Loews Corporation — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Loews is a holding company with insurance (CNA), natural gas transportation and storage (Boardwalk Pipelines), hotels (Loews Hotels & Co), and Corporate operations. Altium Packaging was deconsolidated effective April 1, 2021; its Q1 2021 results remain in the prior-period comparison, affecting revenue and Corporate results.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenues | $3.402 billion | $3.622 billion |
| Income before income tax | $462 million | $407 million |
| Net income attributable to Loews | $338 million | $261 million |
| Diluted earnings per share | $1.36 | $0.97 |
| Net cash provided by operating activities | $423 million | $134 million |
Revenue declined about 6%, while Loews-attributable net income rose about 30%. Operating cash flow improved; the company cites a prior-year CNA payment of the excess workers’ compensation loss portfolio transfer premium as a factor in the comparison. The filing does not provide a single consolidated operating-margin measure.
Balance sheet and liquidity. At March 31, total assets were $79.1 billion and total liabilities were $61.4 billion. Cash was $798 million; total investments were $51.1 billion, down from $53.9 billion at year-end 2021. Short- and long-term debt totaled approximately $9.3 billion, compared with $9.1 billion at year-end. Loews parent cash and investments, net of receivables and payables, were $3.8 billion, versus $3.4 billion at year-end. Parent-company liquidity depends in part on subsidiary distributions; it received $584 million in CNA dividends during the quarter, including a $486 million special dividend.
Q1 cash flows included $187 million used in investing activities and $56 million used in financing activities. Loews repurchased 2.1 million shares for $129 million during the quarter and paid $15 million of shareholder dividends. CNA paid a $2.40-per-share dividend, including a $2.00 special dividend. Boardwalk issued $500 million of 3.6% notes due 2032 and used part of the proceeds to retire $300 million of notes due in 2022.
Material changes and segment performance
- CNA: Loews-attributable income was $281 million, compared with $279 million. CNA’s property and casualty combined ratio improved to 91.9% from 98.1%, principally because catastrophe losses fell to $19 million from $125 million. The combined ratio excluding catastrophe losses and prior-year reserve development was 91.4% versus 91.9%. CNA net investment income fell to $448 million from $504 million, mainly due to lower limited partnership and common stock returns.
- Boardwalk Pipelines: Loews-attributable income increased to $91 million from $85 million. Revenue rose to $381 million from $372 million, largely reflecting growth projects placed in service.
- Loews Hotels & Co: Income was $15 million versus a $43 million loss. Higher travel demand, occupancy and average daily rates supported recovery, including stronger joint-venture results. Some city-center hotels had not returned to pre-pandemic occupancy levels.
- Corporate: Net loss narrowed to $49 million from $60 million. Q1 2021 included Altium’s consolidated operations; Q1 2022 reflects equity-method accounting. Parent-company investment results also weakened, with a $16 million net investment loss versus $46 million of income, primarily due to lower fair values of equity investments.
Comprehensive loss attributable to Loews was $1.099 billion, versus $286 million in Q1 2021, driven largely by investment-related other comprehensive losses. Accumulated other comprehensive loss was $1.251 billion at March 31, compared with accumulated other comprehensive income of $186 million at year-end, reflecting market-value declines in investments. Management attributed most unrealized fixed-maturity losses to higher risk-free rates and, to a lesser extent, credit spreads; it said it did not intend to sell the affected securities and did not expect to be required to sell before recovery.
Outlook, risks and unusual items
- The filing gives no quantified consolidated earnings or revenue guidance. Management said Boardwalk expected existing resources and operating cash flows to fund 2022 operations and capital spending and its 2023 debt maturity. Hotels expected to fund development projects from cash on hand, operations and, if needed, Loews contributions.
- Loews Hotels was working with lenders to refinance $93 million of current debt maturities. Refinancing, including certain joint-venture loans, could require principal paydowns, restricted cash or guarantees; no hotel subsidiary was in default through the report date.
- A Delaware court awarded plaintiffs approximately $690 million plus about $166 million of prejudgment interest, post-judgment interest and attorneys’ fees in Boardwalk Pipelines litigation. Both sides appealed. Loews said a loss was reasonably possible but could not estimate the outcome, which it described as ranging from zero to the award and potentially more. No liability was recorded.
- Adoption of long-duration insurance accounting guidance is planned for January 1, 2023. Loews estimated a $2.0–$2.3 billion after-tax and noncontrolling-interest reduction to AOCI at the January 1, 2021 transition date; applying March 2022 interest rates to the calculation would imply a $0.9–$1.2 billion reduction. The company said adoption will change earnings patterns and disclosures but not statutory capital and surplus, cash flows or underlying business economics.
- Insurance reserves are estimates subject to uncertainty, including inflation, litigation and claim-cost changes. Q1 2022 included $12 million of favorable prior-year property and casualty reserve development. CNA also has approximately $1.6 billion of potential structured-settlement guarantee payments over annuitants’ lifetimes, which it considers unlikely because of supporting trust assets.
- Management reported no material change in market-risk components or risk factors, and concluded disclosure controls were effective as of March 31, 2022.
Important facts for investors to verify
- Whether investment-market movements and interest rates continue to affect AOCI, portfolio values and CNA investment income.
- Progress and final outcome of the Boardwalk Pipelines litigation and appeals, including any potential liability.
- CNA underwriting performance, catastrophe losses, reserve development and dividend capacity under insurance regulation.
- Hotels’ occupancy recovery and refinancing of the $93 million of current maturities, as well as any financing needs at joint ventures.
- Implementation assumptions and transition effects of the 2023 long-duration insurance accounting standard.
- The comparability impact of Altium’s deconsolidation when interpreting revenue and Corporate segment trends.