Loews Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Loews is a holding company with insurance (CNA), natural gas transportation and storage (Boardwalk Pipelines), hotels (Loews Hotels & Co), and Corporate operations. Amounts below are in U.S. dollars; financial amounts are in millions unless noted.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenues | $3,388 | $4,003 | $6,790 | $7,625 |
| Income before tax | $253 | $1,012 | $715 | $1,419 |
| Net income attributable to Loews | $180 | $754 | $518 | $1,015 |
| Diluted earnings per share | $0.73 | $2.86 | $2.09 | $3.82 |
| Operating cash flow | — | $1,446 | $543 |
Revenue includes insurance premiums, investment income and gains or losses, warranty revenue, and operating revenue. Premiums rose to $2,155 in Q2 from $2,035; net investment income fell to $366 from $616, while investment results shifted to a $59 loss from a $578 gain. The prior-year comparison includes a $555 pretax ($438 after-tax) gain on the April 2021 Altium Packaging sale and deconsolidation.
Cash provided by operating activities was $1,446 for the first half; investing activities used $786 and financing activities used $318. Cash increased $330 to $951 from year-end 2021. The filing does not present a consolidated free-cash-flow measure.
At June 30, total assets were $77,071 versus $81,626 at December 31, 2021; total investments were $48,075 versus $53,938. Shareholders’ equity was $15,236 versus $17,846. Accumulated other comprehensive loss widened to $2,510 from income of $186, largely reflecting investment valuation declines. Fixed-maturity securities had $2,842 of gross unrealized losses, which management attributed primarily to higher interest rates and wider credit spreads, not impaired collectibility.
Short- and long-term debt totaled $9,282 at June 30 ($839 short term and $8,443 long term), compared with $9,079 at year-end. Loews reported $3.5 billion of Parent Company cash and investments, net of receivables and payables. CNA paid Loews $681 million in dividends during the first half, including a $486 million special dividend. Loews repurchased 6.3 million shares for $384 million during the first half and purchased a further 1.3 million shares for $75 million through July 29.
Material changes and segment developments
- CNA: Loews-attributable net income was $183 in Q2 versus $330, and $464 for the first half versus $609. Lower returns from limited partnerships and common stocks and investment losses outweighed higher fixed-income income and improved underwriting. CNA’s Property & Casualty combined ratio improved to 91.0% in Q2 from 94.0% and to 91.4% for the first half from 96.0%. Catastrophe losses were $37 for Q2 and $57 for the first half, down from $54 and $179, respectively, in 2021.
- Boardwalk Pipelines: Loews-attributable net income was $39 in Q2 versus $47 and $130 for the first half versus $132. First-half EBITDA, a non-GAAP measure, was $452 versus $443. Higher transportation revenue from growth projects and storage-related revenue were partly offset by maintenance costs, depreciation, and interest.
- Loews Hotels & Co: Loews-attributable net income improved to $44 in Q2 from a $21 loss and to $59 for the first half from a $64 loss. Management cited stronger travel demand, occupancy, and average daily rates, including improved joint-venture results. The segment recorded a $14 impairment charge in Q2.
- Corporate: The segment recorded losses of $86 in Q2 and $135 for the first half, compared with income of $398 and $338 in 2021. Prior-period results included the Altium transaction gain; 2022 results also reflected weaker equity-investment values.
Outlook, risks, and unusual items
- Management stated Boardwalk Pipelines expects available resources, its revolving credit facility, and operating cash flows to cover 2022 operations and capital spending and the $300 million note maturity in February 2023. Its $1.0 billion revolving facility was undrawn at June 30 and matures in 2027, subject to extension options.
- Loews Hotels was working with lenders to refinance $13 million of current maturities. Refinancing certain hotel and joint-venture loans could require principal paydowns, restricted cash, or guarantees. No hotel subsidiary was in default through the filing date.
- A Delaware court awarded plaintiffs approximately $690 million plus interest and attorneys’ fees in litigation concerning Boardwalk Pipelines’ 2018 buyout of public units. Defendants and plaintiffs appealed; oral arguments were scheduled for September 14, 2022. Loews said a loss was reasonably possible, could range from zero to the full award plus interest and fees or more, and had recorded no liability.
- CNA’s legacy mass-tort abuse claims drove unfavorable reserve development, including a recent Diocese of Rochester proposed settlement. Management cautioned that ultimate claim costs may exceed current estimates. CNA also reported favorable prior-year development in Property & Casualty, resulting in total first-half favorable development there of $49 million.
- Loews plans to adopt the long-duration insurance accounting standard on January 1, 2023, using modified retrospective transition. It estimated a $2.0–$2.3 billion after-tax and noncontrolling-interest reduction to AOCI at the January 1, 2021 transition date; using June 2022 interest rates, the estimated transition reduction would be $0.3–$0.6 billion. The change is not expected to affect statutory capital and surplus or cash flows.
- The filing reported no material change in market-risk components and no material change to previously disclosed risk factors. Management’s forward-looking statements remain subject to risks and uncertainties; no specific consolidated earnings guidance was provided.
Investor verification priorities
- Assess how much of the earnings decline reflects recurring operating performance versus investment-market volatility and the nonrecurring 2021 Altium gain.
- Review CNA investment portfolio sensitivity, unrealized losses, reserve assumptions, catastrophe exposure, and legacy mass-tort litigation developments.
- Monitor the Boardwalk appeal, potential exposure and timing, and any subsequent change to the unrecorded litigation contingency.
- Check Parent Company liquidity and subsidiary dividend capacity, including insurance regulatory limits, alongside ongoing share repurchases and hotel refinancing needs.
- Verify progress and final assumptions for the 2023 long-duration contract accounting transition and its impact on reported equity and AOCI.