Loews Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; financial statements are unaudited. Loews is a holding company with insurance, offshore drilling, pipeline, hotel and packaging operations. The quarter was materially affected by COVID-19, financial-market disruption and the oil-price downturn.
Financial results and liquidity
- Revenue: $3.099 billion, versus $3.757 billion in Q1 2019. Insurance premiums rose to $1.869 billion from $1.803 billion, while net investment income fell to $163 million from $657 million and investment losses were $216 million versus gains of $31 million.
- Profit: Net loss attributable to Loews was $632 million, or $2.20 per diluted share, compared with net income of $394 million, or $1.27 per share. Consolidated net loss was $1.044 billion. No consolidated operating margin is presented.
- Cash flow: Operating cash flow was $329 million, compared with $81 million. Investing activities provided $427 million; financing activities used $144 million. Cash ended the quarter at $939 million, versus $336 million at year-end 2019.
- Insurance metrics: CNA Property & Casualty combined ratio was 97.5%, versus 97.8%. CNA Property & Casualty core income was $122 million, down from $314 million; total CNA core income was $108 million, down from $318 million. Core income is a non-GAAP measure.
- Balance sheet and debt: Total assets were $79.254 billion, versus $82.243 billion at December 31, 2019; total equity was $19.178 billion, versus $21.930 billion. Short-term debt was $2.460 billion and long-term debt $9.508 billion. Diamond Offshore’s debt became immediately due following its subsequent Chapter 11 filing and was classified as short-term at March 31.
- Parent liquidity: Parent Company cash and investments, net of receivables and payables, were $3.1 billion, versus $3.3 billion at year-end. Loews received $575 million in CNA dividends, including a $485 million special dividend, and repurchased $445 million of Loews shares. The parent expects to provide additional hotel funding during 2020.
Material changes and segment developments
- The decline in results was driven chiefly by a $408 million after-tax and noncontrolling-interest share of Diamond Offshore rig impairments, lower investment income, investment losses at CNA, and weaker hotel results.
- Diamond Offshore: Recorded a $774 million pretax impairment on four rigs. Loews’s share of Diamond Offshore’s net loss was $452 million, compared with $37 million a year earlier.
- CNA: Net investment income fell amid weak limited partnership and common-stock returns; CNA also recorded $152 million of investment losses attributable to Loews, compared with $21 million of gains. Q1 catastrophe losses, net of reinsurance, were $75 million, including $13 million related to COVID-19.
- Hotels: Loews Hotels reported a $25 million loss attributable to Loews, versus $13 million of income. Twenty hotels suspended operations during March, with only four hotels operating by the report date and at limited occupancy.
- Boardwalk Pipelines: Loews-attributable income was $65 million, versus $79 million. Q1 operations had not been materially affected by COVID-19 or lower energy prices, and throughput increased more than 10% year over year for both natural gas and NGLs.
- Altium Packaging: Revenue increased to $256 million from $214 million, reflecting acquisitions and higher demand in household chemicals, water and pharmaceuticals, partly offset by lower resin prices.
Outlook, risks and unusual items
- Diamond Offshore bankruptcy: Diamond Offshore and certain subsidiaries filed for Chapter 11 on April 26, 2020. Loews expected to deconsolidate the subsidiary from that date and anticipated a significant noncash loss in Q2 to reflect its retained interest at estimated fair value. The filing does not provide a clear estimate of that loss; it notes Diamond Offshore’s March 31 carrying value was $1.0 billion, net of tax, and the retained interest’s fair value could be de minimis.
- COVID-19 outlook: Management said the full effects were uncertain. CNA anticipated possible lower premiums, refunds or cancellations, higher credit losses, and increased claims and litigation in exposed lines. Loews Hotels expected material adverse effects through 2020 and possibly beyond; reopening pace and recovery were uncertain.
- Energy and pipeline risks: Diamond Offshore cited depressed oil prices, reduced customer spending, expected lower utilization and dayrates, and possible contract cancellations. Boardwalk reported stable throughput and adequate liquidity at the report date, but warned a prolonged downturn could weaken customers, renewals and collections.
- Investments and credit: Market disruption drove substantial unrealized investment losses and credit-spread widening. Loews reported $49 million of allowance for credit losses on fixed maturities at quarter-end and said it did not intend, and was not more likely than not required, to sell securities in unrealized-loss positions before recovery.
- Other items: Loews adopted the expected-credit-loss accounting standard on January 1, 2020, reducing opening retained earnings by $5 million. A Boardwalk Pipelines class action remained scheduled for trial in early 2021. CNA’s potential structured-settlement guarantee payments were approximately $1.7 billion, though CNA said payment was not considered likely because of supporting trust assets.
- No formal consolidated earnings or revenue guidance is provided. Management cautioned that forward-looking statements are subject to substantial uncertainty.
Investor verification priorities
- Track Diamond Offshore’s Chapter 11 proceedings, deconsolidation accounting, retained-interest valuation and Q2 noncash loss.
- Assess hotel reopening, occupancy, cash burn, lender covenant waivers and the amount of further parent support required.
- Monitor CNA investment portfolio valuations, credit-loss allowances, premium trends, COVID-related claims and regulatory actions.
- Check Boardwalk customer credit quality, contract renewals, liquidity and the effect of sustained low energy prices.
- Reconcile the quarter’s reported cash flow and parent liquidity with ongoing share repurchases, dividends and subsidiary funding needs.