Business context and reporting period
Loews Corporation is a holding company with four reporting segments: CNA Financial (commercial property and casualty insurance and run-off insurance businesses), Boardwalk Pipelines (natural gas and NGL transportation and storage), Loews Hotels & Co, and Corporate. This unaudited Form 10-Q covers the three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in U.S. dollars.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Total revenues | $3.934 billion | $3.388 billion | $7.717 billion | $6.790 billion |
| Net income attributable to Loews | $360 million | $167 million | $735 million | $489 million |
| Diluted earnings per share | $1.58 | $0.68 | $3.19 | $1.98 |
| Net cash from operating activities | Not presented for quarter | Not presented for quarter | $2.153 billion | $1.446 billion |
First-half investing cash outflow was $1.467 billion and financing cash outflow was $759 million. Cash ended June at $463 million, down from $532 million at year-end 2022. At June 30, total investments were $47.563 billion, total assets $77.347 billion, and total equity $15.470 billion. Short-term and long-term debt totaled $9.055 billion, compared with $9.019 billion at December 31, 2022. The company reported $2.5 billion of Parent Company cash and investments, net of receivables and payables, versus $3.2 billion at year-end.
Insurance reserves totaled $43.446 billion, including $13.666 billion of future policy benefits. Fixed maturities had estimated fair value of $38.926 billion versus amortized cost of $42.037 billion; gross unrealized losses were $3.787 billion. Management attributed most unrealized losses to interest rates and wider credit spreads and said it did not intend, and was not more likely than not required, to sell affected securities before recovery.
Material changes and segment results
- Loews’s Q2 attributable net income rose $193 million year over year; first-half income rose $246 million. Management cited higher subsidiary income and Parent Company investment income. Parent Company results improved substantially as short-term and trading portfolio performance recovered from losses in 2022.
- CNA’s Q2 attributable contribution to Loews was $255 million versus $170 million; first-half contribution was $523 million versus $435 million. Higher investment income and improved underlying underwriting results helped, partly offset by higher catastrophe losses and less favorable prior-year reserve development. CNA Property & Casualty combined ratio was 93.8% for Q2 versus 91.0%; first-half ratio was 93.9% versus 91.4%. Its underlying combined ratio was 91.1% for Q2 and 91.0% for the first half.
- CNA catastrophe losses were $68 million in Q2 and $120 million in the first half, compared with $37 million and $57 million in 2022. Property & Casualty favorable prior-year reserve development declined to $17 million in Q2 and $4 million in the first half, from $37 million and $49 million, respectively. General liability and legacy abuse claims contributed to unfavorable development; workers’ compensation experience was favorable.
- Boardwalk Pipelines’ Q2 revenue was $365 million versus $325 million and net income attributable to Loews was $57 million versus $39 million. First-half revenue was $762 million versus $706 million and attributable income was $143 million versus $130 million. Higher transportation and storage revenue was partly offset by maintenance and other cost increases. First-half EBITDA was $467 million versus $452 million.
- Loews Hotels & Co’s Q2 attributable income was $74 million versus $44 million; first-half was $98 million versus $59 million. Results included a $46 million pretax ($36 million after-tax) gain from acquiring an additional interest in and consolidating a joint-venture property. Hotel operating revenue increased, while staffing costs rose.
Outlook, risks and unusual items
- No consolidated earnings guidance was provided. Boardwalk Pipelines said existing capital resources and operating cash flows were expected to fund 2023 operations and capital expenditures. CNA said current cash flows were sufficient for expected working capital and debt needs and did not expect that to change in the near term. CNA expected to continue offering long-term-care policy buyouts for the remainder of 2023 and future years.
- CNA’s run-off long-term-care reserves depend on assumptions about morbidity, persistency, premium increases and expenses; adverse experience or inability to obtain regulatory approval for premium increases could require higher reserves. The filing reports $42 million of first-half immediate charges from cohorts whose net premium ratio exceeded 100%.
- Insurance claims are exposed to catastrophe severity, claims inflation, litigation outcomes and reserve-estimation uncertainty. Commercial real estate exposure includes mortgage-backed securities, REIT bonds and mortgage loans; CNA reported a $30 million allowance for expected credit losses on its mortgage portfolio.
- Loews expects approximately $50 million of operating expense in the second half of 2023 related to recognizing unrealized losses in AOCI upon planned termination of a defined-benefit plan.
- A long-running Boardwalk Pipelines class action award of approximately $690 million plus interest was reversed by the Delaware Supreme Court in December 2022 and remanded for further proceedings; briefing on remanded issues was scheduled to finish in fall 2023. Management did not believe pending litigation, including this matter, would materially affect results or equity.
- Loews adopted the long-duration insurance accounting standard ASU 2018-12 retrospectively. The standard materially changes measurement and presentation of CNA long-term-care reserves and affected prior-period comparisons; management said it does not change statutory capital and surplus, cash flows or underlying economics.
Key facts for investors to verify
- Whether CNA’s elevated catastrophe losses, reserve development and combined ratios persist, and how reserve assumptions perform at the annual review.
- Whether fixed-income unrealized losses, credit-spread movements and commercial real estate exposures affect realized losses, liquidity or capital.
- Whether Parent Company liquidity remains adequate as it relies on subsidiary dividends, and how repurchases, dividends and planned investments affect cash balances.
- Progress and potential exposure in the remanded Boardwalk Pipelines litigation, alongside the timing and terms of Loews Hotels’ $164 million of mortgage loans maturing within 12 months.
- The earnings effects of long-term-care policy buyouts, the planned pension-plan termination, and the hotel joint-venture consolidation gain.