interstate transportation and storage of natural gas (Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”), a 61% owned subsidiary); and
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the related notes. Actual results could differ from those estimates.
We classify fixed maturity securities and equity securities as either available-for-sale or trading which are both carried at fair value. Fair value represents the price that would be received to sell an asset in an orderly transaction between market participants on the measurement date, the determination of which requires us to make a significant number of assumptions and judgments. Securities with the greatest level of subjectivity around valuation are those that rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs represent our own judgment and are based on assumptions consistent with what we believe other market participants would use to price such securities. Given the susceptibility of financial markets to severe events as well as the level of uncertainty related to our assumptions and judgments, it is possible that changes in fair value estimates could have a material adverse impact on our results of operations and/or equity. Further information on fair value measurements is included in Note 4 of the Notes to Consolidated Financial Statements included under Item 8.
CNA Commercial’s average rate increased 2.0% in 2011, as compared with an increase of 0.6% in 2010 for the policies that renewed in each period. Retention of 79.3% and 79.7% was achieved in each period.
Favorable net prior year development of $256 million was recorded in 2010, compared to favorable net prior year development of $143 million in 2009. Further information on CNA Commercial net prior year development for 2010 and 2009 is included in Note 8 of the Notes to Consolidated Financial Statements included under Item 8.
During 2012, 11 of Diamond Offshore’s rigs will require 5-year surveys and one of its U.K. rigs will require dry-docking for inspections. Diamond Offshore expects these 12 rigs to be out of service for approximately 660 days in the aggregate. Diamond Offshore also expects to spend an additional approximately 440 days during 2012 for intermediate surveys, the mobilization of rigs, contract acceptance testing and extended maintenance projects. Diamond Offshore can provide no assurance as to the exact timing and/or duration of downtime associated with regulatory inspections, planned rig mobilizations and other shipyard projects.
(c) Includes $1.6 billion attributable to contracted operations offshore Brazil for the years 2012 to 2015 as of February 1, 2012.
Net cash used by investing activities was $1.1 billion for 2011, as compared with net cash provided of $767 million for 2010 and net cash used of $1.1 billion for 2009. The cash flow from investing activities is impacted by various factors such as the anticipated payment of claims, financing activity, asset/liability management and individual security buy and sell decisions made in the normal course of portfolio management. Net cash provided by investing activities in 2010 primarily related to the sale of short term investments which was used to fund the $1.9 billion initial net cash settlement with NICO as discussed above.
In December of 2011, Diamond Offshore entered into an agreement to construct a deepwater semisubmersible rig. The rig will be constructed utilizing the hull of one of Diamond Offshore’s mid-water floaters that previously operated as the Ocean Voyager. The project is estimated to be completed in the third quarter of 2013 at an aggregate cost of approximately $300 million, including commissioning, spares and project management costs.
Accounting changes - In April of 2009, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance which amended the other-than-temporary impairment (“OTTI”) loss model for fixed maturity securities. The implementation of this updated accounting guidance as of April 1, 2009 resulted in a cumulative effect adjustment of $109 million (after tax and noncontrolling interest), which was reclassified to Accumulated other comprehensive income (loss) (“AOCI”) from Retained earnings on the Consolidated Statements of Equity. The cumulative effect adjustment represents the non-credit component of those previously impaired fixed maturity securities that were still considered OTTI, and the entire amount previously recorded as an OTTI loss on fixed maturity securities no longer considered OTTI as of April 1, 2009. Further information on OTTI loss is included in Note 3 of the Notes to Consolidated Financial statements.
A number of separate account pension deposit contracts guarantee principal and an annual minimum rate of interest. If aggregate contract value in the separate account exceeds the fair value of the related assets, an additional Policyholders’ funds liability is established. During 2011, the CNA increased this pretax Policyholders’ funds liability by $18 million. CNA decreased this pretax Policyholders’ funds liability by $24 million and $42 million in 2010 and 2009. Certain of these contracts are subject to a fair value adjustment if terminated by the policyholder.
The unrealized losses on the Company’s investments in this category are primarily due to market conditions for zero coupon bonds, particularly for those with maturity dates that exceed 20 years. Yields for these securities continue to be higher than historical norms relative to after-tax returns on similar fixed income securities. Securities that comprise 83.1% of the gross unrealized losses in this category are rated AA or higher.
The carrying value of limited partnerships as of December 31, 2011 and 2010 was approximately $2.7 billion and $2.8 billion which includes undistributed earnings of $607 million and $812 million. Limited partnerships comprising 62.7% of the total carrying value are reported on a current basis through December 31, 2011 with no reporting lag, 23.0% are reported on a one month lag and the remainder are reported on more than a one month lag. As of December 31, 2011 and 2010, the Company had 83 and 84 active limited partnership investments. The number of limited partnerships held and the strategies employed provide diversification to the limited partnership portfolio and the overall invested asset portfolio.
Cash and securities with carrying values of approximately $5 million and $6 million were deposited with financial institutions as collateral for letters of credit as of December 31, 2011 and 2010. In addition, cash and securities were deposited in trusts with financial institutions to secure reinsurance and other obligations with various third parties. The carrying values of these deposits were approximately $288 million and $298 million as of December 31, 2011 and 2010.
Other includes standard property and casualty coverages provided to CNA Specialty customers. Unfavorable development for other coverages was primarily due to increased frequency of large claims in auto and workers’ compensation coverages in accident years 2009 and 2010.
Favorable development was recorded for property and marine coverages. Favorable development on catastrophe claims was due to lower than expected incurred loss emergence, primarily in accident years 2008 and 2009. Favorable non-catastrophe development was due to lower than expected severity in accident years 2009 and prior. Favorable development in marine business was primarily due to decreased claim frequency and favorable cargo salvage recoveries in recent accident years as well as lower than expected severity for excess liability in accident years 2005 and prior. Favorable property and marine development in CNA’s European operation was due to lower than expected frequency of large claims primarily in accident year 2009.
At December 31, 2011, the aggregate of long term debt maturing in each of the next five years is approximately as follows: $88 million in 2012, $689 million in 2013, $819 million in 2014, $948 million in 2015, $1.9 billion in 2016 and $4.6 billion thereafter. Long term debt is generally redeemable in whole or in part at the greater of the
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. An increase or decrease in the assumed health care cost trend rate of 1% in each year would not have a significant impact on the Company’s service and interest cost as of December 31, 2011. An increase of 1% in each year would increase the Company’s accumulated postretirement benefit obligation as of December 31, 2011 by $2 million and a decrease of 1% in each year would decrease the Company’s accumulated postretirement benefit obligation as of December 31, 2011 by $5 million.
Diamond Offshore has entered into three separate turnkey contracts with Hyundai Heavy Industries, Co. Ltd., (“Hyundai”) for the construction of three dynamically positioned, ultra-deepwater drillships, with deliveries scheduled for the second and fourth quarters of 2013 and in the second quarter of 2014. The aggregate cost of the three drillships, including commissioning, spares and project management, is expected to be approximately $1.8 billion. The contracted price of each drillship is payable in two installments. The first installments, aggregating $478 million, were paid in 2011 and are included in Property, plant and equipment in the Consolidated Balance Sheets. The final installments of the contracted price are payable to Hyundai upon delivery of each vessel.