UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20212022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to _____________
Commission File Number 1-65411-06541
(Exact name of registrant as specified in its charter)
Delaware | | 13-2646102 | | | |
Delaware | 13-2646102 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
667 Madison Avenue, New York, NY 10065-8087
(Address of principal executive offices) (Zip Code)
(212) 521-2000
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.01 per share | L | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of July 30, 2021,29, 2022, there were 257,273,034240,947,343 shares of the registrant’s common stock outstanding.
INDEX
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2021 | |
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2021 | |
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2021 | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
| | June 30, 2021 | | | December 31, 2020 | |
(Dollar amounts in millions, except per share data) | | | | | | |
| | | | | | |
Assets: | | | | | | |
| | | | | | |
Investments: | | | | | | |
Fixed maturities, amortized cost of $39,826 and $38,963, less allowance for credit loss of $45 and $40 | | $ | 44,910 | | | $ | 44,646 | |
Equity securities, cost of $1,496 and $1,456 | | | 1,663 | | | | 1,561 | |
Limited partnership investments | | | 1,898 | | | | 1,798 | |
Other invested assets, primarily mortgage loans, less allowance for credit loss of $26 and $26 | | | 1,101 | | | | 1,165 | |
Short term investments | | | 4,802 | | | | 4,674 | |
Total investments | | | 54,374 | | | | 53,844 | |
Cash | | | 578 | | | | 478 | |
Receivables | | | 9,162 | | | | 7,833 | |
Property, plant and equipment | | | 9,847 | | | | 10,451 | |
Goodwill | | | 350 | | | | 785 | |
Deferred non-insurance warranty acquisition expenses | | | 3,305 | | | | 3,068 | |
Deferred acquisition costs of insurance subsidiaries | | | 721 | | | | 708 | |
Other assets | | | 3,271 | | | | 3,069 | |
Total assets | | $ | 81,608 | | | $ | 80,236 | |
| | | | | | | | |
Liabilities and Equity: | | | | | | | | |
| | | | | | | | |
Insurance reserves: | | | | | | | | |
Claim and claim adjustment expense | | $ | 23,480 | | | $ | 22,706 | |
Future policy benefits | | | 13,285 | | | | 13,318 | |
Unearned premiums | | | 5,592 | | | | 5,119 | |
Total insurance reserves | | | 42,357 | | | | 41,143 | |
Payable to brokers | | | 654 | | | | 92 | |
Short term debt | | | 122 | | | | 37 | |
Long term debt | | | 8,988 | | | | 10,072 | |
Deferred income taxes | | | 1,083 | | | | 1,065 | |
Deferred non-insurance warranty revenue | | | 4,309 | | | | 4,023 | |
Other liabilities | | | 4,697 | | | | 4,623 | |
Total liabilities | | | 62,210 | | | | 61,055 | |
| | | | | | | | |
Commitments and contingent liabilities | | | | | | | | |
| | | | | | | | |
Preferred stock, $0.10 par value: | | | | | | | | |
Authorized – 100,000,000 shares | | | 0 | | | | 0 | |
Common stock, $0.01 par value: | | | 0 | | | | 0 | |
Authorized – 1,800,000,000 shares | | | | | | | | |
Issued – 269,514,991 and 269,360,973 shares | | | 3 | | | | 3 | |
Additional paid-in capital | | | 3,121 | | | | 3,133 | |
Retained earnings | | | 15,132 | | | | 14,150 | |
Accumulated other comprehensive income | | | 327 | | | | 581 | |
| | | 18,583 | | | | 17,867 | |
Less treasury stock, at cost (9,652,672 and 150,000 shares) | | | (500 | ) | | | (7 | ) |
Total shareholders’ equity | | | 18,083 | | | | 17,860 | |
Noncontrolling interests | | | 1,315 | | | | 1,321 | |
Total equity | | | 19,398 | | | | 19,181 | |
Total liabilities and equity | | $ | 81,608 | | | $ | 80,236 | |
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
(Dollar amounts in millions, except per share data) | | | |
| | | |
Assets: | | | |
| | | |
Investments: | | | |
Fixed maturities, amortized cost of $41,261 and $39,952, less allowance for credit loss of $5 and $18 | $ | 39,431 | | | $ | 44,380 | |
Equity securities, cost of $1,545 and $1,546 | 1,364 | | | 1,674 | |
Limited partnership investments | 1,941 | | | 1,933 | |
Other invested assets, primarily mortgage loans, less allowance for credit loss of $16 and $16 | 1,048 | | | 1,091 | |
Short term investments | 4,291 | | | 4,860 | |
Total investments | 48,075 | | | 53,938 | |
Cash | 951 | | | 621 | |
Receivables | 9,701 | | | 9,273 | |
Property, plant and equipment | 9,962 | | | 9,888 | |
Goodwill | 346 | | | 349 | |
Deferred non-insurance warranty acquisition expenses | 3,593 | | | 3,476 | |
Deferred acquisition costs of insurance subsidiaries | 792 | | | 737 | |
Other assets | 3,651 | | | 3,344 | |
Total assets | $ | 77,071 | | | $ | 81,626 | |
| | | |
Liabilities and Equity: | | | |
| | | |
Insurance reserves: | | | |
Claim and claim adjustment expense | $ | 24,559 | | | $ | 24,174 | |
Future policy benefits | 10,926 | | | 13,236 | |
Unearned premiums | 6,289 | | | 5,761 | |
Total insurance reserves | 41,774 | | | 43,171 | |
Payable to brokers | 320 | | | 90 | |
Short term debt | 839 | | | 93 | |
Long term debt | 8,443 | | | 8,986 | |
Deferred income taxes | 350 | | | 1,079 | |
Deferred non-insurance warranty revenue | 4,638 | | | 4,503 | |
Other liabilities | 4,486 | | | 4,529 | |
Total liabilities | 60,850 | | | 62,451 | |
| | | |
Commitments and contingent liabilities | | | |
| | | |
Preferred stock, $0.10 par value: | | | |
Authorized – 100,000,000 shares | | | |
Common stock, $0.01 par value: | | | |
Authorized – 1,800,000,000 shares | | | |
Issued – 248,622,439 and 248,467,051 shares | 2 | | | 2 | |
Additional paid-in capital | 2,869 | | | 2,885 | |
Retained earnings | 15,261 | | | 14,776 | |
Accumulated other comprehensive income (loss) | (2,510) | | | 186 | |
| 15,622 | | | 17,849 | |
Less treasury stock, at cost (6,398,767 and 50,000 shares) | (386) | | | (3) | |
Total shareholders’ equity | 15,236 | | | 17,846 | |
Noncontrolling interests | 985 | | | 1,329 | |
Total equity | 16,221 | | | 19,175 | |
Total liabilities and equity | $ | 77,071 | | | $ | 81,626 | |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | Three Months Ended | Six Months Ended | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 | |
(In millions, except per share data) | | | | | | | | | | | | | (In millions, except per share data) | | | | | |
| | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | Revenues: | | | | | |
Insurance premiums | | $ | 2,035 | | | $ | 1,850 | | | $ | 3,997 | | | $ | 3,719 | | Insurance premiums | $ | 2,155 | | | $ | 2,035 | | $ | 4,214 | | | $ | 3,997 | | |
Net investment income | | | 616 | | | | 644 | | | | 1,166 | | | | 807 | | Net investment income | 366 | | | 616 | | 798 | | | 1,166 | | |
Investment gains (losses) (Note 2) | | | 578 | | | | (1,142 | ) | | | 635 | | | | (1,358 | ) | |
Investment gains (losses) | | Investment gains (losses) | (59) | | | 578 | | (70) | | | 635 | | |
Non-insurance warranty revenue | | | 359 | | | | 308 | | | | 697 | | | | 609 | | Non-insurance warranty revenue | 392 | | | 359 | | 774 | | | 697 | | |
Operating revenues and other | | | 415 | | | | 650 | | | | 1,130 | | | | 1,632 | | Operating revenues and other | 534 | | | 415 | | 1,074 | | | 1,130 | | |
Total | | | 4,003 | | | | 2,310 | | | | 7,625 | | | | 5,409 | | Total | 3,388 | | | 4,003 | | 6,790 | | | 7,625 | | |
| | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | Expenses: | | |
Insurance claims and policyholders’ benefits | | | 1,546 | | | | 1,642 | | | | 3,052 | | | | 3,067 | | Insurance claims and policyholders’ benefits | 1,583 | | | 1,546 | | 3,038 | | | 3,052 | | |
Amortization of deferred acquisition costs | | | 357 | | | | 342 | | | | 716 | | | | 686 | | Amortization of deferred acquisition costs | 374 | | | 357 | | 718 | | | 716 | | |
Non-insurance warranty expense | | | 332 | | | | 285 | | | | 643 | | | | 566 | | Non-insurance warranty expense | 367 | | | 332 | | 721 | | | 643 | | |
Operating expenses and other | | | 656 | | | | 992 | | | | 1,570 | | | | 3,018 | | Operating expenses and other | 715 | | | 656 | | 1,406 | | | 1,570 | | |
Interest | | | 100 | | | | 123 | | | | 225 | | | | 267 | | Interest | 96 | | | 100 | | 192 | | | 225 | | |
Total | | | 2,991 | | | | 3,384 | | | | 6,206 | | | | 7,604 | | Total | 3,135 | | | 2,991 | | 6,075 | | | 6,206 | | |
Income (loss) before income tax | | | 1,012 | | | | (1,074 | ) | | | 1,419 | | | | (2,195 | ) | |
Income tax (expense) benefit | | | (219 | ) | | | 228 | | | | (333 | ) | | | 305 | | |
Net income (loss) | | | 793 | | | | (846 | ) | | | 1,086 | | | | (1,890 | ) | |
Income before income tax | | Income before income tax | 253 | | | 1,012 | | 715 | | | 1,419 | | |
Income tax expense | | Income tax expense | (51) | | | (219) | | (143) | | | (333) | | |
Net income | | Net income | 202 | | | 793 | | 572 | | | 1,086 | | |
Amounts attributable to noncontrolling interests | | | (39 | ) | | | 11 | | | | (71 | ) | | | 423 | | Amounts attributable to noncontrolling interests | (22) | | | (39) | | (54) | | | (71) | | |
Net income (loss) attributable to Loews Corporation | | $ | 754 | | | $ | (835 | ) | | $ | 1,015 | | | $ | (1,467 | ) | |
Net income attributable to Loews Corporation | | Net income attributable to Loews Corporation | $ | 180 | | | $ | 754 | | $ | 518 | | | $ | 1,015 | | |
| | | | | | | | | | | | | | | | | | |
Basic net income (loss) per share | | $ | 2.87 | | | $ | (2.96 | ) | | $ | 3.83 | | | $ | (5.16 | ) | |
| | | | | | | | | | | | | | | | | |
Diluted net income (loss) per share | | $ | 2.86 | | | $ | (2.96 | ) | | $ | 3.82 | | | $ | (5.16 | ) | |
Basic net income per share | | Basic net income per share | $ | 0.73 | | | $ | 2.87 | | $ | 2.10 | | | $ | 3.83 | | |
Diluted net income per share | | Diluted net income per share | $ | 0.73 | | | $ | 2.86 | | $ | 2.09 | | | $ | 3.82 | | |
| | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | Weighted average shares outstanding: | | |
Shares of common stock | | | 262.76 | | | | 281.48 | | | | 265.06 | | | | 284.26 | | Shares of common stock | 245.45 | | 262.76 | 246.70 | | 265.06 | |
Dilutive potential shares of common stock | | | 0.58 | | | | | | | | 0.49 | | | | | | Dilutive potential shares of common stock | 0.49 | | 0.58 | 0.50 | | 0.49 | |
Total weighted average shares outstanding assuming dilution | | | 263.34 | | | | 281.48 | | | | 265.55 | | | | 284.26 | | Total weighted average shares outstanding assuming dilution | 245.94 | | 263.34 | 247.20 | | 265.55 | |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| | | | Three Months Ended | Six Months Ended | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 | |
(In millions) | | | | | | | | | | | | | (In millions) | | | | | |
| | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 793 | | | $ | (846 | ) | | $ | 1,086 | | | $ | (1,890 | ) | |
Net income | | Net income | $ | 202 | | | $ | 793 | | $ | 572 | | | $ | 1,086 | | |
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), after tax | | | | | | | | | | | | | | | | | Other comprehensive income (loss), after tax | | |
Changes in: | | | | | | | | | | | | | | | | | Changes in: | | |
Net unrealized gains (losses) on investments with an allowance for credit losses | | | | | | | 2 | | | | | | | | (9 | ) | |
Net unrealized losses on investments with an allowance for credit losses | | Net unrealized losses on investments with an allowance for credit losses | (2) | | | 0 | (6) | | | 0 | |
Net unrealized gains (losses) on other investments | | | 300 | | | | 1,191 | | | | (327 | ) | | | 147 | | Net unrealized gains (losses) on other investments | (1,346) | | | 300 | | (2,957) | | | (327) | | |
Total unrealized gains (losses) on investments | | | 300 | | | | 1,193 | | | | (327 | ) | | | 138 | | Total unrealized gains (losses) on investments | (1,348) | | | 300 | | (2,963) | | | (327) | | |
Unrealized gains (losses) on cash flow hedges | | | 8 | | | | | | | | 12 | | | | (19 | ) | |
Unrealized gains on cash flow hedges | | Unrealized gains on cash flow hedges | 6 | | | 8 | | 24 | | | 12 | | |
Pension and postretirement benefits | | | 7 | | | | 6 | | | | 16 | | | | 20 | | Pension and postretirement benefits | 5 | | | 7 | | 12 | | | 16 | | |
Foreign currency translation | | | 11 | | | | 29 | | | | 14 | | | | (55 | ) | Foreign currency translation | (68) | | | 11 | | (83) | | | 14 | | |
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) | | | 326 | | | | 1,228 | | | | (285 | ) | | | 84 | | Other comprehensive income (loss) | (1,405) | | | 326 | | (3,010) | | | (285) | | |
| | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | | 1,119 | | | | 382 | | | | 801 | | | | (1,806 | ) | Comprehensive income (loss) | (1,203) | | | 1,119 | | (2,438) | | | 801 | | |
| | | | | | | | | | | | | | | | | | | |
Amounts attributable to noncontrolling interests | | | (72 | ) | | | (119 | ) | | | (40 | ) | | | 412 | | Amounts attributable to noncontrolling interests | 124 | | | (72) | | 260 | | | (40) | | |
| | | | | | | | | | | | | | | | | | | |
Total comprehensive income (loss) attributable to Loews Corporation | | $ | 1,047 | | | $ | 263 | | | $ | 761 | | | $ | (1,394 | ) | Total comprehensive income (loss) attributable to Loews Corporation | $ | (1,079) | | | $ | 1,047 | | $ | (2,178) | | | $ | 761 | | |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY(Unaudited)
| | | | | Loews Corporation Shareholders | | | | |
| | | | | | | | | | | | | | Accumulated | | | Common | | | | |
| | | | | | | | Additional | | | | | | Other | | | Stock | | | | |
| | | | | Common | | | Paid-in | | | Retained | | | Comprehensive | | | Held in | | | Noncontrolling | |
| | Total | | | Stock | | | Capital | | | Earnings | | | Income (Loss) | | | Treasury | | | Interests | |
(In millions) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance, April 1, 2020 | | $ | 19,178 | | | $ | 3 | | | $ | 3,347 | | | $ | 15,167 | | | $ | (1,093 | ) | | $ | (458 | ) | | $ | 2,212 | |
Net loss | | | (846 | ) | | | | | | | | | | | (835 | ) | | | | | | | | | | | (11 | ) |
Other comprehensive income | | | 1,228 | | | | | | | | | | | | | | | | 1,098 | | | | | | | | 130 | |
Dividends paid ($0.0625 per share) | | | (27 | ) | | | | | | | | | | | (18 | ) | | | | | | | | | | | (9 | ) |
Deconsolidation of Diamond Offshore | | | (1,087 | ) | | | | | | | | | | | | | | | | | | | | | | | (1,087 | ) |
Purchases of Loews Corporation treasury stock | | | (33 | ) | | | | | | | | | | | | | | | | | | | (33 | ) | | | | |
Purchases of subsidiary stock from noncontrolling interests | | | (19 | ) | | | | | | | 5 | | | | | | | | | | | | | | | | (24 | ) |
Stock-based compensation | | | 13 | | | | | | | | 13 | | | | | | | | | | | | | | | | | |
Other | | | 6 | | | | | | | | 6 | | | | 2 | | | | | | | | | | | | (2 | ) |
Balance, June 30, 2020 | | $ | 18,413 | | | $ | 3 | | | $ | 3,371 | | | $ | 14,316 | | | $ | 5 | | | $ | (491 | ) | | $ | 1,209 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, April 1, 2021 | | $ | 18,537 | | | $ | 3 | | | $ | 3,119 | | | $ | 14,394 | | | $ | 34 | | | $ | (280 | ) | | $ | 1,267 | |
Net income | | | 793 | | | | | | | | | | | | 754 | | | | | | | | | | | | 39 | |
Other comprehensive income | | | 326 | | | | | | | | | | | | | | | | 293 | | | | | | | | 33 | |
Dividends paid ($0.0625 per share) | | | (27 | ) | | | | | | | | | | | (16 | ) | | | | | | | | | | | (11 | ) |
Purchases of Loews Corporation treasury stock | | | (219 | ) | | | | | | | | | | | | | | | | | | | (219 | ) | | | | |
Purchases of subsidiary stock from noncontrolling interests | | | (15 | ) | | | | | | | | | | | | | | | | | | | | | | | (15 | ) |
Stock-based compensation | | | 3 | | | | | | | | 2 | | | | | | | | | | | | | | | | 1 | |
Other | | | 0 | | | | | | | | | | | | | | | | | | | | (1 | ) | | | 1 | |
Balance, June 30, 2021 | | $ | 19,398 | | | $ | 3 | | | $ | 3,121 | | | $ | 15,132 | | | $ | 327 | | | $ | (500 | ) | | $ | 1,315 | |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(Unaudited)
| | | | | Loews Corporation Shareholders | | | | | |
| | | | | | | | | | | | | | Accumulated | | | Common | | | | | |
| | | | | | | | Additional | | | | | | Other | | | Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common | | | Paid-in | | | Retained | | | Comprehensive | | | Held in | | | Noncontrolling | | | | | Loews Corporation Shareholders | | | |
| | Total | | | Stock | | | Capital | | | Earnings | | | Income (Loss) | | | Treasury | | | Interests | | | Total | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Common Stock Held in Treasury | | Noncontrolling Interests | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | (In millions) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2020, as reported | | $ | 21,930 | | | $ | 3 | | | $ | 3,374 | | | $ | 15,823 | | | $ | (68 | ) | | $ | (13 | ) | | $ | 2,811 | | |
Cumulative effect adjustment from change in accounting standards | | | (5 | ) | | | | | | | | | | | (5 | ) | | | | | | | | | | | | | |
Balance, January 1, 2020, as adjusted | | | 21,925 | | | | 3 | | | | 3,374 | | | | 15,818 | | | | (68 | ) | | | (13 | ) | | | 2,811 | | |
Net loss | | | (1,890 | ) | | | | | | | | | | | (1,467 | ) | | | | | | | | | | | (423 | ) | |
Balance, April 1, 2021 | | Balance, April 1, 2021 | $ | 18,537 | | | $ | 3 | | | $ | 3,119 | | | $ | 14,394 | | | $ | 34 | | | $ | (280) | | | $ | 1,267 | | |
Net income | | Net income | 793 | | | 754 | | | 39 | | |
Other comprehensive income | | | 84 | | | | | | | | | | | | | | | | 73 | | | | | | | | 11 | | Other comprehensive income | 326 | | | 293 | | | 33 | | |
Dividends paid ($0.125 per share) | | | (114 | ) | | | | | | | | | | | (36 | ) | | | | | | | | | | | (78 | ) | |
Deconsolidation of Diamond Offshore | | | (1,087 | ) | | | | | | | | | | | | | | | | | | | | | | | (1,087 | ) | |
Dividends paid ($0.0625 per share) | | Dividends paid ($0.0625 per share) | (27) | | | (16) | | | (11) | | |
Purchase of subsidiary stock from noncontrolling interests | | Purchase of subsidiary stock from noncontrolling interests | (15) | | | (15) | | |
Purchases of Loews Corporation treasury stock | | | (478 | ) | | | | | | | | | | | | | | | | | | | (478 | ) | | | | | Purchases of Loews Corporation treasury stock | (219) | | | (219) | | | |
Purchases of subsidiary stock from noncontrolling interests | | | (37 | ) | | | | | | | 5 | | | | | | | | | | | | | | | | (42 | ) | |
Stock-based compensation | | | 9 | | | | | | | | (9 | ) | | | | | | | | | | | | | | | 18 | | |
Other | | | 1 | | | | | | | | 1 | | | | 1 | | | | | | | | | | | | (1 | ) | |
Balance, June 30, 2020 | | $ | 18,413 | | | $ | 3 | | | $ | 3,371 | | | $ | 14,316 | | | $ | 5 | | | $ | (491 | ) | | $ | 1,209 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2021 | | $ | 19,181 | | | $ | 3 | | | $ | 3,133 | | | $ | 14,150 | | | $ | 581 | | | $ | (7 | ) | | $ | 1,321 | | |
Net income | | | 1,086 | | | | | | | | | | | | 1,015 | | | | | | | | | | | | 71 | | |
Other comprehensive loss | | | (285 | ) | | | | | | | | | | | | | | | (254 | ) | | | | | | | (31 | ) | |
Dividends paid ($0.125 per share) | | | (76 | ) | | | | | | | | | | | (33 | ) | | | | | | | | | | | (43 | ) | |
Purchases of Loews Corporation treasury stock | | | (493 | ) | | | | | | | | | | | | | | | | | | | (493 | ) | | | | | |
Purchases of subsidiary stock from noncontrolling interests | | | (18 | ) | | | | | | | | | | | | | | | | | | | | | | | (18 | ) | |
Stock-based compensation | | | 7 | | | | | | | | (9 | ) | | | | | | | | | | | | | | | 16 | | Stock-based compensation | 3 | | | 2 | | | 1 | | |
Other | | | (4 | ) | | | | | | | (3 | ) | | | | | | | | | | | | | | | (1 | ) | Other | — | | | (1) | | | 1 | | |
Balance, June 30, 2021 | | $ | 19,398 | | | $ | 3 | | | $ | 3,121 | | | $ | 15,132 | | | $ | 327 | | | $ | (500 | ) | | $ | 1,315 | | Balance, June 30, 2021 | $ | 19,398 | | | $ | 3 | | | $ | 3,121 | | | $ | 15,132 | | | $ | 327 | | | $ | (500) | | | $ | 1,315 | | |
| Balance, April 1, 2022 | | Balance, April 1, 2022 | $ | 17,695 | | | $ | 2 | | | $ | 2,859 | | | $ | 15,097 | | | $ | (1,251) | | | $ | (132) | | | $ | 1,120 | | |
Net income | | Net income | 202 | | | 180 | | | 22 | | |
Other comprehensive loss | | Other comprehensive loss | (1,405) | | | (1,259) | | | (146) | | |
Dividends paid ($0.0625 per share) | | Dividends paid ($0.0625 per share) | (26) | | | (15) | | | (11) | | |
| Purchases of Loews Corporation treasury stock | | Purchases of Loews Corporation treasury stock | (255) | | | (255) | | | |
Stock-based compensation | | Stock-based compensation | 12 | | | 11 | | | 1 | | |
Other | | Other | (2) | | | (1) | | | (1) | | | 1 | | | (1) | | |
Balance, June 30, 2022 | | Balance, June 30, 2022 | $ | 16,221 | | | $ | 2 | | | $ | 2,869 | | | $ | 15,261 | | | $ | (2,510) | | | $ | (386) | | | $ | 985 | | |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWSEQUITY(Unaudited)
Six Months Ended June 30 | | 2021 | | | 2020 | |
(In millions) | | | | | | |
| | | | | | |
Operating Activities: | | | | | | |
| | | | | | |
Net income (loss) | | $ | 1,086 | | | $ | (1,890 | ) |
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities, net | | | (187 | ) | | | 2,430 | |
Changes in operating assets and liabilities, net: | | | | | | | | |
Receivables | | | (1,087 | ) | | | (574 | ) |
Deferred acquisition costs | | | (12 | ) | | | (41 | ) |
Insurance reserves | | | 1,373 | | | | 1,181 | |
Other assets | | | (720 | ) | | | (280 | ) |
Other liabilities | | | 598 | | | | (46 | ) |
Trading securities | | | (508 | ) | | | (340 | ) |
Net cash flow provided by operating activities | | | 543 | | | | 440 | |
| | | | | | | | |
Investing Activities: | | | | | | | | |
| | | | | | | | |
Purchases of fixed maturities | | | (4,615 | ) | | | (5,356 | ) |
Proceeds from sales of fixed maturities | | | 1,846 | | | | 3,773 | |
Proceeds from maturities of fixed maturities | | | 2,104 | | | | 1,622 | |
Purchases of equity securities | | | (181 | ) | | | (312 | ) |
Proceeds from sales of equity securities | | | 193 | | | | 230 | |
Purchases of limited partnership investments | | | (169 | ) | | | (90 | ) |
Proceeds from sales of limited partnership investments | | | 185 | | | | 259 | |
Purchases of property, plant and equipment | | | (183 | ) | | | (440 | ) |
Dispositions | | | 52 | | | | 11 | |
Sale of interest in Altium Packaging | | | 417 | | | | | |
Deconsolidation of Diamond Offshore | | | | | | | (483 | ) |
Change in short term investments | | | 405 | | | | 526 | |
Other, net | | | 39 | | | | (65 | ) |
Net cash flow provided (used) by investing activities | | | 93 | | | | (325 | ) |
| | | | | | | | |
Financing Activities: | | | | | | | | |
| | | | | | | | |
Dividends paid | | | (33 | ) | | | (36 | ) |
Dividends paid to noncontrolling interests | | | (43 | ) | | | (78 | ) |
Purchases of Loews Corporation treasury stock | | | (484 | ) | | | (491 | ) |
Purchases of subsidiary stock from noncontrolling interests | | | (18 | ) | | | (37 | ) |
Principal payments on debt | | | (1,146 | ) | | | (465 | ) |
Issuance of debt | | | 1,199 | | | | 1,342 | |
Other, net | | | (12 | ) | | | (13 | ) |
Net cash flow (used) provided by financing activities | | | (537 | ) | | | 222 | |
| | | | | | | | |
Effect of foreign exchange rate on cash | | | 1 | | | | (5 | ) |
| | | | | | | | |
Net change in cash | | | 100 | | | | 332 | |
Cash, beginning of period | | | 478 | | | | 336 | |
Cash, end of period | | $ | 578 | | | $ | 668 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Loews Corporation Shareholders | | | | | |
| Total | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Common Stock Held in Treasury | | Noncontrolling Interests | | | |
(In millions) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance, January 1, 2021 | $ | 19,181 | | | $ | 3 | | | $ | 3,133 | | | $ | 14,150 | | | $ | 581 | | | $ | (7) | | | $ | 1,321 | | | | |
Net income | 1,086 | | | | | | | 1,015 | | | | | | | 71 | | | | |
Other comprehensive loss | (285) | | | | | | | | | (254) | | | | | (31) | | | | |
Dividends paid ($0.125 per share) | (76) | | | | | | | (33) | | | | | | | (43) | | | | |
Purchase of subsidiary stock from noncontrolling interests | (18) | | | | | | | | | | | | | (18) | | | | |
Purchases of Loews Corporation treasury stock | (493) | | | | | | | | | | | (493) | | | | | | |
| | | | | | | | | | | | | | | | |
Stock-based compensation | 7 | | | | | (9) | | | | | | | | | 16 | | | | |
Other | (4) | | | | | (3) | | | | | | | 0 | | (1) | | | | |
Balance, June 30, 2021 | $ | 19,398 | | | $ | 3 | | | $ | 3,121 | | | $ | 15,132 | | | $ | 327 | | | $ | (500) | | | $ | 1,315 | | | | |
| | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | $ | 19,175 | | | $ | 2 | | | $ | 2,885 | | | $ | 14,776 | | | $ | 186 | | | $ | (3) | | | $ | 1,329 | | | | |
Net income | 572 | | | | | | | 518 | | | | | | | 54 | | | | |
Other comprehensive loss | (3,010) | | | | | | | | | (2,696) | | | | | (314) | | | | |
Dividends paid ($0.125 per share) | (110) | | | 0 | | | | (31) | | | | | | | (79) | | | | |
| | | | | | | | | | | | | | | | |
Purchase of subsidiary stock from noncontrolling interests | (21) | | | 0 | | (1) | | | | | | | | | (20) | | | | |
Purchases of Loews Corporation treasury stock | (384) | | | | | | | | | | | (384) | | | | | | |
Stock-based compensation | 2 | | | | | (14) | | | | | | | | | 16 | | | | |
Other | (3) | | | | | (1) | | | (2) | | | | | 1 | | | (1) | | | | |
Balance, June 30, 2022 | $ | 16,221 | | | $ | 2 | | | $ | 2,869 | | | $ | 15,261 | | | $ | (2,510) | | | $ | (386) | | | $ | 985 | | | | |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
Six Months Ended June 30 | 2022 | | 2021 |
(In millions) | | | |
| | | |
Operating Activities: | | | |
| | | |
Net income | $ | 572 | | | $ | 1,086 | |
Adjustments to reconcile net income to net cash provided by operating activities, net | 505 | | | (187) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Changes in operating assets and liabilities, net: | | | |
Receivables | (634) | | | (1,087) | |
Deferred acquisition costs | (63) | | | (12) | |
Insurance reserves | 1,376 | | | 1,373 | |
Other assets | (360) | | | (720) | |
Other liabilities | 87 | | | 598 | |
Trading securities | (37) | | | (508) | |
Net cash flow provided by operating activities | 1,446 | | | 543 | |
| | | |
Investing Activities: | | | |
| | | |
Purchases of fixed maturities | (6,251) | | | (4,615) | |
Proceeds from sales of fixed maturities | 3,293 | | | 1,846 | |
Proceeds from maturities of fixed maturities | 1,715 | | | 2,104 | |
Purchases of equity securities | (195) | | | (181) | |
Proceeds from sales of equity securities | 193 | | | 193 | |
Purchases of limited partnership investments | (168) | | | (169) | |
Proceeds from sales of limited partnership investments | 134 | | | 185 | |
Purchases of property, plant and equipment | (312) | | | (183) | |
| | | |
Dispositions | 0 | | 52 | |
Sale of interest in Altium Packaging | 0 | | 417 | |
Change in short term investments | 739 | | | 405 | |
Other, net | 66 | | | 39 | |
Net cash flow (used) provided by investing activities | (786) | | | 93 | |
| | | |
Financing Activities: | | | |
| | | |
Dividends paid | (31) | | | (33) | |
Dividends paid to noncontrolling interests | (79) | | | (43) | |
Purchases of Loews Corporation treasury stock | (380) | | | (484) | |
Purchases of subsidiary stock from noncontrolling interests | (21) | | | (18) | |
Principal payments on debt | (301) | | | (1,146) | |
Issuance of debt | 498 | | | 1,199 | |
Other, net | (4) | | | (12) | |
Net cash flow used by financing activities | (318) | | | (537) | |
| | | |
Effect of foreign exchange rate on cash | (12) | | | 1 | |
| | | |
Net change in cash | 330 | | | 100 | |
Cash, beginning of period | 621 | | | 478 | |
Cash, end of period | $ | 951 | | | $ | 578 | |
See accompanying Notes to Consolidated Condensed Financial Statements.
Loews Corporation and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Loews Corporation is a holding company. Its consolidated operating subsidiaries are engaged in the following lines of business: commercial property and casualty insurance (CNA Financial Corporation (“CNA”), an 89.6% owned subsidiary); transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP (“Boardwalk Pipelines”), a wholly owned subsidiary); and the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels & Co”), a wholly owned subsidiary). Unless the context otherwise requires, the term “Company” as used herein means Loews Corporation including its consolidated subsidiaries, the term “Parent Company” means Loews Corporation excluding its subsidiaries, the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders and the term “subsidiaries” means Loews Corporation’s consolidated subsidiaries.
On April 1, 2021, Loews Corporation sold 47% of its interest in Altium Packaging LLC (“Altium Packaging”), previously a 99% owned subsidiary. Seesubsidiary, for $420 million in cash consideration, and following the transaction Loews Corporation deconsolidated Altium Packaging. Effective April 1, 2021, Loews Corporation’s investment in Altium Packaging is accounted for under the equity method of accounting, with the investment reported in Other assets on the Consolidated Condensed Balance Sheets and equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations. The transaction resulted in a gain of $555 million ($438 million after tax) for the six months ended June 30, 2021, which was recorded in Investment gains (losses) on the Consolidated Condensed Statement of Operations. For additional information regarding the deconsolidation of Altium Packaging, see Note 2 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for further discussion.the year ended December 31, 2021.
In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of June 30, 20212022 and December 31, 2020,2021 and results of operations, comprehensive income (loss) and changes in shareholders’ equity for the three and six months ended June 30, 20212022 and 20202021 and cash flows for the six months ended June 30, 20212022 and 2020.2021. Net income (loss) for the second quarter and first half of each of the years is not necessarily indicative of net income (loss) for that entire year. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
The Company presents basic and diluted net income (loss) per share on the Consolidated Condensed Statements of Operations. Basic net income (loss) per share excludes dilution and is computed by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three and six months ended June 30, 2022 and 2021 there were 0no shares attributable to employee stock-based compensation awards excluded from the diluted weighted average shares outstanding amounts because the effect would have been antidilutive.
Recently issued ASUsAccounting Standards Updates (“ASUs”) – In August of 2018,, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU 2018-12,, “Financial Services – Insurance (Topic 944)944): Targeted Improvements to the Accounting for Long-Duration Contracts.” The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entitiesFor the Company, this includes CNA’s long term care and fully-ceded single premium immediate annuity business. Entities will be required to review, and update annuallyif there is a change, cash flow assumptions including(including morbidity and persistency,persistency) at least annually and to update quarterly discount rate assumptions using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in Net income and the effect of changes in discount rate assumptions will be recorded in Other comprehensive income (“OCI”). ThisThe guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The guidancepermitted, and may be applied using either a modified retrospective transition method or a full retrospective transition method. The guidance requires restatement ofFinancial statements for prior periods presented. presented will be adjusted to reflect the effects of applying the new accounting guidance.
The Company plans towill adopt on the new guidance effective date,January 1, 2023, using the modified retrospective method applied as of the transition methoddate of January 1, 2021. A published spot rate curve constructed from A+, A and is currently evaluatingA- rated U.S. dollar denominated corporate bonds matched to the duration of the corresponding insurance liabilities will be used to calculate discount rates. Long-duration contracts will be grouped into calendar year cohorts based on the contract issue date and product line. Long term care contracts will be grouped separately from the fully-ceded single premium immediate annuity contracts.
The most significant impact at the transition date will be the effect of updating the updated guidancediscount rate assumption to reflect an upper-medium grade fixed-income instrument yield, which will have on its consolidated financial statements, includingbe partially offset by the increased disclosure requirements.de-recognition of Shadow Adjustments associated with long-duration contracts. The annual updatingCompany expects the net impact of these changes will be a $2.0 billion - $2.3 billion (after tax and noncontrolling interests) decrease in Accumulated other comprehensive income (“AOCI”) as of the transition date of January 1, 2021. There is a minimal transition impact expected to retained earnings.
The requirement to review, and update if there is a change, cash flow assumptions at least annually is expected to increase income statement volatility.change the pattern of earnings being recognized. Adoption will also significantly expand the Company’s disclosures, and will impact systems, processes and controls. While the requirements of the new guidance represent a material change from existing accounting guidance, the new guidance will not impact capital and surplus under statutory accounting practices, cash flows, or the underlying economics of the businessbusiness.
The Company continues to make progress in connection with these matters and related cash flows will be unchanged.
2. Significant Transactions
Altium Packaging
On April 1, 2021, Loews Corporation sold 47%is in the process of its interest in Altium Packagingrefining key accounting policy decisions, technology solutions and updates to GIC, Singapore’s sovereign wealth fund for $420 million in cash consideration. Loews Corporation will share certain participating rightsinternal controls associated with GIC related to capital allocation and other decisions by Altium Packaging. Therefore, in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation,” Altium Packaging was deconsolidated from Loews Corporation’s consolidated financial statements effective as of April 1, 2021. Effective April 1, 2021, Loews Corporation’s investment in Altium Packaging is accounted for under the equity method of accounting, with the investment reported in Other assets on the Consolidated Condensed Balance Sheets and equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations.
The transaction resulted in a gain of $555 million ($438 million after tax) for the three and six months ended June 30, 2021, which is recorded in Investment gains (losses) on the Consolidated Condensed Statement of Operations. Loews Corporation’s retained investment in Altium Packaging was recorded at an estimated fair value of $473 million. The difference between the fair value of Loews Corporation’s investment in Altium Packaging and Loews Corporation’s 53% shareadoption of the carrying valuenew guidance. These in-progress activities include modifications of Altium Packaging’s net assets was attributed to definite lived intangible assetsactuarial valuation systems, data sourcing, analytical procedures and goodwill. The amortization of the amounts attributed to definite lived intangible assets will be recognized as a component of equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations. The assets and liabilities deconsolidated from the Consolidated Condensed Balance Sheets were property, plant and equipment of $490 million, goodwill of $436 million, intangible assets of $488 million, other assets of approximately $370 million, long term debt of $1.1 billion and other liabilities of approximately $380 million.reporting processes.
Diamond Offshore
As a result of the April 26, 2020 (“the Filing Date”) bankruptcy filing of Diamond Offshore Drilling, Inc. (“Diamond Offshore”) and certain of its subsidiaries and applicable accounting principles generally accepted in the United States of America (“GAAP”), Diamond Offshore was deconsolidated from Loews Corporation’s consolidated financial statements in the second quarter of 2020. Through the Filing Date, Diamond Offshore’s results were included in Loews Corporation’s consolidated financial statements and Loews Corporation recognized in its earnings its proportionate share of Diamond Offshore’s losses through such date. The deconsolidation resulted in the recognition of a loss of $1.2 billion ($957 million after tax) during the three and six months ended June 30, 2020, which is reported within Investment gains (losses) on the Consolidated Condensed Statements of Operations. During the first quarter of 2020, Diamond Offshore recorded an aggregate asset impairment charge of $774 million ($408 million after tax and noncontrolling interests), which is reported within Operating expenses and other on the Consolidated Condensed Statements of Operations. For additional information regarding the deconsolidation of Diamond Offshore and the Diamond Offshore asset impairments, see Notes 2 and 6 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
3.2. Investments
Net investment income is as follows:
| | | | Three Months Ended | Six Months Ended | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 | |
(In millions) | | | | | | | | | | | | | (In millions) | | | | | |
| | | | | | | | | | | | | | | | | | |
Fixed maturity securities | | $ | 425 | | | $ | 430 | | | $ | 853 | | | $ | 868 | | Fixed maturity securities | $ | 441 | | | $ | 425 | | $ | 870 | | | $ | 853 | | |
Limited partnership investments | | | 149 | | | | 57 | | | | 196 | | | | (45 | ) | Limited partnership investments | 7 | | | 149 | | 27 | | | 196 | | |
Short term investments | | | | | | | 2 | | | | | | | | 9 | | |
| Equity securities | | | 20 | | | | 50 | | | | 49 | | | | 6 | | Equity securities | (11) | | | 20 | | (9) | | | 49 | | |
Income (loss) from trading portfolio (a) | | | 26 | | | | 107 | | | | 76 | | | | (22 | ) | Income (loss) from trading portfolio (a) | (62) | | | 26 | | (77) | | | 76 | | |
Other | | | 14 | | | | 16 | | | | 30 | | | | 30 | | Other | 13 | | | 14 | | 28 | | | 30 | | |
Total investment income | | | 634 | | | | 662 | | | | 1,204 | | | | 846 | | Total investment income | 388 | | | 634 | | 839 | | | 1,204 | | |
Investment expenses | | | (18 | ) | | | (18 | ) | | | (38 | ) | | | (39 | ) | Investment expenses | (22) | | | (18) | | (41) | | | (38) | | |
Net investment income | | $ | 616 | | | $ | 644 | | | $ | 1,166 | | | $ | 807 | | Net investment income | $ | 366 | | | $ | 616 | | $ | 798 | | | $ | 1,166 | | |
(a) | | | | | |
Net unrealized gains (losses) related(a) | During the three and six months ended June 30, 2022, $95 and $120 of net investment losses were recognized due to changesthe change in fair value onof securities still held were $28as of June 30, 2022. During the three and $80 for the threesix months ended June 30, 2021, $28 and 2020 and $58 and $7 for$58 of net investment income was recognized due to the six months endedchange in fair value of securities still held as of June 30, 2021 and 2020.2021. |
Investment gains (losses) are as follows:
| | | | Three Months Ended | Six Months Ended | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 | |
(In millions) | | | | | | | | | | | | | (In millions) | | | | | |
| | | | | | | | | | | | | | | | | | |
Fixed maturity securities | | $ | 31 | | | $ | 17 | | | $ | 69 | | | $ | (58 | ) | |
Fixed maturity securities: | | Fixed maturity securities: | | |
Gross gains | | Gross gains | $ | 45 | | | $ | 51 | | $ | 71 | | | $ | 109 | | |
Gross losses | | Gross losses | (60) | | | (20) | | (88) | | | (40) | | |
Investment gains (losses) on fixed maturity securities | | Investment gains (losses) on fixed maturity securities | (15) | | | 31 | | (17) | | | 69 | | |
Equity securities | | | 17 | | | | 63 | | | | 19 | | | | (70 | ) | Equity securities | (71) | | | 17 | | (109) | | | 19 | | |
Derivative instruments | | | (12 | ) | | | (10 | ) | | | 5 | | | | (5 | ) | Derivative instruments | 26 | | | (12) | | 55 | | | 5 | | |
Short term investments and other | | | 2 | | | | (1 | ) | | | 2 | | | | (14 | ) | Short term investments and other | 1 | | | (13) | | 1 | | | (13) | | |
Sale of 47% interest in Altium Packaging (see Note 2) | | | 555 | | | | | | | | 555 | | | | | | |
Deconsolidation of Diamond Offshore | | | (15 | ) | | | (1,211 | ) | | | (15 | ) | | | (1,211 | ) | |
Altium Packaging (see Note 1) | | Altium Packaging (see Note 1) | 0 | | 555 | | 0 | | 555 | | |
Investment gains (losses) (a) | | $ | 578 | | | $ | (1,142 | ) | | $ | 635 | | | $ | (1,358 | ) | Investment gains (losses) (a) | $ | (59) | | | $ | 578 | | $ | (70) | | | $ | 635 | | |
(a) | | | | | |
Gross investment gains on available-for-sale securities were $(a)51 and $102for | During the three months ended June 30, 2021 and 2020 and $109 and $131 for the six months ended June 30, 20212022, $70 and 2020. Gross$108 of investment losses on available-for-sale securities were $20 and $85forrecognized due to the three months endedchange in fair value of non-redeemable preferred stock still held as of June 30, 2021 and 2020 and $40 and $189 for the six months ended June 30, 2021 and 2020.2022. During the three and six months ended June 30, 2021, $15 of investment gains were recognized due to the change in fair value of non-redeemable preferred stock still held as of June 30, 2021. During the three and six months ended June 30, 2020, $63 of investment gains and $70 of investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of June 30, 2020. |
The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and purchased credit-deteriorated (“PCD”) assets. Accrued interest receivables on available-for-sale fixed maturity securities totaled $374 million, $371$369 million and $373$374 million as of June 30, 2021,2022, December 31, 20202021 and June 30, 20202021 and are excluded from the estimate of expected credit losses and the amortized cost basis in the tables within this Note.
Three months ended June 30, 2021 | | Corporate and Other Bonds | | | Asset- backed | | | Total | | |
| Three months ended June 30, 2022 | | Three months ended June 30, 2022 | Corporate and Other Bonds | | Asset-backed | | Total |
(In millions) | | | | | | | | | | (In millions) | | | | | |
| | | | | | | | | | |
Allowance for credit losses: | | | | | | | | | | Allowance for credit losses: | | | | | |
Balance as of April 1, 2021 | | $ | 27 | | | $ | 16 | | | $ | 43 | | |
Balance as of April 1, 2022 | | Balance as of April 1, 2022 | $ | 12 | | | $ | 5 | | | $ | 17 | |
Additions to the allowance for credit losses: | | | | | | | | | | | | | Additions to the allowance for credit losses: | |
Securities for which credit losses were not previously recorded | | | | | | | | | | | | | |
| Available-for-sale securities accounted for as PCD assets | | | | | | | 4 | | | | 4 | | Available-for-sale securities accounted for as PCD assets | 0 | | 3 | | | 3 | |
| | | | | | | | | | | | | | |
Reductions to the allowance for credit losses: | | | | | | | | | | | | | Reductions to the allowance for credit losses: | |
Securities sold during the period (realized) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | | | (3 | ) | | | 1 | | | | (2 | ) | |
| Write-offs charged against the allowance | | Write-offs charged against the allowance | 12 | | | 0 | | 12 | |
| Additional decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period | | Additional decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period | 0 | | (3) | | | (3) | |
Total allowance for credit losses | | $ | 24 | | | $ | 21 | | | $ | 45 | | Total allowance for credit losses | $ | — | | | $ | 5 | | | $ | 5 | |
Three months ended June 30, 2020 | | | | | | | | | |
| | | | | | | | | |
Allowance for credit losses: | | | | | | | | | |
Balance as of April 1, 2020 | | $ | 49 | | | $ | 0 | | | $ | 49 | |
Additions to the allowance for credit losses: | | | | | | | | | | | | |
Securities for which credit losses were not previously recorded | | | 10 | | | | 12 | | | | 22 | |
Available-for-sale securities accounted for as PCD assets | | | 1 | | | | | | | | 1 | |
| | | | | | | | | | | | |
Reductions to the allowance for credit losses: | | | | | | | | | | | | |
Securities sold during the period (realized) | | | 1 | | | | | | | | 1 | |
| | | | | | | | | | | | |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | | | (20 | ) | | | | | | | (20 | ) |
Total allowance for credit losses | | $ | 39 | | | $ | 12 | | | $ | 51 | |
Six months ended June 30, 2021 | | Corporate and Other Bonds | | | Asset- backed | | | Total | |
(In millions) | | | | | | | | | |
| | | | | | | | | |
Allowance for credit losses: | | | | | | | | | |
Balance as of January 1, 2021 | | $ | 23 | | | $ | 17 | | | $ | 40 | |
Additions to the allowance for credit losses: | | | | | | | | | | | | |
Securities for which credit losses were not previously recorded | | | 14 | | | | | | | | 14 | |
Available-for-sale securities accounted for as PCD assets | | | 2 | | | | 4 | | | | 6 | |
| | | | | | | | | | | | |
Reductions to the allowance for credit losses: | | | | | | | | | | | | |
Securities sold during the period (realized) | | | 6 | | | | | | | | 6 | |
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | | | | | | | | | | | | |
| | | | | | | | | | | | |
Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period | | | (9 | ) | | | | | | | (9 | ) |
Total allowance for credit losses | | $ | 24 | | | $ | 21 | | | $ | 45 | |
Six months ended June 30, 2020 | | | | | | | | | |
| | | | | | | | | |
Allowance for credit losses: | | | | | | | | | |
Balance as of January 1, 2020 | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Additions to the allowance for credit losses: | | | | | | | | | | | | |
Impact of adopting ASC 326 | | | 6 | | | | | | | | 6 | |
Securities for which credit losses were not previously recorded | | | 58 | | | | 12 | | | | 70 | |
Available-for-sale securities accounted for as PCD assets | | | 2 | | | | | | | | 2 | |
| | | | | | | | | | | | |
Reductions to the allowance for credit losses: | | | | | | | | | | | | |
Securities sold during the period (realized) | | | 6 | | | | | | | | 6 | |
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | | | 1 | | | | | | | | 1 | |
| | | | | | | | | | | | |
Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period | | | (20 | ) | | | | | | | (20 | ) |
Total allowance for credit losses | | $ | 39 | | | $ | 12 | | | $ | 51 | |
| | | | | | | | | | | | | | | | | |
Three months ended June 30, 2021 | Corporate and Other Bonds | | Asset-backed | | Total |
| | | | | |
Allowance for credit losses: | | | | | |
Balance as of April 1, 2021 | $ | 27 | | | $ | 16 | | | $ | 43 | |
Additions to the allowance for credit losses: | | | | | |
| | | | | |
| | | | | |
Available-for-sale securities accounted for as PCD assets | 0 | | 4 | | | 4 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | (3) | | | 1 | | | (2) | |
Total allowance for credit losses | $ | 24 | | | $ | 21 | | | $ | 45 | |
| | | | | | | | | | | | | | | | | |
Six months ended June 30, 2022 | | | | | |
| | | | | |
Allowance for credit losses: | | | | | |
Balance as of January 1, 2022 | $ | 11 | | | $ | 7 | | | $ | 18 | |
Additions to the allowance for credit losses: | | | | | |
| | | | | |
Available-for-sale securities accounted for as PCD assets | 0 | | 3 | | | 3 | |
| | | | | |
Reductions to the allowance for credit losses: | | | | | |
| | | | | |
| | | | | |
Write-offs charged against the allowance | 12 | | | 0 | | 12 | |
| | | | | |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | 1 | | | (5) | | | (4) | |
Total allowance for credit losses | $ | — | | | $ | 5 | | | $ | 5 | |
| | | | | | | | | | | | | | | | | |
Six months ended June 30, 2021 | | | | | |
| | | | | |
Allowance for credit losses: | | | | | |
Balance as of January 1, 2021 | $ | 23 | | | $ | 17 | | | $ | 40 | |
Additions to the allowance for credit losses: | | | | | |
| | | | | |
Securities for which credit losses were not previously recorded | 14 | | | 0 | | 14 | |
Available-for-sale securities accounted for as PCD assets | 2 | | | 4 | | | 6 | |
| | | | | |
Reductions to the allowance for credit losses: | | | | | |
Securities sold during the period (realized) | 6 | | | 0 | | 6 | |
| | | | | |
| | | | | |
Additional decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period | (9) | | | 0 | | (9) | |
Total allowance for credit losses | $ | 24 | | | $ | 21 | | | $ | 45 | |
The components of available-for-sale impairment losses (gains) recognized in earnings by asset type are presented in the following table. The table includes losses (gains) on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date:
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fixed maturity securities available-for-sale: | | | | | | | | | | | | |
Corporate and other bonds | | $ | (2 | ) | | $ | (1 | ) | | $ | 5 | | | $ | 90 | |
Asset-backed | | | 1 | | | | 12 | | | | | | | | 13 | |
Impairment losses (gains) recognized in earnings | | $ | (1 | ) | | $ | 11 | | | $ | 5 | | | $ | 103 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended | | |
| June 30, | June 30, | | |
| 2022 | | 2021 | 2022 | | 2021 | | |
(In millions) | | | | | | | | |
| | | | | | | | |
Fixed maturity securities available-for-sale: | | | | | | | | |
Corporate and other bonds | $ | 21 | | | $ | (2) | | $ | 29 | | | $ | 5 | | | |
Asset-backed | (1) | | | 1 | | 1 | | | 0 | | |
Impairment losses (gains) recognized in earnings | $ | 20 | | | $ | (1) | | $ | 30 | | | $ | 5 | | | |
There were $13 million of losses on mortgage loans recognized during the six months ended June 30, 2020 due to changes in expected credit losses. There were 0no losses recognized on mortgage loans during the three and six months ended June 30, 20212022 or during the three months ended June 30, 2020.2021.
The amortized cost and fair values of fixed maturity securities are as follows:
June 30, 2021 | | Cost or Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Allowance for Credit Losses | | | Estimated Fair Value | |
(In millions) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | |
Corporate and other bonds | | $ | 21,291 | | | $ | 3,153 | | | $ | 35 | | | $ | 24 | | | $ | 24,385 | |
States, municipalities and political subdivisions | | | 10,125 | | | | 1,743 | | | | 2 | | | | | | | | 11,866 | |
Asset-backed: | | | | | | | | | | | | | | | | | | | | |
Residential mortgage-backed | | | 3,337 | | | | 99 | | | | 10 | | | | | | | | 3,426 | |
Commercial mortgage-backed | | | 2,068 | | | | 98 | | | | 14 | | | | 17 | | | | 2,135 | |
Other asset-backed | | | 2,338 | | | | 84 | | | | 3 | | | | 4 | | | | 2,415 | |
Total asset-backed | | | 7,743 | | | | 281 | | | | 27 | | | | 21 | | | | 7,976 | |
U.S. Treasury and obligations of government-sponsored enterprises | | | 142 | | | | | | | | 5 | | | | | | | | 137 | |
Foreign government | | | 515 | | | | 22 | | | | 1 | | | | | | | | 536 | |
Fixed maturities available-for-sale | | | 39,816 | | | | 5,199 | | | | 70 | | | | 45 | | | | 44,900 | |
Fixed maturities trading | | | 10 | | | | | | | | | | | | | | | | 10 | |
Total fixed maturity securities | | $ | 39,826 | | | $ | 5,199 | | | $ | 70 | | | $ | 45 | | | $ | 44,910 | |
December 31, 2020 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | |
Corporate and other bonds | | $ | 20,792 | | | $ | 3,578 | | | $ | 22 | | | $ | 23 | | | $ | 24,325 | |
States, municipalities and political subdivisions | | | 9,729 | | | | 1,863 | | | | | | | | | | | | 11,592 | |
Asset-backed: | | | | | | | | | | | | | | | | | | | | |
Residential mortgage-backed | | | 3,442 | | | | 146 | | | | 1 | | | | | | | | 3,587 | |
Commercial mortgage-backed | | | 1,933 | | | | 93 | | | | 42 | | | | 17 | | | | 1,967 | |
Other asset-backed | | | 2,179 | | | | 81 | | | | 9 | | | | | | | | 2,251 | |
Total asset-backed | | | 7,554 | | | | 320 | | | | 52 | | | | 17 | | | | 7,805 | |
U.S. Treasury and obligations of government-sponsored enterprises | | | 339 | | | | 2 | | | | 3 | | | | | | | | 338 | |
Foreign government | | | 512 | | | | 32 | | | | | | | | | | | | 544 | |
Fixed maturities available-for-sale | | | 38,926 | | | | 5,795 | | | | 77 | | | | 40 | | | | 44,604 | |
Fixed maturities trading | | | 37 | | | | 5 | | | | | | | | | | | | 42 | |
Total fixed maturity securities | | $ | 38,963 | | | $ | 5,800 | | | $ | 77 | | | $ | 40 | | | $ | 44,646 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2022 | Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Estimated Fair Value |
(In millions) | | | | | | | | | |
| | | | | | | | | |
Fixed maturity securities: | | | | | | | | | |
Corporate and other bonds | $ | 22,606 | | | $ | 499 | | | $ | 1,440 | | | 0 | | $ | 21,665 | |
States, municipalities and political subdivisions | 9,822 | | | 492 | | | 676 | | | 0 | | 9,638 | |
Asset-backed: | | | | | | | | | |
Residential mortgage-backed | 3,034 | | | 14 | | | 305 | | | 0 | | 2,743 | |
Commercial mortgage-backed | 1,995 | | | 6 | | | 164 | | | 0 | | 1,837 | |
Other asset-backed | 3,063 | | | 4 | | | 220 | | | $ | 5 | | | 2,842 | |
Total asset-backed | 8,092 | | | 24 | | | 689 | | | 5 | | | 7,422 | |
U.S. Treasury and obligations of government sponsored enterprises | 115 | | | 1 | | | 7 | | | 0 | | 109 | |
Foreign government | 577 | | | 1 | | | 30 | | | 0 | | 548 | |
Redeemable preferred stock | 3 | | | 0 | | 0 | | 0 | | 3 | |
Fixed maturities available-for-sale | 41,215 | | | 1,017 | | | 2,842 | | | 5 | | | 39,385 | |
Fixed maturities trading | 46 | | | 0 | | 0 | | 0 | | 46 | |
Total fixed maturity securities | $ | 41,261 | | | $ | 1,017 | | | $ | 2,842 | | | $ | 5 | | | $ | 39,431 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Estimated Fair Value |
(In millions) | | | | | | | | | |
| | | | | | | | | |
Fixed maturity securities: | | | | | | | | | |
Corporate and other bonds | $ | 21,444 | | | $ | 2,755 | | | $ | 56 | | | $ | 11 | | | $ | 24,132 | |
States, municipalities and political subdivisions | 10,358 | | | 1,599 | | | 14 | | | 0 | | 11,943 | |
Asset-backed: | | | | | | | | | |
Residential mortgage-backed | 2,893 | | | 71 | | | 8 | | | 0 | | 2,956 | |
Commercial mortgage-backed | 1,987 | | | 63 | | | 19 | | | 0 | | 2,031 | |
Other asset-backed | 2,561 | | | 54 | | | 10 | | | 7 | | | 2,598 | |
Total asset-backed | 7,441 | | | 188 | | | 37 | | | 7 | | | 7,585 | |
U.S. Treasury and obligations of government sponsored enterprises | 132 | | | 1 | | | 3 | | | 0 | | 130 | |
Foreign government | 570 | | | 15 | | | 2 | | | 0 | | 583 | |
| | | | | | | | | |
Fixed maturities available-for-sale | 39,945 | | | 4,558 | | | 112 | | | 18 | | | 44,373 | |
Fixed maturities trading | 7 | | | 0 | | | | 0 | | 7 | |
Total fixed maturity securities | $ | 39,952 | | | $ | 4,558 | | | $ | 112 | | | $ | 18 | | | $ | 44,380 | |
The net unrealized gains and losses on available-for-sale investments included in the tables above are recorded as a component of Accumulated other comprehensive income (loss) (“AOCI”).AOCI. When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent thatthere are unrealized gains on fixed income securities supporting long term carethe reserves of certain products and structured settlements not funded by annuitieswithin the Life & Group business that would result in a premium deficiency, or would impact the reserve balance if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains (losses) through Other comprehensive income (loss) (“Shadow Adjustments”). As of June 30, 20212022 and December 31, 2020,2021, the net unrealized gains and losses on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $2.4 billion$432 million and $2.5$2.2 billion (after tax and noncontrolling interests).
The available-for-sale securities in a gross unrealized loss position for which an allowance for credit losses has not been recorded are as follows:
| | Less than 12 Months | | | 12 Months or Longer | | | Total | |
June 30, 2021 | | Estimated Fair Value | | | Gross Unrealized Losses | | | Estimated Fair Value | | | Gross Unrealized Losses | | | Estimated Fair Value | | | Gross Unrealized Losses | |
(In millions) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | |
Corporate and other bonds | | $ | 1,190 | | | $ | 33 | | | $ | 61 | | | $ | 2 | | | $ | 1,251 | | | $ | 35 | |
States, municipalities and political subdivisions | | | 128 | | | | 2 | | | | | | | | | | | | 128 | | | | 2 | |
Asset-backed: | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage-backed | | | 932 | | | | 10 | | | | 10 | | | | | | | | 942 | | | | 10 | |
Commercial mortgage-backed | | | 153 | | | | 2 | | | | 206 | | | | 12 | | | | 359 | | | | 14 | |
Other asset-backed | | | 255 | | | | 2 | | | | 74 | | | | 1 | | | | 329 | | | | 3 | |
Total asset-backed | | | 1,340 | | | | 14 | | | | 290 | | | | 13 | | | | 1,630 | | | | 27 | |
U.S. Treasury and obligations of government-sponsored enterprises | | | 80 | | | | 5 | | | | | | | | | | | | 80 | | | | 5 | |
Foreign government | | | 48 | | | | 1 | | | | | | | | | | | | 48 | | | | 1 | |
Total fixed maturity securities | | $ | 2,786 | | | $ | 55 | | | $ | 351 | | | $ | 15 | | | $ | 3,137 | | | $ | 70 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate and other bonds | | $ | 609 | | | $ | 21 | | | $ | 12 | | | $ | 1 | | | $ | 621 | | | $ | 22 | |
States, municipalities and political subdivisions | | | 33 | | | | | | | | | | | | | | | | 33 | | | | | |
Asset-backed: | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage-backed | | | 71 | | | | 1 | | | | 11 | | | | | | | | 82 | | | | 1 | |
Commercial mortgage-backed | | | 533 | | | | 40 | | | | 28 | | | | 2 | | | | 561 | | | | 42 | |
Other asset-backed | | | 344 | | | | 9 | | | | 13 | | | | | | | | 357 | | | | 9 | |
Total asset-backed | | | 948 | | | | 50 | | | | 52 | | | | 2 | | | | 1,000 | | | | 52 | |
U.S. Treasury and obligations of government-sponsored enterprises | | | 63 | | | | 3 | | | | | | | | | | | | 63 | | | | 3 | |
Foreign government | | | 13 | | | | | | | | | | | | | | | | 13 | | | | | |
Total fixed maturity securities | | $ | 1,666 | | | $ | 74 | | | $ | 64 | | | $ | 3 | | | $ | 1,730 | | | $ | 77 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or Longer | | Total |
June 30, 2022 | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | |
Corporate and other bonds | $ | 14,827 | | | $ | 1,366 | | | $ | 322 | | | $ | 74 | | | $ | 15,149 | | | $ | 1,440 | |
States, municipalities and political subdivisions | 4,121 | | | 666 | | | 32 | | | 10 | | | 4,153 | | | 676 | |
Asset-backed: | | | | | | | | | | | |
Residential mortgage-backed | 2,374 | | | 305 | | | 3 | | | 0 | | 2,377 | | | 305 | |
Commercial mortgage-backed | 1,552 | | | 143 | | | 149 | | | 21 | | | 1,701 | | | 164 | |
Other asset-backed | 2,354 | | | 214 | | | 85 | | | 6 | | | 2,439 | | | 220 | |
Total asset-backed | 6,280 | | | 662 | | | 237 | | | 27 | | | 6,517 | | | 689 | |
U.S. Treasury and obligations of government-sponsored enterprises | 82 | | | 6 | | | 3 | | | 1 | | | 85 | | | 7 | |
Foreign government | 436 | | | 28 | | | 23 | | | 2 | | | 459 | | | 30 | |
Total fixed maturity securities | $ | 25,746 | | | $ | 2,728 | | | $ | 617 | | | $ | 114 | | | $ | 26,363 | | | $ | 2,842 | |
| | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | |
| | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | |
Corporate and other bonds | $ | 2,389 | | | $ | 48 | | | $ | 136 | | | $ | 8 | | | $ | 2,525 | | | $ | 56 | |
States, municipalities and political subdivisions | 730 | | | 14 | | | 0 | | 0 | | 730 | | | 14 | |
Asset-backed: | | | | | | | | | | | |
Residential mortgage-backed | 1,043 | | | 8 | | | 0 | | 0 | | 1,043 | | | 8 | |
Commercial mortgage-backed | 527 | | | 7 | | | 167 | | | 12 | | | 694 | | | 19 | |
Other asset-backed | 840 | | | 10 | | | 62 | | | 0 | | 902 | | | 10 | |
Total asset-backed | 2,410 | | | 25 | | | 229 | | | 12 | | | 2,639 | | | 37 | |
U.S. Treasury and obligations of government-sponsored enterprises | 69 | | | 3 | | | 5 | | | 0 | | 74 | | | 3 | |
Foreign government | 97 | | | 2 | | | 0 | | 0 | | 97 | | | 2 | |
Total fixed maturity securities | $ | 5,695 | | | $ | 92 | | | $ | 370 | | | $ | 20 | | | $ | 6,065 | | | $ | 112 | |
The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities in a gross unrealized loss position for which an allowance for credit loss has not been recorded, by ratings distribution.
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Estimated Fair Value | | Gross Unrealized Losses | | Estimated Fair Value | | Gross Unrealized Losses |
(In millions) | | | | | | | |
| | | | | | | |
U.S. Government, Government agencies and Government-sponsored enterprises | $ | 2,150 | | | $ | 223 | | | $ | 898 | | | $ | 8 | |
AAA | 1,232 | | | 205 | | | 368 | | | 6 | |
AA | 4,078 | | | 581 | | | 875 | | | 17 | |
A | 5,454 | | | 493 | | | 1,516 | | | 23 | |
BBB | 11,806 | | | 1,111 | | | 1,812 | | | 42 | |
Non-investment grade | 1,643 | | | 229 | | | 596 | | | 16 | |
Total | $ | 26,363 | | | $ | 2,842 | | | $ | 6,065 | | | $ | 112 | |
Based on current facts and circumstances, the Company believes the unrealized losses presented in the June 30, 20212022 securities in athe gross unrealized loss position table above are not believed to be indicative of the ultimate collectabilitycollectibility of the current amortized cost of the securities, but rather are primarily attributable to changes in risk-free interest rates and a general market widening of credit spreads. In reaching this determination, the recent volatility in risk-free rates and credit spreads, and other factors. Thereas well as the fact that the unrealized losses are concentrated in investment grade issuers, were considered. Additionally, there is no current intent to sell securities with unrealized losses, nor is it more likely than not that sale will be required prior to recovery of amortized cost; accordingly, it was determined that there are0 no additional impairment losses to be recorded at June 30, 2021.2022.
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
| | June 30, 2021 | | | December 31, 2020 | |
| | Cost or Amortized Cost | | | Estimated Fair Value | | | Cost or Amortized Cost | | | Estimated Fair Value | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Due in one year or less | | $ | 1,685 | | | $ | 1,702 | | | $ | 1,456 | | | $ | 1,458 | |
Due after one year through five years | | | 10,723 | | | | 11,479 | | | | 12,304 | | | | 13,098 | |
Due after five years through ten years | | | 13,775 | | | | 15,012 | | | | 12,319 | | | | 13,878 | |
Due after ten years | | | 13,633 | | | | 16,707 | | | | 12,847 | | | | 16,170 | |
Total | | $ | 39,816 | | | $ | 44,900 | | | $ | 38,926 | | | $ | 44,604 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Cost or Amortized Cost | | Estimated Fair Value | | Cost or Amortized Cost | | Estimated Fair Value |
(In millions) | | | | | | | |
| | | | | | | |
Due in one year or less | $ | 1,150 | | | $ | 1,153 | | | $ | 1,603 | | | $ | 1,624 | |
Due after one year through five years | 9,330 | | | 9,154 | | | 10,637 | | | 11,229 | |
Due after five years through ten years | 14,434 | | | 13,549 | | | 13,294 | | | 14,338 | |
Due after ten years | 16,301 | | | 15,529 | | | 14,411 | | | 17,182 | |
Total | $ | 41,215 | | | $ | 39,385 | | | $ | 39,945 | | | $ | 44,373 | |
Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Mortgage Loans
The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination. The primary credit quality indicators utilized are debt service coverage ratios (“DSCR”) and loan-to-value (“LTV”) ratios.
| | Mortgage Loans Amortized Cost Basis by Origination Year (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of June 30, 2021 | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | Prior | | | Total | | |
| | | Mortgage Loans Amortized Cost Basis by Origination Year (a) |
As of June 30, 2022 | | As of June 30, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
(In millions) | | | | | | | | | | | | | | | | | | | | | | (In millions) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DSCR ≥1.6x | | | | | | | | | | | | | | | | | | | | | | DSCR ≥1.6x | | | | | | | | | | | | | |
LTV less than 55% | | | | | $ | 89 | | | $ | 33 | | | $ | 50 | | | $ | 113 | | | $ | 183 | | | $ | 468 | | LTV less than 55% | $ | 9 | | | $ | 14 | | | $ | 112 | | | $ | 21 | | | $ | 54 | | | $ | 280 | | | $ | 490 | |
LTV 55% to 65% | | | | | | | | | | 19 | | | | | | | | 9 | | | | 4 | | | | 32 | | LTV 55% to 65% | 0 | | 0 | | 0 | | 8 | | | 0 | | 0 | | 8 | |
LTV greater than 65% | | $ | 5 | | | | | | | | 6 | | | | | | | | | | | | 24 | | | | 35 | | LTV greater than 65% | 18 | | | 11 | | | 0 | | 0 | | 0 | | 0 | | 29 | |
DSCR 1.2x - 1.6x | | | | | | | | | | | | | | | | | | | | | | | | | | | | | DSCR 1.2x - 1.6x | |
LTV less than 55% | | | | | | | | | | | 16 | | | | | | | | 5 | | | | 71 | | | | 92 | | LTV less than 55% | 0 | | 49 | | | 14 | | | 78 | | | 10 | | | 44 | | | 195 | |
LTV 55% to 65% | | | 10 | | | | 38 | | | | 39 | | | | 42 | | | | 27 | | | | | | | | 156 | | LTV 55% to 65% | 28 | | | 0 | | 24 | | | 0 | | 0 | | 8 | | | 60 | |
LTV greater than 65% | | | | | | | 34 | | | | 44 | | | | | | | | 8 | | | | 12 | | | | 98 | | LTV greater than 65% | 15 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 15 | |
DSCR ≤1.2x | | | | | | | | | | | | | | | | | | | | | | | | | | | | | DSCR ≤1.2x | |
LTV less than 55% | | | | | | | | | | | 50 | | | | | | | | 8 | | | | 10 | | | | 68 | | LTV less than 55% | | 0 | | 0 | | 52 | | | 0 | | 17 | | | 69 | |
LTV 55% to 65% | | | | | | | | | | | 47 | | | | | | | | | | | | | | | | 47 | | LTV 55% to 65% | 0 | | 0 | | 0 | | 55 | | | 0 | | 0 | | 55 | |
LTV greater than 65% | | | | | | | | | | | 29 | | | | | | | | | | | | 7 | | | | 36 | | LTV greater than 65% | 10 | | | 21 | | | 0 | | 6 | | | 0 | | 7 | | | 44 | |
Total | | $ | 15 | | | $ | 161 | | | $ | 283 | | | $ | 92 | | | $ | 170 | | | $ | 311 | | | $ | 1,032 | | Total | $ | 80 | | | $ | 95 | | | $ | 150 | | | $ | 220 | | | $ | 64 | | | $ | 356 | | | $ | 965 | |
(a) | | | | | |
(a) | The values in the table above reflect DSCR on a standardized amortization period and LTV ratios based on the most recent appraised values trended forward using changes in a commercial real estate price index. |
Derivative Financial Instruments
A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under related agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.
| June 30, 2021 | | December 31, 2020 |
| Contractual/ Notional | | Estimated Fair Value | | Contractual/ Notional | | Estimated Fair Value |
| Amount | | Asset | | (Liability) | | Amount | | Asset | | (Liability) |
(In millions) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
With hedge designation: | | | | | | | | | | | | | | | | | |
Interest rate swaps | | | | | | | | | | $ | 675 | | | | | $ | (26) |
| | | | | | | | | | | | | | | | | |
Without hedge designation: | | | | | | | | | | | | | | | | | |
Equity markets: | | | | | | | | | | | | | | | | | |
Options – purchased | $ | 6 | | | | | | | | | 135 | | $ | 3 | | | |
Interest rate swaps | | 100 | | | | | $ | (2) | | | 100 | | | | | | (3) |
Embedded derivative on funds withheld liability | | 274 | | | | | | (13) | | | 190 | | | | | | (19) |
Investment Commitments
As part of the overall investment strategy, investments are made in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications and obligations related to private placement securities. As of June 30, 2021, commitments to purchase or fund were approximately $1.3 billion and to sell were approximately $95 million under the terms of these investments.
4. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
| ● | Level 1 – Quoted prices for identical instruments in active markets. |
| ● | Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. |
| ● | Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable. |
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, securities are priced using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs that market participants presumably would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted.
Control procedures are performed over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include: (i) the review of pricing service methodologies or broker pricing qualifications, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria and (iv) detailed analysis, where an independent analysis of the inputs and assumptions used to price individual securities is performed.
Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
June 30, 2021 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | |
Corporate bonds and other | | $ | 158 | | | $ | 24,017 | | | $ | 883 | | | $ | 25,058 | |
States, municipalities and political subdivisions | | | | | | | 11,809 | | | | 57 | | | | 11,866 | |
Asset-backed | | | | | | | 7,566 | | | | 410 | | | | 7,976 | |
Fixed maturities available-for-sale | | | 158 | | | | 43,392 | | | | 1,350 | | | | 44,900 | |
Fixed maturities trading | | | | | | | 10 | | | | | | | | 10 | |
Total fixed maturities | | $ | 158 | | | $ | 43,402 | | | $ | 1,350 | | | $ | 44,910 | |
| | | | | | | | | | | | | | | | |
Equity securities | | $ | 884 | | | $ | 743 | | | $ | 36 | | | $ | 1,663 | |
Short term and other | | | 4,661 | | | | 37 | | | | | | | | 4,698 | |
Payable to brokers | | | (94 | ) | | | (2 | ) | | | | | | | (96 | ) |
December 31, 2020 | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | |
Corporate bonds and other | | $ | 355 | | | $ | 24,082 | | | $ | 770 | | | $ | 25,207 | |
States, municipalities and political subdivisions | | | | | | | 11,546 | | | | 46 | | | | 11,592 | |
Asset-backed | | | | | | | 7,497 | | | | 308 | | | | 7,805 | |
Fixed maturities available-for-sale | | | 355 | | | | 43,125 | | | | 1,124 | | | | 44,604 | |
Fixed maturities trading | | | | | | | 34 | | | | 8 | | | | 42 | |
Total fixed maturities | | $ | 355 | | | $ | 43,159 | | | $ | 1,132 | | | $ | 44,646 | |
| | | | | | | | | | | | | | | | |
Equity securities | | $ | 796 | | | $ | 722 | | | $ | 43 | | | $ | 1,561 | |
Short term and other | | | 4,538 | | | | 39 | | | | | | | | 4,577 | |
Payable to brokers | | | (14 | ) | | | (29 | ) | | | | | | | (43 | ) |
The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | | | (Losses) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | | | Recognized in | |
| | | | | Net Realized | | | | | | | | | | | | | | | | | | | | | (Losses) | | | Other | |
| | | | | Investment Gains | | | | | | | | | | | | | | | | | | | | | Recognized in | | | Comprehensive | |
| | | | | (Losses) and Net Change | | | | | | | | | | | | | | | | | | | | | Net Income | | | Income (Loss) | |
| | | | | in Unrealized Investment | | | | | | | | | | | | | | | | | | | | | (Loss) on Level | | | on Level 3 | |
| | | | | Gains (Losses) | | | | | | | | | | | | | | | | | | | | | 3 Assets and | | | Assets and | |
| | | | | Included in | | | | | | | | | | | | | | | Transfers | | | Transfers | | | | | | Liabilities | | | Liabilities | |
| | Balance, | | | Net Income | | | Included in | | | | | | | | | | | | into | | | out of | | | Balance, | | | Held at | | | Held at | |
2021 | | April 1 | | | (Loss) | | | OCI | | | Purchases | | | Sales | | | Settlements | | | Level 3 | | | Level 3 | | | June 30 | | | June 30 | | | June 30 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | | $ | 767 | | | $ | 3 | | | $ | 16 | | | $ | 122 | | | $ | (3 | ) | | $ | (22 | ) | | | | | | | | $ | 883 | | | | | | $ | 16 | |
States, municipalities and political subdivisions | | | 44 | | | | | | | | 2 | | | | 12 | | | | | | | | (1 | ) | | | | | | | | | 57 | | | | | | | 2 | |
Asset-backed | | | 315 | | | | 1 | | | | 4 | | | | 84 | | | | | | | | (10 | ) | | $ | 21 | | | $ | (5 | ) | | | 410 | | | | | | | 4 | |
Fixed maturities available-for-sale | | | 1,126 | | | | 4 | | | | 22 | | | | 218 | | | | (3 | ) | | | (33 | ) | | | 21 | | | | (5 | ) | | | 1,350 | | | $ | 0 | | | | 22 | |
Fixed maturities trading | | | 5 | | | | (3 | ) | | | | | | | | | | | | | | | (2 | ) | | | | | | | | | | | | | | | | | | | | |
Total fixed maturities | | $ | 1,131 | | | $ | 1 | | | $ | 22 | | | $ | 218 | | | $ | (3 | ) | | $ | (35 | ) | | $ | 21 | | | $ | (5 | ) | | $ | 1,350 | | | $ | 0 | | | $ | 22 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | $ | 45 | | | $ | (15 | ) | | | | | | $ | 10 | | | $ | (4 | ) | | | | | | | | | | | | | | $ | 36 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | | | (Losses) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | | | Recognized in | |
| | | | | Net Realized | | | | | | | | | | | | | | | | | | | | | (Losses) | | | Other | |
| | | | | Investment Gains | | | | | | | | | | | | | | | | | | | | | Recognized in | | | Comprehensive | |
| | | | | (Losses) and Net Change | | | | | | | | | | | | | | | | | | | | | Net Income | | | Income (Loss) | |
| | | | | in Unrealized Investment | | | | | | | | | | | | | | | | | | | | | (Loss) on Level | | | on Level 3 | |
| | | | | Gains (Losses) | | | | | | | | | | | | | | | | | | | | | 3 Assets and | | | Assets and | |
| | | | | Included in | | | | | | | | | | | | | | | Transfers | | | Transfers | | | | | | Liabilities | | | Liabilities | |
| | Balance, | | | Net Income | | | Included in | | | | | | | | | | | | into | | | out of | | | Balance, | | | Held at | | | Held at | |
2020 | | April 1 | | | (Loss) | | | OCI | | | Purchases | | | Sales | | | Settlements | | | Level 3 | | | Level 3 | | | June 30 | | | June 30 | | | June 30 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | | $ | 496 | | | | | | $ | 59 | | | $ | 4 | | | | | | $ | (4 | ) | | | | | | | | $ | 555 | | | | | | $ | 58 | |
Asset-backed | | | 197 | | | | | | | 18 | | | | 35 | | | $ | (9 | ) | | | (5 | ) | | | | | $ | (14 | ) | | | 222 | | | | | | | 18 | |
Fixed maturities available-for-sale | | | 693 | | | $ | 0 | | | | 77 | | | | 39 | | | | (9 | ) | | | (9 | ) | | $ | 0 | | | | (14 | ) | | | 777 | | | $ | 0 | | | | 76 | |
Fixed maturities trading | | | 3 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4 | | | | 1 | | | | | |
Total fixed maturities | | $ | 696 | | | $ | 1 | | | $ | 77 | | | $ | 39 | | | $ | (9 | ) | | $ | (9 | ) | | $ | 0 | | | $ | (14 | ) | | $ | 781 | | | $ | 1 | | | $ | 76 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | $ | 16 | | | $ | (4 | ) | | | | | | | | | | | | | | | | | | $ | 15 | | | | | | | $ | 27 | | | $ | (4 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | | | (Losses) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | | | Recognized in | |
| | | | | Net Realized | | | | | | | | | | | | | | | | | | | | | (Losses) | | | Other | |
| | | | | Investment Gains | | | | | | | | | | | | | | | | | | | | | Recognized in | | | Comprehensive | |
| | | | | (Losses) and Net Change | | | | | | | | | | | | | | | | | | | | | Net Income | | | Income (Loss) | |
| | | | | in Unrealized Investment | | | | | | | | | | | | | | | | | | | | | (Loss) on Level | | | on Level 3 | |
| | | | | Gains (Losses) | | | | | | | | | | | | | | | | | | | | | 3 Assets and | | | Assets and | |
| | | | | Included in | | | | | | | | | | | | | | | Transfers | | | Transfers | | | | | | Liabilities | | | Liabilities | |
| | Balance, | | | Net Income | | | Included in | | | | | | | | | | | | into | | | out of | | | Balance, | | | Held at | | | Held at | |
2021 | | January 1 | | | (Loss) | | | OCI | | | Purchases | | | Sales | | | Settlements | | | Level 3 | | | Level 3 | | | June 30 | | | June 30 | | | June 30 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | | $ | 770 | | | $ | (10 | ) | | $ | (24 | ) | | $ | 164 | | | $ | (3 | ) | | $ | (24 | ) | | $ | 10 | | | | | | $ | 883 | | | | | | $ | (24 | ) |
States, municipalities and political subdivisions | | | 46 | | | | | | | | | | | | 12 | | | | | | | | (1 | ) | | | | | | | | | | 57 | | | | | | | | |
Asset-backed | | | 308 | | | | 3 | | | | (5 | ) | | | 114 | | | | | | | | (27 | ) | | | 30 | | | $ | (13 | ) | | | 410 | | | | | | | (5 | ) |
Fixed maturities available-for-sale | | | 1,124 | | | | (7 | ) | | | (29 | ) | | | 290 | | | | (3 | ) | | | (52 | ) | | | 40 | | | | (13 | ) | | | 1,350 | | | $ | 0 | | | | (29 | ) |
Fixed maturities trading | | | 8 | | | | (6 | ) | | | | | | | | | | | | | | | (2 | ) | | | | | | | | | | | | | | | | | | | | |
Total fixed maturities | | $ | 1,132 | | | $ | (13 | ) | | $ | (29 | ) | | $ | 290 | | | $ | (3 | ) | | $ | (54 | ) | | $ | 40 | | | $ | (13 | ) | | $ | 1,350 | | | $ | 0 | | | $ | (29 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | $ | 43 | | | $ | (13 | ) | | | | | | $ | 10 | | | $ | (4 | ) | | | | | | | | | | | | | | $ | 36 | | | $ | 2 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | | | (Losses) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains | | | Recognized in | |
| | | | | Net Realized | | | | | | | | | | | | | | | | | | | | | (Losses) | | | Other | |
| | | | | Investment Gains | | | | | | | | | | | | | | | | | | | | | Recognized in | | | Comprehensive | |
| | | | | (Losses) and Net Change | | | | | | | | | | | | | | | | | | | | | Net Income | | | Income (Loss) | |
| | | | | in Unrealized Investment | | | | | | | | | | | | | | | | | | | | | (Loss) on Level | | | on Level 3 | |
| | | | | Gains (Losses) | | | | | | | | | | | | | | | | | | | | | 3 Assets and | | | Assets and | |
| | | | | Included in | | | | | | | | | | | | | | | Transfers | | | Transfers | | | | | | Liabilities | | | Liabilities | |
| | Balance, | | | Net Income | | | Included in | | | | | | | | | | | | into | | | out of | | | Balance, | | | Held at | | | Held at | |
2020 | | January 1 | | | (Loss) | | | OCI | | | Purchases | | | Sales | | | Settlements | | | Level 3 | | | Level 3 | | | June 30 | | | June 30 | | | June 30 | |
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | | $ | 468 | | | | | | $ | 22 | | | $ | 71 | | | | | | $ | (6 | ) | | | | | | | | $ | 555 | | | | | | $ | 24 | |
Asset-backed | | | 165 | | | | | | | 10 | | | | 80 | | | $ | (9 | ) | | | (9 | ) | | | | | $ | (15 | ) | | | 222 | | | | | | | 10 | |
Fixed maturities available-for-sale | | | 633 | | | $ | 0 | | | | 32 | | | | 151 | | | | (9 | ) | | | (15 | ) | | $ | 0 | | | | (15 | ) | | | 777 | | | $ | 0 | | | | 34 | |
Fixed maturities trading | | | 4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4 | | | | | | | | | |
Total fixed maturities | | $ | 637 | | | $ | 0 | | | $ | 32 | | | $ | 151 | | | $ | (9 | ) | | $ | (15 | ) | | $ | 0 | | | $ | (15 | ) | | $ | 781 | | | $ | 0 | | | $ | 34 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | $ | 19 | | | $ | (7 | ) | | | | | | | | | | | | | | | | | | $ | 15 | | | | | | | $ | 27 | | | $ | (7 | ) | | | | |
Net investment gains and losses are reported in Net income (loss) as follows:
Major Category of Assets and Liabilities | Consolidated Condensed Statements of Operations Line Items |
| |
Fixed maturity securities available-for-sale | Investment gains (losses) |
Fixed maturity securities trading | Net investment income |
Equity securities | Investment gains (losses) and Net investment income |
Other invested assets | Investment gains (losses) and Net investment income |
Derivative financial instruments held in a trading portfolio | Net investment income |
Derivative financial instruments, other | Investment gains (losses) and Operating revenues and other |
Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume.
Valuation Methodologies and Inputs
The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.
Fixed Maturity Securities
Level 1 securities include highly liquid government securities and exchange traded bonds valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation, and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable.
Equity Securities
Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with some inputs that are not market observable.
Derivative Financial Instruments
Equity options are valued using quoted market prices and are classified within Level 1A summary of the aggregate contractual or notional amounts and gross estimated fair value hierarchy. Over-the-countervalues related to derivative financial instruments follows. The contractual or notional amounts for derivatives principally interest rate swaps, currency forwards, total return swaps, commodity swaps, equity warrantsare used to calculate the exchange of contractual payments under related agreements and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3may not be representative of the valuation hierarchy, dependingpotential for gain or loss on the amountthese instruments. Gross estimated fair values of transparency as to whether these quotesderivative positions are based on information that is observable in the marketplace.
Short Term and Other Invested Assets
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded open-end funds valued using quoted market prices. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments ascurrently presented in the tables above differ from the amounts presented inEquity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets because certain short termSheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Contractual/Notional Amount | | Estimated Fair Value | | Contractual/Notional Amount | | Estimated Fair Value |
| | Asset | | (Liability) | | | Asset | | (Liability) |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
Without hedge designation: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Interest rate swaps | $ | 240 | | | $ | 12 | | | 0 | | $ | 100 | | | 0 | | 0 |
| | | | | | | | | | | |
| | | | | | | | | | | |
Embedded derivative on funds withheld liability | 285 | | | 41 | | | 0 | | 270 | | | 0 | | $ | (12) | |
Other | 178 | | | 10 | | | 0 | | 0 | | 0 | | 0 |
Investment Commitments
As part of the overall investment strategy, investments such as time deposits, are notmade in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications and obligations related to private placement securities. As of June 30, 2022, commitments to purchase or fund were approximately $1.5 billion and to sell were approximately $25 million under the terms of these investments.
3. Fair Value
Assets and liabilities measured at fair value.value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
| | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2022 | Level 1 | | Level 2 | | Level 3 | | Total |
(In millions) | | | | | | | |
| | | | | | | |
Fixed maturity securities: | | | | | | | |
Corporate bonds and other | $ | 118 | | | $ | 21,361 | | | $ | 846 | | | $ | 22,325 | |
States, municipalities and political subdivisions | 0 | | 9,592 | | | 46 | | | 9,638 | |
Asset-backed | 0 | | 6,781 | | | 641 | | | 7,422 | |
Fixed maturities available-for-sale | 118 | | | 37,734 | | | 1,533 | | | 39,385 | |
Fixed maturities trading | 0 | | 46 | | | 0 | | 46 | |
Total fixed maturities | $ | 118 | | | $ | 37,780 | | | $ | 1,533 | | | $ | 39,431 | |
| | | | | | | |
Equity securities | $ | 713 | | | $ | 604 | | | $ | 47 | | | $ | 1,364 | |
Short term and other | 3,987 | | | 188 | | | 0 | | 4,175 | |
Receivables | 0 | | 12 | | | 0 | | 12 | |
Payable to brokers | (75) | | | 0 | | 0 | | (75) | |
| | | | | | | |
December 31, 2021 | Level 1 | | Level 2 | | Level 3 | | Total |
(In millions) | | | | | | | |
| | | | | | | |
Fixed maturity securities: | | | | | | | |
Corporate bonds and other | $ | 140 | | | $ | 23,768 | | | $ | 937 | | | $ | 24,845 | |
States, municipalities and political subdivisions | 0 | | 11,887 | | | 56 | | | 11,943 | |
Asset-backed | 0 | | 7,029 | | | 556 | | | 7,585 | |
Fixed maturities available-for-sale | 140 | | | 42,684 | | | 1,549 | | | 44,373 | |
Fixed maturities trading | 0 | | 7 | | | 0 | | 7 | |
Total fixed maturities | $ | 140 | | | $ | 42,691 | | | $ | 1,549 | | | $ | 44,380 | |
| | | | | | | |
Equity securities | $ | 924 | | | $ | 721 | | | $ | 29 | | | $ | 1,674 | |
Short term and other | 4,696 | | | 74 | | | 0 | | 4,770 | |
| | | | | | | |
Payable to brokers | (70) | | | 0 | | 0 | | (70) | |
The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) | | | | | | | | | | | | | | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at June 30 | | Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities Held at June 30 |
2022 | Balance, April 1 | | Included in Net Income | | Included in OCI | | Purchases | | Sales | | Settlements | | Transfers into Level 3 | | Transfers out of Level 3 | | Balance, June 30 | | |
(In millions) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | $ | 915 | | | $ | (1) | | | $ | (82) | | | $ | 51 | | | 0 | | $ | (37) | | | 0 | | 0 | | $ | 846 | | | 0 | | $ | (81) | |
States, municipalities and political | | | | | | | | | | | | | | | | | | | | | |
subdivisions | 51 | | | 0 | | (5) | | | 0 | | 0 | | 0 | | 0 | | 0 | | 46 | | | 0 | | (5) | |
Asset-backed | 604 | | | 8 | | | (52) | | | 92 | | | $ | (2) | | | (23) | | | $ | 14 | | | 0 | | 641 | | | 0 | | (52) | |
Fixed maturities available-for-sale | 1,570 | | | 7 | | | (139) | | | 143 | | | (2) | | | (60) | | | 14 | | | — | | | 1,533 | | | — | | | (138) | |
Fixed maturities trading | — | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | — | | | 0 | | 0 |
Total fixed maturities | $ | 1,570 | | | $ | 7 | | | $ | (139) | | | $ | 143 | | | $ | (2) | | | $ | (60) | | | $ | 14 | | | $ | — | | | $ | 1,533 | | | $ | — | | | $ | (138) | |
| | | | | | | | | | | | | | | | | | | | | |
Equity securities | $ | 44 | | | $ | (3) | | | 0 | | 0 | | $ | (3) | | | $ | 9 | | | 0 | | 0 | | $ | 47 | | | $ | (3) | | | 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) | | | | | | | | | | | | | | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at June 30 | | Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities Held at June 30 |
2021 | Balance, April 1 | | Included in Net Income | | Included in OCI | | Purchases | | Sales | | Settlements | | Transfers into Level 3 | | Transfers out of Level 3 | | Balance, June 30 | | |
(In millions) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | $ | 767 | | | $ | 3 | | | $ | 16 | | | $ | 122 | | | $ | (3) | | | $ | (22) | | | 0 | | 0 | | $ | 883 | | | 0 | | $ | 16 | |
States, municipalities and political | | | | | | | | | | | | | | | | | | | | | |
subdivisions | 44 | | | 0 | | 2 | | | 12 | | | 0 | | (1) | | | 0 | | 0 | | 57 | | | 0 | | 2 | |
Asset-backed | 315 | | | 1 | | | 4 | | | 84 | | | 0 | | (10) | | | $ | 21 | | | $ | (5) | | | 410 | | | 0 | | 4 | |
Fixed maturities available-for-sale | 1,126 | | | 4 | | | 22 | | | 218 | | | (3) | | | (33) | | | 21 | | | (5) | | | 1,350 | | | — | | | 22 | |
Fixed maturities trading | 5 | | | (3) | | | 0 | | 0 | | 0 | | (2) | | | 0 | | 0 | | — | | | 0 | | 0 |
Total fixed maturities | $ | 1,131 | | | $ | 1 | | | $ | 22 | | | $ | 218 | | | $ | (3) | | | $ | (35) | | | $ | 21 | | | $ | (5) | | | $ | 1,350 | | | $ | — | | | $ | 22 | |
| | | | | | | | | | | | | | | | | | | | | |
Equity securities | $ | 45 | | | $ | (15) | | | 0 | | $ | 10 | | | $ | (4) | | | 0 | | 0 | | 0 | | $ | 36 | | | 0 | | 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) | | | | | | | | | | | | | | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at June 30 | | Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities Held at June 30 |
2022 | Balance, January 1 | | Included in Net Income | | Included in OCI | | Purchases | | Sales | | Settlements | | Transfers into Level 3 | | Transfers out of Level 3 | | Balance, June 30 | | |
(In millions) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | $ | 937 | | | $ | (2) | | | $ | (153) | | | $ | 118 | | | $ | (5) | | | $ | (59) | | | $ | 10 | | | 0 | | $ | 846 | | | 0 | | $ | (153) | |
States, municipalities and political | | | | | | | | | | | | | | | | | | | | | |
subdivisions | 56 | | | 0 | | (10) | | | 0 | | 0 | | 0 | | 0 | | 0 | | 46 | | | 0 | | (10) | |
Asset-backed | 556 | | | 11 | | | (84) | | | 232 | | | (2) | | | (40) | | | 19 | | | $ | (51) | | | 641 | | | 0 | | (83) | |
Fixed maturities available-for-sale | 1,549 | | | 9 | | | (247) | | | 350 | | | (7) | | | (99) | | | 29 | | | (51) | | | 1,533 | | | — | | | (246) | |
Fixed maturities trading | — | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | — | | | 0 | | 0 |
Total fixed maturities | $ | 1,549 | | | $ | 9 | | | $ | (247) | | | $ | 350 | | | $ | (7) | | | $ | (99) | | | $ | 29 | | | $ | (51) | | | $ | 1,533 | | | $ | — | | | $ | (246) | |
| | | | | | | | | | | | | | | | | | | | | |
Equity securities | $ | 29 | | | 0 | | 0 | | $ | 12 | | | $ | (3) | | | $ | 9 | | | 0 | | 0 | | $ | 47 | | | $ | (1) | | | 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) | | | | | | | | | | | | | | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at June 30 | | Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities Held at June 30 |
2021 | Balance, January 1 | | Included in Net Income | | Included in OCI | | Purchases | | Sales | | Settlements | | Transfers into Level 3 | | Transfers out of Level 3 | | Balance, June 30 | | |
(In millions) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Fixed maturity securities: | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds and other | $ | 770 | | | $ | (10) | | | $ | (24) | | | $ | 164 | | | $ | (3) | | | $ | (24) | | | $ | 10 | | | 0 | | $ | 883 | | | 0 | | $ | (24) | |
States, municipalities and political subdivisions | 46 | | | 0 | | 0 | | 12 | | | 0 | | (1) | | | 0 | | 0 | | 57 | | | 0 | | 0 |
Asset-backed | 308 | | | 3 | | | (5) | | | 114 | | | 0 | | (27) | | | 30 | | | $ | (13) | | | 410 | | | 0 | | (5) | |
Fixed maturities available-for-sale | 1,124 | | | (7) | | | (29) | | | 290 | | | (3) | | | (52) | | | 40 | | | (13) | | | 1,350 | | | — | | | (29) | |
Fixed maturities trading | 8 | | | (6) | | | 0 | | 0 | | 0 | | (2) | | | 0 | | 0 | | — | | | 0 | | 0 |
Total fixed maturities | $ | 1,132 | | | $ | (13) | | | $ | (29) | | | $ | 290 | | | $ | (3) | | | $ | (54) | | | $ | 40 | | | $ | (13) | | | $ | 1,350 | | | $ | — | | | $ | (29) | |
| | | | | | | | | | | | | | | | | | | | | |
Equity securities | $ | 43 | | | $ | (13) | | | 0 | | $ | 10 | | | $ | (4) | | | 0 | | 0 | | 0 | | $ | 36 | | | $ | 2 | | | 0 |
Net investment gains and losses are reported in Net income as follows:
| | | | | |
Major Category of Assets and Liabilities | Consolidated Condensed Statements of Operations Line Items |
| |
Fixed maturity securities available-for-sale | Investment gains (losses) |
Fixed maturity securities trading | Net investment income |
Equity securities | Investment gains (losses) and Net investment income |
Other invested assets | Investment gains (losses) and Net investment income |
Derivative financial instruments held in a trading portfolio | Net investment income |
Derivative financial instruments, other | Investment gains (losses) and Operating revenues and other |
Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized in the fair value measurement of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available. The weighted average rate is calculated based on fair value.
June 30, 2021 | | Estimated Fair Value | | Valuation Techniques | Unobservable Inputs | | Range (Weighted Average) | |
| | (In millions) | | | | | | |
| | | | | | | | |
Fixed maturity securities | | $ | 1,067 | | Discounted cash flow | Credit spread | | | 1% – 8% (2 | %) |
| | | | | | | | | | |
December 31, 2020 | | | | | | | | | | |
| | | | | | | | | | |
Fixed maturity securities | | $ | 966 | | Discounted cash flow | Credit spread | | | 1% – 8% (3 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2022 | Estimated Fair Value | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Average) |
| (In millions) | | | | | | | | | |
| | | | | | | | | | |
Fixed maturity securities | $ | 1,117 | | | Discounted cash flow | | Credit spread | | 1% | — | 9% | (3%) |
| | | | | | | | | | |
December 31, 2021 | | | | | | | | | | |
| | | | | | | | | | |
Fixed maturity securities | $ | 1,225 | | | Discounted cash flow | | Credit spread | | 1% | — | 7% | (2%) |
For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.
Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount, estimated fair value and the level of the fair value hierarchy of the financial assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude finance lease obligations. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.
| | Carrying | | Estimated Fair Value | |
June 30, 2021 | | Amount | | Level 1 | | Level 2 | | | Level 3 | | | Total | |
(In millions) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | |
Other invested assets, primarily mortgage loans | | $ | 1,006 | | | | | | | $ | 1,079 | | | $ | 1,079 | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Short term debt | | | 121 | | | | | | | | 125 | | | | 125 | |
Long term debt | | | 8,982 | | | | $ | 9,397 | | | | 621 | | | | 10,018 | |
| | | | | | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | |
Other invested assets, primarily mortgage loans | | $ | 1,068 | | | | | | | | $ | 1,151 | | | $ | 1,151 | |
| | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | |
Short term debt | | | 35 | | | | $ | 19 | | | | 17 | | | | 36 | |
Long term debt | | | 10,042 | | | | | 10,482 | | | | 765 | | | | 11,247 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Carrying Amount | | Estimated Fair Value |
June 30, 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
(In millions) | | | | | | | | | |
| | | | | | | | | |
Assets: | | | | | | | | | |
Other invested assets, primarily mortgage loans | $ | 949 | | | 0 | | 0 | | $ | 915 | | | $ | 915 | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Short term debt | 838 | | | 0 | | $ | 797 | | | 39 | | | 836 | |
Long term debt | 8,438 | | | 0 | | 7,472 | | | 645 | | | 8,117 | |
| | | | | | | | | |
December 31, 2021 | | | | | | | | | |
| | | | | | | | | |
Assets: | | | | | | | | | |
Other invested assets, primarily mortgage loans | $ | 973 | | | 0 | | 0 | | $ | 1,018 | | | $ | 1,018 | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Short term debt | 93 | | | 0 | | 0 | | 93 | | | 93 | |
Long term debt | 8,981 | | | 0 | | $ | 9,170 | | | 611 | | | 9,781 | |
4. Claim and Claim Adjustment Expense Reserves
Property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including incurred but not reported (“IBNR”) claims as of the reporting date. Reserve projections are based primarily on detailed analysis of the facts in each case, experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.
Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers’ compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the ultimate cost for insurance losses will not exceed current estimates.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company’s results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $54$37 million and $301$54 million for the three months ended June 30, 2022 and 2021 and 2020of $57 million and $179 million and $376 million for the six months ended June 30, 2022 and 2021, and 2020. Net catastrophe losses for the three and six months ended June 30, 2021 werein each case primarily related primarily to severe weather-related events. Net catastrophe losses for the three months ended June 30, 2020 included $182 millionweather related to the coronavirus (“COVID-19”) pandemic, $61 million related to civil unrest and $58 million related primarily to severe weather-related events. Net catastrophe losses for the six months ended June 30, 2020 included $195 million related to the COVID-19 pandemic, $61 million related to civil unrest and $120 million related primarily to severe weather-related events.
Liability for Unpaid Claim and Claim Adjustment Expenses
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of other insuranceoperations outside CNA’s commercial property and casualty operations.
| Six Months Ended June 30 | | 2021 | | | 2020 | | Six Months Ended June 30 | 2022 | | 2021 | |
(In millions) | | | | | | | (In millions) | | | | |
| | | | | | | | | | | |
Reserves, beginning of year: | | | | | | | Reserves, beginning of year: | | | | |
Gross | | $ | 22,706 | | | $ | 21,720 | | Gross | $ | 24,174 | | | $ | 22,706 | | |
Ceded | | | 4,005 | | | | 3,835 | | Ceded | 4,969 | | | 4,005 | | |
Net reserves, beginning of year | | | 18,701 | | | | 17,885 | | Net reserves, beginning of year | 19,205 | | | 18,701 | | |
| | | | | | | | | | | |
Reduction of net reserves due to the excess workers’ compensation loss portfolio transfer | | | (632 | ) | | | | | Reduction of net reserves due to the excess workers’ compensation loss portfolio transfer | 0 | | (632) | | |
| | | | | | | | | | |
Net incurred claim and claim adjustment expenses: | | | | | | | | | Net incurred claim and claim adjustment expenses: | | |
Provision for insured events of current year | | | 2,930 | | | | 2,899 | | Provision for insured events of current year | 2,974 | | | 2,930 | | |
Increase (decrease) in provision for insured events of prior years | | | (78 | ) | | | 19 | | |
Decrease in provision for insured events of prior years | | Decrease in provision for insured events of prior years | (69) | | | (78) | | |
Amortization of discount | | | 95 | | | | 98 | | Amortization of discount | 90 | | | 95 | | |
Total net incurred (a) | | | 2,947 | | | | 3,016 | | Total net incurred (a) | 2,995 | | | 2,947 | | |
| | | | | | | | | | | |
Net payments attributable to: | | | | | | | | | Net payments attributable to: | | |
Current year events | | | (317 | ) | | | (256 | ) | Current year events | (245) | | | (317) | | |
Prior year events | | | (1,949 | ) | | | (2,342 | ) | Prior year events | (2,330) | | | (1,949) | | |
Total net payments | | | (2,266 | ) | | | (2,598 | ) | Total net payments | (2,575) | | | (2,266) | | |
| | | | | | | | | | | |
Foreign currency translation adjustment and other | | | (5 | ) | | | (35 | ) | Foreign currency translation adjustment and other | (222) | | | (5) | | |
| | | | | | | | | | | |
Net reserves, end of period | | | 18,745 | | | | 18,268 | | Net reserves, end of period | 19,403 | | | 18,745 | | |
Ceded reserves, end of period | | | 4,735 | | | | 4,002 | | Ceded reserves, end of period | 5,156 | | | 4,735 | | |
Gross reserves, end of period | | $ | 23,480 | | | $ | 22,270 | | Gross reserves, end of period | $ | 24,559 | | | $ | 23,480 | | |
(a) | | | | | |
(a) | Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Condensed Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, the loss on the excess workers’ compensation loss portfolio transfer, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above.above. |
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development. These changes can be favorable or unfavorable.
Favorable net prior year loss reserve development of $11$37 million and $28$11 million was recorded for commercial property and casualty operations (“Property & Casualty Operations”) for the three months ended June 30, 20212022 and 20202021 and favorable net prior year loss reserve development of $26$49 million and $43$26 million was recorded for the six months ended June 30, 20212022 and 2020.2021. Unfavorable net prior year loss reserve development of $40$64 million and $50$40 million was recorded for CNA’s operations outside of Property & Casualty Operations (“Other Insurance Operations”) for the three and six months ended June 30, 20212022 and 2020.2021.
The following table and discussion presentpresents details of the net prior year loss reserve development in Property & Casualty Operations and Other Insurance Operations:
| | | | Three Months Ended | Six Months Ended | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 | |
(In millions) | | | | | | | | | | | | | (In millions) | | | | | |
| | | | | | | | | | | | | | | | | | |
Medical professional liability | | | | | | | | $ | 8 | | | $ | 10 | | Medical professional liability | $ | 1 | | | 0 | $ | 9 | | | $ | 8 | | |
Other professional liability and management liability | | $ | 10 | | | $ | (9 | ) | | | 10 | | | | (6 | ) | Other professional liability and management liability | 13 | | | $ | 10 | | 13 | | | 10 | | |
Surety | | | (23 | ) | | | | | | | (38 | ) | | | (30 | ) | Surety | (19) | | | (23) | | (28) | | | (38) | | |
Commercial auto | | | 30 | | | | 15 | | | | 30 | | | | 24 | | Commercial auto | 21 | | | 30 | | 21 | | | 30 | | |
General liability | | General liability | 41 | | | 0 | 41 | | | 0 | |
Workers’ compensation | | | (42 | ) | | | (61 | ) | | | (42 | ) | | | (74 | ) | Workers’ compensation | (82) | | | (42) | | (84) | | | (42) | | |
Property and other | | | 14 | | | | 27 | | | | 6 | | | | 33 | | Property and other | (12) | | | 14 | | (21) | | | 6 | | |
Other insurance operations | | | 40 | | | | 50 | | | | 40 | | | | 50 | | Other insurance operations | 64 | | | 40 | | 64 | | | 40 | | |
Total pretax (favorable) unfavorable development | | $ | 29 | | | $ | 22 | | | $ | 14 | | | $ | 7 | | Total pretax (favorable) unfavorable development | $ | 27 | | | $ | 29 | | $ | 15 | | | $ | 14 | | |
Three Months
20212022
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Unfavorable development in commercial auto was due to higher than expected claim severity in CNA’s construction business in multiple accident years.
Unfavorable development in general liability was due to higher than expected claim severity in construction, middle market and small business across multiple accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in other insurance operations was largely associated with legacy mass tort abuse claims, including the recent Diocese of Rochester proposed settlement.
2021
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Unfavorable development in commercial auto was due to higher than expected claim severity in CNA’s construction and middle market businesses in recent accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in other insurance operations was due to higher than expected emergence inlegacy mass tort exposures, in older accident years primarily related to abuse.
2020
Unfavorable development in commercial auto was due to unfavorable claim severity in CNA’s middle market and construction businesses in accident years 2017 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in CNA’s middle market, national accounts and marine business units in accident year 2019.
Unfavorable development in other insurance operations was due to higher than expected emergence in mass tort exposures in older accident years primarily related to abuse.
Six Months
20212022
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Unfavorable development in commercial auto was due to higher than expected claim severity in CNA’s construction business in multiple accident years.
Unfavorable development in general liability was due to higher than expected claim severity in construction, middle market and small business across multiple accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in other insurance operations was largely associated with legacy mass tort abuse claims, including the recent Diocese of Rochester proposed settlement.
2021
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Unfavorable development in commercial auto was due to higher than expected claim severity in CNA’s construction and middle market businesses in recent accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in other insurance operations was primarily due to higher than expected emergence in mass tort exposures in older accident years primarily related to abuse.
2020
Favorable development in surety was primarily due to lower than expected frequency for accident years 2017 and prior.
Unfavorable development in commercial auto was due to unfavorable claim severity in CNA’s middle market and construction businesses in accident years 2017 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in CNA’s middle market, national accounts and marine business units in accident year 2019.
Unfavorable development in other insurance operations was due to higher than expected emergence inlegacy mass tort exposures, in older accident years primarily related to abuse.abuse.
Asbestos & Environmental Pollution (“A&EP”) Reserves
In 2010, Continental Casualty Company (“CCC”) together with several insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of their legacy A&EP liabilities were ceded to NICO through a loss portfolio transfer (“LPT”). At the effective date of the transaction, approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves were ceded to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. NICO was paid a reinsurance premium of $2.0 billion and billed third party reinsurance receivables related to A&EP claims with a net book value of $215 million were transferred to NICO, resulting in total consideration of $2.2 billion.
In years subsequent to the effective date of the LPT, adverse prior year development on A&EP reserves was recognized resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which a change in the estimate of A&EP reserves is recognized that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits on the Consolidated Condensed Statements of Operations.
The impact of the LPT on the Consolidated Condensed Statements of Operations was the recognition of a retroactive reinsurance benefit of $12$11 million and $20$12 million for the three months ended June 30, 2022 and 30,2021 and $23 million2021 and 2020 and $22 million and $34 million for the six months ended June 30, 20212022 and 2020. 2021. As of June 30, 20212022 and December 31, 2020,2021, the cumulative amounts ceded under the LPT were $3.3$3.4 billion. The unrecognized deferred retroactive reinsurance benefit was
$376406 million and $398$429 million as of June 30, 20212022 and December 31, 20202021 and is included within Other liabilities on the Consolidated Condensed Balance Sheets.
NICO established a collateral trust account as security for its obligations under the LPT. The fair value of the collateral trust account was $2.9$2.4 billion as of June 30, 2021.2022. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the majority of the A&EP claims.
Excess Workers’ Compensation LPT
On February 5, 2021, CNA completed a transaction with Cavello Bay Reinsurance Limited (“Cavello”), a subsidiary of Enstar Group Limited, under which certain legacy excess workers’ compensation (“EWC”) liabilities were ceded to Cavello. Under the terms of the transaction, based on reserves in place as of January 1, 2020, approximately $
690 million of net EWC claim and allocated claim adjustment expense reserves were ceded to Cavello under a loss portfolio transfer (“EWC LPT”) with an aggregate limit of $1.0 billion. Cavello was paid a reinsurance premium of $697 million, less claims paid between January 1, 2020 and the closing date of the agreement of $64 million. After transaction costs, a loss of approximately $11 million (after tax and noncontrolling interest) was recognized in Other Insurance Operations in the first quarter of 2021 related to the EWC LPT.
As of June 30, 2021, the cumulative amounts ceded under the EWC LPT were $690 million and the remaining amount available under the $1.0 billion aggregate limit was $310 million.
Cavello established a collateral trust account as security for its obligations, which will be maintained at 105% of outstanding reserves.
Credit Risk for Ceded Reserves
The majority of CNA’s outstanding voluntary reinsurance receivables are due from reinsurers with financial strength ratings of A- or higher. Receivables due from reinsurers with lower financial strength ratings are primarily due from captive reinsurers and are backed by collateral arrangements.
5. Shareholders’ Equity
Accumulated other comprehensive income (loss)
The tables below present the changes in AOCI by component for the three and six months ended June 30, 20202021 and 2021:2022:
| | Net Unrealized | | | | | | | | | | | | | | | | |
| | Gains (Losses) | | | | | | | | | | | | | | | Total | |
| | on Investments | | | Net Unrealized | | | Unrealized | | | | | | | | | Accumulated | |
| | with an | | | Gains (Losses) | | | Gains (Losses) | | | Pension and | | | Foreign | | | Other | |
| | Allowance for | | | on Other | | | on Cash Flow | | | Postretirement | | | Currency | | | Comprehensive | |
| | Credit Losses | | | Investments | | | Hedges | | | Benefits | | | Translation | | | Income (Loss) | |
(In millions) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance, April 1, 2020 | | $ | (10 | ) | | $ | (15 | ) | | $ | (25 | ) | | $ | (842 | ) | | $ | (201 | ) | | $ | (1,093 | ) |
Other comprehensive income (loss) before reclassifications, after tax of $0, $(321), $2, $0 and $0 | | | (2 | ) | | | 1,209 | | | | (1 | ) | | | (2 | ) | | | 29 | | | | 1,233 | |
Reclassification of (income) losses from accumulated other comprehensive income, after tax of $(1), $4, $(1), $(2) and $0 | | | 4 | | | | (18 | ) | | | 1 | | | | 8 | | | | | | | | (5 | ) |
Other comprehensive income | | | 2 | | | | 1,191 | | | | 0 | | | | 6 | | | | 29 | | | | 1,228 | |
Amounts attributable to noncontrolling interests | | | | | | | (126 | ) | | | | | | | (1 | ) | | | (3 | ) | | | (130 | ) |
Balance, June 30, 2020 | | $ | (8 | ) | | $ | 1,050 | | | $ | (25 | ) | | $ | (837 | ) | | $ | (175 | ) | | $ | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses | | Net Unrealized Gains (Losses) on Other Investments | | Unrealized Gains (Losses) on Cash Flow Hedges | | Pension and Postretirement Benefits | | Foreign Currency Translation | | Total Accumulated Other Comprehensive Income (Loss) |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance, April 1, 2021 | $ | — | | | $ | 1,002 | | | $ | (19) | | | $ | (869) | | | $ | (80) | | | $ | 34 | |
Other comprehensive income (loss) before reclassifications, after tax of $0, $(82), $(1), $0 and $0 | 1 | | | 323 | | | 8 | | | (2) | | | 11 | | | 341 | |
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $0, $7, $(1), $(3) and $0 | (1) | | | (23) | | | 0 | | 9 | | | 0 | | (15) | |
Other comprehensive income | — | | | 300 | | | 8 | | | 7 | | | 11 | | | 326 | |
Amounts attributable to noncontrolling interests | 0 | | (31) | | | 0 | | (1) | | | (1) | | | (33) | |
| | | | | | | | | | | |
Balance, June 30, 2021 | $ | — | | | $ | 1,271 | | | $ | (11) | | | $ | (863) | | | $ | (70) | | | $ | 327 | |
| | | | | | | | | | | |
Balance, April 1, 2022 | $ | (6) | | | $ | (513) | | | $ | 12 | | | $ | (630) | | | $ | (114) | | | $ | (1,251) | |
Other comprehensive income (loss) before reclassifications, after tax of $(1), $359, $5, $2 and $0 | (1) | | | (1,360) | | | 6 | | | (2) | | | (68) | | | (1,425) | |
Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $1, $(3), $2, $(1) and $0 | (1) | | | 14 | | | 0 | | 7 | | | 0 | | 20 | |
Other comprehensive income (loss) | (2) | | | (1,346) | | | 6 | | | 5 | | | (68) | | | (1,405) | |
Amounts attributable to noncontrolling interests | 1 | | | 138 | | | 0 | | 0 | | 7 | | | 146 | |
Balance, June 30, 2022 | $ | (7) | | | $ | (1,721) | | | $ | 18 | | | $ | (625) | | | $ | (175) | | | $ | (2,510) | |
Balance, April 1, 2021 | | $ | 0 | | | $ | 1,002 | | | $ | (19 | ) | | $ | (869 | ) | | $ | (80 | ) | | $ | 34 | |
Other comprehensive income (loss) before reclassifications, after tax of $0, $(82), $(1), $0 and $0 | | | 1 | | | | 323 | | | | 8 | | | | (2 | ) | | | 11 | | | | 341 | |
Reclassification of (income) losses from accumulated other comprehensive income, after tax of $0, $7, $(1), $(3) and $0 | | | (1 | ) | | | (23 | ) | | | | | | | 9 | | | | | | | | (15 | ) |
Other comprehensive income | | | 0 | | | | 300 | | | | 8 | | | | 7 | | | | 11 | | | | 326 | |
Amounts attributable to noncontrolling interests | | | | | | | (31 | ) | | | | | | | (1 | ) | | | (1 | ) | | | (33 | ) |
Balance, June 30, 2021 | | $ | 0 | | | $ | 1,271 | | | $ | (11 | ) | | $ | (863 | ) | | $ | (70 | ) | | $ | 327 | |
| | Net Unrealized | | | | | | | | | | | | | | | | |
| | Gains (Losses) | | | | | | | | | | | | | | | Total | |
| | on Investments | | | Net Unrealized | | | Unrealized | | | | | | | | | Accumulated | |
| | with an | | | Gains (Losses) | | | Gains (Losses) | | | Pension and | | | Foreign | | | Other | |
| | Allowance for | | | on Other | | | on Cash Flow | | | Postretirement | | | Currency | | | Comprehensive | |
| | Credit Losses | | | Investments | | | Hedges | | | Benefits | | | Translation | | | Income (Loss) | |
(In millions) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance, January 1, 2020 | | $ | 0 | | | $ | 918 | | | $ | (6 | ) | | $ | (855 | ) | | $ | (125 | ) | | $ | (68 | ) |
Other comprehensive income (loss) before reclassifications, after tax of $13, $(34), $8, $0 and $0 | | | (50 | ) | | | 143 | | | | (20 | ) | | | (1 | ) | | | (55 | ) | | | 17 | |
Reclassification of losses from accumulated other comprehensive income, after tax of $(11), $(2), $(1), $(5) and $0 | | | 41 | | | | 4 | | | | 1 | | | | 21 | | | | | | | | 67 | |
Other comprehensive income (loss) | | | (9 | ) | | | 147 | | | | (19 | ) | | | 20 | | | | (55 | ) | | | 84 | |
Amounts attributable to noncontrolling interests | | | 1 | | | | (15 | ) | | | | | | | (2 | ) | | | 5 | | | | (11 | ) |
Balance, June 30, 2020 | | $ | (8 | ) | | $ | 1,050 | | | $ | (25 | ) | | $ | (837 | ) | | $ | (175 | ) | | $ | 5 | |
Balance, January 1, 2021 | | $ | 0 | | | $ | 1,563 | | | $ | (23 | ) | | $ | (877 | ) | | $ | (82 | ) | | $ | 581 | |
Other comprehensive income (loss) before reclassifications, after tax of $1, $72, $(3), $0 and $0 | | | (2 | ) | | | (270 | ) | | | 11 | | | | (2 | ) | | | 14 | | | | (249 | ) |
Reclassification of (income) losses from accumulated other comprehensive income, after tax of $(1), $15, $(2), $(5) and $0 | | | 2 | | | | (57 | ) | | | 1 | | | | 18 | | | | | | | | (36 | ) |
Other comprehensive income (loss) | | | 0 | | | | (327 | ) | | | 12 | | | | 16 | | | | 14 | | | | (285 | ) |
Amounts attributable to noncontrolling interests | | | | | | | 35 | | | | | | | | (2 | ) | | | (2 | ) | | | 31 | |
Balance, June 30, 2021 | | $ | 0 | | | $ | 1,271 | | | $ | (11 | ) | | $ | (863 | ) | | $ | (70 | ) | | $ | 327 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses | | Net Unrealized Gains (Losses) on Other Investments | | Unrealized Gains (Losses) on Cash Flow Hedges | | Pension and Postretirement Benefits | | Foreign Currency Translation | | Total Accumulated Other Comprehensive Income (Loss) |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance, January 1, 2021 | $ | — | | | $ | 1,563 | | | $ | (23) | | | $ | (877) | | | $ | (82) | | | $ | 581 | |
Other comprehensive income (loss) before reclassifications, after tax of $1, $72, $(3), $0 and $0 | (2) | | | (270) | | | 11 | | | (2) | | | 14 | | | (249) | |
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $(1), $15, $(2), $(5) and $0 | 2 | | | (57) | | | 1 | | | 18 | | | 0 | | (36) | |
Other comprehensive income (loss) | — | | | (327) | | | 12 | | | 16 | | | 14 | | | (285) | |
Amounts attributable to noncontrolling interests | 0 | | 35 | | | 0 | | (2) | | | (2) | | | 31 | |
| | | | | | | | | | | |
Balance, June 30, 2021 | $ | — | | | $ | 1,271 | | | $ | (11) | | | $ | (863) | | | $ | (70) | | | $ | 327 | |
| | | | | | | | | | | |
Balance, January 1, 2022 | $ | (2) | | | $ | 930 | | | $ | (6) | | | $ | (636) | | | $ | (100) | | | $ | 186 | |
Other comprehensive income (loss) before reclassifications, after tax of $0, $784, $3, $0 and $0 | (5) | | | (2,972) | | | 21 | | | 0 | | (83) | | | (3,039) | |
Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $1, $(4), $1, $(3) and $0 | (1) | | | 15 | | | 3 | | | 12 | | | 0 | | 29 | |
Other comprehensive income (loss) | (6) | | | (2,957) | | | 24 | | | 12 | | | (83) | | | (3,010) | |
Amounts attributable to noncontrolling interests | 1 | | | 306 | | | 0 | | (1) | | | 8 | | | 314 | |
Balance, June 30, 2022 | $ | (7) | | | $ | (1,721) | | | $ | 18 | | | $ | (625) | | | $ | (175) | | | $ | (2,510) | |
Amounts reclassified from AOCI shown above are reported in Net income (loss) as follows:
| | | | | |
Major Category of AOCI | Affected Line Item |
| |
Net unrealized gains (losses) on investments with an allowance for credit losses Net unrealized gains (losses) on investments with OTTI losses and Net unrealized gains (losses) on other investments | Investment gains (losses) |
Unrealized gains (losses) on cash flow hedges | Operating revenues and other, Interest expense and Operating expenses and other |
Pension and postretirement benefits | Operating expenses and other |
Treasury Stock
Loews Corporation repurchased9.5 6.3 million and 10.79.5 million shares of its common stock at an aggregate costcosts of $493$384 million and $478$493 million during the six months ended June 30, 20212022 and 20202021.
.
6. Debt
In February of 2022, Boardwalk Pipelines completed a public offering of $500 million aggregate principal amount of its 3.6% senior notes due September 1, 2032. Boardwalk Pipelines used the proceeds to retire the outstanding $300 million aggregate principal amount of its 4.0% senior notes due June 2022 in March of 2022, to fund growth capital expenditures and for general corporate purposes.
7. Revenue from Contracts with Customers
Disaggregation of revenues –Revenue from contracts with customers, other than insurance premiums, is reported as Non-insurance warranty revenue and within Operating revenues and other on the Consolidated Condensed Statements of Operations. The following table presents revenues from contracts with customers disaggregated by revenue type along with the reportable segment and a reconciliation to Operating revenues and other as reported in Note 11:
| | Three Months Ended June 30, | | | Six Months Ended June 30 | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Non-insurance warranty – CNA Financial | | $ | 359 | | | $ | 308 | | | $ | 697 | | | $ | 609 | |
| | | | | | | | | | | | | | | | |
Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipelines | | | 302 | | | | 286 | | | | 663 | | | | 618 | |
Lodging and related services – Loews Hotels & Co | | | 94 | | | | 16 | | | | 150 | | | | 158 | |
Rigid plastic packaging and recycled resin – Corporate (a) | | | | | | | 244 | | | | 280 | | | | 500 | |
Contract drilling – Diamond Offshore (b) | | | | | | | 71 | | | | | | | | 300 | |
Total revenues from contracts with customers | | | 396 | | | | 617 | | | | 1,093 | | | | 1,576 | |
Other revenues | | | 19 | | | | 33 | | | | 37 | | | | 56 | |
Operating revenues and other | | $ | 415 | | | $ | 650 | | | $ | 1,130 | | | $ | 1,632 | |
(a) | Revenues presented for Corporate reflect the periods prior to the deconsolidation of Altium Packaging in the second quarter of 2021. See Note 2 for further discussion.
|
(b) | Revenues presented for Diamond Offshore reflect the periods prior to its deconsolidation. in the second quarter of 2020. See Note 2 for further discussion. |
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended | | |
| June 30, | June 30, | | |
| 2022 | | 2021 | 2022 | | 2021 | | |
(In millions) | | | | | | | | |
| | | | | | | | |
Non-insurance warranty – CNA Financial | $ | 392 | | | $ | 359 | | $ | 774 | | | $ | 697 | | | |
| | | | | | | | |
Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipelines | $ | 315 | | | $ | 302 | | $ | 684 | | | $ | 663 | | | |
Lodging and related services – Loews Hotels & Co | 190 | | | 94 | | 336 | | | 150 | | | |
Rigid plastic packaging and recycled resin – Corporate (a) | 0 | | 0 | 0 | | 280 | | | |
| | | | | | | | |
Total revenues from contracts with customers | 505 | | | 396 | | 1,020 | | | 1,093 | | | |
Other revenues | 29 | | | 19 | | 54 | | | 37 | | | |
Operating revenues and other | $ | 534 | | | $ | 415 | | $ | 1,074 | | | $ | 1,130 | | | |
(a)Revenues presented reflect the consolidated results of Altium Packaging through March 31, 2021.
Receivables from contracts with customers – As of June 30, 20212022 and December 31, 2020,2021, receivables from contracts with customers were approximately $106$141 million and $246$145 million and are included within Receivables on the Consolidated Condensed Balance Sheets.
Deferred revenue – As of June 30, 20212022 and December 31, 2020,2021, deferred revenue resulting from contracts with customers was approximately $4.4$4.7 billion and $4.1$4.6 billion and is reported as Deferred non-insurance warranty revenue and within Other liabilities on the Consolidated Condensed Balance Sheets. Approximately $624$723 million and $574$624 million of revenues recognized during the six months ended June 30, 20212022 and 20202021 were included in deferred revenue as of December 31, 20202021 and 2019.2020.
Performance obligations– As of June 30, 2021,2022, approximately $13.3$13.4 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to revenues for transportation and storage ofservices for natural gas and natural gas liquids and hydrocarbons (“NGLs”) servicesat Boardwalk Pipelines and non-insurance warranty revenue. revenue at CNA. Approximately $1.2$1.4 billion will be recognized during the remaining six months of 2021, $2.22022, $2.4 billion in 20222023 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control.
8. Benefit Plans
The Company has several non-contributory defined benefit plans and postretirement benefit plans covering eligible employees and retirees.
The following tables present the components of net periodic (benefit) cost for thesethe defined benefit plans:
| | Pension Benefits | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Service cost | | | | | $ | 1 | | | $ | 1 | | | $ | 2 | |
Interest cost | | $ | 18 | | | | 23 | | | | 36 | | | | 46 | |
Expected return on plan assets | | | (43 | ) | | | (44 | ) | | | (86 | ) | | | (87 | ) |
Amortization of unrecognized net loss | | | 13 | | | | 12 | | | | 25 | | | | 23 | |
Amortization of unrecognized prior service cost | | | | | | | 1 | | | | | | | | 1 | |
Settlement charge | | | 2 | | | | 3 | | | | 2 | | | | 7 | |
Net periodic benefit | | $ | (10 | ) | | $ | (4 | ) | | $ | (22 | ) | | $ | (8 | ) |
| | Other Postretirement Benefits | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Interest cost | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 1 | |
Expected return on plan assets | | | | | | | (1 | ) | | | (1 | ) | | | (2 | ) |
Net periodic (benefit) cost | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2022 | | 2021 | | | | 2022 | | 2021 | | |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
Service cost | 0 | | 0 | | | | $ | 1 | | | $ | 1 | | | |
Interest cost | $ | 18 | | | $ | 18 | | | | | 37 | | | 36 | | | |
Expected return on plan assets | (40) | | | (43) | | | | | (83) | | | (86) | | | |
Amortization of unrecognized net loss | 8 | | | 13 | | | | | 16 | | | 25 | | | |
| | | | | | | | | | | |
Settlements | 1 | | | 2 | | | | | 2 | | | 2 | | | |
Regulatory asset decrease | 1 | | | 0 | | | | 2 | | | 0 | | |
Net periodic benefit | $ | (12) | | | $ | (10) | | | | | $ | (25) | | | $ | (22) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Postretirement Benefits | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2022 | | 2021 | | | | 2022 | | 2021 | | |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Interest cost | $ | 1 | | | $ | 1 | | | | | $ | 1 | | | $ | 1 | | | |
Expected return on plan assets | (1) | | | 0 | | | | (1) | | | (1) | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net periodic benefit | $ | — | | | $ | 1 | | | | | $ | — | | | $ | — | | | |
9. Legal Proceedings
Boardwalk Pipelines Litigation
On May 25, 2018, plaintiffs Tsemach Mishal and Paul Berger (on behalf of themselves and the purported class, “Plaintiffs”) initiated a purported class action in the Court of Chancery of the State of Delaware (the “Court”“Trial Court”) against the following defendants: Boardwalk Pipelines, Boardwalk GP, LP (“General Partner”), Boardwalk GP, LLC and Boardwalk Pipelines Holding Corp. (“BPHC”) (together, “Defendants”), regarding the potential exercise by the General Partner of its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipelines not already owned by the General Partner or its affiliates.
On June 25, 2018, Plaintiffs and Defendants entered into a Stipulation and Agreement of Compromise and Settlement, subject to the approval of the Trial Court (the “Proposed Settlement”). Under the terms of the Proposed Settlement, the lawsuit would be dismissed, and related claims against the Defendants would be released by the Plaintiffs, if BPHC, the sole member of the General Partner, elected to cause the General Partner to exercise its right to purchase the issued and outstanding common units of Boardwalk Pipelines pursuant to Boardwalk Pipelines’ Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”), within a period specified by the Proposed Settlement. On June 29, 2018, the General Partner elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipelines not already owned by the General Partner or its affiliates pursuant to the Limited Partnership Agreement within the period specified by the Proposed Settlement. The transaction was completed on July 18, 2018.
On September 28, 2018, the Trial Court denied approval of the Proposed Settlement. On February 11, 2019, a substitute verified class action complaint was filed in this proceeding.proceeding, which among other things, added the Parent Company as a Defendant. The Defendants filed a motion to dismiss, which was heard by the Trial Court in July of 2019. In October of 2019, the Trial Court ruled on the motion and granted a partial dismissal, with certain aspects of the case proceeding to trial. A trial was held the week of February 22, 2021 and post-trial oral arguments were held on July 14, 2021.2021.
On November 12, 2021, the Trial Court issued a ruling in the case. The Trial Court held that the General Partner breached the Limited Partnership Agreement and awarded Plaintiffs approximately $690 million, plus pre-judgment interest (approximately $166 million), post-judgment interest and attorneys’ fees.
The Company believes that the Trial Court ruling includes factual and legal errors. Therefore on January 3, 2022, the Defendants appealed the Trial Court’s ruling to the Supreme Court of the State of Delaware (the “Supreme Court”). On January 17, 2022, the Plaintiffs filed a cross-appeal to the Supreme Court contesting the calculation of damages by the Trial Court. Oral arguments have been set for this case on September 14, 2022.
At this time, given the Trial Court’s ruling and the pending appeals, the Company believes that it is reasonably possible that a loss has occurred, although the Company is unable to estimate any potential loss as it may range from zero up to the full amount of the Trial Court’s award of $690 million, plus pre- and post-judgment interest and attorneys’ fees, or more, depending on the extent of the Defendants’ and Plaintiffs’ success on appeal. The Company has not recorded a liability related to this matter.
As litigation is inherently unpredictable, if an unfavorable final outcome occurs, there is a possibility of a material adverse impact to the Company’s consolidated financial statements in the period in which the effects become known.
Other Litigation
The Company is from time to time party to other litigation arising in the ordinary course of business. While it is difficult to predict the outcome or effect of any litigation, management does not believe that the outcome of any such pending litigation including the Boardwalk Pipelines matter described above, will materially affect the Company’s results of operations or equity.
10. Commitments and Contingencies
CNA Data Breach-related Contingency
As previously disclosed, CNA sustained a sophisticated cybersecurity attack in March of 2021 involving ransomware. CNA’s investigation revealed that an unauthorized third party copied some personal information relating to certain current and former employees, contractor workers and their dependents and certain other persons, including some policyholders. In July of 2021, CNA provided notifications to the impacted individuals and to regulators, in accordance with applicable law. CNA may be subject to subsequent investigations, fines or penalties, as well as other legal claims and actions, related to the foregoing. The likelihood is reasonably possible, but the amount of such fines, penalties or costs, if any, cannot be estimated at this time.
Based on the information currently known, CNA does not believe that the March 2021 cybersecurity attack will have a material impact on its business, results of operations or financial condition, but no assurances can be given as it continues to assess the full impact from the incident, including costs, expenses and insurance coverage.
Guarantees
CNA
Guarantees
CNA has provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities issued by a previously owned subsidiary. As of June 30, 2021,2022, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $1.6 billion, which will be paid over the lifetime of the annuitants. CNA does not believe any payment is likely under these guarantees, as CNA is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.
11. Segments
Loews Corporation has 4 reportable segments comprised of 3 individual consolidated operating subsidiaries, CNA, Boardwalk Pipelines and Loews Hotels & Co; and the Corporate segment. In the first quarter of 2020 Diamond Offshore was a reportable segment and was deconsolidated during the second quarter of 2020. The Corporate segment is primarily comprised of Loews Corporation, excluding its subsidiaries, and the consolidated operations of Altium Packaging through March 31, 2021. On April 1, 2021 Loews Corporation sold 47% of its interest in Altium Packaging and as a result, Altium Packaging was deconsolidated from Loews Corporation’s consolidated financial results. Subsequent to deconsolidation, Loews Corporation’s investment in Altium Packaging is accounted for under the equity method of accounting with Equity income (loss) reported in Operating expenses and other on the Consolidated Condensed Statements of Operations in the Corporate segment. For further discussion on the deconsolidations of Diamond Offshore andfor Altium Packaging see Note 2.
subsequent to its deconsolidation on April 1, 2021. Each of the operating subsidiaries is headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position. For additional disclosures regarding the composition of Loews Corporation’s segments, see Note 2019 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
The following tables present the reportable segments and their contribution to the Consolidated Condensed Statements of Operations. Amounts presented will not necessarily be the same as those in the individual financial statements of the subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling interests.
Statements of Operations by segment are presented in the following tables.
Three Months Ended June 30, 2021 | | CNA Financial | | | Boardwalk Pipelines | | | Loews Hotels & Co | | | Corporate | | | Total | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | CNA Financial | | Boardwalk Pipelines | | Loews Hotels & Co | | Corporate | | | Total |
(In millions) | | | | | | | | | | | | | | | | (In millions) | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | Revenues: | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Insurance premiums | | $ | 2,035 | | | | | | | | | | | | $ | 2,035 | | Insurance premiums | $ | 2,155 | | | 0 | | 0 | | 0 | | | $ | 2,155 | |
Net investment income | | | 591 | | | | | | $ | 1 | | | $ | 24 | | | | 616 | | |
Investment gains | | | 38 | | | | | | | | | | | 540 | | | | 578 | | |
Net investment income (loss) | | Net investment income (loss) | 432 | | | 0 | | $ | (1) | | | $ | (65) | | | | 366 | |
Investment losses | | Investment losses | (59) | | | 0 | | 0 | | 0 | | | (59) | |
Non-insurance warranty revenue | | | 359 | | | | | | | | | | | | | | | 359 | | Non-insurance warranty revenue | 392 | | | 0 | | 0 | | 0 | | | 392 | |
Operating revenues and other | | | 6 | | | $ | 312 | | | | 97 | | | | | | | | 415 | | Operating revenues and other | 6 | | | $ | 325 | | | 201 | | | 2 | | | | 534 | |
Total | | | 3,029 | | | | 312 | | | | 98 | | | | 564 | | | | 4,003 | | Total | 2,926 | | | 325 | | | 200 | | | (63) | | | | 3,388 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | | | | Expenses: | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Insurance claims and policyholders’ benefits | | | 1,546 | | | | | | | | | | | | | | | | 1,546 | | Insurance claims and policyholders’ benefits | 1,583 | | | 0 | | 0 | | 0 | | | 1,583 | |
Amortization of deferred acquisition costs | | | 357 | | | | | | | | | | | | | | | | 357 | | Amortization of deferred acquisition costs | 374 | | | 0 | | 0 | | 0 | | | 374 | |
Non-insurance warranty expense | | | 332 | | | | | | | | | | | | | | | | 332 | | Non-insurance warranty expense | 367 | | | 0 | | 0 | | 0 | | | 367 | |
Operating expenses and other | | | 302 | | | | 209 | | | | 115 | | | | 30 | | | | 656 | | Operating expenses and other | 329 | | | 231 | | | 132 | | | 23 | | | | 715 | |
Interest | | | 29 | | | | 40 | | | | 9 | | | | 22 | | | | 100 | | Interest | 28 | | | 42 | | | 4 | | | 22 | | | | 96 | |
Total | | | 2,566 | | | | 249 | | | | 124 | | | | 52 | | | | 2,991 | | Total | 2,681 | | | 273 | | | 136 | | | 45 | | | | 3,135 | |
Income (loss) before income tax | | | 463 | | | | 63 | | | | (26 | ) | | | 512 | | | | 1,012 | | Income (loss) before income tax | 245 | | | 52 | | | 64 | | | (108) | | | | 253 | |
Income tax (expense) benefit | | | (94 | ) | | | (16 | ) | | | 5 | | | | (114 | ) | | | (219 | ) | Income tax (expense) benefit | (40) | | | (13) | | | (20) | | | 22 | | | | (51) | |
Net income (loss) | | | 369 | | | | 47 | | | | (21 | ) | | | 398 | | | | 793 | | Net income (loss) | 205 | | | 39 | | | 44 | | | (86) | | | | 202 | |
Amounts attributable to noncontrolling interests | | | (39 | ) | | | | | | | | | | | | | | | (39 | ) | Amounts attributable to noncontrolling interests | (22) | | | 0 | | 0 | | 0 | | | (22) | |
Net income (loss) attributable to Loews Corporation | | $ | 330 | | | $ | 47 | | | $ | (21 | ) | | $ | 398 | | | $ | 754 | | Net income (loss) attributable to Loews Corporation | $ | 183 | | | $ | 39 | | | $ | 44 | | | $ | (86) | | | | $ | 180 | |
Three Months Ended June 30, 2020 | | CNA Financial | | | Boardwalk Pipelines | | | Loews Hotels & Co | | | Corporate (a) | | | Diamond Offshore (b) | | | Total | |
(In millions) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Insurance premiums | | $ | 1,850 | | | | | | | | | | | | | | | $ | 1,850 | |
Net investment income | | | 534 | | | | | | | | | $ | 110 | | | | | | | 644 | |
Investment gains (losses) | | | 69 | | | | | | | | | | (1,211 | ) | | | | | | (1,142 | ) |
Non-insurance warranty revenue | | | 308 | | | | | | | | | | | | | | | | | 308 | |
Operating revenues and other | | | 5 | | | $ | 296 | | | $ | 34 | | | | 244 | | | $ | 71 | | | | 650 | |
Total | | | 2,766 | | | | 296 | | | | 34 | | | | (857 | ) | | | 71 | | | | 2,310 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Insurance claims and policyholders’ benefits | | | 1,642 | | | | | | | | | | | | | | | | | | | | 1,642 | |
Amortization of deferred acquisition costs | | | 342 | | | | | | | | | | | | | | | | | | | | 342 | |
Non-insurance warranty expense | | | 285 | | | | | | | | | | | | | | | | | | | | 285 | |
Operating expenses and other | | | 283 | | | | 210 | | | | 123 | | | | 260 | | | | 116 | | | | 992 | |
Interest | | | 31 | | | | 41 | | | | 8 | | | | 32 | | | | 11 | | | | 123 | |
Total | | | 2,583 | | | | 251 | | | | 131 | | | | 292 | | | | 127 | | | | 3,384 | |
Income (loss) before income tax | | | 183 | | | | 45 | | | | (97 | ) | | | (1,149 | ) | | | (56 | ) | | | (1,074 | ) |
Income tax (expense) benefit | | | (32 | ) | | | (11 | ) | | | 25 | | | | 241 | | | | 5 | | | | 228 | |
Net income (loss) | | | 151 | | | | 34 | | | | (72 | ) | | | (908 | ) | | | (51 | ) | | | (846 | ) |
Amounts attributable to noncontrolling interests | | | (16 | ) | | | | | | | | | | | | | | | 27 | | | | 11 | |
Net income (loss) attributable to Loews Corporation | | $ | 135 | | | $ | 34 | | | $ | (72 | ) | | $ | (908 | ) | | $ | (24 | ) | | $ | (835 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2021 | CNA Financial | | Boardwalk Pipelines | | Loews Hotels & Co | | Corporate | | | | Total |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
Revenues: | | | | | | | | | | | |
| | | | | | | | | | | |
Insurance premiums | $ | 2,035 | | | 0 | | 0 | | 0 | | | | $ | 2,035 | |
Net investment income | 591 | | | 0 | | $ | 1 | | | $ | 24 | | | | | 616 | |
Investment gains | 38 | | | 0 | | 0 | | 540 | | | | | 578 | |
Non-insurance warranty revenue | 359 | | | 0 | | 0 | | 0 | | | | 359 | |
Operating revenues and other | 6 | | | $ | 312 | | | 97 | | | 0 | | | | 415 | |
Total | 3,029 | | | 312 | | | 98 | | | 564 | | | | | 4,003 | |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
| | | | | | | | | | | |
Insurance claims and policyholders’ benefits | 1,546 | | | 0 | | 0 | | 0 | | | | 1,546 | |
Amortization of deferred acquisition costs | 357 | | | 0 | | 0 | | 0 | | | | 357 | |
Non-insurance warranty expense | 332 | | | 0 | | 0 | | 0 | | | | 332 | |
Operating expenses and other | 302 | | | 209 | | | 115 | | | 30 | | | | | 656 | |
Interest | 29 | | | 40 | | | 9 | | | 22 | | | | | 100 | |
Total | 2,566 | | | 249 | | | 124 | | | 52 | | | | | 2,991 | |
Income (loss) before income tax | 463 | | | 63 | | | (26) | | | 512 | | | | | 1,012 | |
Income tax (expense) benefit | (94) | | | (16) | | | 5 | | | (114) | | | | | (219) | |
Net income (loss) | 369 | | | 47 | | | (21) | | | 398 | | | | | 793 | |
Amounts attributable to noncontrolling interests | (39) | | | 0 | | 0 | | 0 | | | | (39) | |
Net income (loss) attributable to Loews Corporation | $ | 330 | | | $ | 47 | | | $ | (21) | | | $ | 398 | | | | | $ | 754 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2022 | CNA Financial | | Boardwalk Pipelines | | Loews Hotels & Co | | Corporate | | | | Total |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
Revenues: | | | | | | | | | | | |
| | | | | | | | | | | |
Insurance premiums | $ | 4,214 | | | 0 | | 0 | | 0 | | | | $ | 4,214 | |
Net investment income (loss) | 880 | | | 0 | | $ | (1) | | | $ | (81) | | | | | 798 | |
Investment losses | (70) | | | 0 | | 0 | | 0 | | | | (70) | |
Non-insurance warranty revenue | 774 | | | 0 | | 0 | | 0 | | | | 774 | |
Operating revenues and other | 13 | | | $ | 706 | | | 353 | | | 2 | | | | | 1,074 | |
Total | 5,811 | | | 706 | | | 352 | | | (79) | | | | | 6,790 | |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
| | | | | | | | | | | |
Insurance claims and policyholders’ benefits | 3,038 | | | 0 | | 0 | | 0 | | | | 3,038 | |
Amortization of deferred acquisition costs | 718 | | | 0 | | 0 | | 0 | | | | 718 | |
Non-insurance warranty expense | 721 | | | 0 | | 0 | | 0 | | | | 721 | |
Operating expenses and other | 655 | | | 448 | | | 258 | | | 45 | | | | | 1,406 | |
Interest | 56 | | | 84 | | | 8 | | | 44 | | | | | 192 | |
Total | 5,188 | | | 532 | | | 266 | | | 89 | | | | | 6,075 | |
Income (loss) before income tax | 623 | | | 174 | | | 86 | | | (168) | | | | | 715 | |
Income tax (expense) benefit | (105) | | | (44) | | | (27) | | | 33 | | | | | (143) | |
Net income (loss) | 518 | | | 130 | | | 59 | | | (135) | | | | | 572 | |
Amounts attributable to noncontrolling interests | (54) | | | 0 | | 0 | | 0 | | | | (54) | |
Net income (loss) attributable to Loews Corporation | $ | 464 | | | $ | 130 | | | $ | 59 | | | $ | (135) | | | | | $ | 518 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2021 | CNA Financial | | Boardwalk Pipelines | | Loews Hotels & Co | | Corporate (a) | | | | Total |
(In millions) | | | | | | | | | | | |
| | | | | | | | | | | |
Revenues: | | | | | | | | | | | |
| | | | | | | | | | | |
Insurance premiums | $ | 3,997 | | | | | | | | | | | $ | 3,997 | |
Net investment income | 1,095 | | | | | $ | 1 | | | $ | 70 | | | | | 1,166 | |
Investment gains | 95 | | | | | | | 540 | | | | | 635 | |
Non-insurance warranty revenue | 697 | | | | | | | | | | | 697 | |
Operating revenues and other | 11 | | | $ | 684 | | | 154 | | | 281 | | | | | 1,130 | |
Total | 5,895 | | | 684 | | | 155 | | | 891 | | | | | 7,625 | |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
| | | | | | | | | | | |
Insurance claims and policyholders’ benefits | 3,052 | | | | | | | | | | | 3,052 | |
Amortization of deferred acquisition costs | 716 | | | | | | | | | | | 716 | |
Non-insurance warranty expense | 643 | | | | | | | | | | | 643 | |
Operating expenses and other | 587 | | | 426 | | | 219 | | | 338 | | | | | 1,570 | |
Interest | 57 | | | 81 | | | 17 | | | 70 | | | | | 225 | |
Total | 5,055 | | | 507 | | | 236 | | | 408 | | | | | 6,206 | |
Income (loss) before income tax | 840 | | | 177 | | | (81) | | | 483 | | | | | 1,419 | |
Income tax (expense) benefit | (160) | | | (45) | | | 17 | | | (145) | | | | | (333) | |
Net income (loss) | 680 | | | 132 | | | (64) | | | 338 | | | | | 1,086 | |
Amounts attributable to noncontrolling interests | (71) | | | | | | | | | | | (71) | |
Net income (loss) attributable to Loews Corporation | $ | 609 | | | $ | 132 | | | $ | (64) | | | $ | 338 | | | | | $ | 1,015 | |
| | | | | |
(a) | Amounts presented for Corporate include the operating results of Altium Packaging prior to the deconsolidation. |
(b) | Amounts presented for Diamond Offshore reflect the periods prior to the deconsolidation. |
Six Months Ended June 30, 2021 | | CNA Financial | | | Boardwalk Pipelines | | | Loews Hotels & Co | | | Corporate (c) | | | Total | |
(In millions) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Insurance premiums | | $ | 3,997 | | | | | | | | | | | | $ | 3,997 | |
Net investment income | | | 1,095 | | | | | | $ | 1 | | | $ | 70 | | | | 1,166 | |
Investment gains | | | 95 | | | | | | | | | | | 540 | | | | 635 | |
Non-insurance warranty revenue | | | 697 | | | | | | | | | | | | | | | 697 | |
Operating revenues and other | | | 11 | | | $ | 684 | | | | 154 | | | | 281 | | | | 1,130 | |
Total | | | 5,895 | | | | 684 | | | | 155 | | | | 891 | | | | 7,625 | |
| | | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Insurance claims and policyholders’ benefits | | | 3,052 | | | | | | | | | | | | | | | | 3,052 | |
Amortization of deferred acquisition costs | | | 716 | | | | | | | | | | | | | | | | 716 | |
Non-insurance warranty expense | | | 643 | | | | | | | | | | | | | | | | 643 | |
Operating expenses and other | | | 587 | | | | 426 | | | | 219 | | | | 338 | | | | 1,570 | |
Interest | | | 57 | | | | 81 | | | | 17 | | | | 70 | | | | 225 | |
Total | | | 5,055 | | | | 507 | | | | 236 | | | | 408 | | | | 6,206 | |
Income (loss) before income tax | | | 840 | | | | 177 | | | | (81 | ) | | | 483 | | | | 1,419 | |
Income tax (expense) benefit | | | (160 | ) | | | (45 | ) | | | 17 | | | | (145 | ) | | | (333 | ) |
Net income (loss) | | | 680 | | | | 132 | | | | (64 | ) | | | 338 | | | | 1,086 | |
Amounts attributable to noncontrolling interests | | | (71 | ) | | | | | | | | | | | | | | | (71 | ) |
Net income (loss) attributable to Loews Corporation | | $ | 609 | | | $ | 132 | | | $ | (64 | ) | | $ | 338 | | | $ | 1,015 | |
(c) | Amounts presented for Corporate include the operatingconsolidated results of Altium Packaging through March 31, 2021. Beginning April 1, 2021, Altium Packaging is recorded as an equity method investment. |
Six Months Ended June 30, 2020 | | CNA Financial | | | Boardwalk Pipelines | | | Loews Hotels & Co | | | Corporate (a) | | | Diamond Offshore (b) | | | Total | |
(In millions) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Insurance premiums | | $ | 3,719 | | | | | | | | | | | | | | | $ | 3,719 | |
Net investment income (loss) | | | 863 | | | | | | | | | $ | (56 | ) | | | | | | 807 | |
Investment losses | | | (147 | ) | | | | | | | | | (1,211 | ) | | | | | | (1,358 | ) |
Non-insurance warranty revenue | | | 609 | | | | | | | | | | | | | | | | | 609 | |
Operating revenues and other | | | 13 | | | $ | 637 | | | $ | 176 | | | | 501 | | | $ | 305 | | | | 1,632 | |
Total | | | 5,057 | | | | 637 | | | | 176 | | | | (766 | ) | | | 305 | | | | 5,409 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Insurance claims and policyholders’ benefits | | | 3,067 | | | | | | | | | | | | | | | | | | | | 3,067 | |
Amortization of deferred acquisition costs | | | 686 | | | | | | | | | | | | | | | | | | | | 686 | |
Non-insurance warranty expense | | | 566 | | | | | | | | | | | | | | | | | | | | 566 | |
Operating expenses and other | | | 583 | | | | 421 | | | | 290 | | | | 528 | | | | 1,196 | | | | 3,018 | |
Interest | | | 62 | | | | 83 | | | | 16 | | | | 63 | | | | 43 | | | | 267 | |
Total | | | 4,964 | | | | 504 | | | | 306 | | | | 591 | | | | 1,239 | | | | 7,604 | |
Income (loss) before income tax | | | 93 | | | | 133 | | | | (130 | ) | | | (1,357 | ) | | | (934 | ) | | | (2,195 | ) |
Income tax (expense) benefit | | | (4 | ) | | | (34 | ) | | | 33 | | | | 284 | | | | 26 | | | | 305 | |
Net income (loss) | | | 89 | | | | 99 | | | | (97 | ) | | | (1,073 | ) | | | (908 | ) | | | (1,890 | ) |
Amounts attributable to noncontrolling interests | | | (9 | ) | | | | | | | | | | | | | | | 432 | | | | 423 | |
Net income (loss) attributable to Loews Corporation | | $ | 80 | | | $ | 99 | | | $ | (97 | ) | | $ | (1,073 | ) | | $ | (476 | ) | | $ | (1,467 | ) |
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 Report on Form 10-Q for the quarter ended March 31, 2021 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, 2020.2021. This MD&A is comprised of the following sections:
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OVERVIEW
Loews Corporation is a holding company and has four 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. 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 operating subsidiaries, and the consolidated operations of Altium Packaging LLC (“Altium Packaging”) through March 31, 2021. On April 1, 2021 Loews Corporation sold 47% of its interest in Altium Packaging to GIC, Singapore’s sovereign wealth fund, for $420 million in cash consideration. As a result of the terms of this transaction, Loews Corporation will share certain participating rights with GIC related to capital allocation and other decisions and is required to deconsolidate Altium Packaging as of the 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 andfor Altium Packaging seesubsequent to its deconsolidation on April 1, 2021. For information regarding the deconsolidation of Altium Packaging see Note 2 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report.in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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, the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders and the term “subsidiaries” means Loews Corporation’s consolidated subsidiaries.
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 our shareholders. The ability of our 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(see Note 14 of thethe Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020)2021) 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 six months ended June 30, 20212022 and 2020:2021:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 |
(In millions, except per share data) | | | | | | | | | | | | | (In millions, except per share data) | | | | |
| | | | | | | | | | | | | | | | | |
CNA Financial | | $ | 330 | | | $ | 135 | | | $ | 609 | | | $ | 80 | | CNA Financial | $ | 183 | | | $ | 330 | | $ | 464 | | | $ | 609 | |
Boardwalk Pipelines | | | 47 | | | | 34 | | | | 132 | | | | 99 | | Boardwalk Pipelines | 39 | | | 47 | | 130 | | | 132 | |
Loews Hotels & Co | | | (21 | ) | | | (72 | ) | | | (64 | ) | | | (97 | ) | Loews Hotels & Co | 44 | | | (21) | | 59 | | | (64) | |
Corporate | | | 398 | | | | (908 | ) | | | 338 | | | | (1,073 | ) | Corporate | (86) | | | 398 | | (135) | | | 338 | |
Diamond Offshore | | | | | | | (24 | ) | | | | | | | (476 | ) | |
Net income (loss) attributable to Loews Corporation | | $ | 754 | | | $ | (835 | ) | | $ | 1,015 | | | $ | (1,467 | ) | |
| | | | | | | | | | | | | | | | | |
Basic net income (loss) per share | | $ | 2.87 | | | $ | (2.96 | ) | | $ | 3.83 | | | $ | (5.16 | ) | |
Net income attributable to Loews Corporation | | Net income attributable to Loews Corporation | $ | 180 | | | $ | 754 | | $ | 518 | | | $ | 1,015 | |
| | | | | | | | | | | | | | | | | | | | | |
Diluted net income (loss) per share | | $ | 2.86 | | | $ | (2.96 | ) | | $ | 3.82 | | | $ | (5.16 | ) | |
Basic net income per share | | Basic net income per share | $ | 0.73 | | | $ | 2.87 | | $ | 2.10 | | | $ | 3.83 | |
| | | | | | |
Diluted net income per share | | Diluted net income per share | $ | 0.73 | | | $ | 2.86 | | $ | 2.09 | | | $ | 3.82 | |
Net income attributable to Loews Corporation for the three months ended June 30, 20212022 was $180 million, or $0.73 per share, compared to $754 million, or $2.86 per share compared to a net loss of $835 million, or $2.96 per share in the comparable 20202021 period. Net income attributable to Loews Corporation for the six months ended June 30, 20212022 was $518 million, or $2.09 per share, compared to $1.0 billion, or $3.82 per share compared to a net loss of $1.5 billion, or $5.16 per share in the comparable 20202021 period.
The three and six months ended June 30, 2021 includeCorporate segment includes a gain of $438 million (after tax) related to the sale of 47% of Altium Packaging and its deconsolidation on April 1, 2021. The three and six months ended June 30, 2020 included a loss of $957 million (after tax) related to the bankruptcy filing and deconsolidation of Diamond Offshore. Excluding these significant transactions, net income for the second quarter of 2021 would have been $316 million compared to $122 million in the second quarter of 2020.
The increase2021. Excluding this significant transaction, the decrease in net income attributable to Loews Corporation for the three months ended June 30, 20212022 as compared to the comparable prior year period, excluding these significant transactions, was primarily driven by CNA, which reported lower net catastrophe losses, improved net investment income from limited partnership and higher propertycommon stock investments and casualty underwriting results before net catastrophe losses and prior year development. Boardwalk Pipelines also contributed positively as revenues from recently completed growth projects increased from the second quarter of 2020. Loews Hotels & Co posted improved year-over-year second quarter results due to the strong rebound in travel to resort destinations. The Parent Company investment portfolio experienced lower net investment incomelosses recognized in the second quarter of 20212022 compared to net investment gains in the comparable prior year period. This decline was partially offset by higher property & casualty underwriting income and higher net investment income from fixed income securities at CNA and significantly improved results at Loews Hotels & Co.
The drivers of the improveddecrease in net income for the six months ended June 30, 20212022 as compared to the comparable 20202021 period are consistent with the three-month discussion above. In addition, during the first six months of 2020, Diamond Offshore recognized drilling rig impairment charges of $408 million (after tax and noncontrolling interests) and operating losses of $68 million (after tax and noncontrolling interests). CNA posted net investment gains during the first six months of 2021 compared to net investment losses in the comparable prior year period, and the Parent Company investment portfolio experienced higher net investment income during the first six months of 2021 compared to the comparable prior year period.
CNA Financial
The following table summarizes the results of operations for CNA for the three and six months ended June 30, 20212022 and 20202021 as presented in Note 11 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 | | | Six Months Ended | | | Three Months Ended | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | | | | | | | | (In millions) | | | | |
| | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | Revenues: | | | | |
Insurance premiums | | $ | 2,035 | | | $ | 1,850 | | | $ | 3,997 | | | $ | 3,719 | | Insurance premiums | $ | 2,155 | | | $ | 2,035 | | $ | 4,214 | | | $ | 3,997 | |
Net investment income | | | 591 | | | | 534 | | | | 1,095 | | | | 863 | | Net investment income | 432 | | | 591 | | 880 | | | 1,095 | |
Investment gains (losses) | | | 38 | | | | 69 | | | | 95 | | | | (147 | ) | Investment gains (losses) | (59) | | | 38 | | (70) | | | 95 | |
Non-insurance warranty revenue | | | 359 | | | | 308 | | | | 697 | | | | 609 | | Non-insurance warranty revenue | 392 | | | 359 | | 774 | | | 697 | |
Other revenues | | | 6 | | | | 5 | | | | 11 | | | | 13 | | Other revenues | 6 | | | 6 | | 13 | | | 11 | |
Total | | | 3,029 | | | | 2,766 | | | | 5,895 | | | | 5,057 | | Total | 2,926 | | | 3,029 | | 5,811 | | | 5,895 | |
Expenses: | | | | | | | | | | | | �� | | | | | Expenses: | | | | |
Insurance claims and policyholders’ benefits | | | 1,546 | | | | 1,642 | | | | 3,052 | | | | 3,067 | | Insurance claims and policyholders’ benefits | 1,583 | | | 1,546 | | 3,038 | | | 3,052 | |
Amortization of deferred acquisition costs | | | 357 | | | | 342 | | | | 716 | | | | 686 | | Amortization of deferred acquisition costs | 374 | | | 357 | | 718 | | | 716 | |
Non-insurance warranty expense | | | 332 | | | | 285 | | | | 643 | | | | 566 | | Non-insurance warranty expense | 367 | | | 332 | | 721 | | | 643 | |
Other operating expenses | | | 302 | | | | 283 | | | | 587 | | | | 583 | | Other operating expenses | 329 | | | 302 | | 655 | | | 587 | |
Interest | | | 29 | | | | 31 | | | | 57 | | | | 62 | | Interest | 28 | | | 29 | | 56 | | | 57 | |
Total | | | 2,566 | | | | 2,583 | | | | 5,055 | | | | 4,964 | | Total | 2,681 | | | 2,566 | | 5,188 | | | 5,055 | |
Income before income tax | | | 463 | | | | 183 | | | | 840 | | | | 93 | | Income before income tax | 245 | | | 463 | | 623 | | | 840 | |
Income tax expense | | | (94 | ) | | | (32 | ) | | | (160 | ) | | | (4 | ) | Income tax expense | (40) | | | (94) | | (105) | | | (160) | |
Net income | | | 369 | | | | 151 | | | | 680 | | | | 89 | | Net income | 205 | | | 369 | | 518 | | | 680 | |
Amounts attributable to noncontrolling interests | | | (39 | ) | | | (16 | ) | | | (71 | ) | | | (9 | ) | Amounts attributable to noncontrolling interests | (22) | | | (39) | | (54) | | | (71) | |
Net income attributable to Loews Corporation | | $ | 330 | | | $ | 135 | | | $ | 609 | | | $ | 80 | | Net income attributable to Loews Corporation | $ | 183 | | | $ | 330 | | $ | 464 | | | $ | 609 | |
Three Months Ended June 30, 20212022 Compared to the Comparable 20202021 Period
Net income attributable to Loews Corporation was $330decreased $147 million for the three months ended June 30, 20212022 as compared with $135 million in the comparable 2020 period. The increase was2021 period primarily due to lower net catastropheinvestment income and investment losses for the three months ended June 30, 2022 as compared with investment gains in the comparable 2021 period. Lower net investment income was from limited partnerships and common stock and lower investment results were driven by the unfavorable change in fair value of $54non-redeemable preferred stock. These decreases to net income were partially offset by improved underwriting results and higher net investment income from fixed income securities for the three months ended June 30, 2022 as compared with the comparable 2021 period. Catastrophe losses were $37 million ($3826 million after tax and noncontrolling interests) for the three months ended June 30, 20212022 as compared to $301with $54 million ($21238 million after tax and noncontrolling interests) in the comparable 20202021 period and improved non-catastrophe current accident year underwriting results. Net catastrophe losses for the three months ended June 30, 2021were primarily related to severe weather-related events. Net catastrophe losses for the three months ended June 30, 2020 included $182 millionweather related to COVID-19, $61 million related to civil unrest and $58 million related primarily to severe weather-related events.
Six Months Ended June 30, 20212022 Compared to the Comparable 20202021 Period
Net income attributable to Loews Corporation was $609decreased $145 million for the six months ended June 30, 20212022 as compared with $80 millionthe comparable 2021 period primarily due to lower net investment income and investment losses for the six months ended June 30, 2022 as compared with investment gains in the comparable 20202021 period. The increaseLower net investment income was primarily duefrom limited partnerships and common stock and lower investment results were driven by the unfavorable change in fair value of non-redeemable preferred stock. These decreases to net income were partially offset by improved current accident year underwriting results and higher net investment income and higher investment gains. Net catastrophefrom fixed income securities for the six months ended June 30, 2022
as compared with the comparable 2021 period. Catastrophe losses were $179$57 million ($12640 million after tax and noncontrolling interests) for the six months ended June 30, 20212022 as compared to $376with $179 million ($265126 million after tax and noncontrolling interests) in the comparable 2020 period. Net catastrophe losses for the six months ended June 30, 2021 period and were primarily related to severe weather-relatedweather related events. Net catastrophe losses for the six months ended June 30, 2020 included $195 million related to COVID-19, $61 million related to civil unrest and $120 million related primarily to severe weather-related events. Higher net investment income was driven by improved limited partnership and common stock returns and higher investment gains were driven by lower impairment losses and the favorable change in fair value of non-redeemable preferred stock for the six months ended June 30, 2021 as compared with the comparable 2020 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 the results of certain property and casualty businesses in run-off, including CNA Re, Asbestos & Environmental Pollutionasbestos and environmental pollution (“A&EP”), a legacy portfolio of excess workers’ compensation (“EWC”) policies and certain legacy mass tort.tort reserves. 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.
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 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 some investors may find this measure is useful for investors to evaluate itsCNA’s 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. As a result, CNA’s written premium production, most notably in Commercial, was impacted by lower levels of retention and new business during the three months ended June 30, 2021. CNA has also incurred additional expenses within Other Insurance Operations related to the cybersecurity attack and expects these expenses may continue. 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.
Catastrophes and Related Reinsurance
Various events can cause catastrophe losses. These events can be natural or man-made, including hurricanes, windstorms, earthquakes, hail, severe winter weather, fires, floods, riots, strikes, civil unrest, cyber attacks, pandemics and acts of terrorism that produce unusually large aggregate losses.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in CNA’s results of operations and/or equity. CNA generally seeks to manage its exposure to catastrophes through the purchase of catastrophe reinsurance and has catastrophe reinsurance treaties that cover property and workers’ compensation losses. CNA conducts an ongoing review of its risk and catastrophe coverages and from time to time makes changes as it deems appropriate. CNA utilizes various reinsurance programs to mitigate catastrophe losses including excess-of-loss occurrence and aggregate treaties covering property and workers’ compensation, and the Terrorism Risk Insurance Program Reauthorization Act of 2019 (“TRIPRA”), as well as individual risk agreements that reinsure from losses from specific classes or lines of business. During the second quarter of 2021, CNA added a quota share treaty to its property reinsurance program, which covers policies written during the treaty term and in-force as of June 1, 2021. As a result of the coverage of in-force policies, net written premiums were reduced by $122 million during the quarter for the one-time catch-up under the treaty of unearned premium on policies previously written as of the June 1, 2021 treaty inception. This ceded premium will earn in future quarters consistent with the underlying gross policies. CNA also renewed its excess-of-loss property catastrophe reinsurance as described below.
Group North American Property Treaty
CNA purchased corporate catastrophe excess-of-loss treaty reinsurance covering its U.S. states and territories and Canadian property exposures underwritten in its North American and European companies. Exposures underwritten through Hardy are excluded. The treaty has a term of June 1, 2021 to June 1, 2022 and provides coverage for the accumulation of covered losses from catastrophe occurrences above CNA’s per occurrence retention of $190 million up to $900 million for all losses other than earthquakes. Earthquakes are covered up to $1.0 billion. Losses stemming from terrorism events are covered unless they are due to a nuclear, biological or chemical attack. All layers of the treaty provide for one full reinstatement.
See the Catastrophes and Related Reinsurance section of our MD&A included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 for further information.
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, excluding rate and exposure changes, 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 partythird-party captives, represents gross written premiums excludingexcludes business which is ceded to third partythird-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 six months endedended June 30, 20212022 and 2020:2021.
Three Months Ended June 30, 2021 | | Specialty | | | Commercial | | | International | | | Total | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | Specialty | | Commercial | | International | | Total |
(In millions, except %) | | | | | | | | | | | | | (In millions, except %) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 1,903 | | | $ | 1,161 | | | $ | 339 | | | $ | 3,403 | | Gross written premiums | $ | 1,904 | | | $ | 1,429 | | | $ | 382 | | | $ | 3,715 | |
Gross written premiums excluding third party captives | | | 897 | | | | 1,060 | | | | 339 | | | | 2,296 | | |
Gross written premiums excluding third-party captives | | Gross written premiums excluding third-party captives | 973 | | | 1,321 | | | 382 | | | 2,676 | |
Net written premiums | | | 786 | | | | 831 | | | | 292 | | | | 1,909 | | Net written premiums | 832 | | | 1,134 | | | 330 | | | 2,296 | |
Net earned premiums | | | 762 | | | | 881 | | | | 266 | | | | 1,909 | | Net earned premiums | 794 | | | 974 | | | 269 | | | 2,037 | |
Net investment income | | | 134 | | | | 174 | | | | 14 | | | | 322 | | Net investment income | 100 | | | 113 | | | 14 | | | 227 | |
Core income | | | 188 | | | | 137 | | | | 26 | | | | 351 | | Core income | 161 | | | 138 | | | 18 | | | 317 | |
| | | | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | | Other performance metrics: | |
Loss ratio excluding catastrophes and development | | | 59.0 | % | | | 60.1 | % | | | 59.0 | % | | | 59.5 | % | Loss ratio excluding catastrophes and development | 58.6 | % | | 61.5 | % | | 58.5 | % | | 60.0 | % |
Effect of catastrophe impacts | | | | | | | 5.8 | | | | 0.8 | | | | 2.8 | | Effect of catastrophe impacts | 0.1 | | | 3.0 | | | 2.8 | | | 1.8 | |
Effect of development-related items | | | (1.3 | ) | | | 0.8 | | | | (0.3 | ) | | | (0.2 | ) | Effect of development-related items | (1.2) | | | (1.8) | | | (1.8) | | | (1.6) | |
Loss ratio | | | 57.7 | % | | | 66.7 | % | | | 59.5 | % | | | 62.1 | % | Loss ratio | 57.5 | % | | 62.7 | % | | 59.5 | % | | 60.2 | % |
Expense ratio | | | 30.0 | | | | 32.3 | | | | 33.5 | | | | 31.6 | | Expense ratio | 30.4 | | | 30.0 | | | 32.1 | | | 30.5 | |
Dividend ratio | | | 0.2 | | | | 0.6 | | | | | | | | 0.3 | | Dividend ratio | 0.2 | | | 0.5 | | | 0.3 | |
Combined ratio | | | 87.9 | % | | | 99.6 | % | | | 93.0 | % | | | 94.0 | % | Combined ratio | 88.1 | % | | 93.2 | % | | 91.6 | % | | 91.0 | % |
Combined ratio excluding catastrophes and development | | | 89.2 | % | | | 93.0 | % | | | 92.5 | % | | | 91.4 | % | Combined ratio excluding catastrophes and development | 89.2 | % | | 92.0 | % | | 90.6 | % | | 90.8 | % |
| | | | | | | | | | | | | | | | | |
Rate | | | 11 | % | | | 8 | % | | | 13 | % | | | 10 | % | Rate | 7 | % | | 5 | % | | 7 | % | | 6 | % |
Renewal premium change | | | 10 | | | | 10 | | | | 14 | | | | 10 | | Renewal premium change | 8 | | | 8 | | | 10 | | | 8 | |
Retention | | | 85 | | | | 81 | | | | 77 | | | | 81 | | Retention | 85 | | | 86 | | | 85 | | | 85 | |
New business | | $ | 121 | | | $ | 201 | | | $ | 71 | | | $ | 393 | | New business | $ | 132 | | | $ | 280 | | | $ | 88 | | | $ | 500 | |
Three Months Ended June 30, 2020 | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | |
| | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 1,762 | | | $ | 1,126 | | | $ | 277 | | | $ | 3,165 | | Gross written premiums | $ | 1,903 | | | $ | 1,161 | | | $ | 339 | | | $ | 3,403 | |
Gross written premiums excluding third party captives | | | 811 | | | | 1,044 | | | | 277 | | | | 2,132 | | |
Gross written premiums excluding third-party captives | | Gross written premiums excluding third-party captives | 897 | | | 1,060 | | | 339 | | | 2,296 | |
Net written premiums | | | 742 | | | | 949 | | | | 239 | | | | 1,930 | | Net written premiums | 786 | | | 831 | | | 292 | | | 1,909 | |
Net earned premiums | | | 705 | | | | 795 | | | | 224 | | | | 1,724 | | Net earned premiums | 762 | | | 881 | | | 266 | | | 1,909 | |
Net investment income | | | 133 | | | | 161 | | | | 14 | | | | 308 | | Net investment income | 134 | | | 174 | | | 14 | | | 322 | |
Core income (loss) | | | 90 | | | | 49 | | | | (14 | ) | | | 125 | | |
Core income | | Core income | 188 | | | 137 | | | 26 | | | 351 | |
| | | | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | | Other performance metrics: | |
Loss ratio excluding catastrophes and development | | | 59.9 | % | | | 58.7 | % | | | 59.9 | % | | | 59.3 | % | Loss ratio excluding catastrophes and development | 59.0 | % | | 60.1 | % | | 59.0 | % | | 59.5 | % |
Effect of catastrophe impacts | | | 15.0 | | | | 19.0 | | | | 19.9 | | | | 17.5 | | Effect of catastrophe impacts | | 5.8 | | | 0.8 | | | 2.8 | |
Effect of development-related items | | | (2.9 | ) | | | (0.3 | ) | | | (1.2 | ) | | | (1.5 | ) | Effect of development-related items | (1.3) | | | 0.8 | | | (0.3) | | | (0.2) | |
Loss ratio | | | 72.0 | % | | | 77.4 | % | | | 78.6 | % | | | 75.3 | % | Loss ratio | 57.7 | % | | 66.7 | % | | 59.5 | % | | 62.1 | % |
Expense ratio | | | 32.0 | | | | 33.9 | | | | 36.7 | | | | 33.6 | | Expense ratio | 30.0 | | | 32.3 | | | 33.5 | | | 31.6 | |
Dividend ratio | | | 0.2 | | | | 0.6 | | | | | | | | 0.3 | | Dividend ratio | 0.2 | | | 0.6 | | | 0.3 | |
Combined ratio | | | 104.2 | % | | | 111.9 | % | | | 115.3 | % | | | 109.2 | % | Combined ratio | 87.9 | % | | 99.6 | % | | 93.0 | % | | 94.0 | % |
Combined ratio excluding catastrophes and development | | | 92.1 | % | | | 93.2 | % | | | 96.6 | % | | | 93.2 | % | Combined ratio excluding catastrophes and development | 89.2 | % | | 93.0 | % | | 92.5 | % | | 91.4 | % |
| | | | | | | | | | | | | | | | | | |
Rate | | | 12 | % | | | 10 | % | | | 15 | % | | | 11 | % | Rate | 12 | % | | 8 | % | | 14 | % | | 10 | % |
Renewal premium change | | | 13 | | | | 9 | | | | 10 | | | | 11 | | Renewal premium change | 12 | | | 10 | | | 14 | | | 11 | |
Retention | | | 86 | | | | 84 | | | | 74 | | | | 83 | | Retention | 85 | | | 80 | | | 77 | | | 81 | |
New business | | $ | 96 | | | $ | 198 | | | $ | 62 | | | $ | 356 | | New business | $ | 121 | | | $ | 201 | | | $ | 71 | | | $ | 393 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2022 | Specialty | | Commercial | | International | | Total |
(In millions, except %) | | | | | | | |
| | | | | | | |
Gross written premiums | $ | 3,750 | | | $ | 2,637 | | | $ | 745 | | | $ | 7,132 | |
Gross written premiums excluding third-party captives | 1,858 | | | 2,527 | | | 745 | | | 5,130 | |
Net written premiums | 1,603 | | | 2,135 | | | 581 | | | 4,319 | |
Net earned premiums | 1,566 | | | 1,878 | | | 533 | | | 3,977 | |
Net investment income | 203 | | | 231 | | | 28 | | | 462 | |
Core income | 324 | | | 270 | | | 44 | | | 638 | |
| | | | | | | |
Other performance metrics: | | | | | | | |
Loss ratio excluding catastrophes and development | 58.7 | % | | 61.5 | % | | 58.6 | % | | 60.0 | % |
Effect of catastrophe impacts | 0.1 | | | 2.4 | | | 2.0 | | | 1.4 | |
Effect of development-related items | (1.3) | | | (0.9) | | | (1.0) | | | (1.0) | |
Loss ratio | 57.5 | % | | 63.0 | % | | 59.6 | % | | 60.4 | % |
Expense ratio | 30.7 | | | 30.3 | | | 32.4 | | | 30.7 | |
Dividend ratio | 0.2 | | | 0.5 | | | | | 0.3 | |
Combined ratio | 88.4 | % | | 93.8 | % | | 92.0 | % | | 91.4 | % |
Combined ratio excluding catastrophes and development | 89.6 | % | | 92.3 | % | | 91.0 | % | | 91.0 | % |
| | | | | | | |
Rate | 8 | % | | 5 | % | | 8 | % | | 6 | % |
Renewal premium change | 9 | | | 8 | | | 10 | | | 9 | |
Retention | 85 | | | 86 | | | 79 | | | 84 | |
New business | $ | 277 | | | $ | 508 | | | $ | 166 | | | $ | 951 | |
| Six Months Ended June 30, 2021 | | Specialty | | | Commercial | | | International | | | Total | | Six Months Ended June 30, 2021 | |
(In millions, except %) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Gross written premiums | | $ | 3,697 | | | $ | 2,274 | | | $ | 682 | | | $ | 6,653 | | Gross written premiums | $ | 3,697 | | | $ | 2,274 | | | $ | 682 | | | $ | 6,653 | |
Gross written premiums excluding third party captives | | | 1,713 | | | | 2,171 | | | | 682 | | | | 4,566 | | |
Gross written premiums excluding third-party captives | | Gross written premiums excluding third-party captives | 1,713 | | | 2,171 | | | 682 | | | 4,566 | |
Net written premiums | | | 1,528 | | | | 1,791 | | | | 527 | | | | 3,846 | | Net written premiums | 1,528 | | | 1,791 | | | 527 | | | 3,846 | |
Net earned premiums | | | 1,497 | | | | 1,736 | | | | 518 | | | | 3,751 | | Net earned premiums | 1,497 | | | 1,736 | | | 518 | | | 3,751 | |
Net investment income | | | 251 | | | | 322 | | | | 28 | | | | 601 | | Net investment income | 251 | | | 322 | | | 28 | | | 601 | |
Core income | | | 358 | | | | 206 | | | | 50 | | | | 614 | | Core income | 358 | | | 206 | | | 50 | | | 614 | |
| | | | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | | Other performance metrics: | |
Loss ratio excluding catastrophes and development | | | 59.2 | % | | | 60.4 | % | | | 59.3 | % | | | 59.8 | % | Loss ratio excluding catastrophes and development | 59.2 | % | | 60.4 | % | | 59.3 | % | | 59.8 | % |
Effect of catastrophe impacts | | | 0.3 | | | | 9.6 | | | | 1.4 | | | | 4.7 | | Effect of catastrophe impacts | 0.3 | | | 9.6 | | | 1.4 | | | 4.7 | |
Effect of development-related items | | | (1.6 | ) | | | 0.7 | | | | (0.2 | ) | | | (0.3 | ) | Effect of development-related items | (1.6) | | | 0.7 | | | (0.2) | | | (0.3) | |
Loss ratio | | | 57.9 | % | | | 70.7 | % | | | 60.5 | % | | | 64.2 | % | Loss ratio | 57.9 | % | | 70.7 | % | | 60.5 | % | | 64.2 | % |
Expense ratio | | | 30.2 | | | | 31.8 | | | | 33.9 | | | | 31.5 | | Expense ratio | 30.2 | | | 31.8 | | | 33.9 | | | 31.5 | |
Dividend ratio | | | 0.2 | | | | 0.6 | | | | | | | | 0.3 | | Dividend ratio | 0.2 | | | 0.6 | | | 0.3 | |
Combined ratio | | | 88.3 | % | | | 103.1 | % | | | 94.4 | % | | | 96.0 | % | Combined ratio | 88.3 | % | | 103.1 | % | | 94.4 | % | | 96.0 | % |
Combined ratio excluding catastrophes and development | | | 89.6 | % | | | 92.8 | % | | | 93.2 | % | | | 91.6 | % | Combined ratio excluding catastrophes and development | 89.6 | % | | 92.8 | % | | 93.2 | % | | 91.6 | % |
| | | | | | | | | | | | | | | | | | |
Rate | | | 11 | % | | | 9 | % | | | 13 | % | | | 10 | % | Rate | 11 | % | | 9 | % | | 14 | % | | 10 | % |
Renewal premium change | | | 10 | | | | 9 | | | | 13 | | | | 10 | | Renewal premium change | 12 | | | 11 | | | 13 | | | 11 | |
Retention | | | 86 | | | | 82 | | | | 75 | | | | 82 | | Retention | 86 | | | 81 | | | 76 | | | 82 | |
New business | | $ | 224 | | | $ | 412 | | | $ | 150 | | | $ | 786 | | New business | $ | 224 | | | $ | 412 | | | $ | 150 | | | $ | 786 | |
Six Months Ended June 30, 2020 | | | | | | | | | | | | |
| | | | | | | | | | | | |
Gross written premiums | | $ | 3,476 | | | $ | 2,188 | | | $ | 584 | | | $ | 6,248 | |
Gross written premiums excluding third party captives | | | 1,552 | | | | 2,103 | | | | 584 | | | | 4,239 | |
Net written premiums | | | 1,436 | | | | 1,899 | | | | 458 | | | | 3,793 | |
Net earned premiums | | | 1,390 | | | | 1,613 | | | | 463 | | | | 3,466 | |
Net investment income | | | 189 | | | | 203 | | | | 29 | | | | 421 | |
Core income (loss) | | | 186 | | | | 72 | | | | (12 | ) | | | 246 | |
| | | | | | | | | | | | | | | | |
Other performance metrics: | | | | | | | | | | | | | | | | |
Loss ratio excluding catastrophes and development | | | 59.7 | % | | | 59.7 | % | | | 60.1 | % | | | 59.8 | % |
Effect of catastrophe impacts | | | 8.2 | | | | 12.8 | | | | 11.9 | | | | 10.9 | |
Effect of development-related items | | | (2.3 | ) | | | (0.1 | ) | | | (0.7 | ) | | | (1.1 | ) |
Loss ratio | | | 65.6 | % | | | 72.4 | % | | | 71.3 | % | | | 69.6 | % |
Expense ratio | | | 32.1 | | | | 33.6 | | | | 36.1 | | | | 33.2 | |
Dividend ratio | | | 0.2 | | | | 0.6 | | | | | | | | 0.4 | |
Combined ratio | | | 97.9 | % | | | 106.6 | % | | | 107.4 | % | | | 103.2 | % |
Combined ratio excluding catastrophes and development | | | 92.0 | % | | | 93.9 | % | | | 96.2 | % | | | 93.4 | % |
| | | | | | | | | | | | | | | | |
Rate | | | 11 | % | | | 9 | % | | | 12 | % | | | 10 | % |
Renewal premium change | | | 12 | | | | 9 | | | | 9 | | | | 10 | |
Retention | | | 85 | | | | 85 | | | | 72 | | | | 82 | |
New business | | $ | 170 | | | $ | 396 | | | $ | 130 | | | $ | 696 | |
Three Months Ended June 30, 20212022 Compared to the Comparable 20202021 Period
Gross written premiums, excluding third partythird-party captives, for Specialty increased $86$76 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period driven by rate and higher new business and strong rate.business. Net written premiums for Specialty increased $44$46 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period. The increase in net earned premiums for the three months ended June 30, 20212022 was consistent with the trend in net written premiums for Specialty.
Gross written premiums for Commercial increased $35$268 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period driven by higher new business and rate.retention. Net written premiums for Commercial decreased $118increased $303 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period. The prior period driven by the impact of the June 1, 2021included a one-time written premium catch-up resulting from the addition of thea quota share treaty to theCNA’s property reinsurance program. For further discussion of the reinsurance programs, see the Catastrophes and Related Reinsurance section of this MD&A. Excluding the impact of the June 1, 2021 written premium catch-up in the prior period, net written premiums decreased $6increased $191 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period. WrittenPrior period written premiums were also unfavorably impacted by lower levels of retention and new business during the period related to the network disruption and impact to certain of CNA’s systems from the March 2021 cybersecurity attack. Net earned premiums for Commercial increased $86 million for the three months ended June 30, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the three months ended June 30, 20212022 was partially impacted by a reductionconsistent with the trend in estimated auditnet written premiums related to COVID-19 in the second quarter of 2020 for Commercial.
Gross written premiums for International increased $62$43 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period. Excluding the effect of foreign currency exchange rates, gross written premiums increased $37$59 million driven by higher new businessretention and rate. Net written premiums for International increased $53$38 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period. Excluding the effect of foreign currency exchange rates, net written premiums increased $31$52 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period. The increase in net earned premiums for the three months ended June 30, 20212022 was consistent with the trend in net written premiums for International.
Total coreCore income increased $226for Property & Casualty Operations decreased $34 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period primarily due to lower net catastrophe lossesinvestment income driven by limited partnership and common stock results, partially offset by improved non-catastrophe current accident year underwriting results.
Total net catastrophe losses were $54$37 million for the three months ended June 30, 20212022 as compared with $301$54 million infor the comparable 20202021 period. For the three months ended June 30, 20212022 and 2020,2021, Specialty had net$1 million of catastrophe losses, Commercial had catastrophe losses of $1$29 million and $105 million, Commercial had net catastrophe losses of $51 million and $151 million and International had net catastrophe losses of $2$7 million and $45$2 million.
Favorable net prior year loss reserve development of $11$37 million and $28$11 million was recorded for the three months ended June 30, 20212022 and 2020.2021. For the three months ended June 30, 20212022 and 2020,2021, Specialty recorded favorable net prior year loss reserve development of $10 million and $20in each period, Commercial recorded favorable net prior year loss reserve development of $22 million Commercial recordedand no net prior year loss reserve development and International recorded favorable net prior year loss reserve development of $5 million and International recorded favorable net prior year loss reserve development of $1 million and $3 million. Further information on net prior year loss reserve development is included in Note 54 of the Notes to Consolidated Condensed Financial Statements included under Item 1.1 of this Report.
Specialty’s combined ratio improved 16.3increased 0.2 points for the three months ended June 30, 20212022 as compared with the comparable 20202021 period due to a 14.30.4 point increase in the expense ratio partially offset by a 0.2 point improvement in the loss ratio. The increase in the expense ratio was driven by higher underwriting expenses partially offset by lower acquisition costs. The improvement in the loss ratio was primarily driven by improved non-catastrophe current accident year underwriting results.
Commercial’s combined ratio improved 6.4 points for the three months ended June 30, 2022 as compared with the comparable 2021 period primarily due to a 4.0 point improvement in the loss ratio and a 2.02.3 point improvement in the expense ratio. The improvement in the loss ratio was driven by lower net catastrophe losses, which had a minimal impact on the loss ratio for the three months ended June 30, 2021 as compared with being 15.0 points of the loss ratio for 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.
Commercial’s combined ratio improved 12.3 points for the three months ended June 30, 2021 as compared with the comparable 2020 period. The loss ratio improved 10.7 points driven by lower net catastrophe losses which were 5.83.0 points of the loss ratio for the three months ended June 30, 20212022, as compared with 19.05.8 points of the loss ratio in the comparable 2020 period.2021 period and favorable net prior year loss reserve development. The combined ratio excluding catastrophes and development improved 0.21.0 point for the three months ended June 30, 2022 as compared with the comparable 2021 period. The improvement in the expense ratio of 2.3 points was driven by lower acquisition costs and higher net earned premium partially offset by an increase in underwriting expenses. The loss ratio excluding catastrophes and development increased 1.4 points primarily driven by a shift in mix of business associated with the property quota share treaty purchased during June of 2021. Property coverages, which have a lower underlying loss ratio than most other commercial coverages, now represent a smaller proportion of net earned premiums.
International’s combined ratio improved 1.4 points for the three months ended June 30, 20212022 as compared with the comparable 20202021 period reflectingdue to a 1.61.4 point improvement in the expense ratio driven by lower acquisition costs. The loss ratio for the three months ended June 30, 2022 was consistent with the comparable 2021 period as favorable net prior year loss reserve development and improved non-catastrophe current accident year underwriting results were offset by higher catastrophe losses. Catastrophe losses were 2.8 points of the loss ratio for the three months ended June 30, 2022, as compared with 0.8 points of the loss ratio in the comparable 2021 period.
Six Months Ended June 30, 2022 Compared to the Comparable 2021 Period
Gross written premiums, excluding third-party captives, for Specialty increased $145 million for the six months ended June 30, 2022 as compared with the comparable 2021 period driven by rate and higher new business. Net written premiums for Specialty increased $75 million for the six months ended June 30, 2022 as compared with the comparable 2021 period. The increase in net earned premiums for the six months ended June 30, 2022 was consistent with the trend in net written premiums for Specialty.
Gross written premiums for Commercial increased $363 million for the six months ended June 30, 2022 as compared with the comparable 2021 period driven by higher new business and retention. Net written premiums for Commercial increased $344 million for the six months ended June 30, 2022 as compared with the comparable 2021 period. The prior period included a one-time written premium catch-up resulting from the addition of a quota share treaty to CNA’s property reinsurance program. Excluding the impact of the prior period written premium catch-up, net written premiums increased $232 million for the six months ended June 30, 2022 as compared with the comparable 2021 period. The increase in net earned premiums for the six months ended June 30, 2022 was consistent with the trend in net written premiums for Commercial.
Gross written premiums for International increased $63 million for the six months ended June 30, 2022 as compared with the comparable 2021 period. Excluding the effect of foreign currency exchange rates, gross written premiums increased $90 million driven by retention and rate. Net written premiums for International increased $54 million for the six months ended June 30, 2022 as compared with the comparable 2021 period. Excluding the effect of foreign currency exchange rates, net written premiums increased $78 million for the six months ended June 30, 2022 as compared with the comparable 2021 period. The increase in net earned premiums for the six months ended June 30, 2022 was consistent with the trend in net written premiums for International.
Core income for Property & Casualty Operations increased $24 million for the six months ended June 30, 2022 as compared with the comparable 2021 period primarily due to improved underwriting results largely offset by lower net investment income driven by limited partnership and common stock results.
Total catastrophe losses were $57 million for the six months ended June 30, 2022 as compared with $179 million for the comparable 2021 period. For the six months ended June 30, 2022 and 2021, Specialty had catastrophe losses of $1 million and $6 million, Commercial had catastrophe losses of $45 million and $166 million and International had catastrophe losses of $11 million and $7 million.
Favorable net prior year loss reserve development of $49 million and $26 million was recorded for the six months ended June 30, 2022 and 2021. For the six months ended June 30, 2022 and 2021, Specialty recorded favorable net prior year loss reserve development of $20 million and $25 million, Commercial recorded favorable net prior year loss reserve development of $24 million and no net prior year loss reserve development and International recorded favorable net prior year loss reserve development of $5 million and $1 million. Further information on net prior year loss reserve development is included in Note 4 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report.
Specialty’s combined ratio increased 0.1 point for the six months ended June 30, 2022 as compared with the comparable 2021 period due to a 0.5 point increase in the expense ratio largely offset by a 1.40.4 point increaseimprovement in the loss ratio excluding catastrophes and development.ratio. The improvementincrease in the expense ratio was primarily due todriven by higher underwriting expenses partially offset by higher net earned premiums. The increaseimprovement in the loss ratio excluding catastrophes and development was primarily driven by lowerimproved current accident year underwriting results. Catastrophe losses were 0.1 point of the loss frequency as a result of shelter in place restrictions in the second quarter of 2020.
International’s combined ratio improved 22.3 points for the threesix months ended June 30, 2022, as compared with 0.3 points of the loss ratio in the comparable 2021 period.
Commercial’s combined ratio improved 9.3 points for the six months ended June 30, 2022 as compared with the comparable 20202021 period primarily due to a 19.17.7 point improvement in the loss ratio and a 3.21.5 point improvement in the expense ratio. The improvement in the loss ratio was driven by lower net catastrophe losses which were 0.8 points of the loss ratio for the three months ended June 30, 2021 as compared with 19.9 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 higher net earned premiums and lower acquisition costs.
Six Months Ended June 30, 2021 Compared to the Comparable 2020 Period
Gross written premiums, excluding third party captives, for Specialty increased $161 million for the six months ended June 30, 2021 as compared with the comparable 2020 period driven by higher new business and strong rate. Net written premiums for Specialty increased $92 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the six months ended June 30, 2021 was consistent with the trend in net written premiums for Specialty.
Gross written premiums for Commercial increased $86 million for the six months ended June 30, 2021 as compared with the comparable 2020 period driven by higher new business and rate. Net written premiums for Commercial decreased $108 million for the six months ended June 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 $4 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. Net earned premiums for Commercial increased $123 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the six months ended June 30, 2021 was partially impacted by a reduction in estimated audit premiums related to COVID-19 in the second quarter of 2020 for Commercial.
Gross written premiums for International increased $98 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. Excluding the effect of foreign currency exchange rates, gross written premiums increased $57 million driven by higher new business and rate. Net written premiums for International increased $69 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. Excluding the effects of foreign currency exchange rates, net written premiums increased $34 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the six months ended June 30, 2021 was consistent with the trend in net written premiums for International.
Total core income increased $368 million for the six months ended June 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 $179 million for the six months ended June 30, 2021 as compared with $376 million in the comparable 2020 period. For the six months ended June 30, 2021 and 2020, Specialty had net catastrophe losses of $6 million and $113 million, Commercial had net catastrophe losses of $166 million and $208 million and International had net catastrophe losses of $7 million and $55 million.
Favorable net prior year loss reserve development of $26 million and $43 million was recorded for the six months ended June 30, 2021 and 2020. For the six months ended June 30, 2021 and 2020, Specialty recorded favorable net prior year loss reserve development of $25 million and $31 million, Commercial recorded no net prior year loss reserve development and favorable net prior loss reserve development of $9 million and International recorded favorable net prior year loss reserve development of $1 million and $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.
Specialty’s combined ratio improved 9.6 points for the six months ended June 30, 2021 as compared with the comparable 2020 period due to a 7.7 point improvement in the loss ratio and a 1.9 point improvement in the expense ratio. The improvement in the loss ratio was primarily due to lower net catastrophe losses, which were 0.32.4 points of the loss ratio for the six months ended June 30, 20212022, as compared with 8.29.6 points of the loss ratio in the comparable 20202021 period, and improved non-catastrophe current accidentfavorable net prior year underwriting results.loss reserve development. The improvement in the expense ratio was driven by higher net earned premiums and a favorable acquisition ratio.
Commercial’s combined ratio excluding catastrophes and development improved 3.50.5 points for the six months ended June 30, 2021 as compared to the comparable 2020 period due to a 1.8 point improvement in the expense ratio and a 1.7 point improvement in the loss ratio. The improvement in the expense ratio was primarily due to higher net earned premiums and a favorable acquisition ratio. The improvement in the loss ratio was driven by lower net catastrophe losses, which were 9.6 points of the loss ratio for the six months ended June 30, 2021 as compared with 12.8 points of the loss ratio in the comparable 2020 period.
International’s combined ratio improved 13.0 points for the six months ended June 30, 20212022 as compared with the comparable 2020 period due to a 10.8 point improvement in the loss ratio and a 2.2 point improvement in the expense ratio.2021 period. The improvement in the loss ratio was driven by lower net catastrophe losses, which were 1.4 points
improvement in the expense ratio was driven by lower acquisition costs and higher net earned premiums partially offset by an increase in underwriting expenses. The loss ratio excluding catastrophes and development increased 1.1 points primarily driven by a shift in mix of business associated with the property quota share treaty purchased during June of 2021. Property coverages, which have a lower underlying loss ratio than most other commercial coverages, now represent a smaller proportion of net earned premiums.
International’s combined ratio improved 2.4 points for the six months ended June 30, 2022 as compared with the comparable 2021 period due to a 1.5 point improvement in the expense ratio and a 0.9 point improvement in the loss ratio. The improvement in the expense ratio was driven by lower acquisition costs. The improvement in the loss ratio was driven by favorable net prior year loss reserve development and improved non-catastrophe current accident year underwriting results, partially offset by higher net catastrophe losses. Catastrophe losses were 2.0 points of the loss ratio for the six months ended June 30, 2022, as compared with 1.4 points of the loss ratio in the comparable 2021 period.
Other Insurance Operations
The following table summarizes the results of CNA’s Other Insurance Operations for the three and six months ended June 30, 20212022 and 2020:2021.
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | | | | | | | | (In millions) | | | | |
| | | | | | | | | | | | | | | | | |
Net earned premiums | | $ | 126 | | | $ | 126 | | | $ | 246 | | | $ | 253 | | Net earned premiums | $ | 118 | | | $ | 126 | | $ | 238 | | | $ | 246 | |
Net investment income | | | 269 | | | | 226 | | | | 494 | | | | 442 | | Net investment income | 205 | | | 269 | | 418 | | | 494 | |
Core loss | | | (10 | ) | | | (26 | ) | | | (10 | ) | | | (39 | ) | Core loss | (72) | | | (10) | | (77) | | | (10) | |
Three Months Ended June 30, 20212022 Compared to the Comparable 20202021 Period
Core results improved $16for Other Insurance Operations decreased $62 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period primarily due to higherlower net investment income driven by returns in the limited partnership portfolio, and better than expected morbidity in the long term care business, partially offset by unfavorable persistency in the long term care business. Core resultsa $51 million charge for the three months ended June 30, 2021 also include2022 related to unfavorable net prior year loss reserve development related tolargely associated with legacy mass tort exposures of $40 millionabuse claims as compared with $50a $32 million charge in the comparable 20202021 period. Net prior year loss reserve development is further discussed in Note 54 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Core results for the three months ended June 30, 2021 also include additional expenses related to the March 2021 cybersecurity attack.
Six Months Ended June 30, 20212022 Compared to the Comparable 20202021 Period
Core results improved $29for Other Insurance Operations decreased $67 million for the six months ended June 30, 20212022 as compared with the comparable 20202021 period primarily due to higherlower net investment income driven by returns in the limited partnership portfolio, better than expected morbidity in the long term care business and lower unfavorablehigher net prior year loss reserve development onassociated with legacy mass tort exposures.abuse claims. These improvementsresults were partially offset by unfavorable persistency in the long term care business, lower amortization of the deferred gain related to the A&EP Loss Portfolio Transfer (“LPT”) and theprior period recognition of a $12 million loss resulting from the legacy excess workers’ compensation loss portfolio transfer (“EWC LPT”) in the 2021 period. For further information on the A&EP LPT, EWC LPT and net. Net prior year loss reserve development seeis further discussed in Note 54 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Core results for the six months ended June 30, 2021 also include additional expenses related to the March 2021 cybersecurity attack.
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 thethe three and six months ended June 30, 20212022 and 2020:2021:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | | | | | | | | (In millions) | | | | |
| | | | | | | | | | | | | | | | | |
Core income (loss): | | | | | | | | | | | | | Core income (loss): | | | | |
Property & Casualty Operations | | $ | 351 | | | $ | 125 | | | $ | 614 | | | $ | 246 | | Property & Casualty Operations | $ | 317 | | | $ | 351 | | $ | 638 | | | $ | 614 | |
Other Insurance Operations | | | (10 | ) | | | (26 | ) | | | (10 | ) | | | (39 | ) | Other Insurance Operations | (72) | | | (10) | | (77) | | | (10) | |
Total core income | | | 341 | | | | 99 | | | | 604 | | | | 207 | | Total core income | 245 | | | 341 | | 561 | | | 604 | |
Investment gains (losses) | | | 27 | | | | 53 | | | | 76 | | | | (117 | ) | Investment gains (losses) | (40) | | | 27 | | (43) | | | 76 | |
Consolidating adjustments including noncontrolling interests | | | (38 | ) | | | (17 | ) | | | (71 | ) | | | (10 | ) | Consolidating adjustments including noncontrolling interests | (22) | | | (38) | | (54) | | | (71) | |
Net income attributable to Loews Corporation | | $ | 330 | | | $ | 135 | | | $ | 609 | | | $ | 80 | | Net income attributable to Loews Corporation | $ | 183 | | | $ | 330 | | $ | 464 | | | $ | 609 | |
Boardwalk Pipelines
A significant portion of Boardwalk Pipelines’ revenues areis fee-based, being derived from capacity reservation charges under firm agreements with customers, which do not vary significantly period to period, but are impacted by longer term trends in its business such as lowerchanges in pricing on contract renewals and other factors. Boardwalk Pipelines’ operating costs and expenses do not vary significantly based upon the amount of products 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, 2020.2021.
The following table summarizes the results of operations for Boardwalk Pipelines for the three and six months ended June 30, 20212022 and 20202021, as presented in Note 11 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report:Report.Boardwalk Pipelines also utilizes earnings before interest, income tax expense, depreciation and amortization (“EBITDA”), a non-GAAP measure, as a financial measure to assess its operating and financial performance and return on invested capital. Management believes some investors may find this measure useful in evaluating Boardwalk Pipelines’ performance.
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | |
Operating revenues and other | | $ | 312 | | | $ | 296 | | | $ | 684 | | | $ | 637 | |
Total | | | 312 | | | | 296 | | | | 684 | | | | 637 | |
Expenses: | | | | | | | | | | | | | | | | |
Operating and other | | | 209 | | | | 210 | | | | 426 | | | | 421 | |
Interest | | | 40 | | | | 41 | | | | 81 | | | | 83 | |
Total | | | 249 | | | | 251 | | | | 507 | | | | 504 | |
Income before income tax | | | 63 | | | | 45 | | | | 177 | | | | 133 | |
Income tax expense | | | (16 | ) | | | (11 | ) | | | (45 | ) | | | (34 | ) |
Net income attributable to Loews Corporation | | $ | 47 | | | $ | 34 | | | $ | 132 | | | $ | 99 | |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | |
| | | | | | |
Revenues: | | | | | | |
Operating revenues and other | $ | 325 | | | $ | 312 | | $ | 706 | | | $ | 684 | |
Total | 325 | | | 312 | | 706 | | | 684 | |
Expenses: | | | | | | |
Operating and other: | | | | | | |
Operating costs and expenses | 132 | | | 116 | | 254 | | | 241 | |
Depreciation and amortization | 99 | | | 93 | | 194 | | | 185 | |
Interest | 42 | | | 40 | | 84 | | | 81 | |
Total | 273 | | | 249 | | 532 | | | 507 | |
Income before income tax | 52 | | | 63 | | 174 | | | 177 | |
Income tax expense | (13) | | | (16) | | (44) | | | (45) | |
Net income attributable to Loews Corporation | $ | 39 | | | $ | 47 | | $ | 130 | | | $ | 132 | |
| | | | | | |
EBITDA | $ | 193 | | | $ | 196 | | $ | 452 | | | $ | 443 | |
Three Months Ended June 30, 20212022 Compared to the Comparable 20202021 Period
Net income attributable to Loews Corporation decreased $8 million for the three months ended June 30, 2022 as compared with the comparable 2021 period. EBITDA decreased $3 million for the three months ended June 30, 2022 as compared with the comparable 2021 period.
Total revenues increased $13 million for the three months ended June 30, 2022 as compared with the comparable 2021 period. Including the items in fuel and transportation expense, operating revenues increased $9 million, primarily driven by an increase in storage and parking and lending revenues of $5 million due to favorable market conditions and an increase in transportation revenues of $4 million due to recently completed growth projects.
Operating costs and expenses increased $16 million for the three months ended June 30, 20212022 as compared with the comparable 2020 period2021 period. Excluding items offset with operating revenues, operating costs and expenses increased $12 million, primarily driven by revenuesdue to increased costs from recently completed growth projects.maintenance projects associated with the requirements of the Pipeline and Hazardous Materials Safety Administration Mega Rule (“PHMSA Mega Rule”).
OperatingDepreciation and interestamortization expenses were essentially flatincreased $6 million for the three months ended June 30, 20212022 as compared with the comparable 2020 period.
Six Months Ended June 30, 2021 Compared to the Comparable 2020 Period
Total revenues increased $47 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. Including fuel and transportation expense, net operating revenues increased $44 million primarily driven by recently completed growth projects and higher system utilization from colder winter weather experienced during the first quarter of 2021, partially offset by higher fuel and transportation expense.
Operating expenses increased $5 million for the six months ended June 30, 2021 as compared with the comparable 2020 period. Excluding fuel and transportation expense which was offset with operating revenues, operating expenses increased $2 million, primarilyperiod due to an increased asset base from recently completed growth projects.projects and a change in the estimated life of certain assets.
Interest expenseexpenses increased $2 million for the three months ended June 30, 2022 as compared with the comparable 2021 period, primarily due to higher average outstanding long-term debt.
Six Months Ended June 30, 2022 Compared to the Comparable 2021 Period
Net income attributable to Loews Corporation decreased $2 million for the six months ended June 30, 20212022 as compared with the comparable 20202021 period. EBITDA increased $9 million for the six months ended June 30, 2022 as compared with the comparable 2021 period.
Total revenues increased $22 million for the six months ended June 30, 2022 as compared with the comparable 2021 period, primarily driven by an increase in transportation revenues of $16 million due to recently completed growth projects and an increase in storage and parking and lending revenues of $6 million due to favorable market conditions.
Operating costs and expenses increased $13 million for the six months ended June 30, 2022 as compared with the comparable 2021 period primarily due to lower average interest ratesincreased costs from maintenance projects associated with the requirements of the PHMSA Mega Rule.
Depreciation and loweramortization expenses increased $9 million for the six months ended June 30, 2022 as compared with the comparable 2021 period due to an increased asset base from recently completed growth projects and a change in the estimated life of certain assets.
Interest expense increased $3 million for the six months ended June 30, 2022 as compared with the comparable 2021 period primarily due to higher average outstanding long term debt balances.long-term debt.
Non-GAAP Reconciliation of Net Income attributable to Loews Corporation to EBITDA
The following table for Boardwalk Pipelines presents a reconciliation of net income attributable to Loews Corporation to EBITDA for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | |
| | | | | | |
| | | | | | |
Net income attributable to Loews Corporation | $ | 39 | | | $ | 47 | | $ | 130 | | | $ | 132 | |
Income tax expense | 13 | | | 16 | | 44 | | | 45 | |
Depreciation and amortization | 99 | | | 93 | | 194 | | | 185 | |
Interest | 42 | | | 40 | | 84 | | | 81 | |
EBITDA | $ | 193 | | | $ | 196 | | $ | 452 | | | $ | 443 | |
Loews Hotels & Co
The following table summarizes the results of operations for Loews Hotels & Co for the three and six months ended June 30, 20212022 and 20202021, as presented in Note 11 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report:Report.
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | |
Operating revenue | | $ | 76 | | | $ | 9 | | | $ | 115 | | | $ | 118 | |
Gain on sale of hotel | | | | | | | 13 | | | | | | | | 13 | |
Revenues related to reimbursable expenses | | | 22 | | | | 12 | | | | 40 | | | | 45 | |
Total | | | 98 | | | | 34 | | | | 155 | | | | 176 | |
Expenses: | | | | | | | | | | | | | | | | |
Operating and other: | | | | | | | | | | | | | | | | |
Operating | | | 80 | | | | 50 | | | | 138 | | | | 166 | |
Asset impairments | | | | | | | 20 | | | | | | | | 20 | |
Reimbursable expenses | | | 22 | | | | 12 | | | | 40 | | | | 45 | |
Depreciation | | | 16 | | | | 16 | | | | 32 | | | | 30 | |
Equity (income) loss from joint ventures | | | (3 | ) | | | 25 | | | | 9 | | | | 29 | |
Interest | | | 9 | | | | 8 | | | | 17 | | | | 16 | |
Total | | | 124 | | | | 131 | | | | 236 | | | | 306 | |
Loss before income tax | | | (26 | ) | | | (97 | ) | | | (81 | ) | | | (130 | ) |
Income tax benefit | | | 5 | | | | 25 | | | | 17 | | | | 33 | |
Net loss attributable to Loews Corporation | | $ | (21 | ) | | $ | (72 | ) | | $ | (64 | ) | | $ | (97 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | |
| | | | | | |
Revenues: | | | | | | |
Operating revenue | $ | 168 | | | $ | 76 | | $ | 291 | | | $ | 115 | |
| | | | | | |
| | | | | | |
Revenues related to reimbursable expenses | 32 | | | 22 | | 61 | | | 40 | |
Total | 200 | | | 98 | | 352 | | | 155 | |
Expenses: | | | | | | |
Operating and other: | | | | | | |
Operating | 123 | | | 80 | | 231 | | | 138 | |
Asset impairment | 14 | | | | 14 | | | |
Reimbursable expenses | 32 | | | 22 | | 61 | | | 40 | |
Depreciation and amortization expense | 16 | | | 16 | | 31 | | | 32 | |
Equity (income) loss from joint ventures | (53) | | | (3) | | (79) | | | 9 | |
Interest | 4 | | | 9 | | 8 | | | 17 | |
Total | 136 | | | 124 | | 266 | | | 236 | |
Income (loss) before income tax | 64 | | | (26) | | 86 | | | (81) | |
Income tax (expense) benefit | (20) | | | 5 | | (27) | | | 17 | |
Net income (loss) attributable to Loews Corporation | $ | 44 | | | $ | (21) | | $ | 59 | | | $ | (64) | |
Net income (loss) attributable to Loews Hotels & Co’s results have been significantly impactedCorporation improved by the COVID-19 pandemic. 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 and all hotels have resumed operations by June 30, 2021. During 2021, occupancy restrictions due to social distancing have lessened and occupancy rates have gradually improved since the second quarter of 2020, with hotel properties located in resort destinations improving faster than hotel properties located in urban centers. However total occupancy levels for Loews Hotels & Co’s hotel properties have not yet reached pre-pandemic levels.
The resumption of operations and associated occupancy improvement have resulted in the increase in operating revenues of $67$65 million and the increase in operating expenses of $30 million for the three months ended June 30, 2021 as compared with the comparable 2020 period, when operations were significantly impacted by the pandemic. Pre-pandemic operating results prior to mid-March 2020 and the impact of measures to adjust the operating cost structure of each hotel during the COVID-19 pandemic while hotel operations were suspended drove the decrease in operating revenues of $3 million and the decrease in operating expenses of $28 million for the six months ended June 30, 2021 as compared with the comparable 2020 period.
Equity (income) loss from joint ventures improved $28 million and $20$123 million for the three and six months ended June 30, 20212022 as compared to the comparable prior year periods.
Loews Hotels & Co’s results significantly improved for the three and six months ended June 30, 2022 as compared with the comparable 20202021 periods drivenas overall travel demand and resulting business levels were considerably higher in 2022. Travel, particularly to resort destinations, has significantly rebounded from the impacts of the COVID-19 pandemic causing overall occupancy rates to improve.
Operating revenues improved by the resumption of operations and associated occupancy improvement at all joint venture hotels. All eight Universal Orlando hotel properties were open and operational for the first time by June 30, 2021. In addition, pre-opening costs included in equity (income) loss from joint ventures decreased $2$92 million and $7$176 million and operating expenses increased by $43 million and $93 million for the three and six months ended June 30, 20212022 as compared with the comparable 20202021 periods. The increase in operating revenues was driven by stronger occupancy levels and higher average daily rates at many hotels in 2022 as compared to 2021. Operating expenses have likewise increased to support the higher demand levels and resumption of additional pre-pandemic services.
Loews Hotels & Co considers events or changesEquity (income) loss from joint ventures improved $50 million and $88 million for the three and six months ended June 30, 2022 as compared with the comparable 2021 periods. This improvement was the result of having all 9,000 rooms available at the Universal Orlando Resort in circumstances that indicate the carrying amountfirst half of its assets may not be recoverable. 2022 along with greater occupancy levels and higher average daily rates, particularly at the Universal Orlando Resort.
During the second quarter of 2020,2022, Loews Hotels & Co recorded an impairment chargescharge of $20$14 million to reduce the carrying value of certain assetsan asset to theirits estimated fair value.
Loews Hotels & Co recorded a gain of $13Interest expense decreased $5 million onand $9 million for the salethree and six months ended June 30, 2022 as compared with the comparable 2021 periods due primarily to the increase in fair value of an owned hotelinterest rate cap that was executed in the secondfirst quarter of 2020.2022, higher capitalized interest on a project under development, and lower average debt balances.
Corporate
Corporate operations consist primarily of investment income, interest expense and administrative costs at the Parent 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 resultsconsolidated operations of Altium Packaging through March 31, 2021 and the equity loss related to the Parent Company’s equity method investment inof accounting for Altium Packaging beginningsubsequent to its deconsolidation 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 for more information.2021.
The following table summarizes the results of operations for Corporate for the three and six months ended June 30, 20212022 and 20202021 as presented in Note 11 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | | | | | | | | (In millions) | | | | |
| | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | Revenues: | | | | |
Net investment income (loss) | | $ | 24 | | | $ | 110 | | | $ | 70 | | | $ | (56 | ) | Net investment income (loss) | $ | (65) | | | $ | 24 | | $ | (81) | | | $ | 70 | |
Investment gains (losses) | | | 540 | | | | (1,211 | ) | | | 540 | | | | (1,211 | ) | |
Investment gains | | Investment gains | | 540 | | | 540 | |
Operating revenues and other | | | | | | | 244 | | | | 281 | | | | 501 | | Operating revenues and other | 2 | | | 2 | | | 281 | |
Total | | | 564 | | | | (857 | ) | | | 891 | | | | (766 | ) | Total | (63) | | | 564 | | (79) | | | 891 | |
Expenses: | | | | | | | | | | | | | | | | | Expenses: | | | | |
Operating and other | | | 30 | | | | 260 | | | | 338 | | | | 528 | | Operating and other | 23 | | | 30 | | 45 | | | 338 | |
Interest | | | 22 | | | | 32 | | | | 70 | | | | 63 | | Interest | 22 | | | 22 | | 44 | | | 70 | |
Total | | | 52 | | | | 292 | | | | 408 | | | | 591 | | Total | 45 | | | 52 | | 89 | | | 408 | |
Income (loss) before income tax | | | 512 | | | | (1,149 | ) | | | 483 | | | | (1,357 | ) | Income (loss) before income tax | (108) | | | 512 | | (168) | | | 483 | |
Income tax (expense) benefit | | | (114 | ) | | | 241 | | | | (145 | ) | | | 284 | | Income tax (expense) benefit | 22 | | | (114) | | 33 | | | (145) | |
Net income (loss) attributable to Loews Corporation | | $ | 398 | | | $ | (908 | ) | | $ | 338 | | | $ | (1,073 | ) | Net income (loss) attributable to Loews Corporation | $ | (86) | | | $ | 398 | | $ | (135) | | | $ | 338 | |
Net investment incomelosses for the Parent Company decreased $86were $65 million for the three months ended June 30, 2021 as compared with the comparable 2020 period, primarily due to lower results from equity based investments in the Parent Company trading portfolio. Net investment income for the Parent Company for the six months ended June 30, 2021 was $70 million as compared with a loss of $56 million for the comparable 2020 period, primarily due to improved results from equity based investments in the Parent Company trading portfolio.
Investment gains of $540and $81 million for the three and six months ended June 30, 2022 as compared with income of $24 million and $70 million for the comparable 2021 periods, primarily due to the decline in fair value of equity based investments.
Investment gains of $540 million for the three and six months ended June 30, 2021 were primarily due to a gain of $555 million ($438 million after tax) on the sale of 47% of Altium Packaging. Investment loss of $1.2 billion ($957 million after tax) for the threePackaging and six months ended June 30, 2020 was due to the loss recognized upon deconsolidation of Diamond Offshore as a result of its Chapter 11 Filing.on April 1, 2021.
Operating revenues and other include Altium Packaging revenues of $280 million for 2021, prior to its deconsolidation on April 1, 2021, and $244 million and $500 million for the three and six months ended June 30, 2020.
Operating and other expenses decreased by $230 million and $190 million for the three and six months ended June 30, 2021 as compared with the comparable 2020 periods primarily due to the deconsolidationinclude $280 million of consolidated operating revenues for Altium Packaging as the three and six months ended June 30, 2020 included $236 million and $482 million of through March 31, 2021.
Operating and other expenses for Altium Packaging. Operating and other expenses also include legal and administrative costs at the Parent Company. In addition, pursuant to the deconsolidation of Altium Packaging, the related equity loss for the three months ended June 30, 2021 related to the Parent Company’s investment in Altium Packaging is included in Operating and other expenses.
Interest expenses decreased $10$7 million for the three months ended June 30, 20212022 as compared with the comparable 20202021 period, primarily due to lower corporate overhead expenses at the deconsolidationParent Company. Operating and other expenses decreased $293 million for the six months ended June 30, 2022 as compared with the comparable 2021 period, primarily due to $279 million of operating expenses for Altium Packaging asthrough March 31, 2021 prior to its deconsolidation and use of the threeequity method for Altium Packaging since its deconsolidation. In addition, there were lower corporate overhead and legal expenses at the Parent Company for the six months ended June 30, 2020 included $11 million of interest expense for Altium packaging. 2022 as compared with the comparable 2021 period.
Interest expenses increased $7decreased $26 million for the six months ended June 30, 20212022 as compared with the comparable 20202021 period primarily due to the May of 2020 issuance of the Parent Company’s $500 million 3.2% senior notes andconsolidated interest expenses for Altium Packaging through March 31, 2021, which included 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, partially offset by the deconsolidation of Altium Packaging as of April 1, 2021.debt.
Income tax expense was $114of $114 million and $145$145 million for the three and six months ended June 30, 2021 as compared with an income tax benefit of $241 million and $284 million for the comparable 2020 periods. The income tax expense for the three and six months ended June 30, 2021 is primarily due to includes the recognition of $117 million of taxes on the investment gain related to the sale of 47% of Altium Packaging. The income tax
expense for the six months ended June 30, 2021 also includesincluded 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 three and six months ended June 30, 2020 is primarily due to the recognition of taxes on the investment loss related to the deconsolidationsale of Diamond Offshore.
Diamond Offshore
Amounts presented for Diamond Offshore for the three and six months ended June 30, 2020 reflect the periods prior to its deconsolidation in the second quarter of 2020. Contract drilling revenues were $69 million and $287 million for the three and six months ended June 30, 2020 and Contract drilling expenses were $69 million and $254 million for the three and six months ended June 30, 2020. Operating and other expenses for the six months ended June 30, 2020 included 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.Altium Packaging.
LIQUIDITY AND CAPITAL RESOURCES
Parent Company
Parent Company cash and investments, net of receivables and payables, totaled $3.9$3.5 billion at June 30, 20212022 as compared to $3.5$3.4 billion at December 31, 2020.2021. During the six months ended June 30, 2021, 2022, we received $367$681 million in cash dividends from CNA, including a special cash dividend of $182$486 million. We also received a $199 million dividend from Altium Packaging in February of 2021. Cash outflows during the six months ended June 30, 2021 2022 included the payment of $484$380 million to fund treasury stock purchases, $33$31 million of cash dividends to our shareholders and $32$33 million of cash contributions to Loews Hotels & Co. On April 1, 2021, Loews Corporation sold its 47% interest in Altium Packaging to GIC and received $420 million 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 Statementshelf registration statement on file with the Securities and Exchange Commission (“SEC”) registering the future sale of an unlimitedunspecified amount of our debt, and equity or hybrid securities from time to time. We are not responsible for the liabilities and obligations of our subsidiaries and there are no Parent Company guarantees.
Depending on market and other conditions, we may purchase our shares and shares of our subsidiaries’subsidiaries outstanding common stock in the open market, in privately negotiated transactions or otherwise. During the six months ended June 30, 2021,2022, we purchased 9.56.3 million shares of Loews Corporation common stock. As of July 30, 2021,29, 2022, we had purchased an additional 2.61.3 million shares of Loews Corporation common stock in 20212022 at an additional aggregate cost of $140$75 million. As of July 30, 2021,29, 2022, there were 257,273,034240,947,343 shares of Loews Corporation common 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
CNA’s cash provided by operating activities was $685 million$1.3 billion for the six months ended June 30, 20212022 and $650$685 million for the comparable 20202021 period. The increase in cash provided by operating activities was driven by lower net claim payments and an increase in premiums collected, largely offset by the prior year payment of the EWC LPT premium. For further information on the EWC LPT see Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1.
CNA paid cash dividends of $1.51$2.80 per share on its common stock, including a special cash dividend of $0.75$2.00 per share, during the six months ended June 30, 2021.2022. On July 30, 2021,29, 2022, CNA’s Board of Directors declared a quarterly cash dividend of $0.38$0.40 per share payable September 2, 20211, 2022 to shareholders of record on August 16, 2021.15, 2022. 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. CNA believes that its present cash flows from operating, investing and financing activities are sufficient to fund its current and expected working capital and debt obligation needs and does not expect this to change in the near term.
Dividends to CNA 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 June 30, 2021,2022, CCC was in a positive earned surplus position. CCC paid dividends of $480$690 million and $815$480 million during the six months ended June 30, 20212022 and 2020.2021. 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.
CNA has an effective shelf registration statement on file with the SEC under which it may publicly issue an unspecified amount of debt, equity or hybrid securities from time to time.
Boardwalk Pipelines’ cash provided by operating activities increased $26$35 million for the six months ended June 30, 2021 as2022 compared to the comparable 20202021 period, primarily due to the change in net income.timing of receivables and prepaids.
For the six months ended June 30, 20212022 and 2020,2021, Boardwalk Pipelines’ capital expenditures were $138$122 million and $246$138 million, consisting primarily of a combination of growth capital expenditures of $76 million and $86 million and maintenance capital.capital
expenditures of $39 million and $52 million. During the six months ended June 30, 2022, Boardwalk Pipelines entered into an amended revolving credit agreementalso spent $7 million on natural gas to decrease the borrowing capacity from $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’ election. As of June 30, 2021, Boardwalk Pipelines had no outstanding borrowings underused in its revolving credit facility.integrated natural gas pipeline system.
Boardwalk Pipelines anticipates that its existing capital resources, including its cash on hand, revolving credit facility and cash flows from operating activities, will be adequate to fund its operations and capital expenditures for 2021.2022 and to retire the outstanding $300 million aggregate principal amount of its 3.4% senior notes due in February of 2023. Boardwalk Pipelines also has an effective shelf registration statement on file with the SEC under which it may publicly issue $1.0 billion of debt securities, warrants or rights from time to time.In February of 2022, Boardwalk Pipelines completed a public offering of $500 million aggregate principal amount of its 3.6% senior notes due September 1, 2032, which utilized $500 million of capacity under its shelf registration statement. Boardwalk Pipelines used the proceeds to retire the outstanding $300 million aggregate principal amount of its 4.0% senior notes due June 2022 in March of 2022, to fund growth capital expenditures and for general corporate purposes.
CertainIn June of 2022, Boardwalk Pipelines’ revolving credit facility was amended to, among other things, extend the maturity date by one year to May 27, 2027, while preserving the two one-year extensions that can be exercised at Boardwalk Pipelines’ election and complete a full transition to interest rates based on the term Secured Overnight Financing Rate (“SOFR”). As of June 30, 2022, Boardwalk Pipelines had no outstanding borrowings and all of the hotels wholly or partially owned by$1.0 billion available borrowing capacity under its revolving credit facility.
As of June 30, 2022, 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 financialthrough its subsidiaries, has loans that mature within twelve months 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; and/or (3) defer certain interest and/or principal payments while the hotels operations were temporarily suspended or significantly impacted by a decline in occupancy. Loews Hotels & Co also continues to workis actively working with lenders onto refinance $13 million in current maturities of long term debt. Extending these loans, that are being reviewed for extension. These discussionsalong with lenders are ongoing andcertain loans of unconsolidated joint venture partnerships, may require Loews Hotels & Co to make principal paydownspay downs, establish restricted cash reserves or provide guaranties of a subsidiary’s debt to otherwise avoid an event of default.debt. Through the date of this Report, none of Loews Hotels & Co is notCo’s subsidiaries are in default on any of itstheir loans.
Through July 29, 2022, Loews Hotels & Co received capital contributions of $32$33 million from Loews Corporation during the six months ended June 30, 2021. Additional funding from Loews Corporation during the remainder of 2021 may be needed and will depend on numerous factors, including how quickly properties are able to return to sustainable operating levels as well as any strategically alignedfund development opportunities.projects.
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. TheseCertain of these types of Parent Company investments generally have greater volatility, less liquidity and greater risk than fixed income investments and are included within Results of Operations – Corporate.
The Parent Company enters into short sales and invests in certain derivative instruments that are used for asset and liability management activities, income enhancements to its 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. The risk of non-performance is mitigated by monitoring the creditworthiness of counterparties and diversifying derivatives by using multiple counterparties. Collateral is occasionally required 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.
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 | | | Six Months Ended | | | Three Months Ended | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | | | | | | | | (In millions) | | | | |
| | | | | | | | | | | | | | | | | |
Fixed income securities: | | | | | | | | | | | | | Fixed income securities: | | | | |
Taxable fixed income securities | | $ | 356 | | | $ | 360 | | | $ | 715 | | | $ | 731 | | Taxable fixed income securities | $ | 385 | | | $ | 356 | | $ | 753 | | | $ | 715 | |
Tax-exempt fixed income securities | | | 79 | | | | 80 | | | | 159 | | | | 158 | | Tax-exempt fixed income securities | 66 | | | 79 | | 139 | | | 159 | |
Total fixed income securities | | | 435 | | | | 440 | | | | 874 | | | | 889 | | Total fixed income securities | 451 | | | 435 | | 892 | | | 874 | |
Limited partnership and common stock investments | | | 156 | | | | 84 | | | | 217 | | | | (41 | ) | Limited partnership and common stock investments | (15) | | | 156 | | (7) | | | 217 | |
Other, net of investment expense | | | | | | | 10 | | | | 4 | | | | 15 | | Other, net of investment expense | (4) | | | (5) | | | 4 | |
Net investment income | | $ | 591 | | | $ | 534 | | | $ | 1,095 | | | $ | 863 | | Net investment income | $ | 432 | | | $ | 591 | | $ | 880 | | | $ | 1,095 | |
| | | | | | | | | | | | | | | | | |
Effective income yield for the fixed income securities portfolio | | | 4.3 | % | | | 4.6 | % | | | 4.4 | % | | | 4.6 | % | |
Limited partnership and common stock return | | | 8.3 | % | | | 5.0 | % | | | 12.1 | % | | | (2.3 | )% | |
| | | | | | | | | | | | | | | | | | | | |
Effective income yield for the fixed income securities portfolio | 4.3 | % | | 4.3 | % | 4.3 | % | | 4.4 | % |
Limited partnership and common stock return | (0.7)% | | 8.3 | % | (0.3)% | | 12.1 | % |
CNA’s net investment income decreased $159 million and $215 million for the three and six months ended June 30, 2021 increased $57 million and $232 million2022 as compared with the comparable 20202021 periods, driven by unfavorable limited partnership and common stock returns.results, partially offset by higher income from fixed income securities.
Investment Gains (Losses)
The components of CNA’s investment gains (losses) are presented in the following table:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | 2021 | 2022 | | 2021 |
(In millions) | | | | | | | | | | | | | (In millions) | | | | |
| | | | | | | | | | | | | | | | | |
Investment gains (losses): | | | | | | | | | | | | | Investment gains (losses): | | | | |
Fixed maturity securities: | | | | | | | | | | | | | Fixed maturity securities: | | | | |
Corporate and other bonds | | $ | 43 | | | $ | (40 | ) | | $ | 79 | | | $ | (119 | ) | Corporate and other bonds | $ | (30) | | | $ | 43 | | $ | (27) | | | $ | 79 | |
States, municipalities and political subdivisions | | | | | | | 33 | | | | (1 | ) | | | 33 | | States, municipalities and political subdivisions | 19 | | | 22 | | | (1) | |
Asset-backed | | | (12 | ) | | | 24 | | | | (9 | ) | | | 28 | | Asset-backed | (4) | | | (12) | | (12) | | | (9) | |
Total fixed maturity securities | | | 31 | | | | 17 | | | | 69 | | | | (58 | ) | Total fixed maturity securities | (15) | | | 31 | | (17) | | | 69 | |
Non-redeemable preferred stock | | | 17 | | | | 63 | | | | 19 | | | | (70 | ) | Non-redeemable preferred stock | (71) | | | 17 | | (109) | | | 19 | |
Short term and other | | | (10 | ) | | | (11 | ) | | | 7 | | | | (19 | ) | Short term and other | 27 | | | (10) | | 56 | | | 7 | |
Total investment gains (losses) | | | 38 | | | | 69 | | | | 95 | | | | (147 | ) | Total investment gains (losses) | (59) | | | 38 | | (70) | | | 95 | |
Income tax (expense) benefit | | | (11 | ) | | | (16 | ) | | | (19 | ) | | | 30 | | Income tax (expense) benefit | 19 | | | (11) | | 27 | | | (19) | |
Amounts attributable to noncontrolling interests | | | (3 | ) | | | (6 | ) | | | (8 | ) | | | 12 | | Amounts attributable to noncontrolling interests | 4 | | | (3) | | 4 | | | (8) | |
Investment gains (losses) attributable to Loews Corporation | | $ | 24 | | | $ | 47 | | | $ | 68 | | | $ | (105 | ) | Investment gains (losses) attributable to Loews Corporation | $ | (36) | | | $ | 24 | | $ | (39) | | | $ | 68 | |
CNA’s investment gains (losses)results decreased $31$97 million and $165 million for the three and six months ended June 30, 20212022 as compared with the comparable 2020 period2021 periods, driven by the less favorable change in fair value of non-redeemable preferred stock partially offset by lower impairment losses.
CNA’s investment gains (losses) increased $242 million for the six months ended June 30, 2021 as compared with the comparable 2020 period driven by lower impairment losses and the favorableunfavorable change in fair value of non-redeemable preferred stock.
Further information on CNA’s investment gains and losses is set forth in Note 32 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:
| | June 30, 2021 | | | December 31, 2020 | |
| | | | | Net | | | | | | Net | |
| | | | | Unrealized | | | | | | Unrealized | |
| | Estimated | | | Gains | | | Estimated | | | Gains | |
| | Fair Value | | | (Losses) | | | Fair Value | | | (Losses) | |
(In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | |
U.S. Government, Government agencies and Government-sponsored enterprises | | $ | 3,162 | | | $ | 59 | | | $ | 3,672 | | | $ | 117 | |
AAA | | | 3,866 | | | | 408 | | | | 3,627 | | | | 454 | |
AA | | | 7,458 | | | | 920 | | | | 7,159 | | | | 1,012 | |
A | | | 9,440 | | | | 1,219 | | | | 9,543 | | | | 1,390 | |
BBB | | | 18,558 | | | | 2,376 | | | | 18,007 | | | | 2,596 | |
Non-investment grade | | | 2,426 | | | | 147 | | | | 2,623 | | | | 149 | |
Total | | $ | 44,910 | | | $ | 5,129 | | | $ | 44,631 | | | $ | 5,718 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| 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 | $ | 2,455 | | | $ | (217) | | | $ | 2,600 | | | $ | 42 | |
AAA | 2,644 | | | (87) | | | 3,784 | | | 360 | |
AA | 7,136 | | | (335) | | | 7,665 | | | 823 | |
A | 8,825 | | | (195) | | | 9,511 | | | 1,087 | |
BBB | 16,317 | | | (784) | | | 18,458 | | | 2,043 | |
Non-investment grade | 2,008 | | | (207) | | | 2,362 | | | 91 | |
Total | $ | 39,385 | | | $ | (1,825) | | | $ | 44,380 | | | $ | 4,446 | |
As of June 30, 20212022 and December 31, 2020, 2% and2021, 1% of CNA’s fixed maturity portfolio was rated internally. AAA rated securities included $1.9$0.6 billion and $1.8$1.7 billion of pre-refunded municipal bonds as of June 30, 20212022 and December 31, 2020.2021.
The following table presents CNA’s available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution:
| | | | | Gross | | | | | | | | | | | |
| | Estimated | | | Unrealized | | |
June 30, 2021 | | Fair Value | | | Losses | | |
June 30, 2022 | | June 30, 2022 | Estimated Fair Value | | Gross Unrealized Losses |
(In millions) | | | | | | | (In millions) | | | |
| | | | | | | | | | |
U.S. Government, Government agencies and Government-sponsored enterprises | | $ | 937 | | | $ | 15 | | U.S. Government, Government agencies and Government-sponsored enterprises | $ | 2,150 | | | $ | 223 | |
AAA | | | 171 | | | | 1 | | AAA | 1,232 | | | 205 | |
AA | | | 291 | | | | 6 | | AA | 4,078 | | | 581 | |
A | | | 726 | | | | 14 | | A | 5,454 | | | 493 | |
BBB | | | 685 | | | | 22 | | BBB | 11,806 | | | 1,111 | |
Non-investment grade | | | 327 | | | | 12 | | Non-investment grade | 1,643 | | | 229 | |
Total | | $ | 3,137 | | | $ | 70 | | Total | $ | 26,363 | | | $ | 2,842 | |
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:
| | | | | Gross | | | | | | | | | | | |
| | Estimated | | | Unrealized | | |
June 30, 2021 | | Fair Value | | | Losses | | |
June 30, 2022 | | June 30, 2022 | Estimated Fair Value | | Gross Unrealized Losses |
(In millions) | | | | | | | (In millions) | | | |
| | | | | | | | | | |
Due in one year or less | | $ | 151 | | | $ | 5 | | Due in one year or less | $ | 408 | | | $ | 8 | |
Due after one year through five years | | | 515 | | | | 17 | | Due after one year through five years | 6,043 | | | 272 | |
Due after five years through ten years | | | 1,800 | | | | 30 | | Due after five years through ten years | 10,821 | | | 1,145 | |
Due after ten years | | | 671 | | | | 18 | | Due after ten years | 9,091 | | | 1,417 | |
Total | | $ | 3,137 | | | $ | 70 | | Total | $ | 26,363 | | | $ | 2,842 | |
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.
| June 30, 2021 | | December 31, 2020 |
| Estimated Fair Value | Effective Duration (Years) | | Estimated Fair Value | Effective Duration (Years) |
(In millions of dollars) | | | | | | | |
| | | | | | | |
Investments supporting Other Insurance Operations | $ | 18,551 | 9.3 | | $ | 18,518 | 9.2 |
Other investments | | 28,540 | 4.9 | | | 28,839 | 4.5 |
Total | $ | 47,091 | 6.6 | | $ | 47,357 | 6.3 |
53
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Estimated Fair Value | | Effective Duration (Years) | | Estimated Fair Value | | Effective Duration (Years) |
(In millions of dollars) | | | | | | | |
| | | | | | | |
Investments supporting Other Insurance Operations | $ | 15,433 | | | 9.7 | | $ | 18,458 | | | 9.2 |
Other investments | 25,608 | | | 5.0 | | 28,915 | | | 4.9 |
Total | $ | 41,041 | | | 6.8 | | $ | 47,373 | | | 6.6 |
The effective duration of investments supporting Other Insurance Operations liabilities at June 30, 2022 lengthened as compared with December 31, 2021, reflecting strategic repositioning to capitalize on higher rates and reduce reinvestment risk.
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, 2020.2021.
The carrying value of the components of CNA’s Short term investments are presented in the following table:
| | June 30, | | | December 31, | |
| | 2021 | | | 2020 | |
(In millions) | | | | | | |
| | | | | | |
Short term investments: | | | | | | |
U.S. Treasury securities | | $ | 1,228 | | | $ | 1,702 | |
Other | | | 237 | | | | 205 | |
Total short term investments | | $ | 1,465 | | | $ | 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 or disclosed 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 endedended December 31, 20202021 for further information.
ACCOUNTING STANDARDS UPDATE
In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-12, “Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.” The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. For the Company, this includes CNA’s long term care and fully-ceded single premium immediate annuity business.
The most significant impact will be the effect of updating the discount rate assumption quarterly to reflect an upper-medium grade fixed-income instrument yield, rather than the expected investment portfolio yield. This will be partially offset by the de-recognition of Shadow Adjustments associated with long-duration contracts. The net impact of these changes is expected to be a $2.0 billion - $2.3 billion (after tax and noncontrolling interests) decrease in Accumulated other comprehensive income as of the transition date of January 1, 2021. To illustrate the sensitivity of this adjustment, had the interest rates in effect as of June 30, 2022 been used in the calculation, the transition impact would have been a $0.3 billion - $0.6 billion (after tax and noncontrolling interests) decrease in Accumulated other comprehensive income.
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 subsidiariessubsidiaries’ 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, 2020, Part II, Item 1A, Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and in our and our subsidiaries’ other filings with the SEC, could cause our and our subsidiaries’ 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 and our subsidiaries 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. Quantitative and Qualitative Disclosures about Market Risk.
There were no material changes in our market risk components as ofof June 30, 2021.2022. 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, 20202021 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. 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 ofof June 30, 2021.2022.
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 June 30, 20212022 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. Legal Proceedings.
Information on our legal proceedings is set forth in Note 9 to the Consolidated Condensed Financial Statements included under Part I, Item 1.
Item 1A. Risk Factors.
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, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 include detailed discussionsincludes a discussion of certainmaterial risk factors facing the company. Except as described below, thereCompany. There have been no material changes to thesuch risk factors previously disclosed in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 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 and processing and paying claims and other obligations.
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 shut-down or unavailability of one or more of CNA’s or its vendors’ systems or facilities for these and other reasons could significantly impair CNA’s ability to perform 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 ability 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 March 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. If CNA’s business continuity plans or system security do not sufficiently address these risks, they could have a material adverse effect on CNA’s business, results of operations and financial condition.
Based on the information currently known, CNA does not believe that the March 2021 cybersecurity attack will have a material impact on its business, results of operations or financial condition, but no assurances can be given as it continues to assess the full impact from the incident, including costs, expenses and insurance coverage. CNA 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 losses, as well as significant harm to its reputation.
Any significant breach in CNA’s data security infrastructure 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 risk of a breach can exist whether software services are in CNA’s data centers or CNA uses cloud-based software services.
Such a breach could affect CNA’s data framework or cause a failure to protect the personal information of its customers, claimants or employees, or sensitive and confidential information regarding its business and may result in operational 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 this regard. Any such breach of CNA’s data security infrastructure could have a material adverse effect on its business, results of operations and financial condition.
CNA 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 to 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 result in the loss of business with existing or potential customers, which could adversely impact its business, results of operations and financial condition.
Although CNA maintains cybersecurity insurance coverage insuring against costs resulting from cyber attacks (including the March 2021 attack), it is possible losses may exceed the amount available under CNA’s coverage and/or its coverage policy may not cover all losses. Costs and expenses incurred and likely to be incurred by CNA in connection with the 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 the March 2021 attack or any future incident could occur. Further, both as a result of the March 2021 attack and industry trends generally, the replenishmentdate of CNA’s current policy through the end of the term, as well as future cybersecurity insurance coverage beyond the current term, may be difficult to obtain and will likely only be available at significantly higher cost.this Report.
Based on the information currently known, CNA does not believe that the March 2021 cybersecurity attack will have a material impact on its business, results of operations or financial condition, but no assurances can be given as it continues to assess the full impact from the incident, including costs, expenses and insurance coverage. CNA 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 losses, as well as significant harm to CNA’s reputation.
Risks Related to Us and Our Subsidiaries Generally
Failures or interruptions in or breaches to our or our subsidiaries’ computer systems 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 U.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. For additional information about this CNA incident 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 have experienced cyber attacks and other cyber incidents and expect this to continue. If we and our subsidiaries do not allocate and effectively manage the resources necessary to continue to build and maintain our and their information technology security infrastructure, or if we fail to timely identify or appropriately respond to cyber attacks or other cyber incidents, then this may disrupt our and our subsidiaries’ operations, cause significant damage to our or their assets 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 business functions, resulting in disruption or deterioration in our and our subsidiaries’ operations and business and expose 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 could give rise to legal liability and regulatory action under data protection and privacy laws and regulations, both in the U.S. and foreign jurisdictions.
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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April 1, 2021 - | | | | | | | | | | | | |
April 30, 2021 | | | 599,068 | | | $ | 52.99 | | | | N/A | | | | N/A | |
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May 1, 2021 - | | | | | | | | | | | | | | | | |
May 31, 2021 | | | 949,200 | | | | 58.00 | | | | N/A | | | | N/A | |
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June 1, 2021 - | | | | | | | | | | | | | | | | |
June 30, 2021 | | | 2,396,240 | | | | 55.36 | | | | N/A | | | | N/A | |
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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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April 1, 2022 - April 30, 2022 | 294,349 | | $ | 64.15 | | | N/A | | N/A |
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May 1, 2022 - May 31, 2022 | 1,142,397 | | 62.92 | | | N/A | | N/A |
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June 1, 2022 - June 30, 2022 | 2,766,365 | | 59.04 | | | N/A | | N/A |
Item 6. Exhibits.
| Exhibit | | | | |
Description of Exhibit | Exhibit Number |
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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.
SIGNATURES
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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| LOEWS CORPORATION | |
| (Registrant) | |
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Dated: August 2, 20211, 2022 | | Jane J. Wang | |
| | JANE J. WANG | |
| | Senior Vice President and |
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| | and principal financial officer)
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