for the year ended December 31, 2018, filed with the SEC on February 13, 2019.
Consolidated net income attributable to Loews Corporation for 2019 was $932 million, or $3.07 per share, compared to $636 million, or $1.99 per share, in 2018.
The following table summarizes the results of operations for CNA for the years ended December 31, 2019 and 2018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8. For further discussion of Net investment income and Net investment gains or losses, see the Investments section of this MD&A.
Net income attributable to Loews Corporation increased $168 million in 2019 as compared with 2018 primarily due to higher net investment income driven by limited partnership and common stock returns and favorable current accident year underwriting results. Earnings also benefited from higher net realized investment results driven by the change in fair value of non-redeemable
preferred stock still held as of December 31, 2019 and lower adverse prior year A&EP reserve development. These increases were partially offset by a $151 million charge (after tax and noncontrolling interests) related to the recognition of a premium deficiency as a result of the third quarter 2019 gross premium valuation (“GPV”) and lower favorable net prior period loss reserve development in the current year.
including CNA Re and 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 CNA’s insurance operations, the Company utilizes the core income (loss) financial measure. Core income (loss) is calculated by excluding from net income (loss) (i) net investment gains or losses, (ii) income or loss from discontinued operations, (iii) any cumulative effects of changes in accounting guidance and (iv) deferred tax asset and liability remeasurement as a result of an enacted U.S. federal tax rate change. In addition, core income (loss) excludes the effects of noncontrolling interests. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not reflective of CNA’s primary insurance operations. Core income (loss) is deemed to be a non-GAAP
Gross written premiums for Commercial increased $343 million in 2019 as compared with 2018 driven by higher new business and rate. Net written premiums for Commercial increased $255 million in 2019 as compared with 2018. The increase in net earned premiums was consistent with the trend in net written premiums for Commercial.
Gross written premiums for International decreased $39 million in 2019 as compared with 2018. Excluding the effect of foreign currency exchange rates, gross written premiums decreased $7 million, driven by the premium reduction from Hardy’s strategic exit from certain business classes announced in the fourth quarter of 2018 largely offset by growth in Canada and Europe. Net written premiums for International decreased $47 million in 2019 as compared with 2018. Excluding the effect of foreign currency exchange rates, net written premiums decreased $16 million. The decrease in net earned premiums was consistent with the trend in net written premiums for International.
Net catastrophe losses were $179 million in 2019 as compared with $252 million in 2018. In 2019 and 2018, Specialty had net catastrophe losses of $15 million and $26 million, Commercial had net catastrophe losses of $154 million and $193 million and International had net catastrophe losses of $10 million and $33 million.
Core loss increased $89 million in 2019 as compared with 2018 driven by a $170 million charge related to recognition of an active life reserve premium deficiency partially offset by a $44 million reduction in long term care claim reserves resulting from the annual claim experience study in the third quarter of 2019. The favorable claim reserve development was primarily due to lower claim severity than anticipated in the reserve estimates. The prior year included a $24 million reduction in long term care reserves resulting from the 2018 annual claim study. Core results benefited from lower adverse net prior year reserve development recorded in 2019 for A&EP under the loss portfolio transfer as further discussed in Note 8 of the Notes to Consolidated Financial Statements included under Item 8. Additionally, 2018 included non-recurring
The following table reconciles core income to net income attributable to Loews Corporation for the CNA segment for the years ended December 31, 2019 and 2018:
From a supply perspective, the offshore floater market remains oversupplied with approximately 240 rigs available based on industry reports. Over the last six years, 135 floaters reportedly have been scrapped; however, the pace of rig attrition has now slowed. Industry reports indicate that there remain approximately 25 newbuild floaters on order with scheduled deliveries in 2020 through 2022. Of these newbuild rigs, 16 are scheduled for delivery in 2020, but only one is under contract as of the date of this Report. In addition, over the next twelve months, more than 60 currently contracted floaters are estimated to roll off their contracts, further adding to the oversupply of floaters. This combination of factors points to a continued, challenging offshore drilling market and a continuation of the protracted industry downturn.
Diamond Offshore evaluates its drilling rigs for impairment whenever changes in circumstances indicate that the carrying value may not be recoverable. The current oversupply of rigs, together with the current protracted industry downturn, heightens the risk of the need for future rig impairments.
Contract drilling revenue decreased $125 million in 2019 as compared with 2018, primarily due to lower average daily revenue, partially offset by the effect of an increase in revenue earning days and recognition of revenues related to a gross margin commitment from a customer. Contract drilling expense increased $70 million in 2019 as compared with 2018, primarily due to incremental amortization of previously deferred contract preparation and mobilization costs, incremental contract drilling expense for a rig which was reactivated for a new contract in 2019 and increased costs for the 2019 rig fleet. The increase in contract drilling expense was partially offset by reduced costs for a rig which was sold in the second quarter of 2019 and lower fuel costs for the current fleet.
Net loss attributable to Loews Corporation increased $63 million in 2019 as compared with 2018 reflecting lower margins from contract drilling services, primarily driven by lower contract drilling revenue discussed above. The results for 2019 also reflect higher depreciation expense primarily due to capital expenditures and the completion of software implementation projects in 2019, partially offset by the absence of costs related to the settlement of a legal claim in 2018 and a higher income tax benefit.
Boardwalk Pipelines derives revenues primarily from the transportation and storage of natural gas and natural gas liquids (“NGLs”). Transportation services consist of firm natural gas transportation, where the customer pays a capacity reservation charge to reserve pipeline capacity at receipt and delivery points along pipeline systems, plus a commodity and fuel charge on the volume of natural gas actually transported, and interruptible natural gas transportation, under which the customer pays to transport gas only when capacity is available and used. The transportation rates Boardwalk Pipelines is able to charge customers are heavily influenced by market trends (both short and longer term), including the available natural gas supplies, geographical location of natural gas production, the demand for gas by end-users
Boardwalk Pipelines also transports and stores NGLs. Contracts for Boardwalk Pipelines’ NGLs services are generally fee based or based on minimum volume requirements, while others are dependent on actual volumes transported. Boardwalk Pipelines’ NGLs storage rates are market-based and contracts are typically fixed price arrangements with escalation clauses. Boardwalk Pipelines is not in the business of buying and selling natural gas and NGLs other than for system management purposes, but changes in natural gas and NGLs prices may impact the volumes of natural gas or NGLs transported and stored by customers on its systems. Due to the capital intensive nature of its business, Boardwalk Pipelines’ operating costs and expenses typically do not vary significantly based upon the amount of products transported, with the exception of fuel consumed at its compressor stations and not included in a fuel tracker.
A substantial portion of Boardwalk Pipelines’ transportation and storage capacity is contracted for under firm agreements. For the year ended December 31, 2019, approximately 87% of Boardwalk Pipelines’ revenues, excluding retained fuel, were derived from fixed fees under firm agreements. The table below shows a rollforward of operating revenues under committed firm agreements in place as of December 31, 2018 to December 31, 2019, including agreements for transportation, storage and other services, over the remaining term of those agreements:
such as power plants, petrochemical facilities and LNG export facilities and the price differentials between the gas supplies and the market demand for the gas (basis differentials) and Boardwalk Pipelines’ storage rates are additionally impacted by natural gas price differentials between time periods, such as winter to summer (time period price spreads), and the volatility in time period price spreads. Demand for firm service is primarily based on market conditions which can vary across Boardwalk Pipelines’ pipeline systems. The amount of change in firm reservation fees under contract reflects the overall market trends, including the impact from Boardwalk Pipelines’ growth projects. Boardwalk Pipelines focuses its marketing efforts on enhancing the value of the capacity that is up for renewal and works with customers to match gas supplies from various basins to new and existing customers and markets, including aggregating supplies at key locations along its pipelines to provide end-use
customers with attractive and diverse supply options. If the market perceives the value of Boardwalk Pipelines’ available capacity to be lower than its long term view of the capacity, Boardwalk Pipelines may seek to shorten contract terms until market perception improves.
The following table summarizes the results of operations for Boardwalk Pipelines for the years ended December 31, 2019 and 2018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8:
Operating expenses increased $20 million in 2019 as compared with 2018. Excluding items offset in operating revenues, operating expenses increased $18 million as compared with the prior year primarily due to higher maintenance project expenses and an increased asset base from recently completed growth projects.
The following table summarizes the results of operations for Loews Hotels & Co for the years ended December 31, 2019 and 2018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8:
Loews Hotels considers events or changes in circumstances that indicate the carrying amount of a long-lived asset may not be recoverable. During 2019 and 2018, Loews Hotels determined that certain properties, each of which represent an asset group, had carrying values that were not recoverable, and therefore recorded impairment charges of $99 million and $22 million to reduce these properties carrying values to their estimated fair values. There were four properties identified in 2019 and two in 2018.
Operating revenues and other include Altium Packaging revenues of $932 million and $867 million for 2019 and 2018. The increase of $65 million in 2019 as compared with 2018, reflects an increase of $97 million related to acquisitions in 2018 and 2019. This increase was partially offset by lower volumes in the existing business and the pass-through effect of lower year-over-year resin prices. Altium Packaging’s contracts generally provide for resin price changes to be passed through to its customers on a short-term lag, generally about one month. When a pass-through occurs, revenues and expenses generally change by the same amount so that Altium Packaging’s gross margin returns to the same level as prior to the change in prices.
Corporate Operating and other expenses were $91 million and $128 million for 2019 and 2018. The $37 million decrease from 2018 to 2019 stems from lower gross Parent Company expenses, severance costs incurred in 2018, the netting of investment expenses against investment income in 2019 and higher allocations to the subsidiaries in 2019.
Parent Company cash and investments, net of receivables and payables, totaled $3.3 billion at December 31, 2019 as compared to $3.1 billion at December 31, 2018. In 2019, we received $927 million in dividends from our subsidiaries, including a special dividend from CNA of $485 million. Cash inflows also included $183 million from Loews Hotels & Co. Cash outflows included the payment of $1.1 billion to fund treasury stock purchases and $76 million of cash dividends to our shareholders. 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 Form S-3
on file with the Securities and Exchange Commission (“SEC”) registering the future sale of an unlimited amount of our debt and equity securities. We are not responsible for the liabilities and obligations of our subsidiaries and there are no Parent Company guarantees.
CNA’s cash provided by operating activities was $1.1 billion in 2019 and $1.2 billion in 2018. Cash provided by operating activities in 2019 reflected a $125 million pension contribution, a lower level of distributions on limited partnerships and higher net claim payments, partially offset by an increase in premiums collected as compared with 2018.
CNA has an effective shelf registration statement under which it may publicly issue debt, equity or hybrid securities from time to time.
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 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, 2019, CCC is in a positive earned surplus position. The maximum allowable dividend CCC could pay during 2020 that would not be subject to the Department’s prior approval is $1,078 million, less dividends paid during the preceding 12 months measured at that point in time. CCC paid dividends of $1,065 million in 2019. 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.
Diamond Offshore’s cash provided by operating activities decreased approximately $223 million in 2019 as compared with 2018, reflecting the effects of the protracted downturn in the offshore drilling industry. Diamond Offshore’s cash flows in 2019, compared to 2018, reflect lower cash receipts for contract drilling services of $194 million, higher income tax payments, net of refunds, primarily in its foreign tax jurisdictions of $17 million and higher cash expenditures for contract drilling services and general and administrative costs of $12 million.
For 2019, Diamond Offshore’s capital expenditures were $326 million and were funded from its operating cash flows and available cash. Diamond Offshore expects cash capital expenditures in 2020 to be approximately $190 million to $210 million. Planned spending in 2020 associated with projects under its capital maintenance and replacement programs, includes equipment upgrades for the Ocean BlackRhino
As of February 7, 2020, Diamond Offshore has no outstanding borrowings and approximately $1.2 billion, in the aggregate, available under its credit agreements. For the credit agreements, $225 million matures in October of 2020, which Diamond Offshore may have difficulty replacing upon maturity, and $950 million matures in October of 2023. These credit agreements may be used for general corporate purposes, including investments, acquisitions and capital expenditures. During 2019, Diamond Offshore’s cash and cash equivalents and marketable securities decreased an aggregate $301 million and during 2018 increased an aggregate $74 million. Based on Diamond Offshore’s cash flow forecast, as of the date of this Report, it expects to generate aggregate negative cash flows for 2020 and to begin to utilize borrowing under its credit agreements in the first half of 2020 to meet its liquidity requirements. Diamond Offshore anticipates ending 2020 with a drawn balance under its $950 million credit agreement. If market conditions do not improve, Diamond Offshore could continue to generate aggregate negative cash flows in future periods.
As of February 10, 2020, Boardwalk Pipelines had $390 million of outstanding borrowings under its credit facility, resulting in an available borrowing capacity of approximately $1.1 billion. Boardwalk Pipelines anticipates that its existing capital resources, including its revolving credit facility and cash flows from operating activities, will be adequate to fund its operations for 2020. Boardwalk Pipelines may seek to access the debt markets to fund some or all capital expenditures for growth projects, acquisitions or for general corporate purposes. Boardwalk Pipelines has an effective shelf registration statement under which it may publicly issue debt securities, warrants or rights from time to time.
During 2020, Loews Hotels & Co anticipates funding approximately $87 million to its developments in progress, which will be derived from cash on hand, cash generated from operations and cash contributions from Loews Corporation.
(c) The future policy benefit reserves reflected above are not discounted and represent CNA’s estimate of the ultimate amount and timing of the settlement of benefits based on its assessment of facts and circumstances known as of December 31, 2019. Additional information on future policy benefit reserves is included in Note 1 of the Notes to Consolidated Financial Statements included under Item 8.
We enter into short sales and invest in certain derivative instruments that are used for asset and liability management activities, income enhancements to our 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 our portfolio strategy.
by counterparties to our 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 our derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty.
Net investment results after tax and noncontrolling interests improved $71 million in 2019 as compared with 2018. The improvement was driven by the favorable change in fair value of non-redeemable
Further information on CNA’s investment gains and losses, including other-than-temporary impairment losses, is set forth in Notes 1 and 3 of the Notes to Consolidated Financial Statements included under Item 8.
fixed maturity securities. Securities not due to mature on a single date are allocated based on weighted average life:
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 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
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013)
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 11, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in its method of accounting for recognition and measurement of equity securities in 2018.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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, 2019, 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 11, 2020, 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 recognition and measurement of equity securities in 2018.
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Future policy benefit reserves - Long Term Care - Refer to Notes 1 and 8 to the consolidated financial statements.
A gross premium valuation (“GPV”) is performed annually to assess the adequacy of the LTC future policy benefit reserves. The actuarial assumptions underlying the recorded LTC future policy benefit reserves are “locked-in”
· 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.
We evaluated the key assumptions applied in the GPV analysis, including comparing those assumptions to the Company’s historical experience, the underlying investment portfolio yield and market data.
Impairment of Long-Lived Assets- Refer to Notes 1 and 6 to the financial statements
The evaluation of offshore drilling equipment, specifically drilling rigs, for impairment occurs whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Evaluating the reasonableness of the dayrate assumptions utilized in the Company’s probability-weighted undiscounted cash flow analyses by evaluating potential drilling rig opportunities and considering industry reports and data.
- The Consolidated Financial Statements include all subsidiaries and intercompany accounts and transactions have been eliminated. The equity method of accounting is used for investments in associated companies in which the Company generally has an interest of 20% to 50%.
- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management 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.
To the extent that unrealized gains on fixed maturity securities supporting long term care products and structured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (“Shadow Adjustments”). Shadow Adjustments increased $1.0 b
illion (after tax and noncontrolling interests) and decreased $298 million (after tax and noncontrolling interests) for the years ended December 31, 2019 and 2018. As of December 31, 2019 and 2018, net unrealized gains on investments included in Accumulated other comprehensive income (“AOCI”) were correspondingly reduced by Shadow Adjustments of $2.0 b
with changes in fair value reported as a component of Other comprehensive income (loss).
Investments in derivative securities are carried at fair value with changes in fair value reported as a component of Investment gains (losses), Income (loss) from trading portfolio, 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, but are not limited to, 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
Prior to 2018, CNA applied the same impairment model as described above for the majority of its non-redeemable
preferred stock securities on the basis that these securities possess characteristics similar to debt securities. For all other equity securities, in determining whether the security was other-than-temporarily impaired, CNA considered a number of factors including, but not limited to: (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near term prospects of the issuer, (iii) the intent and ability of CNA to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (iv) general market conditions and industry or sector specific outlook.
interests in operating joint ventures related to hotel properties over which it exercises significant influence, but does not have control over them.
2018 and reported in Other assets on the Consolidated Balance Sheets. Equity income for these investments was $
- The Company lends securities for the purpose of enhancing income or to finance positions to unrelated parties who have been designated as primary dealers by the Federal Reserve Bank of New York. Borrowers of these securities must deposit and maintain collateral with the Company of no less than 100% of the fair value of the securities loaned. United States of America (“U.S.”) Government securities and cash are accepted as collateral. The Company maintains effective control over loaned securities and, therefore, continues to report such securities as investments on the Consolidated Balance Sheets.
Property and casualty contracts that are retrospectively rated contain provisions that result in an adjustment to the initial policy premium depending on the contract provisions and loss experience of the insured during the experience period. For such contracts, CNA estimates the amount of ultimate premiums that it may earn upon completion of the experience period and recognizes either an asset or a liability for the difference between the initial policy premium and the estimated ultimate premium. CNA adjusts such estimated ultimate premium amounts during the course of the experience period based on actual results to date. The resulting adjustment is recorded as either a reduction of or an increase to the earned premiums for the period.
warranty revenues are primarily generated from separately-priced service contracts that provide mechanical breakdown and other coverages to vehicle or consumer goods owners, which generally provide coverage from one month to ten years. For warranty products where CNA acts as the principal in the transaction, N
s reported on a gross basis, with amounts paid by customers reported as Non-insurance
warranty revenue was recognized net of dealer costs and earned based on the estimated claims emergence pattern over the contract period.
revenues are recognized when obligations under the terms of the contract with CNA’s customers are satisfied, which is generally over time as obligations are fulfilled. CNA recognizes non-insurance
warranty contracts with customers are deferred and recorded as Deferred non-insurance
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 at the time control is transferred to the customer, there is persuasive evidence of an arrangement, the sales price is fixed and determinable and collection is reasonably assured.
Workers’ compensation lifetime claim reserves are calculated using mortality assumptions determined through statutory regulation and economic factors. At December 31, 2019 and 2018, workers’ compensation lifetime claim reserves are discounted at a 3.5% interest rate. As of December 31, 2019 and 2018, the discounted reserves for workers’ compensation lifetime claim reserves were $293 million and $343 million, net of discount of $135 million and $168 million. For the years ended December 31, 2019, 2018 and 2017, the amount of interest accretion recognized on the discounted reserves of workers’ compensation lifetime claim reserves was $21 million, $16 million and $19 million. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income, but is excluded from the Company’s disclosure of prior year loss reserve development.
2018. As of December 31, 2019 and 2018, such discounted reserves totaled $2.7 billion and $2.6 billion, net of discount of $462 million and $460 million.
- Future policy benefit reserves represent the active life reserves related to CNA’s long term care policies 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
- 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, 2019 and 2018, the liability balances were $84 million and $108 million.
Policyholder dividends are paid to participating policyholders within the worker’s compensation and surety lines of business. Net written premiums for participating dividend policies were approximately 1% of total net written premiums for each of the years ended December 31, 2019, 2018 and 2017. Dividends to policyholders are accrued according to CNA’s best estimate of the amount to be paid in accordance with contractual provisions and applicable state laws. Dividends to policyholders are presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income and Other liabilities on the Consolidated Balance Sheets.
- Goodwill represents the excess of purchase price over fair value of net assets of acquired entities. Goodwill is tested for impairment annually or when certain triggering events require additional tests. Subsequent reversal of a goodwill impairment charge is not permitted.
For each of the years ended December 31, 2019, 2018 and 2017, approximately 0.7 million, 0.9 million and 0.9 million potential shares attributable to issuances and exercises under the Loews Corporation 2016 Incentive Compensation
- Cash payments made for interest on long term debt, net of capitalized interest, amounted to $560 million, $558 million and $533 million for the years ended December 31, 2019, 2018 and 2017. Cash payments for federal, foreign, state and local income taxes amounted to $190 million, $101 million and $166 million for the years ended December 31, 2019, 2018 and 2017. Investing activities exclude $17 million and $15 million of accrued capital expenditures for the years ended December 31, 2019 and 2018 and include $87 million of previously accrued capital expenditures for the year ended December 31, 2017.
- In February of 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02,
Effective January 1, 2019, the updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. The Company adopted the updated accounting guidance using the modified retrospective method. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. The Company utilized the package of practical expedients allowing the Company to not reassess whether any expired or existing contracts contain a lease, the classification for any expired or existing leases or the initial direct costs for any existing leases. The Company has also elected to apply an exemption for short term leases whereby leases with initial lease terms of one year or less are not recorded on the balance sheet.
components as a single lease component, except subsea equipment leases. For leases where we are a lessor we have elected to combine the lease and non-lease
components of our offshore drilling contracts, if certain conditions are met, and account for the combined component in accordance with the accounting treatment for the predominant component of the contract.
At adoption, the cumulative effect adjustment increased Other assets and Other liabilities by $642 million reflecting operating lease right of use assets, lease liabilities and the derecognition of deferred rent related primarily to lease agreements for office space and machinery and equipment. At
Other assets and Other liabilities were adjusted to $3.1 billion and $5.1 billion as of January 1, 2019, as compared to $2.4 billion and $4.5 billion as of December 31, 2018. See Note 9
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
Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”).
The updated accounting guidance allowed a reclassification from AOCI to Retained earnings for certain tax effects resulting from the Tax Cuts and Jobs Act of 2017. The impact of the change resulted in a $3 million (after noncontrolling interests) increase in Retained earnings and a corresponding decrease in AOCI. The decrease in AOCI is comprised of a $130 million (after noncontrolling interests) decrease in pension liability and a $127 million (after noncontrolling interests) increase in unrealized gains (losses) on investments.
In 2019, Altium Packaging paid approximately $260 million to complete three acquisitions of plastic packaging manufacturers located in the U.S. and Canada, including the acquisition on June 14, 2019 of
Altium Healthcare Inc. (formerly known as Tri State Distribution, Inc.), a retail pharmaceutical packaging solutions provider. For the year ended December 31, 2019, revenues for the three acquisitions since acquisition were
$76 million and net results were not significant. The preliminary allocation of the purchase prices for the three acquisitions resulted in the recognition of approximately $99 million of goodwill and approximately $87 million of intangible assets, primarily related to customer relationships, and are subject to change within the respective measurement periods. The acquisitions were funded with approximately $250 million of debt financing proceeds at Altium Packaging, as discussed in Note 11, and available cash.
In 2018, Altium Packaging paid approximately $40 million to complete three acquisitions of plastic packaging manufacturers located in the U.S. and Canada, resulting in recognition of approximately $10 million of goodwill and approximately $15 million of intangible assets, primarily customer relationships.
Acquisition Holdings, Inc., through its wholly owned subsidiary, Altium Packaging, is a rigid plastic packaging and recycled resins manufacturer that provides packaging solutions to end markets such as beverage, food and household chemicals through a network of manufacturing locations across North America. The acquisition was funded with approximately $ 620 million of Parent Company cash and debt financing proceeds at
Net unrealized gains (losses) related to changes in fair value on securities still held were $41, $(121) and $39 for the years ended December 31, 2019, 2018 and 2017.
producing fixed maturity securities. As of December 31, 2019 and 2018,
investments in a single issuer exceeded 10% of shareholders’ equity, other than investments in securities issued by the U.S.
securities were $125, $168 and $187 for the years ended December 31, 2019, 2018 and 2017. Gross investment
131, $164 and $65 for the years ended December 31, 2019, 2018 and 2017. Net investment gains
of $66 were recognized due to the change in fair value of non-redeemable preferred stock still held for the year ended December 31, 2019. Net investment losses of $73 were recognized due to the change in fair value of non-redeemable preferred stock still held for the year ended December 31, 2018.
Net change in unrealized gains (losses) on investments is as follows:
on January 1, 2018, the change in fair value of equity securities is now recognized through the income statement. See Note 1 for further discussion on the standard.
The carrying value of limited partnerships as of December 31, 2019 and 2018 was approximately $2.0 billion and $2.4 billion, which includes net undistributed earnings of $297 million and $208 million. Limited partnerships comprising 64.4% of the total carrying value are reported on a current basis through December 31, 2019 with no reporting lag, 9.1% of the total carrying value are reported on a one month lag and the remainder are reported on more than a one month lag. The number of limited partnerships held and the strategies employed provide diversification to the limited partnership portfolio and the overall invested asset portfolio.
The ten largest limited partnership positions held totaled $1.1 billion as of December 31, 2019 and 2018. 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 2.3% and 2.6% of the aggregate partnership equity at December 31, 2019 and 2018, and the related income reflected on the Consolidated Statements of Income represents approximately 2.5%, 3.3% and 3.0% of the changes in aggregate partnership equity for the years ended December 31, 2019, 2018 and 2017.
The Company’s hedge fund limited partnership investments contain withdrawal provisions that generally limit liquidity for a period of thirty days up to one year or longer. Private equity and other non-hedge
Securities with carrying values of approximately $2.7 billion and $2.5 billion were deposited by CNA’s insurance subsidiaries under requirements of regulatory authorities and others as of December 31, 2019 and 2018.
Cash and securities with carrying values of approximately $1.1 billion and $1.0 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, 2019 and 2018.
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2019 and 2018:
Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume.
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
total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace.
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded open-end
Capitalized interest related to the construction and upgrade of qualifying assets amounted to approximately $18 million, $27 million and $37 million for the years ended December 31, 2019, 2018 and 2017.
. Diamond Offshore estimated the fair value of the impaired rig using a market approach based on a signed agreement to sell the rig, less estimated costs to sell. This valuation approach is considered to be a Level 3 fair value measurement due to the level of estimation involved as the sale had not yet been completed at the time of the analysis.
These impairments reduced Property, plant and equipment and Other assets by $62 million and $37 million in 2019 and $16 million and $6 million in 2018.
in 2018 and 2019. See Note 2 for further discussion on these acquisitions.
The table below reconciles the net liability for unpaid claim and claim adjustment expenses to the amount presented o
Reinsurance receivables presented are gross of the allowance for uncollectible reinsurance and do not include reinsurance receivables related to paid losses.
(a) Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Statements of Income 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.
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, CNA’s actuaries perform detailed reserve analyses that are staggered throughout the year. Every reserve group is reviewed at least once during the year, but most are reviewed more frequently. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. Factors considered include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in CNA’s pricing and underwriting, pricing and underwriting trends in the insurance market and legal, judicial, social and economic trends. In addition to the detailed analyses, CNA reviews actual loss emergence for all products each quarter. In developing the loss reserve estimates for property and casualty contracts, CNA generally projects ultimate losses using several common actuarial methods as listed below. CNA reviews the various indications from the various methods and applies judgment to select an actuarial point estimate. The carried reserve may differ from the actuarial point estimate as the result of CNA’s consideration of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors affecting claims costs that may not be quantifiable through traditional actuarial analysis. The indicated required reserve is the difference between the selected ultimate loss and the inception-to-date
paid losses. The difference between the selected ultimate loss and the case incurred or reported loss is IBNR. IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. The most frequently utilized methods to project ultimate losses include the following:
: The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses.
: The Bornhuetter-Ferguson using premiums and paid loss method is a combination of the paid development approach and the loss ratio approach. This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method.
: The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates.
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 medical professional liability was primarily due to higher than expected severity in accident years 2014 and 2017 in CNA’s hospitals business. In addition, there was higher than expected frequency and severity in aging services in accident years 2014 through 2017 combined, partially offset by lower than expected frequency in accident year 2015.
Favorable development in other coverages was driven by lower than expected claim severity in catastrophes in accident year 2017 for property in Commercial, better than expected frequency in the liability portion of the package business in Canada and general liability in Europe in casualty and better than expected large loss frequency in the energy book in accident year 2017, as well as a reduction in incurred losses within the Europe marine discontinued portfolio in energy and marine and lower than expected frequency in accident years 2015 and prior in Europe in healthcare and technology for International. This was partially offset by unfavorable development primarily driven by higher than expected severity in Canada and higher than expected frequency in Hardy, both in accident year 2017 in property and increased loss severity in the accident year 2017 in Europe professional indemnity in specialty for International.
Unfavorable development in medical professional liability was primarily due to continued higher than expected frequency in aging services and higher than expected severity for hospitals in recent accident years. This was partially offset by favorable development in hospitals in prior accident years as well as favorable development related to unallocated claim adjustment expenses.
Data presented for these calendar years is required supplemental information, which is unaudited.
Net unfavorable prior year development of $150 million, $178 million and $60 million was recognized before consideration of cessions to the LPT for the years ended December 31, 2019, 2018 and 2017.
CNA maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for its long term care business. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for long term care policies, CNA’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. CNA’s recorded claim and claim adjustment expense reserves reflect management’s best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations.
In developing the claim and claim adjustment expense reserve estimates for CNA’s structured settlement obligations, CNA’s actuaries monitor mortality experience on a annual basis. Both elements of the long term care reserves are discounted as discussed in Note 1.
annual long term care claim experience study in the third quarter of 2019 and 2018 which
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. F
uture 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.
2019, validated the assumption setting process and confirmed the best estimate assumptions appropriately reflected the experience data at that time.
In the third quarter of 2019, CNA performed the GPV for the long term care future policy benefit reserves. This GPV indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the premium deficiency resulted in a $216 million pretax charge
The Company’s lease agreements primarily cover office facilities and machinery and equipment and expire at various dates. The Company’s leases are predominantly operating leases, which are included in Other assets and Other liabilities on the Consolidated Balance Sheet. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants.
Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The discount rate used to determine the commencement date present value of lease payments is typically the Company’s secured borrowing rate, as most of the Company’s leases do not provide an implicit rate. The Company’s operating lease right of use asset was $573
million and the Company’s operating lease liability was $694 million at December 31, 2019.
146 million for the year ended December 31, 2019, which includes operating lease expense of
Prior to the adoption of the new lease standard, lease expense for the years ended December 31, 2018 and 2017 was
$120 million and $113 million. Cash paid for amounts included in operating lease liabilities was $117
operating leases along with lease and sublease minimum receipts to be received on owned and leased properties as of December 31, 2018.
For 2017 through 2019, the Internal Revenue Service (“IRS”) has accepted the Company into the Compliance Assurance Process (“CAP”), which is a voluntary program for large corporations. Under CAP, the IRS conducts a real-time audit and works contemporaneously with the Company to resolve any issues prior to the filing of the tax return. The Company believes this approach should reduce
uncertainties, if any. Although the outcome of tax audits is always uncertain, the Company believes that any adjustments resulting from audits will not have a material impact on its results of operations, financial position or cash flows. The Company and/or its subsidiaries also file income tax returns in various state, local and foreign jurisdictions. These returns, with few exceptions, are no longer subject to examination by the various taxing authorities before 2015.
mandatory deemed repatriation of accumulated earnings of foreign subsidiaries as of December 31,
2017, inclusive of the utilization of certain tax attributes offset by a provisional liability for uncertain tax positions related to such attributes.
provisional $200 million increase to net income (net of noncontrolling interests) for the year ended December 31, 2017 related to the Tax Act. This increase included a $268 million income tax benefit due to the adjustment of net deferred tax assets and liabilities related to the reduction of the U.S. federal corporate income tax rate from 35% to 21% partially offset by a $78 million charge mostly related to the one-time
The current and deferred components of income tax expense (benefit) are as follows:
on the Consolidated Statements of Income. The Company recognizes penalties in Income tax expense
of deferred tax assets reflected in Other assets in the Consolidated Balance Sheets at December 31, 2019 and 2018.
Federal net operating loss carryforwards of $70 million expire between 2034 and 2038 and $88 million can be carried forward indefinitely. Net operating loss carryforwards in foreign tax jurisdictions of $38 million expire between 2021 and 2028, $2 million expire between 2035 and 2039, and $77 million can be carried forward indefinitely. Foreign tax credit carryforwards of $45 million will expire between 2020 and 2030, and $2 million can be carried forward indefinitely.
Although realization of deferred tax assets is not assured, management believes it is more likely than not that the recognized deferred tax assets will be realized through recoupment of ordinary and capital taxes paid in prior carryback years and through future earnings, reversal of existing temporary differences and available tax planning strategies. As of December 31, 2019, Diamond Offshore recorded a valuation allowance of $187 million related to net operating losses, foreign tax credits, and other deferred tax assets.
At December 31, 2019, the aggregate long term debt maturing in each of the next five years is approximately as follows: $77 million in 2020, $861 million in 2021, $744 million in 2022, $1.3 billion in 2023, $2.0 billion in 2024 and $6.6 billion thereafter. Long term debt is generally redeemable in whole or in part at the greater of the principal amount or the net present value of remaining scheduled payments discounted at the specified treasury rate plus a margin.
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, 2019, giving it access to approximately $111 million of additional liquidity. As of December 31, 2019 and 2018, CNA had no
and used the net proceeds to redeem the entire $500 million outstanding aggregate principal balance of its 5.9% senior notes due August 15, 2020
million senior notes resulted in a loss of $21 million ($15 million after tax and noncontrolling interests) and is included in Interest expense on the Consolidated Statements of Income for the year ended December 31, 2019.
senior unsecured revolving credit facility which is intended to be used for general corporate purposes. At CNA’s election, the commitments under the amended and restated credit agreement may be increased from time to time up to an additional aggregate amount of $100 million, and two one-year
In May of 2019, Boardwalk Pipelines completed a public offering of $500 million aggregate principal amount of its 4.8% senior notes due May 3, 2029. The proceeds were used to retire the outstanding $350 million aggregate principal amount of Boardwalk Pipelines’ 5.8% senior notes at maturity,
entered into a credit agreement providing for a $250 million term loan in conjunction with the acquisitions discussed in Note 2. 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 3.5% and matures on June 14, 2026
The tables below present the changes in AOCI by component for the years ended December 31, 2017, 2018 and 2019:
warranty revenue and within Operating revenues and other on the Consolidated Statements of Income. 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:
- As of December 31, 2019 and 2018, deferred revenue resulting from contracts with customers was approximately $3.9 billion and $3.5 billion and is reported as Deferred non-insurance
warranty revenue and within Other liabilities on the Consolidated Balance Sheets. The increase in deferred revenue for the year ended December 31, 2019 was
primarily due to deferrals outpacing revenue recognized in the period, specifically reflecting growth in CNA’s business. Approximately $1.0 billion
warranty services at CNA. Approximately $2.2 billion will be recognized during 2020, $1.9 billion in 2021 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company has elected to exclude variable consideration related entirely to wholly unsatisfied performance obligations and contracts where revenue is recognized based upon the right to invoice the customer. Therefore, the estimated operating revenues exclude contract drilling dayrate revenue at Diamond Offshore and interruptible service contract revenue at Boardwalk Pipelines.
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, 2019, CCC is in a positive earned surplus position. The maximum allowable dividend CCC could pay during 2020 that would not be subject to the Department’s prior approval is $1,078 m
illion, less dividends paid during the preceding 12 months measured at that point in time. CCC paid dividends of $1,065 m
illion in 2019. 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 291% and 266% of company action level RBC at December 31, 2019 and 2018. Company action level RBC is the level of RBC which triggers a heightened level of regulatory supervision. The statutory capital and surplus of CN
Pension Plans - The Company and its subsidiaries have several non-contributory
defined benefit plans for eligible employees. Benefits for certain plans are determined annually based on a specified percentage of annual earnings (based on the participant’s age or years of service) and a specified interest rate (which is established annually for all participants) applied to accrued balances. The benefits for another plan which covers salaried employees are based on formulas which include, among others, years of service and average pay. The Company and its subsidiaries’ funding policy is to make contributions in accordance with applicable governmental regulatory requirements.
In determining the discount rate assumption, current market and liability information is
discount rate selection was the yield on indices of highly rated fixed income debt securities with durations comparable to that of our plan liabilities. The yield curve was applied to expected future retirement plan payments to adjust the discount rate to reflect the cash flow characteristics of the plans. The yield curves and indices evaluated in the selection of the discount rate are comprised of high quality corporate bonds that are rated AA by an accepted rating agency.
The accumulated benefit obligation for all defined benefit pension plans was $3.1 billion and $2.9 billion at December 31, 2019 and 2018. Changes for the years ended December 31, 2019 and 2018 include actuarial (gains) losses of $300 million and $(212) million primarily driven by changes in the discount rate used to determine the benefit obligations.
The Company and its subsidiaries employ a total return approach whereby a mix of equity and fixed maturity securities are used to maximize the long term return of plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. The intent of this strategy is to minimize expenses by generating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. The investment portfolios
contain a diversified blend of fixed maturity, equity and short term securities. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2019, the Company and its subsidiaries had committed $111
million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships. Investment risk is monitored through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
The table below presents the estimated future minimum benefit payments at December 31, 2019.
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 80% and 82% of the carrying value as of December 31, 2019 and 2018 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 62% were equity related, 31% pursued a multi-strategy approach and 7% were focused on distressed investments at December 31, 2019.
There were no Level 3 assets at December 31, 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 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 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 Company
Performance-based RSUs (“PSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested PSU, subject to the achievement of specified performance goals by the Company. Generally, performance-based RSUs vest, if performance goals are satisfied, 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.
RSUs and PSUs at a weighted average grant-date fair value of $48.10
of Wilton Re. These amounts are substantially collateralized. The recoverable from s
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.
The effects of reinsurance on earned premiums are presented in the following table:
Included in the direct and ceded earned premiums for the years ended December 31, 2019, 2018 and 2017 are $3.6 billion, $3.7 billion and $3.9 billion related to property business that is 100% reinsured under a significant third party captive program. The third party captives that participate in this program are affiliated with the non-insurance
reinsurance recoveries of $2.7 billion, $2.8 billion and $3.1 billion for the years ended December 31, 2019, 2018 and 2017, including $2.1 billion, $1.9 billion and $2.5 billion related to the significant third party captive program discussed above.
periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.
$116 million (after tax and noncontrolling interests) related to limited partnerships
) Net loss for the fourth quarter of 2018 includes a loss on limited partnership and common stock investments of $97 million (after tax and noncontrolling interests), catastrophe losses of $96 million (after tax and noncontrolling interests) and net investment losses of $57 million (after tax).
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.
Boardwalk Pipelines pursuant to Boardwalk Pipelines’ Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”),
within a period specified by the Proposed Settlement. As discussed in Note
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 will be set for trial in early 2021.
provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities
The Company has five reportable segments comprised of four individual operating subsidiaries, CNA, Diamond Offshore, Boardwalk Pipelines and Loews Hotels & Co; and the Corporate segment.
The operations of Altium Packaging since the acquisition date are included in the Corporate segment. Each of the operating subsidiaries is 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.
CNA’s business is the sale of property and casualty insurance coverage primarily through a network of independent agents, brokers and managing general underwriters. CNA’s operations also include its long term care business that is in run-off,
Loews Hotels & Co operates a chain of 26 hotels, 24 of which are in the United States and two of which are in Canada.
since the acquisition date. Purchase accounting adjustments have been pushed down to the appropriate subsidiary.