Loews Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; unaudited. Loews is a holding company with insurance, natural gas pipeline, hotel, and corporate operations. Comparisons are affected by the 2021 deconsolidation of Altium Packaging and the 2020 deconsolidation of Diamond Offshore.
Financial performance and position
- Third quarter: Total revenues were $3.371 billion versus $3.465 billion in Q3 2020. Net income attributable to Loews was $220 million, or $0.85 diluted EPS, compared with $139 million, or $0.50 per share.
- First nine months: Total revenues were $10.996 billion versus $8.874 billion. Net income attributable to Loews was $1.235 billion, or $4.70 diluted EPS, versus a $1.328 billion loss, or a $4.70 loss per share.
- Significant earnings item: The 2021 nine-month results included a $555 million pretax gain ($438 million after tax) from selling 47% of Altium Packaging. The 2020 comparison included a $1.211 billion loss ($957 million after tax) on Diamond Offshore’s deconsolidation and Diamond impairment charges of $774 million pretax.
- Cash flow: For the nine months, operating activities provided $1.676 billion, investing activities used $424 million, and financing activities used $913 million. Cash ended at $811 million, up from $478 million at year-end 2020.
- Debt and liquidity: September 30 short-term debt was $187 million and long-term debt was $8.925 billion, compared with $37 million and $10.072 billion, respectively, at December 31, 2020. Parent Company cash and investments, net of receivables and payables, were $3.6 billion, versus $3.5 billion at year-end. These parent-company resources are distinct from consolidated cash.
- Insurance results: CNA’s property and casualty combined ratio was 100.0% for Q3 and 97.4% for the nine months; excluding catastrophe losses and prior-year development, it was 91.1% and 91.5%, respectively. Net catastrophe losses were $178 million for Q3 and $357 million for the nine months, including Hurricane Ida losses.
- Other key metrics: Total assets were $81.726 billion and total equity was $19.130 billion. Loews repurchased $826 million of its shares during the first nine months and paid $49 million in shareholder dividends.
Material changes and management commentary
- Q3 earnings improved year over year, reflecting better CNA non-catastrophe underwriting and Life & Group results, higher Boardwalk Pipelines revenue, and the hotel business’s recovery in leisure travel. Higher catastrophe losses and lower investment gains at CNA, and lower parent-company investment income, partly offset improvement.
- Nine-month results improved substantially from 2020, reflecting stronger CNA underwriting and investment income, lower catastrophe losses, and the Altium sale gain. The prior-year period was burdened by Diamond Offshore’s bankruptcy-related loss and impairment charges; comparisons are therefore not purely operational.
- Altium Packaging was deconsolidated on April 1, 2021 after Loews sold a 47% interest to GIC for $420 million and shared certain decision rights. Loews retained an equity-method investment.
- Hotels had resumed operations at all properties by June 30, 2021, but occupancy at many locations remained below pre-pandemic levels. Management said expenses may rise as staffing and service levels return. Loews Hotels reported $13 million of Q3 net income, versus a $47 million loss a year earlier, but a $51 million loss for the nine months.
- Management reported a $72 million margin in CNA’s long-term-care active-life reserves following its 2021 annual valuation. The filing highlights sensitivity to morbidity, persistency, discount rates, and premium-rate assumptions.
Outlook, risks, and contingencies
- The filing provides no consolidated earnings or revenue guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- CNA’s March 2021 ransomware attack exposed some personal information. CNA reported ongoing assessment, expected further security spending, and possible investigations, claims, fines, or penalties; the amount of any such costs was not estimable. CNA did not believe the incident would have a material impact based on information then known, but gave no assurance.
- Loews Hotels was working with lenders on covenant relief, extensions, and refinancing; three hotel subsidiaries had mortgage loans maturing within twelve months, including $190 million of current maturities being refinanced. No hotel subsidiary was in default through the report date.
- Boardwalk Pipelines had no revolving-credit borrowings at September 30 and expected to retire $300 million of notes at maturity in Q2 2022 using available resources. Its revolving facility was amended to $1.0 billion and extended to May 2026.
- CNA’s long-term-care reserves remain assumption-sensitive. The filing gives hypothetical pretax income reductions of $300 million for a 2.5% morbidity increase and $200 million for a 50-basis-point decline in new-money rates, after considering the reserve margin.
- CNA guarantees approximately $1.6 billion of future structured-settlement annuity payments over annuitants’ lifetimes; CNA said payments were not considered likely because of a supporting trust. Management did not expect pending litigation, including the Boardwalk Pipelines matter, to materially affect results or equity.
Most important facts for investors to verify
- Separate recurring operating performance from the Altium sale gain and the prior-year Diamond Offshore deconsolidation and impairment items.
- Review CNA catastrophe losses, reserve development, combined ratios, and long-term-care assumption sensitivity.
- Track the costs, insurance recovery, and any regulatory or legal consequences of CNA’s cybersecurity incidents.
- Confirm hotel loan refinancing and covenant status, and Boardwalk’s plan to fund the 2022 note maturity.
- Assess the availability of parent-company liquidity and subsidiary dividends, which depend on subsidiary earnings, regulatory limits, and loan covenants.