0000060086 us-gaap:ShortdurationInsuranceContractsAccidentYear2016Member us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember l:CommercialAutoMember l:CnaFinancialCorporationMember 2019-01-01 2019-12-31 0000060086 us-gaap:ShortdurationInsuranceContractsAccidentYear2015Member us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember l:CommercialAutoMember l:CnaFinancialCorporationMember 2015-12-31
Table of Contents
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM
10-K

    [X]

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2018

2019

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From 
 to 

Commission File Number
1-6541

LOEWS CORPORATION

(Exact name of registrant as specified in its charter)

            Delaware

 
13-2646102    
(State or other jurisdiction of
 
(I.R.S. Employer    
incorporation or organization)
 
Identification No.)

667 Madison Avenue, New York, N.Y.
10065-8087

(Address of principal executive offices) (Zip Code)

(212)
521-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol(s)
Name of each exchange on which registered

Common Stock,stock, par value $0.01 per share

 
L
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

                                     Yes            X        

No    

Yes
          X        
                                                     No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

                                     Yes    

No            X        

Yes
                                                      No  
        X        
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                                     Yes            X        

No    

Yes  
        X        
                                                      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

                                     Yes            X        

No    

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. [    ].

Yes  
        X        
                                                      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.

Large accelerated filer        X         Accelerated filer            Non-accelerated filer           Smaller reporting company        

Emerging growth company        

    Large accelerated filer    
    X    
     Accelerated filer    
     Non-accelerated filer    
     Smaller reporting company    
Emerging growth company        
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).

                                     Yes    

No            X        

    Yes  
                                                     No  
        X        
The aggregate market value of common stock held by
non-affiliates
of the registrant as of June 29, 2018,28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $13,382,000,000.

$14,174,000,000.

As of February 1, 2019,7, 2020, there were 311,299,326287,770,405 shares of the registrant’s common stock outstanding.

Documents Incorporated by Reference:

Portions of the registrant’s definitive proxy statement for the 20192020 annual meeting of shareholders intended to be filed by the registrant with the Commission not later than 120 days after the close of its fiscal year are incorporated by reference into Part III of this Report.

Table of Contents
LOEWS CORPORATION

INDEX TO ANNUAL REPORT ON

FORM
10-K
FILED WITH THE

SECURITIES AND EXCHANGE COMMISSION

For the Year Ended December 31, 2018

Item     Page 
No.  PART I  No. 

1

  Business  
  

CNA Financial Corporation

   3 
  

Diamond Offshore Drilling, Inc.

   7 
  

Boardwalk Pipeline Partners, LP

   9 
  

Loews Hotels Holding Corporation

   13 
  

Consolidated Container Company LLC

   14 
  

Executive Officers of the Registrant

   15 
  

Available Information

   15 

1A

  Risk Factors   16 

1B

  Unresolved Staff Comments   42 

2  

  Properties   42 

3  

  Legal Proceedings   42 

4  

  Mine Safety Disclosures   42 
  PART II  

5  

  

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

   43 

6  

  Selected Financial Data   45 

7  

  Management’s Discussion and Analysis of Financial Condition and Results of Operations   46 

7A

  Quantitative and Qualitative Disclosures about Market Risk   80 

8  

  Financial Statements and Supplementary Data   84 

9  

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   158 

9A

  Controls and Procedures   158 

9B

  Other Information   158 
  PART III  

10

  Directors, Executive Officers and Corporate Governance   158 

11

  Executive Compensation   159 

12

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

   159 

13

  Certain Relationships and Related Transactions, and Director Independence   159 

14

  Principal Accounting Fees and Services   159 
  PART IV  

15

  Exhibits and Financial Statement Schedules   160 

16

  Form10-K Summary   163 

2019

Item
 
  
Page
 
No.
 
 
 
No.
 
         
 
1
  
  
 
 
  
  
3
 
 
  
  
7
 
 
  
  
9
 
 
  
  
13
 
 
  
  
14
 
 
  
  
15
 
 
  
  
15
 
 
1A
  
  
16
 
 
1B
  
  
44
 
 
2
  
  
44
 
 
3
  
  
44
 
 
4
  
  
44
 
       
 
 
 
 
         
 
5
  
  
45
 
 
6
  
  
47
 
 
7
  
  
48
 
 
7A
  
  
79
 
 
8
  
  
83
 
 
9
  
  
162
 
 
9A
  
  
162
 
 
9B
  
  
162
 
       
 
 
 
 
         
 
10
  
  
162
 
 
11
  
  
163
 
 
12
  
  
163
 
 
13
  
  
163
 
 
14
  
  
163
 
       
 
 
 
 
 
15
  
  
164
 
 
16
  
  
167
 
2

Table of Contents
PART I

Item 1. Business.

Item 1.Business.
Loews Corporation was incorporated in 1969 and is a holding company. Our subsidiaries are engaged in the following lines of business:

🌑

commercial property and casualty insurance (CNA Financial Corporation, a 89% owned subsidiary);

🌑

operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc., a 53% owned subsidiary);

🌑

transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP, a wholly owned subsidiary);

🌑

operation of a chain of hotels (Loews Hotels Holding Corporation, a wholly owned subsidiary); and

🌑

manufacture of rigid plastic packaging solutions (Consolidated Container Company LLC, a 99% owned subsidiary).

commercial property and casualty insurance (CNA Financial Corporation, an 89% owned subsidiary);
operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc., a 53% owned subsidiary);
transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP, a wholly owned subsidiary);
operation of a chain of hotels (Loews Hotels Holding Corporation, a wholly owned subsidiary); and
manufacture of rigid plastic packaging solutions (Altium Packaging LLC, formerly known as Consolidated Container Company LLC, a 99% owned subsidiary).
Unless the context otherwise requires, references in this Report to “Loews Corporation,” “the Company,” “Parent Company,” “we,” “our,” “us” or like terms refer to the business of Loews Corporation excluding its subsidiaries.

On June 29, 2018, Boardwalk GP, LP (“General Partner”), the general partner of Boardwalk Pipeline Partners LP and an indirect wholly owned subsidiary of the Company, elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipeline Partners LP not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of Boardwalk Pipeline Partners LP’s Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”). On July 18, 2018, the General Partner completed the transaction for a cash purchase price, determined in accordance with the Limited Partnership Agreement, of $12.06 per unit, or approximately $1.5 billion, in the aggregate. For further information on this transaction, see Note 2 of the Notes to the Consolidated Financial Statements, included under Item 8.

We have five reportable segments comprised of CNA Financial Corporation, Diamond Offshore Drilling, Inc., Boardwalk Pipeline Partners, LP, Loews Hotels Holding Corporation and the Corporate segment. The operations of Consolidated Container since the acquisition date in the second quarter of 2017Altium Packaging LLC are included in the Corporate segment. Each of our operating subsidiaries is headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position. Additional financial information on each of our segments is included under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).

CNA FINANCIAL CORPORATION

CNA Financial Corporation (together with its subsidiaries, “CNA”) is an insurance holding company. 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. CNA accounted for 72.0%72.3%, 69.8%72.0% and 71.6%69.8% of our consolidated total revenue for the years ended December 31, 2019, 2018 2017 and 2016.

2017.

CNA’s insurance products primarily include commercial property and casualty coverages, including surety. CNA’s services include warranty, risk management, information services and claims administration. CNA’s products and services are primarily marketed through independent agents, brokers and managing general underwriters to a wide variety of customers, including small, medium and large businesses, insurance companies, associations, professionals and other groups.

3

Property & Casualty Operations

CNA’s commercial property and casualty insurance operations (“Property & Casualty Operations”) includes its Specialty, Commercial and International lines of business.

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:


Table of Contents
Management & Professional Liability
: Management & Professional Liability consists of the following coverages and products:

🌑

professional liability coverages and risk management services to various professional firms, including architects, real estate agents, accounting firms and law firms;

🌑

directors and officers (“D&O”), employment practices, fiduciary and fidelity coverages. Specific areas of focus include small andmid-size firms, public as well as privately held firms andnot-for-profit organizations;

🌑

insurance products to serve the health care industry including professional and general liability as well as associated standard property and casualty coverages. Key customer groups include aging services, allied medical facilities, dentists, physicians, hospitals, nurses and other medical practitioners.

professional liability coverages and risk management services to various professional firms, including architects, real estate agents, accounting firms and law firms;
directors and officers (“D&O”), employment practices, fiduciary and fidelity coverages. Specific areas of focus include small and
mid-size
firms, public as well as privately held firms and
not-for-profit
organizations;
insurance products to serve the health care industry including professional and general liability as well as associated standard property and casualty coverages. Key customer groups include aging services, allied medical facilities, dentists, physicians, hospitals, nurses and other medical practitioners.
Surety
: Surety offers small, medium and large contract and commercial surety bonds. Surety provides surety and fidelity bonds in all 50 states.

Warranty and Alternative Risks
: Warranty and Alternative Risks provides extended service contracts and insurance products that provide protection from the financial burden associated with mechanical breakdown and other related losses, primarily for vehicles, portable electronic communication devices and 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, CNA’s 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.

Commercial

Commercial works with a network of brokers and independent agents to market a broad range of property and casualty insurance products and services to small, middle-market and large businesses. 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 and umbrella coverages. Most insurance programs are provided on a guaranteed cost basis; however, CNA also offers 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 casualtyproductscasualty
products are offered through CNA’spresented in the following insurance groups: Middle Market, Small Business and Other Commercial insurance groups.

International

International underwrites property and casualty coverages on a global basis through its two insurance companies based in the United Kingdom-based insurance company,Kingdom and Luxembourg, a branch operation in Canada as well as through its presence atCNA’s Lloyd’s of London (“Lloyd’s”) through Hardy Syndicate 382. Effective January 1, 2019, European Economic Area (“EEA”) business will be written through a Luxembourg-based insurance company.syndicate. Underwriting activities are managed through three business units that operate across all locations: Property and Energy & Marine, Casualty and Specialty andSpecialty. International is managed from headquarters in London.

4

Property & Casualty Structure

CNA’s Property��commercial property & Casualty Operations field structurecasualty underwriting operations presence in the United States of America (“U.S.”) consists of 49field underwriting locations. In addition, there are fivelocations and centralized processing operations which handle policy processing, billing and collection activities and also act as call centers to optimize service. CNA’s claim operations presence in the U.S. consists of six primary locations where it handles multiple claim types and key business functions. Additionally,functions, as well as regional claim offices which are aligned with CNA’s underwriting field structure. CNA also has a presenceproperty & casualty underwriting operations in Canada, the United Kingdom (“U.K.”) and Continental Europe, consisting of 17 branch operations andas well as access to business placed at Lloyd’s through Hardy.

Syndicate 382.


Table of Contents
Other Insurance Operations

Other Insurance Operations include CNA’s long term care business that is in
run-off,
certain corporate expenses, including interest on CNA corporate debt, and certain property and casualty businesses in
run-off,
including CNA Re and asbestos and environmental pollution (“A&EP”).

Other

Competition:
 The property and casualty insurance industry is highly competitive both as to rate and service. CNA competes with a large number of stock and mutual insurance companies and other entities for both distributors and customers. Insurers compete on the basis of factors including products, price, services, ratings and financial strength. Accordingly, CNA must continuously allocate resources to refine and improve its insurance products and services. CNA is one of the largest commercial property and casualty insurance companies in the U.S.

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 corporate governance requirements, risk management 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 transfers or payments.

As CNA’s insurance operations are conducted in both domestic and foreign jurisdictions, CNA is subject to a number of regulatory agency requirements applicable to a portion, or all, of CNA’s operations. These include but are not limited to, the State of Illinois Department of Insurance (which is CNA’s global group-wide supervisor), the U.K. Prudential Regulatory Authority and Financial Conduct Authority, the Office of Superintendent of Financial Institutions ofin Canada, the Luxembourg insurance regulator Commissariat aux Assurances and the Bermuda Monetary Authority.

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. CNA’s share of these involuntary risks is mandatory and generally a function of its 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, or by industry organizations that assist in the statistical analysis and ratemaking process and CNA has the ability to recoup certain of these assessments from policyholders.

5

Although the U.S. federal government does not currently directly regulate the business of insurance, federal legislative and regulatory initiatives can affect the insurance industry. These initiatives and legislation include proposals relating to terrorism and natural catastrophe exposures, cybersecurity risk management, federal financial services reforms and certain tax reforms.

The Terrorism Risk Insurance Program Reauthorization Act of 20152019 (“TRIPRA”) provides for a federal government backstop for insured terrorism risks through 2020.2027. The mitigating effect of such law is part of the analysis of CNA’s overall risk posture for terrorism and, accordingly, CNA’s risk positioning may change if such law werewas modified.


Table of Contents
CNA also continues to invest in the security of its systems and network on an enterprise-wide basis. This requires investment of a significant amount of resources by CNA on an ongoing basis. Potential implications of possible cybersecurity legislation on such current investment, if any, are uncertain.

The foregoing laws, regulations and proposals, either separately or in the aggregate, create a regulatory and legal environment that may require changes in CNA’s business plan or significant investment of resources in order to operate in an effective and compliant manner.

Additionally, various legislative and regulatory efforts to reform the tort liability system have, and will continue to, affect the industry. Although there has been some tort reform with positive impact to the insurance industry, newNew causes of action and theories of damages continue to be proposed in court actions and by federal and state legislatures that continue to expand liability for insurers and their policyholders.

Hardy, a specialized 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 plan of each syndicate is 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 CNA’s European operations and are enacted by the European Commission, the executive body of the European Union (“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 IAIS has developedrecently adopted a Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”) which is focused on the effective group-wide supervision of internationally active insurance groups, such as CNA. As part of ComFrame, the IAIS is developing an internationala global insurance capital standard for insurance groups. While the detailsgeneral parameters of ComFrame including ahave been finalized, many critical areas of the global groupinsurance capital standard and its applicability to CNA are uncertain at this time, certainstill under consideration. Certain jurisdictional regulatory regimes are subject to revision in response to these global developments.

There have also been definitive developments with respect to prudential insurance supervision unrelated to the IAIS activities. On September 22, 2017, the U.S. Treasury Department, the U.S. Trade Representative (“USTR”) and the E. U.E.U. announced they had formally signed a covered agreement on Prudential Measures Regarding Insurance and Reinsurance
(“U.S.-E.U.
Covered Agreement”). The
U.S.-E.U.
Covered Agreement requires U.S. states to prospectively eliminate the requirement that domestic insurance companies must obtain collateral from E.U. reinsurance companies that are not licensed in their state (alien reinsurers) in order to obtain reserve credit under statutory accounting. In exchange, the E.U. will not impose local presence requirements on U.S. firms operating in the E.U., and effectively must defer to U.S. group capital regulation for these firms. On December 18, 2018, the U.S. Treasury Department, the USTR, and the United Kingdom (“U.K.”) announced they formally signed the Bilateral Agreement on Prudential Measures Regarding Insurance and Reinsurance
(“U.S.-U.K.
Covered Agreement”). This Agreement has similar terms as the
U.S.-E.U.
Covered Agreement, and will become effective upon the U.K.’s exit from the E.U.

6

Because these covered agreements are not self-executing, U.S. state laws will need to be revised to change reinsurance collateral requirements to conform to the provisions within each of the agreements. Before any such revision to state laws can be advanced,In addition, the National Association of Insurance Commissioners (“NAIC”) must develop a new approach for determination of the appropriate reserve credit under statutory accounting for E.U. and U.K. based alien reinsurers. In addition, the NAIC is currently developing an approach to group capital regulation as the current U.S. regulatory regime is based on legal entity regulation. Both the reinsurance collateral requirement change and adoption of group capital regulation must be effected by the states within five years from the signing of the Covered Agreements, or states risk federal preemption. CNA will monitor the modification of state laws and regulations in order to comply with the provisions of the Covered Agreements and assess potential effects on its operations and prospects.


Table of Contents
Properties:
 CNA’s principal executive offices are based in Chicago, Illinois. CNA’s subsidiaries maintain office space in various cities throughout the United States and various countries. CNA leases all of its office space.

DIAMOND OFFSHORE DRILLING, INC.

Diamond Offshore Drilling, Inc. (together with its subsidiaries, “Diamond Offshore”) provides contract drilling services to the energy industry around the world with a fleet of 1715 offshore drilling rigs consisting of four drillships and 1311 semisubmersible rigs. Diamond Offshore accounted for 7.8%6.6%, 10.9%7.8% and 12.1%10.9% of our consolidated total revenue for the years ended December 31, 2019, 2018 2017 and 2016.

2017.

A floater rig is a type of mobile offshore drilling rig that floats and does not rest on the seafloor. This asset class includes self-propelled drillships and semisubmersible rigs. Semisubmersible rigs are comprised of an upper working and living deck resting on vertical columns connected to lower hull members. Such rigs operate in a “semi-submerged” position, remaining afloat, off bottom, in a position in which the lower hull is approximately 55 feet to 90 feet below the water line and the upper deck protrudes well above the surface. Semisubmersibles hold position while drilling by use of a series of small propulsion units or thrusters that provide dynamic positioning (“DP”) to keep the rig on location, or with anchors tethered to the seabed. Although DP semisubmersibles are self-propelled, such rigs may be moved long distances with the assistance of tug boats.
Non-DP,
or moored, semisubmersibles require tug boats or the use of a heavy lift vessel to move between locations.

A drillship is an adaptation of a maritime vessel that is designed and constructed to carry out drilling operations by means of a substructure with a moon pool centrally located in the hull. Drillships are typically self-propelled and are positioned over a drillsite through the use of a DP system similar to those used on semisubmersible rigs.

Fleet Enhancements and Additions: Diamond Offshore’s long-term strategy is to upgrade its fleet to meet customer demand for advanced, efficient and high-tech rigs by acquiring or building new rigs when possible to do so at attractive prices. Diamond Offshore’s most recent fleet enhancement cycle was completed in 2016 with the delivery of theOcean GreatWhite.Enhancements:
 During 2018,early 2019, Diamond Offshore begancompleted the reactivation of the
Ocean Endeavor. The rig
, which is currently in the U.K., where it is completing its reactivation and is undergoing contract preparation activities in advance of its upcomingon contract in the second quarter of 2019. In addition, in late 2018,U.K. Diamond Offshore initiatedalso completed the reactivation and upgrade of the
Ocean Onyx to increase
in late 2019. As part of the upgrade of the
Ocean Onyx
, Diamond Offshore increased the rig’s marketability by expanding its lower deck load reducingcapability, reduced rig motion response and makingmade other technologically desirable enhancements sought by Diamond Offshore’s customers. TheOcean Onyx has been moved to Singapore, where Diamond Offshore expects the
Ocean Onyx
to commence operating under a long-term contract in Australia in the second quarter of 2020. In addition, Diamond Offshore added enhanced automation features on two of its upgradedrillships, the
Ocean BlackHawk
and
Ocean BlackHornet
, during their 2019 shipyard stays for regulatory surveys. Similar projects for its other two drillships are scheduled to be completed in the later part of 2019.

2020.

Diamond Offshore continues to evaluate further rig acquisition and enhancement opportunities as they arise. However, Diamond Offshore can provide no assurance whether, or to what extent, it will continue to make rig acquisitions orand enhancements to its fleet.

Markets:
 The principal markets for Diamond Offshore’s contract drilling services are:

🌑

the Gulf of Mexico, including the U.S. and Mexico;

🌑

South America, principally offshore Brazil and Trinidad and Tobago;

7

🌑

Australia and Southeast Asia, including Malaysia, Indonesia, Myanmar and Vietnam;

🌑

Europe, principally offshore the U.K. and Norway;

🌑

East and West Africa; and

🌑

the Mediterranean.

the Gulf of Mexico, including the U.S. and Mexico;
South America, principally offshore Brazil and Trinidad and Tobago;
Australia and Southeast Asia, including Malaysia, Myanmar and Vietnam;
Europe, principally offshore the U.K.;
East and West Africa; and
the Mediterranean.
Drilling Contracts:
 Diamond Offshore’s contracts to provide offshore drilling services vary in their terms and provisions. Diamond Offshore typically obtains its contracts through a competitive bid process, although it is not unusual for Diamond Offshore to be awarded drilling contracts following direct negotiations. Drilling contracts generally provide for a basic dayrate regardless of whether or not drilling results in a productive well. Drilling contracts generally also provide for reductions in rates during periods when the rig is being moved or when drilling operations

Table of Contents
are interrupted or restricted by equipment breakdowns, adverse weather conditions or other circumstances. Under dayrate contracts, Diamond Offshore generally pays the operating expenses of the rig, including wages and the cost of incidental supplies. Historically, dayrate contracts have accounted for the majority of Diamond Offshore’s revenues. In addition, from time to time, Diamond Offshore’s dayrate contracts may also provide for the ability to earn an incentive bonus from its customer based upon performance.

The duration of a dayrate drilling contract is generally tied to the time required to drill a single well or a group of wells, which Diamond Offshore refers to as a
well-to-well
contract, or a fixed period of time, in what Diamond Offshore refers to as a term contract. Diamond Offshore’s drilling contracts may be terminated by the customer in the event the drilling rig is destroyed or lost or if drilling operations are suspended for an extended period of time as a result of a breakdown of equipment or, in some cases, due to events beyond the control of either party to the contract. Certain of Diamond Offshore’s contracts also permit the customer to terminate the contract early by giving notice; in most circumstances, this requires the payment of an early termination fee by the customer. The contract term in many instances may also be extended by the customer exercising options for the drilling of additional wells or for an additional length of time, generally subject to mutually agreeable terms and rates at the time of the extension. In periods of decreasing demand for offshore rigs, drilling contractors may prefer longer term contracts to preserve dayrates at existing levels and ensure utilization, while customers may prefer shorter contracts that allow them to more quickly obtain the benefit of declining dayrates. Moreover, drilling contractors may accept lower dayrates in a declining market in order to obtain longer-term contracts and add backlog.

Customers:
 Diamond Offshore provides offshore drilling services to a customer base that includes major and independent oil and gas companies and government-owned oil companies. During 2019, 2018 2017 and 2016,2017, Diamond Offshore performed services for 12, 13 14 and 1814 different customers. During 2019, 2018 and 2017, and 2016, AnadarkoHess Corporation accounted for 34%29%, 25% and 22%16% of Diamond Offshore’s annual total consolidated revenues, Occidental (formerly Anadarko) accounted for 21%, 34% and 25% of Diamond Offshore’s annual total consolidated revenues and Petróleo Brasileiro S.A. accounted for 16%20%, 19%16% and 18%19% of Diamond Offshore’s annual total consolidated revenues. During 2018 and 2017, Hess Corporation accounted for 25% and 16% of Diamond Offshore’s annual total consolidated revenues and BP accounted for 11% and 16% of Diamond Offshore’s annual total consolidated revenues. No other customer accounted for 10% or more of Diamond Offshore’s annual total consolidated revenues during 2019, 2018 2017 or 2016.

2017.

As of January 1, 2019,2020, Diamond Offshore’s contract backlog was $2.0an aggregate $1.6 billion attributable to 12 customers. All four of its drillships are currently contractedten customers, compared to work in the U.S. Gulf of Mexico (“GOM”). As$2.0 billion as of January 1, 2019, contract2019. Of its current contracted backlog for the years 2020, 2021 and 2022, $0.3 billion, $0.2 billion and $0.1 billion or 43%, 44% and 24% are attributable to Diamond Offshore’s expected operations in the GOM was $471 million, $372 million, $217 million and $36 million for the years 2019, 2020, 2021 and 2022, allGulf of which was attributable toMexico from three customers.

Competition:
 Based on industry data as of the date of this Report, there are approximately 760 mobile drilling rigs in service worldwide, including approximately 240 floater rigs. Despite consolidation in previous years, the offshore contract drilling industry remains highly competitive with numerous industry participants, none of which at the present time has a dominant market share. Some of Diamond Offshore’s competitors may have greater financial or other resources than it does.

8

Drilling contracts are traditionally awarded on a competitive bid basis. Price is typically the primary factor in determining which qualified contractor is awarded a job. Customers may also consider rig availability and location, a drilling contractor’s operational and safety performance record, and condition and suitability of equipment. Diamond Offshore believes it competes favorably with respect to these factors.

Diamond Offshore competes on a worldwide basis, but competition may vary significantly by region at any particular time. Competition for offshore rigs generally takes place on a global basis, as these rigs are highly mobile and may be moved, although at a cost that may be substantial, from one region to another. It is characteristic of the offshore drilling industry to move rigs from areas of low utilization and dayrates to areas of greater activity and relatively higher dayrates. The current oversupply of offshore drilling rigs also intensifies price competition.

Governmental Regulation:
 Diamond Offshore’s operations are subject to numerous international, foreign, U.S., state and local laws and regulations that relate directly or indirectly to its operations, including regulations controlling the discharge of materials into the environment, requiring removal and
clean-up
under some circumstances, or otherwise relating to the protection of the environment, and may include laws or regulations pertaining to climate change, carbon emissions or energy use.


Table of Contents
Properties:
 Diamond Offshore owns an office building in Houston, Texas, where its corporate headquarters are located, and offices and other facilities in New Iberia, Louisiana, Aberdeen, Scotland, Macae, Brazil and Ciudad del Carmen, Mexico. Additionally, Diamond Offshore currently leases various office, warehouse and storage facilities in Australia, Brazil, Louisiana, Malaysia, Singapore and the U.K. to support its offshore drilling operations.

BOARDWALK PIPELINE PARTNERS, LP

Boardwalk Pipeline Partners, LP (together with its subsidiaries, “Boardwalk Pipeline”Pipelines”) is engaged in the business of natural gas and natural gas liquids and hydrocarbons (herein referred to together as “NGLs”) transportation and storage. Boardwalk PipelinePipelines accounted for 8.7%, 9.6%8.7% and 10.0%9.6% of our consolidated total revenue for the years ended December 31, 2019, 2018 2017 and 2016.

2017.

A wholly owned subsidiary of ours, Boardwalk Pipelines Holding Corp. (“BPHC”) owns, directly and indirectly, the General Partner interest and all of the limited partnership interests of Boardwalk Pipeline.

Pipelines.

Boardwalk PipelinePipelines owns and operates approximately 13,80513,610 miles of interconnected natural gas pipelines directly serving customers in 13 states and indirectly serving customers throughout the northeastern and southeastern U.S. through numerous interconnections with unaffiliated pipelines. Boardwalk PipelinePipelines also owns and operates approximately 425445 miles of NGL pipelines in Louisiana and Texas. In 2018,2019, its pipeline systems transported approximately 2.72.9 trillion cubic feet of natural gas and approximately 70.886.6 million barrels (“MMBbls”) of NGLs. Average daily throughput on Boardwalk Pipeline’sPipelines’ natural gas pipeline systems during 20182019 was approximately 7.38.0 billion cubic feet (“Bcf”). Boardwalk Pipeline’sPipelines’ natural gas storage facilities are comprised of 14 underground storage fields located in four states with aggregate working gas capacity of approximately 205.0 Bcf and Boardwalk Pipeline’sPipelines’ NGL storage facilities consist of 11 salt dome storage caverns located in Louisiana with an aggregate storage capacity of approximately 31.8 MMBbls. Boardwalk PipelinePipelines also owns fiveseven salt dome caverns and related brine infrastructure for use in providing brine supply services and to support the NGL storage operations.

9

Boardwalk Pipeline’sPipelines’ pipeline and storage systems are described below:

The Gulf South Pipeline Company, LPLLC (“Gulf South”), effective January 1, 2020, converted from a limited partnership to a limited liability company. Immediately subsequent to the conversion, Boardwalk Pipelines’ Gulf Crossing Pipeline Company LLC, (“Gulf Crossing”) operating subsidiary was merged into Gulf South. The merged pipeline system runs approximately 7,1907,360 miles along the Gulf Coast in the states of Oklahoma, Texas, Louisiana, Mississippi, Alabama and Florida. The pipeline system has a
peak-day
delivery capacity of 9.710.5 Bcf per day and average daily throughput for the year ended December 31, 20182019 was 3.14.9 Bcf per day. Gulf South has ten natural gas storage facilities. The two natural gas storage facilities located in Louisiana and Mississippi have approximately 83.5 Bcf of working gas storage capacity and the eight salt dome natural gas storage caverns in Mississippi have approximately 46.0 Bcf of total storage capacity, of which approximately 29.6 Bcf is working gas capacity. Gulf South also owns undeveloped land which is suitable for up to five additional storage caverns.

The Texas Gas Transmission, LLC (“Texas Gas”) pipeline system runs approximately 5,9755,980 miles and is located in Louisiana, East Texas, Arkansas, Mississippi, Tennessee, Kentucky, Indiana and Ohio with smaller diameter lines extending into Illinois. The pipeline system has a
peak-day
delivery capacity of 5.75.4 Bcf per day and average daily throughput for the year ended December 31, 20182019 was 2.83.1 Bcf per day. Texas Gas owns nine natural gas storage fields with 84.3 Bcf of working gas storage capacity.

The Gulf Crossing Pipeline Company LLC (“Gulf Crossing”) pipeline system is located in Texas and runs approximately 375 miles into Louisiana. The pipeline system has apeak-day delivery capacity of 1.9 Bcf per day and average daily throughput for the year ended December 31, 2018 was 1.4 Bcf per day.

Boardwalk Louisiana Midstream, LLC and Boardwalk Petrochemical Pipeline, LLC (collectively “Louisiana Midstream”) provide transportation and storage services for natural gas, NGLs and ethylene, fractionation services for NGLs and brine supply services. These assets provide approximately 49.548.5 MMBbls of salt dome storage capacity, including approximately 7.6 Bcf of working natural gas storage capacity, significant brine supply infrastructure, and approximately 260285 miles of pipeline assets. Louisiana Midstream owns and operates the Evangeline Pipeline (“Evangeline”), which is an approximately 175 mile interstate ethylene pipeline that is capable of transporting approximately 3.34.2 billion pounds of ethylene per year between Texas and Louisiana, where it interconnects with its ethylene distribution system. Throughput for Louisiana Midstream was 70.886.6 MMBbls for the year ended December 31, 2018.

2019.


Table of Contents
Boardwalk Texas Intrastate, LLC (“Texas Intrastate”) provides intrastate natural gas transportation services on approximately 255 miles of pipeline located in South Texas. Texas Intrastate is situated to provide access to industrial and liquefied natural gas (“LNG”) export markets, proposed power plants and third-party pipelines for exports to Mexico.

Boardwalk PipelinePipelines has been engaged in several growth projects. Since 2016, Boardwalk PipelinePipelines has placed into service several growth projects that represent more than $1.5$1.6 billion of total capital expenditures and provide more than 2.93.1 Bcf of natural gas transportation capacity to producers, power plants and an LNG export facility. These projects include Boardwalk Pipeline’sPipelines’ Northern Supply Access, Coastal Bend Header, Sulphur Storage and Pipeline Expansion and atwo power plant projectprojects, one in Louisiana.Louisiana and one in Texas. Boardwalk PipelinePipelines expects to spend approximately $480$460 million on its growth projects currently under construction through 2022 that are expected to serve increased demand from natural gas
end-users
such as power generation plants and industrials, as well as liquids demand from petrochemical facilities. Collectively, these projects represent more than 1.3approximately 1.2 Bcf per day of natural gas transportation to
end-users.
These growth projects include threetwo projects that will provide firm transportation services to new power plant customers, one each in Louisiana, TexasMississippi and Indiana.one in Texas. Boardwalk PipelinePipelines is also progressing with the construction of several NGL growth projects that are expected to provide transportation and storage services and brine supply services to petrochemical and industrial customers in southern Louisiana. All of Boardwalk Pipeline’sPipelines’ growth projects are secured by long-term firm contracts.

Customers:
 Boardwalk PipelinePipelines serves a broad mix of customers, including producers of natural gas, and with
end-use
customers, including local distribution companies, exporters of LNG, marketers, electric power generators, industrial users and interstate and intrastate pipelines who, in turn, provide transportation and storage services for
end-users.
These customers are located throughout the Gulf Coast, Midwest and Northeast regions of the U.S.

10

Competition: Boardwalk PipelinePipelines’ delivery market has diversified over time, with more deliveries going to

end-use
customers, whereas, historically its delivery markets were primarily to other pipelines who then delivered to
end-use
customers. As of December 31, 2019, Boardwalk Pipelines had approximately $9.3 billion of projected operating revenues under committed firm transportation agreements.
Competition:
 Boardwalk Pipelines competes with numerous other pipelines that provide transportation, storage and other services at many locations along its pipeline systems. Boardwalk PipelinePipelines also competes with pipelines that are attached to natural gas supply sources that are closer to some of its traditional natural gas market areas. In addition, regulators’ continuing efforts to increase competition in the natural gas industry have increased the natural gas transportation options of Boardwalk Pipeline’sPipelines’ traditional customers. For example, as a result of regulators’ policies, capacity segmentation and capacity release have created an active secondary market which increasingly competes with Boardwalk Pipeline’sPipelines’ natural gas pipeline services. Further, natural gas competes with other forms of energy available to Boardwalk Pipeline’sPipelines’ customers, including electricity, coal, fuel oils and alternative fuel sources.

The principal elements of competition among pipelines are availability of capacity, rates, terms of service, access to gas supplies, flexibility and reliability of service. In many cases, the elements of competition, in particular, flexibility, terms of service and reliability, are key differentiating factors between competitors. This is especially the case with capacity being sold on a longer term basis. Boardwalk PipelinePipelines is focused on finding opportunities to enhance its competitive profile in these areas by increasing the flexibility of its pipeline systems, such as modifying them to allow for
bi-directional
flows, to meet the demands of customers, such as power generators and industrial users, and is continually reviewing its services and terms of service to offer customers enhanced service options.

Governmental Regulation:
 The Federal Energy Regulatory Commission (“FERC”) regulates Boardwalk Pipeline’sPipelines’ interstate natural gas operating subsidiaries under the Natural Gas Act of 1938 (“NGA”) and the Natural Gas Policy Act of 1978 (“NGPA”). The FERC regulates, among other things, the rates and charges for the transportation and storage of natural gas in interstate commerce and the extension, enlargement or abandonment of facilities under its jurisdiction. Where required, Boardwalk Pipeline’sPipelines’ natural gas pipeline subsidiaries hold certificates of public convenience and necessity issued by the FERC covering certain of their facilities, activities and services. The maximum rates that may be charged by Boardwalk Pipeline’sPipelines’ subsidiaries operating under the FERC’s jurisdiction, for all aspects of the natural gas transportation services they provide, are established through the FERC’s cost-based rate-making process. Key determinants in the FERC’s cost-based rate-making process are the costs of providing service, the volumes of gas being transported, the rate design, the allocation of costs between services, the capital structure and the rate of return a pipeline is permitted to earn. The maximum rates that may be charged by Boardwalk Pipeline

Table of Contents
Pipelines for storage services on Texas Gas, with the exception of services associated with a portion of the working gas capacity on that system, are also established through the FERC’s cost-based rate-making process. The FERC has authorized Boardwalk PipelinePipelines to charge market-based rates for its firm and interruptible storage services for the majority of its other natural gas storage facilities. None of Boardwalk Pipeline’sPipelines’ FERC-regulated entities currently have an obligation to file a new rate case and Gulf South is prohibited from filing a rate case until May 1, 2023, subject to certain exceptions. Texas Intrastate transports natural gas in intrastate commerce under the rules and regulations established by the Texas Railroad Commission and in interstate commerce that is subject to FERC jurisdiction under Section 311 of the NGPA. The maximum rates for services are established under Section 311 of the NGPA and are generally subject to review every five years by the FERC.

Boardwalk PipelinePipelines is also regulated by the U.S. Department of Transportation (“DOT”) through the Pipeline and Hazardous Material Safety Administration (“PHMSA”) under the Natural Gas Pipeline Safety Act of 1968, as amended (“NGPSA”) and the Hazardous Liquids Pipeline Safety Act of 1979, as amended (“HLPSA”). The NGPSA and HLPSA govern the design, installation, testing, construction, operation, replacement and management of interstate natural gas and NGL pipeline facilities. Boardwalk PipelinePipelines has authority from PHMSA to operate certain natural gas pipeline assets under issued permits with specific conditions that allow it to operate those pipeline assets at higher than normal operating pressures of up to 0.80 of the pipeline’s Specified Minimum Yield Strength (“SMYS”). Operating at these pressures allows these pipelines to transport all of the existing natural gas volumes Boardwalk PipelinePipelines has contracted for with its customers. PHMSA retains discretion whether to grant or maintain authority for Boardwalk PipelinePipelines to operate its natural gas pipeline assets at higher pressures and, in the event that PHSMA should elect not to allow Boardwalk PipelinePipelines to operate at these higher pressures, it could affect its ability to transport all of its contracted quantities of natural gas on these pipeline assets, and Boardwalk PipelinePipelines could incur significant additional costs to reinstate this authority or to develop alternate ways to meet its contractual obligations.

PHMSA’s regulations also require transportation pipeline operators to implement integrity management programs to comprehensively evaluate certain high risk areas, known as high consequence areas (“HCAs”), high-population areas (also known as moderate consequence areas (“MCAs”), as well as Class 3 and Class 4 areas, which are determined by specific population densities near Boardwalk Pipelines’ pipelines), certain drinking water sources and unusually sensitive ecological areas, along Boardwalk Pipeline’sPipelines’ pipelines and take additional safety measures to protect people and property in these highly populated areas. Recent legislationLegislation in the past decade has resulted in more stringent mandates for pipeline safety and has charged PHMSA with

11

developing and adopting regulations that impose increased pipeline safety requirements on pipeline operators. TheIn particular, the NGPSA and HLPSA were amended by the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (“2011 Act”) and the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (“2016 Act”). The 2011 Act increased the penalties for safety violations, established additional safety requirements for newly constructed pipelines and required studies of safety issues that could result in the adoption of new regulatory requirements by PHMSA for existing pipelines. InThe 2016 the NGPSA and HLPSA were amended by the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (“2016 Act”), extendingextended PHMSA’s statutory mandate through September of 2019 and, among other things, requiringrequired PHMSA to complete certain of its outstanding mandates under the 2011 Act and developingdevelop new safety standards for natural gas storage facilities in 2018. Subsequently,Pursuant to the 2016 Act, in December of 2016, PHMSA published an interim final rule that addressesaddressed certain safety issues related to natural gas storage facilities, including wells, wellbore tubing and casing. However, in June of 2017, PHMSA temporarily suspended specified enforcement actions pertaining to provisions of the December 2016 interim final rule, as PHMSA announced it would reconsider the interim final rule, and subsequently

re-opened
the rule to public comment in October of 2017. The rule has yet to be finalized. The In October of 2019, PHMSA released its “Enhanced Emergency Order Procedures” final rule, which replaced an interim final rule issued by the agency in
2016 Act alsoand empowers PHMSA to addressrespond to imminent hazards by imposing emergency restrictions, prohibitions and safety measures on owners and operators of gas or hazardous liquid pipeline facilities without prior notice or an opportunity for a hearing. PHMSA issued interim final regulations in 2016 to implement the agency’s expanded authority to address unsafe pipeline conditions or practices that pose an imminent hazard to life, property, or the environment. New legislation or any new regulations adopted by PHMSA may impose more stringent requirements applicable to integrity management programs and other pipeline safety aspects of Boardwalk Pipeline’s operations, which could cause it to incur increased capital and operating costs and operational delays. For example, inIn 2016, PHMSA published a proposed rulemaking that would impose new or more stringent requirements for certain natural gas pipelines including, among other things, expanding certain of PHMSA’s current regulatory safety programs for natural gas lines in newly defined “moderate consequence areas”MCAs that do not qualify as HCAs and requiring maximum allowable operating pressure (“MAOP”) validation through
re-verification
of all historical records for pipelines in service, which may require natural gas pipelines installed before 1970 (previously excluded from certain pressure testing obligations) to be pressure tested. However, PHMSA has since decided to split this proposed rule which has become known as the “gas Mega Rule,” into three separate rulemaking proceedingsproceedings. The first of these three rulemakings, relating to onshore gas transmission pipelines, was published as a final rule on October 1, 2019, and imposes numerous requirements, including MAOP reconfirmation, the periodic assessment of additional pipeline mileage outside of HCAs (in MCAs as well as Class 3 and Class 4 areas), the reporting of exceedances of MAOP and the consideration of seismicity as a

Table of Contents
risk factor in integrity management. Boardwalk Pipelines is currently evaluating the operational and financial impact related to this final rule which will become effective on July 1, 2020. The remaining rulemakings comprising the gas Mega Rule are expected to be issued in 2020 and will include revised pipeline repair criteria as well as more stringent corrosion control requirements. New regulations adopted by PHMSA may impose more stringent requirements applicable to integrity management programs and other pipeline safety aspects of Boardwalk Pipelines operations, which could cause it to incur increased capital and operating costs and operational delays. Boardwalk Pipelines also expects new pipeline safety legislation to publish these proceedingsbe proposed and finalized in 2020 that will reauthorize PHMSA pipeline safety programs, which under the 2016 Act expired at the end of September 2019.

The Surface Transportation Board (“STB”) regulates the rates Boardwalk PipelinePipelines charges for interstate service on its ethylene pipelines. The Louisiana Public Service Commission (“LPSC”) regulates the rates Boardwalk PipelinePipelines charges for intrastate service within the state of Louisiana on its petrochemical and NGL pipelines. The STB and LPSC require that Boardwalk Pipeline’sPipelines’ transportation rates are reasonable and that its practices cannot unreasonably discriminate among its shippers.

Boardwalk Pipeline’sPipelines’ operations are also subject to extensive federal, state, and local laws and regulations relating to protection of the environment and occupational health and safety. Such laws and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of various substances including hazardous substances and waste and in connection with spills, releases, discharges and emissions of various substances into the environment. Environmental regulations also require that Boardwalk Pipeline’sPipelines’ facilities, sites and other properties be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Occupational health and safety regulations establish standards protective of workers, both generally and within the pipeline industry.

Many states where Boardwalk PipelinePipelines operates also have, or are developing, similar environmental or occupational health and safety legal requirements governing many of the same types of activities and those requirements can be more stringent than those adopted under federal laws and regulations. Failure to comply with these federal, state and local laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of corrective or remedial obligations, the incurrence of capital expenditures, the occurrence of delays, denials or cancellations in permitting or the development or expansion of projects and the issuance of orders enjoining performance of some or all of Boardwalk Pipeline’sPipelines’ operations in the affected areas. Historically, Boardwalk Pipeline’sPipelines’ environmental compliance costs have not had a material adverse effect on its business, but there can be no assurance that continuedfuture compliance with existing requirements will not materially affect them, or that the current regulatory standards will not become more onerous in the future, resulting in more significant costs to maintain compliance or increased exposure to significant liabilities.

12

Properties:
 Boardwalk PipelinePipelines is headquartered in approximately 103,000 square feet of leased office space located in Houston, Texas. Boardwalk PipelinePipelines also leases approximately 60,000 square feet of office space in Owensboro, Kentucky. Boardwalk Pipeline’sPipelines’ operating subsidiaries own their respective pipeline systems in fee. However, substantial portions of these systems are constructed and maintained on property owned by others pursuant to
rights-of-way,
easements, permits, licenses or consents.


Table of Contents
LOEWS HOTELS HOLDING CORPORATION

Loews Hotels Holding Corporation (together with its subsidiaries, “Loews Hotels & Co”) operates a chain of 2426 hotels. Twelve11 of these hotels are owned by Loews Hotels & Co, eight10 are owned by joint ventures in which Loews Hotels & Co has equity interests and fourfive are managed for unaffiliated owners. Loews Hotels & Co’s earnings are derived from the operation of its wholly owned hotels, its share of earnings in joint venture hotels and hotel management fees earned from both joint venture and managed hotels. Loews Hotels & Co accounted for 4.6%, 5.4%, 5.0% and 5.1%5.0% of our consolidated total revenue for the years ended December 31, 2019, 2018 2017 and 2016.2017. The hotels are described below.

Number of
Name and Location
Rooms
  Number of 
Name and Location
Owned:
 Rooms
 
Owned:

Loews Chicago Hotel, Chicago, Illinois

  
400        
 

Loews Chicago O’Hare Hotel, Chicago, Illinois

  
556        
 

Loews Coronado Bay Resort, San Diego, California (a)

  
439        
 

Loews Hotel 1000, Seattle, Washington

  
120        
 

Loews Hotel Vogue, Montreal, Canada

  
142        
 

Loews Miami Beach Hotel, Miami Beach, Florida

  
790        
 

Loews Minneapolis Hotel, Minneapolis, Minnesota

  
251        
 

Loews Philadelphia Hotel, Philadelphia, Pennsylvania

  
581        
 

Loews Regency New York Hotel, New York, New York (a)

  
379        
 

Loews San Francisco Hotel, San Francisco, California

155    

Loews Vanderbilt Hotel, Nashville, Tennessee

  
340        
 

Loews Ventana Canyon Resort, Tucson, Arizona

  
398        
 

Joint Venture:

 

Joint Venture:
Hard Rock Hotel, at Universal Orlando, Orlando, Florida

  
650        
 

Live! by Loews, Arlington, Texas
300        
Loews Atlanta Hotel, Atlanta, Georgia

  
414        
 

Loews Hollywood Hotel, Hollywood, California

  
628        
 

Loews Portofino Bay Hotel, at Universal Orlando, Orlando, Florida

  
750        
 

Loews Royal Pacific Resort, at Universal Orlando, Orlando, Florida

  
1,000        
 

Loews Sapphire Falls Resort, at Universal Orlando, Orlando, Florida

  
1,000        
 

Universal’s Aventura Hotel, Orlando, Florida

  
600        
 

Universal’s Cabana Bay Beach Resort, Orlando, Florida

  
2,200        
 

Management Contract:

Universal’s Endless Summer Resort – Surfside Inn and Suites, Orlando, Florida
 
750        

Management Contract:
Bisha Hotel and Residences, Toronto, Canada

  
96        
 

Loews Boston Hotel, Boston, Massachusetts

  
225        
 

Loews New Orleans Hotel, New Orleans, Louisiana

  
285        
 

Loews San Francisco Hotel, San Francisco, California
155        
Loews Santa Monica Beach Hotel, Santa Monica, California

  
347        
 

(a)

Owned

Note:
Two owned hotels and many of the joint venture hotels are subject to a land lease.

leases.

13


Table of Contents
Competition:
 Competition from other hotels, lodging and lodgingconference facilities, and alternative accommodation providers is vigorous in all locations in which Loews Hotels & Co operates. The demand for hotel rooms is seasonal and dependent on general and local economic conditions. Loews Hotels & Co properties also compete with facilities offering similar services in locations other than those in which its hotels are located. Competition among hotels is based primarily on quality of location, facilities, price and service. Because of the competitive nature of the industry, hotels must continually make expenditures for updating, refurnishing and repairs and maintenance in order to prevent competitive obsolescence and remain competitive.

Recent Developments and Growth Projects:

🌑

In 2018, Universal’s Aventura Hotel in Orlando Florida, a 600

In 2019, Live! by Loews in Arlington, Texas, a 300 guestroom hotel opened. As with Loews Hotels & Co’s other properties at Universal Orlando, Loews Hotels & Co serves as manager and has a 50% joint venture interest in this hotel;

🌑

In 2018, the sale of Loews Annapolis Hotel in Annapolis, Maryland, was completed;

🌑

In 2018, the sale of an equity interest in Loews Boston Hotel in Boston Massachusetts was completed;

🌑

In 2019, Live! by Loews in Arlington, Texas, an approximately 300 guestroom hotel in which Loews Hotels & Co serves as manager and has a joint venture interest, is expected to be completed;

🌑

In 2019 and has a joint venture interest;

In 2019, the sale of Loews San Francisco Hotel in San Francisco, California, was completed. Loews Hotel & Co continues to serve as manager, which it is expected to do through March of 2020;
In 2019, Universal’s Endless Summer Resort – Surfside Inn and Suites at Universal Orlando, a 750 guestroom hotel opened, and in 2020 Universal’s Endless Summer Resort – Dockside Inn and Suites at Universal Orlando, is expected to open with approximately 2,050 additional guestrooms. As with Loews Hotels & Co’s other properties at Universal Orlando, Loews Hotels & Co serves as manager and has a joint venture interest in these hotels;
In 2020, Loews Kansas City Hotel in Kansas City, Missouri, an approximately 800 guestroom hotel in which Loews Hotels & Co will serve as manager and has a majority equity interest, is expected to open;
In 2020, Live! by Loews in St. Louis, Missouri, an approximately 216 guestroom hotel in which Loews Hotels & Co will serve as manager and has a joint venture interest, is expected to open; and
In 2022, Loews Coral Gables Hotel in Coral Gables, Florida, an approximately 242 guestroom hotel in which Loews Hotels & Co will serve as manager and will have a joint venture interest upon completion, is expected to be completed.
ALTIUM PACKAGING LLC
On January 28, 2020, Universal’s Endless Summer Resort – Surfside Inn and Suites and Universal’s Endless Summer Resort – Dockside Inn and Suites at Universal Orlando, with an aggregate of approximately 2,800 guestrooms, are expected to open. As with Loews Hotels & Co’s other properties at Universal Orlando, Loews Hotels & Co serves as manager and has a 50% joint venture interest in these hotels;

🌑

In 2020, Loews Kansas City Hotel in Kansas City, Missouri, an approximately 800 guestroom hotel in which Loews Hotels & Co serves as manager and has a majority equity interest, is expected to be completed; and

🌑

In 2020, Live! by Loews in St. Louis, Missouri, an approximately 216 guestroom hotel in which Loews Hotels  & Co serves as manager and has a joint venture interest, is expected to be completed.

CONSOLIDATED CONTAINER COMPANY LLC

Consolidated Container manufactures rigid plasticCompany LLC announced that it has rebranded the company as Altium Packaging LLC (together with its subsidiaries, “Altium Packaging”). In addition, Tri State Distribution Inc., a pharmaceutical packaging to providemanufacturer that Altium Packaging acquired in June of 2019, has been rebranded as Altium Healthcare Inc. Altium Packaging is a packaging solutions to end markets such as beverage, foodprovider and manufacturer in North America. The business specializes in customized

mid-
and
short-run
packaging solutions, serving a diverse customer base in the pharmaceutical, dairy, household chemicals, through a network of manufacturing locations across North America. Consolidated Containerfood/nutraceuticals, industrial/specialty chemicals, water and beverage/juice segments. Altium Packaging develops, manufactures and markets a wide range of extrusion blow-molded and injection molded plastic containers for target markets. In addition, Consolidated ContainerAltium Packaging manufactures commodity and differentiated plastic resins from recycled plastic materials for a variety of end markets. Consolidated ContainerAltium Packaging accounted for 6.2%, 6.2% and 3.6% of our consolidated total revenue for the years ended December 31, 2019, 2018 and 2017.

Customers
: Consolidated ContainerAltium Packaging sells its products to approximately 1,5709,400 customers throughout North America. Consolidated Container’sAltium Packaging’s largest customers for rigid packaging include a diverse customer base of many nationally recognized branded food, beverage, and consumer products and pharmaceutical companies. The recycled resins customer base is primarily domestic with customers in several end markets such as packaging, automotive, industrial and consumer goods. Dean Foods Company represented approximately 11% of Consolidated Container’sAltium Packaging’s net sales for the year ended December 31, 2018 and 11% of its net sales, since the date of acquisition, for the year ended December 31, 2017. No other customer accounted for 10% or more of Consolidated Container’sAltium Packaging’s net sales during 2019, 2018 or 2017.


Table of Contents
Competition
: Consolidated ContainerAltium Packaging faces competition throughout its product lines from a number of regional and local manufacturers, including smaller firms operating in similar geographic regions and well-established businesses operating nationally. Consolidated ContainerAltium Packaging believes that its long term success is largely dependent on its ability to continue to address logistically complex and technically demanding customer needs, maintain strong relationships with current customers, attract new customers, develop product innovations, provide superior service to its customers and reduce its cost structure.

14

Properties
: Consolidated ContainerAltium Packaging leases its corporate offices in Atlanta, Georgia and Omaha, Nebraska. It operates 5759 manufacturing facilities located throughout the United States and fiveseven facilities located in Canada, of which 5759 are leased and fiveseven are owned. In addition, Consolidated ContainerAltium Packaging utilizes eight14 warehouse facilities, of which seven12 are leased and one istwo are owned.

EMPLOYEE RELATIONS

Including our operating subsidiaries as described below, we employed approximately 17,90018,605 persons at December 31, 2018.2019. CNA employed approximately 6,1005,900 persons. Diamond Offshore employed approximately 2,3002,500 persons, including international crew personnel furnished through independent labor contractors. Boardwalk PipelinePipelines employed approximately 1,2401,235 persons, approximately 110100 of whom are union members covered under collective bargaining agreements. Loews Hotels & Co employed approximately 5,4605,700 persons, approximately 1,7701,840 of whom are union members covered under collective bargaining agreements. Consolidated ContainerAltium Packaging employed approximately 2,6003,100 persons, approximately 230300 of whom are covered under collective bargaining agreements. We and our subsidiaries have satisfactory labor relations.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT

         First 
         Became 
                 Name                           Position and Offices Held  Age  Officer 

Marc A. Alpert

  

Senior Vice President, General Counsel and Secretary

  56   2016 

David B. Edelson

  

Senior Vice President and Chief Financial Officer

  59   2005 

Richard W. Scott

  

Senior Vice President and Chief Investment Officer

  65   2009 

Kenneth I. Siegel

  

Senior Vice President

  61   2009 

Andrew H. Tisch

  

Office of the President,Co-Chairman of the Board and Chairman of the Executive Committee

  69   1985 

James S. Tisch

  

Office of the President, President and Chief Executive Officer

  66   1981 

Jonathan M. Tisch

  

Office of the President andCo-Chairman of the Board

  65   1987 

           
    
First  
 
    
Became  
 
Name                
 
Position and Offices Held
 
Age
  
Officer  
 
           
Marc A. Alpert
 
Senior Vice President, General Counsel and Secretary
  
57
   
2016  
 
David B. Edelson
 
Senior Vice President and Chief Financial Officer
  
60
   
2005  
 
Richard W. Scott
 
Senior Vice President and Chief Investment Officer
  
66
   
2009  
 
Kenneth I. Siegel
 
Senior Vice President
  
62
   
2009  
 
Andrew H. Tisch
 
Office of the President,
Co-Chairman
of the Board
  
70
   
1985  
 
 
  and Chairman of the Executive Committee
  
   
 
James S. Tisch
 
Office of the President, President and
  
67
   
1981  
 
 
  Chief Executive Officer
  
   
 
Jonathan M. Tisch
 
Office of the President and
Co-Chairman
of the Board
  
66
   
1987  
 
Andrew H. Tisch and James S. Tisch are brothers and are cousins of Jonathan M. Tisch. None of our other executive officers or directors is related to any other.

All of our executive officers, except for Marc A. Alpert, and David B. Edelson, have served in their current roles at the Company for at least the past five years. Prior to assuming his current role at the Company in July of 2016, Mr. Alpert served as a partner and head of the Public Companies Practice Group at the law firm of Chadbourne & Parke LLP. Mr. Edelson served as our Senior Vice President prior to May of 2014, when he assumed his current role.

Officers are elected annually and hold office until their successors are elected and qualified, and are subject to removal by the Board of Directors.

AVAILABLE INFORMATION

Our website address is www.loews.com. We make available, free of charge, through the website our Annual Report on Form
10-K,
Quarterly Reports on Form
10-Q,
Current Reports on Form
8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after these reports are electronically filed with or furnished to the SEC. Copies of

Table of Contents
our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Audit Committee charter, Compensation Committee charter and Nominating and Governance Committee charter are also available on our website. Information on or accessible through our website is not incorporated by reference into this Report. This Annual Report on Form
10-K
and other SEC filings made by the Company are also accessible through the SEC’s website at www.sec.gov.

15

Item 1A. Risk Factors.

Our business and the businesses of our subsidiaries face many risks and uncertainties. These risks and uncertainties could lead to events or circumstances that have a material adverse effect on our business, results of operations, cash flows, financial condition or equity and/or the business, results of operations, cash flows, financial condition, or equity of one or more of our subsidiaries. We have described below the most significant risks facing us and our subsidiaries. There may be additional risks that we do not yet know of or that we do not currently perceive to be as significant that may also impact our business or the businesses of our subsidiaries.

You should carefully consider and evaluate all of the information included in this Report and any subsequent reports we may file with the Securities and Exchange Commission (“SEC”) and the information we make available to the public before investing in any securities issued by us. Our subsidiaries, CNA Financial Corporation, Diamond Offshore Drilling, Inc. and Boardwalk Pipeline Partners, LP, also file reports with the SEC. You are also cautioned to carefully review and consider the information contained in the reports filed by those subsidiaries with the SEC and the information they make available to the public before investing in any of their securities.

Risks Related to Us and Our Subsidiary, CNA Financial Corporation

If CNA determines that its recorded insurance reserves are insufficient to cover its estimated ultimate unpaid liability for claim and claim adjustment expenses, CNA may need to increase its insurance reserves which would result in a charge to CNA’s earnings.

CNA maintains insurance reserves to cover its 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 variables can be affected by both changes in internal processes and external events. Key variables include frequency of claims, claim severity, mortality, morbidity, discount rates, 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 general liability and workers’ compensation, as they require a relatively longer period of time for claims to be reported and settled. The impact of changes in inflation and medical costs are also more pronounced for long-tail coverages due to the longer settlement period. Certain risks and uncertainties associated with CNA’s insurance reserves are outlined in the Insurance Reserves and Critical Accounting Estimates sections of MD&A in Item 7.

CNA is subject to the uncertain effects of emerging or potential claims and coverage issues that arise as industry practices and legal, judicial, social, economic and other environmental conditions change. These issues have had, and may continue to have, a negative effect on CNA’s business by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims, resulting in further increases in CNA’s reserves. The effects of unforeseen emerging claim and coverage issues are extremely difficult to predict.

In light of the many uncertainties associated with establishing the estimates and making the judgments necessary to establish reserve levels, CNA continually reviews and changes its 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. If CNA’s recorded reserves are insufficient for any reason, the required increase in reserves would be recorded as a charge against its earnings in the period in which reserves are determined to be insufficient. These charges could be substantial.

16


Table of Contents
CNA’s actual experience could vary from the key assumptions used to determine active life reserves for long term care policies.

CNA’s active life reserves for long term care policies are based on CNA’s best estimate assumptions as of December 31, 2015September 30, 2019, due to a reserve unlocking at that date. Key assumptions include morbidity, persistency (the percentage of policies remaining in force), discount rate and future premium rate increases. These assumptions, which are critical bases for its reserve estimates are inherently uncertain. If actual experience varies from these assumptions or the future outlook for these assumptions changes, CNA may be required to increase its reserves. See the Long Term Care Policyholder Reserves portion of the Insurance Reserves section of MD&A in Item 7 for more information.

Estimating future experience for long term care policies is highly uncertain, because the adequacy of the reserves is contingent upon actual experience and CNA’s future expectations related to these key assumptions. If actual or expected future experience differs from these assumptions, the reserves may not be adequate, requiring CNA to add reserves. The required projectionincrease in reserves would be recorded as a charge against its earnings in the period is very long and there is limited claim history. in which reserves are determined to be insufficient. These charges could be substantial.
Morbidity and persistency experience, inclusive of mortality, can be volatile and may be negatively affected by many factors including, but not limited to, policyholder behavior, judicial decisions regarding policy terms, socioeconomic factors, cost of care inflation, changes in health trends and advances in medical care.

A prolonged period during which interest rates remain at levels lower than those anticipated in CNA’s reserving would result in shortfalls in investment income on assets supporting CNA’s obligations under long term care policies, which may require changes to its reserves. This risk is more significant for CNA’s long 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 codeInternal Revenue Code may also affect the rate at which CNA discounts its reserves. In addition, CNA may not receive regulatory approval for the level of premium rate increases it requests. Any adverse deviation between the level of future premium rate increases approved and the level included in CNA’s reserving assumptions may require an increase to its reserves.

If CNA’s estimated reserves are insufficient for any reason, including changes in assumptions, the required increase in reserves would be recorded as a charge against earnings in the period in which reserves are determined

CNA is vulnerable to be insufficient. These charges could be substantial.

Catastrophematerial losses from natural and systemic losses are unpredictable and could result in material losses.

man-made
disasters.
Catastrophe losses are an inevitable part of CNA’s business. Various events can cause catastrophe losses. These events can be natural or
man-made,
and may include hurricanes, windstorms, earthquakes, hail, severe winter weather, fires, floods, riots, strikes, civil commotion, cyber attacks, pandemics and acts of terrorism. The frequency and severity of these catastrophe events are inherently unpredictable. 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 been associated with extreme weather events linked to rising temperatures, and includes effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow.

The extent of CNA’s losses from catastrophes is a function of the total amount of its insured exposures in the affected areas, the frequency and severity of the events themselves, the level of reinsurance 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 CNA 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. Reinsurance coverage for terrorism events is provided only in limited circumstances, especially in regard to “unconventional” terrorism acts, such as nuclear, biological, chemical or radiological attacks. CNA’s principal reinsurance protection against these large-scale terrorist attacks is the coverage currently provided through 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 or eliminate the program, which could adversely affect CNA’s business by increasing its exposure to terrorism losses, or by lowering its 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 events could cause CNA to exhaust its available reinsurance limits and could adversely affect the cost and availability of reinsurance.

Claim frequency and severity for some lines


Table of business can be correlated to external factors such as economic activity, financial market volatility, increasing health care costs or changes in the legal 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 out of the same underlying cause. In these instances, CNA may be subject to increased claim frequency and severity across multiple policies or lines of business

17

concurrently. While CNA does not define such systemic losses as catastrophes for financial reporting purposes, they are similar to catastrophes in terms of the uncertainty and potential impact on its results.

Contents

CNA has exposure related to A&EP claims, which could result in material losses.

CNA’s property and casualty insurance subsidiaries have exposures related to A&EP claims. CNA’s 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 other 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, CNA completed a retroactive reinsurance transaction under which substantially all of its legacy A&EP liabilities were ceded to National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., subject to an aggregate limit of $4.0 billion (“loss portfolio transfer” or “LPT”). The cumulative amount ceded under the loss portfolio transfer as of December 31, 20182019 is $3.1$3.2 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 $4.0 billion or CNA determines it has exposures to A&EP claims not covered by the loss portfolio transfer, CNA may need to increase its recorded net reserves which would result in a charge against earnings. These charges could be substantial. Additionally, if the A&EP claims exceed the limit of the loss portfolio transfer, CNA 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 CNA’s earnings.

CNA is exposed to, and may face adverse developments related to, mass tort claims that could arise from its insureds’ sale or use of potentially harmful products or substances, changes to the social and legal environment, issues related to altered interpretation of coverage and other new and emerging claim theories.
CNA faces potential exposure to various types of new and emerging mass tort claims including, but not limited to, those related to exposure to potentially harmful products or substances such as glyphosate, lead paint 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; 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 claimant activity. Emerging mass tort claim activity, including activity based on such changing judicial interpretations and recent and proposed legislation could materially and adversely affect CNA’s results of operations.
CNA uses analytical models to assist its 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.

CNA uses various modeling techniques and data analytics (e.g., scenarios, predictive, stochastic and/or forecasting) to analyze and estimate exposures, loss trends and other risks associated with its assets and liabilities. This includes both proprietary and third party modeled outputs and related analyses to assist CNA in decision-making related to underwriting, pricing, capital allocation, reserving, investing, reinsurance and catastrophe risk, among other things. CNA incorporates 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, including those arising from the use of historical internal and industry data and assumptions.

analysis.

In addition, the effectiveness of any model can be degraded by operational risks including, but not limited to, the improper use of the model, including input errors, data errors and human error. As a result, actual results may differ materially from CNA’s modeled results. The profitability and financial condition of CNA substantially depends on the extent to which its actual experience is consistent with the assumptions CNA uses in its models and ultimate model outputs. If, based upon these models or other factors, CNA misprices its products or fails to appropriately estimate the risks it is exposed to, its business, financial condition, results of operations or liquidity may be materially adversely affected.


Table of Contents
CNA faces intense competition in its industry.

All aspects of the insurance industry are highly competitive and CNA must continuously allocate resources to refine and improve its insurance products and services to remain competitive. CNA competes 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 CNA does, for both distributors and customers. This includes agents, brokers and managing general underwriters who may increasingly compete with CNA to the extent that they continue to have 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, resulting in increased pressures on CNA’s ability to

18

remain competitive, particularly in obtaining pricing that is both attractive to CNA’s customer base and risk appropriate to CNA.

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, CNA may lose business to competitors offering competitive insurance products at lower prices. As a result, CNA’s premium levels and expense ratio could be materially adversely impacted.

CNA markets its insurance products worldwide primarily through independent insurance agents, insurance brokers and managing general underwriters who also promote and distribute the products of CNA’s competitors. Any change in CNA’s relationships with its distribution network agents, brokers or managing general underwriters including as a result of consolidation and their increased promotion and distribution of CNA’s competitors’ products, could adversely affect CNA’s ability to sell its products. As a result, CNA’s business volume and results of operations could be materially adversely impacted.

CNA 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 CNA’s 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 CNA uses similar data and information, CNA will be at a competitive disadvantage. There can be no assurance that CNA will continue to compete effectively with its industry peers due to technological changes; accordingly this may have a material adverse effect on CNA’s business and results of operations.

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 CNA’s competitive position. CNA’s 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 CNA’s business relationships with independent agents and brokers who currently market its products, resulting in a lower volume and/or profitability of business generated from these sources.

CNA may not be able to obtain sufficient reinsurance at a cost or on terms and conditions it deems acceptable, which could result in increased exposure to risk or a decrease in CNA’s underwriting commitments.

A primary reason CNA purchases reinsurance is to manage its exposure to risk. Under CNA’s ceded reinsurance arrangements, another insurer assumes a specified portion of CNA’s exposure in exchange for a specified portion of policy premiums. Market conditions determine the availability and cost of the reinsurance protection CNA purchases, which affects the level of its business and profitability, as well as the level and types of risk CNA retains. If CNA is unable to obtain sufficient reinsurance at a cost or on terms and conditions it deems acceptable, CNA may have increased exposure to risk. Alternatively, CNA may be unwilling to bear the increased risk and would reduce the level of its underwriting commitments.


Table of Contents
CNA may not be able to collect amounts owed to it by reinsurers, which could result in higher net incurred losses.

CNA has significant amounts recoverable from reinsurers which are reported as receivables on its balance sheets and are estimated in a manner consistent with claim and claim adjustment expense reserves or future policy benefit reserves. The ceding of insurance does not, however, discharge CNA’s primary liability for claims. As a result, CNA is subject to credit risk relating to its ability to recover amounts due from reinsurers. Certain of CNA’s reinsurance carriers could experience credit downgrades by rating agencies within the term of CNA’s contractual relationship, which would indicate an increase in the likelihood that CNA would not be able to recover amounts due. In addition, reinsurers could dispute amounts which CNA believes are due to it. If the amounts collected from reinsurers, including any collateral, are less than the amounts recorded by CNA, its net incurred losses will be higher.

19

CNA may not be able to collect amounts owed to it by policyholders who hold deductible policies and/or who purchase retrospectively rated policies, which could result in higher net incurred losses.

A portion of CNA’s business is written under deductible policies. Under these policies, CNA is obligated to pay the related insurance claims and is reimbursed by the policyholder to the extent of the deductible, which may be significant. Moreover, certain policyholders purchase retrospectively rated workers’ compensation policies (i.e., policies in which premiums are adjusted after the policy period based on the actual loss experience of the policyholder during the policy period). Retrospectively rated policies expose CNA to additional credit risk to the extent that the adjusted premium is greater than the original premium, which may be significant. As a result, CNA is exposed to policyholder credit risk. If the amounts collected from policyholders, including any collateral, are less than the amounts recorded by CNA, CNA’s net incurred losses will be higher.

CNA may incur significant realized and unrealized investment losses and volatility in net investment income arising from changes in the financial markets.

CNA’s 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, 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 CNA’s control can adversely affect the value of its investments, the realization of investment income and the rate at which it discounts certain liabilities.

CNA has 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 CNA’s net investment income, while an increase in interest rates may reduce the value of its existing fixed income investments.maturity investments, which could reduce CNA’s net unrealized gains included in Accumulated Other Comprehensive Income (“AOCI”). The value of CNA’s 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 CNA holds or in the underlying collateral of the security. Any such impairments which CNA deems to be other-than-temporary would result in a charge to earnings.

In addition, CNA invests a portion of its assets in limited partnerships which are subject to greater market volatility than its fixed incomematurity investments. Limited partnership investments generally provide a lower level of liquidity than fixed maturity or equity investments, which may also limit CNA’s 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, CNA holds a portfolio of commercial mortgage loans. CNA is 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 the underlying properties, where lease payments directly service the loan. Collecting amounts from borrowers that are less than the amounts recorded would result in a charge to earnings.

As a result of these factors, CNA may not earn an adequate return on its investments, may be required to write down the value of its investments and may incur losses on the disposition of its investments.

investments, all of which would result in a charge to CNA’s earnings.


Table of Contents
Inability to detect and prevent significant employee or third party service provider misconduct, inadvertent errors and omissions, or exposure relating to functions performed on CNA’s behalf could result in a material adverse effect on CNA’s operations.

CNA may incur losses which arise from employees or third party service providers engaging in intentional misconduct, fraud, errors and omissions, failure to comply with internal guidelines, including with respect to underwriting authority, or failure to comply with regulatory requirements. CNA’s controls may not be able to detect all possible circumstances of employee and third party service provider
non-compliant
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 CNA’s results of operations.

20

Portions of CNA’s insurance business is underwritten and serviced by third parties. With respect to underwriting, CNA’s contractual arrangements with third parties will typically grant them limited rights to write new and renewal policies, subject to contractual restrictions and obligations and requiring them to underwrite within the terms of CNA’s licenses. Should these third parties issue policies that exceed these contractual restrictions, CNA 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 CNA might not be fully indemnified for such third parties’ contractual breaches.

Additionally, CNA relies on certain third-party claims administrators, including the administrators of its long term care claims, to 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 CNA and adverse regulatory enforcement exposure. CNA has also licensed certain systems from third parties. CNA cannot be certain that it will have access to these systems or that its information technology or application systems will continue to operate as intended. These risks could adversely impact CNA’s reputation or client relationships or have a material adverse effect on its financial condition or results of operations.

CNA is subject to capital adequacy requirements and, if it is unable to maintain or raise sufficient capital to meet these requirements, regulatory agencies may restrict or prohibit CNA from operating its business.

Insurance companies such as CNA are subject to capital adequacy standards set by regulators to help identify companies that merit further regulatory attention. In the U.S., these standards apply specified risk factors to various asset, premium and reserve components of CNA’s 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 CNA does not meet these minimum requirements, CNA may be restricted or prohibited from operating its business in the applicable jurisdictions and specialized markets. If CNA is required to record a material charge against earnings in connection with a change in estimated insurance reserves, the occurrence of a catastrophic event or if it incurs significant losses related to its investment portfolio, which severely deteriorates its capital position, CNA may violate these minimum capital adequacy requirements unless it is able to raise sufficient additional capital. CNA may be limited in its ability to raise significant amounts of capital on favorable terms or at all.

Globally, insurance regulators are working cooperatively to develop

The IAIS recently adopted a common framework for the supervision of internationally active insurance groups that includes an Internationaland continues to develop a group basis Insurance Capital Standard (“ICS”). The NAIC is also developing a group capital standard that may needis intended to be implemented on a group basis. Finalizationcomparable to the ICS. The development and adoption of this framework, including the ICS,these capital standards could increase CNA’s prescribed capital requirement, the level at which regulatory scrutiny intensifies, as well as significantly increase its cost of regulatory compliance.

CNA’s insurance subsidiaries, upon whom CNA depends for dividends in order to fund its corporate obligations, are limited by insurance regulators in their ability to pay dividends.

CNA is a holding company and is dependent upon dividends, loans and other sources of cash from its subsidiaries in order to meet its 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 CNA is restricted from paying or receiving intercompany dividends, by regulatory rule or otherwise, CNA may not be able to fund its corporate obligations and debt service requirements or pay stockholder

Table of Contents
dividends from available cash. As a result, CNA would need to look to other sources of capital which may be more expensive or may not be available at all.

Rating agencies may downgrade their ratings of CNA and thereby adversely affect its ability to write insurance at competitive rates or at all.

Ratings are an important factor in establishing the competitive position of insurance companies. CNA’s insurance company subsidiaries, as well as CNA’s public debt, are rated by rating agencies, including, A.M. Best Company (“A.M. Best”), Moody’s Investors Service, Inc. (“Moody’s”) and S&P Global Ratings (“S&P”). Ratings reflect the rating agency’s opinions of an insurance company’s or insurance holding company’s financial strength, capital

21

adequacy, enterprise risk management practices, operating performance, strategic position and ability to meet its obligations to policyholders and debt holders.

The rating agencies may take action to lower CNA’s 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 CNA’s 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 CNA’s insurance products to certain markets and the required collateralization of certain future payment obligations or reserves.

In addition, it is possible that a significant lowering of our corporate debt ratings by certain of the rating agencies could result in an adverse effect on CNA’s ratings, independent of any change in CNA’s circumstances.

CNA is subject to extensive regulations that restrict its ability to do business and generate revenues.

The insurance industry is subject to comprehensive and detailed regulation and supervision. Most insurance regulations are designed to protect the interests of CNA’s policyholders and third-party claimants rather than its investors. Each jurisdiction in which CNA does business has established supervisory agencies that regulate the manner in which CNA conducts its business. Any changes in regulation could impose significant burdens on CNA. In addition, the Lloyd’s marketplace sets rules under which its members, including CNA’s 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.

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. CNA may also be required by the jurisdictions in which it does business to provide coverage to persons who would not otherwise be considered eligible or restrict CNA 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. CNA’s share of these involuntary risks is mandatory and generally a function of its respective share of the voluntary market by line of insurance in each jurisdiction.

The United Kingdom’s expected exit from the European Union is expected to increase the complexity and cost of regulatory compliance of CNA’s European business.

In 2016, the U.K. approved an exit from the E.U., commonly referred to as “Brexit.” Brexit is scheduled to be completed in early 2019. As treaties betweenWhile the withdrawal of the U.K. andfrom the E.U. have not been finalized,was official as of January 31, 2020, until the transition period ends, there remains a lack of specificity and detail regarding the long term relationship between the two sides and how businesses operating in both jurisdictions may be affected. In any event, effective January 1, 2019, CNA intends to writeCNA’s E.U. business in the E.U.is no longer handled out of CNA’s U.K. domiciled subsidiary but through its recently established European subsidiary in Luxembourg as itswhich was established specifically to address the departure of the U.K. domiciled subsidiary will presumably no longer provide a platform for its operationsfrom the E.U. and to ensure CNA’s ability to operate effectively throughout the European continent.E.U. As a result, of such structural changes and modification to CNA’s European operations, the complexity and cost of regulatory compliance of its European business has increased and will likely continue to result in elevated expenses.


Table of Contents
Risks Related to Us and Our Subsidiary, Diamond Offshore Drilling, Inc.

The current protracted downturn in Diamond Offshore’s industry may continue for several more years and it cannot predict if or when it will end.
Over the past several years, crude oil prices have been volatile, reaching a high of $115 per barrel in 2014, declining to $55 per barrel by the end of 2014 and reaching a low of $28 per barrel during 2016. Oil prices recovered to nearly $57 per barrel by the end of 2016 and have continued to fluctuate. As of the date of this Report, Brent crude oil prices were in the mid $50 per barrel range, having started 2020 in the
mid-to-upper
$60 per barrel range. As a result of, among other things, this continued volatility in commodity price and its uncertain future, the offshore drilling industry has experienced, and is continuing to experience, a substantial decline in demand for its services, as well as a significant decline in dayrates for contract drilling services. The decline in demand for Diamond Offshore’s contract drilling services and the dayrates for those services has had, and if the industry downturn continues, will continue to have, a material adverse effect on its business. The protracted downturn in Diamond Offshore’s industry will exacerbate many of the other risks included below and other risks that it faces, and Diamond Offshore cannot predict if or when the downturn will end.
The worldwide demand for Diamond Offshore’s drilling services has historically been dependent on the price of oil and, as a result of low oil prices, demand has continued to be depressed in 2018.

2019, and there continues a protracted downturn in its industry.

Demand for Diamond Offshore’s drilling services depends in large part upon the oil and natural gas industry’s offshore exploration and production activity and expenditure levels, which are directly affected by oil and gas prices and market expectations of potential changes in oil and gas prices. CommencingBeginning in the second half of 2014, oil prices declined significantly, resulting in a sharp decline in the demand for offshore drilling services, including services that

22

Diamond Offshore provides, and materially adversely affecting Diamond Offshore’s operations and cash flows compared to years before the decline. The continuation of low oil prices would have a material adverse effect onmake more severe the downturn in Diamond Offshore’s industry and would continue to materially adversely affect many of Diamond Offshore’sits customers and, therefore, on demand for its services and on its business.

Oil prices have been, and are expected to continue to be, volatile and are affected by numerous factors beyond Diamond Offshore’s control.

Although, historically, higher sustained commodity prices have generally resulted in increases in offshore drilling projects, short term or temporary increases in the price of oil and gas will not necessarily result in an increase in offshore drilling activity or an increase in the market demand for Diamond Offshore’s rigs. The timing of commitment to offshore activity in a cycle depends on project deployment times, reserve replacement needs, availability of capital and alternative options for resource development, among other things. Timing can also be affected by availability, access to, and cost of equipment to perform work.

Diamond Offshore’s business depends on the level of activity in the offshore oil and gas industry, which has been cyclical, is currently in a protracted downturn and is significantly affected by many factors outside of its control.

Demand for Diamond Offshore’s drilling services depends upon the level of offshore oil and gas exploration, development and production in markets worldwide, and those activities depend in large part on oil and gas prices, worldwide demand for oil and gas and a variety of political and economic factors. The level of offshore drilling activity is adversely affected when operators reduce or defer new investment in offshore projects, reduce or suspend their drilling budgets or reallocate their drilling budgets away from offshore drilling in favor of other priorities, such as shale or other land-based projects. As a result, Diamond Offshore’s business and the oil and gas industry in general are subject to cyclical fluctuations.

As a result of the cyclical fluctuations in the market, there have been periods of lower demand, excess rig supply and lower dayrates, followed by periods of higher demand, shorter rig supply and higher dayrates. Diamond Offshore cannot predict the timing or duration of such fluctuations. Periods of lower demand or excess rig supply, which have occurredsuch as the current protracted downturn in the recent pastDiamond Offshore’s industry that is continuing and are continuing,may continue for several more years, intensify the competition in the industry and often result in periods of lower utilization and lower dayrates.

Table of Contents
During these periods, Diamond Offshore’s rigs may not be able to obtain contracts for future work and may be idle for long periods of time or may be able to obtain work only under contracts with lower dayrates or less favorable terms. Additionally, prolonged periods of low utilization and dayrates could also(such as Diamond Offshore is currently experiencing) have in the past resulted in, and may in the future result in, the recognition of further impairment charges on certain of Diamond Offshore’s drilling rigs if future cash flow estimates, based upon information available to management at the time, indicate that the carrying value of these rigs may not be recoverable.

Diamond Offshore’s industry is highly competitive, with an oversupply and intense price competition.

The offshore contract drilling industry is highly competitive with numerous industry participants.participants, and such competitiveness may be exacerbated by the current protracted downturn in Diamond Offshore’s industry. Some of Diamond Offshore’s competitors may beare larger companies, have larger or more technologically advanced fleets and have greater financial or other resources than it does. The drilling industry has experienced consolidation and may experience additional consolidation, which could create additional large competitors. Drilling contracts are traditionally awarded on a competitive bid basis. Price is typically the primary factor in determining which qualified contractor is awarded a job.

New

As of the date of this Report, there are approximately 240 floater rigs currently available to meet customer drilling needs in the offshore contract drilling market, and many of these rigs are not currently contracted and/or are cold stacked. Although there have been over 135 floater rigs scrapped over the past six years, the market remains oversupplied as new rig construction, and upgrades of existing drilling rigs, cancelation or termination of drilling contracts and established rigs coming off contract have contributed to the current oversupply, of drilling rigs, intensifying price competition.

In addition, some shipyards own rigs recently constructed or under construction, which are not currently marketed, which, if acquired by Diamond Offshore or its competitors, would further exacerbate the oversupply of rigs. In addition, during industry downturns like the one Diamond Offshore is currently experiencing, rig operators may take lower dayrates and shorter contract durations to keep their rigs operational.

Diamond Offshore can provide no assurance that its drilling contracts will not be terminated early or that its current backlog of contract drilling revenue will be ultimately realized.

Diamond Offshore’s customers may terminate their drilling contracts under certain circumstances, such as the destruction or loss of a drilling rig or suspension of drilling operations for a specified period of time as a result of a breakdown of major equipment, excessive downtime for repairs, failure to meet minimum performance criteria (including customer acceptance testing) or, in some cases, due to other events beyond the control of either party.

23

In addition, some of Diamond Offshore’s drilling contracts permit the customer to terminate the contract after specified notice periods, often by tendering contractually specified termination amounts, which may not fully compensate Diamond Offshore for the loss of the contract. In some cases, Diamond Offshore’s drilling contracts may permit the customer to terminate the contract without cause, upon little or no notice or without making an early termination payment. During depressed market conditions, such as those currently in effect, certain customers have utilized, and may in the future utilize, such contract clauses to seek to renegotiate or terminate a drilling contract or claim that Diamond Offshore has breached provisions of its drilling contracts in order to avoid their obligations to Diamond Offshore under circumstances where Diamond Offshore believes it is in compliance with the contracts. Additionally, because of depressed commodity prices, restricted credit markets, economic downturns, changes in priorities or strategy or other factors beyond Diamond Offshore’s control, a customer may no longer want or need a rig that is currently under contract or may be able to obtain a comparable rig at a lower dayrate. For these reasons, customers have sought and may in the future seek to renegotiate the terms of Diamond Offshore’s existing drilling contracts, terminate their contracts without justification or repudiate or otherwise fail to perform their obligations under the contracts. As a result of such contract renegotiations or terminations, Diamond Offshore’s contract backlog has been and may in the future be adversely impacted, it might not recover any compensation (or any recovery it obtains may not fully compensate it for the loss of the contract) and it may be required to idle one or more rigs for an extended period of time.


Table of Contents
Diamond Offshore may not be able to renew or replace expiring contracts for its rigs.

As of the date of this Report, all of Diamond Offshore’s current customer contracts will expire between 20192020 and 2022.2023. Two of Diamond Offshore’s contracts expire in 2020, six contracts expire in 2021 and two contracts expire in each of 2022 and 2023. Some of Diamond Offshore’s drilling rigs are not currently contracted for continuous utilization between contracts and are being actively marketed for these uncontracted periods. Diamond Offshore’s ability to renew or replace expiring contracts or obtain new contracts, and the terms of any such contracts, will depend on various factors, including market conditions and the specific needs of its customers at such times. Given the historically cyclical and highly competitive nature of the industry and the likelihood that the current protracted downturn in Diamond OffshoreOffshore’s industry continues, it may not be able to renew or replace the contracts or it may be required to renew or replace expiring contracts or obtain new contracts at dayrates that are below existing dayrates, or that have terms that are less favorable, including shorter durations, than existing contracts. Moreover, Diamond Offshore may be unable to secure contracts for these rigs. Failure to secure contracts for a rig may result in a decision to cold stack the rig, which puts the rig at risk for impairment and may competitively disadvantage the rig as many customers during the most recentcurrent protracted market downturn have expressed a preference for ready or “hot”“warm” stacked rigs over cold-stackedcold stacked rigs.

If a decision is made to cold stack a rig, Diamond Offshore’s operating costs for the rig are typically reduced, however, it will incur additional costs associated with cold stacking the rig (particularly if it cold stacks a newer rig, such as a drillship or other DP semisubmersible rig, for which cold stacking costs are typically substantially higher than for an older

non-DP
rig). In addition, the costs to reactivate a cold stacked rig may be substantial.
Diamond Offshore’s debt levels may limit its liquidity and flexibility in obtaining additional financing and in pursuing other business opportunities.
Diamond Offshore’s business is highly capital intensive and dependent on having sufficient cash flow and/or available sources of financing in order to fund its capital expenditure requirements. During 2019, Diamond Offshore’s cash and cash equivalents and marketable securities decreased an aggregate $301 million and during 2018 increased an aggregate $74 million. Based on its cash flow forecast, as of the date of this Report, Diamond Offshore expects to generate aggregate negative cash flows for 2020. If market conditions do not improve, it could continue to generate aggregate negative cash flows in future periods.
As of December 31, 2019, Diamond Offshore had outstanding $2.0 billion of senior notes, maturing at various times from 2023 through 2043. As of February 7, 2020, Diamond Offshore had no outstanding borrowings under its $225 million revolving credit facility maturing in October of 2020, which it may have difficulty replacing upon maturity, or its $950 million revolving credit facility maturing in October of 2023. Diamond Offshore expects to begin to utilize borrowing under its two credit agreements in the first half of 2020 to meet its liquidity requirements and anticipates ending 2020 with a drawn balance under its $950 million credit agreement. As of February 7, 2020, Diamond Offshore had approximately $1.2 billion available under such credit facilities in the aggregate, subject to their respective terms, to meet its short term liquidity requirements.
Diamond Offshore’s ability to meet its debt service obligations is dependent upon its future performance, which is unpredictable and dependent on its ability to manage through the current protracted industry downturn. Diamond Offshore’s levels of indebtedness could have negative consequences to Diamond Offshore, including:
●it may have difficulty satisfying its obligations with respect to its outstanding debt and, given the challenges to its business presented by the protracted industry downturn, its operational obligations;
●it may have difficulty obtaining financing, including refinancing for its existing indebtedness upon maturity in the future for working capital, capital expenditures, acquisitions or other purposes;
●it may need to use a substantial portion of available cash flow from operations to pay interest and principal on its debt, which would reduce the amount of money available to fund working capital requirements, capital expenditures and other general corporate or business activities;
●vulnerability to the effects of general adverse economic conditions, such as the continuing protracted industry downturn, and adverse operating results, including negative cash flows, could increase;

Table of Contents
●flexibility in planning for, or reacting to, changes in its business and in its industry in general could be limited;
●it may not have the ability to pursue business opportunities that become available;
●the amount of debt and the amount it must pay to service its debt obligations could place Diamond Offshore at a competitive disadvantage compared to its competitors that have less debt; and
●customers may react adversely to its significant debt level and seek alternative service providers.
In addition, Diamond Offshore’s failure to comply with the restrictive covenants in its debt instruments could result in an event of default that, if not cured or waived, could have a material adverse effect on its business. Among other things, these covenants require Diamond Offshore to maintain a specified ratio of its consolidated indebtedness to total capitalization, a specified ratio of the aggregate value of certain of its rigs to the aggregate value of substantially all rigs owned by Diamond Offshore, a specified ratio of the aggregate value of certain of its marketed rigs to the sum of the commitments under the $950 million revolving credit facility plus certain outstanding loans, letter of credit exposures and other indebtedness, limit the ability of its subsidiaries to incur debt and require Diamond Offshore to make a cash collateral deposit if a change in control occurs, as defined in each respective credit facility, within 90 days of the change in control event. The amount of such cash collateral deposit is based on its credit ratings within 90 days of such change in control event.
In 2019, S&P downgraded Diamond Offshore’s corporate and senior unsecured notes credit rating to CCC+ from B and the rating outlook changed to stable from negative. Diamond Offshore’s current corporate credit rating from Moody’s is B2 and its current senior unsecured notes credit rating from Moody’s is B3. The rating outlook from Moody’s is negative. These credit ratings are below investment grade and could raise Diamond Offshore’s cost of financing. Consequently, Diamond Offshore may not be able to issue additional debt in amounts and/or with terms that it considers to be reasonable. These ratings could limit Diamond Offshore’s ability to pursue other business opportunities or to refinance its indebtedness as it matures.
Diamond Offshore’s revolving credit facilities bear interest at variable rates, based on its corporate credit rating and market interest rates. If market interest rates increase, Diamond Offshore’s cost to borrow under its revolving credit facilities may also increase. Although Diamond Offshore may employ hedging strategies such that a portion of the aggregate principal amount outstanding under this credit facilities would effectively carry a fixed rate of interest, any hedging arrangement put in place may not offer complete protection from this risk.
Diamond Offshore’s consolidated effective income tax rate may vary substantially from one reporting period to another.

Diamond Offshore’s consolidated effective income tax rate is impacted by the mix between its domestic and international
pre-tax
earnings or losses, as well as the mix of the international tax jurisdictions in which it operates. Diamond Offshore cannot provide any assurancesassurance as to what its consolidated effective income tax rate will be in the future due to, among other factors, uncertainty regarding the nature and extent of its business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as potential changes in U.S. and foreign tax laws, regulations or treaties or the interpretation or enforcement thereof, changes in the administrative practices and precedents of tax authorities or any reclassification or other matter (such as changes in applicable accounting rules) that increases the amounts Diamond Offshore has provided for income taxes or deferred tax assets and liabilities in its consolidated financial statements. This variability may cause its consolidated effective income tax rate to vary substantially from one reporting period to another.

Diamond Offshore’s contract drilling expense includes fixed costs that will not decline in proportion to decreases in rig utilization and dayrates.

Diamond Offshore’s contract drilling expense includes all direct and indirect costs associated with the operation, maintenance and support of its drilling equipment, which is often not affected by changes in dayrates and utilization. During periods of reduced revenue and/or activity (like the current protracted industry downturn), certain of Diamond Offshore’s fixed costs will not decline and often it may incur additional operating costs, such as fuel and catering

Table of Contents
costs, for which the customer generally reimburses Diamond Offshore when a rig is under contract. During times of reduced dayrates and utilization, like the current protracted industry downturn, reductions in costs may not be immediate as Diamond Offshore may incur additional costs associated with cold stacking a rig (particularly if Diamond Offshore cold stacks a newer rig, such as a drillship or other DP semisubmersible rig, for which cold stacking costs are typically substantially higher than for an older
non-DP
rig), or it may not be able to fully reduce the cost of its support operations in a particular geographic region due to the need to support the remaining drilling rigs

24

in that region. Accordingly, a decline in revenue due to lower dayrates and/or utilization may not be offset by a corresponding decrease in contract drilling expense.

Contracts for Diamond Offshore’s drilling rigs are generally fixed dayrate contracts, and increases in Diamond Offshore’s operating costs could adversely affect the profitability of those contracts.

Diamond Offshore’s contracts for its drilling rigs generally provide for the payment of an agreed dayrate per rig operating day, although some contracts do provide for a limited escalation in dayrate due to increased operating costs it incurs on the project. Over the term of a drilling contract, Diamond Offshore’s operating costs may fluctuate due to events beyond its control. In addition, equipment repair and maintenance expenses vary depending on the type of activity the rig is performing, the age and condition of the equipment and general market factors impacting relevant parts, components and services. The gross margin that Diamond Offshore realizes on these fixed dayrate contracts will fluctuate based on variations in its operating costs over the terms of the contracts. In addition, for contracts with dayrate escalation clauses, Diamond Offshore may not be able to fully recover increased or unforeseen costs from its customers.

Diamond Offshore is subject to extensive domestic and international laws and regulations that could significantly limit its business activities and revenues and increase its costs.

Certain countries are subject to restrictions, sanctions and embargoes imposed by the U.S. government or other governmental or international authorities. These restrictions, sanctions and embargoes may prohibit or limit Diamond Offshore from participating in certain business activities in those countries. Diamond Offshore’s operations are also subject to numerous local, state and federal laws and regulations in the U.S. and in foreign jurisdictions concerning the containment and disposal of hazardous materials, the remediation of contaminated properties and the protection of the environment. Laws and regulations protecting the environment have become increasingly stringent, and may in some cases impose “strict liability,” rendering a person liable for environmental damage without regard to negligence or fault on the part of that person. Failure to comply with such laws and regulations could subject Diamond Offshore to civil or criminal enforcement action, for which it may not receive contractual indemnification or have insurance coverage, and could result in the issuance of injunctions restricting some or all of Diamond Offshore’s activities in the affected areas. Diamond Offshore may be required to make significant expenditures for additional capital equipment or inspections and recertifications to comply with existing or new governmental laws and regulations. It is also possible that these laws and regulations may, in the future, add significantly to Diamond Offshore’s operating costs or result in a substantial reduction in revenues associated with downtime required to install such equipment, or may otherwise significantly limit drilling activity.

In addition, these laws and regulations require Diamond Offshore to perform certain regulatory inspections, which it refers to as a special survey. For most of Diamond Offshore’s rigs, these special surveys are due every five years, although the inspection interval for its North Sea rigs is two and one half years. Diamond Offshore’s operations are negatively impacted during these special surveys. These special surveys are generally performed in a shipyard and require scheduled downtime, which can negatively impact operating revenue. Operating expenses increase as a result of these special surveys due to the cost to mobilize the rigs to a shipyard and inspection, repair and maintenance costs. Repair and maintenance activities may result from the special survey or may have been previously planned to take place during this mandatory downtime. The number of rigs undergoing a special survey will vary from year to year, as well as from quarter to quarter. Diamond Offshore’s business may also be negatively impacted by intermediate surveys, which are performed at interim periods between special surveys. Although an intermediate survey normally does not require shipyard time, the survey may require some downtime for the rig. Diamond Offshore can provide no assurance as to the exact timing and/or duration of downtime and/or the costs or lost revenues associated with regulatory inspections, planned rig mobilizations and other shipyard projects.


Table of Contents
In addition, the offshore drilling industry is dependent on demand for services from the oil and gas exploration industry and, accordingly, can be affected by changes in tax and other laws relating to the energy business generally. Governments in some countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas and other aspects of the oil and gas industry. The modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or developmental drilling for oil and gas for economic, environmental or other reasons could limit drilling opportunities.

25

Diamond Offshore’s business involves numerous operating hazards which could expose it to significant losses and significant damage claims. Diamond Offshore is not fully insured against all of these risks and its contractual indemnity provisions may not fully protect Diamond Offshore.

Diamond Offshore’s operations are subject to the significant hazards inherent in drilling for oil and gas offshore, such as blowouts, reservoir damage, loss of production, loss of well control, unstable or faulty sea floor conditions, fires and natural disasters such as hurricanes. The occurrence of any of these types of events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury or death to rig personnel and damage to producing or potentially productive oil and gas formations, oil spillage, oil leaks, well blowouts and extensive uncontrolled fires, any of which could cause significant environmental damage. In addition, offshore drilling operations are subject to marine hazards, including capsizing, grounding, collision and loss or damage from severe weather. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, failure of suppliers or subcontractors to perform or supply goods or services or personnel shortages. Any of the foregoing events could result in significant damage or loss to Diamond Offshore’s properties and assets or the properties and assets of others, injury or death to rig personnel or others, significant loss of revenues and significant damage claims against Diamond Offshore.

Diamond Offshore’s drilling contracts with its customers provide for varying levels of indemnity and allocation of liabilities between its customers and Diamond Offshore with respect to the hazards and risks inherent in, and damages or losses arising out of, its operations, and Diamond Offshore may not be fully protected. Diamond Offshore’s contracts are individually negotiated, and the levels of indemnity and allocation of liabilities in them can vary from contract to contract depending on market conditions, particular customer requirements and other factors existing at the time a contract is negotiated.

Additionally, the enforceability of indemnification provisions in Diamond Offshore’s contracts may be limited or prohibited by applicable law or such provisions may not be enforced by courts having jurisdiction, and Diamond Offshore could be held liable for substantial losses or damages and for fines and penalties imposed by regulatory authorities. The indemnification provisions in Diamond Offshore’s contracts may be subject to differing interpretations, and the laws or courts of certain jurisdictions may enforce such provisions while other laws or courts may find them to be unenforceable. The law with respect to the enforceability of indemnities varies from jurisdiction to jurisdiction and is unsettled under certain laws that are applicable to Diamond Offshore’s contracts. There can be no assurance that Diamond Offshore’s contracts with its customers, suppliers and subcontractors will fully protect it against all hazards and risks inherent in its operations. There can also be no assurance that those parties with contractual obligations to indemnify Diamond Offshore will be financially able to do so or will otherwise honor their contractual obligations.

Diamond Offshore maintains liability insurance, which generally includes coverage for environmental damage; however, because of contractual provisions and policy limits, Diamond Offshore’s insurance coverage may not adequately cover its losses and claim costs. In addition, certain risks and contingencies related to pollution, reservoir damage and environmental risks are generally not fully insurable. Also, Diamond Offshore does not typically purchase
loss-of-hire
insurance to cover lost revenues when a rig is unable to work. There can be no assurance that Diamond Offshore will continue to carry the insurance it currently maintains, that its insurance will cover all types of losses or that it will be able to maintain adequate insurance in the future at rates it considers to be reasonable or that Diamond Offshore will be able to obtain insurance against some risks.

If an accident or other event occurs that exceeds Diamond Offshore’s insurance coverage limits or is not an insurable event under its insurance policies, or is not fully covered by contractual indemnity, it could result in significant loss to Diamond Offshore.


Table of Contents
Significant portions of Diamond Offshore’s operations are conducted outside the United States and involve additional risks not associated with United States domestic operations.

Diamond Offshore’s operations outside the U.S. accounted for approximately 41%47%, 58%41% and 69%58% of its total consolidated revenues for 2019, 2018 2017 and 20162017 and include, or have included, operations in South America, Australia and Southeast Asia, Europe East and West Africa, the Mediterranean and Mexico. Because Diamond Offshore operates in various regions throughout the world, it is exposed to a variety of risks inherent in international operations, including risks of war or conflicts, political and economic instability and disruption, civil disturbance, acts of piracy, terrorism or other assaults on property or personnel, corruption, possible economic and legal sanctions (such as

26

possible restrictions against countries that the U.S. government may consider to be state sponsors of terrorism), changes in global monetary and trade policies, laws and regulations, fluctuations in currency exchange rates, restrictions on currency exchange, controls over the repatriation of income or capital and other risks. Diamond Offshore may not have insurance coverage for these risks, or it may not be able to obtain adequate insurance coverage for such events at reasonable rates. Diamond Offshore’s operations may become restricted, disrupted or prohibited in any country in which any of these risks occur.

In 2016, the U.K. approved an exit from the E.U., commonly referred to as “Brexit”. The U.K. officially left the E.U., on January 31, 2020. Following its departure, the U.K. entered into a transition period that is scheduled to last until December 31, 2020 during which period of time the U.K.’s trading relationship with the E.U. is expected to remain largely the same while the two parties negotiate a trade agreement as well as other aspects of the U.K.’s relationship with the E.U. The impact of Brexit and the future relationship between the U.K. and the E.U. are uncertain for companies that do business in the U.K. and the overall global economy. Approximately 9%17% of Diamond Offshore’s total revenues for the year ended December 31, 20182019 were generated in the U.K. Brexit, or similar events in other jurisdictions, could depress economic activity or impact global markets, including foreign exchange and securities markets, which may have an adverse impact on Diamond Offshore’s business as a result of changes in currency exchange rates, tariffs, treaties and other regulatory matters.

Diamond Offshore is also subject to the regulations of the U.S. Treasury Department’s Office of Foreign Assets Control and other U.S. laws and regulations governing its international operations in addition to domestic and international anti-bribery laws and sanctions, trade laws and regulations, customs laws and regulations and other restrictions imposed by other governmental or international authorities. In addition, international contract drilling operations are subject to various laws and regulations in countries in which Diamond Offshore operates, including laws and regulations relating to the equipping and operation of drilling rigs, import-export quotas or other trade barriers, repatriation of foreign earnings or capital, oil and gas exploration and development, local content requirements, taxation of offshore earnings and earnings of expatriate personnel and use and compensation of local employees and suppliers by foreign contractors.

Diamond Offshore’s debt levels may limit its liquidity

Risks Related to Us and flexibility in obtaining additional financingOur Subsidiary, Boardwalk Pipelines
Boardwalk Pipelines’ natural gas transportation and in pursuing other business opportunities.

Diamond Offshore’s business is highly capital intensive and dependent on having sufficient cash flow and/or available sources of financing in order to fund its capital expenditure requirements. As of December 31, 2018, Diamond Offshore had outstanding $2.0 billion of senior notes, maturing at various times from 2023 through 2043. As of February 8, 2019, Diamond Offshore had no outstanding borrowings under its $325 million revolving credit facility maturing in 2020 or its $950 million revolving credit facility maturing in October of 2023, and an aggregate $1.3 billion available under both such credit facilities,storage operations are subject to their respectiveextensive regulation by the FERC, including rules and regulations related to the rates it can charge for its services and its ability to construct or abandon facilities. Boardwalk Pipelines may not be able to recover the full cost of operating its pipelines, including earning a reasonable return.

Boardwalk Pipelines’ natural gas transportation and storage
operations are subject to extensive regulation by the FERC, including the types, rates and terms of services Boardwalk Pipelines may offer to meet its short term liquidity requirements. At variouscustomers, construction of new facilities, creation, modification or abandonment of services or facilities and recordkeeping and relationships with affiliated companies. An adverse FERC action in any of these areas could affect Boardwalk Pipelines’ ability to compete for business, construct new facilities, offer new services or recover the full cost of operating its pipelines. This regulatory oversight can result in longer lead times to develop and complete any future project than competitors that are not subject to the FERC’s regulations. The FERC can also deny Boardwalk Pipelines the right to abandon certain facilities from service.

Table of Contents
The FERC also regulates the rates Boardwalk Pipelines can charge for its natural gas transportation and storage operations. For cost-based services, the FERC establishes both the maximum and minimum rates Boardwalk Pipelines can charge. The basic elements that the FERC considers are the costs of providing service, the volumes of gas being transported, the rate design, the allocation of costs between services, the capital structure and the rate of return a pipeline is permitted to earn. Boardwalk Pipelines may not be able to recover all its costs, including certain costs associated with pipeline integrity, through existing or future rates.
The FERC and/or Boardwalk Pipelines’ customers could challenge the maximum applicable rates that any of its regulated pipelines are allowed to charge in 2019, $100 millionaccordance with Section 5 of the commitments under the $325 million revolving credit facility will mature,NGA. The Tax Cuts and Jobs Act of 2017 and the remaining $225 millionRevised Policy Statement that was issued by the FERC in 2018 may increase the likelihood of commitments will mature in Octobersuch a challenge. Pending legislation that would amend Section 5 of 2020. Diamond Offshore may incur additional indebtednessthe NGA to add refund provisions could increase the likelihood of such a challenge. If such a challenge is successful for any of Boardwalk Pipelines’ pipelines, the revenues associated with transportation and storage services the pipeline provides pursuant to
cost-of-service
rates could materially decrease in the future, which would adversely affect the revenues on that pipeline going forward.
Legislative and borrow from timeregulatory initiatives relating to time under its revolving credit facilitiespipeline safety that require the use of new or more prescriptive compliance activities, substantial changes to fund workingexisting integrity management programs or withdrawal of regulatory waivers could subject Boardwalk Pipelines to increased capital capital expenditures or other needs,and operating costs and operational delays.
Boardwalk Pipelines’ interstate pipelines are subject to compliance with its covenants.

Diamond Offshore’s ability to meet its debt service obligations is dependent upon its future performance,regulation by PHMSA, which is unpredictable. High levelspart of indebtednessthe DOT. PHMSA regulates the design, installation, testing, construction, operation, and maintenance of existing interstate natural gas and NGLs pipeline facilities. PHMSA regulation currently requires pipeline operators to implement integrity management programs, including frequent inspections, correction of certain identified anomalies and other measures to promote pipeline safety in HCAs, MCAs, Class 3 and 4 areas, as well as areas unusually sensitive to environmental damage and commercially navigable waterways. States have jurisdiction over certain of Boardwalk Pipelines’ intrastate pipelines and have adopted regulations similar to existing PHMSA regulations. State regulations may impose more stringent requirements than found under federal law that affect Boardwalk Pipelines’ intrastate operations. Compliance with these rules over time generally has resulted in an overall increase in maintenance costs. The imposition of new or more stringent pipeline safety rules applicable to natural gas or NGL pipelines, or any issuance or reinterpretation of guidance from PHMSA or any state agencies with respect thereto could have negative consequencescause Boardwalk Pipelines to Diamond Offshore, including:

🌑

it may have difficulty satisfying its obligations with respect to its outstanding debt;

🌑

it may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions or other purposes;

🌑

it may need to use a substantial portion of available cash flow from operations to pay interest and principal on its debt, which would reduce the amount of money available to fund working capital requirements, capital expenditures, the payment of dividends and other general corporate or business activities;

🌑

vulnerability to the effects of general economic downturns, adverse industry conditions and adverse operating results could increase;

🌑

flexibility in planning for, or reacting to, changes in its business and in its industry in general could be limited;

27

🌑

it may not have the ability to pursue business opportunities that become available;

🌑

the amount of debt and the amount it must pay to service its debt obligations could place Diamond Offshore at a competitive disadvantage compared to its competitors that have less debt; and

🌑

customers may react adversely to its significant debt level and seek alternative service providers.

In addition, Diamond Offshore’s failure to comply with the restrictive covenants in its debt instrumentsinstall new or modified safety controls, pursue additional capital projects or conduct maintenance programs on an accelerated basis, any or all of which tasks could result in Boardwalk Pipelines incurring increased capital and operating costs, experiencing operational delays and suffering potential adverse impacts to its operations or ability to reliably serve its customers. Requirements that are imposed under the 2011 Act or the more recent 2016 Act may also increase Boardwalk Pipelines’ capital and operating costs or impact the operation of its pipelines. For example, in 2016, PHMSA published a proposed rulemaking that would impose new or more stringent requirements for certain natural gas pipelines including, among other things, expanding certain of PHMSA’s current regulatory safety programs for natural gas lines in newly defined MCAs that do not qualify as HCAs and requiring MAOP validation through

re-verification
of all historical records for pipelines in service, which may require natural gas pipelines installed before 1970 (previously excluded from certain pressure testing obligations) to be pressure tested. New pipeline safety legislation is expected to be proposed and finalized in 2020 that will reauthorize PHMSA pipeline safety programs, which under the 2016 Act expired at the end of September of 2019. Any such new pipeline safety legislation or implementing regulations could impose more stringent or costly compliance obligations on Boardwalk Pipelines and could require it to pursue additional capital projects or conduct integrity or maintenance programs on an eventaccelerated basis, any or all of defaultwhich tasks could result in Boardwalk Pipelines incurring increased operating costs that if not cured or waived, could have a material adverse effect on its business. Among other things, these covenants require Diamond Offshore to maintain a specified ratiocosts of providing transportation services.
Boardwalk Pipelines has entered into certain firm transportation contracts with shippers on certain of its consolidated indebtedness to total capitalization, a specified ratio ofexpansion projects that utilize the aggregate valuedesign capacity of certain of its rigspipeline assets, based upon the authority Boardwalk Pipelines received from PHMSA to the aggregate valueoperate those pipelines at higher than normal operating pressures of substantially all rigs owned by Diamond Offshore, a specified ratioup to 0.80 of the aggregate value of certainpipeline’s SMYS under issued permits with specific conditions. PHMSA retains discretion to withdraw or modify this authority. If PHMSA were to withdraw or materially modify such authority, it could affect Boardwalk Pipelines’ ability to transport all of its marketed rigs to the sum of the commitments under the $950 million revolving credit facility plus certain outstanding loans, letter of credit exposures and other indebtedness and limit the ability of its subsidiaries to incur debt.

In 2018, S&P downgraded Diamond Offshore’s corporate credit rating to B from B+ and Moody’s downgraded its corporate credit rating to B2 from Ba3. The rating outlook from both S&P and Moody’s remains negative. These credit ratings are below investment grade and could raise Diamond Offshore’s cost of financing. As a consequence, Diamond Offshore may not be able to issue additional debt in amounts and/or with terms that it considers to be reasonable. One or more of these occurrences could limit Diamond Offshore’s ability to pursue other business opportunities.

Diamond Offshore’s revolving credit facilities bear interest at variable rates, based on its corporate credit rating and market interest rates. If market interest rates increase, Diamond Offshore’s cost to borrow under its revolving credit facilities may also increase. Although Diamond Offshore may employ hedging strategies such that a portion of the aggregate principal amount outstanding under this credit facilities would effectively carry a fixed rate of interest, any hedging arrangement put in place may not offer complete protection from this risk.

Risks Related to Us and Our Subsidiary, Boardwalk Pipeline Partners, LP

The price differentials between natural gas supplies and market demand for natural gas have reduced the transportation rates that Boardwalk Pipeline can charge on certain portions of its pipeline systems.

The transportation rates Boardwalk Pipeline is able to charge customers are heavily influenced by market trends (both short and longer term), including the available supply, geographical locationcontracted quantities of natural gas production, the competition between producing basins, competition with other pipelines for supplyon these pipeline assets and markets, the demand for gas byend-users such as power plants, petrochemical facilities and LNG export facilities and the price differentials between the gas supplies and the market demand for the gas (basis differentials). Current market conditions have resulted in a sustained narrowingit could incur significant additional costs to reinstate this authority or to develop alternate ways to meet its contractual obligations.


Table of basis differentials on certain portions of Contents
Boardwalk Pipeline’s pipeline system, which has reduced transportation rates that can be charged in the affected areas and adversely affected the contract terms Boardwalk Pipeline can secure from its customers for available transportation capacity and for contracts being renewed or replaced. The prevailing market conditions may also lead some of its customers to seek to renegotiate existing contracts to terms that are less attractive to Boardwalk Pipeline; for example, seeking a current price reduction in exchange for an extension of the contract term. Boardwalk Pipeline expects these market conditions to continue.

Boardwalk Pipeline’sPipelines’ actual construction and development costs could exceed its forecasts, its anticipated cash flow from construction and development projects will not be immediate and its construction and development projects may not be completed on time or at all.

Boardwalk PipelinePipelines has been and is currently engaged in several construction projects involving its existing assets and the construction of new facilities for which it has expended or will expend significant capital. Boardwalk PipelinePipelines expects to continue to engage in the construction of additional growth projects and modifications of its system. When Boardwalk PipelinePipelines builds a new pipeline or expands or modifies an existing facility, the design, construction and development occurs over an extended period of time, and it will not receive any revenue or cash flow from that project until after it is placed into commercial service. On Boardwalk Pipeline’sPipelines’ interstate pipelines there are several years between when the project is announced and when customers begin using the new facilities. During this period, Boardwalk Pipeline

28

Pipelines spends capital and incurs costs without receiving any of the financial benefits associated with the projects. The construction of new assets involves regulatory (federal, state and local), landowner opposition, environmental, activist, legal, political, materials and labor costs, as well as operational and other risks that are difficult to predict and some are beyond Boardwalk Pipeline’sPipelines’ control. A project may not be completed on time or at all due to a variety of factors, may be impacted by significant cost overruns or may be materially changed prior to completion as a result of developments or circumstances that Boardwalk PipelinePipelines is not aware of when it commits to the project, including the inability of any shipper to provide adequate credit support or to otherwise perform their obligations under any precedent agreements.project. Any of these events could result in material unexpected costs or have a material adverse effect on Boardwalk Pipeline’sPipelines’ ability to realize the anticipated benefits from its growth projects.

Boardwalk Pipeline’s natural gas transportationPipelines’ and storageits customers’ operations are subject to extensive regulation by the FERC, including rules and regulations related to the rates it can charge for its services and its ability to construct or abandon facilities. Boardwalk Pipeline may not be able to recover the full cost of operating its pipelines, including earning a reasonable return.

Boardwalk Pipeline’s natural gas transportation and storageoperations are subject to extensive regulation by the FERC, including the types, rates and terms of services Boardwalk Pipeline may offer to its customers, construction of new facilities, creation, modification or abandonment of services or facilities and recordkeeping and relationships with affiliated companies. An adverse FERC action in any of these areas could affect Boardwalk Pipeline’s ability to compete for business, construct new facilities, offer new services or recover the full cost of operating its pipelines. This regulatory oversight can result in longer lead times to develop and complete any future project than competitors that are not subject to the FERC’s regulations. The FERC can also deny Boardwalk Pipeline the right to abandon certain facilities from service.

The FERC also regulates the rates Boardwalk Pipeline can charge for its natural gas transportation and storage operations. For cost-based services, the FERC establishes both the maximum and minimum rates Boardwalk Pipeline can charge. The basic elements that the FERC considers are the costs of providing service, the volumes of gas being transported, the rate design, the allocation of costs between services, the capital structure and the rate of return a pipeline is permitted to earn.

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) changed several provisions of the federal tax code, including a reduction in the maximum corporate tax rate. In addition, the FERC issued a series of policies and orders throughout 2018 which addressed the inclusion of federal income tax allowances in interstate pipeline companies’ rates. The FERC issued a Revised Policy Statement on Treatment of Income Taxes (“Revised Policy Statement”) reversing its long-standing policy by stating that it will no longer permit master limited partnerships to include an income tax allowance in theircost-of-service. The purchaserisks arising out of the outstanding common units bythreat of climate change that could result in increased operating costs, limit the General Partnerareas in 2018which fossil fuels are produced and its electionreduce demand for the services Boardwalk Pipelines provides.

The threat of climate change continues to attract considerable attention in the U.S. and in foreign countries. Numerous proposals have been made and could continue to be treatedmade at the international, national, regional and state levels of government to monitor and limit existing emissions of greenhouse gases (“GHGs”) as well as to restrict or eliminate such future emissions, which makes Boardwalk Pipelines operations as well as the operations of its fossil fuel producer customers subject to a series of regulatory, political, litigation and financial risks associated with the production and processing of fossil fuels and emission of GHGs.
In the U.S., no comprehensive climate change legislation has been implemented at the federal level. With the U.S. Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the Environmental Protection Agency has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain natural gas system sources in the U.S., implement New Source Performance Standards directing the reduction of methane from certain new, modified or reconstructed facilities in the natural gas sector, and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the U.S. Various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs and restriction of emissions. At the international level, the
non-binding
Paris Agreement requests that nations limit their GHG emissions through individually-determined reduction goals every five years after 2020, although the U.S. has announced its withdrawal from such agreement, effective November 4, 2020.
Governmental, scientific and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the U.S., including climate change related pledges made by certain candidates seeking the presidential office in 2020. Declarations made by one or more candidates running for the Democratic nomination for president include threats to take actions banning hydraulic fracturing of crude oil and natural gas wells and banning new leases for production of minerals on federal properties, including onshore lands and offshore waters. A new presidential administration could also pursue the imposition of more restrictive requirements for the establishment of pipeline infrastructure or the permitting of LNG export facilities, as well as the reversal of the U.S.’ withdrawal from the Paris Agreement. Litigation risks are also increasing, as a corporationnumber of cities and other local governments have sought to bring suit against fossil fuel producer companies in state or federal court, alleging, that such companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and are responsible for federal income tax purposes, precludedroadway and infrastructure damages as a result, or alleging that the impact these policies and orders wouldcompanies have on the ability of Boardwalk Pipeline’s FERC-regulated natural gas pipelines to include an income tax allowance in theircost-of-service.

The FERC also issued an order which required all FERC-regulated natural gas pipelines to make aone-time informational filing reflecting the impactsbeen aware of the Tax Actadverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts.


Table of Contents
There are also increasing financial risks for fossil fuel energy companies as investors in fossil fuel energy companies become increasingly concerned about the potential effects of climate change and the Revised Policy Statement on each individual pipeline’scost-of-service. Texas Gas filed its informational filing on October 11, 2018, and Gulf South and Gulf Crossing made their filings on December 6, 2018. Customers were provided an opportunity to protest or comment on each pipeline’s informational filing. This procedure could lead to challenges to a pipeline’s currently effective maximum applicable rates pursuant to Section 5 of the NGA. To date, the FERC has initiated four Section 5 proceedings againstnon-affiliated interstate natural gas pipelines and has notified othernon-affiliated natural gas pipelines that no further action will be taken with respect to their information filings. As of February 13, 2019, Texas Gas, Gulf South and Gulf Crossing’s informational filings remain open.

Even without action on Boardwalk Pipeline’s informational filings, the FERC and/or Boardwalk Pipeline’s customers could challenge the maximum applicable rates that any of its regulated pipelines are allowed to charge in accordance with Section 5 of the NGA. The Tax Act and the Revised Policy Statement may increase the likelihood of such a challenge. If such a challenge is successful for any of Boardwalk Pipeline’s pipelines, the revenues associated with transportation and storage services the pipeline provides pursuant tocost-of-service rates could materially decreaseelect in the future which would adversely affectto shift some or all of their investments into

non-energy
related sectors. Institutional lenders who provide financing to fossil fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. Additionally, institutional lenders have been the revenues on that pipeline going forward.

29

In Aprilsubject of 2018, the FERC issued a Notice of Inquiry (“Certificate Policy Statement NOI”), thereby initiating a review of its policies on certification of natural gas pipelines facilities, including an examination of its long-standing Policy Statement on Certification of New Interstate Natural Gas Pipeline Facilities, issuedintensive lobbying efforts in 1999, that is used to determine whether to grant certificates for new pipeline and storage projects and expansions. Comments on the Certificate Policy Statement NOI were due on July 25, 2018, and Boardwalk Pipeline was unable to predict what, if any, changes may be proposed that will affect its natural gas pipeline business or when such proposals, if any, might become effective.

Legislative and regulatory initiatives relating to pipeline safety that require the use of new or more prescriptive compliance activities, substantial changes to existing integrity management programs or withdrawal of regulatory waivers could subject Boardwalk Pipeline to increased capital and operating costs and operational delays.

Boardwalk Pipeline’s interstate pipelines are subject to regulationrecent years, oftentimes public in nature, by PHMSA, which is partenvironmental activists, proponents of the DOT. PHMSA regulates the design, installation, testing, construction, operation, replacementinternational Paris Agreement and management of existing interstate natural gasforeign citizenry concerned about climate change not to provide funding for fossil fuel energy companies. This could make it more difficult for Boardwalk Pipelines to secure funding for exploration and NGLs pipeline facilities. PHMSA regulation currently requires pipeline operators to implement integrity management programs, including frequent inspections, correction of certain identified anomaliesproduction or midstream energy business activities.

The adoption and other measures to promote pipeline safety in HCAs, such as high population areas, areas unusually sensitive to environmental damage and commercially navigable waterways. States have jurisdiction over certain of Boardwalk Pipeline’s intrastate pipelines and have adopted regulations similar to existing PHMSA regulations. State regulations may impose more stringent requirements than found under federal law that affect Boardwalk Pipeline’s intrastate operations. Compliance with these rules over time generally has resulted in an overall increase in maintenance costs. The impositionimplementation of new or more stringent pipeline safety rules applicable to naturalinternational, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and gas sector or NGL pipelines,otherwise restrict the areas in which this sector may produce fossil fuels or any issuance or reinterpretation of guidance from PHMSA or any state agencies with respect thereto could cause Boardwalk Pipeline to install new or modified safety controls, pursue additional capital projects or conduct maintenance programs on an accelerated basis, any or all of which tasksgenerate GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for fossil fuels, which could reduce demand for Boardwalk Pipeline incurring increased capitalPipelines transportation and operating costs, experience operational delays,storage services. Political, litigation and financial risks may result in potential adverse impacts to its operationsfossil fuel producer customers restricting or canceling production activities, incurring liability for infrastructure damages as a result of climatic changes or impairing their ability to reliably serve its customers. Requirements that are imposed under the 2011 Act or the more recent 2016 Act maycontinue to operate in an economic manner, which also increasecould reduce demand for Boardwalk Pipeline’s capital and operating costs or impact the operation of its pipelines. For example, in 2016, PHMSA published a proposed rulemaking that would impose new or more stringent requirements for certainPipelines’ services.
The price differentials between natural gas pipelines including, among other things, expanding certain of PHMSA’s current regulatory safety programssupplies and market demand for natural gas lines in newly defined “moderate consequence areas”have reduced the transportation rates that do not qualify as HCAs and requiring maximum allowable operating pressure validation throughre-verification of all historical records for pipelines in service, which may require natural gas pipelines installed before 1970 (previously excluded from certain pressure testing obligations) to be pressure tested.

Boardwalk Pipeline has entered into certain firm transportation contracts with shippersPipelines can charge on certain of its expansion projects that utilize the design capacity of certainportions of its pipeline assets, based uponsystems.

Each year a portion of Boardwalk Pipelines firm natural gas transportation contracts expire and need to be replaced or renewed. Over the authoritypast several years, as a result of market conditions, Boardwalk Pipeline received from PHMSAPipelines has renewed some expiring contracts at lower rates or for shorter terms than in the past. The transportation rates Boardwalk Pipelines is able to operate those pipelines at higher than normal operating pressures of up to 0.80 ofcharge customers are heavily influenced by market trends (both short and longer term), including the pipeline’s SMYS under issued permits with specific conditions. PHMSA retains discretion to withdraw or modify this authority. If PHMSA were to withdraw or materially modify such authority, it could affect Boardwalk Pipeline’s ability to transport all of its contracted quantitiesavailable supply, geographical location of natural gas production, the competition between producing basins, competition with other pipelines for supply and markets, the demand for gas by
end-users
such as power plants, petrochemical facilities and LNG export facilities and the price differentials between the gas supplies and the market demand for the gas (basis differentials). Market conditions have resulted in a sustained narrowing of basis differentials on certain portions of Boardwalk Pipelines’ pipeline system, which has reduced transportation rates that can be charged in the affected areas and adversely affected the contract terms Boardwalk Pipelines can secure from its customers for available transportation capacity and for contracts being renewed or replaced. The prevailing market conditions may also lead some of its customers to seek to renegotiate existing contracts to terms that are less attractive to Boardwalk Pipelines; for example, seeking a current price reduction in exchange for an extension of the contract term. Boardwalk Pipelines expects these pipeline assets and it could incur significant additional costsmarket conditions to reinstate this authority or to develop alternate ways to meet its contractual obligations.

continue.

Boardwalk PipelinePipelines is exposed to credit risk relating to default or bankruptcy by its customers.

Credit risk relates to the risk of loss resulting from the default by a customer of its contractual obligations or the customer filing bankruptcy. Boardwalk PipelinePipelines has credit risk with both its existing customers and those supporting its growth projects.

Credit risk exists in relation to Boardwalk Pipeline’sPipelines’ growth projects, both because foundation customers make long term firm capacity commitments to Boardwalk PipelinePipelines for such projects and certain of those foundation customers agree to provide credit support as construction for such projects progresses. If a customer fails to post the required credit support during the growth project process, overall returns on the project may be reduced to the extent an adjustment to the scope of the project results or Boardwalk PipelinePipelines is unable to replace the defaulting customer.

30

Boardwalk Pipeline’sPipelines recently had a customer declare bankruptcy for which it was able to use the credit support to cover a portion of the customer’s remaining long term commitment.

Boardwalk Pipelines’ credit exposure also includes receivables for services provided, future performance under firm agreements and volumes of gas owed by customers for imbalances or gas loaned by Boardwalk PipelinePipelines to them under certain NNS and parking and lending (“PAL”) services.

Boardwalk Pipeline may not be able to replace expiring natural gas transportation contracts at attractive rates or on a long-term basis and may not be able to sell short-term services at attractive rates or at all due to market conditions.

Each year, a portion

32
Table of Boardwalk Pipeline’s firm natural gas transportation contracts expire and need to be replaced or renewed. Over the past several years, as a result of current market conditions, Boardwalk Pipeline has renewed some expiring contracts at lower rates or for shorter terms than in the past. In addition to normal contract expirations, in the 2018 to 2020 timeframe, transportation agreements associated with Boardwalk Pipeline’s Gulf South, Texas Gas and Gulf Crossing pipeline expansion projects, which were placed into service in 2008 and 2009, will expire or have expired. In late 2017 and throughout 2018, a substantial portion of the capacity becoming available from the 2018 expiring expansion project contracts was renewed or the contracts were restructured, usually at lower rates or lower volumes. As the terms of these remaining expansion contracts expire through 2020, Boardwalk Pipeline’s transportation contract expirations are expected to be at a higher than normal level. If these contracts are renewed at current market rates, the revenues earned from these transportation contracts would be materially lower than they are today. For a discussion of current developments, see the Contract Renewals portion of the Results of Operations-Boardwalk Pipeline sections of MD&A under Item 7.

Contents

Changes in energy prices, including natural gas, oil and NGLs, impact the supply of and demand for those commodities, which impact Boardwalk Pipeline’sPipelines’ business.

Boardwalk Pipeline’sPipelines’ customers, especially producers, are directly impacted by changes in commodity prices. The prices of natural gas, oil and NGLs fluctuate in response to changes in supply and demand, market uncertainty and a variety of additional factors.factors, including for natural gas the realization of potential LNG exports and demand growth within the power generation market. The declines in the levels of natural gas, oil and NGLs prices experienced in recent history have adversely affected the businesses of Boardwalk Pipeline’sPipelines’ producer customers and reduced the demand for Boardwalk Pipeline’sPipelines’ services and could result in defaults or the
non-renewal
of Boardwalk Pipeline’sPipelines’ contracted capacity when existing contracts expire. Future increases in the price of natural gas and NGLs could make alternative energy and feedstock sources more competitive and reduce demand for natural gas and NGLs. A reduced level of demand for natural gas and NGLs could reduce the utilization of capacity on Boardwalk Pipeline’sPipelines’ systems and reduce the demand of its services.

Boardwalk Pipeline’sPipelines’ substantial indebtedness could affect its ability to meet its obligations and may otherwise restrict its activities.

Boardwalk PipelinePipelines has a significant amount of indebtedness, which requires significant interest payments. Boardwalk Pipeline’sPipelines’ inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have a material adverse effect on its business. Boardwalk Pipeline’sPipelines’ substantial indebtedness could have important consequences. For example, it could:

🌑

limit Boardwalk Pipeline’s ability to borrow money for its working capital, capital expenditures, debt service requirements or other general business activities;

🌑

increase Boardwalk Pipeline’s vulnerability to general adverse economic and industry conditions; and

🌑

limit Boardwalk Pipeline’s ability to respond to business opportunities, including growing its business through acquisitions.

limit Boardwalk Pipelines’ ability to borrow money for its working capital, capital expenditures, debt service requirements or other general business activities;
increase Boardwalk Pipelines’ vulnerability to general adverse economic and industry conditions; and
limit Boardwalk Pipelines’ ability to respond to business opportunities, including growing its business through acquisitions.
In addition, the credit agreements governing Boardwalk Pipeline’sPipelines’ current indebtedness contain, and any future debt instruments would likely contain, financial or other restrictive covenants, which impose significant operating and financial restrictions. As a result of these covenants, Boardwalk PipelinePipelines could be limited in the manner in which it conducts its business and may be unable to engage in favorable business activities or finance its future operations or capital needs. Furthermore, a failure to comply with these covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on its business.

31

Boardwalk PipelinePipelines will be permitted, under its revolving credit facility and the indentures governing its notes, to incur additional debt, subject to certain limitations under its revolving credit facility and, in the case of unsecured debt, under the indentures governing the notes. If Boardwalk PipelinePipelines incurs additional debt, its increased leverage could also result in the consequences described above.

Limited access to the debt markets and increases in interest rates could adversely affect Boardwalk Pipeline’sPipelines’ business.

Boardwalk PipelinePipelines anticipates funding its capital spending requirements through its available financing options, including cash generated from operations and borrowings under its revolving credit facility. Changes in the debt markets, including market disruptions, limited liquidity, and an increase in interest rate volatility,rates, may increase the cost of financing as well as the risks of refinancing maturing debt. This may affect its ability to raise needed funding and reduce the amount of cash available to fund its operations or growth projects. If the debt markets were not available, it is not certain if other adequate financing options would be available to Boardwalk PipelinePipelines on terms and conditions that it would find acceptable.


Table of Contents
Any disruption in the debt markets could require Boardwalk PipelinePipelines to take additional measures to conserve cash until the markets stabilize or until it can arrange alternative credit arrangements or other funding for its business needs. Such measures could include reducing or delaying business activities, reducing its operations to lower expenses and reducing other discretionary uses of cash. Boardwalk PipelinePipelines may be unable to execute its growth strategy or take advantage of certain business opportunities.

Boardwalk PipelinePipelines does not own all of the land on which its pipelines and facilities are located, which could result in disruptions to its operations.

Boardwalk PipelinePipelines does not own all of the land on which its pipelines and facilities have been constructed, and Boardwalk Pipeline is subject to the possibility of more onerous terms and/or increased costs to retain necessary land use if it does not have valid
rights-of-way
or if such
rights-of-way
lapse or terminate. Boardwalk PipelinePipelines obtains the rights to construct and operate its pipelines on land owned by third parties and governmental agencies for a specific period of time. Boardwalk PipelinePipelines cannot guarantee that it will always be able to renew, when necessary, existing
rights-of-way
or obtain new
rights-of-way
without experiencing significant costs.costs or experiencing landowner opposition. Any loss of these land use rights with respect to the operation of Boardwalk Pipeline’sPipelines’ pipelines and facilities, through its inability to renew
right-of-way
contracts or otherwise, could have a material adverse effect on its business.

Rising sea levels, subsidence and erosion could damage Boardwalk PipelinePipelines’ pipelines and the facilities that serve its customers, particularly along coastal waters and offshore in the Gulf of Mexico, which could adversely affect its operations and financial condition.
Boardwalk Pipelines’ pipeline operations along coastal waters and offshore in the Gulf of Mexico could be impacted by rising sea levels, subsidence and erosion. Subsidence issues are also a concern for Boardwalk Pipelines’ pipelines at major river crossings. Rising sea levels, subsidence and erosion could cause serious damage to its pipelines, which could affect its ability to provide transportation services or result in leakage, migration, releases or spills from its operations to surface or subsurface soils, surface water, groundwater or offshore waters, which could result in liability, remedial obligations and/or otherwise have a negative impact on continued operations. Such rising sea levels, subsidence and erosion processes could impact Boardwalk Pipelines’ customers who operate along coastal waters or offshore in the Gulf of Mexico, and they may be unable to utilize Boardwalk Pipelines services. Rising sea levels, subsidence and erosion could also expose Boardwalk Pipelines’ operations to increased risks associated with severe weather conditions and other adverse events and conditions, such as hurricanes and flooding. As a result, Boardwalk Pipelines may incur significant costs to repair and preserve its pipeline infrastructure. Such costs could adversely affect its business, financial condition, results of operations and cash flows. In recent years, local governments and landowners have filed lawsuits in Louisiana against energy companies, alleging that their operations contributed to increased coastal rising seas and erosion and seeking substantial damages.
Boardwalk Pipelines may not be successful in executing its strategy to grow and diversify its business.

Boardwalk PipelinePipelines relies primarily on the revenues generated from its natural gas long-haul transportation and storage services. Negative developments in these services have significantly greater impact on Boardwalk Pipeline’sPipelines’ financial condition and results of operations than if it maintained more diverse assets. Boardwalk Pipeline is pursuing a strategy of growing and diversifying its business through acquisition and development of assets in complementary areas of the midstream energy sector. Boardwalk Pipeline’sPipelines’ ability to grow, diversify and increase cash flows will depend, in part, on its ability to expand its existing business lines and to close and execute on accretive acquisitions. Boardwalk PipelinePipelines may not be successful in acquiring or developing such assets or may do so on terms that ultimately are not profitable. Any such transactions involve potential risks that may include, among other things:

🌑

the diversion of management’s and employees’ attention from other business concerns;

🌑

inaccurate assumptions about volume, revenues and project costs, including potential synergies;

🌑

a decrease in Boardwalk Pipeline’s liquidity as a result of using available cash or borrowing capacity to finance the acquisition or project;

🌑

a significant increase in interest expense or financial leverage if it incurs additional debt to finance the acquisition or project;

🌑

inaccurate assumptions about the overall costs of debt;

32

the diversion of management’s and employees’ attention from other business concerns;
inaccurate assumptions about volume, revenues and project costs, including potential synergies;
a decrease in Boardwalk Pipelines’ liquidity as a result of using available cash or borrowing capacity to finance the acquisition or project;

🌑

an inability to hire, train or retain qualified personnel to manage and operate the acquired business and assets or the developed assets;

🌑

unforeseen difficulties operating in new product areas or new geographic areas; and

🌑

changes in regulatory requirements or delays of regulatory approvals.

Table of Contents
a significant increase in interest expense or financial leverage if it incurs additional debt to finance the acquisition or project;
inaccurate assumptions about the overall costs of debt;
an inability to hire, train or retain qualified personnel to manage and operate the acquired business and assets or the developed assets;
unforeseen difficulties operating in new product areas or new geographic areas; and
changes in regulatory requirements or delays of regulatory approvals.
Additionally, acquisitions also contain the following risks:

🌑

an inability to integrate successfully the businesses Boardwalk Pipeline acquires;

🌑

the assumption of unknown liabilities for which it is not indemnified, for which its indemnity is inadequate or for which its insurance policies may exclude from coverage;

🌑

limitations on rights to indemnity from the seller; and

🌑

customer or key employee losses of an acquired business.

Boardwalk Pipeline’sPipelines acquires;

the assumption of unknown liabilities for which it is not indemnified, for which its indemnity is inadequate or for which its insurance policies may exclude from coverage;
limitations on rights to indemnity from the seller; and
customer or key employee losses of an acquired business.
Boardwalk Pipelines’ ability to replace expiring gas storage contracts at attractive rates or on a long-term basis and to sell short-term services at attractive rates or at all are subject to market conditions.

Boardwalk PipelinePipelines owns and operates substantial natural gas storage facilities. The market for the storage and PAL services that it offers is impacted by the factors and market conditions discussed above for Boardwalk Pipeline’sPipelines’ transportation services, and is also impacted by natural gas price differentials between time periods, such as winter to summer (time period price spreads), and the volatility in time period price spreads. When market conditions cause a narrowing of time period price spreads and a decline in the price volatility of natural gas, these factors adversely impact the rates Boardwalk PipelinePipelines can charge for its storage and PAL services.

Boardwalk Pipeline’sPipelines’ operations are subject to catastrophic losses, operational hazards and unforeseen interruptions for which it may not be adequately insured.

There are a variety of operating risks inherent in transporting and storing natural gas, ethylene and NGLs, such as leaks and other forms of releases, explosions, fires, cyber-attacks and mechanical problems, which could have catastrophic consequences. Additionally, the nature and location of Boardwalk Pipeline’sPipelines’ business may make it susceptible to catastrophic losses from hurricanes or other named storms, particularly with regard to its assets in the Gulf Coast region, windstorms, earthquakes, hail, and other severe weather. Any of these or other similar occurrences could result in the disruption of Boardwalk Pipeline’sPipelines’ operations, substantial repair costs, personal injury or loss of life, significant damage to property, environmental pollution, impairment of its operations and substantial financial losses. The location of pipelines in HCAs, which includes populated areas, residential areas, commercial business centers and industrial sites, could significantly increase the level of damages resulting from some of these risks.

Boardwalk PipelinePipelines currently possesses property, business interruption, cyber threat and general liability insurance, but proceeds from such insurance coverage may not be adequate for all liabilities or expenses incurred or revenues lost. Moreover, such insurance may not be available in the future at commercially reasonable costs and terms. The insurance coverage Boardwalk PipelinePipelines does obtain may contain large deductibles or fail to cover certain events, hazards or all potential losses.

Climate change legislation and regulations restricting emissions


Table of greenhouse gases (“GHGs”) could result in increased operating and capital costs and reduced demand for Boardwalk Pipeline’s pipeline and storage services.

Climate change continues to attract considerable public and scientific attention. This issue has also become more important in the review of FERC certificate applications. While no comprehensive climate change legislation has been implemented at the federal level, the Environmental Protection Agency (“EPA”) and states or groupings of states have pursued legal initiatives in recent years that seek to reduce GHG emissions through efforts that include consideration ofcap-and-trade programs, carbon taxes and GHG reporting and tracking programs and regulations that directly limit

33

GHG emissions from certain sources such as, for example, limitations on emissions of methane through equipment control and leak detection and repair requirements. In November of 2018, the current Administration released an updated National Climate Assessment that was issued pursuant to U.S. federal law. The assessment summarizes the impacts of climate change on the U.S., now and in the future. This report could serve as a basis for increasing governmental pursuit of policies to restrict GHG emissions.

In particular, the EPA has adopted rules that, among other things, establish certain permit reviews for GHG emissions from certain large stationary sources, which reviews could require securing permits at covered facilities emitting GHGs and meeting defined technological standards for those GHG emissions. The EPA has also adopted rules requiring the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the U.S., including, among others, onshore processing, transmission, storage and distribution facilities as well as gathering, compression and boosting facilities and blowdowns of natural gas transmission pipelines.

Federal agencies also have begun directly regulating emissions of methane, a GHG, from oil and natural gas operations. The adoption and implementation of any international, federal or state legislation or regulations that require reporting of GHGs or otherwise restrict emissions of GHGs could result in increased compliance costs or additional operating restrictions.

Contents

Risks Related to Us and Our Subsidiary, Loews Hotels Holding Corporation

& Co

Loews Hotels & Co’s business may be adversely affected by various operating risks common to the lodginghospitality industry, including competition, excess supply and dependence on business travel and tourism.

Loews Hotels & Co owns and operates hotels which have different economic characteristics than many other real estate assets. A typical office property, for example, has long-term leases with third-party tenants, which provide a relatively stable long-term stream of revenue. Hotels, on the other hand, generate revenue from guests that typically stay at the hotel for only a few nights, which causes the room rate and occupancy levels at each hotel to change every day, and results in earnings that can be highly volatile.

In addition, Loews Hotels & Co’s properties are subject to various operating risks common to the lodginghospitality industry, many of which are beyond Loews Hotels & Co’s control, including:

🌑

changes in general economic conditions, including the severity and duration of any downturn in the U.S. or global economy and financial markets;

🌑

war, political conditions or civil unrest, terrorist activities or threats and heightened travel security measures instituted in response to these events;

🌑

outbreaks of pandemic or contagious diseases;

🌑

natural orman-made disasters;

🌑

any material reduction or prolonged interruption of public utilities and services;

🌑

decreased corporate or government travel-related budgets and spending and cancellations, deferrals or renegotiations of group business due to adverse economic conditions or otherwise;

🌑

decreased need for business-related travel due to innovations in business-related technology;

🌑

competition from other hotels and alternative accommodations, such as Airbnb, in the markets in which Loews Hotels & Co operates;

🌑

requirements for periodic capital reinvestment to maintain and upgrade hotels;

🌑

increases in operating costs, including labor (including minimum wage increases), workers’ compensation, benefits, insurance, food, energy and unanticipated costs resulting from force majeure events, due to inflation,

34

changes in general economic conditions, including the severity and duration of any downturn in the U.S. or global economy and financial markets;
war, political conditions or civil unrest, terrorist activities or threats and heightened travel security measures instituted in response to these events;
outbreaks of pandemic or contagious diseases, such as the recent coronavirus;
natural or
man-made
disasters;
any material reduction or prolonged interruption of public utilities and services;
decreased corporate or government travel-related budgets and spending and cancellations, deferrals or renegotiations of group business due to adverse economic conditions or otherwise;
decreased need for business-related travel due to innovations in business-related technology;
competition from other hotels and alternative accommodations, such as Airbnb, in the markets in which Loews Hotels & Co operates;
requirements for periodic capital reinvestment to maintain and upgrade hotels;
increases in operating costs, including labor (such as from minimum wage increases), workers’ compensation, benefits, insurance, food and beverage, commodity costs, energy and unanticipated costs resulting from force majeure events, due to inflation, new or different federal, state or local governmental regulations, including tariffs, and other factors that may not be offset by increased revenues;
the costs and administrative burdens associated with compliance with applicable laws and regulations;
organized labor activities, which could cause a diversion of business from hotels involved in labor negotiations and loss of business for Loews Hotels & Co’s properties generally as a result of certain labor tactics;
changes in the desirability of particular locations or travel patterns of customers, including with respect to the underlying attractions supporting Loews Hotels & Co’s existing and under development immersive destination properties, such as the Universal theme park for its Orlando, Florida properties, the stadiums in Arlington, Texas and St. Louis, Missouri for its Live! by Loews hotels and convention centers for properties in other markets;
geographic concentration of operations and customers;
shortages of desirable locations for development; and
36

new or different federal, state or local governmental regulations, including tariffs, and other factors that may not be offset by increased room rates;

🌑

the costs and administrative burdens associated with compliance with applicable laws and regulations;

🌑

organized labor activities, which could cause a diversion of business from hotels involved in labor negotiations and loss of business for Loews Hotels & Co’s properties generally as a result of certain labor tactics;

🌑

changes in the desirability of particular locations or travel patterns of customers, including with respect to the underlying attractions supporting Loews Hotels & Co’s existing and under development immersive destination properties, such as the Universal theme park for its Orlando, Florida properties, the stadiums in Arlington, Texas and St. Louis, Missouri for its Live! by Loews hotels and convention centers for properties in other markets, geographic concentration of operations and customers and shortages of desirable locations for development; and

🌑

relationships with third-party property owners, developers, landlords and joint venture partners, including the risk that owners and/or partners may terminate management or joint venture agreements.

Table of Contents
relationships with third-party property owners, developers, landlords and joint venture partners, including the risk that owners and/or partners may terminate management or joint venture agreements.
These factors, and the reputational repercussions of these factors, could adversely affect, and from time to time have adversely affected, individual hotels and hotels in particular regions.

Loews Hotels & Co is exposed to the risks resulting from significant investments in owned and leased real estate, which could increase its costs, reduce its profits, limit its ability to respond to market conditions or restrict its growth strategy.

Loews Hotels & Co’s proportion of owned and leased properties, compared to the number of properties that it manages for third-party owners, is larger than that of some of its competitors. Real estate ownership and leasing is subject to risks not applicable to managed or franchised properties, including:

🌑

real estate, insurance, zoning, tax, environmental and eminent domain laws;

🌑

the ongoing need for owner-funded capital improvements and expenditures to maintain or upgrade properties;

🌑

risks associated with mortgage debt, including the possibility of default, fluctuating interest rate levels and the availability of replacement financing;

🌑

risks associated with the possibility that cost increases will outpace revenue increases and that, in the event of an economic slowdown, a high proportion of fixed costs will make it difficult to reduce costs to the extent required to offset declining revenues;

🌑

risks associated with real estate leases, including the possibility of rent increases and the inability to renew or extend upon favorable terms;

🌑

fluctuations in real estate values and potential impairments in the value of Loews Hotels & Co’s assets; and

🌑

the relative illiquidity of real estate compared to some other assets.

real estate, insurance, zoning, tax, environmental and eminent domain laws;
the ongoing need for owner-funded capital improvements and expenditures to maintain or upgrade properties;
risks associated with mortgage debt, including the possibility of default, fluctuating interest rate levels and the availability of replacement financing;
risks associated with the possibility that cost increases will outpace revenue increases and that, in the event of an economic slowdown, a high proportion of fixed costs will make it difficult to reduce costs to the extent required to offset declining revenues;
risks associated with real estate leases, including the possibility of rent increases and the inability to renew or extend upon favorable terms;
risks associated with real estate condominiums, including the possibility of special assessments by condominiums Loews Hotels & Co does not control;
fluctuations in real estate values and potential impairments in the value of Loews Hotels & Co’s assets; and
the relative illiquidity of real estate compared to some other assets.
The hospitality industry is subject to seasonal and cyclical volatility.

The hospitality industry is seasonal in nature. The periods during which Loews Hotels & Co’s properties experience higher revenues vary from property to property, depending principally upon location and the consumer base served. Loews Hotels & Co generally expects revenues and earnings to be lower in the firstthird quarter of each year than in each of the three subsequentother quarters. In addition, the hospitality industry is cyclical and demand generally follows the general economy on a lagged basis. The seasonality and cyclicality of its industry may contribute to fluctuation in Loews Hotels & Co’s results of operations and financial condition.

35

Loews Hotels & Co operates in a highly competitive industry, both for customers and for acquisitions and developments of new properties.

The lodginghospitality industry is highly competitive. Loews Hotels & Co’s properties compete with other hotels and alternative accommodations based on a number of factors, including room rates, quality of accommodations, service levels and amenities, location, brand affiliation, reputation and reservation systems. New hotels may be constructed and these additions to supply create new competitors, in some cases without corresponding increases in demand for hotel rooms. Some of its competitors also have greater financial and marketing resources than Loews Hotels & Co. In addition, travelers can book stays on websites that facilitate the short-term rental of homes and apartments from owners, thereby providing an alternative to hotel rooms.


Table of Contents
Loews Hotels & Co also competes for hotel acquisitions and development projects with entities that have similar investment objectives as it does. This competition could limit the number of suitable investment opportunities. It may also increase the bargaining power of Loews Hotels & Co’s counterparties, making it more difficult for Loews Hotels & Co to acquire or develop new properties on attractive terms or on the terms contemplated in its business plan.

Any deterioration in the quality or reputation of Loews Hotels & Co’s brands could have an adverse effect on its reputation and business.

Loews Hotels & Co’s brands and its reputation are among its most important assets. Its ability to attract and retain guests depends, in part, on the public recognition of its brands and their associated reputation. If its brands become obsolete or consumers view them as unfashionable or lacking in consistency and quality, or its brands or reputation are otherwise harmed, Loews Hotels & Co may be unable to attract guests to its properties, and may further be unable to attract or retain joint venture partners or hotel owners. Loews Hotels & Co’s reputation may also suffer as a result of negative publicity regarding its hotels, including as a result of social media reports, regardless of the accuracy of such publicity. The continued expansion of media and social media formats has compounded the potential scope of negative publicity and has made it more difficult to control and effectively manage negative publicity.

Loews Hotels & Co’s efforts to develop new properties and renovate existing properties could be delayed or become more expensive.

Loews Hotels & Co from time to time renovates its properties and is currently expanding its portfolio through the
ground-up
construction of a number of new developments, including new properties in Orlando, Florida, Arlington, Texas, Kansas City, Missouri, and St. Louis, Missouri and Coral Gables, Florida and in the future may similarly develop additional new properties. Often these projects are undertaken with joint venture partners.partners who may also serve as developer. These efforts are subject to a number of risks, including:

🌑

construction delays or cost overruns (including labor and materials or unforeseeable site conditions) that may increase project costs or cause new development projects to not be completed by lender imposed required completion dates;

🌑

obtaining zoning, occupancy and other required permits or authorizations;

🌑

changes in economic conditions that may result in weakened or lack of demand or negative project returns;

🌑

governmental restrictions on the size or kind of development;

🌑

force majeure events, including earthquakes, tornados, hurricanes or floods; and

🌑

design defects that could increase costs.

construction delays or cost overruns (including labor and materials or unforeseeable site conditions) that may increase project costs; cause new development projects to not be completed by lender imposed required completion dates or subject Loews Hotels & Co to cancellation penalties for reservations accepted;
obtaining zoning, occupancy and other required permits or authorizations;
changes in economic conditions that may result in weakened or lack of demand or negative project returns;
governmental restrictions on the size or kind of development;
projects financed with construction debt are subject to interest rate risk as uncertain timing and amount of draws make effective hedging difficult to obtain;
force majeure events, including earthquakes, tornados, hurricanes or floods; and
design defects that could increase costs.
Additionally, developing new properties typically involves lengthy development periods during which significant amounts of capital must be funded before the properties begin to operate and generate revenue. If the cost of funding new development exceeds budgeted amounts, and/or the time period for development is longer than initially anticipated, Loews Hotels & Co’s profits could be reduced. Further, due to the lengthy development cycle, intervening

36

adverse economic conditions in general and as they apply to Loews Hotels & Co and its development partners may alter or impede the development plans, thereby resulting in incremental costs or potential impairment charges. In addition, using multiple sources of capital to develop new properties reduces or eliminates the ability of Loews Hotels & Co to cease commenced projects if the overall economic environment conditions change. Moreover, during the early stages of operations, charges related to interest expense and depreciation may substantially detract from, or even outweigh, the profitability of certain new property investments.

38
Table of Contents
Loews Hotels & Co’s properties are geographically concentrated, which exposes its business to the effects of regional events and occurrences.

Loews Hotels & Co has a concentration of hotels in Florida. Specifically, as of December 31, 2018,2019, seven hotels, representing 50% of rooms in its system, were located at Universal Orlando in Orlando, Florida and eight hotels, representing approximately 55%56% of rooms in its system, were located in Florida. The concentration of hotels in one region or a limited number of markets may expose Loews Hotels & Co to risks of adverse economic and other developments that are greater than if its portfolio were more geographically diverse. These developments include regional economic downturns, a decline in the popularity of or access to area tourist attractions, such as theme parks, significant increases in the number of Loews Hotels & Co’s competitors’ hotels in these markets and potentially higher local property, sales and income taxes in the geographic markets in which it is concentrated. In addition, Loews Hotels & Co’s properties in Florida are subject to the effects of adverse acts of nature, such as hurricanes, strong winds and flooding, which have in the past caused damage to its hotels in Florida, and which may in the future be intensified as a result of climate change, as well as outbreaks of pandemic or contagious diseases.

The growth and use of alternative reservation channels adversely affects Loews Hotels & Co’s business.

A significant percentage of hotel rooms for guests at Loews Hotels & Co’s properties is booked through internet travel and other intermediaries. In most cases, Loews Hotels & Co has agreements with such intermediaries and pays them commissions and/or fees for sales of its rooms through their systems. If such bookings increase, these intermediaries may be able to obtain higher commissions or fees, reduced room rates or other significant concessions from Loews Hotels & Co. There can be no assurance that Loews Hotels & Co will be able to negotiate such agreements in the future with terms as favorable as those that exist today. Moreover, these intermediaries generally employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites and other outlets. As a result, consumers may develop brand loyalties to the intermediaries’ offered brands, websites and reservations systems rather than to Loews Hotels & Co’s brands.

Under certain circumstances, Loews Hotels & Co’s insurance coverage may not cover all possible losses, and it may not be able to renew its insurance policies on favorable terms, or at all.

Although Loews Hotels & Co maintains various property, casualty and other insurance policies, proceeds from such insurance coverage may not be adequate for all liabilities or expenses incurred or revenues lost. Moreover, such insurance may not be available in the future at commercially reasonable costs and terms. The insurance coverage Loews Hotels & Co does obtain may contain large deductibles or fail to cover certain events, hazards or all potential losses.

Labor shortages could restrict Loews Hotels & Co’s ability to operate its properties or grow its business or result in increased labor costs that could reduce its profits.

Loews Hotels & Co’s properties are staffed 24 hours a day, seven days a week by thousands of employees. If it is unable to attract, retain, train and engage skilled employees, its ability to manage and staff its properties adequately could be impaired, which could reduce customer satisfaction. Staffing shortages could also hinder its ability to grow and expand its business. Because payroll costs are a major component of the operating expenses at its properties, a shortage of skilled labor could also require higher wages that would increase its labor costs.

37

Risks Related to Us and Our Subsidiary, Consolidated Container Company LLC

Consolidated Container’sAltium Packaging

Altium Packaging’s substantial indebtedness could affect its ability to meet its obligations and may otherwise restrict its activities.

Consolidated Container

Altium Packaging has a significant amount of indebtedness, which requires significant interest payments. Its inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have a material adverse effect on its business. Consolidated Container’sAltium Packaging’s substantial indebtedness could have important consequences. For example, it could:

🌑

limit its ability to borrow money for its working capital, capital expenditures, debt service requirements or other corporate purposes;

🌑

increase its vulnerability to general adverse economic and industry conditions; and

🌑

limit its ability to respond to business opportunities, including growing its business through acquisitions.


Table of Contents
limit its ability to borrow money for its working capital, capital expenditures, debt service requirements or other corporate purposes;
increase its vulnerability to general adverse economic and industry conditions; and
limit its ability to respond to business opportunities, including growing its business through acquisitions.
In addition, the credit agreements governing its current indebtedness contain, and any future debt instruments would likely contain, financial and other restrictive covenants, which impose significant operating and financial restrictions on it. As a result of these covenants, Consolidated ContainerAltium Packaging could be limited in the manner in which it conducts its business and may be unable to engage in favorable business activities or finance future operations or capital needs. Furthermore, a failure to comply with these covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on Consolidated Container.

Altium Packaging.

Fluctuations in raw material prices and raw material availability may affect Consolidated Container’sAltium Packaging’s results.

To produce its products, Consolidated ContainerAltium Packaging uses large quantities of plastic resins and recycled plastic materials. It faces the risk that its access to these raw materials may be interrupted or that it may not be able to purchase these raw materials at prices that are acceptable to it. In general, Consolidated ContainerAltium Packaging does not have long-term supply contracts with its suppliers, and its purchases of raw materials are subject to market price volatility. Although Consolidated ContainerAltium Packaging generally is able to pass changes in the prices of raw materials through to its customers over a period of time, it may not always be able to do so or there may be a lag between when its costs increase and when it passes those costs through to its customers. It may not be able to pass through all future raw material price increases in a timely manner or at all due to competitive pressures. In addition, a sustained increase in resin and recycled plastic prices, relative to alternative packaging materials, would make plastic containers less economical for its customers and could result in a slower pace of conversions to, or reductions in the use of plastic containers. Any limitation on its ability to procure its primary raw materials or to pass through price increases in such materials on a timely basis could negatively affect Consolidated Container.

Consolidated Container’sAltium Packaging.

Altium Packaging’s customers may increase their self-manufacturing.

Increased self-manufacturing by Consolidated Container’sAltium Packaging’s customers may have a material adverse impact on its sales volume and financial results. Consolidated ContainerAltium Packaging believes that its customers may engage in self-manufacturing over time at locations where transportation costs are high, and where low complexity and available space to install blow molding equipment exists.

exist.

Risks Related to Us and Our Subsidiaries Generally

In addition to the specific risks and uncertainties faced by our subsidiaries, as discussed above, we and all of our subsidiaries face additional risks and uncertainties described below.

Acts of terrorism could harm us and our subsidiaries.

Terrorist attacks and the continued threat of terrorism in the United States or abroad, the continuation or escalation of existing armed hostilities or the outbreak of additional hostilities, including military and other action by the United States and its allies, could have a significant impact on us and the assets and businesses of our subsidiaries. CNA

38

issues coverages that are exposed to risk of loss from an act of terrorism. Terrorist acts or the threat of terrorism could also result in increased political, economic and financial market instability, a decline in energy consumption and volatility in the price of oil and gas, which could affect the market for Diamond Offshore’s drilling services and Boardwalk Pipeline’sPipelines’ transportation and storage services. In addition, future terrorist attacks could lead to reductions in business travel and tourism which could harm Loews Hotels. While our subsidiaries take steps that they believe are appropriate to secure their assets, there is no assurance that they can completely secure them against a terrorist attack or obtain adequate insurance coverage for terrorist acts at reasonable rates.


Table of Contents
Changes in tax laws, regulations or treaties, or the interpretation or enforcement thereof in jurisdictions in which we or our subsidiaries operate could adversely impact us.

Changes in federal, state or foreign tax laws, regulations or treaties applicable to us or our subsidiaries or changes in the interpretation or enforcement thereof could materially and adversely impact our and our subsidiaries’ tax liability, financial condition, results of operations and cash flows, including the amount of cash our subsidiaries have available to distribute to their shareholders, including us. In particular,Other potential tax law changes, to tax laws relating to tax attributes or credits,including further modification of the federal corporate tax rate, or the taxation of interest from municipal bonds (and thus the rate at which CNA discounts its long term carecertain reserves) or foreign earnings could have such material adverse effects.

Our subsidiaries face significant risks related to compliance with environmental laws.

Our subsidiaries have extensive obligations and financial exposure related to compliance with federal, state, local, foreign and international environmental laws, including those relating to the discharge of substances into the environment, the disposal, removal or clean up of hazardous wastes and other activities relating to the protection of the environment. Many of such laws have become increasingly stringent in recent years and may in some cases impose strict liability, which could be substantial, rendering a person liable for environmental damage without regard to negligence or fault on the part of that person. For example, Diamond Offshore could be liable for damages and costs incurred in connection with oil spills related to its operations, including for conduct of or conditions caused by others. Boardwalk PipelinePipelines is also subject to environmental laws and regulations, including requiring the acquisition of permits or other approvals to conduct regulated activities, restricting the manner in which it disposes of waste, requiring remedial action to remove or mitigate contamination resulting from a spill or other release and requiring capital expenditures to comply with pollution control requirements. In addition, Altium Packaging may be adversely affected by laws or regulations concerning environmental matters that increase the cost of producing, or otherwise adversely affect the demand for, plastic products. Further, existing environmental laws or the interpretation or enforcement thereof may be amended and new laws may be adopted in the future.

Failures or interruptions in or breaches to our or our subsidiaries’ computer systems could materially and adversely affect our or our subsidiaries’ operations.

We and our subsidiaries are dependent upon information technologies, computer systems and networks, including those maintained by us and our subsidiaries and those maintained and provided to us and our subsidiaries by third parties (for example,
“software-as-a-service”
and cloud solutions), to conduct operations and are reliant on technology to help increase efficiency in our and their businesses. We and our subsidiaries are dependent upon operational and financial computer systems to process the data necessary to conduct almost all aspects of our and their businesses. Any failure of our or our subsidiaries’ computer systems, or those of our or their customers, vendors or others with whom we and they do business, could materially disrupt business operations. Computer, telecommunications and other business facilities and systems could become unavailable or impaired from a variety of causes, including storms and other natural disasters, terrorist attacks, fires, utility outages, theft, design defects, human error or complications encountered as existing systems are replaced or upgraded. In addition, it has been reported that unknown entities or groups have mounted
so-called “cyber
“cyber attacks” on businesses and other organizations solely to disable or disrupt computer systems, disrupt operations and, in some cases, steal data. In particular, the U.S. government has issued public warnings that indicate energy assets may be specific targets of cyber attacks, which can have catastrophic consequences and there have also been reports that hotel chains, among other consumer-facing businesses, have been subject to various cyber attacks targeting payment card and other sensitive consumer information. Breaches of our and our subsidiaries’ computer security infrastructure can result from actions by our employees, vendors, third party administrators or by unknown third parties, and may disrupt our or their operations, cause significant damage to our or their assets and surrounding areas, cause loss of life or serious bodily injury and impact our or their data framework or cause a failure to protect personal information of customers or employees.

39

The foregoing risks relating to disruption of service, interruption of operations and data loss could impact our and our subsidiaries’ ability to timely perform critical business functions, resulting in disruption or deterioration in our and our subsidiaries’ operations and business and expose us and our subsidiaries to monetary and reputational damages. In addition, potential exposures include substantially increased compliance costs and required computer system upgrades and security related investments. The breach of confidential information also could give rise to legal liability and regulatory action under data protection and privacy laws and regulations, both in the U.S. and foreign jurisdictions.


Table of Contents
Some of our subsidiaries’ customer bases are concentrated.

Some of our subsidiaries’ customer bases are concentrated. For instance, during 2018,2019, two of Diamond Offshore’s customers in the Gulf of Mexico and Diamond Offshore’s three largest customers accounted for 59%50% and an aggregate of 75%69% of its annual total consolidated revenues. In addition, the number of customers that it has performed services for declined from 35 in 2014 to 1312 in 2018.2019. As of January 1, 2020, Diamond Offshore’s contracted backlog was an aggregate $1.6 billion of which 43%, 44% and 24% is attributable to its operations in the Gulf of Mexico for the years 2020, 2021 and 2022, from three customers. For Boardwalk Pipeline, whilePipelines, for 2019, no customer comprised more than 10% or more of its operating revenues, itsrevenues. However, as of December 31, 2019, the top ten customers holding future capacity on its pipelines under firm agreements comprised approximately 40%37% of its revenues during 2018. Consolidated Containerfuture revenues. Altium Packaging also depends on several large customers. The loss of or other problem with a significant customer could have a material adverse impact on these subsidiaries’ businesses and our financial results.

Loss of key vendor relationships or issues relating to the transitioning of vendor relationships could result in a materially adverse effect on our and our subsidiaries’ operations.

We and our subsidiaries rely on products, equipment and services provided by many third party suppliers, manufacturers and service providers in the United States and abroad, which exposes us and them to volatility in the quality, price and availability of such items. These include, for example, vendors of computer hardware, software and services, as well as other critical materials and services (including, in the case of CNA, claims administrators performing significant claims administration and adjudication functions). Certain products, equipment and services may be available from a limited number of sources. If one or more key vendors becomes unable to continue to provide products, equipment or services at the requisite level for any reason, or fails to protect our proprietary information, including in some cases personal information of employees, customers or hotel guests, we and our subsidiaries may experience a material adverse effect on our or their business, operations and reputation.

We could incur impairment charges related to the carrying value of the long-lived assets and goodwill of our subsidiaries.

Our subsidiaries regularly evaluate their long-lived assets and goodwill for impairment whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable. Most notably, we could incur impairment charges related to the carrying value of offshore drilling equipment at Diamond Offshore, pipeline and storage assets at Boardwalk PipelinePipelines and hotel properties owned by Loews Hotels.

In particular, Diamond Offshore is currently experiencing declining demand for certain offshore drilling rigs as a result of depressed oil prices and excess rig supply and a protracted downturn in the industry and depressed market conditions.industry. As a result, Diamond Offshore may incur additional asset impairments, rig retirements and/or rigs being scrapped.

We also test goodwill for impairment on an annual basis or when events or changes in circumstances indicate that a potential impairment exists. Asset impairment evaluations by us and our subsidiaries with respect to both long-lived assets and goodwill are, by nature, highly subjective. The use of different estimates and assumptions could result in materially different carrying values of our assets which could impact the need to record an impairment charge and the amount of any charge taken.

Changes in accounting principles and financial reporting requirements could adversely affect our or our subsidiaries’ operations.

We and our subsidiaries are required to prepare financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as promulgated by the Financial Accounting Standards Board (“FASB”). It is possible that future accounting standards that we and our subsidiaries are required to adopt could change the current accounting treatment that we and our subsidiaries apply to our and our subsidiaries’

40

consolidated financial statements and that such changes could have a material adverse effect on our and our subsidiaries’ results of operations and financial condition. For further information regarding changes in accounting standards that are currently pending and, if known, our estimates of their expected impact to the Company, see Note 1 to the Consolidated Financial Statements included under Item 8.


Table of Contents
We are a holding company and derive substantially all of our income and cash flow from our subsidiaries.

We rely upon our invested cash balances and distributions from our subsidiaries to generate the funds necessary to meet our obligations and to declare and pay any dividends to holders of our common stock. Our subsidiaries are separate and independent legal entities and have no obligation, contingent or otherwise, to make funds available to us, whether in the form of loans, dividends or otherwise. The ability of our subsidiaries to pay dividends is subject to, among other things, the availability of sufficient earnings and funds in such subsidiaries, applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies, and their compliance with covenants in their respective loan agreements. Claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and those of our creditors and shareholders.

We and our subsidiaries face competition for senior executives and qualified specialized talent.

We and our subsidiaries depend on the services of our key personnel, who possess skills critical to the operation of our and their businesses. Our and our subsidiaries’ executive management teams are highly experienced and possess extensive skills in their relevant industries. The ability to retain senior executives and to attract and retain highly skilled professionals and personnel with specialized industry and technical experience is important to our and our subsidiaries’ success and future growth. Competition for this talent can be intense, and we and our subsidiaries may not be successful in our efforts. The unexpected loss of the services of these individuals could have a detrimental effect on us and our subsidiaries and could hinder our and their ability to effectively compete in the various industries in which we and they operate.

From time to time we and our subsidiaries are subject to litigation, for which we and they may be unable to accurately assess the level of exposure and which if adversely determined, may have a significant adverse effect on our or their consolidated financial condition or results of operations.

We and our subsidiaries are or may become parties to legal proceedings and disputes. These matters may include, among others, contract disputes, claims disputes, reinsurance disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, intellectual property disputes, disputes related to employment and tax matters and other litigation incidental to our or their businesses. Although our current assessment is that, other than as disclosed in this Report, there is no pending litigation that could have a significant adverse impact, it is difficult to predict the outcome or effect of any litigation matters and if our assessment proves to be in error, then the outcome of litigation could have a significant impact on our financial statements.

We could have liability in the future for tobacco-related lawsuits.

As a result of our ownership of Lorillard, Inc. (“Lorillard”) prior to the separation of Lorillard from us in 2008 (the “Separation”), from time to time we have been named as a defendant in tobacco-related lawsuits and could be named as a defendant in additional tobacco-related suits, notwithstanding the completion of the Separation. In the Separation Agreement entered into between us and Lorillard and its subsidiaries in connection with the Separation, Lorillard and each of its subsidiaries has agreed to indemnify us for liabilities related to Lorillard’s tobacco business, including liabilities that we may incur for current and future tobacco-related litigation against us. While we do not believe that we have any liability for tobacco-related claims, and we have never been held liable for any such claims, an adverse decision in a tobacco-related lawsuit against us could, if the indemnification is deemed for any reason to be unenforceable or any amounts owed to us thereunder are not collectible, in whole or in part, have a material adverse effect on us.

41


Table of Contents
Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our corporate headquarters is located in approximately 136,000 square feet of leased office space in two buildings in New York City. We also lease approximately 21,000 square feet of office space in one building in White Plains, New York. Information relating to our subsidiaries’ properties is contained under Item 1.

Item 3. Legal Proceedings.

Information on our legal proceedings is included in Notes 18 and 19 of the Notes to Consolidated Financial Statements, included under Item 8.

Item 4. Mine Safety Disclosures.

Not applicable.

42


Table of Contents
PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the New York Stock Exchange under the symbol “L”.

The following graph compares annual total return of our Common Stock, the Standard & Poor’s 500 Composite Stock Index (“S&P 500 Index”) and our peer group set forth below (“Loews Peer Group”) for the five years ended December 31, 2018.2019. The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index and the Loews Peer Group was $100 on December 31, 20132014 and that all dividends were reinvested.

LOGO

   2013      2014      2015      2016       2017       2018    

Loews Common Stock

  100.0     87.61      80.58      98.88       106.19       97.11    

S&P 500 Index

  100.0     113.69      115.26      129.05       157.22       150.33    

Loews Peer Group (a)

  100.0      105.32      99.71      115.75       119.22       111.86    

             
 
    2014    
 
    2015    
 
    2016    
 
    2017    
 
    2018    
 
    2019    
Loews Common Stock
 
100.0
 
91.98
 
112.86
 
121.21
 
110.84
 
128.46
S&P 500 Index
 
100.0
 
101.38  
 
113.51
 
138.29
 
132.23
 
173.86
Loews Peer Group (a)
 
100.0
 
94.68
 
109.90
 
113.20
 
106.21
 
130.57
(a)

The Loews Peer Group consists of the following companies that are industry competitors of our principal operating subsidiaries: Chubb Limited (name change from ACE Limited after it acquired The Chubb Corporation on January 15, 2016), W.R. Berkley Corporation, The Chubb Corporation (included through January 15, 2016 when it was acquired by ACE Limited), Energy Transfer Partners L.P. (included through October 18, 2018 when it merged with Energy Transfer Equity, L.P.), EnscoValaris plc (name change from ENSCO plc), The Hartford Financial Services Group, Inc., Kinder Morgan Energy Partners, L.P. (included through November 26, 2014 when it was acquired by Kinder Morgan Inc.), Noble Corporation plc, Spectra Energy Corp (included through February 24, 2017 when it was acquired by Enbridge Inc.), Transocean Ltd. and The Travelers Companies, Inc.

43


Table of Contents
Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides certain information as of December 31, 20182019 with respect to our equity compensation plans under which our equity securities are authorized for issuance.

Plan category

  

Number of

securities to be

issued upon exercise

of outstanding

options, warrants

and rights

  

Weighted average

exercise price of

outstanding options,

warrants and rights

  

Number of

  securities remaining  

available for future

issuance under

equity compensation

plans (excluding

securities reflected

in the first column)

Equity compensation plans approved by security holders (a)

  4,088,037  $ 39.90        5,697,124      

Equity compensation plans not approved by security holders (b)

  N/A  N/A        N/A        

             
     
Number of
 
     
securities remaining
 
 
Number of
    
available for future
 
 
securities to be
    
issuance under
 
 
issued upon exercise
  
Weighted average
  
equity compensation
 
 
of outstanding
  
exercise price of
  
plans (excluding
 
 
options, warrants
  
outstanding options,
  
securities reflected
 
Plan category
 
and rights
  
warrants and rights
  
in the first column)
 
             
Equity compensation plans approved by security holders (a)
  
3,025,294
   
$   ��    41.11
   
5,597,156
 
Equity compensation plans not approved by security holders (b)
  
N/A
   
            N/A
   
N/A
 
(a)

Reflects 3,470,9532,469,756 outstanding stock appreciation rights awarded under the Loews Corporation 2000 Stock Option Plan, 598,254531,427 outstanding unvested time-based and performance-based restricted stock units (“RSUs”) and 18,83024,111 deferred vested time-based RSUs awarded under the Loews Corporation 2016 Incentive Compensation Plan. The weighted average exercise price does not take into account RSUs as they do not have an exercise price.

(b)

We do not have equity compensation plans that have not been approved by our shareholders.

Approximate Number of Equity Security Holders

As of February 1, 2019,3, 2020, we had approximately 750700 holders of record of our common stock.

Common Stock Repurchases

During the fourth quarter of 2018,2019, we purchased shares of our common stock as follows:


Period		  

(a) Total number

of shares

purchased

  

(b) Average

price paid per

share

  

(c) Total number of
shares purchased as

part of publicly
announced plans or
programs

  

    (d) Maximum number of shares    
(or approximate dollar value)

of shares that may yet be purchased
under the plans or programs (in
millions)

October 1, 2018 - October 31, 2018

  905,317  $ 47.14  N/A  N/A

November 1, 2018 - November 30, 2018

  938,458     48.25  N/A  N/A

December 1, 2018 - December 31, 2018

  1,043,116       45.27  N/A  N/A

44

                 
Period
 
(a) Total number
of shares
purchased
  
(b) Average
price paid per
share
  
(c) Total number of
shares purchased as
part of publicly
announced plans or
programs
  
(d) Maximum number of shares
(or approximate dollar value)
of shares that may yet be
purchased under the plans or
programs (in millions)
 
                 
October 1, 2019 - October 31, 2019
  
2,565,169
   
$  49.76
   
N/A
   
N/A
 
                 
November 1, 2019 - November 30, 2019
  
2,161,832
   
    50.38
   
N/A
   
N/A
 
                 
December 1, 2019 - December 31, 2019
  
3,562,239
   
    50.78
   
N/A
   
N/A
 
46

Table of Contents
Item 6. Selected Financial Data.

The following table presents selected financial data. The table should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data of this Form
10-K.

Year Ended December 31  2018  2017 (a)  2016 (a)  2015 (a)  2014 (a) 
(In millions, except per share data)                

Results of Operations:

      

Revenues

  $    14,066  $    13,735  $13,105  $13,415  $14,325 

Income before income tax

  $834  $1,582  $936  $244  $1,810 

Income from continuing operations

  $706  $1,412  $716  $287  $1,353 

Discontinued operations, net

                   (391) 

Net income

   706   1,412   716   287   962 

Amounts attributable to noncontrolling interests

   (70)   (248)   (62)   (27)   (371) 

Net income attributable to Loews Corporation

  $636  $1,164  $654  $260  $591 
                      

Net income attributable to Loews Corporation:

      

Income from continuing operations

  $636  $1,164  $654  $260  $962 

Discontinued operations, net

                   (371) 

Net income

  $636  $1,164  $654  $260  $591 
                      

Diluted Net Income Per Share:

      

Income from continuing operations

  $1.99  $3.45  $1.93  $0.72  $2.52 

Discontinued operations, net

                   (0.97) 

Net income

  $1.99  $3.45  $1.93  $0.72  $1.55 
                      

Financial Position:

      

Investments

  $48,186  $52,226  $    50,711  $    49,400  $    52,032 

Total assets

   78,316   79,586   76,594   76,006   78,342 

Debt

   11,376   11,533   10,778   10,560   10,643 

Shareholders’ equity

   18,518   19,204   18,163   17,561   19,280 

Cash dividends per share

   0.25   0.25   0.25   0.25   0.25 

Book value per share

   59.34   57.83   53.96   51.67   51.70 

Shares outstanding

   312.07   332.09   336.62   339.90   372.93 

                     
Year Ended December 31
 
2019
  
2018
  
2017 (a)
  
2016 (a)
  
2015 (a)
 
  
(In millions, except per share data)
          
                     
Results of Operations:
  
   
   
   
   
 
                     
Revenues
 $
     14,931
  $
     14,066
  $
     13,735
  $
     13,105
  $
     13,415  
 
Income before income tax
 $
1,119
  $
834
  $
1,582
  $
936
  $
244  
 
Net income
 $
871
  $
706
  $
1,412
  $
716
  $
287  
 
Amounts attributable to noncontrolling interests
  
61
   
(70
)  
(248
)  
(62
)  
(27) 
 
  
Net income attributable to Loews Corporation
 $
932
  $
636
  $
1,164
  $
654
  $
260  
 
  
  
  
                     
Diluted net income per share
 $
3.07
  $
1.99
  $
3.45
  $
1.93
  $
0.72  
 
  
  
  
                     
Financial Position:
  
   
   
   
   
 
                     
Investments
 $
51,250
  $
48,186
  $
52,226
  $
50,711
  $
49,400  
 
Total assets
  
82,243
   
78,316
   
79,586
   
76,594
   
76,006  
 
Debt
  
11,533
   
11,376
   
11,533
   
10,778
   
10,560  
 
Shareholders’ equity
  
19,119
   
18,518
   
19,204
   
18,163
   
17,561  
 
Cash dividends per share
  
0.25
   
0.25
   
0.25
   
0.25
   
0.25  
 
Book value per share
  
65.71
   
59.34
   
57.83
   
53.96
   
51.67  
 
Shares outstanding
  
290.97
   
312.07
   
332.09
   
336.62
   
339.90  
 
(a)

Prior period revenues have not been adjusted underOn January 1, 2018, the modified retrospective method of adoption forCompany adopted Accounting Standard Update (“ASU”)

2014-09, “Revenue
“Revenue from Contracts with CustomerCustomers (Topic 606)” orand ASU
2016-01, “Financial
“Financial Instruments – Overall (Subtopic
825-10);
Recognition and Measurement of Financial Assets and Financial Liabilities.” For further information, see Note 1Prior period revenues were not adjusted for the adoption of the Notes to the Consolidated Financial Statements, included under Item 8.

either of these standards.

45


Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of financial condition and results of operations is comprised of the following sections:

    Page    
No.
   Page    
  No.

  
49
47

  
49
47

  
49
47

  
50
48

  
54
54

  
56
57

  
60
61

  
60
62

  
61
63

  
61
63

  
62
64

  
64
66

  
65
66

  
68
70

  
77
78

  
79
79

  
79
80

46

48

Table of Contents
OVERVIEW

We are a holding company and have five reportable segments comprised of four individual operating subsidiaries, CNA Financial Corporation (“CNA”), Diamond Offshore Drilling, Inc. (“Diamond Offshore”), Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”Pipelines”) and Loews Hotels Holding Corporation (“Loews Hotels & Co”); and the Corporate segment. Thesegment, which includes the operations of Consolidated Container CompanyAltium Packaging LLC (“Consolidated Container”Altium Packaging”) since the acquisition date in the second quarter of 2017 are included in the Corporate segment.. Each of our operating subsidiaries is headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position.

We rely upon our invested cash balances and distributions from our subsidiaries to generate the funds necessary to meet our obligations and to declare and pay any dividends to our shareholders. The ability of our subsidiaries to pay dividends is subject to, among other things, the availability of sufficient earnings and funds in such subsidiaries, applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies (see Note 14 of the Notes to Consolidated Financial Statements included under Item 8) and compliance with covenants in their respective loan agreements. Claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and those of our creditors and shareholders.

Unless the context otherwise requires, references in this Report to “Loews Corporation,” “the Company,” “Parent Company,” “we,” “our,” “us” or like terms refer to the business of Loews Corporation excluding its subsidiaries.

The following discussion should be read in conjunction with Item 1A, Risk Factors, and Item 8, Financial Statements and Supplementary Data of this Form
10-K.

For a discussion of changes in results of operations comparing the years ended December 31, 2018 and 2017 for Loews Corporation and its subsidiaries see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form
10-K
for the year ended December 31, 2018, filed with the SEC on February 13, 2019.
RESULTS OF OPERATIONS

Consolidated Financial Results

The following table summarizes net income attributable to Loews Corporation by segment and net income per share attributable to Loews Corporation for the years ended December 31, 2018, 20172019 and 2016:

Year Ended December 31      2018          2017 (a)      2016     
(In millions)          

CNA Financial

  $726      $801      $774 

Diamond Offshore

   (112)   (27)   (186) 

Boardwalk Pipeline

   135   380   89 

Loews Hotels & Co

   48   64   12 

Corporate

   (161)   (54)   (35) 

Net income attributable to Loews Corporation

  $636      $1,164      $654 
              

Basic net income per common share

  $1.99      $3.46      $1.93 
              

Diluted net income per common share

  $1.99      $3.45      $1.93 
              

(a)

Net income for the year ended December 31, 2017 includes a significant net benefit of $200 million, resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Act”). This net benefit primarily relates to the remeasurement of Loews’s net deferred tax liability precipitated by the lowering of the U.S. federal corporate tax rate from 35% to 21%. This net benefit is comprised of a net benefit of $294 million and $27 million at Boardwalk Pipeline and Loews Hotels & Co partially offset by charges of $78 million, $36 million and $7 million at CNA, Diamond Offshore and Corporate.

20182018:

         
Year Ended December 31
 
2019    
  
2018    
 
(In millions, except per share)
    
         
CNA Financial
 $
       894     
  $
       726     
 
Diamond Offshore
  
(175)    
   
(112)    
 
Boardwalk Pipelines
  
209     
   
135     
 
Loews Hotels & Co
  
(31)    
   
48     
 
Corporate
  
35     
   
(161)    
 
Net income attributable to Loews Corporation
 $
932     
  $
636     
 
         
         
         
         
         
Basic net income per common share
 $
3.08     
  $
1.99     
 
         
         
         
         
         
Diluted net income per common share
  
3.07     
   
1.99     
 
         
         
         
         
2019 Compared with 2017

2018

Consolidated net income attributable to Loews Corporation for 20182019 was $932 million, or $3.07 per share, compared to $636 million, or $1.99 per share, compared to $1.16 billion, or $3.45 per share, in 2017.

47

2018.

Net income attributable to Loews Corporation in 2018 decreased as compared to the prior year primarilyfor 2019 increased due to the prior year net benefit of $200 million from the Tax Act. Excluding the impact of the Tax Act, earnings decreased due to lower results at CNA and Diamond Offshore partially offset by higher earnings at Loews Hotels & Co and Boardwalk Pipeline.

2017 Compared with 2016

Consolidated net income attributable to Loews Corporation for 2017 was $1.16 billion, or $3.45 per share, compared to $654 million, or $1.93 per share, in 2016.

Net income attributable to Loews Corporation in 2017 increased as compared to the prior year partially due to the net benefit from the Tax Act discussed above. Absent this benefit, net income increased $310 million primarily from higher earnings at CNA and Boardwalk Pipelines, as well as higher parent company net investment income. These increases were partially offset by lower results at Diamond Offshore and Loews Hotels & Co and Diamond Offshore. Net income for 2017 and 2016 included asset impairment charges at Diamond OffshoreCo.


Table of $32 million and $267 million (both after tax and noncontrolling interests).

Contents

CNA Financial

The following table summarizes the results of operations for CNA for the years ended December 31, 2018, 20172019 and 20162018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8. For further discussion of Net investment income and Net realized investment results,gains or losses, see the Investments section of this MD&A.

Year Ended December 31      2018          2017              2016    

(In millions)

    

Revenues:

    

Insurance premiums

  $7,312      $6,988      $6,924   

Net investment income

   1,817   2,034   1,988 

Investment gains (losses)

   (57)   122   62 

Non-insurance warranty revenue (Notes 1 and 13)

   1,007   390   361 

Operating revenues and other

   55   49   49 

Total

   10,134   9,583   9,384 

Expenses:

    

Insurance claims and policyholders’ benefits

   5,572   5,310   5,283 

Amortization of deferred acquisition costs

   1,335   1,233   1,235 

Non-insurance warranty expense (Notes 1 and 13)

   923   299   271 

Other operating expenses

   1,203   1,224   1,287 

Interest

   138   203   167 

Total

   9,171   8,269   8,243 

Income before income tax

   963   1,314   1,141 

Income tax expense

   (151)   (419)   (279) 

Net income

   812   895   862 

Amounts attributable to noncontrolling interests

   (86)   (94)   (88) 

Net income attributable to Loews Corporation

  $726      $801      $774 
              

2018

             
Year Ended December 31
 
2019
  
2018
   
  
(In millions)
      
             
Revenues:
  
   
   
 
Insurance premiums
 $
     7,428
  $
         7,312
   
 
Net investment income
  
2,118
   
1,817
   
 
Investment gains (losses)
  
49
   
(57
)  
 
Non-insurance
warranty revenue
  
1,161
   
1,007
   
 
Operating revenues and other
  
32
   
55
   
 
Total
  
10,788
   
10,134
   
 
Expenses:
  
   
   
 
Insurance claims and policyholders’ benefits
  
5,806
   
5,572
   
 
Amortization of deferred acquisition costs
  
1,383
   
1,335
   
 
Non-insurance
warranty expense
  
1,082
   
923
   
 
Other operating expenses
  
1,141
   
1,203
   
 
Interest
  
152
   
138
   
 
Total
  
9,564
   
9,171
   
 
Income before income tax
  
1,224
   
963
   
 
Income tax expense
  
(224
)  
(151
)  
 
Net income
  
1,000
   
812
   
 
Amounts attributable to noncontrolling interests
  
(106
)  
(86
)  
 
Net income attributable to Loews Corporation
 $
894
  $
726
   
 
  
  
2019 Compared with 2017

2018

Net income attributable to Loews Corporation decreased $75increased $168 million in 20182019 as compared with 20172018 primarily due to lowerhigher net investment income driven by limited partnership investments and lowercommon stock returns and favorable net priorcurrent accident year loss reserve development partially offset by lower net catastrophe losses.underwriting results. Earnings were also impacted by lowerbenefited from higher net realized investment results driven by lower net realized investment gains on salesthe change in fair value of securities. Favorable net prior year loss reserve development
non-redeemable
preferred stock still held as of $181 millionDecember 31, 2019 and $308 million was recorded in 2018 and 2017.

48

2017 Compared with 2016

Net income attributable to Loews Corporation increased $27 million in 2017 as compared with 2016 primarily due to improvednon-catastrophe current accident year underwriting results, lower adverse prior year A&EP reserve development recorded under the 2010 asbestos and environmental pollution (“A&EP”) loss portfolio transfer, higher net investment income and higher net realized investment results.development. These increases were partially offset by higher net catastrophe losses in 2017, and a loss of $24$151 million charge (after tax and noncontrolling interests) onrelated to the early redemptionrecognition of debt in 2017. Asa premium deficiency as a result of the Tax Act, CNA’sthird quarter 2019 gross premium valuation (“GPV”) and lower favorable net deferred tax assets were remeasured as ofprior period loss reserve development in the date of enactment, resulting in aone-time decrease to net income of $87 million ($78 million after noncontrolling interests).

current year.

CNA’s Property & Casualty and Other Insurance Operations

CNA’s commercial property and casualty insurance operations (“Property & Casualty OperationsOperations”) include its Specialty, Commercial and International lines of business. CNA’s Other Insurance Operations outside of Property & Casualty Operations include its long term care business that is in
run-off,
certain corporate expenses, including interest on CNA’s corporate debt, and certain property and casualty businesses in
run-off,
including CNA Re and A&EP. CNA’s products and services are primarily marketed through independent agents, brokers and managing general underwriters to a wide variety of customers, including small, medium and large businesses, insurance companies, associations, professionals and other groups. We believe the presentation of CNA as one reportable segment is appropriate in accordance with applicable accounting standards on segment reporting. However, for purposes of this discussion and analysis of the results of operations, we provide greater detail with respect to CNA’s Property & Casualty Operations and Other Insurance Operations to enhance the reader’s understanding and to provide further transparency into key drivers of CNA’s financial results.


Table of Contents
In assessing CNA’s insurance operations, the Company utilizes the core income (loss) financial measure. Core income (loss) is calculated by excluding from net income (loss) (i) net realized investment gains or losses, (ii) income or loss from discontinued operations, (iii) any cumulative effects of changes in accounting guidance and (iv) deferred tax asset and liability remeasurement as a result of an enacted U.S. federal tax rate change. In addition, core income (loss) excludes the effects of noncontrolling interests. The calculation of core income (loss) excludes net realized investment gains or losses because net realized investment gains or losses are generally driven by economic factors that are not necessarily consistent with key driversreflective of underwriting performance, and are therefore not considered an indication of trends inCNA’s primary insurance operations. Core income (loss) is deemed to be a
non-GAAP
financial measure and management believes this measure is useful for investors to investors as management uses this measure to assess financial performance.

evaluate its insurance operations.

Property & Casualty Operations

In evaluating the results of the Property & Casualty Operations, CNA utilizes the loss ratio, the expense ratio, the dividend ratio and the 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 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. In addition, CNA also utilizes 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 changes.change. For certain products within Small Business, where quantifiable, rate includes the influence of new business as well. Exposure represents the measure of risk used in the pricing of the insurance product. Retention represents the percentage of premium dollars renewed 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.

49

Gross written premiums, excluding third party captives, represents gross written premiums excluding business which is mostly ceded to third party captives, including business related to large warranty programs.

51

Table of Contents
The following tables summarize the results of CNA’s Property & Casualty Operations for the years ended December 31, 2018, 20172019 and 2016.

Year Ended December 31, 2018Specialty    Commercial  International  Total

(In millions, except %)

Net written premiums

$          2,744$          3,060$          1,018$          6,822

Net earned premiums

 2,732 3,050 1,001 6,783

Net investment income

 439 500 57 996

Core income (loss)

 629 357 (19) 967

Other performance metrics:

Loss and loss adjustment expense ratio

 55.9% 67.3% 69.8% 63.1%  

Expense ratio

 32.1 33.1 36.7 33.2

Dividend ratio

 0.2 0.7 0.4

Combined ratio

 88.2% 101.1% 106.5% 96.7%

    

Rate

 2% 1% 3% 2%

Renewal premium change

 3     3     7     4    

Retention

 84     85     76     83    

New business

$353    $566    $307    $1,226    
Year Ended December 31, 2017    

Net written premiums

$2,731$2,922$881$6,534

Net earned premiums

 2,712 2,881 857 6,450

Net investment income

 522 658 52 1,232

Core income

 582 369 8 959

Other performance metrics:

Loss and loss adjustment expense ratio

 56.5% 67.0% 67.0% 62.6%

Expense ratio

 32.0 35.1 37.8 34.2

Dividend ratio

 0.2 0.6 0.3

Combined ratio

 88.7% 102.7% 104.8% 97.1%

    

Rate

 1% 0% 0% 0%

Renewal premium change

 3    3    2    3   

Retention

 89    86    80    86   

New business

$242   $568   $275   $1,085   

50

Year Ended December 31, 2016Specialty  Commercial  International  Total

(In millions, except %)

Net written premiums

$          2,738$          2,883$          821$          6,442

Net earned premiums

 2,743 2,840 806 6,389

Net investment income

 497 657 51 1,205

Core income

 606 355 21 982

Other performance metrics:

Loss and loss adjustment expense ratio

 54.3% 67.1% 61.0% 60.8%

Expense ratio

 32.1 36.7 38.1 34.9

Dividend ratio

 0.2 0.3 0.2        

Combined ratio

 86.6% 104.1% 99.1% 95.9%    

    

Rate

 1% (2)% (1)% (1)%

Renewal premium change

 2 3 (1) 2

Retention

 88 84 76  85

New business

$239$530$240$1,009

20182018.

                   
Year Ended December 31, 2019
  
Specialty
   
Commercial
   
International
   
Total
  
 
(In millions, except %)
  
                  
   
                     
   
                       
   
                   
  
                   
Gross written premiums
  
$        6,900
   
$       3,693
   
$      1,111
   
$      11,704
  
Gross written premiums excluding third party captives
  
3,015
   
3,609
   
1,111
   
7,735
  
Net written premiums
  
2,848
   
3,315
   
971
   
7,134
  
Net earned premiums
  
2,773
   
3,162
   
974
   
6,909
  
Net investment income
  
556
   
654
   
63
   
1,273
  
Core income
  
671
   
489
   
30
   
1,190
  
                   
Other performance metrics:
  
   
   
   
  
Loss and loss adjustment expense ratio
  
57.5
%  
67.3
%  
64.1
%  
62.9
% 
Expense ratio
  
32.5
   
32.9
   
37.7
   
33.5
  
Dividend ratio
  
0.2
   
0.6
   
   
0.3
  
    
 
Combined ratio
  
90.2
%  
100.8
%  
101.8
%  
96.7
% 
 
                   
Rate
  
5%
   
3%
   
8%
   
5%
  
Renewal premium change
  
6    
   
5    
   
7    
   
6    
  
Retention
  
87    
   
86    
   
71    
   
84    
  
New business
  
$      367    
   
$      683    
   
$      273    
   
$     1,323    
  
                     
Year Ended December 31, 2018
 
                      
  
                     
  
                         
  
              
   
  
                     
Gross written premiums
  
$        6,904
   
$       3,350
   
$       1,150
   
$      11,404
   
 
Gross written premiums excluding third party captives
  
2,834
   
3,267
   
1,150
   
7,251
   
 
Net written premiums
  
2,744
   
3,060
   
1,018
   
6,822
   
 
Net earned premiums
  
2,732
   
3,050
   
1,001
   
6,783
   
 
Net investment income
  
439
   
500
   
57
   
996
   
 
Core income (loss)
  
629
   
357
   
(19
)  
967
   
 
                     
Other performance metrics:
  
   
   
   
   
 
Loss and loss adjustment expense ratio
  
55.9
%  
67.3
%  
69.8
%  
63.1
%  
 
Expense ratio
  
32.1
   
33.1
   
36.7
   
33.2
   
 
Dividend ratio
  
0.2
   
0.7
   
   
0.4
   
    
 
  
Combined ratio
  
88.2
%  
101.1
%  
106.5
%  
96.7
%  
 
  
                     
Rate
  
2%
   
1%
   
4%
   
2%
   
 
Renewal premium change
  
5    
   
5    
   
6    
   
5    
   
 
Retention
  
85    
   
85    
   
77    
   
84    
   
 
New business
  
$       353    
   
$      566    
   
$      307    
   
$    1,226    
   
 
2019 Compared with 2017

2018

Total gross written premiums increased $300 million in 2019 as compared with 2018. Total net written premiums increased $288$312 million in 20182019 as compared with 2017 primarily due to increases in Commercial and International. Excluding the effect of Small Business premium rate adjustments as discussed in Note 19 of the Notes to Consolidated Financial Statements included under Item 8, net2018.
Gross written premiums for Commercial increased $86$343 million in 2019 as compared with 2018 driven by higher new business and rate. Net written premiums for Commercial increased $255 million in 2019 as compared with 2018. The increase in net earned premiums was consistent with the trend in net written premiums for Commercial.

Table of Contents
Gross written premiums for Specialty, excluding third party captives, increased $181 million in 2019 as compared with 2018 driven by strong retention and rate. Net written premiums for Specialty increased $104 million in 2019 as compared with 2018. The increase in net earned premiums was consistent with the trend in net written premiums for Specialty.
Gross written premiums for International decreased $39 million in 2019 as compared with 2018. Excluding the effect of foreign currency exchange rates, gross written premiums decreased $7 million, driven by positive renewalthe premium change partiallyreduction from Hardy’s strategic exit from certain business classes announced in the fourth quarter of 2018 largely offset by a higher level of ceded reinsurance.growth in Canada and Europe. Net written premiums for International decreased $47 million in 2019 as compared with 2018. Excluding the effect of foreign currency exchange rates, net written premiums for International increased $115 million or 12.6% in 2018 as compared with 2017, driven by higher new business, positive renewal premium change and a favorable change in estimate of ultimate premium partially offset by a higher level of ceded reinsurance.decreased $16 million. The trenddecrease in net earned premiums was consistent with the trend in net written premiums for International.
Core income increased $223 million in Commercial and International in 20182019 as compared with 2017.

Core income increased $8 million in 2018 as compared with 2017. Excluding the favorable effect of the corporate income tax rate change and the Small Business premium rate adjustments, core income decreased approximately $179 millionprimarily due to lowerhigher net investment income driven by limited partnership and common stock returns and improved current accident year underwriting results in International, partially offset by lower favorable net prior year loss reserve development partially offset by lower net catastrophe losses and improvednon-catastrophe current accident year underwriting results.

Pretax netdevelopment.

Net catastrophe losses were $179 million in 2019 as compared with $252 million in 2018 as compared with $380 million in 2017. For 20182018. In 2019 and 2017,2018, Specialty had net catastrophe losses of $26$15 million and $44$26 million, Commercial had net catastrophe losses of $193$154 million and $272$193 million and International had net catastrophe losses of $33$10 million and $64$33 million.

Favorable net prior year loss reserve development of $150$73 million and $174$181 million was recorded in 2019 and 2018. In 2019 and 2018, and 2017 for Specialty. FavorableSpecialty recorded favorable net prior year loss reserve development of $92 million and $150 million, Commercial recorded favorable net prior year loss reserve development of $2 million as compared with $25 million and $115International recorded unfavorable net prior year loss reserve development of $21 million was recorded in 2018 and 2017 for Commercial andas compared with favorable net prior year loss reserve development of $4 million and $9 million was recorded in 2018 and 2017 for International.million. Further information on net prior year loss reserve development is included in Note 8 of the Notes to Consolidated Financial Statements included under Item 8.

Specialty’s combined ratio of 88.2% improved 0.5increased 2.0 points in 20182019 as compared with 2017.2018. The loss ratio improved 0.6increased 1.6 points primarily due to an improved current accident year loss ratio partially offsetdriven by lower favorable net prior year loss reserve development. The expense ratio increased 0.4 points in 2019 as compared with 2018 was consistent with 2017.

driven by higher employee costs.

Commercial’s combined ratio of 101.1% improved 1.60.3 points in 20182019 as compared with 2017.2018. The loss ratio increased 0.3 points driven by lower favorable net prior year loss reserve development partially offset by lower net catastrophe losses. Excluding the Small Business premium rate adjustments, the expense ratio improved 1.5 points driven by lower employee costs and IT spend.

51

International’s combined ratio of 106.5% increased 1.7 points in 2018 as compared with 2017. The loss ratio increased 2.8 points, primarily due to elevated property losses and professional liability losses in CNA’s London operation and lower favorable net prior year loss reserve development partially offset by lower net catastrophe losses. The expense ratio improved 1.1 points in 2018 as compared with 2017 driven by higher net earned premiums partially offset by higher acquisition expenses.

Effective October 1, 2018, Hardy no longer writes property treaty, marine hull and construction all risk/erection all risk through the Lloyd’s platform. While these three classes combined represented a relatively small component of International’s business when combined with other underwriting actions, it will result in lower net written premiums within International’s business.

2017 Compared with 2016

Total net written premiums increased $92 million in 2017 as compared with 2016. Net written premiums for International increased $60 million in 2017 as compared with 2016 due to higher new business, positive renewal premium change and higher retention. Excluding the effect of foreign currency exchange rates and premium development, net written premiums for International increased 8.1% in 2017. Net written premiums for Specialty were consistent with 2016. New business, renewal premium change and retention also remained at consistent levels for Specialty. Net written premiums for Commercial increased $39 million in 2017 as compared with 2016, primarily 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 its Small Business unit as discussed in Note 19 to the Consolidated Financial Statements under Item 8. The change in net earned premiums for Commercial and International was consistent with the trend in net written premiums.

Core income decreased $23 million in 2017 as compared with 2016 driven by higher net catastrophe losses, partially offset by improvednon-catastrophe current accident year underwriting results and higher net investment income. In addition, results reflect the favorable period over period effect of foreign currency exchange.

Pretax net catastrophe losses were $380 million in 2017 as compared with $165 million in 2016 as 2017 was impacted by Hurricanes Harvey, Irma and Maria. For 2017 and 2016, Specialty had net catastrophe losses of $44 million and $17 million, Commercial had net catastrophe losses of $272 million and $117 million and International had net catastrophe losses of $64 million and $31 million.

Favorable net prior year loss reserve development of $174 million and $247 million was recorded in 2017 and 2016 for Specialty. Favorable net prior year loss reserve development of $115 million as compared with unfavorable net prior year loss reserve development of $15 million was recorded in 2017 and 2016 for Commercial and favorable net prior year loss reserve development of $9 million and $58 million was recorded in 2017 and 2016 for International. Further information on net prior year development is included in Note 8 of the Notes to Consolidated Financial Statements included under Item 8.

Specialty’s combined ratio increased 2.1 points in 2017 as compared with 2016. The loss ratio increased 2.2 points primarily due to loweryear. Less favorable net prior year loss reserve development and higher netunfavorable retrospective premium development were largely offset by lower catastrophe losses. The loss ratio, excluding catastrophes and development, improved 1.5 points. The expense ratio in 2017 was largely consistent with 2016.

Commercial’s2018.

International’s combined ratio improved 1.44.7 points in 20172019 as compared with 2016.2018. The loss ratio improved 0.15.7 points, primarily due to the favorable period over period effect ofdriven by improved current accident year underwriting results partially offset by unfavorable net prior year loss reserve development partially offset by higher net catastrophe losses. The loss ratio, excluding catastrophes and development, improved 1.7 points.in the current year. The expense ratio improved 1.6 pointsincreased 1.0 point in 20172019 as compared with 2016 reflecting both CNA’s ongoing efforts to improve productivity and the actions taken in last year’s third and fourth quarters to reduce expenses.

52

International’s combined ratio increased 5.7 points in 2017 as compared with 2016. The loss ratio increased 6.0 points primarily due to lower favorable net prior year loss reserve development and higher net catastrophe losses, partially offset2018 driven by lower current accident year large losses. The loss ratio excluding catastrophes and development improved 3.0 points. The expense ratio improved 0.3 points in 2017 as compared with 2016 primarily due to the higher net earned premiums.

Other Insurance Operations

The following table summarizes the results of CNA’s Other Insurance Operations for the years ended December 31, 2018, 20172019 and 2016.

Years Ended December 31  2018  2017  2016 

(In millions)

    

Net earned premiums

  $        530  $        539  $        536 

Net investment income

   821   802   783 

Core loss

   (122)   (40)   (158) 

20182018.

                 
Years Ended December 31
 
2019
    
2018
   
(In millions)
        
                 
Net earned premiums
 $
     520
   
  $
     530
   
    
 
Net investment income
  
845
   
   
821
   
 
Core loss
  
(211
)  
   
(122
)  

Table of Contents
2019 Compared with 2017

The core2018

Core loss was $122increased $89 million in 2018, an increase of $82 million2019 as compared with 2017. Excluding the unfavorable effect2018 driven by a $170 million charge related to recognition of the corporate income tax rate change, core loss increased by approximately $4 million. Persistency continues to benefit from a high proportion of policyholders choosing to reduce benefits in lieu ofan active life reserve premium rate increases. The favorable persistency trend wasdeficiency partially offset by a significant number of policies converting to a fullypaid-up status with modest future benefits following the termination of a large group account. The reserves associated with these converted policies were, on average, slightly higher than the previously recorded carried reserves, resulting$44 million reduction in a negative financial impact. Morbidity continues to trend in line with expectations. Additionally, the release of long term care claim reserves resulting from the annual claimsclaim experience study in the third quarter of 2019. The favorable claim reserve development was slightlyprimarily due to lower claim severity than anticipated in the reserve estimates. The prior year included a $24 million reduction in long term care reserves resulting from the 2018 as compared with 2017. The core loss was also impacted bynon-recurring costs of $27 million associated with the transition to a new IT infrastructure service provider and higherannual claim study. Core results benefited from lower adverse net prior year reserve development recorded in 2018 for A&EP under the loss portfolio transfer as compared with 2017, as further discussed in Note 8 of the Notes to Consolidated Financial Statements included under Item 8, partially offset by lower interest expense.

2017 Compared with 2016

Core loss was $40 million in 2017, an improvement of $118 million as compared with 2016. This improvement was primarily driven by lower adverse prior year reserve development in 20172019 for A&EP under the loss portfolio transfer as further discussed in Note 8 of the Notes to Consolidated Financial Statements included under Item 8. In addition,Additionally, 2018 included

non-recurring
costs of $27 million associated with the improvement also reflectstransition to a higher release of long term claim reserves resulting from the annual claims experience study as compared with 2016, higher net investment income and improved results in the long term care business driven by favorable morbidity partially offset by unfavorable persistency.

53

new IT infrastructure service provider.

Non-GAAP
Reconciliation of Core Income to Net Income

The following table reconciles core income to net income attributable to Loews Corporation for the CNA segment for the years ended December 31, 2018, 20172019 and 2016:

Year Ended December 31  2018 2017 2016
(In millions)       

Core income (loss):

    

Property & Casualty Operations

  $967    $959            $982         

Other Insurance Operations

   (122)   (40)   (158) 

Total core income

   845   919   824 

Realized investment gains (losses) (after tax)

   (43)   82   43 

Charge related to the Tax Act

    (87)  

Consolidating adjustments including purchase accounting and

    

noncontrolling interests

   (76)   (113)   (93) 

Net income attributable to Loews Corporation

  $        726  $        801  $        774 

    

             

Referendum on the United Kingdom’s Membership in the European Union

In 2016, the United Kingdom (“U.K.”) approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” Brexit is scheduled to be completed in early 2019. As treaties between the U.K. and the E.U. have not been finalized, as of January 1, 2019, CNA intends to write business in the E.U. through its recently established European subsidiary in Luxembourg as its U.K.-domiciled subsidiary will presumably no longer provide a platform for CNA’s operations throughout the European continent. As a result of such structural changes and modification to CNA’s European operations, the complexity and cost of regulatory compliance of its European business has increased and will likely continue to result in elevated expenses.

2018:

            ��    
Year Ended December 31
 
2019
  
  
  
2018
   
  
(In millions)
        
                 
Core income (loss):
  
   
   
   
 
Property & Casualty Operations
 $
     1,190
   
  $
967
   
 
Other Insurance Operations
  
(211
)  
   
(122
)  
 
  
Total core income
  
979
   
   
845
   
 
Investment gains (losses) (after tax)
  
37
   
   
(43
)  
 
Consolidating adjustments including purchase accounting and noncontrolling interests
  
(122
)  
   
(76
)  
 
  
Net income attributable to Loews Corporation
 $
894
   
  $
      726
   
 
  
Diamond Offshore

Overview

Over the past fiveseveral years, crude oil prices have been volatile, reaching a high of $115 per barrel in 2014 but dropping to $55 per barrel by the end of 2014. In 2015, oil prices continued to decline, closing at $37 per barrel at the end of thatthe year, and continuing to fall to a low of $28 per barrel during 2016 before recovering to nearly $57 per barrel by the end of 2016. While theThe price of crude oil continued to fluctuate in 2017 and 2018, aswith oil prices in the $60 per barrel range at the beginning of 2019. As of the date of this Report, the current spot price for Brent crude wasoil prices were in the $60mid $50 per barrel range, having started 2020 in the
mid-to-upper
$60 per barrel range. As a result of, among other things, this continued volatility in commodity price and its uncertain future, the offshore drilling industry has experienced a substantial decline in demand for its services, as well as a significant decline in dayrates for contract drilling services. Although demand and offshore utilization increased during 2018, with industry-wide
Industry-wide floater utilization averaging near 60%was approximately 66% at the end of 20182019 based on industry analyst reports, dayrates remain low aswhich was unchanged from the third quarter of 2019, but an increase in oil prices from earlier lows has not yet resulted in significantly higher dayrates. If dayrates increase, offshore drillers with more available floaters and/or unpriced options for currently committed rigs will be better positioned to take advantagenearly 60% utilization at the end of the market recovery as it materializes.

2018. Tendering activity has also increased. During 2018 and continuing into 2019, there was an increaseincreased in contract tenders for late 2019 and 2020 project commencements,some markets, but drilling programs remain primarily for workshort term in the North Sea and Australia floater markets. Industry analysts also predict that there will be additional opportunities in the West Africa market in the near term. Reflective of the uncertainty in the market, many of these tenders have been limited to single-well jobs,nature, with options for future wells. Although some geographic areas appear to be improving, other markets show little or no sign of recovery at this time.

From a supply perspective, industryIndustry analysts have reported that during 2018,capital investments are expected to increase slightly in 2020 compared to recent years, but forecasted spending in 2020 remains lower than previous spending levels. Dayrates remain low and pricing power currently remains with the globalcustomer, as some industry analysts have indicated that, based on historical data, utilization rates must increase to the 80%-range before pricing power shifts to the drilling contractor.


Table of Contents
From a supply of floater rigs decreased for the fourth consecutive year, with 20 floaters being scrapped during the year. Based on these reports, over 200 drilling rigs, including 119 floaters, have been retired since 2014. However,perspective, the offshore floater market remains oversupplied aswith approximately 240 rigs available based on industry reports. Over the last six years, 135 floaters reportedly have been scrapped; however, the pace of rig attrition has now slowed. Industry reports indicate that there remain approximately 25 newbuild floaters on order with scheduled deliveries in 2020 through 2022. Of these newbuild rigs, 16 are drilling rigs across all water depth categories that are not contracted or that are cold stackedscheduled for delivery in 2020, but only one is under contract as of the date of this Report. Industry reports also indicate that there remain approximately 40 newbuild

54

floaters on order with scheduled deliveries in 2019 and 2020, most of which have not yet been contracted for future work. In addition, several rig reactivations were announced during 2018 and in early 2019, includingover the ongoing reactivationsnext twelve months, more than 60 currently contracted floaters are estimated to roll off their contracts, further adding to the oversupply of theOcean Endeavor andOcean Onyx that have been brought outfloaters. This combination of cold stackfactors points to fulfill newly-acquired contracts. These factors provide for a continued, challenging offshore drilling market and a continuation of the protracted industry downturn.

Diamond Offshore evaluates its drilling rigs for impairment whenever changes in circumstances indicate that the near term.

carrying value may not be recoverable. The current oversupply of rigs, together with the current protracted industry downturn, heightens the risk of the need for future rig impairments.

As a result of the continuing protracted industry downturn and these challenges, Diamond Offshore is continuing to actively seek ways to drive efficiency, reduce
non-productive
time and provide technical innovation to its customers. Diamond Offshore expects these innovations and efficiencies to result in faster and safer drilling and completion of wells, leading to lower overall well costs to the benefit of its customers.
Contract Drilling Backlog

Diamond Offshore’s contract drilling backlog was $2.0$1.6 billion, $2.0$1.8 billion and $2.4$2.0 billion as of January 1, 20192020 (based on contract information known at that time), October 1, 20182019 (the date reported in our Quarterly Report on Form
10-Q
for the quarter ended September 30, 2018)2019) and January 1, 20182019 (the date reported in our Annual Report on Form
10-K
for the year ended December 31, 2017)2018). The contract drilling backlog by year as of January 1, 20192020 is $0.9 billion$802 million in 2019, $0.8 billion2020, $486 million in 20202021 and an aggregate of $0.3 billion$323 million in 2021 and 2022.2022 through 2023. Contract drilling backlog excludes a future gross margin commitment of $30 million in 2019, $30approximately $25 million in 2020 and an aggregate of approximately $75 million for the 2021 throughthree year period ending December 31, 2023, payable by a customer in the form of a guarantee of gross margin to be earned on future contracts or by direct payment at the end of each periodof the two respective periods, pursuant to terms of an existing contract.

Contract drilling backlog includes only firm commitments (typically represented by signed contracts) and is calculated by multiplying the contracted operating dayrate by the firm contract period. Diamond Offshore’s calculation also assumes full utilization of its drilling equipment for the contract period (excluding scheduled shipyard and survey days); however, the amount of actual revenue to be earned and the actual periods during which revenues arewill be earned will be different than the amounts and periods stated above due to various factors affecting utilization such as weather conditions and unscheduled repairs and maintenance. Contract drilling backlog excludes revenues for mobilization, demobilization, contract preparation and customer reimbursables. Changes in Diamond Offshore’s contract drilling backlog between periods are generally a function of the performance of work on term contracts, as well as the extension or modification of existing term contracts and the execution of additional contracts. In addition, under certain circumstances, Diamond Offshore’s customers may seek to terminate or renegotiate its contracts, which could adversely affect its reported backlog.

Results of Operations

Diamond Offshore’s pretax operating income (loss) is primarily a function of contract drilling revenue earned less contract drilling expenses incurred or recognized. The two most significant variables affecting Diamond Offshore’s contract drilling revenues are dayrates earned and rig utilization rates achieved by its rigs, each of which is a function of rig supply and demand in the marketplace. Revenues are also affected by the acquisition or disposal of rigs, rig mobilizations, required surveys and shipyard projects.

Operating expenses represent all direct and indirect costs associated with the operation and maintenance of Diamond Offshore’s drilling equipment. The principal components of Diamond Offshore’s operating costs are, among other things,expenses include direct and indirect costs of labor and benefits, repairs and maintenance, freight, regulatory inspections, boat and helicopter rentals and insurance.

55


Table of Contents
The following table summarizes the results of operations for Diamond Offshore for the years ended December 31, 2018, 20172019 and 20162018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8:

Year Ended December 31  2018     2017     2016      
(In millions)       

Revenues:

    

Net investment income

  $8      $2      $1       

Investment losses

     (12) 

Contract drilling revenues

   1,060   1,451   1,525 

Other revenues

   25   47   75 

Total

   1,093   1,500   1,589 

Expenses:

    

Contract drilling expenses

   723   802   772 

Other operating expenses

    

Impairment of assets

   27   100   680 

Other expenses

   446   471   518 

Interest

   123   149   90 

Total

   1,319   1,522   2,060 

Loss before income tax

   (226)   (22)   (471) 

Income tax benefit

   30   4   111 

Amounts attributable to noncontrolling interests

   84   (9)   174 

Loss attributable to Loews Corporation

  $(112)  $(27)  $(186) 
              

2018

                 
Year Ended December 31
 
2019
    
2018
   
  
(In millions)
  
   
   
   
 
                 
Revenues:
  
   
   
   
 
Net investment income
 $
6
   
  $
8
   
 
Contract drilling revenues
  
935
   
   
1,060
   
 
Other revenues
  
47
   
   
25
   
 
  
Total
  
988
   
   
1,093
   
 
  
Expenses:
  
   
   
   
 
Contract drilling expenses
  
793
   
   
723
   
 
Other operating expenses:
  
   
   
   
 
Impairment of assets
  
   
   
27
   
 
Other expenses
  
474
   
   
446
   
 
Interest
  
123
   
   
123
   
 
  
Total
  
    1,390
   
   
1,319
   
 
  
Loss before income tax
  
(402
)  
   
(226
)  
 
Income tax benefit
  
60
   
   
30
   
 
Amounts attributable to noncontrolling interests
  
167
   
   
84
   
 
  
Net loss attributable to Loews Corporation
 $
(175
)  
  $
(112
)  
 
  
2019 Compared with 2017

2018

Contract drilling revenue decreased $391$125 million in 20182019 as compared with 2017, primarily due to 955 fewer revenue earning days, combined with the effect of lower average daily revenue earned. Contract drilling expense decreased $79 million in 2018, as compared with 2017, primarily due to reduced costs of $52 million for currently cold-stacked and previously-owned rigs, which had incurred contract drilling expense in 2017, combined with decreased costs for the current rig fleet of $27 million. The decrease in contract drilling expense for the current fleet reflects lower labor and personnel costs and other rig operating costs and the deferral of costs associated with contract preparation activities for rigs as they prepare for new contracts in 2019, partially offset by increased costs for repairs and maintenance and related rig operating costs.

Interest expense decreased $26 million in 2018 as compared with 2017, primarily due to the absence of costs resulting from the redemption of debt in 2017, partially offset by incremental interest expense from senior notes issued in 2017.

Net loss attributable to Loews Corporation increased $85 million in 2018 as compared with 2017, primarily due to lower revenue from contract drilling services discussed above. The decrease in net results was partially offset by lower depreciation expense, primarily due to a lower asset base in 2018 as a result of the sale of rigs and asset impairments, lower impairment charges and a net income tax benefit.

2017 Compared with 2016

Contract drilling revenue decreased $74 million in 2017 as compared with 2016, primarily due to lower average daily revenue, partially offset by the favorable impacteffect of an aggregate 353 incrementalincrease in revenue earning days. Totaldays and recognition of revenues related to a gross margin commitment from a customer. Contract drilling expense increased $70 million in 2019 as compared with 2018, primarily due to incremental amortization of previously deferred contract preparation and mobilization costs, incremental contract drilling expense for a rig which was reactivated for a new contract in 2019 and increased $30costs for the 2019 rig fleet. The increase in contract drilling expense was partially offset by reduced costs for a rig which was sold in the second quarter of 2019 and lower fuel costs for the current fleet.

Net loss attributable to Loews Corporation increased $63 million in 20172019 as compared with 2016,2018 reflecting higher amortized rig mobilization expense of $25 million and incrementallower margins from contract drilling costs associated with the drillships of $28 million, partially offsetservices, primarily driven by a net reduction in other rig operating and overhead costs of $23 million.

56

Netlower contract drilling revenue discussed above. The results improved $159 million in 2017 as compared with 2016, primarily due to a lower aggregate impairment charge recognized in 2017 of $100 million ($32 million after taxes and noncontrolling interests) as compared with $680 million ($267 million after taxes and noncontrolling interests) in 2016 and reducedfor 2019 also reflect higher depreciation expense primarily due to a lower depreciable asset base as a resultcapital expenditures and the completion of asset impairments recognizedsoftware implementation projects in 2016 and 2017. In addition, results reflect a net reduction in rig operating results and an increase in interest expense due to a loss2019, partially offset by the absence of $35 million ($11 million after tax and noncontrolling interests)costs related to the redemptionsettlement of debta legal claim in 20172018 and a reduction in interest capitalized during 2017 due to the completion of construction projects in 2016.

Thehigher income tax provision for the year ended December 31, 2017 includes a $36 millionone-time charge related to the Tax Act, which consisted of: (i) a $75 million charge for the mandatory, deemed repatriation of foreign earnings, inclusive of the utilization of certain tax attributes offset by a provisional liability for uncertain tax positions related to such attributes, (ii) a $74 million credit resulting from the remeasurement of net deferred tax liabilities at the lower corporate tax rate and (iii) a $35  million charge recorded at the Loews Corporation level for the difference between the book basis and tax basis in Diamond Offshore.

benefit.

Boardwalk Pipeline

On June 29, 2018, Pipelines

Overview
Boardwalk GP, LP (“General Partner”), the general partner of Boardwalk Pipeline and an indirect wholly owned subsidiary of the Company, elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipeline not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of Boardwalk Pipeline’s Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”). On July 18, 2018, the General Partner completed the transaction for a cash purchase price, determined in accordance with the Limited Partnership Agreement, of $12.06 per unit, or approximately $1.5 billion, in the aggregate. For further information on this transaction, see Note 2 of the Notes to Consolidated Financial Statements included under Item 8.

Overview

Boardwalk PipelinePipelines derives revenues primarily from the transportation and storage of natural gas and natural gas liquids (“NGLs”). Transportation services consist of firm natural gas transportation, where the customer pays a capacity reservation charge to reserve pipeline capacity at receipt and delivery points along pipeline systems, plus a commodity and fuel charge on the volume of natural gas actually transported, and interruptible natural gas transportation, under which the customer pays to transport gas only when capacity is available and used. The transportation rates Boardwalk PipelinePipelines is able to charge customers are heavily influenced by market trends (both short and longer term), including the available natural gas supplies, geographical location of natural gas production, the demand for gas by

end-users
such as power plants, petrochemical facilities and liquefied natural gas (“LNG”) export facilities and the price differentials between the gas supplies and the market demand for the gas (basis differentials). Rates for short term firm and interruptible transportation services are influenced by shorter term market conditions such as current and forecasted weather.


Table of Contents
Boardwalk PipelinePipelines offers firm natural gas storage services in which the customer reserves and pays for a specific amount of storage capacity, including injection and withdrawal rights, and interruptible storage and parking and lending (“PAL”) services where the customer receives and pays for capacity only when it is available and used. The value of Boardwalk Pipeline’sPipelines’ storage and PAL services (comprised of parking gas for customers and/or lending gas to customers) is affected by natural gas price differentials between time periods, such as between winter and summer (time period price spreads), price volatility of natural gas and other factors. Boardwalk Pipeline’sPipelines’ storage and parking services have greater value when the natural gas futures market is in contango (a positive time period price spread, meaning that current price quotes for delivery of natural gas further in the future are higher than in the nearer term), while its lending service has greater value when the futures market is backwardated (a negative time period price spread, meaning that current price quotes for delivery of natural gas in the nearer term are higher than further in the future). The value of both storage and PAL services may also be favorably impacted by increased volatility in the price of natural gas, which allows Boardwalk PipelinePipelines to optimize the value of its storage and PAL capacity.

Boardwalk PipelinePipelines also transports and stores NGLs. Contracts for Boardwalk Pipeline’sPipelines’ NGLs services are generally fee based or based on minimum volume requirements, while others are dependent on actual volumes transported. Boardwalk Pipeline’sPipelines’ NGLs storage rates are market-based and contracts are typically fixed price

57

arrangements with escalation clauses. Boardwalk PipelinePipelines is not in the business of buying and selling natural gas and NGLs other than for system management purposes, but changes in natural gas and NGLs prices may impact the volumes of natural gas or NGLs transported and stored by customers on its systems. Due to the capital intensive nature of its business, Boardwalk Pipeline’sPipelines’ operating costs and expenses typically do not vary significantly based upon the amount of products transported, with the exception of fuel consumed at its compressor stations and not included in a fuel tracker.

Firm Agreements

A substantial portion of Boardwalk Pipeline’sPipelines’ transportation and storage capacity is contracted for under firm agreements. For the year ended December 31, 2018,2019, approximately 87% of Boardwalk Pipeline’sPipelines’ revenues, excluding retained fuel, were derived from fixed fees under firm agreements. The table below shows a rollforward of operating revenues under committed firm agreements in place as of December 31, 20172018 to December 31, 2018,2019, including agreements for transportation, storage and other services, over the remaining term of those agreements:

As of December 31, 2018    
(In millions)   

Total projected operating revenues under committed firm agreements as of December 31, 2017

  $8,870       

Adjustments for:

  

Actual revenues recognized from firm agreements in 2018 (a)

   (1,087) 

Firm agreements entered into in 2018

   1,350 

Total projected operating revenues under committed firm agreements as of December 31, 2018

  $    9,133 
      

       
As of December 31, 2019
   
 
(In millions)
   
       
Total projected operating revenues under committed firm agreements as of December 31, 2018
 $
9,133
  
    
Adjustments for:
  
  
Actual revenues recognized from firm agreements in 2019 (a)
  
    (1,157
) 
Firm agreements entered into in 2019
  
1,353
  
 
Total projected operating revenues under committed firm agreements as of December 31, 2019
 $
9,329
  
 
(a)

Reflects an increase of $55$73 million in Boardwalk Pipeline’sPipelines’ actual 20182019 revenues recognized from fixed fees under firm agreements as compared with its expected 20182019 revenues from fixed fees under firm agreements, including agreements for transportation, storage and other services as of December 31, 2017,2018, primarily due to an increase from contract renewals that occurred in 2018.

2019.

During 2018,2019, Boardwalk PipelinePipelines entered into approximately $1.4 billion of new firm agreements, of which approximatelyover half of this amount was related to contract renewals and the other half waswere from new growth projects executed in 2018,2019, but will not be placed into commercial service until 2020 or later years. For Boardwalk Pipeline’sPipelines’ customers that are charged maximum tariff rates related to its FERC-regulated operating subsidiaries, the revenues expected to be earned from fixed fees under committed firm agreements reflect the current tariff rate for such services for the term of the agreements, however, the tariff rates may be subject to future adjustment. The estimated revenues reflected in the table may also include estimated revenues that are anticipated under executed precedent transportation agreements for projects that are subject to regulatory approval. The revenues expected to be earned from fixed fees under committed firm agreements do not include additional revenues Boardwalk PipelinePipelines has recognized and may recognize under firm agreements based on actual utilization of the contracted

Table of Contents
pipeline or storage capacity, any expected revenues for periods after the expiration dates of the existing agreements or execution of precedent agreements associated with growth projects or other events that occurred or will occur subsequent to December 31, 2018.

2019.

Contract Renewals

Each year a portion of Boardwalk Pipeline’sPipelines’ firm transportation and storage agreements expire. The rates Boardwalk Pipelines is able to charge customers are heavily influenced by market trends (both short and longer term), including the available supply, geographical location of natural gas production, the competition between producing basins, competition with other pipelines for supply and markets, the demand for gas by
end-users
such as power plants, petrochemical facilities and LNG export facilities and the price differentials between the gas supplies and the market demand for the gas (basis differentials) and Boardwalk Pipelines’ storage rates are additionally impacted by natural gas price differentials between time periods, such as winter to summer (time period price spreads), and the volatility in time period price spreads. Demand for firm service is primarily based on market conditions which can vary across Boardwalk Pipeline’sPipelines’ pipeline systems. The amount of change in firm reservation fees under contract reflects the overall market trends, including the impact from Boardwalk Pipeline’sPipelines’ growth projects. Boardwalk PipelinePipelines focuses its marketing efforts on enhancing the value of the capacity that is up for renewal and works with customers to match gas supplies from various basins to new and existing customers and markets, including aggregating supplies at key locations along its pipelines to provide
end-use
customers with attractive and diverse supply options. If the market perceives the value of Boardwalk Pipeline’sPipelines’ available capacity to be lower than its long term view of the capacity, Boardwalk PipelinePipelines may seek to shorten contract terms until market perception improves.

58

Over the past several years, as a result of current market conditions, Boardwalk PipelinePipelines has renewed some expiring contracts at lower rates or for shorter terms than in the past. In addition to normal contract expirations, in the 2018 to 2020 timeframe, transportation agreements associated with its Gulf South, Texas Gas and Gulf Crossingsignificant pipeline expansion projects whichthat were placed into service in 2008 and 2009, will expire orthe 2007-2009 timeframe, have expired. In late 2017 and throughout 2018, aA substantial portion of the capacity becoming available fromassociated with the 2018 expiringpipeline expansion project contractsprojects was renewed or the contracts were restructured, usually at lower rates or lower volumes. AsHistorically, Boardwalk Pipelines had delivered the termsmajority of production volumes from these remainingpipeline expansion contracts expire through 2020,projects to other pipelines. Over the past several years, Boardwalk Pipeline’s transportationPipelines has focused on diversifying its deliveries to
end-use
markets. With the capacity becoming available from contract expirations and the capacity created from its new growth projects, Boardwalk Pipelines was able to execute new firm agreements which has resulted in diversifying its deliveries such that over 75% of its projected future firm reservation revenues, from firm agreements in place as of December 31, 2019, are expectedfor deliveries to be at a higher than normal level. If these contracts are renewed at current market rates, the revenues earned from these transportation contracts would be materially lower than they are today.

end-use
customers.
Pipeline System Maintenance

Boardwalk PipelinePipelines incurs substantial costs for ongoing maintenance of its pipeline systems and related facilities, including those incurred for pipeline integrity management activities, equipment overhauls, general upkeep and repairs. These costs are not dependent on the amount of revenues earned from its transportation services. PHMSA has developed regulations that require transportation pipeline operators to implement integrity management programs to comprehensively evaluate certain areas along pipelines and take additional measures to protect pipeline segments located in highly populated areas. These regulations have resulted in an overall increase in Boardwalk Pipeline’sPipelines’ ongoing maintenance costs, including maintenance capital and maintenance expense. In 2019, PHMSA has proposedissued the first part of its gas Mega Rule, which imposes numerous requirements, including MAOP reconfirmation, the periodic assessment of additional pipeline mileage outside of HCAs (in MCAs as well as Class 3 and Class 4 areas), the reporting of exceedances of MAOP and the consideration of seismicity as a risk factor in integrity management. The remaining rulemakings comprising the gas Mega Rule are expected to be issued in 2020 and will include revised pipeline repair criteria as well as more prescriptive regulations related to operations of Boardwalk Pipeline’s interstate natural gas and NGLs pipelines which, if adopted as proposed,stringent corrosion control requirements. It is expected that these new rules will cause Boardwalk PipelinePipelines to incur increased capital and operating costs, experience operational delays and result in potential adverse impacts to its ability to reliably serve its customers. While these proposed regulations have not yet been finalized, they are representativecustomers as described under Item 1A, Risk Factors of the typesthis Report.
58
Table of regulatory changes that can be enacted which would affect Boardwalk Pipeline’s operations and the cost of operating its facilities.

Contents

Maintenance costs may be capitalized or expensed, depending on the nature of the activities. For any given reporting period, the mix of projects that Boardwalk PipelinePipelines undertakes will affect the amounts it recordsrecorded as property, plant and equipment on its balance sheetthe Consolidated Balance Sheets or recognizesrecognize as expenses, which impacts Boardwalk Pipeline’s earnings. In 2019,2020, Boardwalk PipelinePipelines expects to spend approximately $365$370 million to maintain its pipeline systems, of which approximately $150$155 million is expected to be maintenance capital. In 2018,2019, Boardwalk PipelinePipelines spent $314$358 million, of which $108$139 million was recorded as maintenance capital.

FERC Matters

The Tax Act changed several provisions of the federal tax code, including a reduction in the maximum corporate tax rate. In addition, the FERC issued a series of policies and orders throughout 2018 which addressed the inclusion of federal income tax allowances in interstate pipeline companies’ rates. In March of 2018, the FERC issued a Revised Policy Statement reversing its long-standing policy by stating that it will no longer permit master limited partnerships to include an income tax allowance in theircost-of-service. The purchase of the outstanding common units by the General Partner in 2018 and its election to be treated as a corporation for federal income tax purposes, precluded the impact these policies and orders would have on the ability of Boardwalk Pipeline’s FERC-regulated natural gas pipelines to include an income tax allowance in theircost-of-service.

The FERC also issued an order which required all FERC-regulated natural gas pipelines to make aone-time informational filing reflecting the impacts of the Tax Act and the Revised Policy Statement on each individual pipeline’scost-of-service. Texas Gas Transmission, LLC filed its informational filing on October 11, 2018, and Gulf South Pipeline Company, LP and Gulf Crossing Pipeline Company LLC made their filings on December 6, 2018, which included an income tax component in each of the pipelines’cost-of-service. Customers were provided an opportunity to protest or comment on each pipeline’s informational filing. Through the date of this filing, the protests received on Boardwalk Pipeline’s pipelines were limited in terms of numbers and scope. This procedure could lead to challenges to a pipeline’s currently effective maximum applicable rates pursuant to Section 5 of the NGA. To date, the FERC has initiated four Section 5 proceedings againstnon-affiliated interstate natural gas pipelines and has notified othernon-affiliated natural gas pipelines that no further action will be taken with respect to their information filings. As of February 13, 2019, Texas Gas, Gulf South and Gulf Crossing’s informational filings remain open.

59

Even without action on Boardwalk Pipeline’s informational filings, the FERC and/or its customers could challenge the maximum applicable rates that any of its regulated pipelines are allowed to charge in accordance with Section 5 of the NGA. The Tax Act and the Revised Policy Statement may increase the likelihood of such a challenge. If such a challenge is successful for any of its pipelines, the revenues associated with transportation and storage services the pipeline provides pursuant tocost-of-service rates could materially decrease in the future, which would adversely affect the revenues on that pipeline going forward.

On April 19, 2018, the FERC issued a Certificate Policy Statement NOI, thereby initiating a review of its policies on certification of natural gas pipelines facilities, including an examination of its long-standing Policy Statement on Certification of New Interstate Natural Gas Pipeline Facilities, issued in 1999, that is used to determine whether to grant certificates for new pipeline and storage projects and expansions. Comments on the Certificate Policy Statement NOI were due on July 25, 2018, and Boardwalk Pipeline is unable to predict what, if any, changes may be proposed that will affect its natural gas pipeline business or when such proposals, if any, might become effective. Boardwalk Pipeline does not expect that any change in this policy would affect it in a materially different manner than any other natural gas pipeline company operating in the U.S.

Results of Operations

The following table summarizes the results of operations for Boardwalk PipelinePipelines for the years ended December 31, 2018, 20172019 and 20162018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8:

Year Ended December 31  2018  2017  2016  
(In millions)         

Revenues:

    

Other revenue, primarily operating

  $    1,227  $    1,325  $    1,316     

Total

   1,227   1,325   1,316 

Expenses:

    

Operating

   820   861   835 

Interest

   176   171   183 

Total

   996   1,032   1,018 

Income before income tax

   231   293   298 

Income tax (expense) benefit

   (28)   232   (61) 

Amounts attributable to noncontrolling interests

   (68)   (145)   (148) 

Net income attributable to Loews Corporation

  $135  $380  $89 
              

2018

               
Year Ended December 31
 
2019
    
2018
  
 
(In millions)
       
               
Revenues:
  
   
   
  
Operating revenues and other
 $
     1,300
   
  $
     1,227
  
 
Total
  
1,300
   
   
1,227
  
 
Expenses:
  
   
   
  
Operating and other
  
840
   
   
820
  
Interest
  
179
   
   
176
  
 
Total
  
1,019
   
   
996
  
 
Income before income tax
  
281
   
   
231
  
Income tax expense
  
(72
)  
   
(28
) 
Amounts attributable to noncontrolling interests
  
   
   
(68
) 
 
Net income attributable to Loews Corporation
 $
209
   
  $
135
  
 
2019 Compared with 2017

2018

Total revenues decreased $98increased $73 million in 20182019 as compared with 2017.2018. Excluding the net effect of items offset in fuel and transportation expense primarily retained fuel,and net proceeds of approximately $24 million as a result of drawing on letters of credit due to a customer bankruptcy, operating revenues decreased $63increased $53 million due to lower transportation revenues of $43 million, which resulted primarily fromdriven by Boardwalk Pipelines’ recently completed growth projects, partially offset by contract restructurings and contract expirations and recontractingthat were recontracted at overall lower average rates, partially offset by revenues from growth projects placed into service and higher system utilization. In addition, storage and parking and lending revenues decreased due to unfavorable market conditions.

rates.

Operating expenses decreased $41increased $20 million in 20182019 as compared with 2017.2018. Excluding items offset in operating revenues, and the $47 million loss on sale of a processing plant in 2017, operating expenses increased $34$18 million as compared with the prior year primarily due to higher depreciation expensemaintenance project expenses and property taxes from an increased asset base from recently completed growth projects and increased employee related costs.

In 2017, we recorded aone-time decrease to income tax expense of $294 million at the holding company level, as a result of the Tax Act. This decrease was a result of remeasuring the net deferred tax liabilities at the lower corporate tax rate.

projects.

Net income attributable to Loews Corporation decreased $245increased $74 million in 20182019 as compared with 2017 as a result of2018 due to the Tax Act,changes discussed above partially offset byand the impact of the Company now owning 100% of Boardwalk Pipeline.

60

2017 Compared with 2016

Total revenuesPipelines, which increased $9 million in 2017 as compared with 2016. Excluding the net effect of $13 million of proceeds received from the settlement of a legal matter in 2016 and items offset in fuel and transportation expense, primarily retained fuel, operating revenues increased $44 million. The increase was driven by growth projects recently placed into service, partially offset by a decrease in storage and PAL revenues, primarily from the effects of unfavorable market conditions on time period price spreads and a decrease in revenues associated51% with the salepurchase of a processing plant, discussed in Note 6Boardwalk Pipelines common units on July 18, 2018.

59
Table of the Notes to Consolidated Financial Statements under Item 8, and the Southwestern contract restructuring.

Operating expenses increased $26 million in 2017 as compared with 2016. Excluding items offset in operating revenues and the $47 million loss on sale of a processing plant, operating expenses decreased $5 million primarily due to lower administrative and general expenses due to higher capitalization rates from the increase in capital projects and lower employee incentive costs, largely offset by higher operations and maintenance expenses, primarily due to growth projects recently placed into service and a higher number of maintenance projects. Interest expense decreased $12 million primarily due to higher capitalized interest from growth projects.

Net income increased $291 million in 2017 as compared with 2016 as a result of the Tax Act in 2017 and the changes discussed above.

Contents

Loews Hotels & Co

The following table summarizes the results of operations for Loews Hotels & Co for the years ended December 31, 2018, 20172019 and 20162018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8:

Year Ended December 31  2018   2017   2016 
(In millions)            

Revenues:

      

Operating revenue

  $        628   $        577   $        557 

Gain on sale of owned hotel

   23     

Revenues related to reimbursable expenses

   104    105    110 

Total

   755    682    667 

Expenses:

      

Operating

   533    502    489 

Asset impairments at owned hotels

   22     

Reimbursable expenses

   104    105    110 

Depreciation

   67    63    63 

Equity income from joint ventures

   (73)    (81)    (41) 

Interest

   29    28    24 

Total

   682    617    645 

Income before income tax

   73    65    22 

Income tax expense

   (25)    (1)    (10) 

Net income attributable to Loews Corporation

  $48   $64   $12 
                

2018

             
Year Ended December 31
  
2019
   
2018
   
 
  
(In millions)
      
             
Revenues:
  
   
   
 
Operating revenues
 $
     578
  $
     628
   
 
Gain on sale of owned hotel
  
   
23
   
 
Revenues related to reimbursable expenses
  
114
   
104
   
 
  
Total
  
692
   
755
   
 
  
Expenses:
  
   
   
 
Operating and other:
  
   
   
 
Operating
  
493
   
533
   
 
Asset impairments
  
99
   
22
   
 
Reimbursable expenses
  
114
   
104
   
 
Depreciation
  
61
   
67
   
 
Equity income from joint ventures
  
(69
)  
(73
)  
 
Interest
  
22
   
29
   
 
  
Total
  
720
   
682
   
 
  
Income (loss) before income tax
  
(28
)  
73
   
 
Income tax expense
  
(3
)  
(25
)  
 
  
Net income (loss) attributable to Loews Corporation
 $
(31
) $
48
   
 
  
2019 Compared with 2017

2018

Operating revenues increased $51decreased $50 million and operating expenses increased $31 million in 2018 as compared with 20172018 primarily due to an increase in hotel renovations, which reduced the improved performancenumber of available guestrooms at several owned hotels, primarilyhotel properties, and the Loews Miami Beach Hotel. Total revenues for 2018 include a $23 million gain on sale of the Loews Annapolis Hotel. Asset impairments in 2018 reflect reductions in the carrying value of two owned hotel properties, one in the second quarter of 2019 and one in the third quarter of 2018. Revenues were also impacted by lower management fees due to reduced operating revenues at managed properties.

61

In addition, Loews Hotels operating revenues and expenses for 2019 each include a $15 million reduction due to the reclassification of services provided to customers by a third party vendor.

Operating expenses decreased $40 million as compared with 2018 due to the above stated reclassification and the aforementioned sales of owned hotels in 2019 and 2018.
Loews Hotels considers events or changes in circumstances that indicate the carrying amount of a long-lived asset may not be recoverable. During 2019 and 2018, Loews Hotels determined that certain properties, each of which represent an asset group, had carrying values that were not recoverable, and therefore recorded impairment charges of $99 million and $22 million to reduce these properties carrying values to their estimated fair values. There were four properties identified in 2019 and two in 2018.
Interest expense decreased $7 million as compared with 2018 due to additional capitalized interest on development projects in progress.
Equity income from joint ventures decreased $8$4 million in 2018 as compared with 20172018 primarily due to a net benefit of $10 million from a gain on the sale of an equity interest in a joint venture hotel property partially offset by an impairment charge related to an equity interest in a second joint venture hotel property in 2017. Absent this net benefit, equity income from joint ventures increased $2 million primarily due to the improved performance of the Universal Orlando joint venture properties.

Net income attributable to Loews Corporation decreased $16 million. Excluding the effect of the corporate income tax rate change, net income increased approximately $5 million primarily due to the changes discussed above.

2017 Compared with 2016

Operating revenues increased $20 million

pre-opening
expenses for properties recently opened and operating expenses increased $13 million in 2017 as compared with 2016 primarily due to an increase in revenue and expenses upon completion of renovations at the Loews Miami Beach Hotel.

Equity income from joint ventures increased $40 million in 2017 as compared with 2016 primarily due to a $25 million gain on the sale of an equity interest in the Loews Don CeSar Hotel, a joint venture hotel property, in February of 2017, increased equity income from Universal Orlando joint venture properties and the absence of a $13 million impairment charge related to an equity interest in a joint venture hotel property in 2016. These increases were partially offset by a $15 million impairment charge in 2017 related to an equity interest in a joint venture hotel property.

Interest expense increased $4 million in 2017 as compared with 2016 primarily due to property-level debt incurred to fund acquisitions in 2016 along with reduced capitalized interest.

Loews Hotels & Co recorded a $27 million decrease to income tax expense resulting from the effect of the lower U.S. federal corporate tax rate on its net deferred tax liabilities.

Net income increased $52 million primarily due to the changes discussed above.

currently under development.

Corporate

Corporate operations consist primarily of investment income at the Parent Company, operating results of Consolidated Container from the May 22, 2017 acquisition date, corporateAltium Packaging, Parent Company interest expenses and other corporateParent Company administrative costs. Investment income includes earnings on cash and short term investments held at the Parent Company to meet current and future liquidity needs, as well as results of limited partnership investments and the trading portfolio.

60
Table of Contents
The following table summarizes the results of operations for Corporate for the years ended December 31, 2018, 20172019 and 20162018 as presented in Note 20 of the Notes to Consolidated Financial Statements included under Item 8:

Year Ended December 31  2018    2017  2016   
(In millions)         

Revenues:

    

Net investment income (loss)

  $(10)  $146  $146     

Other revenues

   867   499   3 

Total

   857   645   149 

Expenses:

    

Operating and other

   956   618   131 

Interest

   108   95   72 

Total

         1,064         713         203 

Loss before income tax

   (207)   (68)   (54) 

Income tax benefit

   46   14   19 

Net loss attributable to Loews Corporation

  $(161)  $(54)  $(35) 
  

62

2018

             
Year Ended December 31
  
2019
   
2018
   
 
  
(In millions)
  
   
   
 
             
Revenues:
  
   
   
 
Net investment income (loss)
 $
230
  $
(10
)  
 
Operating revenues and other
  
933
   
867
   
 
  
Total
  
    1,163
   
857
   
 
  
Expenses:
  
   
   
 
Operating and other
  
1,004
   
956
   
 
Interest
  
115
   
108
   
 
  
Total
  
1,119
   
    1,064
   
 
  
Income (loss) before income tax
  
44
   
(207
)  
 
Income tax (expense) benefit
  
(9
)  
46
   
 
  
Net income (loss) attributable to Loews Corporation
 $
35
  $
(161
)  
 
  
2019 Compared with 2017

2018

Net investment income was $230 million in 2019 as compared with a loss wasof $10 million in 2018, as compared with income of $146 million in 2017 primarily due to negative returnsimproved performance from equity based investments in the Parent Company trading portfolio, andpartially offset by lower income from limited partnership investments.

Otherinvestments as a result of lower invested balances.

Operating revenues increased $368and other include Altium Packaging revenues of $932 million and $867 million for 2019 and 2018. The increase of $65 million in 20182019 as compared with 2017 due2018, reflects an increase of $97 million related to Consolidated Container’s revenues reflecting a full year of operationsacquisitions in 2018 as compared with approximately seven months of operationsand 2019. This increase was partially offset by lower volumes in 2017. In addition, the increase also reflectsexisting business and the pass-through effect of higherlower year-over-year resin prices. Consolidated Container’sAltium Packaging’s contracts generally provide for resin price changes to be passed through to its customers on a short-term lag, generally about one month. When a pass-through occurs, revenues and expenses generally change by the same amount so that Consolidated Container’sAltium Packaging’s gross margin returns to the same level as prior to the change in prices.

Operating and other expenses increased $338include Altium Packaging operating expenses of $913 million and $828 million for 2019 and 2018, which include depreciation and amortization expense. The increase in Altium Packaging’s operating expenses of $85 million in 20182019 as compared with 20172018 is primarily due to an increase of $349$96 million of Consolidated Container’s expenses reflecting a full year of operationsrelated to acquisitions in 2018 as compared with approximately seven months of operations in 2017 and higher average resin prices from Consolidated Container’s operations. This increase is2019, partially offset by the absencelower cost of costs related to the acquisition of Consolidated Container in 2017 and decreased corporate overhead expenses. Interest expense increased $13 million in 2018 as compared with 2017, primarilygoods sold due to interest expense associated with Consolidated Container’s term loan reflecting a full year of operations in 2018 as compared with approximately seven months of operations in 2017.

Net results decreased $107 million in 2018 as compared with 2017 primarily due to the changes discussed abovelower volumes and the impact of the lower corporate tax rate in 2018 providing a lower benefit to corporate losses.

2017 Compared with 2016

Net investment income was flat in 2017 as compared with 2016 primarily due to improved performance from limited partnership investments offset by lower results from equity based investments in the trading portfolio.

Other revenues increased $496 million in 2017 as compared with 2016 primarily due to $498 million of revenue from Consolidated Container’s operations for the period since the acquisition date.

resin prices.

Corporate Operating and other expenses increased $487were $91 million and $128 million for 2019 and 2018. The $37 million decrease from 2018 to 2019 stems from lower gross Parent Company expenses, severance costs incurred in 2017 as compared with 2016 primarily due to $479 million2018, the netting of investment expenses for Consolidated Container’s operations for the period since the acquisition date. In addition, operating expenses increased due to costs relatedagainst investment income in 2019 and higher allocations to the acquisition of Consolidated Container, partially offset by the absence of prior year expenses related to the implementation of the 2016 Incentive Compensation Plan. Interest expense increased $23 millionsubsidiaries in 2017 as compared with 2016 primarily due to interest expense associated with Consolidated Container’s $605 million term loan from the date of acquisition.

Corporate recorded an $8 million increase to income tax expense resulting from the effect of the lower corporate tax rate on net deferred tax assets.

Net results decreased $19 million in 2017 as compared with 2016 primarily due to the changes discussed above.

2019.

LIQUIDITY AND CAPITAL RESOURCES

Parent Company

Parent Company cash and investments, net of receivables and payables, totaled $3.3 billion at December 31, 2019 as compared to $3.1 billion at December 31, 2018 as compared to $4.9 billion at December 31, 2017.2018. In 2018,2019, we received $878$927 million in dividends from our subsidiaries, including a special dividend from CNA of $485 million. Cash inflows also included $183 million from Loews Hotels & Co. Cash outflows included the payment of $1.5 billion to fund the purchase of common units in Boardwalk Pipeline as discussed above, $1.0$1.1 billion to fund treasury stock purchases $80and $76 million of cash dividends to our shareholders and approximately $92 million of net cash contributions to Loews Hotels & Co.shareholders. As a holding company we depend on dividends from our subsidiaries and returns on our investment portfolio to fund our obligations. We also have an effective Registration Statement on Form
S-3
on file with the Securities and Exchange Commission (“SEC”) registering the future sale of an unlimited amount of our

63

debt and equity securities. We are not responsible for the liabilities and obligations of our subsidiaries and there are no Parent Company guarantees.

As


Table of February 1, 2019, there were 311,299,326 shares of Loews common stock outstanding. Contents
Depending on market and other conditions, we may purchase our shares and shares of our subsidiaries outstanding common stock in the open market or otherwise. In 2018,2019, we purchased 20.321.5 million shares of Loews common stock. As of February 8, 2019,7, 2020, we had purchased an additional 0.93.3 million shares of Loews common stock in 20192020 at an aggregate cost of $44$172 million.

The Company currently has an As of February 7, 2020, there were 287,770,405 shares of Loews common stock outstanding.

In July of 2019, Fitch Ratings Inc., affirmed our unsecured debt rating of A with aand revised its outlook on the Company from negative outlook from Fitch Rating, Inc.,to stable. The Company currently has a corporate credit and senior debt rating of A with a stable outlook from S&P Global Ratings (“S&P”) and an unsecured debt rating of A3 with a stable outlook from Moody’s Investors Service (“Moody’s”). Should one or more rating agencies downgrade our credit ratings from current levels, or announce that they have placed us under review for a potential downgrade, our cost of capital could increase and our ability to raise new capital could be adversely affected.

Future uses of our cash may include investing in our subsidiaries, new acquisitions, dividends and/or repurchases of our and our subsidiaries’ outstanding common stock. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition and business needs.

Subsidiaries

CNA’s cash provided by operating activities was $1.1 billion in 2019 and $1.2 billion in 2018 and $1.3 billion in 2017.2018. Cash provided by operating activities in 20182019 reflected higher income taxes paida $125 million pension contribution, a lower level of distributions on limited partnerships and higher net claim payments, partially offset by an increase in premiums collected as compared with 2017. In 2017, cash provided by operating activities reflected higher net claim payments and a lower level of distributions on limited partnerships, partially offset by lower IT spend and an increase in premiums collected as compared with 2016.

2018.

CNA paid dividends of $3.30$3.40 per share on its common stock, including a special dividend of $2.00 per share in 2018.2019. On February 8, 2019,7, 2020, CNA’s Board of Directors declared a quarterly dividend of $0.35$0.37 per share and a special dividend of $2.00 per share payable March 14, 201912, 2020 to shareholders of record on February 25, 2019.24, 2020. CNA’s declaration and payment of future dividends is at the discretion of its Board of Directors and will depend on many factors, including CNA’s earnings, financial condition, business needs and regulatory constraints. The payment of dividends by CNA’s insurance subsidiaries without prior approval of the insurance department of each subsidiary’s domiciliary jurisdiction is limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective state insurance departments.

CNA has an effective shelf registration statement under which it may publicly issue debt, equity or hybrid securities from time to time.
Dividends from Continental Casualty Company (“CCC”), a subsidiary of CNA, are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the “Department”), are determined based on the greater of the prior year’s statutory net income or 10% of statutory surplus as of the end of the prior year, as well as the timing and amount of dividends paid in the preceding 12 months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of December 31, 2018,2019, CCC is in a positive earned surplus position. The maximum allowable dividend CCC could pay during 20192020 that would not be subject to the Department’s prior approval is $1.4 billion,$1,078 million, less dividends paid during the preceding 12 months measured at that point in time. CCC paid dividends of $1.0 billion$1,065 million in 2018.2019. The actual level of dividends paid in any year is determined after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.

In July of 2019, A.M. Best Company (“A.M. Best”) upgraded CNA’s long term issuer credit rating from bbb to bbb+. In November of 2019, S&P upgraded CNA’s financial strength rating from A to A+ and long term issuer credit rating from BBB+ to
A-.
A.M. Best, Moody’s and S&P maintain stable outlooks across CNA’s financial strength and long term issuer credit ratings.

Table of Contents
Diamond Offshore’s cash provided by operating activities decreased approximately $262$223 million in 20182019 as compared with 2017, primarily due2018, reflecting the effects of the protracted downturn in the offshore drilling industry. Diamond Offshore’s cash flows in 2019, compared to 2018, reflect lower cash receipts for contract drilling services of $312$194 million, partially offset by ahigher income tax payments, net decreaseof refunds, primarily in its foreign tax jurisdictions of $17 million and higher cash expenditures for contract drilling services and other workinggeneral and administrative costs of $12 million.
For 2019, Diamond Offshore’s capital requirements of $8expenditures were $326 million and lower income tax payments, net of refunds, of $42 million. The decrease inwere funded from its operating cash flow from operations is primarily the result of reduced demand for Diamond Offshore’s contract drilling services, which continued into 2018, partially offset by its cost control initiatives.

64

flows and available cash. Diamond Offshore expects cash capital expenditures in 20192020 to be approximately $340$190 million to $360$210 million. Projects for 2019 include $110 millionPlanned spending in capitalized costs2020 associated with the reactivation and upgrade of theOcean Onyx,approximately $20 million associated with the reactivation of theOcean Endeavor and other capital expendituresprojects under its capital maintenance and replacement programs, includingincludes equipment upgrades for the

Ocean BlackHawkBlackRhino
and
Ocean BlackHornetBlackLion
and costs associated with the completion of the reactivation and upgrade of the
Ocean Onyx
. At December 31, 2018,2019, Diamond Offshore has no significant purchase obligations, except for those related to its direct rig operations, which arise during the normal course of business.

As of February 8, 2019,7, 2020, Diamond Offshore hadhas no outstanding borrowings and approximately $1.2 billion, in the aggregate, available under its credit agreements.

For the credit agreements, $225 million matures in October of 2020, which Diamond Offshore may have difficulty replacing upon maturity, and $950 million matures in October of 2023. These credit agreements may be used for general corporate purposes, including investments, acquisitions and capital expenditures. During 2019, Diamond Offshore’s cash and cash equivalents and marketable securities decreased an aggregate $301 million and during 2018 increased an aggregate $74 million. Based on Diamond Offshore’s cash flow forecast, as of the date of this Report, it expects to generate aggregate negative cash flows for 2020 and to begin to utilize borrowing under its credit agreements in the first half of 2020 to meet its liquidity requirements. Diamond Offshore anticipates ending 2020 with a drawn balance under its $950 million credit agreement. If market conditions do not improve, Diamond Offshore could continue to generate aggregate negative cash flows in future periods.

In 2018,September of 2019, S&P downgraded Diamond Offshore’s corporate and senior unsecured notes credit ratings to CCC+ from B. The rating outlook from S&P changed to Bstable from B+ with a negative outlook and Moody’s downgradednegative. Diamond Offshore’s current corporate credit rating tofrom Moody’s is B2 and its current senior unsecured notes credit rating from Ba3 with a negative outlook.Moody’s is B3. The rating outlook from Moody’s is negative. These credit ratings are below investment grade and could raise Diamond Offshore’s cost of financing. As a consequence,Consequently, Diamond Offshore may not be able to issue additional debt in amounts and/or with terms that it considers to be reasonable. One or more of these occurrencesThese ratings could limit Diamond Offshore’s ability to pursue other business opportunities.

opportunities or to refinance its indebtedness as it matures.

Diamond Offshore will make periodic assessments of its capital spending programs based on industry conditions and will make adjustments if it determines they are required.its cash flow forecast. Diamond Offshore, may, from time to time, issue debt or equity securities, or a combination thereof, to finance capital expenditures, the acquisition of assets and businesses or for general corporate purposes. Diamond Offshore has a shelf registration statement under which it may publicly issue from time to time up to $750 million of debt, equity and hybrid securities. Diamond Offshore’s ability to access the capital markets by issuing debt or equity securities will be dependent on its results of operations, current financial condition, current credit ratings, current market conditions and other factors beyond its control.

control at such time.

Boardwalk Pipeline’sPipelines’ cash provided by operating activities decreased $71increased $96 million in 20182019 compared to 2017,2018, primarily due to the change in net income.

For 2019 and 2018, and 2017, Boardwalk Pipeline’sPipelines’ capital expenditures were $468$416 million and $708$468 million, consisting of a combination of growth and maintenance capital. During 2019 and 2018, Boardwalk PipelinePipelines purchased $13 million and $19 million of natural gas to be used as base gas for its pipeline system. Boardwalk PipelinePipelines expects total capital expenditures to be approximately $450$475 million in 2019,2020, including approximately $150$155 million for maintenance capital and $300$320 million related to growth projects.

As of February 11, 2019,10, 2020, Boardwalk PipelinePipelines had $630$390 million of outstanding borrowings under its credit facility, resulting in an available borrowing capacity of approximately $870 million.$1.1 billion. Boardwalk PipelinePipelines anticipates that its existing capital resources, including its revolving credit facility and cash flows from operating activities, will be adequate to fund its operations for 2019.

2020. Boardwalk Pipelines may seek to access the debt markets to fund some or all capital expenditures for growth projects, acquisitions or for general corporate purposes. Boardwalk Pipelines has an effective shelf registration statement under which it may publicly issue debt securities, warrants or rights from time to time.


Table of Contents
During 2019,2020, Loews Hotels & Co anticipates funding approximately $95$87 million to its joint venture developments in progress, which will be derived from cash on hand, cash generated from operations and cash contributions from Loews Corporation.

In 2019, Altium Packaging paid approximately $260 million to complete three acquisitions of plastic packaging manufacturers located in the U.S. and Canada, funded with approximately $250 million of debt financing proceeds and available cash, see Notes 2 and 11 of the Notes to the Consolidated Financial Statements included under Item 8 for further discussion.
Off-Balance
Sheet Arrangements

At December 31, 20182019 and 2017,2018, we did not have any
off-balance
sheet arrangements.

65

Contractual Obligations

Our contractual payment obligations are as follows:

   Payments Due by Period 
       Less than         More than  
December 31, 2018  Total   1 year  1-3 years  3-5 years   5 years  
(In millions)                 

Debt (a)

  $    16,183   $899  $2,408  $3,112   $9,764     

Operating leases

   702    75   158   125    344 

Claim and claim adjustment expense reserves (b)

   23,396    5,427   6,131   3,109    8,729 

Future policy benefit reserves (c)

   26,920    (409)   (125)   597    26,857 

Purchase and other obligations

   757    309   142   135    171 

Total

  $    67,958   $6,301  $8,714  $7,078   $45,865 
                        

                         
 
Payments Due by Period
 
   
Less than
      
More than
   
December 31, 2019
 
Total
  
1 year
  
1-3
 years
  
3-5
 years
  
5 years
   
  
(In millions)
  
   
   
   
   
   
 
                         
Debt (a)
 $
  16,279
  $
616
  $
2,620
  $
4,185
  $
8,858
   
 
Operating leases
  
860
   
114
   
215
   
170
   
361
   
 
Claim and claim adjustment expense reserves (b)
  
22,814
   
5,512
   
5,928
   
2,994
   
8,380
   
 
Future policy benefit reserves (c)
  
27,539
   
(350
)  
55
   
813
   
27,021
   
 
Purchase and other obligations
  
485
   
262
   
83
   
80
   
60
   
 
  
Total
 $
67,977
  $
6,154
  $
8,901
  $
8,242
  $
44,680
   
 
  
(a)

Includes estimated future interest payments.

(b)

The claim and claim adjustment expense reserves reflected above are not discounted and represent CNA’s estimate of the amount and timing of the ultimate settlement and administration of gross claims based on its assessment of facts and circumstances known as of December 31, 2018.2019. See the Insurance Reserves section of this MD&A for further information.

(c)

The future policy benefit reserves reflected above are not discounted and represent CNA’s estimate of the ultimate amount and timing of the settlement of benefits based on its assessment of facts and circumstances known as of December 31, 2018.2019. Additional information on future policy benefit reserves is included in Note 1 of the Notes to Consolidated Financial Statements included under Item 8.

Further information on our commitments, contingencies and guarantees is provided in the Notes to Consolidated Financial Statements included under Item 8.


Table of Contents
INVESTMENTS

Investment activities of
non-insurance
subsidiaries primarily include investments in fixed income securities, including short term investments. The Parent Company portfolio also includes equity securities, including short sales and derivative instruments, and investments in limited partnerships. These types of investments generally present greater volatility, less liquidity and greater risk than fixed income investments and are included within Results of Operations – Corporate.

We enter into short sales and invest in certain derivative instruments that are used for asset and liability management activities, income enhancements to our portfolio management strategy and to benefit from anticipated future movements in the underlying markets. If such movements do not occur as anticipated, then significant losses may occur. Monitoring procedures include senior management review of daily reports of existing positions and valuation fluctuations to seek to ensure that open positions are consistent with our portfolio strategy.

Credit exposure associated with
non-performance
by counterparties to our derivative instruments is generally limited to the uncollateralized change in fair value of the derivative instruments recognized in the Consolidated Balance Sheets. We mitigate the risk of non-performance by monitoring the creditworthiness of counterparties and diversifying derivatives by using multiple counterparties. We occasionally require collateral from our derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty.

Insurance

CNA maintains a large portfolio of fixed maturity and equity securities, including large amounts of corporate and government issued debt securities, residential and commercial mortgage-backed securities, and other asset-backed securities and investments in limited partnerships which pursue a variety of long and short investment strategies across a broad array of asset classes. CNA’s investment portfolio supports its obligation to pay future insurance claims and provides investment returns which are an important part of CNA’s overall profitability.

66

Net Investment Income

The significant components of CNA’s net investment income are presented in the following table. Fixed income securities, as presented, include both fixed maturity securities and
non-redeemable
preferred stock.

Year Ended December 31       2018            2017            2016          
(In millions)         

Fixed income securities:

    

Taxable fixed income securities

  $1,449  $1,397  $1,421 

Tax-exempt fixed income securities

   384   427   405 

Total fixed income securities

   1,833   1,824   1,826 

Limited partnership and common stock investments

   (42)   207   158 

Other, net of investment expense

   26   3   4 

Pretax net investment income

  $1,817  $2,034  $1,988 
              

Fixed income securities after tax and noncontrolling interests

  $1,351  $1,185  $1,180 
              

Net investment income after tax and noncontrolling interests

  $1,341  $1,308  $1,280 
              

Effective income yield for the fixed income securities portfolio, before tax

   4.7%   4.7%   4.8% 

Effective income yield for the fixed income securities portfolio, after tax

   3.9%   3.4%   3.5% 

           
Year Ended December 31
 
2019
  
2018
  
 
(In millions)
  
   
  
           
Fixed income securities:
  
   
  
Taxable fixed income securities
 $
1,538
  $
1,449
 
Tax-exempt
fixed income securities
  
318
   
384
  
 
Total fixed income securities
  
1,856
   
1,833
  
Limited partnership and common stock investments
  
226
   
(42
) 
Other, net of investment expense
  
36
   
26
  
 
Pretax net investment income
 $
2,118
  $
1,817
  
 
Fixed income securities after tax and noncontrolling interests
 $
1,358
  $
1,351
  
 
Net investment income after tax and noncontrolling interests
 $
     1,543
  $
     1,341
  
 
           
Effective income yield for the fixed income securities portfolio, before tax
  
4.8%    
   
   4.7%
  
Effective income yield for the fixed income securities portfolio, after tax
  
3.9%    
   
3.9%
  
Limited partnership and common stock return
  
11.7%    
   
(1.9)%
  
Net investment income before tax and noncontrolling interests decreased $217increased $301 million in 20182019 as compared with 2017. The decrease was driven by limited partnership and common stock investments, which returned (1.9)% in 2018 as compared with 9.1% in the prior year. The lower return in 2018 included the change in fair value of common stock investments. Despite the decline in limited partnership income, net investment income after tax and noncontrolling interests increased $33 million in 2018 as compared with 2017 driven by the lower federal corporate income tax rate.

Net investment income after tax and noncontrolling interests increased $28 million in 2017 as compared with 2016.2018. The increase was driven by limited partnership and common stock investments, which returned 9.1% in 2017 as compared with 6.4% in the prior year.

investments.


Table of Contents
Net Realized Investment Gains (Losses)

The components of CNA’s net realized investment resultsgains (losses) are presented in the following table:

Year Ended December 31       2018       2017        2016         
(In millions)         

Realized investment gains (losses):

    

Fixed maturity securities:

    

Corporate and other bonds

  $26  $114  $39     

States, municipalities and political subdivisions

   36   14   29 

Asset-backed

   (58)   (6)   (2) 

Total fixed maturity securities

   4   122   66 

Non-redeemable preferred stock

   (74)    1 

Short term and other

   13       (5) 

Total realized investment gains (losses)

   (57)   122   62 

Income tax (expense) benefit

   14   (40)   (19) 

Amounts attributable to noncontrolling interests

   5   (9)   (4) 

Net realized investment gains (losses) attributable to Loews Corporation

  $(38)  $73  $39 
              

67

                 
Year Ended December 31
 
2019
    
2018
   
  
(In millions)
        
                 
Investment gains (losses):
  
   
   
   
 
Fixed maturity securities:
  
   
   
   
 
Corporate and other bonds
  
$        (8
)  
  $
     26
   
 
States, municipalities and political subdivisions
  
13
   
   
36
   
 
Asset-backed
  
(11
)  
   
(58
)  
 
  
Total fixed maturity securities
  
(6
)  
   
4
   
 
Non-redeemable
preferred stock
  
66
   
   
(74
)  
 
Short term and other
  
(11
)  
   
13
   
 
  
Total investment gains (losses)
  
49
   
   
(57
)  
 
Income tax (expense) benefit
  
(12
)  
   
14
   
 
Amounts attributable to noncontrolling interests
  
(4
)  
   
5
   
 
  
Net investment gains (losses) attributable to Loews Corporation
  
$        33
   
  $
(38
)  
 
  
Net realized investment results beforeafter tax and noncontrolling interests decreased $179improved $71 million in 20182019 as compared with 2017.2018. The decreaseimprovement was driven by lower net realized gains on sales of securities and the declinefavorable change in fair value of
non-redeemable
preferred stock. Net realized investment gains before tax and noncontrolling interests increased $60 million in 2017 as compared with 2016, drivenstock, partially offset by lowerhigher OTTI losses recognized in earnings.

Further information on CNA’s realizedinvestment gains and losses, including OTTIother-than-temporary impairment losses, is set forth in Notes 1 and 3 of the Notes to Consolidated Financial Statements included under Item 8.

Portfolio Quality

The following table presents the estimated fair value and net unrealized gains (losses) of CNA’s fixed maturity securities by rating distribution:

   December 31, 2018 December 31, 2017
     Net    Net
     Unrealized    Unrealized
   Estimated Gains Estimated  Gains
    Fair Value (Losses) Fair Value  (Losses)
(In millions)          

U.S. Government, Government agencies and Government-sponsored enterprises

   $4,334            $(24)          $4,514                  $21

AAA

    3,027   245   1,954          152

AA

    6,510   512   8,982          914

A

    8,768   527   9,643          952

BBB

    14,205   274   13,554          1,093

Non-investment grade

    2,702   (73)           2,840          140

Total

   $  39,546          $1,461          $  41,487                 $    3,272        
       

                     
 
December 31, 2019
  
December 31, 2018
 
 
Estimated
Fair Value
  
Net
Unrealized
Gains
(Losses)
  
Estimated
Fair Value
  
Net
Unrealized
Gains
(Losses)
   
  
(In millions)
          
                     
U.S. Government, Government agencies and Government-sponsored enterprises
 $
4,136
  $
95
  $
4,334
  $
(24
)  
 
AAA
  
3,254
   
349
   
3,027
   
245
   
 
AA
  
6,663
   
801
   
6,510
   
512
   
 
A
  
9,062
   
1,051
   
8,768
   
527
   
 
BBB
  
16,839
   
1,684
   
14,205
   
274
   
 
Non-investment
grade
  
2,253
   
101
   
2,702
   
(73
)  
 
  
Total
 $
42,207
  $
4,081
  $
39,546
  $
1,461
   
 
  
As of December 31, 20182019 and 2017,2018, only 1% and 2% of CNA’s fixed maturity portfolio was rated internally.

AAA rated securities included $1.5 billion and $1.3 billion of

pre-funded
municipal bonds as of December 31, 2019 and 2018.

Table of Contents
The following table presents CNA’s
available-for-sale
fixed maturity securities in a gross unrealized loss position by ratings distribution:

    Gross 
  Estimated Unrealized 
December 31, 2018 Fair Value Losses 

(In millions)

 

    

U.S. Government, Government agencies and Government-sponsored enterprises

 $2,889      $53         

AAA

  359   7 

AA

  788   12 

A

  2,391   62 

BBB

  6,971   262 

Non-investment grade

  1,905   125 

Total

 $  15,303  $        521 
         

68

           
December 31, 2019
 
Estimated
Fair Value
  
Gross
Unrealized
Losses
  
(In millions)
     
           
U.S. Government, Government agencies and Government-sponsored enterprises
 $
271    
  $
3    
  
AAA
  
91    
   
2    
  
AA
  
165    
   
1    
  
A
  
667    
   
6    
  
BBB
  
832    
   
13    
  
Non-investment
grade
  
394    
   
20    
  
 
 
Total
 $
2,420    
  $
45    
  
 
 
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:

    Gross  
  Estimated Unrealized  
December 31, 2018 Fair Value Losses  

(In millions)

 

    

Due in one year or less

 $218    $7         

Due after one year through five years

  2,409   57 

Due after five years through ten years

  10,479   347 

Due after ten years

  2,197   110 

Total

 $  15,303  $        521 
         

           
December 31, 2019
 
Estimated
Fair Value
  
Gross
Unrealized
Losses
  
(In millions)
     
           
Due in one year or less
 $
77    
  $
1    
  
Due after one year through five years
  
613    
   
15    
  
Due after five years through ten years
  
1,367    
   
16    
  
Due after ten years
  
363    
   
13    
  
 
 
Total
 $
2,420    
  $
45    
  
 
 
Duration

A primary objective in the management of CNA’s investment portfolio is to optimize return relative to the corresponding liabilities and respective liquidity needs. CNA’s views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions as well as domestic and global economic conditions, are some of the factors that enter into an investment decision. CNA also continually monitors exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on its views of a specific issuer or industry sector.

A further consideration in the management of CNA’s investment portfolio is the characteristics of the corresponding liabilities and the ability to align the duration of the portfolio to those liabilities and to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios where future liability cash flows are determinable and typically long term in nature, CNA segregates investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in Other Insurance Operations.


Table of Contents
The effective durations of CNA’s fixed income securities and short 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, 2018   December 31, 2017 
       Effective       Effective 
   Estimated   Duration   Estimated   Duration 
    Fair Value   (In Years)   Fair Value   (In Years) 

(In millions of dollars)

 

                

Investments supporting Other Insurance Operations

  $16,212           8.4            $16,797             8.4     

Other investments

   25,428           4.4          26,817             4.4     

 

     

 

 

   

Total

  $  41,640           6.0            $   43,614             5.9     

 

     

 

 

   

                   
 
December 31, 2019
  
December 31, 2018
  
 
Estimated
Fair Value
  
Effective
Duration
(In Years)
  
Estimated
Fair Value
  
Effective
Duration
(In Years)
  
(In millions of dollars)
         
                   
Investments supporting Other Insurance Operations
 $
   18,015    
   
8.9    
      $
     16,212    
   
8.4    
  
Other investments
  
26,813    
   
4.1    
   
25,428    
   
4.4    
  
 
 
              
Total
 $
   44,828    
   
6.0    
      $
     41,640    
   
6.0    
  
 
 
              
The investment portfolio is periodically analyzed for changes in duration and related price risk. Certain securities have duration characteristics that are variable based on market interest rates, credit spreads and other factors that may drive variability in the amount and timing of cash flows. Additionally, CNA periodically reviews the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures about Market Risk included under Item 7A.

69

Short Term Investments

The carrying value of the components of CNA’s Short term investments are presented in the following table:

December 31  2018   2017
(In millions)       

Short term investments:

    

Commercial paper

  $705   $905     

U.S. Treasury securities

   185    355 

Other

   396    176 

Total short term investments

  $    1,286   $    1,436 
           

           
December 31
 
2019
  
2018
  
(In millions)
     
           
Short term investments:
  
   
  
Commercial paper
 $
     1,181    
  $
705    
  
U.S. Treasury securities
  
364    
   
185    
  
Other
  
316    
   
396    
  
 
 
Total short term investments
 $
     1,861    
  $
     1,286    
  
 
 
INSURANCE RESERVES

The level of claim reserves CNA maintains represents its best estimate, as of a particular point in time, of what the ultimate settlement and administration of claims will cost based on CNA’s assessment of facts and circumstances known at that time. Reserves are not an exact calculation of liability but instead are complex estimates that CNA derives, 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, CNA reviews its reserves for each segment of its 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 and equity and CNA’s business and insurer financial strength and corporate debt ratings. Further information on reserves is provided in Note 8 of the Notes to Consolidated Financial Statements included under Item 8.


Table of Contents
Property and Casualty Claim and Claim Adjustment Expense Reserves

CNA maintains loss reserves to cover its 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 discussion that follows and in Note 8 of the Notes to Consolidated Financial Statements included under Item 8.

There is a risk that CNA’s recorded reserves are insufficient to cover its estimated ultimate unpaid liability for claims and claim adjustment expenses. Unforeseen emerging or potential claims and coverage issues are difficult to predict and could materially adversely affect the adequacy of CNA’s claim and claim adjustment expense reserves and could lead to future reserve additions.

In addition, CNA’s 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 CNA’s exposure to A&EP claims and claim adjustment expenses, CNA completed a transaction with National Indemnity Company (“NICO”), under which substantially all of CNA’s legacy A&EP liabilities were ceded to NICO effective January 1, 2010. See Note 8 of the Notes to the Consolidated Financial Statements included under Item 8 for further discussion about the transaction with NICO, its impact on CNA’s results of operations, and the deferred retroactive reinsurance gain.

gain and the amount of remaining reinsurance limit.

Establishing Property & Casualty Reserve Estimates

In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, CNA’s actuaries perform detailed reserve analyses that are staggered throughout the year. The data is organized at a reserve group level. A reserve group 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

70

at least once during the year, but most are reviewed more frequently. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. In addition to the detailed analyses, CNA reviews actual loss emergence for all products each quarter.

Most of CNA’s 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. CNA’s 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 warranty. Property & Casualty Operations contain both long-tail and short-tail exposures. Other Insurance Operations contain 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 inflation on claim 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.


Table of Contents
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.

71

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 of the same factors that need to be reviewed for the loss ratio and incurred development methods.

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 CNA, 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, CNA uses 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.


Table of Contents
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, CNA’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 CNA’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, CNA may not assign much, if any, weight to the paid and incurred development methods. CNA 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 CNA’s history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, CNA may also use the loss ratio, Bornhuetter-Ferguson and/or frequency times severity methods for short-tail exposures.

For other more complex reserve groups where the above methods may not produce reliable indications, CNA uses additional methods tailored to the characteristics of the specific situation.

Periodic Reserve Reviews

The reserve analyses performed by CNA’s actuaries result in point estimates. Each quarter, the results of the detailed reserve reviews are summarized and discussed with CNA’s senior management to determine themanagement’s best estimate of reserves. CNA’s senior management considers many factors in making this decision. CNA’s recorded reserves reflect its best estimate as of a particular point in time based upon known facts and circumstances, consideration of the factors cited above and its judgment. The carried reserve differs from the actuarial point estimate as discussed further below.

Currently, CNA’s recorded reserves are modestly higher than the actuarial point estimate. For Property & Casualty Operations, the difference between CNA’s 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 CNA’s legacy A&EP liabilities, the difference between CNA’s reserves and the actuarial point estimate is primarily driven by the potential tail volatility of
run-off
exposures.

72

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.

CNA’s recorded reserves are management’s best estimate. In order to provide an indication of the variability associated with CNA’s net reserves, the following discussion provides a sensitivity analysis that shows the approximate estimated impact of variations in significant factors affecting CNA’s reserve estimates for particular types of business. These significant factors are the ones that CNA believes could most likely materially affect the reserves. This discussion covers the major types of business for which CNA believes a material deviation to its 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 CNA’s reserves.

The three areas for which CNA believes a significant deviation to its net reserves is reasonably possible are (i) professional liability, management liability and surety products;products (ii) workers’ compensation and (iii) general liability.


Table of Contents
Professional liability, management liability and surety products include U.S. 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 D&O, employment practices, fiduciary, fidelity and surety coverages as well as insurance products serving the health care 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%, CNA estimates that net reserves would increase by approximately $400 million. If the estimated claim severity decreases by 3%, CNA estimates that net reserves would decrease by approximately $150 million. CNA’s net reserves for these products were approximately $4.7$4.4 billion as of December 31, 2018.

2019.

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 estimate 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, CNA estimates that its net reserves would increase by approximately $350 million. If estimated workers’ compensation claim cost inflation decreases by 100 basis points for the entire period over which claim payments will be made, CNA estimates that its net reserves would decrease by approximately $300$350 million. Net reserves for workers’ compensation were approximately $4.0 billion as of December 31, 2018.

2019.

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%, CNA estimates that its net reserves would increase by approximately $200 million. If the estimated claim severity for general liability decreases by 3%, CNA estimates that its net reserves would decrease by approximately $100 million. Net reserves for general liability were approximately $3.4 billion as of December 31, 2018.

2019.

Given the factors described above, it is not possible to quantify precisely the ultimate exposure represented by claims and related litigation. As a result, CNA regularly reviews the adequacy of its reserves and reassesses its reserve estimates as historical loss experience develops, additional claims are reported and settled and additional information becomes available in subsequent periods. In reviewing CNA’s reserve estimates, CNA makes adjustments in the period that the need for such adjustments is determined. These reviews have resulted in CNA’s identification of information and trends that have caused CNA to change its reserves in prior periods and could lead to CNA’s

73

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 and equity and CNA’s business and insurer financial strength and corporate debt ratings positively or negatively. See Note 8 of the Notes to the Consolidated Financial Statements included under Item 8 for additional information about reserve development.

The following table summarizes gross and net carried reserves for CNA’s Property & Casualty Operations:

December 31          2018                   2017        

(In millions)

    

Gross Case Reserves

      $6,671       $6,913     

Gross IBNR Reserves

   9,287    9,156     

Total Gross Carried Claim and Claim Adjustment Expense Reserves

      $15,958       $16,069     
           

Net Case Reserves

      $6,063       $6,343     

Net IBNR Reserves

   8,290    8,232     

Total Net Carried Claim and Claim Adjustment Expense Reserves

      $14,353       $14,575     
           

The following table summarizes the gross and net carried reserves for other insurance businesses inrun-off, including CNA Re and A&EP:

 

December 31          2018                   2017        

(In millions)

    

Gross Case Reserves

      $1,208       $1,371     

Gross IBNR Reserves

   1,217    1,065     

Total Gross Carried Claim and Claim Adjustment Expense Reserves

      $2,425       $2,436     
           

Net Case Reserves

      $96       $94     

Net IBNR Reserves

   96    111     

Total Net Carried Claim and Claim Adjustment Expense Reserves

      $192       $205     
           

           
December 31
 
2019
  
2018
  
(In millions)
     
           
Gross Case Reserves
 $
     6,276
  $
     6,671
  
Gross IBNR Reserves
  
9,494
   
9,287
  
 
 
Total Gross Carried Claim and Claim Adjustment Expense Reserves
 $
     15,770
  $
     15,958
  
 
 
           
Net Case Reserves
 $
     5,645
  $
     6,063
  
Net IBNR Reserves
  
8,508
   
8,290
  
 
 
Total Net Carried Claim and Claim Adjustment Expense Reserves
 $
     14,153
  $
     14,353
  
 
 
72
Table of Contents
The following table summarizes the gross and net carried reserves for other insurance businesses in
run-off,
including CNA Re and A&EP:
           
December 31
 
2019
  
2018
  
(In millions)
     
           
Gross Case Reserves
 $
     1,137
  $
     1,208
  
Gross IBNR Reserves
  
1,097
   
1,217
  
 
 
Total Gross Carried Claim and Claim Adjustment Expense Reserves
 $
     2,234
  $
     2,425
  
 
 
           
Net Case Reserves
 $
92
  $
96
  
Net IBNR Reserves
  
83
   
96
  
 
 
Total Net Carried Claim and Claim Adjustment Expense Reserves
 $
175
  $
192
  
 
 
Long Term Care Policyholder Reserves

CNA’s Other Insurance Operations includes its
run-off
long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies 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 CNA has the ability to increase policy premiums, subject to state regulatory approval.

CNA maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for its long term care business. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for CNA’s long term care policies, its actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. CNA’s recorded claim and claim adjustment expense reserves reflect CNA management’s best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations.

In developing the claim and claim adjustment expense reserve estimates for CNA’s structured settlement obligations, CNA’s actuaries monitor mortality experience on an annual basis. Both elements of long term care reserves are discounted as discussed in Note 1 to the Consolidated Financial Statements included under Item 8.

Future policy benefit reserves represent the active life reserves related to CNA’s long term care policies andwhich are the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves is fundamental to CNA’s financial results and requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.

74

The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount raterates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rate isrates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, CNA’s long term care reserves may be subject to material increases if actual experience develops adversely to its expectations.

Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a gross premium valuation (“GPV”) to determine if there is a premium deficiency. Management also uses the GPV process to evaluate the adequacy of theCNA’s claim and claim adjustment expense reserves for structured settlement obligations. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing

Table of Contents
assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in CNA’s results of operations in the period in which the need for such adjustment is determined,determined. If the GPV required reserves are less than the existing recorded reserves, the assumptions remain locked in and could materially adversely affect our results of operations and equity and CNA’s business and insurer financial strength and corporate debt ratings. no adjustment is required.
Periodically, CNA engages independent third parties to assess the appropriateness of its best estimate assumptions and the associated GPV required reserves.assumptions. The last independentmost recent third party assessment, was performed in 2017.

CNA’s most recent GPV indicated its future policy benefitearly 2019, validated the assumption setting process and confirmed the best estimate assumptions appropriately reflected the experience data at that time.

Prior to September 30, 2019, the active life reserves for long term care business were not deficientbased on the actuarial best estimate assumptions established at December 31, 2015 as a result of a reserve unlocking in the aggregate, butfourth quarter of 2015. The September 30, 2018 GPV indicated the carried reserves included a margin of approximately $182 million. The September 30, 2019 GPV indicated a premium deficiency of $216 million and future policyholder benefit reserves at that date were increased accordingly. As a result, the long term care active life reserves carried as of September 30, 2019 represent management’s best estimate assumptions at that date with no margin for adverse deviation. A summary of the changes as a result of the 2019 GPV is presented in the table below.
(In millions)
Long term care active life reserve - change in estimated reserve margin
September 30, 2018 estimated margin
$
     182
Changes in underlying discount rate assumptions
(280
)
Changes in underlying morbidity assumptions
32
Changes in underlying persistency assumptions and inforce policy inventory
(234
)
Changes in underlying premium rate action assumptions
58
Changes in underlying expense and other assumptions
26
September 30, 2019 Premium Deficiency
$          (216
)
The premium deficiency was primarily driven by changes in discount rate assumptions driven by lower expected reinvestment rates, contemplating both near-term market indications and long-term normative assumptions. The premium deficiency was also adversely affected by changes in persistency assumptions, primarily from lower projected active life mortality rates. Recognition of margin in earnings subsequent to the 2018 GPV also contributed to the premium deficiency. These unfavorable drivers were partially offset by higher than expected rate increases on active rate increase programs, new planned rate increase filings and favorable changes to the underlying morbidity and expense assumptions.
Subsequent to the 2018 GPV, as CNA’s projections indicated a pattern of expected profits are expected to be recognized in earlyearlier future years followed by losses in later years. In that circumstance, future policy benefit reserves are increased in the profitable years, by an amount necessary to offset losses that are projected to be recognized in later years. The amount of theCNA established additional future policy benefit reserves recorded in each quarterly period is based ondetermined by applying the ratio of the present value of future losses divided by the present value of future profits from the most recently completed2018 GPV applied to the long term care core income.

The GPV process was performedincome during the quarterly periods. As a result of the premium deficiency, recognized in the third quarter of 2018 as compared2019, CNA’s projections no longer indicate a pattern of expected profits in earlier future years followed by expected losses in later future years. As a result, CNA is not currently establishing additional future policy benefit reserves for profits followed by losses in periods where the long term care business generates core income. The need for these additional future policy benefit reserves will be

re-evaluated
in connection with the next GPV, which is expected to be completed in the fourththird quarter of 2017. The September 30, 2018 GPV indicated recorded reserves included a margin2020.

Table of approximately $182 million. A summary of the changes in the estimated reserve margin is presented in the table below:

(In millions)

     

Long term care active life reserve - change in estimated reserve margin

  

2017 estimated margin

  $                246     

Changes in underlying morbidity assumptions

   (213) 

Changes in underlying persistency assumptions and inforce policy inventory

   (86) 

Changes in underlying discount rate assumptions

   17 

Changes in underlying premium rate action assumptions

   178 

Changes in underlying expense and other assumptions

   40 

2018 estimated margin

  $182 
      

The decrease in the margin in 2018 was driven by the removal of the future morbidity improvement assumption and extending the period of mortality improvement within the persistency assumptions. These unfavorable drivers were partially offset by higher than expected rate increases on active rate action programs and favorable changes to the underlying expense and discount rate assumptions.

Contents

The table below summarizes the estimated pretax impact on CNA’s results of operations from various hypothetical revisions to its active life reserve assumptions. The annual GPV process involves updating all assumptions to themanagement’s then current best estimate, and historically all significant assumptions have been revised each year. In the hypothetical revisions table below, CNA has assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy group and would occur absent any changes, mitigating or otherwise, in the other assumptions. Although such hypothetical revisions are not currently required or anticipated, CNA believes they could

75

occur based on past variances in experience and its 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 the 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.

  Estimated Reduction
2018 GPVto Pretax Income
(In millions)   
2019 GPV
Estimated Reduction
to Pretax Income

Hypothetical revisions

(In millions)
 

Morbidity:

5% increase in morbidity

    $460        

10% increase in morbidity

  1,103  

Persistency:

Hypothetical revisions
 

Morbidity:
5% increase in morbidity
$
664        
10% increase in morbidity
1,329        
Persistency:
5% decrease in active life mortality and lapse

 $31        
208        
 

10% decrease in active life mortality and lapse

  253        
427        
 

Discount rates:

 

50 basis point decline in futurenew money interest rates

 $140        
309        
 

100 basis point decline in futurenew money interest rates

  500        
675        
 

Premium rate actions:

 

25% decrease in anticipated future premium rate increases
$
58        
50% decrease in anticipated future premium rate increases

  $-        
115        
 

The following table summarizestables summarize policyholder reserves for CNA’s long term care operations:

December 31, 2018  Claim and claim
adjustment
expenses		   Future
policy benefits		   Total
(In millions)           

Long term care

  $2,761   $9,113   $    11,874     

Structured settlement annuities

   530      530 

Other

   14         14 

Total

   3,305    9,113    12,418 

Shadow adjustments (a)

   115    1,250    1,365 

Ceded reserves (b)

   181    234    415 

Total gross reserves

  $3,601   $10,597   $14,198 
                
December 31, 2017              

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 (a)

   159    1,990    2,149 

Ceded reserves (b)

   209    230    439 

Total gross reserves

  $3,499   $11,179   $14,678 
                

             
December 31, 2019
 
Claim and claim
adjustment
expenses
  
Future
policy benefits
  
Total
 
(In millions)
      
             
Long term care
 $
2,863      
  $
9,470
  $
     12,333    
 
Structured settlement annuities
  
515      
   
   
515    
 
Other
  
12      
   
   
12    
 
  
Total
  
3,390      
   
9,470
   
12,860    
 
Shadow adjustments (a)
  
167      
   
2,615
   
2,782    
 
Ceded reserves (b)
  
159      
   
226
   
385    
 
  
Total gross reserves
 $
     3,716      
  $
     12,311
  $
16,027    
 
 
75
Table of Contents
December 31, 2018
 
Claim and claim
adjustment
expenses
  
Future
policy benefits
  
Total    
 
  
(In millions)
      
             
Long term care
 $
2,761
  $
9,113
  $
     11,874    
 
Structured settlement annuities
  
530
   
   
530    
 
Other
  
14
   
   
14    
 
  
Total
  
3,305
   
9,113
   
12,418    
 
Shadow adjustments (a)
  
115
   
1,250
   
1,365    
 
Ceded reserves (b)
  
181
   
234
   
415    
 
  
Total gross reserves
 $
3,601
  $
10,597
  $
14,198    
 
  
(a)

To the extent that unrealized gains on fixed income securities supporting long term care products and annuity contracts would result in a premium deficiency if those gains were realized, an increase in Insurance reserves is recorded, after tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (loss) (“Shadow Adjustments”).

(b)

Ceded reserves relate to claim or policy reserves fully reinsured in connection with a sale or exit from the underlying business.

76

CATASTROPHES AND RELATED REINSURANCE

CNA generally defines catastrophe loss events in the U.S. consistent with the definition of the Property 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 affects a significant number of policyholders and insurers. For events outside of the U.S., CNA defines a catastrophe as an industry recognized event that generates an accumulation of claims amounting to more than $1 million for the International line of business.

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material
period-to-period
fluctuations in CNA’s results of operations and/or equity. CNA reported catastrophe losses, net of reinsurance, of $252 million, $380$179 million and $165$252 million for the years ended December 31, 2018, 20172019 and 2016.2018. Net catastrophe losses for the year ended December 31, 2019 are related primarily to U.S. weather related events. Net catastrophe losses for the year ended December 31, 2018 included $88 million related to Hurricane Michael, $47 million related to the California wildfires and $33 million related to Hurricane Florence. The remaining net catastrophe losses in 2018 resulted primarily from U.S. weather related events. Net catastrophe losses for the year ended December 31, 2017 included $256 million related to Hurricanes Harvey, Irma and Maria and also required reinsurance reinstatement premium of $4 million. The remaining net catastrophe losses in 2017 resulted primarily from the California wildfires and U.S. weather related events. Net catastrophe losses for the year ended December 31, 2016 related primarily to U.S. weather-related events and the Fort McMurray wildfires.

CNA generally seeks to manage its exposure to catastrophes through the purchase of catastrophe reinsurance and has catastrophe reinsurance treaties that cover property and workers’ compensation losses. CNA conducts an ongoing review of its risk and catastrophe coverages and from time to time make changes as it deems appropriate. The following discussion summarizes CNA’s most significant catastrophe reinsurance coverage at January 1, 2019.

2020.

Group North American Property Treaty

CNA purchased corporate catastrophe
excess-of-loss
treaty reinsurance covering its U.S. states and territories and Canadian property exposures underwritten in its North American and European companies. Exposures underwritten through Hardy are excluded. The treaty has a term of January 1, 2019 to May 1, 2020. The 2019 treaty provides coverage for the accumulation of losses from catastrophe occurrences above CNA’s per occurrence retention of $250 million up to $1.0 billion. There is noco-participation for the treaty term. Losses stemming from terrorism events are covered unless they are due to a nuclear, biological or chemical attack. All layers of the treaty provide for one full reinstatement.


Table of Contents
Group Workers Compensation Treaty

CNA also purchased corporate Workers Compensation catastrophe
excess-of-loss
treaty reinsurance for the period January 1, 20192020 to January 1, 20202021 providing $275 million of coverage for the accumulation of covered losses related to natural catastrophes above CNA’s retention of $25 million. The treaty provides $475 million of coverage for the accumulation of covered losses related to terrorism events above CNA’s retention of $25 million. Of the $475 million in terrorism coverage, $200 million is provided for nuclear, biological, chemical and radiation events. One full reinstatement is available for the first $275 million above the retention, regardless of the covered peril. CNA also purchased a targeted facultative facility to address exposure accumulations in specific peak terrorism zones.

Terrorism Risk Insurance Program Reauthorization Act of 20152019 (“TRIPRA”)

CNA’s principal reinsurance protection against large-scale terrorist attacks, including nuclear, biological, chemical or radiological attacks, is the coverage currently provided through TRIPRA which runshas been extended through the end of 2020.2027. TRIPRA provides a U.S. government backstop for insurance-related losses resulting from any “act of terrorism”, which is certified by the Secretary of Treasury in consultation with the Secretary of Homeland Security for losses that exceed a threshold of $180$200 million industry-wide for the calendar year 2019, with the threshold increasing to $200 million for 2020. Under the current provisions of the program, in 20192020 the federal government will reimburse 81%80% of CNA’s covered losses in excess of its applicable deductible up to a total industry program cap of $100 billion. This amount will decrease to 80% in the year 2020. CNA’s deductible is based on eligible commercial property and casualty earned premiums for the preceding calendar year. Based on 20182019 earned premiums, CNA’s estimated deductible under the program is $1.4 billion$850 million for 2019.2020. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual

77

industry aggregate limit, Congress would be responsible for determining how additional losses in excess of $100 billion will be paid.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the related notes. Actual results could differ from those estimates.

The 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 we believe are reasonable under the known facts and circumstances.

We consider the accounting policies discussed below to be critical to an understanding of our Consolidated Financial Statements as their application places the most significant demands on our judgment. Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from estimates, which may have a material adverse impact on our results of operations and/or equity and CNA’s 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 term care policies and are estimated using actuarial estimates about morbidity and persistency as well as assumptions about expected investment returns and future premium rate increases. The reserve for unearned premiums represents the portion of premiums written related to the unexpired terms of coverage. The reserving process is discussed in further detail in the Insurance Reserves section of this MD&A.


Table of Contents
Long Term Care Reserves
Future policy benefit reserves for CNA’s long term care policies are based on certain assumptions including morbidity, persistency, inclusive of mortality, discount rates and future premium rate increases. The adequacy of the reserves is contingent upon actual experience and CNA’s future expectations related to these key assumptions. If actual or CNA’s expected future experience differs from these assumptions, the reserves may not be adequate, requiring CNA to add to reserves.
A prolonged period during which interest rates remain at levels lower than those anticipated in CNA’s reserving discount rate assumption could result in shortfalls in investment income on assets supporting CNA’s obligations under long term care policies, which may also require an increase to CNA’s reserves. In addition, CNA may not receive regulatory approval for the premium rate increases it requests.
These changes to CNA’s reserves could materially adversely impact our results of operations and equity. The reserving process is discussed in further detail in the Insurance Reserves section of this MD&A.
Reinsurance and Other 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 CNA has ceded under reinsurance agreements. An allowance for doubtful accounts on reinsurance receivables is recorded on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, industry experience and current economic conditions. Further information on CNA’s reinsurance receivables is included in Note 16 of the Notes to Consolidated Financial Statements included under Item 8.

Additionally, exposure exists with respect to the collectibility of amounts due from customers on other receivables. An allowance for doubtful accounts is recorded on the basis of periodic evaluations of balances due, currently as well as in the future, historical reinsurer default data, management’s experience and current economic conditions.

If actual experience differs from the estimates made by management in determining the allowances for doubtful accounts on reinsurance and other receivables, net receivables as reflected on our Consolidated Balance Sheets may not be collected. Therefore, our results of operations and/or equity could be materially adversely affected.

Valuation of Investments and Impairment of Securities

Fixed maturity and equity securities are carried at fair value on the balance sheet. Fair value represents the price that would be received in a sale of an asset in an orderly transaction between market participants on the measurement date, the determination of which requiresmay require us to make a significant number of assumptions and judgments. Securities with the greatest level of subjectivity around valuation are those that rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs are based on assumptions consistent with what we believe other market

78

participants would use to price such securities. Further information on fair value measurements is included in Note 4 of the Notes to Consolidated Financial Statements included under Item 8.

CNA’s investment portfolio is 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 decline is other-than-temporary include a current intention or need to sell the security or an indication that a credit loss exists. Significant judgment exists regarding the evaluation of the financial condition and expected near-term and long term prospects of the issuer, or the underlying collateral, the relevant industry conditions and trends, and whether CNA expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. Further information on CNA’s process for evaluating impairments is included in Note 1 of the Notes to Consolidated Financial Statements included under Item 8.

Long Term Care Policies

Future policy benefit reserves for CNA’s long term care policies are based on certain assumptions including morbidity, persistency, inclusive


Table of mortality, discount rates and future premium rate increases. The adequacy of the reserves is contingent upon actual experience and CNA’s future expectations related to these key assumptions. If actual or CNA’s expected future experience differs from these assumptions, the reserves may not be adequate, requiring CNA to add to reserves.

A prolonged period during which interest rates remain at levels lower than those anticipated in CNA’s reserving discount rate assumption could result in shortfalls in investment income on assets supporting CNA’s obligations under long term care policies, which may also require an increase to CNA’s reserves. In addition, CNA may not receive regulatory approval for the premium rate increases it requests.

These changes to CNA’s reserves could materially adversely impact our results of operations and equity. The reserving process is discussed in further detail in the Insurance Reserves section of this MD&A.

Contents

Impairment of Long-Lived Assets

We review our long-lived assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We use a probability-weighted cash flow analysis to test property and equipment for impairment based on relevant market data. If an asset is determined to be impaired, a loss is recognized to reduce the carrying amount to the fair value of the asset. Management’s cash flow assumptions are an inherent part of our asset impairment evaluation and the use of different assumptions could produce results that differ from the reported amounts.

Income Taxes

Deferred income taxes are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities. Any resulting future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes may not be realized. The assessment of the need for a valuation allowance requires management to make estimates and assumptions about future earnings, reversal of existing temporary differences and available tax planning strategies. If actual experience differs from these estimates and assumptions, the recorded deferred tax asset may not be fully realized, resulting in an increase to income tax expense in our results of operations. In addition, the ability to record deferred tax assets in the future could be limited resulting in a higher effective tax rate in that future period.

ACCOUNTING STANDARDS UPDATE

For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please read Note 1 of the Notes to Consolidated Financial Statements included under Item 8.

79

FORWARD-LOOKING STATEMENTS

Investors are cautioned that certain statements contained in this Report as well as some statements in other SEC filings and periodic press releases of us and our subsidiaries and somecertain oral statements made by us and our subsidiaries and our and their officials during presentations may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include, without limitation, any statement that does not directly relate to any historical or current fact and may project, indicate or imply future results, events, performance or achievements. Such statements may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions. In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected.

Developments in any of the risks or uncertainties facing us or our subsidiaries, including those described under Item 1A, Risk Factors of this Report and in our other filings with the SEC, could cause our results to differ materially from results that have been or may be anticipated or projected. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are a large diversified holding company. As such, we and our subsidiaries have significant amounts of financial instruments that involve market risk. Our measure of market risk exposure represents an estimate of the change in fair value of our financial instruments. Changes in the trading portfolio are recognized in the Consolidated Statements of Income. Market risk exposure is presented for each class of financial instrument held by us at December 31, assuming immediate adverse market movements of the magnitude described below. We believe that the various rates of adverse market movements represent a measure of exposure to loss under hypothetically assumed adverse conditions. The

Table of Contents
estimated market risk exposure represents the hypothetical loss to future earnings and does not represent the maximum possible loss nor any expected actual loss, even under adverse conditions, because actual adverse fluctuations would likely differ. In addition, since our investment portfolio is subject to change based on our portfolio management strategy as well as in response to changes in the market, these estimates are not necessarily indicative of the actual results which may occur.

Exposure to market risk is managed and monitored by senior management. Senior management approves our overall investment strategy and has responsibility to ensure that the investment positions are consistent with that strategy with an acceptable level of risk. We may manage risk by buying or selling instruments or entering into offsetting positions.

Interest Rate Risk – We have exposure to interest rate risk arising from changes in the level or volatility of interest rates. We attempt to mitigate our exposure to interest rate risk by utilizing instruments such as interest rate swaps, commitments to purchase securities, options, futures and forwards. We monitor our sensitivity to interest rate changes by revaluing financial assets and liabilities using a variety of different interest rates. The Company uses 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 is aggregated up to the asset category level.

The evaluation is performed by applying an instantaneous change in the yield rates by varying magnitudes on a static balance sheet to determine the effect such a change in rates would have on the recorded market value of our investments and the resulting effect on shareholders’ equity. The analysis presents the sensitivity of the market value

80

of our financial instruments to selected changes in market rates and prices which we believe are reasonably possible over a one year period.

The sensitivity analysis estimates the change in the fair value of our interest sensitive assets and liabilities that were held on December 31, 20182019 and 20172018 due to an instantaneous change in the yield of the security at the end of the period of 100 basis points, with all other variables held constant.

The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Accordingly, the analysis may not be indicative of, is not intended to provide, and does not provide a precise forecast of the effect of changes of market interest rates on our earnings or shareholders’ equity. Further, the computations do not contemplate any actions we could undertake in response to changes in interest rates.

Our debt is primarily denominated in U.S. dollars and has been primarily issued at fixed rates, therefore, interest expense would not be impacted by interest rate shifts. The impact of a 100 basis point increase in interest rates on fixed rate debt would result in a decrease in market value of $492$554 million and $630$492 million at December 31, 20182019 and 2017.2018. The impact of a 100 basis point decrease would result in an increase in market value of $537$602 million and $694$537 million at December 31, 20182019 and 2017. Consolidated Container2018. Altium Packaging has entered into interest rate swaps for a notional amount of $500$675 million to hedge its exposure to fluctuations in LIBOR on a portion of its variable rate debt. These swaps effectively fix the interest rate on the hedged portion of the term loan at a weighted-average rate of approximately 2.1%2.0% plus an applicable margin. At December 31, 20182019 and 2017,2018, the impact of a 100 basis point increase in interest rates on variable rate debt, net of the effects of the swaps, would increase interest expense by approximately $7$5 million and $5$7 million on an annual basis.

Equity Price Risk – We have exposure to equity price risk as a result of our investment in equity securities and equity derivatives. Equity price risk results from changes in the level or volatility of equity prices which affect the value of equity securities or instruments that derive their value from such securities or indexes. Equity price risk was measured assuming an instantaneous 25% decrease in the underlying reference price or index from its level at December 31, 20182019 and 2017,2018, with all other variables held constant. A model was developed 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 various equity indices. The result of the model allowed us to estimate the change in value of limited partnerships when equity markets decline by 25%.


Table of Contents
Foreign Exchange Rate Risk – Foreign exchange rate risk arises from the possibility that changes in foreign currency exchange rates will impact the value of financial instruments. We have foreign exchange rate exposure when we buy or sell foreign currencies or financial instruments denominated in a foreign currency, which is reduced through the use of forward contracts. The sensitivity analysis assumes an instantaneous 20% decrease in the foreign currency exchange rates versus the U.S. dollar from their levels at December 31, 20182019 and 2017,2018, with all other variables held constant.

Commodity Price Risk – We have exposure to price risk as a result of our investments in commodities. Commodity price risk results from changes in the level or volatility of commodity prices that impact instruments which derive their value from such commodities. Commodity price risk was measured assuming an instantaneous decrease of 20% from their levels at December 31, 20182019 and 2017.

2018.

We have exposure to price risk as a result of Consolidated Container’sAltium Packaging’s purchases of certain raw materials, such as high-density polyethylene, polycarbonate, polypropylene and polyethylene terephthalate resins in connection with the production of its products. The purchase prices of these raw materials are determined based on prevailing market conditions. While Consolidated Container’sAltium Packaging’s operations are affected by fluctuations in resin prices, its net income over time is generally unaffected by these changes as these costs are generally passed through to its customers.

Credit Risk – We are exposed to credit risk relating to the risk of loss resulting from the nonperformance by a customer of its contractual obligations. Although nearly all of the Company’s customers pay for its services on a timely basis, the Company actively monitors the credit exposure to its customers. Certain of the Company’s subsidiaries may perform credit reviews of customers and may require customers to provide cash collateral, post a letter of credit, prepay for services or provide other credit enhancements.

81

The following tables present the estimated effects on the fair value of our financial instruments as of December 31, 20182019 and 20172018 due to an increase in yield rates of 100 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, on the basis of those entered into for trading purposes and other than trading purposes.

Trading portfolio:

  Increase (Decrease)
December 31, 2018

Fair Value Asset

(Liability)

Interest Rate

Risk

    Equity Price    

Risk

(In millions)

Fixed maturities – long

    $157$         (1)   

Equity securities – long

 495$(124)

– short

 (6) 2

Options – purchased

 18 28

– written

 (17) (19)

Other invested assets

 5

Short term investments

 1,926  (4)

                 
     
    Increase (Decrease)    
 
December 31, 2019
 
Fair Value Asset
(Liability)
    
Interest Rate
Risk
  
Equity Price    
Risk    
 
(In millions)
        
                 
Fixed maturities – long
 $
53
   
   
   
 
Equity securities – long
  
440
   
   
  $
     (110)    
 
                             – short
  
(17
)  
   
   
4     
 
Options – purchased
  
1
   
   
   
3     
 
      – written
  
(1
)  
   
   
(5)    
 
Other invested assets
  
7
   
   
   
 
Short term investments
  
    2,521
   
  $
     (5
)  
 

Table of Contents
Other than trading portfolio:

     Increase (Decrease) 
December 31, 2018 

Fair Value Asset

(Liability)

  

Interest Rate

Risk

  

Foreign Currency

Risk

  

    Equity Price    

Risk

 

(In millions)

    

Fixed maturities

 $39,542  $(2,440)          $(406)  

Equity securities

  780   (29)   (3)  $(46)     

Limited partnership investments

  2,424     (308)     

Other invested assets

  53    (9)  

Mortgage loans

  827   (36)   

Short term investments

  1,943   (1)   (24)  

Interest rate swaps (a)

  11   22   

Other derivatives

  4   15   

                   
   
Increase (Decrease)
December 31, 2019
 
Fair Value Asset
(Liability)
  
      Interest Rate
      Risk
  
Foreign Currency
Risk
  
Equity Price
Risk
  
(In millions)
  
   
   
   
  
                   
Fixed maturities (a)
 $
42,187
  $
(2,669
) $
(458
)  
  
Equity securities
  
865
   
(28
)  
(3
) $
       (45)
  
Limited partnership investments
  
2,004
   
   
   
(238)
  
Other invested assets
  
65
   
   
(11
)  
  
Mortgage loans
  
1,025
   
(45
)  
   
  
Short term investments
  
2,107
   
(1
)  
(27
)  
  
Interest rate swaps (b)
  
(8
)  
11
   
   
  
Other derivatives
  
(7
)  
16
   
   
  
(a)

From a financial reporting perspective, Shadow Adjustments related to life and group reserves would reduce the impact of the decrease in fixed maturity securities.

(b)The market risk at December 31, 2019 will generally be offset by recognition of the underlying hedged transaction.
Trading portfolio:
               
   
    Increase (Decrease)    
December 31, 2018
 
Fair Value Asset
(Liability)
  
      Interest Rate
      Risk
  
Equity Price
Risk
  
(In millions)
       
               
Fixed maturities – long
 $
157
  $
     (1
)  
  
Equity securities – long
  
495
   
  $
     (124
)     
                    – short
  
(6
)  
   
2
  
Options – purchased
  
18
   
   
28
  
      – written
  
(17
)  
   
(19
)     
Other invested assets
  
5
   
   
  
Short term investments
  
    1,926
   
(4
)  
  
Other than trading portfolio:
                   
   
Increase (Decrease)
December 31, 2018
 
Fair Value Asset
(Liability)
  
      Interest Rate
      Risk
  
Foreign Currency
Risk
  
Equity Price
Risk
  
(In millions)
         
                   
Fixed maturities
 $
     39,542
  $
     (2,440
) $
     (406
)  
  
Equity securities
  
780
   
(29
)  
(3
) $
(46)
  
Limited partnership investments
  
2,424
   
   
   
    (308)
  
Other invested assets
  
53
   
   
(9
)  
  
Mortgage loans
  
827
   
(36
)  
   
  
Short term investments
  
1,943
   
(1
)  
(24
)  
  
Interest rate swaps (a)
  
11
   
22
   
   
  
Other derivatives
  
4
   
15
   
   
  
(a)The market risk at December 31, 2018 will generally be offset by recognition of the underlying hedged transaction.

82

Trading portfolio:

      Increase (Decrease) 
December 31, 2017  

Fair Value Asset

(Liability)

  

Interest Rate

Risk

  

    Equity Price    

Risk

 

(In millions)

 

    

Fixed maturities – long

  $649  $(1)  

Equity securities – long

   517   $(129)     

– short

   (5)    1 

Options – purchased

   12    16 

– written

   (7)    (15)     

Other invested assets

   60    (1)     

Short term investments

   2,745   

Other derivatives

   1    67 

Other than trading portfolio:

      Increase (Decrease) 
December 31, 2017  

Fair Value Asset

(Liability)

  

Interest Rate

Risk

  

Foreign Currency

Risk

  

    Equity Price

Risk    

 

(In millions)

 

     

Fixed maturities

  $41,484      $(2,559)  $(429)  

Equity securities

   695   (26)   (4)  $(16)     

Limited partnership investments

   3,278     (464)     

Other invested assets

   44    (7)  

Mortgage loans

   844   (40)   

Short term investments

   1,901   (1)   (20)  

Interest rate swaps (a)

   4   26   

Other derivatives

   (3)   17   

(a)

The market risk at December 31, 2017 will generally be offset by recognition of the underlying hedged transaction.

83

Table of Contents
Item 8. Financial Statements and Supplementary Data.

Financial Statements and Supplementary Data are comprised of the following sections:

       Page    
   No.

Management’s Report on Internal Control Over Financial Reporting

  85

Reports of Independent Registered Public Accounting Firm

  86

Consolidated Balance Sheets

  88

Consolidated Statements of Income

  90

Consolidated Statements of Comprehensive Income (Loss)

  91

Consolidated Statements of Equity

  92

Consolidated Statements of Cash Flows

  94

Notes to Consolidated Financial Statements:

  96

1.

  

Summary of Significant Accounting Policies

  96

2.

  

Acquisitions and Divestitures

  106

3.

  

Investments

  108

4.

  

Fair Value

  113

5.

  

Receivables

  119

6.

  

Property, Plant and Equipment

  119

7.

  

Goodwill and Other Intangible Assets

  121

8.

  

Claim and Claim Adjustment Expense Reserves

  121

9.

  

Leases

  136

10.

  

Income Taxes

  136

11.

  

Debt

  140

12.

  

Shareholders’ Equity

  142

13.

  

Revenue from Contracts with Customers

  143

14.

  

Statutory Accounting Practices

  144

15.

  

Benefit Plans

  145

16.

  

Reinsurance

  151

17.

  

Quarterly Financial Data (Unaudited)

  152

18.

  

Legal Proceedings

  153

19.

  

Commitments and Contingencies

  153

20.

  

Segments

  154

84

       
   
    Page    
No.
   
 
  84  
 
  85  
 
  90  
 
  92  
 
  93  
 
  94  
 
  96  
 
  98  
 
1.
 
 
  98  
 
2.
 
 
108  
 
3.
 
 
109  
 
4.
 
 
114  
 
5.
 
 
120  
 
6.
 
 
120  
 
7.
 
 
122  
 
8.
 
 
123  
 
9.
 
 
138  
 
10.
 
 
139  
 
11.
 
 
143  
 
12.
 
 
146  
 
13.
 
 
147  
 
14.
 
 
148  
 
15.
 
 
149  
 
16.
 
 
155  
 
17.
 
 
156  
 
18.
 
 
157  
 
19.
 
 
157  
 
20.
 
 
158 

Table of Contents
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f))
for us. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

There are inherent limitations to the effectiveness of any control system, however well designed, including the possibility of human error and the possible circumvention or overriding of controls. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Management must make judgments with respect to the relative cost and expected benefits of any specific control measure. The design of a control system also is based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that a control will be effective under all potential future conditions. As a result, even an effective system of internal control over financial reporting can provide no more than reasonable assurance with respect to the fair presentation of financial statements and the processes under which they were prepared.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018.2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control – Integrated Framework (2013)
. Based on this assessment, our management believes that, as of December 31, 2018,2019, our internal control over financial reporting was effective.

Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the Company’s internal control over financial reporting. The report of Deloitte & Touche LLP follows this Report.

85


Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Loews Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Loews Corporation and subsidiaries (the “Company”) as of December 31, 2018,2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018,2019, of the Company and our report dated February 13, 2019,11, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in its method of accounting for recognition and measurement of equity securities in 2018.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

New York, NY

February 13, 2019

86

/s/ DELOITTE & TOUCHE LLP
New York, NY
February 11, 2020
85

Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Loews Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Loews Corporation and subsidiaries (the “Company”) as of December 31, 20182019 and 2017,2018, the related consolidated statements of income, comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2018,2019, and the related notes and the schedules listed in the Index at Item 15 (a) 2 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2019, based on criteria established in
Internal Control — Integrated Framework (2013)
 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2019,11, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for recognition and measurement of equity securities in 2018.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
86
Table of Contents
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Claim and claim adjustment expense reserves – Property & TOUCHE LLP

New York, NY

February 13, 2019

Casualty — Refer to Notes 1 and 8 to the consolidated financial statements.

Critical Audit Matter Description
The estimation of property and casualty claim and claim adjustment expense reserves (“P&C claim and claim adjustment expense reserves”), including those claims that are incurred but not reported, requires significant judgment. Estimating P&C claim and claim adjustment expense reserves is subject to a high degree of variability as it involves complex estimates that are generally derived using a variety of actuarial estimation techniques and numerous assumptions and expectations about future events, many of which are highly uncertain. Modest changes in judgments and assumptions can materially impact the valuation of these liabilities, particularly for claims with longer-tailed exposures such as workers’ compensation, general liability and professional liability claims.
Given the significant judgments made by management in estimating P&C claim and claim adjustment expense reserves, auditing P&C claim and claim adjustment expense reserves required a high degree of auditor judgment and an increased extent of effort, including the involvement of our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to P&C claim and claim adjustment expense reserves included the following, among others:
·        We tested the effectiveness of controls related to the determination of P&C claim and claim adjustment expense reserves, including those controls related to the estimation of and management’s review of P&C claim and claim adjustment expense reserves.
·        We tested the underlying data, including historical claims, that served as the basis for the actuarial analyses, to test that the inputs to the actuarial estimates were accurate and complete.
·        With the assistance of our actuarial specialists:
○We developed a range of independent estimates of P&C claim and claim adjustment expense reserves and compared our estimates to the recorded reserves.
○We compared our prior year estimates of expected incurred losses to actual experience during the most recent year to identify potential bias in the Company’s determination of P&C claim and claim adjustment expense reserves.
Future policy benefit reserves – Long Term Care — Refer to Notes 1 and 8 to the consolidated financial statements.
Critical Audit Matter Description
The estimation of long term care future policy benefit reserves (“LTC future policy benefit reserves”) requires significant judgment in the selection of key assumptions, including morbidity, persistency (inclusive of mortality), discount rate and future premium rate increases.

Table of Contents
A gross premium valuation (“GPV”) is performed annually to assess the adequacy of the LTC future policy benefit reserves. The actuarial assumptions underlying the recorded LTC future policy benefit reserves are
“locked-in”
absent an indicated premium deficiency. If the GPV indicates the recorded LTC future policy benefit reserves are not adequate (i.e. a premium deficiency exists), the assumptions are “unlocked” and the recorded LTC future policy benefit reserves are increased to eliminate the premium deficiency.
Estimating future experience for long term care policies is subject to significant estimation risk because the required projection period spans several decades. Morbidity and persistency experience can be volatile while discount rates and premium rate increases can be difficult to predict. Modest changes in each of these assumptions can materially impact the valuation of these liabilities.
Given the significant judgments made by management in estimating LTC future policy benefit reserves, auditing LTC future policy benefit reserves required a high degree of auditor judgment and an increased extent of effort, including the involvement of our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to LTC future policy benefit reserves included the following, among others:
·        We tested the effectiveness of controls related to the determination of LTC future policy benefit reserves, including those controls related to the estimation of and management’s review of LTC future policy benefit reserves.
·        We tested the underlying data, including demographic and historical claims data, that served as the basis for the actuarial analyses, to test that the inputs to the actuarial estimates were accurate and complete.
·        With the assistance of our actuarial specialists:
○We independently recalculated a sample of LTC future policy benefit reserves and compared our estimates to the recorded reserves.
○We evaluated the key assumptions applied in the GPV analysis, including comparing those assumptions to the Company’s historical experience, the underlying investment portfolio yield and market data.
○We assessed the Company’s projection of future cash flows to evaluate the reasonableness of the 2019 charge related to unlocking LTC future policy benefit reserves to recognize a premium deficiency as a result of the most recently completed GPV.
Impairment of Long-Lived Assets– Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The evaluation of offshore drilling equipment, specifically drilling rigs, for impairment occurs whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
When the Company determines that the carrying value of a drilling rig may not be recoverable, they prepare an undiscounted probability-weighted cash flow analysis to determine if there is a potential impairment. This analysis utilizes certain assumptions for each drilling rig under evaluation and considers multiple probability-weighted utilization and dayrate scenarios. The Company’s development of the dayrate assumption involves judgments relative to the current and expected market for the drilling rigs and expectations of future oil and gas prices.
88
Table of Contents
Given the significant judgments made by management to identify indicators of impairment and to prepare probability-weighted cash flow analyses to determine if potential impairments exist, auditing impairment analyses required a high degree of auditor judgment, including the involvement of fair value specialists, and increased extent of effort related to evaluating indicators of impairment and dayrate assumptions used in the undiscounted probability-weighted cash flow analysis.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to (i) the identification of indicators of impairment and (ii) the evaluation of the Company’s undiscounted probability-weighted cash flow analysis for those drilling rigs with factors that indicated potential impairment included the following, among others:
·        We tested the effectiveness of relevant controls related to the Company’s identification of impairment indicators and the Company’s review of the undiscounted probability-weighted cash flow analyses.
·        We evaluated the Company’s identification of impairment indicators by:
○Corroborating information used to identify impairment indicators through independent inquiries of offshore drilling marketing and operations personnel and by performing an independent assessment of potential indicators of impairment utilizing the individual drilling rig history, asset class history for dayrates, backlog and potential drilling rig opportunities.
○Considering industry and analysts reports and the impact of macroeconomic factors, such as future oil and gas prices, on the Company’s process for identifying indicators of impairment.
○Comparing the timing of impairments recorded by the Company with the timing of impairments recorded by the Company’s peers.
·        With the assistance of our fair value specialists, we evaluated the Company’s undiscounted probability-weighted cash flow analysis for those drilling rigs with factors that had indicators of potential impairment by:
○Evaluating the reasonableness of the dayrate assumptions utilized in the Company’s probability-weighted undiscounted cash flow analyses by evaluating potential drilling rig opportunities and considering industry reports and data.
○Comparing the assumptions used in the Company’s previous undiscounted probability-weighted cash flow analyses to the assumptions used in the current undiscounted probability-weighted cash flow analyses to assess for management bias.
/s/ DELOITTE & TOUCHE LLP
New York, NY
February 11, 2020
We have served as the Company’s auditor since 1969.

87

89

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

Assets:

          
December 31       2018              2017         
(Dollar amounts in millions, except per share data)        

Investments:

    

Fixed maturities, amortized cost of $38,234 and $38,861

  $39,699   $42,133     

Equity securities, cost of $1,479 and $1,177

   1,293    1,224     

Limited partnership investments

   2,424    3,278     

Other invested assets, primarily mortgage loans

   901    945     

Short term investments

   3,869    4,646     

Total investments

   48,186    52,226     

Cash

   405    472     

Receivables

   7,960    7,613     

Property, plant and equipment

   15,511    15,427     

Goodwill

   665    659     

Deferrednon-insurance warranty acquisition expenses (Note 1)

   2,513    212     

Deferred acquisition costs of insurance subsidiaries

   633    634     

Other assets

   2,443    2,343     

Total assets

  $78,316   $79,586     

Assets:
December 31
 
2019
  
2018
 
(Dollar amounts in millions, except per share data)
    
Investments:
  
   
 
Fixed maturities, amortized cost of $38,157 and $38,234
 $
 
 
 
 
 
42,240
  $
     
39,699
     
 
Equity securities, cost of $1,244 and $1,479
  
1,306
   
1,293
     
 
Limited partnership investments
  
2,004
   
2,424
     
 
Other invested assets, primarily mortgage loans
  
1,072
   
901
     
 
Short term investments
  
4,628
   
3,869
     
 
         
Total investments
  
51,250
   
48,186
     
 
Cash
  
336
   
405
     
 
Receivables
  
7,675
   
7,960
     
 
Property, plant and equipment
  
15,568
   
15,511
     
 
Goodwill
  
767
   
665
     
 
Deferred
non-insurance
warranty acquisition expenses
  
2,840
   
2,513
     
 
Deferred acquisition costs of insurance subsidiaries
  
662
   
633
     
 
Other assets
  
3,145
   
2,443
     
 
         
Total assets
 $
82,243
  $
78,316
     
 
         
See Notes to Consolidated Financial Statements.

88

9
0

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

Liabilities and Equity:

         

December 31

  2018  2017 

(Dollar amounts in millions, except per share data)

 

       

Insurance reserves:

   

Claim and claim adjustment expense

  $21,984  $22,004 

Future policy benefits

   10,597   11,179 

Unearned premiums

   4,183   4,029 

Total insurance reserves

   36,764   37,212 

Payable to brokers

   42   60 

Short term debt

   17   280 

Long term debt

   11,359   11,253 

Deferred income taxes

   841   749 

Deferrednon-insurance warranty revenue (Note 1)

   3,402   972 

Other liabilities

   4,505   4,494 

Total liabilities

   56,930   55,020 

Commitments and contingent liabilities

   

Shareholders’ equity:

   

Preferred stock, $0.10 par value:

   

Authorized – 100,000,000 shares

   

Common stock, $0.01 par value:

   

Authorized – 1,800,000,000 shares

   

Issued – 312,169,189 and 332,487,815 shares

   3   3 

Additionalpaid-in capital

   3,627   3,151 

Retained earnings

   15,773   16,096 

Accumulated other comprehensive loss

   (880)   (26) 
   18,523   19,224 

Less treasury stock, at cost (100,000 and 400,000 shares)

   (5)   (20) 

Total shareholders’ equity

   18,518   19,204 

Noncontrolling interests

   2,868   5,362 

Total equity

   21,386   24,566 

Total liabilities and equity

  $    78,316  $    79,586 

Liabilities and Equity:
December 31
 
2019
  
2018
 
(Dollar amounts in millions, except per share data)
    
Insurance reserves:
  
   
 
Claim and claim adjustment expense
 $
21,720
  $
21,984
 
Future policy benefits
  
12,311
   
10,597
 
Unearned premiums
  
4,583
   
4,183
 
         
Total insurance reserves
  
38,614
   
36,764
 
Payable to brokers
  
108
   
42
 
Short term debt
  
77
   
17
 
Long term debt
  
11,456
   
11,359
 
Deferred income taxes
  
1,168
   
841
 
Deferred
non-insurance
warranty revenue
  
3,779
   
3,402
 
Other liabilities
  
5,111
   
4,505
 
         
Total liabilities
  
60,313
   
56,930
 
         
Commitments and contingent liabilities
  
 
   
 
Shareholders’ equity:
  
   
 
Preferred stock, $0.10 par value:
  
   
 
Authorized – 100,000,000 shares
  
 
   
 
Common stock, $0.01 par value:
  
   
 
Authorized – 1,800,000,000 shares
  
 
   
 
Issued – 291,210,222 and 312,169,189 shares
  
3
   
3
 
Additional
paid-in
capital
  
3,374
   
3,627
 
Retained earnings
  
15,823
   
15,773
 
Accumulated other comprehensive loss
  
(68
)  
(880
)
         
  
    
19,132
   
    
18,523
 
Less treasury stock, at cost (240,000 and 100,000 shares)
  
(13
)  
(5
)
         
Total shareholders’ equity
  
19,119
   
18,518
 
Noncontrolling interests
  
2,811
   
2,868
 
         
Total equity
  
21,930
   
21,386
 
         
Total liabilities and equity
 $
82,243
  $
78,316
 
         
See Notes to Consolidated Financial Statements.

89

9
1

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31  2018  2017  2016 

(In millions, except per share data)

    

Revenues:

    

Insurance premiums

  $      7,312  $      6,988  $      6,924 

Net investment income

   1,817   2,182   2,135 

Investment gains (losses):

    

Other-than-temporary impairment losses

   (21)   (14)   (81) 

Other net investment gains (losses)

   (36)   136   131 

Total investment gains (losses)

   (57)   122   50 

Non-insurance warranty revenue (Notes 1 and 13)

   1,007   390   361 

Operating revenues and other

   3,987   4,053   3,635 

Total

   14,066   13,735   13,105 

Expenses:

    

Insurance claims and policyholders’ benefits

   5,572   5,310   5,283 

Amortization of deferred acquisition costs

   1,335   1,233   1,235 

Non-insurance warranty expense (Notes 1 and 13)

   923   299   271 

Operating expenses and other (Note 6)

   4,828   4,665   4,844 

Interest

   574   646   536 

Total

   13,232   12,153   12,169 

Income before income tax

   834   1,582   936 

Income tax expense

   (128)   (170)   (220) 

Net income

   706   1,412   716 

Amounts attributable to noncontrolling interests

   (70)   (248)   (62) 

Net income attributable to Loews Corporation

  $636  $1,164  $654 

 

 

 

 

Basic net income per common share

  $1.99  $3.46  $1.93 

 

 

 

 

Diluted net income per common share

  $1.99  $3.45  $1.93 

 

 

 

 

Basic weighted average number of shares outstanding

   319.06   336.61   337.95 

Diluted weighted average number of shares outstanding

   319.93   337.50   338.31 

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions, except per share data)
      
Revenues:
  
   
   
 
Insurance premiums
 $
7,428
  $
7,312
  $
6,988
 
Net investment income
  
2,355
   
1,817
   
2,182
 
Investment gains (losses):
  
   
   
 
Other-than-temporary impairment losses
  
(44
)  
(21
)  
(14
)
Other net investment gains (losses)
  
93
   
(36
)  
136
 
             
Total investment gains (losses)
  
49
   
(57
)  
122
 
Non-insurance
warranty revenue
  
1,161
   
1,007
   
390
 
Operating revenues and other
  
3,938
   
3,987
   
4,053
 
             
Total
  
    
14,931
   
14,066
   
13,735
 
             
Expenses:
  
   
   
 
Insurance claims and policyholders’ benefits
  
5,806
   
5,572
   
5,310
 
Amortization of deferred acquisition costs
  
1,383
   
1,335
   
1,233
 
Non-insurance
warranty expense
  
1,082
   
923
   
299
 
Operating expenses and other
  
4,950
   
4,828
   
4,665
 
Interest
  
591
   
574
   
646
 
             
Total
  
13,812
   
13,232
   
12,153
 
             
Income before income tax
  
1,119
   
834
   
1,582
 
Income tax expense
  
(248
)  
(128
)  
(170
)
             
Net income
  
871
   
706
   
1,412
 
Amounts attributable to noncontrolling interests
  
61
   
(70
)  
(248
)
             
Net income attributable to Loews Corporation
 $
932
  $
636
  $
1,164
 
             
Basic net income per common share
 $
3.08
  $
1.99
  $
3.46
 
             
Diluted net income per common share
 $
3.07
  $
1.99
  $
3.45
 
             
Basic weighted average number of shares outstanding
  
302.70
   
319.06
   
336.61
 
Diluted weighted average number of shares outstanding
  
303.35
   
319.93
   
337.50
 
See Notes to Consolidated Financial Statements.

90

9
2

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended December 31  2018  2017  2016 

(In millions)

    

Net income

  $      706  $      1,412  $      716 

Other comprehensive income (loss), after tax

    

Changes in:

    

Net unrealized gains (losses) on investments with other-than-temporary impairments

   (14)   (5)   3 

Net other unrealized gains (losses) on investments

   (798)   108   257 

Total unrealized gains (losses) on investments

   (812)   103   260 

Unrealized gains on cash flow hedges

   6   3   2 

Pension liability

   (2)   12   5 

Foreign currency translation

   (84)   100   (114) 

Other comprehensive income (loss)

   (892)   218   153 

Comprehensive income (loss)

   (186)   1,630   869 

Amounts attributable to noncontrolling interests

   25   (269)   (81) 

Total comprehensive income (loss) attributable to Loews Corporation

  $(161)  $1,361  $788 

 

 

 

 

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Net income
 $
871
  $
     
706
  $
     
1,412
 
             
Other comprehensive income (loss), after tax
 Changes in:
  
 
   
   
 
Net unrealized losses on investments with other-than-temporary impairments
  
(1
)  
(14
)  
(5
)
Net other unrealized gains (losses) on investments
  
949
   
(798
)  
108
 
             
Total unrealized gains (losses) on investments
  
948
   
(812
)  
103
 
Unrealized gains (losses) on cash flow hedges
  
(11
)  
6
   
3
 
Pension and postretirement benefits
  
(68
)   
(2
)  
12
 
Foreign currency translation
  
42
   
(84
)  
100
 
             
Other comprehensive income (loss)
  
911
   
(892
)  
218
 
             
Comprehensive income (loss)
  
    
1,782
   
(186
)  
1,630
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to noncontrolling interests
  
(38
)  
25
   
(269
)
             
Total comprehensive income (loss) attributable to Loews Corporation
 $
1,744
  $
(161
) $
1,361
 
             
See Notes to Consolidated Financial Statements.

91

9
3

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

      Loews Corporation Shareholders    
                Accumulated  Common    
          Additional     Other  Stock    
      Common   Paid-in  Retained  Comprehensive  Held in  Noncontrolling 
    Total  Stock   Capital  Earnings  Income (Loss)  Treasury  Interests 

(In millions)

         

Balance, January 1, 2016

  $    22,810  $3   $3,184  $      14,731  $(357)  $-   $5,249 

Net income

   716      654     62 

Other comprehensive income

   153       134    19 

Dividends paid ($0.25 per share)

   (218)      (84)     (134) 

Purchases of subsidiary stock from noncontrolling interests

   (9)     3      (12) 

Purchases of Loews treasury stock

   (134)        (134)  

Retirement of treasury stock

   -     (32)   (102)    134  

Stock-based compensation

   47     45      2 

Other

   (4)        (13)   (3)           12 

Balance, December 31, 2016

  $23,361  $3   $3,187  $15,196  $(223)  $-   $5,198 

Net income

   1,412      1,164     248 

Other comprehensive income

   218       197    21 

Dividends paid ($0.25 per share)

   (223)      (84)     (139) 

Purchases of Loews treasury stock

   (237)        (237)  

Retirement of treasury stock

   1     (41)   (175)    217  

Stock-based compensation

   35     2      33 

Other

   (1)        3   (5)           1 

Balance, December 31, 2017

  $24,566  $3   $3,151  $16,096  $(26)  $(20)  $5,362       
                               

                             
   
Loews Corporation Shareholders
   
         
Accumulated
  
Common
   
     
Additional
    
Other
  
Stock
   
   
Common
  
Paid-in
  
Retained
  
Comprehensive
  
Held in
  
Noncontrolling
 
 
Total
  
Stock
  
Capital
  
Earnings
  
Income (Loss)
  
Treasury
  
Interests
 
(In millions)
              
Balance, January 1, 2017
 $
23,361
  $
3
  $
3,187
  $
15,196
  $
(223
) $
-
  $
5,198
 
Net income
  
1,412
   
   
   
1,164
   
   
   
248
 
Other comprehensive income
  
218
   
   
   
   
197
   
   
21
 
Dividends paid ($0.25 per share)
  
(223
)  
   
   
(84
)  
   
   
(139
)
Purchases of Loews treasury stock
  
(237
)  
   
   
   
   
(237
)  
 
Retirement of treasury stock
  
1
   
   
(41
)  
(175
)  
   
217
   
 
Stock-based compensation
  
35
   
   
2
   
   
   
   
33
 
Other
  
(1
)  
   
3
   
(5
)  
   
   
1
 
                             
Balance, December 31, 2017
 $
24,566
  $
3
  $
3,151
  $
16,096
  $
(26
) $
(20
) $
5,362
 
Cumulative effect adjustments from changes in accounting standards
  
(91
)  
   
   
(43
)  
(28
)  
   
(20
)
                             
Balance, January 1, 2018, as adjusted
  
24,475
   
3
   
3,151
   
16,053
   
(54
)  
(20
)  
5,342
 
Net income
  
706
   
   
   
636
   
   
   
70
 
Other comprehensive loss
  
(892
)  
   
   
   
(797
)  
   
(95
)
Dividends paid ($0.25 per share)
  
(201
)  
   
   
(80
)  
   
   
(121
)
Purchase of Boardwalk Pipelines common units
  
(1,718
)  
   
658
   
   
(29
)  
   
(2,347
)
Purchases of Loews treasury stock
  
(1,011
)  
   
   
   
   
(1,011
)  
 
Retirement of treasury stock
  
-
   
   
(195
)  
(831
)  
   
1,026
   
 
Stock-based compensation
  
31
   
   
19
   
   
   
   
12
 
Other
  
(4
)  
   
(6
)  
(5
)  
   
   
7
 
                             
Balance, December 31, 2018
 $
21,386
  $
3
  $
3,627
  $
15,773
  $
(880
) $
(5
) $
2,868
 
                             
See Notes to Consolidated Financial Statements.

92

9
4

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

      Loews Corporation Shareholders    
                Accumulated  Common    
          Additional     Other  Stock    
      Common   Paid-in  Retained  Comprehensive  Held in  Noncontrolling 
    Total  Stock   Capital  Earnings  Income (Loss)  Treasury  Interests 

(In millions)

         

Balance, December 31, 2017

  $24,566  $3   $3,151  $16,096  $(26)  $(20)  $5,362 

Cumulative effect adjustments from changes in accounting standards (Note 1)

   (91)            (43)   (28)       (20) 

Balance, January 1, 2018, as adjusted

   24,475   3    3,151   16,053   (54)   (20)   5,342 

Net income

   706      636     70 

Other comprehensive loss

   (892)       (797)    (95) 

Dividends paid ($0.25 per share)

   (201)      (80)     (121) 

Purchase of Boardwalk Pipeline common units

   (1,718)     658    (29)    (2,347) 

Purchases of Loews treasury stock

   (1,011)        (1,011)  

Retirement of treasury stock

   -     (195)   (831)    1,026  

Stock-based compensation

   31     19      12 

Other

   (4)        (6)   (5)           7 

Balance, December 31, 2018

  $   21,386  $3   $3,627  $15,773  $(880)  $(5)  $2,868         
                               

                             
   
Loews Corporation Shareholders
   
         
Accumulated
  
Common
   
     
Additional
    
Other
  
Stock
   
   
Common
  
Paid-in
  
Retained
  
Comprehensive
  
Held in
  
Noncontrolling
 
 
Total
  
Stock
  
Capital
  
Earnings
  
Income (Loss)
  
Treasury
  
Interests
 
(In millions)
              
Balance, December 31, 2018
 $
21,386
  $
3
  $
3,627
  $
15,773
  $
(880
) $
(5
) $
2,868
 
Net income
 
 
871
 
 
 
 
 
 
 
 
 
 
 
932
 
 
 
 
 
 
 
 
 
 
 
(61
)
Other comprehensive income
  
911
   
 
   
 
   
 
   
812
   
 
   
99
 
Dividends paid ($0.25 per share)
  
(174
)
 
  
 
   
 
   
(76
)
 
  
 
   
 
   
(98
)
Purchase of subsidiary stock from noncontrolling interests
 
 
 
 
 
(23
)
 
  
 
   
 
   
 
   
 
   
 
   
(23
)
Purchases of Loews treasury stock
  
(1,059
)
 
  
 
   
 
   
 
   
 
   
(1,059
)
 
  
 
 
Retirement of treasury stock
  
-
   
 
   
(248
)
 
  
(803
)
 
  
 
   
1,051
   
 
 
Stock-based compensation
  
27
   
 
   
4
   
 
   
 
   
 
   
23
 
Other
  
(9
)
 
  
 
   
(9
)
 
  
(3
)
 
  
 
   
 
   
3
 
                             
Balance, December 31, 2019
 $
21,930
  $
3
  $
3,374
  $
15,823
  $
(68
)
 
 $
(13
)
 
 $
2,811
 
                             
See Notes to Consolidated Financial Statements.

93

9
5

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31

  2018  2017  2016 

(In millions)

    

Operating Activities:

    

Net income

  $      706  $      1,412  $      716 

Adjustments to reconcile net income to net cash provided (used) by operating activities:

    

Investment (gains) losses

   57   (122)   (50) 

Equity method investees

   572   25   221 

Amortization of investments

   (70)   (40)   (27)     

Depreciation and amortization

   912   874   841 

Asset impairments

   44   106   697 

Provision for deferred income taxes

   86   (47)   102 

Othernon-cash items

   72   164   73 

Changes in operating assets and liabilities, net:

    

Receivables

   (131)   93   24 

Deferred acquisition costs

   (6)   (24)   (8) 

Insurance reserves

   482   22   237 

Other assets

   (102)   (95)   (71) 

Other liabilities

   (102)   114   26 

Trading securities

   1,702   108   (528) 

Net cash flow operating activities

   4,222   2,590   2,253 

Investing Activities:

    

Purchases of fixed maturities

   (10,785)   (9,065)   (9,827) 

Proceeds from sales of fixed maturities

   8,408   5,438   5,332 

Proceeds from maturities of fixed maturities

   2,370   3,641   3,219 

Purchases of limited partnership investments

   (420)   (171)   (355) 

Proceeds from sales of limited partnership investments

   470   212   327 

Purchases of property, plant and equipment

   (995)   (1,031)   (1,450) 

Acquisitions

   (37)   (1,218)   (79) 

Dispositions

   113   79   330 

Change in short term investments

   (339)   (167)   158 

Other, net

   (229)   (373)   158 

Net cash flow investing activities

   (1,444)   (2,655)   (2,187) 

94

             
Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Operating Activities:
  
   
   
 
Net income
 $
871
  $
706
  $
1,412
 
Adjustments to reconcile net income to net cash provided (used) by operating activities:
  
   
   
 
Investment (gains) losses
  
(49
)  
57
   
(122)
 
Equity method investees
  
20
   
572
   
25
 
Amortization of investments
  
(89
)  
(70
)  
(40)
 
Depreciation and amortization
  
943
   
912
   
874
 
Asset impairments
  
99
   
44
   
106
 
Provision for deferred income taxes
  
70
   
86
   
(47)
 
Other
non-cash
items
  
87
   
72
   
164
 
Changes in operating assets and liabilities, net:
  
   
   
 
Receivables
  
114
   
(131
)  
93
 
Deferred acquisition costs
  
(26
)  
(6
)  
(24)
 
Insurance reserves
  
358
   
482
   
22
 
Other assets
  
(356
)  
(102
)  
(95)
 
Other liabilities
  
193
   
(102
)  
114
 
Trading securities
  
(494
)  
1,702
   
108
 
             
Net cash flow provided by operating activities
  
1,741
   
4,222
   
2,590
 
             
Investing Activities:
  
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of fixed maturities
  
(8,661
)  
(10,785
)  
(9,065)
 
Proceeds from sales of fixed maturities
  
5,842
   
8,408
   
5,438
 
Proceeds from maturities of fixed maturities
  
2,997
   
2,370
   
3,641
 
Purchases of limited partnership investments
  
(198
)  
(420
)  
(171)
 
Proceeds from sales of limited partnership investments
  
742
   
470
   
212
 
Purchases of property, plant and equipment
  
(1,041
)  
(995
)  
(1,031)
 
Acquisitions
  
(257
)  
(37
)  
(1,218)
 
Dispositions
  
140
   
113
   
79
 
Change in short term investments
  
(57
)  
(339
)  
(167)
 
Other, net
  
(178
)  
(229
)  
(373)
 
             
Net cash flow used by investing activities
  
(671
)  
(1,444
)  
(2,655)
 
             
9
6

Table of Contents
Loews Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31

  2018  2017  2016 

(In millions)

    

Financing Activities:

    

Dividends paid

  $        (80)  $        (84)  $        (84)     

Dividends paid to noncontrolling interests

   (121)   (139)   (134) 

Purchase of Boardwalk Pipeline common units

   (1,504)   

Purchases of Loews treasury stock

   (1,026)   (216)   (134) 

Principal payments on debt

   (1,043)   (2,411)   (3,418) 

Issuance of debt

   865   3,067   3,614 

Other, net

   74   (16)   (10) 

Net cash flow financing activities

   (2,835)   201   (166) 

Effect of foreign exchange rate on cash

   (10)   9   (13) 

Net change in cash

   (67)   145   (113) 

Cash, beginning of year

   472   327   440 

Cash, end of year

  $405  $472  $327 
              

             
Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Financing Activities:
  
   
   
 
Dividends paid
 $
(76
) $
(80
) $
(84)
    
 
Dividends paid to noncontrolling interests
  
(98
)  
(121
)  
(139)
    
 
Purchase of Boardwalk Pipeline common units
  
 
   
(1,504
)  
 
Purchases of Loews treasury stock
  
(1,051
)  
(1,026
)  
(216)
    
 
Purchases of subsidiary stock from noncontrolling interests
  
(23
)  
   
 
Principal payments on debt
  
(1,956
)  
(1,043
)  
(2,411)
      
 
Issuance of debt
  
2,076
   
865
   
3,067
     
 
Other, net
  
(16
)  
74
   
(16)
    
 
             
Net cash flow (used) provided by financing activities  
(1,144
)  
(2,835
)  
201
     
 
             
Effect of foreign exchange rate on cash
  
5
   
(10
)  
9
     
 
             
Net change in cash
  
(69
)  
(67
)  
145
     
 
Cash, beginning of year
  
405
   
472
   
327
     
 
             
Cash, end of year
 $
         
336
  $
         
405
  $
         
472
     
 
             
See Notes to Consolidated Financial Statements.

95

9
7

Table of Contents
Loews Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies

Basis of presentation
 –
Loews Corporation is a holding company. Its subsidiaries are engaged in the following lines of business: commercial property and casualty insurance (CNA Financial Corporation (“CNA”), aan 89% owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (“Diamond Offshore”), a 53% owned subsidiary); transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”Pipelines”), a wholly owned subsidiary); the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels & Co”), a wholly owned subsidiary); and the manufacture of rigid plastic packaging solutions (Consolidated(
Altium Packaging LLC
,
formerly known as Consolidated Container Company LLC
 (“Consolidated Container”
Altium Packaging
”), a 99%
owned subsidiary). Unless the context otherwise requires, (i) the terms “Company,”“Company” and “Loews” and “Registrant” as used herein mean Loews Corporation excludingincluding its subsidiaries and (ii) the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders.

Principles of consolidation
– The Consolidated Financial Statements include all subsidiaries and intercompany accounts and transactions have been eliminated. The equity method of accounting is used for investments in associated companies in which the Company generally has an interest of 20% to 50%.

Accounting estimates
– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes. Actual results could differ from those estimates.

Investments
– The Company classifies its fixed maturity securities as either
available-for-sale
or trading, and as such, they are carried at fair value. Short term investments are carried at fair value. Changes in fair value of trading securities are reported within Net investment income on the Consolidated Statements of Income. Changes in fair value related to
available-for-sale
securities are reported as a component of Other comprehensive income. Losses may be recognized within the Consolidated Statements of Income 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 Income. The amortization of premium and accretion of discount for fixed maturity securities takes into consideration call and maturity dates that produce the lowest yield.

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.

To the extent that unrealized gains on fixed maturity securities supporting long term care products and structured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (“Shadow Adjustments”). Shadow Adjustments decreased $298 millionincreased $1.0 
b
illion (after tax and noncontrolling interests) and increased $355decreased $298 million (after tax and noncontrolling interests) for the years ended December 31, 20182019 and 2017.2018. As of December 31, 20182019 and 2017,2018, net unrealized gains on investments included in Accumulated other comprehensive income (“AOCI”) were correspondingly reduced by Shadow Adjustments of $2.0 
b
illion and $964 million and $1.3 billion (after tax and noncontrolling interests).

9
8
Table of Contents
Equity securities are carried at fair value. CNA’s
non-redeemable
preferred stock investments contain characteristics of debt securities, are priced similarly to bonds and are held primarily for income generation through periodic dividends. While recognition of gains and losses on these securities is not discretionary, CNA does not consider the changes in fair value of
non-redeemable
preferred stock to be reflective of its primary operations. As such, the changes in the fair value of these securities are recorded through Net realized investmentsInvestment gains (losses).

96

The T

he Company owns certain common stock with the intention of holding the securities primarily for market appreciation and as such, the changes in the fair value of these securities are recorded through Net investment income (loss). Prior to 2018, a portfolio of equity securities werew
as
 considered
available-for-sale
with changes in fair value reported as a component of Other comprehensive income (loss).

The Company’s carrying value of investments in limited partnerships is its share of the net asset value of each partnership, as determined by the general partner. Certain partnerships for which results are not available on a timely basis are reported on a lag, primarily three months or less. These investments are accounted for under the equity method and changes in net asset values are recorded within Net investment income on the Consolidated Statements of Income.

Mortgage loans are commercial in nature, are carried at unpaid principal balance, net of unamortized fees and any valuation allowance, and are recorded once funded. 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. CNA evaluates loans for impairment on an individual 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, 2019 and 2018, there were no loans past due or in
non-accrual
status, and no valuation allowance was recorded.
Investments in derivative securities are carried at fair value with changes in fair value reported as a component of Investment gains (losses), Income (loss) from trading portfolio, or Other comprehensive income (loss), depending on their hedge designation. A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument, index or rate, has a notional amount, requires little or no initial investment and can be net settled. Derivatives include, but are not limited to, the following types of investments: interest rate swaps, interest rate caps and floors, put and call options, warrants, futures, forwards, commitments to purchase securities, credit default swaps and combinations of the foregoing. Derivatives embedded within
non-derivative
instruments (such as call options embedded in convertible bonds) must be split from the host instrument when the embedded derivative is not clearly and closely related to the host instrument.

An
available-for-sale
security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded other-than-temporary impairment (“OTTI”) losses, otherwise defined as an unrealized loss. When a security is impaired, the impairment is evaluated to determine whether it is temporary or other-than-temporary.

When the decline in value is determined by the Company to be other-than-temporary, losses are recognized within Investment gains (losses) on the Consolidated Statements of Income.
Significant judgment is required in the determination of whether an OTTI loss has occurred for a security. CNA follows a consistent and systematic process for determining and recording an OTTI loss including the evaluation of securities in an unrealized loss position on at least a quarterly basis.

CNA’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that CNA 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 a credit loss exists. The factors considered include: (i) the financial condition and near term and long term prospects of the issuer, (ii) whether the debtor is current on interest and principal payments, (iii) credit ratings of the securities and (iv) general market conditions and industry or sector specific outlook. CNA also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities.

The focus

9
9
Table 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. Contents
If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is 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.

CNA performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability. 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.

97

Prior to 2018, CNA applied the same impairment model as described above for the majority of its
non-redeemable
preferred stock securities on the basis that these securities possess characteristics similar to debt securities. For all other equity securities, in determining whether the security was other-than-temporarily impaired, CNA considered a number of factors including, but not limited to: (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near term prospects of the issuer, (iii) the intent and ability of CNA to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (iv) general market conditions and industry or sector specific outlook.

Joint venture investments
– The Company had approximately 20% to 50%
Loews Hotels &
Co
has
 interests in operating joint ventures related to hotel properties that are accounted for under
over which it exercises significant influence, but does not have control over them.
Loews Hotels &
Co
 uses
the equity method. The Company’smethod
of accounting for these investments
. Loews Hotels &
Co’s
 investment in these entities was $312$
356
 million and $237$
312
 million for the years ended
as of
December 
31
,
2019
and
2018 and 2017
and reported in Other assets on the Company’s Consolidated Balance Sheets. Equity income for these investments was $73$
69
 million, $81$
73
 million and $41$
81
 million for the years ended December 
31
,
2019
,
2018
and
2017 and 2016
and reported in Operating expenses and other on the Company’s Consolidated Statements of Income.

These equity method investments are reviewed for impairment when changes in circumstances indicate that the carrying value of the asset may not be recoverable.
The following tables present summarized financial information for these joint ventures:

Year Ended December 31       2018   2017 

(In millions)

 

            

Total assets

    $    1,924   $    1,703     

Total liabilities

     1,451    1,347 
Year Ended December 31  2018   2017   2016 

Revenues

  $        731   $        731   $        693 

Net income

   114    261    80 

         
Year Ended December 31
 
2019
  
2018
 
(In millions)
    
Total assets
  
$      2,261
   
$      1,924
 
Total liabilities
  
1,727
   
1,451
 
             
Year Ended December 31
 
2019
  
2018
  
2017
 
Revenues
  
$        804
   
$       731
   
$         731
 
Net income
  
106
   
114
   
261
 
Hedging
– The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedging transactions. The Company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative for which hedge accounting has been designated is not (or ceases to be) highly effective, the Company discontinues hedge accounting prospectively. See Note 3 for additional information on the Company’s use of derivatives.

Securities lending activities
– The Company lends securities for the purpose of enhancing income or to finance positions to unrelated parties who have been designated as primary dealers by the Federal Reserve Bank of New York. Borrowers of these securities must deposit and maintain collateral with the Company of no less than 100% of the fair value of the securities loaned. United States of America (“U.S.”) Government securities and cash are accepted as collateral. The Company maintains effective control over loaned securities and, therefore, continues to report such securities as investments on the Consolidated Balance Sheets.

100
Table of Contents
Securities lending is typically done on a matched-book basis where the collateral is invested to substantially match the term of the loan. This matching of terms tends to limit risk. In accordance with the Company’s lending agreements, securities on loan are returned immediately to the Company upon notice. Collateral is not reflected as an asset of the Company. There was no collateral held at December 31, 20182019 and 2017.

2018.

Revenue recognition
– Premiums on property and casualty insurance contracts are recognized in proportion to the underlying risk insured and are principally earned ratably over the term of the policies. Premiums on long 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.

98

Insurance receivables include balances due currently or in the future, including amounts due from insureds related to
paid
losses under high deductible policies, and are presented at unpaid balances, net of an allowance for doubtful accounts. Amounts are considered past due based on policy payment terms. The allowance is determined based on periodic evaluations of aged receivables, historical business default data, management’s experience and current economic conditions. Insurance receivables and any related allowance are written off after collection efforts are exhausted or a negotiated settlement is reached.

Property and casualty contracts that are retrospectively rated contain provisions that result in an adjustment to the initial policy premium depending on the contract provisions and loss experience of the insured during the experience period. For such contracts, CNA estimates the amount of ultimate premiums that it may earn upon completion of the experience period and recognizes either an asset or a liability for the difference between the initial policy premium and the estimated ultimate premium. CNA adjusts such estimated ultimate premium amounts during the course of the experience period based on actual results to date. The resulting adjustment is recorded as either a reduction of or an increase to the earned premiums for the period.

CNA’s
non-insurance
warranty revenues are primarily generated from separately-priced service contracts that provide mechanical breakdown and other coverages to vehicle or consumer goods owners, which generally provide coverage from one month to ten years. For warranty products where CNA acts as the principal in the transaction,non-insurance
N
on-insurance
warranty revenues arerevenue
 i
s reported on a gross basis, with amounts paid by customers reported as
Non-insurance
warranty revenue and commissions paid to agents reported as
Non-insurance
warranty expense on the Consolidated Statements of Income.
Prior to 2018,
Non-insurance
warranty revenue was recognized net of dealer costs and earned based on the estimated claims emergence pattern over the contract period.
Additionally, CNA provides warranty administration services for dealer and manufacturer warranty products.
Non-insurance
revenues are recognized when obligations under the terms of the contract with CNA’s customers are satisfied, which is generally over time as obligations are fulfilled. CNA recognizes
non-insurance
warranty revenuesrevenue over the service period in proportion to the actuarially determined expected claims emergence pattern. Customers pay in full at the inception of the warranty contract. The liability for unearned warranty revenue, reported as Deferred
non-insurance
warranty revenue on the Consolidated Balance Sheets, represents the unearned portion of revenue in advance of CNA’s performance, including amounts which are refundable upon cancellation.

Contract costs to obtain or fulfill
non-insurance
warranty contracts with customers are deferred and recorded as Deferred
non-insurance
warranty acquisition expenses on the Consolidated Balance Sheets. These costs are expected to be recoverable over the term of the contract and are amortized in the same manner the related revenue is recognized. CNA evaluates deferred costs for recoverability including consideration of anticipated investment income. Adjustments to deferred costs, if necessary, are recorded in the current period results of operations.
Diamond Offshore’s contract drilling revenues primarily result from providing a drilling rig and the crew and supplies necessary to operate the rig, mobilizing and demobilizing the rig to and from the drill site and performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue for the purchase of supplies, equipment, personnel services and other services requested by the customer. Diamond Offshore accounts for these integrated services provided within its drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which drilling services are provided. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. The standard contract term ranges from two to 60 months.

10
1
Table of Contents
Boardwalk PipelinePipelines primarily earns revenues by providing transportation and storage services for natural gas and natural gas liquids and hydrocarbons (referred to together as “NGLs”) on a firm and interruptible basis and provides interruptible natural gas parking and lending services. The majority of Boardwalk Pipeline’sPipelines’ operating subsidiaries are subject to Federal Energy Regulatory Commission (“FERC”) regulations and certain revenues collected, under certain circumstances, may be subject to possible refunds to its customers. An estimated refund liability is recorded considering regulatory proceedings, advice of counsel and estimated total exposure. The majority of Boardwalk Pipeline’sPipelines’ revenues are from firm service contracts which are accounted for as a single promise to stand ready each month of the contract term to provide the committed capacity for either transportation or storage services. The transaction price is comprised of a fixed fee based on the capacity reserved plus a usage fee paid on the volume of commodity transported or injected and withdrawn from storage. Both the fixed and the usage fees are allocated to the single performance obligation of providing transportation or storage service and recognized over time as control is passed to the customer. These service contracts can range in term from one to 20 years and are invoiced monthly.

Loews Hotels & Co provides lodging and related goods and services as well as management and marketing services. Loews Hotels & Co allocates the lodging transaction price to the distinct goods and services based on the market price. Lodging and related revenues are recognized as the guest takes possession of the goods or receives the services.

99

Management and marketing services revenues are recognized as the services are provided and billed on a monthly basis. In addition, Loews Hotels & Co recognizes revenue for the reimbursement of payroll and other expenses as they are incurred on behalf of the owners of joint venture and managed hotel properties.

Consolidated Container manufactures rigid plastic packaging to provide

Altium Packaging is a packaging solutions to end markets such as beverage, foodprovider and manufacturer in North America, serving a diverse customer base in the pharmaceutical, dairy, household chemicals, through a network of manufacturing locations across North America. In addition, Consolidated Container manufactures commodityfood/nutraceuticals, industrial/specialty chemicals, water and differentiated plastic resins from recycled plastic materials for a variety of end markets. Consolidated Containerbeverage/juice segments. Altium Packaging recognizes revenue asat the time control is transferred to the customer.

Contract costs – Costs to obtain or fulfill contracts with customers are deferredcustomer, there is persuasive evidence of an arrangement, the sales price is fixed and reported as Deferrednon-insurance warranty acquisition expenses on the Consolidated Balance Sheets. These costs are expected to be recoverable over the term of the contractdeterminable and are amortized in the same manner the related revenuecollection is recognized. For CNA’s deferrednon-insurance warranty acquisition expenses, losses under warranty contracts would be recognized when it is probable that estimated future costs exceed unrecognized revenue. CNA evaluates deferred costs for recoverability including consideration of anticipated investment income. Adjustments to deferred costs, if necessary, are recorded in the current period results of operations.

reasonably assured.

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”), 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 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 CNA 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 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 as of December 31, 20182019 and 2017.2018. A significant portion of these amounts are supported by collateral. CNA also has an allowance for uncollectible deductible amounts, which is presented as a component of the allowance for doubtful accounts included in Receivables on the Consolidated Balance Sheets.

Structured settlements have been negotiated for certain property and casualty insurance claims. Structured settlements are agreements to provide fixed periodic payments to claimants. CNA’s obligations for structured settlements not funded by annuities are included in claim and claim adjustment expense reserves and carried at present values determined using interest rates ranging from 5.5% to 7.6%
and 5.5%
to
8.0%
as of December 31, 20182019 and 2017.2018. As of December 31, 20182019 and 2017,2018, the discounted reserves for unfunded structured settlements were $512$497 million and $527$512 million, net of discount of $760$724 million and $798$760 million. For the years ended December 31, 2019, 2018 2017 and 2016,2017, the amount of interest recognized on the discounted reserves of unfunded structured settlements was $36 million, $40 million $41 million and $42$41 million. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income but is excluded from the disclosure of prior year loss reserve development.

10
2
Table of Contents
Workers’ compensation lifetime claim reserves are calculated using mortality assumptions determined through statutory regulation and economic factors. At December 31, 20182019 and 2017,2018, workers’ compensation lifetime claim reserves are discounted at a 3.5% interest rate. As of December 31, 20182019 and 2017,2018, the discounted reserves for workers’ compensation lifetime claim reserves were $343$293 million and $346$343 million, net of discount of $168$135 million and $190$168 million. For the years ended December 31, 2019, 2018 2017 and 2016,2017, the amount of interest accretion recognized on the discounted reserves of workers’ compensation lifetime claim reserves was $21 million, $16 million $19 million and $17$19 million. This interest accretion is presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income, but is excluded from the Company’s disclosure of prior year loss reserve development.

100

Long term care claim reserves are calculated using mortality and morbidity assumptions based on CNA and industry experience. Long term care claim reserves are discounted
at an
a
weighted average
 interest rate of 5.9% and 6.0% as of December 31, 2018
2019
 and 2017.
2018. As of December 31, 20182019 and 2017,2018, such discounted reserves totaled $2.6$2.7 billion and $2.4$2.6 billion, net of discount of $460$462 million and $446$460 million.

Future policy benefit reserves
– Future policy benefit reserves represent the active life reserves related to CNA’s long term care policies and are computed using the net level premium method, which incorporates actuarial assumptions as to morbidity, persistency, inclusive of mortality, discount rate, future premium rate adjustments and expenses. Expense assumptions primarily relate to claim adjudication. CNA’s future policy benefit reserves are based on best estimate actuarial
These
assumptions asa
re locked
in over the life
 of the most recent date of loss recognition, which occurred in 2015. If
policy; however if
a premium deficiency were to emerge in
e
merges
, the future, the assumptions would be
are
unlocked, and the future policy benefit reserves would be adjusted.
are
increased
. The
September 30, 2019
gross premium valuation (“GPV”) process was performed inindicated 
a premium deficiency of $216 million and future policy benefit reserves at that date were increased accordingly. As a result, the third quarter of 2018 as compared to the fourth quarter in 2017. The GPV as of September 30, 2018 and December 31, 2017 indicated the carried reserves were sufficient, therefore there was no unlocking of assumptions. Interest rates for
long term care active life reserves range from 6.6% to 7.0%
carried
a
s of September 30,
2019 represent management’s best estimate assumptions at that date with no margin for adverse deviation. Long term care active life reserves are discounted at a
 weighted average
 interest rate of 5.7% and 6.9% as of September 30, 2018 and December 31, 2017.

CNA’s most recent GPV indicated

2019 and 2018.
In circumstances where the cash flow projections supporting future policy benefit reserves for the long term care business were not deficient in the aggregate, but profits are expected to beresult in profits being recognized in early future years followed by losses in later years. In that circumstance,future years, the future policy benefit reserves are increased in the future profitable years by an amount necessary to offset losses that are projected to be recognized in later future years. The amount of the additional future policy benefit reserves recorded in each quarterly period is determined by applying the ratio of the present value of future losses divided by the present value of future profits from the most recently completed GPV to long term care core income in that period.

Guaranty fund and other insurance-related

I
nsurance-related assessments
– Liabilities for guaranty fund and other insurance-related assessments are accrued when an assessment is probable, when it can be reasonably estimated and when the event obligating the entity to pay an imposed or probable assessment has occurred. Liabilities for guaranty funds and other insurance-related assessments are not discounted and are included as part of Other liabilities on the Consolidated Balance Sheets. As of December 31, 20182019 and 2017,2018, the liability balances were $108$84 million and $121$108 million.

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.

Reinsurance receivables related to paid losses are presented at unpaid balances. Reinsurance receivables related to unpaid losses are estimated in a manner consistent with claim and claim adjustment expense reserves or future policy benefit reserves. Reinsurance receivables are reported net of an allowance for doubtful accounts on the Consolidated Balance Sheets. The cost of reinsurance is primarily accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies or over the reinsurance contract period. The ceding of insurance does not discharge the primary liability of CNA.

CNA has established an allowance for doubtful accounts on 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. The allowance for doubtful accounts on reinsurance receivables is estimated on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, industry experience and current economic conditions. Reinsurer financial strength ratings are updated and reviewed on an annual basis or sooner if CNA becomes aware of significant
10
3
Table of Contents
changes related to a reinsurer. Because billed receivables generally approximate 5% or less of total reinsurance receivables, the age of the reinsurance receivables related to paid losses is not a significant input into the allowance analysis. Changes in the allowance for doubtful accounts on reinsurance receivables are presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income.

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

101

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 Income.

Reinsurance contracts that do not effectively transfer the economic risk of loss on the underlying policies are recorded using the deposit method of accounting, which requires that premium paid or received by the ceding company or assuming company be accounted for as a deposit asset or liability. CNA had $3 million and $8 million recorded as deposit assets as of December 31, 2018 and 2017, and $3 million and $4 million recorded as deposit liabilities as of December 31, 2018 and 2017. Income on reinsurance contracts accounted for under the deposit method is recognized using an effective yield based on the anticipated timing of payments and the remaining life of the contract. When the anticipated timing of payments changes, the effective yield is recalculated to reflect actual payments to date and the estimated timing of future payments. The deposit asset or liability is adjusted to the amount that would have existed had the new effective yield been applied since the inception of the contract.

A loss portfolio transfer is a retroactive reinsurance contract. If the cumulative claim and allocated claim adjustment expenses ceded under a loss portfolio transfer exceed the consideration paid, the resulting gain from such excess is deferred and amortized into earnings in future periods in proportion to actual recoveries under the loss portfolio transfer. In any period in which there is a revised estimate of claim and allocated claim adjustment expenses and the loss portfolio transfer is in a gain position, the deferred gain is recalculated as if the revised estimate was available at the inception date of the loss portfolio transfer and the change in the deferred gain is recognized in earnings.

Deferred acquisition costs
– Deferrable acquisition costs include commissions, premium taxes and certain underwriting and policy issuance costs which are incremental direct costs of successful contract acquisitions. Acquisition costs related to property and casualty business are deferred and amortized ratably over the period the related premiums are earned. Deferred acquisition costs are presented net of ceding commissions and other ceded acquisition costs.

CNA 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.

Policyholder dividends
–
Policyholder dividends are paid to participating policyholders within the worker’s compensation and surety lines of business. Net written premiums for participating dividend policies were approximately 1% of total net written premiums for each of the years ended December 31, 2019, 2018 and 2017. Dividends to policyholders are accrued according to CNA’s best estimate of the amount to be paid in accordance with contractual provisions and applicable state laws. Dividends to policyholders are presented as a component of Insurance claims and policyholders’ benefits on the Consolidated Statements of Income and Other liabilities on the Consolidated Balance Sheets.
Goodwill and other intangible assets
– Goodwill represents the excess of purchase price over fair value of net assets of acquired entities. Goodwill is tested for impairment annually or when certain triggering events require additional tests. Subsequent reversal of a goodwill impairment charge is not permitted.

Other intangible assets are reported within Other assets. 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. See Note 7 for additional information on the Company’s goodwill and other intangible assets.

Property, plant and equipment
– Property, plant and equipment is carried at cost less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the various classes of properties. Leaseholds and leasehold improvements are depreciated or amortized over the terms of the related leases (including optional renewal periods, where appropriate) or the estimated lives of improvements, if less than the lease term.

10
4
Table of Contents
The principal service lives used in computing provisions for depreciation are as follows:

 
Years
 

Pipeline equipment

  
30 to 50
 

Offshore drilling equipment

  
15 to 30
 

Other

  
3 to 40
 

Impairment of long-lived assets –Long-lived
–Long-lived and finite-lived intangible assets are reviewed for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets and intangibles with finite lives, under certain circumstances, are reported at the lower of carrying amount or fair value.

102

Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value less cost to sell.

Income taxes
– The Company and its eligible subsidiaries file a consolidated tax return. Deferred income taxes are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities, based on enacted tax rates and other provisions of the tax law. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period in which such change is enacted. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not, and a valuation allowance is established for any portion of a deferred tax asset that management believes may not be realized.

The Company recognizes uncertain tax positions that it has taken or expects to take on a tax return. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. See Note 10 for additional information on the provision for income taxes.

Pension and postretirement benefits
– The Company recognizes the overfunded or underfunded status of its defined benefit plans in Other assets or Other liabilities in the Consolidated Balance Sheets. Changes in funded status related to prior service costs and credits and actuarial gains and losses are recognized in the year in which the changes occur through Accumulated other comprehensive income (loss). The Company measures its benefit plan assets and obligations at December 31. 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 in the Consolidated Statements of Income.

Stock-based compensation
– The Company records compensation expense upon issuance, modification or cancellation of all share-based payment awards granted, primarily on a straight-line basis over the requisite service period, generally three to four years. Stock Appreciation Rights (“SARs”) are valued using the Black-Scholes option pricing model. The application of this valuation model involves assumptions that are judgmental and highly sensitive. These assumptions include the term that the awards are expected to be outstanding, an estimate of the volatility of the underlying stock price, applicable risk-free interest rates and the dividend yield of the Company’s stock. Restricted Stock Units are valued using the grant-date fair value of the Company’s stock.

Net income per share
– Companies with complex capital structures are required to present basic and diluted net income per share. Basic net income per share excludes dilution and is computed by dividing net income attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net income 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, 2019, 2018 and 2017, and 2016, approximately 0.90.7 million, 0.9 million and 0.40.9 million potential shares attributable to issuances and exercises under the Loews Corporation 2016 Incentive Compensation
Plan and the prior plan were included in the calculation of diluted net income per share. For those same periods,the years ended December 31, 2019 and 2018, there were no0 shares and approximatelyfor the year ended December 31, 2017, there were 0.4 million and 3.7 million shares attributable to employee stock-based compensation awards excluded from the calculation of diluted net income per share because the effect would have been antidilutive.

10
5
Table of Contents
Foreign currency
– Foreign currency translation gains and losses are reflected in Shareholders’ equity as a component of Accumulated other comprehensive income (loss). The Company’s foreign subsidiaries’ balance sheet accounts are translated at the exchange rates in effect at each reporting date and income statement accounts are translated at the average exchange rates during the reporting period. There were no foreign currency transaction gains (losses) for the year ended December 31, 2018of $(3) million, $0 million and $26 million and $(21) million for the years ended December 31, 20172019, 2018 and 20162017 included in the Consolidated Statements of Income.

Regulatory accounting
– The majority of Boardwalk Pipeline’sPipelines’ operating subsidiaries are regulated by FERC. GAAP for regulated entities requires Texas Gas Transmission, LLC (“Texas Gas”), a wholly owned subsidiary of Boardwalk Pipeline,Pipelines, applies regulatory accounting to reportcertain assets for GAAP purposes, which records certain assets and liabilities consistent with the economic effect of the manner in which independent third party regulators establish rates. Effective April 1, 2016, Gulf South Pipeline, LP (“Gulf South”), aand Gulf Crossing Pipeline Company, LLC (“Gulf Crossing”), both wholly owned subsidiarysubsidiaries of Boardwalk Pipeline,Pipelines, have implemented a fuel tracker pursuanttrackers, for which regulatory accounting is applied. Accordingly, the value of fuel received from customers paying the maximum tariff rate and the related value of fuel used in transportation are recorded to a FERC rate case settlement,

103

for whichregulatory asset or liability depending on whether Gulf South applies regulatory accounting. Accordingly, certain costs and benefits are capitalized as regulatory assets and liabilities in order to provide for recoveryor Gulf Crossing use more fuel than it collects from customers or refund to customers in future periods.collects more fuel than it uses. Other than as described for Texas Gas and the fuel trackers for Gulf South and Gulf Crossing, regulatory accounting is not applicable to Boardwalk Pipeline’sPipelines’ other FERC regulated entities or operations.

Supplementary cash flow information
– Cash payments made for interest on long term debt, net of capitalized interest, amounted to $560 million, $558 million $533 million and $511$533 million for the years ended December 31, 2019, 2018 2017 and 2016.2017. Cash payments for federal, foreign, state and local income taxes amounted to $190 million, $101 million $166 million and $114$166 million for the years ended December 31, 2019, 2018 2017 and 2016.2017. Investing activities exclude $15$17 million and $18$15 million of accrued capital expenditures for the years ended December 31, 20182019 and 20162018 and include $87 million of previously accrued capital expenditures for the year ended December 31, 2017.

Accounting changes
–In MayFebruary of 2014,2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard UpdateASU
2016-02,
“Leases (Topic 842)” (“ASU”ASU
2016-02”).
Effective January 1, 2019, the updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. The Company adopted the updated accounting guidance using the modified retrospective method. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. The Company utilized the package of practical expedients allowing the Company to not reassess whether any expired or existing contracts contain a lease, the classification for any expired or existing leases or the initial direct costs for any existing leases. The Company has also elected to apply an exemption for short term leases whereby leases with initial lease terms of one year or less are not recorded on the balance sheet.
For leases where we are a lessee we have elected to account for lease and
non-lease
components as a single lease component, except subsea equipment leases. For leases where we are a lessor we have elected to combine the lease and
non-lease
components of our offshore drilling contracts, if certain conditions are met, and account for the combined component in accordance with the accounting treatment for the predominant component of the contract.
At adoption, the cumulative effect adjustment increased Other assets and Other liabilities by $642 million reflecting operating lease right of use assets, lease liabilities and the derecognition of deferred rent related primarily to lease agreements for office space and machinery and equipment. 
At
 adoption of ASU
2016-02,
Other assets and Other liabilities were adjusted to $3.1 billion and $5.1 billion as of January 1, 2019, as compared to $2.4 billion and $4.5 billion as of December 31, 2018. See Note
9
 for additional information on leases.
10
6
Table of Contents
On January 1, 2018, the Company adopted ASU
2014-09, “Revenue
“Revenue from Contracts with Customers (Topic 606)” (“ASU
2014-09”).
The core principle of the new accounting guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new accounting guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires enhanced disclosures about revenue. The standard excludesexcluded from its scope the accounting for insurance contracts, financial instruments and certain other agreements that are subject to other guidance in the FASB Accounting Standards Codification, which limitslimited the impact of this change in accounting for the Company.

On January 1, 2018, the The Company adopted the updated accounting guidance using the modified retrospective method, with a cumulative effect adjustment to the opening balance sheet. Upon adoption, the new guidance was applied to all contracts subject to the standard that were not completed as of the date of adoption. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. At adoption, the cumulative effect adjustment decreased beginning Retained earnings by $62 million (after tax and noncontrolling interests), resulted in a deferred tax asset of $23 million and increased Deferred

non-insurance
warranty acquisition expenses by approximately $1.9 billion and Deferred
non-insurance
warranty revenue by approximately $2.0 billion.

The impact of

On January 1, 2018 the new guidance is primarily related to revenue on CNA’snon-insurance warranty products and services, which is recognized more slowly as compared to the historic revenue recognition pattern. For the warranty products where CNA acts as principal,Non-insurance warranty revenue andNon-insurance warranty expense on the Consolidated Statements of Income are increased to reflect the gross amount paid by consumers, including the retail seller’s markup, which is considered a commission to the Company’s agent. Thisgross-up of revenues and expenses resulted in an increase to Deferrednon-insurance warranty acquisition expenses and Deferrednon-insurance warranty revenue on the Consolidated Balance Sheets, as the revenue and expense are recognized over the actuarially determined expected claims emergence pattern. Prior to the adoption ofCompany adopted ASU2014-09, Deferrednon-insurance warranty acquisition expenses and Deferrednon-insurance warranty revenue would have been $234 million and $1.0 billion as of December 31, 2018, as compared to $212 million and $972 million as of December 31, 2017. The impact of adopting the new guidance resulted in an increase toNon-insurance warranty revenue andNon-insurance warranty expense of $587 and $595 million for the year ended December 31, 2018. See Note 13 for additional information on revenues from contracts with customers.

In January of 2016, the FASB issued ASU

2016-01, “Financial
“Financial Instruments
–
Overall (Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU
2016-01”). The updated accounting guidance requires changes to the reporting model for financial instruments.
The guidance primarily changeschanged the model for equity securities by requiring changes in the fair value of equity securities (except those accounted for under the equity method of accounting, those without readily determinable fair values and those that result in consolidation of the investee) to be recognized through the income statement. With the adoption of the new guidance, equity securities are no longer classified asavailable-for-sale or trading. Prior period amounts havewere not been adjusted and continuecontinued to be reported in accordance with the previous accounting guidance. AsUpon adoption of January 1, 2018, the Company adopted the updated accounting guidance andthe Company recognized a cumulative effect adjustment of $25 million (after tax and noncontrolling interests) as an increase to beginning Retained earnings. For the year ended December 31,
On January 1, 2018 the Company recognized pretax losses of approximately $96 million in the Consolidated Statements of adopted ASU
2016-16,
“Income for the decrease in the fair value of equity securities as a result of this change. For the years ended December

104

31, 2017 and 2016, an increase of $33 million and a decrease of $2 million in the fair value of equity securities was recognized in Other comprehensive income (“OCI”).

In October of 2016, the FASB issued ASU2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The updated guidance amendsamended the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. As of January 1, 2018, theThe Company adopted this updated guidance using the modified retrospective approach with a cumulative effect adjustment of $9 million (after noncontrolling interests) as a decrease to beginning Retained earnings with an offset to a deferred income tax liability.

In February of

On January 1, 2018 the FASB issuedCompany early adopted ASU
2018-02, “Income
“Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU
2018-02”). Current accounting guidance requires the remeasurement of deferred tax liabilities and assets due to a change in tax laws or rates with the effect included in Net income in the reporting period that includes the enactment date. Because the remeasurement of deferred taxes due to a reduction in the federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) is required to be included in Net income, the tax effects of items within Accumulated Other Comprehensive Income (“AOCI”) do not reflect the appropriate rate (referred to as “stranded tax effects”).
The updated accounting guidance allowsallowed a reclassification from AOCI to Retained earnings for the strandedcertain tax effects resulting from the Tax Act. The Company early adopted the updated guidance effective January 1, 2018Cuts and elected to reclassify the stranded tax effects from AOCI to Retained earnings.Jobs Act of 2017. The impact of the change resulted in a $3 million (after noncontrolling interests) increase in Retained earnings and a corresponding decrease in AOCI. The decrease in AOCI is comprised of a $130 million (after noncontrolling interests) decrease in pension liability and a $127 million (after noncontrolling interests) increase in unrealized gains (losses) on investments. The Company releases tax effects from AOCI utilizing thesecurity-by-security approach for investments and using enacted tax rates based on the pretax adjustments for pension and postretirement benefits.

In August of 2018, the FASB issued ASU2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework– Changes to the Disclosure Requirements for Fair Value Measurement.” The updated accounting guidance requires changes to the disclosures for fair value measurement by adding, removing and modifying certain disclosures. The Company early adopted the updated guidance in September of 2018 and modified the fair value disclosures in Note 4, including added disclosures on changes in unrealized gains (losses) on Level 3 assets recognized in Other comprehensive income as well as the weighted average rate used to develop significant inputs utilized in the fair value measurements of Level 3 assets. The Company also eliminated disclosures on transfers between Level 1 and Level 2 assets and the policy for timing of transfers between levels.

In August of 2018, the FASB issued ASU2018-14, “Compensation– Retirement Benefits– Defined Benefit Plans– General (Subtopic715-20): Disclosure Framework– Changes to the Disclosure Requirements for Defined Benefit Plans.” The updated accounting guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing, adding and clarifying certain disclosures. The Company early adopted this standard in December of 2018 and modified the pension disclosures in Note 15.

Recently issued ASUs
–In February of 2016, the FASB issued ASU2016-02, “Leases (Topic 842)” and in July of 2018, the FASB issued ASU2018-11, “Leases (Topic 842): Targeted Improvements.” The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance provides lessors with an election to combine the lease andnon-lease components of a contract, if certain conditions are met, and account for the combined component in accordance with the new revenue guidance in ASU2014-09 if thenon-lease component is the prominent component of the contract. The updated guidance is effective for interim and annual periods beginning after December 15, 2018 and requires using a modified retrospective transition method. However, the Company has elected to apply a practical expedient offered in the updated guidance which allows entities to apply the guidance on January 1, 2019 and comparative periods are not restated. The Company also expects to elect the transition practical expedient package available in the guidance whereby we will not reassess whether any of our expired or existing contracts contain a lease, the classification for any expired or existing leases or the initial direct costs for any existing leases. The Company is finalizing its evaluation of its operating lease inventory and other provisions of the updated guidance, but currently anticipates that the lease asset and lease liability will be approximately $620 million at the adoption date. Based on the Company’s assessment, the impact of adoption of the updated guidance is not expected to have a material effect on its results of operations.

105

In June of 2016, the FASB issued ASU

2016-13, “Financial
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. The guidance is effective for interim and annual periods beginning after December 15, 2019. The guidance will be applied using the modified retrospective method with a cumulative effect adjustment to beginning retained earnings. A prospective transition method is required for debt securities that have recognized an other-than-temporary impairment prior to the effective date. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements and expects the primary changes to be the use of the expected credit loss model for the mortgage loan portfolio, reinsurance and insurance receivables and other financing receivables and the use of the allowance method rather than the write-down method for credit losses within theavailable-for-sale fixed maturities portfolio. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected.collected and applies to the mortgage loan portfolio, reinsurance and insurance receivables and other financing and trade receivables. Under the new guidance, the OTTI concept has been eliminated for
available-for-sale
fixed maturity securities, and expected credit losses are recognized immediately in earnings through an allowance, method foravailable-for-sale debt securitiesrather than as a reduction of amortized cost. This will allow the Company willto record reversals of credit losses if the estimate of credit losses declines.

For

available-for-sale
fixed maturity securities with an intent to sell, impairment will continue to result in a write-down of amortized cost. The guidance is effective for interim and annual periods beginning after December 15, 2019. The expected credit loss model will be applied using a modified retrospective approach with the cumulative effect recognized as an adjustment to retained earnings. A prospective transition approach is required for
available-for-sale
debt securities that were purchased with credit deterioration or have recognized an OTTI write-down prior to the effective date. The Company has evaluated the effect the guidance will have on its financial statements and determined that the impact at the date of adoption will not be material.
In August of 2018, the FASB issued ASU
2018-12, “Financial
“Financial Services– Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.” The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entities to update annually update cash flow assumptions, including morbidity and persistency, and update quarterly discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in Net income and the effect of changes in discount rate assumptions will be recorded in OCI.

Other comprehensive income

107
Table of Contents
(“OCI”). This guidance is effective for interim and annual periods beginning after December 15, 2020, and2021. The Company will adopt the guidance on January 1, 2022. The guidance requires restatement of the prior periods presented. Early adoption is permitted. The Company is currently evaluating the method and timing of adoption and the effect the updated guidance will have on its consolidated financial statements.statements, including increased disclosure requirements. The annual updating of cash flow assumptions is expected to increase income statement volatility. The quarterly change in the discount rate is expected to increase volatility in the Company’s Shareholders’ equity, but that will be somewhat mitigated because Shadow Adjustments are eliminated under the new guidance. See Note 3 for further information on Shadow Adjustments. While the requirements of the new guidance represent a material change from existing accounting guidance, the underlying economics of CNA’s business and related cash flows are unchanged.

Note 2.  Acquisitions and Divestitures

Loews Corporation

Boardwalk Pipelines
On June 29, 2018, Boardwalk GP, LP (“General Partner”), the general partner of Boardwalk Pipeline
s
and an indirect wholly owned subsidiary of the Company, elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipeline
s
not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of Boardwalk Pipeline’sPipeline
s
’ Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”) for a cash purchase price, determined in accordance with the Limited Partnership Agreement, of $12.06 per unit, or approximately $1.5 billion, in the aggregate. The purchase price of the common units was lower than the carrying value of the noncontrolling interests for Boardwalk Pipeline
s
, resulting in an increase to Additional
paid-in
capital of $658 $
658
million, an increase to deferred income tax liabilities of $213$
213
 million and a decrease to AOCI of $29 million.

Following completion of the transaction on July 18, 2018, Boardwalk Pipelines Holding Corp. (“BPHC”), a wholly owned subsidiary of Loews Corporation, holds, directly or indirectly, all of the limited partnership interests of Boardwalk Pipeline. AsPipelines.
Loews Hotels & Co
In 2019, Loews Hotels & Co received proceeds of $118 million for the sale of an owned hotel. In 2018, Loews Hotels & Co received proceeds of $40 million for the sale of an owned hotel. In 2017, Loews Hotels & Co received proceeds of $31 million for the sale of 2 hotels, in which Loews Hotels & Co had joint venture interests.
Altium Packaging
In 2019, Altium Packaging paid approximately $260 million to complete three acquisitions of plastic packaging manufacturers located in the U.S. and Canada, including the acquisition on June 14, 2019 of
Altium Healthcare Inc. (formerly known as Tri State Distribution, Inc.), a resultretail pharmaceutical packaging solutions provider. For the year ended December 31, 2019, revenues for the three acquisitions since acquisition were
$76 million and net results were not significant. The preliminary allocation of the transaction, Boardwalk Pipeline has withdrawnpurchase prices for the common units from listing on3 acquisitions resulted in the New York Stock Exchangerecognition of approximately $99 million of goodwill and from registration under Section 12(b)approximately $87 million of intangible assets, primarily related to customer relationships, and are subject to change within the Securities Exchange Actrespective measurement periods. The acquisitions were funded with approximately $250 million of 1934.

debt financing proceeds at Altium Packaging, as discussed in Note 11, and available cash.

In 2018, Altium Packaging paid approximately $40 million to complete 3 acquisitions of plastic packaging manufacturers located in the U.S. and Canada, resulting in recognition of approximately $10 million of goodwill and approximately $15 million of intangible assets, primarily customer relationships.
On May 22, 2017, the Company acquired
Altium Acquisition Holdings, Inc. (formerly known as
CCC Acquisition Holdings, Inc.
),
for $1.2$ 1.2  billion. CCC
Altium
 Acquisition Holdings, Inc., through its wholly owned subsidiary, Consolidated Container,Altium Packaging, is a rigid plastic packaging and recycled resins manufacturer that provides packaging solutions to end markets such as beverage, food and household chemicals through a network of manufacturing locations across North America. The acquisition was funded with approximately $ 620
 million of Parent Company cash and debt financing proceeds at
Altium Packaging
of $
600
 million. The results of Consolidated Container
Altium Packaging
are included in the Consolidated
10
8
Table of Contents
Financial Statements since the acquisition date in the Corporate segment. Consolidated Container’sAltium Packaging’s revenues were $933 million, $868 million in 2018 and $498 million in 2019, 2018 and 2017 for the period since the acquisition date. Net incomeresults for 2019, 2018 and 2017 waswere not significant.

106

The acquisition was funded with approximately $620 million of Parent Company cash and debt financing proceeds at Consolidated Container of $600 million. The following table summarizes the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value as of the acquisition date.

(In millions)

  

Cash

  $5 

Property, plant and equipment

   389 

Goodwill

   310 

Other assets:

  

Inventory

   57 

Customer relationships

   459 

Trade name

   43 

Other

   127 

Deferred income taxes

   (27) 

Other liabilities:

  

Accounts payable

   (52) 

Pension liability

   (27) 

Other

   (61)     
   $        1,223 
      

Customer relationships were valued using an income approach, which values the intangible asset at the present value of the related incremental after tax cash flows. The customer relationships intangible asset will be amortized over a useful life of 21 years. The trade name was valued using an income approach, which values the intangible asset based on an estimate of cost savings, or a relief from royalty. The trade name will be amortized over a useful life of 10 years. Goodwill includes value associated with the assembled workforce and Consolidated Container’s future growth and profitability. The assets acquired and liabilities assumed as part of the acquisition did not result in a step up of tax basis and approximately $94 million of goodwill is deductible for tax purposes. See Note 7 for additional information on goodwill and intangible assets.

Loews Hotels & Co

In 2018, Loews Hotels & Co received proceeds of $40 million for the sale of a hotel. In 2017, Loews Hotels & Co received proceeds of $31 million for the sale of two hotels, in which Loews Hotels & Co had joint venture interests. Loews Hotels & Co paid approximately $84 million to acquire a hotel in 2016. This acquisition was funded with a combination of cash and property-level debt.

Consolidated Container

In 2018, Consolidated Container paid approximately $40 million to complete three acquisitions of plastic packaging manufacturers located in the U.S. and Canada, resulting in recognition of approximately $10 million of goodwill and approximately $15 million of intangible assets, primarily customer relationships.

107

N
ote 3.  Investments

Net investment income is as follows:

Year Ended December 31        2018              2017              2016      

(In millions)

    

Fixed maturity securities

  $1,795  $1,812  $1,819 

Limited partnership investments

   22   277   199 

Short term investments

   43   18   9 

Equity securities

   18   12   10 

Income (loss) from trading portfolio (a)

   (54)   87   112 

Other

   54   35   45 

Total investment income

   1,878   2,241   2,194 

Investment expenses

   (61)   (59)   (59) 

Net investment income

  $1,817  $2,182  $2,135 
              

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Fixed maturity securities
 $
     
1,817
  $
     
1,795
  $
     
1,812
 
Limited partnership investments
  
204
   
22
   
277
 
Short term investments
  
52
   
43
   
18
 
Equity securities
  
85
   
18
   
12
 
Income (loss) from trading portfolio (a)
  
216
   
(54
)  
87
 
Other
  
56
   
54
   
35
 
             
Total investment income
  
2,430
   
1,878
   
2,241
 
Investment expenses
  
(75
)  
(61
)  
(59
)
             
Net investment income
 $
2,355
  $
1,817
  $
2,182
 
             
(a)

(a)
Net unrealized gains (losses) related to changes in fair value on securities still held were $41, $(121), $39 and $44$39 for the years ended December 31, 2019, 2018 2017 and 2016.

2017.

As of December 31, 2019, the Company held less than $1 million of
non-income
producing fixed maturity securities.
 A
s of December 31, 2018, the Company held no
0
non-income
producing fixed maturity securities. As of December 31, 2017, the Company held $2 million ofnon-income producing fixed maturity securities. As of December 31,2019 and 2018, and 2017, no
0
investments in a single issuer exceeded 10% of shareholders’ equity, other than investments in securities issued by the U.S.
Treasury
and obligations of government-sponsored enterprises.

Investment gains (losses) are as follows:

Year Ended December 31        2018              2017              2016      

(In millions)

    

Fixed maturity securities

  $4  $122  $54 

Equity securities

   (74)    (5) 

Derivative instruments

   9   (4)   (2) 

Short term investments and other

   4   4   3 

Investment gains (losses) (a)

  $(57)  $122  $         50 
              

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Fixed maturity securities
 
$
 (6
)
 $
 4
  
$
 
        122
 
Equity securities
  
         
66
   
(74
)  
 
Derivative instruments
  
(11
)  
9
   
(4
)
Short term investments and other
  
 
   
           
4
   
4
 
             
Investment gains (losses) (a)
 $
49
  $
(57
) $
122
 
             
(a)

Gross realized

investment
gains on
available-for-sale
securities were $125, $168 $187 and $209$187 for the years ended December 31, 2019, 2018 2017 and 2016.2017. Gross realized
investment
losses on
available-for-sale
securities were
$
131, $164 $65 and $160$65 for the years ended December 31, 2019, 2018 2017 and 2016.2017. Net realized losses
investment g
ains
 of $73$66 were recognized due to the change in fair value ofnon-redeemable preferred stock still held for the year ended December 31, 2019.
 Net investment losses 
of $73 
were recognized due to the change in fair value of non-redeemable preferred stock still held for the year ended December 31, 2018.

10
9
Table of Contents
Net change in unrealized gains (losses) on investments is as follows:

Year Ended December 31        2018              2017              2016      

(In millions)

    

Fixed maturity securities

  $(1,811)  $728  $225 

Equity securities

    32   (2) 

Other

       (2)   1 

Total net change in unrealized gains (losses) on investments

  $(1,811)  $758  $224 
              

108

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Fixed maturity securities
 $
     
2,620
  $
     (1,811
) $
     
728
 
Equity securities (a)
  
 
   
   
32
 
Other
  
 
   
   
(2
)
             
Total net change in unrealized gains (losses) on investments
 $
2,620
  $
(1,811
) $
758
 
             
(a)
Due to the adoption of ASU
2016-01
on January 1, 2018, the change in fair value of equity securities is now recognized through the income statement. See Note 1 for further discussion on the standard.
The components of OTTI losses recognized in earnings by asset type are as follows:

Year Ended December 31        2018               2017               2016      

(In millions)

      

Fixed maturity securitiesavailable-for-sale:

      

Corporate and other bonds

  $12   $12   $59 

Asset-backed

   9    1    13 

Total fixed maturity securitiesavailable-for-sale

   21    13    72 

Equity securitiesavailable-for-sale

        1    9 

Net OTTI losses recognized in earnings

  $21   $14   $81 
                

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Fixed maturity securities
available-for-sale:
  
   
   
 
Corporate and other bonds
 $
          
33
  $
          
12
  $
          
12
 
Asset-backed
  
11
   
9
   
1
 
             
Total fixed maturity securities
available-for-sale
  
44
   
21
   
13
 
Equity securities
available-for-sale
  
 
   
   
1
 
             
Net OTTI losses recognized in earnings
 $
44
  $
21
  $
14
 
             
The amortized cost and fair values of fixed maturity and equity securities are as follows:

December 31, 2018 Cost or
Amortized
Cost		  Gross
Unrealized
Gains		  Gross
Unrealized
Losses		  Estimated
Fair
Value		  Unrealized
OTTI Losses
(Gains)

(In millions)

     

Fixed maturity securities:

     

Corporate and other bonds

 $18,764  $791  $395  $19,160  

States, municipalities and political subdivisions

  9,681   1,076   9   10,748  

Asset-backed:

     

Residential mortgage-backed

  4,815   68   57   4,826  $(20) 

Commercial mortgage-backed

  2,200   28   32   2,196  

Other asset-backed

  1,975   11   24   1,962     

Total asset-backed

  8,990   107   113   8,984   (20) 

U.S. Treasury and obligations of government-sponsored enterprises

  156   3    159  

Foreign government

  480   5   4   481  

Redeemable preferred stock

  10           10     

Fixed maturitiesavailable-for-sale

  38,081   1,982   521   39,542   (20) 

Fixed maturities trading

  153   4       157     

Total fixed maturities

 $38,234  $1,986  $521  $39,699  $(20) 
                     
December 31, 2017                   

(In millions)

     

Fixed maturity securities:

     

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

  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     

Fixed maturitiesavailable-for-sale

  38,212   3,359   87   41,484   (38) 

Fixed maturities trading

  649   2   2   649     

Total fixed maturities

  38,861   3,361   89   42,133   (38) 

Equity securities:

     

Common stock

  21   7   1   27  

Preferred stock

  638   31   1   668     

Equity securitiesavailable-for-sale

  659   38   2   695   - 

Equity securities trading

  518   92   81   529     

Total equity securities

  1,177   130   83   1,224   - 

Total fixed maturity and equity securities

 $40,038  $3,491  $172  $43,357  $(38)   
                     

109

December 31, 2019
 
Cost
 
or
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Loss
es
  
Estimated
Fair Value
  
Unrealized
OTTI
 
Losses
(Gains)
 
(In millions)
           
Fixed maturity securities:
  
   
   
   
   
 
Corporate and other bonds
 
$
19,789  
$
2,292  
$
32  $
22,049
   
 
 
States, municipalities and political subdivisions
  
9,093
   
1,559
   
 
   
10,652
   
 
 
Asset-backed:
  
   
   
   
   
 
Residential mortgage-backed
  
4,387
   
133
   
1
   
4,519
   
$
 
 
 
(17
)
 
Commercial mortgage-backed
  
2,265
   
86
   
5
   
2,346
   
1
 
Other asset-backed
  
1,925
   
41
   
4
   
1,962
   
(3
)
 
                     
Total asset-backed
  
8,577
   
260
   
10
   
8,827
   
(19)
 
U.S. Treasury and obligations of government-
 
sponsored enterprises
  
146
   
1
   
2
   
145
   
 
 
Foreign government
  
491
   
14
   
1
   
504
   
 
 
Redeemable preferred stock
  
10
   
 
   
 
   
10
   
 
 
                     
Fixed maturities
available-for-sale
  
38,106
   
4,126
   
45
   
42,187
   
(19)
 
Fixed maturities trading
  
51
   
2
   
 
   
53
   
 
 
                     
Total fixed maturities
 
$
 		38,157  
$
4,128  
$
 
45  $
42,240
   
$
    (19
)
 
                     
1
10

Table of Contents
December 31, 2018
 
Cost or
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
 
Unrealized
Losses
  
Estimated
Fair Value
  
Unrealized
OTTI Losses
(Gains)
 
(In millions)
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
  
   
   
   
   
 
Corporate and other bonds
 $ 18,764  $791  $395  $19,160   
 
States, municipalities and political subdivisions
  
9,681
   
1,076
   
9
   
10,748
   
 
Asset-backed:
  
   
   
   
   
 
Residential mortgage-backed
  
4,815
   
68
   
57
   
4,826
   
$ (20
)
Commercial mortgage-backed
  
2,200
   
28
   
32
   
2,196
   
 
Other asset-backed
  
1,975
   
11
   
24
   
1,962
   
 
                     
Total asset-backed
  
8,990
   
107
   
113
   
8,984
   
(20
)
U.S. Treasury and obligations of government-sponsored enterprises
  
156
   
3
   
   
159
   
 
Foreign government
  
480
   
5
   
4
   
481
   
 
Redeemable preferred stock
  
10
   
   
   
10
   
 
                     
Fixed maturities
available-for-sale
  
38,081
   
1,982
   
521
   
39,542
   
(20
)
Fixed maturities trading
  
153
   
4
   
   
157
   
 
                     
Total fixed maturities
 $ 38,234  $1,986  $521  $39,699  $ 
(20
)
                     
The
available-for-sale
securities in a gross unrealized loss position are as follows:

   

Less than

12 Months

   

12 Months

or Longer

   Total 
December 31, 2018  Estimated
Fair Value		   Gross
Unrealized
Losses		   Estimated
Fair Value		   Gross
Unrealized
Losses		   Estimated
Fair Value		   Gross
Unrealized
Losses		 

(In millions)

            

Fixed maturity securities:

            

Corporate and other bonds

  $    8,543   $    340   $    825   $    55   $    9,368   $    395     

States, municipalities and political subdivisions

   517    8    5    1    522    9     

Asset-backed:

            

Residential mortgage-backed

   1,932    23    1,119    34    3,051    57     

Commercial mortgage-backed

   728    10    397    22    1,125    32     

Other asset-backed

   834    21    125    3    959    24     

Total asset-backed

   3,494    54    1,641    59    5,135    113     

U.S. Treasury and obligations of government-sponsored enterprises

   21      19      40   

Foreign government

   114    2    124    2    238    4     

Total fixed maturity securities

  $12,689   $404   $2,614   $117   $15,303   $521     
                               
December 31, 2017                              

(In millions)

            

Fixed maturity securities:

            

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

   3,520    38    1,455    49    4,975    87     

Equity securities:

            

Common stock

   7    1        7    1     

Preferred stock

   93    1              93    1     

Total equity securities

   100    2    -    -    100    2     

Total fixed maturity and equity securities

  $3,620   $40   $1,455   $49   $5,075   $89     
                               

                         
 
Less than

12 Months
 
12 Months

or Longer
 
Total
December 31, 2019
 
 
Estimated

Fair
V
alue
 
 
 
Gross Unrealized Losses
 
 
 
Estimated Fair Value
 
 
 
Gross Unrealized Losses
 
 
 
Estimated Fair Value
 
 
 
Gross Unrealized Losses
 
(In millions
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
  
   
   
   
   
   
 
Corporate and other bonds
 
$
914  
$
21  
$
186  
$
11  
$
1,100  
$
32 
States, municipalities and political subdivisions
  
34
   
 
   
 
   
 
   
34
   
 
 
Asset-backed:
  
   
   
   
   
   
 
Residential mortgage-backed
  
249
   
1
   
30
   
 
   
279
   
1
 
Commercial mortgage-backed
  
381
   
3
   
20
   
2
   
401
   
5
 
Other asset-backed
  
449
   
3
   
33
   
1
   
482
   
4
 
                         
Total asset-backed
  
1,079
   
7
   
83
   
3
   
1,162
   
10
 
U.S. Treasury and obligations of government-sponsored enterprises
  
62
   
2
   
2
   
 
   
64
   
2
 
Foreign government
  
59
   
1
   
1
   
 
   
60
   
1
 
                         
Total fixed maturity securities
 
$
2,148  
$
31  
$
272  
$
14  
$
2,420  
$
45 
                         
                   
December 31, 2018
            
Fixed maturity securities:
  
   
   
   
   
   
 
Corporate and other bonds
 $8,543  $340  $825  $55  $9,368  $395 
States, municipalities and political subdivisions
  
517
   
8
   
5
   
1
   
522
   
9
 
Asset-backed:
  
   
   
   
   
   
 
Residential mortgage-backed
  
1,932
   
23
   
1,119
   
34
   
3,051
   
57
 
Commercial mortgage-backed
  
728
   
10
   
397
   
22
   
1,125
   
32
 
Other asset-backed
  
834
   
21
   
125
   
3
   
959
   
24
 
                         
Total asset-backed
  
3,494
   
54
   
1,641
   
59
   
5,135
   
113
 
U.S. Treasury and obligations of government-sponsored enterprises
  
21
   
   
19
   
   
40
   
 
Foreign government
  
114
   
2
   
124
   
2
   
238
   
4
 
                         
Total fixed maturity securities
 $ 12,689  $ 404  $2,614  $117  $15,303  $521 
                         

 
1
11
Table of Contents
Based on current facts and circumstances, the Company believes the unrealized losses presented in the December  31, 20182019 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other
factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no0 additional OTTI losses to be recorded at December 31, 2018.

110

2019.

The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at December 31, 2019, 2018 2017 and 20162017 for which a portion of an OTTI loss was recognized in Other comprehensive income.

Year Ended December 31      2018      2017      2016     
(In millions)          

Beginning balance of credit losses on fixed maturity securities

      $         27      $         36      $         53       

Reductions for securities sold during the period

   (9)   (9)   (16)      

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

      $18      $27      $         36       

 

 

             
Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Beginning balance of credit losses on fixed maturity securities
 $
18
  $
27
  $
36
 
Reductions for securities sold during the period
  
(8
)  
(9
)  
(9
)
             
Ending balance of credit losses on fixed maturity securities
 $
         
10
  $
         
18
  $
         
27
 
             
Contractual Maturity

The following table presents
available-for-sale
fixed maturity securities by contractual maturity.

December 31  2018   2017 

 

 
   Cost or
Amortized
Cost		   Estimated
Fair Value		   Cost or
Amortized
Cost		     Estimated    
  Fair Value    		 

 

 
(In millions)                

Due in one year or less

   $    1,350      $    1,359      $    1,135      $    1,157       

Due after one year through five years

   7,979    8,139    8,165    8,501       

Due after five years through ten years

   16,859    16,870    16,060    16,718       

Due after ten years

   11,893    13,174    12,852    15,108       

 

 

Total

   $  38,081      $  39,542      $  38,212      $  41,484       

 

 

                 
December 31
 
2019
  
2018
 
  
Cost
 
or
 
Amortized
 
Cost
  
Estimated
 
Fair Value
  
Cost
 
or
 
Amortized
 
Cost
  
Estimated
 
Fair Value
 
(In millions)
 
 
  
 
  
 
  
 
 
Due in one year or less
 
$
1,334  
$
1,356  $1,350  $1,359
    
Due after one year through five years
  
9,746
   
10,186
   
7,979
   
8,139
 
Due after five years through ten years
  
14,892
   
15,931
   
16,859
   
16,870
 
Due after ten years
  
12,134
   
14,714
   
11,893
   
13,174
 
                 
Total
 
$
 38,106  
$
42,187  $38,081  $39,542 
                 
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, 20182019 and 20172018 was approximately $2.4$2.0 billion and $3.3$2.4 billion, which includes net undistributed earnings of $208$297 million and $903$208 million. Limited partnerships comprising 67.6%64.4% of the total carrying value are reported on a current basis through December 31, 20182019 with no reporting lag, 11.4%9.1% of the total carrying value are reported on a one month lag and the remainder are reported on more than a one month lag. The number of limited partnerships held and the strategies employed provide diversification to the limited partnership portfolio and the overall invested asset portfolio.

Limited partnerships comprising 71.3%65.7% and 78.8%71.3% of the carrying value as of December 31, 20182019 and 20172018 employ hedge fund strategies. Limited partnerships comprising 24.3%29.1% and 18.1%24.3% of the carrying value at December 31, 20182019 and 20172018 were invested in private debt and equity. Theequity 
and
t
he remainder wasw
ere
 primarily invested in real estate strategies. 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 55.9%44.0% were equity related, 26.4%32.3% pursued a multi-strategy approach, 14.4%18.8% were focused on distressed investments and 3.3%4.9% were fixed income related as of December 31, 2018.

2019.

11
2
Table of Contents
The ten largest limited partnership positions held totaled $1.1 billion and $1.5 billion as of December 31, 20182019 and 2017.2018. Based on the most recent information available regarding the Company’s percentage ownership of the individual limited partnerships, the carrying value reflected on the Consolidated Balance Sheets represents approximately 2.6%2.3% and 2.9%2.6% of the aggregate partnership equity at December 31, 20182019 and 2017,2018, and the related income reflected on the Consolidated Statements of Income represents approximately 3.3%2.5%, 3.0%3.3% and 4.0%3.0% of the changes in aggregate partnership equity for the years ended December 31, 2019, 2018 2017 and 2016.

111

While the Company generally does not invest in highly leveraged partnerships, there2017.

There are risks inherent in limited partnership investments which may result in losses due to short-selling, derivatives or other speculative investment practices. The use of leverage increases volatility generated by the underlying investment strategies.

The Company’s hedge fund limited partnership investments contain withdrawal provisions that generally limit liquidity for a period of thirty days up to one year or longer. Private equity and in some casesother
non-hedge
funds generally do not permit withdrawals until the termination of the partnership.voluntary withdrawals. Typically, hedge fund withdrawals require advance written notice of up to 90 days.

Derivative Financial Instruments

The Company may use derivatives in the normal course of business, primarily in an attempt to reduce exposure to market risk (principally interest rate risk, credit risk, equity price risk, commodity price risk and foreign currency risk) stemming from various assets and liabilities. The 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. Credit derivatives such as credit default swaps may be entered into to modify the credit risk inherent in certain investments. Forward contracts, futures, swaps and options may be used to manage foreign currency and commodity price risk.

In addition to the derivatives used for risk management purposes described above, the Company may also use derivatives for purposes of income enhancement. Income enhancement transactions include but are not limited to interest rate swaps, call options, put options, credit default swaps, index futures and foreign currency forwards. See Note 4 for information regarding the fair value of derivative instruments.

The following tables present the aggregate contractual or notional amount and estimated fair value related to derivative financial instruments.

December 31  2018   2017 

 

 
   

Contractual/

Notional

Amount

           

Contractual/

Notional

Amount

     
       Estimated Fair Value           Estimated Fair Value     
       Asset   (Liability)           Asset   (Liability)     

 

 
(In millions)                        

With hedge designation:

            

Interest rate swaps

  $ 500         $ 11     $  500       $   4   

Without hedge designation:

            

Equity markets:

            

Options – purchased

   213          18      224           12   

– written

   239            $    (17)          290          $  (7)       

Futures – short

         265           1   

Commodity futures – long

   32              44         

Embedded derivative on funds withheld liability

   172          4      167          (3)       

December 31
 
2019
  
2018
 
 
 
Contractual/
  
 
  
 
  
Contractual/
  
 
  
 
 
 
 
Notional
  
Estimated Fair Value
  
Notional
  
Estimated Fair Value
 
  
Amount
  
Asset
  
(Liability)
  
Amount
  
Asset
  
(Liability)
 
(In millions)
            
With hedge designation:
  
   
   
   
   
   
 
Interest rate swaps
 
$
715    
 
  $(8
)
 		 $500  $11   
 
Without hedge designation:
  
   
   
   
   
   
 
Equity markets:
  
   
   
   
   
   
 
Options – purchased
  
57
  
$
1    
 
   
213
   
18
   
 
 – written
  
100
   
 
   
          
(1)
   
239
   
  $(17) 
Commodity futures – long
  
 
   
 
   
 
   
32
   
   
 
Embedded derivative on funds withheld liability
  
182
   
 
   
          
(7)
   
172
   
4
   
 
11
3
Table of Contents
Investment Commitments

As of December 31, 2018, the Company had committed approximately $574 million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships.

112

The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy, the Company invests in various assets which require future purchase, sale or funding of commitments. These investments are recorded once funded, and has committedthe related commitments include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications and obligations related to additional future purchases, sales and funding. Purchases and sales of privately placed debt securities are recorded once funded.securities. As of December 31, 2018,2019, the Company had commitments to purchase or fund additional amounts of $230approximately $945 million and sell $78approximately $85 million under the terms of such securities.

these investments.

Investments on Deposit

Securities with carrying values of approximately $2.5$2.7 billion and $2.6$2.5 billion were deposited by CNA’s insurance subsidiaries under requirements of regulatory authorities and others as of December 31, 20182019 and 2017.

2018.

Cash and securities with carrying values of approximately $1.0$1.1 billion and $1.1$1.0 billion were deposited with financial institutions in trust accounts or as collateral for letters of credit to secure obligations with various third parties as of December 31, 20182019 and 2017.

2018.

Note 4. 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.

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) detailed analysis, 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.

113

securities.

11
4

Table of Contents
Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.

December 31, 2018   Level 1    Level 2     Level 3        Total       

 

 
(In millions)               

Fixed maturity securities:

       

Corporate bonds and other

  $196  $19,392   $222   $19,810     

States, municipalities and political subdivisions

    10,748      10,748     

Asset-backed

    8,787    197    8,984     

 

 

Fixed maturitiesavailable-for-sale

   196   38,927    419    39,542     

Fixed maturities trading

    151    6    157     

 

 

Total fixed maturities

  $196  $39,078   $425   $39,699     

 

 

 

 

Equity securities

  $704  $570   $19   $1,293     

Short term and other

   2,647   1,111      3,758     

Receivables

    11      11     

Payable to brokers

   (23)       (23)    

December 31, 2017

       

 

 

Fixed maturity securities:

       

Corporate bonds and other

  $128  $19,145   $98   $19,371     

States, municipalities and political subdivisions

    14,026    1    14,027     

Asset-backed

    7,751    335    8,086     

 

 

Fixed maturitiesavailable-for-sale

   128   40,922    434    41,484     

Fixed maturities trading

   10   635    4    649     

 

 

Total fixed maturities

  $138  $41,557   $438   $42,133     

 

 

 

 

Equity securitiesavailable-for-sale

  $91  $584   $20   $695     

Equity securities trading

   527     2    529     

 

 

Total equity securities

  $618  $584   $22   $1,224     

 

 

 

 

Short term and other

  $3,669  $958     $4,627     

Receivables

   1   4      5     

Payable to brokers

   (12)       (12)    

114

December 31, 2019
 
Level 1
  
Level 2
  
Level 3
  
Total
 
(In millions)
        
Fixed maturity securities:
  
   
   
   
 
Corporate bonds and other
 $
175
  $
22,065
  $
468
  $
22,708
 
States, municipalities and political subdivisions
  
 
   
10,652
   
 
   
10,652
 
Asset-backed
  
 
   
8,662
   
165
   
8,827
 
                 
Fixed maturities
available-for-sale
  
175
   
41,379
   
633
   
42,187
 
Fixed maturities trading
  
 
   
49
   
4
   
53
 
                 
Total fixed maturities
 $
175
  $
41,428
  $
637
  $
42,240
 
                 
Equity securities
 $
629
  $
658
  $
19
  $
1,306
 
Short term and other
  
3,138
   
1,383
   
 
   
4,521
 
Receivables
  
 
   
2
   
 
   
2
 
Payable to brokers
  
(18
)  
(10
)  
 
   
(28
) 
             
December 31, 2018
        
Fixed maturity securities:
  
   
   
   
 
Corporate bonds and other
 $
196
  $
19,392
  $
222
  $
19,810
 
 
 
 
 
States, municipalities and political subdivisions
  
   
10,748
   
   
10,748
 
 
 
 
 
Asset-backed
  
   
8,787
   
197
   
8,984
 
 
 
 
 
                 
Fixed maturities
available-for-sale
  
196
   
38,927
   
419
   
39,542
 
 
 
 
 
Fixed maturities trading
  
   
151
   
6
   
157
 
 
 
 
 
                 
Total fixed maturities
 $
196
  $
39,078
  $
425
  $
39,699
 
 
 
 
 
                 
Equity securities
 $
704
  $
570
  $
19
  $
1,293
 
 
 
 
 
Short term and other
  
2,647
   
1,111
   
   
3,758
 
 
 
 
 
Receivables
  
   
11
   
   
11
 
 
 
 
 
Payable to brokers
  
(23
)  
   
   
(23)
 
 
 
 
11
5

Table of Contents
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 20182019 and 2017:

                                Unrealized 
                                Gains 
                             Unrealized  (Losses) 
                             Gains  Recognized in 
                             (Losses)  Other 
                             Recognized in  Comprehensive 
     Net Realized Gains                    Net Income  Income (Loss) 
     (Losses) and Net Change                    (Loss) on Level  on Level 3 
     in Unrealized Gains                    3 Assets and  Assets and 
     (Losses)           Transfers  Transfers     Liabilities  Liabilities 
  Balance,  Included in  Included in           into  out of  Balance,  Held at  Held at 
2018 January 1  Net Income  OCI  Purchases  Sales  Settlements  Level 3  Level 3  December 31  December 31  December 31 
(In millions)                                 

Fixed maturity securities:

           

Corporate bonds and other

 $     98    $(1)   $(4)  $    117    $    (5)  $    (9)  $      35  $    (9)  $    222         $(5)         

States, municipalities and political subdivisions

  1         (1)     -         

Asset-backed

  335     5   (8)   162     (72)   (64)   42   (203)   197        $(2)         (4)         

 

 

Fixed maturitiesavailable-for-sale

  434     4   (12)   279     (77)   (74)   77   (212)   419         (2)         (9)         

Fixed maturities trading

  4     3           (1)               6         2            

Total fixed maturities

 $438    $7  $        (12)  $  279    $(78)  $        (74)  $77  $        (212)  $425        $-         $(9)         
                                             

Equity securities

 $22    $        (2)    $        (1)     $19        $    (2)        

115

2018:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized
 
 
(Losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains
 
 
Recognized in
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Losses)
 
 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recognized in
 
 
Comprehensive
 
 
 
 
Net Realized Investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
Income (Loss)
 
 
 
 
Gains (Losses) and Net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Loss) on Level
 
 
on Level 3
 
 
 
 
Change in Unrealized
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 Assets and
 
 
Assets and
 
 
 
 
Investment Gains (Losses)
 
 
 
 
 
 
 
 
Transfers
 
 
Transfers
 
 
 
 
Liabilities
 
 
Liabilities
 
 
Balance,
 
 
Included in
 
 
Included in
 
 
 
 
 
 
 
 
into
 
 
out of
 
 
Balance,
 
 
Held at
 
 
Held at
 
2019
 
January 1
 
 
Net Income
 
 
OCI
 
 
Purchases
 
 
Sales
 
 
Settlements
 
 
Level 3
 
 
Level 3
 
 
December 31
 
 
December 31
 
 
December 31
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds and other
 
$
     
222
 
 
 
 
 
$
33
 
 
$
256
 
 
 
 
 
$
(11)
 
 
 
 
 
$
(32)
 
 
$
468
 
 
 
 
 
$
28
 
Asset-backed
 
 
197
 
 
 
 
 
 
8
 
 
 
48
 
 
 
 
 
 
(16)
 
 
$
45
 
 
 
(117)
 
 
 
165
 
 
 
 
 
 
7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
available-for-sale
 
 
419
 
 
$
-
 
 
 
 
41
 
 
 
304
 
 
$
-
 
 
 
 
(27)
 
 
 
45
 
 
 
(149)
 
 
 
633
 
 
$
-
 
 
 
 
35
 
Fixed maturities trading
 
 
6
 
 
 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
 
 
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total fixed maturities
 
$
425
 
 
$
(2)
 
 
$
41
 
 
$
304
 
 
$
-
 
 
 
$
(27)
 
 
$
45
 
 
$
(149)
 
 
$
637
 
 
$
(2)
 
 
$
35
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
19
 
 
$
(2)
 
 
 
 
 
$
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
19
 
 
$
(2)
 
 
 
 
11
6
           Purchases  Sales  Settlements  Transfers
into
Level 3		  Transfers
out of
Level 3		  Balance,
December 31		  

Unrealized
Gains
(Losses)
Recognized in
Net Income
on Level

3 Assets and
Liabilities
Held at
December 31

 
          
          
          
     Net Realized Gains
(Losses) and Net Change
in Unrealized Gains
(Losses)		 
2017 Balance,
January 1		  Included in
Net Income		  Included in
OCI		 

 

 
(In millions)                              

Fixed maturity securities:

          

Corporate bonds and other

 $130   $3  $18  $(5)  $(54)  $16  $(10)  $98  

States, municipalities and political subdivisions

  1          1  

Asset-backed

  199  $2   3   107    (43)   153   (86)   335  
                                         

Fixed maturitiesavailable-for-sale

  330   2   6   125   (5)   (97)   169   (96)   434  $-      

Fixed maturities trading

  6   (2)         4   (2)     
                                         

Total fixed maturities

 $336  $-  $6  $125  $(5)  $(97)  $169  $(96)  $438  $(2)      
                                         
                                         

Equity securitiesavailable-for-sale

 $19   $3  $1  $(3)     $20  

Equity securities trading

  1  $(1)    2       2  
                                         

Total equity securities

 $20  $(1)  $3  $3  $(3)  $-  $-  $-  $22  $-      
                                         
                                         

Life settlement contracts

 $58  $6    $(59)  $(5)    $-  

Derivative financial instruments, net

  -   1     (1)      -  

Table of Contents
                     
Unrealized
 
                     
Gains
 
                   
Unrealized
  
(Losses)
 
                   
Gains
  
Recognized in
 
                   
(Losses)
  
Other
 
                 
Recognized in
  
Comprehensive
 
   
Net Realized Investment
              
Net Income
  
Income (Loss)
 
   
Gains (Losses) and Net
              
(Loss) on Level
  
on Level 3
 
   
Change in Unrealized
              
3 Assets and
  
Assets and
 
   
Investment Gains (Losses)
        
Transfers
  
Transfers
    
Liabilities
  
Liabilities
 
 
Balance,
  
Included in
  
Included in
        
into
  
out of
  
Balance,
  
Held at
  
Held at
 
2018
 
January 1
  
Net Income
  
OCI
  
Purchases
  
Sales
  
Settlements
  
Level 3
  
Level 3
  
December 31
  
December 31
  
December 31
 
(In millions)
                      
Fixed maturity securities:
  
   
   
   
   
   
   
   
   
   
   
 
Corporate bonds and other
 $
98  
  $
(1) 
  $
(4)
 
 
  $
117
  $
(5)
  $
(9)
  $
35
  $
(9)
  $
222
      
   
  $
(5
) 
States, municipalities and political subdivisions
  
1
   
   
   
   
   
(1)
   
   
   
-
      
   
   
 
Asset-backed
  
335
   
5   
   
(8)
 
 
   
162
   
(72)
   
(64)
   
42
   
(203)
   
197
      
  $
(2)
   
(4
) 
                                             
Fixed maturities
available-for-sale
  
434
   
4
 
 
 
   
(12)
 
 
   
279
   
(77)
   
(74)
   
77
   
(212)
   
419
      
   
(2)
   
(9
) 
Fixed maturities trading
  
4
   
3
 
 
 
   
   
   
(1)
   
   
   
   
6
      
   
2 
   
 
                                             
Total fixed maturities
 $
438
  $
7
 
 
 
  $
(12)
 
 
  $
279
  $
(78)
  $
(74
)
  $
77
  $
(212)
  $
425
      
  $
-
 
  $
(9
) 
                                             
Equity securities
 $
22
  $
(2)
 
 
   
   
  $
(1)
   
   
   
  $
19
      
  $
(2)
   
 
Net realized and unrealizedinvestment gains and losses are reported in Net income as follows:

Major Category of Assets and Liabilities
 
Consolidated Statements of Income Line Items

Fixed maturity securities
available-for-sale

 
Investment gains (losses)

Fixed maturity securities trading

 
Net investment income

Equity securities

 
Investment gains (losses) and Net investment income

Other invested assets

 
Investment gains (losses) and Net investment income

Derivative financial instruments held in a trading portfolio

 
Net investment income

Derivative financial instruments, other

 
Investment gains (losses) and Operating revenues and other

Life settlement contracts

Operating revenues and other

116

11
7

Table of Contents
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.

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 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with
some
inputs that are not market observable.

Derivative Financial Instruments

Exchange traded derivatives

E
quity option
s
are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market forward rates.
Over-the-counter
derivatives, principally interest rate swaps,
currency forwar
ds,
total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace.

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, treasury bills and exchange traded
open-end
funds valued using quoted market prices. Level 2 primarily includes commercial paper, 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 term investments as presented in the tables above differ from the amounts presented in the Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.

Life Settlement Contracts

CNA sold its life settlement contracts to a third party in 2017. The valuation

11
8
Table of the life settlement contracts was based on the terms of sale. The contracts were classified as Level 3 as there was not an active market for life settlement contracts.

117

Contents

Significant Unobservable Inputs

The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurement 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 unobservable inputs from these broker quotes is neither provided nor reasonably available to the Company. The weighted average rate is calculated based on fair value.

December 31, 2018  

Estimated

Fair Value

   

Valuation

Techniques

  

Unobservable

Inputs

  

Range

(Weighted

Average)

 
   (In millions)           

Fixed maturity securities

  $    228           Discounted
cash flow		  Credit spread   1% – 12% (3%) 
December 31, 2017                  
               

Fixed maturity securities

  $    136           Discounted

cash flow

  Credit spread   1% – 12% (3%) 

Range
Estimated
Valuation
Unobservable
(Weighted
December 31, 2019
Fair Value
Techniques
Inputs
Average)
(In millions)
Fixed maturity securities
$       
525
Discounted
cash
flow
Credit
spread
1
%
–
6%
(2%
)
December 31, 2018
Fixed maturity securities
$       
228
Discounted
cash
flow
Credit spread
1% – 12% (3%
)
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, estimated fair value and the level of the fair value hierarchy 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. The carrying amounts and estimated fair values of short term debt and long term debt exclude capital
finance
lease obligations. The carrying amounts reported on the Consolidated Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.

   Carrying   Estimated Fair Value 
December 31, 2018  Amount   Level 1   Level 2   Level 3   Total       
(In millions)                    

Assets:

          

Other invested assets, primarily mortgage loans

  $839       $827   $827       

Liabilities:

          

Short term debt

   15     $14      14       

Long term debt

   11,345      10,111    653    10,764       

December 31, 2017

                         

Assets:

          

Other invested assets, primarily mortgage loans

  $839       $844   $844       

Liabilities:

          

Short term debt

   278     $156    122    278       

Long term debt

   11,236      10,966    525    11,491       

118

                     
 
Carrying
  
Estimated Fair Value
 
December 31, 2019
 
Amount
  
Level 1
  
Level 2
  
Level 3
  
Total
 
(In millions)
          
Assets:
  
   
   
   
   
 
Other invested assets, primarily mortgage loans
 $
994
   
 
   
 
  $
1,025
  $
1,025
 
Liabilities:
  
   
   
   
   
 
Short term debt
  
75
   
 
  $
9
   
66
   
75
 
Long term debt
  
11,443
   
 
   
10,884
   
626
   
11,510
 
                
December 31, 2018
          
Assets:
  
   
   
   
   
 
Other invested assets, primarily mortgage loans
 $
839
   
   
  $
827
  $
827
 
Liabilities:
  
   
   
   
   
 
Short term debt
  
15
   
  $
14
   
   
14
 
Long term debt
  
11,345
   
   
10,111
   
653
   
10,764
 
11
9

Table of Contents
The fair values of mortgage loans, included in Other invested assets, were based on the present value of the expected future cash flows discounted at the current interest rate for similar financial instruments, adjusted for specific loan risk.

The fair values of debt were based on observable market prices when available. When observable market prices were not available, the fair values of debt were based on observable market prices of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.

Note 5. Receivables

December 31  2018   2017 
(In millions)        

Reinsurance (Note 16)

  $    4,455   $    4,290     

Insurance

   2,365    2,336     

Receivable from brokers

   296    69     

Accrued investment income

   394    413     

Federal income taxes

   52    52     

Other, primarily customer accounts

   477    533     

 

 

Total

   8,039    7,693     

Less: allowance for doubtful accounts on reinsurance receivables

   29    29     

 allowance for other doubtful accounts

   50    51     

 

 

Receivables

  $7,960   $7,613     
           
           

         
December 31
 
2019
  
2018
 
(In millions)
    
Reinsurance (Note 16)
 $
     
4,204
  $
     
4,455
 
 
 
 
 
Insurance
  
2,481
   
2,365
 
 
 
 
 
Receivable from brokers
  
124
   
296
 
 
 
 
 
Accrued investment income
  
395
   
394
 
 
 
 
 
Federal income taxes
  
14
   
52
 
 
 
 
 
Other, primarily customer accounts
  
520
   
477
 
 
 
 
 
         
Total
  
7,738
   
8,039
 
 
 
 
 
Less: allowance for doubtful accounts on reinsurance receivables
  
25
   
29
 
 
 
 
 
 allowance for other doubtful accounts
  
38
   
50
 
 
 
 
 
         
Receivables
 $
     
7,675
  $
     
7,960
 
 
 
 
 
         
Note 6. Property, Plant and Equipment

December 31  2018   2017 
(In millions)        

Pipeline equipment (net of accumulated depreciation of $2,761 and $2,453)

  $8,238   $7,857     

Offshore drilling equipment (net of accumulated depreciation of $3,067 and $2,797)

   5,144    5,226     

Other (net of accumulated depreciation of $1,056 and $1,009)

   1,812    1,886     

Construction in process

   317    458     

 

 

Property, plant and equipment

  $  15,511   $  15,427     

 

 

 

 

The balance of other property, plant and equipment as of December 31, 2017 includes $366 million for Consolidated Container.

         
December 31
 
2019
  
2018
 
(In millions)
    
Pipeline equipment (net of accumulated depreciation of $3,075 and $2,761)
 $
     
8,229
  $
     
8,238
    
 
Offshore drilling equipment (net of accumulated depreciation of $2,885 and $3,067)
  
5,119
   
5,144
    
 
Other (net of accumulated depreciation of $1,114 and $1,056
)
  
1,625
   
1,812
    
 
Construction in process
  
595
   
317
    
 
         
Property, plant and equipment
 $
     
15,568
  $
     
15,511
    
 
         
Depreciation expense and capital expenditures are as follows:

Year Ended December 31  2018   2017   2016 
                               
   Depre-
ciation		   Capital
Expend.		   Depre-
ciation		   Capital
Expend.		   Depre-
ciation		   Capital  
Expend.  		 
                               
(In millions)                        

CNA Financial

  $76     $99    $80     $101     $67     $128     

Diamond Offshore

   332      222     349      113      384      629     

Boardwalk Pipeline

   346      487     325      689      321      648     

Loews Hotels & Co

   67      139     63      57      63      164     

Corporate

   59      48     37      30      6      3     
                               

Total

  $    880     $    995    $    854     $    990     $    841     $1,572     
                               
                               

                         
Year Ended December 31
 
2019
  
2018
  
2017
 
 
 
Depre-
  
Capital
  
Depre-
  
Capital
  
Depre-
  
Capital
 
 
 
ciation
  
Expend.
  
ciation
  
Expend.
  
ciation
  
Expend.
 
(In millions)
            
CNA Financial
 $
64
  $
26
  $
76
  $
99
  $
80
  $
101
    
 
Diamond Offshore
  
356
   
345
   
332
   
222
   
349
   
113
    
 
Boardwalk Pipelines
  
348
   
418
   
346
   
487
   
325
   
689
    
 
Loews Hotels & Co
  
60
   
216
   
67
   
139
   
63
   
57
    
 
Corporate
  
70
   
53
   
59
   
48
   
37
   
30
    
 
                         
Total
 $
898
  $
1,058
  $
880
  $
995
  $
854
  $
990
    
 
                         
Capitalized interest related to the construction and upgrade of qualifying assets amounted to approximately $18 million, $27 million $37 million and $51$37 million for the years ended December 31, 2019, 2018 2017 and 2016.

119

2017.

1
20

Table of Contents
Diamond Offshore

Asset Impairments

During 2019, Diamond Offshore evaluated three drilling rigs with indicators of impairment. Based on the assumptions and analysis at that time, Diamond Offshore determined that the undiscounted probability-weighted cash flow of each of these rigs was in excess of its carrying value. As a result, Diamond Offshore concluded that no impairment of these rigs had occurred at December 31, 2019.
During 2018, Diamond Offshore recorded an asset impairment charge of $27 million ($12 million after tax and noncontrolling interests) to recognize a reduction in fair value of the
Ocean Scepter
. Diamond Offshore estimated the fair value of the impaired rig using a market approach based on a signed agreement to sell the rig, less estimated costs to sell. This valuation approach is considered to be a Level 3 fair value measurement due to the level of estimation involved as the sale had not yet been completed at the time of the analysis. At December 31, 2018, Diamond Offshore evaluated one drilling rig with indicators of impairment. Based on the assumptions and analysis, Diamond Offshore determined that the undiscounted probability-weighted cash flow of the rig was in excess of its carrying value. As a result, Diamond Offshore concluded that no impairment of the rig had occurred at December 31, 2018. As of December 31, 2018, there were 12 rigs in the drilling fleet not previously written down to scrap, for which there were no current indicators that their carrying amounts may not be recoverable and, thus, were not evaluated for impairment. If market fundamentals in the offshore oil and gas industry deteriorate further or a projected market recovery is further delayed, Diamond Offshore may be required to recognize additional impairment losses in future periods.

During 2017, Diamond Offshore evaluated ten10 of its drilling rigs with indicators of impairment and determined that the carrying values of three3 rigs were impaired. Diamond Offshore estimated the fair value of two2 of these rigs using an income approach, whereby the fair value of each rig was estimated based on a calculation of the rig’s future net cash flows. These calculations utilized significant unobservable inputs, including estimated proceeds that may be received on ultimate disposition of each rig. The fair value of the remaining rigs was estimated using a market approach, which required Diamond Offshore to estimate the value that would be received for the rig in the principal or most advantageous market for that rig in an orderly transaction between market participants. This estimate was primarily based on an indicative bid to purchase the rig, as well as the evaluation of other market data points. The fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. Diamond Offshore recorded aggregate asset impairment charges of $100 million ($32 million after tax and noncontrolling interests) for the year ended December 31, 2017.

During 2016, Diamond Offshore evaluated 15 of its drilling rigs with indications that their carrying amounts may not be recoverable. Based on the assumptions and analyses, Diamond Offshore determined that the carrying values of eight of these rigs were impaired, including one rig that had been previously impaired in a prior year. Diamond Offshore estimated the fair value of these rigs using an income approach, as described above. The fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. Diamond Offshore recorded aggregate asset impairment charges of $672 million ($263 million after tax and noncontrolling interests) for the year ended December 31, 2016. The asset impairment charges recorded during the years ended December 31, 2018, 2017 and 2016 are reported within Operating expenses and other on the Consolidated Statements of Income.

Boardwalk Pipeline

Pipelines

Sale of Assets

During 2017, Boardwalk PipelinePipelines sold a processing plant and related assets for approximately $64 million, including customary adjustments. The sale resulted in a loss of $47 million ($15 million after tax and noncontrolling interests) and is reported within Operating expenses and other on the Consolidated Statements of Income.

120

Loews Hotels & Co
Asset Impairments
Loews Hotels & Co evaluat
es
 properties with indications that their carrying amounts may not be recoverable
. It was
 determined that the
carrying values of 4 properties in 2019 and 2 properties in 2018 were impaired. Loews Hotels & Co recorded aggregate impairment charges of
$99 million ($77 million after tax) and $22 million ($15 million after tax) for the years ended December 31, 2019 and 2018 and are reported within Operating expenses and other on the Consolidated Statements of Income.
These impairments reduced Property, plant and equipment and Other assets by $62 million and $37 million in 2019 and $16 million and $6 million in 2018.
1
2
1

Table of Contents
Loews Hotels & Co utilized an undiscounted probability-weighted cash flow analysis in testing the recoverability of long-lived assets for potential impairment. Assumptions and estimates underlying this analysis include (i) occupancy and room rates, (ii) other revenue, including food and beverage, (iii) operating expenses, including management and marketing fees and (iv) maintenance capital expenditures for repairs and refurbishment. Scenarios were developed using multiple assumptions of expected future events which Loews Hotels & Co assigned a probability of occurrence. This provided a projected probability-weighted cash flow of each property and was compared to the carrying value to assess recoverability. The underlying assumptions and assigned probabilities were estimated based on historical data adjusted for known developments, cost projections and future events that were anticipated by management at the time of the assessment. Loews Hotels & Co primarily uses an income approach to estimate the fair value of its properties by discounting future net cash flows. These calculations utilized significant unobservable inputs, including estimating the growth in the hotel’s average daily revenue and operating costs. The fair value of one property was estimated using a market approach which required Loews Hotels & Co to estimate the value that would be received for its property in the principal or most advantageous market in an orderly transaction between market participants. This estimate was informed by a recent independent appraisal. The fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved
.
Note 7. Goodwill and Other Intangible Assets

A summary of the changes in the carrying amount of goodwill is as follows:

      CNA Diamond Boardwalk Loews  
    Total    Financial Offshore Pipeline Hotels & Co Corporate

(In millions)

       

Balance, December 31, 2016

  $        346  $        109      $        -      $        237          $        -      $-     

Acquisition

   310       310 

Other adjustments

   3   3                 

Balance, December 31, 2017

   659   112   -   237   -   310 

Acquisition

   8       8 

Other adjustments

   (2)   (2)                 

Balance, December 31, 2018

  $665  $        110  $-  $        237      $-  $        318 
                          

 
CNA
  
Boardwalk
      
 
Financial
  
Pipelines
  
Corporate
  
Total
          
 
(In millions)
        
Balance, December 31, 2017
 $
112
  $
237
  $
310
  $
659
 
Acquisition
  
   
   
8
   
8
 
Other adjustments
  
(2
)  
   
   
(2)
         
 
                 
Balance, December 31, 2018
  
110
   
237
   
318
   
665
         
 
Acquisition
s
  
 
   
 
   
100
   
100
         
 
Other adjustments
  
2
   
 
   
 
   
2
         
 
                 
Balance, December 31, 2019
 $
112
  $
237
  $
418
  $
767
         
 
                 
The increase in the goodwill balanceincreases as of December 31, 2017 primarily reflects the acquisition of Consolidated Container in 2017. The increase as of December 31,2019 and 2018 reflectsreflect the acquisitions made by Consolidated Container
Altium Pac
kagin
g
 in 2018.2018 and 2019. See Note 2 for further discussion on these acquisitions.

A summary of the net carrying amount of other intangible assets is as follows:

   December 31, 2018  December 31, 2017 
             Gross               Gross         
             Carrying      Accumulated        Carrying       Accumulated     
              Amount      Amortization        Amount       Amortization     

(In millions)

      

Finite-lived intangible assets:

      

Customer relationships

          $532      $47      $518       $        22 

Other

   72   20   74    13 

Total finite-lived intangible assets

   604   67   592    35 

Indefinite-lived intangible assets

   74       81      

Total other intangible assets

          $678      $67      $673       $35 
                   

The balance of finite-lived intangible assets as of December 31, 2017 includes assets from the acquisition of Consolidated Container.

 
December 31, 2019
  
December 31, 2018
 
 
Gross
    
Gross
   
 
Carrying
  
Accumulated
  
Carrying
  
Accumulated
 
 
 
 
 
 
Amount
  
Amortization
  
Amount
  
Amortization
 
 
 
 
 
(In millions)
        
Finite-lived intangible assets:
  
   
   
   
 
Customer relationships
 $
611
  
    
$
76
  $
532
  
    
$
47
    
 
Other
  
71
   
34
   
72
   
20
    
 
                 
Total finite-lived intangible assets
  
682
   
110
   
604
   
67
    
 
                 
Indefinite-lived intangible assets
  
75
   
 
   
74
   
 
                 
Total other intangible assets
 $
757
  
    
$
110
  $
678
  
    
$
67
    
 
                 
The balance as of December 31, 2019 and 2018 includes assets from acquisitions made by Consolidated Container.

Altium Packaging
.
12
2
Table of Contents
Amortization expense for the years ended December 31, 2019, 2018 and 2017 and 2016 of $45 million, $32 million $20 million and $3$20 million is reported in Operating expenses and other on the Company’s Consolidated Statements of Income. At December 31, 2018,2019, estimated amortization expense in each of the next five years is approximately $61 million in 2020, $38 million in 2021, $37 million in 2022, $36 million in 2023 and $34 million in 2019, $33 million in 2020, $32 million in 2021, $31 million in 2022 and $31 million in 2023.

2024.

Note 8. Claim, and Claim Adjustment Expense and Future Policy Benefit Reserves

CNA’s property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including incurred but not reported (“IBNR”) claims as of the reporting date. CNA’s reserve projections are based primarily on detailed analysis of the facts in each case, CNA’s experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.

121

Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers’ compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that CNA’s ultimate cost for insurance losses will not exceed current estimates.

CNA’s commercial property and casualty insurance operations (“Property & Casualty Operations”) include its Specialty, Commercial and International lines of business. CNA’s Other Insurance Operations outside of Property & Casualty Operations include its long term care business that is in
run-off,
certain corporate expenses, including interest on CNA’s corporate debt, and certain property and casualty businesses in
run-off,
including CNA Re and A&EP.
Liability for Unpaid Claim and Claim Adjustment Expenses

The table below reconciles the net liability for unpaid claim and claim adjustment expenses to the amount presented in
o
n the Consolidated Balance Sheets.

December 31
 2018  
2019
 

(In millions)

 

Net liability for unpaid claim and claim adjustment expenses:

 

Property & Casualty Operations

 $ 14,353    
14,153     
 

Other Insurance Operations (a)

  3,612    
3,732     
 

Total net claim and claim adjustment expenses

  17,965    
17,885     
 

Reinsurance receivables: (b)

Property & Casualty Operations

  1,605    
 

Other Insurance

Property & Casualty Operations (c)

  2,414    
1,617     
 

Total reinsurance receivables

Other Insurance Operations (c)
  4,019    
2,218     
 

Total reinsurance receivables
3,835     
Total gross liability for unpaid claims and claims adjustment expenses

 $ 21,984    
21,720
 
     

(a)

Other Insurance Operations amounts are primarily related to long term care claim reserves, which are long duration insurance contracts, but also include amounts related to unfunded structured settlements arising from short duration insurance contracts.

(b)

Reinsurance receivables presented are gross of the allowance for uncollectible reinsurance and do not include reinsurance receivables related to paid losses.

(c)

The Other Insurance Operations reinsurance receivables are primarily related to A&EP claims covered under the loss portfolio transfer.

transfer
 (
“
LPT
”
)
.

122

1
2
3

Table of Contents
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of Other Insurance Operations.

Year Ended December 31  2018  2017  2016
(In millions)         

Reserves, beginning of year:

    

Gross

  $    22,004  $    22,343  $    22,663 

Ceded

   3,934   4,094   4,087 

Net reserves, beginning of year

   18,070   18,249   18,576 

Net incurred claim and claim adjustment expenses:

    

Provision for insured events of current year

   5,358   5,201   5,025 

Decrease in provision for insured events of prior years

   (179)   (381)   (342)     

Amortization of discount

   176   179   175 

Total net incurred (a)

   5,355   4,999   4,858 

Net payments attributable to:

    

Current year events

   (1,046)   (975)   (967) 

Prior year events

   (4,285)   (4,366)   (4,167) 

Total net payments

   (5,331)   (5,341)   (5,134) 

Foreign currency translation adjustment and other

   (129)   163   (51) 

Net reserves, end of year

   17,965   18,070   18,249 

Ceded reserves, end of year

   4,019   3,934   4,094 

Gross reserves, end of year

  $21,984  $22,004  $22,343 
              

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Reserves, beginning of year:
  
   
   
 
Gross
 $
21,984
  $
22,004
  $
22,343
 
Ceded
  
4,019
   
3,934
   
4,094
 
             
Net reserves, beginning of year
  
17,965
   
18,070
   
18,249
 
             
Net incurred claim and claim adjustment expenses:
  
   
   
 
Provision for insured events of current year
  
5,356
   
5,358
   
5,201
 
Decrease
in provision for insured events of prior years
  
(127
)  
(179
)  
(381
)
Amortization of discount
  
184
   
176
   
179
 
             
Total net incurred (a)
  
5,413
   
5,355
   
4,999
 
             
Net payments attributable to:
  
   
   
 
Current year events
  
(992
)  
(1,046
)  
(975
)
Prior year events
  
(4,584
)  
(4,285
)  
(4,366
)
             
Total net payments
  
(5,576
)  
(5,331
)  
(5,341
)
             
Foreign currency translation adjustment and other
  
83
   
(129
)  
163
 
             
Net reserves, end of year
  
17,885
   
17,965
   
18,070
 
Ceded reserves, end of year
  
3,835
   
4,019
   
3,934
 
             
Gross reserves, end of year
 $
21,720
  $
21,984
  $
22,004
 
             
(a)

Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected on the Consolidated Statements of Income due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and loss deductible receivables and benefit expenses related to future policy benefits, which are not reflected in the table above.

Reserving Methodology

In developing claim and claim adjustment expense (“loss” or “losses”) reserve estimates, CNA’s actuaries perform detailed reserve analyses that are staggered throughout the year. Every reserve group is reviewed at least once during the year, but most are reviewed more frequently. The analyses generally review losses gross of ceded reinsurance and apply the ceded reinsurance terms to the gross estimates to establish estimates net of reinsurance. Factors considered include, but are not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in CNA’s pricing and underwriting, pricing and underwriting trends in the insurance market and legal, judicial, social and economic trends. In addition to the detailed analyses, CNA reviews actual loss emergence for all products each quarter. In developing the loss reserve estimates for property and casualty contracts, CNA generally projects ultimate losses using several common actuarial methods as listed below. CNA reviews the various indications from the various methods and applies judgment to select an actuarial point estimate. The carried reserve may differ from the actuarial point estimate as the result of CNA’s consideration of the factors noted above as well as the potential volatility of the projections associated with the specific product being analyzed and other factors affecting claims costs that may not be quantifiable through traditional actuarial analysis. The indicated required reserve is the difference between the selected ultimate loss and the
inception-to-date
paid losses. The difference between the selected ultimate loss and the case incurred or reported loss is IBNR. IBNR includes a provision for development on known cases as well as a provision for late reported incurred claims. Further, CNA does not establish case reserves for allocated loss adjustment expenses (ALAE), therefore ALAE reserves are included in CNA’s estimate of IBNR. The most frequently utilized methods to project ultimate losses include the following:

12
4
Table of Contents
 🌑
●

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 losses.

123

 🌑
●

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 produces a range of possible outcomes based on varying assumptions related to the particular product being modeled.

For many exposures, especially those that can beare 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, CNA’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 CNA’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, CNA may not assign any weight to the paid and incurred development methods. CNA may use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods. For short-tail exposures, the paid and incurred development methods can often be relied on sooner, primarily because CNA’s history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, CNA may also use the loss ratio, Bornhuetter-Ferguson and frequency times severity methods for short-tail exposures. For other more complex reserve groups where the above methods may not produce reliable indications, CNA uses additional methods tailored to the characteristics of the specific situation.

Certain claim liabilities are more difficult to estimate or have differing methodologies and considerations which are described below.

Mass Tort and A&EP Reserves

CNA’s reserving methodologies for mass tort and A&EP are similar as both are based on detailed reviews of large accounts with estimates of ultimate payments based on the facts in each case and CNA’s view of applicable law and coverage litigation.

Other Insurance Operations

Other Insurance Operations includes CNA’srun-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies 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 CNA has the ability to increase policy premiums, subject to state regulatory approval.

CNA maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for CNA’s Other Insurance Operations. Claim and claim adjustment expense reserves consist

12
5
Table of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have

124

been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for the long term care policies, CNA’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. CNA’s recorded claim and claim adjustment expense reserves reflect management’s best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. Both elements of the Other Insurance Operations reserves are discounted as discussed in Note 1.

Contents

Gross and Net Carried Reserves

The following tables present the gross and net carried reserves:

   Property  Other   
   and Casualty  Insurance   
December 31, 2018  Operations  Operations  Total  
(In millions)         

Gross Case Reserves

  $6,671   $    4,724   $    11,395     

Gross IBNR Reserves

   9,287    1,302    10,589     

Total Gross Carried Claim and

 Claim Adjustment Expense Reserves

  $    15,958   $6,026   $21,984     
                

Net Case Reserves

  $6,063   $3,460   $9,523     

Net IBNR Reserves

   8,290    152    8,442     

Total Net Carried Claim and Claim

 Adjustment Expense Reserves

  $14,353   $3,612   $17,965     
                

December 31, 2017

               

(In millions)

      

Gross Case Reserves

  $6,913   $4,757   $11,670     

Gross IBNR Reserves

   9,156    1,178    10,334     

Total Gross Carried Claim and

 Claim Adjustment Expense Reserves

  $16,069   $5,935   $22,004     
                

Net Case Reserves

  $6,343   $3,302   $9,645     

Net IBNR Reserves

   8,232    193    8,425     

Total Net Carried Claim and Claim

 Adjustment Expense Reserves

  $14,575   $3,495   $18,070     
                

 
Property
  
Other
   
 
and Casualty
  
Insurance
   
December 31, 2019
 
Operations
  
Operations
  
Total
 
(In millions)
      
Gross Case Reserves
 $
6,276
  $
4,713
  $
10,989
 
Gross IBNR Reserves
  
9,494
   
1,237
   
10,731
 
             
Total Gross Carried Claim and Claim Adjustment Expense Reserves
 $
15,770
  $
5,950
  $
21,720
 
             
Net Case Reserves
 $
5,645
  $
3,533
  $
9,178
 
Net IBNR Reserves
  
8,508
   
199
   
8,707
 
             
Total Net Carried Claim and Claim Adjustment Expense Reserves
 $
14,153
  $
3,732
  $
17,885
 
             
          
December 31, 2018
      
Gross Case Reserves
 $
6,671
  $
4,724
  $
11,395
 
Gross IBNR Reserves
  
9,287
   
1,302
   
10,589
 
             
Total Gross Carried Claim and Claim Adjustment Expense Reserves
 $
15,958
  $
6,026
  $
21,984
 
             
Net Case Reserves
 $
6,063
  $
3,460
  $
9,523
 
Net IBNR Reserves
  
8,290
   
152
   
8,442
 
             
Total Net Carried Claim and Claim Adjustment Expense Reserves
 $
14,353
  $
3,612
  $
17,965
 
             
Net Prior Year Development

Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (“development”). These changes can be favorable or unfavorable.

125

The following table and discussion presents detail of the development in CNA’s Property & Casualty Operations:

Year Ended December 31  2018  2017  2016
(In millions)         

Medical professional liability

  $        47  $      30  $             9     

Other professional liability and management liability

   (127)   (126)   (140) 

Surety

   (70)   (84)   (63) 

Commercial auto

   1   (35)   (47) 

General liability

   32   (24)   (65) 

Workers’ compensation

   (32)   (63)   145 

Other

   (32)   (6)   (127) 

Total pretax (favorable) unfavorable development

  $(181)  $(308)  $(288) 
              

Favorable net prior year loss reserve development

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Medical professional liability
 $
75
  $
47
  $
30
 
Other professional liability and management liability
  
(69)
   
(127)
   
(126)
 
Surety
  
(92)
   
(70)
   
(84)
 
Commercial auto
  
(25)
   
1
   
(35)
 
General liability
  
54
   
32
   
(24)
 
Workers’ compensation
  
(13)
   
(32)
   
(63)
 
Other
  
(3)
   
(32)
   
(6)
 
             
Total pretax favorable development
 $
(73)
  $
(181)
  $
(308)
 
             
12
6
Table of $19 million, $72 million and $46 million was recorded for Other Insurance Operations for the years ended December 31, 2018, 2017 and 2016. The favorable net prior year loss reserve development for the year ended December 31, 2018 was driven by lower than expected claim severity.

Contents

Development Tables

For CNA’s Property & Casualty Operations, the following tables present further detail and commentary on the development reflected in the financial statements for each of the periods presented. Also presented are loss reserve development tables that illustrate the change over time of reserves established for claim and allocated claim adjustment expenses arising from short duration insurance contracts for certain lines of business within CNA’s  commercial property and casualty insurance operations (“Property & Casualty Operations”).Operations. Not all lines of business are presented based on their context to CNA’s overall loss reserves, calendar year reserve development, or calendar year net earned premiums. Insurance contracts are considered to be short duration contracts when the contracts are not expected to remain in force for an extended period of time. The Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative net incurred claim and allocated claim adjustment expenses relating to each accident year at the end of the stated calendar year. Changes in the cumulative amount across time are the result of CNA’s expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses tables, reading across, show the cumulative amount paid for claims in each accident year as of the end of the stated calendar year. The Net Strengthening or (Releases) of Prior Accident Year Reserves tables, reading across, show the net increase or decrease in the cumulative net incurred accident year claim and allocated claim adjustment expenses during each stated calendar year and indicates whether the reserves for that accident year were strengthened or released.

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 20172018 and prior is unaudited. To the extent CNA enters into a commutation, the transaction is reported on a prospective basis. To the extent that CNA enters into a disposition, the effects of the disposition are reported on a retrospective basis by removing the balances associated with it.

The amounts reported for the cumulative number of reported claims include direct and assumed open and closed claims by accident year at the claimant level. The number excludes claim counts for claims within a policy deductible where the insured is responsible for payment of losses in the deductible layer. Claim count data for certain assumed reinsurance contracts is unavailable.

In the loss reserve development tables, IBNR includes reserves for incurred but not reported losses and expected development on case reserves.

CNA does not establish case reserves for allocated loss adjusted expenses (ALAE), therefore ALAE reserves are also included in the estimate of IBNR.

2019
Unfavorable development in medical professional liability was primarily due to higher than expected severity in accident years 2016 through 2018

in CNA’s aging services business, higher than expected severity in accident year 2013 in the allied healthcare business, unfavorable outcomes on individual claims and higher than expected severity in accident year 2017 in the dentists business.

Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency and favorable outcomes on individual claims in accident years 2017 and prior related to financial institutions, lower than expected large claim losses in recent accident years in CNA’s public company directors and officers liability business and lower than expected loss adjustment expenses across accident years 2010 through 2018.
Favorable development in surety was due to lower than expected frequency for accident years 2018 and prior.
Favorable development in commercial auto was primarily due to continued lower than expected severity across accident years 2015 and prior and a decline in bodily injury frequency in accident year 2018.
Unfavorable development in general liability was primarily due to higher than expected emergence in mass tort exposures, primarily from accident years 2016, 2015 and prior to 2010.
12
7
Table of Contents
Favorable development in other coverages was due to lower than expected paid loss emergence on vehicle products in warranty, favorable medical trends driving lower than expected severity in accident years 2012 through 2018 in workers’ compensation, lower than expected claim severity related to catastrophe events in accident years 2017 and 2018 in property and other in Commercial and lower than expected large losses and claim severity in accident years 2018 and prior in Hardy, Europe and Canada in casualty. This was mostly offset by unfavorable development driven by higher than expected claims in Hardy on 2018 accident year Asian catastrophe events in property in International and potential design and construct exposures in professional indemnity within Europe financial lines in accident years 2017 and 2018.
2018
Unfavorable development in medical professional liability was primarily due to higher than expected severity in accident years 2014 and 2017 in CNA’s hospitals business. In addition, there was higher than expected frequency and severity in aging services in accident years 2014 through 2017 combined, partially offset by lower than expected frequency in accident year 2015.

126

Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency in recent accident years related to financial institutions and professional liability errors and omissions (“E&O”), favorable severity in accident years 2015 and prior related to professional liability E&O and favorable outcomes on individual claims in financial institutions in accident years 2013 and prior.

Favorable development in surety was due to lower than expected loss emergence for accident years 2017 and prior.

Unfavorable development in general liability was driven by higher than expected claim severity in unsupported umbrella in accident years 2013 through 2016.

Favorable development in workers’ compensation was driven by lower frequency and severity experience and favorable impacts from California reforms.

Favorable development in other coverages was driven by lower than expected claim severity in catastrophes in accident year 2017 for property in Commercial, better than expected frequency in the liability portion of the package business in Canada and general liability in Europe in casualty and better than expected large loss frequency in the energy book in accident year 2017, as well as a reduction in incurred losses within the Europe marine discontinued portfolio in energy and marine and lower than expected frequency in accident years 2015 and prior in Europe in healthcare and technology for International. This was partially offset by unfavorable development primarily driven by higher than expected severity in Canada and higher than expected frequency in Hardy, both in accident year 2017 in property and increased loss severity in the accident year 2017 in Europe professional indemnity in specialty for International.

2017

Unfavorable development in medical professional liability was primarily due to continued higher than expected frequency in aging services and higher than expected severity for hospitals in recent accident years. This was partially offset by favorable development in hospitals in prior accident years as well as favorable development related to unallocated claim adjustment expenses.

Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and a lower frequency of large losses for accident years 2011 through 2015 for professional and management liability, lower than expected claim frequency in accident years 2012 through 2015 for professional liability and lower than expected severity in accident years 2014 through 2015 for professional liability.

Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2015 and prior.

12
8
Table of Contents
Favorable development in commercial auto was primarily due to lower than expected severity in accident years 2013 through 2016, as well as a large favorable recovery on a claim in accident year 2012.

Favorable development in general liability was due to lower than expected severity in life sciences.

Favorable development in workers’ compensation was primarily related to decreases in frequency and severity in recent accident years, partially attributable to California reforms impacting medical costs. This was partially offset by unfavorable development related to an adverse arbitration ruling on reinsurance recoverables from older accident years as well as the recognition of loss estimates associated with earned premium from a prior exposure year.

Unfavorable development for other coverages was primarily due to higher than expected severity in accident year 2015 arising from the management liability business, partially offset by favorable development in accident years 2014 and prior. Additional unfavorable development was related to adverse large claims experience in the CNA Hardy political risks portfolio, relating largely to accident year 2016. This was partially offset by favorable development related to better than expected frequency in accident years 2014 through 2016 in property and in energy and marine.

127

2016

Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and lower than expected frequency of claims in accident years 2010 through 2014 related to professional services and financial institutions. This was partially offset by unfavorable development related to a specific financial institutions claim in accident year 2014, higher management liability severities in accident year 2015 and deterioration on credit crises-related claims in accident year 2009.

Favorable development in surety coverages was primarily due to lower than expected frequency of large losses in accident years 2014 and prior.

Favorable development in commercial auto was primarily due to favorable settlements on claims in accident years 2010 through 2014 and lower than expected severities in accident years 2012 through 2015.

Favorable development in general liability was primarily due to better than expected claim settlements in accident years 2012 through 2014, better than expected severity on umbrella claims in accident years 2010 through 2013 and better than expected severity in medical products liability in accident years 2010 through 2015. This was partially offset by unfavorable development related to an increase in reported claims prior to the closing of the three year window set forth by the Minnesota Child Victims Act in accident years 2006 and prior.

Unfavorable development in workers’ compensation was primarily due to higher than expected severity for Defense Base Act contractors that largely resulted from a reduction of expected future recoveries from the U.S. Department of Labor under the War Hazard Act. Further unfavorable development was due to the impact of recent Florida court rulings for accident years 2008 through 2015. These were partially offset by favorable development related to lower than expected frequencies related to the ongoing Middle Market and Small Business results for accident years 2009 through 2014.

Favorable development in other coverages was due to better than expected claim frequency and claim severity in accident years 2010 through 2015, better than expected loss frequency in accident years 2013 through 2015, better than expected severity on the December 2015 United Kingdom floods, better than expected attritional losses and large loss experience on accident years 2013 through 2015 for Hardy business and favorable settlements on claims in accident years 2013 and prior related to CNA’s Canadian package business. Additional favorable development was due to a commutation of exposures in marinerun-off classes on CNA’s Europe business and lower than expected frequency of large losses related to CNA’s Europe business in accident year 2013. This was partially offset by unfavorable development related to higher than expected severity from a fourth quarter 2015 catastrophe event.

Property & Casualty Operations – Line of Business Composition

The table below presents the net liability for unpaid claim and claim adjustment expenses, by line of business for Property & Casualty Operations:

December 31

  2018

(In millions)

  

Medical professional liability

  $1,457 

Other professional liability and management liability

   2,849 

Surety

   379 

Commercial auto

   412 

General liability

   3,195 

Workers’ compensation

   3,968 

Other

   2,093 

Total net liability for unpaid claim and claim adjustment expenses

  $  14,353     
      

128

December 31
 
2019
 
(In millions)
  
Medical professional liability
 $
1,429
 
Other professional liability and management liability
  
2,739
 
Surety
  
369
 
Commercial auto
  
404
 
General liability
  
3,176
 
Workers’ compensation
  
3,932
 
Other
  
2,104
 
     
Total net liability for unpaid claim and claim adjustment expenses
 $
14,153
 
     
12
9
Medical Professional Liability                   
                  December 31, 2018 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses            Cumulative 
             Number of 
December 31  2009 (a)   2010 (a)   2011 (a)   2012 (a)  2013 (a)  2014 (a)  2015 (a)  2016 (a)  2017 (a)  2018      IBNR       Claims 
               

 

 

 

(In millions, except reported claims data)

 

           

Accident Year

                 

2009

  $    389   $    390   $    392   $    392  $    366  $    346  $    336  $    309  $302  $310  $-    14,716 

2010

     402    412    423   426   415   395   365   360   356   -    14,615 

2011

       429    437   443   468   439   434   437   437   8    16,505 

2012

         464   469   508   498   493   484   493   10    17,691 

2013

          462   479   500   513   525   535   28    19,442 

2014

           450   489   537   530   535   30    19,602 

2015

            433   499   510   494   78    17,835 

2016

             427   487   485   120    15,427 

2017

              412   449   217    13,777 

2018

               404   333    11,205 
              

 

 

  

 

 

   
              Total $  4,498  $  824   
              

 

 

  

 

 

   
                 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses        
               

Accident Year

                 

2009

  $9   $63   $143   $211  $247  $269  $280  $288  $291  $300    

2010

     10    86    173   257   306   326   337   346   350    

2011

       17    109   208   295   347   375   398   409    

2012

         14   117   221   323   388   427   457    

2013

          17   119   255   355   414   462    

2014

           23   136   258   359   417    

2015

            22   101   230   313    

2016

             18   121   246    

2017

              19   107    

2018

               21    
              

 

 

    
              Total $3,082    
              

 

 

    

Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented

 $1,416    

Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009

  18    

Liability for unallocated claim adjustment expenses for accident years presented

  23    
              

 

 

    

Total net liability for unpaid claim and claim adjustment expenses

 $1,457    
              

 

 

    
Net Strengthening or (Releases) of Prior Accident Year Reserves              
               

Years Ended

                 

December 31

                                          Total    
              

 

 

    

Accident Year

                 

2009

  $1   $2   $-   $(26)  $(20)  $(10)  $(27)  $(7)  $8  $(79)    

2010

     10    11    3   (11)   (20)   (30)   (5)   (4)   (46)    

2011

       8    6   25   (29)   (5)   3   -   8    

2012

         5   39   (10)   (5)   (9)   9   29    

2013

          17   21   13   12   10   73    

2014

           39   48   (7)   5   85    

2015

            66   11   (16)   61    

2016

             60   (2)   58    

2017

              37   37    
           

 

 

     

Total net development for the accident years presented above

  60   58   47     

Total net development for accident years prior to 2009

  (51)   (21)   1     

Total unallocated claim adjustment expense development

  -   (7)   (1)     
 

 

 

     

Total

 $9  $30  $47     
 

 

 

     

(a)

Data presented for these calendar years is required supplemental information, which is unaudited.

129

Other Professional Liability and Management Liability                   
                  December 31, 2018 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses            Cumulative 
             Number of 
December 31  2009 (a)   2010 (a)   2011 (a)  2012 (a)  2013 (a)  2014 (a)  2015 (a)  2016 (a)  2017 (a)  2018  IBNR   Claims 
              

 

 

 

(In millions, except reported claims data)

 

          

Accident Year

                

2009

  $    831   $    875   $    908  $    903  $    893  $    903  $    897  $    906  $    904  $892  $18    17,374 

2010

     828    828   848   848   847   837   824   827   821   19    17,888 

2011

       880   908   934   949   944   911   899   888   39    18,728 

2012

        923   909   887   878   840   846   833   41    18,491 

2013

         884   894   926   885   866   863   65    17,918 

2014

          878   898   885   831   835   88    17,515 

2015

           888   892   877   832   194    17,333 

2016

            901   900   900   279    17,787 

2017

             847   845   479    17,780 

2018

              850   726    16,564 
             

 

 

  

 

 

   
             Total $8,559  $1,948   
             

 

 

  

 

 

   
                
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses                
               

Accident Year

                

2009

  $37   $195   $361  $553  $641  $722  $772  $801  $825  $844    

2010

     31    204   405   541   630   670   721   752   784    

2011

       71   314   503   605   683   726   781   796    

2012

        56   248   400   573   651   711   755    

2013

         54   249   447   618   702   754    

2014

          51   223   392   515   647    

2015

           60   234   404   542    

2016

            64   248   466    

2017

             57   222    

2018

              54    
             

 

 

    
             Total $5,864    
             

 

 

    

Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented

 $2,695    

Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009

  90    

Liability for unallocated claim adjustment expenses for accident years presented

  64    
             

 

 

    

Total net liability for unpaid claim and claim adjustment expenses

 $2,849    
             

 

 

    
Net Strengthening or (Releases) of Prior Accident Year Reserves              
               

Years Ended

December 31

 

 

  Total    
             

 

 

    

Accident Year

                

2009

  $44   $33   $(5)  $(10)  $10  $(6)  $9  $(2)  $(12)  $61    

2010

     -    20   -   (1)   (10)   (13)   3   (6)   (7)    

2011

       28   26   15   (5)   (33)   (12)   (11)   8    

2012

        (14)   (22)   (9)   (38)   6   (13)   (90)    

2013

         10   32   (41)   (19)   (3)   (21)    

2014

          20   (13)   (54)   4   (43)    

2015

           4   (15)   (45)   (56)    

2016

            (1)   -   (1)    

2017

             (2)   (2)    
          

 

 

     

Total net development for the accident years presented above

  (125)   (94)   (88)     

Total net development for accident years prior to 2009

  (15)   (25)   (32)     

Total unallocated claim adjustment expense development

  -   (7)   (7)     
 

 

 

     

Total

 $(140)  $(126)  $(127)     
 

 

 

     

(a)

Data presented for these calendar years is required supplemental information, which is unaudited.

130

Surety                   
                  December 31, 2018 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses            Cumulative 
             Number of 
December 31  2009 (a)   2010 (a)  2011 (a)  2012 (a)  2013 (a)  2014 (a)  2015 (a)  2016 (a)  2017 (a)  2018  IBNR   Claims 
             

 

 

 

(In millions, except reported claims data)

 

          

Accident Year

               

2009

  $    114   $    114  $    103  $    85  $    68  $59  $    52  $    53  $53  $52  $1    6,688 

2010

     112   112   111   84   76   66   63   59   61   1    5,971 

2011

      120   121   116   87   75   70   66   62   1    5,808 

2012

       120   122   98   70   52   45   39   2    5,559 

2013

        120   121   115   106   91   87   6    5,039 

2014

         123   124   94   69   60   19    5,036 

2015

          131   131   104   79   36    4,887 

2016

           124   124   109   60    5,185 

2017

            120   115   78    4,936 

2018

             114   101    3,105 
            

 

 

  

 

 

   
            Total $778  $305   
            

 

 

  

 

 

   
               
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses                
               

Accident Year

               

2009

  $13   $24  $34  $41  $43  $45  $46  $47  $47  $47    

2010

     13   34   50   55   57   58   55   52   52    

2011

      19   42   55   58   60   60   56   57    

2012

       5   32   34   35   35   36   37    

2013

        16   40   69   78   78   78    

2014

         7   30   38   36   38    

2015

          7   26   38   40    

2016

           5   37   45    

2017

            23   37    

2018

             5    
            

 

 

    
            Total $436    
            

 

 

    

Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented

 $342    

Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009

  7    

Liability for unallocated claim adjustment expenses for accident years presented

  30    
            

 

 

    

Total net liability for unpaid claim and claim adjustment expenses

 $379    
            

 

 

    
Net Strengthening or (Releases) of Prior Accident Year Reserves              

Years Ended

 

     

December 31

                                        Total    
            

 

 

    

Accident Year

               

2009

  $-   $(11)  $(18)  $(17)  $(9)  $(7)  $1  $-  $(1)  $(62)    

2010

     -   (1)   (27)   (8)   (10)   (3)   (4)   2   (51)    

2011

      1   (5)   (29)   (12)   (5)   (4)   (4)   (58)    

2012

       2   (24)   (28)   (18)   (7)   (6)   (81)    

2013

        1   (6)   (9)   (15)   (4)   (33)    

2014

         1   (30)   (25)   (9)   (63)    

2015

          -   (27)   (25)   (52)    

2016

           -   (15)   (15)    

2017

            (5)   (5)    
         

 

 

     

Total net development for the accident years presented above

  (64)   (82)   (67)     

Total net development for accident years prior to 2009

  1   1   (3)     

Total unallocated claim adjustment expense development

  -   (3)   -     
 

 

 

     

Total

 $(63)  $(84)  $(70)     
 

 

 

     

(a)

Data presented for these calendar years is required supplemental information, which is unaudited.

131

Commercial Auto                
                December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses           Cumulative
            Number of
December 31  2009 (a) 2010 (a) 2011 (a) 2012 (a) 2013 (a) 2014 (a) 2015 (a) 2016 (a) 2017 (a) 2018    IBNR Claims

(In millions, except reported claims data)

 

           
           

Accident Year

               

2009

  $291      $    276      $    280      $    282      $    285      $    281      $    278      $    276      $    276      $    277        $-   48,499   

2010

    267   283   287   291   298   293   289   288   288     1   48,030   

2011

     268   281   288   302   300   294   294   294     4   47,905   

2012

      275   289   299   303   307   299   299     6   46,288   

2013

       246   265   265   249   245   245     7   39,429   

2014

        234   223   212   205   205     9   33,609   

2015

         201   199   190   190     22   30,388   

2016

          198   186   186     27   30,342   

2017

           199   198     45   30,580   

2018

            229     118   28,602   
           

 

 

 

   

 

 

 

 
           Total $  2,411    $  239      
           

 

 

 

   

 

 

 

 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses              
             

Accident Year

               

2009

  $    73  $    130  $    191  $    233  $    261  $    272  $    274  $    274  $    275      $277         

2010

    74   141   203   246   271   281   286   287   287     

2011

     79   145   199   248   274   284   287   289     

2012

      78   160   220   259   282   285   290     

2013

       74   135   168   200   225   234     

2014

        64   102   137   166   187     

2015

         52   96   130   153     

2016

          52   93   126     

2017

           58   107     

2018

            66     
           

 

 

 

    
           Total $  2,016     
           

 

 

 

    
                             

Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented

 $395     

Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009

  6     

Liability for unallocated claim adjustment expenses for accident years presented

  11     
           

 

 

 

    

Total net liability for unpaid claim and claim adjustment expenses

 $412     
           

 

 

 

    
Net Strengthening or (Releases) of Prior Accident Year Reserves                  
                   

Years Ended

December 31

                                   Total  
         

Accident Year

               

2009

   $(15)  $4  $2  $3  $(4)  $(3)  $(2)  $-  $1    $(14)  

2010

     16   4   4   7   (5)   (4)   (1)   -     21  

2011

      13   7   14   (2)   (6)   -   -     26  

2012

       14   10   4   4   (8)   -     24  

2013

        19   -   (16)   (4)   -     (1)  

2014

         (11)   (11)   (7)   -     (29)  

2015

          (2)   (9)   -     (11)  

2016

           (12)   -     (12)  

2017

            (1)     (1)  
         

 

 

 

    

Total net development for the accident years presented above

  (37)   (41)   -     

Total net development for accident years prior to 2009

  (10)   4   -     

Total unallocated claim adjustment expense development

  -   2   1     
         

 

 

 

    

Total

 $(47)  $(35)  $1     
         

 

 

 

    

Table of Contents
Medical Professional Liability
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
Cumulative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
 
December 31
 
2010 (a)
 
 
2011 (a)
 
 
2012 (a)
 
 
2013 (a)
 
 
2014 (a)
 
 
2015 (a)
 
 
2016 (a)
 
 
2017 (a)
 
 
2018 (a)
 
 
2019
 
 
IBNR
 
 
Claims
 
(In millions, except reported claims data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 
$
    402
 
 
$
412
 
 
$
423
 
 
$
426
 
 
$
415
 
 
$
395
 
 
$
365
 
 
$
360
 
 
$
356
 
 
$
369
 
 
$
1
 
 
 
14,624
 
2011
 
 
 
 
 
429
 
 
 
437
 
 
 
443
 
 
 
468
 
 
 
439
 
 
 
434
 
 
 
437
 
 
 
437
 
 
 
439
 
 
 
2
 
 
 
16,526
 
2012
 
 
 
 
 
 
 
 
464
 
 
 
469
 
 
 
508
 
 
 
498
 
 
 
493
 
 
 
484
 
 
 
493
 
 
 
499
 
 
 
8
 
 
 
17,724
 
2013
 
 
 
 
 
 
 
 
 
 
 
462
 
 
 
479
 
 
 
500
 
 
 
513
 
 
 
525
 
 
 
535
 
 
 
545
 
 
 
27
 
 
 
19,510
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
450
 
 
 
489
 
 
 
537
 
 
 
530
 
 
 
535
 
 
 
529
 
 
 
16
 
 
 
19,723
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
433
 
 
 
499
 
 
 
510
 
 
 
494
 
 
 
488
 
 
 
29
 
 
 
18,029
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
427
 
 
 
487
 
 
 
485
 
 
 
499
 
 
 
63
 
 
 
15,823
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
412
 
 
 
449
 
 
 
458
 
 
 
127
 
 
 
14,636
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
404
 
 
 
429
 
 
 
216
 
 
 
13,760
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
430
 
 
 
364
 
 
 
10,467
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
$
   4,685
 
 
$
    853
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 
$
      10
 
 
$
86
 
 
$
173
 
 
$
257
 
 
$
306
 
 
$
326
 
 
$
337
 
 
$
346
 
 
$
350
 
 
$
353
 
 
 
 
 
 
 
2011
 
 
 
 
 
17
 
 
 
109
 
 
 
208
 
 
 
295
 
 
 
347
 
 
 
375
 
 
 
398
 
 
 
409
 
 
 
414
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
14
 
 
 
117
 
 
 
221
 
 
 
323
 
 
 
388
 
 
 
427
 
 
 
457
 
 
 
479
 
 
 
 
 
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
17
 
 
 
119
 
 
 
255
 
 
 
355
 
 
 
414
 
 
 
462
 
 
 
495
 
 
 
 
 
 
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
 
 
 
136
 
 
 
258
 
 
 
359
 
 
 
417
 
 
 
472
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
 
 
 
101
 
 
 
230
 
 
 
313
 
 
 
384
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
 
 
 
121
 
 
 
246
 
 
 
339
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
 
 
 
107
 
 
 
235
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
 
 
 
115
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
$
3,303
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented
 
$
1,382
 
 
 
 
 
 
 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2010
 
 
22
 
 
 
 
 
 
 
Liability for unallocated claim adjustment expenses for accident years presented
 
 
25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total net liability for unpaid claim and claim adjustment expenses
 
$
   1,429
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Strengthening (Releases) of Prior Accident Year Reserves
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
            
 
 
            
 
 
                
 
 
              
 
 
 
December 31
                             
 
 
Total
 
 
              
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 
 
 
 
$
10
 
 
$
11
 
 
$
3
 
 
$
(11
)
 
$
(20
)
 
$
(30
)
 
$
(5
)
 
$
(4
)
 
$
13
 
 
$
(33
)
 
 
 
2011
 
 
 
 
 
 
 
 
8
 
 
 
6
 
 
 
25
 
 
 
(29
)
 
 
(5
)
 
 
3
 
 
 
-
 
 
 
2
 
 
 
10
 
 
 
 
2012
 
 
 
��
 
 
 
 
 
 
 
5
 
 
 
39
 
 
 
(10
)
 
 
(5
)
 
 
(9
)
 
 
9
 
 
 
6
 
 
 
35
 
 
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17
 
 
 
21
 
 
 
13
 
 
 
12
 
 
 
10
 
 
 
10
 
 
 
83
 
 
 
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
 
 
 
48
 
 
 
(7
)
 
 
5
 
 
 
(6
)
 
 
79
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
 
 
 
11
 
 
 
(16
)
 
 
(6
)
 
 
55
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
 
 
 
(2
)
 
 
14
 
 
 
72
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
 
 
 
9
 
 
 
46
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
 
 
 
25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total net development for the accident years presented above
 
 
65
 
 
 
39
 
 
 
67
 
 
 
 
 
 
 
Total net development for accident years prior to 2010
 
 
(28
)
 
 
9
 
 
 
6
 
 
 
 
 
 
 
Total unallocated claim adjustment expense development
 
 
(7
)
 
 
(1
)
 
 
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
30
 
 
$
47
 
 
$
75
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)    Data presented for these calendar years is required supplemental information, which is unaudited.

132

1
30
General Liability                
                December 31, 2018
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses           Cumulative
            Number of
December 31  2009 (a) 2010 (a) 2011 (a) 2012 (a) 2013 (a) 2014 (a) 2015 (a) 2016 (a) 2017 (a) 2018    IBNR Claims

(In millions, except reported claims data)

 

           

Accident Year

               

2009

  $662      $716      $733      $755      $752      $756      $755      $754      $755      $755        $16   44,934 

2010

    646   664   658   709   750   726   697   691   691     24   44,144 

2011

     591   589   631   677   676   681   670   669     26   39,283 

2012

      587   611   639   636   619   635   635     46   35,083 

2013

       650   655   650   655   613   623     51   33,420 

2014

        653   658   654   631   635     71   27,736 

2015

         581   576   574   589     122   23,471 

2016

          623   659   667     265   23,078 

2017

           632   632     412   19,716 

2018

            653     553   13,336 
           

 

 

 

   

 

 

 

 
           Total $  6,549    $  1,586      
           

 

 

 

   

 

 

 

 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses              
             

Accident Year

               

2009

  $    33  $    124  $    305  $    468  $  576  $    625  $    663  $    701  $    721  $    727     

2010

    27   145   280   429   561   611   642   652   656     

2011

     28   148   273   411   517   568   602   622     

2012

      28   132   247   374   454   510   559     

2013

       31   128   240   352   450   510     

2014

        31   119   247   376   481     

2015

         19   110   230   357     

2016

          32   163   279     

2017

           23   118     

2018

            33     
           

 

 

 

    
           Total $4,342     
           

 

 

 

    
                             

Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented

 $2,207     

Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009

  927     

Liability for unallocated claim adjustment expenses for accident years presented

  61     
           

 

 

 

    

Total net liability for unpaid claim and claim adjustment expenses

 $  3,195     
           

 

 

 

    
Net Strengthening or (Releases) of Prior Accident Year Reserves                  
                   

Years Ended

December 31

                                   Total  
         

Accident Year

               

2009

   $54  $17  $22  $(3)  $4  $(1)  $(1)  $1  $-    $93  

2010

     18   (6)   51   41   (24)   (29)   (6)   -     45  

2011

      (2)   42   46   (1)   5   (11)   (1)     78  

2012

       24   28   (3)   (17)   16   -     48  

2013

        5   (5)   5   (42)   10     (27)  

2014

         5   (4)   (23)   4     (18)  

2015

          (5)   (2)   15     8  

2016

           36   8     44  

2017

            -     -  
         

 

 

 

    

Total net development for the accident years presented above

  (46)   (31)   36     

Total net development for accident years prior to 2009

  (19)   (1)   -     

Total unallocated claim adjustment expense development

  -   8   (4)     
         

 

 

 

    
  Total $(65)  $(24)  $32     
         

 

 

 

    

(a)     Data presented for these calendar years is required supplemental information, which is unaudited.

133

Workers’ Compensation                       
                      December 31, 2018 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses               Cumulative 
                Number of 
December 31  2009 (a)  2010 (a)  2011 (a)  2012 (a)  2013 (a)  2014 (a)  2015 (a)  2016 (a)  2017 (a)  2018      IBNR  Claims 

(In millions, except reported claims data)

 

           
           

Accident Year

               

2009

  $    592      $    599      $    609      $    611      $    616      $    626      $    631      $    638      $    649      $    650            $46   51,822 

2010

    583   632   654   676   698   710   730   733   732     44   49,106 

2011

     607   641   647   659   651   676   676   674     27   45,637 

2012

      601   627   659   669   678   673   671     59   42,477 

2013

       537   572   592   618   593   582     86   38,665 

2014

        467   480   479   452   450     104   33,465 

2015

         422   431   406   408     146   31,828 

2016

          426   405   396     171   31,905 

2017

           440   432     171   32,811 

2018

            450     276   30,399   
           

 

 

    

 

 

  
           Total $  5,445    $  1,130  
           

 

 

    

 

 

  
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses                   
                  

Accident Year

               

2009

  $89  $227  $321  $388  $443  $476  $503  $525  $549  $557     

2010

    97   251   359   442   510   542   577   615   625     

2011

     99   249   358   438   478   522   564   571     

2012

      87   232   342   416   470   509   524     

2013

       80   213   300   370   417   419     

2014

        61   159   215   258   282     

2015

         51   131   180   212     

2016

          53   129   169     

2017

           63   151     

2018

            68     
           

 

 

     
           Total $3,578     
           

 

 

     
                                          

Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented

 $1,867     

Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2009

  2,131     

Other (b)

  (32)     

Liability for unallocated claim adjustment expenses for accident years presented

  2     
 

 

 

     

Total net liability for unpaid claim and claim adjustment expenses

 $3,968     
           

 

 

     
Net Strengthening or (Releases) of Prior Accident Year Reserves                          
                           

Years Ended

December 31

                                              Total    
            

Accident Year

               

2009

   $7  $10  $2  $5  $10  $5  $7  $11  $1     58  

2010

     49   22   22   22   12   20   3   (1)     149  

2011

      34   6   12   (8)   25   -   (2)     67  

2012

       26   32   10   9   (5)   (2)     70  

2013

        35   20   26   (25)   (11)     45  

2014

         13   (1)   (27)   (2)     (17)  

2015

          9   (25)   2     (14)  

2016

           (21)   (9)     (30)  

2017

            (8)     (8)  
         

 

 

     

Total net development for the accident years presented above

  95   (89)   (32)     

Adjustment for development on a discounted basis

  (3)   (3)   -     

Total net development for accident years prior to 2009

  53   28   7     

Total unallocated claim adjustment expense development

  -   1   (7)     
         

 

 

     

Total

 $145  $(63)  $(32)     
         

 

 

     

Table of Contents
Other Professional Liability and Management Liability
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
Cumulative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
 
December 31
 
2010 (a)
  
2011 (a)
  
2012 (a)
  
2013 (a)
  
2014 (a)
  
2015 (a)
  
2016 (a)
  
2017 (a)
  
2018 (a)
  
2019    
 
 
IBNR
 
 
Claims
 
(In millions, except reported claims data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
    828
  $
828
  $
848
  $
848
  $
847
  $
837
  $
824
  $
827
  $
821
  
$
821
 
 $
9
   
17,891
 
2011
  
   
880
   
908
   
934
   
949
   
944
   
911
   
899
   
888
  
 
885
 
  
21
   
18,738
 
2012
  
   
   
923
   
909
   
887
   
878
   
840
   
846
   
833
  
 
831
 
  
18
   
18,499
 
2013
  
   
   
   
884
   
894
   
926
   
885
   
866
   
863
  
 
850
 
  
45
   
17,928
 
2014
  
   
   
   
   
878
   
898
   
885
   
831
   
835
  
 
854
 
  
74
   
17,553
 
2015
  
   
   
   
   
   
888
   
892
   
877
   
832
  
 
807
 
  
120
   
17,390
 
2016
  
   
   
   
   
   
   
901
   
900
   
900
  
 
904
 
  
188
   
17,890
 
2017
  
   
   
   
   
   
   
   
847
   
845
  
 
813
 
  
308
   
18,015
 
2018
  
   
   
   
   
   
   
   
   
850
  
 
864
 
  
460
   
19,468
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
837
 
 
 
714
 
 
 
16,722
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
   8,466
 
 
$
  1,957
 
  
 
                                                 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
      31
  $
204
  $
405
  $
541
  $
630
  $
670
  $
721
  $
752
  $
784
  
$
790
 
 
 
 
 
 
 
2011
  
   
71
   
314
   
503
   
605
   
683
   
726
   
781
   
796
  
 
828
 
 
 
 
 
 
 
2012
  
   
   
56
   
248
   
400
   
573
   
651
   
711
   
755
  
 
792
 
 
 
 
 
 
 
2013
  
   
   
   
54
   
249
   
447
   
618
   
702
   
754
  
 
771
 
 
 
 
 
 
 
2014
  
   
   
   
   
51
   
223
   
392
   
515
   
647
  
 
707
 
 
 
 
 
 
 
2015
  
   
   
   
   
   
60
   
234
   
404
   
542
  
 
612
 
 
 
 
 
 
 
2016
  
   
   
   
   
   
   
64
   
248
   
466
  
 
625
 
 
 
 
 
 
 
2017
  
   
   
   
   
   
   
   
57
   
222
  
 
394
 
 
 
 
 
 
 
2018
  
   
   
   
   
   
   
   
   
54
  
 
282
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
 
 
 
 
 
 
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
5,865
 
 
 
 
 
 
 
                                                 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented
 
$
2,601
 
 
 
 
 
 
 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2010 
 
 
88
 
 
 
 
 
 
 
Liability for unallocated claim adjustment expenses for accident years presented 
 
 
50
 
 
 
 
 
 
 
                                                 
Total net liability for unpaid claim and claim adjustment expenses 
 
$
  2,739
 
 
 
 
 
 
 
                                                 
Net Strengthening (Releases) of Prior Accident Year Reserves
 
Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
  
  $
-
  $
20
  $
-
  $
(1
) $
(10
) $
(13
) $
3
  $
(6
) 
$
-
 
 $
(7
)  
 
2011
  
   
   
28
   
26
   
15
   
(5
)  
(33
)  
(12
)  
(11
) 
 
(3
)
  
5
   
 
2012
  
   
   
   
(14
)  
(22
)  
(9
)  
(38
)  
6
   
(13
) 
 
(2
)
  
(92
)  
 
2013
  
   
   
   
   
10
   
32
   
(41
)  
(19
)  
(3
) 
 
(13
)
  
(34
)  
 
2014
  
   
   
   
   
   
20
   
(13
)  
(54
)  
4
  
 
19
 
  
(24
)  
 
2015
  
   
   
   
   
   
   
4
   
(15
)  
(45
) 
 
(25
)
  
(81
)  
 
2016
  
   
   
   
   
   
   
   
(1
)  
-
  
 
4
 
  
3
   
 
2017
  
   
   
   
   
   
   
   
   
(2
) 
 
(32
)
  
(34
)  
 
2018
  
   
   
   
   
   
   
   
   
  
 
14
 
  
14
   
 
                                                 
Total net development for the accident years presented above
  
(92
)  
(76
) 
 
(38
)
  
   
 
Total net development for accident years prior to 2010
  
(27
)  
(44
) 
 
(17
)
  
   
 
Total unallocated claim adjustment expense development
  
(7
)  
(7
) 
 
(14
)
  
   
 
                     
Total
 $
(126
) $
(127
) 
$
(69
)
  
   
 
                     
(a)

Data presented for these calendar years is required supplemental information, which is unaudited.

1
31
Table of Contents
Surety
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
Cumulative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
 
December 31
 
2010 (a)
  
2011 (a)
  
2012 (a)
  
2013 (a)
  
2014 (a)
  
2015 (a)
  
2016 (a)
  
2017 (a)
  
2018 (a)
  
2019
 
 
IBNR
 
 
Claims
 
(In millions, except reported claims data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
    112
  $
112
  $
111
  $
84
  $
76
  $
66
  $
63
  $
59
  $
61
  
$
61
 
 $
-
   
5,982
 
2011
  
   
120
   
121
   
116
   
87
   
75
   
70
   
66
   
62
  
 
62
 
  
2
   
5,813
 
2012
  
   
   
120
   
122
   
98
   
70
   
52
   
45
   
39
  
 
38
 
  
1
   
5,568
 
2013
  
   
   
   
120
   
121
   
115
   
106
   
91
   
87
  
 
83
 
  
3
   
5,062
 
2014
  
   
   
   
   
123
   
124
   
94
   
69
   
60
  
 
45
 
  
4
   
5,078
 
2015
  
   
   
   
   
   
131
   
131
   
104
   
79
  
 
63
 
  
11
   
4,976
 
2016
  
   
   
   
   
   
   
124
   
124
   
109
  
 
84
 
  
36
   
5,379
 
2017
  
   
   
   
   
   
   
   
120
   
115
  
 
103
 
  
54
   
5,496
 
2018
  
   
   
   
   
   
   
   
   
114
  
 
108
 
  
76
   
5,451
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
119
 
 
 
102
 
 
 
3,549
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
766
 
 
$
      289
 
  
 
                                                 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
      13
  $
34
  $
50
  $
55
  $
57
  $
58
  $
55
  $
52
  $
52
  
$
53
 
 
 
 
 
 
 
2011
  
   
19
   
42
   
55
   
58
   
60
   
60
   
56
   
57
  
 
57
 
 
 
 
 
 
 
2012
  
   
   
5
   
32
   
34
   
35
   
35
   
36
   
37
  
 
37
 
 
 
 
 
 
 
2013
  
   
   
   
16
   
40
   
69
   
78
   
78
   
78
  
 
77
 
 
 
 
 
 
 
2014
  
   
   
   
   
7
   
30
   
38
   
36
   
38
  
 
38
 
 
 
 
 
 
 
2015
  
   
   
   
   
   
7
   
26
   
38
   
40
  
 
42
 
 
 
 
 
 
 
2016
  
   
   
   
   
   
   
5
   
37
   
45
  
 
45
 
 
 
 
 
 
 
2017
  
   
   
   
   
   
   
   
23
   
37
  
 
41
 
 
 
 
 
 
 
2018
  
   
   
   
   
   
   
   
   
5
  
 
25
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
 
 
 
 
 
 
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
427
 
 
 
 
 
 
 
                                                 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented
 
$
339
 
 
 
 
 
 
 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2010
 
 
10
 
 
 
 
 
 
 
Liability for unallocated claim adjustment expenses for accident years presented
 
 
20
 
 
 
 
 
 
 
                                                 
Total net liability for unpaid claim and claim adjustment expenses
 
$
      369
 
 
 
 
 
 
 
                                                 
Net Strengthening (Releases) of Prior Accident Year Reserves
Years Ended
 
 
 
 
 
            
 
 
            
 
 
                
 
 
              
 
 
 
December 31
                             
 
 
Total
 
 
                      
 
 
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
  
 
  
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
  
  $
-
  $
(1
) $
(27
) $
(8
) $
(10
) $
(3
) $
(4
) $
2
  
$
-
 
 $
(51
)  
 
2011
  
   
   
1
   
(5
)  
(29
)  
(12
)  
(5
)  
(4
)  
(4
) 
 
-
 
  
(58
)  
 
2012
  
   
   
   
2
   
(24
)  
(28
)  
(18
)  
(7
)  
(6
) 
 
(1
)
  
(82
)  
 
2013
  
   
   
   
   
1
   
(6
)  
(9
)  
(15
)  
(4
) 
 
(4
)
  
(37
)  
 
2014
  
   
   
   
   
   
1
   
(30
)  
(25
)  
(9
) 
 
(15
)
  
(78
)  
 
2015
  
   
   
   
   
   
   
-
   
(27
)  
(25
) 
 
(16
)
  
(68
)  
 
2016
  
   
   
   
   
   
   
   
-
   
(15
) 
 
(25
)
  
(40
)  
 
2017
  
   
   
   
   
   
   
   
   
(5
) 
 
(12
)
  
(17
)  
 
2018
  
   
   
   
   
   
   
   
   
  
 
(6
)
  
(6
)  
 
                                                 
Total net development for the accident years presented above
  
(82
)  
(66
) 
 
(79
)
  
   
 
Total net development for accident years prior to 2010
  
1
   
(4
) 
 
(3
)
  
   
 
Total unallocated claim adjustment expense development
  
(3
)  
-
  
 
(10
)
  
   
 
                     
Total
 $
(84
) $
(70
) 
$
(92
)
  
   
 
                     
(a)Data presented for these calendar years is required supplemental information, which is unaudited.
13
2
Table of Contents
Commercial Auto
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
Cumulative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
 
December 31
 
2010 (a)
  
2011 (a)
  
2012 (a)
  
2013 (a)
  
2014 (a)
  
2015 (a)
  
2016 (a)
  
2017 (a)
  
2018 (a)
  
2019
 
 
IBNR
 
 
Claims
 
(In millions, except reported claims data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
    267
  $
283
  $
287
  $
291
  $
298
  $
293
  $
289
  $
288
  $
288
  
$
288
 
 $
1
   
48,035
 
2011
  
   
268
   
281
   
288
   
302
   
300
   
294
   
294
   
294
  
 
291
 
  
-
   
47,909
 
2012
  
   
   
275
   
289
   
299
   
303
   
307
   
299
   
299
  
 
297
 
  
3
   
46,288
 
2013
  
   
   
   
246
   
265
   
265
   
249
   
245
   
245
  
 
241
 
  
2
   
39,429
 
2014
  
   
   
   
   
234
   
223
   
212
   
205
   
205
  
 
201
 
  
3
   
33,622
 
2015
  
   
   
   
   
   
201
   
199
   
190
   
190
  
 
183
 
  
7
   
30,418
 
2016
  
   
   
   
   
   
   
198
   
186
   
186
  
 
186
 
  
7
   
30,414
 
2017
  
   
   
   
   
   
   
   
199
   
198
  
 
200
 
  
9
   
30,850
 
2018
  
   
   
   
   
   
   
   
   
229
  
 
227
 
  
47
   
33,959
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
257
 
 
 
128
 
 
 
31,455
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
2,371
 
 
$
       207
 
  
 
                                                 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses
 
 
                  
 
 
                  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
      74
  $
141
  $
203
  $
246
  $
271
  $
281
  $
286
  $
287
  $
287
  
$
287
 
 
 
 
 
 
 
2011
  
   
79
   
145
   
199
   
248
   
274
   
284
   
287
   
289
  
 
289
 
 
 
 
 
 
 
2012
  
   
   
78
   
160
   
220
   
259
   
282
   
285
   
290
  
 
291
 
 
 
 
 
 
 
2013
  
   
   
   
74
   
135
   
168
   
200
   
225
   
234
  
 
238
 
 
 
 
 
 
 
2014
  
   
   
   
   
64
   
102
   
137
   
166
   
187
  
 
196
 
 
 
 
 
 
 
2015
  
   
   
   
   
   
52
   
96
   
130
   
153
  
 
172
 
 
 
 
 
 
 
2016
  
   
   
   
   
   
   
52
   
93
   
126
  
 
154
 
 
 
 
 
 
 
2017
  
   
   
   
   
   
   
   
58
   
107
  
 
150
 
 
 
 
 
 
 
2018
  
   
   
   
   
   
   
   
   
66
  
 
128
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77
 
 
 
 
 
 
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
   1,982
 
 
 
 
 
 
 
                                                 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented
 
$
389
 
 
 
 
 
 
 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2010
 
 
1
  
 
 
 
 
 
Liability for unallocated claim adjustment expenses for accident years presented
 
 
14
 
 
 
 
 
 
 
                                                 
Total net liability for unpaid claim and claim adjustment expenses
 
$
404
 
 
 
 
 
 
 
                                                 
Net Strengthening (Releases) of Prior Accident Year Reserves
Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31
                             
 
 
Total
 
 
                  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
  
  $
16
  $
4
  $
4
  $
7
  $
(5
) $
(4
) $
(1
) $
-
  
$
-
 
 $
21
   
 
2011
  
   
   
13
   
7
   
14
   
(2
)  
(6
)  
-
   
-
  
 
(3
)
  
23
   
 
2012
  
   
   
   
14
   
10
   
4
   
4
   
(8
)  
-
  
 
(2
)
  
22
   
 
2013
  
   
   
   
   
19
   
-
   
(16
)  
(4
)  
-
  
 
(4
)
  
(5
)  
 
2014
  
   
   
   
   
   
(11
)  
(11
)  
(7
)  
-
  
 
(4
)
  
(33
)  
 
2015
  
   
   
   
   
   
   
(2
)  
(9
)  
-
  
 
(7
)
  
(18
)  
 
2016
  
   
   
   
   
   
   
   
(12
)  
-
  
 
-
 
  
(12
)  
 
2017
  
   
   
   
   
   
   
   
   
(1
) 
 
2
 
  
1
   
 
2018
  
   
   
   
   
   
   
   
   
  
 
(2
)
  
(2
)  
 
                                                 
Total net development for the accident years presented above
  
(41
)  
(1
) 
 
(20
)
  
   
 
Total net development for accident years prior to 2010
  
4
   
1
  
 
(4
)
  
   
 
Total unallocated claim adjustment expense development
  
2
   
1
  
 
(1
)
  
   
 
                     
  
Total
  $
(35
) $
1
  
$
(25
)
  
   
 
                     
(a)Data presented for these calendar years is required supplemental information, which is unaudited.
13
3
Table of Contents
General Liability
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
Cumulative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
 
December 31
 
2010 (a)
  
2011 (a)
  
2012 (a)
  
2013 (a)
  
2014 (a)
  
2015 (a)
  
2016 (a)
  
2017 (a)
  
2018 (a)
  
2019
 
 
IBNR
 
 
Claims
 
(In millions, except reported claims data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
    646
  $
664
  $
658
  $
709
  $
750
  $
726
  $
697
  $
691
  $
691
  
$
690
 
 $
19
   
44,229
 
2011
  
   
591
   
589
   
631
   
677
   
676
   
681
   
670
   
669
  
 
667
 
  
20
   
39,361
 
2012
  
   
   
587
   
611
   
639
   
636
   
619
   
635
   
635
  
 
630
 
  
31
   
35,219
 
2013
  
   
   
   
650
   
655
   
650
   
655
   
613
   
623
  
 
620
 
  
27
   
33,570
 
2014
  
   
   
   
   
653
   
658
   
654
   
631
   
635
  
 
658
 
  
57
   
27,877
 
2015
  
   
   
   
   
   
581
   
576
   
574
   
589
  
 
600
 
  
73
   
23,834
 
2016
  
   
   
   
   
   
   
623
   
659
   
667
  
 
671
 
  
166
   
23,817
 
2017
  
   
   
   
   
   
   
   
632
   
632
  
 
632
 
  
226
   
21,114
 
2018
  
   
   
   
   
   
   
   
   
653
  
 
644
 
  
408
   
17,889
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
680
 
 
 
602
 
 
 
12,916
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
6,492
 
 
$
   1,629
 
  
 
                                                 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
      27
  $
145
  $
280
  $
429
  $
561
  $
611
  $
642
  $
652
  $
656
  
$
667
 
 
 
 
 
 
 
2011
  
   
28
   
148
   
273
   
411
   
517
   
568
   
602
   
622
  
 
638
 
 
 
 
 
 
 
2012
  
   
   
28
   
132
   
247
   
374
   
454
   
510
   
559
  
 
579
 
 
 
 
 
 
 
2013
  
   
   
   
31
   
128
   
240
   
352
   
450
   
510
  
 
551
 
 
 
 
 
 
 
2014
  
   
   
   
   
31
   
119
   
247
   
376
   
481
  
 
547
 
 
 
 
 
 
 
2015
  
   
   
   
   
   
19
   
110
   
230
   
357
  
 
446
 
 
 
 
 
 
 
2016
  
   
   
   
   
   
   
32
   
163
   
279
  
 
407
 
 
 
 
 
 
 
2017
  
   
   
   
   
   
   
   
23
   
118
  
 
250
 
 
 
 
 
 
 
2018
  
   
   
   
   
   
   
   
   
33
  
 
107
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
 
 
 
 
 
 
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
   4,217
 
 
 
 
 
 
 
                                                 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented
 
$
2,275
 
 
 
 
 
 
 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2010
 
 
836
 
 
 
 
 
 
 
Liability for unallocated claim adjustment expenses for accident years presented
 
 
65
 
 
 
 
 
 
 
                                                 
Total net liability for unpaid claim and claim adjustment expenses
 
$
3,176
 
 
 
 
 
 
 
                                                 
Net Strengthening (Releases) of Prior Accident Year Reserves
Years Ended
December 31
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
  
  $
18
  $
(6
) $
51
  $
41
  $
(24
) $
(29
) $
(6
) $
-
  
$
(1
)
 $
44
   
 
2011
  
   
   
(2
)  
42
   
46
   
(1
)  
5
   
(11
)  
(1
) 
 
(2
)
  
76
   
 
2012
  
   
   
   
24
   
28
   
(3
)  
(17
)  
16
   
-
  
 
(5
)
  
43
   
 
2013
  
   
   
   
   
5
   
(5
)  
5
   
(42
)  
10
  
 
(3
)
  
(30
)  
 
2014
  
   
   
   
   
   
5
   
(4
)  
(23
)  
4
  
 
23
 
  
5
   
 
2015
  
   
   
   
   
   
   
(5
)  
(2
)  
15
  
 
11
 
  
19
   
 
2016
  
   
   
   
   
   
   
   
36
   
8
  
 
4
 
  
48
   
 
2017
  
   
   
   
   
   
   
   
   
-
  
 
-
 
  
-
   
 
2018
  
   
   
   
   
   
   
   
   
  
 
(9
)
  
(9
)  
 
                                                 
Total net development for the accident years presented above
  
(32
)  
36
  
 
18
 
  
   
 
Total net development for accident years prior to 2010
  
-
   
-
  
 
29
 
  
   
 
Total unallocated claim adjustment expense development
  
8
   
(4
) 
 
7
 
  
   
 
                     
  
Total
  $
(24
) $
32
  
$
54
 
  
   
 
                     
(a)Data presented for these calendar years is required supplemental information, which is unaudited.
13
4
Table of Contents
Workers’ Compensation
 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
Cumulative Net Incurred Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
Cumulative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
 
December 31
 
2010 (a)
  
2011 (a)
  
2012 (a)
  
2013 (a)
  
2014 (a)
  
2015 (a)
  
2016 (a)
  
2017 (a)
  
2018 (a)
  
2019
 
 
IBNR
 
 
Claims
 
(In millions, except reported claims data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
583
  $
632
  $
654
  $
676
  $
698
  $
710
  $
730
  $
733
  $
732
  
$
 
735
 
 $
55
   
49,333
 
2011
  
   
607
   
641
   
647
   
659
   
651
   
676
   
676
   
674
  
 
688
 
  
40
   
45,959
 
2012
  
   
   
601
   
627
   
659
   
669
   
678
   
673
   
671
  
 
668
 
  
67
   
42,586
 
2013
  
   
   
   
537
   
572
   
592
   
618
   
593
   
582
  
 
561
 
  
93
   
38,688
 
2014
  
   
   
   
   
467
   
480
   
479
   
452
   
450
  
 
446
 
  
99
   
33,480
 
2015
  
   
   
   
   
   
422
   
431
   
406
   
408
  
 
394
 
  
130
   
31,861
 
2016
  
   
   
   
   
   
   
426
   
405
   
396
  
 
382
 
  
144
   
31,945
 
2017
  
   
   
   
   
   
   
   
440
   
432
  
 
421
 
  
138
   
33,029
 
2018
  
   
   
   
   
   
   
   
   
450
  
 
440
 
  
185
   
34,647
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
452
 
 
 
257
 
 
 
29,795
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
   5,187
 
 
$
   1,208
 
  
 
                                                 
Cumulative Net Paid Claim and Allocated Claim Adjustment Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 $
97
  $
251
  $
359
  $
442
  $
510
  $
542
  $
577
  $
615
  $
625
  
$
631
 
 
 
 
 
 
 
2011
  
   
99
   
249
   
358
   
438
   
478
   
522
   
564
   
571
  
 
581
 
 
 
 
 
 
 
2012
  
   
   
87
   
232
   
342
   
416
   
470
   
509
   
524
  
 
536
 
 
 
 
 
 
 
2013
  
   
   
   
80
   
213
   
300
   
370
   
417
   
419
  
 
411
 
 
 
 
 
 
 
2014
  
   
   
   
   
61
   
159
   
215
   
258
   
282
  
 
290
 
 
 
 
 
 
 
2015
  
   
   
   
   
   
51
   
131
   
180
   
212
  
 
231
 
 
 
 
 
 
 
2016
  
   
   
   
   
   
   
53
   
129
   
169
  
 
198
 
 
 
 
 
 
 
2017
  
   
   
   
   
   
   
   
63
   
151
  
 
207
 
 
 
 
 
 
 
2018
  
   
   
   
   
   
   
   
   
68
  
 
163
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71
 
 
 
 
 
 
 
                                                 
  
   
   
   
   
   
   
   
   
Total
  
$
3,319
 
 
 
 
 
 
 
                                                 
Net liability for unpaid claim and allocated claim adjustment expenses for the accident years presented
 
$
1,868
 
 
 
 
 
 
 
Net liability for unpaid claim and claim adjustment expenses for accident years prior to 2010
 
 
2,061
 
 
 
 
 
 
 
Other (b)
 
 
(22
)
 
 
 
 
 
 
Liability for unallocated claim adjustment expenses for accident years presented
 
 
25
 
 
 
 
 
 
 
                                                 
Total net liability for unpaid claim and claim adjustment expenses
 
$
3,932
 
 
 
 
 
 
 
                                                 
Net Strengthening (Releases) of Prior Accident Year Reserves
Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31
                             
 
 
Total
 
 
 
Accident Year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
  
  $
49
  $
22
  $
22
  $
22
  $
12
  $
20
  $
3
  $
(1
) 
$
3
 
 $
152
   
 
2011
  
   
   
34
   
6
   
12
   
(8
)  
25
   
-
  
   
(2
) 
 
14
 
  
81
   
 
2012
  
   
   
   
26
   
32
   
10
   
9
   
(5
)  
(2
) 
 
(3
)
  
67
   
 
2013
  
   
   
   
   
35
   
20
   
26
   
(25
)  
(11
) 
 
(21
)
  
24
   
 
2014
  
   
   
   
   
   
13
   
(1
)  
(27
)  
(2
) 
 
(4
)
  
(21
)  
 
2015
  
   
   
   
   
   
   
9
   
(25
)  
2
  
 
(14
)
  
(28
)  
 
2016
  
   
   
   
   
   
   
   
(21
)  
(9
) 
 
(14
)
  
(44
)  
 
2017
  
   
   
   
   
   
   
   
   
(8
) 
 
(11
)
  
(19
)  
 
2018
  
   
   
   
   
   
   
   
   
  
 
(10
)
  
(10
)  
 
                                                 
Total net development for the accident years presented above
  
(100
)  
(33
) 
 
(60
)
  
   
 
                     
Adjustment for development on a discounted basis
  
(3
)  
-
  
  
 
3
 
  
   
 
Total net development for accident years prior to 2010
  
39
   
8
  
 
21
 
  
   
 
Total unallocated claim adjustment expense development
  
1
   
(7
) 
 
23
 
  
   
 
                     
  
Total
  $
(63
) $
(32
) 
$
(13
)
  
   
 
                         
(a)Data presented for these calendar years is required supplemental information, which is unaudited.
(b)

Other includes the effect of discounting lifetime claim reserves.

134

13
5

Table of Contents
The table below presents information about average historical claims duration as of December 31, 20182019 and is presented as required supplementary information, which is unaudited.

Average Annual Percentage Payout of Ultimate Net Incurred Claim and Allocated Claim Adjustment Expenses in Year: 

 

 
   1      2      3      4      5      6      7      8      9      10      Total 

Medical professional liability

   3.8%   19.7%   24.3%   20.1%   12.1%   7.2%   4.5%   2.5%   1.0%   2.9%   98.1% 

Other professional liability

            

and management liability

   6.2%   21.5%   21.3%   17.4%   10.7%   6.4%   5.8%   2.9%   3.3%   2.1%   97.6% 

Surety (a)

   21.6%   37.9%   21.0%   7.9%   2.1%   1.6%   (1.7)%   (0.5)%   -      -      89.9% 

Commercial auto

   28.0%   23.0%   18.5%   14.2%   9.3%   3.1%   1.3%   0.3%   0.2%   0.7%   98.6% 

General liability

   4.3%   15.9%   19.5%   20.5%   15.7%   8.0%   5.6%   3.2%   1.6%   0.8%   95.1% 

Workers’ compensation

   13.7%   21.1%   13.9%   10.6%   7.5%   4.4%   4.4%   3.2%   2.5%   1.2%   82.5% 

Average Annual Percentage Payout of Ultimate Net Incurred Claim and Allocated Claim Adjustment Expenses in Year:
 
 
1
  
2
  
3
  
4
  
5
  
6
  
7
  
8
  
9
  
10
  
Total
 
Medical professional liability
  
3.8
%  
20.0
%  
24.3
%  
19.4
%  
12.4
%  
7.8
%  
5.1
%  
3.1
%  
1.1
%  
0.8
%  
97.8
%
Other professional liability
 
and management liability
  
6.6
   
22.6
   
21.7
   
16.9
   
10.5
   
6.0
   
4.9
   
3.3
   
3.8
   
0.7
   
97.0
 
Surety (a)
  
20.0
   
44.5
   
21.0
   
4.4
   
2.2
   
0.9
   
(2.5
)   
(1.1
)   
 
   
1.6
   
91.0
 
Commercial auto
  
28.6
   
24.0
   
18.6
   
14.3
   
9.4
   
3.2
   
1.5
   
0.4
   
 
   
 
   
100.0
 
General liability
  
4.3
   
15.8
   
19.0
   
20.1
   
15.7
   
8.7
   
6.0
   
2.5
   
1.5
   
1.6
   
95.2
 
Workers’ compensation
  
14.1
   
21.4
   
13.9
   
10.3
   
7.0
   
3.7
   
2.9
   
2.7
   
1.4
   
0.8
   
78.2
 
(a)

Due to the nature of the Surety business, average annual percentage payout of ultimate net incurred claim and allocated claim adjustment expenses has been calculated using only the payouts of mature accident years presented in the loss reserve development tables.

A&EP Reserves

In 2010, Continental Casualty Company (“CCC”) together with several of CNA’s insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of CNA’s legacy A&EP liabilities were ceded to NICO (“loss portfolio transfer” or “LPT”). At the effective date of the transaction, CNA ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. CNA paid NICO a reinsurance premium of $2.0 billion and transferred to NICO billed third party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.

In years subsequent to the effective date of the LPT, CNA recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which CNA recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits on the Consolidated Statements of Income.

The following table presents the impact of the loss portfolio transfer on the Consolidated Statements of Income.

Year Ended December 31      2018            2017            2016      

 

 

(In millions)

         

Additional amounts ceded under LPT:

         

Net A&EP adverse development before consideration of LPT

  $178    $60    $200  

Provision for uncollectible third-party reinsurance on A&EP

   (16)        

 

 

Total additional amounts ceded under LPT

   162     60     200  

Retroactive reinsurance benefit recognized

   (114)     (68)     (107)  

 

 

Pretax impact of deferred retroactive reinsurance

  $48    $(8)    $93  

 

 

CNA completed reserve reviews in both the first and fourth quarters of 2018 and going forward, intends to perform a single annual review in the fourth quarter.

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Additional amounts ceded under LPT:
  
   
   
 
Net A&EP adverse development before consideration of LPT
 $
150
  $
178
  $
60
 
Provision for uncollectible third-party reinsurance on A&EP
  
(25
)
 
  
(16
)  
 
             
Total additional amounts ceded under LPT
  
125
   
162
   
60
 
Retroactive reinsurance benefit recognized
  
(107
)
 
  
(114
)  
(68
)
             
Pretax impact of deferred retroactive reinsurance
 $
18
  $
48
  $
(8
)
             
Net unfavorable prior year development of $150 million, $178 million $60 million and $200$60 million was recognized before consideration of cessions to the LPT for the years ended December 31, 2019, 2018 2017 and 2016. Additionally,2017.
1
3
6
Table of Contents
The 2019 unfavorable development of $150 million was primarily driven by higher than anticipated defense and indemnity costs on known direct asbestos and environmental accounts and a reduction in 2018, CNA released a portion of its provision for uncollectible third party reinsurance.

135

estimated reinsurance recoverable. The 2018 unfavorable development of $178 million was driven by higher than anticipated defense and indemnity costs on known direct asbestos and environmental accounts and by paid losses on assumed reinsurance exposures. Additionally, in 2019 and 2018, the company released

$25 million and $16 million of its provision for uncollectible third-party reinsurance. The 2017 unfavorable development of $60 million was driven by modestly higher anticipated payouts on claims from known sources of asbestos exposure. The 2016 unfavorable development of $200 million was driven by an increase in anticipated future expenses associated with determination of coverage, higher anticipated payouts associated with a limited number of historical accounts having significant asbestos exposures and higher than expected severity on pollution claims.

As of December 31, 20182019 and 2017,2018, the cumulative amounts ceded under the LPT were $3.1$3.2 billion and $2.9$3.1 billion. The unrecognized deferred retroactive reinsurance benefit was $374$392 million and $326$374 million as of December 31, 20182019 and 20172018 and is included within Other liabilities on the Consolidated Balance Sheets.

NICO established a collateral trust account as security for its obligations to CNA. The fair value of the collateral trust account was $2.7$3.7 billion and $3.1$2.7 billion as of December 31, 20182019 and 2017.2018. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to CNA’s A&EP claims.

Long Term Care Policyholder Reserves
CNA’s Other Insurance Operations
include its
run-off
long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies 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 CNA has the ability to increase policy premiums, subject to state regulatory approval.
CNA maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for its long term care business. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for long term care policies, CNA’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. CNA’s recorded claim and claim adjustment expense reserves reflect management’s best estimate after incorporating the results of the most recent study. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations.
In developing the claim and claim adjustment expense reserve estimates for CNA’s structured settlement obligations, CNA’s actuaries monitor mortality experience on a annual basis. Both elements of the long term care reserves are discounted as discussed in Note 1.
CNA completed its
annual long term care claim experience study in the third quarter of 2019 and
2018 which 
resulted in $56 million
and $31 million 
pretax
reductions
in claim and claim adjustment expense reserves
. The favorable claim reserve development in 2019 and 2018 was
primarily due to lower claim severity than anticipated in the reserve estimates. 
Future policy benefit reserves represent the active life reserves related to CNA’s long term care policies which are the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
13
7
Table of Contents
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code.
F
uture premium rate increases are generally subject to regulatory approval,
and therefore 
the exact timing and size of the approved rate increases are unknown. As a result of this variability, CNA’s long term care reserves may be subject to material increases if actual experience develops adversely to CNA’s expectations.
Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a GPV to determine if there is a premium deficiency. Management also uses the GPV process to evaluate the adequacy of its claim and claim adjustment expense reserves for structured settlement obligations not funded by annuities. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in the Company’s results of operations in the period in which the need for such adjustment is determined.
If the GPV required reserves are less than the existing recorded reserves, assumptions remain locked in and no adjustment is required. 
Periodically, management engages independent third parties to assess the appropriateness of its best estimate assumptions. The most recent third party assessment, performed in
 early
2019, validated the assumption setting process and confirmed the best estimate assumptions appropriately reflected the experience data at that time.
In the third quarter of 2019, CNA performed the GPV for the long term care future policy benefit reserves. This GPV indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the premium deficiency resulted in a $216 million pretax
cha
rge
in policyholders’ benefits reflected in the Company’s results of operations.
 CNA’s 2018 and 2017 GPV for the long term care future policy benefit reserves indicated the reserves were not deficient and no adjustment was required.
Note 9.
Leases

Leases

The Company’s lease agreements primarily cover office facilities and machinery and computer equipment. Hotel properties,equipment and expire at various dates. The Company’s leases are predominantly operating leases, which are included in some instances,Other assets and Other liabilities on the Consolidated Balance Sheet. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants.
Operating lease right of use assets and lease liabilities are constructedrecognized at the lease commencement date based on leased land. Rent expense amountedthe present value of lease payments over the lease term. The discount rate used to $120 million, $113 determine the commencement date present value of lease payments is typically the Company’s secured borrowing rate, as most of the Company’s leases do not provide an implicit rate. The Company’s operating lease right of use asset was $573
million and $97the Company’s operating lease liability was $694 million at December 31, 2019.
Total
 lease 
expense
was
$
146 million for the year ended December 31, 2019, which includes operating lease expense of
$121 million, variable lease 
expense of
$19 million and short term lease 
expense of
$6 million.
Prior to the adoption of the new lease standard, lease expense for the years ended December 31, 2018 and 2017 was
$120 million and 2016. $113 million. Cash paid for amounts included in operating lease liabilities was $117 
million for year ended December 31, 2019. Operating lease right of use assets obtained in exchange for lease obligations was $54 million for the year ended December 31, 2019.
13
8
Table of Contents
The table below presents the maturities of lease liabilities:
As of December 31, 2019
 
Operating
Leases
 
(In millions)
  
 
 
 
 
 
2020
 $
114
 
2021
  
113
 
2022
  
102
 
2023
  
89
 
2024
  
81
 
Thereafter
  
361
 
     
Total
  
860
 
Less: discount
  
166
 
     
Total lease liabilities
 $
694
 
     
The table below presents the weighted average remaining lease term for operating leases and weighted average discount rate used in calculating the operating lease asset and liability.
As of December 31, 2019
Weighted average remaining lease term
9.4
Y
ears
Weighted average discount rate
4.7
%
The table below presents the future minimum lease payments to be made under
non-cancelable
operating leases along with lease and sublease minimum receipts to be received on owned and leased properties.

       Future Minimum Lease     
Year Ended December 31  Payments  Receipts 

 

 
(In millions)       

2019

    $75        $6           

2020

   79         5           

2021

   79         5           

2022

   68         4           

2023

   57          4           

Thereafter

   344         14           

 

 

Total

    $    702          $    38           

 

 

 

 

properties as of December 31, 2018.

 
Future Minimum Lease
 
Year Ended December 31
 
Payments
 
 
Receipts
 
(In millions)
 
 
 
 
2019
 $
75
  $
6
 
2020
  
79
   
5
 
2021
  
79
   
5
 
2022
  
68
   
4
 
2023
  
57
   
4
 
Thereafter
  
344
   
14
 
         
Total
 $
702
  $
38
 
Note 10. Income Taxes

The Company and its eligible subsidiaries file a consolidated federal income tax return. The Company has entered into a separate tax allocation agreement with CNA, a majority-owned subsidiary in which its ownership exceeds 80%. The agreement provides that the Company will: (i) pay to CNA the amount, if any, by which the Company’s consolidated federal income tax is reduced by virtue of inclusion of CNA in the Company’s return or (ii) be paid by CNA an amount, if any, equal to the federal income tax that would have been payable by CNA if it had filed a separate consolidated return. The agreement may be canceled by either of the parties upon thirty days written notice.

1
3
9
Table of Contents
For 20162017 through 2018,2019, the Internal Revenue Service (“IRS”) has accepted the Company into the Compliance Assurance Process (“CAP”), which is a voluntary program for large corporations. Under CAP, the IRS conducts a real-time audit and works contemporaneously with the Company to resolve any issues prior to the filing of the tax return. The Company believes this approach should reduce
tax-related
uncertainties, if any. Although the outcome of tax audits is always uncertain, the Company believes that any adjustments resulting from audits will not have a material impact on its results of operations, financial position or cash flows. The Company and/or its subsidiaries also file income tax returns in various state, local and foreign jurisdictions. These returns, with few exceptions, are no longer subject to examination by the various taxing authorities before 2014.

136

2015.

Diamond Offshore, which is not included in the Company’s consolidated federal income tax return, files income tax returns in the U.S. federal and various state and foreign jurisdictions. Tax years that remain subject to examination by these jurisdictions include years 2006
2009
to 2017.

2018
.
On December 22, 2017, H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018,” previously known as “The Tax Cuts and Jobs Act” was signed into law (the “Tax Act”).

The Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”) allowed companies to reportTax Act provided for a permanent reduction in the U.S. federal corporate income tax effectsrate from 35% to 21% effective January 1, 2018, among other provisions, including the elimination of the Tax Actcorporate alternative minimum tax (“AMT”) and a change to how existing AMT credits can be realized, and a

one-time
mandatory deemed repatriation of accumulated earnings of foreign subsidiaries as of December 31
,
2017, inclusive of the utilization of certain tax attributes offset by a provisional amount based on a reasonable estimate, subjectliability for uncertain tax positions related to adjustment during a reasonable measurement period, notsuch attributes.
The Company was required to exceed twelve months, untilrecognize the accounting and analysis under ASC 740 is complete. Although further guidance and clarification from the relevant authorities is expected to continue into 2019, in accordance with SAB 118’s twelve month measurement period, we have completed our analysis of the income tax effect of the Tax Act including: (i)in the amount of deferred tax assets and liabilities subject toperiod the income tax rate change from 35% to 21%, including, but not limited to,was signed into law. Consequently, the calculation of the mandatory deemed repatriation aspect of the Tax Act and the state tax effect of adjustments made to federal temporary differences, (ii) the ability to more likely than not realize the benefit of deferred tax assets, including net operating losses and foreign tax credits, (iii) the effect ofre-computing CNA’s insurance reserves and the transition adjustment from existing law, the effects of which had no impact on the effective tax rate and (iv) the special accounting method provisions for recognizing income for U.S. federal income tax purposes no later than financial accounting purposes and the transition adjustment from existing law, which also had no impact on the effective tax rate.

The Company recorded aone-timenon-cash

one-time
non-cash
provisional $200 million increase to net income (net of noncontrolling interests) for the year ended December 31, 2017 related to the Tax Act. This increase included a $268 million income tax benefit due to the adjustment of net deferred tax assets and liabilities related to the reduction of the U.S. federal corporate income tax rate from 35% to 21% partially offset by a $78 million charge mostly related to the
one-time
mandatory repatriation of previously deferred earnings of certain of Diamond Offshore’s
non-U.S.
subsidiaries inclusive of the utilization of certain tax attributes offset byand a provisional liability for uncertain tax positions related to such attributes. Due to the timing of the enactment of the Tax Act, there has beenpositions. In 2018 and continues to be a significant amount of uncertainty as to the appropriate application of a number of the underlying provisions, pending further guidance and clarification from the relevant authorities. In 2018,2019, the U.S. Department of the Treasury and Internal Revenue Service issued final regulations and additional guidance, which the Company believes clarified certain of our tax positions taken in 2017 and consequently, during 2018 and 2019, the Company recorded a $6 million reductionand $14 million increase to net income (net of noncontrolling interests).

respectively.

The current and deferred components of income tax expense (benefit) are as follows:

Year Ended December 31      2018             2017            2016       

 

 

(In millions)

           

Income tax expense (benefit):

           

Federal:

           

Current

  $6     $157    $71   

Deferred

   85      (63)     102   

State and city:

           

Current

   15      22     13   

Deferred

   9      17     13   

Foreign

   13      37     21   

 

 

Total

  $128     $170    $220   

 

 

 

 

137

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Income tax expense (benefit):
  
   
   
 
Federal:
  
   
   
 
Current
 $
108
  $
6
  $
157
 
Deferred
  
47
   
85
   
(63
)
State and city:
  
   
   
 
Current
  
18
   
15
   
22
 
Deferred
  
22
   
9
   
17
 
Foreign
  
53
   
13
   
37
 
             
Total
 $
248
  $
128
  $
170
 
             
1
40

Table of Contents
The components of U.S. and foreign income before income tax and a reconciliation between the federal income tax expense at statutory rates and the actual income tax expense (benefit) is as follows:

Year Ended December 31  2018       2017       2016     

(In millions)

         

Income before income tax:

         

U.S.

  $    775    $    1,322    $  1,207  

Foreign

   59     260     (271)  
  

Total

  $834    $1,582    $936  
  
  

Income tax expense at statutory rate

  $175    $554    $328  

Increase (decrease) in income tax expense resulting from:

         

Effect of the Tax Act

   (6)     (190)     

Exempt investment income

   (64)     (134)     (126)  

Foreign related tax differential

   1     (36)     40        

Taxes related to domestic affiliate

   (7)     1     (14)  

Partnership earnings not subject to taxes

   (14)     (51)     (52)  

Valuation allowance

   12     7     62  

Unrecognized tax positions, settlements and adjustments relating to prior years

   2     (8)     (42)  

State taxes

   20     23     18  

Other

   9     4     6  

 

 

Income tax expense (benefit)

  $128    $170    $220  

 

 

 

 

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Income
(
loss
)
before income tax:
  
   
   
 
U.S.
 $
             
1,145
  $
775
  $
1,322
 
Foreign
  
(26
)
  
59
   
260
 
             
Total
 $
1,119
  $
834
  $
1,582
 
             
Income tax expense at statutory rate
 $
235
  $
175
  $
554
 
Increase (decrease) in income tax expense resulting from:
  
   
   
 
Effect of the Tax Act
  
(14
)
  
(6
)  
(190
)
Exempt investment income
  
(50
)
  
(64
)  
(134
)
Foreign related tax differential
  
(55
)
  
1
   
(36
)
Taxes related to domestic affiliate
  
(15
)
  
(7
)  
1
 
Partnership earnings not subject to taxes
  
 
   
(14
)  
(51
)
Valuation allowance
  
12
   
12
   
7
 
Unrecognized tax positions, settlements and adjustments relating to prior years
  
97
   
2
   
(8
)
State taxes
  
37
   
20
   
23
 
Other
  
1
   
9
   
4
 
             
Income tax expense 
 $
248
  $
128
  $
170
 
             
The deferred foreign earnings of certain international subsidiaries were deemed to be repatriated under the Tax Act and consequently the Company will no longer permanently reinvest earnings of its foreign subsidiaries. The Company has not provided income tax on the outside basis difference of its foreign subsidiaries since there is no intention to dispose of these subsidiaries and structuring alternatives exist to mitigate any potential liability. The potential unrecorded liability associated with the outside basis difference is approximately $116$95 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding tax carryforwards and interest and penalties, is as follows:

Year Ended December 31  2018      2017      2016    

 

 
(In millions)                        

Balance at January 1

  $        84    $35    $54  

Additions for tax positions related to the current year

   3     51     4  

Additions for tax positions related to a prior year

   20     5     1  

Reductions for tax positions related to a prior year

   (48)     (1)     (20)  

Lapse of statute of limitations

   (1)     (6)     (4)  

 

 

Balance at December 31

  $58    $        84    $        35  

 

 

 

 

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Balance at January 1
 $
             
58
  $
84
  $
35
 
Additions for tax positions related to the current year
  
86
   
3
   
51
 
Additions for tax positions related to a prior year
  
2
   
20
   
5
 
Reductions for tax positions related to a prior year
  
(23
)
  
(48
)  
(1
)
Lapse of statute of limitations
  
(2
)
  
(1
)  
(6
)
             
Balance at December 31
 $
121
  $
58
  $
84
 
             
The 2018$86 million 2019 addition to priorcurrent year tax positions is primarily due to a recent proposed regulations onchange in Switzerland tax legislation. Due to the offsettinguncertainties regarding the application of the deemedSwiss Tax Reform, including the values to be used to measure depreciable property, a liability for uncertain tax positions was recorded. The 2019 reduction for prior year tax is primarily due to the reversal of uncertain tax positions recorded for the mandatory repatriation with certainprovision of the Tax Act following the issuance of final regulations. The addition for prior year tax attributespositions in 2018 and the $51 million addition for current year tax positions in 2017, as well as the $49 million reduction for prior year tax positions isin 2018 are all primarily due to uncertainty associated with the enactment of the Tax Act and subsequent clarification issued by the Internal Revenue Service regarding tax attributes available to offset the deemed repatriation. The $51 million addition to current year tax positions for 2017 is attributable to a provisional liability associated with the use of tax attributes on the deemed, mandatory repatriation of the Tax Act. In 2016, the $20 million in reductions for tax positions related to a prior year, is primarily from the devaluation of the Egyptian pound.IRS. At December 31, 2019, 2018 and 2017, and 2016,$149 million, $82 million $102 million and $36$102 million of unrecognized tax benefits related to Diamond Offshore would affect the effective tax rate if recognized.

138

141

Table of Contents
At December 31, 2019, the amount of accrued interest and penalties related to uncertain tax positions was $4 million and $17 million, respectively. At December 31, 2018, the amount of accrued interest and penalties related to uncertain tax positions was $3 million and $16 million, respectively.
The Company recognizes interest accrued related to: (i)to unrecognized tax benefits in Interest expense and (ii) tax refund claims in Operating revenues and other
Income tax expense (benefit)
on the Consolidated Statements of Income. The Company recognizes penalties in Income tax expense
(
benefit)
on the Consolidated Statements of Income. Interest
expense (benefit)
amounts recorded by the Company were insignificant for the years ended December 31, 2018, 2017 and 2016. The Company recorded income tax expense of $1 million for the year ended December 31,2019, 2018 and a benefit of $2 million and $23 million 2017.
Penalty amounts
recorded
 by
 the Company we
re
insignificant
for the years ended December 31, 2017 2019
,
2018,
and 2016 related to penalties.

2017.
The following table summarizes deferred tax assets and liabilities:

December 31  2018       2017     
(In millions)              

Deferred tax assets:

      

Insurance reserves:

      

Property and casualty claim and claim adjustment expense reserves

  $108    $74  

Unearned premium reserves

   108     142  

Receivables

   13     13  

Employee benefits

   222     243  

Deferred retroactive reinsurance benefit

   79     68  

Net operating loss carryforwards

   251     169  

Tax credit carryforwards

   101     199  

Net unrealized losses

   24     

Basis differential in investment in subsidiary

   8     15  

Other

   197        211     

Total deferred tax assets

       1,111         1,134  

Valuation allowance

   (175)        (169)     

Net deferred tax assets

   936        965     

Deferred tax liabilities:

      

Deferred acquisition costs

   (78)     (77)  

Net unrealized gains

      (263)  

Property, plant and equipment

   (840)     (765)  

Basis differential in investment in subsidiary

   (586)     (364)  

Other liabilities

   (236)        (220)     

Total deferred tax liabilities

   (1,740)        (1,689)     

Net deferred tax liabilities (a)

  $(804)       $(724)     
  

December 31
 
2019
  
2018
 
(In millions)
    
Deferred tax assets:
  
   
 
Insurance reserves:
  
   
 
Property and casualty claim and claim adjustment expense reserves
 $
             
129
  $
108
 
Unearned premium reserves
  
153
   
108
 
Receivables
  
11
   
13
 
Employee benefits
  
212
   
222
 
Deferred retroactive reinsurance benefit
  
82
   
79
 
Net operating loss carryforwards
  
275
   
251
 
Tax credit carryforwards
  
47
   
101
 
Net unrealized losses
  
 
   
24
 
Basis differential in investment in subsidiary
  
8
   
8
 
Disallowed interest deduction 
 
 
 
41
 
  
16
 
Other
  
179
   
181
 
         
Total deferred tax assets
  
1,137
   
1,111
 
Valuation allowance
  
(187
)
  
(175
)
         
Net deferred tax assets
  
950
   
936
 
         
Deferred tax liabilities:
  
 
   
 
Deferred acquisition costs
  
(83
)
�� 
(78
)
Net unrealized gains
  
(263
)
  
 
Property, plant and equipment
  
(848
)
  
(840
)
Basis differential in investment in subsidiary
  
(679
)
  
(586
)
Other liabilities
  
(208
)
  
(236
)
         
Total deferred tax liabilities
  
(2,081
)
  
(1,740
)
         
Net deferred tax liabilities (a)
 $
(1,131
)
 $
(804
)
         
(a)

Includes $37 and $25 $

37
of deferred tax assets reflected in Other assets in the Consolidated Balance Sheets at December 31, 20182019 and 2017.

2018.

Federal net operating loss carryforwards of $83$70 million expire between 2034 and 2038 and $35$88 million can be carried forward indefinitely. Net operating loss carryforwards in foreign tax jurisdictions of $37$38 million expire between 2021 and 2028, $2 million expire between 2035 and $832039, and $77 million can be carried forward indefinitely. Federal tax credit carryforwards of $57 million can be utilized to offset future current tax liabilities or will ultimately be refundable no later than 2021. Foreign tax credit carryforwards of $43$45 million will expire inbetween 2020 and 2024 to 2027.

2030, and $2 million can be carried forward indefinitely.

Although realization of deferred tax assets is not assured, management believes it is more likely than not that the recognized deferred tax assets will be realized through recoupment of ordinary and capital taxes paid in prior carryback years and through future earnings, reversal of existing temporary differences and available tax planning strategies. As of December 31, 2018,2019, Diamond Offshore recorded a valuation allowance of $175$187 million related to net operating losses, of $98 million, foreign tax credits, of $45 million, and other deferred tax assetsassets.
142
Table of $32 million.

139

Contents

Note 11. Debt

December 31  2018   2017 

 

 
(In millions)        

Loews Corporation (Parent Company):

    

Senior:

    

2.6% notes due 2023 (effective interest rate of 2.8%) (authorized, $500)

  $500         $500       

3.8% notes due 2026 (effective interest rate of 3.9%) (authorized, $500)

   500          500       

6.0% notes due 2035 (effective interest rate of 6.2%) (authorized, $300)

   300          300       

4.1% notes due 2043 (effective interest rate of 4.3%) (authorized, $500)

   500          500       

CNA Financial:

                    

Senior:

                    

7.0% notes due 2018 (effective interest rate of 7.1%) (authorized, $150)

             150       

5.9% notes due 2020 (effective interest rate of 6.0%) (authorized, $500)

   500          500       

5.8% notes due 2021 (effective interest rate of 5.9%) (authorized, $400)

   400          400       

7.3% debentures due 2023 (effective interest rate of 7.3%) (authorized, $250)

   243          243       

4.0% notes due 2024 (effective interest rate of 4.0%) (authorized, $550)

   550          550       

4.5% notes due 2026 (effective interest rate of 4.5%) (authorized, $500)

   500          500       

3.5% notes due 2027 (effective interest rate of 3.6%) (authorized, $500)

   500          500       

Variable rate note due 2036 (effective interest rate of 4.9%)

             30       

Capital lease obligation

   1          3       

Diamond Offshore:

                    

Senior:

                    

3.5% notes due 2023 (effective interest rate of 3.6%) (authorized, $250)

   250          250       

7.9% notes due 2025 (effective interest rate of 8.0%) (authorized, $500)

   500          500       

5.7% notes due 2039 (effective interest rate of 5.8%) (authorized, $500)

   500          500       

4.9% notes due 2043 (effective interest rate of 5.0%) (authorized, $750)

   750          750       

Boardwalk Pipeline:

                    

Senior:

                    

Variable rate revolving credit facility due 2022 (effective interest rate of 3.7% and 2.7%)

   580          385       

5.2% notes due 2018 (effective interest rate of 5.4%) (authorized, $185)

             185       

5.8% notes due 2019 (effective interest rate of 5.9%) (authorized, $350)

   350          350       

4.5% notes due 2021 (effective interest rate of 5.0%) (authorized, $440)

   440          440       

4.0% notes due 2022 (effective interest rate of 4.4%) (authorized, $300)

   300          300       

3.4% notes due 2023 (effective interest rate of 3.5%) (authorized, $300)

   300          300       

5.0% notes due 2024 (effective interest rate of 5.2%) (authorized, $600)

   600          600       

6.0% notes due 2026 (effective interest rate of 6.2%) (authorized, $550)

   550          550       

4.5% notes due 2027 (effective interest rate of 4.6%) (authorized, $500)

   500          500       

7.3% debentures due 2027 (effective interest rate of 8.1%) (authorized, $100)

   100          100       

Capital lease obligation

   8          9       

Loews Hotels & Co:

                    

Senior debt, principally mortgages (effective interest rates approximate 4.4%)

   653          648       

Consolidated Container:

                    

Senior:

                    

Variable rate asset based lending facility due 2022 (effective interest rate of 5.5%)

   9                 

Variable rate term loan due 2024 (effective interest rate of 5.0% and 5.5%)

   597          604       

Capital lease obligation

   7          6       

 

 
   11,488          11,653       

Less unamortized discount and issuance costs

   112          120       

 

 

Debt

  $      11,376         $      11,533       

 

 

140

December 31
 
2019
  
2018
 
(In millions)
    
Loews Corporation (Parent Company):
  
   
 
Senior:
  
   
 
2.6% notes due 2023 (effective interest rate of 2.8%) (authorized, $
500
)
 $
500
  $
500
 
3.8% notes due 2026 (effective interest rate of 3.9%) (authorized, $
500
)
  
500
   
500
 
6.0% notes due 2035 (effective interest rate of 6.2%) (authorized, $
300
)
  
300
   
300
 
4.1% notes due 2043 (effective interest rate of 4.3%) (authorized, $
500
)
  
500
   
500
 
CNA Financial:
  
   
 
Senior:
  
   
 
5.9% notes due 2020 (effective interest rate of 6.0%) (authorized, $
500
)
  
 
   
500
 
5.8% notes due 2021 (effective interest rate of 5.9%) (authorized, $
400
)
  
400
   
400
 
7.3% debentures due 2023 (effective interest rate of 7.3%) (authorized, $
250
)
  
243
   
243
 
4.0% notes due 2024 (effective interest rate of 4.0%) (authorized, $
550
)
  
550
   
550
 
4.5% notes due 2026 (effective interest rate of 4.5%) (authorized, $
500
)
  
500
   
500
 
3.5% notes due 2027 (effective interest rate of 3.5%) (authorized, $
500
)
  
500
   
500
 
3.9% notes due 2029 (effective interest rate of 3.9%) (authorized, $
500
)
  
500
   
 
F
inance
 lease obligation
  
   
1
 
Diamond Offshore:
  
   
 
Senior:
  
   
 
3.5% notes due 2023 (effective interest rate of 3.5%) (authorized, $
250
)
  
250
   
250
 
7.9% notes due 2025 (effective interest rate of 8.0%) (authorized, $
500
)
  
500
   
500
 
5.7% notes due 2039 (effective interest rate of 5.8%) (authorized, $
500
)
  
500
   
500
 
4.9% notes due 2043 (effective interest rate of 4.9%) (authorized, $
750
)
  
750
   
750
 
Boardwalk Pipelines:
  
   
 
Senior:
  
   
 
Variable rate revolving credit facility due 2022 (effective interest rate of 3.0% and 3.7%)
  
295
   
580
 
5.8% notes due 2019 (effective interest rate of 5.9%) (authorized, $
350
)
  
 
   
350
 
4.5% notes due 2021 (effective interest rate of 5.0%) (authorized, $
440
)
  
440
   
440
 
4.0% notes due 2022 (effective interest rate of 4.4%) (authorized, $
300
)
  
300
   
300
 
3.4% notes due 2023 (effective interest rate of 3.5%) (authorized, $
300
)
  
300
   
300
 
5.0% notes due 2024 (effective interest rate of 5.2%) (authorized, $
600
)
  
600
   
600
 
6.0% notes due 2026 (effective interest rate of 6.2%) (authorized, $
550
)
  
550
   
550
 
4.5% notes due 2027 (effective interest rate of 4.6%) (authorized, $
500
)
  
500
   
500
 
7.3% debentures due 2027 (effective interest rate of 8.1%) (authorized, $
100
)
  
100
   
100
 
4.8% notes due 2029 (effective interest rate of 4.9%) (authorized, $
500
)
  
500
   
 
Finance
lease obligation
  
7
   
8
 
Loews Hotels & Co:
  
   
 
Senior debt, principally mortgages (effective interest rates approximate 4.7%
 and 4.4%
)
  
712
   
653
 
Altium Packaging
:
  
   
 
Senior:
  
   
 
Variable rate asset based lending facility due 2022 (effective interest rate of 5.5%)
  
 
   
9
 
Variable rate term loan due 2024 (effective interest rate of 4.9% and 5.0%)
  
591
   
597
 
Variable rate term loan due 2026 (effective interest rate of 5.3%)
  
249
   
 
Finance
lease obligation
  
6
   
7
 
         
  
11,643
   
11,488
 
Less unamortized discount and issuance costs
  
110
   
112
 
         
Debt
 $
11,533
  $
11,376
 
         
1
4
3
December 31, 2018  Principal   Unamortized
Discount and
Issuance
Costs		   Net   Short Term
Debt		   Long Term
Debt		 
  
(In millions)                    

Loews Corporation

  $1,800   $22   $1,778     $    1,778     

CNA Financial

   2,694    13    2,681      2,681     

Diamond Offshore

   2,000    26    1,974      1,974     

Boardwalk Pipeline

   3,728    26    3,702   $1    3,701     

Loews Hotels & Co

   653    11    642      642     

Consolidated Container

   613    14    599    16    583     

Total

  $    11,488   $    112   $    11,376   $    17   $11,359     
       

Table of Contents
December 31, 2019
 
Principal
  
Unamortized
Discount and
Issuance
Costs
  
Net
  
Short Term
Debt
  
Long Term
Debt
 
(In millions)
          
Loews Corporation
 $
1,800
  $
21
  $
1,779
   
 
  $
1,779
 
CNA Financial
  
2,693
   
14
   
2,679
   
 
   
2,679
 
Diamond Offshore
  
2,000
   
24
   
1,976
   
 
   
1,976
 
Boardwalk Pipelines
  
3,592
   
26
   
3,566
   
 
   
3,566
 
Loews Hotels & Co
  
712
   
7
   
705
  $
67
   
638
 
Altium Packaging
  
846
   
18
   
828
   
10
   
818
 
                     
Total
 $
11,643
  $
110
  $
11,533
  $
77
  $
11,456
 
                     
At December 31, 2018,2019, the aggregate long term debt maturing in each of the next five years is approximately as follows: $17 million in 2019, $605$77 million in 2020, $846$861 million in 2021, $1.3 billion$744 million in 2022, $1.3 billion in 2023, $2.0 billion in 2024 and $7.4$6.6 billion thereafter. Long term debt is generally redeemable in whole or in part at the greater of the principal amount or the net present value of remaining scheduled payments discounted at the specified treasury rate plus a margin.

CNA Financial

CNA is a member of the Federal Home Loan Bank of Chicago (“FHLBC”). FHLBC membership provides participants with access to additional sources of liquidity through various programs and services. As a requirement of membership in the FHLBC, CNA held $5 million of FHLBC stock as of December 31, 2018,2019, giving it access to approximately $111 million of additional liquidity. As of December 31, 20182019 and 2017,2018, CNA had no
0
outstanding borrowings from the FHLBC.

In 2018,May of 2019, CNA retired at maturity the $150completed a public offering of $500 million outstanding aggregate principal amount of its 7.0%3.9% senior notes CNA also redeemeddue
May 1, 2029
and used the $30net proceeds to redeem the entire $500 million outstanding aggregate principal amountbalance of its variable rate5.9% senior notes due September
August 15, 2036.

2020

. The redemption of the $
500
 million senior notes resulted in a loss of $21 million ($15 million after tax and noncontrolling interests) and is included in Interest expense on the Consolidated Statements of Income for the year ended December 31, 2019.
In the fourth quarter of 2019, CNA hasamended and restated is existing credit agreement with a five-year $250syndicate of banks. The amended and restated credit agreement provides
a
five-year
$
250
 million
senior unsecured revolving credit facility with a syndicate of banks which mayis intended to be used for general corporate purposes. At CNA’s election, the commitments under the amended and restated credit agreement may be increased from time to time up to an additional aggregate amount of $100 million, and two
one-year
extensions are available prior to any anniversary of the closing date, each subject to applicable consents. As of December 31, 2018,2019, CNA had no outstanding borrowings under the credit agreement and was in compliance with all covenants.

144
Table of Contents
Diamond Offshore

In 2018, Diamond Offshore entered into a new senior five-year revolving credit agreement with maximum borrowings available of $950 million which may be used for general corporate purposes, including investments, acquisitions and capital expenditures. The new credit agreement, which expires on October 2, 2023, provides for a swingline subfacility of $100 million and a letter of credit subfacility in the amount of $250 million. Diamond Offshore also amended its existing credit agreement to reduce the aggregate principal amounts of commitments to $325 million, of which, $40 million matures in March of 2019, $60 million matures in October of 2019 and $225 million matures in October of 2020.

As of December 31, 2018,2019, Diamond Offshore had no
0
outstanding borrowings under its credit agreements and was in compliance with all covenant requirements under its credit agreements.

Boardwalk Pipeline

Pipelines

In 2018,May of 2019, Boardwalk Pipeline retired at maturity the $185Pipelines completed a public offering of $500 million outstanding aggregate principal amount of its 5.2%4.8% senior notes withdue May 3, 2029. The proceeds were used to retire the outstanding $350 million aggregate principal amount of Boardwalk Pipelines’ 5.8% senior notes at maturity
,
reduce outstanding borrowings under its revolving credit facility.

facility

and for general corporate purposes
.
Boardwalk PipelinePipelines has a revolving credit facility having aggregate lending commitments of $1.5 billion maturing May 26, 2022. As of December 31, 2018,2019, Boardwalk PipelinePipelines had $580$295 million of outstanding borrowings under its credit agreement and was in compliance with all covenants.

Consolidated Container

Consolidated Container has

Altium Packaging
In June of 2019,
Altium Packaging
entered into a $125credit agreement providing for a $250 million asset based lendingterm loan in conjunction with the acquisitions discussed in Note 2. The term loan is a variable rate facility which bears interest at a floating rate equal to the London Interbank Offered Rate (“ABL facility”LIBOR”) maturing May 23, 2022. Asplus an applicable margin of December 31, 2018, Consolidated Container had $9 million3.5% and matures on
June 14, 2026
.
1
4
5
Table of outstanding borrowings under its ABL facility and was in compliance with all covenants.

141

Contents

Note 12. Shareholders’ Equity

Accumulated other comprehensive income (loss)

The tables below present the changes in AOCI by component for the years ended December 31, 2016, 2017, 2018 and 2018:

    OTTI
Gains
(Losses)		  Unrealized
Gains (Losses)
on Investments		   Cash Flow
Hedges		  Pension
Liability		  Foreign
Currency
Translation		  Total  
Accumulated
Other
Comprehensive
Income (Loss)  		 

(In millions)

        

Balance, January 1, 2016

  $24  $347        $(3)  $(649)  $(76)  $(357)     

Other comprehensive income (loss) before reclassifications, after tax of $(4), $(133), $0, $9 and $0

   9   283          (22)   (114)   156      

Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $3, $16, $0, $(15) and $0

   (6)   (26)        2   27       (3)     

Other comprehensive income (loss)

   3   257         2   5   (114)   153      

Amounts attributable to noncontrolling interests

       (28)        (1)   (2)   12   (19)     

Balance, December 31, 2016

   27   576         (2)   (646)   (178)   (223)     

Other comprehensive income (loss) before reclassifications, after tax of $1, $(106), $(2), $4 and $0

   (3)   190         1   (18)   100   270      

Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $1, $38, $0, $(16) and $0

   (2)   (82)        2   30       (52)     

Other comprehensive income (loss)

   (5)   108         3   12   100   218      

Amounts attributable to noncontrolling interests

       (11)        (1)   1   (10)   (21)     

Balance, December 31, 2017

   22   673         -   (633)   (88)   (26)     

Cumulative effect adjustment for adoption of ASU2016-01 (a), after tax of $0, $8, $0, $0 and $0

    (25)           (25)     

Cumulative effect adjustment for adoption of ASU2018-02 (a)

   4   123             (130)       (3)     

Balance, January 1, 2018, as adjusted

   26   771         -   (763)   (88)   (54)     

Other comprehensive income (loss) before reclassifications, after tax of $2, $213, $(2), $9 and $0

   (7)   (801)        4   (34)   (84)   (922)     

Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $2, $(2), $0, $(6) and $0

   (7)   3         2   32       30      

Other comprehensive income (loss)

   (14)   (798)        6   (2)   (84)   (892)     

Amounts attributable to noncontrolling interests

   2   84           9   95      

Purchase of Boardwalk Pipeline common units

            (1)   (28)       (29)     

Balance, December 31, 2018

  $14  $57        $5  $(793)  $(163)  $(880)     
                           

(a)

See Note 1 for information regarding this accounting standard.

142

2019:

 
Net Unrealized
Gains (Losses)
on Investments
with OTTI
Losses
  
Net Other
Unrealized
Gains (Losses)
on Investments
  
Unrealized
Gains (Losses)
on Cash Flow
Hedges
  
Pension and
Postretirement
Benefits
  
Foreign
Currency
Translation
  
Total
Accumulated
Other
Comprehensive
Income (Loss)
 
(In millions)
            
Balance, January 1, 2017
 $ 
27
  $ 
576
  $ 
(2
) $ 
(646
) $ 
(178
) $ 
(223
)
Other comprehensive income (loss) before reclassifications, after tax of $1, $(106), $(2), $4 and $0
  
(3
)  
190
   
1
   
(18
)  
100
   
270
 
Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $1, $38, $0, $(16) and $0
  
(2
)  
(82
)  
2
   
30
   
   
(52
)
                         
Other comprehensive income (loss)
  
(5
)  
108
   
3
   
12
   
100
   
218
 
Amounts attributable to noncontrolling interests
  
   
(11
)  
(1
)  
1
   
(10
)  
(21
)
                         
Balance, December 31, 2017
  
22
   
673
   –   
(633
)  
(88
)  
(26
)
Cumulative effect adjustment 
from changes in accounting standards
, after tax of $0, $8, $0, $0 and $0
  
4
   
98
       
(130
)  
   
(28
)
                         
Balance, January 1, 2018, as adjusted
  
26
   
771
   –   
(763
)  
(88
)  
(54
)
Other comprehensive income (loss) before reclassifications, after tax of $2, $213, $(2), $9 and $0
  
(7
)  
(801
)  
4
   
(34
)  
(84
)  
(922
)
Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $2, $(2), $0, $(6) and $0
  
(7
)  
3
   
2
   
32
   
   
30
 
                         
Other comprehensive income (loss)
  
(14
)  
(798
)  
6
   
(2
)  
(84
)  
(892
)
Amounts attributable to noncontrolling interests
  
2
   
84
   
   
   
9
   
95
 
Purchase of Boardwalk Pipelines common units
  
   
   
(1
)  
(28
)  
   
(29
)
                         
Balance, December 31, 2018
  
14
   
57
   
5
   
(793
)  
(163
)  
(880
)
Other comprehensive income (loss) before reclassifications, after tax of $3, $(256), $5, $28 and $0
  
(13
)
 
  
957
   
(11
)
 
  
(102
)
 
  
42
   
873
 
Reclassification of (gains) losses from accumulated other comprehensive loss, after tax of $(3), $1, $0, $(9) and $0
  
12
   
(8
)
 
  
 
   
34
   
 
   
38
 
                         
Other comprehensive income (loss)
  
(1
)
 
  
949
   
(11
)
 
  
(68
)
 
  
42
   
911
 
Amounts attributable to noncontrolling interests
  
 
   
(101
)
 
  
 
   
6
   
(4
)
 
  
(99
)
 
                         
Balance, December 31, 2019
 $
13
  $
905
  $
(6
)
 
 $
(855
)
 
 $
(125
)
 
 $
(68
)
 
                         
1
4
6

Table of Contents
Amounts reclassified from AOCI shown above are reported in Net income as follows:

Major Category of AOCI
 
Affected Line Item
OTTI
Net unrealized gains (losses) on investments with OTTI losses
 
Investment gains (losses)
Net other unrealized gains (losses) on investments
Investment gains (losses)
Unrealized gains (losses) on investmentscash flow hedges
 Investment gains (losses)
Cash flow hedges

Operating revenues and other, Interest expense and
Operating expenses and other

Pension liabilityand postretirement benefits
 
Operating expenses and other

Common Stock Dividends

Dividends of $0.25 per share on the Company’s common stock were declared and paid in 2019, 2018 2017 and 2016.

2017.

There are no restrictions on the Company’s retained earnings or net income with regard to payment of dividends. However, as a holding company, Loews Corporation relies upon invested cash balances and distributions from its subsidiaries to generate the funds necessary to declare and pay any dividends to holders of its common stock. The ability of the Company’s subsidiaries to pay dividends is subject to, among other things, the availability of sufficient earnings and funds in such subsidiaries, compliance with covenants in their respective credit agreements and applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies. See Note 14 for a discussion of the regulatory restrictions on CNA’s availability to pay dividends.

Treasury Stock

The Company repurchased 21.5 million, 20.3 million 4.8 million and 3.44.8 million shares of its common stock at aggregate costs of $1.1 billion, $1.0 billion $237 million and $134$237 million during the years ended December 31, 2019, 2018 2017 and 2016.2017. As of December 31, 2018, 20.62019, 21.4 million shares were retired. The remaining 0.1 million shares will be retired in 2019.2020. Upon retirement, treasury stock was eliminated through a reduction to common stock, APIC and retained earnings.

Note 13. Revenue from Contracts with Customers

Disaggregation of revenues
–
Revenue from contracts with customers, other than insurance premiums, is reported as
Non-insurance
warranty revenue and within Operating revenues and other on the Consolidated Statements of Income. The following table presents revenues from contracts with customers disaggregated by revenue type along with the reportable segment and a reconciliation to Operating revenues and other as reported in Note 20:

Year Ended December 31      2018           2017 (a)       2016 (a) 
(In millions)            

Non-insurance warranty – CNA Financial

  $    1,007   $    390   $        361 

 

 

 

 

Contract drilling – Diamond Offshore

  $    1,083   $    1,486   $    1,600 

Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipeline

   1,206    1,298    1,291 

Lodging and related services – Loews Hotels & Co

   730    682    667 

Rigid plastic packaging and recycled resin – Corporate

   867    498      

Total revenues from contracts with customers

   3,886    3,964    3,558 

Other revenues

   101    89    77 

Operating revenues and other

  $    3,987   $4,053   $    3,635 

 

 

 

 

Year Ended December 31
 
2019
  
2018
  
2017 (a)
 
(In millions)
      
Non-insurance
warranty – CNA Financial
 $
1,161
  $
1,007
  $
390
 
             
Contract drilling – Diamond Offshore
 $
981
  $
1,083
  $
1,486
 
Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipelines
  
1,266
   
1,206
   
1,298
 
Lodging and related services – Loews Hotels & Co
  
691
   
730
   
682
 
Rigid plastic packaging and recycled resin – Corporate
  
932
   
867
   
498
 
             
Total revenues from contracts with customers
  
3,870
   
3,886
   
3,964
 
Other revenues
  
68
   
101
   
89
 
             
Operating revenues and other
 $
3,938
  $
3,987
  $
4,053
 
             
(a)

Prior period amounts have not been adjusted under the modified retrospective method of adoption for ASU

2014-09.

Receivables from contracts with customers
– As of December 31, 20182019 and January 1, 2018, receivables from contracts with customers were approximately $434$458 million and $488$434 million and are included within Receivables on the Consolidated Balance Sheets.

143

1
4
7

Table of Contents
Deferred revenue
– As of December 31, 20182019 and January 1, 2018, deferred revenue resulting from contracts with customers was approximately $3.5$3.9 billion and $3.0$3.5 billion and is reported as Deferred
non-insurance
warranty revenue and within Other liabilities on the Consolidated Balance Sheets. The increase in deferred revenue is
for the year ended December 31, 2019 was
primarily due to deferrals outpacing revenue recognized in the period, specifically reflecting growth in CNA’s business. Approximately $1.0 
billion
and $886 million of revenues recognized during the year ended December��December 31, 2019 and 2018 were included in deferred revenue as of January 1, 2019 and 2018.

Contract costs
– As of December 31, 2019 and 2018, the Company had approximately $2.9 
billion
and $2.6 billion of costs to obtain contracts with customers, primarily related to CNA for amounts paid to dealers and other agents to obtain
non-insurance
warranty contracts, which are reported as Deferred
non-insurance
warranty acquisition expenses on the Consolidated Balance Sheets. For the year ended December 31, 2019 
and 2018,
amortization expense totaled $912 million
and $744
million
is included in
Non-insurance
warranty expense and Operating expenses and other in the Consolidated Statement of Income. There were no adjustments to deferred costs recorded for the year ended December 31, 2019
 and 2018.

Performance obligations
– As of December 31, 2018,2019, approximately $12.4$13.0 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to revenues for transportation and storage of natural gas and NGLs at Boardwalk PipelinePipelines and
non-insurance
warranty services at CNA. Approximately $2.1$2.2 billion will be recognized during 2019, $1.72020, $1.9 billion in 20202021 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company has elected to exclude variable consideration related entirely to wholly unsatisfied performance obligations and contracts where revenue is recognized based upon the right to invoice the customer. Therefore, the estimated operating revenues exclude contract drilling dayrate revenue at Diamond Offshore and interruptible service contract revenue at Boardwalk Pipeline.

Pipelines.

Note 14. Statutory Accounting Practices

CNA’s insurance subsidiaries are domiciled in various jurisdictions. These subsidiaries prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the respective jurisdictions’ insurance regulators. Domestic prescribed statutory accounting practices are set forth in a variety of publications of the National Association of Insurance Commissioners (“NAIC”) as well as state laws, regulations and general administrative rules. These statutory accounting principles vary in certain respects from GAAP. In converting from statutory accounting principles to GAAP, the more significant adjustments include deferral of policy acquisition costs and the inclusion of net unrealized holding gains or losses in shareholders’ equity relating to certain fixed maturity securities.

CNA has a prescribed practice as it relates to the accounting under Statement of Statutory Accounting Principles No. 62R (“SSAP No. 62R”),
Property and Casualty Reinsurance
, paragraphs 67 and 68 in conjunction with the 2010 loss portfolio transfer with NICO which is further discussed in Note 8. The prescribed practice allows CNA to aggregate all third party A&EP reinsurance balances administered by NICO in Schedule F and to utilize the LPT as collateral for the underlying third-party reinsurance balances for purposes of calculating the statutory reinsurance penalty. This prescribed practice increased statutory capital and surplus by $88$91 million and $63$88 million at December 31, 20182019 and 2017.

2018.

The payment of dividends by CNA’s insurance subsidiaries without prior approval of the insurance department of each subsidiary’s domiciliary jurisdiction is generally limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective insurance regulator.

14
8
Table of Contents
Dividends from CCC are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the “Department”) are determined based on the greater of the prior year’s statutory net income or 10% of statutory surplus as of the end of the prior year, as well as the timing and amount of dividends paid in the preceding 12 months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of December 31, 2018,2019, CCC is in a positive earned surplus position. The maximum allowable dividend CCC could pay during 20192020 that would not be subject to the Department’s prior approval is $1.4 billion,$1,078 
m
illion, less dividends paid during the preceding 12 months measured at that point in time. CCC paid dividends of $1.0 billion$1,065 
m
illion in 2018.2019. The actual level of dividends paid in any year is determined

144

after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.

Combined statutory capital and surplus and statutory net income for the Combined Continental Casualty Companies are presented in the table below, determined in accordance with accounting practices prescribed or permitted by insurance and/or other regulatory authorities.

   Statutory Capital and Surplus      Statutory Net Income
   December 31      Year Ended December 31
    2018(a)  2017      2018(a)   2017  2016

(In millions)

            

Combined Continental Casualty Companies

  $  10,411        $  10,726    $  1,405   $  1,029  $  1,033

 
Statutory Capital and Surplus
  
Statutory Net Income
 
 
December 31
  
Year Ended December 31
 
 
2019(a)
  
2018
  
2019(a)
  
2018
  
2017
 
(In millions)
          
Combined Continental Casualty Companies
 $
10,787
  $
10,411
  $
1,062
  $
1,405
  $
1,029
 
(a)

Information derived from the statutory-basis financial statements to be filed with insurance regulators.

CNA’s domestic insurance subsidiaries are subject to risk-based capital (“RBC”) requirements. RBC is a method developed by the NAIC to determine the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. The formula for determining the amount of RBC specifies various factors, weighted based on the perceived degree of risk, which are applied to certain financial balances and financial activity. The adequacy of a company’s actual capital is evaluated by a comparison to the RBC results, as determined by the formula. Companies below minimum RBC requirements are classified within certain levels, each of which requires specified corrective action.

The statutory capital and surplus presented above for CCC was approximately 266%291% and 264%266% of company action level RBC at December 31, 20182019 and 2017.2018. Company action level RBC is the level of RBC which triggers a heightened level of regulatory supervision. The statutory capital and surplus of CCC’sC
N
A
’s foreign insurance subsidiaries, which is not significant to the overall statutory capital and surplus, also met or exceeded their respective regulatory and other capital requirements.

Note 15. Benefit Plans

Pension Plans – The Company and its subsidiaries have several
non-contributory
defined benefit plans for eligible employees. Benefits for certain plans are determined annually based on a specified percentage of annual earnings (based on the participant’s age or years of service) and a specified interest rate (which is established annually for all participants) applied to accrued balances. The benefits for another plan which covers salaried employees are based on formulas which include, among others, years of service and average pay. The Company and its subsidiaries’ funding policy is to make contributions in accordance with applicable governmental regulatory requirements.

The Company eliminated future benefit accruals associated with the Loews Corporation Cash Balance Retirement Plan, effective January 1, 2020. However, years of service will continue to count for purposes of vesting.
Other Postretirement Benefit Plans – The Company and its subsidiaries have several postretirement benefit plans covering eligible employees and retirees. Participants generally become eligible after reaching age 55 with required years of service. Actual requirements for coverage vary by plan. Benefits for retirees who were covered by bargaining agreements vary by each unit and contract. Benefits for certain retirees are in the form of a Company health care account.

145

1
4
9

Table of Contents
Benefits for retirees reaching age
65
are generally integrated with Medicare. Other retirees, based on plan provisions, must use Medicare as their primary coverage, with the Company and its subsidiaries reimbursing a portion of the unpaid amount; or are reimbursed for the Medicare Part B premium or have no Company coverage. The benefits provided by the Company and its subsidiaries are basically health and, for certain retirees, life insurance type benefits.

The Company and its subsidiaries fund certain of these benefit plans, and accrue postretirement benefits during the active service of those employees who would become eligible for such benefits when they retire. The Company and its subsidiaries use December 31 as the measurement date for their plans.

Weighted average assumptions used to determine benefit obligations:

   Pension Benefits   Other Postretirement Benefits 
  

 

 

 
December 31  2018   2017   2016   2018   2017   2016 
  

Discount rate

   4.1%    3.5%    3.9%        4.1%        3.4%        3.7% 

Expected long term rate of return on plan assets

   7.5%    7.5%    7.5%        5.3%        5.3%        5.3% 

Interest crediting rate

   3.8%    3.7%    3.7%       

Rate of compensation increase

   3.9% to 5.5%    3.9% to 5.5%    3.9% to 5.5%       

 
Pension Benefits
  
Other Postretirement Benefits
 
December 31
 
2019
  
2018
  
2017
  
2019
  
2018
  
2017
 
Discount rate
  
3.0
%  
4.1
%  
3.5
%  
3.0
%  
4.1
%  
3.4
%
Expected long term rate of return on plan assets
  
7.5
%
  
7.5
%  
7.5
%  
3.6
%
  
5.3
%  
5.3
%
Interest crediting rate
  
3.7
%
  
3.8
%  
3.7
%  
 
   
   
 
Rate of compensation increase
  
 
3.0% to 5.5
%
 
  
3.9% to 5.5
%   
3.9% to 5.5
%  
 
   
   
 
Weighted average assumptions used to determine net periodic benefit cost:

   Pension Benefits   Other Postretirement Benefits 
  

 

 

 
Year Ended December 31  2018   2017   2016   2018   2017   2016 
  

Discount rate

   3.6%    3.8%    4.0%        3.4%        3.7%        3.7% 

Expected long term rate of return on plan assets

   7.5%    7.5%    7.5%        5.3%        5.3%        5.3% 

Interest crediting rate

   3.7%    3.7%    3.7%       

Rate of compensation increase

   3.9% to 5.5%    3.9% to 5.5%    3.5% to 5.5%       

 
Pension Benefits
  
Other Postretirement Benefits
 
Year Ended December 31
 
2019
  
2018
  
2017
  
2019
  
2018
  
2017
 
Discount rate
  
4.0
%  
3.6
%  
3.8
%  
4.0
%  
3.4
%  
3.7
%
Expected long term rate of return on plan assets
  
7.5
%
  
7.5
%  
7.5
%  
3.6
%
 
  
5.3
%  
5.3
%
Interest crediting rate
  
3.7
%
  
3.7
%  
3.7
%  
 
   
   
 
Rate of compensation increase
  
3.0% to 5.5
%
  
3.9% to 5.5
%  
3.9% to 5.5
%  
 
   
   
 
In determining the discount rate assumption, we utilize current market and liability information
is
utilize
d
, including a discounted cash flow analysis of our
the
 pension and postretirement obligations. In particular, the basis for our
the
discount rate selection was the yield on indices of highly rated fixed income debt securities with durations comparable to that of our plan liabilities. The yield curve was applied to expected future retirement plan payments to adjust the discount rate to reflect the cash flow characteristics of the plans. The yield curves and indices evaluated in the selection of the discount rate are comprised of high quality corporate bonds that are rated AA by an accepted rating agency.

The expected long term rate of return for plan assets is determined based on widely-accepted capital market principles, long term return analysis for global fixed income and equity markets as well as the active total return oriented portfolio management style. Long term trends are evaluated relative to market factors such as inflation, interest rates and fiscal and monetary policies, in order to assess the capital market assumptions as applied to the plan. Consideration of diversification needs and rebalancing is maintained.

Assumed health care cost trend rates:

December 31  2018   2017   2016 
                

Health care cost trend rate assumed for next year

   4.0% to 6.5%    4.0% to 7.0%    4.0% to 7.0% 

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

   4.0% to 5.0%    4.0% to 5.0%    4.0% to 5.0% 

Year that the rate reaches the ultimate trend rate

   2019-2022    2018-2022    2017-2021 

146

December 31
 
2019
  
2018
  
2017
 
Health care cost trend rate assumed for next year
  
4.0% to 8.0%
   
4.0% to 6.5
%  
4.0% to 7.0
%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
  
4.0% to 5.0%
   
4.0% to 5.0
%  
4.0% to 5.0
%
Year that the rate reaches the ultimate trend rate
  
 
2021-2026
   
2019-2022
   
2018-2022
 
1
50

Table of Contents
Net periodic benefit cost components:

   Pension Benefits            Other Postretirement Benefits 
Year Ended December 31  2018  2017  2016      2018  2017  2016 

(In millions)

         

Service cost

  $8      $8      $8     $        1  $       1   $       1      

Interest cost

   110   119   128     2   2   3      

Expected return on plan assets

   (179)   (173)   (177)     (5)   (5)   (5)     

Amortization of unrecognized net loss

   42   43   46     (1)   

Amortization of unrecognized prior service benefit

     (1)     (2)   (2)   (3)     

Settlement

   9   11   3                

Net periodic benefit cost

  $    (10)      $8      $7     $      (5)  $      (4)   $      (4)     
                             

 
Pension Benefits
  
Other Postretirement Benefits
 
Year Ended December 31
 
2019
  
2018
  
2017
  
2019
  
2018
  
2017
 
(In millions)
            
Service cost
 $
7
  $
8
  $
8
   
 
  $
1
  $
1
 
Interest cost
  
117
   
110
   
119
  
$
 
2
   
2
   
2
 
Expected return on plan assets
  
(159
)
  
(179
)  
(173
)  
(3
)
  
(5
)  
(5
)
Amortization of unrecognized
  
 
   
 
   
 
       
 
   
 
net loss
 
 
45
 
  
42
   
43
  
 
(1
)  
(1
)  
 
Amortization of unrecognized prior
  
 
   
   
   
 
   
 
   
 
 
service benefit
 
 
 
 
  
   
  
 
 
 
  
(2
)  
(2
)
Settlements and curtailments  
1
   
9
   
11
   
 
   
   
 
                         
Net periodic benefit cost
 $
       
11
  $
(10
) $
8
  $
        
(2
)
 
 $
(5
) $
(4
)
                         
The following provides a reconciliation of benefit obligations and plan assets:

                                                
   Pension Benefits  Other Postretirement Benefits 
    2018  2017  2018  2017

(In millions)

     

Change in benefit obligation:

     

Benefit obligation at January 1

  $3,242  $3,131      $62  $66      

Acquisitions

    103   

Service cost

   8   8   1   1      

Interest cost

   110   119   2   2      

Plan participants’ contributions

     4   5      

Amendments

     

Actuarial (gain) loss

   (212)   100   (6)   (1)     

Benefits paid from plan assets

   (187)   (192)   (10)   (11)     

Settlements

   (35)   (37)   

Foreign exchange

   (7)   10   

Benefit obligation at December 31

   2,919   3,242   53   62      

Change in plan assets:

     

Fair value of plan assets at January 1

   2,577   2,423   88   86      

Acquisitions

    75   

Actual return on plan assets

   (83)   247    5      

Company contributions

   39   51   3   3      

Plan participants’ contributions

     4   5      

Benefits paid from plan assets

   (187)   (192)   (10)   (11)     

Settlements

   (35)   (37)   

Foreign exchange

   (7)   10   

Fair value of plan assets at December 31

         2,304         2,577   85   88      

Funded status

  $(615)  $(665)      $32  $26      
                  

147

 
Pension Benefits
  
Other Postretirement Benefits
 
 
2019
 
 
2018
  
2019
 
 
2018
 
(In millions)
        
Change in benefit obligation:
  
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at January 1
 $
2,919
  $
3,242
  $
53
  $
62
 
Acquisitions
  
 
   
   
 
   
 
Service cost
  
7
   
8
   
 
   
1
 
Interest cost
  
117
   
110
   
2
   
2
 
Plan participants’ contributions
  
 
   
   
4
   
4
 
Amendments
  
1
   
   
 
   
 
Actuarial (gain) loss
  
299
   
(212
)  
3
   
(6
)
Benefits paid from plan assets
  
(191
)   
(187
)  
(10
)
 
  
(10
)
Settlements and curtailments  
(19
)   
(35
)  
 
   
 
Foreign exchange
  
4
   
(7
)  
 
   
 
                 
Benefit obligation at December 31
  
3,137
   
2,919
   
52
   
53
 
                 
Change in plan assets:
  
   
   
   
 
Fair value of plan assets at January 1
  
2,304
   
2,577
   
85
   
88
 
Acquisitions
  
 
   
   
 
   
 
Actual return on plan assets
  
328
   
(83
)  
8
   
 
Company contributions
  
146
   
39
   
3
   
3
 
Plan participants’ contributions
  
 
   
   
4
   
4
 
Benefits paid from plan assets
  
(191
)   
(187
)  
(10
)   
(10
)
Settlements  
(15
)   
(35
)  
 
   
 
Foreign exchange
  
4
   
(7
)  
 
   
 
                 
Fair value of plan assets at December 31
  
2,576
   
2,304
   
90
   
85
 
                 
Funded status
 $
(561
)  $
(615
) $
38
  $
32
 
                 
1
51
   Pension Benefits   Other Postretirement Benefits 
    2018   2017   2018  2017 

(In millions)

       

Amounts recognized in the Consolidated Balance Sheets consist of:

       

Other assets

   $              9     $               4    $        49   $        47      

Other liabilities

   (624)    (669)    (17)   (21)     

Net amount recognized

   $        (615)    $        (665)    $        32   $        26      
                    
Amounts recognized in Accumulated other comprehensive income (loss), not yet recognized in net periodic (benefit) cost:       

Prior service credit

   $            (2)    $            (3)    $        (1)   $        (3)     

Net actuarial loss

   1,065    1,069    (3)   (3)     

Net amount recognized

   $        1,063    $        1,066    $        (4)   $        (6)     
                    
Information for plans with projected and accumulated benefit obligations in excess of plan assets:       

Projected benefit obligation

   $        2,825    $        3,132    

Accumulated benefit obligation

   2,813    3,117    $        18   $        21      

Fair value of plan assets

   2,201    2,462    

Table of Contents
 
Pension
 
Benefits
  
Other Postretirement Benefits
 
 
2019
 
 
2018
  
2019
 
 
2018
 
(In millions)
 
 
  
 
  
 
  
 
 
Amounts recognized in the Consolidated Balance Sheets consist of:
 
 
 
 
 
 
 
 
 
 
 
 
Other assets
 
$
5
 
 $
9
  
$
54
 
 $
49
 
Other liabilities
 
 
(566
)
 
  
(624
) 
 
(16
)
 
  
(17
)
                 
Net amount recognized
 
$
 
 
(561
)
 
 
 
 
 
 
 
 
 
 
 
 
$
 
 
(615
) 
$
38
 
 $
32
 
                 
Amounts recognized in Accumulated other comprehensive income (loss), not yet recognized in net periodic (benefit) cost:
  
 
   
 
   
 
   
 
 
Prior service credit
  
 
  $
(2
) $
(1
)
 
 $
(1
)
Net actuarial loss
 
$
 
1,144
   
1,065
   
(4
)
 
  
(3
)
Net amount recognized
 $
1,144
  $
1,063
  $
(5
)
 
 $
(4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Information for plans with projected and accumulated benefit obligations in excess of plan assets:
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation
 
$
3,021
 
 
$
 
2,825
 
 
 
 
 
 
  
 
Accumulated benefit obligation
 
 
3,014
 
  
2,813
  
$
16
 
 $
18
 
Fair value of plan assets
 
 
2,456
 
  
2,201
  
 
 
 
  
 
The accumulated benefit obligation for all defined benefit pension plans was $2.9$3.1 billion and $3.2$2.9 billion at December 31, 20182019 and 2017.2018. Changes for the years ended December 31, 20182019 and 20172018 include actuarial (gains) losses of $(212)$300 million and $100$(212) million primarily driven by changes in the discount rate used to determine the benefit obligations.

The Company and its subsidiaries employ a total return approach whereby a mix of equity and fixed maturity securities are used to maximize the long term return of plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. The intent of this strategy is to minimize expenses by generating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. The investment portfolio contains
s
contain a diversified blend of fixed maturity, equity and short term securities. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2018,2019, the Company and its subsidiaries had committed $99 $111
million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships. Investment risk is monitored through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

The table below presents the estimated future minimum benefit payments at December 31, 2018.

Expected future benefit payments  Pension
Benefits		  Other
Postretirement
        Benefits        

(In millions)

    

2019

   $        218      $        5     

2020

   223      5     

2021

   210      5     

2022

   218      4     

2023

   214      4     

2024 – 2028

   1,026      16     

148

2019.

Expected future benefit payments
 
Pension
Benefits
  
Other
Postretirement
Benefits
 
(In millions)
    
2020
 $
234
  $
5
 
2021
  
211
   
5
 
2022
  
215
   
4
 
2023
  
217
   
4
 
2024
  
212
   
3
 
2025 – 2029
  
1,001
   
14
 
1
5
2

Table of Contents
In 2019,2020, it is expected that contributions of approximately $14 million will be made to pension plans and $2 million to postretirement health care and life insurance benefit plans.

Pension plan assets measured at fair value on a recurring basis are summarized below.

December 31, 2018  Level 1   Level 2   Level 3   Total

(In millions)

        

Plan assets at fair value:

        

Fixed maturity securities:

        

Corporate and other bonds

    $472   $10   $482     

States, municipalities and political subdivisions

     58      58     

Asset-backed

     165      165     

Total fixed maturities

  $-    695    10    705     

Equity securities

   406    110      516     

Short term investments

   36    54      90     

Fixed income mutual funds

   120        120     

Other assets

        9         9     

Total plan assets at fair value

  $562   $868   $10   $1,440     

Plan assets at net asset value: (a)

        

Limited partnerships

         864     

Total plan assets

  $      562   $      868   $      10   $      2,304     
                     
December 31, 2017  Level 1     Level 2     Level 3     Total  

(In millions)

        

Plan assets at fair value:

        

Fixed maturity securities:

        

Corporate and other bonds

    $522   $10   $532     

States, municipalities and political subdivisions

     62      62     

Asset-backed

     182      182     

Total fixed maturities

  $-    766    10    776     

Equity securities

   449    122      571     

Short term investments

   29    11      40     

Fixed income mutual funds

   96        96     

Other assets

   13    9         22     

Total plan assets at fair value

  $587   $908   $10   $1,505     

Plan assets at net asset value: (a)

        

Limited partnerships

         990     

Collective investment trust funds

                  82     

Total plan assets

  $587   $908   $10   $2,577     
                     

December 31, 2019
 
Level 1
  
Level 2
  
Level 3
  
Total
 
(In millions)
        
Plan assets at fair value:
  
   
   
   
 
Fixed maturity securities:
  
   
   
   
 
Corporate and other bonds
  
 
  $
587
  $
     10
  $
597
 
States, municipalities and political subdivisions
  
 
   
51
   
 
   
51
 
Asset-backed
  
 
   
154
   
 
   
154
 
                 
Total fixed maturities
 $
             
–
   
792
   
10
   
802
 
Equity securities
  
541
   
128
   
 
   
669
 
Short term investments
  
74
   
7
   
 
   
81
 
Fixed income mutual funds
  
128
   
 
   
 
   
128
 
Other assets
  
11
   
9
   
 
   
20
 
                 
Total plan assets at fair value
 $
754
  $
936
  $
10
  $
1,700
 
                 
Plan assets at net asset value: (a)
  
   
   
   
 
Limited partnerships
  
 
   
 
   
 
   
876
 
                 
Total plan assets
 $
754
  $
936
  $
10
  $
2,576
 
                 
             
December 31, 2018
 
Level 1
  
Level 2
  
Level 3
  
Total
 
Plan assets at fair value:
  
   
   
   
 
Fixed maturity securities:
  
   
   
   
 
Corporate and other bonds
  
  $
472
  $
10
  $
482
 
States, municipalities and political subdivisions
  
   
58
   
   
58
 
Asset-backed
  
   
165
   
   
165
 
                 
Total fixed maturities
 $
–
   
695
   
10
   
705
 
Equity securities
  
406
   
110
   
   
516
 
Short term investments
  
36
   
54
   
   
90
 
Fixed income mutual funds
  
120
   
   
   
120
 
Other assets
  
   
9
   
   
9
 
                 
Total plan assets at fair value
 $
562
  $
868
  $
10
  $
1,440
 
                 
Plan assets at net asset value: (a)
  
   
   
   
 
Limited partnerships
  
   
   
   
864
 
                 
Total plan assets
 $
562
  $
868
  $
10
  $
2,304
 
                 
(a)

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table for these investments are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

The limited partnership investments held within the plans are recorded at fair value, which represents the plans’ shares of the net asset value of each partnership, as determined by the general partner. Limited partnerships comprising 82%80% and 86%82% of the carrying value as of December 31, 20182019 and 20172018 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets and the remainder were primarily invested in private debt and equity. Within hedge fund strategies, approximately 66%62% were equity related, 28%31% pursued a multi-strategy approach and 6%7% were focused on distressed investments at December 31, 2018.

2019.

For a discussion of the valuation methodologies used to measure fixed maturity securities, equities and short term investments, see Note 4.

149

1
5
3

Table of Contents
Other postretirement benefits plan assets measured at fair value on a recurring basis are summarized below.

December 31, 2018  Level 1       Level 2       Level 3       Total 

(In millions)

        

Fixed maturity securities:

        

Corporate and other bonds

    $    24     $    24     

States, municipalities and political subdivisions

     11      11     

Asset-backed

        30         30     

Total fixed maturities

  $-    65   $-    65     

Short term investments

   4              4     

Fixed income mutual funds

   16              16     

Total

  $    20   $65   $-   $85     
                        
December 31, 2017                    

Fixed maturity securities:

        

Corporate and other bonds

    $18     $18     

States, municipalities and political subdivisions

     42      42     

Asset-backed

     12      12     

Total fixed maturities

  $-    72   $-    72     

Short term investments

   2        2     

Fixed income mutual funds

   14              14     

Total

  $16   $72   $-   $88     
                     

December 31, 2019
 
Level 1
  
Level 2
  
Level 3
  
Total
 
(In millions)
        
Fixed maturity securities:
  
   
   
   
 
Corporate and other bonds
  
 
  $
             
22
   
 
  $
             
22
 
States, municipalities and political subdivisions
  
 
   
16
   
 
   
16
 
Asset-backed
  
 
   
31
   
 
   
31
 
                 
Total fixed maturities
 $
             
-
   
69
  $
             
-
   
69
 
Short term investments
  
3
   
 
   
 
   
3
 
Fixed income mutual funds
  
18
   
 
   
 
   
18
 
                 
Total
 $
21
  $
69
  $
 
-
  $
90
 
                 
  
 
 
 
 
 
 
 
December 31, 2018
        
Fixed maturity securities:
  
   
   
   
 
Corporate and other bonds
  
  $
24
   
  $
24
 
States, municipalities and political subdivisions
  
   
11
   
   
11
 
Asset-backed
  
   
30
   
   
30
 
                 
Total fixed maturities
 $
-
  
   
65
  $
-
  
   
65
 
Short term investments
  
4
   
   
   
4
 
Fixed income mutual funds
  
16
   
   
   
16
 
                 
Total
 $
20
  $
65
  $
-
  
  $
85
 
                 
There were no0 Level 3 assets at December 31, 20182019 and 2017.

2018.

Savings Plans – The Company and its subsidiaries have several contributory savings plans which allow employees to make regular contributions based upon a percentage of their salaries. Matching contributions are made up to specified percentages of employees’ contributions. The contributions by the Company and its subsidiaries to these plans amounted to $102 million, $100 million $105 million and $107$105 million for the years ended December 31, 2019, 2018 2017 and 2016.

2017.

Stock-based Compensation – In 2016, shareholders approved the Loews Corporation 2016 Incentive Compensation Plan (the “2016 Loews Plan”) which replaced a previously existing plan. The aggregate number of shares of Loews common stock authorized under the 2016 Loews Plan is 6,000,000 shares, plus up to 3,000,000 shares that may be forfeited under the prior plan. The maximum number of shares of Loews common stock with respect to which awards may be granted to any individual in any calendar year is 500,000 shares. In accordance with the 2016 Loews Plan and the
Company
’
s
prior
equ
ity
plan
, the Company’s stock-based compensation consists of the following:

SARs:
 SARs were granted under the
Company
’
s
prior
equity
plan. The exercise price per share may not be less than the fair market value of the common stock on the date of grant. Generally, SARs vest ratably over a four-year period and expire in ten years.

Time-based Restricted Stock Units:
 Time-based restricted stock units (“RSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested RSU. Generally, RSUs vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.

Performance-based Restricted Stock Units:
 Performance-based RSUs (“PSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested PSU, subject to the achievement of specified performance goals by the Company. Generally, performance-based RSUs vest, if performance goals are satisfied, 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.

In 2018,2019, the Company granted an aggregate of 235,231
216,802
 RSUs and PSUs at a weighted average grant-date fair value of $47.71$
48.10
 per unit. 33,923
3,621
 RSUs were forfeited during the year. 3,470,953
2,469,756
 SARs were outstanding at December 31, 20182019 with a weighted average exercise price of $39.90.

150

$

41.11
.
1
5
4

Table of Contents
The Company recognized compensation expense that decreased net income by $35$37 million, $33$
35
 million and $32$
33
 million for the years ended December 31, 2019, 2018 2017 and 2016.2017. Several of the Company’s subsidiaries also maintain their own stock-based compensation plans. Such amounts include the Company’s share of expense related to its subsidiaries’ plans.

Note 16. Reinsurance

CNA cedes insurance to reinsurers to limit its maximum loss, provide greater diversification of risk, minimize exposures on larger risks and to exit certain lines of business. The ceding of insurance does not discharge the primary liability of CNA. A credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet its obligations. A collectability exposure also exists to the extent that the reinsurer disputes the liabilities assumed under reinsurance agreements. Property and casualty reinsurance coverages are tailored to the specific risk characteristics of each product line and CNA’s retained amount varies by type of coverage. Reinsurance contracts are purchased to protect specific lines of business such as property and workers’ compensation. Corporate catastrophe reinsurance is also purchased for property and workers’ compensation exposure. CNA also utilizes facultative reinsurance in certain lines. In addition, CNA assumes reinsurance, primarily through Hardy and as a member of various reinsurance pools and associations.

The following table presents the amounts receivable from reinsurers:

December 31  2018   2017     

(In millions)

    

Reinsurance receivables related to insurance reserves:

    

Ceded claim and claim adjustment expenses

  $      4,019   $      3,934     

Ceded future policy benefits

   233    230     

Reinsurance receivables related to paid losses

   203    126     

Reinsurance receivables

   4,455    4,290     

Less allowance for doubtful accounts

   29    29     

Reinsurance receivables, net of allowance for doubtful accounts

  $4,426   $4,261     
           

December 31
 
2019
  
2018
 
(In millions)
    
Reinsurance receivables related to insurance reserves:
  
   
 
Ceded claim and claim adjustment expenses
 $
3,835
  $
4,019
 
Ceded future policy benefits
  
226
   
233
 
Reinsurance receivables related to paid losses  
143
   
203
 
         
Reinsurance receivables
  
4,204
   
4,455
 
Less allowance for doubtful accounts
  
25
   
29
 
         
Reinsurance receivables, net of allowance for doubtful accounts
 $
4,179
  $
4,426
 
         
CNA has established an allowance for doubtful accounts on reinsurance receivables related to credit risk. CNA reviews the allowance quarterly and adjusts the allowance as necessary to reflect changes in estimates of uncollectible balances. The allowance may also be reduced by write-offs of reinsurance receivable balances.

CNA attempts to mitigate its credit risk related to reinsurance by entering into reinsurance arrangements with reinsurers that have credit ratings above certain levels and by obtaining collateral. On a limited basis, CNA may enter into reinsurance agreements with reinsurers that are not rated, primarily captive reinsurers. The primary methods of obtaining collateral are through reinsurance trusts, letters of credit and funds withheld balances. Such collateral
, limited by t
he
balance of open recoverable
s
,
was approximately $3.2 billion and $2.9 billion at December 31, 20182019 and 2017.

2018.

CNA’s largest recoverables from a single reinsurer, including ceded unearned premium reserves as of December 31, 20182019 were approximately $2.2$2.0 billion from a subsidiarysubsidia
ries
 of Berkshire Hathaway Insurance Group, $278$289 million from the Gateway Rivers
Palo Verde
 Insurance Company and $233$226 million from subsidiaries
a
subsidiar
y
 of Wilton Re. These amounts are substantially collateralized. The recoverable from
 s
ub
sidiaries of
the Berkshire Hathaway Insurance Group includes amounts related to third party reinsurance for which NICO has assumed the credit risk under the terms of the loss portfolio transfer as discussed in Note 8.

151

1
5
5

Table of Contents
The effects of reinsurance on earned premiums are presented in the following table:

                   Assumed/ 
    Direct     Assumed     Ceded     Net     Net % 

(In millions)

          

Year Ended December 31, 2018

          

Property and casualty

  $  10,857   $    305   $    4,380   $    6,782        4.5% 

Long term care

   480    50         530        9.4 

Earned premiums

  $11,337   $355   $4,380   $7,312        4.9% 
                       
Year Ended December 31, 2017          

Property and casualty

  $10,447   $317   $4,315   $6,449        4.9% 

Long term care

   489    50         539        9.3 

Earned premiums

  $10,936   $367   $4,315   $6,988        5.3% 
                       

Year Ended December 31, 2016

          

Property and casualty

  $10,400   $258   $4,270   $6,388        4.0% 

Long term care

   486    50         536        9.3 

Earned premiums

  $10,886   $308   $4,270   $6,924        4.4% 
                       

                     
 
Direct
  
Assumed
  
Ceded
  
Net
  
Assumed/
Net %
 
(In millions)
          
Year Ended December 31, 2019
  
   
   
   
   
 
Property and casualty
 $
11,021
  $
288
  $
4,401
  $
6,908
   
4.2
%
Long term care
  
470
   
50
   
   
520
   
9.6
 
                     
Earned premiums
 $
11,491
  $
338
  $
4,401
  $
7,428
   
4.6
%
                     
Year Ended December 31, 2018
  
   
   
   
   
 
Property and casualty
 $
10,857
  $
305
  $
4,380
  $
6,782
   
4.5
%
Long term care
  
480
   
50
   
   
530
   
9.4
 
                     
Earned premiums
 $
11,337
  $
355
  $
4,380
  $
7,312
   
4.9
%
                     
Year Ended December 31, 2017
  
   
   
   
   
 
Property and casualty
 $
10,447
  $
317
  $
4,315
  $
6,449
   
4.9
%
Long term care
  
489
   
50
   
   
539
   
9.3
 
                     
Earned premiums
 $
10,936
  $
367
  $
4,315
  $
6,988
   
5.3
%
                     
Included in the direct and ceded earned premiums for the years ended December 31, 2019, 2018 and 2017 and 2016 are $3.7$3.6 billion, $3.9$3.7 billion and $3.9 billion related to property business that is 100% reinsured under a significant third party captive program. The third party captives that participate in this program are affiliated with the
non-insurance
company policyholders, therefore this program provides a means for the policyholders to self-insure this property risk. CNA receives and retains a ceding commission.

Long term care premiums are from long duration contracts; property and casualty premiums are from short duration contracts.

Insurance claims and policyholders’ benefits reported on the Consolidated Statements of Income are net of
estimated
reinsurance recoveries of $2.7 billion, $2.8 billion $3.1 billion and $3.0$3.1 billion for the years ended December 31, 2019, 2018 and 2017, and 2016, including $2.1 billion, $1.9 billion $2.5 billion and $2.6$2.5 billion related to the significant third party captive program discussed above.

Note 17. Quarterly Financial Data (Unaudited)

2018 Quarter Ended  Dec. 31  Sept. 30   June 30   March 31 

(In millions, except per share data)

       

Total revenues

  $3,287  $3,608   $3,590   $3,581 

Net income (loss) (a)

   (165)   278    230    293 

Per share-basic and diluted

   (0.53)   0.88    0.72    0.89 
2017 Quarter Ended                   

Total revenues (b)

  $3,555  $3,521   $3,359   $3,300 

Net income (c)

   481   157    231    295 

Per share-basic

   1.43   0.46    0.69    0.88 

Per share-diluted

   1.43   0.46    0.69    0.87 

152

                 
2019 Quarter Ended
 
Dec. 31
  
Sept. 30
  
June 30
  
March 31
 
(In millions, except per share data)
        
Total revenues
 $
3,876
  $
3,675
  $
3,623
  $
3,757
 
Net income (a) (b)
  
217
   
72
   
249
   
394
 
Per share-basic and diluted
  
0.73
   
0.24
   
0.82
   
1.27
 
                 
2018 Quarter Ended
        
Total revenues
 $
3,287
  $
3,608
  $
3,590
  $
3,581
 
Net income (loss) (
c
)
  
(165
)  
278
   
230
   
293
 
Per share-basic and diluted
  
(0.53
)  
0.88
   
0.72
   
0.89
 
1
5
6

Table of Contents
The sum of the quarterly per share amounts may not equal per share amounts reported for
year-to-date
periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.

(a)

Net income for the
fourth
quarter of 2019 include
s
net i
n
vestment income of
$116 million (after tax and noncontrolling interests) related to
limited partnership
s
and equity securities partially offset
by asset
impairment charges
of
$69
million (after tax).
(b)
Net income for the third quarter of 2019 included a $151 million (after tax and noncontrolling interests) charge related to the recognition of an active life reserve premium deficiency as a result of the third quarter GPV.
(
c
)		Net loss for the fourth quarter of 2018 includes a loss on limited partnership and common stock investments of $97 million (after tax and noncontrolling interests), catastrophe losses of $96 million (after tax and noncontrolling interests) and net investment losses of $57 million (after tax).

(b)

Prior period amounts have not been adjusted under the modified retrospective method of adoption of ASU2014-09 or under the adoption of ASU2016-01. See Note 1 for more information on these accounting standards.

(c)

Net income for the fourth quarter of 2017 includes the impact of a $200 million net benefit resulting from the enactment of the Tax Act.

Note 18. Legal Proceedings

Boardwalk Pipeline

Pipelines

On May 25, 2018,
plaintiffs Tsemach Mishal and Paul Berger (on behalf of themselves and the purported class, “Plaintiffs”) initiated a purported class action in the Court of Chancery of the State of Delaware (the “Court”) against the following defendants,defendants: Boardwalk Pipeline, the Pipelines, Boardwalk GP, LP (“General Partner,Partner”), Boardwalk GP, LLC and BPHCBoardwalk Pipelines Holding Corp. (“BPHC”) (together, “Defendants”), regarding the potential exercise by the General Partner of its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk PipelinePipelines not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of the Limited Partnership Agreement. affiliates.
On June 25, 2018, Plaintiffs and Defendants entered into a Stipulation and Agreement of Compromise and Settlement, subject to the approval of the Court (the “Proposed Settlement”). Under the terms of the Proposed Settlement, the lawsuit would be dismissed, and related claims against the Defendants would be released by the Plaintiffs, if BPHC, the sole member of the General Partner, elected to cause the General Partner to exercise its right to purchase the issued and outstanding common units of the
Boardwalk Pipelines pursuant to Boardwalk Pipelines’ Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”),
within a period specified by the Proposed Settlement. As discussed in Note
2
, on June 
29
,
2018
, the General Partner elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk PipelinePipelines not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of
the Limited Partnership Agreement within the period specified by the Proposed Settlement. The transaction was completed on July 
18 2018.
,
2018
.
On September 28, 2018, the Court denied approval of the Proposed Settlement. On February 11, 2019, a substitute verified class action complaint was filed in this proceeding. 
The
Defendants filed a motion to dismiss, which was heard by the Court in July of 2019. In October of 2019, the Court ruled on the motion and granted a partial dismissal
,
with certain aspects of the case proceeding to trial. The Company is evaluating its response to this new complaint.

case will be set for trial in early 2021.

The Company and its subsidiaries are from time to time parties to other litigation arising in the ordinary course of business. While it is difficult to predict the outcome or effect of any such litigation, management does not believe that the outcome of any such pending litigation will materially affect the Company’s results of operations or equity.

Note 19. Commitments and Contingencies

CNA Guarantees

In the course of selling business entities and assets to third parties,

CNA agreed to guarantee the performance of certain obligations of previously owned subsidiaries and to indemnify purchasers for losses arising out of breaches of representations and warranties with respect to the business entities or assets sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such guarantee and indemnification agreements in effect for sales of business entities, assets and third party loans may include provisions that survive indefinitely. As of December 31, 2018, the aggregate amount related to quantifiable guarantees was $375 million and the aggregate amount related to quantifiable indemnification agreements was $252 million. In certain cases, should CNA be required to make payments under any such guarantee, it would have the right to seek reimbursement from an affiliate of a previously owned subsidiary.

In addition, CNA

has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of December 31, 2018, CNA had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser’s ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. Certain provisions of the indemnification agreements survive indefinitely while others survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire.

153

CNA also

provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities provided
issued
by
a previously owned subsidiary. As of December 31, 2018,2019, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $1.8$1.7 billion, which will be paid over the lifetime of the annuitants. CNA does not believe any payment is likely under these guarantees, as CNA is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.

CNA Small Business Premium Rate Adjustment

In 2016 and 2017, CNA identified rating errors related to its multi-peril package product and workers’ compensation policies within its Small Business unit and determined that it would voluntarily issue premium refunds along with interest on affected policies. After the rating errors were identified, written and earned premium were reported net

1
5
7
Table of any impact from the premium rate adjustments.

The policyholder refunds for the multi-peril package product were completed in the third quarter of 2017. The policyholder refunds for workers’ compensation policies were completed in the fourth quarter of 2018.

For the year ended December 31, 2016, CNA recorded a charge which reduced earned premium by $16 million. For the year ended December 31, 2017, earned premium was reduced by $36 million. For the year ended December 31, 2018 earned premium increased by $6 million, as a result of a change in estimate of the refund payments to policyholders. Additionally, Interest expense recognized for interest due to policyholders on the premium rate adjustments was $1 million and $7 million for the years ended December 31, 2018 and 2017.

Contents

Note 20. Segments

The Company has five5 reportable segments comprised of four4 individual operating subsidiaries, CNA, Diamond Offshore, Boardwalk PipelinePipelines and Loews Hotels & Co; and the Corporate segment.
The operations of Consolidated ContainerAltium Packaging since the acquisition date are included in the Corporate segment. Each of the operating subsidiaries is headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position.

CNA’s business is the sale of property and casualty insurance coverage primarily through a network of independent agents, brokers and managing general underwriters. CNA’s operations also include its long term care business that is in
run-off,
certain corporate expenses, including interest on CNA’s corporate debt, and certain property and casualty businesses in
run-off,
including CNA Re and A&EP.

Diamond Offshore provides contract drilling services to the energy industry around the world with a fleet of 1715 offshore drilling rigs consisting of four4 drillships and 1311 semisubmersible rigs.

rigs

, t
wo
of which are cold stacked
.
Boardwalk PipelinePipelines is engaged in the interstate transportation and storage of natural gas and NGLs. This segment consists of interstate natural gas pipeline systems located in the Gulf Coast region, Oklahoma, Arkansas and the midwestern states of Tennessee, Kentucky, Illinois, Indiana and Ohio, natural gas storage facilities in four4 states and NGL pipelines and storage facilities in Louisiana and Texas, with approximately 14,23014,055 miles of pipeline.

Loews Hotels & Co operates a chain of 2426 hotels, 2224 of which are in the United States and two2 of which are in Canada.

The Corporate segment consists of investment income from the Parent Company’s cash and investments,
Parent Company
interest expense, other unallocated
Parent Company
expenses and the results of Consolidated Container
Altium Packaging
since the acquisition date. Purchase accounting adjustments have been pushed down to the appropriate subsidiary.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1.

In the following tables certain financial measures are presented to provide information used by management to monitor the Company’s operating performance. These schedules present the reportable segments of the Company and their contribution to the consolidated financial statements. Amounts presented will not necessarily be the same as those in the individual financial statements of the Company’s subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling interests.

154

1
5
8

Table of Contents
Statements of Income and Total assets by segment are presented in the following tables.

   CNA   Diamond  Boardwalk  Loews       
Year Ended December 31, 2018  Financial   Offshore  Pipeline  Hotels & Co  Corporate  Total 

(In millions)

        

Revenues:

        

Insurance premiums

  $7,312         $7,312      

Net investment income (loss)

   1,817     $8   $2  $(10)   1,817      

Investment losses

   (57)         (57)     

Non-insurance warranty revenue (Notes 1 and 13)

   1,007          1,007      

Operating revenues and other

   55      1,085  $1,227   753   867   3,987      

Total

   10,134      1,093   1,227   755   857   14,066      

Expenses:

        

Insurance claims and policyholders’ benefits

   5,572          5,572      

Amortization of deferred acquisition costs

   1,335          1,335      

Non-insurance warranty expense (Notes 1 and 13)

   923          923      

Operating expenses and other

   1,203      1,196   820   653   956   4,828      

Interest

   138      123   176   29   108   574      

Total

   9,171      1,319   996   682   1,064   13,232      

Income (loss) before income tax

   963      (226)   231   73   (207)   834      

Income tax (expense) benefit

   (151)     30   (28)   (25)   46   (128)     

Net income (loss)

   812      (196)   203   48   (161)   706      

Amounts attributable to noncontrolling interests

   (86)     84   (68)           (70)     

Net income (loss) attributable to Loews Corporation

  $726     $(112)  $135  $48  $(161)  $636      
                           
December 31, 2018                          

Total assets

  $  57,123     $6,036  $9,131  $1,812  $4,214  $  78,316      

155

                         
Year Ended December 31, 2019
 
CNA
Financial
  
Diamond
Offshore
  
Boardwalk
Pipelines
  
Loews
Hotels & Co
  
Corporate
  
Total
 
(In millions)
            
Revenues:
  
   
   
   
   
   
 
Insurance premiums
 $
7,428
   
 
   
 
   
 
   
 
  $
7,428
 
Net investment income
  
2,118
  $
6
   
 
  $
1
  $
230
   
2,355
 
Investment
gains
  
49
   
 
   
 
   
 
   
 
   
49
 
Non-insurance
warranty revenue
  
1,161
   
 
   
 
   
 
   
 
   
1,161
 
Operating revenues and other
  
32
   
982
  $
1,300
   
691
   
933
   
3,938
 
                         
Total
  
10,788
   
988
   
1,300
   
692
   
1,163
   
14,931
 
                         
Expenses:
  
   
   
   
   
   
 
Insurance claims and policyholders’ benefits
  
5,806
   
 
   
 
   
 
   
 
   
5,806
 
Amortization of deferred acquisition costs
  
1,383
   
 
   
 
   
 
   
 
   
1,383
 
Non-insurance
warranty expense
  
1,082
   
 
   
 
   
 
   
 
   
1,082
 
Operating expenses and other
  
1,141
   
1,267
   
840
   
698
   
1,004
   
4,950
 
Interest
  
152
   
123
   
179
   
22
   
115
   
591
 
                         
Total
  
9,564
   
1,390
   
1,019
   
720
   
1,119
   
13,812
 
                         
Income (loss) before income tax
  
1,224
   
(402
)
 
  
281
   
(28
)
 
  
44
   
1,119
 
Income tax (expense) benefit
  
(224
)
 
  
60
   
(72
)
 
  
(3
)
 
  
(9
)
 
  
(248
)
 
                         
Net income (loss)
  
1,000
   
(342
)
 
  
209
   
(31
)
 
  
35
   
871
 
Amounts attributable to noncontrolling interests
  
(106
)
 
  
167
   
 
   
 
   
 
   
61
 
                         
Net income (loss) attributable to Loews Corporation
 $
894
  $
(175
)
 
 $
209
  $
(31
)
 
 $
35
  $
932
 
                         
                   
December 31, 2019
            
Total assets
 $
60,583
  $
5,834
  $
9,248
  $
1,728
  $
4,850
  $
82,243
 
1
5
9
   CNA Diamond  Boardwalk  Loews     
Year Ended December 31, 2017  Financial Offshore  Pipeline  Hotels & Co Corporate  Total  

(In millions)

       

Revenues:

       

Insurance premiums

  $    6,988      $6,988     

Net investment income

   2,034  $2    $146   2,182 

Investment gains

   122       122 

Non-insurance warranty revenue (Notes 1 and 13)

   390       390 

Operating revenues and other

   49   1,498  $1,325  $682   499   4,053 

Total

   9,583   1,500   1,325   682   645   13,735 

Expenses:

       

Insurance claims and policyholders’ benefits

   5,310       5,310 

Amortization of deferred acquisition costs

   1,233       1,233 

Non-insurance warranty expense (Notes 1 and 13)

   299       299 

Operating expenses and other

   1,224   1,373   861   589   618   4,665 

Interest

   203   149   171   28   95   646 

Total

   8,269   1,522   1,032   617   713   12,153 

Income (loss) before income tax

   1,314   (22)   293   65   (68)   1,582 

Income tax (expense) benefit

   (419)   4   232   (1)   14   (170) 

Net income (loss)

   895   (18)   525   64   (54)   1,412 

Amounts attributable to noncontrolling interests

   (94)   (9)   (145)           (248) 

Net income (loss) attributable to Loews Corporation

  $801  $(27)  $380  $64  $(54)  $1,164 
                          
December 31, 2017                      

Total assets

  $56,539  $6,251  $8,972  $1,558  $6,266  $79,586 

156

Table of Contents
                         
Year Ended December 31, 2018
 
CNA
Financial
  
Diamond
Offshore
  
Boardwalk
Pipelines
  
Loews
Hotels & Co
  
Corporate
  
Total
 
(In millions)
            
Revenues:
  
   
   
   
   
   
 
Insurance premiums
 $
7,312
   
   
   
   
  $
7,312
 
Net investment income (loss)
  
1,817
  $
8
   
  $
2
  $
(10
)  
1,817
 
Investment losses
  
(57
)  
   
   
   
   
(57
)
Non-insurance
warranty revenue
  
1,007
   
   
   
   
   
1,007
 
Operating revenues and other
  
55
   
1,085
  $
1,227
   
753
   
867
   
3,987
 
                         
Total
  
10,134
   
1,093
   
1,227
   
755
   
857
   
14,066
 
                         
Expenses:
  
   
   
   
   
   
 
Insurance claims and policyholders’ benefits
  
5,572
   
   
   
   
   
5,572
 
Amortization of deferred acquisition costs
  
1,335
   
   
   
   
   
1,335
 
Non-insurance
warranty expense
  
923
   
   
   
   
   
923
 
Operating expenses and other
  
1,203
   
1,196
   
820
   
653
   
956
   
4,828
 
Interest
  
138
   
123
   
176
   
29
   
108
   
574
 
                         
Total
  
9,171
   
1,319
   
996
   
682
   
1,064
   
13,232
 
                         
Income (loss) before income tax
  
963
   
(226
)  
231
   
73
   
(207
)  
834
 
Income tax (expense) benefit
  
(151
)  
30
   
(28
)  
(25
)  
46
   
(128
)
                         
Net income (loss)
  
812
   
(196
)  
203
   
48
   
(161
)  
706
 
Amounts attributable to noncontrolling interests
  
(86
)  
84
   
(68
)  
   
   
(70
)
                         
Net income (loss) attributable to Loews Corporation
 $
726
  $
(112
) $
135
  $
48
  $
(161
) $
636
 
                         
                   
December 31, 2018
            
Total assets
 $
57,123
  $
6,036
  $
9,131
  $
1,812
  $
4,214
  $
78,316
 
1
60
   CNA Diamond  Boardwalk Loews     
Year Ended December 31, 2016  Financial Offshore  Pipeline Hotels & Co Corporate  Total    

(In millions)

       

Revenues:

       

Insurance premiums

  $  6,924        $6,924     

Net investment income

   1,988  $1    $146   2,135 

Investment gains (losses)

   62   (12)      50 

Non-insurance warranty revenue (Notes 1 and 13)

   361       361 

Operating revenues and other

   49   1,600  $1,316    $667       3   3,635 

Total

   9,384   1,589   1,316   667   149   13,105 

Expenses:

       

Insurance claims and policyholders’ benefits

   5,283       5,283 

Amortization of deferred acquisition costs

   1,235       1,235 

Non-insurance warranty expense (Notes 1 and 13)

   271       271 

Operating expenses and other

   1,287   1,970   835   621   131   4,844 

Interest

   167   90   183   24   72   536 

Total

   8,243   2,060   1,018   645   203   12,169 

Income (loss) before income tax

   1,141   (471)   298   22   (54)   936 

Income tax (expense) benefit

   (279)   111   (61)   (10)   19   (220) 

Net income (loss)

   862   (360)   237   12   (35)   716 

Amounts attributable to noncontrolling interests

   (88)   174   (148)           (62) 

Net income (loss) attributable to Loews Corporation

  $774  $(186)  $89  $12  $(35)  $654 
                          

157

Table of Contents
                         
Year Ended December 31, 2017
 
CNA
Financial
  
Diamond
Offshore
  
Boardwalk
Pipelines
  
Loews
Hotels & Co
  
Corporate
  
Total
 
(In millions)
            
Revenues:
  
   
   
   
   
   
 
Insurance premiums
 $
6,988
   
   
   
   
  $
6,988
 
Net investment income
  
2,034
  $
2
   
   
  $
146
   
2,182
 
Investment gains
  
122
   
   
   
   
   
122
 
Non-insurance
warranty revenue
  
390
   
   
   
   
   
390
 
Operating revenues and other
  
49
   
1,498
  $
1,325
  $
682
   
499
   
4,053
 
                         
Total
  
9,583
   
1,500
   
1,325
   
682
   
645
   
13,735
 
                         
Expenses:
  
   
   
   
   
   
 
Insurance claims and policyholders’ benefits
  
5,310
   
   
   
   
   
5,310
 
Amortization of deferred acquisition costs
  
1,233
   
   
   
   
   
1,233
 
Non-insurance
warranty expense
  
299
   
   
   
   
   
299
 
Operating expenses and other
  
1,224
   
1,373
   
861
   
589
   
618
   
4,665
 
Interest
  
203
   
149
   
171
   
28
   
95
   
646
 
                         
Total
  
8,269
   
1,522
   
1,032
   
617
   
713
   
12,153
 
                         
Income (loss) before income tax
  
1,314
   
(22
)  
293
   
65
   
(68
)  
1,582
 
Income tax (expense) benefit
  
(419
)  
4
   
232
   
(1
)  
14
   
(170
)
                         
Net income (loss)
  
895
   
(18
)  
525
   
64
   
(54
)  
1,412
 
Amounts attributable to noncontrolling interests
  
(94
)  
(9
)  
(145
)  
   
   
(248
)
                         
Net income (loss) attributable to Loews Corporation
 $
801
  $
(27
) $
380
  $
64
  $
(54
) $
1,164
 
                         
1
61

Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

Item 9A. Controls and Procedures.

Item 9A.
Controls and Procedures.
Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which is designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, including this Report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company under the Exchange Act is accumulated and communicated to the Company’s management on a timely basis to allow decisions regarding required disclosure.

The Company’s management, including the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”) conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Report and, based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2018.

2019.

Internal Control Over Financial Reporting

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, and the implementing rules of the Securities and Exchange Commission, the Company included a report of management’s assessment of the design and effectiveness of its internal control over financial reporting as part of this Annual Report on Form
10-K
for the year ended December 31, 2018.2019. The independent registered public accounting firm of the Company also reported on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018.2019. Management’s report and the independent registered public accounting firm’s report are included under Item 8 of this Report under the captions entitled “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm.”

There were no changes in the Company’s internal control over financial reporting (as defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) that occurred during the quarter ended December 31, 20182019 that have materially affected or that are reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 9B. Other Information.

Item 9B.
Other Information.
None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Information about our directors and persons nominated to become directors is contained under the caption “Election of Directors” in our Proxy Statement for our 2019 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2018 (the “2019 Proxy Statement”) and is incorporated herein by reference.

Item 10.
Directors, Executive Officers and Corporate Governance.
Information about our executive officers is reported under the caption “Executive Officers of the Registrant”“Information about our Executive Officers” in Part I of this Report.

Information about beneficial ownership reporting compliance is contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2019 Proxy Statement and is incorporated herein by reference.

158

1
6
2

Table of Contents
We have a Code of Business Conduct and Ethics which applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. This Code can be found on our website at www.loews.com and is available in print to any shareholder who requests a copy by writing to our Corporate Secretary at Loews Corporation, 667 Madison Avenue, New York, N.Y. 10065-8087. We intend to post any changes to or waivers of this Code for our directors and executive officers, including our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions on our website. Any amendment to this Code and any waiver applicable to our executive officers or senior financial officers will be posted on our website within the time period required by the SEC and New York Stock Exchange.

Information about the procedures

Additional information required by which security holders may recommend nominees to our Board of Directorsthis Item can be found in our 2019 Proxy Statement under the caption “Submissions or Nominations for Ourour 2020 Annual Meeting”Meeting of Shareholders to be filed with the SEC within 120 days after December 31, 2019 (the “2020 Proxy Statement”) and is incorporated herein by reference.

Item 11. Executive Compensation.
Information about the composition of the Audit Committee and our Audit Committee financial experts is containedrequired by this item can be found in our 20192020 Proxy Statement under the caption “Board Committees – Audit Committee” and is incorporated herein by reference.

Item 11.  Executive Compensation.

Information about director and executive officer compensation, Compensation Committee interlocks and the Compensation Committee Report is contained in our 2019 Proxy Statement under the captions “Director Compensation,” “Compensation Discussion and Analysis,” “2018 Executive Compensation Tables,” “Compensation Committee Report on Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information about securities authorized for issuance under equity compensation plans can be found under the caption “Securities Authorized for Issuance Under Equity Compensation Plans” under Item 5 of this Report.

Information about the number of shares of our common stock beneficially owned

Additional information required by each director and named executive officer, by all directors and executive officers as a group and on each beneficial owner of more than 5% of our common stock is contained under the captions “Principal Shareholders” and “Director and Officer Holdings”this item can be found in our 20192020 Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information about certain relationships and related transactions and director independence is contained under the captions “Transactions With Related Persons” and “Director Independence”required by this Item can be found in our 20192020 Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

Information about our Audit Committee’spre-approval policy and procedures for audit and other services and information about our principal accountant fees and services is containedrequired by this Item can be found in our 20192020 Proxy Statement under the caption “Ratification of the Appointment of Our Independent Auditors – Audit Fees and Services” and “ – Auditor EngagementPre-Approval Policy” and is incorporated herein by reference.

159

1
6
3

Table of Contents
PART IV

Item 15. Exhibits and Financial Statement Schedules.

Item 15.Exhibits and Financial Statement Schedules.
(a) 1. Financial Statements:

The financial statements above appear under Item 8. The following additional financial data should be read in conjunction with those financial statements. Schedules not included with these additional financial data have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes to consolidated financial statements.

Page
Number
2. Financial Statement Schedules:
    Page
Loews Corporation and Subsidiaries:
  
Number

2. Financial Statement Schedules:

Loews Corporation and Subsidiaries:

 166
170

 168
172
Description
Exhibit
Number
    Exhibit
3. Exhibits:
  

Description

 Number
    (3)
Articles of Incorporation and
By-Laws
 

3. Exhibits:

(3)

Articles of Incorporation andBy-Laws

 
3.01
 
 

 
3.02
 
(4) 

    (4)
Instruments Defining the Rights of Security Holders, Including Indentures

 
 

4.01*
Registrant hereby agrees to furnish to the Commission upon request copies of instruments with respect to long term debt, pursuant to Item 601(b)(4)(iii) of Regulation
S-K

 4.01
4.02  
 
(10) 

Material Contracts

 
  (10)
Material Contracts
 

 
10.01
+

160


Table of Contents
Description
Exhibit
Number
    Exhibit
  
Description
 Number

 
10.02
+
 

 
10.03
+
 

 
10.04
+
 

 
10.05
+
 

 
10.06
+
 

 
10.07
+
 

10.08*
+
 10.08
10.09
+
 

 10.09
10.10
+
 

 10.10
10.11 
 

161

1
65
Table of Contents
Description
Exhibit
Number
    Exhibit
  
Description
 Number

 10.11
10.12
+
 

 10.12+
10.13+
 

 10.13+
10.14+
 

 10.14+
10.15+
 

 10.15
10.16
+
 

 10.16
10.17
+
 

 10.17+
10.18+
 

 10.18
10.19
+
 

 10.19
10.20
+

162

166
Table of Contents
Description
Exhibit
Number
    Exhibit
  (21)
Subsidiaries of the Registrant
  Description Number
(21) 

Subsidiaries of the Registrant

 

 
21.01*
 
(23) 

  (23)
Consent of Experts and Counsel

  

 
23.01*
 
(24) 

  (24)
 
24.01*
 
(31) 

  (31)
Rule
13a-14(a)/15d-14(a)
Certifications

  

 
31.01*
 
 

 
31.02*
 
(32) 

  (32)
Section 1350 Certifications

  

 
32.01*
 
 

 
32.02*
 
(100) 

(100)
XBRL Related Documents

  
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
 101.INS*
 

Inline XBRL Instance Document

Taxonomy Extension Schema
 101.INS*
101.SCH*
 

Inline XBRL Taxonomy Extension Schema

Calculation Linkbase
 101.SCH*
101.CAL*
 

Inline XBRL Taxonomy Extension CalculationDefinition Linkbase

 101.CAL*
101.DEF*
 

Inline XBRL Taxonomy Extension DefinitionLabel Linkbase

 101.DEF*
101.LAB*
 

Inline XBRL Taxonomy LabelExtension Presentation Linkbase

 101.LAB*
101.PRE*
 

(Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Presentation Linkbase

and contained in Exhibit 101)
 101.PRE*
104*

    * Filed herewith.

+ Management contract or compensatory plan or arrangement.

Item 16. Form10-K Summary.

*Filed herewith.
+Management contract or compensatory plan or arrangement.
Item 16.
Form
10-K
Summary.
Not included.

163

167

Table of Contents
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

  
LOEWS CORPORATION
Dated: February 13, 201911, 2020
  
By
 

*

   
(David B. Edelson, Senior Vice President and
Chief Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Dated: February 13, 2019

11, 2020
  

By

 

*

   
(James S. Tisch, President,
   
Chief Executive Officer and Director)
Dated: February 13, 201911, 2020
  
By
 

*

   
(David B. Edelson, Senior Vice President and
   
Chief Financial Officer)
Dated: February 13, 201911, 2020
  
By
 

*

   
(Mark S. Schwartz, Vice President and
   
Chief Accounting Officer)
Dated:�� February 13, 201911, 2020
  
By
 

*

   
(Ann E. Berman, Director)
Dated: February 13, 201911, 2020
  
By
 

*

   
(Joseph L. Bower, Director)
Dated: February 13, 201911, 2020
  
By
 

*

(Charles D. Davidson, Director)
168
Table of Contents
Dated: February 11, 2020
By
*
   
(Charles D. Davidson,M. Diker, Director)

164

Dated: February 11, 2020
  

By

 

(Charles M. Diker, Director)
Dated:    February 13, 2019By

*

(Jacob A. Frenkel, Director)
Dated:    February 13, 2019By

*

(Paul J. Fribourg, Director)
Dated:    February 13, 2019By

*

(Walter L. Harris, Director)
Dated:    February 13, 2019By

*

(Philip A. Laskawy, Director)
Dated:    February 13, 2019By

*

(Susan P. Peters, Director)
Dated:    February 13, 2019By

*

(Andrew H. Tisch, Director)
Dated:    February 13, 2019By

*

(Jonathan M. Tisch, Director)
Dated:    February 13, 2019By

*

(Anthony Welters, Director)

  
(Paul J. Fribourg, Director)

*By:    

 /s/ Marc A. Alpert
Dated: February 11, 2020
By
*
   
(Walter L. Harris, Director)
Dated: February 11, 2020
 (Marc A. Alpert, Senior Vice President, General
By
*
   
(Philip A. Laskawy, Director)
Dated: February 11, 2020
 Counsel and Secretary)
By
*
   
(Susan P. Peters, Director)
Dated: February 11, 2020
 Attorney-in-Fact
By
*
   
(Andrew H. Tisch, Director)
Dated: February 11, 2020
By
*
(Jonathan M. Tisch, Director)
Dated: February 11, 2020
By
*
(Anthony Welters, Director)

165

*By:
/s/ Marc A. Alpert
(Marc A. Alpert, Senior Vice President, General
Counsel and Secretary)
Attorney-in-Fact
169

Table of Contents
SCHEDULE I

Condensed Financial Information of Registrant

LOEWS CORPORATION

BALANCE SHEETS

ASSETS

December 31  2018   2017 

(In millions)

    

Current assets, principally investment in short term instruments

  $2,050       $2,755   

Investments in securities

   1,112    2,144   

Investments in capital stocks of subsidiaries, at equity

   17,556    16,303   

Other assets

   402    506   

Total assets

  $  21,120       $  21,708   
           

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities

  $109       $182   

Long term debt

   1,778    1,776   

Deferred income tax and other

   715    546   

Total liabilities

   2,602    2,504   

Shareholders’ equity

   18,518    19,204   

Total liabilities and shareholders’ equity

  $  21,120       $  21,708   
           

December 31
 
2019
  
2018
 
(In millions)
    
Current assets, principally investment in short term instruments
 $
2,550
             
  $
2,050
 
Investments in securities
  
734
   
1,112
 
Investments in capital stocks of subsidiaries, at equity
  
18,123
   
17,556
 
Other assets
  
24
   
402
 
         
Total assets
 $
21,431
  $
21,120
 
         
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
Current liabilities
 $
77
  $
109
 
Long term debt
  
1,779
   
1,778
 
Deferred income tax and other
  
456
   
715
 
         
Total liabilities
  
2,312
   
2,602
 
Shareholders’ equity
  
19,119
   
18,518
 
         
Total liabilities and shareholders’ equity
 $
21,431
  $
21,120
 
         
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

Year Ended December 31  2018   2017   2016 

(In millions)

      

Revenues:

      

Equity in income of subsidiaries (a)

  $      819   $      1,199   $      655   

Interest and other

   (11)    167    165   

Total

   808    1,366    820   

Expenses:

      

Administrative

   127    134    127   

Interest

   72    72    72   

Total

   199    206    199   

Income before income tax

   609    1,160    621   

Income tax benefit

   27    4    33   

Net income

   636    1,164    654   

Equity in other comprehensive income (loss) of subsidiaries

   (797)    197    134   

Total comprehensive income (loss)

  $(161)   $1,361   $788   
                

166

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Revenues:
  
   
   
 
Equity in income of subsidiaries (a)
 
$
867
 
 $
819
  $
1,199
 
Net investment income (loss), interest and other
  
239
   
(11
)  
167
 
             
Total
  
1,106
   
808
   
1,366
 
             
Expenses:
  
   
   
 
Administrative
  
83
   
127
   
134
 
Interest
  
72
   
72
   
72
 
             
Total
  
155
   
199
   
206
 
             
Income before income tax
  
951
   
609
   
1,160
 
Income tax (expense) benefit  
(19
)
 
  
27
   
4
 
             
Net income
  
932
   
636
   
1,164
 
Equity in other comprehensive income (loss) of subsidiaries
  
812
   
(797
)  
197
 
             
Total comprehensive income (loss)
 $
1,744
  $
(161
) $
1,361
 
             
1
70

Table of Contents
SCHEDULE I

(Continued)

Condensed Financial Information of Registrant

LOEWS CORPORATION

STATEMENTS OF CASH FLOWS

Year Ended December 31      2018      2017      2016 

(In millions)

             

Operating Activities:

    

Net income

  $    636  $    1,164  $        654     

Adjustments to reconcile net income to net cash provided (used) by operating activities:

    

Equity method investees

   401   (405)   115     

Provision for deferred income taxes

   113   77   10     

Changes in operating assets and liabilities, net:

    

Receivables

   3   4   2      

Accounts payable and accrued liabilities

   92   (20)   52      

Trading securities

   1,702   100   (614)     

Other, net

   19   (41)   (15)     
    2,966   879   204      

Investing Activities:

    

Investments in and advances to subsidiaries

   (135)   12   50      

Change in investments, primarily short term

   (187)   30   (127)     

Purchase of Boardwalk Pipeline common units

   (1,504)   

Acquisition

    (620)  

Other

   (2)   (1)   (2)     
    (1,828)   (579)   (79)     

Financing Activities:

    

Dividends paid

   (80)   (84)   (84)     

Purchases of treasury shares

   (1,026)   (216)   (134)     

Principal payments in debt

     (400)     

Issuance of debt

     495      

Other

   (3)       (2)     
    (1,109)   (300)   (125)     

Net change in cash

   29   -   -      

Cash, beginning of year

             

Cash, end of year

  $29  $-  $-      
              

Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Operating Activities:
  
   
   
 
Net income
 $
932
             
  $
636
  $
1,164
 
Adjustments to reconcile net income to net cash provided (used) by operating activities:
  
   
   
 
Equity method investees
  
36
   
401
   
(405
)
Provision for deferred income taxes
  
106
   
113
   
77
 
Changes in operating assets and liabilities, net:
  
   
   
 
Receivables
  
1
   
3
   
4
 
Accounts payable and accrued liabilities
  
(29
)   
92
   
(20
)
Trading securities
  
(478
)   
1,702
   
100
 
Other, net
  
36
   
19
   
(41
)
             
  
604
   
2,966
   
879
 
             
Investing Activities:
  
   
   
 
Investments in and advances to subsidiaries
  
183
   
(135
)  
12
 
Change in investments, primarily short term
  
326
   
(187
)  
30
 
Purchase of Boardwalk Pipelines common units
  
 
   
(1,504
)  
 
Acquisition
  
 
   
   
(620
)
Other
  
 
   
(2
)  
(1
)
             
  
509
   
(1,828
)  
(579
)
             
Financing Activities:
  
   
   
 
Dividends paid
  
(76
)   
(80
)  
(84
)
Purchases of treasury shares
  
(1,051
)   
(1,026
)  
(216
)
Other
  
(5
)   
(3
)  
 
             
  
(1,132
)   
(1,109
)  
(300
)
             
Net change in cash
  
(19
)
 
  
29
   
-
 
Cash, beginning of year
  
29
   
   
 
             
Cash, end of year
 $
10
  $
29
  $
-
 
             
(a)

(a)
Cash dividends paid to the Company by affiliates amounted to $927, $878 $804 and $780$804 for the years ended December 31, 2019, 2018 2017 and 2016.

2017.

167

1
71

Table of Contents
SCHEDULE V

LOEWS CORPORATION AND SUBSIDIARIES

Supplemental Information Concerning Property and Casualty Insurance Operations

                            
Consolidated Property and Casualty Operations          
December 31  2018   2017 
(In millions)        

Deferred acquisition costs

  $632   $632     

Reserves for unpaid claim and claim adjustment expenses

       21,984        22,004     

Discount deducted from claim and claim adjustment expense reserves above (based on interest rates ranging from 3.5% to 8.0%)

   1,388    1,434     

Unearned premiums

   4,183    4,029     

                                                
Year Ended December 31  2018   2017   2016 
(In millions)            

Net written premiums

  $    7,345   $    7,069   $    6,988     

Net earned premiums

   7,312    6,988    6,924     

Net investment income

   1,751    1,992    1,952     

Incurred claim and claim adjustment expenses related to current year

   5,358    5,201    5,025     

Incurred claim and claim adjustment expenses related to prior years

   (179)    (381)    (342)     

Amortization of deferred acquisition costs

   1,335    1,233    1,235     

Paid claim and claim adjustment expenses

   5,331    5,341    5,134     

168

Consolidated Property and Casualty Operations
         
December 31
 
2019
  
2018
 
(In millions)
    
Deferred acquisition costs
 $
662
  $
633
 
Reserves for unpaid claim and claim adjustment expenses
  
21,720
   
21,984
 
Discount deducted from claim and claim adjustment expense
 
 
 
 
 
  
 
 
reserves above (based on interest rates ranging from 3.5% to 7.6%)
  
1,321
   
1,388
 
Unearned premiums
  
4,583
   
4,183
 
             
Year Ended December 31
 
2019
  
2018
  
2017
 
(In millions)
      
Net written premiums
 $
7,656
  $
7,345
  $
7,069
 
Net earned premiums
  
7,428
   
7,312
   
6,988
 
Net investment income
  
2,063
   
1,751
   
1,992
 
Incurred claim and claim adjustment expenses related to current year
  
5,356
   
5,358
   
5,201
 
Incurred claim and claim adjustment expenses related to prior years
  
(127
)
 
  
(179
)  
(381
)
Amortization of deferred acquisition costs
  
1,383
   
1,335
   
1,233
 
Paid claim and claim adjustment expenses
  
5,576
   
5,331
   
5,341
 
1
7
2