Loews Corporation — Q2 2021 Form 10-Q
Business context and reporting period. Loews is a holding company with operating businesses in insurance (CNA), natural gas transportation and storage (Boardwalk Pipelines), and hotels (Loews Hotels & Co), plus Corporate. The filing covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Altium Packaging was deconsolidated on April 1, 2021 after Loews sold a 47% interest, retaining 53% as an equity-method investment. Diamond Offshore had been deconsolidated in 2020.
Financial results and position
| Metric | Q2 2021 | Six months 2021 | Comparable 2020 |
|---|---|---|---|
| Total revenues | $4.003 billion | $7.625 billion | $2.310 billion and $5.409 billion |
| Net income attributable to Loews | $754 million | $1.015 billion | Losses of $835 million and $1.467 billion |
| Diluted earnings (loss) per share | $2.86 | $3.82 | Losses of $2.96 and $5.16 |
| Operating cash flow | Not stated separately | $543 million | $440 million for six months |
Reported revenue and earnings comparisons reflect large, unusual investment items: 2021 includes a $555 million pretax ($438 million after-tax) gain on the Altium transaction; 2020 includes a $1.211 billion pretax ($957 million after-tax) loss from Diamond Offshore deconsolidation. Excluding these transactions, management said Q2 net income was $316 million in 2021 versus $122 million in 2020.
- Insurance: CNA’s Loews-attributable net income was $330 million for Q2 and $609 million for the first half, versus $135 million and $80 million. P&C combined ratios were 94.0% for Q2 and 96.0% for the first half, improved from 109.2% and 103.2%. Excluding catastrophes and prior-year development, ratios were 91.4% and 91.6%, versus 93.2% and 93.4%. First-half catastrophe losses were $179 million, down from $376 million. CNA’s first-half net investment income rose to $1.095 billion from $863 million, principally on stronger limited partnership and common-stock returns.
- Other segments: Boardwalk Pipelines earned $47 million in Q2 and $132 million in the first half, up from $34 million and $99 million, supported by growth projects and, in the first half, colder-weather utilization. Loews Hotels’ losses narrowed to $21 million and $64 million from $72 million and $97 million; all hotels had reopened by June 30, but occupancy remained below pre-pandemic levels.
- Balance sheet and debt: At June 30, total assets were $81.6 billion and total equity $19.4 billion. Cash was $578 million; investments totaled $54.4 billion. Short-term debt was $122 million and long-term debt $8.988 billion, about $9.1 billion combined, versus $10.109 billion at year-end 2020. Parent Company cash and investments, net of receivables and payables, were $3.9 billion, compared with $3.5 billion at year-end.
- Capital returns and funding: Loews repurchased 9.5 million shares for $493 million in the first half (cash flow statement reports $484 million of treasury-stock purchases); it paid $33 million in shareholder dividends. It received $367 million in CNA dividends, including a $182 million special dividend, and $199 million from Altium before the sale. As of July 30, it had repurchased a further 2.6 million shares for $140 million. Management stated that future repurchases, dividends, investments and acquisitions depend on conditions and Board discretion.
Material changes, outlook and risks
- Altium: The sale generated $420 million cash consideration and a $555 million pretax accounting gain. Deconsolidation removed assets and liabilities, including $1.1 billion of long-term debt; ongoing earnings are recorded under the equity method.
- CNA operating trends: Premium growth and underwriting improved overall, although a June property quota-share treaty reduced net written premiums by a one-time $122 million catch-up for previously written policies. CNA said the March ransomware attack also affected retention and new business, particularly in Commercial, and created additional expenses.
- Hotels and Boardwalk: Hotel activity recovered as restrictions eased, especially at resort destinations, but business had not returned to pre-pandemic occupancy. Hotel lenders had granted or were considering covenant waivers, use of restricted funds and payment deferrals; discussions on extensions continued. Loews Hotels was not in default as of the report date, but further parent funding might be needed. Boardwalk expected available capital resources and operating cash flow to fund 2021 operations and capital expenditures; it had no borrowings under its revolving facility at June 30.
- Reserves and catastrophe exposure: CNA’s estimates remain sensitive to claim severity, inflation, litigation and other assumptions. CNA reported $40 million of unfavorable prior-year development in Other Insurance Operations for Q2 and first half, primarily from older mass-tort abuse exposures; P&C had favorable development. Catastrophes remain a source of significant earnings volatility.
- Cybersecurity: CNA’s March 2021 ransomware incident involved copying some personal information; affected individuals and regulators were notified in July. Potential investigations, claims, fines and costs are reasonably possible but not estimable. CNA did not expect a material impact based on information then known, but noted the assessment was ongoing and coverage may not cover all losses.
- Other contingencies and accounting: A Boardwalk Pipelines class action proceeded after trial, with post-trial arguments held July 14; management did not expect pending litigation to materially affect results or equity. CNA guarantees up to approximately $1.6 billion of structured-settlement payments, which it considers unlikely to be required because of trust collateral. Loews plans to adopt the long-duration insurance accounting standard in 2023 and is evaluating its effects; management expects greater income-statement volatility from annual cash-flow assumption updates.
- Guidance: The filing provides no consolidated earnings or revenue guidance. Forward-looking statements are subject to risks and are not guarantees of future results.
Most important facts for investors to verify
- How much of reported earnings growth is repeatable after separating the Altium gain and the prior-year Diamond Offshore loss.
- Whether CNA’s underwriting improvement, premium trends and investment returns persist, and how cyber-related costs or business disruption develop.
- Whether CNA reserve development, catastrophe losses and long-tail insurance liabilities remain consistent with estimates.
- How quickly hotel occupancy and cash generation recover, and whether lender concessions or additional Loews funding become necessary.
- Parent Company liquidity, subsidiary dividend capacity and capital allocation, including continued share repurchases and the effect of the Altium deconsolidation on future comparisons.
- Potential financial or reputational consequences of CNA’s cybersecurity incident and the outcome of the Boardwalk litigation.