CNA Financial Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request metadata labels the period “2021 Q4,” this filing reports full-year results, with year-end balance-sheet comparisons to December 31, 2020. CNA is a commercial property-and-casualty insurer with a run-off long-term-care business; Loews Corporation owned approximately 89.6% of CNA at year-end.
Financial results and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenues | $11.908 billion | $10.808 billion |
| Net earned premiums | $8.175 billion | $7.649 billion |
| Net investment income | $2.159 billion | $1.935 billion |
| Net income | $1.202 billion | $690 million |
| Core income, a non-GAAP measure | $1.106 billion | $735 million |
| Net cash from operating activities | $1.997 billion | $1.775 billion |
- Total revenues rose about 10%, net earned premiums about 7%, net investment income about 12%, and net income about 74%. Core income increased about 50%.
- Net investment gains were $120 million, versus a $54 million loss in 2020; net income includes these gains, while core income excludes them.
- Net catastrophe losses declined to $397 million from $550 million. Prior-year reserve development was $11 million unfavorable, versus $20 million favorable in 2020.
- Year-end total assets were $66.639 billion, stockholders’ equity $12.809 billion, and insurance reserves $43.171 billion, including $24.174 billion of claim and claim-adjustment reserves and $13.236 billion of future policy benefits.
- Long-term debt was $2.779 billion; cash was $536 million. CNA reported no borrowings under its $250 million revolving credit facility or from the Federal Home Loan Bank of Chicago. Management said current cash flows were sufficient for expected working-capital and debt needs.
- Net cash used in investing activities was $1.228 billion; net cash used in financing activities was $648 million. CNA paid $621 million in common dividends in 2021.
Segment performance and changes
- Specialty: Core income was $704 million, up from $535 million; combined ratio improved to 88.7% from 93.5%. Premium growth, improved non-catastrophe underwriting, lower catastrophe losses and investment returns contributed.
- Commercial: Core income was $394 million, up from $267 million, but the combined ratio remained above 100% at 103.1%, compared with 105.1%. Catastrophe losses were $358 million in both years.
- International: Core income rose to $86 million from $38 million; combined ratio improved to 94.8% from 102.4%, mainly reflecting lower catastrophe losses and better underwriting.
- Life & Group: Core income rose to $126 million from $9 million, principally on higher limited-partnership investment income. 2021 included a $31 million favorable impact from long-term-care claim reserve reviews; 2020 included a $59 million charge for an active-life reserve premium deficiency.
- Corporate & Other: Core loss widened to $204 million from $114 million, reflecting lower investment income, A&EP reinsurance accounting effects, cybersecurity-incident expenses, the EWC reinsurance transaction loss and unfavorable mass-tort reserve development.
- Effective January 1, 2021, certain legacy excess workers’ compensation and mass-tort reserves were moved from Commercial to Corporate & Other; prior-period segment figures were conformed. CNA also added a property quota-share treaty in 2021, including a $122 million one-time reduction to net written premiums for the catch-up of unearned premium.
Outlook, risks and unusual items
- The filing provides no specific numerical earnings or premium guidance. Management expressed confidence that liquidity would cover current and expected near-term needs. The Board declared a $0.40-per-share quarterly dividend and a $2.00-per-share special dividend payable in March 2022; future dividends remain subject to Board discretion, financial condition and regulatory limits.
- Key uncertainties include reserve adequacy—especially long-tail casualty, long-term-care and legacy A&EP/mass-tort claims—social and medical inflation, litigation trends, catastrophe frequency and severity, COVID-related claims, reinsurance availability and counterparty performance, investment-market volatility, and regulatory or capital requirements.
- CNA sustained a ransomware attack in March 2021 that disrupted some systems and exposed personal information relating to certain individuals, including some policyholders. Operations were restored; the company said it did not then expect a material financial impact, but possible investigations, claims, penalties and uninsured costs remained uncertain.
- The A&EP loss portfolio transfer with NICO had a $4 billion aggregate limit; cumulative ceded amounts were $3.4 billion at year-end, with a $3.1 billion collateral trust. A separate 2021 excess-workers’-compensation transfer ceded approximately $690 million of reserves under a $1 billion limit and generated an approximately $12 million after-tax loss.
- The September 2021 long-term-care valuation indicated a $72 million reserve margin. Management highlighted sensitivity to morbidity, persistency, discount rates and premium increases; the filing estimates that specified hypothetical assumption changes could reduce pretax income materially.
- The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. Property-and-casualty claim reserves and long-term-care future policy benefit reserves were identified as critical audit matters.
Important facts for investors to verify
- Whether reserve development, particularly in long-tail liability and legacy mass-tort exposures, remains favorable or requires additional strengthening.
- Whether long-term-care assumptions and premium-rate approvals support reserve adequacy, including the impact of the upcoming long-duration-contract accounting standard.
- How much of future catastrophe and COVID-related claims are retained after reinsurance, and whether counterparties and collateral remain adequate.
- The ultimate cost, insurance recovery and legal or regulatory consequences of the 2021 cyberattack.
- Whether Commercial’s combined ratio can fall below 100% and whether investment returns remain supportive of core income.
- Subsidiary dividend capacity, statutory capital and the sustainability of ordinary and special shareholder dividends.