Loews Corporation — Q1 2023 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Loews is a holding company with operations in insurance (CNA), natural gas pipelines and storage (Boardwalk Pipelines), hotels (Loews Hotels & Co), and Corporate investments and activities.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $3.783 billion | $3.402 billion |
| Income before tax | $519 million | $439 million |
| Net income | $404 million | $352 million |
| Net income attributable to Loews | $375 million | $322 million |
| Diluted EPS | $1.61 | $1.29 |
| Operating cash flow | $719 million | $423 million |
Revenue increased about 11% and net income attributable to Loews increased about 16%. Diluted EPS rose about 25%, supported in part by fewer weighted-average shares outstanding (233.62 million versus 248.48 million). Approximate consolidated net margin was 10.7% versus 10.3%; net income attributable to Loews as a share of revenue was 9.9% versus 9.5%.
Cash and short-term investments totaled $4.673 billion at March 31, 2023, compared with $5.386 billion at year-end 2022. Consolidated short- and long-term debt totaled approximately $9.058 billion, versus $9.019 billion at year-end. Total assets were $76.560 billion and total equity was $15.314 billion. Parent Company cash and investments, net of receivables and payables, were $3.1 billion, down from $3.2 billion.
Q1 cash flow: operating activities provided $719 million; investing activities used $134 million; financing activities used $524 million. Loews repurchased 8.2 million shares for an aggregate cost of $486 million; the cash flow statement reports $462 million of treasury-stock purchases during the quarter.
Segment performance and changes
- CNA: Loews-attributable income was $268 million, up from $265 million. Higher investment income and improved non-catastrophe current-year underwriting results were partly offset by higher catastrophe losses, unfavorable prior-year reserve development, and investment losses. Property & Casualty combined ratio was 93.9%, compared with 91.9%; excluding catastrophe and development effects, it was 90.8% versus 91.4%. Catastrophe losses were $52 million versus $19 million; prior-year development was unfavorable by $13 million versus favorable development of $12 million.
- Boardwalk Pipelines: Income attributable to Loews was $86 million, down from $91 million. Revenue increased to $397 million from $381 million, but higher maintenance and other operating costs more than offset the increase. EBITDA was $256 million versus $258 million.
- Loews Hotels & Co: Income attributable to Loews rose to $24 million from $15 million. Improved occupancy and average daily rates lifted operating revenue; expenses also increased with demand.
- Corporate: Net loss narrowed to $3 million from $49 million, primarily as investment results improved, including at the Parent Company.
Liquidity, outlook, risks and unusual items
- Management said the Parent Company relies on investment balances and subsidiary distributions to meet obligations and fund dividends. Loews received $395 million in CNA dividends in Q1, including a $293 million special dividend.
- Loews planned to retire at maturity in May 2023, using available cash, its $500 million of 2.6% senior notes. Future uses of cash may include subsidiary investment, acquisitions, dividends and share repurchases; no consolidated earnings guidance was provided.
- Boardwalk expected existing cash, operating cash flow and credit capacity to fund 2023 operations and capital expenditures. It had the full $1.0 billion revolving-credit capacity available at quarter-end.
- Loews Hotels had $164 million of variable-rate mortgage loans maturing within 12 months that it intended to refinance. A joint venture had $367 million of debt maturing within that period; Loews Hotels’ guarantee was up to $46 million. The filing notes refinancing could require paydowns, restricted cash or guarantees.
- The company adopted long-duration insurance accounting guidance (ASU 2018-12) effective January 1, 2023, retrospectively adjusting prior periods. The standard materially changes long-term-care reserve measurement and presentation; management says it does not change statutory capital and surplus, cash flows, or underlying business economics. Q1 2022 net income attributable to Loews was adjusted down by $16 million to $322 million.
- CNA’s run-off long-term-care reserves depend on estimates of morbidity, persistency, future premium increases and expenses. The filing reports $13 million of Q1 charges from cohorts whose net premium ratio exceeded 100%, partly offset by $11 million of reversals of prior charges.
- Fixed-maturity securities had $3.418 billion of gross unrealized losses at March 31, primarily attributed by management to interest rates and wider credit spreads. Management said it did not intend to sell the affected securities and did not consider forced sale before recovery likely.
- A Delaware court’s 2021 award of approximately $690 million plus interest in the Boardwalk Pipelines litigation was reversed by the state Supreme Court in December 2022; remaining issues were remanded, with briefing scheduled through July 2023. Management did not believe pending litigation would materially affect results or equity.
- CNA guarantees up to approximately $1.5 billion of payments on structured settlement annuities issued by a former subsidiary; CNA said payment was not likely, citing a supporting trust. Management reported no material change in risk factors and said disclosure controls were effective.
Investor verification priorities
- Track CNA catastrophe losses, reserve development, combined ratios and the assumptions and sensitivity of long-term-care reserves.
- Confirm the May 2023 maturity repayment and monitor Parent Company liquidity, subsidiary dividend capacity and continued share repurchases.
- Assess Boardwalk’s maintenance spending and cost trends against revenue growth, and Loews Hotels’ refinancing progress and any required support for joint-venture debt.
- Review the Boardwalk litigation remand, the structured-settlement guarantee exposure, and changes in investment valuations or realized credit losses.
- When comparing periods, use the filing’s retrospectively adjusted results reflecting ASU 2018-12 rather than previously reported 2022 figures.