Loews Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Loews is a holding company with insurance, natural gas transportation and storage, hotels, and rigid-plastic packaging businesses. Diamond Offshore was deconsolidated on April 26, 2020, following its Chapter 11 filing; its results are included only through that date.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $3.465 billion | $3.675 billion | $8.874 billion | $11.055 billion |
| Net income (loss) attributable to Loews | $139 million | $72 million | $(1.328) billion | $715 million |
| Basic and diluted EPS | $0.50 | $0.24 | $(4.70) | $2.34 |
| Net cash provided by operating activities | Not presented for quarter | Not presented for quarter | $1.291 billion | $1.271 billion |
Q3 earnings improved mainly on stronger CNA underwriting and investment results. The nine-month loss was driven principally by the $1.211 billion pretax loss on Diamond Offshore deconsolidation, Diamond Offshore rig impairments, hotel losses, and weaker investment and insurance results. The deconsolidation loss was $957 million after tax.
- CNA: Q3 net income attributable to Loews was $192 million versus $96 million; nine-month income was $272 million versus $650 million. Q3 property-and-casualty combined ratio excluding catastrophe losses and prior-year development improved to 92.6% from 94.6%; the reported combined ratio was 100.9% versus 97.6%. Nine-month reported combined ratio rose to 103.5% from 97.1%, reflecting higher catastrophe losses. CNA’s nine-month net catastrophe losses were $536 million, including $195 million related to COVID-19.
- Boardwalk Pipelines: Net income was $20 million for Q3 and $123 million for nine months, down from $29 million and $161 million, respectively. About 90% of revenue over the 12 months ended September 30 came from fixed-fee firm agreements.
- Loews Hotels & Co: Net loss was $47 million for Q3 and $144 million for nine months, compared with income of $3 million and $28 million. Lower occupancy and rates from the pandemic drove substantial operating losses; five of 22 temporarily closed hotels remained non-operational at quarter-end.
- Altium Packaging: Nine-month revenue was $753 million versus $689 million, supported by acquisitions and higher demand in some markets; Q3 revenue was broadly flat at $253 million.
Financial position, cash flow and capital
- At September 30, 2020, total assets were $79.464 billion, down from $82.243 billion at year-end 2019; total equity was $18.620 billion versus $21.930 billion.
- Cash was $886 million and investments totaled $52.772 billion. Parent Company cash and investments, net of receivables and payables, were $3.5 billion, compared with $3.3 billion at December 31, 2019.
- Short- and long-term debt totaled $10.408 billion at quarter-end ($35 million short term and $10.373 billion long term), compared with $11.533 billion at year-end 2019. Nine-month debt issuance was $2.393 billion and principal repayments were $1.157 billion.
- Nine-month operating cash flow was $1.291 billion; investing activities used $1.108 billion and financing activities provided $367 million. Cash increased by $550 million to $886 million.
- Loews repurchased 16.1 million of its shares for $673 million during the first nine months. It paid $53 million in shareholder dividends. The quarterly dividend was $0.0625 per share.
Material changes, outlook and risks
- Diamond Offshore’s bankruptcy and deconsolidation were exceptional items, reducing reported assets and equity and generating the major investment loss. A $774 million pretax rig impairment charge was also recorded in the first nine months.
- COVID-19 materially affected hotel operations and contributed to CNA catastrophe claims, economic pressure on insurance premiums, and market volatility. Management said the duration and full financial effects remained uncertain; CNA’s recorded pandemic losses were its best estimate, but further losses could arise.
- CNA’s Q3 long-term-care review produced a $74 million pretax premium-deficiency charge. Reserve estimates are sensitive to morbidity, persistency, discount rates and future premium increases; the filing quantifies potentially material effects from hypothetical assumption changes.
- Loews Hotels was working with lenders on covenant waivers, use of restricted funds, payment deferrals and loan extensions. It was not in default through the filing date; further parent funding could be needed. Hotels had funded about $35 million of joint-venture capital calls through October 30 and received $127 million of parent contributions.
- Boardwalk Pipelines reported no significant operating impact from COVID-19 to date, but warned an extended downturn or depressed energy prices could harm customers and the business. Management expected existing resources, revolving credit capacity and operating cash flow to fund 2020 operations and capital expenditures.
- No specific consolidated earnings guidance was provided. Management emphasized uncertainty around pandemic effects and did not provide a clear quantified outlook for Loews overall.
- Other items: a pending Boardwalk Pipelines class action continued, with defendants seeking dismissal of new claims and to vacate a scheduled trial date. CNA also has approximately $1.7 billion of potential structured-settlement guarantee payments, which it does not believe are likely to be required.
Important facts for investors to verify
- Whether subsequent pandemic-related insurance claims, premium exposure changes or investment losses materially differ from CNA’s current estimates.
- Hotel occupancy recovery, lender covenant arrangements, debt maturities, cash needs and any additional parent contributions or impairments.
- CNA’s long-term-care reserve assumptions and sensitivity, and the impact of future annual reserve reviews.
- The financial and legal consequences of Diamond Offshore’s bankruptcy and the basis for the deconsolidation valuation and impairment charges.
- Availability of subsidiary dividends to the parent, given insurance regulation, subsidiary creditor priority and operating cash requirements.