Our corporate headquarters is located in leased office space in two buildings in New York City. Information relating to our subsidiaries’ properties is contained under Item 1.
Loews Corporation is a holding company and has five reportable segments comprised of three individual consolidated operating subsidiaries, CNA Financial Corporation (“CNA”), Boardwalk Pipeline Partners, LP (“Boardwalk Pipelines”) and Loews Hotels Holding Corporation (“Loews Hotels & Co”); the Corporate segment and Diamond Offshore Drilling Inc. (“Diamond Offshore”). The Corporate segment is primarily comprised of Loews Corporation excluding its subsidiaries and the operations of Altium Packaging LLC (“Altium Packaging”). Diamond Offshore was deconsolidated during the second quarter of 2020. Each of the operating subsidiaries and Diamond Offshore are headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position.
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 our shareholders. The ability of our 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 Notes to Consolidated Financial Statements included under Item 8) 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.
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 years ended December 31, 2020 and 2019:
(a) Includes a net investment loss of $1.2 billion ($957 million after tax) caused by the write down of the carrying value of our interest in Diamond Offshore.
(b) Amounts presented for Diamond Offshore reflect the periods prior to deconsolidation. See Notes 2 and 20 of the Notes to the Consolidated Financial Statements included under Item 8.
The economic disruption caused by the COVID-19 pandemic and measures to mitigate the spread of the virus have significantly affected Loews’s results in 2020. The full impact of COVID-19 on the Company’s financial results will depend on the duration of mandated and voluntary containment efforts, related economic policies, the success of vaccination efforts in mitigating the pandemic, and other societal responses to the pandemic.
CNA’s commercial property and casualty insurance operations (“Property & Casualty Operations”) include its Specialty, Commercial and International lines of business. CNA’s Other Insurance Operations outside of Property & Casualty Operations include its long term care business that is in run-off, certain corporate expenses, including interest on CNA’s corporate debt, and certain property and casualty businesses in run-off, including CNA Re and asbestos and environmental pollution (“A&EP”). CNA’s products and services are primarily marketed through independent agents, brokers and managing general underwriters to a wide variety of customers, including small, medium and large businesses, insurance companies, associations, professionals and other groups. We believe the presentation of CNA as one reportable segment is appropriate in accordance with applicable accounting standards on segment reporting. However, for purposes of this discussion and analysis of the results of operations, we provide greater detail with respect to CNA’s Property & Casualty Operations and Other Insurance Operations to enhance the reader’s understanding and to provide further transparency into key drivers of CNA’s financial results.
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.
Core income decreased $356 million in 2020 as compared with 2019 primarily due to higher net catastrophe losses and lower net investment income. These results were partially offset by improved non-catastrophe current accident year underwriting results.
Net catastrophe losses were $550 million in 2020 as compared with $179 million in 2019. Net catastrophe losses in 2020 include $294 million primarily related to severe weather-related events, $195 million related to COVID-19 and $61 million related to civil unrest. Specialty net catastrophe losses of $125 million in 2020 included $109 million related to the COVID-19 pandemic and $16 million primarily related to severe weather-related events. Specialty net catastrophe losses were $15 million in 2019. Commercial net catastrophe losses of $358 million in 2020 included $252 million primarily related to severe weather-related events, $58 million related to civil unrest and $48 million related to the COVID-19 pandemic. Commercial net catastrophe losses were $154 million in 2019. International net catastrophe losses of $67 million in 2020 included $38 million related to the COVID-19 pandemic, $26 million primarily related to severe weather-related events and $3 million related to civil unrest. International net catastrophe losses were $10 million in 2019.
The COVID-19 catastrophe losses represent CNA’s best estimate of ultimate insurance losses and loss adjustment expenses, including defense costs, resulting from the pandemic, mitigating actions and the consequent economic crisis. The losses were substantially driven by healthcare professional liability with additional impacts from workers’ compensation, management liability, commercial property, trade credit and surety. Due to the timing and fluidity of the events related to COVID-19, emergence pattern of claims and long tail nature of certain exposures the losses are substantially classified as incurred but not reported (“IBNR”) reserves. The COVID-19 catastrophe losses do not include the benefits of lower current accident year losses associated with lower loss frequency in certain lines of business as a result of shelter in place restrictions. Those benefits are modest and are partially offset by the impact of a reduction in the estimated audit premiums and an increase in the credit allowance for premium receivables resulting from depressed economic conditions.
Commercial’s combined ratio increased 6.1 points in 2020 as compared with 2019 due to an increase in the loss ratio. The increase in the loss ratio was driven by higher net catastrophe losses, which were 10.7 points of the loss ratio in 2020, as compared with 4.9 point of the loss ratio in 2019, and unfavorable net prior year loss reserve development in 2020. The expense ratio in 2020 was consistent with 2019 as higher acquisition expenses were offset by higher net earned premiums and lower underwriting expenses.
The following table summarizes the results of CNA’s Other Insurance Operations for the years ended December 31, 2020 and 2019.
A substantial portion of Boardwalk Pipelines’ transportation and storage capacity is contracted for under firm agreements. For the year ended December 31, 2020, approximately 90% of Boardwalk Pipelines’ revenues were derived from capacity reservation fees under firm contracts. The table below shows a rollforward of operating revenues under committed firm agreements in place as of December 31, 2019 to December 31, 2020, including agreements for transportation, storage and other services, over the remaining term of those agreements:
(a) Reflects an increase of $91 million in Boardwalk Pipelines’ actual 2020 revenues recognized from fixed fees under firm agreements as compared with its expected 2020 revenues from fixed fees under firm agreements, including agreements for transportation, storage and other services as of December 31, 2019, primarily due to an increase from contract renewals that occurred in 2020.
Over the past several years, as a result of market conditions, Boardwalk Pipelines has renewed some expiring contracts at lower rates or for shorter terms than in the past. In addition to normal contract expirations, in the 2018 to 2020 timeframe, transportation agreements associated with its significant pipeline expansion projects that were placed into service in the 2007-2009 timeframe, have expired. A substantial portion of the capacity associated with the pipeline expansion projects was recontracted, usually at lower rates or lower volumes, which has negatively impacted Boardwalk Pipelines’ operating revenues. The last of the contract expirations associated with the 2007-2009 pipeline expansion projects have occurred and the associated impacts on operating revenues have been and will continue to be realized. Historically, Boardwalk Pipelines had delivered the majority of production volumes from these pipeline expansion projects to other pipelines. Over the past several years, Boardwalk Pipelines has focused on diversifying its deliveries to end-use markets through utilizing available capacity from contract expirations and the capacity created from its growth projects. Boardwalk Pipelines has diversified deliveries such that almost 75% of Boardwalk Pipelines’ projected future firm reservation revenues, from firm agreements in place as of December 31, 2020, are for deliveries to end-use customers.
Operating expenses increased $15 million in 2020 as compared with 2019. Excluding items offset with operating revenues, operating expenses increased $11 million, primarily due to an increased asset base from recently completed growth projects and the expiration of property tax abatements, partially offset by lower maintenance project spending and employee-related costs. Interest expense decreased $9 million in 2020 as compared with 2019 primarily due to lower average interest rates.
The following table summarizes the results of operations for Loews Hotels & Co for the years ended December 31, 2020 and 2019 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8:
The resumption of operations for the hotels that currently have suspended operations, the potential for hotels that are operational to suspend operations, as well as occupancy levels for hotels that are operational will depend on numerous factors, many of which are outside Loews Hotels & Co’s control including government capacity restrictions, travel restrictions and the duration and scope of the COVID-19 pandemic. While the duration and period to period severity of the COVID-19 outbreak and related financial impact cannot be estimated at this time, Loews Hotels & Co’s results of operations, financial condition and cash flows were materially adversely affected during 2020, and will continue to be materially adversely impacted into 2021. In addition, once the COVID-19 outbreak is mitigated or contained, whenever that may be, historical travel patterns, both domestic and international, may continue to be disrupted either on a temporary basis or with longer term effects. These factors have contributed to impairment charges in 2020, and may lead to additional impairment charges in future periods.
Reduced occupancy and average daily rates caused by the COVID-19 pandemic and resulting mitigation efforts and operating cost reduction measures are the primary reasons for the decrease in operating revenues of $411 million and operating expenses of $220 million in 2020 as compared with 2019. Equity losses from joint ventures was $73 million in 2020 as compared to equity income of $69 million in 2019, also driven primarily by the impact of the COVID-19 pandemic.
Investment loss of $1.2 billion ($957 million after tax) for the year ended December 31, 2020 was due to the loss recognized upon deconsolidation of Diamond Offshore as a result of its Chapter 11 Filing.
Operating and other expenses include Altium Packaging operating expenses of $992 million and $913 million for 2020 and 2019, which include depreciation and amortization expense. The increase in operating expenses of $79 million in 2020 as compared with 2019 is primarily due to $56 million for the full year impact of acquisitions in 2019 and an acquisition in November of 2020, higher depreciation and amortization expenses and the increase in resin prices.
Corporate Operating and other expenses were $106 million and $91 million for 2020 and 2019. The increases of $15 million in 2020 as compared with 2019 are primarily due to legal and other corporate overhead expenses.
Parent Company cash and investments, net of receivables and payables, totaled $3.5 billion at December 31, 2020 as compared to $3.3 billion at December 31, 2019. In 2020, we received $947 million in dividends from our subsidiaries, including a special dividend from CNA of $485 million. Cash outflows included the payment of $923 million to fund treasury stock purchases, $70 million of cash dividends to our shareholders, $151 million of cash contributions to Loews Hotels & Co and $19 million to purchase common shares of CNA. On February 3, 2021, we received a $199 million dividend from Altium Packaging. In March of 2021, we will receive dividends of $275 million from CNA. 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. In 2020, we purchased 22.0 million shares of Loews Corporation common stock and 564,430 shares of CNA common stock. As of February 5, 2021, we had purchased an additional 2.2 million shares of Loews Corporation common stock in 2021 at an aggregate cost of $100 million. As of February 5, 2021, there were 267,046,558 shares of Loews Corporation common stock outstanding.
Loews Corporation has a corporate credit and senior debt rating of A with a stable outlook from S&P Global Ratings (“S&P”), a senior debt rating of A3 with a stable outlook from Moody’s Investors Service (“Moody’s”) and a senior debt rating of A with a stable outlook from Fitch Ratings Inc. (“Fitch”).
CNA paid dividends of $3.48 per share on its common stock, including a special dividend of $2.00 per share in 2020. On February 5, 2021, CNA’s Board of Directors declared a quarterly dividend of $0.38 per share and a special dividend of $0.75 per share payable March 11, 2021 to shareholders of record on February 22, 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. The payment of dividends by CNA’s insurance subsidiaries without prior approval of the insurance department of each subsidiary’s domiciliary jurisdiction is limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective state insurance departments.
On February 5, 2021, in connection with the closing of the retroactive reinsurance transaction with Cavello, CNA transferred approximately $630 million of cash into a collateral trust account as security for Cavello’s obligations under the terms of the agreement. See Note 21 of the Notes to Consolidated Financial Statements included under Item 8 for further information on the retroactive reinsurance transaction with Cavello.
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 December 31, 2020, Loews Hotels & Co funded approximately $51 million to these joint ventures in 2020.
At December 31, 2020 and 2019, neither we nor any of our subsidiaries had any off-balance sheet arrangements.
Investment activities of our 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 have greater volatility, less liquidity and greater risk than fixed income investments and are included within Results of Operations - Corporate.
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 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.
CNA maintains a large portfolio of fixed maturity and equity securities, including large amounts of corporate and government issued debt securities, residential and commercial mortgage-backed securities, other asset-backed securities and investments in limited partnerships which pursue a variety of long and short investment strategies across a broad array of asset classes. CNA’s investment portfolio supports its obligation to pay future insurance claims and provides investment returns which are an important part of CNA’s overall profitability.
The components of CNA’s investment gains (losses) are presented in the following table:
We have audited the accompanying consolidated balance sheets of Loews Corporation and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15 (a) 2 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for measurement of credit losses on financial instruments in 2020.
Claim and claim adjustment expense reserves - Property & Casualty - Refer to Notes 1 and 8 to the consolidated financial statements.
• We tested the underlying data, including historical claims, that served as the basis for the actuarial analyses, to test that the inputs to the actuarial estimates were accurate and complete.
o We developed a range of independent estimates of P&C claim and claim adjustment expense reserves and compared our estimates to the recorded reserves.
The estimation of long term care future policy benefit reserves (“LTC future policy benefit reserves”) requires significant judgment in the selection of key assumptions, including morbidity, persistency (inclusive of mortality), discount rate and future premium rate increases.
• We tested the effectiveness of controls related to the determination of LTC future policy benefit reserves, including those controls related to the estimation of and management’s review of LTC future policy benefit reserves.
• We tested the underlying data, including demographic and historical claims data, that served as the basis for the actuarial analyses, to test that the inputs to the actuarial estimates were accurate and complete.
o We independently recalculated a sample of LTC future policy benefit reserves and compared our estimates to the recorded reserves.
o We evaluated the key assumptions applied in the GPV analysis, including comparing those assumptions to the Company’s historical experience, underlying portfolio yield and market data.
When the Company determines that the carrying value of a drilling rig may not be recoverable, an undiscounted probability-weighted cash flow analysis is prepared to determine if there is a potential impairment. If the carrying value of a drilling rig is not recoverable, the carrying value is reduced to its fair value determined using a discounted probability-weighted cash flow analysis. These analyses utilize certain assumptions for each drilling rig under evaluation and consider multiple probability-weighted utilization and dayrate scenarios. The Company’s development of the dayrate assumption involves significant judgment relative to the current and expected market for the drilling rigs and expectations of future oil and gas prices.
Our audit procedures related to (i) the identification of indicators of impairment and (ii) the evaluation of the Company’s probability-weighted cash flow analyses for those drilling rigs with factors that indicated potential impairment included the following, among others:
o Corroborating information used to identify impairment indicators through independent inquiries of offshore drilling marketing and operations personnel and by performing an independent assessment of potential indicators of impairment utilizing the individual drilling rig history, asset class history for dayrates, backlog and potential drilling rig opportunities.
o Considering industry and analysts reports and the impact of macroeconomic factors, such as future oil and gas prices, on the Company’s process for identifying indicators of impairment.
• With the assistance of our fair value specialists, we evaluated the Company’s probability-weighted cash flow analyses for those drilling rigs with factors that had indicators of potential impairment by:
Investments - The Company classifies its fixed maturity securities as either available-for-sale or trading, and as such, they are carried at fair value. Short term investments are carried at fair value. Changes in fair value of trading securities are reported within Net investment income on the Consolidated Statements of Operations. Changes in fair value related to available-for-sale securities are reported as a component of Other comprehensive income.
Equity securities are carried at fair value. CNA’s non-redeemable preferred stock investments contain characteristics of debt securities, are priced similarly to bonds and are held primarily for income generation through periodic dividends. While recognition of gains and losses on these securities is not discretionary, CNA does not consider the changes in fair value of non-redeemable preferred stock to be reflective of its primary operations. As such, the changes in the fair value of these securities are recorded through Investment gains (losses) on the Consolidated Statements of Operations. The Company owns certain common stock with the intention of holding the securities primarily for market appreciation and as such, the changes in the fair value of these securities are recorded through Net investment income (loss).
The Company’s carrying value of investments in limited partnerships is its share of the net asset value of each partnership, as determined by the general partner. Certain partnerships for which results are not available on a timely basis are reported on a lag, primarily three months or less. These investments are accounted for under the equity method and changes in net asset values are recorded within Net investment income on the Consolidated Statements of Operations.
Mortgage loans are commercial in nature, are carried at unpaid principal balance, net of unamortized fees and an allowance for expected credit losses, and are recorded once funded. The allowance for expected credit losses on mortgage loans is developed by assessing the credit quality of pools of mortgage loans in good standing using debt service coverage ratios (“DSCR”) and loan-to-value (“LTV”) ratios. The DSCR compares a property’s net operating income to its debt service payments, including principal and interest. The LTV ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. The pools developed to measure the credit loss allowance use increments of DSCR and LTV to draw distinctions between risk levels. CNA applies expected credit loss rates by pool to the outstanding receivable balances. Changes in the allowance for mortgage loans are presented as a component of Investment gains (losses) on the Consolidated Statements of Operations. Mortgage loans are included in Other invested assets on the Consolidated Balance Sheets. Prior to 2020, mortgage loans were evaluated on an individual loan basis considering the collection experience of each loan and other credit quality indicators such as DSCR and the credit-worthiness of the borrower or tenants of credit tenant loan properties. Mortgage loans were considered to be impaired and a loss incurred when it was probable that contractual principal and interest payments would not be collected and any impairment losses were recognized as a direct write-down of amortized cost. Interest income from mortgage loans is recognized on an accrual basis using the effective yield method.
Investments in derivative securities are carried at fair value with changes in fair value reported as a component of Investment gains (losses), Net investment income or Other comprehensive income (loss), depending on their hedge designation. A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument, index or rate, has a notional amount, requires little or no initial investment and can be net settled. Derivatives include the following types of investments: interest rate swaps, interest rate caps and floors, put and call options, warrants, futures, forwards, commitments to purchase securities, credit default swaps and combinations of the foregoing. Derivatives embedded within non-derivative instruments (such as call options embedded in convertible bonds) must be split from the host instrument when the embedded derivative is not clearly and closely related to the host instrument.
Securities lending is typically done on a matched-book basis where the collateral is invested to substantially match the term of the loan. This matching of terms tends to limit risk. In accordance with the Company’s lending agreements, securities on loan are returned immediately to the Company upon notice. Collateral is not reflected as an asset of the Company. There was no collateral held at December 31, 2020 and 2019.
Insurance receivables include balances due currently or in the future, including amounts due from insureds related to paid losses under high deductible policies, and are presented at unpaid balances, net of an allowance for doubtful accounts. As of December 31, 2020, an allowance for doubtful accounts of $33 million for insurance receivables has been established using a loss rate methodology to determine expected credit losses for insurance receivables. This methodology uses CNA’s historical annual credit losses relative to gross premium written to develop a range of credit loss rates for each dollar of gross written premium underwritten. The expected credit loss for amounts due from insureds under high deductible and retrospectively rated policies is calculated on a pool basis, informed by historical default rate data obtained from major rating agencies. Changes in the allowance are presented as a component of Other operating expenses on the Consolidated Statements of Operations. Amounts are considered past due based on policy payment terms. Insurance receivables and any related allowance are written off after collection efforts are exhausted or a negotiated settlement is reached.
Contract costs to obtain or fulfill non-insurance warranty contracts with customers are deferred and recorded as Deferred non-insurance warranty acquisition expenses on the Consolidated Balance Sheets. These costs are expected to be recoverable over the term of the contract and are amortized in the same manner the related revenue is recognized. CNA evaluates deferred costs for recoverability including consideration of anticipated investment income. Adjustments to deferred costs, if necessary, are recorded in the current period results of operations.
Loews Hotels & Co provides lodging and related goods and services as well as management and marketing services. Lodging and related revenues are recognized as the guest takes possession of the goods or receives the services. Management and marketing services revenues are recognized as the services are provided and billed on a monthly basis. In addition, Loews Hotels & Co recognizes revenue for the reimbursement of payroll and other expenses as they are incurred on behalf of the owners of joint venture and managed hotel properties.
Altium Packaging is a packaging solutions provider and manufacturer in North America, serving a diverse customer base in the pharmaceutical, dairy, household chemicals, food/nutraceuticals, industrial/specialty chemicals, water and beverage/juice segments. Altium Packaging recognizes revenue when obligations under the terms of a contract with a customer have been satisfied. This occurs at the time control is transferred to the customer, which generally occurs upon delivery or completion of the manufacturing process.
Claim and claim adjustment expense reserves are presented net of anticipated amounts due from insureds related to losses under deductible policies of $1.2 billion as of December 31, 2020 and 2019. A significant portion of these amounts are supported by collateral. CNA also has an allowance for uncollectible deductible amounts, which is presented as a component of the allowance for doubtful accounts included in Receivables on the Consolidated Balance Sheets.
Structured settlements have been negotiated for certain property and casualty insurance claims. Structured settlements are agreements to provide fixed periodic payments to claimants. CNA’s obligations for structured settlements not funded by annuities are included in claim and claim adjustment expense reserves and are discounted at a weighted average interest rate of 6.5% and 7.1% as of December 31, 2020 and 2019. As of December 31, 2020 and 2019, the discounted reserves for unfunded structured settlements were $520 million and $497 million, net of discount of $657 million and $724 million. For the years ended December 31, 2020, 2019 and 2018, the amount of interest recognized on the discounted reserves of unfunded structured settlements was $35 million, $36 million and $40 million. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Operations but is excluded from the disclosure of prior year loss reserve development.
Workers’ compensation lifetime claim reserves are calculated using mortality assumptions determined through statutory regulation and economic factors. At December 31, 2020 and 2019, workers’ compensation lifetime claim reserves are discounted at a 3.5% interest rate. As of December 31, 2020 and 2019, the discounted reserves for workers’ compensation lifetime claim reserves were $258 million and $293 million, net of discount of $113 million and $135 million. For the years ended December 31, 2020, 2019 and 2018, the amount of interest accretion recognized on the discounted reserves of workers’ compensation lifetime claim reserves was $15 million, $21 million and $16 million. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Operations, but is excluded from the Company’s disclosure of prior year loss reserve development.
Future policy benefit reserves - Future policy benefit reserves represent the active life reserves related to CNA’s long term care policies for policyholders that are not currently receiving benefits and are computed using the net level premium method, which incorporates actuarial assumptions as to morbidity, persistency, inclusive of mortality, discount rate, future premium rate adjustments and expenses. Expense assumptions primarily relate to claim adjudication. These assumptions are locked in over the life of the policy; however if a premium deficiency emerges, the assumptions are unlocked, and the future policy benefit reserves are increased. The September 30, 2020 gross premium valuation (“GPV”) indicated a premium deficiency of $74 million and future policy benefit reserves at that date were increased accordingly. As a result, the long term care active life reserves carried as of September 30, 2020 represent management’s best estimate assumptions at that date with no margin for adverse deviation. Long term care active life reserves are discounted at a weighted average interest rate of 5.4% and 5.7% as of December 31, 2020 and 2019.
In circumstances where the cash flow projections supporting future policy benefit reserves are expected to result in profits being recognized in early future years followed by losses in later future years, the future policy benefit reserves are increased in the future profitable years by an amount necessary to offset losses that are projected to be recognized in later future years. The amount of the additional future policy benefit reserves recorded in each period is determined by applying the ratio of the present value of future losses divided by the present value of future profits from the most recently completed GPV to long term care core income in that period.
Insurance-related assessments - Liabilities for insurance-related assessments are accrued when an assessment is probable, when it can be reasonably estimated and when the event obligating the entity to pay an imposed or probable assessment has occurred. Liabilities for insurance-related assessments are not discounted and are included as part of Other liabilities on the Consolidated Balance Sheets. As of December 31, 2020 and 2019, the liability balances were $82 million and $84 million.
Reinsurance receivables related to paid losses are presented at unpaid balances. Reinsurance receivables related to unpaid losses are estimated in a manner consistent with claim and claim adjustment expense reserves or future policy benefit reserves. Reinsurance receivables are reported net of an allowance for doubtful accounts on the Consolidated Balance Sheets. The cost of reinsurance is primarily accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies or over the reinsurance contract period. The ceding of insurance does not discharge the primary liability of CNA.
As of December 31, 2020, an allowance for doubtful accounts of $21 million for reinsurance receivables has been established which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. For assessing expected credit losses, CNA separates reinsurance receivables into two pools: voluntary reinsurance receivables and involuntary receivables related to mandatory pools. CNA has not recorded an allowance for involuntary pools as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on voluntary reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. If the reinsurer is unrated, an internal financial strength rating is assigned based on CNA’s historical loss experience and the assessment of reinsurance counterparty risk profile, which generally corresponds with a B rating. Reinsurer financial strength ratings are updated and reviewed on an annual basis or sooner if CNA becomes aware of significant changes related to a reinsurer. The allowance for doubtful accounts on reinsurance receivables is estimated on the basis of periodic evaluations of balances due from reinsurers, reinsurer financial strength rating and solvency, industry experience and current and forecast economic conditions. Because billed receivables generally approximate 5% or less of total reinsurance receivables, the age of the reinsurance receivables related to paid losses is not a significant input into the allowance analysis. Changes in the allowance for doubtful accounts on reinsurance receivables are presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Operations.
Amounts are considered past due based on the reinsurance contract terms. Reinsurance receivables related to paid losses and any related allowance are written off after collection efforts have been exhausted or a negotiated settlement is reached with the reinsurer. Reinsurance receivables from insolvent insurers related to paid losses are written off when the settlement due from the estate can be reasonably estimated. At the time reinsurance receivables related to paid losses are written off, any required adjustment to reinsurance receivables related to unpaid losses is recorded as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Operations.
A loss portfolio transfer is a retroactive reinsurance contract. If the cumulative claim and allocated claim adjustment expenses ceded under a loss portfolio transfer exceed the consideration paid, the resulting gain from such excess is deferred and amortized into earnings in future periods in proportion to actual recoveries under the loss portfolio transfer. In any period in which there is a revised estimate of claim and allocated claim adjustment expenses and the loss portfolio transfer is in a gain position, the deferred gain is recalculated as if the revised estimate was available at the inception date of the loss portfolio transfer and the change in the deferred gain is recognized in earnings.
Deferred acquisition costs - Deferrable acquisition costs include commissions, premium taxes and certain underwriting and policy issuance costs which are incremental direct costs of successful contract acquisitions. Acquisition costs related to property and casualty business are deferred and amortized ratably over the period the related premiums are earned. Deferred acquisition costs are presented net of ceding commissions and other ceded acquisition costs.
Income taxes − The Company and its eligible subsidiaries file a consolidated tax return. Deferred income taxes are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities, based on enacted tax rates and other provisions of the tax law. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in which such change is enacted. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes may not be realized.
Stock-based compensation - Loews Corporation records compensation expense upon issuance, modification or cancellation of all share-based payment awards granted, primarily on a straight-line basis over the requisite service period, generally three to four years. Stock Appreciation Rights (“SARs”) are valued using the Black-Scholes option pricing model. The application of this valuation model involves assumptions that are judgmental and highly sensitive. These assumptions include the term that the awards are expected to be outstanding, an estimate of the volatility of the underlying stock price, applicable risk-free interest rates and the dividend yield of Loews Corporation’s stock. Restricted Stock Units are valued using the grant-date fair value of Loews Corporation’s stock.
Foreign currency - Foreign currency translation gains and losses are reflected in Shareholders’ equity as a component of Accumulated other comprehensive income (loss). The Company’s foreign subsidiaries’ balance sheet accounts are translated at the exchange rates in effect at each reporting date and income statement accounts are translated at the average exchange rates during the reporting period. There were foreign currency transaction gains (losses) of $12 million, $(3) million and $0 million for the years ended December 31, 2020, 2019 and 2018 included in the Consolidated Statements of Operations.
Regulatory accounting - The majority of Boardwalk Pipelines’ operating subsidiaries are regulated by FERC. Texas Gas Transmission, LLC (“Texas Gas”), a wholly owned subsidiary of Boardwalk Pipelines, applies regulatory accounting to certain assets for GAAP purposes, which records certain assets and liabilities consistent with the economic effect of the manner in which independent third party regulators establish rates. Gulf South Pipeline Company, LLC (“Gulf South”), a wholly owned subsidiary of Boardwalk Pipelines, has implemented fuel trackers, for which regulatory accounting is applied. Accordingly, the value of fuel received from customers paying the maximum tariff rate and the related value of fuel used in transportation are recorded to a regulatory asset or liability depending on whether Gulf South uses more fuel than it collects from customers or collects more fuel than it uses. Other than as described for Texas Gas and the fuel trackers for Gulf South, regulatory accounting is not applicable to Boardwalk Pipelines’ other FERC regulated entities or operations.
Accounting changes - In June of 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. For financial assets measured at cost, the expected credit loss model requires immediate recognition of estimated credit losses over the life of the asset and presentation of the asset at the net amount expected to be collected. This new guidance applies to mortgage loan investments, reinsurance and insurance receivables and other financing and trade receivables. For available-for-sale fixed maturity securities carried at fair value, estimated credit losses will continue to be measured at the present value of expected cash flows, however, the other than temporary impairment (“OTTI”) concept has been eliminated. Under the previous guidance, estimated credit impairments resulted in a write down of amortized cost. Under the new guidance, estimated credit losses are recognized through an allowance and reversals of the allowance are permitted if the estimate of credit losses declines. For available-for-sale fixed maturity securities where there is an intent to sell, impairment will continue to result in a write down of amortized cost.
The allowance for doubtful accounts for reinsurance, insurance and trade receivables was unchanged as a result of adopting the new guidance. At adoption, an allowance for credit losses of $6 million was established for available-for-sale fixed maturity securities that were PCD assets, with a corresponding increase to amortized cost, resulting in no adjustment to the carrying value of the securities.
On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The core principle of the accounting guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard excluded from its scope the accounting for insurance contracts, financial instruments and certain other agreements that are subject to other guidance in the FASB Accounting Standards Codification, which limited the impact of this change in accounting for the Company. The Company adopted the updated accounting guidance using the modified retrospective method, with a cumulative effect adjustment to the opening balance sheet. At adoption, the cumulative effect adjustment decreased beginning Retained earnings by $62 million (after tax and noncontrolling interests), resulted in a deferred tax asset of $23 million and increased Deferred non-insurance warranty acquisition expenses by approximately $1.9 billion and Deferred non-insurance warranty revenue by approximately $2.0 billion.
On January 1, 2018 the Company adopted ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The guidance primarily changed the model for equity securities by requiring changes in the fair value of equity securities to be recognized through the income statement. Prior period amounts were not adjusted and continued to be reported in accordance with the previous accounting guidance. Upon adoption of the updated accounting guidance the Company recognized a cumulative effect adjustment of $25 million (after tax and noncontrolling interests) as an increase to beginning Retained earnings.
Through the Filing Date, Diamond Offshore’s results were included in Loews Corporation’s consolidated financial statements and Loews Corporation recognized in its earnings its proportionate share of Diamond Offshore’s losses through such date. The deconsolidation resulted in the recognition of a loss of $1.2 billion ($957 million after tax) during the year ended December 31, 2020, which is reported within Investment gains (losses) on the Consolidated Statements of Operations. This loss represents the difference between the carrying value and the estimated fair value, which was immaterial, of Loews Corporation’s investment in equity securities of Diamond Offshore as of the Filing Date.
Following completion of the transaction on July 18, 2018, Boardwalk Pipelines Holding Corp. (“BPHC”), a wholly owned subsidiary of Loews Corporation, holds, directly or indirectly, all of the limited partnership interests of Boardwalk Pipelines.
In 2020, Loews Hotels & Co received aggregate proceeds of $57 million for the sale of an owned hotel and an office building. In 2019, Loews Hotels & Co received proceeds of $118 million for the sale of an owned hotel. In 2018, Loews Hotels & Co received proceeds of $40 million for the sale of an owned hotel.
In 2020, Altium Packaging paid approximately $60 million for the acquisition of a packaging manufacturer. The preliminary allocation of the purchase price for the acquisition resulted in the recognition of approximately $17 million of goodwill and approximately $35 million of intangible assets, primarily related to customer relationships, and is subject to change within the measurement period. The acquisition was funded with available cash and debt financing at Altium Packaging.
The net change in unrealized gains (losses) on investments, which consists solely of the change in unrealized gains on fixed maturity securities, was $1.6 billion, $2.6 billion and $(1.8) billion for the years ended December 31, 2020, 2019 and 2018.
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:
Based on current facts and circumstances, the Company believes the unrealized losses presented in the December 31, 2020 securities in a gross unrealized loss position table above are not indicative of the ultimate collectability of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional impairment losses to be recorded at December 31, 2020.
The ten largest limited partnership positions held totaled $914 million and $1.1 billion as of December 31, 2020 and 2019. Based on the most recent information available regarding the Company’s percentage ownership of the individual limited partnerships, the carrying value reflected on the Consolidated Balance Sheets represents approximately 2% of the aggregate partnership equity at December 31, 2020 and 2019, and the related income reflected on the Consolidated Statements of Operations represents approximately 2%, 2% and 3% of the changes in aggregate partnership equity for the years ended December 31, 2020, 2019 and 2018.
The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination:
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 December 31, 2020, commitments to purchase or fund were approximately $1.2 billion and to sell were approximately $85 million under the terms of these investments.
Cash and securities with carrying values of approximately $1.1 billion were deposited with financial institutions in trust accounts or as collateral for letters of credit to secure obligations with various third parties as of December 31, 2020 and 2019.
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.
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.
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 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 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.
Capitalized interest related to the construction and upgrade of qualifying assets amounted to approximately $14 million, $18 million and $27 million for the years ended December 31, 2020, 2019 and 2018.
During the first quarter of 2020, five drilling rigs that had indicators of impairment were evaluated. Based on the assumptions and analysis at that time, it was determined that the carrying values of four of these rigs were impaired. The fair values of these rigs were estimated using multiple probability-weighted cash flow analyses, whereby the fair value of each rig was estimated based on a calculation of the rig’s future net cash flows. These calculations utilized significant unobservable inputs, including utilization and dayrate scenarios, as well as management’s assumptions related to future oil and gas prices. These fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. An aggregate asset impairment charge of $774 million ($408 million after tax and noncontrolling interests) was recorded for the year ended December 31, 2020 and is reported within Operating expenses and other on the Consolidated Statements of Operations.
Loews Hotels & Co evaluates properties with indications that their carrying amounts may not be recoverable. It was determined that the carrying values of one property and capitalized costs related to a potential development project in 2020, four properties in 2019 and two properties in 2018 were impaired. Loews Hotels & Co recorded aggregate impairment charges of $30 million ($22 million after tax), $99 million ($77 million after tax) and $22 million ($15 million after tax) for the years ended December 31, 2020, 2019 and 2018 and are reported within Operating expenses and other on the Consolidated Statements of Operations. These impairments reduced Property, plant and equipment by $30 million and $62 million in 2020 and 2019 and Other assets by $37 million in 2019.
The increases as of December 31, 2020 and 2019 reflect the acquisitions made by Altium Packaging in 2020 and 2019. See Note 2 for further discussion on these acquisitions.
The balance as of December 31, 2020 and 2019 includes assets from acquisitions made by Altium Packaging.
Amortization expense for the years ended December 31, 2020, 2019 and 2018 of $61 million, $45 million and $32 million is reported in Operating expenses and other on the Consolidated Statements of Operations. At December 31, 2020, estimated amortization expense in each of the next five years is approximately $41 million in 2021, $41 million in 2022, $40 million in 2023, $38 million in 2024 and $36 million in 2025.
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.
(c) The Other Insurance Operations reinsurance receivables are primarily related to A&EP claims covered under the loss portfolio transfer (“LPT”).
(a) Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above.
development methods can often be relied on sooner, primarily because CNA’s history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, CNA may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, CNA uses additional methods tailored to the characteristics of the specific situation.
The following table and discussion present details of the net prior year loss reserve development in Property & Casualty Operations:
For CNA’s Property & Casualty Operations, the following tables present further detail and commentary on the development reflected in the financial statements for each of the periods presented. Also presented are loss reserve development tables that illustrate the change over time of reserves established for claim and allocated claim adjustment expenses arising from short-duration insurance contracts for certain lines of business within CNA’s Property & Casualty Operations. Not all lines of business are presented based on their context to CNA’s overall loss reserves, calendar year reserve development, or calendar year net earned premiums. Insurance contracts are considered to be short-duration contracts when the contracts are not expected to remain in force for an extended period of time.
The Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative net incurred claim and allocated claim adjustment expenses relating to each accident year at the end of the stated calendar year. Changes in the cumulative amount across time are the result of CNA’s expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims in each accident year as of the end of the stated calendar year. The Net Strengthening or (Releases) of Prior Accident Year Reserves tables, reading across, show the net increase or decrease in the cumulative net incurred accident year claim and allocated claim adjustment expenses during each stated calendar year and indicates whether the reserves for that accident year were strengthened or released.
Unfavorable development in general liability was driven by higher than expected emergence in mass tort exposures, primarily due to New York reviver statute-related claims from accident years prior to 2010, increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in CNA’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in medical professional liability was primarily due to higher than expected severity in accident years 2016 through 2018 in CNA’s aging services business, higher than expected severity in accident year 2013 in the allied healthcare business, unfavorable outcomes on individual claims and higher than expected severity in accident year 2017 in the dentists business.
Favorable development in surety was due to lower than expected frequency for accident years 2018 and prior.
Favorable development in other coverages was due to lower than expected paid loss emergence on vehicle products in warranty, favorable medical trends driving lower than expected severity in accident years 2012 through 2018 in workers’ compensation, lower than expected claim severity related to catastrophe events in accident years 2017 and 2018 in property and other in Commercial and lower than expected large losses and claim severity in accident years 2018 and prior in Hardy, Europe and Canada in casualty. This was mostly offset by unfavorable development driven by higher than expected claims in Hardy on 2018 accident year Asian catastrophe events in property in International and potential design and construct exposures in professional indemnity within Europe financial lines in accident years 2017 and 2018.
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 their legacy A&EP liabilities were ceded to NICO through a loss portfolio transfer (“loss portfolio transfer” or “LPT”). At the effective date of the transaction, approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves were ceded to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. NICO was paid a reinsurance premium of $2.0 billion and billed third party reinsurance receivables related to A&EP claims with a net book value of $215 million were transferred to NICO, resulting in total consideration of $2.2 billion.
The following table presents the impact of the loss portfolio transfer on the Consolidated Statements of Operations.
Net unfavorable prior year development of $125 million, $150 million and $178 million was recognized before consideration of cessions to the LPT for the years ended December 31, 2020, 2019 and 2018.
As of December 31, 2020 and 2019, the cumulative amounts ceded under the LPT were $3.3 billion and $3.2 billion. The unrecognized deferred retroactive reinsurance benefit was $398 million and $392 million as of December 31, 2020 and 2019 and is included within Other liabilities on the Consolidated 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 $4.2 billion and $3.7 billion as of December 31, 2020 and 2019. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to A&EP claims.
policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, CNA’s long term care reserves may be subject to material increases if actual experience develops adversely to CNA’s expectations.
Total lease expense was $110 million and $146 million for the years ended December 31, 2020 and 2019, which includes operating lease expense of $84 million and $121 million, variable lease expense of $22 million and $19 million and short term lease expense of $4 million and $6 million. Prior to the adoption of the new lease standard, lease expense for the year ended December 31, 2018 was $120 million. Cash paid for amounts included in operating lease liabilities was $86 million and $117 million for year ended December 31, 2020 and 2019. Operating lease right of use assets obtained in exchange for lease obligations was $40 million and $54 million for the years ended December 31, 2020 and 2019.
As of December 31, 2020, $2 million of unrecognized tax benefits would affect the effective tax rate if recognized. The amount of related accrued interest and penalties was insignificant.
Net operating loss carryforwards in foreign tax jurisdictions of $2 million expire between 2037 and 2039, and $11 million has no expiration. Foreign tax credit carryforwards of $8 million will expire between 2029 and 2030, and $3 million has no expiration.
(a) Amounts presented for Diamond Offshore reflects the period prior to the deconsolidation.
CNA is a member of the Federal Home Loan Bank of Chicago (“FHLBC”). FHLBC membership provides participants with access to additional sources of liquidity through various programs and services. As a requirement of membership in the FHLBC, CNA held $5 million of FHLBC stock as of December 31, 2020, giving it access to approximately $111 million of additional liquidity. As of December 31, 2020 and 2019, CNA had no outstanding borrowings from the FHLBC.
In August of 2020, CNA completed a public offering of $500 million aggregate principal amount of its 2.1% senior notes due August 15, 2030 and used the net proceeds to redeem the entire $400 million outstanding aggregate principal balance of its 5.8% senior notes due August 15, 2021 and for general corporate purposes.
Boardwalk Pipelines has a revolving credit facility having aggregate lending commitments of $1,475 million maturing May 26, 2022. As of December 31, 2020, Boardwalk Pipelines had $130 million of outstanding borrowings under its revolving credit facility and had available $1,345 million of available borrowing capacity. As of February 8, 2021, Boardwalk Pipelines had $170 million of outstanding borrowings under its revolving credit facility and had $1,305 million of available borrowing capacity. As of December 31, 2020, Boardwalk Pipelines was in compliance with all covenants.
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 of December 31, 2020, Loews Hotels & Co was in compliance with these covenants.
On February 3, 2021, Altium Packaging issued 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 pay a dividend of $200 million.
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 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 20:
(a) Revenues presented for Diamond Offshore reflect the periods prior to deconsolidation. See Notes 2 and 20 for further discussion.
Performance obligations - As of December 31, 2020, approximately $13.4 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to revenues for transportation and storage of natural gas and NGLs at Boardwalk Pipelines and non-insurance warranty services at CNA. Approximately $2.4 billion will be recognized during 2021, $2.0 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.
Dividends from CCC are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the “Department”) are determined based on the greater of the prior year’s statutory net income or 10% of statutory surplus as of the end of the prior year, as well as the timing and amount of dividends paid in the preceding 12 months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of December 31, 2020, CCC was in a positive earned surplus position. The maximum allowable dividend CCC could pay during 2021 that would not be subject to the Department’s prior approval is $1,070 million, less dividends paid during the preceding 12 months measured at that point in time. CCC paid dividends of $975 million in 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.
The statutory capital and surplus presented above for CCC was approximately 266% and 291% of company action level RBC at December 31, 2020 and 2019. Company action level RBC is the level of RBC which triggers a heightened level of regulatory supervision. The statutory capital and surplus of CNA’s foreign insurance subsidiaries, which is not significant to the overall statutory capital and surplus, also met or exceeded their respective regulatory and other capital requirements.
The benefit obligation for all defined benefit pension plans was $3.2 billion and $3.1 billion at December 31, 2020 and 2019. Changes for the years ended December 31, 2020 and 2019 include actuarial losses of $236 million and $300 million primarily driven by changes in the discount rate used to determine the benefit obligations.
In 2021, it is expected that contributions of approximately $20 million will be made to pension plans and $2 million to postretirement health care and life insurance benefit plans.
(a) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table for these investments are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
The limited partnership investments held within the plans are recorded at fair value, which represents the plans’ shares of the net asset value of each partnership, as determined by the general partner. Limited partnerships comprising 75% and 80% of the carrying value as of December 31, 2020 and 2019 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets and the remainder were primarily invested in private debt and equity. Within hedge fund strategies, approximately 69% were equity related, 27% pursued a multi-strategy approach and 4% were focused on distressed investments at December 31, 2020.
There were no Level 3 assets at December 31, 2020 and 2019.
Savings Plans - The Company has several contributory savings plans which allow employees to make regular contributions based upon a percentage of their salaries. Matching contributions are made up to specified percentages of employees’ contributions. Employer contributions to these plans amounted to $90 million, $102 million and $100 million for the years ended December 31, 2020, 2019 and 2018.
Stock-based Compensation - In 2016, shareholders approved the Loews Corporation 2016 Incentive Compensation Plan (the “2016 Loews Plan”) which replaced a previously existing plan. The aggregate number of shares of Loews Corporation common stock authorized under the 2016 Loews Plan is 6,000,000 shares, plus up to 3,000,000 shares that may be forfeited under the prior plan. The maximum number of shares of Loews Corporation common stock with respect to which awards may be granted to any individual in any calendar year is 500,000 shares. In accordance with the 2016 Loews Plan and the prior equity plan, Loews Corporation stock-based compensation consists of the following:
SARs: SARs were granted under the prior equity plan. The exercise price per share may not be less than the fair market value of the common stock on the date of grant. Generally, SARs vest ratably over a four-year period and expire in ten years.
Time-based Restricted Stock Units: Time-based restricted stock units (“RSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of Loews Corporation common stock for each vested RSU. Generally, RSUs vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.
The Company recognized compensation expense that decreased net income by $37 million, $37 million and $35 million for the years ended December 31, 2020, 2019 and 2018. Several of Loews Corporation’s subsidiaries also maintain their own stock-based compensation plans. Such amounts include Loews Corporation’s share of expense related to these plans.
CNA’s largest recoverables from a single reinsurer, including ceded unearned premium reserves as of December 31, 2020 were approximately $1.9 billion from subsidiaries of the Berkshire Hathaway Insurance Group, $377 million from the Gateway Rivers Insurance Company and $314 million from the Palo Verde Insurance Company. These amounts are substantially collateralized or otherwise secured. The recoverable from subsidiaries of the Berkshire Hathaway Insurance Group includes amounts related to third party reinsurance for which NICO has assumed the credit risk under the terms of the loss portfolio transfer as discussed in Note 8.
Insurance claims and policyholders’ benefits reported on the Consolidated Statements of Operations are net of estimated reinsurance recoveries of $3.2 billion, $2.7 billion and $2.8 billion for the years ended December 31, 2020, 2019 and 2018, including $2.4 billion, $2.1 billion and $1.9 billion related to the significant third party captive program discussed above.
(a) Net income for the third quarter of 2020 included net catastrophe losses of $112 million (after tax and noncontrolling interests) and a $52 million (after tax and noncontrolling interests) charge related to the recognition of an active life reserve premium deficiency as a result of the third quarter GPV.
(b) Net loss for the second quarter of 2020 included an investment loss of $957 million (after tax) related to the deconsolidation of Diamond Offshore and net catastrophe losses of $212 million (after tax and noncontrolling interests).
(c) Net loss for the first quarter of 2020 included an aggregate asset impairment charge of $408 million (after tax and noncontrolling interests) related to Diamond Offshore drilling rigs.
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 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. The case is set for trial in February of 2021.
Loews Corporation has five reportable segments comprised of three individual consolidated operating subsidiaries, CNA, Boardwalk Pipelines and Loews Hotels & Co; the Corporate segment and Diamond Offshore. The Corporate segment is primarily comprised of Loews Corporation excluding its subsidiaries and the operations of Altium Packaging. Diamond Offshore was deconsolidated during the second quarter of 2020. See Note 2 for further information on the deconsolidation of Diamond Offshore. Each of the operating subsidiaries and Diamond Offshore are headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position.