| Item Number | Page Number | |
| 1. | ||
| 1A. | ||
| 1B. | ||
| 2. | ||
| 3. | ||
| 4. | ||
| PART II | ||
| 5. | ||
| 6. | ||
| 7. | ||
| 7A. | ||
| 8. | ||
| 9. | ||
| 9A. | ||
| 9B. | ||
| PART III | ||
| 10. | ||
| 11. | ||
| 12. | ||
| 13. | ||
| 14. | ||
| PART IV | ||
| 15. | ||
PART I
ITEM 1. BUSINESS
CNA Financial Corporation (CNAF) was incorporated in 1967 and is an insurance holding company. References to “CNA,” “the Company,” “we,” “our,” “us” or like terms refer to the business of CNAF and its subsidiaries. CNA's property and casualty and remaining life and group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company, Western Surety Company, CNA Insurance Company Limited, and Hardy Underwriting Bermuda Limited and its subsidiaries (Hardy)., and CNA Insurance Company (Europe) S.A. Loews Corporation (Loews) owned approximately 89%92% of our outstanding common stock as of December 31, 2017.2023.
Our insurance products primarily include commercial property and casualty coverages, including surety. Our services include warranty, risk management information services and claims administration. Our 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. The property and casualty insurance industry is highly competitive, both as it relates to rate and service. We compete with a large number of stock and mutual insurance companies, as well as other entities, for both distributors and customers.
Our commercial property and casualty underwriting operations presence in the United States of America (U.S.) consists of field underwriting locations and centralized processing operations which handle policy processing, billing and collection activities and also act as call centers to optimize service. Our claim operations in the U.S. consists of primary locations where we handle multiple claim types and key business functions, as well as regional claim offices which are aligned with our underwriting field structure. We also have property and casualty underwriting operations in Canada, the United Kingdom (U.K.) and Continental Europe, as well as access to business placed at Lloyd's of London through Syndicate 382.
Our commercial property and casualty insurance operations are managed and reported in three business segments: Specialty, Commercial and International, which we refer to collectively as Property & Casualty Operations. Our operations outside of Property & Casualty Operations are managed and reported in two business segments: Life & Group and Corporate & Other. Each segment is managed separately due to differences in their markets and product mix. Discussion of each segment, including the products offered, customers served and distribution channels used, is set forth in the Management's Discussion and Analysis (MD&A) included under Item 7 and in Note OP to the Consolidated Financial Statements included under Item 8.
Current Regulation
The insurance industry is subject to comprehensive and detailed regulation and supervision. Regulatory oversight by applicable agencies is exercised through review of submitted filings and information, examinations (both financial and market conduct), direct inquiries and interviews. Each domestic and foreign jurisdiction has established supervisory agencies with broad administrative powers relative to licensing insurers and agents, approving policy forms, establishing reserve requirements, prescribing the form and content of statutory financial reports and regulating capital adequacy and the type, quality and amount of investments permitted. Such regulatory powers also extend to governance requirements, risk assessment practices and disclosures and premium rate regulations requiring rates not be excessive, inadequate or unfairly discriminatory. In addition to regulation of dividends by insurance subsidiaries, intercompany transfers of assets or payments may be subject to prior notice or approval by insurance regulators, depending on the size of such transfers and payments in relation to the financial position of the insurance subsidiaries making the transfer or payment.payments.
As our insurance operations are conducted in both domestic and foreign jurisdictions, we are subject to a number of regulatory agency requirements applicable to a portion, or all, of our operations. These include but are not limited to, the State of Illinois Department of Insurance (which is our global group-wide supervisor), the U.K. Prudential Regulatory Authority and Financial Conduct Authority, the Office of Superintendent of Financial Institutions in Canada, the Luxembourg insurance regulator Commissariat aux Assurances (the CAA) and the Bermuda Monetary Authority.
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Domestic insurers are also required by state insurance regulators to provide coverage to certain insureds who would not otherwise be considered eligible by the insurers. Each state dictates the types of insurance and the level of coverage that must be provided to such involuntary risks. Our share of these involuntary risks is mandatory and generally a function of our respective share of the voluntary market by line of insurance in each state.
Further, domestic insurance companies are subject to state guaranty fund and other insurance-related assessments. Guaranty funds are governed by state insurance guaranty associations which levy assessments to meet the funding needs of insolvent insurer estates. Other insurance-related assessments are generally levied by state agencies to fund various organizations, including disaster relief funds, rating bureaus, insurance departments and workers'
compensation second injury funds, orand by industry organizations that assist in the statistical analysis and ratemaking process, and we have the ability to recoup certain of these assessments from policyholders.
Hardy, a specialized Lloyd's of London (Lloyd's) underwriter, is also supervised by the Council of Lloyd's, which is the franchisor for all Lloyd's operations. The Council of Lloyd's has wide discretionary powers to regulate Lloyd's underwriting, such as establishing the capital requirements for syndicate participation. In addition, the annual business plansplan of each syndicate areis subject to the review and approval of the Lloyd's Franchise Board, which is responsible for business planning and monitoring for all syndicates.
Capital adequacy and risk management regulations, referred to as Solvency II, apply to our European operations and are enacted by the European Commission, the executive body of the European Union (E.U.)(E.U). Additionally, the International Association of Insurance Supervisors (IAIS) continues to consider regulatory proposals addressing group supervision,develop capital requirements and enterprise risk management. as more fully discussed below.
Regulation Outlook
The U.S. Federal Reserve,IAIS has adopted a Common Framework (ComFrame) for the supervision of Internationally Active Insurance Groups (IAIGs), which is focused on the group-wide supervision of IAIGs, such as CNA. As part of ComFrame, the IAIS has developed a global capital standard that, if adopted in the U.S. Federal Insurance Office and, would be applicable to U.S.-based IAIGs. Certain elements of ComFrame were incorporated into regulatory guidelines issued by the National Association of Insurance Commissioners (NAIC) are working with other globalfor application by regulators to define such proposals. It is not currently clear to what extentbeginning in 2023. These additions were adopted for the IAIS activities will affect us, as any final proposal would ultimately need to be legislated or regulated by each individual country or state.purpose of streamlining group-wide supervision, further leveraging existing risk and solvency measures and applying them on a group-wide basis.
As of December 31, 2017,2023, we had approximately 6,300 employees. We seek to create a culture of inclusion that engages our employees and offers them opportunities to learn, grow and achieve their career goals. We believe this will facilitate our ability to continue to attract and retain a highly talented workforce.
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Talent, Recruitment and Development
We focus on attracting, developing and retaining top-tier talent to reflect the specialist nature of our business.
We aim to continually build on the expertise of our workforce. At entry levels, we have experienced satisfactory labor relations.implemented trainee and internship programs and we continue to leverage relationships with colleges to attract new and diverse talent. We seek to promote the development of employees, both to optimize current performance and to develop skills for future career growth. We have never had work stoppages dueimplemented programs designed for our employees to labor disputes.grow their technical expertise, collaborate with one another and achieve their career goals. We offer a wide range of learning and development opportunities, including mentorship and reverse mentorship programs, apprenticeship and sponsorship programs, tuition reimbursement, technical training and specialized leadership development programs.
CNA leaders engage regularly with our employees on their performance and professional development. We gather employee feedback through pulse surveys and routine dialogue with our employee resource groups and leaders from across the enterprise. Our annual talent and succession planning process culminates in a review with leadership of key talent retention and promotion, as well as a review of our succession plans. Our performance management cycle seeks to ensure that employees have goals and development plans refreshed at least annually and performance review conversations are held between managers and their direct reports throughout the annual performance period.
Employee Benefits
We haveoffer comprehensive benefit planscompensation and benefits packages to eligible employees including a 401k plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off and certain family assistance programs, including paid family leave, flexible work arrangements and surrogacy and adoption assistance plans.
We provide certain benefits to eligible employees that are geared toward enhancing physical, mental, financial and social health. These include a holistic well-being incentive program with resources for substantially allboth employees and their families, employee mental health assistance programs, and stress management and resilience programs. CNA also offers remote working options and a hybrid-working environment for eligible employees.
Diversity, Equity and Inclusion
Diversity, Equity and Inclusion (DEI) is a strategic imperative. Our DEI Vision is to cultivate an inclusive culture grounded in equity that celebrates individuals’ differences, attracts diverse talent, and fosters an environment that enables employees to do their best work.
To act on our DEI Vision, CNA has appointed senior leaders to an executive DEI Council, and our Chairman and CEO serves as the Executive Sponsor. The DEI Council works closely with internal DEI subject matter experts and with our eight employee resource groups to create and drive strategic DEI initiatives.
Critical components of our employees, including retirement plans, savings plans, disabilityDEI Vision include:
•Skill building. CNA offers DEI learning programs group lifeto all employees. After expanding our focus on allyship and equity, we refreshed our new hire onboarding, manager training and leadership development programs, and group health care programs. See Note Ilaunched interactive workshops designed to provide opportunities to learn and practice new skills.
•Leadership training. CNA requires every people leader and officer to complete inclusive leadership training. We also provide additional networking and learning opportunities for leaders to support the critical role they play in creating an inclusive workplace culture.
•Talent development. CNA has a talent sponsorship program that seeks to accelerate the development of high performing diverse employees, diversify our leadership ranks and broadly build inclusive leadership skills. In addition, we offer mentoring and reverse mentoring program opportunities to employees.
•Representation. We seek to increase the representation of diverse talent throughout the organization. We monitor our representation of diverse talent and review our trends in relation to the Consolidated Financial Statements included under Item 8labor market
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and industry to understand how we can increase it. We also report this information regularly to our Board of Directors.
•Partnerships. CNA has established new partnerships, and expanded several existing partnerships, with organizations whose DEI values and objectives align with our own. Through these partnerships, we uncover new sources of talent, support minority owned businesses, contribute to the development of students from underserved communities and provide opportunities for further discussionour employees to volunteer in their local communities.
•Policies and benefits. We regularly review our workplace policies and employee benefits and seek to adapt them to the changing needs of our benefit plans.employees.
| Years ended December 31 | Percent of Total | |||||||
| 2017 | 2016 | 2015 | ||||||
| California | 9.7 | % | 9.5 | % | 9.1 | % | ||
| Texas | 8.5 | 8.2 | 8.1 | |||||
| New York | 7.2 | 6.9 | 7.1 | |||||
| Illinois | 6.4 | 7.6 | 7.5 | |||||
| Florida | 5.7 | 5.8 | 5.7 | |||||
| Pennsylvania | 3.8 | 3.7 | 3.8 | |||||
| New Jersey | 3.2 | 3.1 | 3.2 | |||||
| Canada | 2.2 | 1.9 | 2.2 | |||||
| All other states, countries or political subdivisions | 53.3 | 53.3 | 53.3 | |||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | ||
Available Information
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act). The public may read and copy any materials that we file with the SEC at the SEC's Reading Rooms at 100 F Street NE, Washington, D.C. 20549. The public may obtain information on the operation of the Reading Rooms by calling the SEC at 1-202-551-8090. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers, including CNA, that file electronically with the SEC.CNA. The public can obtain any documents that we file with the SEC at www.sec.gov.
We also make available free of charge on or through our internet website at www.cna.com our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Copies
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ITEM 1A. RISK FACTORS
Our business faces many risks and uncertainties.These risks and uncertainties could lead to events or circumstances that have a material adverse effect on our results of operations, equity, business and insurer financial strength and corporate debt ratings.We have described below the most significantmaterial risks facing us. that we face.There may be additional risks that we do not yet know of or that we do not currently perceive to be as significantmaterial that may also affect our business.You should carefully consider and evaluate all of the information included in this report and any subsequent reports we may file with the SEC or make available to the public before investing in any securities we issue.
Insurance Risks
If we determine that our recorded insurance reserves are insufficient to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, we may need to increase our insurance reserves which would result in a charge to our earnings.
We maintain insurance reserves to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, including the estimated cost of the claims adjudication process, for reported and unreported claims. Insurance reserves are not an exact calculation of liability but instead are complex management estimates developed utilizing a variety of actuarial reserve estimation techniques as of a given reporting date. The reserve estimation process involves a high degree of judgment and variability and is subject to a number of factors which are highly uncertain. These variablesfactors can be affected by both changes in internal processes and external events. Key variables include claim severity, frequency of claims, claim severity, mortality, morbidity, discount rates, economic, social and medical inflation, claim handling policies and procedures, case reserving approach, underwriting and pricing policies, changes in the legal and regulatory environment and the lag time between the occurrence of an insured event and the time of its ultimate settlement. Mortality is the relative incidence of death. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted.
There is generally a higher degree of variability in estimating required reserves for long-tail coverages, such as long-term care, workers' compensation, general liability and workers' compensation,professional liability, as they require a relatively longer period of time for claims to be reported and settled. The impact of changes in economic and social inflation, and medical costs are also more pronounced for long-tail coverages due to the longer settlement period. Certain risks and uncertainties associated with our insurance reserves are outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of MD&A in Item 7.
We are subject to the uncertain effects of emerging orand potential claims and coverage issues that arise as industry practices and legal, judicial, social, economic and other environmental conditions change. Further, the impact of social inflation continues to be significant and the trajectory of its future impact remains uncertain. In addition, passage of reviver statutes that extend, or eliminate, the statute of limitations for the reporting of claims, including statutes passed in certain states with respect to sexual molestation and sexual abuse, increase the uncertainty of the frequency of claims. These issues, have had, and may continue to have, a negative effect on our business, results of operations and financial condition by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims, resulting in further increases in our reserves. The effects of unforeseen emerging or potential claim and coverage issues are extremely difficult to predict.predict and may be material.
In light of the many uncertainties associated with establishing the estimates and making the judgments necessary to establish reserve levels, we continually review and change our reserve estimates in a regular and ongoing process as experience develops from the actual reporting and settlement of claims and as the legal, regulatory and economic environment evolves. IfWhen our recorded reserves are insufficient for any reason, the required increase in reserves wouldis recorded as a charge against our earnings in the period in which reserves are determined to be insufficient.These charges have been and in the future could be substantial.
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Our actual experience could vary from the key assumptions used to determine future policy benefit reserves for long-term care policies.
Our future policy benefit reserves for long-term care policies are based on our best estimate actuarial assumptions, which are assessed quarterly and updated at least annually. Key actuarial assumptions include morbidity, persistency (inclusive of mortality), anticipated future premium rate increases and expenses. The adequacy of the reserves is contingent upon actual experience and our future expectations related to these key assumptions. If actual or expected future experience differs from these assumptions, the reserves may not be adequate, requiring us to increase reserves. The required increase in reserves is recorded as a charge against our earnings in the period in which reserves are determined to be insufficient. These charges have been and in the future could be substantial.
Policyholder Reserves portion of Reserves - Estimates and Uncertainties section of MD&A in Item 7 for more information.
A prolonged period during which interest ratesinvestment returns remain at low levels lower than those anticipated in our reserving would couldresult in shortfalls in investment income on assets supporting our obligations under long termlong-term care policies, which may require changes to our reserves.policies. This risk is more significant for our long termlong-term care products because the long potential duration of the policy obligations exceeds the duration of the supporting investment assets. Further, changes to the corporate tax code may also affect the rate at which we discount our reserves. In addition, we may not receive regulatory approval for the level of premium rate increases we request. Any adverse deviation between the level of future premium rate increases approved and the level included in our reserving assumptions may require an increase to our reserves.
Catastrophe losses are an inevitable part of our business. Various events can cause catastrophe losses. These events can be natural or man-made, and may include hurricanes, tornadoes, windstorms, earthquakes, hail, severe winter weather, fires, floods, riots, strikes, civil commotion, cyber attacks,unrest, cyber-attacks, pandemics and acts of terrorism. The frequency and severity of these catastrophe events are inherently unpredictable. Exposure to cyber risk is increasing systematically due to greater digital dependence, which increases the potential for, and the potential losses due to, a catastrophic cyber event. Catastrophic cyber-attack scenarios are not bound by time or geographic limitations and cyber-related catastrophic perils don’t have well-established definitions or fundamental physical properties. In addition, longer-term natural catastrophe trends may be changing and new types of catastrophe losses may be developing due to climate change, a phenomenon that has beenits associated with extreme weather events linked to rising temperatures and includesits effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow.Climate studies by government agencies, academic institutions, catastrophe modeling organizations and other groups indicate that climate change may be altering the frequency and/or severity of catastrophic weather events, such as hurricanes, tornadoes, windstorms, floods and other natural disasters.
The extent of our losses from catastrophes is a function of the total amount of our insured exposures in the affected areas, the frequency and severity of the events themselves, the level of our reinsurance assumed and ceded,coverage, reinsurance reinstatement premiums and state residual market assessments, if any. It can take a long time for the ultimate cost of any catastrophe losses to us to be finally determined, as a multitude of factors contribute to such costs, including evaluation of general liability and pollution exposures, infrastructure disruption, business interruption and reinsurance collectibility. Further, significant catastrophic events or a series of catastrophic events have the potential to impose financial stress on the reinsurance industry, which could impact our ability to collect amounts owed to us by reinsurers, thereby resulting in higher net incurred losses.
Reinsurance coverage for "unconventional" terrorism events is provided only in limited circumstances, especially in regard to “unconventional” terrorism acts, such(such as nuclear, biological, chemical or radiological attacks. attacks) is provided only in limited circumstances. Our principal reinsurance protection against these large-scale terrorist attacks is the coverage currently provided through the Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA) through December 31, 2027. However, such coverage is subject to a mandatory deductible and other limitations. It is also possible that future legislation could change
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or eliminate the program, which could adversely affect our business by increasing our exposure to terrorism losses, or by lowering our business volume through efforts to avoid that exposure. For a further discussion of TRIPRA, see Part II, Item 7, MD&A - Catastrophes and Related Reinsurance.
As a result of the items discussed above, catastrophe losses are particularly difficult to estimate. Additionally, catastrophic eventsestimate, could cause us to exhaust our available reinsurance limits, could lead to large losses and could adversely affect the cost and availability of reinsurance. Accordingly, catastrophic events could have a material adverse effect on our business, results of operations, financial condition and liquidity.
We have experienced, and may continue to experience, increased claim submissions and litigation related to denial of claims based on policy coverage or the facts of the claim, in certain lines of business canthat are implicated by the COVID-19 pandemic and mitigating actions taken by our customers and governmental authorities in response to its spread. These lines include primarily healthcare professional liability, workers' compensation, commercial property related business interruption coverage, management liability (directors and officers, employment practices and professional liability lines) and trade credit. We recorded significant losses during 2020, a significant portion of which remain classified as incurred but not reported (IBNR) reserves, in these areas and may experience continued losses, which could be correlated to an external factor such as economic activity, financial market volatility, increasing health care costsmaterial.
Increased frequency or changesseverity in the legalany or regulatory environment. Claim frequency and severity can also be correlated to insureds' use of common business practices, equipment, vendors or software. This can result in multiple insured losses emanating outall of the same underlying cause. In these instances, we may be subjectforegoing lines, or others where the exposure has yet to increased claim frequencyemerge, relating to long-term effects of COVID-19, new or emerging variants, or other potential pandemics, and severity across multiple policies or lines of business concurrently. While we do not define such systemic losses as catastrophes for financial reporting purposes, they are similarrelated measures to catastrophes in termsmitigate the spread of the uncertainty and potentialforegoing, may have a material impact on our results.business, results of operations and financial condition.
We have incurred and may continue to incur substantial expenses related to litigation activity in connection with COVID-related legal claims. These actions primarily relate to denial of claims submitted as a result of the pandemic and the mitigating actions taken, including lockdowns and closing of certain businesses. The significance of such litigation or any other litigation relating to new or emerging variants of COVID-19 or other potential pandemics and related measures to mitigate the spread of the foregoing, both in substance and volume, and the resultant Company-initiated activities, including external counsel engagement, and the costs related thereto, may have a material impact on our business, results of operations and financial condition.
We have exposures related to asbestos and environmental pollution (A&EP) claims, which could result in material losses.
Our property and casualty insurance subsidiaries have exposures related to A&EP claims. Our experience has been that establishing claim and claim adjustment expense reserves for casualty coverages relating to A&EP claims is subject to uncertainties that are greater than those presented by othermore traditional property and casualty claims. Additionally, traditional actuarial
methods and techniques employed to estimate the ultimate cost of claims for more traditional property and casualty exposures are less precise in estimating claim and claim adjustment expense reserves for A&EP. As a result, estimating the ultimate cost of both reported and unreported A&EP claims is subject to a higher degree of variability. On August 31, 2010, we completed a retroactive reinsurance transaction under which substantially all of our legacy A&EP liabilities were ceded to National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., subject to an aggregate limit of $4 billion (Loss Portfolio Transfer). The cumulative amount ceded under the Loss Portfolio Transfer as of December 31, 2017 is $2.92023 was $3.6 billion.If the other parties to the Loss Portfolio Transfer do not fully perform their obligations, net losses incurred on A&EP claims covered by the Loss Portfolio Transfer exceed the aggregate limit of $4 billion, or we determine we have exposures to A&EP claims not covered by the Loss Portfolio Transfer, we may need to increase our recorded net reserves which would result in a charge against our earnings. These charges could be substantial. Additionally, if the A&EP claims exceed the limit of the Loss Portfolio Transfer, we will need to assess whether to purchase additional limit or to reassume claim handling responsibility for A&EP claims from an affiliate of NICO. Any additional reinsurance premium or future claim handling costs would also reduce our earnings.
We use analytical models to assist our decision making in key areas such as pricing, reserving and capital modeling and may be adversely affected if actual results differ materially from the model outputs and related analyses.
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among other things, our insureds’ sale or use of potentially harmful products or substances, changes to the social and legal environment, such as those related to abuse reviver statutes, issues related to altered interpretation of coverage and other new and emerging claim theories.
We face potential exposure to various types of existing, new and emerging mass tort claims, including those related to exposure to potentially harmful products or substances, such as glyphosate, lead paint, per- and polyfluoroalkyl substances (PFAS) and opioids; claims arising from changes that expand the right to sue, remove limitations on recovery, extend the statutes of limitations or otherwise repeal or weaken tort reforms, such as those related to abuse reviver statutes, including New York reviver statutes; and claims related to new and emerging theories of liability, such as those related to global warming and climate change. Evolving judicial interpretations and new legislation regarding the application of various tort theories and defenses, including application of various theories of joint and several liability, as well as the application of insurance coverage to these claims, give rise to new and potentially more severe claim activity. For example, we have recorded, and may continue to record, increases in our mass tort reserves, driven substantially by abuse reviver statutes that have resulted in increased claims. Similar and continuing mass tort claim activity, including activity based on changing judicial interpretations and recent and proposed legislation, could have a material adverse effect on our business, financial condition, results of operations or liquidity may be adversely affected.and financial condition.
Strategic Risks
We face intense competition in our industry; we may be adversely affected by the cyclical nature of the property and casualty business and the evolving landscape of our distribution network.
All aspects of the insurance industry are highly competitive and we must continuously allocate resources to refine and improve our insurance products and services to remain competitive. We compete with a large number of stock and mutual insurance companies and other entities, some of which may be larger or have greater financial or other resources than we do, for both distributors and customers. This includes agents, brokers and brokersmanaging general underwriters who may increasingly compete with us to the extent that markets continue to provide them with direct access to providers of capital seeking exposure to insurance risk. Insurers compete on the basis of many factors, including products, price, services, ratings and financial strength. The competitor landscape has evolved substantially in recent years, with significant consolidation and new market entrants, such as insurtech firms, resulting in increased pressures on our ability to remain competitive, particularly in implementingobtaining pricing that is both attractive to our customer base and risk-appropriate to us.
In addition, the property and casualty market is cyclical and has experienced periods characterized by relatively high levels of price competition, resulting in less restrictive underwriting standards and relatively low premium rates, followed by periods of relatively lower levels of competition, more selective underwriting standards and relatively high premium rates. During periods in which price competition is high, weWe may lose business to competitors offering competitive insurance products at lower prices. As a result, our premium levels and expense ratio could be materially adversely impacted.
We market our insurance products worldwide primarily through independent insurance agents, and insurance brokers, and managing general underwriters who also promote and distribute the products of our competitors.Any change in our relationships with our distribution network agents, and brokers or managing general underwriters, including as a result of consolidation andor their increased promotion and distribution of our competitors' products, could adversely affect our ability to sell our products.As a result, our business volume and results of operations could be materially adversely impacted.
Our underwriting strategies currently rely on the effectiveness of reinsurance arrangements and we accordingly face risks relating to reinsurance, including obtaining reinsurance at a cost or on terms and conditions we deem acceptable, reinsurance counterparty risk and ineffective reinsurance coverage.
A primary reason we purchase reinsurance is to manage our exposure to risk, thereby facilitating our underwriting strategies in certain key areas. Under our ceded reinsurance arrangements, a reinsurer assumes a specified portion of our exposure in exchange for a specified portion of policy premiums. The availability and cost of the reinsurance protection we purchase, which affects the volatility and profitability of our business, as well as the level and types of risk we retain, is determined by many factors, including general economic conditions and conditions in the reinsurance market, such as the occurrence of significant reinsured events or
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unexpected adverse trends, including those associated with climate change. If we are unable to obtain sufficient reinsurance at a cost or on terms and conditions we deem acceptable, our risk exposure will not be mitigated to the degree desired or we may forego such increased risk, thereby adversely impacting our underwriting strategies. In addition, use of reinsurance exposes us to credit risk of the reinsurers, as the reinsurance arrangements do not relieve us of the liability to the customer. If a reinsurer is unable to meet its financial obligations under a reinsurance arrangement, we will remain obligated under the original policies issued to our customers. Furthermore, while we use various risk management methods, including the use of reinsurance, to effectively manage risk, there is the possibility that one or more natural catastrophes and/or terrorism or other events could result in claims substantially exceeding expectations, thereby making the reinsurance strategy significantly less effective. Such reinsurance-related risks could have a material adverse effect on our business, results of operations and financial condition and adversely affect our underwriting strategies in certain lines of business.
We may be adversely affected by technological changes or disruptions in the insurance marketplace.
Technological changes in the way insurance transactions are completed in the marketplace, and our ability to react effectively to such change, may present significant competitive risks. For example, more insurers are utilizing "big data" analytics to make underwriting and other decisions that impact product design and pricing. If such utilization is more effective than how we use similarour data and information, we will be at a competitive disadvantage. There can be no assurance that we will continue to compete effectively with our industry peers due to technological changes; accordingly, this may have a material adverse effect on our business, and results of operations.operations and financial condition.
In addition, agents and brokers, technology companies, or other third parties may create alternate distribution channels for commercial business that may adversely impact product differentiation and pricing. For example, they may create a digitally enabled distribution channel that may adversely impact our competitive position. Our efforts or the efforts of agents and brokers with respect to new products or alternate distribution channels, as well as changes in the way agents and brokers utilize greater levels of data and technology, could adversely impact our business relationship with independent agents and brokers who currently market our products, resulting in a lower volume and/or profitability of business generated from these sources.
We face considerable competition within our industry for qualified, specialized talent and any significant inability to attract and retain talent may not be ableadversely affect the execution of our business strategies.
The successful execution of our business strategies depends on our ability to obtain sufficient reinsurance atattract and retain qualified talent. Due to the intense competition in our industry and from businesses outside the industry for qualified employees, especially those in key positions and those possessing highly specialized knowledge and industry experience in areas such as underwriting, data and analytics and technology, we may encounter obstacles to our ability to attract and retain such employees, which could materially adversely affect our business, results of operations and financial condition.
We are controlled by a cost we deem acceptable,single stockholder which could result in increased exposure to risk or a decrease in our underwriting commitments.potential conflicts of interest.
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We may incur significant realized and unrealized investment losses and volatility in net investment income arising from changes in the financial markets.
Our investment portfolio is exposed to various risks, such as interest rate, credit spread, issuer default, equity prices and foreign currency, which are unpredictable. Financial markets are highly sensitive to changes in economic conditions, monetary policies, tax policies, interest rates, domestic and international geopolitical issues and many other factors. Changes in financial markets, including fluctuations in interest rates, credit, equity prices and foreign currency prices, and many other factors beyond our control can adversely affect the value of our investments, the realization of investment income and the rate at which we discount certain liabilities. Our investment portfolio is also subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the portion of our investment portfolio that is carried at fair value in our financial statements is not reflective of the prices at which actual transactions could occur.
We have significant holdings in fixed incomematurity investments that are sensitive to changes in interest rates. A decline in interest rates may reduce the returns earned on new fixed incomematurity investments, thereby reducing our net investment income, while an increase in interest rates may reduce the value of our existing fixed maturity investments, which could increase our net unrealized losses or reduce our net unrealized gains included in Accumulated other comprehensive income investments.(AOCI). The value of our fixed incomematurity investments is also subject to risk that certain investments may default or become impaired due to deterioration in the financial condition of issuers of the investments we hold or in the underlying collateral of the security. Any such impairments which we deem to be other-than-temporary would result in a charge to our earnings.
In addition, we invest a portion of our assets in limited partnerships and common stock which are subject to greater market volatility than our fixed incomematurity investments. Limited partnership investments generally provide a lower level of liquidity than fixed maturity or equity investments, which may also limit our ability to withdraw assets.funds from these investments. The timing and amount of income or losses on such investments is inherently variable and can contribute to volatility in reported earnings.
Further, we hold a portfolio of commercial mortgage loans. We are subject to risk related to the recoverability of loan balances, which is influenced by declines in the estimated cash flows from underlying property leases, fair value of collateral, refinancing risk and the creditworthiness of tenants of credit tenant loan properties, where lease payments directly service the loan. Collecting amounts from borrowers that are less than the amounts recordedAny changes in actual or expected collections would result in a charge to our earnings.
As a result of these factors, we may not earn an adequate return on our investments, may be required to write down the value of our investments and may incur losses on the disposition of our investments.
Operational Risks
We use analytical models to assist our decision making in particular, changeskey areas such as pricing, reserving, catastrophe risks and capital modeling and may be adversely affected if actual results differ materially from the model outputs and related analyses.
We use various modeling techniques and data analytics (e.g. scenarios, predictive, stochastic and forecasting) to tax laws governing tax credits. Other potential tax law changes,analyze and estimate exposures, loss trends and other risks associated with our assets and liabilities. This includes both proprietary and third-party modeled outputs and related analyses to assist us in decision-making related to underwriting, pricing, capital allocation, reserving, investing, reinsurance and catastrophe risk, among other things. We incorporate numerous assumptions and forecasts about the future level and variability of policyholder behavior, loss frequency and severity, interest rates, equity markets, inflation, capital requirements, and currency exchange rates, among others. The modeled outputs and related analyses from both proprietary models and third parties are subject to various assumptions, uncertainties, model design errors and the inherent limitations of any statistical analysis. Further, climate change may make modeled outcomes less certain or produce new, non-modeled risks.
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In addition, the effectiveness of any model can be degraded by operational risks, including further modificationthe improper use of the corporate tax ratemodel, input errors, data errors and human error. As a result, actual results may differ materially from our modeled results. Our profitability and financial condition substantially depends on the taxationextent to which our actual experience is consistent with assumptions we use in our models and ultimate model outputs. If, based upon these models or other factors, we misprice our products or fail to appropriately estimate the risks we are exposed to, our business, results of interest from municipal bonds, could alsooperations and financial condition may be materially adversely affect the value of the tax benefit received on tax exempt municipal investments and thus the rate at which we discount our long term care active life reserves.affected.
Any significant interruption in the operation of our facilities, systems and business functions, facilities and systems or our vendors' facilities and systems could result in a materially adverse effect on our operations.operations.
Our business is highly dependent upon our ability to perform, in an efficient and uninterrupted manner, through our employees or vendor relationships and using our and their facilities and systems, necessary business functions, (suchsuch as internet support and 24-hour call centers),centers, processing new and renewal business, andproviding customer service, processing and paying claims and other obligations. obligations and issuing financial statements.
Our, or our vendors', facilities and systems could become unavailable, inoperable, or otherwise impaired from a variety of causes, including without limitation, natural events, such as hurricanes, tornadoes, windstorms, earthquakes, severe winter weather and fires, or other events, such as explosions, terrorist attacks, computer security breaches or cyber attacks,cyber-attacks, riots, hazardous material releases, medical epidemics or pandemics, utility outages, interruptions of our data processing and storage systems or the systems of third-party vendors, or unavailability of communications facilities. An interruption in our system availability occurred in March 2021 as a result of a cybersecurity attack we sustained. Please refer to the immediately following risk factor for further information regarding this incident. Likewise, we could experience a significant failure, interruption or corruption of one or more of our or our vendors' information technology, telecommunications, or other systems for various reasons, including significant failures or interruptions that might occur as existing systems are replaced or upgraded.
The shut-down or unavailability of one or more of our or our vendors’ systems or facilities for these or any reasonother reasons could significantly impair our ability to perform critical business functions onin a timely basis.
In addition, because our and our vendors' information technology
and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such events could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner, or perform other necessary business functions, including the ability to issue financial statements in a timely manner. This could result in a materially adverse effect on our business results, prospects and liquidity, as well as damage to customer goodwill.functions.
The foregoing risks relating to disruption of service, interruption of operations and data loss could expose us to monetary and reputational damages. In addition, potentialPotential additional exposures relating to significant interruptions to our operations may include substantially increased compliance costs, and requiredas well as increased costs relating to investments in computer system and security-related upgrades, and security-related investments.such costs may not be recoverable under our relevant insurance coverage. We have made, and continue to make, investments to improve our security and infrastructure. Some of these investments are a direct result of the March 2021 cybersecurity attack, described in the immediately following risk factor, which are not recoverable under existing insurance coverage.
If our business continuity plans or system security do not sufficiently address these risks, they could have a material adverse effect on our business, results of operations and financial condition.
Any significant breach in our data security infrastructure or our vendors’ facilities and systems could result indisrupt business, cause financial losses and damage our reputation, and insurance coverage may not be available for claims related to a materially adverse effect on our operations.breach.
A significant breach of our data security infrastructure may result from actions by our employees, vendors, third-party administrators, or by unknown third parties. parties or through cyber-attacks. The risk of a breach can exist whether software services are in our or third party administered data centers or are cloud-based software services. Breaches have occurred, and may occur again, in our systems and in the systems of our vendors and third-party administrators.
Such a breach could affect our data framework or cause a failure to protect the personal information of our customers, claimants or employees, or sensitive and confidential information regarding our business or policyholders and may result in operational impairments and financial losses, as well as significant harm to our reputation.
reputation and the loss of business with existing or potential customers. The breach of confidential information also could
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give rise to legal liability and regulatory action under data protection and privacy laws, as well as evolving regulation in this regard, includingregard. During the recently issued New York Departmentsecond quarter of Financial Services cyber regulation. Any2023, we were notified of a breach in the file transfer software, MOVEit Transfer, used by a vendor of one of our third-party administrators. This incident resulted in required breach notifications to the Company's long-term care policyholders, with such legalnotifications made by the subject vendor. While we do not believe such notifications and resultant actions will have a material adverse effect on our business, this or regulatory actionsimilar incidents, or any other such breach of our or our vendors’ data security infrastructure could have a material adverse effect on our operations.business, results of operations and financial condition.
As previously disclosed, we sustained a sophisticated cybersecurity attack in March 2021 involving ransomware that caused a network disruption and impacted certain of our systems. Our investigation into the incident revealed that an unauthorized third party copied some personal information relating to certain current and former employees, contract workers and their dependents and certain other persons, including some policyholders. Although we currently have no indication that the impacted data has been misused, or that CNA or its policyholder data was specifically targeted by the unauthorized third party, we may be subject to subsequent investigations, claims or actions in addition to other costs, fines, penalties, or other obligations related to impacted data, whether or not such data is misused. In addition, the misuse, or perceived misuse, of sensitive or confidential information regarding our business or policyholders could cause harm to our reputation and result in the loss of business with existing or potential customers, which could adversely impact our business, results of operations and financial condition.
Although we maintain cybersecurity insurance coverage insuring against costs resulting from cyber-attacks (including the March 2021 attack), we do not expect the amount available under our coverage policy to cover all losses from cyber-attacks. In addition, potential disputes with our insurers about the availability of insurance coverage could occur. Further, should we experience future cyber incidents, or should industry trends drive rate increases resulting from growth in volume and significance of cyber incidents broadly, we may incur higher costs for cybersecurity insurance coverage.
The risks relating to future breaches in our, or our vendors', data security infrastructure, including in connection with cyber incidents, could have a material adverse effect on our business, results of operations or financial condition or may result in operational impairments and financial losses, as well as significant harm to our reputation.
Inability to detect and prevent significant employee or third partythird-party service provider misconduct, or inadvertent errors and omissions, or exposure relating to functions performed on our behalf could result in a materially adverse effect on our operations.business, results of operations and financial condition.
We may incur losses which arise from employees or third partythird-party service providers engaging in intentional, negligent or inadvertent misconduct, fraud, errors and omissions, failure to comply with internal guidelines, including with respect to underwriting authority, or failure to comply with regulatory requirements. Our or our third-party service providers' controls may not be able to detect all possible circumstances of employee and third party service provider non-compliantsuch noncompliant activity and the internal structures in place to prevent this activity may not be effective in all cases. Any losses relating to such non-compliant activity could adversely affect our business, results of operations.operations and financial condition.
Portions of our insurance business is underwritten and serviced by third parties. With respect to underwriting, our contractual arrangements with third parties will typically grant them limited rights to write new and renewal policies, subject to contractual restrictions and obligations, including requiring them to underwrite within the terms of our licenses. Should these third parties issue policies that exceed these contractual restrictions, we could be deemed liable for such policies and subject to regulatory fines and penalties for any breach of licensing requirements. It is possible that in such circumstance we might not be fully indemnified for such third parties’ contractual breaches.
Additionally, we rely on certain third-party claims administrators, including the administrator of our long-term care claims, to handle policyholder services and perform significant claim administration and claim adjudication functions. Any failure by such administrator to properly perform service functions may result in losses as a result of over-payment of claims, legal claims against us and adverse regulatory enforcement exposure.
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We have also licensed certain systems from third parties. We cannot be certain that we will have access to these systems or that our information technology or application systems will continue to operate as intended.
These risks could adversely impact our reputation and client relationships and have a material adverse effect on our business, results of operations and financial condition.
Loss of key vendor relationships and issues relating to the transitioning of vendor relationships or exposure relatingcould compromise our ability to functions performed by a vendor could result in a materially adverse effect on our operations.conduct business.
In the event that one or more of our vendors suffers a bankruptcy, is sold to another entity, sustains a significant business interruption or otherwise becomes unable to continue to provide products or services at the requisite level, we may be adversely affected. We may suffer operational impairments and financial losses associated with transferring business to a new vendor, assisting a vendor with rectifying operational difficulties, failure by vendors to properly perform service functions or assuming previously outsourced operations ourselves. Our inability to provide for appropriate servicing if a vendor becomes unable to fulfill its contractual obligations to us, either through transitioning to another service provider temporarily or permanently or assuming servicing internally, may have a materially adverse effect on our operations.
operations and financial condition.
We are subject to capital adequacy requirements and, if we are unable to maintain or raise sufficient capital to meet these requirements, regulatory agencies may restrict or prohibit us from operating our business.
Insurance companies such as ours are subject to capital adequacy standards set by regulators to help identify companies that merit further regulatory attention. TheseIn the U.S., these standards apply specified risk factors to various asset, premium and reserve components of our legal entity statutory basis of accounting financial statements. Current rules, including those promulgated by insurance regulators and specialized markets, such as Lloyd's, require companies to maintain statutory capital and surplus at a specified minimum level determined using the applicable jurisdiction's regulatory capital adequacy formula. If we do not meet these minimum requirements, we may be restricted or prohibited from operating our business in the applicable jurisdictions and specialized markets. If we are required to record a material charge against earnings in connection with a change in estimated insurance reserves, or the occurrence of a catastrophic event or otherwise, or if we incur significant losses related to our investment portfolio, which severely deterioratedeteriorates our capital position, we may violate these minimum capital adequacy requirements unless we are able to raise sufficient additional capital. We may be limited in our ability to raise significant amounts of capital on favorable terms or at all.
Our insurance subsidiaries, upon whom we depend for dividends in order to fund our corporate obligations, are limited by insurance regulators in their ability to pay dividends.
We are a holding company and are dependent upon dividends, loans and other sources of cash from our subsidiaries in order to meet our obligations. Ordinary dividend payments, or dividends that do not require prior approval by the insurance subsidiaries' domiciliary insurance regulator, are generally limited to amounts determined by formulas that vary by jurisdiction. If we are restricted from paying or receiving intercompany dividends, by regulatory rule or otherwise, we may not be able to fund our corporate obligations and debt service requirements or pay our stockholders dividends from available cash. As a result, we would need to look topursue other sources of capital which may be more expensive or may not be available at all.
Rating agencies may downgrade their ratings of us, and thereby adversely affectaffecting our ability to write insurance at competitive rates or at all.all and increasing our cost of capital.
Ratings are an important factor in establishing the competitive position of insurance companies. Our insurance company subsidiaries, as well as our public debt, are rated by rating agencies, including, A.M. Best Company (A.M. Best), Moody's Investors Service, Inc. (Moody's) and, Standard & Poor's (S&P) and Fitch Ratings, Inc. (Fitch). Ratings reflect the rating agency's opinions of an insurance company's or insurance holding company's
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financial strength, capital adequacy, enterprise risk management practices, operating performance, strategic position and ability to meet its obligations to policyholders and debt holders.holders, and may also reflect opinions on other areas such as information security and climate risk, as well as ESG matters more broadly.
The rating agencies may take action to lower our ratings in the future as a result of any significant financial loss or possible changes in the methodology or criteria applied by the rating agencies. The severity of the impact on our business is dependent on the level of downgrade and, for certain products, which rating agency takes the rating action. Among the adverse effects in the event of such downgrades would be the inability to obtain a material volume of business from certain major insurance brokers, the inability to sell a material volume of our insurance products to certain markets and the required collateralization of certain future payment obligations or reserves. Further, if one or more of our corporate debt ratings were downgraded, we may find it more difficult to access the capital markets and we may incur higher borrowing costs.
In addition, it is possible that a significant lowering of the corporate debt ratings of Loews by certain of the rating agencies could result in an adverse affecteffect on our ratings, independent of any change in our circumstances.
For further discussion of our ratings, see the Ratings subsection within the Liquidity and Capital Resources section of MD&A in Item 7.
We are subject to extensive existing state, local, federal and foreign governmental regulations that restrict our ability to do business and generate revenues; additional regulation or significant modification to existing regulations or failure to comply with regulatory requirements may have a materially adverse effect on our business, ourresults of operations and financial condition.
The insurance industry is subject to comprehensive and detailed regulation and supervision. Most insurance regulations are designed to protect the interests of our policyholders and third-party claimants, rather than our
investors. Each jurisdiction in which we do business has established supervisory agencies that regulate the manner in which we do business. Any changes in regulation could impose significant burdens on us. In addition, the Lloyd's marketplace sets rules under which its members, including our Hardy syndicate, operate.
These rules and regulations relate to, among other things, the standards of solvency (including risk-based capital measures), government-supported backstops for certain catastrophic events (including terrorism), investment restrictions, accounting and reporting methodology, establishment of reserves and potential assessments of funds to settle covered claims against impaired, insolvent or failed private or quasi-governmental insurers. In addition, rules and regulations have recently been introduced, or are being considered, in the areas of information security and ESG, which may also affect our business. We also are subject to numerous regulations governing the protection of personal and confidential information of our clients and employees, including medical records, credit card data and financial information. These laws and regulations, including regulations related to cybersecurity protocols (which continue to evolve in breadth, sophistication and maturity in response to an ever-evolving threat landscape), are increasing in complexity and number, change frequently, sometimes conflict, and could expose us to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions. In response to climate change, regulators at the federal, state and international level also could impose new regulations requiring disclosure of underwriting or investment in certain industry sectors.
Regulatory powers also extend to premium rate regulations which require that rates not be excessive, inadequate or unfairly discriminatory. State jurisdictions ensure compliance with such regulations through market conduct exams, which may result in losses to the extent non-compliance is ascertained, either as a result of failure to document transactions properly or failure to comply with internal guidelines, or otherwise. The jurisdictions in which we do business may also require us to provide coverage to persons whom we would not otherwise consider eligible or restrict us from withdrawing from unprofitable lines of business or unprofitable market areas. Each jurisdiction dictates the types of insurance and the level of coverage that must be provided to such involuntary risks. Our share of these involuntary risks is mandatory and generally a function of our respective share of the voluntary market by line of insurance in each jurisdiction.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
CNA’s information security and data privacy programs are designed to protect the confidentiality of nonpublic, sensitive personal and business information and the integrity and security of our information systems. These programs include processes that provide guidance for information security decision-making and risk management, and include standards to promote understanding and compliance with applicable laws and regulations. Administrative and technical safeguards that seek to mitigate cybersecurity threats and secure the Company’s information assets are also addressed on a risk-based basis. We have designed our enterprise-wide information security programs consistent with industry standards using the National Institute of Standards and Technology Cybersecurity Framework. These programs include processes implemented within our third-party risk management unit designed to identify, mitigate and monitor cybersecurity risk relating to vendors, suppliers and external partners who have access to our confidential information or our information systems. CNA engages both internal auditors and third-party information security experts in connection with reviewing such foregoing processes.
CNA monitors information security metrics globally. To elevate this information within the organization, our Chief Risk & Reinsurance Officer (CRRO) and Chief Compliance Officer (CCO) present cybersecurity reports and metrics to the Audit Committee of our Board of Directors every quarter. Reports address security events, third-party risk and vulnerabilities, including material risks from cybersecurity threats, and any significant unauthorized occurrences. These discussions are part of our overall enterprise risk management and also take place on at least an annual basis with the full Board of Directors, which is responsible for overseeing material risks, including cybersecurity risk, on an enterprise-wide basis.
At the senior management level, our Chief Information Security Officer (CISO) oversees CNA’s information security and data privacy programs and is responsible for establishing and implementing the security strategy alongside the Chief Information Officer (CIO), to whom the CISO reports directly. The CIO serves on the Enterprise Risk Committee, which is chaired by the CRRO.
The CISO leads the Information Security group within Information Technology, which manages the controls designed to identify, detect, protect against, respond to and recover from cybersecurity threats and cybersecurity incidents. This group includes a cybersecurity operations team that is responsible for information technology security monitoring and incident response activities, the latter covering the response coordination to cyber-attacks under the leadership and pursuant to the direction of the CISO. The Company engages in a continuous risk monitoring process that seeks to identify the likelihood and impact of internal and external threats to our information security systems and data, and assesses the sufficiency of the controls in place to mitigate these threats to acceptable levels on a risk-based basis. The CISO and CIO together lead efforts to design, implement and operate controls deemed necessary, commensurate with the materiality and criticality of identified risks and the sensitivity of the information assets and systems used throughout the organization. Our current CISO has a bachelor’s degree in Computer Information Systems and a master’s degree in Cybersecurity, and has over 20 years of experience building and executing information and cybersecurity strategies. Prior to joining CNA, our CIO served in a variety of roles at another major U.S. insurance company, both in business and technology, and has over 20 years of experience working with major U.S. Property & Casualty insurers.
Threats of security incidents and the impact of actual security incidents are initially assessed and managed by the CISO and CIO as described above. CNA has further implemented response plans that provide the basis for appropriate response to an unauthorized occurrence from a technical perspective, as well as from disclosure and regulatory perspectives.
These response plans also set forth the processes for internal reporting of a substantive unauthorized occurrence. The CISO reports such matters to the CIO and CCO, who is responsible for convening a team of cross-enterprise leaders to ensure comprehensive responsiveness to an occurrence. This group also analyzes unauthorized occurrences affecting CNA's or third parties’ IT systems or sensitive information, and directs the activities of CNA in responding to such incidents.
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In addition, the group, under the leadership of the CCO, undertakes the appropriate internal notifications of any such occurrence, and responsive activities, to the General Counsel, Chief Executive Officer, Chief Financial Officer and Board of Directors.
To date, no risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect the Company. Please refer to “Any significant interruption in the operation of our business functions, facilities and systems or our vendors' facilities and systems could result in a materially adverse effect on our operations“ and “Any significant breach in our data security infrastructure or our vendors’ facilities and systems could disrupt business, cause financial losses and damage our reputation, and insurance coverage may not be available for claims related to a breach” under Item 1A Risk Factors.
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
Information on our legal proceedings is set forth in Note FG to the Consolidated Financial Statements included under Item 8.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange and the Chicago Stock Exchange under the symbol CNA.
As of February 9, 2018,2, 2024, we had 271,217,644270,896,945 shares of common stock outstanding and approximately 89%92% of our outstanding common stock was owned by Loews. We had 978756 stockholders of record as of February 9, 20182, 2024 according to the records maintained by our transfer agent.
Our Board of Directors has approved an authorization to purchase, in the open market or through privately negotiated transactions, our outstanding common stock, as our management deems appropriate. No repurchases of our common stock were made in 2017 or 2016.
| 2017 | 2016 | ||||||||||||||||||||||
| Quarter: | High | Low | Dividends Declared | High | Low | Dividends Declared | |||||||||||||||||
| First | $ | 44.57 | $ | 40.21 | $ | 2.25 | $ | 34.60 | $ | 28.21 | $ | 2.25 | |||||||||||
| Second | 48.75 | 43.30 | 0.25 | 33.07 | 29.42 | 0.25 | |||||||||||||||||
| Third | 53.28 | 46.27 | 0.30 | 34.86 | 30.37 | 0.25 | |||||||||||||||||
| Fourth | 54.98 | 49.99 | 0.30 | 42.07 | 34.04 | 0.25 | |||||||||||||||||
The following graph compares the five-year total return of our common stock, the Standard & Poor's 500 (S&P 500) Index and the S&P 500 Property & Casualty Insurance Index. The graph assumes that the value of the investment in our common stock and each index was $100 at the base period, January 1, 2013,2019, and that dividends, if any, were reinvested.reinvested in the stock or index.
| Company / Index | Base Period | 2019 | 2020 | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||
| CNA Financial Corporation | $ | 100.00 | $ | 109.48 | $ | 103.58 | $ | 123.26 | $ | 127.94 | $ | 137.05 | |||||||||||||||||||||||
| S&P 500 Index | 100.00 | 131.49 | 155.68 | 200.37 | 164.08 | 207.21 | |||||||||||||||||||||||||||||
| S&P 500 Property & Casualty Insurance Index | 100.00 | 125.87 | 134.63 | 160.58 | 190.89 | 211.53 | |||||||||||||||||||||||||||||
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| Company / Index | Base Period | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||
| CNA Financial Corporation | $ | 100.00 | $ | 156.63 | $ | 148.42 | $ | 144.91 | $ | 188.40 | $ | 257.84 | |||||||||||
| S&P 500 Index | 100.00 | 133.29 | 150.51 | 152.59 | 170.84 | 208.14 | |||||||||||||||||
| S&P 500 Property & Casualty Insurance Index | 100.00 | 138.29 | 160.06 | 175.32 | 202.85 | 248.27 | |||||||||||||||||
ITEM 6. SELECTED FINANCIAL DATA[RESERVED]
| As of or for the years ended December 31 | |||||||||||||||||||
| (In millions, except per share data) | 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||
| Results of Operations: | |||||||||||||||||||
| Revenues | $ | 9,542 | $ | 9,366 | $ | 9,101 | $ | 9,692 | $ | 9,932 | |||||||||
| Income (loss) from continuing operations, net of tax | $ | 899 | $ | 859 | $ | 479 | $ | 888 | $ | 915 | |||||||||
| (Loss) income from discontinued operations, net of tax | — | — | — | (197 | ) | 22 | |||||||||||||
| Net income (loss) | $ | 899 | $ | 859 | $ | 479 | $ | 691 | $ | 937 | |||||||||
| Basic Earnings (Loss) Per Share: | |||||||||||||||||||
| Income (loss) from continuing operations | $ | 3.32 | $ | 3.18 | $ | 1.77 | $ | 3.29 | $ | 3.39 | |||||||||
| (Loss) income from discontinued operations | — | — | — | (0.73 | ) | 0.09 | |||||||||||||
| Basic earnings (loss) per share | $ | 3.32 | $ | 3.18 | $ | 1.77 | $ | 2.56 | $ | 3.48 | |||||||||
| Diluted Earnings (Loss) Per Share: | |||||||||||||||||||
| Income (loss) from continuing operations | $ | 3.30 | $ | 3.17 | $ | 1.77 | $ | 3.28 | $ | 3.39 | |||||||||
| (Loss) income from discontinued operations | — | — | — | (0.73 | ) | 0.08 | |||||||||||||
| Diluted earnings (loss) per share | $ | 3.30 | $ | 3.17 | $ | 1.77 | $ | 2.55 | $ | 3.47 | |||||||||
| Dividends declared per common share | $ | 3.10 | $ | 3.00 | $ | 3.00 | $ | 2.00 | $ | 0.80 | |||||||||
| Financial Condition: | |||||||||||||||||||
| Total investments | $ | 46,870 | $ | 45,420 | $ | 44,699 | $ | 46,262 | $ | 46,107 | |||||||||
| Total assets | 56,567 | 55,233 | 55,045 | 55,564 | 57,192 | ||||||||||||||
| Insurance reserves | 37,212 | 36,431 | 36,486 | 36,380 | 38,394 | ||||||||||||||
| Long and short term debt | 2,858 | 2,710 | 2,560 | 2,557 | 2,558 | ||||||||||||||
| Stockholders' equity | 12,244 | 11,969 | 11,756 | 12,794 | 12,651 | ||||||||||||||
| Book value per common share | $ | 45.15 | $ | 44.25 | $ | 43.49 | $ | 47.39 | $ | 46.91 | |||||||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2022 Compared with 2021
This section of this Form 10-K generally discusses 2023 and 2022 results and year-to-year comparisons between 2023 and 2022. With the exception of our Consolidated Operations and Life & Group segment as a result of our adoption of Accounting Standards Update (ASU) 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12; LDTI) using the modified retrospective method applied as of the transition date of January 1, 2021, which required changes to the measurement and disclosure of long-duration contracts, a discussion of changes in our results of operations from 2022 to 2021 has been omitted from this Form 10-K, but may be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2022, filed with the SEC on February 7, 2022.
Index to this MD&A
Management's discussion and analysis of financial condition and results of operations is comprised of the following sections:
| Page No. | |||||
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OVERVIEW
The following discussion should be read in conjunction with Part I, Item 1A Risk Factors Item 6 Selected Financial Data and Part II, Item 8 Financial Statements and Supplementary Data of this Form 10-K.
CRITICAL ACCOUNTING ESTIMATES
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP)GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the amount of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. In general, our estimates are based on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.
The accounting estimates discussed below are considered by us to be critical to an understanding of our Consolidated Financial Statements as their application places the most significant demands on our judgment. Note A to the Consolidated Financial Statements included under Item 8 should be read in conjunction with this section to assist with obtaining an understanding of the underlying accounting policies related to these estimates. Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from our estimates and may have a material adverse impact on our results of operations, financial condition, equity, business, and insurer financial strength and corporate debt ratings.
Insurance Reserves
Insurance reserves are established for both short and long-duration insurance contracts. Short-duration contracts are primarily related to property and casualty insurance policies where the reserving process is based on actuarial estimates of the amount of loss, including amounts for known and unknown claims. Long-duration contracts are primarily related to long termlong-term care policies and the reserves are estimated using actuarial estimates about morbidity and persistencyrecorded as wellFuture policy benefits reserves as assumptions about expected investment returns and future premium rate increases.discussed below. The reserve for unearned premiums on property and casualty contracts represents the portion of premiums written related to the unexpired terms of coverage. The reserving process is discussed in further detail in the Reserves-EstimatesReserves - Estimates and Uncertainties section below.
Long-Term Care Reserves
Future policy benefits reserves for our long-term care policies are based on certain actuarial assumptions, including morbidity, persistency (inclusive of mortality), anticipated future premium rate increases, and expenses. The adequacy of the reserves is contingent upon actual experience and our future expectations related to these key assumptions. If actual or expected future experience differs from these assumptions, the reserves may not be adequate, requiring us to increase reserves. The reserves are discounted using upper-medium grade fixed income instrument yields as of each reporting date. In addition, we may not receive regulatory approval for the level of premium rate increases we request. The reserving process is discussed in further detail in the Reserves - Estimates and Uncertainties section below.
Reinsurance and Insurance Receivables
Exposure exists with respect to the collectibility of ceded property and casualty and life reinsurance to the extent that any reinsurer is unable to meet its obligations or disputes the liabilities we have ceded under reinsurance agreements. An allowance for uncollectible reinsurance is recorded 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. Further information on our reinsurance receivables is in Note GH to the Consolidated Financial Statements included under Item 8.
Additionally, exposure exists with respect to the collectibility of amounts due from policyholders related to insurance contracts, including amounts due from insureds under high deductible policies and retrospectively rated policies. An allowance for uncollectible insurance receivables is recorded on the basis of periodic
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evaluations of balances due from insureds, currently as well as in the future, historical business default data, management's experience and current and forecast economic conditions.
If actual experience differs from the estimates made by management in determining the allowances for uncollectible reinsurance and insurance receivables, net receivables as reflected on our Consolidated Balance Sheets may not be collected. Therefore,Further information on our results of operations or equity could be materially adversely affected.
process for determining the allowances for uncollectible reinsurance and insurance receivables is in Note A to the Consolidated Financial Statements included under Item 8.
Valuation of Investments and Impairment of Securities
Our investment portfolio isfixed maturity securities are subject to market declines below amortized cost that may be other-than-temporary and therefore result in the recognition of impairment losses in earnings. Factors considered in the determination of whether or not a declinean impairment loss is other-than-temporaryrecognized in earnings include a current intention or need to sell the security or an indication that a credit loss exists. Significant judgment exists regardingis required in the evaluationdetermination of whether a credit loss has occurred for a security. We consider all available evidence when determining whether a security requires a credit allowance to be recorded, including the financial condition and expected near-term and long-term prospects of the issuer, whether the relevantissuer is current with interest and principal payments, credit ratings on the security or changes in ratings over time, general market conditions, industry, conditions and trendssector or other specific factors and whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security.
Our mortgage loan portfolio is subject to the expected credit loss model, which requires immediate recognition of estimated credit losses over the life of the asset and the presentation of the asset at the net amount expected to be collected. Significant judgment is required in the determination of estimated credit losses and any changes in our expectation of the net amount to be collected are recognized in earnings.
Further information on our process for evaluating impairments and expected credit losses is in Note A to the Consolidated Financial Statements included under Item 8.
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RESERVES - ESTIMATES AND UNCERTAINTIES
The level of reserves we maintain represents our best estimate, as of a particular point in time, of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances known at that time. Reserves are not an exact calculation of liability but instead are complex estimates that we derive, generally utilizing a variety of actuarial reserve estimation techniques, from numerous assumptions and expectations about future events, both internal and external, many of which are highly uncertain. As noted below, we review our reserves for each segment of our business periodically, and any such review could result in the need to increase reserves in amounts which could be material and could adversely affect our results of operations, equity, business and insurer financial strength and corporate debt ratings. Further information on reserves is provided in Note E and F to the Consolidated Financial Statements included under Item 8.
Property and Casualty Claim and Claim Adjustment Expense Reserves
We maintain loss reserves to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, including the estimated cost of the claims adjudication process, for claims that have been reported but not yet settled (case reserves) and claims that have been incurred but not reported (IBNR).IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims.Claim and claim adjustment expense reserves are reflected as liabilities and are included on the Consolidated Balance Sheets under the heading “Insurance Reserves.”Adjustments to prior year reserve estimates, if necessary, are reflected in results of operations in the period that the need for such adjustments is determined.The carried case and IBNR reserves as of each balance sheet date are provided in the Segment Results section of this MD&A and in Note E to the Consolidated Financial Statements included under Item 8.
As discussed in the Risk Factors discussion within Item 1A, there is a risk that our recorded reserves are insufficient to cover our estimated ultimate unpaid liability for claims and claim adjustment expenses. Unforeseen emerging or potential claims and coverage issues are also difficult to predict and could materially adversely affect the adequacy of our claim and claim adjustment expense reserves and could lead to future reserve additions.increases.
In addition, our property and casualty insurance subsidiaries also have actual and potential exposures related to A&EP claims, which could result in material losses. To mitigate the risks posed by our exposure to A&EP claims and claim adjustment expenses, we completed a transaction with NICO under which substantially all of our legacy A&EP liabilities were ceded to NICO effective January 1, 2010. See Note E to the Consolidated Financial Statements included under Item 8 for further discussion about the transaction with NICO, its impact on our results of operations and the deferred retroactive reinsurance gain.gains and the amount of remaining reinsurance limit.
Establishing Property & Casualty Reserve Estimates
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, our actuaries perform detailed reserve analyses that are staggered throughout the year.The data is organized at a reserve group level.A reserve group typically can be a line of business covering a subset of insureds such as commercial automobile liability for small or middle market customers it can encompass several lines of business provided to a specific set of customers such as aging services, or it can be a particular type of claim such as construction defect.Every reserve group is reviewed at least once during the year. 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.In addition to the detailed analyses, we review actual loss emergence for all products each quarter.
Most of our business can be characterized as long-tail.For long-tail business, it will generally be several years between the time the business is written and the time when all claims are settled.Our long-tail exposures include commercial automobile liability, workers' compensation, general liability, medical professional liability, other professional liability and management liability coverages, assumed reinsurance run-off and products liability.Short-tail exposures include property, commercial automobile physical damage, marine, surety and
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warranty.Specialty, Commercial and International contain both long-tail and short-tail exposures.Corporate & Other contains run-off long-tail exposures.
Various methods are used to project ultimate losses for both long-tail and short-tail exposures.
The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident or policy years with further expected changes in paid losses.Selection of the paid loss pattern may require
consideration of several factors, including the impact of economic, social and medical inflation on claimsclaim costs, the rate at which claims professionals make claim payments and close claims, the impact of judicial decisions, the impact of underwriting changes, the impact of large claim payments and other factors.Claim cost inflation itself may require evaluation of changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors.Because this method assumes that losses are paid at a consistent rate, changes in any of these factors can affect the results.Since the method does not rely on case reserves, it is not directly influenced by changes in their adequacy.
For many reserve groups, paid loss data for recent periods may be too immature or erratic for accurate predictions.This situation often exists for long-tail exposures.In addition, changes in the factors described above may result in inconsistent payment patterns.Finally, estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail products such as workers' compensation.
The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses. Since the method uses more data (case reserves in addition to paid losses) than the paid development method, the incurred development patterns may be less variable than paid patterns.However, selection of the incurred loss pattern typically requires analysis of all of the same factors described above.In addition, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place, and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available.
The loss ratio method multiplies earned premiums by an expected loss ratio to produce ultimate loss estimates for each accident or policy year.This method may be useful for immature accident or policy periods or if loss development patterns are inconsistent, losses emerge very slowly or there is relatively little loss history from which to estimate future losses.The selection of the expected loss ratio typically requires analysis of loss ratios from earlier accident or policy years or pricing studies and analysis of inflationary trends, frequency trends, rate changes, underwriting changes and other applicable factors.
The Bornhuetter-Ferguson method using paid loss is a combination of the paid development method and the loss ratio method.This method normally determines expected loss ratios similar to the approach used to estimate the expected loss ratio for the loss ratio method and typically requires analysis of the same factors described above.This method assumes that future losses will develop at the expected loss ratio level.The percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid.The use of the pattern from the paid development method typically requires consideration of the same factors listed in the description of the paid development method.The estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each year.For long-tail lines, this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation.
The Bornhuetter-Ferguson method using incurred loss is similar to the Bornhuetter-Ferguson method using paid loss except that it uses case incurred losses.The use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid patterns.However, the inclusion of case reserves can lead to distortions if changes in case reserving have taken place, and the method typically requires analysis ofthe same factors that need to be reviewed for the loss ratio and incurred development methods.
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The frequency times severity method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident or policy year to produce ultimate loss estimates.Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve groups where loss development patterns are inconsistent or too variable to be relied on exclusively.In addition, this method can more directly account for changes in coverage that affect the number and size of claims.However, this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes.Projecting the ultimate number of claims may require analysis of several factors, including the rate at which policyholders report claims to us, the impact of judicial decisions, the impact of underwriting changes and other factors.Estimating the ultimate average loss may require analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing
property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors.
Stochastic modeling produces a range of possible outcomes based on varying assumptions related to the particular reserve group being modeled.For some reserve groups, we use models which rely on historical development patterns at an aggregate level, while other reserve groups are modeled using individual claim variability assumptions supplied by the claims department.In either case, multiple simulations using varying assumptions are run and the results are analyzed to produce a range of potential outcomes.The results will typically include a mean and percentiles of the possible reserve distribution which aid in the selection of a point estimate.
For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses.In such a case, our actuaries typically assign more weight to the incurred development method than to the paid development method.As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method. For most of our products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses.In these cases, we may not assign much, if any, weight to the paid and incurred development methods.We may use the loss ratio, Bornhuetter-Ferguson and/or frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because our history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change.However, we may also use the loss ratio, Bornhuetter-Ferguson and/or frequency times severity methods for short-tail exposures.
For other more complex reserve groups where the above methods may not produce reliable indications, we use additional methods tailored to the characteristics of the specific situation.
Periodic Reserve Reviews
The reserve analyses performed by our actuaries result in point estimates.Each quarter, the results of the detailed reserve reviews are summarized and discussed with senior management to determine the best estimate of reserves.Senior management considers many factors in making this decision.Our recorded reserves reflect our best estimate as of a particular point in time based upon known facts and circumstances, consideration of the factors cited above and our judgment.The carried reserve differs from the actuarial point estimate as discussed further below.
Currently, our recorded reserves are modestly higher than the actuarial point estimate.For Commercial, Specialty and International, the difference between our reserves and the actuarial point estimate is primarily driven by uncertainty with respect to immature accident years,claim cost inflation, changes in claims handling, changes to the tort environment which may adversely affect claim costs and the effects from the economy.For Corporate & Other, the difference between our reserves and the actuarial point estimate is primarily driven by the potential tail volatility of run-off exposures.
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The key assumptions fundamental to the reserving process are often different for various reserve groups and accident or policy years.Some of these assumptions are explicit assumptions that are required of a particular method, but most of the assumptions are implicit and cannot be precisely quantified.An example of an explicit assumption is the pattern employed in the paid development method.However, the assumed pattern is itself based on several implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals close claims.As a result, the effect on reserve estimates of a particular change in assumptions typically cannot be specifically quantified, and changes in these assumptions cannot be tracked over time.
Our recorded reserves are management's best estimate.In order to provide an indication of the variability associated with our net reserves, the following discussion provides a sensitivity analysis that shows the approximate estimated impact of variations in significant factors affecting our reserve estimates for particular types of business.These significant factors are the ones that we believe could most likely materially affect the reserves.This discussion covers the major types of business for which we believe a material deviation to our reserves is reasonably possible.There can be no assurance that actual experience will be consistent with the current assumptions or with the variation indicated by the discussion.In addition, there can be no assurance that other factors and assumptions will not have a material impact on our reserves.
The three areas for which we believe a significant deviation to our net reserves is reasonably possible are (i) professional liability, management liability and surety products; (ii) workers' compensation; and (iii) general liability.
Professional liability, management liability and surety products include US professional liability coverages provided to various professional firms, including architects, real estate agents, small and mid-sized accounting firms, law firms and other professional firms.They also include directors and officers (D&O), errors and omissions (E&O), employment practices, fiduciary, fidelity, cyber and surety coverages, as well as insurance products serving the healthcare delivery system. and medical liability.The most significant factor affecting reserve estimates for these liability coverages is claim severity.Claim severity is driven by the cost of medical care, the cost of wage replacement, legal fees, judicial decisions, legislative changes and other factors.Underwriting and claim handling decisions, such as the classes of business written and individual claim settlement decisions, can also affect claim severity. If the estimated claim severity increases by 9%, we estimate that net reserves would increase by approximately $450$500 million. If the estimated claim severity decreases by 3%, we estimate that net reserves would decrease by approximately $150 million. Our net reserves for these products were approximately $5.0$5.7 billion as of December 31, 2017.2023.
For workers' compensation, since many years will pass from the time the business is written until all claim payments have been made, the most significant factor affecting workers' compensation reserve estimates is claim cost inflation on claim payments.Workers' compensation claim cost inflation is driven by the cost of medical care, the cost of wage replacement, expected claimant lifetimes, judicial decisions, legislative changes and other factors.If estimated workers' compensation claim cost inflation increases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would increase by approximately $350$250 million.If estimated workers' compensation claim cost inflation decreases by 100 basis points for the entire period over which claim payments will be made, we estimate that our net reserves would decrease by approximately $350$250 million.Our net reserves for workers' compensation were approximately $4.0$3.6 billion as of December 31, 2017.2023.
For general liability, the most significant factor affecting reserve estimates is claim severity.Claim severity is driven by changes in the cost of repairing or replacing property, the cost of medical care, the cost of wage replacement, judicial decisions, legislation and other factors.If the estimated claim severity for general liability increases by 6%, we estimate that our net reserves would increase by approximately $200$250 million.If the estimated claim severity for general liability decreases by 3%, we estimate that our net reserves would decrease by approximately $100$150 million.Our net reserves for general liability were approximately $3.3$4.2 billion as of December 31, 2017.2023.
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Given the factors described above, it is not possible to quantify precisely the ultimate exposure represented by claims and related litigation.As a result, we regularly review the adequacy of our reserves and reassess our reserve estimates as historical loss experience develops, additional claims are reported and settled and additional information becomes available in subsequent periods.In reviewing our reserve estimates, we make adjustments in the period that the need for such adjustments is determined.These reviews have resulted in our identification of information and trends that have caused us to change our reserves in prior periods and could lead to our identification of a need for additional material increases or decreases in claim and claim adjustment expense reserves, which could materially affect our results of operations, equity, business and insurer financial strength and corporate debt ratings positively or negatively.See discussion within Note E to the Consolidated Financial Statements included under Item 8 for additional information about reserve development and the Ratings section of this MD&A for further information regarding our financial strength and corporate debt ratings.
Life & Group Policyholder Reserves
Our Life & Group segment includes our run-off long termlong-term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long termLong-term care policies may provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and we have the ability to increase policy premiums, subject to state regulatory approval.
We maintain both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for our Life & Group segment. Claim and claim adjustment expense reserves consist of estimatedlong-term care policies. Future policy benefit reserves for long termlong-term care policies relate to policyholders that are currently receiving benefits, including claims that have
been incurred but are not yet reported.reported, as well as policyholders that are not yet receiving benefits. In developing the future policy benefit reserves, our actuaries perform a reserve review on an annual basis. During the annual review, historical policyholder morbidity, persistency (inclusive of mortality), anticipated future premium rate increases and expense experience is reviewed and compared to the current best estimate actuarial assumption set for potential revision. On a quarterly basis, our actuaries perform experience studies that monitor the appropriateness of best estimate actuarial assumptions against emerging experience to assess whether any updates to those assumptions are warranted. The determination of these reserves requires management to make estimates and assumptions about expected policyholder experience over the remaining life of the policies. Since policies may be in force for several decades, these assumptions are subject to significant estimation risk.
In addition, claim and claim adjustment expense reserves are maintained for our structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for our long term care policies,structured settlement obligations, our actuaries perform a detailed claimmonitor mortality and expense 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. Our recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent study. In addition, claimreviews. Claim and claim adjustment expense reserves are also maintained for the structured settlement obligations.obligations are discounted as discussed in Note A to the Consolidated Financial Statements included under Item 8.
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| Long Term Care Active Life Reserve - Change in estimated reserve margin (In millions) | |||
| December 31, 2016 Estimated Margin | $ | 255 | |
| Changes in underlying discount rate assumptions (excl. Tax Reform Legislation) | (270 | ) | |
| Changes in underlying discount rate assumptions (Tax Reform Legislation Impact) | (1,048 | ) | |
| Changes in underlying morbidity assumptions | 972 | ||
| Changes in underlying persistency assumptions | (7 | ) | |
| Changes in underlying premium rate action assumptions | 157 | ||
| Changes in underlying expense and other assumptions | 187 | ||
| December 31, 2017 Estimated Margin | $ | 246 | |
The table below summarizes the estimated pretax impact on our results of operations from various hypothetical revisions to our active lifeliability for future policyholder benefits (LFPB) reserve assumptions. The annual GPV process involves updating all assumptions to the then current best estimate, and historically all significant assumptions have been revised each year. In the Hypothetical Revisions table below, weWe have assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy groupgroup. The impact of each sensitivity is discrete and would occur absent any changes,does not reflect the impact one factor may have on another or the mitigating or otherwise, in the other assumptions.impact from management actions, which may include additional future premium rate increases. Although such hypothetical revisions are not currently required or anticipated, we believe they could occur based on past variances in experience and our expectations of the ranges of future experience that could reasonably occur. Any required increase in the recorded reserves resulting from the hypothetical revision in the table below would first reduce the margin in our carried reserves before it would affect results of operations. Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized below. The estimated impacts to results of operations in the table below are after consideration of the existing margin.any net premium ratio impacts.
| December 31, 2017 | |||
| Estimated reduction to pretax income | |||
| Hypothetical revisions (In millions) | |||
| Morbidity: | |||
| 5% increase in morbidity | $ | 408 | |
| 10% increase in morbidity | 1,061 | ||
| Persistency: | |||
| 5% decrease in active life mortality and lapse | $ | — | |
| 10% decrease in active life mortality and lapse | 219 | ||
| Discount Rates: | |||
| 50 basis point decline in future interest rates | $ | 161 | |
| 100 basis point decline in future interest rates | 633 | ||
| Premium Rate Actions: | |||
| 50% decrease in anticipated future rate increases premium | $ | — | |
| Estimated reduction to pretax income | |||||
| Hypothetical revisions (In millions) | |||||
| Morbidity: | |||||
| 2.5% increase in morbidity | $ | 275 | |||
| 5% increase in morbidity | 600 | ||||
| Persistency: | |||||
| 5% decrease in active life mortality and lapse | $ | 150 | |||
| 10% decrease in active life mortality and lapse | 300 | ||||
| Premium Rate Actions: | |||||
| 25% decrease in anticipated future premium rate increases | $ | 25 | |||
| 50% decrease in anticipated future premium rate increases | 50 | ||||
As reflectedpart of the annual reserve review, statutory long-term care reserve adequacy is evaluated via premium deficiency testing, by comparing carried statutory reserves with our best estimate reserves, which incorporates best estimate discount rate and liability assumptions in its determination. Statutory margin is the excess of carried reserves over best estimate reserves. As of September 30, 2023, statutory long-term care margin increased to $1.3 billion, primarily driven by a more favorable interest rate environment resulting in a higher yielding investment portfolio.
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CATASTROPHES AND RELATED REINSURANCE
Various events can cause catastrophe losses. These events can be natural or man-made, including hurricanes, tornadoes, windstorms, earthquakes, hail, severe winter weather, fires, floods, riots, strikes, civil unrest, cyber-attacks, pandemics and acts of terrorism that produce unusually large aggregate losses. In most, but not all cases, our catastrophe losses from these events in the Long Term Care Active Life Reserve - Change in estimated reserve margin table onUnited States of America (U.S.) are defined consistent with the preceding page, the reduction in the Federal corporate income tax rate adversely affected the valuedefinition of the tax benefit received on tax exempt municipal investmentsProperty Claims Service (PCS). PCS defines a catastrophe as an event that causes damage of $25 million or more in direct insured losses to property and thusaffects a significant number of policyholders and insurers. For events outside of the rateU.S., we define a catastrophe as an industry recognized event that generates an accumulation of claims amounting to more than $1 million for the International segment.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in our results of operations and/or equity. We reported catastrophe losses, net of reinsurance, of $236 million and $247 million for the years ended December 31, 2023 and 2022. Catastrophe losses for the years ended December 31, 2023 and 2022 were driven by severe weather related events, primarily Winter Storm Elliott and Hurricane Ian for 2022.
We use various analyses and methods, including using one of the industry standard natural catastrophe models, to estimate hurricane and earthquake losses at whichvarious return periods and to inform underwriting and reinsurance decisions designed to manage our exposure to catastrophic events. We generally seek to manage our exposure through the purchase of catastrophe reinsurance and utilize various reinsurance programs to mitigate catastrophe losses, including excess-of-loss occurrence and aggregate treaties covering property and workers’ compensation, a property quota share treaty and the Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA), as well as individual risk agreements that reinsure from losses from specific classes or lines of business. We conduct an ongoing review of our risk and catastrophe reinsurance coverages and from time to time make changes as we discountdeem appropriate.
The following discussion summarizes our long term care active life reserves. Any future reduction in income tax rates could further adversely affect our GPV discount rates.most significant catastrophe reinsurance coverage at January 1, 2024.
Group North American Property Treaty
Group WorkersWorkers' Compensation Treaty
Terrorism Risk Insurance Program Reauthorization Act of 2019
Our principal reinsurance protection against large-scale terrorist attacks, including nuclear, biological, chemical or radiological attacks, is the coverage currently provided through TRIPRA which runs through the end of 2027. TRIPRA provides a targeted facultative facility to address exposure accumulationsU.S. government backstop for insurance-related losses resulting from any “act of terrorism,” which is certified by the Secretary of Treasury in specific peak Terrorism zones.
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on future periods by loweringeligible commercial property and casualty earned premiums for the effective tax rate and increasing after-tax earnings, primarily due topreceding calendar year. Based on 2023 earned premiums, our estimated deductible under the reductionprogram is $1.1 billion for 2024. If an act of terrorism or acts of terrorism result in covered losses exceeding the Federal corporate income tax rate. The reduction$100 billion annual industry aggregate limit, Congress would be responsible for determining how additional losses in income taxesexcess of $100 billion will also enhance cash flow.be paid.
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CONSOLIDATED OPERATIONS
Results of Operations
The following table includes the consolidated results of our operations including our financial measure, Core income.core income (loss). For more detailed components of our business operations and a discussion of the core income (loss) financial measure, see the segment discussionsSegment Results section within this MD&A. For further discussion of Net investment income and Net realized investment results,gains or losses, see the Investments section of this MD&A.
| Years ended December 31 | ||||||||||||||||||||||||||||||||||
| (In millions) | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | |||||||||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||||||||||
| Net earned premiums | $ | 6,988 | $ | 6,924 | $ | 6,921 | ||||||||||||||||||||||||||||
| Net earned premiums | ||||||||||||||||||||||||||||||||||
| Net earned premiums | ||||||||||||||||||||||||||||||||||
| Net investment income | 2,034 | 1,988 | 1,840 | |||||||||||||||||||||||||||||||
| Non-insurance warranty revenue | ||||||||||||||||||||||||||||||||||
| Other revenues | 427 | 404 | 407 | |||||||||||||||||||||||||||||||
| Total operating revenues | 9,449 | 9,316 | 9,168 | |||||||||||||||||||||||||||||||
| Claims, Benefits and Expenses | ||||||||||||||||||||||||||||||||||
| Net incurred claims and benefits | 5,288 | 5,270 | 5,372 | |||||||||||||||||||||||||||||||
| Net incurred claims and benefits (re-measurement (loss) of $(88), $(214), and $(8)) | ||||||||||||||||||||||||||||||||||
| Net incurred claims and benefits (re-measurement (loss) of $(88), $(214), and $(8)) | ||||||||||||||||||||||||||||||||||
| Net incurred claims and benefits (re-measurement (loss) of $(88), $(214), and $(8)) | ||||||||||||||||||||||||||||||||||
| Policyholders' dividends | 22 | 13 | 12 | |||||||||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 1,233 | 1,235 | 1,540 | |||||||||||||||||||||||||||||||
| Non-insurance warranty expense | ||||||||||||||||||||||||||||||||||
| Other insurance related expenses | 1,098 | 1,122 | 1,093 | |||||||||||||||||||||||||||||||
| Other expenses | 591 | 589 | 535 | |||||||||||||||||||||||||||||||
| Total claims, benefits and expenses | 8,232 | 8,229 | 8,552 | |||||||||||||||||||||||||||||||
| Core income before income tax | 1,217 | 1,087 | 616 | |||||||||||||||||||||||||||||||
| Income tax expense on core income | (298 | ) | (263 | ) | (101 | ) | ||||||||||||||||||||||||||||
| Core income | 919 | 824 | 515 | |||||||||||||||||||||||||||||||
| Net realized investment gains (losses) | 93 | 50 | (67 | ) | ||||||||||||||||||||||||||||||
| Income tax (expense) benefit on net realized investment gains (losses) | (30 | ) | (15 | ) | 31 | |||||||||||||||||||||||||||||
| Net realized investment gains (losses), after tax | 63 | 35 | (36 | ) | ||||||||||||||||||||||||||||||
| Net deferred tax asset remeasurement | (83 | ) | — | — | ||||||||||||||||||||||||||||||
| Net investment (losses) gains | ||||||||||||||||||||||||||||||||||
| Income tax benefit (expense) on net investment (losses) gains | ||||||||||||||||||||||||||||||||||
| Net investment (losses) gains, after tax | ||||||||||||||||||||||||||||||||||
| Net income | $ | 899 | $ | 859 | $ | 479 | ||||||||||||||||||||||||||||
(1) As of January 1, 2023, we adopted ASU 2018-12 using the modified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts presented in the financial statements have been adjusted to reflect application of the new guidance. See Note A to the Consolidated Financial Statements for additional information.
Core income increased $95$448 million in 20172023 as compared to 2016.with 2022. Core income for our Property & Casualty Operations declined $23increased $265 million primarily driven by higher net catastrophe losses partially offset byinvestment income and improved non-catastrophe current accident year underwriting results. Net catastrophe losses were $259 million after tax in 2017 as compared to $111 million after tax in 2016. Core loss for our operations outside of PropertyLife & Casualty Operations improved $118Group segment decreased $173 million, while core loss for our Corporate & Other segment decreased $10 million.
Catastrophe losses were $236 million in 2023, primarily driven by lower adverse prior year A&EP reserve development.
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2022 Compared with 20152021
Core income increased $309decreased $252 million in 20162022 as compared with 2015.2021. Core results increased $293 million for our operations outside of Property & Casualty Operations primarily as a result of a $198 million after-tax charge in 2015 related to increasing long term care active life and claim reserves. As our active life reserve assumptions were unlocked in 2015, long term care results in 2016 improved significantly. Core income increased $16 million for our Property & Casualty Operations increased $56 million primarily due to improved underwriting results and higher favorable net prior year reserve development and net investment income from fixed income securities partially offset by an increase in the current accident yearlower investment income from limited partnerships and common stock. Core results for our Life & Group segment decreased $329 million, while core loss ratio and higher underwriting expenses. Net catastrophefor our Corporate & Other segment decreased $21 million.
Catastrophe losses were $111$247 million after tax in 20162022 as compared to $95with $397 million after tax in 2015.2021. Catastrophe losses for the years ended December 31, 2022 and 2021 were driven by severe weather related events, primarily Winter Storm Elliott and Hurricane Ian for 2022 and Hurricane Ida and Winter Storms Uri and Viola for 2021.
Favorable net prior year loss reserve development of $314 million and $218$32 million was recorded in 2016 and 20152022 as compared with unfavorable net prior year loss reserve development of $11 million in 2021 related to our Specialty, Commercial, International and Corporate & Other segments. Further information on net prior year loss reserve development is in Note E to the Consolidated Financial Statements included under Item 8.
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SEGMENT RESULTS
The following discusses the results of operations for our business segments.
Our property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International, which we refer to collectively as Property & Casualty Operations. Specialty provides a broad array ofmanagement and professional financialliability and specialtyother coverages through property and casualty products and services through a network of independent agents, brokers and managing general underwriters. Commercial includes property and casualty coverages sold to small businesses and middle market entities and organizations primarily through an independent agency distribution system. Commercial also includes commercial insurance and risk management products sold to large corporations primarily through insurance brokers. International provides management and professional liability coverages as well as a broad range of other property and casualty insurance products and services abroad throughusing a network of brokers, independent agencies and managing general underwriters, as well as the Lloyd’s marketplace.
Our operations outside of Property & Casualty Operations are managed and reported in two segments: Life & Group and Corporate & Other. Life & Group primarily includes the results of our long termlong-term care business that is in run-off. Corporate & Other primarily includes certain corporate expenses, including interest on corporate debt, and the results of certain property and casualty businesses in run-off, including CNA Re, A&EP, a legacy portfolio of excess workers' compensation (EWC) policies and A&EP.certain legacy mass tort reserves. Intersegment eliminations are also included in this segment.
In evaluating the results of our Specialty, Commercial and International segments, we utilize the loss ratio, the underlying loss ratio, theexpense ratio, the dividend ratio, the combined ratio and the underlying combined ratio. These ratios are calculated using GAAP financial results.
The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The underlying loss ratio excludes the impact of catastrophe losses and development-related items from the loss ratio. Development-related items represents net prior year loss reserve and premium development, and includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. The underlying combined ratio is the sum of the underlying loss ratio, the expense ratio and the dividend ratio. In addition, we also utilize renewal premium change, rate, retention and new business in evaluating operating trends. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. Rate represents the average change in price on policies that renew excluding exposure change. Exposure represents the measure of risk used in the pricing of the insurance product. The change in exposure represents the change in premium dollars on policies that renew as a result of the change in risk of the policy. Retention represents the percentage of premium dollars renewed, excluding rate and exposure changes, in comparison to the expiring premium dollars from policies available to renew. Renewal premium change, rate and retention presented for the prior year are updated to reflect subsequent activity on policies written in the period. New business represents premiums from policies written with new customers and additional policies written with existing customers. Gross written premiums, excluding third-party captives, excludes business which is ceded to third-party captives, including business related to large warranty programs. We use underwriting gain (loss), calculated using GAAP financial results, to monitor our insurance operations. Underwriting gain (loss) is pretax and is calculated as net earned premiums less total insurance expenses, which includes insurance claims and policyholders' benefits, amortization of deferred acquisition costs and other insurance related expenses. Underlying underwriting gain (loss) represents underwriting results excluding catastrophe losses and development-related items.
Changes in estimates of claim and claim adjustment expense reserves, and premium accruals, net of reinsurance, for prior years are defined as net prior year loss reserve development within this MD&A. These changes can be favorable or
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unfavorable. Net prior year loss reserve development does not include the effect of any related acquisition expenses. Further information on our reserves is provided in Note E and Note F to the Consolidated Financial Statements included under Item 8.
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Specialty
Specialty provides management and professional liability and other coverages through property and casualty products and services using a network of brokers, independent agencies and managing general underwriters. Specialty includes the following business groups:
Management & Professional Liability provides management consists of the following coverages and professionalproducts:
•Professional liability insurancecoverages and risk management services and other specialized property and casualty coverages. This group provides professional liability coverages to various professional firms, including architects, real estate agents, accounting firms and law firms and other professional firms. Management & Professional Liability also provides
•D&O, E&O, employment practices, fiduciary, fidelity and fidelitycyber coverages. Specific areas of focus include small and mid-size firms, public as well as privately held firms and not-for-profit organizations, where tailored products for these client segments are offered. Products within Management & Professional Liability are distributed through brokers, independent agents and managing general underwriters. Management & Professional Liability alsooffers insuranceorganizations.
•Insurance products to serve the healthcare industry. Products includeindustry, including professional and general liability as well as associated standard property and casualty coverages, and are distributed on a national basis through brokers, independent agents and managing general underwriters.coverages. Key customer groups include aging services, allied medical facilities, life sciences, dentists, physicians, hospitals and nurses and other medical practitioners.
Surety offers small, medium and large contract and commercial surety bonds. Surety provides surety and fidelity bonds in all 50 states through a network of independent agencies and brokers.states.
Warranty and Alternative Risks provides extended service contracts and relatedinsurance products that provide protection from the financial burden associated with mechanical breakdown and other related losses, primarily for vehicles, portable electronic communication devices and cell phones.other consumer goods. Service contracts are generally distributed by commission-based independent representatives and sold by auto dealerships and retailers in North America to customers in conjunction with the purchase of a new or used vehicle or new consumer goods. Additionally, our insurance companies may issue contractual liability insurance policies or guaranteed asset protection reimbursement insurance policies to cover the liabilities of these service contracts issued by affiliated entities or third parties.
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The following table details the results of operations for Specialty.
| Years ended December 31 | |||||||||||
| (In millions, except ratios, rate, renewal premium change and retention) | 2023 | 2022 | |||||||||
| Gross written premiums | $ | 7,113 | $ | 7,514 | |||||||
| Gross written premiums excluding third-party captives | 3,800 | 3,814 | |||||||||
| Net written premiums | 3,329 | 3,306 | |||||||||
| Net earned premiums | 3,307 | 3,203 | |||||||||
| Underwriting gain | 317 | 366 | |||||||||
| Net investment income | 558 | 431 | |||||||||
| Core income | 708 | 668 | |||||||||
| Other performance metrics: | |||||||||||
| Loss ratio excluding catastrophes and development | 58.5 | % | 58.6 | % | |||||||
| Effect of catastrophe impacts | — | 0.1 | |||||||||
| Effect of development-related items | (0.3) | (1.3) | |||||||||
| Loss ratio | 58.2 | 57.4 | |||||||||
| Expense ratio | 32.0 | 31.0 | |||||||||
| Dividend ratio | 0.2 | 0.2 | |||||||||
| Combined ratio | 90.4 | % | 88.6 | % | |||||||
| Combined ratio excluding catastrophes and development | 90.7 | % | 89.8 | % | |||||||
| Rate | — | % | 6 | % | |||||||
| Renewal premium change | 1 | 7 | |||||||||
| Retention | 88 | 86 | |||||||||
| New business | $ | 481 | $ | 548 | |||||||
| Years ended December 31 | |||||||||||
| (In millions, except ratios, rate, renewal premium change and retention) | 2017 | 2016 | 2015 | ||||||||
| Net written premiums | $ | 2,771 | $ | 2,780 | $ | 2,781 | |||||
| Net earned premiums | 2,753 | 2,779 | 2,782 | ||||||||
| Net investment income | 538 | 516 | 474 | ||||||||
| Core income | 610 | 650 | 560 | ||||||||
| Other performance metrics: | |||||||||||
| Loss and loss adjustment expense ratio | 55.8 | % | 52.8 | % | 57.4 | % | |||||
| Expense ratio | 32.0 | 32.0 | 31.1 | ||||||||
| Dividend ratio | 0.2 | 0.2 | 0.2 | ||||||||
| Combined ratio | 88.0 | % | 85.0 | % | 88.7 | % | |||||
| Rate | 0 | % | 1 | % | 1 | % | |||||
| Renewal premium change | 2 | 2 | 3 | ||||||||
| Retention | 88 | 88 | 87 | ||||||||
| New business | $ | 251 | $ | 249 | $ | 279 | |||||
Gross written premiums, excluding third-party captives, for Specialty decreased $14 million in 2023 as compared with 2022 driven by lower new business partially offset by strong retention. Net written premiums for Specialty increased $23 million in 2017 were consistent2023 as compared with 2016. New business, renewal premium change and retention also remained at consistent levels.2022. The decreaseincrease in net earned premiums was consistent with the trend in net written premiums.
Core income decreasedincreased $40 million in 20172023 as compared with 2016,2022 primarily due to higher net investment income partially offset by lower favorable net prior year loss reserve development, lower underlying underwriting results and lower income from non-insurance warranty business.
The combined ratio of 90.4% increased 1.8 point in 2023 as compared with 2022 primarily due to a 1.0 point increase in the expense ratio and a 0.8 point increase in the loss ratio. The increase in the expense ratio was driven by higher employee related and acquisition costs. The increase in the loss ratio was largely due to lower favorable net prior year loss reserve development and higher netdevelopment. There were no catastrophe losses partially offset by improved non-catastrophe current accident year underwriting results and higher net investment income.
Favorable net prior year loss reserve development and higher net catastrophe losses. Net catastrophe losses were $49 million, or 1.8 points of the loss ratio, for 2017, as compared to $18 million, or 0.6 points of the loss ratio, for 2016. The loss ratio excluding catastrophes and development improved 1.3 points. The expense ratio in 2017 was consistent with the same period in 2016.
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The following table summarizes the gross and net carried reserves for Specialty.
| December 31 | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Gross case reserves | $ | 1,604 | $ | 1,529 | |||||||
| Gross IBNR reserves | 5,527 | 5,349 | |||||||||
| Total gross carried claim and claim adjustment expense reserves | $ | 7,131 | $ | 6,878 | |||||||
| Net case reserves | $ | 1,392 | $ | 1,310 | |||||||
| Net IBNR reserves | 4,524 | 4,253 | |||||||||
| Total net carried claim and claim adjustment expense reserves | $ | 5,916 | $ | 5,563 | |||||||
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| December 31 | |||||||
| (In millions) | 2017 | 2016 | |||||
| Gross case reserves | $ | 1,805 | $ | 1,871 | |||
| Gross IBNR reserves | 4,043 | 4,278 | |||||
| Total gross carried claim and claim adjustment expense reserves | $ | 5,848 | $ | 6,149 | |||
| Net case reserves | $ | 1,656 | $ | 1,681 | |||
| Net IBNR reserves | 3,523 | 3,723 | |||||
| Total net carried claim and claim adjustment expense reserves | $ | 5,179 | $ | 5,404 | |||
Commercial
Commercial works with a network of brokers and independent agents to market a broad range of property and casualty insurance products to all types of insureds targeting small business, construction, middle markets and services to small, middle-market and large businesses.other commercial customers. Property products include standard and excess property, marine and boiler and machinery coverages. Casualty products include standard casualty insurance products such as workers' compensation, general and product liability, commercial auto, umbrella, and umbrellaexcess and surplus coverages. Most insurance programs are provided on a guaranteed cost basis; however, we also offer specialized loss-sensitive insurance programs and total risk management services relating to claim and information services to the large commercial insurance marketplace. These property and casualtyproducts are offered through our Middle Market, Small Business and Other Commercial insurance groups.
The following table details the results of operations for Commercial.
| Years ended December 31 | |||||||||||
| (In millions, except ratios, rate, renewal premium change and retention) | 2023 | 2022 | |||||||||
| Gross written premiums | $ | 6,120 | $ | 5,170 | |||||||
| Gross written premiums excluding third-party captives | 5,994 | 5,056 | |||||||||
| Net written premiums | 4,880 | 4,193 | |||||||||
| Net earned premiums | 4,547 | 3,923 | |||||||||
| Underwriting gain | 182 | 106 | |||||||||
| Net investment income | 645 | 488 | |||||||||
| Core income | 652 | 466 | |||||||||
| Other performance metrics: | |||||||||||
| Loss ratio excluding catastrophes and development | 61.5 | % | 61.5 | % | |||||||
| Effect of catastrophe impacts | 4.5 | 5.6 | |||||||||
| Effect of development-related items | (0.1) | (0.7) | |||||||||
| Loss ratio | 65.9 | 66.4 | |||||||||
| Expense ratio | 29.6 | 30.4 | |||||||||
| Dividend ratio | 0.5 | 0.5 | |||||||||
| Combined ratio | 96.0 | % | 97.3 | % | |||||||
| Combined ratio excluding catastrophes and development | 91.6 | % | 92.4 | % | |||||||
| Rate | 7 | % | 5 | % | |||||||
| Renewal premium change | 10 | 8 | |||||||||
| Retention | 84 | 86 | |||||||||
| New business | $ | 1,297 | $ | 1,009 | |||||||
| Years ended December 31 | |||||||||||
| (In millions, except ratios, rate, renewal premium change and retention) | 2017 | 2016 | 2015 | ||||||||
| Net written premiums | $ | 2,882 | $ | 2,841 | $ | 2,818 | |||||
| Net earned premiums | 2,840 | 2,804 | 2,788 | ||||||||
| Net investment income | 642 | 638 | 593 | ||||||||
| Core income | 341 | 311 | 369 | ||||||||
| Other performance metrics: | |||||||||||
| Loss and loss adjustment expense ratio | 67.9 | % | 68.7 | % | 65.1 | % | |||||
| Expense ratio | 35.2 | 36.8 | 36.1 | ||||||||
| Dividend ratio | 0.6 | 0.3 | 0.3 | ||||||||
| Combined ratio | 103.7 | % | 105.8 | % | 101.5 | % | |||||
| Rate | 0 | % | (2 | )% | 1 | % | |||||
| Renewal premium change | 2 | 3 | 4 | ||||||||
| Retention | 86 | 84 | 78 | ||||||||
| New business | $ | 559 | $ | 520 | $ | 552 | |||||
Gross written premiums for Commercial increased $950 million in 2023 as compared with 2022 driven by higher new business and rate. Net written premiums for Commercial increased $41$687 million in 20172023 as compared with 2016 driven by higher new business within Middle Markets, strong retention and positive renewal premium change. This was partially offset by an unfavorable premium rate adjustment within Small Business that is more fully discussed in Note F to the Consolidated Financial Statements under Item 8.2022. The increase in net earned premiumpremiums was consistent with the trend in net written premiums.
Core income increased $30$186 million in 20172023 as compared with 2016, due to the favorable period over period effect of2022, driven by higher net prior year loss reserve developmentinvestment income and improved non-catastrophe current accident year underwriting results partially offset by higherlower favorable net catastrophe losses.
prior year loss reserve development.
The combined ratio of 96.0% improved 2.11.3 points in 20172023 as compared with 2022 due to 2016.a 0.8 point improvement in the expense ratio and a 0.5 improvement in the loss ratio. The improvement in the expense ratio was driven by higher net earned premiums partially offset by higher employee related costs. The improvement in the loss ratio improved 0.8was driven by lower catastrophe losses partially offset by lower favorable net prior year loss reserve development. Catastrophe losses were $207 million, or 4.5 points primarily due toof the favorable period over period effectloss ratio, for 2023, as compared with $222 million, or 5.6 points of the loss ratio, for 2022.
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Favorable net prior year loss reserve development partially offset by higher net catastrophe losses. Net catastrophe losses were $267of $22 million or 9.4 points of the loss ratio, for 2017, as compared to $116 million, or 4.1 points of the loss ratio, for 2016. The loss ratio excluding catastrophes and development improved 1.9 points. The expense ratio improved 1.6 points in 2017 as compared with 2016, reflecting both our ongoing efforts to improve productivity and the actions undertaken in last year's third and fourth quarters to reduce expenses.
The following table summarizes the gross and net carried reserves for Commercial.
| December 31 | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Gross case reserves | $ | 3,291 | $ | 3,156 | |||||||
| Gross IBNR reserves | 6,812 | 6,239 | |||||||||
| Total gross carried claim and claim adjustment expense reserves | $ | 10,103 | $ | 9,395 | |||||||
| Net case reserves | $ | 2,878 | $ | 2,809 | |||||||
| Net IBNR reserves | 6,143 | 5,621 | |||||||||
| Total net carried claim and claim adjustment expense reserves | $ | 9,021 | $ | 8,430 | |||||||
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| December 31 | |||||||
| (In millions) | 2017 | 2016 | |||||
| Gross case reserves | $ | 4,364 | $ | 4,661 | |||
| Gross IBNR reserves | 4,221 | 4,233 | |||||
| Total gross carried claim and claim adjustment expense reserves | $ | 8,585 | $ | 8,894 | |||
| Net case reserves | $ | 4,047 | $ | 4,353 | |||
| Net IBNR reserves | 3,917 | 3,952 | |||||
| Total net carried claim and claim adjustment expense reserves | $ | 7,964 | $ | 8,305 | |||
International
The International providessegment underwrites property and casualty and specialty coverages on a global basis through its operationsa branch operation in Canada, a European business consisting of insurance companies based in the United Kingdom, Continental EuropeU.K. and Singapore, as well as through its presence at Lloyd’s of London.Luxembourg and Hardy, our Lloyd's syndicate.
Canada provides standard commercial and specialty insurance products, primarily in the marine, oil & gas, construction, manufacturing and life science industries.
Hardy operates through Lloyd’s Syndicate 382 underwriting primarily short-tail exposures in energy, marine, property, casualty and specialty lines with risks located in many countries around the world. The capacity of and results fromof the syndicate are 100% attributable to CNA.
The following table details the results of operations for International.
| Years ended December 31 | |||||||||||
| (In millions, except ratios, rate, renewal premium change and retention) | 2023 | 2022 | |||||||||
| Gross written premiums | $ | 1,485 | $ | 1,394 | |||||||
| Net written premiums | 1,237 | 1,164 | |||||||||
| Net earned premiums | 1,176 | 1,070 | |||||||||
| Underwriting gain | 86 | 87 | |||||||||
| Net investment income | 103 | 63 | |||||||||
| Core income | 145 | 106 | |||||||||
| Other performance metrics: | |||||||||||
| Loss ratio excluding catastrophes and development | 57.8 | % | 58.5 | % | |||||||
| Effect of catastrophe impacts | 2.5 | 2.2 | |||||||||
| Effect of development-related items | 1.1 | (1.2) | |||||||||
| Loss ratio | 61.4 | 59.5 | |||||||||
| Expense ratio | 31.2 | 32.3 | |||||||||
| Combined ratio | 92.6 | % | 91.8 | % | |||||||
| Combined ratio excluding catastrophes and development | 89.0 | % | 90.8 | % | |||||||
| Rate | 3 | % | 6 | % | |||||||
| Renewal premium change | 6 | 11 | |||||||||
| Retention | 83 | 81 | |||||||||
| New business | $ | 302 | $ | 319 | |||||||
| Years ended December 31 | |||||||||||
| (In millions, except ratios, rate, renewal premium change and retention) | 2017 | 2016 | 2015 | ||||||||
| Net written premiums | $ | 881 | $ | 821 | $ | 822 | |||||
| Net earned premiums | 857 | 806 | 804 | ||||||||
| Net investment income | 52 | 51 | 52 | ||||||||
| Core income | 8 | 21 | 37 | ||||||||
| Other performance metrics: | |||||||||||
| Loss and loss adjustment expense ratio | 67.0 | % | 61.0 | % | 59.5 | % | |||||
| Expense ratio | 37.8 | 38.1 | 38.1 | ||||||||
| Combined ratio | 104.8 | % | 99.1 | % | 97.6 | % | |||||
| Rate | 0 | % | (1 | )% | (1 | )% | |||||
| Renewal premium change | 2 | (1 | ) | 0 | |||||||
| Retention | 80 | 76 | 76 | ||||||||
New business(1) | $ | 275 | $ | 240 | $ | 111 | |||||
Core income decreased $13increased $39 million in 20172023 as compared with 20162022 driven by lowerhigher net investment income, improved underlying underwriting results and a favorable impact from changes in foreign currency exchange rates, partially offset by unfavorable net prior year loss reserve development.
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The combined ratio of 92.6% increased 0.8 points in 2023 as compared with 2022 due to a 1.9 point increase in the loss ratio partially offset by a 1.1 point improvement in the expense ratio. The increase in the loss ratio was driven by unfavorable net prior year loss reserve development of $13 million recorded for 2023 compared to favorable net prior year loss reserve development and higher net catastrophe losses partially offset by favorable period over period foreign currency exchange results.
The following table summarizes the gross and net carried reserves for International.
| December 31 | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Gross case reserves | $ | 864 | $ | 817 | |||||||
| Gross IBNR reserves | 1,845 | 1,586 | |||||||||
| Total gross carried claim and claim adjustment expense reserves | $ | 2,709 | $ | 2,403 | |||||||
| Net case reserves | $ | 708 | $ | 686 | |||||||
| Net IBNR reserves | 1,568 | 1,317 | |||||||||
| Total net carried claim and claim adjustment expense reserves | $ | 2,276 | $ | 2,003 | |||||||
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| December 31 | |||||||
| (In millions) | 2017 | 2016 | |||||
| Gross case reserves | $ | 744 | $ | 632 | |||
| Gross IBNR reserves | 892 | 696 | |||||
| Total gross carried claim and claim adjustment expense reserves | $ | 1,636 | $ | 1,328 | |||
| Net case reserves | $ | 640 | $ | 548 | |||
| Net IBNR reserves | 792 | 653 | |||||
| Total net carried claim and claim adjustment expense reserves | $ | 1,432 | $ | 1,201 | |||
Life & Group
The Life & Group segment primarily includes the results of our long termrun-off long-term care business that is in run-off. Long termas well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long-term care policies were sold on both an individual and group basis. New enrollees in existing groups were accepted through February 1, 2016.
The following table summarizes the results of operations for Life & Group.
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Net earned premiums | $ | 451 | $ | 473 | $ | 491 | |||||||||||
| Claims, benefits and expenses | 1,436 | 1,596 | 1,374 | ||||||||||||||
| Net investment income | 896 | 804 | 966 | ||||||||||||||
| Core (loss) income | (48) | (221) | 108 | ||||||||||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Net earned premiums | $ | 539 | $ | 536 | $ | 548 | |||||
| Net investment income | 782 | 767 | 704 | ||||||||
| Core loss before income tax | (82 | ) | (125 | ) | (629 | ) | |||||
| Income tax benefit on core loss | 132 | 145 | 315 | ||||||||
| Core income (loss) | 50 | 20 | (314 | ) | |||||||
Core income increased $30loss decreased $173 million in 20172023 as compared with 2016. This increase was driven by favorable morbidity2022 primarily due to higher net investment income and an unfavorable pretax impact of $181 million in the prior year as a result of the annual reserve reviews, partially offset by long-term care policy buyouts in 2023. Policy buyouts generally result in an unfavorable persistencyimpact on core loss, as the cash payments are linked to higher statutory reserve levels. Excluding the impacts of long-term care policy buyouts, 2023 underwriting results are generally in line with reserving expectations.
Both years are inclusive of cash flow assumption updates as a result of the annual reserve review completed in the long termthird quarter of each year. Cash flow assumption updates for 2023 resulted in an $8 million pretax increase in long-term care business. Additionally,reserves. Adjusted to reflect the releaseapplication of long termthe LDTI accounting standard, the cash flow assumption updates for 2022 resulted in a $186 million pretax increase in long-term care reserves, primarily driven by the unfavorable impact of increased cost of care inflation, partially offset by favorable premium rate assumptions.
The annual structured settlement review resulted in a pretax reduction in claim reserves resulting fromof $6 million and $5 million for 2023 and 2022.
2022 Compared with 2021
Results for both years have been adjusted to reflect the annual claims experience study was higherapplication of the LDTI accounting standard.
Core results decreased $329 million in 20172022 as compared with 2016.2021 primarily due to the unfavorable impact of the 2022 annual reserve reviews and lower net investment income.
Cash flow assumption updates, as a result of the annual reserve reviews, for 2022 resulted in an $186 million pretax increase in long-term care reserves compared to a $3 million pretax increase in 2021.
The effective tax rate for the Life & Group segment is generallyannual structured settlement review resulted in a function of the Federal corporate income tax rate and the relative proportion of tax exempt investment income on municipal bonds supporting liabilities to the overall pretax income of the segment. The reduction in the Federal corporate income tax rate effective January 1, 2018 will reduce the tax benefit on the segment’sclaim reserves of $5 million for 2022 and a pretax losses.increase to claim reserves of $2 million for 2021.
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The following table summarizestables summarize policyholder reserves for Life & Group.
| December 31, 2023 | |||||||||||||||||
| (In millions) | Claim and claim adjustment expenses | Future policy benefits | Total | ||||||||||||||
| Long-term care | $ | — | $ | 13,959 | $ | 13,959 | |||||||||||
| Structured settlement annuities and other | 582 | — | 582 | ||||||||||||||
| Total | 582 | 13,959 | 14,541 | ||||||||||||||
| Ceded reserves | 93 | — | 93 | ||||||||||||||
| Total gross reserves | $ | 675 | $ | 13,959 | $ | 14,634 | |||||||||||
| December 31, 2017 | |||||||||||
| (In millions) | Claim and claim adjustment expenses | Future policy benefits | Total | ||||||||
| Long term care | $ | 2,568 | $ | 8,959 | $ | 11,527 | |||||
| Structured settlement annuities | 547 | — | 547 | ||||||||
| Other | 16 | — | 16 | ||||||||
| Total | 3,131 | 8,959 | 12,090 | ||||||||
Shadow adjustments (1) | 159 | 1,990 | 2,149 | ||||||||
Ceded reserves (2) | 209 | 230 | 439 | ||||||||
| Total gross reserves | $ | 3,499 | $ | 11,179 | $ | 14,678 | |||||
| December 31, 2022 | |||||||||||||||||
| (In millions) | Claim and claim adjustment expenses | Future policy benefits | Total | ||||||||||||||
Long-term care (1) (2) | $ | — | $ | 13,480 | $ | 13,480 | |||||||||||
| Structured settlement annuities and other | 594 | — | 594 | ||||||||||||||
| Total | 594 | 13,480 | 14,074 | ||||||||||||||
| Ceded reserves | 101 | — | 101 | ||||||||||||||
| Total gross reserves | $ | 695 | $ | 13,480 | $ | 14,175 | |||||||||||
| December 31, 2016 | |||||||||||
| (In millions) | Claim and claim adjustment expenses | Future policy benefits | Total | ||||||||
| Long term care | $ | 2,426 | $ | 8,654 | $ | 11,080 | |||||
| Structured settlement annuities | 565 | — | 565 | ||||||||
| Other | 17 | — | 17 | ||||||||
| Total | 3,008 | 8,654 | 11,662 | ||||||||
Shadow adjustments (1) | 101 | 1,459 | 1,560 | ||||||||
Ceded reserves (2) | 249 | 213 | 462 | ||||||||
| Total gross reserves | $ | 3,358 | $ | 10,326 | $ | 13,684 | |||||
(1) ToAs of January 1, 2023, we adopted ASU 2018-12 using the extent that unrealized gains on fixed income securities supporting long term care productsmodified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts presented in the financial statements have been adjusted to reflect application of the new guidance. See Note A and annuity contracts would result in a premium deficiency if those gains were realized, an increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).Note F to the Consolidated Financial Statements for additional information.
(2) CededIn conjunction with the adoption of ASU 2018-12, at January 1, 2023 we reclassified the long-term care reserves relate to claim or policy reserves fully reinsured in connection with a sale or exitfor policyholders currently receiving benefits from the underlying business.
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Corporate & Other
Corporate & Other primarily includes certain corporate expenses, including interest on corporate debt and the results of certain property and casualty business in run-off, including CNA Re, A&EP, a legacy portfolio of EWC policies and A&EP.certain legacy mass tort reserves.
The following table summarizes the results of operations for the Corporate & Other segment, including intersegment eliminations.
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||
| Net investment income | $ | 62 | $ | 19 | |||||||||||||
| Insurance claims and policyholders' benefits | 82 | 76 | |||||||||||||||
| Interest expense | 126 | 112 | |||||||||||||||
| Core loss | (173) | (183) | |||||||||||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Net investment income | $ | 20 | $ | 16 | $ | 17 | |||||
| Interest expense | 152 | 155 | 154 | ||||||||
| Core loss | (90 | ) | (178 | ) | (137 | ) | |||||
Core loss improved $88decreased $10 million in 2017for 2023 as compared with 2016, driven by lower adverse2022. The current year includes higher net investment income, a $19 million after-tax charge related to office consolidation, and a $56 million after-tax charge related to unfavorable prior period development for legacy mass tort claims compared with a $51 million after-tax charge for legacy mass tort claims in the prior year. The charge related to office consolidation is further discussed in Note M and net prior year loss reserve development recordedis further discussed in 2017 forNote E, to the Consolidated Financial Statements included under Item 8.
The application of retroactive reinsurance accounting to additional cessions to the A&EP under the Loss Portfolio Transfer. ThisLPT resulted in an after-tax benefit of $6 million and $3 million in 2023 and 2022, both of which have no economic impact. The A&EP LPT is further discussed in Note E to the Consolidated Financial Statements included under Item 8.
The following table summarizes the gross and net carried reserves for Corporate & Other.
| December 31 | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Gross case reserves | $ | 1,353 | $ | 1,428 | |||||||
| Gross IBNR reserves | 1,333 | 1,321 | |||||||||
| Total gross carried claim and claim adjustment expense reserves | $ | 2,686 | $ | 2,749 | |||||||
| Net case reserves | $ | 129 | $ | 137 | |||||||
| Net IBNR reserves | 239 | 202 | |||||||||
| Total net carried claim and claim adjustment expense reserves | $ | 368 | $ | 339 | |||||||
Impact of Office Consolidation on 2024 Results
In the first quarter of 2024, we committed to consolidate some of our offices. As a result, we anticipate a charge of approximately $16 million pretax in 2024 in our Corporate & Other segment.
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| December 31 | |||||||
| (In millions) | 2017 | 2016 | |||||
| Gross case reserves | $ | 1,371 | $ | 1,524 | |||
| Gross IBNR reserves | 1,065 | 1,090 | |||||
| Total gross carried claim and claim adjustment expense reserves | $ | 2,436 | $ | 2,614 | |||
| Net case reserves | $ | 94 | $ | 94 | |||
| Net IBNR reserves | 111 | 136 | |||||
| Total net carried claim and claim adjustment expense reserves | $ | 205 | $ | 230 | |||
INVESTMENTS
Net Investment Income
The significant components of Net investment income are presented in the following table. Fixed income securities, as presented, include both fixed maturity securities and equity securities, which substantially consist ofnon-redeemable preferred stock.
| Years ended December 31 | |||||||||||||||||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | |||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||
| Taxable fixed income securities | |||||||||||||||||||||||||
| Taxable fixed income securities | |||||||||||||||||||||||||
| Taxable fixed income securities | $ | 1,397 | $ | 1,424 | $ | 1,387 | |||||||||||||||||||
| Tax-exempt fixed income securities | 427 | 405 | 376 | ||||||||||||||||||||||
| Total fixed income securities | 1,824 | 1,829 | 1,763 | ||||||||||||||||||||||
| Limited partnership investments | 207 | 155 | 92 | ||||||||||||||||||||||
| Limited partnership and common stock investments | |||||||||||||||||||||||||
| Other, net of investment expense | 3 | 4 | (15 | ) | |||||||||||||||||||||
| Pretax net investment income | $ | 2,034 | $ | 1,988 | $ | 1,840 | |||||||||||||||||||
| Fixed income securities, after tax | $ | 1,324 | $ | 1,322 | $ | 1,277 | |||||||||||||||||||
| Net investment income, after tax | 1,462 | 1,427 | 1,329 | ||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||
| Effective income yield for the fixed income securities portfolio, pretax | 4.7 | % | 4.8 | % | 4.7 | % | |||||||||||||||||||
| Effective income yield for the fixed income securities portfolio, after tax | 3.4 | % | 3.5 | % | 3.4 | % | |||||||||||||||||||
| Effective income yield for the fixed income securities portfolio | |||||||||||||||||||||||||
| Effective income yield for the fixed income securities portfolio | |||||||||||||||||||||||||
| Effective income yield for the fixed income securities portfolio | 4.7 | % | 4.4 | % | |||||||||||||||||||||
| Limited partnership and common stock return | Limited partnership and common stock return | 9.4 | % | (1.4) | % | ||||||||||||||||||||
Net investment income after tax, increased $35$459 million in 20172023 as compared with 2016. The increase was2022 driven by favorable limited partnership investments, which returned 9.1% in 2017 as compared with 6.3% in the prior year.
Net Realized Investment (Losses) Gains (Losses)
The components of Net realized investment results(losses) gains are presented in the following table.
| Years ended December 31 | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Fixed maturity securities: | |||||||||||
| Corporate bonds and other | $ | (57) | $ | (89) | |||||||
| States, municipalities and political subdivisions | 10 | 26 | |||||||||
| Asset-backed | (44) | (34) | |||||||||
| Total fixed maturity securities | (91) | (97) | |||||||||
| Non-redeemable preferred stock | 4 | (116) | |||||||||
| Derivatives, short term and other | (1) | 22 | |||||||||
| Mortgage loans | (11) | (8) | |||||||||
| Net investment losses | (99) | (199) | |||||||||
| Income tax benefit on net investment losses | 20 | 45 | |||||||||
| Net investment losses, after tax | $ | (79) | $ | (154) | |||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Fixed maturity securities: | |||||||||||
| Corporate and other bonds | $ | 111 | $ | 31 | $ | (55 | ) | ||||
| States, municipalities and political subdivisions | 14 | 29 | (22 | ) | |||||||
| Asset-backed | (6 | ) | (2 | ) | 10 | ||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 3 | 5 | — | ||||||||
| Foreign government | — | 3 | 1 | ||||||||
| Total fixed maturity securities | 122 | 66 | (66 | ) | |||||||
| Equity securities | — | (5 | ) | (23 | ) | ||||||
| Derivatives | (4 | ) | (2 | ) | 10 | ||||||
| Short term investments and other | (25 | ) | (9 | ) | 12 | ||||||
| Net realized investment gains (losses) | 93 | 50 | (67 | ) | |||||||
| Income tax (expense) benefit on net realized investment gains (losses) | (30 | ) | (15 | ) | 31 | ||||||
| Net realized investment gains (losses), after tax | $ | 63 | $ | 35 | $ | (36 | ) | ||||
Additionally, ShortDerivatives, short term investments and other for the current period2022 included a loss of $27an $18 million after taxnon-economic net gain related to the redemptionnovation of a coinsurance agreement on our $350 million senior notes due November 2019. Net realized investment results, after tax, improved $71 million for 2016 as compared with 2015, driven by lower OTTI losses recognizedlegacy annuity business in earningsour Life & Group segment and higher net realized investment gains on salesthe associated funds withheld embedded derivative. The coinsurance agreement was novated in the fourth quarter of securities.2022.
Further information on our realizedinvestment gains and losses including our OTTI losses and derivative gains (losses), as well as on our impairment decision process,derivative financial instruments is set forth in Notes A and B to the Consolidated Financial Statements included under Item 8.
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Portfolio Quality
The following table presents the estimated fair value and net unrealized gains (losses) of our fixed maturity securities by rating distribution.
| December 31 | 2017 | 2016 | December 31 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||
(In millions) | Estimated Fair Value | Net Unrealized Gains (Losses) | Estimated Fair Value | Net Unrealized Gains (Losses) | (In millions) | Estimated Fair Value | Net Unrealized Gains ( Losses) | Estimated Fair Value | Net Unrealized Gains ( Losses) | ||||||||||||||||||||||||||||||||||||||
| U.S. Government, Government agencies and Government-sponsored enterprises | $ | 4,514 | $ | 21 | $ | 4,212 | $ | 32 | |||||||||||||||||||||||||||||||||||||||
| AAA | 1,954 | 152 | 1,881 | 110 | |||||||||||||||||||||||||||||||||||||||||||
| AA | 8,982 | 914 | 8,911 | 750 | |||||||||||||||||||||||||||||||||||||||||||
| A | 9,643 | 952 | 9,866 | 832 | |||||||||||||||||||||||||||||||||||||||||||
| BBB | 13,554 | 1,093 | 12,802 | 664 | |||||||||||||||||||||||||||||||||||||||||||
| Non-investment grade | 2,840 | 140 | 3,233 | 156 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 41,487 | $ | 3,272 | $ | 40,905 | $ | 2,544 | |||||||||||||||||||||||||||||||||||||||
As of December 31, 20172023 and 2016, only 2%2022, 1% of our fixed maturity portfolio was rated internally. AAA rated securities included $0.2 billion and $0.3 billion of prefunded municipal bonds as of December 31, 2023 and 2022.
The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.
| December 31, 2017 | |||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2023 | ||||||||||||||||||||||||||||
| (In millions) | Estimated Fair Value | Gross Unrealized Losses | (In millions) | Estimated Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||
| U.S. Government, Government agencies and Government-sponsored enterprises | $ | 2,050 | $ | 33 | |||||||||||||||||||||||||
| AAA | 177 | 6 | |||||||||||||||||||||||||||
| AA | 363 | 5 | |||||||||||||||||||||||||||
| A | 629 | 11 | |||||||||||||||||||||||||||
| BBB | 1,226 | 22 | |||||||||||||||||||||||||||
| Non-investment grade | 530 | 10 | |||||||||||||||||||||||||||
| Total | $ | 4,975 | $ | 87 | |||||||||||||||||||||||||
The following table presents the maturity profile for these available-for-sale fixed maturity securities. Securities not due to mature on a single date are allocated based on weighted average life.
| December 31, 2023 | |||||||||||
| (In millions) | Estimated Fair Value | Gross Unrealized Losses | |||||||||
| Due in one year or less | $ | 974 | $ | 33 | |||||||
| Due after one year through five years | 8,197 | 468 | |||||||||
| Due after five years through ten years | 8,058 | 1,058 | |||||||||
| Due after ten years | 8,502 | 1,436 | |||||||||
| Total | $ | 25,731 | $ | 2,995 | |||||||
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| December 31, 2017 | |||||||
| (In millions) | Estimated Fair Value | Gross Unrealized Losses | |||||
| Due in one year or less | $ | 85 | $ | 2 | |||
| Due after one year through five years | 1,079 | 19 | |||||
| Due after five years through ten years | 3,363 | 57 | |||||
| Due after ten years | 448 | 9 | |||||
| Total | $ | 4,975 | $ | 87 | |||
Commercial Real Estate
Our investment portfolio has exposure to the commercial real estate sector primarily through our fixed maturity securities and mortgage loan portfolios. The performance of these assets is dependent on a number of factors, including the performance of the underlying collateral (which is influenced by cash flows from underlying property leases), changes in the fair value of collateral, refinancing risk, and the creditworthiness of tenants of credit tenant loan properties (where lease payments directly service the loan).
Within our fixed maturity securities portfolio, our exposure is primarily through our commercial mortgage-backed securities portfolio and our corporate and other bonds portfolio, which contains obligations of real estate investment trust (REIT) issuers. Commercial mortgage-backed securities include both single asset, single borrower collateral that is securitized independently and conduit collateral that is securitized in diversified pools.
The following tables present the estimated fair value and net unrealized gains (losses) of our commercial mortgage-backed securities by property type and by ratings distribution.
| December 31, 2023 | |||||||||||
| (In millions) | Estimated Fair Value | Net Unrealized Gains (Losses) | |||||||||
| Commercial mortgage-backed: | |||||||||||
| Single asset, single borrower: | |||||||||||
| Office | $ | 306 | $ | (70) | |||||||
| Retail | 283 | (28) | |||||||||
| Lodging | 227 | (23) | |||||||||
| Industrial | 93 | (4) | |||||||||
| Multifamily | 59 | (3) | |||||||||
| Total single asset, single borrower | 968 | (128) | |||||||||
| Conduits (multi property, multi borrower pools) | 663 | (95) | |||||||||
| Total commercial mortgage-backed | $ | 1,631 | $ | (223) | |||||||
| December 31, 2023 | |||||||||||
| (In millions) | Estimated Fair Value | Net Unrealized Gains (Losses) | |||||||||
| Commercial mortgage-backed: | |||||||||||
| AAA | $ | 570 | $ | (27) | |||||||
| AA | 594 | (95) | |||||||||
| A | 202 | (30) | |||||||||
| BBB | 216 | (45) | |||||||||
| Non-investment grade | 49 | (26) | |||||||||
| Total commercial mortgage-backed | $ | 1,631 | $ | (223) | |||||||
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The following tables present the estimated fair value and net unrealized gains (losses) of the REIT issuer exposure within our corporate and other bonds portfolio by property type and by ratings distribution.
| December 31, 2023 | |||||||||||
| (In millions) | Estimated Fair Value | Net Unrealized Gains (Losses) | |||||||||
| Corporate and other bonds - REITs: | |||||||||||
| Retail | $ | 515 | $ | (25) | |||||||
| Office | 250 | (20) | |||||||||
| Industrial | 99 | (1) | |||||||||
Other (1) | 452 | (22) | |||||||||
| Total corporate and other bonds - REITs | $ | 1,316 | $ | (68) | |||||||
(1) Other includes a diversified mix of property type strategies including self-storage, healthcare and apartments.
| December 31, 2023 | |||||||||||
| (In millions) | Estimated Fair Value | Net Unrealized Gains (Losses) | |||||||||
| Corporate and other bonds - REITs: | |||||||||||
| AA | $ | 10 | $ | — | |||||||
| A | 285 | (3) | |||||||||
| BBB | 994 | (64) | |||||||||
| Non-investment grade | 27 | (1) | |||||||||
| Total corporate and other bonds - REITs | $ | 1,316 | $ | (68) | |||||||
Mortgage loans are commercial in nature and are carried at unpaid principal balance, net of unamortized fees and an allowance for expected credit losses. The allowance for expected credit losses 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 ratios (LTV). This assessment utilizes historical credit loss experience adjusted to reflect current conditions and reasonable and supportable forecasts. As of December 31, 2023 the allowance for expected credit losses on our mortgage portfolio was $35 million, or 3.3% of our amortized cost basis.
The following table presents the amortized cost basis of mortgage loans by property type.
| December 31, 2023 | |||||||||||
| (In millions) | Amortized Cost | Percentage of Total | |||||||||
| Mortgage loans: | |||||||||||
| Retail | $ | 520 | 48 | % | |||||||
| Office | 245 | 23 | % | ||||||||
| Industrial | 124 | 12 | % | ||||||||
| Other | 181 | 17 | % | ||||||||
| Total mortgage loans | 1,070 | 100 | % | ||||||||
| Less: Allowance for expected credit losses | (35) | ||||||||||
| Total mortgage loans - net of allowance | $ | 1,035 | |||||||||
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In addition to our mortgage loan portfolio, we invest in securitized credit tenant loans and ground lease financings that are classified as fixed maturity securities and are largely investment grade quality. As of December 31, 2023, these holdings had an estimated fair value of $479 million and net unrealized losses of $87 million.
We own other fixed maturity securities which have exposure to cell towers, data centers and other collateral types that could be viewed as having real estate characteristics. We view these securities to have risks more akin to operating enterprises that do not share the same risks as the broader commercial real estate market.
We do not hold any direct investments in commercial real estate. Additionally, we do not have significant exposure through our limited partnership portfolio to funds whose primary strategy is real estate focused.
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Duration
A primary objective in the management of the investment portfolio is to optimize return relative to the corresponding liabilities and respective liquidity needs. Our views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions andas well as domestic and global economic conditions, are some of the factors that enter into an investment decision. We also continually monitor exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on our views of a specific issuer or industry sector.
A further consideration in the management of the 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, we segregate investments for asset/liability management purposes. The segregated investments support the long termlong-term care and structured settlement liabilities in the Life & Group segment.
The effective durations of fixed maturityincome securities non-redeemable preferred stock and short termshort-term investments are presented in the following table. Amounts presented are net of payable and receivable amounts for securities purchased and sold, but not yet settled.
| December 31 | 2017 | 2016 | |||||||||||
| (In millions) | Estimated Fair Value | Effective Duration (In years) | Estimated Fair Value | Effective Duration (In years) | |||||||||
| Investments supporting Life & Group | $ | 16,797 | 8.4 | $ | 15,724 | 8.7 | |||||||
| Other investments | 26,817 | 4.4 | 26,669 | 4.6 | |||||||||
| Total | $ | 43,614 | 5.9 | $ | 42,393 | 6.1 | |||||||
| December 31 | 2023 | 2022 | |||||||||||||||||||||
| (In millions) | Estimated Fair Value | Effective Duration (In years) | Estimated Fair Value | Effective Duration (In years) | |||||||||||||||||||
| Investments supporting Life & Group | $ | 15,137 | 10.2 | $ | 14,511 | 9.9 | |||||||||||||||||
| Other investments | 27,981 | 4.5 | 25,445 | 4.7 | |||||||||||||||||||
| Total | $ | 43,118 | 6.5 | $ | 39,956 | 6.6 | |||||||||||||||||
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, we periodically review the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures About Market Risk included under Item 7A.
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| December 31 | |||||||
| (In millions) | 2017 | 2016 | |||||
| Short term investments: | |||||||
| Commercial paper | $ | 905 | $ | 733 | |||
| U.S. Treasury securities | 355 | 433 | |||||
| Money market funds | 44 | 44 | |||||
| Other | 132 | 197 | |||||
| Total short term investments | $ | 1,436 | $ | 1,407 | |||
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary operating cash flow sources are premiums and investment income from our insurance subsidiaries.income. Our primary operating cash flow uses are payments for claims, policy benefits and operating expenses, including interest expense on corporate debt. Additionally, cash may be paid or received for income taxes.
For 2017,2023, net cash provided by operating activities was $1,254$2,285 million as compared with $1,416 million and $1,387$2,502 million for 2016 and 2015, respectively. In 2017,2022. The decrease in cash provided by operating activities reflectedwas driven by higher net claim payments, which includes long-term care policy buyouts of $193 million, and a lower level of distributions on limited partnershipshigher operating expenses partially offset by lower IT spend and an increase in premiums collected. Operating cash flows in 2016 reflected lower income taxes paid and increased receipts relating to returns on limited partnerships offset by higher net claim and expense payments. Operating cash flows in 2015 reflected lower premiums collected and decreased receipts relating to returns on limited partnerships offset by lower net claim payments.
Cash flows from investing activities include the purchase and disposition of available-for-sale financial instruments, excluding those held as trading, and may include the purchase and sale of businesses, land, buildings, equipment and other assets not generally held for resale.
Cash flows from financing activities may include proceeds from the issuance of debt and equity securities, and outflows for stockholder dividends, or repayment of debt and outlays to reacquire equity securities.purchases of our common stock.
•In 2023, we paid dividends of $787 million and $807 million for 2017, 2016 and 2015. repurchased 550,000 shares of our common stock at an aggregate cost of $24 million.
•In the third quarter of 2017,2023, we issued $500 million of 3.45%5.50% senior notes due AugustJune 15, 20272033 and redeemedrepaid the $350 million outstanding aggregate principal balances of our 7.35% senior notes due November 15, 2019. In the first quarter of 2016, we issued $500 million of 4.50% senior notes due March 1, 2026 and redeemed the $350$243 million outstanding aggregate principal balance of our 6.50% senior notes7.25% debenture which came due AugustNovember 15, 2016.2023.
•In 2022, we paid dividends of $982 million and repurchased 890,000 shares of our common stock at an aggregate cost of $39 million.
Liquidity
We believe that our present cash flows from operating, investing and financing activities are sufficient to fund our current and expected working capital and debt obligation needs and we do not expect this to change in the near term. There are currently no amounts outstanding under our $250 million senior unsecured revolving credit facility, which was amended and restated during the fourth quarter of 2023, and no borrowings outstanding through our membership in the Federal Home Loan Bank of Chicago (FHLBC). Further information on our Second Amended and Restated Credit Agreement is in Note I to the Consolidated Financial Statements included under Item 8.
CCC paid dividends of $955 million, $765$1,055 million and $900$990 million to CNAF during 2017, 20162023 and 2015.2022.
We have an effective automatic shelf registration statement on file with the Securities and Exchange Commission under which we may publicly issue an unspecified amount of debt, equity or hybrid securities from time to time.
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Common Stock Dividends
Our ability to pay dividends and othersatisfy our credit obligations is significantly dependent on receipt of dividends from our subsidiaries. The payment of dividends to us by our 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.
Further information on our dividends from subsidiaries is provided in Note MN to the Consolidated Financial Statements included under Item 8.
Commitments, Contingencies and Guarantees
We have various commitments, contingencies and guarantees which arose in the ordinary course of business. The impact of these commitments, contingencies and guarantees should be considered when evaluating our liquidity and capital resources.
A summary of our commitments is presented in the following table.
| December 31, 2023 | |||||||||||||||||||||||||||||
| (In millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||||||||||
Debt (1) | $ | 3,626 | $ | 658 | $ | 683 | $ | 631 | $ | 1,654 | |||||||||||||||||||
Lease obligations (2) | 266 | 37 | 65 | 55 | 109 | ||||||||||||||||||||||||
Claim and claim adjustment expense reserves (3) | 23,864 | 5,417 | 6,441 | 3,448 | 8,558 | ||||||||||||||||||||||||
Future policy benefit reserves (4) | 27,964 | 733 | 1,435 | 1,629 | 24,167 | ||||||||||||||||||||||||
Total (5) | $ | 55,720 | $ | 6,845 | $ | 8,624 | $ | 5,763 | $ | 34,488 | |||||||||||||||||||
| December 31, 2017 | |||||||||||||||||||
| (In millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||
| Debt (a) | $ | 3,638 | $ | 284 | $ | 756 | $ | 575 | $ | 2,023 | |||||||||
| Lease obligations | 417 | 40 | 72 | 73 | 232 | ||||||||||||||
| Claim and claim adjustment expense reserves (b) | 23,478 | 5,246 | 6,431 | 3,347 | 8,454 | ||||||||||||||
| Future policy benefit reserves (c) | 28,160 | (439 | ) | (258 | ) | 413 | 28,444 | ||||||||||||
Total (d), (e) | $ | 55,693 | $ | 5,131 | $ | 7,001 | $ | 4,408 | $ | 39,153 | |||||||||
(3) The Claim and claim adjustment expense reserves reflected above are not discounted and represent our estimate of the amount and timing of the ultimate settlement and administration of gross claims based on our assessment of facts and circumstances known as of December 31, 2023. See the Reserves - Estimates and Uncertainties section of this MD&A for further information.
(4) The Future policy benefit reserves reflected above are not discounted, include maintenance costs, represent our estimate of the ultimate amount and timing of the settlement of benefits net of expected premiums, and are based on our assessment of facts and circumstances known as of December 31, 2023. See the Reserves - Estimates and Uncertainties section of this MD&A for further information.
(5) Does not include investment commitments of $595approximately $1,555 million related to future capital calls from various third-party limited partnerships, privately placed debt securitiessigned and accepted mortgage loans.loan applications, and obligations related to private placement securities.
Further information on our commitments, contingencies and guarantees is provided in Notes A, B, E, F, HG, I and IM to the Consolidated Financial Statements included under Item 8.
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Ratings
Ratings are an important factor in establishing the competitive position of insurance companies. Our insurance company subsidiaries are rated by major rating agencies and these ratings reflect the rating agency's opinion of the insurance company's financial strength, operating performance, strategic position and ability to meet ourits obligations to policyholders. Agency ratings are not a recommendation to buy, sell or hold any security and may be revised or withdrawn at any time by the issuing organization. Each agency's rating should be evaluated independently of any other agency's rating. One or more of these agencies could take action in the future to change the ratings of our insurance subsidiaries.
The table below reflects the various group ratingsInsurer Financial Strength Ratings of CNA's insurance company subsidiaries issued by A.M. Best, Moody's, S&P and S&P.Fitch. The table also includes the ratings for CNAFCNAF's senior debt.
| December 31, | |||||||||||||
| A.M. Best | |||||||||||||
| BBB+ | |||||||||||||
A.M. Best, Moody’s, and S&P eachand Fitch maintain a stable outlook onoutlooks across the Company.Company’s Financial Strength and Senior Debt Ratings.
CNA Insurance Company Limited isand CNA Insurance Company (Europe) S.A. are included within the CCC group as part of S&P’s rating. Hardy, throughInsurer Financial Strength Rating for the Company. Syndicate 382 benefits from the collective financial strengthFinancial Strength Rating of the Lloyd’s, market, which is rated A+AA- by S&P with a stable outlook and A by A.M. Best with a stablepositive outlook.
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ACCOUNTING STANDARDS UPDATE
For a discussion of Accounting Standards, Updates adopted as of January 1, 2017 and that will be adopted in the future, see Note A to the Consolidated Financial Statements included under Item 8.
RECENT TAX LEGISLATION
Corporate Alternative Minimum Tax
The Inflation Reduction Act was enacted on August 16, 2022, and includes, among other provisions, a corporate alternative minimum tax (CAMT) of 15%, effective January 1, 2023, imposed on the adjusted financial statement income (AFSI) of an applicable corporation whose average annual AFSI over three prior years exceeds $1 billion. Based on interpretations of the CAMT and current guidance, we believe that the CAMT has no impact on our financial results for the year ended December 31, 2023. Along with Loews, we will continue to monitor as additional technical guidance from the U.S. Department of Treasury, including forthcoming proposed regulations, becomes available.
Pillar Two
The Organization for Economic Co-operation and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting has introduced rules to establish a global minimum corporate tax rate of 15%, commonly referred to as the Pillar Two rules. Numerous foreign countries have enacted legislation to implement the Pillar Two rules, effective beginning in 2024, or are expected to enact similar legislation. We are currently evaluating the potential impacts that Pillar Two may have on future periods and will continue to monitor the implementation of the Pillar Two rules in the jurisdictions in which we operate.
FORWARD-LOOKING STATEMENTS
This report contains a number of forward-looking statements which relate to anticipated future events rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions. Forward-looking statements in this report include any and all statements regarding expected developments in our insurance business, including losses and loss reserves (note that loss reserves for long-term care, A&EP and other mass tort claims which are more uncertain, and therefore more difficult to estimate than loss reserves respecting traditional property and casualty exposures;exposures); the impact of routine ongoing insurance reserve reviews we are conducting;conduct; our expectations concerning our revenues, earnings, expenses and investment activities; volatility in investment returns; expected cost savings and other results from our expense reduction activities; and our proposed actions in response to trends in our business. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected in the forward-looking statement.statements. We cannot control many of these risks and uncertainties. TheseMaterial risks and uncertainties are addressed in Part I, Item IA Risk Factors and include, but are not limited to, the following:
Company-Specific Factors
•the risks and uncertainties associated with our insurance reserves, as outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of this report, including the sufficiency of the reserves and the possibility for future increases, which would be reflected in the results of operations in the period that the need for such adjustment is determined;
•the risk that the other parties to the transactiontransactions in which, subject to certain limitations, we ceded our legacy A&EP and EWC liabilities, respectively, will not fully perform their respective obligations to CNA, the uncertainty in estimating loss reserves for A&EP and EWC liabilities and the possible continued exposure of CNA to liabilities for A&EP and EWC claims that are not covered under the terms of the transaction;respective transactions; and
•the performance of reinsurance companies under reinsurance contracts with us; andus.
54
Industry and General Market Factors
•general economic and business conditions, including recessionary conditions that may decrease the size and number of our insurance customers and create losses to our lines of business and inflationary pressures on medical care costs, construction costs and other economic sectors;
•the effects of social inflation, including frequency of nuclear verdicts and increased litigation activity, on the severity of claims;
•the effects of reviver statutes that extend, or eliminate, the statute of limitations for the reporting of claims, including statutes passed in certain states with respect to sexual molestation and sexual abuse, on the frequency of claims;
•the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;
•product and policy availability and demand and market responses, including the level of ability to obtain rate increasesincreases;
•the COVID-19 pandemic, including new or emerging variants, other potential pandemics and decline or non-renew underpriced accounts,related measures to achieve premium targetsmitigate the spread of the foregoing may continue to result in increased claims and profitability and to realize growth and retention estimates;related litigation risk across our enterprise;
•conditions in the capital and credit markets, including continuing uncertainty and instability in these markets, as well as the overall economy, and their impact on the returns, types, liquidity and valuation of our investments;
•conditions in the capital and credit markets that may limit our ability to raise significant amounts of capital on favorable terms; and
•the possibility of changes in our ratings by ratings agencies, including the inability to access certain markets or distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices.
Regulatory, Legal and Operational Factors
•regulatory and legal initiatives and compliance with governmental regulations and other legal requirements, which are increasing in complexity and number, change frequently, sometimes conflict, and could expose us to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions, including regulations related to cybersecurity protocols (which continue to evolve in breadth, sophistication and maturity in response to an ever-evolving threat landscape), legal inquiries by state authorities, judicial interpretations within the regulatory framework, including interpretation of policy provisions, decisions regarding coverage and theories of liability, legislative actions that increase claimant activity, including those revising applicability of statutes of limitations, trends in litigation and the outcome of any litigation involving us and rulings and changes in tax laws and regulations;
•regulatory limitations, impositions and restrictions upon us, including with respect to our ability to increase premium rates, and the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies; and
•regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our insurance subsidiaries, imposed by regulatory authorities, including regulatory capital adequacy standards;
•breaches of our or our vendors' data security infrastructure resulting in unauthorized access to systems and information, and/or interruption of operations; and
•regulatory and legal implications relating to the sophisticated cyber incident sustained by the Company in March 2021 that may arise.
Impact of Catastrophic EventsNatural and Related DevelopmentsMan-Made Disasters and Mass Tort Claims
•weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes, tornados and earthquakes, as well as climate change, including effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, wildfires, rain, hail and snow;
•regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and
55
conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
•man-made disasters, including the possible occurrence of terrorist attacks, the unpredictability of the nature, targets, severity or frequency of such events, and the effect of the absence or insufficiency of applicable terrorism legislation on coverages; and
•the occurrence of epidemics.epidemics and pandemics; and
Our forward-looking statements speak only as of the date of the filing of this Annual Report on Form 10-K and we do not undertake any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of the statement,filing of this Annual Report on Form 10-K, even if our expectations or any related events or circumstances change.
56
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments are exposed to various market risks, such as interest rate risk, equity price risk and foreign currency risk. Due to the level of risk associated with certain invested assets and the level of uncertainty related to changes in the value of these assets, it is possible that changes in these risks in the near term could have a material adverse impact on our results of operations, financial condition or equity.
Discussions herein regarding market risk focus on only one element of market risk, which is price risk. Price risk relates to changes in the level of prices due to changes in interest rates, equity prices, foreign exchange rates or other factors such as credit spreads. The fair value of our financial instruments is generally adversely affected when interest rates rise, equity markets decline or the dollar strengthens against foreign currency.
Active management of market risk is integral to our operations. We may take the following actions to manage our exposure to market risk within defined tolerance ranges: (1) change the character of future investments purchased or sold or (2) use derivatives to offset the market behavior of existing assets and liabilities or assets expected to be purchased and liabilities expected to be incurred.
Sensitivity Analysis
We monitor our sensitivity to interest rate changes by revaluing financial assets and liabilities using a variety of different interest rates. The Company usesWe use duration and convexity at the security level to estimate the change in fair value that would result from a change in each security's yield. Duration measures the price sensitivity of an asset to changes in the yield rate.yield. Convexity measures how the duration of the asset changes with interest rates. The duration and convexity analysis takes into account the unique characteristics (e.g., call and put options and prepayment expectations) of each security in determining the hypothetical change in fair value. The analysis is performed at the security level and aggregated up to the asset category levels for reporting in the tables below.
The evaluation is performed by applying an instantaneous change in yield rates of varying magnitudes on a static balance sheet to determine the effect such a change in rates would have on our fair value at risk and the resulting effect on stockholders' equity. The analysis presents the sensitivity of the fair value of our financial instruments to selected changes in capital market rates and index levels. The range of change chosen reflects our view of changes that are reasonably possible over a one-year period. The selection of the range of values chosen to represent changes in interest rates should not be construed as our prediction of future market events, but rather an illustration of the impact of such events.
The sensitivity analysis estimates the decline in the fair value of our interest sensitive assets and liabilities that were held as of December 31, 20172023 and 20162022 due to an instantaneous change in the yield of the security at the end of the period of 100 and 150 basis points, with all other variables held constant.
The sensitivity analysis also assumes an instantaneous 10% and 20% decline in the foreign currency exchange rates versus the United States dollar from their levels as of December 31, 20172023 and 2016,2022, with all other variables held constant.
Equity price risk was measured assuming an instantaneous 10% and 25% decline in the S&P 500 from its level as of December 31, 20172023 and 2016,2022, with all other variables held constant. Our common stock holdings, which are included in equity securities, were assumed to be highly and positively correlated with the S&P 500 index. TheFor our limited partnership holdings, the estimated change in value was largely derived from a beta analysis calculation of limited partnerships are also affected by changes in equity markets, so a model was developedhistorical experience of our portfolio and indices with similar strategies relative to analyze the observed changes in the value of limited partnerships held by the Company over a multiple year period along with the corresponding changes in the S&P 500 index. The result500.
57
The following tables present the estimated effects on the fair value of our financial instruments as of December 31, 20172023 and 20162022 due to an increase in yield rates of 100 basis points, a 10% decline in foreign currency exchange rates and a 10% decline in the S&P 500, with all other variables held constant.
Market Risk Scenario 1
| December 31, 2023 | Increase (Decrease) | ||||||||||||||||||||||
| (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Fixed maturity securities | $ | 40,425 | $ | (2,779) | $ | (319) | $ | — | |||||||||||||||
| Equity securities | 683 | (14) | — | (19) | |||||||||||||||||||
| Limited partnership investments | 2,174 | — | (1) | (87) | |||||||||||||||||||
| Other invested assets | 80 | — | (7) | — | |||||||||||||||||||
Mortgage loans (1) | 997 | (34) | — | — | |||||||||||||||||||
| Short-term investments | 2,165 | (2) | (19) | — | |||||||||||||||||||
| Total assets | 46,524 | (2,829) | (346) | (106) | |||||||||||||||||||
| Derivative financial instruments, included in Other liabilities | (1) | — | 1 | — | |||||||||||||||||||
| Total | $ | 46,523 | $ | (2,829) | $ | (345) | $ | (106) | |||||||||||||||
Short-term debt (2) | $ | 546 | $ | (2) | $ | — | $ | — | |||||||||||||||
Long-term debt (2) | 2,385 | (110) | — | — | |||||||||||||||||||
| Total debt | $ | 2,931 | $ | (112) | $ | — | $ | — | |||||||||||||||
| December 31, 2017 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | ||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities | $ | 41,487 | $ | (2,559 | ) | $ | (215 | ) | $ | — | |||||||||||||||||||||||||||||||||||||
| Equity securities | 695 | (26 | ) | (2 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||||||||
| Limited partnership investments | 2,369 | — | — | (95 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Other invested assets | 44 | — | (3 | ) | — | ||||||||||||||||||||||||||||||||||||||||||
Mortgage loans (1) | 844 | (40 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Short term investments | 1,436 | (1 | ) | (10 | ) | — | |||||||||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | 46,875 | (2,626 | ) | (230 | ) | (101 | ) | ||||||||||||||||||||||||||||||||||||||||
| Derivative financial instruments, included in Other liabilities | (3 | ) | 17 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total securities | $ | 46,872 | $ | (2,609 | ) | $ | (230 | ) | $ | (101 | ) | ||||||||||||||||||||||||||||||||||||
Long term debt (1) | $ | 2,896 | $ | (148 | ) | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||
Short-term debt (2) | |||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total debt | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Reported at amortized value, less allowance for credit loss, in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.
(2) Reported at amortized value in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.
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| December 31, 2016 | Increase (Decrease) | ||||||||||||||
| (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | |||||||||||
| Assets: | |||||||||||||||
| Fixed maturity securities | $ | 40,905 | $ | (2,571 | ) | $ | (189 | ) | $ | (1 | ) | ||||
| Equity securities | 110 | (7 | ) | (1 | ) | (11 | ) | ||||||||
| Limited partnership investments | 2,371 | — | — | (95 | ) | ||||||||||
| Other invested assets | 36 | — | (3 | ) | — | ||||||||||
Mortgage loans (1) | 594 | (30 | ) | — | — | ||||||||||
| Short term investments | 1,407 | (1 | ) | (9 | ) | — | |||||||||
| Total assets | 45,423 | (2,609 | ) | (202 | ) | (107 | ) | ||||||||
| Derivative financial instruments, included in Other liabilities | 3 | 13 | — | — | |||||||||||
| Total securities | $ | 45,426 | $ | (2,596 | ) | $ | (202 | ) | $ | (107 | ) | ||||
Long term debt (1) | $ | 2,952 | $ | (137 | ) | $ | — | $ | — | ||||||
The following tables present the estimated effects on the fair value of our financial instruments as of December 31, 20172023 and 20162022 due to an increase in yield rates of 150 basis points, a 20% decline in foreign currency exchange rates and a 25% decline in the S&P 500, with all other variables held constant.
Market Risk Scenario 2
| December 31, 2023 | Increase (Decrease) | ||||||||||||||||||||||
| (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Fixed maturity securities | $ | 40,425 | $ | (4,166) | $ | (638) | $ | — | |||||||||||||||
| Equity securities | 683 | (22) | — | (48) | |||||||||||||||||||
| Limited partnership investments | 2,174 | — | (1) | (217) | |||||||||||||||||||
| Other invested assets | 80 | — | (15) | — | |||||||||||||||||||
Mortgage loans (1) | 997 | (51) | — | — | |||||||||||||||||||
| Short-term investments | 2,165 | (4) | (38) | — | |||||||||||||||||||
| Total assets | 46,524 | (4,243) | (692) | (265) | |||||||||||||||||||
| Derivative financial instruments, included in Other liabilities | (1) | — | 3 | — | |||||||||||||||||||
| Total | $ | 46,523 | $ | (4,243) | $ | (689) | $ | (265) | |||||||||||||||
Short-term debt (2) | $ | 546 | $ | (3) | $ | — | $ | — | |||||||||||||||
Long-term debt (2) | 2,385 | (165) | — | — | |||||||||||||||||||
| Total debt | $ | 2,931 | $ | (168) | $ | — | $ | — | |||||||||||||||
| December 31, 2017 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | ||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities | $ | 41,487 | $ | (3,839 | ) | $ | (429 | ) | $ | — | |||||||||||||||||||||||||||||||||||||
| Equity securities | 695 | (38 | ) | (4 | ) | (16 | ) | ||||||||||||||||||||||||||||||||||||||||
| Limited partnership investments | 2,369 | — | — | (237 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Other invested assets | 44 | — | (7 | ) | — | ||||||||||||||||||||||||||||||||||||||||||
Mortgage loans (1) | 844 | (60 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Short term investments | 1,436 | (2 | ) | (20 | ) | — | |||||||||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | 46,875 | (3,939 | ) | (460 | ) | (253 | ) | ||||||||||||||||||||||||||||||||||||||||
| Derivative financial instruments, included in Other liabilities | (3 | ) | 25 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total securities | $ | 46,872 | $ | (3,914 | ) | $ | (460 | ) | $ | (253 | ) | ||||||||||||||||||||||||||||||||||||
Long term debt (1) | $ | 2,896 | $ | (221 | ) | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||
Short-term debt (2) | |||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total debt | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Reported at amortized value, less allowance for credit loss, in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.
(2) Reported at amortized value in the Consolidated Balance Sheets included under Item 8 and not adjusted for fair value changes.
| December 31, 2016 | Increase (Decrease) | ||||||||||||||
| (In millions) | Estimated Fair Value | Interest Rate Risk | Foreign Currency Risk | Equity Price Risk | |||||||||||
| Assets: | |||||||||||||||
| Fixed maturity securities | $ | 40,905 | $ | (3,855 | ) | $ | (379 | ) | $ | (2 | ) | ||||
| Equity securities | 110 | (11 | ) | (3 | ) | (28 | ) | ||||||||
| Limited partnership investments | 2,371 | — | — | (237 | ) | ||||||||||
| Other invested assets | 36 | — | (5 | ) | — | ||||||||||
Mortgage loans (1) | 594 | (45 | ) | — | — | ||||||||||
| Short term investments | 1,407 | (2 | ) | (17 | ) | — | |||||||||
| Total assets | 45,423 | (3,913 | ) | (404 | ) | (267 | ) | ||||||||
| Derivative financial instruments, included in Other liabilities | 3 | 20 | — | — | |||||||||||
| Total securities | $ | 45,426 | $ | (3,893 | ) | $ | (404 | ) | $ | (267 | ) | ||||
Long term debt (1) | $ | 2,952 | $ | (205 | ) | $ | — | $ | — | ||||||
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CNA Financial Corporation
Consolidated Statements of Operations
| Years ended December 31 | |||||||||||||||||
| (In millions, except per share data) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Revenues | |||||||||||||||||
| Net earned premiums | $ | 9,480 | $ | 8,667 | $ | 8,175 | |||||||||||
| Net investment income | 2,264 | 1,805 | 2,159 | ||||||||||||||
| Net investment (losses) gains | (99) | (199) | 120 | ||||||||||||||
| Non-insurance warranty revenue | 1,624 | 1,574 | 1,430 | ||||||||||||||
| Other revenues | 30 | 32 | 24 | ||||||||||||||
| Total revenues | 13,299 | 11,879 | 11,908 | ||||||||||||||
| Claims, Benefits and Expenses | |||||||||||||||||
| Insurance claims and policyholders’ benefits (re-measurement gain (loss) of $(88), $(214), and $(8)) | 7,068 | 6,653 | 6,371 | ||||||||||||||
| Amortization of deferred acquisition costs | 1,644 | 1,490 | 1,443 | ||||||||||||||
| Non-insurance warranty expense | 1,544 | 1,471 | 1,328 | ||||||||||||||
| Other operating expenses | 1,398 | 1,339 | 1,191 | ||||||||||||||
| Interest | 127 | 112 | 113 | ||||||||||||||
| Total claims, benefits and expenses | 11,781 | 11,065 | 10,446 | ||||||||||||||
| Income before income tax | 1,518 | 814 | 1,462 | ||||||||||||||
| Income tax expense | (313) | (132) | (278) | ||||||||||||||
| Net income | $ | 1,205 | $ | 682 | $ | 1,184 | |||||||||||
| Basic earnings per share | $ | 4.44 | $ | 2.51 | $ | 4.36 | |||||||||||
| Diluted earnings per share | $ | 4.43 | $ | 2.51 | $ | 4.34 | |||||||||||
| Weighted Average Outstanding Common Stock and Common Stock Equivalents | |||||||||||||||||
| Basic | 271.3 | 271.6 | 271.8 | ||||||||||||||
| Diluted | 272.2 | 272.5 | 272.8 | ||||||||||||||
| Years ended December 31 | |||||||||||
| (In millions, except per share data) | 2017 | 2016 | 2015 | ||||||||
| Revenues | |||||||||||
| Net earned premiums | $ | 6,988 | $ | 6,924 | $ | 6,921 | |||||
| Net investment income | 2,034 | 1,988 | 1,840 | ||||||||
| Net realized investment gains (losses): | |||||||||||
| Other-than-temporary impairment losses | (14 | ) | (81 | ) | (156 | ) | |||||
| Other net realized investment gains | 107 | 131 | 89 | ||||||||
| Net realized investment gains (losses) | 93 | 50 | (67 | ) | |||||||
| Other revenues | 427 | 404 | 407 | ||||||||
| Total revenues | 9,542 | 9,366 | 9,101 | ||||||||
| Claims, Benefits and Expenses | |||||||||||
| Insurance claims and policyholders’ benefits | 5,310 | 5,283 | 5,384 | ||||||||
| Amortization of deferred acquisition costs | 1,233 | 1,235 | 1,540 | ||||||||
| Other operating expenses | 1,528 | 1,552 | 1,473 | ||||||||
| Interest | 161 | 159 | 155 | ||||||||
| Total claims, benefits and expenses | 8,232 | 8,229 | 8,552 | ||||||||
| Income before income tax | 1,310 | 1,137 | 549 | ||||||||
| Income tax expense | (411 | ) | (278 | ) | (70 | ) | |||||
| Net income | $ | 899 | $ | 859 | $ | 479 | |||||
| Basic earnings per share | $ | 3.32 | $ | 3.18 | $ | 1.77 | |||||
| Diluted earnings per share | $ | 3.30 | $ | 3.17 | $ | 1.77 | |||||
| Dividends declared per share | $ | 3.10 | $ | 3.00 | $ | 3.00 | |||||
| Weighted Average Outstanding Common Stock and Common Stock Equivalents | |||||||||||
| Basic | 271.1 | 270.4 | 270.2 | ||||||||
| Diluted | 272.1 | 271.1 | 270.7 | ||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
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CNA Financial Corporation
Consolidated Statements of Comprehensive Income (Loss)
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Comprehensive Income (Loss) | |||||||||||||||||
| Net income | $ | 1,205 | $ | 682 | $ | 1,184 | |||||||||||
| Other Comprehensive Income (Loss), net of tax | |||||||||||||||||
| Changes in: | |||||||||||||||||
| Net unrealized gains and losses on investments with an allowance for credit losses | (5) | (5) | (2) | ||||||||||||||
| Net unrealized gains and losses on other investments | 1,125 | (6,097) | (987) | ||||||||||||||
| Net unrealized gains and losses on investments | 1,120 | (6,102) | (989) | ||||||||||||||
| Impact of changes in discount rates used to measure long-duration contract liabilities | (318) | 3,959 | 941 | ||||||||||||||
| Foreign currency translation adjustment | 58 | (108) | (19) | ||||||||||||||
| Pension and postretirement benefits | 66 | 13 | 244 | ||||||||||||||
| Other comprehensive income (loss), net of tax | 926 | (2,238) | 177 | ||||||||||||||
| Total comprehensive income (loss) | $ | 2,131 | $ | (1,556) | $ | 1,361 | |||||||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Comprehensive Income (Loss) | |||||||||||
| Net income | $ | 899 | $ | 859 | $ | 479 | |||||
| Other Comprehensive Income (Loss), Net of Tax | |||||||||||
| Changes in: | |||||||||||
| Net unrealized gains on investments with other-than-temporary impairments | (5 | ) | 3 | (9 | ) | ||||||
| Net unrealized gains on other investments | 108 | 252 | (552 | ) | |||||||
| Net unrealized gains on investments | 103 | 255 | (561 | ) | |||||||
| Foreign currency translation adjustment | 100 | (114 | ) | (139 | ) | ||||||
| Pension and postretirement benefits | 2 | 1 | (15 | ) | |||||||
| Other comprehensive income (loss), net of tax | 205 | 142 | (715 | ) | |||||||
| Total comprehensive income (loss) | $ | 1,104 | $ | 1,001 | $ | (236 | ) | ||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
61
CNA Financial Corporation
Consolidated Balance Sheets
| December 31 | |||||||||||
| (In millions, except share data) | 2023 | 2022 (1) | |||||||||
| Assets | |||||||||||
| Investments: | |||||||||||
| Fixed maturity securities at fair value (amortized cost of $42,414 and $41,032, less allowance for credit loss of $16 and $1) | $ | 40,425 | $ | 37,627 | |||||||
| Equity securities at fair value (cost of $686 and $703) | 683 | 674 | |||||||||
| Limited partnership investments | 2,174 | 1,926 | |||||||||
| Other invested assets | 80 | 78 | |||||||||
| Mortgage loans (less allowance for credit loss of $35 and $24) | 1,035 | 1,040 | |||||||||
| Short-term investments | 2,165 | 1,832 | |||||||||
| Total investments | 46,562 | 43,177 | |||||||||
| Cash | 345 | 475 | |||||||||
| Reinsurance receivables (less allowance for uncollectible receivables of $22 and $22) | 5,412 | 5,416 | |||||||||
| Insurance receivables (less allowance for uncollectible receivables of $28 and $29) | 3,442 | 3,158 | |||||||||
| Accrued investment income | 444 | 402 | |||||||||
| Deferred acquisition costs | 896 | 806 | |||||||||
| Deferred income taxes | 1,016 | 1,251 | |||||||||
| Property and equipment at cost (less accumulated depreciation of $296 and $280) | 253 | 226 | |||||||||
| Goodwill | 146 | 144 | |||||||||
| Deferred non-insurance warranty acquisition expense | 3,661 | 3,671 | |||||||||
| Other assets (includes $23 and $18 due from Loews Corporation) | 2,534 | 2,274 | |||||||||
| Total assets | $ | 64,711 | $ | 61,000 | |||||||
| Liabilities | |||||||||||
| Insurance reserves: | |||||||||||
| Claim and claim adjustment expenses | $ | 23,304 | $ | 22,120 | |||||||
| Unearned premiums | 6,933 | 6,374 | |||||||||
| Future policy benefits | 13,959 | 13,480 | |||||||||
| Short-term debt | 550 | 243 | |||||||||
| Long-term debt | 2,481 | 2,538 | |||||||||
| Deferred non-insurance warranty revenue | 4,694 | 4,714 | |||||||||
| Other liabilities (includes $28 and $26 due to Loews Corporation) | 2,897 | 2,983 | |||||||||
| Total liabilities | 54,818 | 52,452 | |||||||||
| Commitments and contingencies (Notes B and G) | |||||||||||
| Stockholders' Equity | |||||||||||
| Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 270,881,457 and 270,895,902 shares outstanding) | 683 | 683 | |||||||||
| Additional paid-in capital | 2,221 | 2,220 | |||||||||
| Retained earnings | 9,755 | 9,336 | |||||||||
| Accumulated other comprehensive loss | (2,672) | (3,598) | |||||||||
| Treasury stock (2,158,786 and 2,144,341 shares), at cost | (94) | (93) | |||||||||
| Total stockholders’ equity | 9,893 | 8,548 | |||||||||
| Total liabilities and stockholders' equity | $ | 64,711 | $ | 61,000 | |||||||
| December 31 | |||||||
| (In millions, except share data) | 2017 | 2016 | |||||
| Assets | |||||||
| Investments: | |||||||
| Fixed maturity securities at fair value (amortized cost of $38,215 and $38,361) | $ | 41,487 | $ | 40,905 | |||
| Equity securities at fair value (cost of $659 and $106) | 695 | 110 | |||||
| Limited partnership investments | 2,369 | 2,371 | |||||
| Other invested assets | 44 | 36 | |||||
| Mortgage loans | 839 | 591 | |||||
| Short term investments | 1,436 | 1,407 | |||||
| Total investments | 46,870 | 45,420 | |||||
| Cash | 355 | 271 | |||||
| Reinsurance receivables (less allowance for uncollectible receivables of $29 and $37) | 4,261 | 4,416 | |||||
| Insurance receivables (less allowance for uncollectible receivables of $44 and $46) | 2,292 | 2,209 | |||||
| Accrued investment income | 411 | 405 | |||||
| Deferred acquisition costs | 634 | 600 | |||||
| Deferred income taxes | 137 | 379 | |||||
| Property and equipment at cost (less accumulated depreciation of $274 and $254) | 326 | 310 | |||||
| Goodwill | 148 | 145 | |||||
| Other assets | 1,133 | 1,078 | |||||
| Total assets | $ | 56,567 | $ | 55,233 | |||
| Liabilities | |||||||
| Insurance reserves: | |||||||
| Claim and claim adjustment expenses | $ | 22,004 | $ | 22,343 | |||
| Unearned premiums | 4,029 | 3,762 | |||||
| Future policy benefits | 11,179 | 10,326 | |||||
| Short term debt | 150 | — | |||||
| Long term debt | 2,708 | 2,710 | |||||
| Other liabilities (includes $143 and $50 due to Loews Corporation) | 4,253 | 4,123 | |||||
| Total liabilities | 44,323 | 43,264 | |||||
| Commitments and contingencies (Notes B, F and L) | |||||||
| Stockholders' Equity | |||||||
| Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 271,205,390 and 270,495,998 shares outstanding) | 683 | 683 | |||||
| Additional paid-in capital | 2,175 | 2,173 | |||||
| Retained earnings | 9,414 | 9,359 | |||||
| Accumulated other comprehensive income (loss) | 32 | (173 | ) | ||||
| Treasury stock (1,834,853 and 2,544,245 shares), at cost | (60 | ) | (73 | ) | |||
| Total stockholders’ equity | 12,244 | 11,969 | |||||
| Total liabilities and stockholders' equity | $ | 56,567 | $ | 55,233 | |||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
62
CNA Financial Corporation
Consolidated Statements of Cash Flows
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Cash Flows from Operating Activities | |||||||||||||||||
| Net income | $ | 1,205 | $ | 682 | $ | 1,184 | |||||||||||
| Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||||||||||
| Deferred income tax expense (benefit) | 2 | (89) | 43 | ||||||||||||||
| Trading portfolio activity | 1 | 6 | 20 | ||||||||||||||
| Net investment losses (gains) | 99 | 199 | (120) | ||||||||||||||
| Equity method investees | (8) | 250 | (127) | ||||||||||||||
| Net amortization of investments | (191) | (129) | (81) | ||||||||||||||
| Depreciation and amortization | 73 | 51 | 54 | ||||||||||||||
| Changes in: | |||||||||||||||||
| Receivables, net | (245) | (226) | (1,358) | ||||||||||||||
| Accrued investment income | (41) | (29) | 3 | ||||||||||||||
| Deferred acquisition costs | (85) | (79) | (30) | ||||||||||||||
| Insurance reserves | 1,667 | 2,058 | 2,485 | ||||||||||||||
| Other, net | (192) | (192) | (76) | ||||||||||||||
| Net cash flows provided by operating activities | 2,285 | 2,502 | 1,997 | ||||||||||||||
| Cash Flows from Investing Activities | |||||||||||||||||
| Dispositions: | |||||||||||||||||
| Fixed maturity securities - sales | 4,029 | 5,909 | 3,816 | ||||||||||||||
| Fixed maturity securities - maturities, calls and redemptions | 1,334 | 2,358 | 4,464 | ||||||||||||||
| Equity securities | 317 | 509 | 316 | ||||||||||||||
| Limited partnerships | 164 | 138 | 246 | ||||||||||||||
| Mortgage loans | 122 | 125 | 190 | ||||||||||||||
| Purchases: | |||||||||||||||||
| Fixed maturity securities | (6,616) | (9,821) | (9,307) | ||||||||||||||
| Equity securities | (293) | (294) | (304) | ||||||||||||||
| Limited partnerships | (402) | (337) | (440) | ||||||||||||||
| Mortgage loans | (127) | (200) | (95) | ||||||||||||||
| Change in other investments | (2) | 8 | (6) | ||||||||||||||
| Change in short-term investments | (274) | 155 | (83) | ||||||||||||||
| Purchases of property and equipment | (90) | (52) | (26) | ||||||||||||||
| Other, net | (5) | (10) | 1 | ||||||||||||||
| Net cash flows used by investing activities | (1,843) | (1,512) | (1,228) | ||||||||||||||
| Cash Flows from Financing Activities | |||||||||||||||||
| Dividends paid to common stockholders | (787) | (982) | (621) | ||||||||||||||
| Proceeds from the issuance of debt | 491 | — | — | ||||||||||||||
| Repayment of debt | (243) | — | — | ||||||||||||||
| Purchase of treasury stock | (24) | (39) | (18) | ||||||||||||||
| Other, net | (14) | (11) | (9) | ||||||||||||||
| Net cash flows used by financing activities | (577) | (1,032) | (648) | ||||||||||||||
| Effect of foreign exchange rate changes on cash | 5 | (19) | (4) | ||||||||||||||
| Net change in cash | (130) | (61) | 117 | ||||||||||||||
| Cash, beginning of year | 475 | 536 | 419 | ||||||||||||||
| Cash, end of year | $ | 345 | $ | 475 | $ | 536 | |||||||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 899 | $ | 859 | $ | 479 | |||||
| Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||||
| Deferred income tax expense (benefit) | 168 | 136 | (150 | ) | |||||||
| Trading portfolio activity | 9 | (9 | ) | 17 | |||||||
| Net realized investment (gains) losses | (93 | ) | (50 | ) | 67 | ||||||
| Equity method investees | 84 | 238 | 195 | ||||||||
| Net amortization of investments | (40 | ) | (27 | ) | 17 | ||||||
| Depreciation and amortization | 88 | 77 | 84 | ||||||||
| Changes in: | |||||||||||
| Receivables, net | 92 | (130 | ) | 82 | |||||||
| Accrued investment income | (4 | ) | (3 | ) | (1 | ) | |||||
| Deferred acquisition costs | (24 | ) | (8 | ) | 311 | ||||||
| Insurance reserves | 22 | 237 | 241 | ||||||||
| Other assets | (158 | ) | (95 | ) | (79 | ) | |||||
| Other liabilities | 173 | 162 | 126 | ||||||||
| Other, net | 38 | 29 | (2 | ) | |||||||
| Total adjustments | 355 | 557 | 908 | ||||||||
| Net cash flows provided by operating activities | 1,254 | 1,416 | 1,387 | ||||||||
| Cash Flows from Investing Activities | |||||||||||
| Dispositions: | |||||||||||
| Fixed maturity securities - sales | 5,438 | 5,328 | 4,390 | ||||||||
| Fixed maturity securities - maturities, calls and redemptions | 3,641 | 3,219 | 4,095 | ||||||||
| Equity securities | 46 | 81 | 57 | ||||||||
| Limited partnerships | 192 | 290 | 174 | ||||||||
| Mortgage loans | 26 | 207 | 26 | ||||||||
| Purchases: | |||||||||||
| Fixed maturity securities | (9,065 | ) | (9,827 | ) | (8,675 | ) | |||||
| Equity securities | (166 | ) | — | (62 | ) | ||||||
| Limited partnerships | (171 | ) | (252 | ) | (188 | ) | |||||
| Mortgage loans | (274 | ) | (120 | ) | (123 | ) | |||||
| Change in other investments | (3 | ) | 7 | 4 | |||||||
| Change in short term investments | (6 | ) | 258 | 34 | |||||||
| Purchases of property and equipment | (102 | ) | (146 | ) | (125 | ) | |||||
| Disposals of property and equipment | — | 107 | — | ||||||||
| Other, net | 20 | 2 | 21 | ||||||||
| Net cash flows used by investing activities | $ | (424 | ) | $ | (846 | ) | $ | (372 | ) | ||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
63
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Cash Flows from Financing Activities | |||||||||||
| Dividends paid to common stockholders | $ | (842 | ) | $ | (813 | ) | $ | (811 | ) | ||
| Proceeds from the issuance of debt | 496 | 498 | — | ||||||||
| Repayment of debt | (391 | ) | (358 | ) | — | ||||||
| Other, net | (18 | ) | — | 4 | |||||||
| Net cash flows used by financing activities | (755 | ) | (673 | ) | (807 | ) | |||||
| Effect of foreign exchange rate changes on cash | 9 | (13 | ) | (11 | ) | ||||||
| Net change in cash | 84 | (116 | ) | 197 | |||||||
| Cash, beginning of year | 271 | 387 | 190 | ||||||||
| Cash, end of year | $ | 355 | $ | 271 | $ | 387 | |||||
CNA Financial Corporation
Consolidated Statements of Stockholders' Equity
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Common Stock | |||||||||||||||||
| Balance, beginning of year | $ | 683 | $ | 683 | $ | 683 | |||||||||||
| Balance, end of year | 683 | 683 | 683 | ||||||||||||||
| Additional Paid-in Capital | |||||||||||||||||
| Balance, beginning of year | 2,220 | 2,215 | 2,211 | ||||||||||||||
| Stock-based compensation | 1 | 5 | 4 | ||||||||||||||
| Balance, end of year | 2,221 | 2,220 | 2,215 | ||||||||||||||
| Retained Earnings | |||||||||||||||||
| Balance, beginning of year, as previously reported | 9,572 | 9,663 | 9,081 | ||||||||||||||
| Cumulative effect adjustments from changes in accounting guidance, net of tax | (236) | (24) | (6) | ||||||||||||||
| Balance, beginning of year, as adjusted | 9,336 | 9,639 | 9,075 | ||||||||||||||
| Dividends to common stockholders ($2.88, $3.60, and $2.27 per share) | (786) | (985) | (620) | ||||||||||||||
| Net income | 1,205 | 682 | 1,184 | ||||||||||||||
| Balance, end of year | 9,755 | 9,336 | 9,639 | ||||||||||||||
| Accumulated Other Comprehensive (Loss) | |||||||||||||||||
| Balance, beginning of year, as previously reported | (3,557) | 320 | 803 | ||||||||||||||
| Cumulative effect adjustments from changes in accounting guidance, net of tax | (41) | (1,680) | (2,340) | ||||||||||||||
| Balance, beginning of year, as adjusted | (3,598) | (1,360) | (1,537) | ||||||||||||||
| Other comprehensive income (loss) | 926 | (2,238) | 177 | ||||||||||||||
| Balance, end of year | (2,672) | (3,598) | (1,360) | ||||||||||||||
| Treasury Stock | |||||||||||||||||
| Balance, beginning of year | (93) | (72) | (71) | ||||||||||||||
| Stock-based compensation | 23 | 18 | 17 | ||||||||||||||
| Purchase of treasury stock | (24) | (39) | (18) | ||||||||||||||
| Balance, end of year | (94) | (93) | (72) | ||||||||||||||
| Total stockholders' equity | $ | 9,893 | $ | 8,548 | $ | 11,105 | |||||||||||
(1) As of January 1, 2023, the Company adopted ASU 2018-12 using the modified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts in the financial statements have been adjusted to reflect application of the new guidance. See Note A to the Consolidated Financial Statements for additional information.
The accompanying Notes are an integral part of these Consolidated Financial Statements.
64
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Common Stock | |||||||||||
| Balance, beginning of year | $ | 683 | $ | 683 | $ | 683 | |||||
| Balance, end of year | 683 | 683 | 683 | ||||||||
| Additional Paid-in Capital | |||||||||||
| Balance, beginning of year | 2,173 | 2,153 | 2,151 | ||||||||
| Stock-based compensation | 2 | 20 | 2 | ||||||||
| Balance, end of year | 2,175 | 2,173 | 2,153 | ||||||||
| Retained Earnings | |||||||||||
| Balance, beginning of year | 9,359 | 9,313 | 9,645 | ||||||||
| Dividends paid to common stockholders | (844 | ) | (813 | ) | (811 | ) | |||||
| Net income | 899 | 859 | 479 | ||||||||
| Balance, end of year | 9,414 | 9,359 | 9,313 | ||||||||
| Accumulated Other Comprehensive Income (Loss) | |||||||||||
| Balance, beginning of year | (173 | ) | (315 | ) | 400 | ||||||
| Other comprehensive income (loss) | 205 | 142 | (715 | ) | |||||||
| Balance, end of year | 32 | (173 | ) | (315 | ) | ||||||
| Treasury Stock | |||||||||||
| Balance, beginning of year | (73 | ) | (78 | ) | (84 | ) | |||||
| Stock-based compensation | 13 | 5 | 6 | ||||||||
| Balance, end of year | (60 | ) | (73 | ) | (78 | ) | |||||
| Notes Receivable for the Issuance of Common Stock | |||||||||||
| Balance, beginning of year | — | — | (1 | ) | |||||||
Decrease in notes receivable for common stock | — | — | 1 | ||||||||
| Balance, end of year | — | — | — | ||||||||
| Total stockholders' equity | $ | 12,244 | $ | 11,969 | $ | 11,756 | |||||
CNA Financial Corporation
Notes to Consolidated Financial Statements
Note A. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of CNA Financial Corporation (CNAF) and its subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. Loews Corporation (Loews) owned approximately 89%92% of the outstanding common stock of CNAF as of December 31, 2017.2023.
The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany amounts have been eliminated. The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Recently Adopted Accounting Standards Updates (ASU)
ASU 2018-12: In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12; LDTI), which requires changes to the measurement and disclosure of long-duration contracts. Entities are required to review, and update if there is a change, cash flow assumptions (including morbidity and persistency) used to measure the liability for future policyholder benefits (LFPB) at least annually. The LFPB must also be updated for actual experience at least annually. The LFPB is reflected as Insurance reserves: Future policy benefits on the Consolidated Balance Sheet. The discount rate assumption used to measure the LFPB must be updated quarterly using an upper-medium grade (low credit risk) fixed-income instrument yield, commonly interpreted as a single-A rate. The effect of changes in cash flow assumptions and actual variances from expected experience are recorded in the Company's results of operations within Insurance claims and policyholders' benefits. The effect of changes in discount rate assumptions are recorded in Other comprehensive income (loss). In contrast, under legacy accounting guidance, cash flow and discount rate assumptions were locked-in unless a premium deficiency emerged. The discount rate assumption under legacy accounting guidance was determined using the Company’s internal investment portfolio yield, which was generally higher than a single-A yield.
The new guidance eliminates the need to hold shadow reserves associated with the Company’s long-term care reserves. Under legacy accounting guidance, to the extent that unrealized gains on fixed maturity securities supporting long-term care reserves would have resulted in a premium deficiency if realized, a related increase to Insurance reserves was recorded, net of tax, as a reduction of net unrealized gains (losses), through Other comprehensive income (loss) (shadow reserves).
The unit of account is the level at which reserves are measured. Under the new guidance, the unit of account used to measure the LFPB is the cohort. Cohorts are comprised of insurance contracts issued no more than one year apart, and must be further disaggregated according to policy benefit and insurance risk characteristics. Under legacy accounting guidance, the LFPB was generally measured at the individual policy level.
Under the new guidance, the Net Premium Ratio (NPR) is capped at 100%. To the extent that NPR would otherwise exceed 100%, the LFPB is increased and a loss is recognized immediately in the Company’s results of operations. The NPR cap is applied at the cohort level each quarter when the NPR is updated. In contrast, under legacy accounting guidance, premium deficiency testing was performed annually at the product level. See Note F to the Consolidated Financial Statements for further explanation of the NPR and LFPB calculations.
The Company adopted the new guidance effective January 1, 2023, using the modified retrospective method applied as of the transition date of January 1, 2021. The Company's run-off long-term care business is in scope of the new guidance. All prior periods presented in the financial statements have been adjusted to reflect application of the new guidance. The Company’s original locked in discount rate, utilized for purposes of
65
calculating the NPR under the new guidance, was based on the discount rate assumption used to calculate the LFPB immediately prior to the transition date. While the requirements of the new guidance represent a material change from legacy accounting, the new guidance does not impact capital and surplus under statutory accounting practices, cash flows or the underlying economics of the business.
In December 2022, the FASB issued ASU 2022-05, Financial Services-Insurance (Topic 944): Transition for Sold Contracts (ASU 2022-05). This guidance permits companies to make an election to exclude from the scope of ASU 2018-12 any insurance contracts that have been de-recognized prior to the effective date of ASU 2018-12, assuming that the company has no significant continuing involvement with the de-recognized contracts. In the fourth quarter of 2022, the Company novated its block of legacy annuity business, which was fully-ceded prior to novation. The Company has elected the ASU 2022-05 transition relief, and has excluded the novated legacy annuity business from the scope of ASU 2018-12.
Explanation of ASU 2018-12 Transition Impacts:
The following table presents a roll-forward of the pre-transition LFPB balance as of January 1, 2021:
(In millions) | |||||
| Balance as of December 31, 2020, as previously reported | $ | 13,318 | |||
Reclassification of reserves for policyholders currently receiving benefits to Future policy benefits (1) | 2,844 | ||||
| De-recognition of shadow reserves | (3,293) | ||||
| Re-measurement using an upper-medium grade fixed income instrument yield discount rate | 6,255 | ||||
| Other adjustments | 8 | ||||
| Balance as of January 1, 2021, as adjusted | $ | 19,132 | |||
(1) In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the Company reclassified the long-term care reserves for policyholders currently receiving benefits from Claim and claim adjustment expenses to Future policy benefits. This change was applied retrospectively as of January 1, 2021.
Shadow reserves associated with the Company’s long-term care business were de-recognized as of the transition date in Accumulated other comprehensive income (AOCI). The effect of re-measuring the LFPB at the single-A discount rate as of the transition date was similarly recorded in AOCI. The Company did not have any cohorts for which the NPR exceeded 100% at the transition date.
The Company’s practice under legacy accounting guidance was to calculate and record premium deficiency reserves at the policy level. Accordingly, an allocation methodology was not required to assign historical premium deficiency reserves to cohorts upon transition to ASU 2018-12.
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The following table presents after tax adjustments to the opening balance of Stockholders’ equity resulting from adoption of ASU 2018-12:
(In millions) | Accumulated other comprehensive income (loss) | Retained earnings | |||||||||
| Balance as of December 31, 2020, as previously reported | $ | 803 | $ | 9,081 | |||||||
| De-recognition of shadow reserves | 2,601 | — | |||||||||
| Re-measurement of LFPB using an upper-medium grade fixed income instrument yield discount rate | (4,941) | — | |||||||||
| Other adjustments | — | (6) | |||||||||
| Balance as of January 1, 2021, as adjusted | $ | (1,537) | $ | 9,075 | |||||||
The effects of adoption of ASU 2018-12 on the Consolidated Statement of Operations for the year ended December 31, 2022 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
Insurance claims and policyholders’ benefits (1) | $ | 6,386 | $ | 267 | $ | 6,653 | |||||||||||
| Income (loss) before income tax | 1,081 | (267) | 814 | ||||||||||||||
| Income tax (expense) benefit | (187) | 55 | (132) | ||||||||||||||
| Net income | 894 | (212) | 682 | ||||||||||||||
| Basic earnings (loss) per share | 3.29 | (0.78) | 2.51 | ||||||||||||||
| Diluted earnings (loss) per share | 3.28 | (0.77) | 2.51 | ||||||||||||||
(1) The effect of adopting ASU 2018-12 on Insurance claims and policyholders’ benefits is inclusive of the re-measurement gain (loss) of $(214) million, which is presented parenthetically on the Consolidated Statement of Operations.
The effects of adoption of ASU 2018-12 on the Consolidated Statement of Operations for the year ended December 31, 2021 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
Insurance claims and policyholders’ benefits (1) | $ | 6,349 | $ | 22 | $ | 6,371 | |||||||||||
| Income (loss) before income tax | 1,484 | (22) | 1,462 | ||||||||||||||
| Income tax (expense) benefit | (282) | 4 | (278) | ||||||||||||||
| Net income | 1,202 | (18) | 1,184 | ||||||||||||||
| Basic earnings (loss) per share | 4.42 | (0.06) | 4.36 | ||||||||||||||
| Diluted earnings (loss) per share | 4.41 | (0.07) | 4.34 | ||||||||||||||
(1) The effect of adopting ASU 2018-12 on Insurance claims and policyholders’ benefits is inclusive of the re-measurement gain (loss) of $(8) million, which is presented parenthetically on the Consolidated Statement of Operations.
The effects of adoption of ASU 2018-12 on the Consolidated Balance Sheet as of December 31, 2022 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
| Deferred income taxes | $ | 1,178 | $ | 73 | $ | 1,251 | |||||||||||
| Total assets | 60,927 | 73 | 61,000 | ||||||||||||||
Claim and claim adjustment expenses (1) | 25,099 | (2,979) | 22,120 | ||||||||||||||
Future policy benefits (1) | 10,151 | 3,329 | 13,480 | ||||||||||||||
| Total liabilities | 52,102 | 350 | 52,452 | ||||||||||||||
| Retained earnings | 9,572 | (236) | 9,336 | ||||||||||||||
| Accumulated other comprehensive income (loss) | (3,557) | (41) | (3,598) | ||||||||||||||
| Total stockholders' equity | 8,825 | (277) | 8,548 | ||||||||||||||
(1) In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the Company reclassified the long-term care reserves for policyholders currently receiving benefits from Claim and claim adjustment expenses to Future policy benefits. This change was applied retrospectively as of January 1, 2021.
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The effects of adoption of ASU 2018-12 on the Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2022 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
| Changes in: Net unrealized gains and losses on other investments | $ | (3,777) | $ | (2,320) | $ | (6,097) | |||||||||||
| Net unrealized gains and losses on investments | (3,782) | (2,320) | (6,102) | ||||||||||||||
| Impact of changes in discount rates used to measure long-duration contract liabilities | — | 3,959 | 3,959 | ||||||||||||||
| Other comprehensive income (loss), net of tax | (3,877) | 1,639 | (2,238) | ||||||||||||||
| Total comprehensive income (loss) | (2,983) | 1,427 | (1,556) | ||||||||||||||
The effects of adoption of ASU 2018-12 on the Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2021 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
| Changes in: Net unrealized gains and losses on other investments | $ | (706) | $ | (281) | $ | (987) | |||||||||||
| Net unrealized gains and losses on investments | (708) | (281) | (989) | ||||||||||||||
| Impact of changes in discount rates used to measure long-duration contract liabilities | — | 941 | 941 | ||||||||||||||
| Other comprehensive income (loss), net of tax | (483) | 660 | 177 | ||||||||||||||
| Total comprehensive income (loss) | 719 | 642 | 1,361 | ||||||||||||||
The effects of adoption of ASU 2018-12 on the Consolidated Statement of Cash Flows for the year ended December 31, 2022 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
| Net income | $ | 894 | $ | (212) | $ | 682 | |||||||||||
| Deferred income tax expense (benefit) | (34) | (55) | (89) | ||||||||||||||
| Changes in: Insurance reserves | 1,791 | 267 | 2,058 | ||||||||||||||
The effects of adoption of ASU 2018-12 on the Consolidated Statement of Cash Flows for the year ended December 31, 2021 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
| Net income | $ | 1,202 | $ | (18) | $ | 1,184 | |||||||||||
| Deferred income tax expense (benefit) | 47 | (4) | 43 | ||||||||||||||
| Changes in: Insurance reserves | 2,463 | 22 | 2,485 | ||||||||||||||
The effects of adoption of ASU 2018-12 on segment results of operations of the Life & Group segment for the year ended December 31, 2022 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
Net incurred claims and benefits (1) | $ | 1,202 | $ | 267 | $ | 1,469 | |||||||||||
| Core income (loss) before income tax | (53) | (267) | (320) | ||||||||||||||
| Income tax (expense) benefit on core income (loss) | 44 | 55 | 99 | ||||||||||||||
| Core income (loss) | (9) | (212) | (221) | ||||||||||||||
(1) The effect of adopting ASU 2018-12 on Net incurred claims and benefits is inclusive of the re-measurement gain (loss) of $(214) million, which is presented parenthetically on the Consolidated Statement of Operations.
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The effects of adoption of ASU 2018-12 on segment results of operations of the Life & Group segment for the year end ended December 31, 2021 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
Net incurred claims and benefits (1) | $ | 1,239 | $ | 22 | $ | 1,261 | |||||||||||
| Core income (loss) before income tax | 105 | (22) | 83 | ||||||||||||||
| Income tax (expense) benefit on core income (loss) | 21 | 4 | 25 | ||||||||||||||
| Core income (loss) | 126 | (18) | 108 | ||||||||||||||
(1) The effect of adopting ASU 2018-12 on Net incurred claims and benefits is inclusive of the re-measurement gain (loss) of $(8) million, which is presented parenthetically on the Consolidated Statement of Operations.
The effects of adoption of ASU 2018-12 on segment results for selected balance sheet lines of the Life & Group segment as of December 31, 2022 were as follows:
(In millions) | Prior to Adoption | Effect of Adoption | As reported | ||||||||||||||
Claim and claim adjustment expenses (1) | $ | 3,674 | $ | (2,979) | $ | 695 | |||||||||||
Future policy benefits (1) | 10,151 | 3,329 | 13,480 | ||||||||||||||
(1) In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the Company reclassified the long-term care reserves for policyholders currently receiving benefits from Claim and claim adjustment expenses to Future policy benefits. This change was applied retrospectively as of January 1, 2021.
Accounting Standards Pending Adoption
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The updated accounting guidance requires expanded reportable segment disclosures, primarily related to significant segment expenses which are regularly provided to the company’s Chief Operating Decision Maker. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024. Retrospective application is required. The Company is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The updated accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted. The Company is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.
Insurance Operations
Premiums: Insurance premiums on property and casualty insurance contracts are recognized in proportion to the underlying risk insured and are principallyprimarily earned ratably over the durationterm of the policies. Premiums on long termlong-term care contracts are earned ratably over the policy year in which they are due. The reserve for unearned premiums represents the portion of premiums written relating to the unexpired terms of coverage.
Property and casualty contracts that are retrospectively rated or subject to audit premiums contain provisions that result in an adjustment to the initial policy premium depending on the contract provisions. These provisions andstipulate the adjustment due to loss experience of the insured during the experience period.coverage period, or changes in the level of exposure to insurance risk. For such contracts, the Company estimates the amount of ultimate premiums that the Company may earn upon completion of the experiencecoverage period and recognizes either an asset or a liability for the difference between the initial policy premium and the estimated ultimate premium. The Company either adjusts such estimated ultimate premium amounts during the course of the experiencecoverage period based on actual results to date.date, or by conducting premium audits after the policy has expired to determine the final exposure to insured risks. The resulting adjustment is recorded as either a reduction of or an increase to the earned premiums for the period.
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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 uncollectible receivables. A loss rate methodology is used to determine expected credit losses for premium receivables. This methodology uses the Company’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. Additionally, an 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. See the Credit Losses section of this note for additional information on the Company’s allowances for expected credit losses.
Claim and claim adjustment expense reserves: Claim and claim adjustment expense reserves, except reserves for structured settlements not associated with asbestos and environmental pollution (A&EP), and workers' compensation lifetime claims and long term care claims, are not discounted and are based on i) case basis estimates for losses reported on direct business, adjusted in the aggregate for ultimate loss expectations; ii) estimates of incurred but not reported (IBNR) losses; iii) estimates of losses on assumed reinsurance; iv) estimates of future expenses to be incurred in the settlement of claims; v) estimates of salvage and subrogation recoveries and vi) estimates of amounts due from insureds related to losses under high deductible policies. Management considers current conditions and trends as well as past Company and industry experience in establishing these estimates. The effects of inflation, which can be significant, are implicitly considered in the reserving process and are part of the recorded reserve balance. Ceded claim and claim adjustment expense reserves are reported as a component of Reinsurance receivables on the Consolidated Balance Sheets.
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 and $1.2$1.1 billion as of December 31, 20172023 and 2016.2022. A significant portion of these amounts are supported by collateral. The Company has an allowance for uncollectible deductible amounts, which is presented as a component of the allowance for doubtful accounts included in Insurance receivables onthe 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. The Company's obligations for structured settlements not funded by annuities are included in claim and claim adjustment expense reserves and carriedare discounted at present values determined usinga weighted average interest rates ranging from to 5.5% to 8.0%rate of 6.4% as of December 31, 20172023 and 2016.2022. This interest rate is based on the expected yield of the assets that support the reserves and reinvestment assumptions. As of December 31, 20172023 and 2016,2022, the discounted reserves for unfunded structured settlements were $527$465 million and $544$485 million, net of discount of $798$559 million and $841$590 million. For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, the amount of interest recognized on the discounted reserves of unfunded structured settlements was $41$34 million, $42$36 million and $42$36 million, respectively. 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.
Workers' compensation lifetime claim reserves are calculated using mortality assumptions determined through statutory regulation and economic factors. AtAs of December 31, 20172023 and 2016,2022, workers' compensation lifetime claim reserves are discounted at a 3.5% interest rate. As of December 31, 20172023 and 2016,2022, the discounted reserves for workers’ compensation lifetime claim reserves were $346$196 million and $371$211 million, net of discount of $190$88 million and $202$93 million. For the years ended December 31, 2017, 20162023, 2022 and 20152021, the amount of interest accretion recognized on the discounted reserves of workers’ compensation lifetime claim reserves was $19$9 million, $17$9 million and $20$12 million, respectively. 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 toare associated with the Company's long termrun-off long-term care policiesbusiness and relate to policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported, as well as policyholders that are not yet receiving benefits.
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The LFPB is computed using the net level premium method, which incorporates actuarialcash flow assumptions and discount rate assumptions. Under the net level premium method, the LFPB is equal to the present value of future benefits and claim settlement expenses less the present value of future net premiums. Net premiums are equal to gross premiums multiplied by the NPR. The NPR is generally the ratio of the present value of benefits and expense payments to the present value of gross premiums, expected over the lifetime of the policy. As a result of the modified retrospective adoption of ASU 2018-12, the Company’s NPR calculation incorporates the original locked in discount rate and the reserve balance as of the transition date of January 1, 2021.
The key cash flow assumptions used to estimate the LFPB are morbidity, persistency inclusive(inclusive of mortality, discount rate,mortality), anticipated future premium rate adjustmentsincreases and expenses. 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. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. Expense assumptions primarily relate to claim adjudication. The Company has not elected the practical expedient that allows locking in the expense assumption. The carried LFPB discount rate is determined using the upper-medium grade fixed income instrument yield curve.
The Company has elected to update the NPR and the LFPB for actual experience on a quarterly basis. A quarterly assessment is also made as to whether evidence suggests that cash flow assumptions should be updated. Annually, in the third quarter, actuarial analysis is performed on policyholder morbidity, persistency, premium rate increases and expense experience. This analysis, combined with judgment, informs the setting of updated cash flow assumptions used to estimate the LFPB. Actuarial analysis includes predictive modeling, actual to expected experience comparisons and trend analysis. Applicable industry research is also considered.
Quarterly, to derive the upper-medium grade fixed income instrument yield discount rate assumption, the Company uses a published spot rate curve constructed from single-A rated U.S. dollar denominated corporate bonds. The Company uses linear interpolation to determine yield assumptions generally vary by plan, agefor tenors that fall between points for which observable rates are available. For cash flows that are projected to occur beyond the tenor for which market-observable rates are available, the Company applies judgment to estimate a normative rate which the Company grades to over 10 years.
Quarterly, the updated NPR is used to derive an updated LFPB as of the beginning of the current quarter measured at issue, policy duration and gender. The initial assumptions are determined at issuance, including a margin for adverse deviation, and arethe original locked in throughoutdiscount rate. The updated LFPB is then compared to the lifeexisting carrying amount of the contract unless a premium deficiency develops. If a premium deficiency emerges,liability as of the assumptionssame date (measured at the original locked in discount rate) to determine the re-measurement gain (loss), which is presented parenthetically within the Insurance claims and policyholders’ benefits line on the Consolidated Statements of Operations.
Insurance contracts are unlocked and deferred acquisition costs, if any, andgrouped into cohorts according to issue year. Contracts assumed through reinsurance are generally included within the future policy benefit reserves are adjusted. The December 31, 2015 gross premium valuation (GPV) indicated a premium deficiency of $296 million. The indicated premium deficiency necessitated a charge to income that was affectedsame cohorts as contracts issued directly by the write offCompany, according to issue year. The issue year for assumed contracts is defined according to the date that the Company’s assumption of insurance risk incepted. For assumed contracts that were reinsured concurrently with the issuance of the entire long termunderlying direct contract, issue year is defined as the year that the underlying policy was issued. For contracts that were already in-force when assumed by the Company, issue year is defined as the year in which the reinsurance agreement incepted. For group long-term care deferred acquisition cost asset of $289 million and an increase to active life reserves of $7 million. The GPVbusiness, issue year is defined as of December 31, 2017 and 2016 indicated the carried reserves were sufficient;year the individual insurance certificate was issued. Long-term care is the Company's only long-duration product line, therefore, there was no unlocking of assumptions. Interest rates for long term care active life reserves range from 6.6% to 7.0% as of December 31, 2017 and 2016.cohorts are not further disaggregated by product.
Reinsurance: Reinsurance accounting allows for contractual cash flows to be reflected as premiums and losses. To qualify for reinsurance accounting, reinsurance agreements must include risk transfer. To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity.
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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 uncollectible amounts 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 the Company.
The Company has established an allowance for uncollectible reinsurance receivables 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, the Company separates reinsurance receivables into two pools: voluntary reinsurance receivables and involuntary receivables related to mandatory pools. The Company has not recorded an allowance for uncollectibleinvoluntary 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 estimatedthe 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 the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, industryCompany’s historical loss experience and current economic conditions.the Company’s assessment of the reinsurance counterparty's risk profile, which generally corresponds with a B rating. Reinsurer financial strength ratings are updated and reviewed on an annual basis or sooner if the Company becomes aware of significant changes related to a reinsurer. The allowance for uncollectible 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 3%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 uncollectible reinsurance receivables are presented as a component of Insurance claims and policyholders' benefits on the Consolidated Statements of Operations. See the Credit Losses section of this note for additional information on the Company's allowances for expected credit losses.
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 gain position and a revised estimate of claim and allocated claim adjustment expenses and the loss portfolio transfer is in a portion ofgain position, the deferred gain is cumulatively recognized in earningsrecalculated as if the revised estimate was available at the inception date of the loss portfolio transfer.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.
The Company evaluates deferred acquisition costs for recoverability. Anticipated investment income is considered in the determination of the recoverability of deferred acquisition costs. Adjustments, if necessary, are recorded in current period results of operations.
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Policyholder dividends: Policyholder dividends are paid to long term care contracts issued prior to January 1, 2004 include costs which vary withparticipating policyholders within the workers' compensation and are primarily related to the acquisitionsurety lines of business. As noted under Future policy benefit reserves, allNet written premiums for participating dividend policies were approximately 2%, 2% and 1% of total net written premiums for each of the long term care deferred acquisition costs of $289 million were written off as of December 31, 2015 in recognition of a premium deficiency.
Investments
The Company classifies its fixed maturity securities and its equity securities as either available-for-sale or trading, and as such, they are carried at fair value. The Company's equity holdings substantially consist of non-redeemable preferred stock with characteristics of debt securities, purchased for income generation. These securities are interest rate sensitive, and typically include stated dividend payment rates and dates and call provisions at the option of the issuer. Changes in fair value of trading securities are reported within Net investment income on the Consolidated Statements of Operations. Changes in fair value related toof available-for-sale securities are reported as a component of Other comprehensive income. Losses may be recognized within Net realized investment gains (losses) on the Consolidated Statements of Operations when a decline in value is determined by the Company to be other-than-temporary.
The cost of fixed maturity securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts, which are included in Net investment income on the Consolidated Statements of Operations. The amortization of premium and accretion of discount for fixed maturity securities takes into consideration call and maturity dates that produce the lowest yield. In 2015, the Company changed its accounting principle as previously the amortization of premiums was to maturity. This change in estimate effected by a change in accounting principle was adopted in the fourth quarter of 2015 and decreased Net investment income and the amortized cost of fixed maturity securities by $39 million in the Consolidated Statement of Operations for the year-ended December 31, 2015 and the Consolidated Balance Sheet as of December 31, 2015. The $39 million decrease to Net investment income included a $22 million cumulative adjustment relating to prior periods. The total adjustment decreased Basic and Diluted earnings per share by $0.09 for the year ended December 31, 2015.
For asset-backed securities included in fixed maturity securities, the Company recognizes income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of
prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments.payments predominantly using the retrospective method.
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. Changes in net asset values are accounted for under the equity method and 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 any valuationan allowance for expected credit losses, and are recorded once funded. The allowance for expected credit losses 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 ratios (LTV). 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. The Company 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 Net investment gains (losses) on the Consolidated Statements of Operations. See the Credit Losses section of this note for additional information on the Company’s allowances for expected credit losses. Interest income from mortgage loans is recognized on an accrual basis using the effective yield method. Mortgage loans are considered to be impaired loans when it is probable that contractual principal and interest payments will not be collected. The Company evaluates loans for impairment on a specific loan basis and identifies loans for evaluation of impairment based on the collection experience of each loan and other credit quality indicators such as debt service coverage ratio and the creditworthiness of the borrower or tenants of credit tenant loan properties. Accrual of income is generally suspended for mortgage loans that are impaired and collection of principal and interest payments is unlikely. Mortgage loans are considered past due when full principal or interest payments have not been received according to contractual terms. As of December 31, 2017 and 2016, there were no loans past due or in non-accrual status, and no valuation allowance was recorded.
Other invested assets include overseas deposits and Federal Home Loan Bank of Chicago (FHLBC) stock. FHLBC stock is carried at fair value.deposits. Overseas deposits are valued using the net asset value per share (or equivalent) practical expedient. They are primarily short-term government securities, agency securities and corporate bonds held in trusts that are managed by Lloyd's of London. These funds are required of Lloyd's syndicates to protect policyholders in overseas markets and may be denominated in local currency.
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Short-term investments are carried at fair value, with the exception of cash accounts earning interest, which are carried at cost and approximate fair value. Changes in fair value are reported as a component of Other comprehensive income.
Purchases and sales of all securities are recorded on the trade date, except for private placement debt securities, including bank loan participations, which are recorded once funded. RealizedNet investment gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.
In the normal course of investing activities, the Company enters into relationships with variable interest entities (VIEs), as both an investor in limited partnerships and asset-backed securities issued by third-party VIEs. The Company is not the primary beneficiary of these VIEs, and therefore does not consolidate them. The Company determines whether it is the primary beneficiary of a VIE based on a qualitative assessment of the relative power and benefits of the Company and the other participants in the VIE. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying values included in the Company’s Consolidated Balance Sheets and any unfunded commitments.
Significant judgment is required in the determination of whether an OTTIimpairment loss has occurred for a security. The Company follows a consistent and systematic process for determining and recording an OTTIimpairment loss, including the evaluation of securities in an unrealized loss position and securities with an allowance for credit losses on at least a quarterly basis.
The Company’s assessment of whether an OTTIimpairment loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that the Company intends to sell, or it more likely than not will be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if aA credit loss exists. The factors considered include (a) the financial condition and near-term and long-term prospects of the issuer, (b) whether the debtor is current on interest and principal payments, (c) credit ratings of the securities and (d) general market conditions and industry or sector specific outlook. The Company also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities. 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. Ifexists if the present value of the modeled expected cash flows equals or exceedsexpected to be collected is less than 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 significantly 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. The Company performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability.basis. Significant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers and credit support from lower level tranches.
The Company applies 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. Forconsiders all other equity securities, inavailable evidence when determining whether the security is other-than-temporarily impaired, the Company considersan investment requires a numbercredit loss write-down or allowance to be recorded. Examples of factors including, but not limited to: (a) the length of time and the extent to which the fair value has been less than amortized cost, (b)such evidence may include the financial condition and near termnear-term and long-term prospects of the issuer, (c)whether the intentissuer is current with interest and ability ofprincipal payments, credit ratings on the Company to retain its investment for a period ofsecurity or changes in ratings over time, sufficient to allow for an anticipated recovery in value and (d) general market conditions and industry, sector or sectorother specific outlook.factors and whether it is likely that the Company will recover its amortized cost through the collection of cash flows. See the Credit Losses section of this note for additional information on the Company’s allowances for expected credit losses.
Credit Losses
The allowances for credit losses on fixed maturity securities, mortgage loans, reinsurance receivables and insurance receivables are valuation accounts that are reported as a reduction of a financial asset’s cost basis and are measured on a pool basis when similar risk characteristics exist. Management estimates the allowance using relevant available information from both internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses and adjustments may be made to reflect current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made for any additional factors that come to the Company’s attention. This could include significant shifts in
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counterparty financial strength ratings, aging of past due receivables, amounts sent to collection agencies, or other underlying portfolio changes. Amounts are considered past due when payments have not been received according to contractual terms. The Company also considers current and forecast economic conditions, using a variety of economic metrics and forecast indices. The sensitivity of expected credit losses relative to changes to these forecast economic conditions can vary by financial asset class. The Company considers a reasonable and supportable forecast period to be up to 24 months from the balance sheet date. After the forecast period, the Company reverts to historical credit experience. The Company uses collateral arrangements such as letters of credit and amounts held in beneficiary trusts to mitigate credit risk, which are considered in the estimate of net amount expected to be collected. Amounts are written off against the allowance when determined to be uncollectible.
The Company has made a policy election to present accrued interest balances separately from the amortized cost basis of assets and has elected the practical expedient to exclude the accrued interest from the tabular disclosures for mortgage loans and available-for-sale securities. The Company has elected not to estimate an allowance for credit losses on accrued interest receivable. The accrual of interest income is discontinued and the asset is placed on nonaccrual status within 90 days of the interest becoming delinquent. Interest accrued but not received for assets on nonaccrual status is reversed through investment income. Interest received for assets that are on nonaccrual status is recognized as payment is received. The asset is returned to accrual status when the principal and interest amounts contractually due are brought current and future payments are expected. Interest receivable is presented as a component of accrued investment income on the Consolidated Balance Sheet.
Deferred Non-Insurance Warranty Revenue and Acquisition Expense
Non-insurance warranty revenue is primarily generated from separately-priced service contracts that provide mechanical breakdown and other coverages to vehicle or consumer goods owners. The warranty contracts generally provide coverage from 1 month to 10 years. For warranty products where the Company acts as the principal in the transaction, Non-insurance warranty revenue is reported on a gross basis, with amounts paid by customers reported as Non-insurance warranty revenue and commissions paid to agents and dealers reported as Non-insurance warranty expense.
Non-insurance warranty revenue is reported net of any premiums related to contractual liability coverage issued by the Company's insurance operations. Additionally, the Company provides warranty administration services for dealer and manufacturer obligor warranty products, which include limited warranties and guaranteed asset protection waivers. The Company recognizes Non-insurance warranty revenue over the service period in proportion to the actuarially determined expected claims emergence pattern. Customers predominantly pay in full at the inception of the warranty contract. The liability for deferred revenue represents the unearned portion of revenue in advance of the Company's performance. The deferred revenue balance includes amounts which are refundable on a pro rata basis upon cancellation.
Dealers, retailers and agents earn commission for assisting the Company in obtaining non-insurance warranty contracts. Additionally, the Company utilizes third-parties to perform warranty administrator services for its consumer goods warranties. These costs, which are deferred and recorded as Deferred non-insurance warranty acquisition expense, are amortized to Non-insurance warranty expense consistent with how the related revenue is recognized. The Company 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.
Income Taxes
The Company and its eligible subsidiaries (CNA Tax Group) are included in the consolidated federal income tax return of Loews and its eligible subsidiaries. The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, 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
75
established for any portion of a deferred tax asset that management believes will not be realized. The Company releases tax effects from AOCI utilizing the security-by-security approach for Net unrealized gains (losses) on investments with an allowance for credit losses and Net unrealized gains (losses) on other investments. For Pension and postretirement benefits, tax effects from AOCI are released at enacted tax rates based on the pre-tax adjustments to pension liabilities or assets recognized within Other comprehensive income.
Pension and Postretirement Benefits
The Company recognizes the overfunded or underfunded status of its defined benefit plans in Other assets or Other liabilities on the Consolidated Balance Sheets. Changes in funded status related to prior service costs and credits, and actuarial gains and losses arising from differences between actual experience and actuarial assumptions, are recognized in the year in which the changes occur through Other comprehensive income. Unrecognized actuarial gains and losses in excess of 10% of the greater of the beginning of the year projected benefit obligation or fair value of plan assets (the corridor) are amortized as a component of net periodic pension cost (benefit) over the average remaining life expectancy of the plan participants. Annual service cost, interest cost, expected return on plan assets, amortization of prior service costs and credits and amortization of actuarial gains and losses are recognized inon the Consolidated Statements of Operations.
The vested benefit obligation for the CNA Retirement Plan is determined based on eligible compensation and accrued service for previously entitled employees. Effective June 30, 2015, future benefit accruals under the CNA Retirement Plan were eliminated and the benefit obligations were frozen.
Stock-Based Compensation
The Company records compensation expense using the fair value method for all awards it grants, modifies or cancels primarily on a straight-line basis over the requisite service period, generally three to four years.
Foreign Currency
Leases
A lease provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use (ROU) assets and lease liabilities are included in Other assets and Other liabilities on the Company's Consolidated Balance Sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Most operating leases contain renewal options that provide for rent increases based on prevailing market conditions. Certain leases contain options to terminate before maturity. The lease term used to calculate the ROU asset includes any renewal options or lease termination options that the Company expects to exercise. 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. ROU assets include any lease payments required to be made prior to commencement and exclude lease incentives. The Company has elected to account for its lease and non-lease components as a single lease component. The Company’s non-lease components consist of variable lease costs not based on an index or rate and are excluded from the measurement of ROU assets and lease liabilities. Variable lease costs not based on an index or rate are treated as period costs, and represent charges for services provided by the landlord and the Company's reimbursement to the landlord for costs such as real estate taxes and insurance.
76
The Company occupies office facilities under lease agreements that expire at various dates. The Company's lease agreements do not contain significant residual value guarantees, restrictions or covenants. The Company does not have any significant finance leases.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is based on the estimated useful lives of the various classes of property and equipment and is determined principally on the straight-line method. Furniture and fixtures are depreciated over seven years. Office equipment is depreciated over five years. The estimated lives for data processing equipment and software generally range from three to five years, but can be as long as ten years. Leasehold improvements are depreciated over the corresponding lease terms not to exceed the underlying asset life. The Company's previously owned building and related capital improvements were depreciated over periods not to exceed fifty years.
Goodwill
Goodwill represents the excess of purchase price over the fair value of the net assets of acquired entities and businesses. Goodwill in the International segment may change from period to period as a result of foreign currency translation.
Goodwill is tested for impairment annually or when certain triggering events require such tests. As a result of reviews completed for the year ended December 31, 2017,2023, the Company determined that the estimated fair value of the reporting units were in excess of their carrying value including Goodwill. Changes in future periods in assumptions about the level of economic capital, business growth, earnings projections or the weighted average cost of capital could result in a goodwill impairment.
Other Intangible Assets
Other intangible assets are reported within Other assets. assets on the Consolidated Balance Sheets.Finite-lived intangible assets are amortized over their estimated useful lives. Indefinite-lived other intangible assets are tested for impairment annually or when certain triggering events require such tests.
Earnings (Loss) Per Share Data
Earnings (loss) per share is based on weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing Net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For each of the years ended December 31, 2017, 20162023, 2022 and 2015,2021, approximately 988 thousand, 678 thousand and 534 thousand1 million potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, less than 1 thousand, 102 thousand and 106 thousandExcluded from the calculation of diluted earnings (loss) per share is the impact of potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because the effectthat would have been antidilutive.
antidilutive during the respective periods.
Supplementary Cash Flow Information
Cash payments made for interest were $155$124 million, $157$109 million and $152$110 million for the years ended December 31, 2017, 20162023, 2022 and 2015.2021. Cash payments made for income taxes were $152$282 million, $170$277 million and $310$278 million for the years ended December 31, 2017, 20162023, 2022 and 2015.2021.
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Note B. Investments
The significant components of Net investment income are presented in the following table.
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Fixed maturity securities | $ | 1,941 | $ | 1,787 | $ | 1,707 | |||||||||||
| Equity securities | 63 | 23 | 83 | ||||||||||||||
| Limited partnership investments | 174 | (12) | 362 | ||||||||||||||
| Mortgage loans | 58 | 54 | 61 | ||||||||||||||
| Short-term investments | 75 | 16 | 1 | ||||||||||||||
| Trading portfolio | 4 | 4 | 9 | ||||||||||||||
| Other | 28 | 5 | — | ||||||||||||||
| Gross investment income | 2,343 | 1,877 | 2,223 | ||||||||||||||
| Investment expense | (79) | (72) | (64) | ||||||||||||||
| Net investment income | $ | 2,264 | $ | 1,805 | $ | 2,159 | |||||||||||
| Net investment income (loss) recognized due to the change in fair value of common stock held as of December 31, 2023, 2022 and 2021 | $ | 11 | $ | 47 | $ | 28 | |||||||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Fixed maturity securities | $ | 1,812 | $ | 1,819 | $ | 1,751 | |||||
| Equity securities | 12 | 10 | 12 | ||||||||
| Limited partnership investments | 207 | 155 | 92 | ||||||||
| Mortgage loans | 34 | 41 | 33 | ||||||||
| Short term investments | 15 | 8 | 6 | ||||||||
| Trading portfolio | 12 | 10 | 8 | ||||||||
| Other | 1 | 4 | 1 | ||||||||
| Gross investment income | 2,093 | 2,047 | 1,903 | ||||||||
| Investment expense | (59 | ) | (59 | ) | (63 | ) | |||||
| Net investment income | $ | 2,034 | $ | 1,988 | $ | 1,840 | |||||
The Company did not hold any non-income producing fixed maturity securities as of December 31, 2023 and 2022. As of December 31, 20172023 and 2022, the Company held $2$20 million and $7 million of non-income producing fixed maturity securities. mortgage loans, net of the allowance for credit losses. As of December 31, 2016, the Company held no non-income producing fixed maturity securities. As of December 31, 20172023 and 2016,2022, no investments in a single issuer exceeded 10% of stockholders' equity, other than investments in securities issued by the U.S. Treasury and obligations of government-sponsored enterprises.
Net realized investment gains (losses) are presented in the following table.
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Net realized investment gains (losses): | |||||||||||
| Fixed maturity securities: | |||||||||||
| Gross realized gains | $ | 186 | $ | 204 | $ | 131 | |||||
| Gross realized losses | (64 | ) | (138 | ) | (197 | ) | |||||
| Net realized investment gains (losses) on fixed maturity securities | 122 | 66 | (66 | ) | |||||||
| Equity securities: | |||||||||||
| Gross realized gains | 1 | 5 | 2 | ||||||||
| Gross realized losses | (1 | ) | (10 | ) | (25 | ) | |||||
| Net realized investment gains (losses) on equity securities | — | (5 | ) | (23 | ) | ||||||
| Derivatives | (4 | ) | (2 | ) | 10 | ||||||
| Short term investments and other | (25 | ) | (9 | ) | 12 | ||||||
| Net realized investment gains (losses) | $ | 93 | $ | 50 | $ | (67 | ) | ||||
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Net investment gains (losses): | |||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||
| Gross gains | $ | 75 | $ | 120 | $ | 186 | |||||||||||
| Gross losses | (166) | (261) | (90) | ||||||||||||||
| Net investment gains (losses) on fixed maturity securities | (91) | (141) | 96 | ||||||||||||||
| Equity securities | 4 | (116) | 4 | ||||||||||||||
| Derivatives | (1) | 64 | 6 | ||||||||||||||
| Mortgage loans | (11) | (8) | 10 | ||||||||||||||
| Short-term investments and other | — | 2 | 4 | ||||||||||||||
| Net investment gains (losses) | $ | (99) | $ | (199) | $ | 120 | |||||||||||
| Net investment gains (losses) recognized due to the change in fair value of non-redeemable preferred stock held as of December 31, 2023, 2022 and 2021 | $ | 14 | $ | (75) | $ | 2 | |||||||||||
Net realized investment gains (losses) for the year ended December 31, 20172022 in the table above included a $42an $18 million lossnet gain related to the redemptionnovation of a coinsurance agreement on the Company’s legacy annuity business, which was transacted on a funds withheld basis and gave rise to an embedded derivative. The net gain of $18 million was comprised of a $62 million gain on the associated embedded derivative partially offset by a $44 million loss on fixed maturity securities supporting the funds withheld liability, transferred with the novation, to recognize unrealized losses which had been included in AOCI since the inception of the Company's $350 million senior notes due November 2019.
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| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Net change in unrealized gains on investments: | |||||||||||
| Fixed maturity securities | $ | 728 | $ | 225 | $ | (1,114 | ) | ||||
| Equity securities | 32 | (2 | ) | (6 | ) | ||||||
| Other | (2 | ) | 1 | 1 | |||||||
| Total net change in unrealized gains on investments | $ | 758 | $ | 224 | $ | (1,119 | ) | ||||
The components of OTTIavailable-for-sale impairment losses (gains) recognized in earnings by asset type are presented in the following table. The table includes losses (gains) on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date.
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||
| Corporate and other bonds | $ | 33 | $ | 62 | $ | 11 | |||||||||||
| Asset-backed | 11 | — | 20 | ||||||||||||||
| Impairment losses (gains) recognized in earnings | $ | 44 | $ | 62 | $ | 31 | |||||||||||
For the years ended December 31, 2023, 2022, and 2021 the Company also recognized $11 million of losses, $8 million of losses and $10 million of gains related to mortgage loans primarily due to changes in expected credit losses.
The net change in unrealized gains (losses) on fixed maturity securities was $1,431 million, $(7,850) million and $(1,272) million for the years ended December 31, 2023, 2022 and 2021.
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| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Fixed maturity securities available-for-sale: | |||||||||||
| Corporate and other bonds | $ | 12 | $ | 59 | $ | 104 | |||||
| States, municipalities and political subdivisions | — | — | 18 | ||||||||
| Asset-backed: | |||||||||||
| Residential mortgage-backed | 1 | 10 | 8 | ||||||||
| Other asset-backed | — | 3 | 1 | ||||||||
| Total asset-backed | 1 | 13 | 9 | ||||||||
| Total fixed maturity securities available-for-sale | 13 | 72 | 131 | ||||||||
| Equity securities available-for-sale | 1 | 9 | 25 | ||||||||
| OTTI losses recognized in earnings | $ | 14 | $ | 81 | $ | 156 | |||||
The following tables present a summary of fixed maturity and equity securities.
| December 31, 2023 | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | ||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 25,020 | $ | 597 | $ | 1,345 | $ | 4 | $ | 24,268 | |||||||||||||||||||
| States, municipalities and political subdivisions | 7,713 | 382 | 703 | — | 7,392 | ||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||
| Residential mortgage-backed | 3,411 | 16 | 425 | — | 3,002 | ||||||||||||||||||||||||
| Commercial mortgage-backed | 1,862 | 7 | 230 | 8 | 1,631 | ||||||||||||||||||||||||
| Other asset-backed | 3,515 | 13 | 256 | 4 | 3,268 | ||||||||||||||||||||||||
| Total asset-backed | 8,788 | 36 | 911 | 12 | 7,901 | ||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 152 | 1 | 2 | — | 151 | ||||||||||||||||||||||||
| Foreign government | 741 | 6 | 34 | — | 713 | ||||||||||||||||||||||||
| Redeemable preferred stock | — | — | — | — | — | ||||||||||||||||||||||||
| Total fixed maturity securities available-for-sale | 42,414 | 1,022 | 2,995 | 16 | 40,425 | ||||||||||||||||||||||||
| Total fixed maturity securities trading | — | — | — | — | — | ||||||||||||||||||||||||
| Total fixed maturity securities | $ | 42,414 | $ | 1,022 | $ | 2,995 | $ | 16 | $ | 40,425 | |||||||||||||||||||
| December 31, 2017 | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Unrealized OTTI Losses (Gains) | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | |||||||||||||||||||||||||||||||||||||||
| (In millions) | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Unrealized OTTI Losses (Gains) | ||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||||||||||||||||||||||||
| Corporate and other bonds | |||||||||||||||||||||||||||||||||||||||||||||
| Corporate and other bonds | |||||||||||||||||||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 17,210 | $ | 1,625 | $ | 28 | $ | 18,807 | $ | — | |||||||||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | 12,478 | 1,551 | 2 | 14,027 | (11 | ) | |||||||||||||||||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | |||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | |||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | 5,043 | 109 | 32 | 5,120 | (27 | ) | |||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed | 1,840 | 46 | 14 | 1,872 | — | ||||||||||||||||||||||||||||||||||||||||
| Other asset-backed | 1,083 | 16 | 5 | 1,094 | — | ||||||||||||||||||||||||||||||||||||||||
| Total asset-backed | 7,966 | 171 | 51 | 8,086 | (27 | ) | |||||||||||||||||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 111 | 2 | 4 | 109 | — | ||||||||||||||||||||||||||||||||||||||||
| Foreign government | 437 | 9 | 2 | 444 | — | ||||||||||||||||||||||||||||||||||||||||
| Redeemable preferred stock | 10 | 1 | — | 11 | — | ||||||||||||||||||||||||||||||||||||||||
| Total fixed maturity securities available-for-sale | 38,212 | 3,359 | 87 | 41,484 | $ | (38 | ) | ||||||||||||||||||||||||||||||||||||||
| Total fixed maturity securities trading | 3 | 3 | |||||||||||||||||||||||||||||||||||||||||||
| Equity securities available-for-sale: | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock | 21 | 7 | 1 | 27 | |||||||||||||||||||||||||||||||||||||||||
| Preferred stock | 638 | 31 | 1 | 668 | |||||||||||||||||||||||||||||||||||||||||
| Total equity securities available-for-sale | 659 | 38 | 2 | 695 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 38,874 | $ | 3,397 | $ | 89 | $ | 42,182 | |||||||||||||||||||||||||||||||||||||
| Total fixed maturity securities | |||||||||||||||||||||||||||||||||||||||||||||
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| December 31, 2016 | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Unrealized OTTI Losses (Gains) | ||||||||||||||
| (In millions) | |||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||
| Corporate and other bonds | $ | 17,711 | $ | 1,323 | $ | 76 | $ | 18,958 | $ | (1 | ) | ||||||||
| States, municipalities and political subdivisions | 12,060 | 1,213 | 33 | 13,240 | (16 | ) | |||||||||||||
| Asset-backed: | |||||||||||||||||||
| Residential mortgage-backed | 5,004 | 120 | 51 | 5,073 | (28 | ) | |||||||||||||
| Commercial mortgage-backed | 2,016 | 48 | 24 | 2,040 | — | ||||||||||||||
| Other asset-backed | 1,022 | 8 | 5 | 1,025 | — | ||||||||||||||
| Total asset-backed | 8,042 | 176 | 80 | 8,138 | (28 | ) | |||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 83 | 10 | — | 93 | — | ||||||||||||||
| Foreign government | 435 | 13 | 3 | 445 | — | ||||||||||||||
| Redeemable preferred stock | 18 | 1 | — | 19 | — | ||||||||||||||
| Total fixed maturity securities available-for-sale | 38,349 | 2,736 | 192 | 40,893 | $ | (45 | ) | ||||||||||||
| Total fixed maturity securities trading | 12 | 12 | |||||||||||||||||
| Equity securities available-for-sale: | |||||||||||||||||||
| Common stock | 13 | 6 | — | 19 | |||||||||||||||
| Preferred stock | 93 | 2 | 4 | 91 | |||||||||||||||
| Total equity securities available-for-sale | 106 | 8 | 4 | 110 | |||||||||||||||
| Total | $ | 38,467 | $ | 2,744 | $ | 196 | $ | 41,015 | |||||||||||
The following tables present the estimated fair value and gross unrealized losses of fixed maturity and equity securities in a gross unrealized loss position for which an allowance for credit loss has not been recorded, by the length of time in which the securities have continuously been in that position.
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| December 31, 2023 | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 1,943 | $ | 37 | $ | 13,406 | $ | 1,308 | $ | 15,349 | $ | 1,345 | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 598 | 18 | 3,104 | 685 | 3,702 | 703 | |||||||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | 233 | 4 | 2,212 | 421 | 2,445 | 425 | |||||||||||||||||||||||||||||
| Commercial mortgage-backed | 200 | 5 | 1,184 | 225 | 1,384 | 230 | |||||||||||||||||||||||||||||
| Other asset-backed | 392 | 8 | 1,869 | 248 | 2,261 | 256 | |||||||||||||||||||||||||||||
| Total asset-backed | 825 | 17 | 5,265 | 894 | 6,090 | 911 | |||||||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 65 | 1 | 23 | 1 | 88 | 2 | |||||||||||||||||||||||||||||
| Foreign government | 52 | 1 | 450 | 33 | 502 | 34 | |||||||||||||||||||||||||||||
| Total | $ | 3,483 | $ | 74 | $ | 22,248 | $ | 2,921 | $ | 25,731 | $ | 2,995 | |||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| December 31, 2022 | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||||||||||||||
| Corporate and other bonds | $ | 15,946 | $ | 1,585 | $ | 1,634 | $ | 424 | $ | 17,580 | $ | 2,009 | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 4,079 | 769 | 456 | 170 | 4,535 | 939 | |||||||||||||||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||||||||||||||
| Residential mortgage-backed | 1,406 | 144 | 1,143 | 303 | 2,549 | 447 | |||||||||||||||||||||||||||||
| Commercial mortgage-backed | 1,167 | 159 | 408 | 96 | 1,575 | 255 | |||||||||||||||||||||||||||||
| Other asset-backed | 2,087 | 262 | 542 | 99 | 2,629 | 361 | |||||||||||||||||||||||||||||
| Total asset-backed | 4,660 | 565 | 2,093 | 498 | 6,753 | 1,063 | |||||||||||||||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 76 | 1 | 16 | 1 | 92 | 2 | |||||||||||||||||||||||||||||
| Foreign government | 473 | 26 | 78 | 17 | 551 | 43 | |||||||||||||||||||||||||||||
| Total | $ | 25,234 | $ | 2,946 | $ | 4,277 | $ | 1,110 | $ | 29,511 | $ | 4,056 | |||||||||||||||||||||||
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| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||
| December 31, 2017 | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||
| Corporate and other bonds | $ | 1,354 | $ | 21 | $ | 168 | $ | 7 | $ | 1,522 | $ | 28 | |||||||||||
| States, municipalities and political subdivisions | 72 | 1 | 85 | 1 | 157 | 2 | |||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||
| Residential mortgage-backed | 1,228 | 5 | 947 | 27 | 2,175 | 32 | |||||||||||||||||
| Commercial mortgage-backed | 403 | 4 | 212 | 10 | 615 | 14 | |||||||||||||||||
| Other asset-backed | 248 | 3 | 18 | 2 | 266 | 5 | |||||||||||||||||
| Total asset-backed | 1,879 | 12 | 1,177 | 39 | 3,056 | 51 | |||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 49 | 2 | 21 | 2 | 70 | 4 | |||||||||||||||||
| Foreign government | 166 | 2 | 4 | — | 170 | 2 | |||||||||||||||||
| Total fixed maturity securities available-for-sale | 3,520 | 38 | 1,455 | 49 | 4,975 | 87 | |||||||||||||||||
| Equity securities available-for-sale: | |||||||||||||||||||||||
| Common stock | 7 | 1 | — | — | 7 | 1 | |||||||||||||||||
| Preferred stock | 93 | 1 | — | — | 93 | 1 | |||||||||||||||||
| Total equity securities available-for-sale | 100 | 2 | — | — | 100 | 2 | |||||||||||||||||
| Total | $ | 3,620 | $ | 40 | $ | 1,455 | $ | 49 | $ | 5,075 | $ | 89 | |||||||||||
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||
| December 31, 2016 | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Fixed maturity securities available-for-sale: | |||||||||||||||||||||||
| Corporate and other bonds | $ | 2,615 | $ | 61 | $ | 254 | $ | 15 | $ | 2,869 | $ | 76 | |||||||||||
| States, municipalities and political subdivisions | 959 | 32 | 23 | 1 | 982 | 33 | |||||||||||||||||
| Asset-backed: | |||||||||||||||||||||||
| Residential mortgage-backed | 2,136 | 44 | 201 | 7 | 2,337 | 51 | |||||||||||||||||
| Commercial mortgage-backed | 756 | 22 | 69 | 2 | 825 | 24 | |||||||||||||||||
| Other asset-backed | 398 | 5 | 24 | — | 422 | 5 | |||||||||||||||||
| Total asset-backed | 3,290 | 71 | 294 | 9 | 3,584 | 80 | |||||||||||||||||
| U.S. Treasury and obligations of government-sponsored enterprises | 5 | — | — | — | 5 | — | |||||||||||||||||
| Foreign government | 108 | 3 | — | — | 108 | 3 | |||||||||||||||||
| Total fixed maturity securities available-for-sale | 6,977 | 167 | 571 | 25 | 7,548 | 192 | |||||||||||||||||
| Equity securities available-for-sale -- Preferred stock | 12 | — | 13 | 4 | 25 | 4 | |||||||||||||||||
| Total | $ | 6,989 | $ | 167 | $ | 584 | $ | 29 | $ | 7,573 | $ | 196 | |||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
(In millions) | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||||
| U.S. Government, Government agencies and Government-sponsored enterprises | $ | 2,273 | $ | 309 | $ | 2,355 | $ | 337 | |||||||||||||||
| AAA | 1,524 | 261 | 1,559 | 298 | |||||||||||||||||||
| AA | 3,817 | 658 | 4,327 | 817 | |||||||||||||||||||
| A | 5,652 | 517 | 6,615 | 749 | |||||||||||||||||||
| BBB | 11,523 | 1,095 | 13,226 | 1,621 | |||||||||||||||||||
| Non-investment grade | 942 | 155 | 1,429 | 234 | |||||||||||||||||||
| Total | $ | 25,731 | $ | 2,995 | $ | 29,511 | $ | 4,056 | |||||||||||||||
Based on current facts and circumstances, the Company believes the unrealized losses presented in the December 31, 20172023 securities in a gross unrealized loss position tabletables above are not indicative of the ultimate collectibilitycollectability of the current amortized cost of the securities, but rather are primarily attributable to changes in risk-free interest rates. In reaching this determination, the Company considered the volatility in risk-free rates and credit spreads and other factors. Theas well as the fact that its unrealized losses are concentrated in investment grade issuers. Additionally, 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 OTTIimpairment losses to be recorded as of December 31, 2017.2023.
82
The following table presentstables present the activity related to the pretaxallowance on available-for-sale securities with credit loss component reflected in Retained earningsimpairments and purchased credit-deteriorated (PCD) assets. Accrued interest receivable on available-for-sale fixed maturity securities still heldtotaled $435 million and $394 million as of December 31, 2017, 20162023 and 2015 for which a portion2022 and is excluded from the estimate of an OTTI loss was recognizedexpected credit losses and the amortized cost basis in Other comprehensive income (loss).the table included within this Note.
| (In millions) | Corporate and other bonds | Asset-backed | Total | ||||||||||||||
| Allowance for credit losses: | |||||||||||||||||
| Balance as of January 1, 2023 | $ | — | $ | 1 | $ | 1 | |||||||||||
| Additions to the allowance for credit losses: | |||||||||||||||||
| Securities for which credit losses were not previously recorded | 10 | 7 | 17 | ||||||||||||||
| Available-for-sale securities accounted for as PCD assets | 22 | — | 22 | ||||||||||||||
| Reductions to the allowance for credit losses: | |||||||||||||||||
| Securities sold during the period (realized) | 6 | — | 6 | ||||||||||||||
| Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | 8 | — | 8 | ||||||||||||||
| Write-offs charged against the allowance | 15 | — | 15 | ||||||||||||||
| Recoveries of amounts previously written off | — | — | — | ||||||||||||||
| Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | 1 | 4 | 5 | ||||||||||||||
| Balance as of December 31, 2023 | $ | 4 | $ | 12 | $ | 16 | |||||||||||
| (In millions) | Corporate and other bonds | Asset-backed | Total | ||||||||||||||
| Allowance for credit losses: | |||||||||||||||||
| Balance as of January 1, 2022 | $ | 11 | $ | 7 | $ | 18 | |||||||||||
| Additions to the allowance for credit losses: | |||||||||||||||||
| Securities for which credit losses were not previously recorded | — | — | — | ||||||||||||||
| Available-for-sale securities accounted for as PCD assets | — | 3 | 3 | ||||||||||||||
| Reductions to the allowance for credit losses: | |||||||||||||||||
| Securities sold during the period (realized) | — | — | — | ||||||||||||||
| Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | — | — | — | ||||||||||||||
| Write-offs charged against the allowance | 12 | — | 12 | ||||||||||||||
| Recoveries of amounts previously written off | — | — | — | ||||||||||||||
| Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | 1 | (9) | (8) | ||||||||||||||
| Balance as of December 31, 2022 | $ | — | $ | 1 | $ | 1 | |||||||||||
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| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Beginning balance of credit losses on fixed maturity securities | $ | 36 | $ | 53 | $ | 62 | |||||
| Reductions for securities sold during the period | (9 | ) | (16 | ) | (9 | ) | |||||
| Reductions for securities the Company intends to sell or more likely than not will be required to sell | — | (1 | ) | — | |||||||
| Ending balance of credit losses on fixed maturity securities | $ | 27 | $ | 36 | $ | 53 | |||||
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
| December 31 | 2017 | 2016 | December 31 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Cost or Amortized Cost | Estimated Fair Value | Cost or Amortized Cost | Estimated Fair Value | (In millions) | Cost or Amortized Cost | Estimated Fair Value | Cost or Amortized Cost | Estimated Fair Value | ||||||||||||||||||||||||||||||||||||||
| Due in one year or less | $ | 1,135 | $ | 1,157 | $ | 1,779 | $ | 1,828 | |||||||||||||||||||||||||||||||||||||||
| Due after one year through five years | 8,165 | 8,501 | 7,566 | 7,955 | |||||||||||||||||||||||||||||||||||||||||||
| Due after five years through ten years | 16,060 | 16,718 | 15,892 | 16,332 | |||||||||||||||||||||||||||||||||||||||||||
| Due after ten years | 12,852 | 15,108 | 13,112 | 14,778 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 38,212 | $ | 41,484 | $ | 38,349 | $ | 40,893 | |||||||||||||||||||||||||||||||||||||||
Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Limited Partnerships
The carrying value of limited partnerships as of December 31, 20172023 and 20162022 was $2,369$2,174 million and $2,371$1,926 million, which includes net undistributed earnings of $539$250 million and $523$176 million. Limited partnerships comprising 61%17% of the total carrying value are reported on a current basis through December 31, 20172023 with no reporting lag, 18%4% 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.
Limited partnerships comprising 71%85% and 68%76% of the carrying value as of December 31, 20172023 and 2016 employ hedge fund strategies.2022 were invested in private debt and equity. Limited partnerships comprising 25%15% and 27%24% of the carrying value as of December 31, 20172023 and 2016 were invested in private2022 employ hedge fund strategies. Private debt and equity funds cover a broad range of investment strategies including buyout, co-investment, private credit, growth capital, distressed investing and the remainder were primarily invested in real estate strategies.estate. Hedge fund strategies include both long and short positions in fixed income, equity and derivative instruments. These hedge fund strategies may seek to generate gains from mispriced or undervalued securities, price differentials between securities, distressed investments, sector rotation or various arbitrage disciplines. Within hedge fund strategies, approximately 62% were equity related, 19% pursued a multi-strategy approach, 17% were focused on distressed investments and 2% were fixed income related as of December 31, 2017.
The ten largest limited partnership positions held totaled $1,136$622 million and $1,168$633 million as of December 31, 20172023 and 2016.2022. 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 3% and 4%1% of the aggregate partnership equity as of December 31, 20172023 and 2016,2022, and the related income reflected on the Consolidated Statements of Operations represents approximately 3%1%, 4%2% and 3%2% of the changes in aggregate partnership equity for the years ended December 31, 2017, 20162023, 2022 and 2015.2021.
The Company’s private debt, private equity and other non-hedge fund limited partnership investments generally do not permit voluntary withdrawals. 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 and in some cases do not permit withdrawals until the termination of the partnership.or longer. Typically, hedge fund withdrawals require advance written notice of up to 90 days.
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Derivative Financial Instruments
The Company may use derivatives in the normal course of business, primarily in an attempt to reduce its exposure to market risk (principally interest rate risk, credit risk, equity price risk and foreign currency risk) stemming from various assets and liabilities. The Company's principal objective under such strategies is to achieve the desired reduction in economic risk, even if the position does not receive hedge accounting treatment.
The Company may enter into interest rate swaps, futures and forward commitments to purchase securities to manage interest rate risk. The Company may use foreign currency forward contracts to manage foreign currency risk.
Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to the instruments recognized on the Consolidated Balance Sheets. The Company generally requires that all over-the-counter derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement, and exchanges collateral under the terms of these agreements with its derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty. Gross estimated fair values of derivative positions are presented in Other invested assets and Other liabilities on the Consolidated Balance Sheet.Sheets. The Company does not offset derivative positions against the fair value of collateral provided or positions subject to netting arrangements. There would be no significant difference in the balance included in such accounts if the estimated fair values were presented net for the periods endedas of December 31, 20172023 and 2016.2022.
There was noless than $1 million of cash collateral provided by the Company as of December 31, 2017 or 2016. There wasand no cash collateral received from counterparties held as of December 31, 2017 or 2016.2023 and 2022.
associated $14 million embedded derivative.
Investment Commitments
As part of December 31, 2017,its overall investment strategy, the Company had committed approximately $384 million toinvests 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 partnership investments in exchange for an ownership interest in thepartnerships, signed and accepted mortgage loan applications, and obligations related partnerships.
to private placement securities. As of December 31, 2017, the Company had mortgage loan commitments of $46 million representing signed loan applications received and accepted.
Investments on Deposit
Cash and securities with carrying values of approximately $471 million and $514 million$0.9 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, 20172023 and 2016. In addition, cash2022.
85
Mortgage Loans
The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination. The primary credit quality indicators utilized are debt service coverage ratios (DSCR) and securities were depositedloan-to-value ratios (LTV).
| December 31, 2023 | Mortgage Loans Amortized Cost Basis by Origination Year (1) | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | ||||||||||||||||||||||||||||||||||
| DSCR ≥1.6x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | $ | 33 | $ | 9 | $ | 8 | $ | 98 | $ | 60 | $ | 238 | $ | 446 | |||||||||||||||||||||||||||
| LTV 55% to 65% | — | — | 5 | — | 8 | — | 13 | ||||||||||||||||||||||||||||||||||
| LTV greater than 65% | — | 31 | 11 | — | — | — | 42 | ||||||||||||||||||||||||||||||||||
| DSCR 1.2x - 1.6x | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | 28 | 5 | — | 14 | 29 | 21 | 97 | ||||||||||||||||||||||||||||||||||
| LTV 55% to 65% | 34 | 36 | 36 | 23 | — | 32 | 161 | ||||||||||||||||||||||||||||||||||
| LTV greater than 65% | — | 65 | — | — | — | — | 65 | ||||||||||||||||||||||||||||||||||
| DSCR ≤1.2 | |||||||||||||||||||||||||||||||||||||||||
| LTV less than 55% | 6 | 34 | — | — | — | — | 40 | ||||||||||||||||||||||||||||||||||
| LTV 55% to 65% | 26 | 40 | — | — | 43 | — | 109 | ||||||||||||||||||||||||||||||||||
| LTV greater than 65% | — | 28 | 21 | — | 41 | 7 | 97 | ||||||||||||||||||||||||||||||||||
| Total | $ | 127 | $ | 248 | $ | 81 | $ | 135 | $ | 181 | $ | 298 | $ | 1,070 | |||||||||||||||||||||||||||
(1) The values in trusts with financial institutions to secure reinsurancethe table above reflect DSCR on a standardized amortization period and other obligations with various third parties. The carryingLTV based on the most recent appraised values of these deposits were approximately $587 million and $261 million astrended forward using changes in a commercial real estate price index.
As of December 31, 20172023, accrued interest receivable on mortgage loans totaled $4 million and 2016.is excluded from the amortized cost basis disclosed in the table above and the estimate of expected credit losses.
86
Note C. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include i) the review of pricing service methodologies or broker pricing qualifications, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, and iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and v) pricing validation, where prices received are compared to prices independently estimated by the Company.securities.
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Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are presented in the following tables. Corporate bonds and other includes obligations of the U.S.United States of America (U.S.) Treasury, government-sponsored enterprises, and foreign governments and redeemable preferred stock.
| December 31, 2023 | Total Assets/Liabilities at Fair Value | ||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||
| Corporate bonds and other | $ | 161 | $ | 23,926 | $ | 1,045 | $ | 25,132 | |||||||||||||||
| States, municipalities and political subdivisions | — | 7,348 | 44 | 7,392 | |||||||||||||||||||
| Asset-backed | — | 7,000 | 901 | 7,901 | |||||||||||||||||||
| Total fixed maturity securities | 161 | 38,274 | 1,990 | 40,425 | |||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Common stock | 167 | — | 24 | 191 | |||||||||||||||||||
| Non-redeemable preferred stock | 52 | 440 | — | 492 | |||||||||||||||||||
| Total equity securities | 219 | 440 | 24 | 683 | |||||||||||||||||||
| Short term and other | 1,976 | 32 | — | 2,008 | |||||||||||||||||||
| Total assets | $ | 2,356 | $ | 38,746 | $ | 2,014 | $ | 43,116 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Other liabilities | $ | — | $ | 1 | $ | — | $ | 1 | |||||||||||||||
| Total liabilities | $ | — | $ | 1 | $ | — | $ | 1 | |||||||||||||||
| December 31, 2022 | Total Assets/Liabilities at Fair Value | ||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||
| Corporate bonds and other | $ | 120 | $ | 21,187 | $ | 810 | $ | 22,117 | |||||||||||||||
| States, municipalities and political subdivisions | — | 8,274 | 43 | 8,317 | |||||||||||||||||||
| Asset-backed | — | 6,405 | 788 | 7,193 | |||||||||||||||||||
| Total fixed maturity securities | 120 | 35,866 | 1,641 | 37,627 | |||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Common stock | 150 | — | 35 | 185 | |||||||||||||||||||
| Non-redeemable preferred stock | 54 | 435 | — | 489 | |||||||||||||||||||
| Total equity securities | 204 | 435 | 35 | 674 | |||||||||||||||||||
| Short term and other | 1,608 | 71 | — | 1,679 | |||||||||||||||||||
| Total assets | $ | 1,932 | $ | 36,372 | $ | 1,676 | $ | 39,980 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Other liabilities | $ | — | $ | 1 | $ | — | $ | 1 | |||||||||||||||
| Total liabilities | $ | — | $ | 1 | $ | — | $ | 1 | |||||||||||||||
88
| December 31, 2017 | Total Assets/Liabilities at Fair Value | ||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets | |||||||||||||||
| Fixed maturity securities: | |||||||||||||||
| Corporate bonds and other | $ | 128 | $ | 19,148 | $ | 98 | $ | 19,374 | |||||||
| States, municipalities and political subdivisions | — | 14,026 | 1 | 14,027 | |||||||||||
| Asset-backed | — | 7,751 | 335 | 8,086 | |||||||||||
| Total fixed maturity securities | 128 | 40,925 | 434 | 41,487 | |||||||||||
| Equity securities | 91 | 584 | 20 | 695 | |||||||||||
| Short term and other | 396 | 958 | — | 1,354 | |||||||||||
| Total assets | $ | 615 | $ | 42,467 | $ | 454 | $ | 43,536 | |||||||
| Liabilities | |||||||||||||||
| Other liabilities | $ | — | $ | 3 | $ | — | $ | 3 | |||||||
| Total liabilities | $ | — | $ | 3 | $ | — | $ | 3 | |||||||
| December 31, 2016 | Total Assets/Liabilities at Fair Value | ||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets | |||||||||||||||
| Fixed maturity securities: | |||||||||||||||
| Corporate bonds and other | $ | 112 | $ | 19,285 | $ | 130 | $ | 19,527 | |||||||
| States, municipalities and political subdivisions | — | 13,239 | 1 | 13,240 | |||||||||||
| Asset-backed | — | 7,939 | 199 | 8,138 | |||||||||||
| Total fixed maturity securities | 112 | 40,463 | 330 | 40,905 | |||||||||||
| Equity securities | 91 | — | 19 | 110 | |||||||||||
| Short term and other | 475 | 858 | — | 1,333 | |||||||||||
| Life settlement contracts, included in Other assets | — | — | 58 | 58 | |||||||||||
| Total assets | $ | 678 | $ | 41,321 | $ | 407 | $ | 42,406 | |||||||
| Liabilities | |||||||||||||||
| Other liabilities | $ | — | $ | (3 | ) | $ | — | $ | (3 | ) | |||||
| Total liabilities | $ | — | $ | (3 | ) | $ | — | $ | (3 | ) | |||||
The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Level 3 (In millions) | Corporate bonds and other | States, municipalities and political subdivisions | Asset-backed | Equity securities | Derivative financial instruments | Life settlement contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2017 | $ | 130 | $ | 1 | $ | 199 | $ | 19 | $ | — | $ | 58 | $ | 407 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in Net income (loss)* | — | — | 2 | — | 1 | 6 | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net change in unrealized appreciation (depreciation) included in Other comprehensive income (loss) | 3 | — | 3 | 3 | — | — | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 3 (In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 3 (In millions) | Corporate bonds and other | States, municipalities and political subdivisions | Asset-backed | Equity securities | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total realized and unrealized investment gains (losses): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reported in Net investment gains (losses) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reported in Net investment gains (losses) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reported in Net investment gains (losses) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reported in Net investment income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reported in Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total realized and unrealized investment gains (losses) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases | 18 | — | 107 | 1 | — | — | 126 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | (5 | ) | — | — | (3 | ) | (1 | ) | (59 | ) | (68 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlements | (54 | ) | — | (43 | ) | — | — | (5 | ) | (102 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transfers into Level 3 | 16 | — | 153 | — | — | — | 169 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transfers out of Level 3 | (10 | ) | — | (86 | ) | — | — | — | (96 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2017 | $ | 98 | $ | 1 | $ | 335 | $ | 20 | $ | — | $ | — | $ | 454 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2017 recognized in Net income (loss)* | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2023 recognized in Net income (loss) in the period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2023 recognized in Other comprehensive income (loss) in the period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 3 (In millions) | Corporate bonds and other | States, municipalities and political subdivisions | Asset-backed | Equity securities | Life settlement contracts | Total | |||||||||||||||||
| Balance as of January 1, 2016 | $ | 168 | $ | 2 | $ | 209 | $ | 20 | $ | 74 | $ | 473 | |||||||||||
| Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in Net income (loss)* | 1 | — | — | (1 | ) | 5 | 5 | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) included in Other comprehensive income (loss) | 1 | — | (5 | ) | — | — | (4 | ) | |||||||||||||||
| Purchases | 163 | — | 133 | — | — | 296 | |||||||||||||||||
| Sales | (36 | ) | — | (25 | ) | — | — | (61 | ) | ||||||||||||||
| Settlements | (103 | ) | (1 | ) | (32 | ) | — | (21 | ) | (157 | ) | ||||||||||||
| Transfers into Level 3 | — | — | 61 | — | — | 61 | |||||||||||||||||
| Transfers out of Level 3 | (64 | ) | — | (142 | ) | — | — | (206 | ) | ||||||||||||||
| Balance as of December 31, 2016 | $ | 130 | $ | 1 | $ | 199 | $ | 19 | $ | 58 | $ | 407 | |||||||||||
| Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2016 recognized in Net income (loss)* | $ | — | $ | — | $ | — | $ | (2 | ) | $ | (3 | ) | $ | (5 | ) | ||||||||
Level 3 (In millions) | Corporate bonds and other | States, municipalities and political subdivisions | Asset-backed | Equity securities | Total | ||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | 937 | $ | 56 | $ | 556 | $ | 29 | $ | 1,578 | |||||||||||||||||||||||||
| Total realized and unrealized investment gains (losses): | |||||||||||||||||||||||||||||||||||
| Reported in Net investment gains (losses) | (2) | — | 9 | (6) | 1 | ||||||||||||||||||||||||||||||
| Reported in Net investment income | 1 | — | 16 | (3) | 14 | ||||||||||||||||||||||||||||||
| Reported in Other comprehensive income (loss) | (184) | (13) | (126) | — | (323) | ||||||||||||||||||||||||||||||
| Total realized and unrealized investment gains (losses) | (185) | (13) | (101) | (9) | (308) | ||||||||||||||||||||||||||||||
| Purchases | 137 | — | 424 | 19 | 580 | ||||||||||||||||||||||||||||||
| Sales | (5) | — | (2) | (3) | (10) | ||||||||||||||||||||||||||||||
| Settlements | (84) | — | (70) | 9 | (145) | ||||||||||||||||||||||||||||||
| Transfers into Level 3 | 10 | — | 75 | — | 85 | ||||||||||||||||||||||||||||||
| Transfers out of Level 3 | — | — | (94) | (10) | (104) | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | 810 | $ | 43 | $ | 788 | $ | 35 | $ | 1,676 | |||||||||||||||||||||||||
| Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2022 recognized in Net income (loss) in the period | $ | — | $ | — | $ | — | $ | (4) | $ | (4) | |||||||||||||||||||||||||
| Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2022 recognized in Other comprehensive income (loss) in the period | (183) | (13) | (125) | — | (321) | ||||||||||||||||||||||||||||||
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. During the year ended December 31, 2017 there were $10 million
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Valuation Methodologies and Inputs
The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.
Fixed Maturity Securities
Level 1 securities include highly liquid government securities and exchange traded bonds, and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology, or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable.
Equity Securities
Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily non-redeemable preferred stocks and common stocks 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.
Short Term and Other Invested Assets
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper,non-U.S. government securities for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short termShort-term investments as presented in the tables above differ from the amounts presented on the Consolidated Balance Sheets because certain short termshort-term investments, such as time deposits, are not measured at fair value.
As of December 31, 20172023 and December 31, 2016,2022, there were approximately $39$75 million and $31$72 million of overseas deposits within otherOther invested assets, which can be redeemed at net asset value in 90 days or less. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded using the net asset value per share (or equivalent) practical expedient.
Level 2 investments primarilysecurities include the embedded derivative on the funds withheld liability. The embedded derivative on funds withheld liability iscurrency forward contracts valued using the change in fair valueobservable market forward rates.
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Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to the Company. The valuation of life settlement contracts wasweighted average rate is calculated based on the terms of the sale of the contracts to a third party; therefore, the contracts are not included in the table below.fair value.
| December 31, 2023 | Estimated Fair Value (In millions) | Valuation Technique(s) | Unobservable Input(s) | Range (Weighted Average) | |||||||||||||||||||
| Fixed maturity securities | $ | 1,495 | Discounted cash flow | Credit spread | 1% - 7% (2%) | ||||||||||||||||||
| December 31, 2017 | Estimated Fair Value (In millions) | Valuation Technique(s) | Unobservable Input(s) | Range (Weighted Average) | |||||
| Fixed maturity securities | $ | 136 | Discounted cash flow | Credit spread | 1% - 12% (3%) | ||||
| December 31, 2016 | Estimated Fair Value (In millions) | Valuation Technique(s) | Unobservable Input(s) | Range (Weighted Average) | |||||
| Fixed maturity securities | $ | 106 | Discounted cash flow | Credit spread | 2% - 40% (4%) | ||||
| December 31, 2022 | Estimated Fair Value (In millions) | Valuation Technique(s) | Unobservable Input(s) | Range (Weighted Average) | |||||||||||||||||||
| Fixed maturity securities | $ | 1,177 | Discounted cash flow | Credit spread | 1% - 8% (2%) | ||||||||||||||||||
For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.
Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount and estimated fair value of the Company's financial assets and liabilities which are not measured at fair value on the Consolidated Balance Sheets are presented in the following tables.
| December 31, 2023 | Carrying Amount | Estimated Fair Value | |||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Mortgage loans | $ | 1,035 | $ | — | $ | — | $ | 997 | $ | 997 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Short-term debt | $ | 550 | $ | — | $ | 546 | $ | — | $ | 546 | |||||||||||||||||||
| Long-term debt | 2,481 | — | 2,385 | — | 2,385 | ||||||||||||||||||||||||
| December 31, 2017 | Carrying Amount | Estimated Fair Value | |||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| Assets | |||||||||||||||||||
| Mortgage loans | $ | 839 | $ | — | $ | — | $ | 844 | $ | 844 | |||||||||
| Note receivable | 46 | — | — | 46 | 46 | ||||||||||||||
| Liabilities | |||||||||||||||||||
| Short term debt | $ | 150 | $ | — | $ | 150 | $ | — | $ | 150 | |||||||||
| Long term debt | 2,708 | — | 2,896 | — | 2,896 | ||||||||||||||
| December 31, 2016 | Carrying Amount | Estimated Fair Value | |||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| Assets | |||||||||||||||||||
| Mortgage loans | $ | 591 | $ | — | $ | — | $ | 594 | $ | 594 | |||||||||
| Liabilities | |||||||||||||||||||
| Long term debt | $ | 2,710 | $ | — | $ | 2,952 | $ | — | $ | 2,952 | |||||||||
| December 31, 2022 | Carrying Amount | Estimated Fair Value | |||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Mortgage loans | $ | 1,040 | $ | — | $ | — | $ | 973 | $ | 973 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Short-term debt | $ | 243 | $ | — | $ | 248 | $ | — | $ | 248 | |||||||||||||||||||
| Long-term debt | 2,538 | — | 2,349 | — | 2,349 | ||||||||||||||||||||||||
The carrying amounts reported on the Consolidated Balance Sheets for Cash, Short termShort-term investments not carried at fair value, Accrued investment income and certain Other assets and Other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.
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Note D. Income Taxes
The CNA Tax Group is included in the consolidated federal income tax return of Loews and its eligible subsidiaries. Loews and the Company have agreed that for each taxable year, the Company will 1) be paid by Loews the amount, if any, by which the Loews consolidated federal income tax liability is reduced by virtue of the inclusion of the CNA Tax Group in the Loews consolidated federal income tax return, or 2) pay to Loews an amount, if any, equal to the federal income tax that would have been payable by the CNA Tax Group filing a separate consolidated tax return. In the event that Loews should have a net operating loss in the future computed on the basis of filing a separate consolidated tax return without the CNA Tax Group, the Company may be required to repay tax recoveries previously received from Loews. This agreement may be canceled by either party upon 30 days written notice.
For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, the Company paid $127$263 million, $142$254 million and $256$238 million to Loews related to federal income taxes.
For 20152021 through 2017,2023, Loews and the Company participate in the Internal Revenue Service (IRS) has accepted Loews and 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. For 2021 and 2023, the Company was selected to participate in the phase of CAP reserved for taxpayers whose risk of noncompliance does not warrant use of IRS resources. The Company believes that this approach should reduce tax-related uncertainties, if any.
As of December 31, 20172023 and 2016,2022, there were no unrecognized tax benefits.
The Company recognizes interest accrued related to: 1)to unrecognized tax benefits in Interest expense and 2) tax refund claims in Other revenuesIncome tax (expense) benefit on the Consolidated Statements of Operations. The Company recognizes penalties (if any) in Income tax (expense) benefit on the Consolidated Statements of Operations. During 2017, 20162023, 2022 and 20152021 the Company recognized no interest and no penalties. There were no amounts accrued for interest or penalties as of December 31, 20172023 or 2016.
The following table presents a reconciliation between the Company's federal income tax expense at statutory rates and the recorded income tax expense.
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Income tax expense at statutory rates | $ | (319) | $ | (172) | $ | (308) | |||||||||||
| Tax benefit from tax exempt income | 30 | 41 | 51 | ||||||||||||||
| Foreign taxes and credits | (5) | 15 | (3) | ||||||||||||||
| State income tax expense | (13) | (10) | (13) | ||||||||||||||
| Other tax expense | (6) | (6) | (5) | ||||||||||||||
| Income tax expense | $ | (313) | $ | (132) | $ | (278) | |||||||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Income tax expense at statutory rates | $ | (459 | ) | $ | (398 | ) | $ | (192 | ) | ||
| Tax benefit from tax exempt income | 131 | 124 | 123 | ||||||||
| Foreign taxes and credits | 3 | 3 | 9 | ||||||||
| Net deferred tax asset remeasurement | (83 | ) | — | — | |||||||
| Other tax expense | (3 | ) | (7 | ) | (10 | ) | |||||
| Income tax expense | $ | (411 | ) | $ | (278 | ) | $ | (70 | ) | ||
As of December 31, 2017, the Company has not provided2023, no deferred taxes of $2 millionare required on $10 million ofthe undistributed earnings relatedof subsidiaries subject to a foreign subsidiary.tax.
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The following table presents the current and deferred components of the Company's income tax expense.
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Current tax expense | $ | (311) | $ | (221) | $ | (235) | |||||||||||
| Deferred tax (expense) benefit | (2) | 89 | (43) | ||||||||||||||
| Total income tax expense | $ | (313) | $ | (132) | $ | (278) | |||||||||||
| Years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Current tax expense | $ | (243 | ) | $ | (142 | ) | $ | (220 | ) | ||
| Deferred tax benefit (expense) | (168 | ) | (136 | ) | 150 | ||||||
| Total income tax expense | $ | (411 | ) | $ | (278 | ) | $ | (70 | ) | ||
Total income tax presented above includes foreign tax (expense)/benefitexpense of approximately $52 million, $1 million $(9) million and $(14)$18 million related to pretax income from foreign operations of approximately $39$198 million, $51$141 million and $71$124 million for the years ended December 31, 2017, 20162023, 2022 and 2015.
2021. Foreign tax expense for the year ended December 31, 2022 included a $10 million tax benefit for the revaluation of net deferred tax assets related to a U.K. tax rate change.
The deferred tax effects of the significant components of the Company's deferred tax assets and liabilities are presented in the following table.
| December 31 | |||||||||||
| (In millions) | 2023 | 2022 (1) | |||||||||
| Deferred Tax Assets: | |||||||||||
| Insurance reserves: | |||||||||||
| Property and casualty claim and claim adjustment expense reserves | $ | 202 | $ | 178 | |||||||
| Unearned premium reserves | 213 | 198 | |||||||||
| Policyholder reserves | 160 | 75 | |||||||||
| Deferred Revenue | 62 | 64 | |||||||||
| Employee benefits | 23 | 35 | |||||||||
| Deferred retroactive reinsurance benefit | 88 | 89 | |||||||||
| Net unrealized losses | 418 | 706 | |||||||||
| Other assets | 111 | 116 | |||||||||
| Gross deferred tax assets | 1,277 | 1,461 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Investment valuation differences | 83 | 59 | |||||||||
| Deferred acquisition costs | 126 | 113 | |||||||||
| Net unrealized gains | — | — | |||||||||
| Software and hardware | 18 | 21 | |||||||||
| Other liabilities | 34 | 17 | |||||||||
| Gross deferred tax liabilities | 261 | 210 | |||||||||
| Net deferred tax asset | $ | 1,016 | $ | 1,251 | |||||||
| December 31 | |||||||
| (In millions) | 2017 | 2016 | |||||
| Deferred Tax Assets: | |||||||
| Insurance reserves: | |||||||
| Property and casualty claim and claim adjustment expense reserves | $ | 74 | $ | 125 | |||
| Unearned premium reserves | 142 | 206 | |||||
| Receivables | 15 | 27 | |||||
| Employee benefits | 154 | 272 | |||||
| Life settlement contracts | — | 56 | |||||
| Deferred retroactive reinsurance benefit | 68 | 117 | |||||
| Investment valuation differences | — | — | |||||
| Other assets | 105 | 148 | |||||
| Gross deferred tax assets | 558 | 951 | |||||
| Deferred Tax Liabilities: | |||||||
| Investment valuation differences | 55 | 57 | |||||
| Deferred acquisition costs | 77 | 120 | |||||
| Net unrealized gains | 233 | 309 | |||||
| Other liabilities | 56 | 86 | |||||
| Gross deferred tax liabilities | 421 | 572 | |||||
| Net deferred tax asset | $ | 137 | $ | 379 | |||
As of December 31, 2017,2023, the CNA Tax Group had no loss carryforwards orand a tax credit carryforwards.carryforward of $2 million which expires in 2033. The foreign operations had loss carryforwards of $169 million, which have no expiration. The foreign operations had a tax credit carryforward of $9 million, which has no expiration.
Although realization of deferred tax assets is not assured, management believes it is more likely than not that the recognized net deferred tax asset 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 a result, no valuation allowance was recorded as of December 31, 20172023 or 2016.2022.
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Note E. Claim and Claim Adjustment Expense Reserves
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. Claim and claim adjustment expense reserves are also maintained for the Company's structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, the Company's actuaries review mortality experience on an annual basis. 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 Company's ultimate cost for insurance losses will not exceed current estimates.
Liability for Unpaid Claim and Claim Adjustment Expenses
The table below reconciles the net liability for unpaid claim and claim adjustment expenses for the property and casualty segments to the amount presented inon the Consolidated Balance Sheets.
| As of December 31 | |||
| (In millions) | 2017 | ||
| Net liability for unpaid claim and claim adjustment expenses: | |||
| Specialty | $ | 5,179 | |
| Commercial | 7,964 | ||
| International | 1,432 | ||
| Corporate & Other | 205 | ||
Life & Group (1) | 3,290 | ||
| Total net claim and claim adjustment expenses | 18,070 | ||
Reinsurance receivables: (2) | |||
| Specialty | 669 | ||
| Commercial | 621 | ||
| International | 204 | ||
Corporate & Other (3) | 2,231 | ||
| Life & Group | 209 | ||
| Total reinsurance receivables | 3,934 | ||
| Total gross liability for unpaid claim and claim adjustment expenses | $ | 22,004 | |
| As of December 31 | |||||
| (In millions) | 2023 | ||||
| Net liability for unpaid claim and claim adjustment expenses: | |||||
| Specialty | $ | 5,916 | |||
| Commercial | 9,021 | ||||
| International | 2,276 | ||||
Life & Group (1) | 582 | ||||
| Corporate & Other | 368 | ||||
| Total net claim and claim adjustment expenses | 18,163 | ||||
Reinsurance receivables: (2) | |||||
| Specialty | 1,215 | ||||
| Commercial | 1,082 | ||||
| International | 433 | ||||
| Life & Group | 93 | ||||
Corporate & Other (3) | 2,318 | ||||
| Total reinsurance receivables | 5,141 | ||||
| Total gross liability for unpaid claim and claim adjustment expenses | $ | 23,304 | |||
(1) The Life & Group segment amount is primarily related to long term care claim reserves, but also includes amounts are related to unfunded structured settlements arising from short duration contracts. Long term care policies are long durationshort-duration contracts.
(2) Reinsurance receivables presented are gross of the allowance for uncollectible reinsurance and do not include reinsurance receivables related to paid losses.
(3) The Corporate & Other Reinsurance receivables are primarily related to A&EP claims covered under the A&EP Loss Portfolio Transfer.Transfer (LPT).
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The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves.
| As of or for the years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 (1) | 2021 (1) | ||||||||||||||
| Reserves, beginning of year: | |||||||||||||||||
| Gross | $ | 22,120 | $ | 21,269 | $ | 19,862 | |||||||||||
| Ceded | 5,191 | 4,969 | 4,005 | ||||||||||||||
| Net reserves, beginning of year | 16,929 | 16,300 | 15,857 | ||||||||||||||
| Reduction of net reserves due to Excess Workers' Compensation Loss Portfolio Transfer | — | — | (632) | ||||||||||||||
| Net incurred claim and claim adjustment expenses: | |||||||||||||||||
| Provision for insured events of current year | 5,667 | 5,181 | 5,021 | ||||||||||||||
| Increase (decrease) in provision for insured events of prior years | 48 | (32) | 15 | ||||||||||||||
| Amortization of discount | 44 | 44 | 48 | ||||||||||||||
Total net incurred (2) | 5,759 | 5,193 | 5,084 | ||||||||||||||
| Net payments attributable to: | |||||||||||||||||
| Current year events | (922) | (821) | (933) | ||||||||||||||
| Prior year events | (3,679) | (3,481) | (3,016) | ||||||||||||||
| Total net payments | (4,601) | (4,302) | (3,949) | ||||||||||||||
| Foreign currency translation adjustment and other | 76 | (262) | (60) | ||||||||||||||
| Net reserves, end of year | 18,163 | 16,929 | 16,300 | ||||||||||||||
| Ceded reserves, end of year | 5,141 | 5,191 | 4,969 | ||||||||||||||
| Gross reserves, end of year | $ | 23,304 | $ | 22,120 | $ | 21,269 | |||||||||||
(1) In conjunction with the Company's adoption of ASU 2018-12, at January 1, 2023, long-term care reserves including claimfor policyholders currently receiving benefits were reclassified from Claim and claim adjustment expense reservesexpenses into Future policy benefits and this change was applied retrospectively as of January 1, 2021. See Note A to the Life & Group segment.Consolidated Financial Statements for additional information.
(2) Total net incurred 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, the loss on the Excess Workers' Compensation LPT (EWC LPT) and uncollectible reinsurance, which are not reflected in the table above.
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| As of or for the years ended December 31 | |||||||||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Reserves, beginning of year: | |||||||||||
| Gross | $ | 22,343 | $ | 22,663 | $ | 23,271 | |||||
| Ceded | 4,094 | 4,087 | 4,344 | ||||||||
| Net reserves, beginning of year | 18,249 | 18,576 | 18,927 | ||||||||
| Net incurred claim and claim adjustment expenses: | |||||||||||
| Provision for insured events of current year | 5,201 | 5,025 | 4,934 | ||||||||
| Decrease in provision for insured events of prior years | (381 | ) | (342 | ) | (255 | ) | |||||
| Amortization of discount | 179 | 175 | 166 | ||||||||
Total net incurred (1) | 4,999 | 4,858 | 4,845 | ||||||||
| Net payments attributable to: | |||||||||||
| Current year events | (975 | ) | (967 | ) | (856 | ) | |||||
| Prior year events | (4,366 | ) | (4,167 | ) | (4,089 | ) | |||||
| Total net payments | (5,341 | ) | (5,134 | ) | (4,945 | ) | |||||
| Foreign currency translation adjustment and other | 163 | (51 | ) | (251 | ) | ||||||
| Net reserves, end of year | 18,070 | 18,249 | 18,576 | ||||||||
| Ceded reserves, end of year | 3,934 | 4,094 | 4,087 | ||||||||
| Gross reserves, end of year | $ | 22,004 | $ | 22,343 | $ | 22,663 | |||||
Reserving Methodology
In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, ourthe Company's actuaries perform detailed reserve analyses that are staggered throughout the year. The data is organized at a reserve group level. Every reserve group is reviewed at least once during the year.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 the Company'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, we reviewthe Company reviews actual loss emergence for all products each quarter.
In developing the loss reserve estimates for property and casualty contracts, wethe Company generally projectprojects ultimate losses using several common actuarial methods as listed below. We reviewThe Company reviews the various indications from the various methods and applyapplies judgment to select an actuarial point estimate. The carried reserve may differ from the actuarial point estimate as a result of the Company'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. Further, the Company does not establish case reserves for allocated loss adjustment expenses (ALAE), therefore ALAE reserves are included in our estimate of IBNR.
The most frequently utilized methods to project ultimate losses include the following:
•Paid development: The paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss.
•Incurred development: The incurred development method is similar to the paid development method, but it uses case incurred losses instead of paid losses.
•Loss ratio: The loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year.
•Bornhuetter-Ferguson using premiums and paid loss: 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.
•Bornhuetter-Ferguson using premiums and incurred loss: The Bornhuetter-Ferguson using premiums and incurred loss method is similar to the Bornhuetter-Ferguson using premiums and paid loss method except that it uses case incurred losses.
•Frequency times severity: 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.
•Stochastic modeling: The stochastic modeling method produces a range of possible outcomes based on varying assumptions related to the particular product being modeled.
For many exposures, especially those that can be considered long-tail, a particular accident or policy year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, ourthe Company's actuaries typically assign more weight to the incurred development method than to the paid development method. As claims continue to settle and the volume of paid loss increases, the actuaries may assign additional weight to the paid development method. For most of ourthe Company's products, even the incurred losses for accident or policy years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, wethe Company may not assign much, if any weight to the paid and incurred development methods. We willThe Company may use the loss ratio, Bornhuetter-Ferguson andand/or frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because ourthe Company's history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, wethe Company may also use the loss ratio, Bornhuetter-Ferguson andand/or frequency times severity methods for short-tailshort-
96
tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, we usethe Company uses additional methods tailored to the characteristics of the specific situation.
97
Gross and significant unresolved legal issues such as the existence of coverage and the definition of an occurrence.
The following tables present the gross and net carried reserves.
| December 31, 2023 | Specialty | Commercial | International | Life & Group | Corporate & Other | Total | |||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Gross Case Reserves | $ | 1,604 | $ | 3,291 | $ | 864 | $ | 626 | $ | 1,353 | $ | 7,738 | |||||||||||||||||||||||
| Gross IBNR Reserves | 5,527 | 6,812 | 1,845 | 49 | 1,333 | 15,566 | |||||||||||||||||||||||||||||
| Total Gross Carried Claim and Claim Adjustment Expense Reserves | $ | 7,131 | $ | 10,103 | $ | 2,709 | $ | 675 | $ | 2,686 | $ | 23,304 | |||||||||||||||||||||||
| Net Case Reserves | $ | 1,392 | $ | 2,878 | $ | 708 | $ | 556 | $ | 129 | $ | 5,663 | |||||||||||||||||||||||
| Net IBNR Reserves | 4,524 | 6,143 | 1,568 | 26 | 239 | 12,500 | |||||||||||||||||||||||||||||
| Total Net Carried Claim and Claim Adjustment Expense Reserves | $ | 5,916 | $ | 9,021 | $ | 2,276 | $ | 582 | $ | 368 | $ | 18,163 | |||||||||||||||||||||||
| December 31, 2017 | Specialty | Commercial | International | Life & Group | Corporate & Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | Specialty | Commercial | International | Life & Group(1) | Corporate & Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Specialty | Commercial | International | Life & Group | Corporate & Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Case Reserves | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Case Reserves | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Case Reserves | $ | 1,805 | $ | 4,364 | $ | 744 | $ | 3,386 | $ | 1,371 | $ | 11,670 | |||||||||||||||||||||||||||||||||||||||||||
| Gross IBNR Reserves | 4,043 | 4,221 | 892 | 113 | 1,065 | 10,334 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Gross Carried Claim and Claim Adjustment Expense Reserves | $ | 5,848 | $ | 8,585 | $ | 1,636 | $ | 3,499 | $ | 2,436 | $ | 22,004 | |||||||||||||||||||||||||||||||||||||||||||
| Net Case Reserves | $ | 1,656 | $ | 4,047 | $ | 640 | $ | 3,208 | $ | 94 | $ | 9,645 | |||||||||||||||||||||||||||||||||||||||||||
| Net IBNR Reserves | 3,523 | 3,917 | 792 | 82 | 111 | 8,425 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Net Carried Claim and Claim Adjustment Expense Reserves | $ | 5,179 | $ | 7,964 | $ | 1,432 | $ | 3,290 | $ | 205 | $ | 18,070 | |||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | Specialty | Commercial | International | Life & Group | Corporate & Other | Total | |||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Gross Case Reserves | $ | 1,871 | $ | 4,661 | $ | 632 | $ | 3,172 | $ | 1,524 | $ | 11,860 | |||||||||||
| Gross IBNR Reserves | 4,278 | 4,233 | 696 | 186 | 1,090 | 10,483 | |||||||||||||||||
| Total Gross Carried Claim and Claim Adjustment Expense Reserves | $ | 6,149 | $ | 8,894 | $ | 1,328 | $ | 3,358 | $ | 2,614 | $ | 22,343 | |||||||||||
| Net Case Reserves | $ | 1,681 | $ | 4,353 | $ | 548 | $ | 2,951 | $ | 94 | $ | 9,627 | |||||||||||
| Net IBNR Reserves | 3,723 | 3,952 | 653 | 158 | 136 | 8,622 | |||||||||||||||||
| Total Net Carried Claim and Claim Adjustment Expense Reserves | $ | 5,404 | $ | 8,305 | $ | 1,201 | $ | 3,109 | $ | 230 | $ | 18,249 | |||||||||||
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves, and premium accruals, net of reinsurance, for prior years are defined as net prior year development.loss reserve development (development). These changes can be favorable or unfavorable. The following tables and discussion present the net prior yeartable presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.
| Years ended December 31 | |||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Pretax (favorable) unfavorable development: | |||||||||||||||||
| Specialty | $ | (14) | $ | (40) | $ | (45) | |||||||||||
| Commercial | (22) | (43) | (6) | ||||||||||||||
| International | 13 | (13) | 2 | ||||||||||||||
| Corporate & Other | 71 | 64 | 60 | ||||||||||||||
| Total pretax (favorable) unfavorable development | $ | 48 | $ | (32) | $ | 11 | |||||||||||
| December 31, 2017 | |||||||||||||||||||
| (In millions) | Specialty | Commercial | International | Corporate & Other | Total | ||||||||||||||
| Pretax (favorable) unfavorable net prior year claim and claim adjustment expense reserve development | $ | (202 | ) | $ | (87 | ) | $ | (9 | ) | $ | (10 | ) | $ | (308 | ) | ||||
| Pretax (favorable) unfavorable premium development | (14 | ) | 28 | (18 | ) | — | (4 | ) | |||||||||||
| Total pretax (favorable) unfavorable net prior year development | $ | (216 | ) | $ | (59 | ) | $ | (27 | ) | $ | (10 | ) | $ | (312 | ) | ||||
| December 31, 2016 | |||||||||||||||||||
| (In millions) | Specialty | Commercial | International | Corporate & Other | Total | ||||||||||||||
| Pretax (favorable) unfavorable net prior year claim and claim adjustment expense reserve development | $ | (287 | ) | $ | 55 | $ | (58 | ) | $ | 2 | $ | (288 | ) | ||||||
| Pretax (favorable) unfavorable premium development | (18 | ) | (2 | ) | (6 | ) | — | (26 | ) | ||||||||||
| Total pretax (favorable) unfavorable net prior year development | $ | (305 | ) | $ | 53 | $ | (64 | ) | $ | 2 | $ | (314 | ) | ||||||
| December 31, 2015 | |||||||||||||||||||
| (In millions) | Specialty | Commercial | International | Corporate & Other | Total | ||||||||||||||
| Pretax (favorable) unfavorable net prior year claim and claim adjustment expense reserve development | $ | (141 | ) | $ | (15 | ) | $ | (54 | ) | $ | — | $ | (210 | ) | |||||
| Pretax (favorable) unfavorable premium development | (11 | ) | (15 | ) | 18 | — | (8 | ) | |||||||||||
| Total pretax (favorable) unfavorable net prior year development | $ | (152 | ) | $ | (30 | ) | $ | (36 | ) | $ | — | $ | (218 | ) | |||||
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Segment Development Tables
For the Specialty, Commercial and International segments, 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 each of these segments. Not all lines of business or segments are presented based on their context to the Company'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 the Company's expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims for 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.
The information in the tables is reported on a net basis after reinsurance and does not include the effects of discounting. The information contained in calendar years 2022 and prior yearis unaudited. Information contained in the tables pertaining to the Company's International segment has been presented at the year-end 2023 foreign currency exchange rates for all periods presented to remove the effects of foreign currency exchange rate changes between calendar years. The Company has presented development information for the Hardy business prospectively from the date of acquisition and is presented as a separate table within the Company's International segment. To the extent the Company enters into a commutation, the transaction is reported on a prospective basis. To the extent that the Company enters into a disposition, the effects of the disposition are reported on a retrospective basis by removing the balances associated with the disposed of business.
The amounts reported for the cumulative number of reported claims include direct and assumed open and closed claims by accident year ended December 31, 2017 was driven by lower than expectedat the claimant level. The number excludes claim severity.
IBNR includes reserves for incurred but not reported losses and casualty business when there is a change in exposureexpected development on auditable policies or when premium accruals differ from processed premium. Audits on policies usually occur in a period after the expiration date of the policy. See further information on the premium developmentcase reserves. The Company does not establish case reserves for allocated loss adjusted expenses (ALAE), therefore ALAE reserves are also included in the Commercial segment for the years ended December 31, 2017 and 2016 within the Small Business discussion in Note F.estimate of IBNR.
99
Specialty
The following table presents further detail of the net prior year claim and claim adjustment expense reserve development (development) recorded for the Specialty segment.
| Years ended December 31 | ||||||||||||||||||||||||||||||||||
| (In millions) | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||
| Pretax (favorable) unfavorable development: | ||||||||||||||||||||||||||||||||||
| Medical Professional Liability | ||||||||||||||||||||||||||||||||||
| Medical Professional Liability | ||||||||||||||||||||||||||||||||||
| Medical Professional Liability | $ | 5 | $ | (37 | ) | $ | (43 | ) | ||||||||||||||||||||||||||
| Other Professional Liability and Management Liability | (131 | ) | (130 | ) | — | |||||||||||||||||||||||||||||
| Surety | (84 | ) | (63 | ) | (69 | ) | ||||||||||||||||||||||||||||
| Warranty | 4 | 4 | (2 | ) | ||||||||||||||||||||||||||||||
| Other | 4 | (61 | ) | (27 | ) | |||||||||||||||||||||||||||||
| Total pretax (favorable) unfavorable development | $ | (202 | ) | $ | (287 | ) | $ | (141 | ) | |||||||||||||||||||||||||
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 life sciences and hospitals in prior accident years as well as favorable development related to unallocated claim adjustment expenses.
Favorable development in surety coverages was primarily due to lower than expected frequency and lack of large lossessystemic activity in multiple accident years 2015 and prior.
Favorable development for medical professional liabilityin warranty was primarily due to lower than expected severities for individual healthcare professionals, allied facilities and hospitalsloss emergence in a recent accident years 2011 and prior and better than expected severityyear.
2022
Unfavorable development in medical productsprofessional liability in accident years 2010 through 2015. This was partially offset by unfavorable development in accident years 2012 and 2013 relateddue to higher than expected large loss emergenceactivity in hospitals and higher than expected frequency and severity inmultiple accident years 2014 and 2015 in our aging services business.years.
Favorable development in surety coverages was primarily due to lower than expected frequency and lack of large lossessystemic activity in recent accident years 2014 and prior.years.
Favorable development for other coverages provided to Specialty customersin warranty was due to betterlower than expected claim frequency and claim severityloss emergence in commercial lines coveragesa recent accident year.
2021
Unfavorable development in accident years 2010 through 2015.
Favorable development forin surety coverages was primarily due to lower than expected frequency and lack of large lossessystemic activity in recent accident years 2013 and prior.years.
Favorable development for other coveragesin warranty was due to betterlower than expected claim frequencyloss emergence in property coverages provided to Specialty customers ina recent accident year 2014.year.
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Specialty - Line of Business Composition
The table below provides the line of business composition of the net liability for unpaid claim and claim adjustment expenses for the Specialty segment.
| As of December 31 | |||||
| (In millions) | 2023 | ||||
| Net liability for unpaid claim and claim adjustment expenses: | |||||
| Medical Professional Liability | $ | 1,460 | |||
| Other Professional Liability and Management Liability | 3,897 | ||||
| Surety | 468 | ||||
| Warranty | 28 | ||||
| Other | 63 | ||||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 5,916 | |||
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| As of December 31 | |||
| (In millions) | 2017 | ||
| Net liability for unpaid claim and claim adjustment expenses: | |||
| Medical Professional Liability | $ | 1,700 | |
| Other Professional Liability and Management Liability | 2,912 | ||
| Surety | 368 | ||
| Warranty | 54 | ||
| Other | 145 | ||
| Total net liability for unpaid claim and claim adjustment expenses | $ | 5,179 | |
Specialty - Medical Professional Liability
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
| As of December 31 | Calendar Year | As of December 31, 2017 | As of December 31 | Calendar Year | As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | 2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | IBNR | Cumulative Number of Claims | (In millions, except reported claims data) | 2014(1) | 2015(1) | 2016(1) | 2017(1) | 2018(1) | 2019(1) | 2020(1) | 2021(1) | 2022(1) | 2023 | IBNR | Cumulative Number of Claims | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2008 | $ | 426 | $ | 451 | $ | 496 | $ | 480 | $ | 468 | $ | 468 | $ | 467 | $ | 455 | $ | 442 | $ | 438 | $ | 4 | 14,102 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | 462 | 469 | 494 | 506 | 480 | 471 | 463 | 432 | 422 | 3 | 15,594 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 483 | 478 | 478 | 486 | 470 | 446 | 403 | 398 | 9 | 15,239 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 486 | 492 | 507 | 533 | 501 | 491 | 491 | 16 | 17,481 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 526 | 529 | 575 | 567 | 559 | 563 | 39 | 18,503 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 534 | 540 | 560 | 567 | 573 | 44 | 19,777 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 511 | 548 | 585 | 564 | 78 | 19,764 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 480 | 539 | 543 | 164 | 17,690 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 469 | 527 | 268 | 14,743 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 452 | 370 | 11,137 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,971 | $ | 995 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
| As of December 31 | Calendar Year | As of December 31 | Calendar Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | (In millions) | 2014(1) | 2015(1) | 2016(1) | 2017(1) | 2018(1) | 2019(1) | 2020(1) | 2021(1) | 2022(1) | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2008 | $ | 9 | $ | 90 | $ | 207 | $ | 282 | $ | 332 | $ | 377 | $ | 395 | $ | 409 | $ | 428 | $ | 431 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | 9 | 75 | 180 | 278 | 328 | 353 | 377 | 396 | 408 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 11 | 93 | 186 | 273 | 338 | 361 | 371 | 380 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 18 | 121 | 225 | 315 | 379 | 407 | 435 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 15 | 121 | 236 | 359 | 428 | 475 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 18 | 121 | 259 | 364 | 429 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 25 | 149 | 274 | 374 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 22 | 105 | 241 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 18 | 126 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,319 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 1,652 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2008 | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | Liability for unallocated claim adjustment expenses for accident years presented | 28 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | Total net liability for unpaid claim and claim adjustment expenses | $ | 1,700 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net strengthening or (releases) of prior accident year reserves is presented in the following table.
| For the years ended December 31 | Calendar Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2015(1) | 2016(1) | 2017(1) | 2018(1) | 2019(1) | 2020(1) | 2021(1) | 2022(1) | 2023 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2008 | $ | 25 | $ | 45 | $ | (16 | ) | $ | (12 | ) | $ | — | $ | (1 | ) | $ | (12 | ) | $ | (13 | ) | $ | (4 | ) | $ | 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | 7 | 25 | 12 | (26 | ) | (9 | ) | (8 | ) | (31 | ) | (10 | ) | (40 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | (5 | ) | — | 8 | (16 | ) | (24 | ) | (43 | ) | (5 | ) | (85 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 6 | 15 | 26 | (32 | ) | (10 | ) | — | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 3 | 46 | (8 | ) | (8 | ) | 4 | 37 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 6 | 20 | 7 | 6 | 39 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 37 | 37 | (21 | ) | 53 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 59 | 4 | 63 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 58 | 58 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for the accident years presented above | Total net development for the accident years presented above | (27 | ) | (2 | ) | 32 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2008 | (16 | ) | (35 | ) | (19 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net development for accident years prior to 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total unallocated claim adjustment expense development | Total unallocated claim adjustment expense development | — | — | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Total | $ | (43 | ) | $ | (37 | ) | $ | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Data presented for these calendar years is required supplemental information, which is unaudited.
102
Specialty - Other Professional Liability and Management Liability
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses are presented in the following table.
| As of December 31 | Calendar Year | As of December 31, 2017 | As of December 31 | Calendar Year | As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except reported claims data) | 2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | IBNR | Cumulative Number of Claims | (In millions, except reported claims data) | 2014(1) | 2015(1) | 2016(1) | 2017(1) | 2018(1) | 2019(1) | 2020(1) | 2021(1) | 2022(1) | 2023 | IBNR | Cumulative Number of Claims | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2008 | $ | 916 | $ | 933 | $ | 954 | $ | 924 | $ | 915 | $ | 880 | $ | 850 | $ | 845 | $ | 827 | $ | 818 | $ | 26 | 16,331 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | 829 | 873 | 903 | 898 | 891 | 900 | 895 | 903 | 901 | 32 | 17,274 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 825 | 827 | 850 | 848 | 846 | 836 | 823 | 826 | 31 | 17,805 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 876 | 904 | 933 | 948 | 944 | 910 | 898 | 71 | 18,643 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 907 | 894 | 876 | 870 | 833 | 832 | 73 | 18,262 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 844 | 841 | 879 | 840 | 824 | 83 | 17,362 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 841 | 859 | 854 | 798 | 158 | 16,984 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 847 | 851 | 832 | 296 | 16,603 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 859 | 859 | 426 | 17,004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 810 | 701 | 15,206 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 8,398 | $ | 1,897 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative Net Paid Claims and Allocated Claim Adjustment Expenses are presented in the following table.
| As of December 31 | Calendar Year | As of December 31 | Calendar Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | (In millions) | 2014(1) | 2015(1) | 2016(1) | 2017(1) | 2018(1) | 2019(1) | 2020(1) | 2021(1) | 2022(1) | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accident Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2008 | $ | 39 | $ | 181 | $ | 376 | $ | 515 | $ | 600 | $ | 641 | $ | 678 | $ | 719 | $ | 741 | $ | 753 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2009 | 37 | 195 | 358 | 550 | 638 | 719 | 769 | 798 | 821 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 31 | 203 | 404 | 541 | 630 | 670 | 721 | 753 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 71 | 313 | 502 | 604 | 682 | 726 | 781 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 57 | 248 | 398 | 570 | 648 | 698 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 51 | 240 | 426 | 583 | 667 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 51 | 212 | 375 | 494 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 48 | 209 | 377 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 60 | 236 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 52 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 5,632 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented | $ | 2,766 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2008 | 79 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liability for unallocated claim adjustment expenses for accident years presented | Liability for unallocated claim adjustment expenses for accident years presented | 67 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net liability for unpaid claim and claim adjustment expenses | Total net liability for unpaid claim and claim adjustment expenses | $ | 2,912 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||