CNA Financial 8K Announces Third Quarter 2016 Results | CNA 31 Oct 16

CNA Financial Corporation

Supplemental Financial Information

September 30, 2016

This report is for informational purposes only and includes consolidated financial statements and financial exhibits that are unaudited. This report should be read in conjunction with documents filed with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K.

Table of Contents



	Page
Consolidated Results
Statements of Operations..................................................................................................................................................................................................	1
Components of Income (Loss), Per Share Data and Return on Equity.............................................................................................................................	2
Selected Balance Sheet Data and Statement of Cash Flows Data...................................................................................................................................	3
Property & Casualty - Results of Operations
Property & Casualty...........................................................................................................................................................................................................	4
Specialty............................................................................................................................................................................................................................	5
Commercial.......................................................................................................................................................................................................................	6
International.......................................................................................................................................................................................................................	7
Non-Core - Results of Operations
Life & Group Non-Core......................................................................................................................................................................................................	8
Corporate & Other Non-Core.............................................................................................................................................................................................	9
Investment Information
Investment Summary - Consolidated................................................................................................................................................................................	10
Investment Summary - Property & Casualty and Corporate & Other Non-Core...............................................................................................................	11
Investment Summary - Life & Group Non-Core.................................................................................................................................................................	12
Investments - Fixed Maturity Securities by Credit Rating..................................................................................................................................................	13
Components of Net Investment Income............................................................................................................................................................................	14
Other
Claim & Claim Adjustment Expense Reserve Rollforward................................................................................................................................................	15
Life & Group Non-Core Policyholder Reserves.................................................................................................................................................................	16
Definitions and Presentation..............................................................................................................................................................................................	17

Statements of Operations



Periods ended September 30	Three Months									Nine Months
(In millions)	2016			2015			Change			2016			2015			Change
Revenues:
Net earned premiums	$	1,767		$	1,751		1		%	$	5,196		$	5,173		—		%
Net investment income	524			354			48			1,461			1,412			3
Net realized investment gains (losses):
Other-than-temporary impairment (OTTI) losses	(18		)	(56		)				(56		)	(99		)
Other net realized investment gains (losses)	64			7						82			60
Net realized investment gains (losses)	46			(49		)				26			(39		)
Other revenues	96			97						293			286
Total revenues	2,433			2,153			13			6,976			6,832			2
Claims, Benefits and Expenses:
Insurance claims and policyholders' benefits	1,202			1,200						3,949			4,008
Amortization of deferred acquisition costs	314			319						926			936
Other operating expenses	403			362						1,162			1,061
Interest	39			39						119			117
Total claims, benefits and expenses	1,958			1,920			(2	)		6,156			6,122			(1	)
Income (loss) before income tax	475			233						820			710
Income tax (expense) benefit	(132		)	(55		)				(202		)	(161		)
Net income (loss)	$	343		$	178		93		%	$	618		$	549		13		%

Components of Income (Loss), Per Share Data and Return on Equity



Periods ended September 30	Three Months							Nine Months
(In millions, except per share data)	2016			2015				2016			2015
Components of Income (Loss)
Net operating income (loss)	$	311		$	210			$	603		$	567
Net realized investment gains (losses)	32			(32		)		15			(18		)
Net income (loss)	$	343		$	178			$	618		$	549

Diluted Earnings (Loss) Per Common Share
Net operating income (loss)	$	1.15		$	0.77			$	2.22		$	2.09
Net realized investment gains (losses)	0.11			(0.11		)		0.06			(0.06		)
Diluted earnings (loss) per share	$	1.26		$	0.66			$	2.28		$	2.03

Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic	270.5			270.3				270.4			270.2
Diluted	271.2			270.8				271.0			270.7

Return on Equity
Net income (loss) ⁽¹⁾	11.4		%	5.8			%	6.9		%	5.8			%
Net operating income (loss) ⁽²⁾	10.5			6.9				6.7			6.1

(1) Annualized net income (loss) divided by the average stockholders' equity including accumulated other comprehensive income (loss) (AOCI) for the period. Average equity including AOCI is calculated using a simple average of the beginning and ending balances for the period.

(2) Annualized net operating income (loss) divided by the average stockholders' equity excluding AOCI for the period. Average equity excluding AOCI is calculated using a simple average of the beginning and ending balances for the period.

Selected Balance Sheet Data and Statement of Cash Flows Data



(In millions, except per share data)	September 30, 2016		December 31, 2015
Total investments	$	46,980	$	44,699
Reinsurance receivables, net of allowance for uncollectible receivables	4,577		4,453
Total assets	56,859		55,045
Insurance reserves	37,753		36,486
Debt	2,709		2,560
Total liabilities	44,664		43,289
Accumulated other comprehensive income (loss) ⁽¹⁾	237		(315		)
Total stockholders' equity	12,195		11,756

Book value per common share	$	45.08	$	43.49
Book value per common share excluding AOCI	$	44.21	$	44.66

Outstanding shares of common stock (in millions of shares)	270.5		270.3

Statutory capital and surplus - Combined Continental Casualty Companies ⁽²⁾	$	10,871	$	10,723



Three months ended September 30	2016			2015
Net cash flows provided (used) by operating activities	$	507		$	505
Net cash flows provided (used) by investing activities	(437		)	(341		)
Net cash flows provided (used) by financing activities	(67		)	(69		)
Net cash flows provided (used) by operating, investing and financing activities	$	3		$	95



Nine months ended September 30	2016			2015
Net cash flows provided (used) by operating activities	$	1,120		$	1,045
Net cash flows provided (used) by investing activities	(604		)	(254		)
Net cash flows provided (used) by financing activities	(605		)	(739		)
Net cash flows provided (used) by operating, investing and financing activities	$	(89	)	$	52

(1) As of September 30, 2016 and December 31, 2015, the net unrealized gains on investments included in AOCI were net of after-tax Shadow Adjustments of $1,681 million and $1,111 million. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group Non-Core segment would result in a premium deficiency if realized, an increase in Insurance reserves are recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).

(2) Statutory capital and surplus as of September 30, 2016 is preliminary.

Property & Casualty - Results of Operations



Periods ended September 30	Three Months											Nine Months
(In millions)	2016				2015				Change			2016				2015				Change
Gross written premiums	$	2,722			$	2,474			10		%	$	8,125			$	7,577			7		%
Net written premiums	1,624				1,529				6			4,917				4,836				2

Net earned premiums	1,633				1,614				1			4,796				4,762				1
Net investment income	328				171							883				860
Other revenues	100				96							291				272
Total operating revenues	2,061				1,881				10			5,970				5,894				1
Insurance claims and policyholders' benefits	900				842							2,864				2,885
Amortization of deferred acquisition costs	314				313							926				917
Other insurance related expenses	261				228							745				688
Other expenses	88				92							274				241
Total claims, benefits and expenses	1,563				1,475				(6	)		4,809				4,731				(2	)
Operating income (loss) before income tax	498				406							1,161				1,163
Income tax (expense) benefit on operating income (loss)	(169		)		(143		)					(396		)		(399		)
Net operating income (loss)	$	329			$	263			25		%	$	765			$	764			—		%

Other Performance Metrics
Underwriting gain (loss)	$	158			$	231			(32	)	%	$	261			$	272			(4	)	%

Loss & LAE ratio	54.7			%	52.1			%	(2.6	)	pts	59.4			%	60.4			%	1.0		pts
Acquisition expense ratio	19.5				19.1				(0.4	)		19.4				19.1				(0.3	)
Underwriting expense ratio	15.7				14.4				(1.3	)		15.5				14.6				(0.9	)
Expense ratio	35.2				33.5				(1.7	)		34.9				33.7				(1.2	)
Dividend ratio	0.5				0.1				(0.4	)		0.3				0.2				(0.1	)
Combined ratio	90.4			%	85.7			%	(4.7	)		94.6			%	94.3			%	(0.3	)
Combined ratio excluding catastrophes and development	97.5			%	95.5			%	(2.0	)	pts	97.8			%	95.9			%	(1.9	)	pts

Net accident year catastrophe losses incurred	$	16			$	14						$	137			$	103
Effect on loss & LAE ratio	1.0			%	0.9			%	(0.1	)	pts	2.8			%	2.1			%	(0.7	)	pts

Net prior year development and other: (favorable) / unfavorable	$	(134	)		$	(175	)					$	(297	)		$	(182	)
Effect on loss & LAE ratio	(8.1		)	%	(10.7		)	%	(2.6	)	pts	(6.0		)	%	(3.7		)	%	2.3		pts

Rate	—			%	1			%	(1	)	pts	—			%	1			%	(1	)	pts
Retention	83				80				3			84				80				4
New business ⁽¹⁾	$	268			$	225			19		%	$	799			$	711			12		%

(1) Beginning in 2016, new business includes Hardy. New business for Hardy was $40 million and $107 million for three and nine months ended September 30, 2016.

Specialty - Results of Operations



Periods ended September 30	Three Months											Nine Months
(In millions)	2016				2015				Change			2016				2015				Change
Gross written premiums	$	1,791			$	1,604			12		%	$	5,120			$	4,619			11		%
Net written premiums	733				707				4			2,108				2,077				1

Net earned premiums	704				706				—			2,088				2,075				1
Net investment income	140				76							380				365
Other revenues	93				86							269				245
Total operating revenues	937				868				8			2,737				2,685				2
Insurance claims and policyholders' benefits	334				308							1,103				1,155
Amortization of deferred acquisition costs	151				150							443				440
Other insurance related expenses	77				67							225				202
Other expenses	78				73							232				209
Total claims, benefits and expenses	640				598				(7	)		2,003				2,006				—
Operating income (loss) before income tax	297				270							734				679
Income tax (expense) benefit on operating income (loss)	(102		)		(91		)					(248		)		(228		)
Net operating income (loss)	$	195			$	179			9		%	$	486			$	451			8		%

Other Performance Metrics
Underwriting gain (loss)	$	142			$	181			(22	)	%	$	317			$	278			14		%

Loss & LAE ratio	46.8			%	43.5			%	(3.3	)	pts	52.6			%	55.5			%	2.9		pts
Acquisition expense ratio	20.0				19.6				(0.4	)		20.0				19.7				(0.3	)
Underwriting expense ratio	12.5				11.2				(1.3	)		12.0				11.2				(0.8	)
Expense ratio	32.5				30.8				(1.7	)		32.0				30.9				(1.1	)
Dividend ratio	0.6				0.1				(0.5	)		0.3				0.2				(0.1	)
Combined ratio	79.9			%	74.4			%	(5.5	)		84.9			%	86.6			%	1.7
Combined ratio excluding catastrophes and development	95.6			%	92.5			%	(3.1	)	pts	94.8			%	93.0			%	(1.8	)	pts

Net accident year catastrophe losses incurred	$	1			$	3						$	14			$	15
Effect on loss & LAE ratio	0.2			%	0.5			%	0.3		pts	0.7			%	0.7			%	—		pts

Net prior year development and other: (favorable) / unfavorable	$	(112	)		$	(132	)					$	(229	)		$	(151	)
Effect on loss & LAE ratio	(15.9		)	%	(18.6		)	%	(2.7	)	pts	(10.6		)	%	(7.1		)	%	3.5		pts

Rate	—			%	1			%	(1	)	pts	1			%	1			%	—		pts
Retention	87				87				—			87				86				1
New business	$	66			$	67			(1	)	%	$	192			$	206			(7	)	%

Commercial - Results of Operations



Periods ended September 30	Three Months											Nine Months
(In millions)	2016				2015				Change			2016				2015				Change
Gross written premiums	$	718			$	674			7		%	$	2,301			$	2,241			3		%
Net written premiums	684				642				7			2,172				2,118				3

Net earned premiums	719				705				2			2,103				2,086				1
Net investment income	175				82							465				455
Other revenues	7				9							21				27
Total operating revenues	901				796				13			2,589				2,568				1
Insurance claims and policyholders' benefits	449				428							1,366				1,394
Amortization of deferred acquisition costs	118				118							351				352
Other insurance related expenses	151				128							422				385
Other expenses	9				10							25				23
Total claims, benefits and expenses	727				684				(6	)		2,164				2,154				—
Operating income (loss) before income tax	174				112							425				414
Income tax (expense) benefit on operating income (loss)	(60		)		(37		)					(145		)		(141		)
Net operating income (loss)	$	114			$	75			52		%	$	280			$	273			3		%

Other Performance Metrics
Underwriting gain (loss)	$	1			$	31			(97	)	%	$	(36	)		$	(45	)		20		%

Loss & LAE ratio	62.2			%	60.6			%	(1.6	)	pts	64.6			%	66.5			%	1.9		pts
Acquisition expense ratio	18.2				17.6				(0.6	)		18.0				17.7				(0.3	)
Underwriting expense ratio	18.9				17.6				(1.3	)		18.7				17.7				(1.0	)
Expense ratio	37.1				35.2				(1.9	)		36.7				35.4				(1.3	)
Dividend ratio	0.5				—				(0.5	)		0.4				0.2				(0.2	)
Combined ratio	99.8			%	95.8			%	(4.0	)		101.7			%	102.1			%	0.4
Combined ratio excluding catastrophes and development	98.7			%	95.6			%	(3.1	)	pts	98.5			%	97.9			%	(0.6	)	pts

Net accident year catastrophe losses incurred	$	12			$	10						$	95			$	83
Effect on loss & LAE ratio	1.6			%	1.4			%	(0.2	)	pts	4.6			%	4.0			%	(0.6	)	pts

Net prior year development and other: (favorable) / unfavorable	$	(5	)		$	(11	)					$	(32	)		$	(1	)
Effect on loss & LAE ratio	(0.5		)	%	(1.2		)	%	(0.7	)	pts	(1.4		)	%	0.2			%	1.6		pts

Rate	—			%	1			%	(1	)	pts	—			%	2			%	(2	)	pts
Retention	83				76				7			84				77				7
New business	$	135			$	135			—		%	$	418			$	422			(1	)	%

International - Results of Operations



Periods ended September 30	Three Months											Nine Months
(In millions)	2016				2015				Change			2016				2015				Change
Gross written premiums	$	213			$	196			9		%	$	704			$	717			(2	)	%
Net written premiums	207				180				15			637				641				(1	)

Net earned premiums	210				203				3			605				601				1
Net investment income	13				13							38				40
Other revenues	—				1							1				—
Total operating revenues	223				217				3			644				641				—
Insurance claims and policyholders' benefits	117				106							395				336
Amortization of deferred acquisition costs	45				45							132				125
Other insurance related expenses	33				33							98				101
Other expenses	1				9							17				9
Total claims, benefits and expenses	196				193				(2	)		642				571				(12	)
Operating income (loss) before income tax	27				24							2				70
Income tax (expense) benefit on operating income (loss)	(7		)		(15		)					(3		)		(30		)
Net operating income (loss)	$	20			$	9			122		%	$	(1	)		$	40			(103	)	%

Other Performance Metrics
Underwriting gain (loss)	$	15			$	19			(21	)	%	$	(20	)		$	39			(151	)	%

Loss & LAE ratio	55.4			%	52.4			%	(3.0	)	pts	65.2			%	55.9			%	(9.3	)	pts
Acquisition expense ratio	22.5				22.8				0.3			21.8				22.0				0.2
Underwriting expense ratio	15.3				15.2				(0.1	)		16.4				15.6				(0.8	)
Expense ratio	37.8				38.0				0.2			38.2				37.6				(0.6	)
Dividend ratio	—				—				—			—				—				—
Combined ratio	93.2			%	90.4			%	(2.8	)		103.4			%	93.5			%	(9.9	)
Combined ratio excluding catastrophes and development	99.7			%	106.0			%	6.3		pts	104.7			%	98.7			%	(6.0	)	pts

Net accident year catastrophe losses incurred	$	3			$	1						$	28			$	5
Effect on loss & LAE ratio	1.5			%	0.3			%	(1.2	)	pts	4.7			%	0.8			%	(3.9	)	pts

Net prior year development and other: (favorable) / unfavorable	$	(17	)		$	(32	)					$	(36	)		$	(30	)
Effect on loss & LAE ratio	(8.0		)	%	(15.9		)	%	(7.9	)	pts	(6.0		)	%	(6.0		)	%	—		pts

Rate	(1		)	%	(1		)	%	—		pts	(1		)	%	(1		)	%	—		pts
Retention	70				75				(5	)		76				77				(1	)
New business ⁽¹⁾	$	67			$	23			191		%	$	189			$	83			128		%

(1) Beginning in 2016, new business includes Hardy. New business for Hardy was $40 million and $107 million for three and nine months ended September 30, 2016.

Life & Group Non-Core - Results of Operations



Periods ended September 30	Three Months									Nine Months
(In millions)	2016			2015			Change			2016			2015			Change
Net earned premiums	$	134		$	137		(2	)	%	$	401		$	412		(3	)	%
Net investment income	192			182						567			540
Other revenues	(4		)	(1		)				(1		)	8
Total operating revenues	322			318			1			967			960			1
Insurance claims and policyholders' benefits	313			361						976			1,045
Amortization of deferred acquisition costs	—			6						—			19
Other insurance related expenses	37			35						101			104
Other expenses	2			1						7			10
Total claims, benefits and expenses	352			403			13			1,084			1,178			8
Operating income (loss) before income tax	(30		)	(85		)				(117		)	(218		)
Income tax (expense) benefit on operating income (loss)	36			55						117			147
Net operating income (loss)	$	6		$	(30	)	120		%	$	—		$	(71	)	N/M		%

Corporate & Other Non-Core - Results of Operations



Periods ended September 30	Three Months									Nine Months
(In millions)	2016			2015			Change			2016			2015			Change
Net earned premiums	$	—		$	—					$	(1	)	$	(1	)
Net investment income	4			1						11			12
Other revenues	—			2						3			6
Total operating revenues	4			3			33		%	13			17			(24	)	%
Insurance claims and policyholders' benefits	(11		)	(3		)				109			78
Amortization of deferred acquisition costs	—			—						—			—
Other insurance related expenses	(3		)	—						(4		)	(2		)
Other expenses	57			45						158			137
Total claims, benefits and expenses	43			42			(2	)		263			213			(23	)
Operating income (loss) before income tax	(39		)	(39		)				(250		)	(196		)
Income tax (expense) benefit on operating income (loss)	15			16						88			70
Net operating income (loss)	$	(24	)	$	(23	)	(4	)	%	$	(162	)	$	(126	)	(29	)	%

Investment Summary - Consolidated



	September 30, 2016					June 30, 2016					December 31, 2015
(In millions)	Carrying Value			Net Unrealized Gains (Losses)		Carrying Value			Net Unrealized Gains (Losses)		Carrying Value		Net Unrealized Gains (Losses)
Fixed maturity securities:
Corporate and other bonds	$	19,818		$	1,831	$	19,214		$	1,591	$	17,760	$	677
States, municipalities and political subdivisions:
Tax-exempt	10,523			1,425		10,774			1,578		10,114		1,076
Taxable	2,978			510		2,999			534		3,060		369
Total states, municipalities and political subdivisions	13,501			1,935		13,773			2,112		13,174		1,445
Asset-backed:
RMBS	5,365			191		5,189			195		5,072		137
CMBS	2,144			80		2,163			83		2,197		43
Other ABS	959			11		931			3		921		(2		)
Total asset-backed	8,468			282		8,283			281		8,190		178
U.S. Treasury and obligations of government-sponsored enterprises	76			8		92			11		67		5
Foreign government	438			23		460			22		346		12
Redeemable preferred stock	20			2		35			2		35		2
Total fixed maturity securities	42,321			4,081		41,857			4,019		39,572		2,319
Equities	116			8		123			6		197		6
Limited partnership investments	2,456			—		2,542			—		2,548		—
Other invested assets	35			—		33			—		44		—
Mortgage loans	629			—		610			—		678		—
Short term investments	1,423			—		1,384			1		1,660		—
Total investments	$	46,980		$	4,089	$	46,549		$	4,026	$	44,699	$	2,325

Net receivable/(payable) on investment activity	$	(98	)			$	(114	)			$	82

Effective portfolio duration (in years)	5.8					5.9					6.2
Weighted average rating of fixed maturity securities	A					A					A

RMBS - Residential mortgage-backed securities

CMBS - Commercial mortgage-backed securities

Other ABS - Other asset-backed securities

Investment Summary - Property & Casualty and Corporate & Other Non-Core



	September 30, 2016					June 30, 2016					December 31, 2015
(In millions)	Carrying Value			Net Unrealized Gains (Losses)		Carrying Value			Net Unrealized Gains (Losses)		Carrying Value		Net Unrealized Gains (Losses)
Fixed maturity securities:
Corporate and other bonds	$	13,701		$	731	$	13,500		$	619	$	12,594	$	96
States, municipalities and political subdivisions:
Tax-exempt	2,543			170		2,554			189		2,441		133
Taxable	1,282			152		1,342			172		1,579		132
Total states, municipalities and political subdivisions	3,825			322		3,896			361		4,020		265
Asset-backed:
RMBS	5,075			183		4,882			184		4,828		131
CMBS	1,990			72		2,003			75		2,038		37
Other ABS	859			9		832			4		837		(1		)
Total asset-backed	7,924			264		7,717			263		7,703		167
U.S. Treasury and obligations of government-sponsored enterprises	51			4		67			7		42		—
Foreign government	438			23		460			22		346		12
Redeemable preferred stock	6			1		13			1		13		1
Total fixed maturity securities	25,945			1,345		25,653			1,273		24,718		541
Equities	60			5		64			3		87		1
Limited partnership investments	2,456			—		2,542			—		2,548		—
Other invested assets	35			—		33			—		44		—
Mortgage loans	557			—		553			—		622		—
Short term investments	1,344			—		1,299			1		1,513		—
Total investments	$	30,397		$	1,350	$	30,144		$	1,277	$	29,532	$	542

Net receivable/(payable) on investment activity	$	(50	)			$	(113	)			$	204

Effective portfolio duration (in years)	4.1					4.1					4.3
Weighted average rating of fixed maturity securities	A					A					A

Investment Summary - Life & Group Non-Core



	September 30, 2016					June 30, 2016						December 31, 2015
(In millions)	Carrying Value			Net Unrealized Gains (Losses)		Carrying Value			Net Unrealized Gains (Losses)			Carrying Value			Net Unrealized Gains (Losses)
Fixed maturity securities:
Corporate and other bonds	$	6,117		$	1,100	$	5,714		$	972		$	5,166		$	581
States, municipalities and political subdivisions:
Tax-exempt	7,980			1,255		8,220			1,389			7,673			943
Taxable	1,696			358		1,657			362			1,481			237
Total states, municipalities and political subdivisions	9,676			1,613		9,877			1,751			9,154			1,180
Asset-backed:
RMBS	290			8		307			11			244			6
CMBS	154			8		160			8			159			6
Other ABS	100			2		99			(1		)	84			(1		)
Total asset-backed	544			18		566			18			487			11
U.S. Treasury and obligations of government-sponsored enterprises	25			4		25			4			25			5
Foreign government	—			—		—			—			—			—
Redeemable preferred stock	14			1		22			1			22			1
Total fixed maturity securities	16,376			2,736		16,204			2,746			14,854			1,778
Equities	56			3		59			3			110			5
Limited partnership investments	—			—		—			—			—			—
Other invested assets	—			—		—			—			—			—
Mortgage loans	72			—		57			—			56			—
Short term investments	79			—		85			—			147			—
Total investments	$	16,583		$	2,739	$	16,405		$	2,749		$	15,167		$	1,783

Net receivable/(payable) on investment activity	$	(48	)			$	(1	)				$	(122	)

Effective portfolio duration (in years)	8.6					8.7						9.6
Weighted average rating of fixed maturity securities	A					A						A

Investments - Fixed Maturity Securities by Credit Rating



September 30, 2016	U.S. Government, Government agencies and Government-sponsored enterprises					AAA					AA					A						BBB					Non-investment grade					Total
(In millions)	Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)			Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)
Corporate and other bonds	$	—		$	—	$	78		$	4	$	701		$	76	$	4,736		$	584		$	12,061		$	1,064	$	2,242		$	103	$	19,818		$	1,831
States, municipalities and political subdivisions:
Tax-exempt	—			—		857			113		5,501			749		3,964			522			130			13		71			28		10,523			1,425
Taxable	—			—		321			39		1,949			320		687			150			21			1		—			—		2,978			510
Total states, municipalities and political subdivisions	—			—		1,178			152		7,450			1,069		4,651			672			151			14		71			28		13,501			1,935
Asset-backed:
RMBS	4,290			158		92			—		47			—		94			(1		)	61			—		781			34		5,365			191
CMBS	56			—		418			18		484			26		326			20			590			13		270			3		2,144			80
Other ABS	—			—		44			—		29			—		455			6			431			5		—			—		959			11
Total asset-backed	4,346			158		554			18		560			26		875			25			1,082			18		1,051			37		8,468			282
U.S. Treasury and obligations of government-sponsored enterprises	76			8		—			—		—			—		—			—			—			—		—			—		76			8
Foreign government	—			—		83			6		304			15		30			2			21			—		—			—		438			23
Redeemable preferred stock	—			—		—			—		—			—		—			—			11			2		9			—		20			2
Total fixed maturity securities	$	4,422		$	166	$	1,893		$	180	$	9,015		$	1,186	$	10,292		$	1,283		$	13,326		$	1,098	$	3,373		$	168	$	42,321		$	4,081

Percentage of total fixed maturity securities	10		%			4		%			21		%			24		%				33		%			8		%			100		%

Components of Net Investment Income



	Consolidated
Periods ended September 30	Three Months							Nine Months
(In millions)	2016			2015				2016			2015
Taxable fixed maturities	$	354		$	346			$	1,048		$	1,040
Tax-exempt fixed maturities	103			103				304			304
Total fixed maturity securities	457			449				1,352			1,344
Limited partnership investments	65			(93		)		97			69
Other, net of investment expense	2			(2		)		12			(1		)
Net investment income	$	524		$	354			$	1,461		$	1,412

Fixed maturity securities, after tax	$	326		$	326			$	973		$	968
Net investment income, after tax	371			265				1,048			1,015

Effective income yield for the fixed maturity securities portfolio, pretax	4.8		%	4.8			%	4.8		%	4.8			%
Effective income yield for the fixed maturity securities portfolio, after tax	3.4			3.5				3.4			3.5



	Property & Casualty and Corporate & Other Non-Core
Periods ended September 30	Three Months							Nine Months
(In millions)	2016			2015				2016			2015
Taxable fixed maturities	$	242		$	242			$	722		$	733
Tax-exempt fixed maturities	21			23				58			66
Total fixed maturity securities	263			265				780			799
Limited partnership investments	65			(93		)		97			69
Other, net of investment expense	4			—				17			4
Net investment income	$	332		$	172			$	894		$	872

Fixed maturity securities, after tax	$	177		$	180			$	529		$	542
Net investment income, after tax	223			119				605			590

Effective income yield for the fixed maturity securities portfolio, pretax	4.3		%	4.3			%	4.3		%	4.3		%
Effective income yield for the fixed maturity securities portfolio, after tax	2.9			2.9				2.9			2.9



	Life & Group Non-Core
Periods ended September 30	Three Months								Nine Months
(In millions)	2016				2015				2016				2015
Taxable fixed maturities	$	112			$	104			$	326			$	307
Tax-exempt fixed maturities	82				80				246				238
Total fixed maturity securities	194				184				572				545
Limited partnership investments	—				—				—				—
Other, net of investment expense	(2		)		(2		)		(5		)		(5		)
Net investment income	$	192			$	182			$	567			$	540

Fixed maturity securities, after tax	$	149			$	146			$	444			$	426
Net investment income, after tax	148				146				443				425

Effective income yield for the fixed maturity securities portfolio, pretax	5.7			%	5.8			%	5.7			%	5.8			%
Effective income yield for the fixed maturity securities portfolio, after tax	4.4				4.6				4.4				4.5

Claim & Claim Adjustment Expense Reserve Rollforward



Three months ended September 30, 2016 (In millions)	Specialty			Commercial			International			P&C Operations			Life & Group Non-Core			Corporate & Other Non-Core			Total Operations
Claim & claim adjustment expense reserves, beginning of period
Gross	$	6,414		$	8,973		$	1,409		$	16,796		$	3,382		$	2,797		$	22,975
Ceded	848			569			123			1,540			278			2,553			4,371
Net	5,566			8,404			1,286			15,256			3,104			244			18,604

Net incurred claim & claim adjustment expenses	330			446			117			893			229			1			1,123
Net claim & claim adjustment expense payments	(416		)	(573		)	(107		)	(1,096		)	(200		)	(8		)	(1,304		)
Foreign currency translation adjustment and other	—			2			(11		)	(9		)	3			(1		)	(7		)

Claim & claim adjustment expense reserves, end of period
Net	5,480			8,279			1,285			15,044			3,136			236			18,416
Ceded	798			600			123			1,521			271			2,464			4,256
Gross	$	6,278		$	8,879		$	1,408		$	16,565		$	3,407		$	2,700		$	22,672



Nine months ended September 30, 2016 (In millions)	Specialty			Commercial			International			P&C Operations			Life & Group Non-Core			Corporate & Other Non-Core			Total Operations
Claim & claim adjustment expense reserves, beginning of period
Gross	$	6,269		$	9,183		$	1,347		$	16,799		$	3,220		$	2,644		$	22,663
Ceded	701			607			128			1,436			290			2,361			4,087
Net	5,568			8,576			1,219			15,363			2,930			283			18,576

Net incurred claim & claim adjustment expenses	1,097			1,357			395			2,849			749			3			3,601
Net claim & claim adjustment expense payments	(1,186		)	(1,656		)	(323		)	(3,165		)	(585		)	(50		)	(3,800		)
Foreign currency translation adjustment and other	1			2			(6		)	(3		)	42			—			39

Claim & claim adjustment expense reserves, end of period
Net	5,480			8,279			1,285			15,044			3,136			236			18,416
Ceded	798			600			123			1,521			271			2,464			4,256
Gross	$	6,278		$	8,879		$	1,408		$	16,565		$	3,407		$	2,700		$	22,672

Life & Group Non-Core Policyholder Reserves



September 30, 2016
(In millions)	Claim and claim adjustment expenses		Future policy benefits		Total
Long term care	$	2,409	$	8,562	$	10,971
Structured settlement annuities	568		—		568
Other	17		—		17
Total	2,994		8,562		11,556
Shadow adjustments	142		2,445		2,587
Ceded reserves	271		212		483
Total gross reserves	$	3,407	$	11,219	$	14,626



December 31, 2015
(In millions)	Claim and claim adjustment expenses		Future policy benefits		Total
Long term care	$	2,229	$	8,335	$	10,564
Structured settlement annuities	581		—		581
Other	21		—		21
Total	2,831		8,335		11,166
Shadow adjustments	99		1,610		1,709
Ceded reserves	290		207		497
Total gross reserves	$	3,220	$	10,152	$	13,372

Definitions and Presentation


•	Collectively, CNA Financial Corporation (CNAF) and its subsidiaries are referred to as CNA or the Company.


•	P&C Operations includes Specialty, Commercial and International.


•	Life & Group Non-Core segment primarily includes the results of long term care businesses that are in run-off.


•	Corporate & Other Non-Core segment primarily includes certain corporate expenses including interest on corporate debt and the results of certain property and casualty business in run-off, including CNA Re and asbestos and environmental pollution. Intersegment eliminations are also included in this segment.


•	Management uses the net operating income (loss) financial measure to monitor the Company’s operations. Please refer to Note O to the Consolidated Financial Statements within the December 31, 2015 Form 10-K for further discussion of this non-GAAP financial measure.


•	Management uses underwriting results to monitor insurance operations. Underwriting results are pretax and are calculated as net earned premiums less total insurance expenses, which includes insurance claims and policyholders' benefits, amortization of deferred acquisition costs and other insurance related expenses.

•

In the evaluation of the results of Specialty, Commercial and International, management uses the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using financial results prepared in accordance with accounting principles generally accepted in the United States of America. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. 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. In addition, management also utilizes rate, retention and new business in evaluating operating trends. Rate represents the average change in price on policies that renew excluding exposure change. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. New business represents premiums from policies written with new customers and additional policies written with existing customers.

•

This financial supplement may also reference or contain financial measures that are not in accordance with GAAP. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio. Net operating income, which is derived from certain income statement amounts, is used by management to monitor performance of the Company's insurance operations. The Company's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk. Based on such analyses, the Company may recognize an other-than-temporary impairment (OTTI) loss on an investment security in accordance with its policy, or sell a security, which may produce realized gains and losses.

•

Net operating income (loss) is calculated by excluding from net income (loss) the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting guidance. The calculation of net operating income excludes net realized investment gains or losses because net realized investment gains or losses are largely discretionary, except for some losses related to OTTI, and are generally driven by economic factors that are not necessarily consistent with key drivers of underwriting performance, and are therefore not considered an indication of trends in insurance operations. Management monitors net operating income (loss) for each business segment to assess segment performance. Presentation of consolidated net operating income (loss) is deemed to be a non-GAAP financial measure. For reconciliations of non-GAAP measures to the most comparable GAAP measures and other information, please refer herein and/or to CNA's most recent 10-K on file with the Securities and Exchange Commission, as well as the press release, available at www.cna.com.


•	Pretax net prior year development and other includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts.

•

The majority of our limited partnership investments employ hedge fund strategies that generate returns primarily through investing in marketable securities in the public fixed income and equity markets. While the Company generally does not invest in highly leveraged partnerships, there are risks which may result in losses due to short-selling, derivatives or other speculative investment practices. The use of leverage increases volatility generated by the underlying investment strategies.


•	Certain immaterial differences are due to rounding.


•	N/M = Not Meaningful

CNA Financial (CNA) 8-KCna Financial Announces Third Quarter 2016 Results