LOEWS CORP quarterly report, Q1 FY2021

Loews Corporation — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; unaudited. Loews is a holding company with insurance (CNA), natural gas pipelines (Boardwalk), hotels, and corporate operations. The prior-year comparison includes Diamond Offshore, which Loews deconsolidated in Q2 2020, so periods are not fully comparable.

Financial performance and position

Metric	Q1 2021	Q1 2020 / comparison
Total revenue	$3.622 billion	$3.099 billion
Income (loss) before tax	$407 million	$(1.121) billion
Net income (loss)	$293 million	$(1.044) billion
Net income (loss) attributable to Loews	$261 million; $0.97 diluted EPS	$(632) million; $(2.20) diluted EPS
Operating cash flow	$134 million	$329 million

Revenue increased $523 million year over year. Improvement in investment results was significant: net investment income was $550 million versus $163 million, and investment gains were $57 million versus losses of $216 million.
Cash at quarter-end was $660 million, versus $478 million at year-end 2020. Investing activities provided $306 million; financing activities used $258 million.
At March 31, total assets were $80.0 billion and total equity was $18.5 billion. Balance-sheet short-term and long-term debt totaled $9.1 billion, down from $10.1 billion at December 31, 2020. The filing separately classifies Altium assets and liabilities as held for sale.
Parent-company cash and investments, net of receivables and payables, were $3.6 billion, compared with $3.5 billion at year-end.
CNA Property & Casualty’s combined ratio was 98.1%, versus 97.3%; excluding catastrophes and prior-year development, it was 91.9%, versus 93.7%. CNA reported $125 million of net catastrophe losses, mainly from Winter Storms Uri and Viola.

Material changes and segment results

Loews-attributable income improved to $261 million from a $632 million loss. CNA contributed $279 million, versus a $55 million loss; Boardwalk contributed $85 million, versus $65 million; Hotels lost $43 million, versus $25 million; and Corporate lost $60 million, versus $165 million.
The prior-year quarter included Diamond Offshore, then consolidated, and a $774 million pretax impairment charge ($408 million after tax and noncontrolling interests). Diamond Offshore was deconsolidated in Q2 2020.
CNA’s higher investment income and gains and stronger non-catastrophe underwriting drove much of the improvement. Its net written premiums rose to $1.937 billion from $1.863 billion; catastrophe losses were higher than the prior-year quarter.
Boardwalk revenue increased to $372 million from $341 million, supported by growth projects and higher system utilization during colder weather.
Hotels revenue fell to $57 million from $142 million, and its net loss widened, as COVID-19 continued to depress occupancy. The company noted resort properties were recovering faster than urban hotels.
On April 1, 2021, after quarter-end, Loews sold 47% of Altium Packaging to GIC for approximately $420 million cash, subject to adjustments. It expects an approximately $560 million pretax gain in Q2 and will account for its retained 53% interest under the equity method, deconsolidating Altium.

Outlook, risks and unusual items

The filing gives no consolidated earnings or revenue guidance. Management said Boardwalk expects existing capital resources, its credit facility and operating cash flows to fund 2021 operations and capital expenditures.
Hotels continued to face pandemic-related occupancy and cash-flow pressure. Lender discussions included covenant waivers, payment deferrals and extensions; Loews Hotels was not in default as of the report date. Additional joint-venture capital calls were anticipated, and further parent funding could be needed.
CNA recorded favorable prior-year reserve development of $15 million. Management emphasized reserve estimates are uncertain; CNA also increased long-term-care IBNR reserves amid uncertainty about claim trends as the pandemic abates.
CNA completed a legacy excess workers’ compensation loss-portfolio transfer in February; the transaction resulted in an approximately $11 million after-tax and noncontrolling-interest loss. Separately, a new $1.05 billion, seven-year secured Altium term loan was issued in February at LIBOR plus 2.75%, subject to a 0.5% floor.
CNA experienced a ransomware cyberattack in March that disrupted certain systems. It had restored systems and resumed normal operations by the report date, but the investigation continued; potential costs, claims, regulatory actions and insurance coverage limits remained uncertain. CNA did not expect a material financial impact based on information then known.
Other exposures include a pending Boardwalk Pipelines class action (post-trial arguments scheduled for July 2021), $1.6 billion of CNA guarantees on structured-settlement annuities (supported by a trust), and approximately $1.4 billion of investment funding commitments. Management said pending litigation was not expected to materially affect results or equity.
Investment values were exposed to market movements: Loews reported $627 million of after-tax other comprehensive investment losses in Q1. Management attributed unrealized losses primarily to interest rates, credit spreads and other factors, and reported no intent or expected requirement to sell affected securities before recovery.

Most important facts for investors to verify

Whether CNA’s underwriting improvement persists, especially given higher catastrophe losses and reserve-estimation uncertainty.
Hotels’ occupancy recovery, liquidity needs, lender negotiations and potential additional parent-company funding.
Completion accounting for the Altium transaction, including the realized gain, retained investment valuation and post-sale effects on reported revenue, debt and cash flows.
The financial, operational, regulatory and insurance consequences of CNA’s cyber incident as the investigation develops.
Cash generation and debt movements, including the treatment of Altium debt classified with liabilities held for sale and cash flows related to the loss-portfolio transfers.