LOEWS CORP 10-Q

Item 1. Financial Statements. Loews Corporation and Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) September 30, 2020 December 31, 2019 (Dollar amounts in millions, except per share data) Assets: Investments: Fixed maturities, amortized cost of $ 38,979 and $ 38,157 , less allowance for credit loss of $ 47 and $ 0 $ 43,917 $ 42,240 Equity securities, cost of $ 1,391 and $ 1,244 1,368 1,306 Limited partnership investments 1,758 2,004 Other invested assets, primarily mortgage loans, less allowance for credit loss of $ 21 and $ 0 1,176 1,072 Short term investments 4,553 4,628 Total investments 52,772 51,250 Cash 886 336 Receivables 7,850 7,675 Property, plant and equipment 10,468 15,568 Goodwill 765 767 Deferred non-insurance warranty acquisition expenses 2,998 2,840 Deferred acquisition costs of insurance subsidiaries 697 662 Other assets 3,028 3,145 Total assets $ 79,464 $ 82,243 Liabilities and Equity: Insurance reserves: Claim and claim adjustment expense $ 22,534 $ 21,720 Future policy benefits 12,978 12,311 Unearned premiums 5,020 4,583 Total insurance reserves 40,532 38,614 Payable to brokers 466 108 Short term debt 35 77 Long term debt 10,373 11,456 Deferred income taxes 913 1,168 Deferred non-insurance warranty revenue 3,951 3,779 Other liabilities 4,574 5,111 Total liabilities 60,844 60,313 Commitments and contingent liabilities Preferred stock, $ 0.10 par value: Authorized – 100,000,000 shares Common stock, $ 0.01 par value: Authorized – 1,800,000,000 shares Issued – 291,393,899 and 291,210,222 shares 3 3 Additional paid-in capital 3,379 3,374 Retained earnings 14,437 15,823 Accumulated other comprehensive income (loss) 238 ( 68 ) 18,057 19,132 Less treasury stock, at cost ( 16,353,956 and 240,000 shares) ( 685 ) ( 13 ) Total shareholders’ equity 17,372 19,119 Noncontrolling interests 1,248 2,811 Total equity 18,620 21,930 Total liabilities and equity $ 79,464 $ 82,243 See accompanying Notes to Consolidated Condensed Financial Statements. 3 Index Loews Corporation and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions, except per share data) Revenues: Insurance premiums $ 1,953 $ 1,890 $ 5,672 $ 5,517 Net investment income 540 525 1,347 1,733 Investment gains (losses) (Note 2) 46 8 ( 1,312 ) 41 Non-insurance warranty revenue 317 292 926 858 Operating revenues and other 609 960 2,241 2,906 Total 3,465 3,675 8,874 11,055 Expenses: Insurance claims and policyholders’ benefits 1,616 1,614 4,683 4,323 Amortization of deferred acquisition costs 360 345 1,046 1,025 Non-insurance warranty expense 293 278 859 801 Operating expenses and other 876 1,234 3,894 3,614 Interest 137 144 404 449 Total 3,282 3,615 10,886 10,212 Income (loss) before income tax 183 60 ( 2,012 ) 843 Income tax (expense) benefit ( 21 ) ( 21 ) 284 ( 183 ) Net income (loss) 162 39 ( 1,728 ) 660 Amounts attributable to noncontrolling interests ( 23 ) 33 400 55 Net income (loss) attributable to Loews Corporation $ 139 $ 72 $ ( 1,328 ) $ 715 Basic and diluted net income (loss) per share $ 0.50 $ 0.24 $ ( 4.70 ) $ 2.34 Weighted average shares outstanding: Shares of common stock 279.40 301.65 282.63 305.08 Dilutive potential shares of common stock 0.09 0.70 0.65 Total weighted average shares outstanding assuming dilution 279.49 302.35 282.63 305.73 See accompanying Notes to Consolidated Condensed Financial Statements. 4 Index Loews Corporation and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions) Net income (loss) $ 162 $ 39 $ ( 1,728 ) $ 660 Other comprehensive income (loss), after tax Changes in: Net unrealized gains (losses) on investments with an allowance for credit losses 6 ( 3 ) Net unrealized gains on other investments 207 41 354 1,007 Total unrealized gains on investments 213 41 351 1,007 Unrealized gains (losses) on cash flow hedges 1 ( 4 ) ( 18 ) ( 16 ) Pension and postretirement benefits 7 10 27 25 Foreign currency translation 38 ( 31 ) ( 17 ) ( 11 ) Other comprehensive income 259 16 343 1,005 Comprehensive income (loss) 421 55 ( 1,385 ) 1,665 Amounts attributable to noncontrolling interests ( 49 ) 31 363 ( 53 ) Total comprehensive income (loss) attributable to Loews Corporation $ 372 $ 86 $ ( 1,022 ) $ 1,612 See accompanying Notes to Consolidated Condensed Financial Statements. 5 Index Loews Corporation and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF EQUITY (Unaudited) Loews Corporation Shareholders Total Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Common Stock Held in Treasury Noncontrolling Interests (In millions) Balance, July 1, 2019 $ 22,394 $ 3 $ 3,612 $ 16,374 $ 3 $ ( 478 ) $ 2,880 Net income 39 72 ( 33 ) Other comprehensive income 16 14 2 Dividends paid ($ 0.0625 per share) ( 29 ) ( 19 ) ( 10 ) Purchases of Loews Corporation treasury stock ( 169 ) ( 169 ) Purchases of subsidiary stock from noncontrolling interests ( 2 ) ( 2 ) Stock-based compensation 9 8 1 Balance, September 30, 2019 $ 22,258 $ 3 $ 3,620 $ 16,427 $ 17 $ ( 647 ) $ 2,838 Balance, July 1, 2020 $ 18,413 $ 3 $ 3,371 $ 14,316 $ 5 $ ( 491 ) $ 1,209 Net income 162 139 23 Other comprehensive income 259 233 26 Dividends paid ($ 0.0625 per share) ( 27 ) ( 17 ) ( 10 ) Purchases of Loews Corporation treasury stock ( 195 ) ( 195 ) Stock-based compensation 8 8 Other - ( 1 ) 1 Balance, September 30, 2020 $ 18,620 $ 3 $ 3,379 $ 14,437 $ 238 $ ( 685 ) $ 1,248 See accompanying Notes to Consolidated Condensed Financial Statements. 6 Index Loews Corporation and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF EQUITY (Unaudited) Loews Corporation Shareholders Total Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Common Stock Held in Treasury Noncontrolling Interests (In millions) Balance, January 1, 2019 $ 21,386 $ 3 $ 3,627 $ 15,773 $ ( 880 ) $ ( 5 ) $ 2,868 Net income 660 715 ( 55 ) Other comprehensive income 1,005 897 108 Dividends paid ($ 0.1875 per share) ( 145 ) ( 57 ) ( 88 ) Purchases of Loews Corporation treasury stock ( 642 ) ( 642 ) Purchases of subsidiary stock from noncontrolling interests ( 18 ) ( 18 ) Stock-based compensation 17 ( 5 ) 22 Other ( 5 ) ( 2 ) ( 4 ) 1 Balance, September 30, 2019 $ 22,258 $ 3 $ 3,620 $ 16,427 $ 17 $ ( 647 ) $ 2,838 Balance, December 31, 2019, as reported $ 21,930 $ 3 $ 3,374 $ 15,823 $ ( 68 ) $ ( 13 ) $ 2,811 Cumulative effect adjustment from change in accounting standards (Note 1) ( 5 ) ( 5 ) Balance, January 1, 2020, as adjusted 21,925 3 3,374 15,818 ( 68 ) ( 13 ) 2,811 Net loss ( 1,728 ) ( 1,328 ) ( 400 ) Other comprehensive income 343 306 37 Dividends paid ($ 0.1875 per share) ( 141 ) ( 53 ) ( 88 ) Deconsolidation of Diamond Offshore ( 1,087 ) ( 1,087 ) Purchases of Loews Corporation treasury stock ( 673 ) ( 673 ) Purchases of subsidiary stock from noncontrolling interests ( 37 ) 5 ( 42 ) Stock-based compensation 17 ( 1 ) 18 Other 1 1 1 ( 1 ) Balance, September 30, 2020 $ 18,620 $ 3 $ 3,379 $ 14,437 $ 238 $ ( 685 ) $ 1,248 See accompanying Notes to Consolidated Condensed Financial Statements. 7 Index Loews Corporation and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2020 2019 (In millions) Operating Activities: Net income (loss) $ ( 1,728 ) $ 660 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities, net 2,503 747 Changes in operating assets and liabilities, net: Receivables ( 273 ) 179 Deferred acquisition costs ( 36 ) ( 37 ) Insurance reserves 1,479 337 Other assets ( 411 ) ( 386 ) Other liabilities 238 315 Trading securities ( 481 ) ( 544 ) Net cash flow provided by operating activities 1,291 1,271 Investing Activities: Purchases of fixed maturities ( 8,466 ) ( 7,053 ) Proceeds from sales of fixed maturities 5,023 4,872 Proceeds from maturities of fixed maturities 2,706 2,116 Purchases of limited partnership investments ( 144 ) ( 167 ) Proceeds from sales of limited partnership investments 305 680 Purchases of property, plant and equipment ( 584 ) ( 743 ) Acquisitions - ( 257 ) Dispositions 47 137 Deconsolidation of Diamond Offshore ( 483 ) - Change in short term investments 706 26 Other, net ( 218 ) ( 95 ) Net cash flow used by investing activities ( 1,108 ) ( 484 ) Financing Activities: Dividends paid ( 53 ) ( 57 ) Dividends paid to noncontrolling interests ( 88 ) ( 88 ) Purchases of Loews Corporation treasury stock ( 678 ) ( 643 ) Purchases of subsidiary stock from noncontrolling interests ( 37 ) ( 18 ) Principal payments on debt ( 1,157 ) ( 1,796 ) Issuance of debt 2,393 1,870 Other, net ( 13 ) ( 15 ) Net cash flow provided (used) by financing activities 367 ( 747 ) Effect of foreign exchange rate on cash - ( 3 ) Net change in cash 550 37 Cash, beginning of period 336 405 Cash, end of period $ 886 $ 442 See accompanying Notes to Consolidated Condensed Financial Statements. 8 Index Loews Corporation and Subsidiaries NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Loews Corporation is a holding company. Its consolidated subsidiaries are engaged in the following lines of business: commercial property and casualty insurance (CNA Financial Corporation (“CNA”), a 89.6 % owned subsidiary); transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP (“Boardwalk Pipelines”), a wholly owned subsidiary); the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels & Co”), a wholly owned subsidiary); and the manufacture of rigid plastic packaging solutions (Altium Packaging LLC (“Altium Packaging”), a 99 % owned subsidiary). Unless the context otherwise requires, the term “Company” as used herein means Loews Corporation including its consolidated subsidiaries and the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders. In the second quarter of 2020, Diamond Offshore Drilling, Inc. (“Diamond Offshore”) was deconsolidated from the Company’s consolidated financial statements. See Note 2 for further discussion. In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2020 and December 31, 2019 and results of operations, comprehensive income and changes in shareholders’ equity for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019. Net income (loss) for the third quarter and first nine months of each of the years is not necessarily indicative of net income (loss) for that entire year. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company presents basic and diluted net income (loss) per share on the Consolidated Condensed Statements of Operations. Basic net income (loss) per share excludes dilution and is computed by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three months ended September 30, 2020 there were 0.4 million shares attributable to employee stock-based compensation awards excluded from the diluted weighted average shares outstanding amounts because the effect would have been antidilutive. For the three months ended September 30, 2019 and the nine months ended September 30, 2020 and 2019 there were no shares attributable to employee stock-based compensation awards excluded from the diluted weighted average shares outstanding amounts because the effect would have been antidilutive. Accounting changes – In June of 2016 , the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13 , “Financial Instruments-Credit Losses (Topic 326 ) : Measurement of Credit Losses on Financial Instruments.” The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. For financial assets measured at cost, the expected credit loss model requires immediate recognition of estimated credit losses over the life of the asset and presentation of the asset at the net amount expected to be collected. This new guidance applies to mortgage loan investments, reinsurance and insurance receivables and other financing and trade receivables. For available-for-sale fixed maturity securities carried at fair value, estimated credit losses will continue to be measured at the present value of expected cash flows, however, the other than temporary impairment (“OTTI”) concept has been eliminated. Under the previous guidance, estimated credit impairments resulted in a write down of amortized cost. Under the new guidance, estimated credit losses are recognized through an allowance and reversals of the allowance are permitted if the estimate of credit losses declines. For available-for-sale fixed maturity securities where there is an intent to sell, impairment will continue to result in a write down of amortized cost. On January 1, 2020 , the Company adopted the updated guidance using a modified retrospective method with a cumulative effect adjustment recorded to beginning Retained earnings. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. A prospective transition approach is required for available-for-sale fixed maturity securities that were purchased with credit deterioration (“PCD assets”) or have recognized an OTTI write down prior to the effective date. The cumulative effect of the accounting change resulted in a $ 5 million decrease in Retained earnings, after tax and noncontrolling interests. 9 Index The allowance for doubtful accounts for insurance, reinsurance and trade receivables was unchanged as a result of adopting the new guidance. At adoption, an allowance for credit losses of $ 6 million was established for available-for-sale fixed maturity securities that were PCD assets, with a corresponding increase to amortized cost, resulting in no adjustment to the carrying value of the securities. Below is a summary of the significant accounting policies impacted by the adoption of ASU 2016-13 . The allowance for credit losses is a valuation account that is reported as a reduction of a financial asset’s cost basis and is measured on a pool basis when similar risk characteristics exist. The allowance is estimated using relevant available information from both internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses and adjustments may be made to reflect current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made for additional factors that come to the Company’s attention. This could include significant shifts in counterparty financial strength ratings, aging of past due receivables, amounts sent to collection agencies, or other underlying portfolio changes. Current and forecast economic conditions are considered, using a variety of economic metrics and forecast indices. The sensitivity of expected credit losses relative to changes to the forecast of economic conditions can vary by financial asset class. A reasonable and supportable forecast period is up to 24 months from the balance sheet date. After the forecast period, the Company reverts to historical credit experience. Collateral arrangements such as letters of credit and amounts held in beneficiary trusts to mitigate credit risk are considered in the estimate of the net amount expected to be collected. A policy election has been made to present accrued interest balances separately from the amortized cost basis of assets, and a practical expedient has been elected to exclude the accrued interest from the tabular disclosures for mortgage loans and available-for-sale securities. An election has been made not to estimate an allowance for credit losses on accrued interest receivables. The accrual of interest income is discontinued and the asset is placed on nonaccrual status within 90 days of the interest becoming delinquent. Interest accrued but not received for assets on nonaccrual status is reversed through Net investment income. Interest received for assets that are on nonaccrual status is recognized as payment is received. The asset is returned to accrual status when the principal and interest amounts contractually due are brought current, and future payments are expected. Interest receivables are presented in Receivables on the Consolidated Condensed Balance Sheet. See Notes 3 and 10 for more information on credit losses. Recently issued ASUs – In August of 2018 , the FASB issued ASU 2018-12 , “Financial Services – Insurance (Topic 944 ) : Targeted Improvements to the Accounting for Long-Duration Contracts.” The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entities to update annually cash flow assumptions, including morbidity and persistency, and update quarterly discount rate assumptions using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in Net income and the effect of changes in discount rate assumptions will be recorded in Other comprehensive income (“OCI”). This guidance is effective for interim and annual periods beginning after December 15, 2021, however the FASB has approved a one year deferral of the effective date. Early adoption is permitted. The Company may elect to apply the guidance using either a modified retrospective transition method or a full retrospective transition method. The guidance requires restatement of prior periods presented. The Company plans to use the modified retrospective transition method at adoption and is currently evaluating the effect the updated guidance will have on its consolidated financial statements, including increased disclosure requirements. The annual updating of cash flow assumptions is expected to increase income statement volatility. While the requirements of the new guidance represent a material change from existing accounting guidance, the underlying economics of the business and related cash flows will be unchanged. 2. Deconsolidation of Diamond Offshore 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 Diamond Offshore’s 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. See Note 14 for Diamond Offshore’s revenues and expenses through the Filing Date. 10 Index Through the Filing Date, Diamond Offshore’s results were included in Loews Corporation’s consolidated financial statements and Loews Corporation recognized in its earnings its proportionate share of Diamond Offshore’s losses through such date. The deconsolidation resulted in the recognition of a loss of $ 1.2 billion ($ 957 million after tax) during the nine months ended September 30, 2020, which is reported within Investment gains (losses) on the Consolidated Condensed Statements of Operations. This loss represents the difference between the carrying value and the estimated fair value, which was immaterial, of Loews Corporation’s investment in equity securities of Diamond Offshore as of the Filing Date. 3. Investments Net investment income is as follows: Three Months Ended September 30, Nine Months Ended September 30 2020 2019 2020 2019 (In millions) Fixed maturity securities $ 432 $ 452 $ 1,300 $ 1,362 Limited partnership investments 71 16 26 140 Short term investments 2 13 11 42 Equity securities 18 16 24 62 Income from trading portfolio (a) 22 34 144 Other 14 13 44 39 Total investment income 559 544 1,405 1,789 Investment expenses ( 19 ) ( 19 ) ( 58 ) ( 56 ) Net investment income $ 540 $ 525 $ 1,347 $ 1,733 (a) Net unrealized gains (losses) related to changes in fair value on securities still held were $ 11 and $ 17 for the three months ended September 30, 2020 and 2019 and $ 13 and $ 55 for the nine months ended September 30, 2020 and 2019 . Investment gains (losses) are as follows: Three Months Ended September 30, Nine Months Ended September 30 2020 2019 2020 2019 (In millions) Fixed maturity securities $ 26 $ 3 $ ( 32 ) $ ( 6 ) Equity securities 25 7 ( 45 ) 60 Derivative instruments ( 2 ) ( 2 ) ( 7 ) ( 13 ) Short term investments and other ( 3 ) ( 17 ) Deconsolidation of Diamond Offshore (see Note 2) ( 1,211 ) Investment gains (losses) (a) $ 46 $ 8 $ ( 1,312 ) $ 41 (a) Gross investment gains on available-for-sale securities were $ 44 and $ 34 for the three months ended September 30, 2020 and 2019 and $ 175 and $ 98 for the nine months ended September 30, 2020 and 2019 . Gross investment losses on available-for-sale securities were $ 18 and $ 31 for the three months ended September 30, 2020 and 2019 and $ 207 and $ 104 for the nine months ended September 30, 2020 and 2019. During the three and nine months ended September 30, 2020 , $ 25 of investment gains and $ 44 of investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2020. During the three and nine months ended September 30, 2019, $ 7 and $ 60 of investment gains were recognized due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2019 . The allowance for credit loss related to available-for-sale fixed maturity securities is the difference between the present value of cash flows expected to be collected and the amortized cost basis. All available evidence is considered when determining whether an investment requires a credit loss write-down or allowance to be recorded. Examples of such evidence may include the financial condition and near term prospects of the issuer, whether the issuer is current with interest and principal payments, credit ratings on the security or changes in ratings over time, general market conditions and industry, sector or other specific factors and whether it is likely that the amortized cost will be recovered through the collection of cash flows. Changes in the allowance are presented as a component of Investment gains (losses) on the Consolidated Condensed Statements of Operations. 11 Index The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and PCD assets. Accrued interest receivables on available-for-sale fixed maturity securities totaled $ 390 million and is excluded from the estimate of expected credit losses and the amortized cost basis in the tables within this Note. Three months ended September 30 , 2020 Corporate and Other Bonds Asset- backed Total (In millions) Allowance for credit losses: Balance as of July 1, 2020 $ 39 $ 12 $ 51 Additions to the allowance for credit losses: For securities for which credit losses were not previously recorded 4 4 For available-for-sale securities accounted for as PCD assets 1 1 Reductions to the allowance for credit losses: Securities sold during the period (realized) 9 9 Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period ( 1 ) 1 Total allowance for credit losses $ 34 $ 13 $ 47 Nine months ended September 30 , 2020 Allowance for credit losses: Balance as of December 31, 2019 $ - $ - $ - Additions to the allowance for credit losses: Impact of adopting ASC 326 6 6 For securities for which credit losses were not previously recorded 62 12 74 For available-for-sale securities accounted for as PCD assets 3 3 Reductions to the allowance for credit losses: Securities sold during the period (realized) 15 15 Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis 1 1 Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period ( 21 ) 1 ( 20 ) Total allowance for credit losses $ 34 $ 13 $ 47 The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions) Fixed maturity securities available-for-sale: Corporate and other bonds $ 4 $ 12 $ 94 $ 24 Asset-backed 1 2 14 10 Impairment losses recognized in earnings $ 5 $ 14 $ 108 $ 34 12 Index The amortized cost and fair values of fixed maturity securities are as follows: September 30, 2020 Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses (a) Estimated Fair Value (In millions) Fixed maturity securities: Corporate and other bonds $ 20,734 $ 3,047 $ 89 $ 34 $ 23,658 States, municipalities and political subdivisions 9,459 1,766 1 11,224 Asset-backed: Residential mortgage-backed 3,796 153 1 3,948 Commercial mortgage-backed 2,048 85 70 13 2,050 Other asset-backed 2,097 76 19 2,154 Total asset-backed 7,941 314 90 13 8,152 U.S. Treasury and obligations of government-sponsored enterprises 347 4 1 350 Foreign government 481 29 510 Fixed maturities available-for-sale 38,962 5,160 181 47 43,894 Fixed maturities trading 17 6 23 Total fixed maturity securities $ 38,979 $ 5,166 $ 181 $ 47 $ 43,917 December 31, 2019 Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Unrealized OTTI Losses (Gains) (a) Fixed maturity securities: Corporate and other bonds $ 19,789 $ 2,292 $ 32 $ 22,049 States, municipalities and political subdivisions 9,093 1,559 10,652 Asset-backed: Residential mortgage-backed 4,387 133 1 4,519 $ ( 17 ) Commercial mortgage-backed 2,265 86 5 2,346 1 Other asset-backed 1,925 41 4 1,962 ( 3 ) Total asset-backed 8,577 260 10 8,827 ( 19 ) U.S. Treasury and obligations of government-sponsored enterprises 146 1 2 145 Foreign government 491 14 1 504 Redeemable preferred stock 10 10 Fixed maturities available-for-sale 38,106 4,126 45 42,187 ( 19 ) Fixed maturities trading 51 2 53 Total fixed maturities $ 38,157 $ 4,128 $ 45 $ 42,240 $ ( 19 ) (a) On January 1, 2020, the Company adopted ASU 2016-13; see Note 1. The Unrealized OTTI Losses (Gains) column that tracked subsequent valuation changes on securities for which a credit loss had previously been recorded has been replaced with the Allowance for Credit Losses column. Prior period amounts were not adjusted for the adoption of this standard. The net unrealized gains on available-for-sale investments included in the tables above are recorded as a component of Accumulated other comprehensive income (loss) (“AOCI”). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting long term care products and structured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (loss) (“Shadow Adjustments”). As of September 30, 2020 and December 31, 2019, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $ 2.3 billion and $ 2.0 billion (after tax and noncontrolling interests). 13 Index The available-for-sale securities in a gross unrealized loss position for which an allowance for credit losses has not been recorded are as follows: Less than 12 Months 12 Months or Longer Total September 30, 2020 Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses (In millions) Fixed maturity securities: Corporate and other bonds $ 1,579 $ 86 $ 56 $ 3 $ 1,635 $ 89 States, municipalities and political subdivisions 154 1 154 1 Asset-backed: Residential mortgage-backed 98 1 13 111 1 Commercial mortgage-backed 693 69 19 1 712 70 Other asset-backed 432 18 13 1 445 19 Total asset-backed 1,223 88 45 2 1,268 90 U.S. Treasury and obligations of government-sponsored enterprises 25 1 25 1 Foreign government 20 20 Total fixed maturity securities $ 3,001 $ 176 $ 101 $ 5 $ 3,102 $ 181 December 31, 2019 Fixed maturity securities: Corporate and other bonds $ 914 $ 21 $ 186 $ 11 $ 1,100 $ 32 States, municipalities and political subdivisions 34 34 Asset-backed: Residential mortgage-backed 249 1 30 279 1 Commercial mortgage-backed 381 3 20 2 401 5 Other asset-backed 449 3 33 1 482 4 Total asset-backed 1,079 7 83 3 1,162 10 U.S. Treasury and obligations of government-sponsored enterprises 62 2 2 64 2 Foreign government 59 1 1 60 1 Total fixed maturity securities $ 2,148 $ 31 $ 272 $ 14 $ 2,420 $ 45 Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 2020 securities in a gross unrealized loss position table above are not indicative of the ultimate collectability of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional impairment losses to be recorded as of September 30, 2020. Contractual Maturity The following table presents available-for-sale fixed maturity securities by contractual maturity. September 30, 2020 December 31, 2019 Cost or Amortized Cost Estimated Fair Value Cost or Amortized Cost Estimated Fair Value (In millions) Due in one year or less $ 1,372 $ 1,392 $ 1,334 $ 1,356 Due after one year through five years 11,955 12,625 9,746 10,186 Due after five years through ten years 13,026 14,359 14,892 15,931 Due after ten years 12,609 15,518 12,134 14,714 Total $ 38,962 $ 43,894 $ 38,106 $ 42,187 Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life. 14 Index Mortgage Loans The allowance for expected credit losses on mortgage loans is developed by assessing the credit quality of pools of mortgage loans in good standing using debt service coverage ratios (“DSCR”) and loan-to-value (“LTV”) ratios. The DSCR compares a property’s net operating income to its debt service payments, including principal and interest. The LTV ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. The pools developed to measure the credit loss allowance use increments of DSCR and LTV to draw distinctions between risk levels. Changes in the allowance for mortgage loans are presented as a component of Investment gains (losses) on the Consolidated Condensed Statements of Operations. Mortgage loans are included in Other invested assets on the Consolidated Condensed Balance Sheets. The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination: Mortgage Loans Amortized Cost Basis by Origination Year (a) As of September 30, 2020 2020 2019 2018 2017 2016 Prior Total (In millions) DSCR ≥1.6x LTV less than 55% $ 75 $ 33 $ 19 $ 85 $ 33 $ 161 $ 406 LTV 55% to 65% 33 29 55 12 129 LTV greater than 65% 5 12 17 DSCR 1.2x - 1.6x LTV less than 55% 31 10 13 16 79 149 LTV 55% to 65% 20 54 32 24 130 LTV greater than 65% 48 103 151 DSCR ≤1.2x LTV less than 55% LTV 55% to 65% 14 14 28 LTV greater than 65% 23 45 24 7 99 Total $ 143 $ 296 $ 104 $ 222 $ 85 $ 259 $ 1,109 (a) The values in the table above reflect DSCR on a standardized amortization period and LTV based on the most recent appraised values trended forward using changes in a commercial real estate price index. Derivative Financial Instruments A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under related agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets. September 30, 2020 December 31, 2019 Contractual/ Notional Estimated Fair Value Contractual/ Notional Estimated Fair Value Amount Asset (Liability) Amount Asset (Liability) (In millions) With hedge designation: Interest rate swaps $ 675 $ ( 28 ) $ 715 $ ( 8 ) Without hedge designation: Equity Options – purchased 57 $ 1 – written 100 ( 1 ) Interest rate swaps 80 ( 3 ) Embedded derivative on funds withheld liability 193 ( 16 ) 182 ( 7 ) 15 Index Investment Commitments As part of the overall investment strategy, investments are made in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications and obligations related to private placement securities. As of September 30, 2020, commitments to purchase or fund were approximately $ 1.2 billion and to sell were approximately $ 55 million under the terms of these investments. 4. Fair Value Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable: ● Level 1 – Quoted prices for identical instruments in active markets. ● Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. ● Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable. Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted. Control procedures are performed over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include: (i) the review of pricing service methodologies or broker pricing qualifications, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria and (iv) detailed analysis, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities. Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock. September 30, 2020 Level 1 Level 2 Level 3 Total (In millions) Fixed maturity securities: Corporate bonds and other $ 372 $ 23,452 $ 694 $ 24,518 States, municipalities and political subdivisions 11,179 45 11,224 Asset-backed 7,917 235 8,152 Fixed maturities available-for-sale 372 42,548 974 43,894 Fixed maturities trading 15 8 23 Total fixed maturities $ 372 $ 42,563 $ 982 $ 43,917 Equity securities $ 655 $ 674 $ 39 $ 1,368 Short term and other 4,379 56 4,435 Payable to brokers ( 40 ) ( 31 ) ( 71 ) 16 Index December 31, 2019 Level 1 Level 2 Level 3 Total (In millions) Fixed maturity securities: Corporate bonds and other $ 175 $ 22,065 $ 468 $ 22,708 States, municipalities and political subdivisions 10,652 10,652 Asset-backed 8,662 165 8,827 Fixed maturities available-for-sale 175 41,379 633 42,187 Fixed maturities trading 49 4 53 Total fixed maturities $ 175 $ 41,428 $ 637 $ 42,240 Equity securities $ 629 $ 658 $ 19 $ 1,306 Short term and other 3,138 1,383 4,521 Receivables 2 2 Payable to brokers ( 18 ) ( 10 ) ( 28 ) 17 Index The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2020 and 2019: Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and 2020 Balance, July 1 Included in Net Income (Loss) Included in OCI Purchases Sales Settlements Transfers into Level 3 Transfers out of Level 3 Balance, September 30 Liabilities Held at September 30 Liabilities Held at September 30 (In millions) Fixed maturity securities: Corporate bonds and other $ 555 $ 5 $ 129 $ ( 3 ) $ 8 $ 694 $ 5 States, municipalities and political subdivisions - 45 45 Asset-backed 222 9 20 ( 14 ) $ ( 2 ) 235 8 Fixed maturities available-for-sale 777 $ - 14 194 $ - ( 17 ) 8 ( 2 ) 974 $ - 13 Fixed maturities trading 4 4 8 4 Total fixed maturities $ 781 $ 4 $ 14 $ 194 $ - $ ( 17 ) $ 8 $ ( 2 ) $ 982 $ 4 $ 13 Equity securities $ 27 $ 12 $ 39 18 Index Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and 2019 Balance, July 1 Included in Net Income (Loss) Included in OCI Purchases Sales Settlements Transfers into Level 3 Transfers out of Level 3 Balance, September 30 Liabilities Held at September 30 Liabilities Held at September 30 (In millions) Fixed maturity securities: Corporate bonds and other $ 338 $ 14 $ 79 $ ( 3 ) $ 428 $ 14 Asset-backed 193 1 22 ( 4 ) $ ( 16 ) 196 2 Fixed maturities available-for-sale 531 $ - 15 101 $ - ( 7 ) $ - ( 16 ) 624 $ - 16 Fixed maturities trading 4 4 Total fixed maturities $ 535 $ - $ 15 $ 101 $ - $ ( 7 ) $ - $ ( 16 ) $ 628 $ - $ 16 Equity securities $ 23 $ 23 19 Index Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and 2020 Balance, January 1 Included in Net Income (Loss) Included in OCI Purchases Sales Settlements Transfers into Level 3 Transfers out of Level 3 Balance, September 30 Liabilities Held at September 30 Liabilities Held at September 30 (In millions) Fixed maturity securities: Corporate bonds and other $ 468 $ 27 $ 200 $ ( 9 ) $ 8 $ 694 $ 29 States, municipalities and political subdivisions - 45 45 Asset-backed 165 18 100 $ ( 9 ) ( 22 ) $ ( 17 ) 235 19 Fixed maturities available-for-sale 633 $ - 45 345 ( 9 ) ( 31 ) 8 ( 17 ) 974 $ - 48 Fixed maturities trading 4 4 8 4 Total fixed maturities $ 637 $ 4 $ 45 $ 345 $ ( 9 ) $ ( 31 ) $ 8 $ ( 17 ) $ 982 $ 4 $ 48 Equity securities $ 19 $ ( 7 ) $ 12 $ 15 $ 39 $ ( 7 ) 20 Index Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses) Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and 2019 Balance, January 1 Included in Net Income (Loss) Included in OCI Purchases Sales Settlements Transfers into Level 3 Transfers out of Level 3 Balance, September 30 Liabilities Held at September 30 Liabilities Held at September 30 (In millions) Fixed maturity securities: Corporate bonds and other $ 222 $ 34 $ 211 $ ( 7 ) $ ( 32 ) $ 428 $ 29 Asset-backed 197 8 42 ( 12 ) $ 45 ( 84 ) 196 9 Fixed maturities available-for-sale 419 $ - 42 253 $ - ( 19 ) 45 ( 116 ) 624 $ - 38 Fixed maturities trading 6 ( 2 ) 4 ( 2 ) Total fixed maturities $ 425 $ ( 2 ) $ 42 $ 253 $ - $ ( 19 ) $ 45 $ ( 116 ) $ 628 $ ( 2 ) $ 38 Equity securities $ 19 $ 2 $ 2 $ 23 $ 2 Net investment gains and losses are reported in Net income (loss) as follows: Major Category of Assets and Liabilities Consolidated Condensed Statements of Operations Line Items Fixed maturity securities available-for-sale Investment gains (losses) Fixed maturity securities trading Net investment income Equity securities Investment gains (losses) and Net investment income Other invested assets Investment gains (losses) and Net investment income Derivative financial instruments held in a trading portfolio Net investment income Derivative financial instruments, other Investment gains (losses) and Operating revenues and other 21 Index Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume. Valuation Methodologies and Inputs The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified. Fixed Maturity Securities Level 1 securities include highly liquid government securities and exchange traded bonds valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation, and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable. Equity Securities Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with some inputs that are not market observable. Derivative Financial Instruments Equity options are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Over-the-counter derivatives, principally interest rate swaps, currency forwards, total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace. Short Term and Other Invested Assets Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded open-end funds valued using quoted market prices. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented in the Consolidated Condensed Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value. 22 Index Significant Unobservable Inputs The following tables present quantitative information about the significant unobservable inputs utilized in the fair value measurement of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available. The weighted average rate is calculated based on fair value. September 30, 2020 Estimated Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average) (In millions) Fixed maturity securities $ 888 Discounted cash flow Credit spread 1 % – 10 % ( 3 %) December 31, 2019 Fixed maturity securities $ 525 Discounted cash flow Credit spread 1 % – 6 % ( 2 %) For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement. Financial Assets and Liabilities Not Measured at Fair Value The carrying amount, estimated fair value and the level of the fair value hierarchy of the financial assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude finance lease obligations. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items. Carrying Estimated Fair Value September 30, 2020 Amount Level 1 Level 2 Level 3 Total (In millions) Assets: Other invested assets, primarily mortgage loans $ 1,088 $ 1,159 $ 1,159 Liabilities: Short term debt 32 $ 8 25 33 Long term debt 10,343 10,641 757 11,398 December 31, 2019 Assets: Other invested assets, primarily mortgage loans $ 994 $ 1,025 $ 1,025 Liabilities: Short term debt 75 $ 9 66 75 Long term debt 11,443 10,884 626 11,510 5. Property, Plant and Equipment Asset Impairments During the first quarter of 2020, the offshore drilling business climate experienced a significant adverse change, primarily as a result of the market impacts of the oil price war between Saudi Arabia and Russia and regulatory, market and commercial challenges arising as a result of the COVID-19 pandemic and efforts to mitigate the spread of the virus, both of which resulted in a dramatic decline in oil prices. During the first quarter of 2020, five drilling rigs that 23 Index had indicators of impairment were evaluated. Based on the assumptions and analysis at that time, it was determined that the carrying values of four of these rigs were impaired. The fair values of these rigs were estimated using an income approach, whereby the fair value of each rig was estimated based on a calculation of the rig’s future net cash flows. These calculations utilized significant unobservable inputs, including management’s assumptions related to estimated dayrate revenue, rig utilization, estimated capital expenditures, repair and regulatory survey costs, as well as estimated proceeds that may be received on ultimate disposition of each rig. These fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. An aggregate asset impairment charge of $ 774 million ( $ 408 million after tax and noncontrolling interests) was recorded for the nine months ended September 30, 2020 and is reported within Operating expenses and other on the Consolidated Condensed Statements of Operations. 6. Claim and Claim Adjustment Expense Reserves Property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including incurred but not reported (“IBNR”) claims as of the reporting date. Reserve projections are based primarily on detailed analysis of the facts in each case, experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions, including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves. Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers’ compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the ultimate cost for insurance losses will not exceed current estimates. Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company’s results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $ 160 million and $ 32 million for the three months ended September 30, 2020 and 2019 and $ 536 million and $ 128 million for the nine months ended September 30, 2020 and 2019. Net catastrophe losses for the three months ended September 30, 2020 were driven by severe weather-related events, primarily Hurricanes Laura, Isaias and Sally and the Midwest derecho. Net catastrophe losses for the nine months ended September 30, 2020 included $ 273 million primarily related to severe weather-related events, $ 195 million related to the COVID-19 pandemic and $ 68 million related to civil unrest. Net catastrophe losses in 2019 primarily related to U.S. weather-related events. 24 Index Liability for Unpaid Claim and Claim Adjustment Expenses The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of Other Insurance Operations. Nine Months Ended September 30 2020 2019 (In millions) Reserves, beginning of year: Gross $ 21,720 $ 21,984 Ceded 3,835 4,019 Net reserves, beginning of year 17,885 17,965 Net incurred claim and claim adjustment expenses: Provision for insured events of current year 4,425 3,968 Increase (decrease) in provision for insured events of prior years ( 68 ) ( 65 ) Amortization of discount 143 143 Total net incurred (a) 4,500 4,046 Net payments attributable to: Current year events ( 556 ) ( 599 ) Prior year events ( 3,285 ) ( 3,547 ) Total net payments ( 3,841 ) ( 4,146 ) Foreign currency translation adjustment and other 39 29 Net reserves, end of period 18,583 17,894 Ceded reserves, end of period 3,951 3,702 Gross reserves, end of period $ 22,534 $ 21,596 (a) Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Condensed Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above. Net Prior Year Development Changes in estimates of claim and claim adjustment expense reserves net of reinsurance, for prior years are defined as net prior year loss reserve development. These changes can be favorable or unfavorable. Favorable net prior year development of $ 15 million and unfavorable net prior year development of $ 16 million was recorded for commercial property and casualty operations (“Property & Casualty Operations”) for the three months ended September 30, 2020 and 2019 and favorable net prior year development of $ 8 million and $ 29 million was recorded for the nine months ended September 30, 2020 and 2019. The following table and discussion present details of the net prior year claim and claim adjustment expense reserve development in Property & Casualty Operations: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions) Medical professional liability $ 25 $ 29 $ 35 $ 59 Other professional liability and management liability ( 18 ) ( 6 ) ( 37 ) Surety ( 40 ) ( 43 ) ( 70 ) ( 83 ) Commercial auto 9 ( 16 ) 33 ( 24 ) General liability 15 43 65 36 Workers’ compensation ( 23 ) 7 ( 97 ) 2 Property and other ( 1 ) 14 32 18 Total pretax (favorable) unfavorable development $ ( 15 ) $ 16 $ ( 8 ) $ ( 29 ) 25 Index Three Months 2020 Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years and unfavorable development on a latent claim for an older accident year. Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior. Unfavorable development in general liability was primarily due to increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in CNA’s umbrella business in accident years 2015 through 2019. Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years. 2019 Unfavorable development in medical professional liability was primarily due to higher than expected indemnity severity in accident years 2016 through 2018 in CNA’s aging services business. Favorable development in other professional liability and management liability was due to lower than expected large claim losses in recent accident years in CNA’s public company directors and officers liability (“D&O”) business. Favorable development in surety was due to lower than expected frequency for accident years 2015 through 2018. Favorable development in commercial auto was primarily due to a decline in bodily injury frequency in accident year 2018 and continued lower than expected severity across accident years 2013 through 2016. Unfavorable development in general liability was primarily due to higher than expected emergence in mass tort exposures related to accident years 2009 and prior, 2015 and 2016. Unfavorable development in other was primarily due to higher than expected severity in aging services related to auto liability coverages. Nine Months 2020 Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years, unfavorable development on a latent claim for an older accident year and unfavorable outcomes on specific claims in accident years 2015 and 2016 in CNA’s aging services business. Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior. Unfavorable development in commercial auto was due to unfavorable claim severity in CNA’s middle market and construction business in accident years 2017 through 2019. Unfavorable development in general liability was driven by higher than expected emergence in mass tort exposures, primarily due to New York reviver statute-related claims from accident years prior to 2010, increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in CNA’s umbrella business in accident years 2015 through 2019. Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years. Unfavorable development in property and other was primarily due to higher than expected large loss activity in accident year 2019 in CNA’s middle market, national accounts and marine business units. 26 Index 2019 Unfavorable development in medical professional liability was primarily due to higher than expected indemnity severity in accident years 2016 through 2018 in CNA’s aging services business, higher than expected severity in accident year 2013 in CNA’s allied healthcare business, unfavorable outcomes on individual claims and higher than expected severity in accident year 2017 in CNA’s dentists business. Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency and favorable outcomes on individual claims in accident years 2017 and prior related to financial institutions and lower than expected large claim losses in recent accident years in CNA’s public company D&O business. Favorable development in surety was due to lower than expected frequency for accident years 2018 and prior. Favorable development in commercial auto was primarily due to a decline in bodily injury frequency in accident year 2018 and continued lower than expected severity across accident years 2016 and prior. Unfavorable development in general liability was primarily due to higher than expected emergence in mass tort exposures as well as higher than expected large loss experience in CNA’s excess and umbrella business in accident year 2017. Unfavorable development in other was primarily due to higher than expected severity in aging services related to auto liability coverages and higher than expected claims in Hardy on 2018 accident year catastrophes in property partially offset by favorable development in casualty, driven by lower than expected large losses and claim severity in accident years 2014 and prior in Hardy and Europe. Asbestos and Environmental Pollution (“A&EP”) Reserves In 2010, Continental Casualty Company (“CCC”) together with several insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the legacy A&EP liabilities were ceded to NICO through a loss portfolio transfer (“loss portfolio transfer” or “LPT”). At the effective date of the transaction, approximately $ 1.6 billion of net A&EP claim and allocated claim adjustment expense reserves were ceded to NICO under a retroactive reinsurance agreement with an aggregate limit of $ 4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $ 1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. NICO was paid a reinsurance premium of $ 2.0 billion and billed third party reinsurance receivables related to A&EP claims with a net book value of $ 215 million were transferred to NICO, resulting in total consideration of $ 2.2 billion. In years subsequent to the effective date of the LPT, adverse prior year development on A&EP reserves was recognized resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $ 2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which a change in the estimate of A&EP reserves is recognized that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits on the Consolidated Condensed Statements of Operations. The impact of the LPT on the Consolidated Condensed Statements of Operations was the recognition of a retroactive reinsurance benefit of $ 9 million and $ 7 million for the three months ended September 30, 2020 and 2019 and $ 43 million for the nine months ended September 30, 2020 and 2019. As of September 30, 2020 and December 31, 2019, the cumulative amounts ceded under the LPT were $ 3.2 billion. The unrecognized deferred retroactive reinsurance benefit was $ 349 million and $ 392 million as of September 30, 2020 and December 31, 2019 and is included within Other liabilities on the Consolidated Condensed Balance Sheets. 27 Index NICO established a collateral trust account as security for its obligations under the LPT. The fair value of the collateral trust account was $ 3.5 billion and $ 3.7 billion as of September 30, 2020 and December 31, 2019. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the majority of the Company’s A&EP claims. Life & Group Policyholder Reserves CNA’s Life & Group business includes its run-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and CNA has the ability to increase policy premiums, subject to state regulatory approval. CNA maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for its long term care business. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for long term care policies, CNA’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, CNA’s actuaries monitor mortality experience on an annual basis. CNA’s recorded claim and claim adjustment expense reserves reflect management’s best estimate after incorporating the results of the most recent studies. CNA’s most recent annual claim experience studies were completed in the third quarter of 2020 and resulted in a $ 46 million pretax increase in claim and claim adjustment expense reserve estimates for structured settlement obligations primarily due to lower discount rate assumptions and mortality assumption changes and a $ 37 million pretax reduction in claim and claim adjustment expense reserves for long term care policies primarily due to lower claim severity than anticipated in the reserve estimates. CNA’s 2019 annual claim experience studies were completed in the third quarter of 2019 and resulted in a $ 56 million pretax reduction in claim and claim adjustment expense reserves for long term care policies primarily due to lower claim severity than anticipated in the reserve estimates. Future policy benefit reserves represent the active life reserves related to CNA’s long term care policies for policyholders that are not currently receiving benefits, which represent the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk. The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, CNA’s long term care future policy benefit reserves may be subject to material increases if actual experience develops adversely to CNA’s expectations. Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a gross premium valuation (“GPV”) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in the Company’s results of operations in the period in which the need for such adjustment is determined. If the GPV required reserves are less than the existing recorded reserves, assumptions remain locked in and no adjustment is required. Periodically, management engages independent third parties to assess the appropriateness of its best estimate assumptions. The most recent third party assessment, performed in 2019, validated the assumption setting process and confirmed the best estimate assumptions appropriately reflected the experience data at that time. 28 Index The GPV for the long term care future policy benefit reserves performed in the third quarter of 2020 and 2019 indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the premium deficiency resulted in a $ 74 million and a $ 216 million pretax increase in policyholders’ benefits reflected in the Company’s results of operations for the three and nine months ended September 30, 2020 and 2019. 7. Debt In May of 2020, Loews Corporation 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. In August of 2020, CNA completed a public offering of $ 500 million aggregate principal amount of its 2.1 % senior notes due August 15, 2030 and used the net proceeds to redeem the entire $ 400 million outstanding aggregate principal balance of its 5.8 % senior notes due August 15, 2021 and for general corporate purposes. In August of 2020, Boardwalk Pipelines completed a public offering of $ 500 million aggregate principal amount of its 3.4 % senior notes due February 15, 2031 . Boardwalk Pipelines intends to use the proceeds to retire the outstanding $ 440 million aggregate principal amount of its 4.5 % senior notes due 2021 in November of 2020, to fund growth capital expenditures and for general corporate purposes. Initially, the proceeds were used to reduce outstanding borrowings under its revolving credit facility. As of September 30, 2020, Boardwalk Pipelines had no outstanding borrowings under its revolving credit facility and had available the full borrowing capacity of $ 1.5 billion. As of October 30, 2020, Boardwalk Pipelines had $ 80 million of outstanding borrowings under its revolving credit facility and had $ 1.4 billion of available borrowing capacity. 29 Index 8. Shareholders’ Equity Accumulated other comprehensive income (loss) The tables below present the changes in AOCI by component for the three and nine months ended September 30, 2019 and 2020: Net Unrealized Gains (Losses) on Investments with OTTI Losses Net Unrealized Gains (Losses) on Other Investments Unrealized Gains (Losses) on Cash Flow Hedges Pension and Postretirement Benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) (In millions) Balance, July 1, 2019 $ 18 $ 917 $ ( 7 ) $ ( 780 ) $ ( 145 ) $ 3 Other comprehensive income (loss) before reclassifications, after tax of $ 0 , $( 11 ), $ 1 , $ 0 and $ 0 44 ( 4 ) ( 31 ) 9 Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $ 0 , $ 0 , $ 0 , $( 2 ) and $ 0 ( 3 ) 10 7 Other comprehensive income (loss) - 41 ( 4 ) 10 ( 31 ) 16 Amounts attributable to noncontrolling interests ( 5 ) 3 ( 2 ) Balance, September 30, 2019 $ 18 $ 953 $ ( 11 ) $ ( 770 ) $ ( 173 ) $ 17 Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses Net Unrealized Gains (Losses) on Other Investments Unrealized Gains (Losses) on Cash Flow Hedges Pension and Postretirement Benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) ( In millions) Balance, July 1, 2020 $ ( 8 ) $ 1,050 $ ( 25 ) $ ( 837 ) $ ( 175 ) $ 5 Other comprehensive income (loss) before reclassifications, after tax of $ 0 , $( 63 ), $ 0 , $ 0 and $ 0 2 231 ( 2 ) ( 2 ) 38 267 Reclassification of (income) losses from accumulated other comprehensive income, after tax of $ ( 1 ) , $ 7 , $ 0 , $ ( 3 ) and $ 0 4 ( 24 ) 3 9 ( 8 ) Other comprehensive income 6 207 1 7 38 259 Amounts attributable to noncontrolling interests ( 1 ) ( 22 ) ( 3 ) ( 26 ) Balance, September 30, 2020 $ ( 3 ) $ 1,235 $ ( 24 ) $ ( 830 ) $ ( 140 ) $ 238 30 Index Net Unrealized Gains (Losses) on Investments with OTTI Losses Net Unrealized Gains (Losses) on Other Investments Unrealized Gains (Losses) on Cash Flow Hedges Pension and Postretirement Benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) (In millions) Balance, January 1, 2019 $ 14 $ 57 $ 5 $ ( 793 ) $ ( 163 ) $ ( 880 ) Other comprehensive income (loss) before reclassifications, after tax of $( 2 ), $( 265 ), $ 5 , $ 0 and $ 0 3 999 ( 16 ) ( 1 ) ( 11 ) 974 Reclassification of losses from accumulated other comprehensive income, after tax of $ 0 , $ ( 1 ) , $ 0 , $ ( 7 ) and $ 0 1 4 26 31 Other comprehensive income (loss) 4 1,003 ( 16 ) 25 ( 11 ) 1,005 Amounts attributable to noncontrolling interests ( 107 ) ( 2 ) 1 ( 108 ) Balance, September 30, 2019 $ 18 $ 953 $ ( 11 ) $ ( 770 ) $ ( 173 ) $ 17 Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses Net Unrealized Gains (Losses) on Other Investments Unrealized Gains (Losses) on Cash Flow Hedges Pension and Postretirement Benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) (In millions) Balance, January 1, 2020 (a) $ - $ 918 $ ( 6 ) $ ( 855 ) $ ( 125 ) $ ( 68 ) Other comprehensive income (loss) before reclassifications, after tax of $ 13 , $( 97 ), $ 8 , $ 0 and $ 0 ( 48 ) 374 ( 22 ) ( 3 ) ( 17 ) 284 Reclassification of (income) losses from accumulated other comprehensive income, after tax of $( 12 ), $ 5 , $( 1 ), $( 8 ) and $ 0 45 ( 20 ) 4 30 59 Other comprehensive income (loss) ( 3 ) 354 ( 18 ) 27 ( 17 ) 343 Amounts attributable to noncontrolling interests ( 37 ) ( 2 ) 2 ( 37 ) Balance, September 30, 2020 $ ( 3 ) $ 1,235 $ ( 24 ) $ ( 830 ) $ ( 140 ) $ 238 (a) On January 1, 2020, the Company adopted ASU 2016-13; see Note 1. The Net Unrealized Gains (Losses) on Investments with OTTI Losses column that tracked the change in unrealized gains (losses) on investments with OTTI losses has been replaced with the Net Unrealized Gains (Losses) on Investments with an Allowance for Credit Losses column. The balance as of January 1, 2020 in the Net Unrealized Gains (Losses) on Investments with OTTI Losses column is now reported in the Net Unrealized Gains (Losses) on Other Investments column. Prior period amounts were not adjusted for the adoption of this standard. Amounts reclassified from AOCI shown above are reported in Net income (loss) as follows: Major Category of AOCI Affected Line Item Net unrealized gains (losses) on investments with an allowance for credit losses, Net unrealized gains (losses) on investments with OTTI losses and Net unrealized gains (losses) on other investments Investment gains (losses) Unrealized gains (losses) on cash flow hedges Operating revenues and other, Interest expense and Operating expenses and other Pension and postretirement benefits Operating expenses and other 31 Index Treasury Stock Loews Corporation repurchased 16.1 million and 13.2 million shares of its common stock at an aggregate cost of $ 673 million and $ 642 million during the nine months ended September 30, 2020 and 2019 . 9. Revenue from Contracts with Customers Disaggregation of revenues – Revenue from contracts with customers, other than insurance premiums, is reported as Non-insurance warranty revenue and within Operating revenues and other on the Consolidated Condensed Statements of Operations. The following table presents revenues from contracts with customers disaggregated by revenue type along with the reportable segment and a reconciliation to Operating revenues and other as reported in Note 14: Three Months Ended September 30, Nine Months Ended September 30 2020 2019 2020 2019 (In millions) Non-insurance warranty – CNA Financial $ 317 $ 292 $ 926 $ 858 Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipelines 280 287 898 947 Lodging and related services – Loews Hotels & Co 36 147 194 512 Rigid plastic packaging and recycled resin – Corporate 253 252 753 689 Contract drilling – Diamond Offshore (a) 254 300 704 Total revenues from contracts with customers 569 940 2,145 2,852 Other revenues 40 20 96 54 Operating revenues and other $ 609 $ 960 $ 2,241 $ 2,906 (a) Revenues presented for Diamond Offshore reflect the periods prior to the deconsolidation. See Notes 2 and 14 for further discussion. Receivables from contracts with customers – As of September 30, 2020 and December 31, 2019, receivables from contracts with customers were approximately $ 223 million and $ 458 million and are included within Receivables on the Consolidated Condensed Balance Sheets. Deferred revenue – As of September 30, 2020 and December 31, 2019, deferred revenue resulting from contracts with customers was approximately $ 4.0 billion and $ 3.9 billion and is reported as Deferred non-insurance warranty revenue and within Other liabilities on the Consolidated Condensed Balance Sheets. Approximately $ 839 million and $ 778 million of revenues recognized during the nine months ended September 30, 2020 and 2019 were included in deferred revenue as of December 31, 2019 and 2018. Performance obligations – As of September 30, 2020, approximately $ 13.0 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to transportation and storage of natural gas and natural gas liquids and hydrocarbons (“NGLs”) services and non-insurance warranty revenue. Approximately $ 0.6 billion will be recognized during the remaining three months of 2020, $ 2.2 billion in 2021 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control. 10. Expected Credit Losses – Reinsurance and Insurance Receivables As of September 30, 2020, an allowance for doubtful accounts of $ 24 million for reinsurance receivables has been established which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. For assessing expected credit losses, reinsurance receivables are separated into two pools; voluntary reinsurance receivables and involuntary reinsurance exposures to mandatory pools. An allowance for involuntary pools has not been recorded as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on voluntary reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. If the reinsurer is unrated, an internal financial strength rating is assigned based on historical loss experience and assessment of the reinsurance counterparty risk profile, which generally corresponds with a B rating. Changes in the allowance are presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Condensed Statements of Operations. 32 Index The following table summarizes the outstanding amount of voluntary reinsurance receivables, gross of any collateral arrangements, by financial strength rating: As of September 30, 2020 (In millions) A- to A++ $ 2,729 B- to B++ 874 Insolvent 4 Total voluntary reinsurance outstanding balance (a) $ 3,607 (a) Expected credit losses for legacy A&EP receivables are ceded to NICO and the reinsurance limit on the LPT has not been exhausted, therefore no allowance is recorded for these receivables and they are excluded from the table above. See Note 6 for more information on the LPT. Also excluded are receivables from involuntary pools. Voluntary reinsurance receivables within the B- to B++ rating distribution are primarily due from captive reinsurers and backed by collateral arrangements. As of September 30, 2020, an allowance for doubtful accounts of $ 32 million for insurance receivables has been established using a loss rate methodology to determine expected credit losses for premium receivables. This methodology uses historical annual credit losses relative to gross premium written to develop a range of credit loss rates for each dollar of gross written premium underwritten. The expected credit loss for loss sensitive business in good standing is calculated on a pool basis, using historical default rate data obtained from major rating agencies. Changes in the allowance are presented as a component of Operating expenses and other on the Consolidated Condensed Statements of Operations . 11. Benefit Plans The Company has several non-contributory defined benefit plans and postretirement benefit plans covering eligible employees and retirees. The following table presents the components of net periodic (benefit) cost for the plans: Pension Benefits Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions) Service cost $ 2 $ 2 $ 5 Interest cost $ 24 29 70 88 Expected return on plan assets ( 43 ) ( 39 ) ( 130 ) ( 119 ) Amortization of unrecognized net loss 12 10 35 33 Amortization of unrecognized prior service cost 1 Settlement charge 1 1 8 3 Curtailment gain ( 1 ) ( 1 ) Net periodic (benefit) cost $ ( 6 ) $ 2 $ ( 14 ) $ 9 Other Postretirement Benefits Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions) Interest cost - $ 1 $ 1 $ 2 Expected return on plan assets ( 2 ) ( 2 ) Amortization of unrecognized net gain ( 1 ) ( 1 ) Net periodic benefit $ - $ - $ ( 1 ) $ ( 1 ) 33 Index 12. Legal Proceedings On May 25, 2018, plaintiffs Tsemach Mishal and Paul Berger (on behalf of themselves and the purported class, “Plaintiffs”) initiated a purported class action in the Court of Chancery of the State of Delaware (the “Court”) against the following defendants: Boardwalk Pipelines, Boardwalk GP, LP (“General Partner”), Boardwalk GP, LLC and Boardwalk Pipelines Holding Corp. (“BPHC”) (together, “Defendants”), regarding the potential exercise by the General Partner of its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipelines not already owned by the General Partner or its affiliates. On June 25, 2018, Plaintiffs and Defendants entered into a Stipulation and Agreement of Compromise and Settlement, subject to the approval of the Court (the “Proposed Settlement”). Under the terms of the Proposed Settlement, the lawsuit would be dismissed, and related claims against the Defendants would be released by the Plaintiffs, if BPHC, the sole member of the General Partner, elected to cause the General Partner to exercise its right to purchase the issued and outstanding common units of Boardwalk Pipelines pursuant to Boardwalk Pipelines’ Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”), within a period specified by the Proposed Settlement. On June 29, 2018, the General Partner elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipelines not already owned by the General Partner or its affiliates pursuant to the Limited Partnership Agreement within the period specified by the Proposed Settlement. The transaction was completed on July 18, 2018. On September 28, 2018, the Court denied approval of the Proposed Settlement. On February 11, 2019, a substitute verified class action complaint was filed in this proceeding. The Defendants filed a motion to dismiss, which was heard by the Court in July of 2019. In October of 2019, the Court ruled on the motion and granted a partial dismissal, with certain aspects of the case proceeding to trial. In October of 2020, after completion of fact discovery, Plaintiffs filed an amended complaint. In light of the amended complaint, Defendants have moved to vacate the trial date scheduled in January of 2021 and have also filed a motion to dismiss Plaintiffs’ new claims. The Company is from time to time party to other litigation arising in the ordinary course of business. While it is difficult to predict the outcome or effect of any such litigation, management does not believe that the outcome of any such pending litigation will materially affect the Company’s results of operations or equity. 13. Commitments and Contingencies CNA Guarantees CNA has provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities issued by a previously owned subsidiary. As of September 30, 2020, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $ 1.7 billion, which will be paid over the lifetime of the annuitants. CNA does not believe any payment is likely under these guarantees, as CNA is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities. 14. Segments Loews Corporation has five reportable segments comprised of three individual consolidated operating subsidiaries, CNA, Boardwalk Pipelines and Loews Hotels & Co; the Corporate segment and Diamond Offshore. The Corporate segment is primarily comprised of Loews Corporation excluding its subsidiaries and the operations of Altium Packaging. Diamond Offshore was deconsolidated during the second quarter of 2020. See Note 2 for further information on the deconsolidation of Diamond Offshore. 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. For additional disclosures regarding the composition of Loews Corporation’s segments, see Note 20 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The following tables present the reportable segments and their contribution to the Consolidated Condensed Financial Statements. Amounts presented will not necessarily be the same as those in the individual financial statements of the subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling interests. 34 Index Total assets by segment are presented in the following tables. September 30, 2020 CNA Financial Boardwalk Pipelines Loews Hotels & Co Corporate Diamond Offshore (a) Total (In millions) Total assets $ 62,728 $ 9,666 $ 1,685 $ 5,385 $ - $ 79,464 December 31, 2019 Total assets $ 60,583 $ 9,248 $ 1,728 $ 4,850 $ 5,834 $ 82,243 Statements of Operations by segment are presented in the following tables. Three Months Ended September 30, 2020 CNA Financial Boardwalk Pipelines Loews Hotels & Co Corporate Total (In millions) Revenues: Insurance premiums $ 1,953 $ 1,953 Net investment income 517 $ 23 540 Investment gains 46 46 Non-insurance warranty revenue 317 317 Operating revenues and other 7 $ 289 $ 60 253 609 Total 2,840 289 60 276 3,465 Expenses: Insurance claims and policyholders’ benefits 1,616 1,616 Amortization of deferred acquisition costs 360 360 Non-insurance warranty expense 293 293 Operating expenses and other 268 219 114 275 876 Interest 52 44 8 33 137 Total 2,589 263 122 308 3,282 Income (loss) before income tax 251 26 ( 62 ) ( 32 ) 183 Income tax (expense) benefit ( 36 ) ( 6 ) 15 6 ( 21 ) Net income (loss) 215 20 ( 47 ) ( 26 ) 162 Amounts attributable to noncontrolling interests ( 23 ) ( 23 ) Net income (loss) attributable to Loews Corporation $ 192 $ 20 $ ( 47 ) $ ( 26 ) $ 139 35 Index Three Months Ended September 30, 2019 CNA Financial Boardwalk Pipelines Loews Hotels & Co Corporate Diamond Offshore (a) Total (In millions) Revenues: Insurance premiums $ 1,890 $ 1,890 Net investment income 487 $ 36 $ 2 525 Investment gains 8 8 Non-insurance warranty revenue 292 292 Operating revenues and other 9 $ 296 $ 156 250 249 960 Total 2,686 296 156 286 251 3,675 Expenses: Insurance claims and policyholders’ benefits 1,614 1,614 Amortization of deferred acquisition costs 345 345 Non-insurance warranty expense 278 278 Operating expenses and other 291 212 145 264 322 1,234 Interest 31 45 6 31 31 144 Total 2,559 257 151 295 353 3,615 Income (loss) before income tax 127 39 5 ( 9 ) ( 102 ) 60 Income tax (expense) benefit ( 20 ) ( 10 ) ( 2 ) 1 10 ( 21 ) Net income (loss) 107 29 3 ( 8 ) ( 92 ) 39 Amounts attributable to noncontrolling interests ( 11 ) 44 33 Net income (loss) attributable to Loews Corporation $ 96 $ 29 $ 3 $ ( 8 ) $ ( 48 ) $ 72 36 Index Nine Months Ended September 30, 2020 CNA Financial Boardwalk Pipelines Loews Hotels & Co Corporate Diamond Offshore (a) Total (In millions) Revenues: Insurance premiums $ 5,672 $ 5,672 Net investment income (loss) 1,380 $ ( 33 ) 1,347 Investment losses ( 101 ) ( 1,211 ) ( 1,312 ) Non-insurance warranty revenue 926 926 Operating revenues and other 20 $ 926 $ 236 754 $ 305 2,241 Total 7,897 926 236 ( 490 ) 305 8,874 Expenses: Insurance claims and policyholders’ benefits 4,683 4,683 Amortization of deferred acquisition costs 1,046 1,046 Non-insurance warranty expense 859 859 Operating expenses and other 851 633 404 810 1,196 3,894 Interest 114 127 24 96 43 404 Total 7,553 760 428 906 1,239 10,886 Income (loss) before income tax 344 166 ( 192 ) ( 1,396 ) ( 934 ) ( 2,012 ) Income tax (expense) benefit ( 40 ) ( 43 ) 48 293 26 284 Net income (loss) 304 123 ( 144 ) ( 1,103 ) ( 908 ) ( 1,728 ) Amounts attributable to noncontrolling interests ( 32 ) 432 400 Net income (loss) attributable to Loews Corporation $ 272 $ 123 $ ( 144 ) $ ( 1,103 ) $ ( 476 ) $ ( 1,328 ) 37 Index Nine Months Ended September 30, 2019 CNA Financial Boardwalk Pipelines Loews Hotels & Co Corporate Diamond Offshore (a) Total (In millions) Revenues: Insurance premiums $ 5,517 $ 5,517 Net investment income 1,573 $ 1 $ 153 $ 6 1,733 Investment gains 41 41 Non-insurance warranty revenue 858 858 Operating revenues and other 22 $ 969 521 689 705 2,906 Total 8,011 969 522 842 711 11,055 Expenses: Insurance claims and policyholders’ benefits 4,323 4,323 Amortization of deferred acquisition costs 1,025 1,025 Non-insurance warranty expense 801 801 Operating expenses and other 854 616 464 740 940 3,614 Interest 120 136 16 85 92 449 Total 7,123 752 480 825 1,032 10,212 Income (loss) before income tax 888 217 42 17 ( 321 ) 843 Income tax (expense) benefit ( 161 ) ( 56 ) ( 14 ) ( 4 ) 52 ( 183 ) Net income (loss) 727 161 28 13 ( 269 ) 660 Amounts attributable to noncontrolling interests ( 77 ) 132 55 Net income (loss) attributable to Loews Corporation $ 650 $ 161 $ 28 $ 13 $ ( 137 ) $ 715 (a) Amounts presented for Diamond Offshore reflect the periods prior to the deconsolidation. 38 Index