Loews Corporation — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; this is an annual report, not a separate fourth-quarter filing. Loews is a holding company with principal businesses in insurance (CNA), natural gas transportation and storage (Boardwalk Pipelines), hotels (Loews Hotels & Co), and a 52.7% equity-method investment in Altium Packaging after its deconsolidation in April 2021.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $14.657 billion | $12.583 billion |
| Net income (loss) attributable to Loews | $1.578 billion | ($931) million |
| Diluted earnings (loss) per share | $6.07 | ($3.32) |
| Operating cash flow | $2.623 billion | $1.745 billion |
| Investing cash flow | ($1.187) billion | ($1.414) billion |
| Financing cash flow | ($1.289) billion | ($198) million |
| Total assets / total equity | $81.626 billion / $19.175 billion | $80.236 billion / $19.181 billion |
Consolidated debt was $9.079 billion at year-end, including $2.278 billion at the parent, $2.779 billion at CNA, $3.335 billion at Boardwalk Pipelines and $687 million at Loews Hotels & Co. Parent cash and investments, net of receivables and payables, were $3.4 billion. The parent received $853 million of subsidiary dividends and paid $1.1 billion for share repurchases and $65 million in shareholder dividends.
Segments and year-over-year developments
- CNA: Net income attributable to Loews rose to $1.077 billion from $618 million. Premiums were $8.175 billion versus $7.649 billion; net investment income was $2.159 billion versus $1.935 billion. Property and casualty combined ratio improved to 96.2% from 100.1%; excluding catastrophe losses and prior-year development, it was 91.4% versus 93.1%. Net catastrophe losses declined to $397 million from $550 million.
- Boardwalk Pipelines: Net income increased to $235 million from $206 million; revenue rose to $1.349 billion from $1.302 billion, supported by growth projects and higher utilization-based revenue. Approximately 89% of 2021 revenue came from capacity reservation fees under firm contracts.
- Loews Hotels & Co: Net loss narrowed to $14 million from $212 million. Revenue increased to $480 million from $278 million as hotels reopened and leisure travel recovered; occupancy remained below pre-pandemic levels at many properties. Impairment charges were $10 million versus $36 million.
- Corporate and Altium: Corporate reported $280 million of net income versus a $1.067 billion loss. The 2021 result included a $555 million pretax gain ($438 million after tax) on the sale of 47% of Altium Packaging to GIC for $420 million. The 2020 comparison included a $1.2 billion pretax loss from Diamond Offshore’s bankruptcy-related deconsolidation. Altium is now accounted for under the equity method.
Management attributed the overall recovery to stronger CNA underwriting and investment results, improved hotel performance, Boardwalk growth projects, and parent investment gains. Consolidated revenue and earnings are not directly comparable year over year because of the Altium and Diamond Offshore deconsolidations and the Altium sale gain.
Outlook, risks and unusual items
- 2022 spending: Boardwalk expected approximately $360 million of capital expenditures, including $155 million for maintenance and $205 million for growth; it also estimated approximately $400 million for maintenance and regulatory compliance spending. These are management estimates, not consolidated Loews guidance. Boardwalk expected existing resources and operating cash flow to fund 2022 needs and planned to address $300 million of notes maturing in June 2022.
- Hotels: The company was working to refinance $93 million of current hotel debt maturities. No hotel subsidiary was in default as of the filing date, but lender discussions could require paydowns, restricted cash or guarantees. A roughly $550 million Arlington hotel project was planned, with opening expected in early 2024; a parent contribution might be needed.
- Material litigation: A Delaware court awarded plaintiffs approximately $690 million, plus about $166 million of prejudgment interest, post-judgment interest and attorneys’ fees, in litigation related to Boardwalk’s 2018 unit purchase. Defendants appealed and plaintiffs cross-appealed. Loews described a loss as reasonably possible, could not estimate the final loss, and recorded no liability.
- CNA exposures: Key uncertainties include property-and-casualty reserve adequacy, long-term-care assumptions, catastrophe losses, social inflation, asbestos and environmental claims, reinsurance collectibility, investment volatility and regulatory capital requirements. The 2021 long-term-care valuation indicated a $72 million reserve margin.
- Cyber incident: CNA’s March 2021 ransomware attack disrupted systems and involved copying personal information. CNA reported that it had restored normal operations and did not then expect a material financial impact, but insurance was not expected to cover all costs; possible investigations, claims, fines and expenses remained unquantified.
- Other risks: COVID-19 continued to affect hotel demand, staffing and costs. Boardwalk faces pipeline safety and environmental regulation, climate-related policy and demand risks, contract-renewal and refinancing risks, and possible construction cost overruns. Loews is also exposed to subsidiary dividend restrictions and holding-company dependence on subsidiary distributions.
- Controls and audit: Management and the auditor concluded internal control over financial reporting was effective at year-end. Deloitte issued an unqualified opinion on the financial statements and identified insurance reserves and long-term-care policy benefit reserves as critical audit matters.
Investor facts to verify
- How much of the earnings recovery reflects recurring underwriting, investment income and hotel operations versus the Altium sale gain and other unusual items?
- What is the ultimate Boardwalk litigation exposure after the appeals, including interest and legal fees?
- Are CNA’s P&C and long-term-care reserves adequate under higher claim severity, inflation, morbidity or lower investment-return scenarios?
- What are the hotels’ refinancing outcomes, covenant requirements and funding needs as operating conditions recover?
- How will Boardwalk’s debt maturities, planned capital program and changing pipeline safety and climate regulations affect cash flow and leverage?
- How do subsidiary dividend restrictions and subsidiary creditor claims affect the parent’s reported $3.4 billion liquidity and ability to fund repurchases, dividends and investments?