CNA’s recorded reserves reflect its best estimate as of a particular point in time based upon known facts, consideration of the factors cited above and its judgment. 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 impacting claims costs that may not be quantifiable through traditional actuarial analysis. This process results in management’s best estimate which is then recorded as the loss reserve.
Net loss increased $63 million in 2013 as compared with 2012, primarily driven by the impact of a $111 million (after tax and noncontrolling interests) deferred gain under retroactive reinsurance accounting related to the Loss Portfolio Transfer, as further discussed in Note 9 of the Notes to Consolidated Financial Statements included under Item 8. The results were partially offset by $40 million (after tax and noncontrolling interests) of expenses in 2012 due to unlocking actuarial reserve assumptions on CNA’s payout annuity business and long term care reserve strengthening. In 2013, payout annuity reserves were determined to be adequate, therefore no unlocking of actuarial assumptions was required.
In addition, pretax income may also be negatively impacted by intermediate surveys, which are performed at interim periods between 5-year surveys. Intermediate surveys are generally less extensive in duration and scope than a 5-year survey. Although an intermediate survey may require some downtime for the drilling rig, it normally does not require dry-docking or shipyard time, except for rigs located in the United Kingdom (“U.K.”) and Norwegian sectors of the North Sea.
(a) As of February 5, 2014, for ultra-deepwater floaters includes (i) $823 million attributable to contracted operations offshore Brazil for the years 2014 and 2015, (ii) $1.8 billion attributable to future work for two newbuild drillships, one of which is under construction, for the years 2014 to 2019 and (iii) $641 million attributable to future work for the ultra-deepwater semisubmersible rig under construction for the years 2016 to 2019.
(d) Utilization for Diamond Offshore’s jack-up rigs would have been 87% and 59% for the years ended December 31, 2012 and 2011, excluding revenue earning days and total calendar days associated with rigs that were sold in 2012.
The following table summarizes the results of operations for Boardwalk Pipeline for the years ended December 31, 2013, 2012 and 2011 as presented in Note 22 of the Notes to Consolidated Financial Statements included under Item 8:
The fixed maturity investment portfolio provided a pretax effective income yield of 5.1%, 5.3% and 5.5% for the years ended December 31, 2013, 2012, and 2011. Tax-exempt municipal bonds generated $317 million, $274 million and $240 million of net investment income for the years ended December 31, 2013, 2012 and 2011.
The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as OTTI in Other comprehensive income. In subsequent reporting periods, a change in intent to sell or further credit impairment on a security whose fair value has not deteriorated will cause the non-credit component originally recorded as OTTI in Other comprehensive income to be recognized as an OTTI loss in earnings.
Investments in life settlement contracts and related revenue recognition - Prior to 2002, CNA purchased investments in life settlement contracts. A life settlement contract is a contract between the owner of a life insurance policy (the policy owner) and a third party investor (investor). Under a life settlement contract, CNA obtained the ownership and beneficiary rights of an underlying life insurance policy.
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. Foreign currency transaction losses of $3 million, gains of $10 million and losses of $5 million for the years ended December 31, 2013, 2012 and 2011 were included in the Consolidated Statements of Income.
On October 1, 2012, a joint venture between Boardwalk Pipeline and BPHC acquired Boardwalk Louisiana Midstream LLC, a company that provides salt dome storage, pipeline transportation, fractionation and brine supply services, from PL Logistics LLC for approximately $620 million. The acquisition was funded with proceeds from a $225 million five-year variable rate term loan and equity contributions by BPHC of $269 million for a 65% equity interest and of $148 million by Boardwalk Pipeline for a 35% equity interest. The joint venture recorded $25 million of identifiable finite-lived intangible assets and $52 million of goodwill. On October 15, 2012, Boardwalk Pipeline acquired BPHC’s 65% equity interest in the joint venture for $269 million, which did not result in any significant adjustments to the Consolidated Financial Statements.
(a) Includes gross realized gains of $214, $251 and $299 and gross realized losses of $181, $191 and $322 on available-for-sale securities for the years ended December 31, 2013, 2012 and 2011.
As of December 31, 2013, the Company had committed approximately $381 million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships.
Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, commodity swaps, credit default 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.
In 2013 and 2012, Diamond Offshore recorded $128 million and $251 million in Construction in process for four new ultra-deepwater drillships. In addition, Diamond Offshore recorded $354 million and $235 million in Construction in process for two new deepwater floaters in 2013 and 2012. The rigs are being constructed utilizing the hulls of two of Diamond Offshore’s mid-water floaters. In 2013, Diamond Offshore also recorded $195 million in Construction in process for the construction of a harsh environment semisubmersible drilling rig, with an expected completion date in the first quarter of 2016.
Unfavorable development for workers’ compensation includes CNA’s response to legislation enacted during 2013 related to the New York Fund for Reopened Cases. The law change necessitated an increase in reserves as re-opened workers’ compensation claims can no longer be turned over to the state for handling and payment after December 31, 2013. Additional unfavorable development was recorded in accident year 2012 related to increased frequency and severity on claims related to Defense Base Act contractors and in accident year 2010 due to higher than expected large losses and increased severity in the state of California.
Boardwalk Pipeline has a revolving credit agreement with aggregate lending commitments of $1.0 billion. The credit agreement has a maturity date of April 27, 2017. As of December 31, 2013 and 2012, Boardwalk Pipeline had $175 million and $302 million of borrowings outstanding under the revolving credit facility with a weighted average interest rate on the borrowings of 1.3% and had no letters of credit issued. As of December 31, 2013, Boardwalk Pipeline was in compliance with all covenants under the credit facility and had available borrowing capacity of $825 million.
Estimates of reserves as of December 31, 2013, 2012 and 2011 are based upon studies for each of HighMount’s properties prepared by HighMount staff engineers. Calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with SEC guidelines. HighMount’s reserve estimates for 2013 were audited by Netherland, Sewell & Associates, Inc., (“NSAI”). NSAI is an independent third party petroleum engineering consulting firm, and the audit was performed in accordance with the “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information” promulgated by the Society of Petroleum Engineers. All proved reserves are located in the United States.
The tables below present reconciliations for all pension plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012:
Boardwalk Pipeline is engaged in the interstate transportation and storage of natural gas and NGLs and gathering and processing of natural gas. This segment consists of interstate natural gas pipeline systems originating in the Gulf Coast region, Oklahoma and Arkansas, and extending north and east through the midwestern states of Tennessee, Kentucky, Illinois, Indiana and Ohio, natural gas storage facilities in four states and NGL pipelines and storage facilities in Louisiana, with approximately 14,450 miles of pipeline.