LOEWS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with our Consolidated Condensed Financial Statements included under Item 1 of this Report, Risk Factors included under Part II, Item 1A of this Report and the Consolidated Financial Statements, Risk Factors, and MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2020. This MD&A is comprised of the following sections: Page No. Overview 28 Results of Operations 29 Consolidated Financial Results 29 CNA Financial 30 Boardwalk Pipelines 34 Loews Hotels & Co 35 Corporate 36 Diamond Offshore 37 Liquidity and Capital Resources 37 Parent Company 37 Subsidiaries 37 Investments 38 Critical Accounting Estimates 42 Accounting Standards Update 42 Forward-Looking Statements 42 OVERVIEW Loews Corporation is a holding company and has four reportable segments comprised of three individual consolidated operating subsidiaries, CNA Financial Corporation (“CNA”), Boardwalk Pipeline Partners, LP (“Boardwalk Pipelines”) and Loews Hotels Holding Corporation (“Loews Hotels & Co”); and the Corporate segment. In the first quarter of 2020, Diamond Offshore Drilling Inc. (“Diamond Offshore”) was a reportable segment. The Corporate segment is primarily comprised of Loews Corporation excluding its subsidiaries and the operations of Altium Packaging LLC (“Altium Packaging”). Diamond Offshore was deconsolidated during the second quarter of 2020. For more information see Note 2 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 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. Unless the context otherwise requires, the term “Company” as used herein means Loews Corporation including its consolidated subsidiaries, the terms “Parent Company,” “we,” “our,” “us” or like terms as used herein mean Loews Corporation excluding its subsidiaries and the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders. We rely upon our invested cash balances and distributions from our subsidiaries to generate the funds necessary to meet our obligations and to declare and pay any dividends to shareholders. The ability of subsidiaries to pay dividends is subject to, among other things, the availability of sufficient earnings and funds in such subsidiaries, applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies (see Note 14 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020) and compliance with covenants in their respective loan agreements. Claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and those of our creditors and shareholders. 28 Index RESULTS OF OPERATIONS Consolidated Financial Results The following table summarizes net income (loss) attributable to Loews Corporation by segment and net income (loss) per share attributable to Loews Corporation for the three months ended March 31, 2021 and 2020: Three Months Ended March 31 2021 2020 (In millions, except per share data) CNA Financial $ 279 $ (55 ) Boardwalk Pipelines 85 65 Loews Hotels & Co (43 ) (25 ) Corporate (60 ) (165 ) Diamond Offshore (452 ) Net income (loss) attributable to Loews Corporation $ 261 $ (632 ) Basic net income (loss) per common share $ 0.98 $ (2.20 ) Diluted net income (loss) per common share $ 0.97 $ (2.20 ) Net income attributable to Loews Corporation for the three months ended March 31, 2021 was $261 million, or $0.97 per share, compared to net loss of $632 million, or $2.20 per share in the comparable 2020 period. Loews Corporation’s net income for the first three months of 2021 was driven by CNA, which had improved net investment income, net investment gains, and solid non-catastrophe current accident year property and casualty underwriting results. Boardwalk Pipelines also contributed positively to Loews Corporation’s 2021 quarterly results. Loews Hotels & Co posted a net loss for the first three months of 2021 due to the continued negative impact on travel of the COVID-19 pandemic. Last year’s first quarter results included a significant loss related to Diamond Offshore, which is no longer a subsidiary. On April 1, 2021 Loews Corporation sold 47% of its interest in Altium Packaging for approximately $420 million in cash consideration, subject to expenses and post-closing adjustments. As a result of the terms of this transaction, Loews Corporation will share certain participating rights with GIC related to capital allocation and other decisions and is required to deconsolidate Altium Packaging as of the date of the sale under accounting principles generally accepted in the United States of America (“GAAP”). In connection with the sale and subsequent deconsolidation, Loews Corporation expects to recognize a pretax gain of approximately $560 million in the second quarter of 2021. 29 Index CNA Financial The following table summarizes the results of operations for CNA for the three months ended March 31, 2021 and 2020 as presented in Note 12 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report. For further discussion of Net investment income and Investment gains (losses), see the Investments section of this MD&A. Three Months Ended March 31 2021 2020 (In millions) Revenues: Insurance premiums $ 1,962 $ 1,869 Net investment income 504 329 Investment gains (losses) 57 (216 ) Non-insurance warranty revenue 338 301 Other revenues 5 8 Total 2,866 2,291 Expenses: Insurance claims and policyholders’ benefits 1,506 1,425 Amortization of deferred acquisition costs 359 344 Non-insurance warranty expense 311 281 Other operating expenses 285 300 Interest 28 31 Total 2,489 2,381 Income (loss) before income tax 377 (90 ) Income tax (expense) benefit (66 ) 28 Net income (loss) 311 (62 ) Amounts attributable to noncontrolling interests (32 ) 7 Net income (loss) attributable to Loews Corporation $ 279 $ (55 ) Net income attributable to Loews Corporation was $279 million for the three months ended March 31, 2021 as compared with a net loss of $55 million in the comparable 2020 period. The improvement was due to higher net investment income, investment gains for the three months ended March 31, 2021 as compared with investment losses in the comparable 2020 period and improved non-catastrophe current accident year underwriting results. Higher net investment income in the first three months of 2021 was driven by limited partnership and common stock returns. Investment gains were driven by the favorable relative change in the fair value of non-redeemable preferred stock and lower impairment losses. These results were partially offset by higher net catastrophe losses of $125 million ($88 million after tax and noncontrolling interests) for the three months ended March 31, 2021 as compared with $75 million ($53 million after tax and noncontrolling interests) in the comparable 2020 period. CNA’s Property & Casualty and Other Insurance Operations CNA’s commercial property and casualty insurance operations (“ Property & Casualty Operations”) include its Specialty, Commercial and International lines of business. CNA’s Other Insurance Operations outside of Property & Casualty Operations include its long term care business that is in run-off, certain corporate expenses, including interest on CNA’s corporate debt, certain property and casualty businesses in run-off, including CNA Re, A&EP, excess workers’ compensation and legacy mass tort. We believe the presentation of CNA as one reportable segment is appropriate in accordance with applicable accounting standards on segment reporting. However, for purposes of this discussion and analysis of the results of operations, we provide greater detail with respect to CNA’s Property & Casualty Operations and Other Insurance Operations to enhance the reader’s understanding and to provide further transparency into key drivers of CNA’s financial results. 30 Index Effective January 1, 2021, and in connection with the ceding of certain legacy reserves under a retroactive reinsurance agreement executed in February 2021, CNA changed the presentation of a legacy portfolio of excess workers’ compensation policies relating to business written in 2007 and prior. This business, which was previously reported as part of the Commercial business, is now reported as part of the Other Insurance Operations business. See Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1 for further information on this retroactive reinsurance agreement. In addition, a determination was made to change the presentation of certain legacy mass tort reserves. Similar to the aforementioned excess workers’ compensation legacy business, these legacy mass tort reserves were previously reported in the Commercial business and are now reported as part of the Other Insurance Operations business. These changes were made to better reflect the manner in which CNA is organized for purposes of making operating decisions and assessing performance. Prior period information has been conformed to the new presentation. In assessing its insurance operations, CNA utilizes the core income (loss) financial measure. Core income (loss) is calculated by excluding from net income (loss), investment gains or losses and any cumulative effects of changes in accounting guidance. In addition, core income (loss) excludes the effects of noncontrolling interests. The calculation of core income (loss) excludes investment gains or losses because investment gains or losses are generally driven by economic factors that are not necessarily reflective of CNA’s primary insurance operations. Core income (loss) is deemed to be a non-GAAP financial measure and management believes this measure is useful for investors to evaluate its insurance operations. Please see the non-GAAP reconciliation of core income (loss) to net income (loss) that follows in this MD&A. Property & Casualty Operations In evaluating the results of Property & Casualty Operations, CNA utilizes the loss ratio, the loss ratio excluding catastrophes and development, the expense ratio, the dividend ratio, the combined ratio and the combined ratio excluding catastrophes and development. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The loss ratio excluding catastrophes and development excludes net catastrophes losses and changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years from the loss ratio. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders’ dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. The combined ratio excluding catastrophes and development is the sum of the loss ratio excluding catastrophes and development, the expense ratio and the dividend ratio. In addition, renewal premium change, rate, retention and new business are also utilized in evaluating operating trends. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. Rate represents the average change in price on policies that renew excluding exposure change. For certain products within Small Business, where quantifiable, rate includes the influence of new business as well. Exposure represents the measure of risk used in the pricing of the insurance product. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. Renewal premium change, rate and retention presented for the prior period are updated to reflect subsequent activity on policies written in the period. New business represents premiums from policies written with new customers and additional policies written with existing customers. Gross written premiums, excluding third party captives, represents gross written premiums excluding business which is ceded to third party captives, including business related to large warranty programs. 31 Index The following tables summarize the results of CNA’s Property & Casualty Operations for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 Specialty Commercial International Total (In millions, except %) Gross written premiums $ 1,794 $ 1,113 $ 343 $ 3,250 Gross written premiums excluding third party captives 816 1,111 343 2,270 Net written premiums 742 960 235 1,937 Net earned premiums 735 855 252 1,842 Net investment income 117 148 14 279 Core income 170 69 24 263 Other performance metrics: Loss ratio excluding catastrophes and development 59.4 % 60.8 % 59.6 % 60.1 % Effect of catastrophe impacts 0.7 13.4 2.0 6.8 Effect of development-related items (2.1 ) 0.5 (0.1 ) (0.6 ) Loss ratio 58.0 % 74.7 % 61.5 % 66.3 % Expense ratio 30.6 31.4 34.4 31.5 Dividend ratio 0.2 0.6 0.3 Combined ratio 88.8 % 106.7 % 95.9 % 98.1 % Combined ratio excluding catastrophes and development 90.2 % 92.8 % 94.0 % 91.9 % Rate 10 % 10 % 14 % 11 % Renewal premium change 9 8 11 9 Retention 86 84 74 83 New business $ 103 $ 211 $ 80 $ 394 Three Months Ended March 31, 2020 Gross written premiums $ 1,714 $ 1,062 $ 307 $ 3,083 Gross written premiums excluding third party captives 741 1,059 307 2,107 Net written premiums 694 950 219 1,863 Net earned premiums 685 818 239 1,742 Net investment income 56 42 15 113 Core income 96 23 2 121 Other performance metrics: Loss ratio excluding catastrophes and development 59.5 % 60.8 % 60.3 % 60.2 % Effect of catastrophe impacts 1.1 7.0 4.3 4.3 Effect of development-related items (1.5 ) (0.1 ) (0.7 ) Loss ratio 59.1 % 67.8 % 64.5 % 63.8 % Expense ratio 32.0 33.2 35.4 33.1 Dividend ratio 0.2 0.6 0.4 Combined ratio 91.3 % 101.6 % 99.9 % 97.3 % Combined ratio excluding catastrophes and development 91.7 % 94.6 % 95.7 % 93.7 % Rate 10 % 8 % 9 % 9 % Renewal premium change 11 9 9 9 Retention 83 86 70 82 New business $ 74 $ 198 $ 68 $ 340 32 Index Total gross written premiums increased $167 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Total net written premiums increased $74 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Gross written premiums, excluding third party captives, for Specialty increased $75 million for the three months ended March 31, 2021 as compared with the comparable 2020 period driven by higher new business and strong rate. Net written premiums for Specialty increased $48 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the three months ended March 31, 2021 was consistent with the trend in net written premiums for Specialty. Gross written premiums for Commercial increased $51 million for the three months ended March 31, 2021 as compared with the comparable 2020 period driven by higher new business and strong rate. Net written premiums for Commercial increased $10 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the three months ended March 31, 2021 was consistent with the trend in net written premiums in recent quarters for Commercial. Gross written premiums for International increased $36 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Excluding the effect of foreign currency exchange rates, gross written premiums increased $19 million driven by growth in Europe and Canada. Net written premiums for International increased $16 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Excluding the effect of foreign currency exchange rates, net written premiums increased $3 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. The increase in net earned premiums for the three months ended March 31, 2021 was consistent with the trend in net written premiums for International. Total core income increased $142 million for the three months ended March 31, 2021 as compared with the comparable 2020 period primarily due to higher net investment income driven by limited partnership and common stock returns and improved non-catastrophe current accident year underwriting results, partially offset by higher net catastrophe losses. Total net catastrophe losses were $125 million for the three months ended March 31, 2021 as compared with $75 million for the comparable 2020 period. For the three months ended March 31, 2021 and 2020, Specialty had net catastrophe losses of $5 million and $8 million, Commercial had net catastrophe losses of $115 million and $57 million and International had net catastrophe losses of $5 million and $10 million. Favorable net prior year loss reserve development of $15 million was recorded for the three months ended March 31, 2021 and 2020. For the three months ended March 31, 2021 and 2020, Specialty recorded favorable net prior year loss reserve development of $15 million and $11 million. For the three months ended March 31, 2021, Commercial recorded no net prior year loss reserve development as compared with favorable net prior year loss reserve development of $4 million in the comparable 2020 period. There was no net prior year loss reserve development recorded for International for the three months ended March 31, 2021 and 2020. Further information on net prior year loss reserve development is included in Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Specialty’s combined ratio improved 2.5 points for the three months ended March 31, 2021 as compared with the comparable 2020 period due to a 1.4 point improvement in the expense ratio and a 1.1 point improvement in the loss ratio. The improvement in the loss ratio was primarily due to higher favorable net prior year loss reserve development and lower net catastrophe losses. The improvement in the expense ratio was driven by higher net earned premiums. Commercial’s combined ratio increased 5.1 points for the three months ended March 31, 2021 as compared with the comparable 2020 period due to a 6.9 point increase in the loss ratio, partially offset by a 1.8 point improvement in the expense ratio. The increase in the loss ratio was primarily due to higher net catastrophe losses, which were 13.4 points of the loss ratio for the three months ended March 31, 2021 as compared with 7.0 points of the loss ratio in the comparable 2020 period. The improvement in the expense ratio was driven by favorable acquisition expenses and higher net earned premiums. International’s combined ratio improved 4.0 points for the three months ended March 31, 2021 as compared with the comparable 2020 period due to a 3.0 point improvement in the loss ratio and a 1.0 point improvement in the expense ratio. The improvement in the loss ratio was driven by improved current accident year underwriting results. The improvement in the expense ratio was driven by favorable commission rates and higher net earned premiums. 33 Index Other Insurance Operations The following table summarizes the results of CNA’s Other Insurance Operations for the three months ended March 31, 2021 and 2020: Three Months Ended March 31 2021 2020 (In millions) Net earned premiums $ 120 $ 127 Net investment income 225 216 Core income (loss) - (13 ) Core results improved $13 million for the three months ended March 31, 2021 as compared with the comparable 2020 period driven by better than expected morbidity in the long term care business and higher net investment income, driven by returns in the limited partnership portfolio. Further, during the first three months of 2021, relative to expectations, CNA experienced lower new claim frequency, higher claim terminations and more favorable claim severity in the long term care business amid the effects of the coronavirus disease (“COVID-19”). Given the uncertainty of these trends, CNA increased its incurred but not reported (“IBNR”) reserves in anticipation of increased claim activity as the COVID-19 pandemic abates. Results for the three months ended March 31, 2021 also reflect the recognition of a $12 million loss resulting from the legacy excess workers’ compensation loss portfolio transfer (“EWC LPT”). For further information on the EWC LPT see Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Non-GAAP Reconciliation of Core Income (Loss) to Net Income (Loss) The following table reconciles core income (loss) to net income (loss) attributable to Loews Corporation for the three months ended March 31, 2021 and 2020: Three Months Ended March 31 2021 2020 (In millions) Core income (loss): Property & Casualty Operations $ 263 $ 121 Other Insurance Operations (13 ) Total core income 263 108 Investment gains (losses) 49 (170 ) Consolidating adjustments including noncontrolling interests (33 ) 7 Net income (loss) attributable to Loews Corporation $ 279 $ (55 ) Boardwalk Pipelines Results of Operations A significant portion of Boardwalk Pipelines’ revenues are fee-based, being derived from capacity reservation charges under firm agreements with customers, which do not vary significantly period to period, but are impacted by longer term trends in its business such as lower pricing on contract renewals and other factors. Boardwalk Pipelines’ operating costs and expenses do not vary significantly based upon the amount of products transported, with the exception of costs recorded in fuel and transportation expense, which are netted with fuel retained on our Consolidated Condensed Statements of Operations. For further information on Boardwalk Pipelines’ revenue recognition policies see Note 1 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020. 34 Index The following table summarizes the results of operations for Boardwalk Pipelines for the three months ended March 31, 2021 and 2020 as presented in Note 12 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report: Three Months Ended March 31 2021 2020 (In millions) Revenues: Operating revenues and other $ 372 $ 341 Total 372 341 Expenses: Operating and other 217 211 Interest 41 42 Total 258 253 Income before income tax 114 88 Income tax expense (29 ) (23 ) Net income attributable to Loews Corporation $ 85 $ 65 Total revenues increased $31 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Including the effect of fuel and transportation expense, operating revenues increased $28 million driven primarily by recently completed growth projects and higher system utilization from colder winter weather experienced during the first three months of 2021, partially offset by higher fuel and transportation expense. Operating expenses increased $6 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Excluding items offset with operating revenues, operating costs increased $3 million, primarily due to an increased asset base and the colder winter weather experienced during the first three months of 2021. Loews Hotels & Co The following table summarizes the results of operations for Loews Hotels & Co for the three months ended March 31, 2021 and 2020 as presented in Note 12 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report: Three Months Ended March 31 2021 2020 (In millions) Revenues: Operating revenue $ 39 $ 109 Revenues related to reimbursable expenses 18 33 Total 57 142 Expenses: Operating and other: Operating 58 116 Reimbursable expenses 18 33 Depreciation 16 14 Equity loss from joint ventures 12 4 Interest 8 8 Total 112 175 Loss before income tax (55 ) (33 ) Income tax benefit 12 8 Net loss attributable to Loews Corporation $ (43 ) $ (25 ) Loews Hotels & Co’s results declined mainly due to the continuing adverse impact of the COVID-19 pandemic on its operations. Beginning in mid-March 2020, occupancy rates declined significantly, and most hotel properties owned and/or operated by Loews Hotels & Co temporarily suspended operations by the end of March or early April 2020. While almost all of these hotel properties resumed operations during 2020, occupancy rates in the first three months of 2021 were considerably lower than the prior year period before mid-March 2020. Occupancy rates have been gradually improving since June of 2020 with hotel properties located in resort destinations experiencing improvement at a faster pace than hotel properties located in urban centers. 35 Index Although Loews Hotels & Co has enacted significant measures to adjust the operating cost structure of each hotel during the COVID-19 pandemic, deferred a significant amount of capital expenditures and reduced the operating costs of its management company, it has not been able to fully offset the lost revenues resulting from lower occupancies. This has resulted in the decrease in operating revenues of $70 million, the decrease in operating expenses of $58 million, and the increase in equity loss from joint ventures of $8 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Pre-opening costs included in equity loss from joint ventures decreased $5 million for the three months ended March 31, 2021 as compared with the comparable 2020 period. Corporate Corporate operations consist primarily of investment income at the Parent Company, operating results of Altium Packaging, Parent Company interest expense and other Parent Company administrative costs. Investment income includes earnings on cash and short term investments held at the Parent Company to meet current and future liquidity needs, as well as results of limited partnership investments and the trading portfolio held at the Parent Company. The following table summarizes the results of operations for Corporate for the three months ended March 31, 2021 and 2020 as presented in Note 12 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report: Three Months Ended March 31 2021 2020 (In millions) Revenues: Net investment income (loss) $ 46 $ (166 ) Operating revenues and other 281 257 Total 327 91 Expenses: Operating and other 308 268 Interest 48 31 Total 356 299 Loss before income tax (29 ) (208 ) Income tax (expense) benefit (31 ) 43 Net loss attributable to Loews Corporation $ (60 ) $ (165 ) Net investment income for the Parent Company for the three months ended March 31, 2021 was $46 million as compared with a loss of $166 million for the comparable 2020 period, primarily due to improved results from equity based investments in the Parent Company trading portfolio. Operating revenues and other include Altium Packaging revenues of $280 million and $256 million for the three months ended March 31, 2021 and 2020. The increase of $24 million for the three months ended March 31, 2021 as compared with the comparable 2020 period reflects higher year-over-year resin prices and an increase of $7 million related to an acquisition in 2020, partially offset by lower volumes, primarily due to the impact of the winter storms in 2021. Altium Packaging’s contracts with its customers provide for price adjustments for changes in resin prices on a prospective basis. Due to fluctuations in resin prices, over time resin raw material costs are generally offset by the change in revenues, so that Altium Packaging’s gross margins return to the same level as prior to the change in prices. Operating and other expenses include Altium Packaging operating expenses of $279 million and $246 million for the three months ended March 31, 2021 and 2020. The increase in operating expenses of $33 million for the three months ended March 31, 2021 as compared with the comparable 2020 period is primarily due to the increase in resin prices, an increase of $4 million related to an acquisition in 2020 and increased labor costs. Corporate Operating and other expenses were $29 million and $22 million for the three months ended March 31, 2021 and 2020. The increase of $7 million for the three months ended March 31, 2021 as compared with the comparable 2020 period is primarily due to legal and other corporate overhead expenses. Interest expenses increased $17 million for the three months ended March 31, 2021 as compared with the comparable 2020 period due to the May of 2020 issuance of the Parent Company’s $500 million aggregate principal amount of 3.2% senior notes due May 15, 2030 and a charge of approximately $14 million to write off debt issuance costs for the early retirement of debt at Altium Packaging in the current year period. 36 Index Income tax expense was $31 million for the three months ended March 31, 2021 as compared with an income tax benefit of $43 million for the comparable 2020 period. The income tax expense for the three months ended March 31, 2021 is primarily due to the recognition of a $35 million deferred tax liability resulting from the asset held for sale designation of Altium Packaging related to the sale of 47% of the Company’s interest in Altium Packaging. For more information on the sale see Note 2 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Diamond Offshore Amounts presented for Diamond Offshore for the three months ended March 31, 2020 reflect the period prior to its deconsolidation in the second quarter of 2020. Contract drilling revenues were $218 million and Contract drilling expenses were $185 million for the three months ended March 31, 2020. Operating and other expenses include an aggregate asset impairment charge of $774 million ($408 million after tax and noncontrolling interests) recognized in the first quarter of 2020. For more information on the deconsolidation of Diamond Offshore see Note 2 of the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020. LIQUIDITY AND CAPITAL RESOURCES Parent Company Parent Company cash and investments, net of receivables and payables, totaled $3.6 billion at March 31, 2021 as compared to $3.5 billion at December 31, 2020. During the three months ended March 31, 2021, we received $275 million in dividends from CNA, including a special dividend of $182 million. We also received a $199 million dividend from Altium Packaging in February of 2021. Cash outflows during the three months ended March 31, 2021 included the payment of $280 million to fund treasury stock purchases, $17 million of cash dividends to our shareholders and $32 million of cash contributions to Loews Hotels & Co. On April 1, 2021, Loews Corporation sold its 47% interest in Altium Packaging to GIC and received approximately $420 million in cash consideration, subject to expenses and post-closing adjustments. As a holding company we depend on dividends from our subsidiaries and returns on our investment portfolio to fund our obligations. We also have an effective Registration Statement on file with the Securities and Exchange Commission (“SEC”) registering the future sale of an unlimited amount of our debt and equity securities from time to time. We are not responsible for the liabilities and obligations of our subsidiaries and there are no Parent Company guarantees. Depending on market and other conditions, we may purchase our shares and shares of our subsidiaries outstanding common stock in the open market or otherwise. During the three months ended March 31, 2021, we purchased 5.6 million shares of Loews Corporation common stock. As of April 30, 2021, we had purchased an additional 0.6 million shares of Loews Corporation common stock in 2021 at an aggregate cost of $32 million. As of April 30, 2021, there were 263,175,591 shares of Loews Corporation common stock outstanding. Future uses of our cash may include investing in our subsidiaries, new acquisitions, dividends and/or repurchases of our and our subsidiaries’ outstanding common stock. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition and business needs. Subsidiaries CNA’s cash provided by operating activities was $82 million for the three months ended March 31, 2021 and $212 million for the comparable 2020 period. The decrease in cash provided by operating activities was driven by the payment of the EWC LPT premium, partially offset by lower net claim payments and an increase in premiums collected. For further information on the EWC LPT see Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1. CNA paid a quarterly cash dividend of $0.38 per share on its common stock and a special cash dividend of $0.75 per share on its common stock in the first quarter of 2021. On April 30, 2021, CNA’s Board of Directors declared a quarterly cash dividend of $0.38 per share, payable June 3, 2021 to shareholders of record on May 17, 2021. CNA’s declaration and payment of future dividends is at the discretion of its Board of Directors and will depend on many factors, including CNA’s earnings, financial condition, business needs and regulatory constraints. Dividends from Continental Casualty Company (“CCC”), a subsidiary of CNA, are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the “Department”), are determined based on the greater of the prior year’s statutory net income or 10% of statutory surplus as of the end of the prior year, as 37 Index well as the timing and amount of dividends paid in the preceding 12 months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of March 31, 2021, CCC was in a positive earned surplus position. CCC paid dividends of $330 million and $670 million during the three months ended March 31, 2021 and 2020. The actual level of dividends paid in any year is determined after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company. CNA has an effective shelf registration statement on file with the SEC under which it may publicly issue debt, equity or hybrid securities from time to time. Boardwalk Pipelines’ cash provided by operating activities increased $40 million for the three months ended March 31, 2021 compared to the comparable 2020 period, primarily due to the change in net income. For the three months ended March 31, 2021 and 2020, Boardwalk Pipelines’ capital expenditures were $53 million and $101 million, consisting primarily of a combination of growth and maintenance capital. As of March 31, 2021, Boardwalk Pipelines had $10 million of outstanding borrowings under its credit facility. As of April 30, 2021, Boardwalk Pipelines had no outstanding borrowings and approximately $1.5 billion of available borrowing under its credit facility. Boardwalk Pipelines anticipates that its existing capital resources, including its credit facility and cash flows from operating activities, will be adequate to fund its operations and capital expenditures for 2021. Boardwalk Pipelines has an effective shelf registration statement on file with the SEC under which it may publicly issue debt securities, warrants or rights from time to time. Certain of the hotels wholly or partially owned by Loews Hotels & Co are financed by debt facilities, with a number of different lenders. Each of the loan agreements underlying these facilities contain a variety of financial and operational covenants. As a result of the impacts of COVID-19, Loews Hotels & Co has proactively requested certain lenders, where applicable, to (1) temporarily waive certain covenants to avoid an event of default and/or further restriction of the hotel’s cash balances through the establishment of lockboxes and other measures; (2) temporarily allow funds previously restricted directly or indirectly under the hotel’s underlying loan agreement for the renewal, replacement and addition of building improvements, furniture and fixtures to be used instead for hotel operations and maintenance; and/or (3) defer certain interest and/or principal payments while the hotels operations are temporarily suspended or significantly impacted by a decline in occupancy. Loews Hotels & Co also continues to work with lenders on loans that are being reviewed for extension. These discussions with lenders are ongoing and may require Loews Hotels & Co to make principal paydowns or provide guaranties of a subsidiary’s debt to otherwise avoid an event of default. Through the date of this Report, Loews Hotels & Co is not in default on any of its loans. Additionally, due to temporary suspension of operations and lost revenues in certain joint venture entities, Loews Hotels & Co has received capital call notices in accordance with the underlying joint venture agreements to support the properties’ operations. Through April 30, 2021, Loews Hotels & Co funded approximately $13 million to these joint ventures in 2021. Additional capital calls are anticipated from certain joint ventures during 2021 and will depend on future occupancy levels and cash needs. Through April 30, 2021, Loews Hotels & Co received capital contributions of $32 million from Loews Corporation. Additional funding from Loews Corporation during the remainder of 2021 will be needed and will depend on numerous factors, including how quickly properties are able to return to sustainable operating levels as well as any strategically aligned development opportunities. 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. INVESTMENTS Investment activities of non-insurance subsidiaries primarily consist of investments in fixed income securities, including short term investments. The Parent Company portfolio also includes equity securities, including short sales and derivative instruments, and investments in limited partnerships. These types of investments generally present greater volatility, less liquidity and greater risk than fixed income investments and are included within Results of Operations – Corporate. 38 Index We enter into short sales and invest in certain derivative instruments that are used for asset and liability management activities, income enhancements to the portfolio management strategy and to benefit from anticipated future movements in the underlying markets. If such movements do not occur as anticipated, then significant losses may occur. Monitoring procedures include senior management review of daily reports of existing positions and valuation fluctuations to seek to ensure that open positions are consistent with the portfolio strategy. Credit exposure associated with non-performance by counterparties to derivative instruments is generally limited to the uncollateralized change in fair value of the derivative instruments recognized in the Consolidated Condensed Balance Sheets. We mitigate the risk of non-performance by monitoring the creditworthiness of counterparties and diversifying derivatives by using multiple counterparties. We occasionally require collateral from derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty. Insurance CNA maintains a large portfolio of fixed maturity and equity securities, including large amounts of corporate and government issued debt securities, residential and commercial mortgage-backed securities, other asset-backed securities and investments in limited partnerships which pursue a variety of long and short investment strategies across a broad array of asset classes. CNA’s investment portfolio supports its obligation to pay future insurance claims and provides investment returns which are an important part of CNA’s overall profitability. Net Investment Income The significant components of CNA’s net investment income are presented in the following table. Fixed income securities, as presented, include both fixed maturity securities and non-redeemable preferred stock. Three Months Ended March 31 2021 2020 (In millions) Fixed income securities: Taxable fixed income securities $ 359 $ 371 Tax-exempt fixed income securities 80 78 Total fixed income securities 439 449 Limited partnership investments 43 (70 ) Common stock 18 (55 ) Other, net of investment expense 4 5 Net investment income $ 504 $ 329 Effective income yield for the fixed income securities portfolio 4.4 % 4.6 % Limited partnership and common stock return 3.4 % (7.0 )% CNA’s net investment income for the three months ended March 31, 2021 increased $175 million as compared with the comparable 2020 period, driven by increased limited partnership and common stock returns. Investment Gains (Losses) The components of CNA’s investment gains (losses) are presented in the following table: Three Months Ended March 31 2021 2020 (In millions) Investment gains (losses): Fixed maturity securities: Corporate and other bonds $ 36 $ (79 ) States, municipalities and political subdivisions (1 ) Asset-backed 3 4 Total fixed maturity securities 38 (75 ) Non-redeemable preferred stock 2 (133 ) Short term and other 17 (8 ) Total investment gains (losses) 57 (216 ) Income tax (expense) benefit (8 ) 46 Amounts attributable to noncontrolling interests (5 ) 18 Net investment gains (losses) attributable to Loews Corporation $ 44 $ (152 ) 39 Index CNA’s investment gains (losses) increased $273 million for the three months ended March 31, 2021 as compared with the comparable 2020 period driven by the favorable relative change in fair value of non-redeemable preferred stock and lower impairment losses. Further information on CNA’s investment gains and losses is set forth in Note 3 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Portfolio Quality The following table presents the estimated fair value and net unrealized gains (losses) of CNA’s fixed maturity securities by rating distribution: March 31, 2021 December 31, 2020 Net Net Unrealized Unrealized Estimated Gains Estimated Gains Fair Value (Losses) Fair Value (Losses) (In millions) U.S. Government, Government agencies and Government-sponsored enterprises $ 3,149 $ 36 $ 3,672 $ 117 AAA 3,589 385 3,627 454 AA 7,221 802 7,159 1,012 A 9,380 1,057 9,543 1,390 BBB 17,692 1,920 18,007 2,596 Non-investment grade 2,548 131 2,623 149 Total $ 43,579 $ 4,331 $ 44,631 $ 5,718 As of March 31, 2021 and December 31, 2020, 1% of CNA’s fixed maturity portfolio was rated internally. AAA rated securities included $1.9 billion and $1.8 billion of pre-refunded municipal bonds as of March 31, 2021 and December 31, 2020. The following table presents CNA’s available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution: Gross Estimated Unrealized March 31, 2021 Fair Value Losses (In millions) U.S. Government, Government agencies and Government-sponsored enterprises $ 1,631 $ 47 AAA 202 9 AA 896 29 A 1,096 33 BBB 1,372 47 Non-investment grade 364 17 Total $ 5,561 $ 182 40 Index The following table presents the maturity profile for these available-for-sale fixed maturity securities. Securities not due to mature on a single date are allocated based on weighted average life: Gross Estimated Unrealized March 31, 2021 Fair Value Losses (In millions) Due in one year or less $ 135 $ 5 Due after one year through five years 672 21 Due after five years through ten years 3,090 82 Due after ten years 1,664 74 Total $ 5,561 $ 182 Duration A primary objective in the management of CNA’s investment portfolio is to optimize return relative to the corresponding liabilities and respective liquidity needs. CNA’s views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions as well as domestic and global economic conditions, are some of the factors that enter into an investment decision. CNA also continually monitors exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on its views of a specific issuer or industry sector. A further consideration in the management of CNA’s investment portfolio is the characteristics of the corresponding liabilities and the ability to align the duration of the portfolio to those liabilities and to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios where future liability cash flows are determinable and typically long term in nature, CNA segregates investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in Other Insurance Operations. The effective durations of CNA’s fixed income securities and short term investments are presented in the following table. Amounts presented are net of payable and receivable amounts for securities purchased and sold, but not yet settled. March 31, 2021 December 31, 2020 Estimated Fair Value Effective Duration (Years) Estimated Fair Value Effective Duration (Years) (In millions of dollars) Investments supporting Other Insurance Operations $ 17,952 9.1 $ 18,518 9.2 Other investments 27,666 4.9 28,839 4.5 Total $ 45,618 6.5 $ 47,357 6.3 CNA’s investment portfolio is periodically analyzed for changes in duration and related price risk. Certain securities have duration characteristics that are variable based on market interest rates, credit spreads and other factors that may drive variability in the amount and timing of cash flows. Additionally, CNA periodically reviews the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures about Market Risk included under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020. 41 Index Short Term Investments The carrying value of the components of CNA’s Short term investments are presented in the following table: March 31, December 31, 2021 2020 (In millions ) Short term investments: U.S. Treasury securities $ 1,109 $ 1,702 Other 225 205 Total short term investments $ 1,334 $ 1,907 CRITICAL ACCOUNTING ESTIMATES Certain accounting policies require us to make estimates and judgments that affect the amounts reflected in the Consolidated Condensed Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts currently recorded in the financial statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. See the Critical Accounting Estimates and the Insurance Reserves sections of our MD&A included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 for further information. ACCOUNTING STANDARDS UPDATE For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please read Note 1 of the Notes to Consolidated Condensed Financial Statements included under Item 1. FORWARD-LOOKING STATEMENTS Investors are cautioned that certain statements contained in this Report as well as in other SEC filings and periodic press releases and certain oral statements made by us and our subsidiaries and our and their officials during presentations may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include, without limitation, any statement that does not directly relate to any historical or current fact and may project, indicate or imply future results, events, performance or achievements. Such statements may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions. In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected. Developments in any of the risks or uncertainties facing us or our subsidiaries, including those described under Part II, Item 1A, Risk Factors in this Report and Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our other filings with the SEC, could cause our results to differ materially from results that have been or may be anticipated or projected. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.