Item 1. Financial Statements.
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
|
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|
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|
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|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Dollar amounts in millions, except per share data)
|
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|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturities, amortized cost of $37,507 and $37,407
|
|
$
|
40,475
|
|
|
$
|
39,701
|
|
Equity securities, cost of $817 and $824
|
|
|
777
|
|
|
|
752
|
|
Limited partnership investments
|
|
|
3,301
|
|
|
|
3,313
|
|
Other invested assets, primarily mortgage loans
|
|
|
822
|
|
|
|
824
|
|
Short term investments
|
|
|
5,275
|
|
|
|
4,810
|
|
|
|
Total investments
|
|
|
50,650
|
|
|
|
49,400
|
|
Cash
|
|
|
308
|
|
|
|
440
|
|
Receivables
|
|
|
8,227
|
|
|
|
8,041
|
|
Property, plant and equipment
|
|
|
15,351
|
|
|
|
15,477
|
|
Goodwill
|
|
|
350
|
|
|
|
351
|
|
Other assets
|
|
|
1,716
|
|
|
|
1,699
|
|
Deferred acquisition costs of insurance subsidiaries
|
|
|
622
|
|
|
|
598
|
|
|
|
Total assets
|
|
$
|
77,224
|
|
|
$
|
76,006
|
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Insurance reserves:
|
|
|
|
|
|
|
|
|
Claim and claim adjustment expense
|
|
$
|
23,018
|
|
|
$
|
22,663
|
|
Future policy benefits
|
|
|
10,500
|
|
|
|
10,152
|
|
Unearned premiums
|
|
|
3,807
|
|
|
|
3,671
|
|
|
|
Total insurance reserves
|
|
|
37,325
|
|
|
|
36,486
|
|
Payable to brokers
|
|
|
630
|
|
|
|
567
|
|
Short term debt
|
|
|
3
|
|
|
|
1,040
|
|
Long term debt
|
|
|
10,584
|
|
|
|
9,520
|
|
Deferred income taxes
|
|
|
540
|
|
|
|
382
|
|
Other liabilities
|
|
|
5,017
|
|
|
|
5,201
|
|
|
|
Total liabilities
|
|
|
54,099
|
|
|
|
53,196
|
|
|
|
|
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|
Commitments and contingent liabilities
|
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|
|
|
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Preferred stock, $0.10 par value:
|
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|
|
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|
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|
Authorized 100,000,000 shares
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|
|
|
|
|
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Common stock, $0.01 par value:
|
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|
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Authorized 1,800,000,000 shares
|
|
|
|
|
|
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|
Issued 339,933,179 and 339,897,547 shares
|
|
|
3
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
3,177
|
|
|
|
3,184
|
|
Retained earnings
|
|
|
14,812
|
|
|
|
14,731
|
|
Accumulated other comprehensive loss
|
|
|
(126)
|
|
|
|
(357)
|
|
|
|
|
|
|
17,866
|
|
|
|
17,561
|
|
Less treasury stock, at cost (918,767 shares)
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|
|
(33)
|
|
|
|
|
|
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|
Total shareholders equity
|
|
|
17,833
|
|
|
|
17,561
|
|
Noncontrolling interests
|
|
|
5,292
|
|
|
|
5,249
|
|
|
|
Total equity
|
|
|
23,125
|
|
|
|
22,810
|
|
|
|
Total liabilities and equity
|
|
$
|
77,224
|
|
|
$
|
76,006
|
|
|
|
See accompanying Notes to Consolidated Condensed Financial Statements.
3
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
|
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|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$
|
1,699
|
|
|
$
|
1,687
|
|
Net investment income
|
|
|
422
|
|
|
|
588
|
|
Investment gains (losses):
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment losses
|
|
|
(23
|
)
|
|
|
(12)
|
|
Other net investment gains (losses)
|
|
|
(5
|
)
|
|
|
22
|
|
|
|
Total investment gains (losses)
|
|
|
(28
|
)
|
|
|
10
|
|
Contract drilling revenues
|
|
|
444
|
|
|
|
600
|
|
Other revenues
|
|
|
636
|
|
|
|
593
|
|
|
|
Total
|
|
|
3,173
|
|
|
|
3,478
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Insurance claims and policyholders benefits
|
|
|
1,408
|
|
|
|
1,339
|
|
Amortization of deferred acquisition costs
|
|
|
307
|
|
|
|
303
|
|
Contract drilling expenses
|
|
|
213
|
|
|
|
351
|
|
Other operating expenses (Note 4)
|
|
|
907
|
|
|
|
1,249
|
|
Interest
|
|
|
143
|
|
|
|
131
|
|
|
|
Total
|
|
|
2,978
|
|
|
|
3,373
|
|
|
|
Income before income tax
|
|
|
195
|
|
|
|
105
|
|
Income tax (expense) benefit
|
|
|
4
|
|
|
|
(56)
|
|
|
|
Net income
|
|
|
199
|
|
|
|
49
|
|
Amounts attributable to noncontrolling interests
|
|
|
(97
|
)
|
|
|
60
|
|
|
|
Net income attributable to Loews Corporation
|
|
$
|
102
|
|
|
$
|
109
|
|
|
|
|
|
|
Basic and diluted net income per share
|
|
$
|
0.30
|
|
|
$
|
0.29
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.0625
|
|
|
$
|
0.0625
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Shares of common stock
|
|
|
339.10
|
|
|
|
372.83
|
|
Dilutive potential shares of common stock
|
|
|
0.15
|
|
|
|
0.36
|
|
|
|
Total weighted average shares outstanding assuming dilution
|
|
|
339.25
|
|
|
|
373.19
|
|
|
|
See accompanying Notes to Consolidated Condensed Financial Statements.
4
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
199
|
|
|
$
|
49
|
|
|
|
|
|
|
Other comprehensive income (loss), after tax
|
|
|
|
|
|
|
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on investments with other-than-temporary impairments
|
|
|
5
|
|
|
|
(1)
|
|
Net other unrealized gains on investments
|
|
|
228
|
|
|
|
110
|
|
|
|
Total unrealized gains on available-for-sale investments
|
|
|
233
|
|
|
|
109
|
|
Unrealized gains on cash flow hedges
|
|
|
1
|
|
|
|
3
|
|
Pension liability
|
|
|
8
|
|
|
|
4
|
|
Foreign currency
|
|
|
14
|
|
|
|
(96)
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
256
|
|
|
|
20
|
|
|
|
|
|
|
Comprehensive income
|
|
|
455
|
|
|
|
69
|
|
|
|
|
Amounts attributable to noncontrolling interests
|
|
|
(122
|
)
|
|
|
57
|
|
|
|
|
|
|
Total comprehensive income attributable to Loews Corporation
|
|
$
|
333
|
|
|
$
|
126
|
|
|
|
See accompanying Notes to Consolidated Condensed Financial Statements.
5
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews Corporation Shareholders
|
|
|
|
|
|
|
Total
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Common
Stock
Held in
Treasury
|
|
|
Noncontrolling
Interests
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2015
|
|
$
|
24,650
|
|
|
$
|
4
|
|
|
$
|
3,481
|
|
|
$
|
15,515
|
|
|
$
|
280
|
|
|
$
|
-
|
|
|
$
|
5,370
|
|
Net income
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
(60)
|
|
Other comprehensive income
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
3
|
|
Dividends paid
|
|
|
(105)
|
|
|
|
|
|
|
|
|
|
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
(82)
|
|
Issuance of equity securities by subsidiary
|
|
|
109
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
110
|
|
Purchases of subsidiary stock from noncontrolling interests
|
|
|
(26)
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29)
|
|
Purchases of Loews treasury stock
|
|
|
(71)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71)
|
|
|
|
|
|
Issuance of Loews common stock
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(8)
|
|
|
|
|
|
|
|
(17)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
Balance, March 31, 2015
|
|
$
|
24,630
|
|
|
$
|
4
|
|
|
$
|
3,477
|
|
|
$
|
15,600
|
|
|
$
|
298
|
|
|
$
|
(71)
|
|
|
$
|
5,322
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2016
|
|
$
|
22,810
|
|
|
$
|
3
|
|
|
$
|
3,184
|
|
|
$
|
14,731
|
|
|
$
|
(357)
|
|
|
$
|
-
|
|
|
$
|
5,249
|
|
Net income
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
Other comprehensive income
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
25
|
|
Dividends paid
|
|
|
(96)
|
|
|
|
|
|
|
|
|
|
|
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
(75)
|
|
Purchases of subsidiary stock from noncontrolling interests
|
|
|
(9)
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
|
Purchases of Loews treasury stock
|
|
|
(33)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33)
|
|
|
|
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Other
|
|
|
(5)
|
|
|
|
|
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
Balance, March 31, 2016
|
|
$
|
23,125
|
|
|
$
|
3
|
|
|
$
|
3,177
|
|
|
$
|
14,812
|
|
|
$
|
(126)
|
|
|
$
|
(33)
|
|
|
$
|
5,292
|
|
|
|
See accompanying Notes to Consolidated Condensed Financial Statements.
6
Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
199
|
|
|
$
|
49
|
|
Adjustments to reconcile net income to net cash provided (used) by operating activities,
net
|
|
|
585
|
|
|
|
510
|
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(275)
|
|
|
|
(153)
|
|
Deferred acquisition costs
|
|
|
(23)
|
|
|
|
(13)
|
|
Insurance reserves
|
|
|
511
|
|
|
|
304
|
|
Other assets
|
|
|
(20)
|
|
|
|
(57)
|
|
Other liabilities
|
|
|
(287)
|
|
|
|
(227)
|
|
Trading securities
|
|
|
(541)
|
|
|
|
(371)
|
|
|
|
Net cash flow operating activities
|
|
|
149
|
|
|
|
42
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of fixed maturities
|
|
|
(2,238)
|
|
|
|
(1,919)
|
|
Proceeds from sales of fixed maturities
|
|
|
1,722
|
|
|
|
1,144
|
|
Proceeds from maturities of fixed maturities
|
|
|
490
|
|
|
|
1,144
|
|
Purchases of limited partnership investments
|
|
|
(170)
|
|
|
|
(34)
|
|
Proceeds from sales of limited partnership investments
|
|
|
89
|
|
|
|
20
|
|
Purchases of property, plant and equipment
|
|
|
(292)
|
|
|
|
(453)
|
|
Dispositions
|
|
|
220
|
|
|
|
5
|
|
Change in short term investments
|
|
|
16
|
|
|
|
197
|
|
Other, net
|
|
|
6
|
|
|
|
(10)
|
|
|
|
Net cash flow investing activities
|
|
|
(157)
|
|
|
|
94
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(21)
|
|
|
|
(23)
|
|
Dividends paid to noncontrolling interests
|
|
|
(75)
|
|
|
|
(82)
|
|
Purchases of subsidiary stock from noncontrolling interests
|
|
|
(8)
|
|
|
|
(24)
|
|
Purchases of Loews treasury stock
|
|
|
(33)
|
|
|
|
(67)
|
|
Issuance of Loews common stock
|
|
|
|
|
|
|
7
|
|
Proceeds from sale of subsidiary stock
|
|
|
|
|
|
|
84
|
|
Principal payments on debt
|
|
|
(1,809)
|
|
|
|
(759)
|
|
Issuance of debt
|
|
|
1,824
|
|
|
|
636
|
|
Other, net
|
|
|
(1)
|
|
|
|
5
|
|
|
|
Net cash flow financing activities
|
|
|
(123)
|
|
|
|
(223)
|
|
|
|
|
|
|
Effect of foreign exchange rate on cash
|
|
|
(1)
|
|
|
|
(6)
|
|
|
|
|
|
|
Net change in cash
|
|
|
(132)
|
|
|
|
(93)
|
|
Cash, beginning of period
|
|
|
440
|
|
|
|
364
|
|
|
|
Cash, end of period
|
|
$
|
308
|
|
|
$
|
271
|
|
|
|
See accompanying Notes to Consolidated Condensed Financial Statements.
7
Loews Corporation and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Loews Corporation is a holding company. Its subsidiaries are engaged in the following lines of business:
commercial property and casualty insurance (CNA Financial Corporation (CNA), a 90% owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (Diamond Offshore), a 53% owned
subsidiary); transportation and storage of natural gas and natural gas liquids and gathering and processing of natural gas (Boardwalk Pipeline Partners, LP (Boardwalk Pipeline), a 51% owned subsidiary); and the operation of a chain of
hotels (Loews Hotels Holding Corporation (Loews Hotels), a wholly owned subsidiary). Unless the context otherwise requires, the terms Company, Loews and Registrant as used herein mean Loews Corporation
excluding its subsidiaries and the term Net income (loss) attributable to Loews Corporation as used herein means Net income (loss) attributable to Loews Corporation shareholders.
In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 2016 and December 31, 2015 and the results of operations, comprehensive income and changes in shareholders equity and cash
flows for the three months ended March 31, 2016 and 2015. Net income for the first quarter of each of the years is not necessarily indicative of net income for that entire year. These Consolidated Condensed Financial Statements should be read in
conjunction with the Consolidated Financial Statements in the 2015 Annual Report on Form 10-K.
The Company presents basic
and diluted net income per share on the Consolidated Condensed Statements of Income. Basic net income per share excludes dilution and is computed by dividing net income attributable to common stock by the weighted average number of common shares
outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Stock appreciation rights
(SARs) of 6.1 million and 3.5 million shares were not included in the diluted weighted average shares amounts for the three months ended March 31, 2016 and 2015 due to the exercise price being greater than the average stock price.
Accounting changes
In April of 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The updated accounting guidance requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, rather than as a deferred asset. As required, the Companys Consolidated Condensed Balance Sheet has been retrospectively
adjusted to reflect the effect of the adoption of the updated accounting guidance, which resulted in a decrease of $23 million in Other assets and Long term debt at December 31, 2015.
Recently issued ASUs
In May of 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).
The core principle of the new accounting guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled
in exchange for those goods or services. The new accounting guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires enhanced disclosures about revenue. In August of 2015, the FASB formally
amended the effective date of this update to annual reporting periods beginning after December 15, 2017, including interim periods, and it can be adopted either retrospectively or with a cumulative effect adjustment at the date of adoption. The
Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated financial statements.
In May of 2015, the FASB issued ASU 2015-09, Financial Services
Insurance (Topic 944): Disclosures about
Short-Duration Contracts. The updated accounting guidance requires enhanced disclosures to provide additional information about insurance liabilities for short-duration contracts. The guidance is effective for annual periods beginning after
December 15, 2015 and for interim periods beginning after December 15, 2016. The Company is currently evaluating the effect the updated guidance will have on its financial statement disclosures.
8
In January of 2016, the FASB issued ASU 2016-01, Financial Instruments
Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated accounting guidance requires changes to the reporting model for financial instruments. The guidance is effective
for interim and annual periods beginning after December 15, 2017. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements, and expects the primary change to be the requirement for equity
investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
In February of 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to
recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and nonlease components in a contract in accordance with the new revenue guidance in ASU 2014-09. The
updated guidance is effective for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the effect the updated guidance will have on its consolidated financial statements.
2. Investments
Net investment income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
446
|
|
|
|
|
$
|
443
|
|
|
|
Limited partnership investments
|
|
|
(40)
|
|
|
|
|
|
160
|
|
|
|
Short term investments
|
|
|
3
|
|
|
|
|
|
3
|
|
|
|
Equity securities
|
|
|
3
|
|
|
|
|
|
3
|
|
|
|
Income (loss) from trading portfolio (a)
|
|
|
15
|
|
|
|
|
|
(15)
|
|
|
|
Other
|
|
|
9
|
|
|
|
|
|
8
|
|
|
|
Total investment income
|
|
|
436
|
|
|
|
|
|
602
|
|
|
|
Investment expenses
|
|
|
(14)
|
|
|
|
|
|
(14)
|
|
|
|
Net investment income
|
|
$
|
422
|
|
|
|
|
$
|
588
|
|
|
|
|
(a) Includes net unrealized gains (losses) related to changes in
fair value on trading securities still held of $15 and $(14) for the three months ended March 31, 2016 and 2015.
Investment gains (losses) are as follows:
|
Three Months Ended March 31
|
|
2016
|
|
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
(17)
|
|
|
|
|
$
|
12
|
|
|
|
Equity securities
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
(7)
|
|
|
|
|
|
(1)
|
|
|
|
Short term investments and other
|
|
|
1
|
|
|
|
|
|
(1)
|
|
|
|
Investment gains (losses) (a)
|
|
$
|
(28)
|
|
|
|
|
$
|
10
|
|
|
|
|
(a)
|
Includes gross realized gains of $45 and $34 and gross realized losses of $67 and $22 on available-for-sale
securities for the three months ended March 31, 2016 and 2015.
|
9
The components of net other-than-temporary impairment (OTTI) losses
recognized in earnings by asset type are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
|
|
2015
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
16
|
|
|
|
|
$
|
5
|
|
|
|
States, municipalities and political subdivisions
|
|
|
|
|
|
|
|
|
5
|
|
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
|
|
|
|
|
|
1
|
|
|
|
Other asset-backed
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed
|
|
|
2
|
|
|
|
|
|
1
|
|
|
|
|
Total fixed maturities available-for-sale
|
|
|
18
|
|
|
|
|
|
11
|
|
|
|
|
Equity securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
5
|
|
|
|
|
|
1
|
|
|
|
|
Net OTTI losses recognized in earnings
|
|
$
|
23
|
|
|
|
|
$
|
12
|
|
|
|
|
The amortized cost and fair values of securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Cost or
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
OTTI Losses
(Gains)
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
17,093
|
|
|
|
$ 1,255
|
|
|
$
|
236
|
|
|
$
|
18,112
|
|
|
|
|
|
States, municipalities and political subdivisions
|
|
|
11,478
|
|
|
|
1,704
|
|
|
|
3
|
|
|
|
13,179
|
|
|
$
|
(15)
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
5,028
|
|
|
|
197
|
|
|
|
19
|
|
|
|
5,206
|
|
|
|
(33)
|
|
Commercial mortgage-backed
|
|
|
2,137
|
|
|
|
78
|
|
|
|
16
|
|
|
|
2,199
|
|
|
|
|
|
Other asset-backed
|
|
|
937
|
|
|
|
4
|
|
|
|
20
|
|
|
|
921
|
|
|
|
|
|
|
|
Total asset-backed
|
|
|
8,102
|
|
|
|
279
|
|
|
|
55
|
|
|
|
8,326
|
|
|
|
(33)
|
|
U.S. Treasury and obligations of government-sponsored enterprises
|
|
|
133
|
|
|
|
7
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
Foreign government
|
|
|
447
|
|
|
|
17
|
|
|
|
1
|
|
|
|
463
|
|
|
|
|
|
Redeemable preferred stock
|
|
|
33
|
|
|
|
2
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
Fixed maturities available-for-sale
|
|
|
37,286
|
|
|
|
3,264
|
|
|
|
295
|
|
|
|
40,255
|
|
|
|
(48)
|
|
Fixed maturities trading
|
|
|
221
|
|
|
|
|
|
|
|
1
|
|
|
|
220
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
37,507
|
|
|
|
3,264
|
|
|
|
296
|
|
|
|
40,475
|
|
|
|
(48)
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
37
|
|
|
|
6
|
|
|
|
2
|
|
|
|
41
|
|
|
|
|
|
Preferred stock
|
|
|
145
|
|
|
|
5
|
|
|
|
2
|
|
|
|
148
|
|
|
|
|
|
|
|
Equity securities available-for-sale
|
|
|
182
|
|
|
|
11
|
|
|
|
4
|
|
|
|
189
|
|
|
|
-
|
|
Equity securities trading
|
|
|
635
|
|
|
|
74
|
|
|
|
121
|
|
|
|
588
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
817
|
|
|
|
85
|
|
|
|
125
|
|
|
|
777
|
|
|
|
-
|
|
|
|
Total
|
|
$
|
38,324
|
|
|
|
$ 3,349
|
|
|
$
|
421
|
|
|
$
|
41,252
|
|
|
$
|
(48)
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Cost or
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Unrealized
OTTI Losses
(Gains)
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
17,097
|
|
|
$
|
1,019
|
|
|
$
|
347
|
|
|
$
|
17,769
|
|
|
|
|
|
States, municipalities and political subdivisions
|
|
|
11,729
|
|
|
|
1,453
|
|
|
|
8
|
|
|
|
13,174
|
|
|
$
|
(4)
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
4,935
|
|
|
|
154
|
|
|
|
17
|
|
|
|
5,072
|
|
|
|
(37)
|
|
Commercial mortgage-backed
|
|
|
2,154
|
|
|
|
55
|
|
|
|
12
|
|
|
|
2,197
|
|
|
|
|
|
Other asset-backed
|
|
|
923
|
|
|
|
6
|
|
|
|
8
|
|
|
|
921
|
|
|
|
|
|
|
|
Total asset-backed
|
|
|
8,012
|
|
|
|
215
|
|
|
|
37
|
|
|
|
8,190
|
|
|
|
(37)
|
|
U.S. Treasury and obligations of government-sponsored enterprises
|
|
|
62
|
|
|
|
5
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
Foreign government
|
|
|
334
|
|
|
|
13
|
|
|
|
1
|
|
|
|
346
|
|
|
|
|
|
Redeemable preferred stock
|
|
|
33
|
|
|
|
2
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
Fixed maturities available-for-sale
|
|
|
37,267
|
|
|
|
2,707
|
|
|
|
393
|
|
|
|
39,581
|
|
|
|
(41)
|
|
Fixed maturities, trading
|
|
|
140
|
|
|
|
|
|
|
|
20
|
|
|
|
120
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
37,407
|
|
|
|
2,707
|
|
|
|
413
|
|
|
|
39,701
|
|
|
|
(41)
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
46
|
|
|
|
3
|
|
|
|
1
|
|
|
|
48
|
|
|
|
|
|
Preferred stock
|
|
|
145
|
|
|
|
7
|
|
|
|
3
|
|
|
|
149
|
|
|
|
|
|
|
|
Equity securities available-for-sale
|
|
|
191
|
|
|
|
10
|
|
|
|
4
|
|
|
|
197
|
|
|
|
-
|
|
Equity securities, trading
|
|
|
633
|
|
|
|
56
|
|
|
|
134
|
|
|
|
555
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
824
|
|
|
|
66
|
|
|
|
138
|
|
|
|
752
|
|
|
|
-
|
|
|
|
Total
|
|
$
|
38,231
|
|
|
$
|
2,773
|
|
|
$
|
551
|
|
|
$
|
40,453
|
|
|
$
|
(41)
|
|
|
|
The net unrealized gains on investments included in the tables above are recorded as a
component of Accumulated other comprehensive income (AOCI). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent that unrealized gains on fixed income
securities supporting certain products within CNAs Life & Group Non-Core business would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a
reduction of net unrealized gains through Other comprehensive income (Shadow Adjustments). As of March 31, 2016 and December 31, 2015, the net unrealized gains on investments included in AOCI were net of Shadow Adjustments of $1,176
million and $996 million.
The available-for-sale securities in a gross unrealized loss position are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
12 Months
|
|
|
12 Months
or Longer
|
|
|
Total
|
|
|
|
|
|
|
March 31, 2016
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
2,669
|
|
|
$
|
174
|
|
|
$
|
279
|
|
|
$
|
62
|
|
|
$
|
2,948
|
|
|
$
|
236
|
|
States, municipalities and political subdivisions
|
|
|
90
|
|
|
|
3
|
|
|
|
64
|
|
|
|
|
|
|
|
154
|
|
|
|
3
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
376
|
|
|
|
11
|
|
|
|
159
|
|
|
|
8
|
|
|
|
535
|
|
|
|
19
|
|
Commercial mortgage-backed
|
|
|
505
|
|
|
|
14
|
|
|
|
102
|
|
|
|
2
|
|
|
|
607
|
|
|
|
16
|
|
Other asset-backed
|
|
|
572
|
|
|
|
20
|
|
|
|
5
|
|
|
|
|
|
|
|
577
|
|
|
|
20
|
|
|
|
Total asset-backed
|
|
|
1,453
|
|
|
|
45
|
|
|
|
266
|
|
|
|
10
|
|
|
|
1,719
|
|
|
|
55
|
|
U.S. Treasury and obligations of government-sponsored enterprises
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
Foreign government
|
|
|
54
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
1
|
|
Redeemable preferred stock
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
4,291
|
|
|
|
223
|
|
|
|
609
|
|
|
|
72
|
|
|
|
4,900
|
|
|
|
295
|
|
|
|
Common stock
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
2
|
|
Preferred stock
|
|
|
17
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
2
|
|
|
|
Total
|
|
$
|
4,314
|
|
|
$
|
227
|
|
|
$
|
609
|
|
|
$
|
72
|
|
|
$
|
4,923
|
|
|
$
|
299
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
12 Months
|
|
|
|
|
|
|
12 Months
|
|
|
or Longer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
December 31, 2015
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
4,882
|
|
|
|
$ 302
|
|
|
$
|
174
|
|
|
|
$ 45
|
|
|
$
|
5,056
|
|
|
$
|
347
|
|
States, municipalities and political subdivisions
|
|
|
338
|
|
|
|
8
|
|
|
|
75
|
|
|
|
|
|
|
|
413
|
|
|
|
8
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
963
|
|
|
|
9
|
|
|
|
164
|
|
|
|
8
|
|
|
|
1,127
|
|
|
|
17
|
|
Commercial mortgage-backed
|
|
|
652
|
|
|
|
10
|
|
|
|
96
|
|
|
|
2
|
|
|
|
748
|
|
|
|
12
|
|
Other asset-backed
|
|
|
552
|
|
|
|
8
|
|
|
|
5
|
|
|
|
|
|
|
|
557
|
|
|
|
8
|
|
|
|
Total asset-backed
|
|
|
2,167
|
|
|
|
27
|
|
|
|
265
|
|
|
|
10
|
|
|
|
2,432
|
|
|
|
37
|
|
U.S. Treasury and obligations of government-sponsored enterprises
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Foreign government
|
|
|
54
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
1
|
|
Redeemable preferred stock
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
7,448
|
|
|
|
338
|
|
|
|
514
|
|
|
|
55
|
|
|
|
7,962
|
|
|
|
393
|
|
Common stock
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
Preferred stock
|
|
|
13
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
3
|
|
|
|
Total
|
|
$
|
7,464
|
|
|
|
$ 342
|
|
|
$
|
514
|
|
|
|
$ 55
|
|
|
$
|
7,978
|
|
|
$
|
397
|
|
|
|
Based on current facts and circumstances, the Company believes the unrealized losses presented
in the table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors, including volatility in the energy and
metals and mining sectors. As of March 31, 2016, the Company held fixed maturity securities and equity securities with an estimated fair value and a cost or amortized cost of $2.5 billion in the energy and metals and mining sectors. The portion of
these securities in a gross unrealized loss position had an estimated fair value of $1.1 billion and a cost or amortized cost of $1.2 billion. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than
not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded as of March 31, 2016.
The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed
maturity securities still held as of March 31, 2016 and 2015 for which a portion of an OTTI loss was recognized in Other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of credit losses on fixed maturity securities
|
|
$
|
53
|
|
|
$
|
62
|
|
|
|
Reductions for securities sold during the period
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
Ending balance of credit losses on fixed maturity securities
|
|
$
|
48
|
|
|
$
|
61
|
|
|
|
|
12
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Cost or
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
1,747
|
|
|
$
|
1,773
|
|
|
$
|
1,574
|
|
|
$
|
1,595
|
|
Due after one year through five years
|
|
|
8,352
|
|
|
|
8,753
|
|
|
|
7,738
|
|
|
|
8,082
|
|
Due after five years through ten years
|
|
|
14,587
|
|
|
|
15,129
|
|
|
|
14,652
|
|
|
|
14,915
|
|
Due after ten years
|
|
|
12,600
|
|
|
|
14,600
|
|
|
|
13,303
|
|
|
|
14,989
|
|
|
|
Total
|
|
$
|
37,286
|
|
|
$
|
40,255
|
|
|
$
|
37,267
|
|
|
$
|
39,581
|
|
|
|
Actual maturities may differ from contractual maturities because certain securities may be
called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Derivative Financial Instruments
A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial
instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments. Gross
estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
Contractual/
|
|
|
|
|
|
Contractual/
|
|
|
|
|
|
|
Notional
|
|
Estimated Fair Value
|
|
Notional
|
|
Estimated Fair Value
|
|
|
Amount
|
|
Asset
|
|
(Liability)
|
|
Amount
|
|
Asset
|
|
(Liability)
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without hedge designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options purchased
|
|
|
$
|
906
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
$ 501
|
|
|
|
$
|
16
|
|
|
|
|
|
|
written
|
|
|
|
238
|
|
|
|
|
|
|
|
|
$
|
(10)
|
|
|
|
|
614
|
|
|
|
|
|
|
|
|
|
$ (28)
|
|
Futures long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
(1)
|
|
short
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency forwards long
|
|
|
|
267
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
|
2
|
|
|
|
|
|
|
short
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
(10)
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
Currency options long
|
|
|
|
300
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
550
|
|
|
|
|
7
|
|
|
|
|
|
|
Commodities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures long
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivative on funds withheld liability
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
179
|
|
|
|
|
5
|
|
|
|
|
|
|
13
3. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
|
●
|
|
Level 1 Quoted prices for identical instruments in active markets.
|
|
●
|
|
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
|
|
●
|
|
Level 3 Valuations derived from valuation techniques in which one or more significant inputs are not
observable.
|
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to
estimate fair value for each specific security. In general, the Company seeks to price securities using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not
available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not
adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and
brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures include: (i) the review of pricing service or broker pricing
methodologies, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the
pricing service or broker based on exception criteria, (iv) detailed analysis, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and (v) pricing validation, where prices received are
compared to prices independently estimated by the Company.
14
The fair values of CNAs life settlement contracts are included in Other
assets on the Consolidated Condensed Balance Sheets. Equity options purchased are included in Equity securities, and all other derivative assets are included in Receivables. Derivative liabilities are included in Payable to brokers. Assets and
liabilities measured at fair value on a recurring basis are presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Level 1
|
|
|
|
|
Level 2
|
|
|
|
|
Level 3
|
|
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
|
|
|
|
|
|
$
|
17,919
|
|
|
|
|
$
|
193
|
|
|
|
|
$
|
18,112
|
|
States, municipalities and political subdivisions
|
|
|
|
|
|
|
|
|
13,177
|
|
|
|
|
|
2
|
|
|
|
|
|
13,179
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
|
|
|
|
|
|
5,078
|
|
|
|
|
|
128
|
|
|
|
|
|
5,206
|
|
Commercial mortgage-backed
|
|
|
|
|
|
|
|
|
2,172
|
|
|
|
|
|
27
|
|
|
|
|
|
2,199
|
|
Other asset-backed
|
|
|
|
|
|
|
|
|
871
|
|
|
|
|
|
50
|
|
|
|
|
|
921
|
|
|
|
Total asset-backed
|
|
|
|
|
|
|
|
|
8,121
|
|
|
|
|
|
205
|
|
|
|
|
|
8,326
|
|
U.S. Treasury and obligations of government-sponsored enterprises
|
|
$
|
139
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
140
|
|
Foreign government
|
|
|
|
|
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
463
|
|
Redeemable preferred stock
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
Fixed maturities available-for-sale
|
|
|
174
|
|
|
|
|
|
39,681
|
|
|
|
|
|
400
|
|
|
|
|
|
40,255
|
|
Fixed maturities trading
|
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
3
|
|
|
|
|
|
220
|
|
|
|
Total fixed maturities
|
|
$
|
174
|
|
|
|
|
$
|
39,898
|
|
|
|
|
$
|
403
|
|
|
|
|
$
|
40,475
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available-for-sale
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
$
|
19
|
|
|
|
|
$
|
189
|
|
Equity securities trading
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588
|
|
|
|
Total equity securities
|
|
$
|
758
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
19
|
|
|
|
|
$
|
777
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments
|
|
$
|
4,135
|
|
|
|
|
$
|
1,064
|
|
|
|
|
|
|
|
|
|
|
$
|
5,199
|
|
Other invested assets
|
|
|
102
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Receivables
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Life settlement contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72
|
|
|
|
|
|
72
|
|
Payable to brokers
|
|
|
(102)
|
|
|
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
(112)
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
|
|
|
Level 2
|
|
|
|
|
Level 3
|
|
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
|
|
|
|
|
|
$
|
17,601
|
|
|
|
|
$
|
168
|
|
|
|
|
$
|
17,769
|
|
States, municipalities and political subdivisions
|
|
|
|
|
|
|
|
|
13,172
|
|
|
|
|
|
2
|
|
|
|
|
|
13,174
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
|
|
|
|
|
|
4,938
|
|
|
|
|
|
134
|
|
|
|
|
|
5,072
|
|
Commercial mortgage-backed
|
|
|
|
|
|
|
|
|
2,175
|
|
|
|
|
|
22
|
|
|
|
|
|
2,197
|
|
Other asset-backed
|
|
|
|
|
|
|
|
|
868
|
|
|
|
|
|
53
|
|
|
|
|
|
921
|
|
|
|
Total asset-backed
|
|
|
|
|
|
|
|
|
7,981
|
|
|
|
|
|
209
|
|
|
|
|
|
8,190
|
|
U.S. Treasury and obligations of government-sponsored enterprises
|
|
$
|
66
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
Foreign government
|
|
|
|
|
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
346
|
|
Redeemable preferred stock
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
Fixed maturities available-for-sale
|
|
|
101
|
|
|
|
|
|
39,101
|
|
|
|
|
|
379
|
|
|
|
|
|
39,581
|
|
Fixed maturities trading
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
85
|
|
|
|
|
|
120
|
|
|
|
Total fixed maturities
|
|
$
|
101
|
|
|
|
|
$
|
39,136
|
|
|
|
|
$
|
464
|
|
|
|
|
$
|
39,701
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available-for-sale
|
|
$
|
177
|
|
|
|
|
|
|
|
|
|
|
$
|
20
|
|
|
|
|
$
|
197
|
|
Equity securities trading
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
555
|
|
|
|
Total equity securities
|
|
$
|
731
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
21
|
|
|
|
|
$
|
752
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments
|
|
$
|
3,600
|
|
|
|
|
$
|
1,134
|
|
|
|
|
|
|
|
|
|
|
$
|
4,734
|
|
Other invested assets
|
|
|
102
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
146
|
|
Receivables
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
$
|
3
|
|
|
|
|
|
12
|
|
Life settlement contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
74
|
|
Payable to brokers
|
|
|
(196)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(196)
|
|
16
The following tables present reconciliations for all assets and liabilities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized Gains
(Losses) and Net Change
in Unrealized Gains
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
into
Level 3
|
|
|
|
|
Transfers
out of
Level 3
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains
(Losses)
Recognized in
Net Income
on Level
3 Assets and
Liabilities
Held at
March 31
|
|
2016
|
|
Balance,
January 1
|
|
|
Included in
Net Income
|
|
|
Included in
OCI
|
|
|
Purchases
|
|
|
|
|
Sales
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
168
|
|
|
$
|
(1)
|
|
|
$
|
4
|
|
|
$
|
53
|
|
|
|
|
$
|
(16)
|
|
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
|
$
|
(12)
|
|
|
|
|
$
|
193
|
|
|
|
|
|
|
|
States, municipalities and political subdivisions
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
134
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
Commercial mortgage- backed
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
Other asset-backed
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
(5)
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Total asset-backed
|
|
|
209
|
|
|
|
1
|
|
|
|
-
|
|
|
|
9
|
|
|
|
|
|
-
|
|
|
|
|
|
(5)
|
|
|
|
|
|
2
|
|
|
|
|
|
(11)
|
|
|
|
|
|
205
|
|
|
|
|
$
|
-
|
|
|
|
Fixed maturities available-for-sale
|
|
|
379
|
|
|
|
|
|
|
|
4
|
|
|
|
62
|
|
|
|
|
|
(16)
|
|
|
|
|
|
(8)
|
|
|
|
|
|
2
|
|
|
|
|
|
(23)
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
Fixed maturities trading
|
|
|
85
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
(85)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
464
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
64
|
|
|
|
|
$
|
(101)
|
|
|
|
|
$
|
(8)
|
|
|
|
|
$
|
2
|
|
|
|
|
$
|
(23)
|
|
|
|
|
$
|
403
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available-for-sale
|
|
$
|
20
|
|
|
|
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
Equity securities trading
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
21
|
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
$
|
-
|
|
|
|
|
$
|
(1)
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
19
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life settlement contracts
|
|
$
|
74
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72
|
|
|
|
|
$
|
1
|
|
Derivative financial instruments, net
|
|
|
3
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized Gains
(Losses) and Net Change
in Unrealized Gains
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
into
Level 3
|
|
|
|
|
Transfers
out of
Level 3
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains
(Losses)
Recognized in
Net Income
on Level
3 Assets and
Liabilities
Held at
March 31
|
|
2015
|
|
Balance,
January 1
|
|
|
Included in
Net Income
|
|
|
Included in
OCI
|
|
|
Purchases
|
|
|
|
|
Sales
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
162
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
12
|
|
|
|
|
$
|
(12)
|
|
|
|
|
$
|
(14)
|
|
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
$
|
186
|
|
|
|
|
|
|
|
States, municipalities and political subdivisions
|
|
|
94
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
Asset-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
189
|
|
|
|
1
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
$
|
(20)
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
Commercial mortgage- backed
|
|
|
83
|
|
|
|
1
|
|
|
$
|
1
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
(26)
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
Other asset-backed
|
|
|
655
|
|
|
|
1
|
|
|
|
9
|
|
|
|
35
|
|
|
|
|
|
(144)
|
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
Total asset-backed
|
|
|
927
|
|
|
|
3
|
|
|
|
10
|
|
|
|
113
|
|
|
|
|
|
(144)
|
|
|
|
|
|
(14)
|
|
|
|
|
|
-
|
|
|
|
|
|
(46)
|
|
|
|
|
|
849
|
|
|
|
|
$
|
-
|
|
|
|
Fixed maturities available-for-sale
|
|
|
1,183
|
|
|
|
5
|
|
|
|
10
|
|
|
|
125
|
|
|
|
|
|
(156)
|
|
|
|
|
|
(37)
|
|
|
|
|
|
37
|
|
|
|
|
|
(46)
|
|
|
|
|
|
1,121
|
|
|
|
|
|
|
|
Fixed maturities trading
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
1,273
|
|
|
$
|
5
|
|
|
$
|
10
|
|
|
$
|
125
|
|
|
|
|
$
|
(157)
|
|
|
|
|
$
|
(37)
|
|
|
|
|
$
|
37
|
|
|
|
|
$
|
(46)
|
|
|
|
|
$
|
1,210
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available-for-sale
|
|
$
|
16
|
|
|
|
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
|
Equity securities trading
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
17
|
|
|
$
|
-
|
|
|
$
|
(3)
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
$
|
14
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life settlement contracts
|
|
$
|
82
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79
|
|
|
|
|
$
|
1
|
|
Net realized and unrealized gains and losses are reported in Net income as follows:
|
|
|
Major Category of Assets and Liabilities
|
|
Consolidated Condensed Statements of Income Line Items
|
|
|
|
Fixed maturity securities available-for-sale
|
|
Investment gains (losses)
|
Fixed maturity securities, trading
|
|
Net investment income
|
Equity securities available-for-sale
|
|
Investment gains (losses)
|
Equity securities, trading
|
|
Net investment income
|
Other invested assets
|
|
Investment gains (losses) and Net investment income
|
Derivative financial instruments held in a trading portfolio
|
|
Net investment income
|
Derivative financial instruments, other
|
|
Investment gains (losses) and Other revenues
|
Life settlement contracts
|
|
Other revenues
|
18
Securities may be transferred in or out of levels within the fair value hierarchy
based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume.
During the three months ended March 31, 2016 and 2015 there were no transfers between Level 1 and Level 2. The Companys policy is to recognize transfers between levels at the beginning of quarterly reporting periods.
Valuation Methodologies and Inputs
The following section describes the valuation methodologies and relevant inputs used to measure different financial
instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.
Fixed
Maturity Securities
Level 1 securities include highly liquid and exchange traded bonds and redeemable preferred
stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology
based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices
from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment
and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there
is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with inputs
that are not market observable.
Equity Securities
Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are
primarily non-redeemable preferred stocks and common stocks valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using
broker/dealer quotes and internal models with inputs that are not market observable.
Derivative Financial Instruments
Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value
hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, commodity swaps, equity warrants and options, are
valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the
marketplace.
Short Term Investments
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market
funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed
above. Short term investments as presented in the tables above differ from the amounts presented in the Consolidated Condensed Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
19
Other Invested Assets
Level 1 securities include exchange traded open-end funds valued using quoted market prices.
Life Settlement Contracts
The fair values of life settlement contracts are determined as the present value of the anticipated death benefits less
anticipated premium payments based on contract terms that are distinct for each insured, as well as CNAs own assumptions for mortality, premium expense, and the rate of return that a buyer would require on the contracts, as no comparable
market pricing data is available.
Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the
fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The
quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available to the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Estimated
Fair Value
|
|
|
Valuation
Techniques
|
|
Unobservable
Inputs
|
|
Range
(Weighted
Average)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
142
|
|
|
Discounted cash flow
|
|
Credit spread
|
|
|
0% 20% (4%)
|
|
|
|
|
|
|
Life settlement contracts
|
|
|
72
|
|
|
Discounted cash flow
|
|
Discount rate risk premium
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
Mortality assumption
|
|
|
55% 1,676% (164%)
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
138
|
|
|
Discounted cash flow
|
|
Credit spread
|
|
|
3% 184% (6%)
|
|
|
|
|
|
|
Life settlement contracts
|
|
|
74
|
|
|
Discounted cash flow
|
|
Discount rate risk premium
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
Mortality assumption
|
|
|
55% 1,676% (164%)
|
|
For fixed maturity securities, an increase to the credit spread assumptions would result in a
lower fair value measurement. For life settlement contracts, an increase in the discount rate risk premium or decrease in the mortality assumption would result in a lower fair value measurement.
20
Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount, estimated fair value and the level of the fair value hierarchy of the Companys financial assets and
liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude capital lease
obligations. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of
these items.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated Fair Value
|
|
March 31, 2016
|
|
Amount
|
|
|
Level 1
|
|
Level 2
|
|
|
|
|
|
Level 3
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets, primarily mortgage loans
|
|
$
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
697
|
|
|
|
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Long term debt
|
|
|
10,571
|
|
|
|
|
$
|
9,610
|
|
|
|
|
|
|
|
648
|
|
|
|
|
|
|
|
10,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets, primarily mortgage loans
|
|
$
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
688
|
|
|
|
|
|
|
$
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term debt
|
|
|
1,038
|
|
|
|
|
$
|
1,050
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
1,052
|
|
|
|
|
|
Long term debt
|
|
|
9,507
|
|
|
|
|
|
8,538
|
|
|
|
|
|
|
|
595
|
|
|
|
|
|
|
|
9,133
|
|
|
|
|
|
The following methods and assumptions were used in estimating the fair value of these
financial assets and liabilities.
The fair value of mortgage loans, included in Other invested assets, was based on the
present value of the expected future cash flows discounted at the current interest rate for similar financial instruments, adjusted for specific loan risk.
Fair value of debt was based on observable market prices when available. When observable market prices were not available, the
fair value of debt was based on observable market prices of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current
incremental borrowing rates for similar types of borrowing arrangements.
4. Property, Plant and Equipment
Diamond Offshore
Sale of Assets
In February of 2016, Diamond Offshore entered into a ten-year agreement with a subsidiary of GE Oil & Gas
(GE) to provide services with respect to certain blowout preventer and related well control equipment on four newly-built drillships. Such services include management of maintenance, certification and reliability with respect to such
equipment. In connection with the contractual services agreement with GE, Diamond Offshore will sell the well control equipment to a GE affiliate and subsequently lease back such equipment over separate ten-year operating leases. During March of
2016, Diamond Offshore executed two sale and leaseback transactions and received $105 million in proceeds with no gain or loss recognized on the transactions. Future commitments under
21
the operating leases and contractual services agreements are estimated to aggregate approximately $327 million over the term of the agreements. Diamond Offshore expects to complete the remaining
sale and leaseback transactions in the second and fourth quarters of 2016.
Asset Impairments
During the first quarter of 2016, in response to continued deterioration of the market fundamentals in the oil and gas
industry, significant cutbacks in customer capital spending plans and contract cancellations by customers as well as recently announced regulatory requirements in the U.S. Gulf of Mexico, Diamond Offshore evaluated ten of its drilling rigs with
indications that their carrying amounts may not be recoverable. Using an undiscounted, projected probability-weighted cash flow analysis, Diamond Offshore determined that the carrying values of these rigs were not impaired.
If market fundamentals in the oil and gas industry deteriorate or if Diamond Offshore is unable to extend or secure new
contracts for its current, actively-marketed drilling fleet or reactivate any of its cold stacked rigs or if Diamond Offshore experiences unfavorable changes to actual dayrates and rig utilization, additional impairment losses may be required to be
recognized in future periods.
During the first quarter of 2015, Diamond Offshore evaluated 17 of its drilling rigs with
indications that their carrying amounts may not be recoverable. Based on this evaluation, Diamond Offshore determined that seven mid-water semisubmersibles as well as an older drillship were impaired and an impairment loss was recognized aggregating
$359 million ($158 million after tax and noncontrolling interests) for the three months ended March 31, 2015.
See Note 6
of the Consolidated Financial Statements in the Companys Annual Report on Form 10-K for further discussion of Diamond Offshores asset impairments.
5. Claim and Claim Adjustment Expense Reserves
CNAs property and casualty insurance claim and claim adjustment expense reserves represent the
estimated amounts necessary to resolve all outstanding claims, including claims that are incurred but not reported (IBNR) as of the reporting date. CNAs reserve projections are based primarily on detailed analysis of the facts in
each case, CNAs experience with similar cases and various historical development patterns. Consideration is given to such historical patterns as field reserving trends and claims settlement practices, loss payments, pending levels of unpaid
claims and product mix, as well as court decisions, economic conditions including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.
Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for
catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair
materials and labor rates can all affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more
variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers compensation, general liability and professional
liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that CNAs ultimate cost for
insurance losses will not exceed current estimates.
22
Catastrophes are an inherent risk of the property and casualty insurance business
and have contributed to material period-to-period fluctuations in CNAs results of operations and/or equity. CNA reported catastrophe losses, net of reinsurance, of $36 million and $29 million for the three months ended March 31, 2016 and 2015.
Catastrophe losses in 2016 related primarily to U.S. weather-related events.
Net Prior Year Development
The following tables and discussion present net prior year development.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Specialty
|
|
|
Commercial
|
|
|
International
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense
reserve development
|
|
$
|
(34)
|
|
|
$
|
(14)
|
|
|
$
|
(4)
|
|
|
$
|
(52)
|
|
Pretax (favorable) unfavorable premium development
|
|
|
(11)
|
|
|
|
(2)
|
|
|
|
(1)
|
|
|
|
(14)
|
|
|
|
Total pretax (favorable) unfavorable net prior year development
|
|
$
|
(45)
|
|
|
$
|
(16)
|
|
|
$
|
(5)
|
|
|
$
|
(66)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve
development
|
|
$
|
2
|
|
|
$
|
(5)
|
|
|
$
|
(4)
|
|
|
$
|
(7)
|
|
Pretax (favorable) unfavorable premium development
|
|
|
(6)
|
|
|
|
(1)
|
|
|
|
16
|
|
|
|
9
|
|
|
|
Total pretax (favorable) unfavorable net prior year development
|
|
$
|
(4)
|
|
|
$
|
(6)
|
|
|
$
|
12
|
|
|
$
|
2
|
|
|
|
Specialty
The following table and discussion present further detail of the net prior year claim and allocated claim adjustment expense
reserve development (development) recorded for the Specialty segment:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Medical professional liability
|
|
$
|
(7)
|
|
|
$
|
14
|
|
Other professional liability and management liability
|
|
|
(9)
|
|
|
|
(3)
|
|
Surety
|
|
|
|
|
|
|
1
|
|
Warranty
|
|
|
2
|
|
|
|
|
|
Other
|
|
|
(20)
|
|
|
|
(10)
|
|
|
|
Total pretax (favorable) unfavorable development
|
|
$
|
(34)
|
|
|
$
|
2
|
|
|
|
23
2016
Favorable development for medical professional liability was due to lower than expected severity in accident years 2011 and
prior. This was partially offset by unfavorable development in accident years 2012 and 2013 recorded related to higher than expected large loss emergence and higher than expected severity in accident years 2014 and 2015.
Favorable development in other professional liability and management liability was primarily related to favorable settlements
on claims in accident years 2011 through 2013. This was partially offset by unfavorable development recorded related to a specific financial institutions claim in accident year 2014 and continued deterioration on claims in accident year 2009 related
to the credit crisis.
Favorable development for other coverages was primarily due to better than expected claim frequency
in property coverages provided to Specialty customers in accident year 2015.
2015
Overall, unfavorable development for medical professional liability was primarily related to increased frequency in the Aging
Services book for accident years 2013 and 2014, partially offset by better than expected severity in accident years 2010 and prior.
Favorable development for other coverages was primarily due to better than expected frequency in property coverages provided
to Specialty customers in accident year 2014.
Commercial
The following table and discussion present further detail of the development recorded for the Commercial segment:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Commercial auto
|
|
$
|
(15)
|
|
|
|
|
|
General liability
|
|
|
(15)
|
|
|
$
|
4
|
|
Workers compensation
|
|
|
4
|
|
|
|
(1)
|
|
Property and other
|
|
|
12
|
|
|
|
(8)
|
|
|
|
Total pretax (favorable) unfavorable development
|
|
$
|
(14)
|
|
|
$
|
(5)
|
|
|
|
2016
Favorable development for commercial auto was primarily due to favorable settlements on claims in accident years 2011 through
2014.
Favorable development for general liability was primarily due to favorable settlements on claims in accident years
2013 and 2014.
Unfavorable development for property and other was primarily due to higher than expected severity from a
2015 catastrophe event.
2015
Favorable development for property and other was due to lower than expected loss emergence from 2014 catastrophe events.
24
International
The following table and discussion present further detail of the development recorded for the International segment:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Other professional liability
|
|
$
|
(1)
|
|
|
|
|
|
Liability
|
|
|
|
|
|
$
|
(5)
|
|
Property & marine
|
|
|
(4)
|
|
|
|
(6)
|
|
Other
|
|
|
1
|
|
|
|
7
|
|
|
|
Total pretax (favorable) unfavorable development
|
|
$
|
(4)
|
|
|
$
|
(4)
|
|
|
|
Asbestos and Environmental Pollution (A&EP) Reserves
In 2010, Continental Casualty Company (CCC) together with several of CNAs insurance subsidiaries completed a
transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of CNAs legacy A&EP liabilities were ceded to the NICO loss portfolio transfer (loss portfolio transfer
or LPT). At the effective date of the transaction, CNA ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of
$4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO
LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. CNA paid NICO a reinsurance premium of $2.0 billion and transferred to NICO billed third party reinsurance receivables
related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.
Through December 31, 2013, CNA recognized $0.9 billion of additional amounts ceded under the LPT. As a result, the cumulative
amounts ceded under the LPT exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring deferred retroactive reinsurance accounting treatment. This deferred gain is recognized in earnings in
proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which a change in the estimate of ceded incurred
losses is recognized, the change to the deferred gain is cumulatively recognized in earnings as if the revised estimate was available at the effective date of the LPT.
The following table presents the impact of the loss portfolio transfer on the Consolidated Condensed Statements of Income.
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Net A&EP adverse development before consideration of LPT
|
|
$
|
200
|
|
|
$
|
-
|
|
Provision for uncollectible third party reinsurance on A&EP
|
|
|
|
|
|
|
|
|
|
|
Additional amounts ceded under LPT
|
|
|
200
|
|
|
|
-
|
|
Retroactive reinsurance benefit recognized
|
|
|
(73)
|
|
|
|
(5)
|
|
|
|
Pretax impact of unrecognized deferred retroactive reinsurance benefit
|
|
$
|
127
|
|
|
$
|
(5)
|
|
|
|
CNA expected to complete its reserve review of A&EP reserves in the second quarter of
2016, however, during the first quarter of 2016 CNA received communication from NICO that their reserve review indicated a substantial increase in reserves. As a result, CNA accelerated and completed its reserve review during the first quarter.
Based upon CNAs accelerated review, net unfavorable development prior to cessions to the LPT of $200 million was recognized; $146 million related to asbestos claims and $54 million related to environmental pollution claims. The unfavorable
development was driven by an increase in anticipated future expenses associated with determination of coverage, higher anticipated payouts associated with a limited number of historical accounts having significant asbestos exposures and higher than
expected severity on pollution claims. This unfavorable development was ceded to NICO under the LPT, however CNAs reported earnings were negatively affected due to the application of retroactive reinsurance accounting, as only a portion of the
additional amounts ceded under the LPT were recognized in the current quarter. Retroactive reinsurance accounting resulted in the recognition of a reinsurance benefit of $73 million in the current quarter, while the remaining $127 million of
incurred losses covered by the LPT will be recognized as a benefit through future earnings in proportion to the actual paid recoveries subject to the
25
NICO LPT. All amounts recognized related to the LPT are recorded within Insurance
claims and policyholders benefits in the Consolidated Condensed Statement of Income.
As of March 31, 2016 and
December 31, 2015, the cumulative amounts ceded under the LPT were $2.8 billion and $2.6 billion. Cumulative losses recognized in the Consolidated Condensed Statements of Income that are covered by the LPT were $368 million and $241 million as of
March 31, 2016 and December 31, 2015.
NICO established a collateral trust account as security for its obligations to CNA.
The fair value of the collateral trust account was $2.7 billion and $2.8 billion as of March 31, 2016 and December 31, 2015. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the full aggregate reinsurance limit
as well as certain of NICOs performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to CNAs A&EP claims.
6. Income Taxes
The components of U.S. and foreign income before income tax and a reconciliation between the federal income
tax expense at statutory rates and the actual income tax expense is as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Income before income tax:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
39
|
|
|
$
|
137
|
|
Foreign
|
|
|
156
|
|
|
|
(32)
|
|
|
|
Total
|
|
$
|
195
|
|
|
$
|
105
|
|
|
|
|
|
|
Income tax expense at statutory rate
|
|
$
|
69
|
|
|
$
|
37
|
|
Increase (decrease) in income tax expense resulting from:
|
|
|
|
|
|
|
|
|
Exempt investment income
|
|
|
(30)
|
|
|
|
(29)
|
|
Foreign related tax differential
|
|
|
(39)
|
|
|
|
27
|
|
Amortization of deferred charges associated with intercompany rig sales to other tax
jurisdictions
|
|
|
|
|
|
|
37
|
|
Taxes related to domestic affiliate
|
|
|
3
|
|
|
|
(10)
|
|
Partnership earnings not subject to taxes
|
|
|
(17)
|
|
|
|
(13)
|
|
Unrecognized tax benefit (expense)
|
|
|
5
|
|
|
|
3
|
|
Other
|
|
|
5
|
|
|
|
4
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(4)
|
|
|
$
|
56
|
|
|
|
The effective tax rate is impacted by the change in the relative components of earnings or
losses generated in foreign tax jurisdictions with lower tax rates.
7. Debt
CNA Financial
In the first quarter of 2016, CNA completed a public offering of $500 million aggregate principal amount of 4.5% senior notes
due March 1, 2026 and used the net proceeds to repay the entire $350 million outstanding principal amount of its 6.5% senior notes due August 15, 2016.
Diamond Offshore
In the
first quarter of 2016, Diamond Offshore cancelled its commercial paper program and repaid the $287 million in commercial paper outstanding at December 31, 2015 with proceeds from Eurodollar loans under its revolving credit agreement. As of March 31,
2016, there were no amounts outstanding under the revolving credit agreement.
Loews
In March of 2016, the Company completed a public offering of $500 million aggregate principal amount of 3.8% senior notes due
April 1, 2026 and repaid in full the entire $400 million aggregate principal amount of its 5.3% senior notes at maturity.
26
8. Shareholders Equity
Accumulated other comprehensive income (loss)
The tables below display the changes in Accumulated other comprehensive income (AOCI) by component for the three
months ended March 31, 2015 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI
Gains
(Losses)
|
|
|
Unrealized
Gains (Losses)
on Investments
|
|
|
Cash Flow
Hedges
|
|
|
Pension
Liability
|
|
|
Foreign
Currency
Translation
|
|
|
Total
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2015
|
|
$
|
32
|
|
|
$
|
846
|
|
|
$
|
(6)
|
|
|
$
|
(641)
|
|
|
$
|
49
|
|
|
$
|
280
|
|
Other comprehensive income (loss) before reclassifications, after tax of $0, $(62), $1, $0 and
$0
|
|
|
(1)
|
|
|
|
119
|
|
|
|
(2)
|
|
|
|
|
|
|
|
(96)
|
|
|
|
20
|
|
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $0,
$0, $(2), $(3) and $0
|
|
|
|
|
|
|
(9)
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
-
|
|
|
|
Other comprehensive income (loss)
|
|
|
(1)
|
|
|
|
110
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(96)
|
|
|
|
20
|
|
Issuance of equity securities by subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
(3)
|
|
|
|
Balance, March 31, 2015
|
|
$
|
31
|
|
|
$
|
944
|
|
|
$
|
(3)
|
|
|
$
|
(636)
|
|
|
$
|
(38)
|
|
|
$
|
298
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2016
|
|
$
|
24
|
|
|
$
|
347
|
|
|
$
|
(3)
|
|
|
$
|
(649)
|
|
|
$
|
(76)
|
|
|
$
|
(357)
|
|
Other comprehensive income before reclassifications, after tax of $(2), $(108), $0, $0 and
$0
|
|
|
3
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
234
|
|
Reclassification of losses from accumulated other comprehensive income, after tax of $(1), $(7),
$0, $(3) and $0
|
|
|
2
|
|
|
|
11
|
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
22
|
|
|
|
Other comprehensive income
|
|
|
5
|
|
|
|
228
|
|
|
|
1
|
|
|
|
8
|
|
|
|
14
|
|
|
|
256
|
|
Amounts attributable to noncontrolling interests
|
|
|
|
|
|
|
(21)
|
|
|
|
|
|
|
|
(2)
|
|
|
|
(2)
|
|
|
|
(25)
|
|
|
|
Balance, March 31, 2016
|
|
$
|
29
|
|
|
$
|
554
|
|
|
$
|
(2)
|
|
|
$
|
(643)
|
|
|
$
|
(64)
|
|
|
$
|
(126)
|
|
|
|
Amounts reclassified from AOCI shown above are reported in Net income as follows:
|
|
|
Major Category of AOCI
|
|
Affected Line Item
|
|
|
|
OTTI gains (losses)
|
|
Investment gains (losses)
|
Unrealized gains (losses) on investments
|
|
Investment gains (losses)
|
Cash flow hedges
|
|
Other revenues and Contract drilling expenses
|
Pension liability
|
|
Other operating expenses
|
27
Subsidiary Equity Transactions
Loews purchased 0.3 million shares of CNA common stock at an aggregate cost of $8 million during the first three months of
2016. The Companys percentage ownership interest in CNA remained unchanged as a result of these transactions, at 90%. The Companys purchase price of the shares was lower than the carrying value of its investment in CNA, resulting in an
increase to Additional paid-in capital (APIC) of $3 million.
Treasury Stock
The Company repurchased 0.9 million and 1.8 million shares of Loews common stock at aggregate costs of $33 million and $71
million during the three months ended March 31, 2016 and 2015.
9. Benefit Plans
The Company has several non-contributory defined benefit plans and postretirement benefit plans covering
eligible employees and retirees.
The following table provides the components of net periodic benefit cost for the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
$ 2
|
|
|
|
$ 4
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
32
|
|
|
|
32
|
|
|
|
$ 1
|
|
|
|
$ 1
|
|
Expected return on plan assets
|
|
|
(44)
|
|
|
|
(48)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
Amortization of unrecognized net loss
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service benefit
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
(2)
|
|
Settlement charge
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
$ 2
|
|
|
|
$ (1)
|
|
|
|
$ (1)
|
|
|
|
$ (2)
|
|
|
|
10. Business Segments
The Companys segments are CNAs Financial core property and casualty commercial insurance
operations, including Specialty, Commercial, International and Other Non-Core operations; Diamond Offshore; Boardwalk Pipeline; Loews Hotels; and Corporate and other. The Companys reportable segments are primarily based on its individual
operating subsidiaries. Each of the principal operating subsidiaries is headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position. Investment gains
(losses) and the related income taxes, excluding those of CNA, are included in the Corporate and other segment.
28
The following tables set forth the Companys consolidated revenues and
income (loss) by business segment:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Revenues (a):
|
|
|
|
|
|
|
|
|
|
|
|
CNA Financial:
|
|
|
|
|
|
|
|
|
Property and Casualty:
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
$ 865
|
|
|
|
$ 917
|
|
Commercial
|
|
|
802
|
|
|
|
895
|
|
International
|
|
|
215
|
|
|
|
206
|
|
Other Non-Core
|
|
|
321
|
|
|
|
334
|
|
|
|
Total CNA Financial
|
|
|
2,203
|
|
|
|
2,352
|
|
Diamond Offshore
|
|
|
471
|
|
|
|
627
|
|
Boardwalk Pipeline
|
|
|
347
|
|
|
|
330
|
|
Loews Hotels
|
|
|
163
|
|
|
|
139
|
|
Corporate and other
|
|
|
(11)
|
|
|
|
30
|
|
|
|
Total
|
|
|
$ 3,173
|
|
|
|
$ 3,478
|
|
|
|
|
|
|
Income (loss) before income tax and noncontrolling interests (a):
|
|
|
|
|
|
|
|
|
|
|
|
CNA Financial:
|
|
|
|
|
|
|
|
|
Property and Casualty:
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
$ 180
|
|
|
|
$ 207
|
|
Commercial
|
|
|
95
|
|
|
|
186
|
|
International
|
|
|
10
|
|
|
|
13
|
|
Other Non-Core
|
|
|
(227)
|
|
|
|
(92)
|
|
|
|
Total CNA Financial
|
|
|
58
|
|
|
|
314
|
|
Diamond Offshore
|
|
|
83
|
|
|
|
(287)
|
|
Boardwalk Pipeline
|
|
|
99
|
|
|
|
77
|
|
Loews Hotels
|
|
|
9
|
|
|
|
10
|
|
Corporate and other
|
|
|
(54)
|
|
|
|
(9)
|
|
|
|
Total
|
|
|
$ 195
|
|
|
|
$ 105
|
|
|
|
|
|
|
Net income (loss) (a):
|
|
|
|
|
|
|
|
|
|
|
|
CNA Financial:
|
|
|
|
|
|
|
|
|
Property and Casualty:
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
$ 107
|
|
|
|
$ 123
|
|
Commercial
|
|
|
56
|
|
|
|
110
|
|
International
|
|
|
8
|
|
|
|
9
|
|
Other Non-Core
|
|
|
(111)
|
|
|
|
(32)
|
|
|
|
Total CNA Financial
|
|
|
60
|
|
|
|
210
|
|
Diamond Offshore
|
|
|
43
|
|
|
|
(126)
|
|
Boardwalk Pipeline
|
|
|
31
|
|
|
|
25
|
|
Loews Hotels
|
|
|
3
|
|
|
|
5
|
|
Corporate and other
|
|
|
(35)
|
|
|
|
(5)
|
|
|
|
Total
|
|
|
$ 102
|
|
|
|
$ 109
|
|
|
|
29
(a)
|
Investment gains (losses) included in Revenues, Income (loss) before income tax and noncontrolling interests
and Net income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Revenues and Income (loss) before income tax and noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
CNA Financial:
|
|
|
|
|
|
|
|
|
Property and Casualty:
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
$ (11)
|
|
|
|
$ 4
|
|
Commercial
|
|
|
(18)
|
|
|
|
4
|
|
International
|
|
|
4
|
|
|
|
1
|
|
Other Non-Core
|
|
|
(3)
|
|
|
|
1
|
|
|
|
Total
|
|
|
$ (28)
|
|
|
|
$ 10
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
CNA Financial:
|
|
|
|
|
|
|
|
|
Property and Casualty:
|
|
|
|
|
|
|
|
|
Specialty
|
|
|
$ (7)
|
|
|
|
$ 2
|
|
Commercial
|
|
|
(10)
|
|
|
|
3
|
|
International
|
|
|
3
|
|
|
|
1
|
|
Other Non-Core
|
|
|
(3)
|
|
|
|
2
|
|
|
|
Total
|
|
|
$ (17)
|
|
|
|
$ 8
|
|
|
|
11. Legal Proceedings
The Company and its subsidiaries are parties to litigation arising in the ordinary course of business. The
outcome of this litigation will not, in the opinion of management, materially affect the Companys results of operations or equity.
12. Commitments and Contingencies
CNA Financial
In the course of selling business entities and assets to third parties, CNA agreed to guarantee the performance of certain
obligations of a previously owned subsidiary and to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets sold, including, in certain cases, losses arising from
undisclosed liabilities or certain named litigation. Such guarantee and indemnification agreements in effect for sales of business entities, assets and third party loans may include provisions that survive indefinitely. As of March 31, 2016, the
aggregate amount related to quantifiable guarantees was $375 million and the aggregate amount related to indemnification agreements was $259 million. Should CNA be required to make payments under the guarantee, it would have the right to seek
reimbursement in certain cases from an affiliate of a previously owned subsidiary.
In addition, CNA has agreed to provide
indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of March 31, 2016, CNA had outstanding unlimited indemnifications in connection
with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchasers ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in
some cases losses arising from certain litigation and undisclosed liabilities. Certain provisions of the indemnification agreements survive indefinitely while others survive until the applicable statutes of limitation expire, or until the agreed
upon contract terms expire.
CNA also provided guarantees, if the primary obligor fails to perform, to holders of
structured settlement annuities provided by a previously owned subsidiary. As of March 31, 2016, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $2.0 billion, which will be paid over the
lifetime of the annuitants. CNA does not believe any payment is likely under these guarantees, as CNA is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.
30
Diamond Offshore
Diamond Offshore is financially obligated under a contract with Hyundai Heavy Industries, Co. Ltd. (Hyundai) for
the construction of a dynamically positioned, harsh environment semisubmersible drilling rig. The total cost of the rig including shipyard costs, capital spares, commissioning, project management and shipyard supervision is estimated to be $764
million. The remaining contractual payment of $440 million is due upon delivery of the rig, which is expected to occur in the second half of 2016.
13. Consolidating Financial Information
The following schedules present the Companys consolidating balance sheet information at March 31,
2016 and December 31, 2015, and consolidating statements of income information for the three months ended March 31, 2016 and 2015. These schedules present the individual subsidiaries of the Company and their contribution to the Consolidated
Condensed Financial Statements. Amounts presented will not necessarily be the same as those in the individual financial statements of the Companys subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling
interests. In addition, many of the Companys subsidiaries use a classified balance sheet which also leads to differences in amounts reported for certain line items.
The Corporate and other column primarily reflects the parent companys investment in its subsidiaries, invested cash
portfolio and corporate long term debt. The elimination adjustments are for intercompany assets and liabilities, interest and dividends, the parent companys investment in capital stocks of subsidiaries, and various reclasses of debit or credit
balances to the amounts in consolidation. Purchase accounting adjustments have been pushed down to the appropriate subsidiary.
31
Loews Corporation
Consolidating Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
CNA
Financial
|
|
|
Diamond
Offshore
|
|
|
Boardwalk
Pipeline
|
|
|
Loews
Hotels
|
|
|
Corporate
and Other
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
45,371
|
|
|
$
|
119
|
|
|
|
|
|
|
$
|
78
|
|
|
$
|
5,082
|
|
|
|
|
|
|
$
|
50,650
|
|
Cash
|
|
|
242
|
|
|
|
15
|
|
|
$
|
10
|
|
|
|
12
|
|
|
|
29
|
|
|
|
|
|
|
|
308
|
|
Receivables
|
|
|
7,531
|
|
|
|
367
|
|
|
|
88
|
|
|
|
36
|
|
|
|
230
|
|
|
$
|
(25)
|
|
|
|
8,227
|
|
Property, plant and equipment
|
|
|
255
|
|
|
|
6,222
|
|
|
|
7,735
|
|
|
|
1,093
|
|
|
|
46
|
|
|
|
|
|
|
|
15,351
|
|
Deferred income taxes
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
59
|
|
|
|
(546)
|
|
|
|
-
|
|
Goodwill
|
|
|
113
|
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
Investments in capital stocks of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,932
|
|
|
|
(14,932)
|
|
|
|
-
|
|
Other assets
|
|
|
863
|
|
|
|
225
|
|
|
|
321
|
|
|
|
288
|
|
|
|
4
|
|
|
|
15
|
|
|
|
1,716
|
|
Deferred acquisition costs of insurance subsidiaries
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
622
|
|
|
|
Total assets
|
|
$
|
55,481
|
|
|
$
|
6,948
|
|
|
$
|
8,391
|
|
|
$
|
1,510
|
|
|
$
|
20,382
|
|
|
$
|
(15,488)
|
|
|
$
|
77,224
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance reserves
|
|
$
|
37,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,325
|
|
Payable to brokers
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
374
|
|
|
|
|
|
|
|
630
|
|
Short term debt
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Long term debt
|
|
|
2,711
|
|
|
$
|
1,980
|
|
|
$
|
3,475
|
|
|
|
644
|
|
|
|
1,774
|
|
|
|
|
|
|
|
10,584
|
|
Deferred income taxes
|
|
|
5
|
|
|
|
230
|
|
|
|
786
|
|
|
|
50
|
|
|
|
|
|
|
$
|
(531)
|
|
|
|
540
|
|
Other liabilities
|
|
|
3,739
|
|
|
|
541
|
|
|
|
435
|
|
|
|
59
|
|
|
|
268
|
|
|
|
(25)
|
|
|
|
5,017
|
|
|
|
Total liabilities
|
|
|
44,037
|
|
|
|
2,751
|
|
|
|
4,696
|
|
|
|
755
|
|
|
|
2,416
|
|
|
|
(556)
|
|
|
|
54,099
|
|
|
|
Total shareholders equity
|
|
|
10,264
|
|
|
|
2,239
|
|
|
|
1,543
|
|
|
|
753
|
|
|
|
17,966
|
|
|
|
(14,932)
|
|
|
|
17,833
|
|
Noncontrolling interests
|
|
|
1,180
|
|
|
|
1,958
|
|
|
|
2,152
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
5,292
|
|
|
|
Total equity
|
|
|
11,444
|
|
|
|
4,197
|
|
|
|
3,695
|
|
|
|
755
|
|
|
|
17,966
|
|
|
|
(14,932)
|
|
|
|
23,125
|
|
|
|
Total liabilities and equity
|
|
$
|
55,481
|
|
|
$
|
6,948
|
|
|
$
|
8,391
|
|
|
$
|
1,510
|
|
|
$
|
20,382
|
|
|
$
|
(15,488)
|
|
|
$
|
77,224
|
|
|
|
32
Loews Corporation
Consolidating Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
CNA
Financial
|
|
|
Diamond
Offshore
|
|
|
Boardwalk
Pipeline
|
|
|
Loews
Hotels
|
|
|
Corporate
and Other
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
44,699
|
|
|
$
|
117
|
|
|
|
|
|
|
$
|
81
|
|
|
$
|
4,503
|
|
|
|
|
|
|
$
|
49,400
|
|
Cash
|
|
|
387
|
|
|
|
13
|
|
|
$
|
4
|
|
|
|
12
|
|
|
|
24
|
|
|
|
|
|
|
|
440
|
|
Receivables
|
|
|
7,384
|
|
|
|
409
|
|
|
|
93
|
|
|
|
35
|
|
|
|
96
|
|
|
$
|
24
|
|
|
|
8,041
|
|
Property, plant and equipment
|
|
|
333
|
|
|
|
6,382
|
|
|
|
7,712
|
|
|
|
1,003
|
|
|
|
47
|
|
|
|
|
|
|
|
15,477
|
|
Deferred income taxes
|
|
|
662
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
68
|
|
|
|
(733)
|
|
|
|
-
|
|
Goodwill
|
|
|
114
|
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
Investments in capital stocks of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,129
|
|
|
|
(15,129)
|
|
|
|
-
|
|
Other assets
|
|
|
848
|
|
|
|
233
|
|
|
|
319
|
|
|
|
282
|
|
|
|
|
|
|
|
17
|
|
|
|
1,699
|
|
Deferred acquisition costs of insurance subsidiaries
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598
|
|
|
|
Total assets
|
|
$
|
55,025
|
|
|
$
|
7,154
|
|
|
$
|
8,365
|
|
|
$
|
1,416
|
|
|
$
|
19,867
|
|
|
$
|
(15,821)
|
|
|
$
|
76,006
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance reserves
|
|
$
|
36,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,486
|
|
Payable to brokers
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209
|
|
|
|
|
|
|
|
567
|
|
Short term debt
|
|
|
351
|
|
|
$
|
287
|
|
|
|
|
|
|
$
|
2
|
|
|
|
400
|
|
|
|
|
|
|
|
1,040
|
|
Long term debt
|
|
|
2,213
|
|
|
|
1,980
|
|
|
$
|
3,458
|
|
|
|
590
|
|
|
|
1,279
|
|
|
|
|
|
|
|
9,520
|
|
Deferred income taxes
|
|
|
5
|
|
|
|
276
|
|
|
|
766
|
|
|
|
47
|
|
|
|
|
|
|
$
|
(712)
|
|
|
|
382
|
|
Other liabilities
|
|
|
3,883
|
|
|
|
496
|
|
|
|
510
|
|
|
|
70
|
|
|
|
222
|
|
|
|
20
|
|
|
|
5,201
|
|
|
|
Total liabilities
|
|
|
43,296
|
|
|
|
3,039
|
|
|
|
4,734
|
|
|
|
709
|
|
|
|
2,110
|
|
|
|
(692)
|
|
|
|
53,196
|
|
|
|
Total shareholders equity
|
|
|
10,516
|
|
|
|
2,195
|
|
|
|
1,517
|
|
|
|
705
|
|
|
|
17,757
|
|
|
|
(15,129)
|
|
|
|
17,561
|
|
Noncontrolling interests
|
|
|
1,213
|
|
|
|
1,920
|
|
|
|
2,114
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
5,249
|
|
|
|
Total equity
|
|
|
11,729
|
|
|
|
4,115
|
|
|
|
3,631
|
|
|
|
707
|
|
|
|
17,757
|
|
|
|
(15,129)
|
|
|
|
22,810
|
|
|
|
Total liabilities and equity
|
|
$
|
55,025
|
|
|
$
|
7,154
|
|
|
$
|
8,365
|
|
|
$
|
1,416
|
|
|
$
|
19,867
|
|
|
$
|
(15,821)
|
|
|
$
|
76,006
|
|
|
|
33
Loews Corporation
Consolidating Statement of Income Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
CNA
Financial
|
|
|
Diamond
Offshore
|
|
|
Boardwalk
Pipeline
|
|
|
Loews
Hotels
|
|
|
Corporate
and Other
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,699
|
|
Net investment income (loss)
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(13)
|
|
|
|
|
|
|
|
422
|
|
Intercompany interest and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558
|
|
|
$
|
(558)
|
|
|
|
-
|
|
Investment losses
|
|
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28)
|
|
Contract drilling revenues
|
|
|
|
|
|
$
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
444
|
|
Other revenues
|
|
|
97
|
|
|
|
27
|
|
|
$
|
347
|
|
|
$
|
163
|
|
|
|
2
|
|
|
|
|
|
|
|
636
|
|
|
|
Total
|
|
|
2,203
|
|
|
|
471
|
|
|
|
347
|
|
|
|
163
|
|
|
|
547
|
|
|
|
(558)
|
|
|
|
3,173
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance claims and policyholders benefits
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,408
|
|
Amortization of deferred acquisition costs
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
Contract drilling expenses
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
Other operating expenses
|
|
|
380
|
|
|
|
149
|
|
|
|
205
|
|
|
|
148
|
|
|
|
25
|
|
|
|
|
|
|
|
907
|
|
Interest
|
|
|
50
|
|
|
|
26
|
|
|
|
43
|
|
|
|
6
|
|
|
|
18
|
|
|
|
|
|
|
|
143
|
|
|
|
Total
|
|
|
2,145
|
|
|
|
388
|
|
|
|
248
|
|
|
|
154
|
|
|
|
43
|
|
|
|
-
|
|
|
|
2,978
|
|
|
|
Income before income tax
|
|
|
58
|
|
|
|
83
|
|
|
|
99
|
|
|
|
9
|
|
|
|
504
|
|
|
|
(558)
|
|
|
|
195
|
|
Income tax (expense) benefit
|
|
|
9
|
|
|
|
1
|
|
|
|
(19)
|
|
|
|
(6)
|
|
|
|
19
|
|
|
|
|
|
|
|
4
|
|
|
|
Net income
|
|
|
67
|
|
|
|
84
|
|
|
|
80
|
|
|
|
3
|
|
|
|
523
|
|
|
|
(558)
|
|
|
|
199
|
|
Amounts attributable to noncontrolling interests
|
|
|
(7)
|
|
|
|
(41)
|
|
|
|
(49)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97)
|
|
|
|
Net income attributable to Loews Corporation
|
|
$
|
60
|
|
|
$
|
43
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
$
|
523
|
|
|
$
|
(558)
|
|
|
$
|
102
|
|
|
|
34
Loews Corporation
Consolidating Statement of Income Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
CNA
Financial
|
|
Diamond
Offshore
|
|
Boardwalk
Pipeline
|
|
Loews
Hotels
|
|
Corporate
and Other
|
|
Eliminations
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$ 1,687
|
|
|
|
|
|
|
|
|
|
|
|
$ 1,687
|
|
|
Net investment income
|
|
558
|
|
$ 1
|
|
|
|
|
|
$ 29
|
|
|
|
588
|
|
|
Intercompany interest and dividends
|
|
|
|
|
|
|
|
|
|
567
|
|
$ (567)
|
|
-
|
|
|
Investment gains
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
Contract drilling revenues
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
600
|
|
|
Other revenues
|
|
97
|
|
26
|
|
$ 330
|
|
$ 139
|
|
1
|
|
|
|
593
|
|
|
|
Total
|
|
2,352
|
|
627
|
|
330
|
|
139
|
|
597
|
|
(567)
|
|
3,478
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance claims and policyholders benefits
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
1,339
|
|
|
Amortization of deferred acquisition costs
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
303
|
|
|
Contract drilling expenses
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
351
|
|
|
Other operating expenses
|
|
357
|
|
539
|
|
208
|
|
124
|
|
21
|
|
|
|
1,249
|
|
|
Interest
|
|
39
|
|
24
|
|
45
|
|
5
|
|
18
|
|
|
|
131
|
|
|
|
Total
|
|
2,038
|
|
914
|
|
253
|
|
129
|
|
39
|
|
-
|
|
3,373
|
|
|
|
Income (loss) before income tax
|
|
314
|
|
(287)
|
|
77
|
|
10
|
|
558
|
|
(567)
|
|
105
|
|
|
Income tax (expense) benefit
|
|
(80)
|
|
41
|
|
(16)
|
|
(5)
|
|
4
|
|
|
|
(56)
|
|
|
|
Net income (loss)
|
|
234
|
|
(246)
|
|
61
|
|
5
|
|
562
|
|
(567)
|
|
49
|
|
|
Amounts attributable to noncontrolling interests
|
|
(24)
|
|
120
|
|
(36)
|
|
|
|
|
|
|
|
60
|
|
|
|
Net income (loss) attributable to Loews Corporation
|
|
$ 210
|
|
$ (126)
|
|
$ 25
|
|
$ 5
|
|
$ 562
|
|
$ (567)
|
|
$ 109
|
|
|
|
35
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Managements discussion and analysis of financial condition and results of operations
(MD&A) should be read in conjunction with our Consolidated Condensed Financial Statements included in Item 1 of this Report, Risk Factors included in Part II, Item 1A of this Report, and the Consolidated Financial Statements, Risk
Factors, and MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2015. This MD&A is comprised of the following sections:
OVERVIEW
We are a holding company. Our subsidiaries are engaged in the following lines of business:
|
●
|
|
commercial property and casualty insurance (CNA Financial Corporation (CNA), a 90% owned
subsidiary);
|
|
●
|
|
operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (Diamond
Offshore), a 53% owned subsidiary);
|
|
●
|
|
transportation and storage of natural gas and natural gas liquids and gathering and processing of natural gas
(Boardwalk Pipeline Partners, LP (Boardwalk Pipeline), a 51% owned subsidiary); and
|
|
●
|
|
operation of a chain of hotels (Loews Hotels Holding Corporation (Loews Hotels), a wholly owned
subsidiary).
|
Unless the context otherwise requires, references in this Report to Loews
Corporation, the Company, Parent Company, we, our, us or like terms refer to the business of Loews Corporation excluding its subsidiaries.
Consolidated Financial Results
Net income for the three months ended March 31, 2016 was $102 million, or $0.30 per share, compared to $109 million, or $0.29
per share, in the 2015 first quarter. Net income declined by $7 million as compared to the prior year due to lower earnings at CNA and reduced results from the parent company investment portfolio, partially offset by higher earnings at Diamond
Offshore because of the absence this quarter of an asset impairment charge. Higher earnings at Boardwalk Pipeline also served as a partial offset. The increase in net income per share is due to treasury share purchases over the past year.
CNAs earnings decreased due to a $74 million (after tax and noncontrolling interests) charge related to the 2010
retroactive reinsurance agreement to cede its legacy asbestos and environmental pollution liabilities (Loss Portfolio Transfer, or LPT). Under retroactive reinsurance accounting, amounts ceded through the LPT in excess of the consideration paid
result in a deferred benefit that is recognized in income in proportion to paid recoveries over future periods. CNAs earnings were also impacted by a decline in net investment income driven by limited partnership investment results, as well as
realized investment losses in 2016 as compared to gains in 2015. These investment-
36
related declines, which totaled $99 million (after tax and noncontrolling interests), were partially offset by improved property & casualty underwriting results and improved results in the
Life & Group segment.
Diamond Offshores prior year earnings reflected a $158 million (after tax and
noncontrolling interests) asset impairment charge. Year-over-year earnings also benefited from revenue earned by newbuild drillships, demobilization fees, lower operating costs, lower depreciation expense resulting mainly from the asset impairment
charges taken in 2015, and a lower effective tax rate. These favorable items were largely offset by a substantial reduction in the number of operating rigs.
Boardwalk Pipelines earnings increased as new rates took effect following the Gulf South rate case. Additionally, the
Evangeline pipeline, which was placed into service in mid-2015, and new growth projects contributed to earnings.
Book
value per share increased to $52.60 at March 31, 2016 from $51.67 at December 31, 2015. Book value per share excluding Accumulated other comprehensive income (AOCI) increased to $52.98 at March 31, 2016 from $52.72 at December 31, 2015.
Parent Company Structure
We are a holding company and derive substantially all of our cash flow from our subsidiaries. We rely upon our invested cash
balances and distributions from our subsidiaries to generate the funds necessary to meet our obligations and to declare and pay any dividends to our shareholders. The ability of our subsidiaries to pay dividends is subject to, among other things,
the availability of sufficient earnings and funds in such subsidiaries, applicable state laws, including in the case of the insurance subsidiaries of CNA, laws and rules governing the payment of dividends by regulated insurance companies and
compliance with covenants in their respective loan agreements. Claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims and those of our creditors and shareholders.
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates require us to make judgments that affect the amounts reflected in the Consolidated Condensed
Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts currently recorded in the financial statements will likely be adjusted in the future based
on new available information and changes in other facts and circumstances. See the Critical Accounting Estimates section and the Results of Operations by Business Segment CNA Financial Reserves Estimates and Uncertainties
section of our MD&A included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for further information.
37
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
Unless the context otherwise requires, references to net operating income (loss), net realized investment results and net
income (loss) reflect amounts attributable to Loews Corporation shareholders.
CNA Financial
The following table summarizes the results of operations for CNA for the three months ended March 31, 2016 and 2015 as
presented in Note 13 of the Notes to Consolidated Condensed Financial Statements included in Item 1 of this Report. For further discussion of Net investment income and Net realized investment results, see the Investments section of this MD&A.
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Insurance premiums
|
|
$ 1,699
|
|
$ 1,687
|
|
|
Net investment income
|
|
435
|
|
558
|
|
|
Investment gains (losses)
|
|
(28)
|
|
10
|
|
|
Other revenues
|
|
97
|
|
97
|
|
|
|
Total
|
|
2,203
|
|
2,352
|
|
|
|
Expenses:
|
|
|
|
|
|
|
Insurance claims and policyholders benefits
|
|
1,408
|
|
1,339
|
|
|
Amortization of deferred acquisition costs
|
|
307
|
|
303
|
|
|
Other operating expenses
|
|
380
|
|
357
|
|
|
Interest
|
|
50
|
|
39
|
|
|
|
Total
|
|
2,145
|
|
2,038
|
|
|
|
Income before income tax
|
|
58
|
|
314
|
|
|
Income tax (expense) benefit
|
|
9
|
|
(80)
|
|
|
|
Net income
|
|
67
|
|
234
|
|
|
Amounts attributable to noncontrolling interests
|
|
(7)
|
|
(24)
|
|
|
|
Net income attributable to Loews Corporation
|
|
$ 60
|
|
$ 210
|
|
|
|
Net income decreased $150 million for the three months ended March 31, 2016 as compared with
the same period in 2015, primarily due to a $74 million (after tax and noncontrolling interests) charge related to the application of retroactive reinsurance accounting to adverse reserve development ceded under the 2010 asbestos and environmental
pollution (A&EP) loss portfolio transfer, as further discussed in Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1. Earnings were also impacted by lower net investment income and lower net
realized investment results, driven by lower limited partnership returns and lower gains on sales of securities and higher other than temporary impairment (OTTI) losses. These decreases were partially offset by improved underwriting
results, including favorable net prior year development of $66 million as compared to unfavorable net prior year development of $2 million in 2015.
CNA Property and Casualty Insurance Operations
CNAs core property and casualty commercial insurance operations are aggregated and reported in three business segments:
Specialty, Commercial and International. CNAs non-core operations include its Life & Group Non-Core and Other operations.
In the evaluation of the results of the property and casualty businesses, CNA utilizes insurance related metrics including the
loss ratio, the expense ratio, the dividend ratio and the combined ratio to assess its operating performance. See the Results of Operations by Business Segment CNA Financial Results of Operations section of our MD&A included under
Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for further information.
38
The following tables summarize the results of CNAs property and casualty
operations for the three months ended March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Specialty
|
|
Commercial
|
|
International
|
|
Total
|
|
|
|
(In millions, except %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums
|
|
$ 684
|
|
$ 748
|
|
$ 236
|
|
$ 1,668
|
|
|
Net earned premiums
|
|
682
|
|
688
|
|
198
|
|
1,568
|
|
|
Net investment income
|
|
107
|
|
126
|
|
12
|
|
245
|
|
|
Net operating income
|
|
114
|
|
66
|
|
5
|
|
185
|
|
|
Net realized investment gains (losses)
|
|
(7)
|
|
(10)
|
|
3
|
|
(14)
|
|
|
Net income
|
|
107
|
|
56
|
|
8
|
|
171
|
|
|
|
|
|
|
|
|
Other performance metrics:
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio
|
|
57.1%
|
|
64.2%
|
|
61.2%
|
|
60.7%
|
|
|
Expense ratio
|
|
32.1
|
|
37.3
|
|
37.8
|
|
35.2
|
|
|
Dividend ratio
|
|
0.2
|
|
0.4
|
|
|
|
0.2
|
|
|
|
Combined ratio
|
|
89.4%
|
|
101.9%
|
|
99.0%
|
|
96.1%
|
|
|
|
|
|
|
|
|
|
Rate
|
|
1%
|
|
0%
|
|
0%
|
|
0%
|
|
|
Retention
|
|
87
|
|
83
|
|
77
|
|
83
|
|
|
New business (a)
|
|
$ 65
|
|
$ 137
|
|
$ 60
|
|
$ 262
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums
|
|
$ 698
|
|
$ 759
|
|
$ 212
|
|
$ 1,669
|
|
|
Net earned premiums
|
|
680
|
|
678
|
|
191
|
|
1,549
|
|
|
Net investment income
|
|
155
|
|
204
|
|
14
|
|
373
|
|
|
Net operating income
|
|
121
|
|
107
|
|
8
|
|
236
|
|
|
Net realized investment gains
|
|
2
|
|
3
|
|
1
|
|
6
|
|
|
Net income
|
|
123
|
|
110
|
|
9
|
|
242
|
|
|
|
|
|
|
|
|
Other performance metrics:
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense ratio
|
|
63.1%
|
|
66.9%
|
|
60.7%
|
|
64.5%
|
|
|
Expense ratio
|
|
31.3
|
|
36.0
|
|
37.6
|
|
34.1
|
|
|
Dividend ratio
|
|
0.2
|
|
0.4
|
|
|
|
0.3
|
|
|
|
Combined ratio
|
|
94.6%
|
|
103.3%
|
|
98.3%
|
|
98.9%
|
|
|
|
|
|
|
|
|
|
Rate
|
|
1%
|
|
3%
|
|
(1)%
|
|
1%
|
|
|
Retention
|
|
86
|
|
76
|
|
78
|
|
80
|
|
|
New business (a)
|
|
$ 76
|
|
$ 138
|
|
$ 35
|
|
$ 249
|
|
|
(a)
|
For International, beginning in 2016, this includes Hardy new business, which was $31 million for the three
months ended March 31, 2016.
|
Net written premiums were consistent for the three months ended March 31,
2016 as compared with the same period in 2015. Net written premiums decreased for Specialty and Commercial, primarily driven by lower new business due to competitive market conditions in Specialty. These decreases were offset by an increase in
International, primarily driven by unfavorable premium development primarily at Hardy in 2015. Excluding the effect of foreign currency exchange rates, premium development and the timing of reinsurance purchases in International net written premiums
were consistent as compared to the same period in 2015. The increase in net earned premiums was consistent with the trend in net written premiums in recent quarters for Commercial and International. For Specialty, excluding premium development, net
earned premiums decreased, which was consistent with the trend in net written premiums.
Net operating income decreased
$51 million for the three months ended March 31, 2016 as compared with the same period in 2015. The decrease in net operating income was primarily due to lower net investment income, partially offset by higher net favorable prior year development in
Specialty and improved underwriting results in Commercial. Catastrophe losses were $21 million (after tax and noncontrolling interests) for the three months ended March 31, 2016 as compared to catastrophe losses of $17 million (after tax and
noncontrolling interests) for the same period in 2015.
39
Favorable net prior year development of $66 million and unfavorable net prior
year development of $2 million was recorded for the three months ended March 31, 2016 and 2015. Further information on net prior year development is included in Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item
1.
Specialtys combined ratio improved 5.2 points for the three months ended March 31, 2016 as compared with the
same period in 2015. The loss ratio improved 6.0 points due to higher net favorable prior year reserve development. The expense ratio increased 0.8 points for the three months ended March 31, 2016 as compared with the same period in 2015 due to
higher underwriting expenses.
Commercials combined ratio improved 1.4 points for the three months ended March 31,
2016 as compared with the same period in 2015. The loss ratio improved 2.7 points, primarily due to an improved non-catastrophe current accident year loss ratio and higher favorable net prior year reserve development. The expense ratio increased 1.3
points for the three months ended March 31, 2016 as compared with the same period in 2015, due to higher underwriting expenses and contingent commissions.
Internationals combined ratio increased 0.7 points for the three months ended March 31, 2016 as compared with the same
period in 2015. The loss ratio increased 0.5 points due to an increase in the current accident year loss ratio driven by political risk losses which was substantially offset by the favorable period over period effect of net prior year premium
development. The expense ratio increased 0.2 points due to higher expenses, partially offset by the favorable impact of higher net earned premiums.
Other Non-Core Operations
Other Non-Core primarily includes the results of CNAs long term care business that is in run-off and also includes
certain corporate expenses, including interest on corporate debt, and the results of property and casualty business in run-off, including CNA Re and A&EP.
The following tables summarize the results of CNAs Other Non-Core operations for the three months ended March 31, 2016
and 2015:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Life & Group
Non-Core
|
|
Other
|
|
Other
Non-Core
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums
|
|
$ 131
|
|
|
|
$ 131
|
|
|
Net investment income
|
|
187
|
|
$ 3
|
|
190
|
|
|
Net operating loss
|
|
(2)
|
|
(106)
|
|
(108)
|
|
|
Net realized investment gains (losses)
|
|
(3)
|
|
|
|
(3)
|
|
|
Net loss
|
|
(5)
|
|
(106)
|
|
(111)
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums
|
|
$ 138
|
|
|
|
$ 138
|
|
|
Net investment income
|
|
179
|
|
$ 6
|
|
185
|
|
|
Net operating loss
|
|
(15)
|
|
(19)
|
|
(34)
|
|
|
Net realized investment gains
|
|
2
|
|
|
|
2
|
|
|
Net loss
|
|
(13)
|
|
(19)
|
|
(32)
|
|
|
Net earned premiums decreased $7 million for the three months ended March 31, 2016 as compared
with the same period in 2015. The effect of policy lapses was partially offset by premium rate increases.
The net loss
increased $79 million for the three months ended March 31, 2016 as compared with the same period in 2015. During the three months ended March 31, 2016, CNA recorded net unfavorable development of $200 million related to its A&EP reserves. This
unfavorable development was ceded to NICO under the loss portfolio transfer, however CNAs earnings were negatively affected by a $74 million (after tax and noncontrolling interests) charge related to the application of retroactive reinsurance
accounting, as further discussed in Note 5 of the Notes to Consolidated Condensed Financial Statements included under Item 1. In addition, the net loss was also impacted by lower realized net investment results and $5 million of expense related to
the redemption of CNAs $350 million senior notes due in August of 2016, partially offset by improved results in the long term care business. Due to the recognition of the premium deficiency and resetting of actuarial assumptions in the fourth
quarter of 2015, the
40
operating results for CNAs long term care business in 2016 now reflect the variance between actual experience and the expected results contemplated in CNAs best estimate reserves.
Diamond Offshore
Market Overview
Diamond
Offshore provides contract drilling services to the energy industry around the world with a fleet of 30 offshore drilling rigs, which includes four jack-up rigs that are being marketed for sale. Diamond Offshores fleet consists of 21
semisubmersibles, including the
Ocean GreatWhite
, which is under construction, five jack-up rigs and four dynamically positioned drillships. Diamond Offshore expects the harsh environment, ultra-deepwater semisubmersible rig, the
Ocean
GreatWhite
, to be delivered in the second half of 2016.
Market fundamentals in the oil and gas industry have
continued to deteriorate in 2016. Oil prices, which had fallen to a 12-year low below $30 per barrel in January, have rebounded slightly but continue to exhibit day-to-day volatility, due to multiple factors, including fluctuations in the current
and expected level of global oil inventories and the lack of a supply response by the Organization of Petroleum Exporting Countries (OPEC). These factors, as well as other geopolitical and economic issues, combined with significant
operating losses incurred by some independent and national oil companies and exploration and production companies during 2015, have resulted in significantly reduced capital spending plans for 2016 and possibly beyond, as operators struggle to stay
cash neutral in the current oil price environment. There have been very few rig tenders thus far in 2016, primarily limited to
short-term
or well-to-well work not commencing until 2017 or later.
Since 2014, approximately 50 floater rigs have been retired and others have been cold stacked, slightly abating the current
oversupply of drilling rigs. The number of available rigs continues to grow as contracted rigs come off contract and newly-built rigs are delivered. Competition for the limited number of drilling jobs continues to be intense. In some cases, dayrates
have been negotiated at near break-even levels to provide for the recovery of operating costs for rigs that would otherwise be uncontracted or cold stacked. Many industry analysts have predicted that the offshore contract drilling market may remain
depressed with further declines in dayrates and utilization likely in 2016 and 2017.
As a result of the depressed market
conditions and continued pessimistic outlook for the near term, certain of Diamond Offshores customers, as well as those of its competitors, have attempted to renegotiate or terminate existing drilling contracts. Such renegotiations could
include requests to lower the contract dayrate, lowering of a dayrate in exchange for additional contract term, shortening the term on one contracted rig in exchange for additional term on another rig, early termination of a contract in exchange for
a lump sum margin payout and many other possibilities. In addition to the potential for renegotiations, some of Diamond Offshores drilling contracts permit the customer to terminate the contract early after specified notice periods, usually
resulting in a contractually specified termination amount, which may not fully compensate Diamond Offshore for the loss of the contract. Particularly during depressed market conditions, the early termination of a contract may result in a rig being
idle for an extended period of time, which could adversely affect Diamond Offshores business. When a customer terminates a contract prior to the contracts scheduled expiration, Diamond Offshores contract backlog is also adversely
impacted.
Diamond Offshores results of operations and cash flows for the quarter ended March 31, 2016 have been
negatively impacted by depressed market conditions in the offshore drilling industry. Diamond Offshore currently expects that these adverse market conditions will continue for the foreseeable future. The continuation of these conditions for an
extended period could result in more of Diamond Offshores rigs being without contracts and/or cold stacked or scrapped and could further materially and adversely affect its business. When Diamond Offshore cold stacks or elects to scrap a rig,
Diamond Offshore evaluates the rig for impairment. During 2015, Diamond Offshore recognized an aggregate impairment loss of $861 million to write down 17 of its drilling rigs to their estimated recoverable amounts. During the first quarter of 2016,
Diamond Offshore evaluated ten of its drilling rigs with indications that their carrying amounts may not be recoverable and determined that no additional rigs were impaired at this time.
On April 28, 2016, Diamond Offshores agent in Mexico received a letter from PEMEX-Exploración y Producción
(PEMEX) purporting to exercise its contractual right to terminate its drilling contract on the
Ocean Scepter
with 30 days advance notice. Diamond Offshore is in discussions with PEMEX regarding the matter. As of May 2, 2016,
15 rigs in Diamond Offshores fleet were cold stacked, including four jack-up rigs that are currently being marketed for sale.
41
Globally, the ultra-deepwater and deepwater floater markets continue to be
depressed. Diminished or nonexistent demand, combined with an oversupply of rigs has caused floater dayrates to decline significantly and industry analysts expect offshore drillers to continue to scrap older, lower specification rigs; however, newer
and higher specification rigs have also been impacted by the recycling trend.
In an effort to manage the oversupply of
rigs and potentially avoid the cost of cold stacking newly-built rigs, which, in the case of dynamically-positioned rigs, can be significant, several drilling contractors have exercised options to delay the delivery of rigs by the shipyard or have
exercised their right to cancel orders due to the late delivery of rigs. As of the date of this report, industry data indicates that there are approximately 55 competitive, or non-owner-operated, newbuild floaters on order, including 16 rigs
scheduled for delivery in 2016 of which 12 units are not yet contracted for future work. An additional 39 rigs are currently scheduled to be delivered between 2017 and 2021, over half of which are not yet contracted for future work. Industry
analysts predict that delivery dates may shift further as newbuild owners negotiate with their respective shipyards.
While conditions in the mid-water market vary slightly by region, mid-water rigs have been adversely impacted by (i) lower
demand, (ii) declining dayrates, (iii) increased regulatory requirements, including more stringent design requirements for well control equipment, which could significantly increase the capital needed to comply with design requirements that would
permit such rigs to work in the U.S. Gulf of Mexico (GOM), (iv) the challenges experienced by lower specification units in this segment as a result of more complex customer specifications and (v) the intensified competition resulting
from the migration of some deepwater and ultra-deepwater units to compete against mid-water units. To date, the mid-water market has seen the highest number of cold-stacked and scrapped rigs. Since 2012, Diamond Offshore has sold 12 of its mid-water
rigs for scrap. As market conditions remain challenging, Diamond Offshore expects higher-specification rigs to take the place of lower-specification units, where possible, leading to additional lower-specification rigs being cold stacked or
ultimately scrapped.
On April 14, 2016, the Bureau of Safety and Environmental Enforcement (BSEE), issued its
final well control regulations, nearly six years after the Macondo well blowout in the GOM. This final rule addresses the full range of systems and equipment associated with well control operations, focusing on requirements for blowout preventers
(BOPs), well design, well control casing, cementing, real-time monitoring and subsea containment. The regulations combine prescriptive and performance-based measures to cultivate a greater culture of safety for both oil and gas companies
and offshore rig operators that minimizes risk. Key features of the well control regulations include requirements for BOPs, double shear rams, third-party reviews of equipment, real-time monitoring data, safe drilling margins, centralizers,
inspections and other reforms related to well design and control, casing, cementing and subsea containment. Most of these requirements will become effective three months after publication of the final rule in the Federal Register; however, several
requirements have more extended timeframes for compliance.
The issuance of these rules could result in the future
retirement of older, less capable rigs, for which compliance with the new requirements is not physically or economically feasible. Additionally, some analysts predict that the new rules will drive the continued preference for modern floaters.
Contract Drilling Backlog
The following table reflects Diamond Offshores contract drilling backlog as of April 1, 2016 (based on contract
information known at that time) and February 16, 2016 (the date reported in our Annual Report on Form 10-K for the year ended December 31, 2015). Contract drilling backlog as presented below includes only firm commitments (typically represented by
signed contracts) and is calculated by multiplying the contracted operating dayrate by the firm contract period and adding one-half of any potential rig performance bonuses. Diamond Offshores calculation also assumes full utilization of its
drilling equipment for the contract period (excluding scheduled shipyard and survey days); however, the amount of actual revenue earned and the actual periods during which revenues are earned will be different than the amounts and periods shown in
the tables below due to various factors. Utilization rates, which generally approach 92% - 98% during contracted periods, can be adversely impacted by downtime due to various operating factors including, but not limited to, weather conditions and
unscheduled repairs and maintenance. Contract drilling backlog excludes revenues for mobilization, demobilization, contract preparation and customer reimbursables. No revenue is generally earned during periods of downtime for regulatory surveys.
Changes in Diamond Offshores contract drilling backlog between periods are generally a function of the performance of work on term contracts, as well as the extension or modification of existing term contracts and the execution of additional
contracts. In addition, under certain circumstances, Diamond Offshores customers may seek to terminate or renegotiate its contracts.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1,
2016
|
|
|
|
|
February 16,
2016
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Floaters:
|
|
|
|
|
|
|
|
|
|
|
Ultra-Deepwater (a)
|
|
$
|
4,137
|
|
|
|
|
$
|
4,415
|
|
Deepwater
|
|
|
327
|
|
|
|
|
|
375
|
|
Mid-Water
|
|
|
307
|
|
|
|
|
|
356
|
|
|
|
Total Floaters
|
|
|
4,771
|
|
|
|
|
|
5,146
|
|
Jack-ups (b)
|
|
|
7
|
|
|
|
|
|
49
|
|
|
|
Total
|
|
$
|
4,778
|
|
|
|
|
$
|
5,195
|
|
|
|
(a)
|
Ultra-deepwater floaters includes $641 million attributable to future work for the semisubmersible
Ocean
GreatWhite
, which is under construction.
|
(b)
|
On April 28, 2016, Diamond Offshores agent in Mexico received a letter from PEMEX purporting to exercise
its contractual right to terminate its drilling contract on the
Ocean Scepter
with 30 days advance notice. Diamond Offshore is in discussions with PEMEX regarding the matter.
|
The following table reflects the amount of Diamond Offshores contract drilling backlog by year as of April 1, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
Total
|
|
|
2016 (a)
|
|
|
2017
|
|
|
2018
|
|
|
2019 - 2020
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floaters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultra-Deepwater (b)
|
|
$
|
4,137
|
|
|
$
|
794
|
|
|
$
|
1,201
|
|
|
$
|
1,142
|
|
|
$
|
1,000
|
|
Deepwater
|
|
|
327
|
|
|
|
191
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
Mid-Water
|
|
|
307
|
|
|
|
171
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
Total Floaters
|
|
|
4,771
|
|
|
|
1,156
|
|
|
|
1,473
|
|
|
|
1,142
|
|
|
|
1,000
|
|
Jack-ups (c)
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,778
|
|
|
$
|
1,163
|
|
|
$
|
1,473
|
|
|
$
|
1,142
|
|
|
$
|
1,000
|
|
|
|
(a)
|
Represents a nine-month period beginning April 1, 2016.
|
(b)
|
Ultra-deepwater floaters includes $54 million for the year 2016, $214 million for each of the years 2017 and
2018 and $159 million for the year 2019 attributable to future work for the
Ocean GreatWhite
, which is under construction.
|
(c)
|
On April 28, 2016, Diamond Offshores agent in Mexico received a letter from PEMEX purporting to exercise
its contractual right to terminate its drilling contract on the
Ocean Scepter
with 30 days advance notice. Diamond Offshore is in discussions with PEMEX regarding the matter.
|
The following table reflects the percentage of rig days committed by year as of April 1, 2016. The percentage of rig days
committed is calculated as the ratio of total days committed under contracts, as well as scheduled shipyard, survey and mobilization days for all rigs in Diamond Offshores fleet, to total available days (number of rigs multiplied by the number
of days in a particular year). Total available days have been calculated based on the expected final commissioning date for the
Ocean GreatWhite
, which is under construction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2016 (a)
|
|
|
2017
|
|
|
2018
|
|
|
20192020
|
|
|
|
|
|
|
|
|
Rig Days Committed (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floaters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultra-Deepwater
|
|
|
47%
|
|
|
|
58%
|
|
|
|
57%
|
|
|
|
26%
|
|
Deepwater
|
|
|
24%
|
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
Mid-Water
|
|
|
19%
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
Total Floaters
|
|
|
32%
|
|
|
|
34%
|
|
|
|
25%
|
|
|
|
11%
|
|
Jack-ups (c)
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents a nine-month period beginning April 1, 2016.
|
(b)
|
Includes approximately 285 currently known, scheduled shipyard days for rig commissioning, contract
preparation, surveys and extended maintenance projects, as well as rig mobilization days for the remainder of 2016.
|
(c)
|
On April 28, 2016, Diamond Offshores agent in Mexico received a letter from PEMEX purporting to exercise
its contractual right to terminate its drilling contract on the
Ocean Scepter
with 30 days advance notice. Diamond Offshore is in discussions with PEMEX regarding the matter.
|
43
Dayrate and Utilization Statistics
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Revenue earning days (a)
|
|
|
|
|
|
|
|
|
Floaters:
|
|
|
|
|
|
|
|
|
Ultra-Deepwater
|
|
|
612
|
|
|
|
506
|
|
Deepwater
|
|
|
177
|
|
|
|
285
|
|
Mid-Water
|
|
|
181
|
|
|
|
663
|
|
Jack-ups
|
|
|
91
|
|
|
|
358
|
|
|
|
|
Utilization (b)
|
|
|
|
|
|
|
|
|
Floaters:
|
|
|
|
|
|
|
|
|
Ultra-Deepwater
|
|
|
61%
|
|
|
|
51%
|
|
Deepwater
|
|
|
28%
|
|
|
|
45%
|
|
Mid-Water
|
|
|
25%
|
|
|
|
49%
|
|
Jack-ups
|
|
|
18%
|
|
|
|
66%
|
|
|
|
|
Average daily revenue (c)
|
|
|
|
|
|
|
|
|
Floaters:
|
|
|
|
|
|
|
|
|
Ultra-Deepwater
|
|
$
|
533,000
|
|
|
$
|
496,800
|
|
Deepwater
|
|
|
334,500
|
|
|
|
486,500
|
|
Mid-Water
|
|
|
263,100
|
|
|
|
265,900
|
|
Jack-ups
|
|
|
118,400
|
|
|
|
92,400
|
|
(a)
|
A revenue earning day is defined as a 24-hour period during which a rig earns a dayrate after commencement of
operations and excludes mobilization, demobilization and contract preparation days.
|
(b)
|
Utilization is calculated as the ratio of total revenue earning days divided by the total calendar days in the
period for all rigs in Diamond Offshores fleet (including cold-stacked rigs, but excluding rigs under construction). As of March 31, 2016, Diamond Offshores cold-stacked rigs included three ultra-deepwater semisubmersibles, four
deepwater semisubmersibles, five mid-water semisubmersibles and four jack-up rigs.
|
(c)
|
Average daily revenue is defined as total contract drilling revenue for all the specified rigs in Diamond
Offshores fleet per revenue earning day.
|
Results of Operations
The following table summarizes the results of operations for Diamond Offshore for the three months ended March 31, 2016 and
2015 as presented in Note 13 of the Notes to Consolidated Condensed Financial Statements included in Item 1 of this Report:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Contract drilling revenues
|
|
$
|
444
|
|
|
$
|
600
|
|
Net investment income
|
|
|
|
|
|
|
1
|
|
Other revenues
|
|
|
27
|
|
|
|
26
|
|
|
|
Total
|
|
|
471
|
|
|
|
627
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Contract drilling expenses
|
|
|
213
|
|
|
|
351
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
359
|
|
Other expenses
|
|
|
149
|
|
|
|
180
|
|
Interest
|
|
|
26
|
|
|
|
24
|
|
|
|
Total
|
|
|
388
|
|
|
|
914
|
|
|
|
Income (loss) before income tax
|
|
|
83
|
|
|
|
(287)
|
|
Income tax benefit
|
|
|
1
|
|
|
|
41
|
|
Amounts attributable to noncontrolling interests
|
|
|
(41)
|
|
|
|
120
|
|
|
|
Net income (loss) attributable to Loews Corporation
|
|
$
|
43
|
|
|
$
|
(126)
|
|
|
|
44
Contract drilling revenue decreased $156 million for the three months ended March
31, 2016 as compared with the 2015 period, primarily as a result of fewer revenue earning days for the deepwater, mid-water and jack-up fleets, reflecting continued low demand for contract drilling services in those markets. These decreases were
partially offset by the favorable impact of an increase in revenue earning days for the ultra-deepwater fleet, which included the operation of three newbuild drillships that commenced drilling operations subsequent to the first quarter of 2015 and
an increase in average daily revenue for the ultra-deepwater fleet, primarily due to the inclusion of $40 million in demobilization revenue for the
Ocean Endeavor
.
Revenue generated by ultra-deepwater floaters increased $75 million for the three months ended March 31, 2016 as compared with
the 2015 period, primarily as a result of increased utilization of $52 million and higher average daily revenue of $22 million. Revenue earning days for the first quarter of 2016 increased, compared to the first quarter of 2015, primarily due to
incremental revenue earning days for newbuild drillships and the
Ocean Monarch
, which was warm stacked during the first quarter of 2015. The increase in revenue earning days was partially offset by fewer revenue earning days for the
Ocean
Endeavor
and
Ocean Rover
, both of which completed contracts in the first quarter of 2016, and fewer revenue earning days for the cold-stacked
Ocean Baroness
and the
Ocean Clipper
, which was sold in November 2015. Average
daily revenue increased during the first quarter of 2016, compared to the first quarter of 2015, primarily due to the inclusion of $40 million in demobilization revenue for the
Ocean Endeavor
, which completed its contract in the Black Sea in
January 2016.
Revenue generated by deepwater floaters decreased $80 million for the three months ended March 31, 2016 as
compared with the 2015 period, primarily due to downtime associated with the cold stacking and idling of rigs that had operated during the first quarter of 2015, partially offset by incremental revenue earning days for the
Ocean Victory
and
Ocean Valiant
, neither of which were under contract during the first quarter of 2015.
Revenue generated by
mid-water floaters decreased $129 million for the first quarter of 2016, compared to the same quarter of 2015, reflecting a significant reduction in demand in the mid-water drilling market with only two mid-water floaters being operated during both
periods. Subsequent to the first quarter of 2015, Diamond Offshore sold nine mid-water floaters, reducing the mid-water fleet to five drilling rigs, three of which are currently cold stacked.
Revenue generated by jack-up rigs decreased $22 million for the three months ended March 31, 2016 as compared with the 2015
period, primarily due to the cold stacking of three rigs which were operating under contract in the first quarter of 2015. On April 28, 2016, Diamond Offshores agent in Mexico received a letter from PEMEX purporting to exercise its contractual
right to terminate its drilling contract on the
Ocean Scepter
, Diamond Offshores sole working jack-up rig, with 30 days advance notice. Diamond Offshore is in discussions with PEMEX regarding the matter.
Net income increased $169 million for the three months ended March 31, 2016 as compared with the 2015 period, primarily due to
the prior year impact of a $158 million asset impairment charge (after tax and noncontrolling interests) related to the carrying value of eight drilling rigs and lower depreciation expense.
Boardwalk Pipeline
Market
Overview
The transportation rates that Boardwalk Pipeline is able to charge customers are heavily influenced by the
amount and geographical location of natural gas production and demand for gas by end users such as power plants, petrochemical facilities and liquefied natural gas (LNG) export facilities. Changes in certain longer term trends such as
the development of gas production from the Marcellus and Utica production areas located in the northeastern U.S. and changes to related pipeline infrastructure have resulted in a sustained narrowing of basis differentials corresponding to
traditional flow patterns on Boardwalk Pipelines natural gas pipeline systems (generally south to north and west to east), reducing the transportation rates and adversely impacting other contract terms that Boardwalk Pipeline can negotiate
with its customers for available transportation capacity and for contracts due for renewal for Boardwalk Pipelines transportation services.
Each year, a portion of Boardwalk Pipelines firm natural gas transportation and storage contracts expire and need to be
renewed or replaced. Over the past several years, Boardwalk Pipeline has renewed many expiring contracts at lower rates and for shorter terms than in the past, or not at all. Boardwalk Pipeline expects this trend to continue, mainly for contracts to
transport gas from west to east across Boardwalk Pipelines system, and therefore, Boardwalk Pipeline may not be able to sell all of its available capacity, extend expiring contracts with existing customers or obtain replacement contracts at
attractive rates or for a similar term as the expiring contracts. These
45
sustained conditions have had, and Boardwalk Pipeline expects will continue to have, a materially adverse effect on Boardwalk Pipelines revenues, earnings and distributable cash flows.
Natural gas producers account for a significant portion of Boardwalk Pipelines revenues, with approximately 50% of its
2015 revenues generated from contracts with natural gas producers. During 2015, the price of oil and natural gas continued to decline as a result of increasing gas supplies, mainly from shale production areas in the U.S., which has adversely
impacted the businesses of certain of Boardwalk Pipelines producer customers, including those that have contracted with Boardwalk Pipeline for capacity on some of its growth projects. If gas prices remain low, or continue to decline, for a
sustained period of time, the businesses of Boardwalk Pipelines producer customers will be further adversely affected, which could reduce the demand for Boardwalk Pipelines services, result in the non-renewal of contracted capacity, or
renewal at lower rates or on less attractive terms, or lead some customers, particularly customers that are experiencing financial difficulties, to default on their obligations to Boardwalk Pipeline or seek to terminate or renegotiate existing
contracts. Should any such customers file for bankruptcy protection, they may also seek to have their contracts with Boardwalk Pipeline rejected in the bankruptcy proceeding.
A majority of Boardwalk Pipelines customers are rated investment-grade by at least one of the major credit rating
agencies, however, the ratings of several of Boardwalk Pipelines oil and gas producer customers, including some of those supporting its growth projects, have recently been downgraded. The downgrades further restrict liquidity for those
customers and may result in nonperformance of their contractual obligations, including failure to make future payments or, for customers supporting Boardwalk Pipelines growth projects, failure to post required letters of credit or other
collateral as construction progresses over the remainder of 2016.
Boardwalk Pipeline is currently engaged in a number of
growth projects having an aggregate estimated cost of approximately $1.6 billion. A number of growth projects remain subject to regulatory approval to commence construction and all of which are subject to the risk that they may not be completed, may
be impacted by significant cost overruns or may be materially changed prior to completion as a result of future developments or circumstances that Boardwalk Pipeline cannot predict at this time.
In early 2016, a customer on Boardwalk Pipelines Northern Supply Access project, which had contracted for 100,000
million British thermal units per day (MMBtu/d) of capacity, filed for bankruptcy protection and rejected Boardwalk Pipelines contract. Boardwalk Pipeline has an unsecured claim in the bankruptcy proceedings for an amount that was
determined by agreement between Boardwalk Pipeline and that customer. Boardwalk Pipeline is continuing to market the capacity associated with that customers precedent agreement. If Boardwalk Pipeline cannot sell the capacity on acceptable
terms, the scope of the project could be adjusted to accommodate the reduced volume commitment. In April of 2016, another customer that has contracted for 30,000 MMBtu/d of capacity on this project failed to increase its letter of credit in default
of its obligations under a credit support agreement. The transportation agreement with this customer remains in place and Boardwalk Pipeline is in discussions regarding the required credit support.
Results of Operations
The following table summarizes the results of operations for Boardwalk Pipeline for the three months ended March 31, 2016 and
2015 as presented in Note 13 of the Notes to Consolidated Condensed Financial Statements included under Item 1 of this Report:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Other revenue, primarily operating
|
|
$
|
347
|
|
|
$
|
330
|
|
|
|
Total
|
|
|
347
|
|
|
|
330
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating
|
|
|
205
|
|
|
|
208
|
|
Interest
|
|
|
43
|
|
|
|
45
|
|
|
|
Total
|
|
|
248
|
|
|
|
253
|
|
|
|
Income before income tax
|
|
|
99
|
|
|
|
77
|
|
Income tax expense
|
|
|
(19)
|
|
|
|
(16)
|
|
Amounts attributable to noncontrolling interests
|
|
|
(49)
|
|
|
|
(36)
|
|
|
|
Net income attributable to Loews Corporation
|
|
$
|
31
|
|
|
$
|
25
|
|
|
|
46
Total revenues increased $17 million for the three months ended March 31, 2016 as
compared with the 2015 period. Excluding items offset in fuel and transportation expense, primarily retained fuel, operating revenues increased $23 million. The increase was primarily due to higher transportation revenues of $22 million which
resulted from incremental revenues from the Gulf South rate case of $9 million, the return to service of the Evangeline pipeline in mid-2015 and growth projects recently placed into service, partially offset by the effects of the market conditions.
Operating expenses decreased $3 million for the three months ended March 31, 2016 as compared with the 2015 period.
Excluding items offset in operating revenues, operating costs and expenses increased $4 million primarily due to higher employee-related costs and increased maintenance activities, partially offset by a decrease in depreciation expense. Interest
expense decreased $2 million primarily due to higher capitalized interest related to capital projects and lower average debt balances.
Net income for the three months ended March 31, 2016 increased $6 million as compared with the 2015 period, primarily
reflecting the higher revenues and lower depreciation and interest expense as discussed above.
Loews Hotels
The following table summarizes the results of operations for Loews Hotels for the three months ended March 31, 2016 and 2015
as presented in Note 13 of the Notes to Consolidated Condensed Financial Statements included in Item 1 of this Report:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
138
|
|
|
$
|
120
|
|
Revenues related to reimbursable expenses
|
|
|
25
|
|
|
|
19
|
|
|
|
Total
|
|
|
163
|
|
|
|
139
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating
|
|
|
123
|
|
|
|
112
|
|
Reimbursable expenses
|
|
|
25
|
|
|
|
19
|
|
Depreciation
|
|
|
15
|
|
|
|
11
|
|
Equity income from joint ventures
|
|
|
(15)
|
|
|
|
(18)
|
|
Interest
|
|
|
6
|
|
|
|
5
|
|
|
|
Total
|
|
|
154
|
|
|
|
129
|
|
|
|
Income before income tax
|
|
|
9
|
|
|
|
10
|
|
Income tax expense
|
|
|
(6)
|
|
|
|
(5)
|
|
|
|
Net income attributable to Loews Corporation
|
|
$
|
3
|
|
|
$
|
5
|
|
|
|
Operating revenues increased $18 million for the three months ended March 31, 2016 as compared
with the 2015 period primarily due to the acquisition of one hotel during the first three months of 2016 and two hotels during 2015.
Income before income tax decreased $1 million for the three months ended March 31, 2016 as compared with the 2015 period, due
to the increase in revenues offset by increases in operating and depreciation expenses of $11 million and $4 million primarily due to the acquisitions in 2016 and 2015. In addition, equity income from joint venture properties decreased $3 million
for the three months ended March 31, 2016 as compared with the 2015 period.
Net income decreased $2 million for the three
months ended March 31, 2016 as compared with the 2015 period, due to the changes discussed above and an increase in the effective tax rate due to a higher state tax provision for the increased ratio of Florida based income.
Corporate and Other
Corporate and Other operations consist primarily of investment income at the Parent Company, corporate interest expenses and
other corporate administrative costs. Investment income includes earnings on cash and short term investments held at the Parent Company level to meet current and future liquidity needs, as well as results of limited partnership investments and the
trading portfolio.
47
The following table summarizes the results of operations for Corporate and Other
for the three months ended March 31, 2016 and 2015 as presented in Note 13 of the Notes to Consolidated Condensed Financial Statements included in Item 1 of this Report:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
(13)
|
|
|
$
|
29
|
|
Other revenues
|
|
|
2
|
|
|
|
1
|
|
Total
|
|
|
(11)
|
|
|
|
30
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating
|
|
|
25
|
|
|
|
21
|
|
Interest
|
|
|
18
|
|
|
|
18
|
|
Total
|
|
|
43
|
|
|
|
39
|
|
Loss before income tax
|
|
|
(54)
|
|
|
|
(9)
|
|
Income tax benefit
|
|
|
19
|
|
|
|
4
|
|
Net loss attributable to Loews Corporation
|
|
$
|
(35)
|
|
|
$
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Net investment results decreased by $42 million for the three months ended March 31, 2016 as
compared with the 2015 period, primarily due to lower results from limited partnership investments, partially offset by improved performance of equity based investments and fixed income investments in the trading portfolio.
Net results decreased $30 million for the three months ended March 31, 2016 as compared with the 2015 period primarily due to
the change in revenues discussed above and increased corporate overhead expenses.
LIQUIDITY AND CAPITAL RESOURCES
Parent Company
Parent Company cash and investments, net of receivables and payables at March 31, 2016 totaled $4.9 billion, as compared to
$4.3 billion at December 31, 2015. During the three months ended March 31, 2016, we received $558 million in dividends from our subsidiaries, including a special dividend from CNA of $485 million. Cash outflows included the payment of $33 million to
fund treasury stock purchases, $8 million to purchase shares of CNA, $21 million of cash dividends to our shareholders and net cash contributions of approximately $40 million to Loews Hotels. As a holding company we depend on dividends from our
subsidiaries and returns on our investment portfolio to fund our obligations. We are not responsible for the liabilities and obligations of our subsidiaries and there are no parental guarantees.
In March of 2016, we completed a public offering of $500 million aggregate principal amount of 3.8% senior notes due April 1,
2026 and repaid in full the entire $400 million aggregate principal amount of our 5.3% senior notes at maturity. The net proceeds will be used for general corporate purposes.
As of March 31, 2016, there were 339,014,412 shares of Loews common stock outstanding. Depending on market and other
conditions, we may purchase our shares and shares of our subsidiaries outstanding common stock in the open market or otherwise. During the three months ended March 31, 2016, we purchased 0.9 million shares of Loews common stock and 0.3 million
shares of CNA common stock.
In March of 2016, Moodys downgraded our unsecured debt rating from A2 to A3 and the
outlook remains stable. Our current unsecured debt ratings are A+ for S&P and A for Fitch Ratings, Inc., with a stable outlook for both. We have an effective Registration Statement on Form S-3 registering the future sale of an unlimited amount
of our debt and equity securities. From time to time, we consider issuance of Parent Company indebtedness under this registration statement.
We continue to pursue conservative financial strategies while seeking opportunities for responsible growth. These include the
expansion of existing businesses, full or partial acquisitions and dispositions, and opportunities for efficiencies and economies of scale.
48
Subsidiaries
CNAs cash provided by operating activities was $334 million for the three months ended March 31, 2016 as compared with
$94 million for the same period in 2015. Cash provided by operating activities reflected increased receipts relating to the returns on invested capital for limited partnerships.
CNA declared and paid a quarterly dividend of $0.25 per share and a special dividend of $2.00 per share of its common stock in
the first quarter of 2016. On April 29, 2016, CNAs Board of Directors declared a quarterly dividend of $0.25 per share, payable June 1, 2016 to shareholders of record on May 16, 2016. CNAs declaration and payment of future dividends
is at the discretion of its Board of Directors and will depend on many factors, including CNAs earnings, financial condition, business needs and regulatory constraints. The payment of dividends by CNAs insurance subsidiaries without
prior approval of the insurance department of each subsidiarys domiciliary jurisdiction is generally limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective insurance regulator.
Dividends from the Continental Casualty Company (CCC), a subsidiary of CNA, are subject to the insurance holding
company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (Department), are determined based on the
greater of the prior years statutory net income or 10% of statutory surplus as of the end of the prior year, as well as the timing and amount of dividends paid in the preceding twelve months. Additionally, ordinary dividends may only be paid
from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of March 31, 2016, CCC was in a positive earned surplus position. The maximum allowable dividend CCC could pay during 2016 that would not be subject to
the Departments prior approval is $1.1 billion, less dividends paid during the preceding twelve months measured at that point in time. CCC paid dividends of $300 million during the nine months ended December 31, 2015 and $565 million during
the three months ended March 31, 2016. As of March 31, 2016, CCC is able to pay approximately $214 million of dividends that would not be subject to prior approval of the Department. The actual level of dividends paid in any year is determined after
an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.
Diamond Offshores cash provided by operating activities for the three months ended March 31, 2016 increased $81 million
compared to the 2015 period, primarily due to a net decrease in cash payments for contract drilling and general and administrative expenses, including personnel-related, repairs and maintenance, and other rig operating costs of $188 million,
partially offset by lower cash receipts from contract drilling services of $109 million. The decline in both cash receipts and cash payments related to the performance of contract drilling services reflects a reduction in contract drilling activity
during the three months ended March 31, 2016 as well as Diamond Offshores continuing efforts to control costs.
For the remainder of 2016, Diamond Offshore has budgeted approximately $620 million for capital expenditures of which
approximately $510 million is expected be spent towards construction of the ultra-deepwater semisubmersible, the
Ocean GreatWhite
and the remainder towards ongoing capital maintenance and replacement programs. Construction continues on the
Ocean GreatWhite
with delivery expected in the second half of 2016. The estimated total project cost, including shipyard costs, capital spares, commissioning, project management and shipyard supervision is $764 million, of which $256 million
has been incurred as of March 31, 2016. The final installment of $440 million is due upon delivery of the rig.
During March of 2016, Diamond Offshore executed two sale and leaseback transactions and received $105 million in proceeds with
no gain or loss recognized on the transactions. For further information about these transactions, see Note 4 of the Notes to Consolidated Condensed Financial Statements in Item 1 of this report.
As of March 31, 2016, Diamond Offshore had no loans or letters of credit outstanding under the credit agreement and is in
compliance with all covenant requirements. As of April 28, 2016, Diamond Offshore had $1.5 billion available under its revolving credit facility to provide short-term liquidity for payment obligations.
In February of 2016, Moodys Investors Service, Inc. (Moodys) downgraded Diamond Offshores senior
unsecured credit rating to Ba2 from Baa2, with a stable outlook, and also downgraded its short-term credit rating to sub-prime. Diamond Offshores current corporate credit rating for Standard & Poors (S&P) is BBB+ and
its short-term credit rating is A2. Market conditions and other factors, many of which are outside of Diamond Offshores control, could cause its credit ratings to be lowered. A downgrade in Diamond Offshores credit ratings could
adversely impact its cost of issuing additional debt and the amount of additional debt that it could issue, and could further restrict access to capital markets and Diamond Offshores ability to raise additional debt or rollover existing
maturities. As a consequence, Diamond Offshore may not be able to issue additional debt in amounts and/or
49
with terms that it considers to be reasonable. One or more of these occurrences could limit Diamond Offshores ability to pursue other business opportunities.
Diamond Offshore will make periodic assessments of its capital spending programs based on industry conditions and will make
adjustments if it determines they are required. Diamond Offshore, may, from time to time, issue debt or equity securities, or a combination thereof, to finance capital expenditures, the acquisition of assets and businesses or for general corporate
purposes. Diamond Offshores ability to access the capital markets by issuing debt or equity securities will be dependent on its results of operations, current financial condition, current credit ratings, current market conditions and other
factors beyond its control.
Boardwalk Pipelines cash provided by operating activities decreased $25 million for the
three months ended March 31, 2016 compared to the 2015 period primarily due to the timing of accruals, partially offset by increased net income, excluding the effects of non-cash items such as depreciation and amortization and asset impairment.
In the first quarters of 2016 and 2015, Boardwalk Pipeline declared and paid quarterly distributions to its common unitholders
of record of $0.10 per common unit and an amount to the general partner on behalf of its 2% general partner interest. In April of 2016, the Partnership declared a quarterly cash distribution to unitholders of record of $0.10 per common unit.
For the three months ended March 31, 2016 and 2015, Boardwalk Pipelines capital expenditures were $106 million and $62
million, consisting of a combination of growth and maintenance capital. Boardwalk Pipeline expects total capital expenditures to be approximately $850 million in 2016, primarily related to growth projects and pipeline system maintenance
expenditures. Boardwalk Pipeline expects to finance 2016 growth capital expenditures through existing capital resources, including Boardwalk Pipelines revolving credit facility, the Subordinated Loan facility and cash flows from operating
activities.
As of May 2, 2016, Boardwalk Pipeline had outstanding borrowings of $365 million resulting in over $1.1
billion of available borrowing capacity under its revolving credit facility and is in compliance with all of its debt covenants.
INVESTMENTS
Investment activities of non-insurance subsidiaries primarily include investments in fixed income
securities, including short term investments. The Parent Company portfolio also includes equity securities, including short sales and derivative instruments, and investments in limited partnerships. These types of investments generally present
greater volatility, less liquidity and greater risk than fixed income investments and are included within Results of Operations Corporate and Other.
We enter into short sales and invest in certain derivative instruments that are used for asset and liability management
activities, income enhancements to our portfolio management strategy and to benefit from anticipated future movements in the underlying markets. If such movements do not occur as anticipated, then significant losses may occur. Monitoring procedures
include senior management review of daily detailed reports of existing positions and valuation fluctuations to ensure that open positions are consistent with our portfolio strategy.
Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the
uncollateralized change in fair value of the derivative instruments recognized in the Consolidated Condensed Balance Sheets. We mitigate the risk of non-performance by monitoring the creditworthiness of counterparties and diversifying derivatives to
multiple counterparties. We occasionally require collateral from our derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty.
50
Insurance
CNA maintains a large portfolio of fixed maturity and equity securities, including large amounts of corporate and government
issued debt securities, residential and commercial mortgage-backed securities, and other asset-backed securities and investments in limited partnerships which pursue a variety of long and short investment strategies across a broad array of asset
classes. CNAs investment portfolio supports its obligation to pay future insurance claims and provides investment returns which are an important part of CNAs overall profitability.
Net Investment Income
The significant components of CNAs Net investment income are presented in the following table:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
345
|
|
|
$
|
342
|
|
Tax-exempt
|
|
|
101
|
|
|
|
101
|
|
Total fixed maturity securities
|
|
|
446
|
|
|
|
443
|
|
Limited partnership investments
|
|
|
(14)
|
|
|
|
114
|
|
Other, net of investment expense
|
|
|
3
|
|
|
|
1
|
|
Net investment income before tax
|
|
$
|
435
|
|
|
$
|
558
|
|
|
|
|
|
|
|
|
|
|
Net investment income after tax and noncontrolling interests
|
|
$
|
283
|
|
|
$
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income yield for the fixed maturity securities portfolio, before tax
|
|
|
4.8%
|
|
|
|
4.8%
|
|
Effective income yield for the fixed maturity securities portfolio, after tax
|
|
|
3.4%
|
|
|
|
3.4%
|
|
Net investment income after tax and noncontrolling interests for the three months ended March
31, 2016 decreased $71 million as compared with the same period in 2015. The decrease was driven by limited partnerships, which returned (0.6)% as compared with 3.9% in the prior year period.
Net Realized Investment Gains (Losses)
The components of CNAs Net realized investment gains (losses) are presented in the following table:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
2016
|
|
|
2015
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses):
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
Corporate and other bonds
|
|
$
|
(15)
|
|
|
$
|
13
|
|
States, municipalities and political subdivisions
|
|
|
3
|
|
|
|
(4)
|
|
Asset-backed
|
|
|
(6)
|
|
|
|
3
|
|
U.S. Treasury and obligations of government-sponsored
enterprises
|
|
|
1
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
(17)
|
|
|
|
12
|
|
Equity securities
|
|
|
(5)
|
|
|
|
|
|
Derivative securities
|
|
|
(7)
|
|
|
|
(1)
|
|
Short term investments and other
|
|
|
1
|
|
|
|
(1)
|
|
Total realized investment gains (losses)
|
|
|
(28)
|
|
|
|
10
|
|
Income tax (expense) benefit
|
|
|
9
|
|
|
|
(1)
|
|
Amounts attributable to noncontrolling
interests
|
|
|
2
|
|
|
|
(1)
|
|
Net realized investment gains (losses) attributable to Loews Corporation
|
|
$
|
(17)
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
Net realized investment results decreased $25 million for the three months ended March 31,
2016 as compared with the same period in 2015, driven by lower net realized investment gains on sales of securities and higher OTTI losses recognized in earnings. Further information on CNAs realized gains and losses, including OTTI losses, is
set forth in Note 2 of the Notes to Consolidated Condensed Financial Statements included under Item 1.
51
Portfolio Quality
The following table presents the estimated fair value and net unrealized gains (losses) of CNAs fixed maturity
securities by rating distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
Estimated
Fair Value
|
|
Net
Unrealized
Gains
(Losses)
|
|
Estimated
Fair Value
|
|
Net
Unrealized
Gains
(Losses)
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government, Government agencies and Government-sponsored enterprises
|
|
|
$
|
4,177
|
|
|
|
$
|
154
|
|
|
|
$
|
3,910
|
|
|
|
$
|
101
|
|
AAA
|
|
|
|
1,960
|
|
|
|
|
141
|
|
|
|
|
1,938
|
|
|
|
|
123
|
|
AA
|
|
|
|
8,758
|
|
|
|
|
1,058
|
|
|
|
|
8,919
|
|
|
|
|
900
|
|
A
|
|
|
|
10,352
|
|
|
|
|
1,061
|
|
|
|
|
10,044
|
|
|
|
|
904
|
|
BBB
|
|
|
|
11,898
|
|
|
|
|
571
|
|
|
|
|
11,595
|
|
|
|
|
307
|
|
Non-investment grade
|
|
|
|
3,107
|
|
|
|
|
(4
|
)
|
|
|
|
3,166
|
|
|
|
|
(16)
|
|
|
|
Total
|
|
|
$
|
40,252
|
|
|
|
$
|
2,981
|
|
|
|
$
|
39,572
|
|
|
|
$
|
2,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016 and December 31, 2015, only 2% and 1% of CNAs fixed maturity
portfolio was rated internally.
The following table presents available-for-sale fixed maturity securities in a gross
unrealized loss position by ratings distribution:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Estimated
Fair Value
|
|
Gross
Unrealized
Losses
|
(In millions)
|
|
|
|
|
|
|
|
U.S. Government, Government agencies and Government-sponsored enterprises
|
|
|
$
|
70
|
|
|
|
$
|
1
|
|
AAA
|
|
|
|
254
|
|
|
|
|
4
|
|
AA
|
|
|
|
154
|
|
|
|
|
2
|
|
A
|
|
|
|
687
|
|
|
|
|
25
|
|
BBB
|
|
|
|
2,412
|
|
|
|
|
125
|
|
Non-investment grade
|
|
|
|
1,318
|
|
|
|
|
126
|
|
|
|
Total
|
|
|
$
|
4,895
|
|
|
|
$
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the maturity profile for these available-for-sale fixed maturity
securities. Securities not due to mature on a single date are allocated based on weighted average life:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Estimated
Fair Value
|
|
Gross
Unrealized
Losses
|
(In millions)
|
|
|
|
|
|
|
|
Due in one year or less
|
|
|
$
|
323
|
|
|
|
$
|
3
|
|
Due after one year through five years
|
|
|
|
1,024
|
|
|
|
|
38
|
|
Due after five years through ten years
|
|
|
|
2,689
|
|
|
|
|
159
|
|
Due after ten years
|
|
|
|
859
|
|
|
|
|
83
|
|
|
|
Total
|
|
|
$
|
4,895
|
|
|
|
$
|
283
|
|
|
|
Duration
A primary objective in the management of the investment portfolio is to optimize return relative to corresponding liabilities
and respective liquidity needs. CNAs views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions and the domestic and global economic conditions, are
some of the factors that enter into an investment decision. CNA also continually monitors
52
exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on its views of a specific issuer or industry sector.
A further consideration in the management of the investment portfolio is the characteristics of the corresponding liabilities
and the ability to align the duration of the portfolio to those liabilities and to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios
where future liability cash flows are determinable and typically long term in nature, CNA segregates investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in
the Life & Group Non-Core business.
The effective durations of fixed maturity securities and short term investments
are presented in the following table. Amounts presented are net of accounts payable and receivable amounts for securities purchased and sold, but not yet settled.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Estimated
Fair Value
|
|
|
Effective
Duration
(Years)
|
|
|
Estimated
Fair Value
|
|
|
Effective
Duration
(Years)
|
|
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments supporting Life & Group Non-Core
|
|
$
|
15,344
|
|
|
|
9.2
|
|
|
$
|
14,879
|
|
|
|
9.6
|
|
Other interest sensitive investments
|
|
|
26,483
|
|
|
|
4.1
|
|
|
|
26,435
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,827
|
|
|
|
6.0
|
|
|
$
|
41,314
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investment portfolio is periodically analyzed for changes in duration and related price
change risk. Additionally, CNA periodically reviews the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is
included in the Quantitative and Qualitative Disclosures about Market Risk in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2015.
Short Term Investments
The carrying values of the components of CNAs Short term investments are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
(In millions)
|
|
|
|
|
|
|
|
Short term investments:
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
$
|
945
|
|
|
|
$
|
998
|
|
U.S. Treasury securities
|
|
|
|
462
|
|
|
|
|
411
|
|
Money market funds
|
|
|
|
64
|
|
|
|
|
60
|
|
Other
|
|
|
|
177
|
|
|
|
|
191
|
|
Total short term investments
|
|
|
$
|
1,648
|
|
|
|
$
|
1,660
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTING STANDARDS UPDATE
For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please read Note 1
of the Notes to Consolidated Condensed Financial Statements included under Item 1.
FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this Report as well as some statements in periodic press releases
and some oral statements made by our officials and our subsidiaries during presentations about us, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act).
Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words expect, intend, plan,
anticipate, estimate, believe, will be, will continue, will likely result, and similar expressions. In addition, any statement concerning future financial performance (including
future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries, which may be provided by management are also forward-looking statements as defined by the Act.
53
Forward-looking statements are based on current expectations and projections
about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected. See Forward-Looking Statements
and Part I, Item 1A Risk Factors in our 2015 Annual Report on Form 10-K for further discussion of factors that may affect the forward-looking statements.