Loews Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; unaudited results. Loews is a holding company with operations in insurance (CNA), natural gas transportation and storage (Boardwalk Pipelines), and hotels (Loews Hotels & Co), plus Corporate activities.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $3.461 billion | $3.371 billion | $10.251 billion | $10.996 billion |
| Net income attributable to Loews | $130 million | $220 million | $648 million | $1.235 billion |
| Diluted earnings per share | $0.54 | $0.85 | $2.64 | $4.70 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $2.692 billion | $1.676 billion |
For the nine-month comparison, 2021 included a $438 million after-tax gain from the sale and deconsolidation of 47% of Altium Packaging. Lower investment results also weighed on 2022 earnings: nine-month investment losses were $166 million, versus gains of $657 million in 2021. Net investment income was $1.202 billion versus $1.649 billion.
At September 30, total assets were $75.111 billion and total equity was $14.653 billion, compared with $81.626 billion and $19.175 billion, respectively, at December 31, 2021. The decline in equity included a $4.435 billion nine-month other comprehensive loss, primarily from unrealized investment losses. Cash was $886 million. Short- and long-term debt totaled $9.289 billion, versus $9.079 billion at year-end 2021.
Parent Company cash and investments, net of receivables and payables, were $3.2 billion, compared with $3.4 billion at year-end. The Parent Company received $778 million in CNA dividends during the nine months, including a $486 million special dividend. Loews repurchased 10.5 million shares for $614 million during the period; it reported an additional 0.7 million shares repurchased after quarter-end through October 28.
Segment performance and changes
- CNA: Loews-attributable income was $115 million in Q3 and $579 million for the nine months, down from $229 million and $838 million. Property & Casualty Operations core income increased to $260 million for Q3 and $898 million for the nine months, from $217 million and $831 million. P&C combined ratios improved to 95.8% for Q3 and 93.0% year to date, from 100.0% and 97.4%. Favorable underwriting and lower catastrophe losses were offset at the consolidated CNA level by weaker investment results and losses on fixed-income securities.
- Boardwalk Pipelines: Loews-attributable income was $34 million in Q3 and $164 million for the nine months, versus $38 million and $170 million. Revenue increased, supported by growth projects, higher utilization and contract renewals at higher rates; increased operating, depreciation and interest costs partly offset this. Nine-month EBITDA, a non-GAAP measure, was $644 million versus $627 million.
- Loews Hotels & Co: Loews-attributable income was $25 million in Q3 and $84 million for the nine months, compared with $13 million and a $51 million loss. Management attributed improvement to recovering travel demand, higher occupancy and room rates, and stronger joint-venture hotel results.
- Corporate: Loews recorded a $179 million loss for the nine months, versus $278 million of income in 2021, primarily reflecting weaker investment results and the absence of the Altium sale gain.
Outlook, risks and unusual items
- No specific consolidated earnings or revenue guidance is provided. Boardwalk said existing resources were expected to fund 2022 operations and capital expenditures and the planned retirement of $300 million of notes due in 2023. It notified holders that it intended to redeem those notes on November 1, 2022, using available cash.
- In October, Loews Hotels contributed $34 million to two development joint ventures expected to open in 2025; Loews Hotels estimates its aggregate capital contributions for the projects at approximately $200 million.
- CNA recorded $114 million of catastrophe losses in Q3, including $87 million from Hurricane Ian; nine-month catastrophe losses were $171 million. Its long-term-care reserve review released pandemic-related IBNR reserves but also recognized higher claim severity and care-cost inflation. The review left an estimated $125 million pretax reserve margin; management notes that assumptions are sensitive to morbidity, persistency, discount rates and premium increases.
- Fixed-maturity securities had $4.583 billion of gross unrealized losses at September 30, versus $112 million at year-end 2021. Management attributed these losses primarily to interest-rate and credit-spread changes and said it did not intend to sell the securities or expect required sales before recovery of amortized cost.
- A Delaware court awarded plaintiffs approximately $690 million, plus interest and attorneys’ fees, in litigation involving Boardwalk Pipelines. Appeals were pending. Loews said a loss was reasonably possible but could not estimate the outcome; the possible range was zero to the full award, plus interest and fees, or more. No liability was recorded.
- Loews plans to adopt the long-duration insurance accounting standard on January 1, 2023, using modified retrospective application from January 1, 2021. The filing estimates a $2.1 billion after-tax and noncontrolling-interest reduction to AOCI at transition under the specified assumptions; using interest rates in effect at September 30, 2022 would make the estimated transition impact approximately zero. Adoption is expected to change earnings patterns and significantly expand disclosures, but not statutory capital and surplus, cash flows or underlying business economics.
- Management reported no material change in risk factors or market-risk components and concluded disclosure controls were effective at September 30, 2022. Insurance reserve estimates, investment values, subsidiary dividend capacity and subsidiary debt covenants remain important risks.
Important facts for investors to verify
- Whether investment losses and unrealized portfolio declines persist, and how they affect CNA’s earnings, AOCI and capital.
- Developments and potential financial exposure in the Boardwalk litigation, including the outcome of appeals.
- CNA’s reserve experience, including long-term-care assumptions, mass-tort claims and future premium-rate actions.
- Completion and funding of Boardwalk’s planned note redemption, and the timing and amount of hotel joint-venture capital calls.
- The actual transition effect and subsequent earnings impact of the new long-duration insurance accounting standard.