LOEWS CORP 10-Q

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, 2020 and the Consolidated Financial Statements, Risk Factors, and MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2019. This MD&A is comprised of the following sections: Page No. Overview 37 Results of Operations 38 Consolidated Financial Results 38 CNA Financial 39 Boardwalk Pipelines 47 Loews Hotels & Co 50 Corporate 51 Diamond Offshore 52 Liquidity and Capital Resources 52 Parent Company 52 Subsidiaries 52 Investments 54 Critical Accounting Estimates 57 Accounting Standards Update 58 Forward-Looking Statements 58 OVERVIEW Loews Corporation is a holding company and has five 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”); the Corporate segment and Diamond Offshore Drilling Inc. (“Diamond Offshore”). The Corporate segment is primarily comprised of Loews Corporation excluding its subsidiaries and the operations of Altium Packaging LLC (“Altium Packaging”). Diamond Offshore was deconsolidated during the second quarter of 2020. Each of the operating subsidiaries and Diamond Offshore are headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position. On April 26, 2020 (the “Filing Date”), Diamond Offshore and certain of its direct and indirect subsidiaries filed voluntary petitions in the United States Bankruptcy Court for the Southern District of Texas seeking relief under Chapter 11 of the United States Bankruptcy Code (the “Chapter 11 Filing”). As a result of the Chapter 11 Filing and applicable U.S. generally accepted accounting principles, Loews Corporation no longer controls Diamond Offshore for accounting purposes, and therefore, Diamond Offshore was deconsolidated from its consolidated financial statements effective as of the Filing Date. Unless the context otherwise requires, the term “Company” as used herein means Loews Corporation including its subsidiaries, the terms “Parent Company,” “we,” “our,” “us” or like terms as used herein mean Loews Corporation excluding its subsidiaries and the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders. We rely upon our invested cash balances and distributions from our subsidiaries to generate the funds necessary to meet our obligations and to declare and pay any dividends to shareholders. The ability of subsidiaries to pay dividends is subject to, among other things, the availability of sufficient earnings and funds in such subsidiaries, applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies (see Note 14 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2019) 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. 37 Index 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, 2020 and 2019: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (In millions, except per share data) CNA Financial $ 135 $ 249 $ 80 $ 554 Boardwalk Pipelines 34 53 99 132 Loews Hotels & Co (72 ) 12 (97 ) 25 Corporate (908 ) (13 ) (1,073 ) 21 Diamond Offshore (a) (24 ) (52 ) (476 ) (89 ) Net income (loss) attributable to Loews Corporation $ (835 ) $ 249 $ (1,467 ) $ 643 Basic net income (loss) per share $ (2.96 ) $ 0.82 $ (5.16 ) $ 2.10 Diluted net income (loss) per share $ (2.96 ) $ 0.82 $ (5.16 ) $ 2.09 (a) Amounts presented for Diamond Offshore reflect the periods prior to deconsolidation. See Notes 2 and 14 of the Notes to the Consolidated Condensed Financial Statements included under Item 1. Net loss attributable to Loews Corporation for the three months ended June 30, 2020 was $835 million, or $2.96 per share, compared to net income of $249 million, or $0.82 per share in the comparable 2019 period. Net loss attributable to Loews Corporation for the six months ended June 30, 2020 was $1.5 billion, or $5.16 per share, compared to net income of $643 million, or $2.09 per share, in the comparable 2019 period. The net loss for the three months ended June 30, 2020 was driven by (i) the investment loss of $957 million to write down the carrying value of our interest in Diamond Offshore as a result of its bankruptcy filing on April 26, 2020, (ii) significant catastrophe losses at CNA, and (iii) operating losses at Loews Hotels & Co. These factors were partially offset by increased investment income at CNA and the parent company as well as investment gains at CNA. The net loss for the six months ended June 30, 2020 was caused by (i) the investment loss from the write down of our Diamond Offshore carrying value discussed above, (ii) Diamond Offshore drilling rig impairment charges of $408 million in the first quarter of 2020, (iii) catastrophe losses at CNA, (iv) operating losses at Loews Hotels & Co, and (v) investment losses at CNA in 2020 as compared to gains in the first six months of 2019. The economic disruption caused by the coronavirus disease 2019 (“COVID-19”) pandemic and measures to mitigate the spread of the virus significantly affected Loews’s results in the first half of 2020. The full impact of COVID-19 on Loews and our businesses will be dependent on the pandemic’s duration and scope and economic policies and other responses to the pandemic. 38 Index CNA Financial The following table summarizes the results of operations for CNA for the three and six months ended June 30, 2020 and 2019 as presented in Note 14 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 June 30, June 30, 2020 2019 2020 2019 (In millions) Revenues: Insurance premiums $ 1,850 $ 1,824 $ 3,719 $ 3,627 Net investment income 534 515 863 1,086 Investment gains (losses) 69 2 (147 ) 33 Non-insurance warranty revenue 308 285 609 566 Other revenues 5 4 13 13 Total 2,766 2,630 5,057 5,325 Expenses: Insurance claims and policyholders’ benefits 1,642 1,352 3,067 2,709 Amortization of deferred acquisition costs 342 338 686 680 Non-insurance warranty expense 285 263 566 523 Other operating expenses 283 279 583 563 Interest 31 55 62 89 Total 2,583 2,287 4,964 4,564 Income before income tax 183 343 93 761 Income tax expense (32 ) (64 ) (4 ) (141 ) Net income 151 279 89 620 Amounts attributable to noncontrolling interests (16 ) (30 ) (9 ) (66 ) Net income attributable to Loews Corporation $ 135 $ 249 $ 80 $ 554 Three Months Ended June 30, 2020 Compared to 2019 Net income attributable to Loews Corporation was $135 million for the three months ended June 30, 2020 as compared with $249 million in the 2019 period. The decrease was primarily due to net catastrophe losses of $301 million for the three months ended June 30, 2020 as compared to $38 million in the 2019 period and unfavorable net prior year loss reserve development. Net catastrophe losses in 2020 include $182 million related to COVID-19, $61 million related to civil unrest and $58 million related primarily to severe weather-related events. These results were partially offset by favorable net investment income driven by limited partnership and common stock returns, favorable non-catastrophe current accident year underwriting results and higher investment gains. Investment gains were driven by the favorable change in fair value of non-redeemable preferred stock and higher gains on sales of fixed maturity securities. The prior year period included a $15 million charge (after tax and noncontrolling interests) related to the early retirement of debt. Six Months Ended June 30, 2020 Compared to 2019 Net income attributable to Loews Corporation was $80 million for the six months ended June 30, 2020 as compared with $554 million in the 2019 period. The decrease was primarily due to net catastrophe losses of $376 million for the six months ended June 30, 2020 as compared to $96 million in the prior year period, lower net investment income and investment losses in the first six months of 2020 as compared with investment gains in the prior year period. Net catastrophe losses in 2020 include $195 million related to COVID-19, $61 million related to civil unrest and $120 million related primarily to severe weather-related events. Net investment income decreased driven by lower limited partnership and common stock returns and the investment losses were driven by the unfavorable change in fair value of non-redeemable preferred stock and higher impairment losses on fixed maturity securities. Recent Developments During the second quarter of 2020, CNA’s underwriting results were negatively impacted by COVID-19 and the related depressed economic conditions. In many geographic locations, the virus’ spread continues to accelerate. Areas where the virus has largely been brought under control continue to be at risk of a second wave. Accordingly, it remains 39 Index the case that several months past the initial identification of the threat, all of the direct and indirect consequences and implications of COVID-19 are not yet known and may not emerge for some time. Until the virus is brought under control, the timing of any economic recovery remains uncertain. As a result, the impact to CNA’s results in the first and second quarters of 2020 may not be indicative of its impacts for the remainder of 2020 or thereafter. See the Liquidity and Capital Resources and Investments sections of this MD&A and Risk Factors included under Part II, Item 1A of this Report for further discussion of the risks associated with COVID-19 and measures to mitigate the spread of the virus. CNA experienced year-over-year growth in gross and net written premiums, excluding third party captives driven by rate increases across its property and casualty insurance lines of business. Depressed economic conditions generally have had an unfavorable impact on premium exposures, including audit premium adjustments, policy endorsements and mid-term cancellations and adjustments. This is particularly the case in CNA’s Commercial lines of business where shelter in place restrictions and reduced economic activity has caused businesses to reduce payroll or otherwise shutter operations. As a result, CNA recorded a decrease in its estimated audit premiums during the second quarter of 2020 impacting its net earned premiums. If general economic conditions do not improve in the latter half of 2020 or thereafter, CNA’s net written premiums and net earned premiums may continue to be unfavorably impacted as a result. Net written premiums are also impacted by the terms and conditions and related cost of reinsurance programs. In the second quarter of 2020, CNA renewed multiple property and casualty reinsurance treaties at higher costs as well as purchased additional coverage, which will have an unfavorable impact on CNA’s net earned premiums in future quarters. Lower net earned premiums had an unfavorable impact on CNA’s expense ratio in the second quarter of 2020. CNA’s expense ratio was also unfavorably impacted by an increase in its allowance for doubtful accounts for insurance receivables as certain customers, across a broad spectrum of industries and markets, have been impacted by lost business, affecting CNA’s ability to collect amounts owed to it. These impacts could continue through the remainder of 2020, and possibly thereafter, as the situation continues to evolve. While CNA’s losses incurred during the first six months of 2020 related to COVID-19 represent CNA’s best estimate of ultimate insurance losses resulting from events occurring in the first six months of 2020 due to the pandemic and the consequent economic crisis, given the unprecedented nature of this event, a high level of uncertainty exists as to the potential impact on insurance losses from these events or other events that might occur for the remainder of the year and thereafter. The scope, duration and magnitude of the direct and indirect effects continue to rapidly evolve, and could materially impact CNA’s ultimate loss estimate, including in lines of business where losses have already been incurred as well as the potential for impacts in other lines unknown at this time. Continued spread of the virus as well as additional or extended shelter in place restrictions and business closures, could cause CNA to experience additional COVID-19 related catastrophe losses in future quarters. CNA has also experienced modest benefits in certain lines of business as a result of lower loss frequency from shelter in place restrictions. Those benefits only apply to a portion of CNA’s portfolio, as its larger portfolios, including healthcare, construction and property coverages, have seen limited benefit. In addition, the impact from lower frequency is mostly offset by higher severity in certain areas of the portfolio. CNA’s Property & Casualty and Other Insurance Operations CNA’s commercial property and casualty insurance operations (“Property & Casualty Operations”) include its Specialty, Commercial and International lines of business. CNA’s Other Insurance Operations outside of Property & Casualty Operations include its long term care business that is in run-off, certain corporate expenses, including interest on CNA’s corporate debt, and certain property and casualty businesses in run-off, including CNA Re and A&EP. CNA’s products and services are primarily marketed through independent agents, brokers and managing general underwriters to a wide variety of customers, including small, medium and large businesses, insurance companies, associations, professionals and other groups. 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. 40 Index In assessing its insurance operations, CNA utilizes the core income (loss) financial measure. Core income (loss) is calculated by excluding from net income (loss), investment gains or losses and any cumulative effects of changes in accounting guidance. In addition, core income (loss) excludes the effects of noncontrolling interests. The calculation of core income (loss) excludes investment gains or losses because investment gains or losses are generally driven by economic factors that are not necessarily reflective of CNA’s primary insurance operations. Core income (loss) is deemed to be a non-GAAP financial measure and management believes this measure is useful for investors to evaluate its insurance operations. Property & Casualty Operations In evaluating the results of Property & Casualty Operations, CNA utilizes the loss ratio, the expense ratio, the dividend ratio and the combined ratio. 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 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, renewal premium change, rate, retention and new business are also utilized in evaluating operating trends. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. Rate represents the average change in price on policies that renew excluding exposure change. For certain products within Small Business, where quantifiable, rate includes the influence of new business as well. Exposure represents the measure of risk used in the pricing of the insurance product. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. Renewal premium change, rate and retention presented for the prior period are updated to reflect subsequent activity on policies written in the period. New business represents premiums from policies written with new customers and additional policies written with existing customers. Gross written premiums, excluding third party captives, represents gross written premiums excluding business which is mostly ceded to third party captives, including business related to large warranty programs. 41 Index The following tables summarize the results of CNA’s Property & Casualty Operations for the three and six months ended June 30, 2020 and 2019: Three Months Ended June 30, 2020 Specialty Commercial International Total (In millions, except %) Gross written premiums $ 1,762 $ 1,126 $ 277 $ 3,165 Gross written premiums excluding third party captives 811 1,044 277 2,132 Net written premiums 742 949 239 1,930 Net earned premiums 705 795 224 1,724 Net investment income 133 177 14 324 Core income (loss) 90 20 (14 ) 96 Other performance metrics: Loss ratio excluding catastrophes and development 59.9 % 59.0 % 59.9 % 59.5 % Effect of catastrophe impacts 15.0 19.0 19.9 17.5 Effect of development-related items (2.9 ) 6.0 (1.2 ) 1.4 Loss ratio 72.0 % 84.0 % 78.6 % 78.4 % Expense ratio 32.0 33.9 36.7 33.6 Dividend ratio 0.2 0.6 0.3 Combined ratio 104.2 % 118.5 % 115.3 % 112.3 % Combined ratio excluding catastrophes and development 92.1 % 93.5 % 96.6 % 93.4 % Rate 12 % 9 % 13 % 11 % Renewal premium change 11 8 11 9 Retention 85 83 74 83 New business $ 96 $ 205 $ 62 $ 363 Three Months Ended June 30, 2019 Gross written premiums $ 1,724 $ 1,024 $ 287 $ 3,035 Gross written premiums excluding third party captives 755 958 287 2,000 Net written premiums 713 912 249 1,874 Net earned premiums 688 763 243 1,694 Net investment income 134 154 15 303 Core income 161 120 17 298 Other performance metrics: Loss ratio excluding catastrophes and development 59.9 % 61.7 % 60.1 % 60.8 % Effect of catastrophe impacts 0.1 4.9 0.2 2.2 Effect of development-related items (2.6 ) (0.1 ) (0.1 ) (1.1 ) Loss ratio 57.4 % 66.5 % 60.2 % 61.9 % Expense ratio 33.1 32.6 37.3 33.4 Dividend ratio 0.2 0.6 0.4 Combined ratio 90.7 % 99.7 % 97.5 % 95.7 % Combined ratio excluding catastrophes and development 93.2 % 94.9 % 97.4 % 94.6 % Rate 4 % 3 % 7 % 4 % Renewal premium change 5 5 8 6 Retention 89 87 70 84 New business $ 97 $ 186 $ 75 $ 358 42 Index Six Months Ended June 30, 2020 Specialty Commercial International Total (In millions, except %) 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 189 224 29 442 Core income (loss) 186 44 (12 ) 218 Other performance metrics: Loss ratio excluding catastrophes and development 59.7 % 60.1 % 60.1 % 59.9 % Effect of catastrophe impacts 8.2 12.8 11.9 10.9 Effect of development-related items (2.3 ) 3.0 (0.7 ) 0.4 Loss ratio 65.6 % 75.9 % 71.3 % 71.2 % Expense ratio 32.1 33.6 36.1 33.2 Dividend ratio 0.2 0.6 0.4 Combined ratio 97.9 % 110.1 % 107.4 % 104.8 % Combined ratio excluding catastrophes and development 92.0 % 94.3 % 96.2 % 93.5 % Rate 10 % 9 % 11 % 10 % Renewal premium change 10 8 9 9 Retention 85 84 72 82 New business $ 170 $ 403 $ 130 $ 703 Six Months Ended June 30, 2019 Gross written premiums $ 3,425 $ 1,965 $ 611 $ 6,001 Gross written premiums excluding third party captives 1,485 1,891 611 3,987 Net written premiums 1,411 1,761 508 3,680 Net earned premiums 1,349 1,526 493 3,368 Net investment income 289 344 30 663 Core income 330 259 23 612 Other performance metrics: Loss ratio excluding catastrophes and development 60.2 % 61.9 % 58.5 % 60.7 % Effect of catastrophe impacts 1.0 5.1 1.3 2.9 Effect of development-related items (2.9 ) (0.3 ) 2.7 (0.9 ) Loss ratio 58.3 % 66.7 % 62.5 % 62.7 % Expense ratio 33.0 33.2 37.2 33.7 Dividend ratio 0.2 0.6 0.4 Combined ratio 91.5 % 100.5 % 99.7 % 96.8 % Combined ratio excluding catastrophes and development 93.4 % 95.7 % 95.7 % 94.8 % Rate 3 % 3 % 6 % 4 % Renewal premium change 6 5 4 5 Retention 89 86 69 84 New business $ 182 $ 350 $ 155 $ 687 Three Months Ended June 30, 2020 Compared to 2019 Total gross written premiums increased $130 million for the three months ended June 30, 2020 as compared with the 2019 period. Total net written premiums increased $56 million for the three months ended June 30, 2020 as compared with the 2019 period. Gross written premiums, excluding third party captives, for Specialty increased $56 million for the three months 43 Index ended June 30, 2020 as compared with the 2019 period driven by strong rate. Net written premiums for Specialty increased $29 million for the three months ended June 30, 2020 as compared with the 2019 period. The increase in net earned premiums for the three months ended June 30, 2020 was consistent with the trend in net written premiums in recent quarters for Specialty. Gross written premiums for Commercial increased $102 million for the three months ended June 30, 2020 as compared with the 2019 period driven by strong rate and higher new business. Net written premiums for Commercial increased $37 million for the three months ended June 30, 2020 as compared with the 2019 period. The increase in net earned premiums for the three months ended June 30, 2020 was consistent with the trend in net written premiums partially offset by a reduction in the estimated audit premiums as a result of the economic slowdown arising from COVID-19 for Commercial. Gross written premiums for International decreased $10 million for the three months ended June 30, 2020 as compared with the 2019 period. Excluding the effect of foreign currency exchange rates, gross written premiums decreased $3 million driven by the continued impact of the strategic exit from certain Lloyd’s business classes, offset by growth in Europe and Canada. Net written premiums decreased $10 million for the three months ended June 30, 2020 as compared with the 2019 period. Excluding the effect of foreign currency exchange rates, net written premiums decreased $6 million for the three months ended June 30, 2020 as compared with the 2019 period. The decrease in net earned premiums for the three months ended June 30, 2020 was consistent with the trend in net written premiums in recent quarters for International. Core income decreased $202 million for the three months ended June 30, 2020 as compared with the 2019 period due to higher net catastrophe losses and unfavorable net prior year loss reserve development, including a $50 million charge for mass tort exposures primarily due to New York reviver statute-related claims. Net catastrophe losses were $301 million for the three months ended June 30, 2020 as compared with $38 million in the 2019 period. Net catastrophe losses for the three months ended June 30, 2020 included $182 million related to COVID-19, $61 million related to civil unrest and $58 million related primarily to severe weather-related events. Specialty net catastrophe losses of $105 million for the three months ended June 30, 2020 included $103 million related to the COVID-19 pandemic. Specialty net catastrophe losses were $1 million for the three months ended June 30, 2019. Commercial net catastrophe losses of $151 million for the three months ended June 30, 2020 included $43 million related to the COVID-19 pandemic, $61 million related to civil unrest and $47 million related primarily to severe weather-related events. Commercial net catastrophe losses were $37 million for the three months ended June 30, 2019. International net catastrophe losses of $45 million for the three months ended June 30, 2020 included $36 million related to the COVID-19 pandemic. International net catastrophe losses were $1 million for the three months ended June 30, 2019. The COVID-19 losses in the second quarter of 2020 follow a detailed review and analysis of existing and potential exposures in light of current information, and represent CNA’s best estimate of its ultimate insurance losses and loss adjustment expenses, including defense costs resulting from the pandemic and the consequent economic crisis. The losses were substantially driven by healthcare professional liability with additional impacts from workers’ compensation, management liability, commercial property, trade credit and surety. Due to the recent timing of the event, emergence pattern of claims and long tail nature of certain exposures the losses are substantially classified as incurred but not reported (“IBNR”) reserves. The COVID-19 catastrophe losses do not include the benefits of lower current accident year losses associated with lower loss frequency in certain lines of business as a result of shelter in place restrictions. Those benefits are modest and are partially offset by the impact of a reduction in the estimated audit premiums and an increase in the credit allowance for premiums receivables resulting from the depressed economic conditions. Unfavorable net prior year loss reserve development of $22 million and favorable net prior year loss reserve development of $31 million was recorded for the three months ended June 30, 2020 and 2019. For the three months ended June 30, 2020 and 2019, Specialty recorded favorable net prior year loss reserve development of $20 million and $18 million and Commercial recorded unfavorable net prior year loss reserve development of $45 million as compared with favorable net prior year loss reserve development of $12 million. For the three months ended June 30, 2020, International recorded favorable net prior year loss reserve development of $3 million as compared with $1 million in the 2019 period. Further information on net prior year loss reserve development is included in Note 6 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Specialty’s combined ratio increased 13.5 points for the three months ended June 30, 2020 as compared with the 2019 period. The loss ratio increased 14.6 points driven by higher net catastrophe losses, or 15.0 points of the loss ratio, for the three months ended June 30, 2020. The expense ratio improved 1.1 points for the three months ended 44 Index June 30, 2020 as compared with the 2019 period driven by lower underwriting expenses and higher net earned premiums. Commercial’s combined ratio increased 18.8 points for the three months ended June 30, 2020 as compared to the 2019 period. The loss ratio increased 17.5 points driven by higher net catastrophe losses and unfavorable net prior year loss reserve development. The combined ratio excluding catastrophes and development improved 1.4 points for the three months ended June 30, 2020 as compared with the 2019 period which reflects a 0.7 point net benefit related to COVID-19 from lower loss frequency as a result of shelter in place restrictions and an adverse impact from a reduction in estimated audit premiums. These items decreased the loss ratio by 1.8 points and increased the expense ratio by 1.1 points. Excluding the impacts of COVID-19, the combined ratio excluding catastrophes and development improved 0.7 points due to the loss ratio. International’s combined ratio increased 17.8 points for the three months ended June 30, 2020 as compared with the 2019 period. The loss ratio increased 18.4 points driven by higher net catastrophe losses, or 19.9 points of the loss ratio, for the three months ended June 30, 2020. The combined ratio excluding catastrophes and development improved 0.8 points for the three months ended June 30, 2020 as compared with the 2019 period due to a 0.2 point improvement in the loss ratio excluding catastrophes and development primarily driven by lower loss frequency from the impact of COVID-19 as well as 0.6 points of improvement in the expense ratio driven by lower acquisition and underwriting expenses. Six Months Ended June 30, 2020 Compared to 2019 Total gross written premiums increased $247 million for the six months ended June 30, 2020 as compared with the 2019 period. Total net written premiums increased $113 million for the six months ended June 30, 2020 as compared with the 2019 period. Gross written premiums, excluding third party captives, for Specialty increased $67 million for the six months ended June 30, 2020 as compared with the 2019 period driven by strong rate. Net written premiums for Specialty increased $25 million for the six months ended June 30, 2020 as compared with the 2019 period. The increase in net earned premiums for the six months ended June 30, 2020 was consistent with the trend in net written premiums in recent quarters for Specialty. Gross written premiums for Commercial increased $223 million for the six months ended June 30, 2020 as compared with the 2019 period driven by strong rate and higher new business. Net written premiums for Commercial increased $138 million for the six months ended June 30, 2020 as compared with the 2019 period. The increase in net earned premiums for the six months ended June 30, 2019 was consistent with the trend in net written premiums partially offset by a reduction in the estimated audit premiums as a result of the economic slowdown arising from COVID-19 for Commercial. Gross written premiums for International decreased $27 million for the six months ended June 30, 2020 as compared with the 2019 period. Excluding the effect of foreign currency exchange rates, gross written premiums decreased $18 million driven by the continued impact of the strategic exit from certain Lloyd’s business classes, offset by growth in Canada and Europe. Net written premiums decreased $50 million for the six months ended June 30, 2020 as compared with the 2019 period. Excluding the effect of foreign currency exchange rates, net written premiums decreased $42 million for the six months ended June 30, 2020 as compared with the 2019 period. The decrease in net earned premiums for the six months ended June 30, 2020 was consistent with the trend in net written premiums in recent quarters for International. Core income decreased $394 million for the six months ended June 30, 2020 as compared with the 2019 period due to higher net catastrophe losses, lower net investment income driven by limited partnership and common stock returns and unfavorable net prior year loss reserve development in the current year period including a $50 million charge for mass tort exposures primarily due to New York reviver statute-related claims. Net catastrophe losses were $376 million for the six months ended June 30, 2020 as compared with $96 million in the 2019 period. 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. Specialty net catastrophe losses of $113 million for the six months ended June 30, 2020 included $109 million related to the COVID-19 pandemic. Specialty net catastrophe losses were $13 million for the six months ended June 30, 2019. Commercial net catastrophe losses of $208 million for the six months ended June 30, 2020 included $48 million related to the COVID-19 pandemic, $61 million related to civil unrest and $99 million related primarily to severe weather-related events. Commercial net catastrophe losses were $77 million for the six months ended June 30, 2019. International net catastrophe losses of $55 million for the six months ended June 30, 2020 included $38 million related 45 Index to the COVID-19 pandemic. International net catastrophe losses were $6 million for the six months ended June 30, 2019. Unfavorable net prior year loss reserve development of $7 million and favorable net prior year loss reserve development of $45 million was recorded for the six months ended June 30, 2020 and 2019. For the six months ended June 30, 2020 and 2019, Specialty recorded favorable net prior year loss reserve development of $31 million and $38 million and Commercial recorded unfavorable net prior year loss reserve development of $41 million as compared with favorable net prior year loss reserve development of $20 million. For the six months ended June 30, 2020, International recorded favorable net prior year loss reserve development of $3 million as compared with unfavorable net prior year loss reserve development of $13 million in the 2019 period. Further information on net prior year loss reserve development is included in Note 6 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Specialty’s combined ratio increased 6.4 points for the six months ended June 30, 2020 as compared with the 2019 period. The loss ratio increased 7.3 points due to higher net catastrophe losses, or 8.2 points of the loss ratio, for the six months ended June 30, 2020. The expense ratio improved 0.9 points for the six months ended June 30, 2020 as compared with the 2019 period driven by lower underwriting expenses and higher net earned premiums. Commercial’s combined ratio increased 9.6 points for the six months ended June 30, 2020 as compared to the 2019 period. The loss ratio increased 9.2 points driven by higher net catastrophe losses and unfavorable net prior year loss reserve development. The combined ratio excluding catastrophes and development improved 1.4 points for the six months ended June 30, 2020 as compared to the 2019 period which reflects a 0.3 point net benefit related to COVID-19 from lower loss frequency as a result of shelter in place restrictions and an adverse impact from a reduction in the estimated audit premiums. These items decreased the loss ratio by 0.9 points and increased the expense ratio by 0.6 points. Excluding the impacts of COVID-19, the combined ratio excluding catastrophes and development improved 1.1 points due to the loss ratio. International’s combined ratio increased 7.7 points for the six months ended June 30, 2020 as compared with the 2019 period. The loss ratio increased 8.8 points driven by higher net catastrophe losses, or 11.9 points of the loss ratio, for the six months ended June 30, 2020, partially offset by favorable net prior year loss reserve development in the current year period. The expense ratio improved 1.1 points for the six months ended June 30, 2020 as compared with the 2019 period driven by lower acquisition and underwriting expenses. Other Insurance Operations The following table summarizes the results of CNA’s Other Insurance Operations for the three and six months ended June 30, 2020 and 2019: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (In millions) Net earned premiums $ 126 $ 130 $ 253 $ 260 Net investment income 210 212 421 423 Core income (loss) 3 (4 ) (11 ) Three Months Ended June 30, 2020 Compared to 2019 Core income of $3 million for the three months ended June 30, 2020 was primarily driven by better than expected persistency in the long term care business. Six Months Ended June 30, 2020 Compared to 2019 Core loss of $11 million for the six months ended June 30, 2020 was primarily due to interest expense on corporate debt partially offset by better than expected persistency in the long term care business and amortization of the deferred gain related to the A&EP loss portfolio transfer. 46 Index Non-GAAP Reconciliation of Core Income (Loss) to Net Income The following table reconciles core income (loss) to net income attributable to Loews Corporation for the three and six months ended June 30, 2020 and 2019: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (In millions) Core income (loss): Property & Casualty Operations $ 96 $ 298 $ 218 $ 612 Other Insurance Operations 3 (4 ) (11 ) Total core income 99 294 207 612 Investment gains (losses) 53 1 (117 ) 24 Consolidating adjustments including noncontrolling interests (17 ) (46 ) (10 ) (82 ) Net income attributable to Loews Corporation $ 135 $ 249 $ 80 $ 554 Boardwalk Pipelines Current Events In 2020, the world and the United States experienced the unprecedented impacts of the COVID-19 pandemic and measures to mitigate the spread of COVID-19. An excess supply of energy products has also led to a significant decrease in energy prices. Boardwalk Pipelines’ operations are considered essential critical infrastructure under current Cybersecurity and Infrastructure Security Agency guidelines, and it has taken measures to ensure the safety of its employees and operations while maintaining uninterrupted service to its customers. The following summarizes the material impacts to Boardwalk Pipelines’ business and the key actions it has taken to mitigate the current impacts from both the COVID-19 pandemic and the volatility in energy prices: ● Boardwalk Pipelines’ business has not been significantly impacted by the recent volatility in commodity prices. However, some of its customers are directly impacted by changes in commodity prices, which may impact Boardwalk Pipelines’ ability to renew contracts at existing terms or may impact the customers’ ability to make payment for the services Boardwalk Pipelines provides. The COVID-19 pandemic and decreased energy prices could cause a disruption of the normal operations of many of Boardwalk Pipelines’ customers, including the temporary closure or reduction of plant operations or shut-in of production. While energy prices remain volatile, prices have somewhat improved from the level that they were during portions of the first and second quarters. If energy prices remain at current levels for a sustained period of time or decline again, Boardwalk Pipelines could be exposed to increased credit risk or the increased risk of customers filing for bankruptcy protection. During 2020, Boardwalk Pipelines has not had any significant customers declare bankruptcy. ● Through the date of this Report, Boardwalk Pipelines has not experienced any significant operational disruptions and its pipeline throughput has remained stable. For the six months ended June 30, 2020, Boardwalk Pipelines transported approximately 1.5 trillion cubic feet of natural gas and approximately 44.3 million barrels of natural gas liquids and hydrocarbons (“NGLs”), an increase in excess of 7% from the comparable period in 2019 for each commodity. Boardwalk Pipelines’ results of operations for the second quarter of 2020 have not been materially impacted as a result of the COVID-19 pandemic or the volatility in energy prices. ● Boardwalk Pipelines did not experience any significant changes in its workforce composition and was able to implement its business continuity plans with no significant impact to its ability to maintain its operations. Boardwalk Pipelines continues to maintain strong physical and cybersecurity measures in order to both serve its operational needs with a remote workforce and keep its integrated pipeline and storage systems running to provide reliable service to its customers. ● Through the date of this Report, Boardwalk Pipelines’ balance sheet remains strong and it continues to have sufficient liquidity and it expects to continue to fund its operations through its operating cash flows. Boardwalk Pipelines has approximately $1.2 billion of available borrowing capacity under its revolving credit facility and does not have any debt maturities until February of 2021. 47 Index The safety of Boardwalk Pipelines’ employees and operations while providing uninterrupted service to its customers remains its primary focus. Although it is difficult to reasonably determine the ongoing and future impacts of the COVID-19 pandemic and the volatility in energy prices, an extended downturn in the economy and depressed energy prices could negatively affect Boardwalk Pipelines’ customers and their businesses and could in turn have a material adverse effect on Boardwalk Pipelines’ business. Firm Agreements A substantial portion of Boardwalk Pipelines’ transportation and storage capacity is contracted for under firm agreements. For the twelve months ended June 30, 2020, approximately 90% of Boardwalk Pipelines’ revenues were derived from fixed fees under firm agreements. Boardwalk Pipelines expects to earn revenues of approximately $9.3 billion from fixed fees under committed firm agreements in place as of June 30, 2020, including agreements for transportation, storage and other services, over the remaining term of those agreements. For the six months ended June 30, 2020, Boardwalk Pipelines added approximately $502 million from the comparable amount at December 31, 2019, from contracts entered into during 2020. For Boardwalk Pipelines’ customers that are charged its maximum applicable tariff rates related to its Federal Energy Regulatory Commission (“FERC”) regulated operating subsidiaries, the revenues expected to be earned from fixed fees under committed firm agreements reflect the current tariff rate for such services for the term of the agreements, however, the tariff rates may be subject to future adjustment. The estimated revenues from fixed fees under committed firm agreements may also include estimated revenues that are anticipated under executed precedent transportation agreements for projects that are subject to regulatory approvals. The revenues expected to be earned from fixed fees under committed firm agreements do not include additional revenues Boardwalk Pipelines has recognized and may recognize under firm agreements based on actual utilization of the contracted pipeline or storage capacity, any expected revenues for periods after the expiration dates of the existing agreements, execution of precedent agreements associated with growth projects or other events that occurred or will occur subsequent to June 30, 2020. Contract Renewals Each year a portion of Boardwalk Pipelines’ firm transportation and storage agreements expire. The rates Boardwalk Pipelines is able to charge customers are heavily influenced by market trends (both short and longer term), including the available supply, geographical location of natural gas production, the competition between producing basins, competition with other pipelines for supply and markets, the demand for gas by end-users such as power plants, petrochemical facilities and liquefied natural gas export facilities and the price differentials between the gas supplies and the market demand for the gas (basis differentials). Boardwalk Pipelines’ storage rates are additionally impacted by natural gas price differentials between time periods, such as winter to summer (time period price spreads), and the volatility in time period price spreads. Demand for firm service is primarily based on market conditions which can vary across Boardwalk Pipelines’ pipeline systems. While Boardwalk Pipelines has not seen a significant change in the demand for its services as a result of the COVID-19 pandemic or the volatility in energy prices, if these conditions remain for an extended period of time or re-occur, Boardwalk Pipelines could see a decline in the demand for its services. Boardwalk Pipelines focuses its marketing efforts on enhancing the value of the capacity that is up for renewal and works with customers to match gas supplies from various basins to new and existing customers and markets, including aggregating supplies at key locations along its pipelines to provide end-use customers with attractive and diverse supply options. If the market perceives the value of Boardwalk Pipelines’ available capacity to be lower than its long term view of the capacity, Boardwalk Pipelines may seek to shorten contract terms until market perception improves. Over the past several years, as a result of market conditions, Boardwalk Pipelines has renewed some expiring contracts at lower rates or for shorter terms than in the past. In addition to normal contract expirations, in the 2018 to 2020 timeframe, transportation agreements associated with its significant pipeline expansion projects that were placed into service in the 2007-2009 timeframe, have expired. A substantial portion of the capacity associated with the pipeline expansion projects was recontracted, usually at lower rates or lower volumes, which has negatively impacted Boardwalk Pipelines’ operating revenues. 48 Index Results of Operations The following table summarizes the results of operations for Boardwalk Pipelines for the three and six months ended June 30, 2020 and 2019 as presented in Note 14 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (In millions) Revenues: Operating revenues and other $ 296 $ 327 $ 637 $ 673 Total 296 327 637 673 Expenses: Operating and other 210 209 421 404 Interest 41 46 83 91 Total 251 255 504 495 Income before income tax 45 72 133 178 Income tax expense (11 ) (19 ) (34 ) (46 ) Net income attributable to Loews Corporation $ 34 $ 53 $ 99 $ 132 Three Months Ended June 30, 2020 Compared to 2019 Total revenues decreased $31 million for the three months ended June 30, 2020 as compared with the 2019 period. Including the effect of items in fuel and transportation expense and excluding net proceeds of approximately $26 million as a result of drawing on letters of credit due to a customer bankruptcy in 2019, operating revenues decreased $6 million driven by contract expirations that were recontracted at overall lower average rates, partially offset by revenues from recently completed growth projects and higher storage and parking and lending (“PAL”) revenues due to favorable market conditions. Operating expenses were essentially flat for the three months ended June 30, 2020 as compared with the 2019 period. Interest expense decreased $5 million for the three months ended June 30, 2020 as compared with the 2019 period primarily due to lower interest rates from borrowings under Boardwalk Pipelines’ revolving credit facility and higher capitalized interest. Six Months Ended June 30, 2020 Compared to 2019 Total revenues decreased $36 million for the six months ended June 30, 2020 as compared with the 2019 period. Including the effect of items in fuel and transportation expense and excluding the impact from the customer bankruptcy discussed above, operating revenues decreased $16 million driven by contract expirations that were recontracted at overall lower average rates, partially offset by revenues from recently completed growth projects and higher storage and PAL revenues due to favorable market conditions. Operating expenses increased $17 million for the six months ended June 30, 2020 as compared with the 2019 period. Excluding items offset in operating revenues, operating expenses increased $13 million, primarily due to an increased asset base from recently completed growth projects, higher litigation expenses and the expiration of property tax abatements. Interest expense decreased $8 million for the six months ended June 30, 2020 as compared with the 2019 period primarily due to lower interest rates from borrowings under Boardwalk Pipelines’ revolving credit facility and higher capitalized interest and allowance for funds used during construction related to Boardwalk Pipelines’ capital projects. 49 Index Loews Hotels & Co The following table summarizes the results of operations for Loews Hotels & Co for the three and six months ended June 30, 2020 and 2019 as presented in Note 14 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (In millions) Revenues: Operating revenue $ 9 $ 159 $ 118 $ 310 Gain on sale of hotel 13 13 Revenues related to reimbursable expenses 12 27 45 56 Total 34 186 176 366 Expenses: Operating and other: Operating 50 130 166 260 Asset impairments 20 7 20 10 Reimbursable expenses 12 27 45 56 Depreciation 16 15 30 31 Equity (income) loss from joint ventures 25 (16 ) 29 (38 ) Interest 8 5 16 10 Total 131 168 306 329 Income (loss) before income tax (97 ) 18 (130 ) 37 Income tax (expense) benefit 25 (6 ) 33 (12 ) Net income (loss) attributable to Loews Corporation $ (72 ) $ 12 $ (97 ) $ 25 Due to the COVID-19 pandemic and efforts to mitigate the spread of the virus, twenty hotels owned and/or operated by Loews Hotels & Co temporarily suspended operations in March of 2020, with two additional hotels suspending operations in April of 2020. Of these twenty-two hotels, one resumed operations in May, twelve in June and five in July, with the operations of the remaining four hotels still temporarily suspended. Only two owned hotels and two managed hotels did not suspend operations. Additionally, two hotels completed construction prior to the pandemic; one delayed opening until June, and the second is expected to open later this year. However, all operational hotels are experiencing very limited occupancy. Although Loews Hotels & Co has enacted significant measures to adjust the operating cost structure of each hotel during these suspensions and subsequent resumptions of operations, deferred most capital expenditures and reduced the operating costs of its management company, these measures could not offset the impact of significant lost revenues. Loews Hotels & Co has therefore incurred significant operating losses since the start of the pandemic. The resumption of operations for the remaining four hotels that continue to have suspended operations, as well as the potential for hotels which have resumed operations to re-suspend operations, will depend on numerous factors, many of which are outside Loews Hotels & Co’s control. Although occupancy at operational hotel properties is expected to increase gradually, it is nonetheless highly dependent on the travel behavior of potential hotel guests, driven largely by factors outside Loews Hotels & Co’s control, including government capacity restrictions, travel restrictions and the duration and scope of the COVID-19 pandemic. While the duration of the COVID-19 outbreak and related financial impact cannot be estimated at this time, Loews Hotels & Co expects its results of operations, financial condition and cash flows will be materially adversely affected throughout 2020, and likely thereafter. The severity of the impact on Loews Hotels & Co will depend in large part on the duration of containment efforts, either mandated or voluntary, and the perceptions of health risks associated with COVID-19 related to business and leisure travel. In addition, once the COVID-19 outbreak is mitigated or contained, whenever that may be, historical travel patterns, both domestic and international, may continue to be disrupted either on a temporary basis or with longer term effects. These factors have contributed to impairment charges for the three months ended June 30, 2020, and may lead to additional impairment charges in future periods. Reduced occupancy caused by the COVID-19 pandemic and mitigation efforts as well as related operating cost reduction measures are the primary reasons for the decrease in operating revenues of $150 million and $192 million and operating expenses of $80 million and $94 million for the three and six months ended June 30, 2020 as compared with the 2019 period. Additionally, equity income from joint ventures decreased $41 million and $67 million for the three and six months ended June 30, 2020 as compared with the 2019 period driven primarily by the COVID-19 pandemic. 50 Index Loews Hotels & Co considers events or changes in circumstances that indicate the carrying amount of its assets may not be recoverable. During the second quarter of 2020, Loews Hotels & Co recorded impairment charges of $20 million to reduce the carrying value of certain assets to their estimated fair value. The three and six months ended June 30, 2019 include impairment charges of $7 million and $10 million. Loews Hotels & Co recorded a gain of $13 million on the sale of an owned hotel in the second quarter of 2020. Interest expense for the three and six months ended June 30, 2020 increased $3 million and $6 million primarily due to the increase in debt balances and less capitalized interest related to recently completed hotel development projects as compared with the 2019 period. Corporate Corporate operations consist primarily of investment income at the Parent Company, operating results of Altium Packaging, Parent Company interest expense and other Parent Company administrative costs. 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. The following table summarizes the results of operations for Corporate for the three and six months ended June 30, 2020 and 2019 as presented in Note 14 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (In millions) Revenues: Net investment income (loss) $ 110 $ 33 $ (56 ) $ 117 Investment loss (1,211 ) (1,211 ) Operating revenues and other 244 223 501 439 Total (857 ) 256 (766 ) 556 Expenses: Operating and other 260 245 528 476 Interest 32 27 63 54 Total 292 272 591 530 Income (loss) before income tax (1,149 ) (16 ) (1,357 ) 26 Income tax (expense) benefit 241 3 284 (5 ) Net income (loss) attributable to Loews Corporation $ (908 ) $ (13 ) $ (1,073 ) $ 21 Net investment income for the Parent Company increased $77 million for the three months ended June 30, 2020 as compared with the 2019 period primarily due to improved performance of equity based investments in the Parent Company trading portfolio. Net investment loss was $56 million for the six months ended June 30, 2020 as compared with net investment income of $117 million in the 2019 period as a result of the significant decline in equity based investments in response to the COVID-19 pandemic and related containment measures. Investment loss of $1.2 billion ($957 million after tax) for the three 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. Operating revenues and other include Altium Packaging revenues of $244 million and $223 million for the three months ended June 30, 2020 and 2019 and $500 million and $437 million for the six months ended June 30, 2020 and 2019. The increase of $21 million for the three months ended June 30, 2020 as compared with the 2019 period reflects an increase of $25 million related to acquisitions in 2019, partially offset by the pass-through effect of lower year-over-year resin prices and lower volumes. The increase of $63 million for the six months ended June 30, 2020 as compared with the 2019 period reflects an increase of $60 million related to acquisitions in 2019 and higher volumes as a result of higher COVID-19 related demand in the first quarter of 2020 for household chemicals, water and beverage, partially offset by the pass-through effect of lower year-over-year resin prices. Altium Packaging’s contracts generally provide for resin price changes to be passed through to its customers on a short-term lag, generally about one month. When a pass-through occurs, revenues and expenses generally change by the same amount so that Altium Packaging’s gross margin returns to the same level as prior to the change in prices. 51 Index Operating and other expenses include Altium Packaging operating expenses of $236 million and $222 million for the three months ended June 30, 2020 and 2019 and $482 million and $428 million for the six months ended June 30, 2020 and 2019, which include depreciation and amortization expense. The increase in operating expenses of $14 million for the three months ended June 30, 2020 as compared with the 2019 period is primarily due to an increase of $24 million related to acquisitions in 2019, partially offset by lower resin prices and lower volumes. The increase in operating expenses of $54 million for the six months ended June 30, 2020 as compared with the 2019 period is primarily due to acquisitions in 2019. Interest expenses increased $5 million and $9 million for the three and six months ended June 30, 2020 as compared with the 2019 periods due to the May of 2020 issuance of the Parent Company’s $500 million aggregate principal amount of 3.2% senior notes due May 15, 2030 and incremental borrowings associated with funding Altium Packaging’s 2019 acquisitions. Diamond Offshore Contract drilling revenues were $69 million and $207 million for the three months ended June 30, 2020 and 2019 and $287 million and $434 million for the six months ended June 30, 2020 and 2019. Contract drilling expenses were $69 million and $225 million for the three months ended June 30, 2020 and 2019 and $254 million and $392 million for the six months ended June 30, 2020 and 2019. Results for the three and six months ended June 30, 2020 noted above, and included in our Consolidated Condensed Financial Statements, reflect only the periods through the April 26, 2020 deconsolidation and also reflect lower average daily revenue earned as compared with the 2019 periods. Operating and other expenses for the six months ended June 30, 2020 includes an aggregate asset impairment charge of $774 million ($408 million after tax and noncontrolling interests) recognized in the first quarter of 2020. LIQUIDITY AND CAPITAL RESOURCES Parent Company Parent Company cash and investments, net of receivables and payables, totaled $3.6 billion at June 30, 2020 as compared to $3.3 billion at December 31, 2019. During the six months ended June 30, 2020, we received $665 million in dividends from CNA, including a special dividend of $485 million. Cash outflows during the six months ended June 30, 2020 included the payment of $491 million to fund treasury stock purchases, $36 million of cash dividends to our shareholders, $87 million of cash contributions to Loews Hotels & Co and $19 million to purchase common shares of CNA. Loews Corporation anticipates providing Loews Hotels & Co additional capital support during the remainder of 2020. As a holding company we depend on dividends from our subsidiaries and returns on our investment portfolio to fund our obligations. We also have an effective Registration Statement on file with the Securities and Exchange Commission (“SEC”) registering the future sale of an unlimited amount of our debt and equity securities from time to time. We are not responsible for the liabilities and obligations of our subsidiaries and there are no Parent Company guarantees. In May of 2020, we completed a public offering of $500 million aggregate principal amount of 3.2% senior notes due May 15, 2030. The proceeds of this offering are available for general corporate purposes. Depending on market and other conditions, we may purchase our shares and shares of our subsidiaries outstanding common stock in the open market or otherwise. During the six months ended June 30, 2020, we purchased 10.7 million shares of Loews Corporation common stock and 564,430 shares of CNA common stock. Future uses of our cash may include investing in our subsidiaries, new acquisitions, dividends and/or repurchases of our and our subsidiaries’ outstanding common stock. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition and business needs. Subsidiaries Related to the COVID-19 pandemic and efforts to mitigate the spread of the virus, CNA cash flows have been and may continue to be adversely impacted by lower premium volumes, suspensions and cancellations of policies, return of premiums or premium refunds, and increased claim and defense cost payments. At this time, CNA does not believe these impacts would give rise to a material liquidity concern given its overall liquid assets and anticipated future cash flows. CNA’s cash provided by operating activities was $650 million for the six months ended June 30, 2020 and $514 million for the six months ended June 30, 2019. The increase in cash provided by operating activities was driven by 52 Index lower net claim payments, an increase in premiums collected and lower income taxes paid, partially offset by a lower level of distributions from limited partnerships. CNA paid dividends of $2.74 per share on its common stock, including a special dividend of $2.00 per share in the six months ended June 30, 2020. On July 31, 2020, CNA’s Board of Directors declared a quarterly dividend of $0.37 per share, payable September 3, 2020 to shareholders of record on August 17, 2020. 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 has an effective shelf registration statement under which it may publicly issue debt, equity or hybrid securities from time to time. Dividends from Continental Casualty Company (“CCC”), a subsidiary of CNA, are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the “Department”), are determined based on the greater of the prior year’s statutory net income or 10% of statutory surplus as of the end of the prior year, as well as the timing and amount of dividends paid in the preceding 12 months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of June 30, 2020, CCC was in a positive earned surplus position. CCC paid dividends of $815 million and $805 million during the six months ended June 30, 2020 and 2019. The actual level of dividends paid in any year is determined after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company. Boardwalk Pipelines’ cash provided by operating activities decreased $45 million for the six months ended June 30, 2020 compared to the 2019 period, primarily due to the change in net income and the timing of receivables and accrued liabilities. For the six months ended June 30, 2020 and 2019, Boardwalk Pipelines’ capital expenditures were $246 million and $180 million, consisting of a combination of growth and maintenance capital. As of June 30, 2020, Boardwalk Pipelines had $215 million of outstanding borrowings under its credit facility. As of July 31, 2020, Boardwalk Pipelines had $240 million of outstanding borrowings and approximately $1.2 billion of available borrowing capacity under its credit facility. Boardwalk Pipelines anticipates that its existing capital resources, including its revolving credit facility and cash flows from operating activities, will be adequate to fund its operations and capital expenditures for 2020. Boardwalk Pipelines has an effective shelf registration statement under which it may publicly issue debt securities, warrants or rights from time to time. Certain of the hotels wholly or partially owned by Loews Hotels & Co are financed by debt facilities, with a number of different lenders. Each of the loan agreements underlying these facilities contain a variety of financial and operational covenants. Loews Hotels & Co has proactively requested certain lenders, where applicable, to (1) temporarily waive certain covenants to avoid an event of default and/or further restriction of the hotel’s cash balances through the establishment of lockboxes and other measures; (2) temporarily allow funds previously restricted directly or indirectly under the hotel’s underlying loan agreement for the renewal, replacement and addition of building improvements, furniture and fixtures to be used instead for hotel operations and maintenance; (3) allow hotels under development to defer required completion and opening dates; and/or (4) defer certain interest and/or principal payments while the hotels operations are temporarily suspended or significantly impacted by a decline in occupancy. Loews Hotels & Co also continues to work with lenders on loans that are being reviewed for extension under the applicable loan agreements, even under current circumstances. These discussions with lenders are ongoing and may require Loews Hotels & Co to make principal paydowns or provide guaranties of a subsidiary’s debt to otherwise avoid an event of default. Through the date of this Report, there are no loans where a lender has notified Loews Hotels & Co of an event of default. Additionally, due to temporary suspension of operations and lost revenues in certain joint venture entities, Loews Hotels & Co has received capital call notices in accordance with the underlying joint venture agreements to support the properties’ operations. Through July 31, 2020, Loews Hotels & Co funded approximately $27 million to these joint ventures in 2020. Through July 31, 2020, Loews Hotels & Co received capital contributions of $112 million from Loews Corporation. Additional funding from Loews Corporation during the remainder of 2020 will be needed and will depend on numerous factors, including how quickly properties are able to return to sustainable operating levels. 53 Index INVESTMENTS Investment activities of non-insurance subsidiaries primarily consist of investments in fixed income securities, including short term investments. The Parent Company portfolio also includes equity securities, including short sales and derivative instruments, and investments in limited partnerships. These types of investments generally present greater volatility, less liquidity and greater risk than fixed income investments and are included within Results of Operations – Corporate. We enter into short sales and invest in certain derivative instruments that are used for asset and liability management activities, income enhancements to the portfolio management strategy and to benefit from anticipated future movements in the underlying markets. If such movements do not occur as anticipated, then significant losses may occur. Monitoring procedures include senior management review of daily reports of existing positions and valuation fluctuations to seek to ensure that open positions are consistent with the portfolio strategy. Credit exposure associated with non-performance by counterparties to derivative instruments is generally limited to the uncollateralized change in fair value of the derivative instruments recognized in the Consolidated Condensed Balance Sheets. We mitigate the risk of non-performance by monitoring the creditworthiness of counterparties and diversifying derivatives by using multiple counterparties. We occasionally require collateral from derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty. Insurance CNA maintains a large portfolio of fixed maturity and equity securities, including large amounts of corporate and government issued debt securities, residential and commercial mortgage-backed securities, other asset-backed securities and investments in limited partnerships which pursue a variety of long and short investment strategies across a broad array of asset classes. CNA’s investment portfolio supports its obligation to pay future insurance claims and provides investment returns which are an important part of CNA’s overall profitability. The financial market disruption in the first quarter of 2020 significantly impacted CNA’s investment portfolio. Losses from its limited partnership and common and preferred equity portfolios, as well as the recognition of impairment losses on certain fixed maturity holdings, negatively impacted net income for the three months ended March 31, 2020. While financial markets have partially recovered during the second quarter of 2020, there could be continued volatility in its investment portfolio. 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 June 30, June 30, 2020 2019 2020 2019 (In millions) Fixed income securities: Taxable fixed income securities $ 360 $ 385 $ 731 $ 768 Tax-exempt fixed income securities 80 80 158 162 Total fixed income securities 440 465 889 930 Limited partnership investments 44 37 (26 ) 113 Common stock 40 6 (15 ) 26 Other, net of investment expense 10 7 15 17 Pretax net investment income $ 534 $ 515 $ 863 $ 1,086 Fixed income securities after tax and noncontrolling interests $ 323 $ 341 $ 651 $ 681 Net investment income after tax and noncontrolling interests $ 385 $ 376 $ 634 $ 791 Effective income yield for the fixed income securities portfolio, before tax 4.6 % 4.8 % 4.6 % 4.8 % Effective income yield for the fixed income securities portfolio, after tax 3.8 % 3.9 % 3.8 % 3.9 % Limited partnership and common stock return 5.0 % 2.1 % (2.3 )% 6.8 % 54 Index CNA’s pretax net investment income for the three months ended June 30, 2020 increased $19 million as compared with the 2019 period, driven by limited partnership and common stock returns offset by lower yields on the fixed income portfolio. The limited partnership returns for the three months ended June 30, 2020 include limited partnerships representing 55% reporting on a current basis with no reporting lag and 45% reporting on a lag, primarily three months or less. Limited partnerships reporting on a current basis include substantially all of CNA’s hedge funds. CNA’s pretax net investment income decreased $223 million for the six months ended June 30, 2020 as compared with the 2019 period, driven by limited partnership and common stock returns and lower yields in the fixed income portfolio. Investment Gains (Losses) The components of CNA’s investment gains (losses) are presented in the following table: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 (In millions) Investment gains (losses): Fixed maturity securities: Corporate and other bonds $ (40 ) $ (7 ) $ (119 ) $ (7 ) States, municipalities and political subdivisions 33 4 33 12 Asset-backed 24 28 (14 ) Total fixed maturity securities 17 (3 ) (58 ) (9 ) Non-redeemable preferred stock 63 11 (70 ) 53 Short term and other (11 ) (6 ) (19 ) (11 ) Total investment gains (losses) 69 2 (147 ) 33 Income tax (expense) benefit (16 ) (1 ) 30 (9 ) Amounts attributable to noncontrolling interests (6 ) 12 (2 ) Investment gains (losses) attributable to Loews Corporation $ 47 $ 1 $ (105 ) $ 22 CNA’s investment gains (losses) increased $67 million for the three months ended June 30, 2020 as compared with the 2019 period. The increase was driven by the favorable change in fair value of non-redeemable preferred stock and higher net realized investment gains on sales of fixed maturity securities. Pretax impairment losses of $11 million on available-for-sale securities were recognized in the current quarter. CNA’s investment gains (losses) decreased $180 million for the six months ended June 30, 2020 as compared with the 2019 period. The decrease was driven by higher impairment losses and the unfavorable change in fair value of non-redeemable preferred stock. Pretax impairment losses of $103 million on available-for-sale securities and $13 million of credit losses on mortgage loans were recognized for the six months ended June 30, 2020. Further information on CNA’s investment gains and losses is set forth in Note 3 of the Notes to Consolidated Condensed Financial Statements included under Item 1. 55 Index 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, 2020 December 31, 2019 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 $ 3,997 $ 149 $ 4,136 $ 95 AAA 3,599 443 3,254 349 AA 6,717 920 6,663 801 A 9,257 1,218 9,062 1,051 BBB 16,867 1,742 16,839 1,684 Non-investment grade 2,338 (38 ) 2,253 101 Total $ 42,775 $ 4,434 $ 42,207 $ 4,081 As of June 30, 2020 and December 31, 2019, 1% of CNA’s fixed maturity portfolio was rated internally. AAA rated securities included $1.9 billion and $1.5 billion of pre-funded municipal bonds as of June 30, 2020 and December 31, 2019. 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, 2020 Fair Value Losses (In millions) U.S. Government, Government agencies and Government-sponsored enterprises $ 7 AAA 40 $ 1 AA 238 9 A 919 35 BBB 1,729 111 Non-investment grade 1,139 116 Total $ 4,072 $ 272 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, 2020 Fair Value Losses (In millions) Due in one year or less $ 158 $ 16 Due after one year through five years 1,154 73 Due after five years through ten years 2,168 136 Due after ten years 592 47 Total $ 4,072 $ 272 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 56 Index 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, 2020 December 31, 2019 Estimated Fair Value Effective Duration (Years) Estimated Fair Value Effective Duration (Years) (In millions of dollars) Investments supporting Other Insurance Operations $ 18,370 8.8 $ 18,015 8.9 Other investments 26,165 4.1 26,813 4.1 Total $ 44,535 6.0 $ 44,828 6.0 CNA’s investment portfolio is periodically analyzed for changes in duration and related price risk. Certain securities have duration characteristics that are variable based on market interest rates, credit spreads and other factors that may drive variability in the amount and timing of cash flows. Additionally, CNA periodically reviews the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures about Market Risk included under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019. Short Term Investments The carrying value of the components of CNA’s Short term investments are presented in the following table: June 30, December 31, 2020 2019 (In millions ) Short term investments: Commercial paper $ 1,181 U.S. Treasury securities $ 1,251 364 Other 207 316 Total short term investments $ 1,458 $ 1,861 Beginning in early March and continuing into the second quarter of 2020, CNA shifted its commercial paper holdings to U.S. Treasury securities. In addition to short term investments, CNA held $586 million and $242 million of cash as of June 30, 2020 and December 31, 2019. CRITICAL ACCOUNTING ESTIMATES Certain accounting policies require us to make estimates and judgments that affect the amounts reflected in the Consolidated Condensed Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts currently recorded in the financial statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. See the Critical Accounting Estimates and the Insurance Reserves sections of our MD&A included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019 for further information. 57 Index ACCOUNTING STANDARDS UPDATE For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please read Note 1 of the Notes to Consolidated Condensed Financial Statements included under Item 1. FORWARD-LOOKING STATEMENTS Investors are cautioned that certain statements contained in this Report as well as in other SEC filings and periodic press releases and certain oral statements made by us and our subsidiaries and our and their officials during presentations may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include, without limitation, any statement that does not directly relate to any historical or current fact and may project, indicate or imply future results, events, performance or achievements. Such statements may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions. In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected. Developments in any of the risks or uncertainties facing us or our subsidiaries, including those described under Part II, Item 1A, Risk Factors in this Report, Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, Part II, Item 1A, Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in our other filings with the SEC, could cause our results to differ materially from results that have been or may be anticipated or projected. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.