Item 1. Financial Statements
Item 1. Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 31, 2021
December 31, 2020
(Dollar amounts in millions, except per share data)
Assets:
Investments:
Fixed maturities, amortized cost of $ 39,293 and $ 38,963 , less allowance for credit loss of $ 43 and $ 40
$
43,584
$
44,646
Equity securities, cost of $ 1,455 and $ 1,456
1,580
1,561
Limited partnership investments
1,769
1,798
Other invested assets, primarily mortgage loans, less allowance for credit loss of $ 26 and $ 26
1,144
1,165
Short term investments
4,282
4,674
Total investments
52,359
53,844
Cash
660
478
Receivables
8,539
7,833
Property, plant and equipment
9,921
10,451
Goodwill
349
785
Deferred non-insurance warranty acquisition expenses
3,149
3,068
Deferred acquisition costs of insurance subsidiaries
741
708
Other assets
2,501
3,069
Assets held for sale
1,786
Total assets
$
80,005
$
80,236
Liabilities and Equity:
Insurance reserves:
Claim and claim adjustment expense
$
23,056
$
22,706
Future policy benefits
12,772
13,318
Unearned premiums
5,319
5,119
Total insurance reserves
41,147
41,143
Payable to brokers
310
92
Short term debt
141
37
Long term debt
8,996
10,072
Deferred income taxes
924
1,065
Deferred non-insurance warranty revenue
4,119
4,023
Other liabilities
4,375
4,623
Liabilities held for sale
1,456
Total liabilities
61,468
61,055
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 – 269,472,042 and 269,360,973 shares
3
3
Additional paid-in capital
3,119
3,133
Retained earnings
14,394
14,150
Accumulated other comprehensive income
34
581
17,550
17,867
Less treasury stock, at cost ( 5,708,164 and 150,000 shares)
( 280
)
( 7
)
Total shareholders’ equity
17,270
17,860
Noncontrolling interests
1,267
1,321
Total equity
18,537
19,181
Total liabilities and equity
$
80,005
$
80,236
See accompanying Notes to Consolidated Condensed Financial Statements.
3
Index
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31
2021
2020
(In millions, except per share data)
Revenues:
Insurance premiums
$
1,962
$
1,869
Net investment income
550
163
Investment gains (losses)
57
( 216
)
Non-insurance warranty revenue
338
301
Operating revenues and other
715
982
Total
3,622
3,099
Expenses:
Insurance claims and policyholders’ benefits
1,506
1,425
Amortization of deferred acquisition costs
359
344
Non-insurance warranty expense
311
281
Operating expenses and other
914
2,026
Interest
125
144
Total
3,215
4,220
Income (loss) before income tax
407
( 1,121
)
Income tax (expense) benefit
( 114
)
77
Net income (loss)
293
( 1,044
)
Amounts attributable to noncontrolling interests
( 32
)
412
Net income (loss) attributable to Loews Corporation
$
261
$
( 632
)
Basic net income (loss) per share
$
0.98
$
( 2.20
)
Diluted net income (loss) per share
$
0.97
$
( 2.20
)
Weighted average shares outstanding:
Shares of common stock
267.39
287.04
Dilutive potential shares of common stock
0.37
Total weighted average shares outstanding assuming dilution
267.76
287.04
See accompanying Notes to Consolidated Condensed Financial Statements.
4
Index
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended March 31
2021
2020
(In millions)
Net income (loss)
$
293
$
( 1,044
)
Other comprehensive loss, after tax
Changes in:
Net unrealized losses on investments with an allowance for credit losses
( 11
)
Net unrealized losses on other investments
( 627
)
( 1,044
)
Total unrealized losses on investments
( 627
)
( 1,055
)
Unrealized gains (losses) on cash flow hedges
4
( 19
)
Pension and postretirement benefits
9
14
Foreign currency translation
3
( 84
)
Other comprehensive loss
( 611
)
( 1,144
)
Comprehensive loss
( 318
)
( 2,188
)
Amounts attributable to noncontrolling interests
32
531
Total comprehensive loss attributable to Loews Corporation
$
( 286
)
$
( 1,657
)
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, January 1, 2020, as reported
$
21,930
$
3
$
3,374
$
15,823
$
( 68
)
$
( 13
)
$
2,811
Cumulative effect adjustment from change in accounting standards
( 5
)
( 5
)
Balance, January 1, 2020, as adjusted
21,925
3
3,374
15,818
( 68
)
( 13
)
2,811
Net loss
( 1,044
)
( 632
)
( 412
)
Other comprehensive loss
( 1,144
)
( 1,025
)
( 119
)
Dividends paid ($ 0.0625 per share)
( 87
)
( 18
)
( 69
)
Purchases of Loews Corporation treasury stock
( 445
)
( 445
)
Purchases of subsidiary stock from non- controlling interests
( 18
)
( 18
)
Stock-based compensation
( 4
)
( 22
)
18
Other
( 5
)
( 5
)
( 1
)
1
Balance, March 31, 2020
$
19,178
$
3
$
3,347
$
15,167
$
( 1,093
)
$
( 458
)
$
2,212
Balance, January 1, 2021
$
19,181
$
3
$
3,133
$
14,150
$
581
$
( 7
)
$
1,321
Net income
293
261
32
Other comprehensive loss
( 611
)
( 547
)
( 64
)
Dividends paid ($ 0.0625 per share)
( 49
)
( 17
)
( 32
)
Purchases of Loews Corporation treasury stock
( 274
)
( 274
)
Purchases of subsidiary stock from non-controlling interests
( 3
)
( 3
)
Stock-based compensation
4
( 11
)
15
Other
( 4
)
( 3
)
1
( 2
)
Balance, March 31, 2021
$
18,537
$
3
$
3,119
$
14,394
$
34
$
( 280
)
$
1,267
See accompanying Notes to Consolidated Condensed Financial Statements.
6
Index
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
2021
2020
(In millions)
Operating Activities:
Net income (loss)
$
293
$
( 1,044
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities, net
257
1,363
Changes in operating assets and liabilities, net:
Receivables
( 736
)
( 266
)
Deferred acquisition costs
( 32
)
( 27
)
Insurance reserves
605
510
Other assets
( 250
)
( 116
)
Other liabilities
126
( 288
)
Trading securities
( 129
)
197
Net cash flow provided by operating activities
134
329
Investing Activities:
Purchases of fixed maturities
( 2,203
)
( 1,818
)
Proceeds from sales of fixed maturities
907
823
Proceeds from maturities of fixed maturities
1,084
799
Purchases of equity securities
( 81
)
( 220
)
Proceeds from sales of equity securities
119
98
Purchases of limited partnership investments
( 61
)
( 32
)
Proceeds from sales of limited partnership investments
49
204
Purchases of property, plant and equipment
( 87
)
( 233
)
Change in short term investments
569
837
Other, net
10
( 31
)
Net cash flow provided by investing activities
306
427
Financing Activities:
Dividends paid
( 17
)
( 18
)
Dividends paid to noncontrolling interests
( 32
)
( 69
)
Purchases of Loews Corporation treasury stock
( 280
)
( 458
)
Purchases of subsidiary stock from noncontrolling interests
( 3
)
( 18
)
Principal payments on debt
( 1,073
)
( 223
)
Issuance of debt
1,159
654
Other, net
( 12
)
( 12
)
Net cash flow used by financing activities
( 258
)
( 144
)
Effect of foreign exchange rate on cash
( 9
)
Net change in cash
182
603
Cash, beginning of period
478
336
Cash, end of period
$
660
$
939
See accompanying Notes to Consolidated Condensed Financial Statements.
7
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”), an 89.5 % 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, the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders and the term “subsidiaries” means Loews Corporation’s consolidated subsidiaries.
On April 1, 2021, Loews Corporation sold 47 % of its interest in Altium Packaging. See Note 2 for further discussion.
As a result of the April 26, 2020 bankruptcy filing of Diamond Offshore Drilling, Inc. (“Diamond Offshore”) and certain of its subsidiaries and applicable accounting principles generally accepted in the United States of America (“GAAP”), Diamond Offshore was deconsolidated from Loews Corporation’s consolidated financial statements in the second quarter of 2020. Loews Corporation’s operating results for the first quarter of 2020 include the operations of Diamond Offshore. During the first quarter of 2020, Diamond Offshore recorded an aggregate asset impairment charge of $ 774 million ($ 408 million after tax and noncontrolling interests), which is reported within Operating expenses and other on the Consolidated Condensed Statements of Operations. For additional information regarding the deconsolidation of Diamond Offshore and the Diamond Offshore asset impairments, see Notes 2 and 6 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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 March 31, 2021 and December 31, 2020 and results of operations, comprehensive loss and changes in shareholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. Net income (loss) for the first quarter of each of the years is not necessarily indicative of net income (loss) for that entire year. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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 March 31, 2021 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.
Recently issued ASUs – In August of 2018 , the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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, 2022, with early adoption permitted. The guidance may be applied 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 adopt on the effective date, using the modified retrospective transition method and is currently evaluating the effect the updated guidance will have on its consolidated financial statements, including the 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.
8
Index
2. Significant Transaction
Altium Packaging
On March 12, 2021, Loews Corporation entered into a definitive agreement to sell 47 % of its interest in Altium Packaging to GIC, Singapore’s sovereign wealth fund. On April 1, 2021, the transaction closed and Loews Corporation received approximately $ 420 million in cash consideration, subject to expenses and post-closing adjustments. Loews Corporation will share certain participating rights with GIC related to capital allocation and other decisions by Altium Packaging. Therefore, in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation,” Altium Packaging will be deconsolidated from Loews Corporation’s consolidated financial statements effective as of April 1, 2021. The assets and liabilities of Altium Packaging have been classified as held for sale at March 31, 2021, and a deferred tax liability of $ 35 million was recorded in the three months ended March 31, 2021. Assets held for sale of $ 1.8 billion primarily consist of property, plant and equipment of $ 0.5 billion, goodwill of $ 0.4 billion, intangible assets of $ 0.5 billion and other assets of $ 0.4 billion. Liabilities held for sale of $ 1.5 billion primarily consist of $ 1.1 billion of long term debt and other liabilities of $ 0.4 billion.
The transaction will result in a pretax gain of approximately $ 560 million to be recorded in the second quarter of 2021 and the retained 53 % investment in Altium Packaging will initially be recorded at an estimated fair value of $ 475 million. The gain will be recorded in Investment gains (losses) on the Consolidated Condensed Statement of Operations. Effective April 1, 2021, Loews Corporation’s investment in Altium Packaging will be accounted for under the equity method of accounting.
3. Investments
Net investment income is as follows:
Three Months Ended March 31
2021
2020
(In millions)
Fixed maturity securities
$
428
$
438
Limited partnership investments
47
( 102
)
Short term investments
7
Equity securities
29
( 44
)
Income (loss) from trading portfolio (a)
50
( 129
)
Other
16
14
Total investment income
570
184
Investment expenses
( 20
)
( 21
)
Net investment income
$
550
$
163
(a)
Net unrealized gains (losses) related to changes in fair value on securities still held were $ 32 and $( 117 ) for the three months ended March 31, 2021 and 2020.
Investment gains (losses) are as follows:
Three Months Ended March 31
2021
2020
(In millions)
Fixed maturity securities
$
38
$
( 75
)
Equity securities
2
( 133
)
Derivative instruments
17
5
Short term investments and other
( 13
)
Investment gains (losses) (a)
$
57
$
( 216
)
(a)
Gross investment gains on available-for-sale securities were $ 58 and $ 29 for the three months ended March 31, 2021 and 2020. Gross investment losses on available-for-sale securities were $ 20 and $ 104 for the three months ended March 31, 2021 and 2020. During the three months ended March 31, 2021 and 2020, $ 2 of investment gains and $ 133 of investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of March 31, 2021 and 2020 .
9
Index
The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and purchased credit-deteriorated (“PCD”) assets. Accrued interest receivables on available-for-sale fixed maturity securities totaled $ 389 million, $ 371 million and $ 390 million as of March 31, 2021, December 31, 2020 and March 31, 2020 and are excluded from the estimate of expected credit losses and the amortized cost basis in the tables within this Note.
Three months ended March 31, 2021
Corporate and
Other Bonds
Asset-backed
Total
(In millions)
Allowance for credit losses:
Balance as of January 1, 2021
$
23
$
17
$
40
Additions to the allowance for credit losses:
Securities for which credit losses were not previously recorded
14
14
Available-for-sale securities accounted for as PCD assets
2
2
Reductions to the allowance for credit losses:
Securities sold during the period (realized)
6
6
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis
Additional decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period
( 6
)
( 1
)
( 7
)
Total allowance for credit losses
$
27
$
16
$
43
Three months ended March 31, 2020
Allowance for credit losses:
Balance as of January 1, 2020
$
-
$
-
$
-
Additions to the allowance for credit losses:
Impact of adopting ASC 326
6
6
Securities for which credit losses were not previously recorded
48
48
Available-for-sale securities accounted for as PCD assets
1
1
Reductions to the allowance for credit losses:
Securities sold during the period (realized)
5
5
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis
1
1
Total allowance for credit losses
$
49
$
-
$
49
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 March 31
2021
2020
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds
$
7
$
91
Asset-backed
( 1
)
1
Impairment losses recognized in earnings
$
6
$
92
There were no losses recognized on mortgage loans during the three months ended March 31, 2021. During the three months ended March 31, 2020, $ 13 million of losses were recognized related to mortgage loans due to changes in expected credit losses.
10
Index
The amortized cost and fair values of fixed maturity securities are as follows:
March 31 , 2021
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Estimated
Fair Value
(In millions)
Fixed maturity securities:
Corporate and other bonds
$
21,110
$
2,644
$
71
$
27
$
23,656
States, municipalities and political subdivisions
10,041
1,590
31
11,600
Asset-backed:
Residential mortgage-backed
3,215
108
40
3,283
Commercial mortgage-backed
1,952
76
24
16
1,988
Other asset-backed
2,281
71
7
2,345
Total asset-backed
7,448
255
71
16
7,616
U.S. Treasury and obligations of government-sponsored enterprises
138
1
7
132
Foreign government
508
23
2
529
Redeemable preferred stock
12
12
Fixed maturities available-for-sale
39,257
4,513
182
43
43,545
Fixed maturities trading
36
3
39
Total fixed maturity securities
$
39,293
$
4,516
$
182
$
43
$
43,584
December 31, 2020
Fixed maturity securities:
Corporate and other bonds
$
20,792
$
3,578
$
22
$
23
$
24,325
States, municipalities and political subdivisions
9,729
1,863
11,592
Asset-backed:
Residential mortgage-backed
3,442
146
1
3,587
Commercial mortgage-backed
1,933
93
42
17
1,967
Other asset-backed
2,179
81
9
2,251
Total asset-backed
7,554
320
52
17
7,805
U.S. Treasury and obligations of government-sponsored enterprises
339
2
3
338
Foreign government
512
32
544
Fixed maturities available-for-sale
38,926
5,795
77
40
44,604
Fixed maturities trading
37
5
42
Total fixed maturity securities
$
38,963
$
5,800
$
77
$
40
$
44,646
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 March 31, 2021 and December 31, 2020, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $ 2.1 billion and $ 2.5 billion (after tax and noncontrolling interests).
11
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
March 31 , 2021
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
(In millions)
Fixed maturity securities:
Corporate and other bonds
$
1,868
$
66
$
82
$
5
$
1,950
$
71
States, municipalities and political subdivisions
866
31
866
31
Asset-backed:
Residential mortgage-backed
1,584
40
12
1,596
40
Commercial mortgage-backed
320
9
285
15
605
24
Other asset-backed
337
3
97
4
434
7
Total asset-backed
2,241
52
394
19
2,635
71
U.S. Treasury and obligations of government-sponsored enterprises
65
7
65
7
Foreign government
45
2
45
2
Total fixed maturity securities
$
5,085
$
158
$
476
$
24
$
5,561
$
182
December 31, 2020
Fixed maturity securities:
Corporate and other bonds
$
609
$
21
$
12
$
1
$
621
$
22
States, municipalities and political subdivisions
33
33
Asset-backed:
Residential mortgage-backed
71
1
11
82
1
Commercial mortgage-backed
533
40
28
2
561
42
Other asset-backed
344
9
13
357
9
Total asset-backed
948
50
52
2
1,000
52
U.S. Treasury and obligations of government-sponsored enterprises
63
3
63
3
Foreign government
13
13
Total fixed maturity securities
$
1,666
$
74
$
64
$
3
$
1,730
$
77
Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 2021 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. There is no current intent to sell securities with unrealized losses, nor is it more likely than not that sale will be required prior to recovery of amortized cost; accordingly, it was determined that there are no additional impairment losses to be recorded at March 31, 2021.
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
March 31, 2021
December 31, 2020
Cost or
Amortized
Cost
Estimated
Fair
Value
Cost or
Amortized
Cost
Estimated
Fair
Value
(In millions)
Due in one year or less
$
1,468
$
1,473
$
1,456
$
1,458
Due after one year through five years
10,837
11,583
12,304
13,098
Due after five years through ten years
13,640
14,685
12,319
13,878
Due after ten years
13,312
15,804
12,847
16,170
Total
$
39,257
$
43,545
$
38,926
$
44,604
12
Index
Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Mortgage Loans
The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination. The primary credit quality indicators utilized are debt service coverage ratios (“DSCR”) and loan-to-value (“LTV”) ratios:
Mortgage Loans Amortized Cost Basis by Origination Year (a)
As of March 31 , 2021
2021
2020
2019
2018
2017
Prior
Total
(In millions)
DSCR ≥1.6x
LTV less than 55%
$
75
$
32
$
36
$
114
$
187
$
444
LTV 55% to 65%
14
20
14
15
11
74
LTV greater than 65%
$
5
5
24
34
DSCR 1.2x - 1.6x
LTV less than 55%
16
5
77
98
LTV 55% to 65%
20
40
53
27
140
LTV greater than 65%
10
52
44
9
12
127
DSCR ≤1.2x
LTV less than 55%
50
8
10
68
LTV 55% to 65%
48
48
LTV greater than 65%
29
7
36
Total
$
15
$
161
$
284
$
103
$
178
$
328
$
1,069
(a)
The values in the table above reflect DSCR on a standardized amortization period and LTV ratios based on the most recent appraised values trended forward using changes in a commercial real estate price index.
Derivative Financial Instruments
A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under related agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.
March 31, 2021
December 31, 2020
Contractual/
Notional
Estimated Fair Value
Contractual/
Notional
Estimated Fair Value
Amount
Asset
(Liability)
Amount
Asset
(Liability)
(In millions)
_
-
With hedge designation:
Interest rate swaps (a)
$
675
$
( 26
)
Without hedge designation:
Equity markets:
Options – purchased
$
200
$
2
_
135
$
3
Interest rate swaps
100
$
( 2
)
100
( 3
)
Embedded derivative on funds withheld liability
256
( 2
)
190
( 19
)
(a)
As of March 31, 2021, Interest rate swaps exclude amounts classified as held for sale. See Note 2 for further discussion.
13
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 March 31, 2021, commitments to purchase or fund were approximately $ 1.4 billion and to sell were approximately $ 100 million under the terms of these investments.
4. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
●
Level 1 – Quoted prices for identical instruments in active markets.
●
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
●
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, securities are priced using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs 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 an independent analysis of the inputs and assumptions used to price individual securities is performed.
Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
March 31, 2021
Level 1
Level 2
Level 3
Total
(In millions)
Fixed maturity securities:
Corporate bonds and other
$
152
$
23,410
$
767
$
24,329
States, municipalities and political subdivisions
11,556
44
11,600
Asset-backed
7,301
315
7,616
Fixed maturities available-for-sale
152
42,267
1,126
43,545
Fixed maturities trading
34
5
39
Total fixed maturities
$
152
$
42,301
$
1,131
$
43,584
Equity securities
$
824
$
711
$
45
$
1,580
Short term and other (a)
4,140
36
4,176
Payable to brokers (a)
( 71
)
( 2
)
( 73
)
(a)
As of March 31, 2021, Short term and other and Payable to brokers exclude amounts classified as held for sale. See Note 2 for further discussion.
14
Index
December 31, 2020
Level 1
Level 2
Level 3
Total
(In millions)
Fixed maturity securities:
Corporate bonds and other
$
355
$
24,082
$
770
$
25,207
States, municipalities and political subdivisions
11,546
46
11,592
Asset-backed
7,497
308
7,805
Fixed maturities available-for-sale
355
43,125
1,124
44,604
Fixed maturities trading
34
8
42
Total fixed maturities
$
355
$
43,159
$
1,132
$
44,646
Equity securities
$
796
$
722
$
43
$
1,561
Short term and other
4,538
39
4,577
Payable to brokers
( 14
)
( 29
)
( 43
)
15
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 months ended March 31, 2021 and 2020:
Net Realized Investment
Gains (Losses) and Net
Change in Unrealized
Investment Gains (Losses)
Transfers
Transfers
Unrealized
Gains
(Losses)
Recognized in
Net Income
(Loss) on Level
3 Assets and
Liabilities
Unrealized
Gains
(Losses)
Recognized in
Other
Comprehensive
Income (Loss)
on Level 3
Assets and
Liabilities
2021
Balance,
January 1
Included in
Net Income
Included in
OCI
Purchases
Sales
Settlements
into
Level 3
out of
Level 3
Balance,
March 31
Held at
March 31
Held at
March 31
(In millions)
Fixed maturity securities:
Corporate bonds and other
$
770
$
( 13
)
$
( 40
)
$
42
$
( 2
)
$
10
$
767
$
( 40
)
States, municipalities and political Subdivisions
46
( 2
)
44
( 2
)
Asset-backed
308
2
( 9
)
30
( 17
)
9
$
( 8
)
315
( 9
)
Fixed maturities available-for-sale
1,124
( 11
)
( 51
)
72
$
-
( 19
)
19
( 8
)
1,126
$
-
( 51
)
Fixed maturities trading
8
( 3
)
5
( 3
)
Total fixed maturities
$
1,132
$
( 14
)
$
( 51
)
$
72
$
-
$
( 19
)
$
19
$
( 8
)
$
1,131
$
( 3
)
$
( 51
)
Equity securities
$
43
$
2
$
45
$
2
16
Index
Net Realized Investment
Gains (Losses) and Net
Change in Unrealized
Investment Gains (Losses)
Transfers
Transfers
Unrealized
Gains
(Losses)
Recognized in
Net Income
(Loss) on Level
3 Assets and
Liabilities
Unrealized
Gains
(Losses)
Recognized in
Other
Comprehensive
Income (Loss)
on Level 3
Assets and
Liabilities
2020
Balance,
January 1
Included in
Net Income
Included in
OCI
Purchases
Sales
Settlements
into
Level 3
out of
Level 3
Balance,
March 31
Held at
March 31
Held at
March 31
(In millions)
Fixed maturity securities:
Corporate bonds and other
$
468
$
( 37
)
$
67
$
( 2
)
$
496
$
( 35
)
Asset-backed
165
( 9
)
45
( 3
)
$
( 1
)
197
( 9
)
Fixed maturities available-for-sale
633
$
-
( 46
)
112
$
-
( 5
)
$
-
( 1
)
693
$
-
( 44
)
Fixed maturities trading
4
( 1
)
3
( 1
)
Total fixed maturities
$
637
$
( 1
)
$
( 46
)
$
112
$
-
$
( 5
)
$
-
$
( 1
)
$
696
$
( 1
)
$
( 44
)
Equity securities
$
19
$
( 3
)
$
16
$
( 3
)
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
17
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.
18
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.
March 31 , 2021
Estimated
Fair Value
Valuation
Techniques
Unobservable
Inputs
Range
(Weighted
Average)
(In millions)
Fixed maturity securities
$
936
Discounted cash flow
Credit spread
1 % – 8 % ( 2 %)
December 31 , 2020
Fixed maturity securities
$
966
Discounted cash flow
Credit spread
1 % – 8 % ( 3 %)
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
March 31 , 2021
Amount
Level 1
Level 2
Level 3
Total
(In millions)
-
Assets:
Other invested assets, primarily mortgage loans
$
1,043
$
1,107
$
1,107
Liabilities:
Short term debt (a)
140
144
144
Long term debt (a)
8,990
$
9,204
622
9,826
December 31 , 2020
Assets:
Other invested assets, primarily mortgage loans
$
1,068
$
1,151
$
1,151
Liabilities:
Short term debt
35
$
19
17
36
Long term debt
10,042
10,482
765
11,247
(a)
As of March 31, 2021, Short and Long term debt exclude amounts classified as held for sale. See Note 2 for further discussion.
5. 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
19
Index
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 $ 125 million and $ 75 million for the three months ended March 31, 2021 and 2020. Net catastrophe losses for the three months ended March 31, 2021 were primarily driven by Winter Storms Uri and Viola. Net catastrophe losses for the three months ended March 31, 2020 included $ 13 million related to the coronavirus (“COVID-19”) pandemic, with the remaining $ 62 million related primarily to U.S. weather related events.
Liability for Unpaid Claim and Claim Adjustment Expenses
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of other insurance operations.
Three Months Ended March 31
2021
2020
(In millions)
Reserves, beginning of year:
Gross
$
22,706
$
21,720
Ceded
4,005
3,835
Net reserves, beginning of year
18,701
17,885
Reduction of net reserves due to the excess workers’ compensation loss portfolio transfer
( 632
)
Net incurred claim and claim adjustment expenses:
Provision for insured events of current year
1,474
1,355
Increase (decrease) in provision for insured events of prior years
( 54
)
( 8
)
Amortization of discount
50
51
Total net incurred (a)
1,470
1,398
Net payments attributable to:
Current year events
( 85
)
( 72
)
Prior year events
( 1,067
)
( 1,218
)
Total net payments
( 1,152
)
( 1,290
)
Foreign currency translation adjustment and other
( 32
)
( 88
)
Net reserves, end of period
18,355
17,905
Ceded reserves, end of period
4,701
3,967
Gross reserves, end of period
$
23,056
$
21,872
(a)
Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Condensed Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, the loss on the excess workers’ compensation loss portfolio transfer, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above .
20
Index
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 was recorded for commercial property and casualty operations (“Property & Casualty Operations”) for the three months ended March 31, 2021 and 2020.
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 March 31
2021
2020
(In millions)
Medical professional liability
$
8
$
10
Other professional liability and management liability
3
Surety
( 15
)
( 30
)
Commercial auto
9
Workers’ compensation
( 13
)
Property and other
( 8
)
6
Total pretax (favorable) unfavorable development
$
( 15
)
$
( 15
)
2021
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
2020
Unfavorable development in medical professional liability was primarily due to unfavorable outcomes on specific claims in accident years 2015 and 2016 in the aging services business.
Favorable development in surety was primarily due to lower than expected frequency for accident years 2017 and prior.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in accident years 2016 through 2018.
Asbestos & Environmental Pollution (“A&EP”) Reserves
In 2010, Continental Casualty Company (“CCC”) together with several insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the legacy A&EP liabilities were ceded to NICO through a loss portfolio transfer (“LPT”). At the effective date of the transaction, approximately $ 1.6 billion of net A&EP claim and allocated claim adjustment expense reserves were ceded to NICO under a retroactive reinsurance agreement with an aggregate limit of $ 4.0 billion. The $ 1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $ 1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. NICO was paid a reinsurance premium of $ 2.0 billion and billed third party reinsurance receivables related to A&EP claims with a net book value of $ 215 million were transferred to NICO, resulting in total consideration of $ 2.2 billion.
In years subsequent to the effective date of the LPT, adverse prior year development on A&EP reserves was recognized resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $ 2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which a change in the estimate of A&EP reserves is recognized that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits on the Consolidated Condensed Statements of Operations.
21
Index
The impact of the LPT on the Consolidated Condensed Statements of Operations was the recognition of a retroactive reinsurance benefit of $ 10 million and $ 14 million for the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, the cumulative amounts ceded under the LPT were $ 3.3 billion. The unrecognized deferred retroactive reinsurance benefit was $ 388 million and $ 398 million as of March 31, 2021 and December 31, 2020 and is included within Other liabilities on the Consolidated Condensed Balance Sheets.
NICO established a collateral trust account as security for its obligations under the LPT. The fair value of the collateral trust account was $ 4.6 billion and $ 4.2 billion as of March 31, 2021 and December 31, 2020. 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.
Excess Workers’ Compensation LPT
On February 5, 2021, CNA completed a transaction with Cavello Bay Reinsurance Limited (“Cavello”), a subsidiary of Enstar Group Limited, under which certain legacy excess workers’ compensation (“EWC”) liabilities were ceded to Cavello. Under the terms of the transaction, based on reserves in place as of January 1, 2020, approximately $ 690 million of net EWC claim and allocated claim adjustment expense reserves were ceded to Cavello under a loss portfolio transfer (“EWC LPT”) with an aggregate limit of $ 1.0 billion. Cavello was paid a reinsurance premium of $ 697 million, less claims paid between January 1, 2020 and the closing date of the agreement of $ 64 million. After transaction costs, a loss of approximately $ 11 million (after tax and noncontrolling interest) was recognized in the Other Insurance Operations business for the three months ended March 31, 2021 related to the EWC LPT.
Cavello established a collateral trust account as security for its obligations, which will be maintained at 105 % of outstanding reserves. As of March 31, 2021, the remaining amount available under the $ 1.0 billion aggregate limit of the EWC LPT was $ 310 million on an incurred basis.
Credit Risk for Ceded Reserves
The majority of CNA’s outstanding voluntary reinsurance receivables are due from reinsurers with financial strength ratings of A- or higher. Receivables due from reinsurers with lower financial strength ratings are primarily due from captive reinsurers and are backed by collateral arrangements.
6. Debt
On February 3, 2021, Altium Packaging entered into a $ 1.05 billion seven-year secured term loan. The term loan is a variable rate facility which bears interest at a floating rate equal to the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 2.75 % , subject to a 0.5 % LIBOR floor. The proceeds were used to pay the outstanding principal balances of its variable rate term loans and lending facility and a dividend of $ 200 million .
22
Index
7. Shareholders’ Equity
Accumulated other comprehensive income (loss)
The tables below present the changes in AOCI by component for the three months ended March 31, 2020 and 2021:
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
$
-
$
918
$
( 6
)
$
( 855
)
$
( 125
)
$
( 68
)
Other comprehensive income (loss) before reclassifications, after tax of $ 13 , $ 287 , $ 6 , $ 0 and $ 0
( 48
)
( 1,066
)
( 19
)
1
( 84
)
( 1,216
)
Reclassification of losses from accumulated other comprehensive income, after tax of $( 10 ), $( 6 ), $ 0 , $( 3 ) and $ 0
37
22
13
72
Other comprehensive income (loss)
( 11
)
( 1,044
)
( 19
)
14
( 84
)
( 1,144
)
Amounts attributable to noncontrolling interests
1
111
( 1
)
8
119
Balance, March 31, 2020
$
( 10
)
$
( 15
)
$
( 25
)
$
( 842
)
$
( 201
)
$
( 1,093
)
Balance, January 1, 2021
$
-
$
1,563
$
( 23
)
$
( 877
)
$
( 82
)
$
581
Other comprehensive income (loss) before reclassifications, after tax of $ 1 , $ 154 , $( 2 ), $ 0 and $ 0
( 3
)
( 593
)
3
3
( 590
)
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $ ( 1 ) , $ 8 , $ ( 1 ) , $ ( 2 ) and $ 0
3
( 34
)
1
9
( 21
)
Other comprehensive income (loss)
-
( 627
)
4
9
3
( 611
)
Amounts attributable to noncontrolling interests
66
( 1
)
( 1
)
64
Balance, March 31, 2021
$
-
$
1,002
$
( 19
)
$
( 869
)
$
( 80
)
$
34
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
23
Index
Treasury Stock
Loews Corporation repurchased 5.6 million and 9.7 million shares of its common stock at an aggregate cost of $ 274 million and $ 445 million during the three months ended March 31, 2021 and 2020 .
8. 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 12:
Three Months Ended March 31
2021
2020
(In millions)
Non-insurance warranty - CNA Financial
$
338
$
301
Transportation and storage of natural gas and NGLs and other services - Boardwalk Pipelines
361
332
Lodging and related services - Loews Hotels & Co
56
142
Rigid plastic packaging and recycled resin – Corporate
280
256
Contract drilling – Diamond Offshore
229
Total revenues from contracts with customers
697
959
Other revenues
18
23
Operating revenues and other
$
715
$
982
Receivables from contracts with customers – As of March 31, 2021 and December 31, 2020, receivables from contracts with customers were approximately $ 251 million and $ 246 million and are included within Receivables on the Consolidated Condensed Balance Sheets.
Deferred revenue – As of March 31, 2021 and December 31, 2020, deferred revenue resulting from contracts with customers was approximately $ 4.2 billion and $ 4.1 billion and is reported as Deferred non-insurance warranty revenue and within Other liabilities on the Consolidated Condensed Balance Sheets. Approximately $ 316 million and $ 297 million of revenues recognized during the three months ended March 31, 2021 and 2020 were included in deferred revenue as of December 31, 2020 and 2019.
Performance obligations – As of March 31, 2021, approximately $ 13.3 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 $ 1.9 billion will be recognized during the remaining nine months of 2021, $ 2.1 billion in 2022 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control.
9. 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 for these plans:
Pension Benefits
Other
Postretirement Benefits
Three Months Ended March 31
2021
2020
2021
2020
(In millions)
Service cost
$
1
$
1
Interest cost
18
23
Expected return on plan assets
( 43
)
( 43
)
$
( 1
)
$
( 1
)
Amortization of unrecognized net loss
12
11
Settlement charge
4
Net periodic benefit
$
( 12
)
$
( 4
)
$
( 1
)
$
( 1
)
24
Index
10. 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. A trial was held the week of February 22, 2021 and post-trial oral arguments are scheduled for July 14, 2021 .
The Company is from time to time party to other litigation arising in the ordinary course of business. While it is difficult to predict the outcome or effect of any litigation, management does not believe that the outcome of any pending litigation, including the Boardwalk Pipelines matter described above, will materially affect the Company’s results of operations or equity.
11. 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 March 31, 2021, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $ 1.6 billion, which will be paid over the lifetime of the annuitants. CNA does not believe any payment is likely under these guarantees, as CNA is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.
12. Segments
Loews Corporation has four reportable segments comprised of three individual consolidated operating subsidiaries, CNA, Boardwalk Pipelines and Loews Hotels & Co; and the Corporate segment. In the first quarter of 2020 Diamond Offshore was a reportable segment. 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. 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, 2020.
The following tables present the reportable segments and their contribution to the Consolidated Condensed Statements of Operations. Amounts presented will not necessarily be the same as those in the individual financial statements of the subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling interests.
25
Index
Statements of Operations by segment are presented in the following tables.
Three Months Ended March 31, 2021
CNA
Financial
Boardwalk
Pipelines
Loews
Hotels & Co
Corporate
Total
(In millions)
Revenues:
Insurance premiums
$
1,962
$
1,962
Net investment income
504
$
46
550
Investment gains
57
57
Non-insurance warranty revenue
338
338
Operating revenues and other
5
$
372
$
57
281
715
Total
2,866
372
57
327
3,622
Expenses:
Insurance claims and policyholders’ benefits
1,506
1,506
Amortization of deferred acquisition costs
359
359
Non-insurance warranty expense
311
311
Operating expenses and other
285
217
104
308
914
Interest
28
41
8
48
125
Total
2,489
258
112
356
3,215
Income (loss) before income tax
377
114
( 55
)
( 29
)
407
Income tax (expense) benefit
( 66
)
( 29
)
12
( 31
)
( 114
)
Net income (loss)
311
85
( 43
)
( 60
)
293
Amounts attributable to noncontrolling interests
( 32
)
( 32
)
Net income (loss) attributable to Loews Corporation
$
279
$
85
$
( 43
)
$
( 60
)
$
261
26
Index
Three Months Ended March 31, 2020
CNA
Financial
Boardwalk
Pipelines
Loews
Hotels & Co
Corporate
Diamond
Offshore
Total
(In millions)
Revenues:
Insurance premiums
$
1,869
$
1,869
Net investment income (loss)
329
$
( 166
)
163
Investment losses
( 216
)
( 216
)
Non-insurance warranty revenue
301
301
Operating revenues and other
8
$
341
$
142
257
$
234
982
Total
2,291
341
142
91
234
3,099
Expenses:
Insurance claims and policyholders’ benefits
1,425
1,425
Amortization of deferred acquisition costs
344
344
Non-insurance warranty expense
281
281
Operating expenses and other
300
211
167
268
1,080
2,026
Interest
31
42
8
31
32
144
Total
2,381
253
175
299
1,112
4,220
Income (loss) before income tax
( 90
)
88
( 33
)
( 208
)
( 878
)
( 1,121
)
Income tax (expense) benefit
28
( 23
)
8
43
21
77
Net income (loss)
( 62
)
65
( 25
)
( 165
)
( 857
)
( 1,044
)
Amounts attributable to noncontrolling interests
7
405
412
Net income (loss) attributable to Loews Corporation
$
( 55
)
$
65
$
( 25
)
$
( 165
)
$
( 452
)
$
( 632
)
27
Index
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.