’s statutory net income or 10% of statutory surplus as of the end of the prior year, as well as the timing and amount of dividends paid in the preceding 12 months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of September 30, 2020,2021, CCC was in a positive earned surplus position. CCC paid dividends of $855$600 million and $940$855 million during the nine months ended September 30, 20202021 and 2019.2020. 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.
56
CNA has an effective shelf registration statement on file with the SEC under which it may publicly issue debt, equity or hybrid securities from time to time.
Boardwalk Pipelines’ cash provided by operating activities decreased $35increased $26 million for the nine months ended September 30, 20202021 as compared to the 2019comparable 2020 period, primarily due to the change in net income and the timing of receivables and accrued liabilities.income.
For the nine months ended September 30, 20202021 and 2019,2020, Boardwalk Pipelines’ capital expenditures were $351$239 million and $276$351 million, consisting primarily of a combination of growth and maintenance capital.
In August of 2020,May 2021, Boardwalk Pipelines completed a public offering of $500 million aggregate principal amount of its 3.4% senior notes due February 15, 2031, which utilizedentered into an amended revolving credit agreement to decrease the remainingborrowing capacity underfrom $1.5 billion to $1.0 billion and extend the maturity date to May 27, 2026, although the maturity date may be further extended for two one-year extensions at Boardwalk Pipelines’ shelf registration statement.election. As of September 30, 2021, Boardwalk Pipelines intends to use the proceeds to retire the outstanding $440 million aggregate principal amount of its 4.5% senior notes due 2021 in November of 2020, to fund growth capital expenditures and for general corporate purposes. Initially, the proceeds were used to reducehad no outstanding borrowings under its revolving credit facility. In the second quarter of 2022, Boardwalk Pipelines anticipates thatexpects to retire the $300 million outstanding aggregate principal amount of its existing4.0% notes at maturity through available capital resources, including, but not limited to, using available cash, borrowing under its revolving credit facility and cash flowsor publicly issuing debt securities. Boardwalk Pipelines has an effective shelf registration statement on file with the SEC under which it may publicly issue debt securities, warrants or rights from operating activities, will be adequatetime to fund its operations and capital expenditures for 2020.time.
On November 19, 2020, Boardwalk Pipelines will pay a distribution of $102 million to the Company.52
Certain of the hotels wholly or partially owned by subsidiaries of Loews Hotels & Co are financed by debt facilities, with a number of different lenders. Each of the loan agreements underlying these facilities contain a variety of financial and operational covenants. As a result of the impacts of COVID-19, Loews Hotels & Co has proactively requested certain lenders, where applicable, to (1) temporarily waive certain covenants to avoid an event of default and/or further restriction of the hotel’s cash balances through the establishment of lockboxes and other measures; (2) temporarily allow funds previously restricted directly or indirectly under the hotel’s underlying loan agreement for the renewal, replacement and addition of building improvements, furniture and fixtures to be used instead for hotel operations and maintenance; (3) allow hotels under development to defer required completion and opening dates; and/or (4)(3) defer certain interest and/or principal payments while the hotels operations arewere temporarily suspended or significantly impacted by a decline in occupancy. Loews Hotels & Co also continues to work with lenders on loans that are being reviewed for extension. These discussions with lenders are ongoing and may require Loews Hotels & Co to make principal paydowns, establish restricted cash reserves or provide guaranties of a subsidiary’s debt to otherwise avoid an event of default. Through the date of this Report, none of Loews Hotels & CoCo’s subsidiaries is not in default on any of its loans.
Additionally, due to temporary suspensionAs of operations and lost revenues in certain joint venture entities,September 30, 2021, Loews Hotels & Co has received capital call noticesthree subsidiaries with mortgage loans that mature within twelve months and is actively working with lenders to refinance $190 million in accordance with the underlying joint venture agreements to support the properties’ operations. Throughcurrent maturities of long-term debt.
In October 30, 2020,2021 Loews Hotels & Co announced the development of the Loews Arlington Hotel and Convention Center in Arlington, Texas. The hotel, for which Loews Hotels & Co will serve as manager and hold a majority equity interest, is expected to open in early 2024 with approximately 888 guestrooms and over 250,000 square feet of function space. The approximately $550 million hotel project will be funded approximately $35through a mix of partner contributions in 2021 and 2022 before drawing on a $300 million construction loan. Based on the timing of construction relative to these joint ventures in 2020.the seasonality of Loews Hotels & Co’s business, a Loews Corporation capital contribution may be required.
Through October 30, 2020,29, 2021, Loews Hotels & Co received capital contributions in 2021 of $127$32 million from Loews Corporation. Additional funding from Loews Corporation during the remainder of 2020 will be needed and will depend on numerous factors, including how quickly properties are able to return to sustainable operating levels.
INVESTMENTS
Investment activities of our non-insurance subsidiaries primarily consist of investments in fixed income securities, including short term investments. The Parent Company portfolio also includes equity securities, including short sales and derivative instruments, and investments in limited partnerships. These types of investments generally presenthave greater volatility, less liquidity and greater risk than fixed income investments and are included within Results of Operations – Corporate.
We enterThe Parent Company enters into short sales and investinvests in certain derivative instruments that are used for asset and liability management activities, income enhancements to theits portfolio management strategy and to benefit from anticipated future movements in the underlying markets. If such movements do not occur as anticipated, then significant losses may occur. Monitoring procedures include senior management review of daily reports of existing positions and valuation fluctuations to seek to ensure that open positions are consistent with the portfolio strategy.
Credit exposure associated with non-performance by counterparties to derivative instruments is generally limited to the uncollateralized change in fair value of the derivative instruments recognized in the Consolidated Condensed Balance Sheets. We mitigate theThe risk of non-performance is mitigated by monitoring the creditworthiness of counterparties and diversifying derivatives by using multiple counterparties. WeCollateral is occasionally require collateralrequired from derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty.
Insurance
CNA maintains a large portfolio of fixed maturity and equity securities, including large amounts of corporate and government issued debt securities, residential and commercial mortgage-backed securities, other asset-backed securities and investments in limited partnerships which pursue a variety of long and short investment strategies across a broad array of asset classes. CNA’s investment portfolio supports its obligation to pay future insurance claims and provides investment returns which are an important part of CNA’s overall profitability.
The financial market disruption in the first quarter of 2020 significantly impacted CNA’s investment portfolio. Losses from its limited partnership and common and preferred equity portfolios, as well as the recognition of impairment losses on certain fixed maturity holdings, negatively impacted net income for the three months ended March 31, 2020. While financial markets have broadly recovered during the second and third quarters of 2020, CNA’s net investment income and net investment gains (losses) are lower for the nine months ended September 30, 2020 as compared with the 2019 period. There could be continued volatility in CNA’s investment portfolio.53
Net Investment Income
The significant components of CNA’s 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 September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fixed income securities: | | | | | | | | | | | | |
Taxable fixed income securities | | $ | 363 | | | $ | 383 | | | $ | 1,094 | | | $ | 1,151 | |
Tax-exempt fixed income securities | | | 80 | | | | 79 | | | | 238 | | | | 241 | |
Total fixed income securities | | | 443 | | | | 462 | | | | 1,332 | | | | 1,392 | |
Limited partnership investments | | | 64 | | | | 12 | | | | 38 | | | | 125 | |
Common stock | | | 7 | | | | 6 | | | | (8 | ) | | | 32 | |
Other, net of investment expense | | | 3 | | | | 7 | | | | 18 | | | | 24 | |
Pretax net investment income | | $ | 517 | | | $ | 487 | | | $ | 1,380 | | | $ | 1,573 | |
Fixed income securities after tax and noncontrolling interests | | $ | 326 | | | $ | 337 | | | $ | 977 | | | $ | 1,018 | |
Net investment income after tax and noncontrolling interests | | $ | 377 | | | $ | 356 | | | $ | 1,011 | | | $ | 1,147 | |
Effective income yield for the fixed income securities portfolio, before tax | | | 4.5 | % | | | 4.8 | % | | | 4.6 | % | | | 4.8 | % |
Effective income yield for the fixed income securities portfolio, after tax | | | 3.7 | % | | | 3.9 | % | | | 3.7 | % | | | 3.9 | % |
Limited partnership and common stock return | | | 4.1 | % | | | 0.9 | % | | | 1.7 | % | | | 7.7 | % |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fixed income securities: | | | | | | | | | | | | |
Taxable fixed income securities | | $ | 360 | | | $ | 363 | | | $ | 1,075 | | | $ | 1,094 | |
Tax-exempt fixed income securities | | | 77 | | | | 80 | | | | 236 | | | | 238 | |
Total fixed income securities | | | 437 | | | | 443 | | | | 1,311 | | | | 1,332 | |
Limited partnership and common stock investments | | | 77 | | | | 71 | | | | 294 | | | | 30 | |
Other, net of investment expense | | | (1 | ) | | | 3 | | | | 3 | | | | 18 | |
Net investment income | | $ | 513 | | | $ | 517 | | | $ | 1,608 | | | $ | 1,380 | |
| | | | | | | | | | | | | | | | |
Effective income yield for the fixed income securities portfolio | | | 4.3
| % | | | 4.5
| %
| | | 4.3
| % | | | 4.6
| % |
Limited partnership and common stock return | | | 3.8
| % | | | 4.1
| % | | | 16.4
| % | | | 1.7
| % |
CNA’s pretax net investment income for the three months ended September 30, 2020 increased $30 million as compared with the 2019 period, driven by limited partnership returns partially offset by lower yields on the fixed income portfolio.
CNA’s pretax net investment income decreased $193$228 million for the nine months ended September 30, 20202021 as compared with the 2019comparable 2020 period, driven by limited partnership and common stock returns andpartially offset by lower yields in the fixed income portfolio.
Investment Gains (Losses)
The components of CNA’s investment gains (losses) are presented in the following table:
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investment gains (losses): | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate and other bonds | | $ | 14 | | | $ | 7 | | | $ | (105 | ) | | | | | $ | 36 | | | $ | 14 | | | $ | 115 | | | $ | (105 | ) |
States, municipalities and political subdivisions | | | 6 | | | | 1 | | | | 39 | | | $ | 13 | | | 1 | | | 6 | | | | | | 39 | |
Asset-backed | | | 6 | | | | (5 | ) | | | 34 | | | | (19 | ) | | | (15 | ) | | | 6 | | | | (24 | ) | | | 34 | |
Total fixed maturity securities | | | 26 | | | | 3 | | | | (32 | ) | | | (6 | ) | | 22 | | | 26 | | | 91 | | | (32 | ) |
Non-redeemable preferred stock | | | 25 | | | | 7 | | | | (45 | ) | | | 60 | | | (2 | ) | | 25 | | | 17 | | | (45 | ) |
Short term and other | | | (5 | ) | | | (2 | ) | | | (24 | ) | | | (13 | ) | | 2 | | | (5 | ) | | 9 | | | (24 | ) |
Total investment gains (losses) | | | 46 | | | | 8 | | | | (101 | ) | | | 41 | | | 22 | | | 46 | | | 117 | | | (101 | ) |
Income tax (expense) benefit | | | (10 | ) | | | (2 | ) | | | 20 | | | | (11 | ) | | (4 | ) | | (10 | ) | | (23 | ) | | 20 | |
Amounts attributable to noncontrolling interests | | | (3 | ) | | | (1 | ) | | | 9 | | | | (3 | ) | | | (2 | ) | | | (3 | ) | | | (10 | ) | | | 9 | |
Investment gains (losses) attributable to Loews Corporation | | $ | 33 | | | $ | 5 | | | $ | (72 | ) | | $ | 27 | | | $ | 16 | | | $ | 33 | | | $ | 84 | | | $ | (72 | ) |
CNA’s investment gains (losses) increased $38decreased $24 million for the three months ended September 30, 20202021 as compared with the 2019comparable 2020 period. The increase was
CNA’s investment gains (losses) increased $218 million for the nine months ended September 30, 2021 as compared with the comparable 2020 period driven by lower impairment losses and the favorable change in fair value of non-redeemable preferred stock and higher net realized investment gains on sales of fixed maturity securities. Pretax impairment losses of $5 million on available-for-sale securities and $3 million of credit losses on mortgage loans were recognized in the current quarter.
CNA’s investment gains (losses) decreased $142 million for the nine months ended September 30, 2020 as compared with the 2019 period. The decrease was driven by higher impairment losses and the unfavorable change in fair value of non-redeemable preferred stock partially offset by higher net realized investment gains on sales of fixed maturity securities. Pretax impairment losses of $108 million on available-for-sale securities and $16 million of credit losses on mortgage loans were recognized for the nine months ended September 30, 2020.stock.
Further information on CNA’s investment gains and losses is set forth in Note 3 of the Notes to Consolidated Condensed Financial Statements included under Item 1.1 of this Report.
Portfolio Quality
The following table presents the estimated fair value and net unrealized gains (losses) of CNA’s fixed maturity securities by rating distribution:
| | September 30, 2020 | | | December 31, 2019 | | | September 30, 2021 | | | December 31, 2020 | |
| | 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) | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government, Government agencies and Government-sponsored enterprises | | $ | 4,026 | | | $ | 127 | | | $ | 4,136 | | | $ | 95 | | | $ | 2,938 | | | $ | 57 | | | $ | 3,672 | | | $ | 117 | |
AAA | | | 3,623 | | | | 452 | | | | 3,254 | | | | 349 | | | 3,778 | | | 371 | | | 3,627 | | | 454 | |
AA | | | 6,773 | | | | 961 | | | | 6,663 | | | | 801 | | | 7,737 | | | 833 | | | 7,159 | | | 1,012 | |
A | | | 9,470 | | | | 1,296 | | | | 9,062 | | | | 1,051 | | | 9,538 | | | 1,159 | | | 9,543 | | | 1,390 | |
BBB | | | 17,488 | | | | 2,105 | | | | 16,839 | | | | 1,684 | | | 18,505 | | | 2,215 | | | 18,007 | | | 2,596 | |
Non-investment grade | | | 2,521 | | | | 38 | | | | 2,253 | | | | 101 | | | 2,573 | | | 123 | | | 2,623 | | | 149 | |
Total | | $ | 43,901 | | | $ | 4,979 | | | $ | 42,207 | | | $ | 4,081 | | | $ | 45,069 | | | $ | 4,758 | | | $ | 44,631 | | | $ | 5,718 | |
As of September 30, 20202021 and December 31, 2019,2020, 1% of CNA’s fixed maturity portfolio was rated internally. AAA rated securities included $1.9$1.7 billion and $1.5$1.8 billion of pre-fundedpre-refunded municipal bonds as of September 30, 20202021 and December 31, 2019.2020.
The following table presents CNA’s available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution:
September 30, 2020 | | Estimated Fair Value | | | Gross Unrealized Losses | | |
September 30, 2021 | | | Estimated Fair Value | | | Gross Unrealized Losses | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
U.S. Government, Government agencies and Government-sponsored enterprises | | $ | 99 | | | $ | 1 | | | $ | 1,200 | | | $ | 9 | |
AAA | | | 37 | | | | 1 | | | 388 | | | 5 | |
AA | | | 244 | | | | 9 | | | 906 | | | 16 | |
A | | | 642 | | | | 21 | | | 1,191 | | | 18 | |
BBB | | | 1,264 | | | | 71 | | | 1,187 | | | 31 | |
Non-investment grade | | | 816 | | | | 78 | | | 396 | | | 10 | |
Total | | $ | 3,102 | | | $ | 181 | | | $ | 5,268 | | | $ | 89 | |
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:
September 30, 2020 | | Estimated Fair Value | | | Gross Unrealized Losses | | |
September 30, 2021 | | | Estimated Fair Value | | | Gross Unrealized Losses | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Due in one year or less | | $ | 142 | | | $ | 8 | | | $ | 133 | | | $ | 5 | |
Due after one year through five years | | | 819 | | | | 54 | | | 709 | | | 13 | |
Due after five years through ten years | | | 1,479 | | | | 83 | | | 2,639 | | | 33 | |
Due after ten years | | | 662 | | | | 36 | | | 1,787 | | | 38 | |
Total | | $ | 3,102 | | | $ | 181 | | | $ | 5,268 | | | $ | 89 | |
Duration
A primary objective in the management of CNA’s investment portfolio is to optimize return relative to the corresponding liabilities and respective liquidity needs. CNA’s 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. CNA also continually monitors exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on its views of a specific issuer or industry sector.
A further consideration in the management of CNA’s 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, CNA segregates investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in Other Insurance Operations.
The effective durations of CNA’s 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.
| September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | | December 31, 2020 | |
| Estimated Fair Value | Effective Duration (Years) | | Estimated Fair Value | Effective Duration (Years) | | Estimated Fair Value | | | Effective Duration (Years) | | | Estimated Fair Value | | | Effective Duration (Years) | |
(In millions of dollars) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Investments supporting Other Insurance Operations | $ | 18,700 | 9.0 | | $ | 18,015 | 8.9 | | $ | 18,431 | | | 9.3 | | | $ | 18,518 | | | 9.2 | |
Other investments | | 27,408 | 4.5 | | | 26,813 | 4.1 | | 28,520 | | | 5.1 | | | | 28,839 | | | 4.5 | |
Total | $ | 46,108 | 6.3 | | $ | 44,828 | 6.0 | | $ | 46,951 | | | 6.7 | | | $ | 47,357 | | | 6.3 | |
CNA’s 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, CNA periodically reviews 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, 2019.2020.
Short Term Investments
The carrying value of the components of CNA’s Short term investments are presented in the following table:
| | September 30, 2020 | | | December 31, 2019 | |
(In millions) | | | | | | |
| | | | | | |
Short term investments: | | | | | | |
Commercial paper | | | | | $ | 1,181 | |
U.S. Treasury securities | | $ | 1,247 | | | | 364 | |
Other | | | 215 | | | | 316 | |
Total short term investments | | $ | 1,462 | | | $ | 1,861 | |
During 2020, CNA shifted its commercial paper holdings to U.S. Treasury securities.
In addition to short term investments, CNA held $442 million and $242 million of cash as of September 30, 2020 and December 31, 2019.
| | September 30, 2021 | | | December 31, 2020 | |
(In millions) | | | | | | |
| | | | | | |
Short term investments: | | | | | | |
U.S. Treasury securities | | $ | 916 | | | $ | 1,702 | |
Other | | | 219 | | | | 205 | |
Total short term investments | | $ | 1,135 | | | $ | 1,907 | |
CRITICAL ACCOUNTING ESTIMATES
Certain accounting policies require us to make estimates and judgments that affect the amounts reflected in the Consolidated Condensed Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts currently recorded in the financial statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. See the Critical Accounting Estimates and the Insurance Reserves sections of our MD&A included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20192020 for further information.
ACCOUNTING STANDARDS UPDATE
For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please read Note 1 of the Notes to Consolidated Condensed Financial Statements included under Item 1.1 of this Report.
FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this Report as well as in other of our and our subsidiaries’ SEC filings and periodic press releases and certain oral statements made by us and our subsidiaries and our and their officials during presentations may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include, without limitation, any statement that does not directly relate to any historical or current fact and may project, indicate or imply future results, events, performance
or achievements. Such statements may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions. In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected.
Developments in any of the risks or uncertainties facing us or our subsidiaries, including those described under Part II, Item 1A, Risk Factors in this Report, Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, Part II, Item 1A, Risk Factors in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20202021 and June 30, 20202021 and in our other filings with the SEC, could cause our results to differ materially from results that have been or may be anticipated or projected. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.
Item 3. Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
There were no material changes in our market risk components as of September 30, 2020.2021. See 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, 20192020 for further information. Additional information related to portfolio duration and market conditions is discussed in the Investments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included under Part I, Item 2.
Item 4. Item 4. | Controls and Procedures. |
The Company maintains a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which is designed to ensure that information required to be disclosed by the Company in reports that it files or submits under 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 by the Company under the Exchange Act is accumulated and communicated to the Company’s management on a timely basis to allow decisions regarding required disclosure.
The Company’s management, including the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”) conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Report and, based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2020.2021.
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 20202021 that have materially affected or that are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Item 1. | Legal Proceedings. |
Information on our legal proceedings is set forth in Note 129 to the Consolidated Condensed Financial Statements included under Part I, Item 1.
Our business and the businesses of our subsidiaries face many risks and uncertainties. These risks and uncertainties could lead to events or circumstances that have a material adverse effect on our business, results of operations, cash flows, financial condition or equity and/or the business, results of operations, cash flows, financial condition, or equity of one or more of our subsidiaries. Our Annual Report on Form 10-K for the year ended December 31, 20192020 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20202021 and June 30, 20202021 include a detailed discussiondiscussions of certain risk factors facing the company. The information presentedExcept as described below, updates and supplements suchthere have been no material changes to the risk factors and should be readpreviously disclosed in conjunction with the Risk Factors included under Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 20192020 and Part II, Item 1A1A. Risk Factors of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20202021 and June 30, 2020.2021.
Risks Related to Us and Our Subsidiary, CNA Financial Corporation (“CNA”)
Any significant interruption in the operation of CNA’s business functions, facilities and systems or its vendors’ facilities and systems could result in a materially adverse effect on its operations.
CNA’s business is highly dependent upon its ability to perform, in an efficient and uninterrupted manner, through its employees or vendor relationships, necessary business functions, such as internet support and 24-hour call centers, processing new and renewal business, processing and paying claims and other obligations and issuing financial statements.
CNA’s, or its vendors’, facilities and systems could become unavailable, inoperable, or otherwise impaired from a variety of causes, including natural events, such as hurricanes, tornadoes, windstorms, earthquakes, severe winter weather and fires, or other events, such as explosions, terrorist attacks, computer security breaches or cyber attacks, riots, hazardous material releases, medical epidemics or pandemics, utility outages, interruptions of CNA’s data processing and storage systems or the systems of third-party vendors, or unavailability of communications facilities. An interruption of CNA’s system availability occurred in March of 2021 as a result of a cybersecurity attack sustained by CNA. Please refer to the immediately following risk factor for further information regarding this incident. Likewise, CNA could experience a significant failure, interruption or corruption of one or more of its vendors’ information technology, telecommunications, or other systems for various reasons, including significant failures or interruptions that might occur as existing systems are replaced or upgraded. The coronavirus disease (“COVID-19”) pandemicshut-down or unavailability of one or more of CNA’s or its vendors’ systems or facilities for these and measuresother reasons could significantly impair CNA’s ability to mitigateperform critical business functions on a timely basis.
In addition, because CNA’s information technology and telecommunications systems interface with and depend on third-party systems, CNA could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such events could result in a deterioration of CNA’s ability to write and process new and renewal business, provide customer service, pay claims in a timely manner, or perform other necessary business functions, including the spread ofability to issue financial statements in a timely manner.
The foregoing risks could also expose CNA to monetary and reputational damages. Potential exposures resulting from the virusMarch 2021 cybersecurity attack, described in the immediately following risk factor, as well as any future incidents may include substantially increased compliance costs, as well as increased costs relating to investments in computer system and security-related upgrades, with those costs potentially not recoverable under relevant insurance coverage. CNA anticipates making continued investments to improve its security and infrastructure. These expenses are not recoverable under relevant insurance coverage. If CNA’s business continuity plans or system security do not sufficiently address these risks, they could have resulted in significant risk across CNA’s enterprise, which have had, and may continue to have,a material adverse impactseffect on itsCNA’s business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.condition.
The COVID-19 outbreak, and actions seeking to mitigate58
Based on the spread ofinformation currently known, CNA does not believe that the virus, accelerated in both breadth and scope through the month of February 2020, 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. Both 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 CNA. Depressed economic conditions have led to and may continue to lead to decreased insured exposures causing CNA to experience declines in premium volume, especially for lines of business that are sensitive to rates of economic growth and those that are impacted by audit premium adjustments. Significant decreases in premium volume directly and adversely impacts CNA’s underwriting expense ratio. In addition, certain customers, across a broad spectrum of industries and markets, have been and continue to be impacted by lost business, which may affect CNA’s ability to collect amounts owed by policyholders. CNA recorded a decrease in its estimated audit premiums during the second quarter of 2020 impacting its net earned premium and if general economic conditions do not improve in the remainder of 2020 or thereafter, CNA’s net written premiums and net earned premiums may be depressed, which may2021 cybersecurity attack will have a material impact on its business, results of operations or financial condition, but no assurances can be given as it continues to assess the full impact from the incident, including costs, expenses and insurance coverage. CNA may also be subject to future incidents that could have a material adverse effect on its business, results of operations or financial condition or may result in operational impairments and financial condition, the extent of which cannot be determined with any certainty at this time.
While CNA’s losses, incurred during the first nine months of 2020 related to COVID-19 and measures to mitigate its spread represent CNA’s best estimate of its 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 CNA’s 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 CNAsignificant harm to experience additional COVID-19 related catastrophe losses in future quarters, which could be material.its reputation.
Financial marketsAny significant breach in CNA’s data security infrastructure or its vendors’ facilities and investments:systems could disrupt business, cause financial losses and damage its reputation, and insurance coverage may not be available for claims related to a breach.
A significant breach of CNA’s data security infrastructure may result from actions by its employees, vendors, third-party administrators, or unknown third parties or through cyber attacks. The COVID-19 pandemic has also significantly impacted financial markets. As investorsrisk of a breach can exist whether software services are in CNA’s data centers or CNA uses cloud-based software services. Breaches have embarked on a flight to quality, risk free rates have decreased. In addition, liquidity concernsoccurred, and overall economic uncertainties drove increased volatilitymay occur again, in credit spreadsCNA’s systems and equity markets. While government actions to date have provided some stability to financial markets, economic prospects in the short term continuesystems of its vendors and third party administrators.
Such a breach could affect CNA’s data framework or cause a failure to be depressedprotect the personal information of its customers, claimants or employees, or sensitive and CNA remains 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 CNA’s investment portfolio results and valuations,confidential information regarding its business and may result in additional volatility oroperational impairments and financial losses, as well as significant harm to its reputation. The breach of confidential information also could give rise to legal liability and regulatory action under data protection and privacy laws, as well as evolving regulation in its investment portfolio,this regard. During the third quarter of 2021, CNA was notified of a breach of certain systems of a third party administrator, which could be material.
The valueresulted in breach notifications sent by such administrator to potentially impacted persons, including a limited number of CNA’s 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 it holds or in the underlying collateral of the security or loan, particularly in industries heavily impacted by COVID-19CNA claimants. While CNA does not believe such notifications and mitigatingresultant actions including energy, retail, travel, entertainment, and real estate. CNA’s 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 financial market disruptions maywill have a material impactadverse effect on its business, this or similar incidents, or any other such breach of CNA’s or its vendors’ data security infrastructure could have a material adverse effect on its business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.condition.
ClaimsCNA sustained a sophisticated cybersecurity attack in March of 2021 involving ransomware that caused a network disruption and impacted certain of its systems. Upon detection, CNA undertook steps to address the incident, including engaging a team of third-party forensic experts and notifying law enforcement and key regulators. CNA restored network systems and resumed normal operations. CNA is continuing to assess all actions that it will take to improve its existing systems.
CNA’s investigation revealed that an unauthorized third party copied some personal information relating to certain current and former employees, contractor workers and their dependents and certain other persons, including some policyholders. In July of 2021, CNA provided notifications to the impacted individuals and to regulators, in accordance with applicable law. Although CNA currently has no indication that the impacted data has been misused, or that CNA or its policyholder data was specifically targeted by the unauthorized third party, it may be subject to subsequent investigations, claims or actions in addition to other costs, fines, penalties, or other obligations related litigation: Claim activityto impacted data, whether or not such data is misused. In addition, the misuse, or perceived misuse, of sensitive or confidential information regarding its business or policyholders could cause harm to CNA’s reputation and related litigation has increased, and may continue to increase significantly,result in certain linesthe loss of business as a result of the pandemic and mitigating actions. CNA has experienced, and is 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 itswith existing or potential customers, and governmental authorities in response to its spread, as well as increased litigation related to denial of claims based on policy coverage. These lines include primarily healthcare 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) and trade credit. In addition, CNA’s 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. CNA has 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 materialadversely impact on CNA’sits business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.condition.
Although CNA has also begunmaintains cybersecurity insurance coverage insuring against costs resulting from cyber attacks (including the March 2021 attack), CNA does not expect that the amount available under its coverage and/or its coverage policy to incur substantialcover all losses. Costs and expenses relatedincurred and likely to litigation activitybe incurred by CNA in connection with COVID-related legal claims. These actions primarily relatethe March 2021 attack include both direct and indirect costs and not all may be covered by its insurance coverage. In addition, potential disputes with its insurers about the availability of insurance coverage for claims relating to denial of claims submittedthe March 2021 attack or any future incident could occur. Further, both as a result of the pandemicMarch 2021 attack and industry trends generally, CNA will incur higher costs for the mitigating actions under commercial property policies for business interruptionreplenishment of its current policy through the end of the term, as well as future cybersecurity insurance coverage including lockdowns and closing of certain businesses. The significance of such litigation, both in substance and volume, andbeyond the resultant activities CNA has initiated, including external counsel engagement, and the costs related thereto, may have a material impact on CNA’s business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.current term.
Regulatory impact: The regulatory environment is rapidly evolving in direct response toBased on the pandemic andinformation currently known, CNA does not believe that the mitigating actions being taken. Numerous regulatory authorities to which CNA’s 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 CNA is now, and may be, subject to mayMarch 2021 cybersecurity attack will have a material impact on its business, results of operations andor financial condition, but no assurances can be given as it continues to assess the extent of which cannot be determined with any certainty at this time.
Risks Related to Usfull impact from the incident, including costs, expenses and Our Subsidiary, Boardwalk Pipeline Partners, LP (“Boardwalk Pipelines”)
The outbreak of COVID-19 and the measures to mitigate the spread of COVID-19 could materially adversely affect Boardwalk Pipelines’ business, financial condition and results of operations.
The outbreak of COVID-19 is materially negatively impacting worldwide economic and commercial activity and financial markets and has impacted global demand for oil and petrochemical products. COVID-19 has also resulted in significant business and operational disruptions, including business closures, supply chains disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces. If significant portions of Boardwalk Pipelines’ workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions in connection with COVID-19, Boardwalk Pipelines’ business could be materially adversely affected. Boardwalk Pipelinesinsurance coverage. CNA may also be unablesubject to perform fully on its contracts and its costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable. It is possiblefuture incidents that the continued spread of COVID-19 could also further cause disruption in Boardwalk Pipelines’ customers’ business; cause delay, or limit the ability of its customers to perform, including making timely payments to Boardwalk Pipelines; and cause other unpredictable events. The impact of COVID-19 has impacted capital markets, which may impact Boardwalk Pipelines’ customers’ financial position, and recoverability of its receivables from its customers may be at risk. The full impact of COVID-19 is unknown and continues to evolve. The extent to which COVID-19 negatively impacts Boardwalk Pipelines’ business and operations will depend on the severity, location and duration of the effects and spread of COVID-19, the continued actions undertaken by federal, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.
Risks Related to Us and Our Subsidiary, Loews Hotels Holding Corporation (“Loews Hotels & Co”)
The COVID-19 pandemic and efforts to mitigate the spread of the virus have had, and are expected to continue to have a material adverse impacteffect on Loews Hotels & Co’sits business, results of operations or financial condition and cash flows.
In response to the spread of COVID-19, governments across the globe implemented measures to mitigate the spread, such as through city, regional or national lockdowns or stay-at-home orders, narrowly defined and widespread business closures, restrictions on travel, limitations on large group gatherings and quarantines, among others. Beyond the existence of governmental restrictions, the perception of health risks associated with COVID-19 continues to further limit business and leisure travel. Furthermore, theme parks in Orlando, Florida, which temporarily closed and reopened with capacity restrictions, now operate at reduced capacity levels. In addition, certain coastal beaches repeatedly have been ordered closed and professional sports leagues suspended or modified their seasons with no or limited spectators permitted in attendance. The spread of the coronavirus, including its resurgence, and the containment efforts have had, and continue to have, macro-economic implications, including increased unemployment levels, declines in economic growth rates and possibly a global recession, the effects of which could be felt well beyond the time the spread of the virus is mitigated or contained. These developments have caused unprecedented disruptions to the global economy and normal business operations across sectors, including the hospitality industry that depends on active levels of business and leisure travel, very little of which is occurring in the current environment.
Loews Hotels & Co suspended operations at twenty of its owned and/or operated hotels in March of 2020, with two additional hotels suspending operations in April of 2020. Of these twenty-two hotels, five were not operational as of the end of September 2020. Additionally, two hotels completed construction prior to the pandemic; one delayed opening until June of 2020, and the opening date of the second continues to be evaluated. However, occupancy rates at the operational hotels remain substantially lower than those from the prior year, or even occupancy rates prior to March of 2020. As such, revenues have been substantially lower and may be insufficient to offset certain fixed costs, such as insurance and property taxes. The remaining hotels that are not operational continue to be evaluated to determine when it is prudent to resume operations, which may not be until after 2020. The potential for the suspension or resuspension of operations at operating hotels varies by hotel property and will depend on numerous factors, many of which are outside Loews Hotels & Co’s control. In addition, as a result of the COVID-19 crisis, Loews Hotels & Co has had to implement a number of new measures for the health and safety of its guests and employees. These new measures, which may need to remain in place for the foreseeable future, have resulted and will continue to result in increased costs.
Given that Loews Hotels & Co ownsoperational impairments and leases, relativefinancial losses, as well as significant harm to some of its competitors, a higher proportion of its hotel properties, compared to the number of properties that it manages for third-party owners, it may as a result of COVID-19 and mitigation measures face increased risks associated with mortgage debt, including the possibility of default, cash trap periods, the inability to draw further loan disbursements and reduced availability of replacement financing at reasonable rates or at all; difficulty reducing costs; declines in real estate values and potential additional impairments in the value of Loews Hotels & Co’s assets; and a limited ability to respond to market conditions by, for instance, restricting its growth strategy. In addition, uncertain or fluctuating real estate valuations and the inability for third party purchasers to obtain capital may prevent Loews Hotels & Co from selling properties on acceptable terms.
While the duration of the COVID-19 outbreak and related financial impact cannot be estimated at this time, Loews Hotels & Co expects its results of operations, financial condition and cash flows will be materially adversely affected throughout 2020, and likely thereafter. The severity of the impact on Loews Hotels & Co will depend in large part on the duration of containment efforts, either mandated or voluntary, and the perceptions of health risks associated with COVID-19 related to business and leisure travel. In addition, once the COVID-19 outbreak is mitigated or contained, whenever that may be, historical travel patterns, both domestic and international, may continue to be disrupted either on a temporary basis or with longer term effects. For example, certain travel is dependent on commercial airlines restoring capacity, and their inability to restore full capacity could impact demand for Loews Hotels & Co’s services. Additionally, businesses now forced to rely on remote working and videoconferences may reduce the level of business travel both to save costs and to reduce the risk of exposure for their employees, and they may also seek alternatives to large public gatherings such as industry conferences. Leisure travelers may also be less inclined to travel or gather in large groups out of ongoing safety concerns, regardless of the lifting of mandated or recommended restrictions. In addition, with the expected adverse impact on jobs and the economy more broadly, at least in the short term, leisure travel will likely be further impacted due to economic reasons. Any of these trends could have continuing material adverse effects on Loews Hotels & Co’s results of operations, financial condition and cash flow.
As part of cost containment efforts, Loews Hotels & Co put a substantial number of its employees on unpaid leaves of absence or have severed them from the organization. When conditions warrant the resumption of operations that necessitate increased staffing levels, it may not be able to find or attract sufficient talent to fill the roles that have been furloughed or eliminated. Additionally, many of its service providers and suppliers have also put their employees onCNA’s reputation.
leaves of absence or have severed employees. Should they be unable to find or attract sufficient talent to fill the roles that they have furloughed or eliminated, Loews Hotels & Co may not have the requisite services or supplies available to resume operations at the time or in the manner of its choosing.
Loews Hotels & Co continues to evaluate spending and manage operating expenses, including eliminating non-essential spending, reducing costs related to marketing, sales, and technology and deferring planned renovations, all of which could impair its ability to compete effectively and harm its business. Loews Hotels & Co has received and may receive additional demands or requests from labor unions that represent its employees, whether in the course of its periodic renegotiation of collective bargaining agreements or otherwise, for additional compensation, healthcare benefits, operational protocols or other terms that could increase costs, and could experience labor disputes or disruptions as it continues to implement mitigation plans. Some actions Loews Hotels & Co has taken, or may take in the future, to reduce costs for it or its third-party owners may negatively impact guest loyalty, owner preference, and its ability to attract and retain employees, and its reputation and market share may suffer as a result. Further, once the effects of the pandemic subside, the recovery period could be extended and certain operational changes, particularly with respect to enhanced health and safety measures, may continue to be necessary and could increase ongoing costs.
Hotels are buildings designed to remain open every hour of every day. As Loews Hotels & Co has not previously suspended the operations of its hotels (other than in connection with planned renovations) for an extended period of time, there may be mechanical systems that require material repair and maintenance to restart for hotels that remain under a suspension of operations, or for facilities and outlets within operational hotels that continue to not be utilized.
Loews Hotels & Co and its partners are constructing hotels in various markets. Those construction projects could be delayed as a result of COVID-19 and containment efforts associated with it, including those applicable to or affecting contractors, suppliers and inspectors required to review projects.
As a manager of hotels owned by joint ventures that Loews Hotels & Co invests in and by third parties, Loews Hotels & Co earns fees based on the revenues that those managed hotels generate. As a result of reduced revenues described above due to COVID-19 and mitigating measures, Loews Hotels & Co’s fee-based revenues are also materially reduced. These properties also have contracts that require payments by Loews Hotels & Co to preserve its management of the hotel if the hotel’s operating results do not achieve certain performance levels. These payments may be uneconomical for Loews Hotels & Co and lead to Loews Hotels & Co no longer managing one or more of those properties.
In properties in which Loews Hotels & Co has an ownership interest, Loews Hotels & Co leases space to third-party tenants and earns both fixed and variable amounts of rent, depending on each underlying lease arrangement. Some of these tenants informed Loews Hotels & Co that their operations are similarly impacted by COVID-19 business restrictions causing rent abatement periods in certain circumstances. In addition, variable rent, which is generally tied to the tenant’s sales, is materially adversely affected by the effects of the pandemic.
Risks Related to Us and Our Subsidiary, Altium Packaging LLC (“Altium Packaging”)
The COVID-19 pandemic may have an adverse impact on Altium Packaging.
Altium Packaging manufactures packaging that is used with products in critical infrastructure sectors, such as the pharmaceutical, household and industrial cleaning and food and beverage markets, and is thus an essential business as contemplated by state and local orders. It therefore continues to operate nearly all of its manufacturing facilities at full capacity to support those sectors. However, certain of Altium Packaging’s end markets, such as its commercial food services, institutional food and automotive customers, have been negatively impacted and its sales to those customers have been adversely affected. In addition, if widespread infections were to affect any of its facilities or workers, including those supporting critical infrastructure sectors, it may be required to temporarily shut down or otherwise modify the working conditions at such facilities to address the infections. Any such changes could cause Altium Packaging to be unable to meet demand from its customers if it cannot provide support from other facilities in its network.
Risks Related to Us and Our Subsidiaries Generally
Failures or interruptions in or breaches to our or our subsidiaries’ computer systems or those of our third party vendors could materially and adversely affect our or our subsidiaries’ operations.
We and our subsidiaries are dependent upon information technologies, computer systems and networks, including those maintained by us and our subsidiaries and those maintained and provided to us and our subsidiaries by third parties (for example, “software-as-a-service” and cloud solutions), to conduct operations and are reliant on technology to help increase efficiency in our and their businesses. We and our subsidiaries are dependent upon operational and financial computer systems to process the data necessary to conduct almost all aspects of our and their businesses. Any failure of our or our subsidiaries’ computer systems, or those of our or their customers, vendors or others with whom we and they do business, could materially disrupt business operations.
Computer, telecommunications and other business facilities and systems could become unavailable or impaired from a variety of causes, including cyber attacks or other cyber incidents, storms and other natural disasters, terrorist attacks, fires, utility outages, theft, design defects, human error or complications encountered as existing systems are replaced or upgraded. Cyber attacks and other cyber incidents are occurring more frequently, are constantly evolving in nature, are becoming more sophisticated and are being carried out by groups and individuals with a wide range of expertise and motives. The COVID-19 pandemic is having widespread impacts on the wayU.S. government has issued public warnings that indicate energy assets may be specific targets of cyber attacks, which can have catastrophic consequences, and hotel chains, among other consumer-facing businesses, have been subject to various cyber attacks targeting payment card and other sensitive consumer information. Cyber attacks and cyber incidents take many forms, including cyber extortion, denial of service, social engineering, introduction of viruses or malware, exploiting vulnerabilities in hardware, software or other infrastructure, hacking, website defacement, theft of passwords and other credentials, unauthorized use of computing resources for digital currency mining and business email compromise. CNA was recently subjected to a cybersecurity incident. In addition, one of CNA’s vendors also recently experienced a cybersecurity incident. For additional information about these incidents see “Risks Related to Us and Our Subsidiary, CNA Financial Corporation” above under this Part II, Item 1A.
As with other large companies, we and our subsidiaries operate.
The spread of COVID-19 and mitigating measures has had,our and continuestheir third party vendors have experienced cyber attacks and other cyber incidents and expect this to have, macroeconomic implications, including increased unemployment levels, declines in economic growth rates and possibly a global recession, the effects of which could be felt well beyond the time during which the spread of the virus is continuing. These developments have caused unprecedented disruptions to the global economy and normal business operations across
sectors and countries, including the sectors and countries in whichcontinue. If we and our subsidiaries operate. Because ofand our and their third party vendors do not allocate and effectively manage the sizeresources necessary to continue to build and breadth of the pandemic, all of the directmaintain our and indirect consequences of COVID-19 are not yet known andtheir information technology security infrastructure, or if we or our subsidiaries or our or our subsidiaries’ vendors fail to timely identify or appropriately respond to cyber attacks or other cyber incidents, then this may not emerge for some time.
As a result of the COVID-19 pandemic workplace restrictions, both voluntary and those imposed by governmental authorities, large portions ofdisrupt our and our subsidiaries’ employees are working from home, which may disruptoperations, cause significant damage to our or their productivity. Similar workplace restrictions are in place at manyassets and surrounding areas, cause loss of life or serious bodily injury, impact our or their data framework or cause a failure to protect personal information of customers or employees.
The foregoing risks relating to disruption of service, interruption of operations and data loss could impact our and our subsidiaries’ ability to timely perform critical vendors, which may resultbusiness functions, resulting in interruptionsdisruption or deterioration in service delivery or failure by vendors to properly perform required services. In addition, having shifted to remote working arrangementsour and being more dependent on internetour subsidiaries’ operations and telecommunications accessbusiness and capabilities, weexpose us and our subsidiaries to significant financial losses and monetary and reputational damages. In addition, potential exposures include substantially increased compliance costs and required computer system upgrades and security related investments. The breach of confidential information also face a heightened risk of cybersecurity attacks orcould give rise to legal liability and regulatory action under data security incidents. Weprotection and our subsidiaries also self-insure our health benefitsprivacy laws and therefore may experience increased medical claims as a result ofregulations, both in the pandemic.U.S. and foreign jurisdictions.
Item 2. Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Items 2 (a) and (b) are inapplicable.
(c) STOCK REPURCHASES
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 of shares (or approximate dollar value) of shares that may yet be purchased under the plans or programs (in millions) | |
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July 1, 2020 - | | | | | | | | | | | | |
July 31, 2020 | | | - | | | | N/A | | | | N/A | | | | N/A | |
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August 1, 2020 - | | | | | | | | | | | | | | | | |
August 31, 2020 | | | 1,250,171 | | | $ | 36.56 | | | | N/A | | | | N/A | |
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September 1, 2020 - | | | | | | | | | | | | | | | | |
September 30, 2020 | | | 4,154,083 | | | | 35.82 | | | | N/A | | | | N/A | |
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 of shares (or approximate dollar value) of shares that may yet be purchased under the plans or programs (in millions) | |
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July 1, 2021 - | | | | | | | | | | | | |
| | | 2,590,255 | | | $ | 54.01 | | | | N/A | | | | N/A | |
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August 1, 2021 - | | | | | | | | | | | | | | | | |
| | | 1,730,048 | | | | 54.60 | | | | N/A | | | | N/A | |
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September 1, 2021 - | | | | | | | | | | | | | | | | |
| | | 1,834,131 | | | | 53.74 | | | | N/A | | | | N/A | |
Description of Exhibit | Exhibit Number |
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Certification by the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a) | |
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Certification by the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a) | |
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Certification by the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) | |
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Certification by the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) | |
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XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | 101.INS * |
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Inline XBRL Taxonomy Extension Schema | 101.SCH * |
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Inline XBRL Taxonomy Extension Calculation Linkbase | 101.CAL * |
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Inline XBRL Taxonomy Extension Definition Linkbase | 101.DEF * |
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Inline XBRL Taxonomy Label Linkbase | 101.LAB * |
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Inline XBRL Taxonomy Extension Presentation Linkbase | 101.PRE * |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | 104* |
*Filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.
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Dated: November 2, 20201, 2021 | | |
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