Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
S
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
|
|
|
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For
the quarterly period ended March 31, 2009
OR
£
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
|
|
|
|
|
OF
THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For
the Transition Period
From ____________ to _____________
Commission
File Number 1-6541
LOEWS
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
|
13-2646102
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
667
Madison Avenue, New York, N.Y. 10065-8087
(Address
of principal executive offices) (Zip Code)
(212)
521-2000
(Registrant’s
telephone number, including area code)
NOT
APPLICABLE
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
|
X
|
|
Accelerated
filer
|
|
|
Non-accelerated
filer
|
|
|
Smaller
reporting company
|
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Class
|
|
Outstanding
at April 24, 2009
|
Common
stock, $0.01 par value
|
|
435,185,470
shares
|
INDEX
|
Page
|
|
No.
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|
Part
I. Financial Information
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|
|
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|
|
Item
1. Financial Statements (unaudited)
|
|
|
|
|
|
Consolidated
Condensed Balance Sheets
|
3
|
|
March
31, 2009 and December 31, 2008
|
|
|
|
|
|
Consolidated
Condensed Statements of Operations
|
4
|
|
Three
months ended March 31, 2009 and 2008
|
|
|
|
|
|
Consolidated
Condensed Statements of Comprehensive Income (Loss)
|
5
|
|
Three
months ended March 31, 2009 and 2008
|
|
|
|
|
|
Consolidated
Condensed Statements of Equity
|
6
|
|
March
31, 2009 and 2008
|
|
|
|
|
|
Consolidated
Condensed Statements of Cash Flows
|
7
|
|
Three
months ended March 31, 2009 and 2008
|
|
|
|
|
|
Notes
to Consolidated Condensed Financial Statements
|
9
|
|
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
43
|
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
75
|
|
|
|
|
Item
4. Controls and Procedures
|
75
|
|
|
|
|
Part
II. Other Information
|
76
|
|
|
|
|
Item
1. Legal Proceedings
|
76
|
|
|
|
|
Item
1A. Risk Factors
|
76
|
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
76
|
|
|
|
|
Item
6. Exhibits
|
76
|
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED BALANCE SHEETS
(Unaudited)
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(Dollar
amounts in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
Fixed
maturities, amortized cost of $33,523 and $34,767
|
|
$ |
28,755 |
|
|
$ |
29,451 |
|
Equity
securities, cost of $1,083 and $1,402
|
|
|
1,001 |
|
|
|
1,185 |
|
Limited
partnership investments
|
|
|
1,768 |
|
|
|
1,781 |
|
Other
investments
|
|
|
4 |
|
|
|
4 |
|
Short
term investments
|
|
|
7,563 |
|
|
|
6,029 |
|
Total
investments
|
|
|
39,091 |
|
|
|
38,450 |
|
Cash
|
|
|
138 |
|
|
|
131 |
|
Receivables
|
|
|
11,334 |
|
|
|
11,672 |
|
Property,
plant and equipment
|
|
|
12,160 |
|
|
|
12,892 |
|
Deferred
income taxes
|
|
|
3,145 |
|
|
|
2,928 |
|
Goodwill
and other intangible assets
|
|
|
875 |
|
|
|
875 |
|
Other
assets
|
|
|
1,416 |
|
|
|
1,413 |
|
Deferred
acquisition costs of insurance subsidiaries
|
|
|
1,132 |
|
|
|
1,125 |
|
Separate
account business
|
|
|
376 |
|
|
|
384 |
|
Total
assets
|
|
$ |
69,667 |
|
|
$ |
69,870 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
reserves:
|
|
|
|
|
|
|
|
|
Claim
and claim adjustment expense
|
|
$ |
27,243 |
|
|
$ |
27,593 |
|
Future
policy benefits
|
|
|
7,634 |
|
|
|
7,529 |
|
Unearned
premiums
|
|
|
3,461 |
|
|
|
3,405 |
|
Policyholders’
funds
|
|
|
253 |
|
|
|
243 |
|
Total
insurance reserves
|
|
|
38,591 |
|
|
|
38,770 |
|
Payable
to brokers
|
|
|
869 |
|
|
|
679 |
|
Collateral
on loaned securities and derivatives
|
|
|
51 |
|
|
|
6 |
|
Short
term debt
|
|
|
18 |
|
|
|
71 |
|
Long
term debt
|
|
|
8,402 |
|
|
|
8,187 |
|
Reinsurance
balances payable
|
|
|
344 |
|
|
|
316 |
|
Other
liabilities
|
|
|
4,120 |
|
|
|
4,322 |
|
Separate
account business
|
|
|
376 |
|
|
|
384 |
|
Total
liabilities
|
|
|
52,771 |
|
|
|
52,735 |
|
Preferred
stock, $0.10 par value:
|
|
|
|
|
|
|
|
|
Authorized
– 100,000,000 shares
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 per value:
|
|
|
|
|
|
|
|
|
Authorized
– 1,800,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
and outstanding – 435,159,670 and 435,091,667 shares
|
|
|
4 |
|
|
|
4 |
|
Additional
paid-in capital
|
|
|
3,896 |
|
|
|
3,340 |
|
Earnings
retained in the business
|
|
|
12,700 |
|
|
|
13,375 |
|
Accumulated
other comprehensive income (loss)
|
|
|
(3,229 |
) |
|
|
(3,586 |
) |
Total
shareholders’ equity
|
|
|
13,371 |
|
|
|
13,133 |
|
Noncontrolling
interests
|
|
|
3,525 |
|
|
|
4,002 |
|
Total
equity
|
|
|
16,896 |
|
|
|
17,135 |
|
Total
liabilities and equity
|
|
$ |
69,667 |
|
|
$ |
69,870 |
|
See
accompanying Notes to Consolidated Condensed Financial Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Insurance
premiums
|
|
$ |
1,672 |
|
|
$ |
1,812 |
|
Net
investment income
|
|
|
447 |
|
|
|
479 |
|
Investment
losses
|
|
|
(531 |
) |
|
|
(51 |
) |
Contract
drilling revenues
|
|
|
856 |
|
|
|
770 |
|
Other
|
|
|
579 |
|
|
|
602 |
|
Total
|
|
|
3,023 |
|
|
|
3,612 |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Insurance
claims and policyholders’ benefits
|
|
|
1,342 |
|
|
|
1,389 |
|
Amortization
of deferred acquisition costs
|
|
|
349 |
|
|
|
368 |
|
Contract
drilling expenses
|
|
|
294 |
|
|
|
285 |
|
Impairment
of natural gas and oil properties
|
|
|
1,036 |
|
|
|
|
|
Other
operating expenses
|
|
|
776 |
|
|
|
619 |
|
Interest
|
|
|
94 |
|
|
|
89 |
|
Total
|
|
|
3,891 |
|
|
|
2,750 |
|
Income
(loss) before income tax
|
|
|
(868 |
) |
|
|
862 |
|
Income
tax (expense) benefit
|
|
|
395 |
|
|
|
(253 |
) |
Income
(loss) from continuing operations
|
|
|
(473 |
) |
|
|
609 |
|
Discontinued
operations, net
|
|
|
|
|
|
|
253 |
|
Net
income (loss)
|
|
|
(473 |
) |
|
|
862 |
|
Deduct
amounts attributable to noncontrolling interests
|
|
|
(174 |
) |
|
|
(200 |
) |
Net
income (loss) attributable to Loews Corporation
|
|
$ |
(647 |
) |
|
$ |
662 |
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to:
|
|
|
|
|
|
|
|
|
Loews
common stock:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
(647 |
) |
|
$ |
409 |
|
Discontinued
operations, net
|
|
|
|
|
|
|
146 |
|
Loews
common stock
|
|
|
(647 |
) |
|
|
555 |
|
Former
Carolina Group stock - discontinued operations, net
|
|
|
|
|
|
|
107 |
|
Total
|
|
$ |
(647 |
) |
|
$ |
662 |
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income (loss) per Loews common share:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
(1.49 |
) |
|
$ |
0.77 |
|
Discontinued
operations, net
|
|
|
|
|
|
|
0.28 |
|
Net
income (loss)
|
|
$ |
(1.49 |
) |
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income per former Carolina Group share:
|
|
|
|
|
|
|
|
|
Discontinued
operations, net
|
|
$ |
- |
|
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
|
Basic
weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Loews
common stock
|
|
|
435.12 |
|
|
|
529.70 |
|
Former
Carolina Group stock
|
|
|
- |
|
|
|
108.47 |
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Loews
common stock
|
|
|
435.12 |
|
|
|
530.90 |
|
Former
Carolina Group stock
|
|
|
- |
|
|
|
108.61 |
|
See
accompanying Notes to Consolidated Condensed Financial Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(473 |
) |
|
$ |
862 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Changes
in:
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on investments
|
|
|
399 |
|
|
|
(856 |
) |
Unrealized
gains (losses) on cash flow hedges
|
|
|
15 |
|
|
|
(135 |
) |
Foreign
currency
|
|
|
(7 |
) |
|
|
(19 |
) |
Pension
liability
|
|
|
(1 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
406 |
|
|
|
(1,017 |
) |
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
|
(67 |
) |
|
|
(155 |
) |
|
|
|
|
|
|
|
|
|
Deduct amounts attributable to
noncontrolling interests
|
|
|
(223 |
) |
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss) attributable to Loews
Corporation
|
|
$ |
(290 |
) |
|
$ |
(256 |
) |
See
accompanying Notes to Consolidated Condensed Financial Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
Loews
Corporation Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
|
|
|
|
|
|
Earnings
|
|
|
Accumulated
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Loews
|
|
|
Carolina
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Common
|
|
|
Group
|
|
|
Paid-in
|
|
|
in
the
|
|
|
Comprehensive
|
|
|
Held
in
|
|
|
Noncontrolling
|
|
|
|
Total
|
|
|
(Loss)
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Business
|
|
|
Income
(Loss)
|
|
|
Treasury
|
|
|
Interests
|
|
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008, as reported
|
|
$ |
21,489 |
|
|
|
|
|
$ |
5 |
|
|
$ |
1 |
|
|
$ |
3,967 |
|
|
$ |
13,691 |
|
|
$ |
(65 |
) |
|
$ |
(8 |
) |
|
$ |
3,898 |
|
Adjustment
to initially apply FASB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff
Position No. APB 14-1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“Accounting
for Convertible Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments
That May Be Settled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
Cash Upon Conversion”
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
6 |
|
Balance,
January 1, 2008, as restated
|
|
|
21,502 |
|
|
|
|
|
|
5 |
|
|
|
1 |
|
|
|
4,024 |
|
|
|
13,641 |
|
|
|
(65 |
) |
|
|
(8 |
) |
|
|
3,904 |
|
Purchase
of subsidiary shares from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interests
|
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
862 |
|
|
$ |
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
200 |
|
Other
comprehensive loss
|
|
|
(1,017 |
) |
|
|
(1,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(918 |
) |
|
|
|
|
|
|
(99 |
) |
Comprehensive
loss
|
|
$ |
(155 |
) |
|
$ |
(155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
(118 |
) |
Issuance
of Loews common stock
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Other
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
Balance,
March 31, 2008
|
|
$ |
21,058 |
|
|
|
|
|
|
$ |
5 |
|
|
$ |
1 |
|
|
$ |
4,030 |
|
|
$ |
14,219 |
|
|
$ |
(983 |
) |
|
$ |
(8 |
) |
|
$ |
3,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2009, as reported
|
|
$ |
17,122 |
|
|
|
|
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
3,283 |
|
|
$ |
13,425 |
|
|
$ |
(3,586 |
) |
|
$ |
- |
|
|
$ |
3,996 |
|
Adjustment
to initially apply FASB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff
Position No. APB 14-1
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
6 |
|
Balance,
January 1, 2009, as restated
|
|
|
17,135 |
|
|
|
|
|
|
|
4 |
|
|
|
- |
|
|
|
3,340 |
|
|
|
13,375 |
|
|
|
(3,586 |
) |
|
|
- |
|
|
|
4,002 |
|
Adjustment
to initially apply Statement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Accounting Standards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No.
160, “Noncontrolling Interests in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Financial Statements”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(536 |
) |
Balance,
January 1, 2009, as adjusted
|
|
|
17,135 |
|
|
|
|
|
|
|
4 |
|
|
|
- |
|
|
|
3,876 |
|
|
|
13,375 |
|
|
|
(3,586 |
) |
|
|
- |
|
|
|
3,466 |
|
Purchase
of subsidiary shares from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interests
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(473 |
) |
|
$ |
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(647 |
) |
|
|
|
|
|
|
|
|
|
|
174 |
|
Other
comprehensive income
|
|
|
406 |
|
|
|
406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357 |
|
|
|
|
|
|
|
49 |
|
Comprehensive
loss
|
|
$ |
(67 |
) |
|
$ |
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
(161 |
) |
Issuance
of Loews common stock
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Other
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
13 |
|
Balance,
March 31, 2009
|
|
$ |
16,896 |
|
|
|
|
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
3,896 |
|
|
$ |
12,700 |
|
|
$ |
(3,229 |
) |
|
$ |
- |
|
|
$ |
3,525 |
|
See
accompanying Notes to Consolidated Condensed Financial Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(473 |
) |
|
$ |
862 |
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
provided
(used) by operating activities, net
|
|
|
1,360 |
|
|
|
32 |
|
Changes
in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Reinsurance
receivables
|
|
|
16 |
|
|
|
140 |
|
Other
receivables
|
|
|
76 |
|
|
|
(117 |
) |
Federal
income tax
|
|
|
26 |
|
|
|
164 |
|
Prepaid
reinsurance premiums
|
|
|
(17 |
) |
|
|
(22 |
) |
Deferred
acquisition costs
|
|
|
(7 |
) |
|
|
3 |
|
Insurance
reserves
|
|
|
(139 |
) |
|
|
(41 |
) |
Reinsurance
balances payable
|
|
|
28 |
|
|
|
(5 |
) |
Other
liabilities
|
|
|
(161 |
) |
|
|
(346 |
) |
Trading
securities
|
|
|
457 |
|
|
|
421 |
|
Other,
net
|
|
|
(19 |
) |
|
|
(106 |
) |
Net
cash flow operating activities - continuing operations
|
|
|
1,147 |
|
|
|
985 |
|
Net
cash flow operating activities - discontinued operations
|
|
|
(9 |
) |
|
|
502 |
|
Net
cash flow operating activities - total
|
|
|
1,138 |
|
|
|
1,487 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of fixed maturities
|
|
|
(7,079 |
) |
|
|
(11,231 |
) |
Proceeds
from sales of fixed maturities
|
|
|
7,046 |
|
|
|
10,262 |
|
Proceeds
from maturities of fixed maturities
|
|
|
827 |
|
|
|
1,038 |
|
Purchases
of equity securities
|
|
|
(134 |
) |
|
|
(56 |
) |
Proceeds
from sales of equity securities
|
|
|
146 |
|
|
|
28 |
|
Purchases
of property, plant and equipment
|
|
|
(567 |
) |
|
|
(839 |
) |
Change
in collateral on loaned securities and derivatives
|
|
|
45 |
|
|
|
815 |
|
Change
in short term investments
|
|
|
(1,457 |
) |
|
|
(1,170 |
) |
Change
in other investments
|
|
|
56 |
|
|
|
(128 |
) |
Other,
net
|
|
|
|
|
|
|
8 |
|
Net
cash flow investing activities - continuing operations
|
|
|
(1,117 |
) |
|
|
(1,273 |
) |
Net
cash flow investing activities - discontinued operations,
|
|
|
|
|
|
|
|
|
including
proceeds from dispositions
|
|
|
9 |
|
|
|
43 |
|
Net
cash flow investing activities - total
|
|
|
(1,108 |
) |
|
|
(1,230 |
) |
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
$ |
(27 |
) |
|
$ |
(82 |
) |
Dividends
paid to noncontrolling interests
|
|
|
(161 |
) |
|
|
(118 |
) |
Purchases
of treasury shares by subsidiary
|
|
|
|
|
|
|
(70 |
) |
Issuance
of common stock
|
|
|
1 |
|
|
|
1 |
|
Principal
payments on debt
|
|
|
(10 |
) |
|
|
(304 |
) |
Issuance
of debt
|
|
|
171 |
|
|
|
385 |
|
Receipts
of investment contract account balances
|
|
|
1 |
|
|
|
1 |
|
Return
of investment contract account balances
|
|
|
(8 |
) |
|
|
(14 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
|
|
|
|
1 |
|
Other
|
|
|
12 |
|
|
|
|
|
Net
cash flow financing activities - continuing
operations
|
|
|
(21 |
) |
|
|
(200 |
) |
Net
cash flow financing activities - discontinued
operations
|
|
|
|
|
|
|
|
|
Net
cash flow financing activities - total
|
|
|
(21 |
) |
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange rate on cash - continuing operations
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
7 |
|
|
|
56 |
|
Net
cash transactions from:
|
|
|
|
|
|
|
|
|
Continuing
operations to discontinued operations
|
|
|
|
|
|
|
556 |
|
Discontinued
operations to continuing operations
|
|
|
|
|
|
|
(556 |
) |
Cash,
beginning of period
|
|
|
131 |
|
|
|
160 |
|
Cash,
end of period
|
|
$ |
138 |
|
|
$ |
216 |
|
|
|
|
|
|
|
|
|
|
Cash,
end of period:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
138 |
|
|
$ |
207 |
|
Discontinued
operations
|
|
|
|
|
|
|
9 |
|
Total
|
|
$ |
138 |
|
|
$ |
216 |
|
See
accompanying Notes to Consolidated Condensed Financial Statements.
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 50.4%
owned subsidiary); exploration, production and marketing of natural gas and
natural gas liquids (HighMount Exploration & Production LLC (“HighMount”), a
wholly owned subsidiary); the operation of interstate natural gas transmission
pipeline systems including integrated storage facilities (Boardwalk Pipeline
Partners, LP (“Boardwalk Pipeline”), a 74% owned subsidiary); and the operation
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) –Loews” as used herein means Net
income (loss) attributable to Loews Corporation.
In June
of 2008, the Company disposed of its entire ownership interest in its wholly
owned subsidiary, Lorillard, Inc. (“Lorillard”). Accordingly, amounts related to
Lorillard have been reclassified and are reported as Discontinued Operations.
See Note 13 and the Company’s 2008 Annual Report on Form 10-K.
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, 2009 and December 31, 2008 and the results of operations,
comprehensive income (loss) and changes in cash flows for the three months ended
March 31, 2009 and 2008.
Net
income (loss) for the first quarter of each of the years is not necessarily
indicative of net income (loss) for that entire year.
Reference
is made to the Notes to Consolidated Financial Statements in the 2008 Annual
Report on Form 10-K which should be read in conjunction with these Consolidated
Condensed Financial Statements.
Accounting changes – In
December of 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling
Interests in Consolidated Financial Statements.” SFAS No. 160 requires all
entities to report noncontrolling (minority) interests in subsidiaries as a
component of equity in the Consolidated Financial Statements. Therefore, the
Noncontrolling interest in the equity section includes the appropriate
reclassification of balances for CNA, Diamond Offshore and Boardwalk Pipeline
formerly recognized as Minority interest liability on the Consolidated Balance
Sheets. Moreover, SFAS No. 160 requires that transactions between an entity and
noncontrolling interests be treated as equity transactions. Prior to the
adoption of SFAS No. 160, the Company recorded a gain on the sale of common
equity of a subsidiary equal to the amount of proceeds received in excess of the
carrying value of the units sold. Upon adoption of SFAS No. 160, the Company’s
deferred gains related to the issuances of Boardwalk Pipeline common units ($536
million at January 1, 2009) were recognized in Additional paid-in capital, which
previously were included in minority interest liability in the Consolidated
Condensed Balance Sheets.
In
February of 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2,
“Effective Date of SFAS No. 157,” which delayed the effective date of SFAS No.
157, “Fair Value Measurements,” for all nonrecurring fair value measurements of
nonfinancial assets and nonfinancial liabilities until the fiscal year beginning
after November 15, 2008. As of January 1, 2009, the Company adopted the
provisions of SFAS No. 157 as it relates to reporting units and indefinite-lived
intangible assets measured at fair value for the purposes of impairment testing
and asset retirement obligations. The adoption of these provisions had no impact
on the Company’s financial condition or results of operations.
In March
of 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities.” SFAS No. 161 is intended to improve financial reporting
about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity’s
financial
position, financial performance and cash flows. The Company’s adoption of SFAS
No. 161 had no impact on its financial condition or results of operations. See
Note 4.
In May of
2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).” This FSP clarifies that convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants.” FSP No. APB 14-1 specifies
that issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. As
required, the Company’s Consolidated Condensed Financial Statements have been
retrospectively adjusted to reflect the effect of adoption of FSP No. APB 14-1.
The adoption of FSP No. APB 14-1 increased Property, plant and equipment $16
million, Total assets $13 million and Total equity $13 million and decreased
Deferred income taxes $3 million at January 1, 2009 and 2008. The adoption of
FSP No. APB 14-1 had no effect on previously stated basic and diluted earnings
per share.
New accounting pronouncements not yet
adopted –In April of 2009,
the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair
Value of Financial Instruments,” which amends SFAS No. 107, “Disclosures about
Fair Value of Financial Instruments,” to require disclosures about fair value of
financial instruments in interim as well as annual financial statements. FSP No.
FAS 107-1 and APB 28-1 is effective for interim and fiscal periods beginning
after June 15, 2009. The Company’s adoption of this standard will not impact the
financial condition or results of operations of the Company.
In April
of 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments,” which amends the criteria for
the recognition of other-than-temporary impairment (“OTTI”) losses for debt
securities and requires that credit losses be recognized in earnings and losses
resulting from factors other than credit of the issuer be recognized in other
comprehensive income. Prior to adoption, all OTTI losses are recorded in
earnings in the period of recognition. This FSP also expands and increases the
frequency of existing disclosures. FSP No. FAS 115-2 and FAS 124-2 is effective
for interim and annual periods ending after June 15, 2009, and requires a
cumulative effect adjustment of initially applying the FSP as an adjustment to
the opening balance of retained earnings with a corresponding adjustment to
accumulated other comprehensive income. The Company is currently assessing the
impact FSP No. FAS 115-2 and FAS 124-2 will have on its financial condition and
results of operations.
In April
of 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Indentifying Transactions That Are Not Orderly,” which requires entities to
assess whether certain factors exist that indicate that the volume and level of
market activity for an asset or liability have decreased or that transactions
are not orderly. If, after evaluating those factors, the evidence indicates
there has been a significant decrease in the volume and level of activity in
relation to normal market activity, observed transactional values or quoted
prices may not be determinative of fair value and adjustment to the observed
transactional values or quoted prices may be necessary to estimate fair value.
FSP No. FAS 157-4 is effective for interim and annual periods ending after June
15, 2009. The Company is currently assessing the impact FSP No. FAS 157-4 will
have on its financial condition and results of operations.
2. Investments
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
475 |
|
|
$ |
518 |
|
Short
term investments
|
|
|
11 |
|
|
|
53 |
|
Limited
partnerships
|
|
|
(70 |
) |
|
|
(39 |
) |
Equity
securities
|
|
|
14 |
|
|
|
5 |
|
Trading
portfolio
|
|
|
26 |
|
|
|
(52 |
) |
Other
|
|
|
3 |
|
|
|
12 |
|
Total
investment income
|
|
|
459 |
|
|
|
497 |
|
Investment
expenses
|
|
|
(12 |
) |
|
|
(18 |
) |
Net
investment income
|
|
$ |
447 |
|
|
$ |
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
gains (losses) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities
|
|
$ |
(358 |
) |
|
$ |
(2 |
) |
Equity
securities
|
|
|
(216 |
) |
|
|
(15 |
) |
Derivative
instruments
|
|
|
31 |
|
|
|
(44 |
) |
Short
term investments
|
|
|
14 |
|
|
|
2 |
|
Other
|
|
|
(2 |
) |
|
|
8 |
|
Investment
losses
|
|
|
(531 |
) |
|
|
(51 |
) |
Income
tax benefit
|
|
|
186 |
|
|
|
18 |
|
Add
amounts attributable to noncontrolling interests
|
|
|
35 |
|
|
|
4 |
|
Investment
losses, net - Loews
|
|
$ |
(310 |
) |
|
$ |
(29 |
) |
OTTI
losses of $614 million were recorded primarily in the non-redeemable preferred
securities, asset-backed bonds and corporate and other taxable bonds sectors for
the three months ended March 31, 2009. This compared to OTTI losses of $86
million recorded primarily in the asset-backed bond sector for the three months
ended March 31, 2008.
The OTTI
losses were driven primarily by further deterioration in certain sectors of the
investment portfolio, the continued disruption of the financial and credit
markets and CNA’s change in outlook of economic conditions for the three months
ended March 31, 2009. These circumstances were evidenced by rating agency
downgrades and deterioration of underlying collateral in certain asset-backed
securities.
An
investment is impaired if the fair value of the investment is less than its cost
adjusted for accretion, amortization and OTTI losses, otherwise defined as an
unrealized loss. When an investment is impaired, the impairment is evaluated to
determine whether it is temporary or other-than-temporary.
Significant
judgment is required in the determination of whether an OTTI has occurred for an
investment. CNA follows a consistent and systematic process for determining and
recording an OTTI loss. CNA has established a committee responsible for the OTTI
process. This committee, referred to as the Impairment Committee, is made up of
three officers appointed by CNA’s Chief Financial Officer. The Impairment
Committee is responsible for analyzing all securities in an unrealized loss
position on at least a quarterly basis.
The
Impairment Committee’s assessment of whether an OTTI loss has occurred
incorporates both quantitative and qualitative information. The Impairment
Committee considers a number of factors including, but not limited to: (i) the
length of time and the extent to which the fair value has been less than
amortized cost, (ii) the financial condition and near term prospects of the
issuer, (iii) the intent and ability of CNA to retain its investment for a
period of time
sufficient
to allow for an anticipated recovery in value, (iv) whether the debtor is
current on interest and principal payments and (v) general market conditions and
industry or sector specific outlook.
As part
of the Impairment Committee’s review of impaired asset-backed securities it also
considers results and analysis of cash flow modeling. The focus of this analysis
is on assessing the sufficiency and quality of the underlying collateral and
timing of cash flows based on various scenario tests. This additional data
provides the Impairment Committee with additional context to evaluate current
market conditions to determine if the impairment is temporary in
nature.
For
securities considered to be other-than-temporarily impaired, the security is
adjusted to fair value and the resulting losses are recognized in Investment
gains (losses) on the Consolidated Condensed Statements of
Operations.
CNA’s
assertion to hold until a recovery in value takes into account a view on the
estimated recovery horizon which in some cases may include maturity. Given the
prolonged nature of the current market downturn, the duration and severity of
the unrealized losses has progressed well beyond historical norms. The Company
will continue to monitor these unrealized losses and will assess all facts and
circumstances as they become known which may result in changes to the
conclusions reached based on current facts and circumstances and additional OTTI
losses.
The amortized cost and fair values of
securities are as follows:
|
|
|
|
|
|
|
|
Gross
Unrealized Losses
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Less
Than
|
|
|
12
Months
|
|
|
|
|
March
31, 2009
|
|
Cost
|
|
|
Gains
|
|
|
12
Months
|
|
|
or
Greater
|
|
|
Fair
Value
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
government agencies
|
|
$ |
1,056 |
|
|
$ |
62 |
|
|
$ |
21 |
|
|
|
|
|
$ |
1,097 |
|
Asset-backed
securities
|
|
|
9,113 |
|
|
|
48 |
|
|
|
409 |
|
|
$ |
1,465 |
|
|
|
7,287 |
|
States,
municipalities and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions-tax
exempt
|
|
|
9,268 |
|
|
|
119 |
|
|
|
186 |
|
|
|
730 |
|
|
|
8,471 |
|
Corporate
and other debt
|
|
|
13,683 |
|
|
|
222 |
|
|
|
827 |
|
|
|
1,524 |
|
|
|
11,554 |
|
Redeemable
preferred stocks
|
|
|
69 |
|
|
|
1 |
|
|
|
12 |
|
|
|
6 |
|
|
|
52 |
|
Fixed
maturities available-for-sale
|
|
|
33,189 |
|
|
|
452 |
|
|
|
1,455 |
|
|
|
3,725 |
|
|
|
28,461 |
|
Fixed
maturities, trading
|
|
|
334 |
|
|
|
1 |
|
|
|
15 |
|
|
|
26 |
|
|
|
294 |
|
Total
fixed maturities
|
|
|
33,523 |
|
|
|
453 |
|
|
|
1,470 |
|
|
|
3,751 |
|
|
|
28,755 |
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities available-for-sale
|
|
|
786 |
|
|
|
203 |
|
|
|
5 |
|
|
|
255 |
|
|
|
729 |
|
Equity
securities, trading
|
|
|
297 |
|
|
|
66 |
|
|
|
49 |
|
|
|
42 |
|
|
|
272 |
|
Total
equity securities
|
|
|
1,083 |
|
|
|
269 |
|
|
|
54 |
|
|
|
297 |
|
|
|
1,001 |
|
Short
term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term investments available-for-sale
|
|
|
5,955 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
5,956 |
|
Short
term investments, trading
|
|
|
1,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,607 |
|
Total
short term investments
|
|
|
7,562 |
|
|
|
4 |
|
|
|
3 |
|
|
|
- |
|
|
|
7,563 |
|
Total
|
|
$ |
42,168 |
|
|
$ |
726 |
|
|
$ |
1,527 |
|
|
$ |
4,048 |
|
|
$ |
37,319 |
|
|
|
|
|
|
|
|
|
Gross
Unrealized Losses
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Less
Than
|
|
|
12
Months
|
|
|
|
|
December
31, 2008 |
|
Cost
|
|
|
Gains
|
|
|
12
Months
|
|
|
or
Greater
|
|
|
Fair
Value
|
|
(In
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
government
agencies
|
|
$ |
2,862 |
|
|
$ |
69 |
|
|
$ |
1 |
|
|
|
|
|
$ |
2,930 |
|
Asset-backed
securities
|
|
|
9,670 |
|
|
|
24 |
|
|
|
961 |
|
|
$ |
969 |
|
|
|
7,764 |
|
States,
municipalities and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions-tax
exempt
|
|
|
8,557 |
|
|
|
90 |
|
|
|
609 |
|
|
|
623 |
|
|
|
7,415 |
|
Corporate
and other debt
|
|
|
12,993 |
|
|
|
275 |
|
|
|
1,164 |
|
|
|
1,374 |
|
|
|
10,730 |
|
Redeemable
preferred stocks
|
|
|
72 |
|
|
|
1 |
|
|
|
23 |
|
|
|
3 |
|
|
|
47 |
|
Fixed
maturities available-for-sale
|
|
|
34,154 |
|
|
|
459 |
|
|
|
2,758 |
|
|
|
2,969 |
|
|
|
28,886 |
|
Fixed
maturities, trading
|
|
|
613 |
|
|
|
1 |
|
|
|
19 |
|
|
|
30 |
|
|
|
565 |
|
Total
fixed maturities
|
|
|
34,767 |
|
|
|
460 |
|
|
|
2,777 |
|
|
|
2,999 |
|
|
|
29,451 |
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities available-for-sale
|
|
|
1,018 |
|
|
|
195 |
|
|
|
16 |
|
|
|
324 |
|
|
|
873 |
|
Equity
securities, trading
|
|
|
384 |
|
|
|
52 |
|
|
|
78 |
|
|
|
46 |
|
|
|
312 |
|
Total
equity securities
|
|
|
1,402 |
|
|
|
247 |
|
|
|
94 |
|
|
|
370 |
|
|
|
1,185 |
|
Short
term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term investments available-for-sale
|
|
|
4,999 |
|
|
|
11 |
|
|
|
3 |
|
|
|
|
|
|
|
5,007 |
|
Short
term investments, trading
|
|
|
1,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,022 |
|
Total
short term investments
|
|
|
6,021 |
|
|
|
11 |
|
|
|
3 |
|
|
|
- |
|
|
|
6,029 |
|
Total
|
|
$ |
42,190 |
|
|
$ |
718 |
|
|
$ |
2,874 |
|
|
$ |
3,369 |
|
|
$ |
36,665 |
|
The
following table summarizes the aggregate fair value and gross unrealized loss by
length of time for available-for-sale fixed maturity securities, preferred
stocks and common stocks that have been continuously in an unrealized loss
position at March 31, 2009 and December 31, 2008.
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
|
Fair
Value
|
|
|
Loss
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6
months
|
|
$ |
3,324 |
|
|
$ |
257 |
|
|
$ |
6,749 |
|
|
$ |
681 |
|
7-11
months
|
|
|
5,313 |
|
|
|
821 |
|
|
|
6,159 |
|
|
|
1,591 |
|
12-24
months
|
|
|
6,752 |
|
|
|
2,561 |
|
|
|
3,549 |
|
|
|
1,803 |
|
Greater
than 24 months
|
|
|
1,623 |
|
|
|
479 |
|
|
|
1,778 |
|
|
|
509 |
|
Total
investment grade available-for-sale
|
|
|
17,012 |
|
|
|
4,118 |
|
|
|
18,235 |
|
|
|
4,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-investment
grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6
months
|
|
|
369 |
|
|
|
76 |
|
|
|
853 |
|
|
|
290 |
|
7-11
months
|
|
|
756 |
|
|
|
289 |
|
|
|
374 |
|
|
|
173 |
|
12-24
months
|
|
|
1,235 |
|
|
|
668 |
|
|
|
1,078 |
|
|
|
647 |
|
Greater
than 24 months
|
|
|
9 |
|
|
|
11 |
|
|
|
12 |
|
|
|
7 |
|
Total
non-investment grade available-for-sale
|
|
|
2,369 |
|
|
|
1,044 |
|
|
|
2,317 |
|
|
|
1,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
fixed maturity securities available-for-sale
|
|
|
19,381 |
|
|
|
5,162 |
|
|
|
20,552 |
|
|
|
5,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
and non-redeemable preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6 months
|
|
|
34 |
|
|
|
12 |
|
|
|
39 |
|
|
|
26 |
|
7-11 months
|
|
|
7 |
|
|
|
4 |
|
|
|
43 |
|
|
|
12 |
|
12-24 months
|
|
|
312 |
|
|
|
258 |
|
|
|
497 |
|
|
|
324 |
|
Total
redeemable and non-redeemable preferred stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
|
353 |
|
|
|
274 |
|
|
|
579 |
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6
months
|
|
|
4 |
|
|
|
1 |
|
|
|
5 |
|
|
|
1 |
|
7-11
months
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
12-24
months
|
|
|
9 |
|
|
|
3 |
|
|
|
9 |
|
|
|
3 |
|
Greater
than 24 months
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
Total
equity securities available-for-sale
|
|
|
17 |
|
|
|
4 |
|
|
|
17 |
|
|
|
4 |
|
Total
fixed maturity and equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
$ |
19,751 |
|
|
$ |
5,440 |
|
|
$ |
21,148 |
|
|
$ |
6,067 |
|
At March
31, 2009, the fair value of the available-for-sale fixed maturity securities was
$28,461 million, representing 72.8% of the total investment portfolio. The gross
unrealized loss for any single issuer, other than those specific issuers
discussed within the tax-exempt securities unrealized loss discussion below, was
less than 0.3% of the carrying value of CNA’s total fixed maturity portfolio.
The total fixed maturity portfolio gross unrealized losses included 2,103
securities which were, in aggregate, approximately 21.0% below amortized
cost.
The gross
unrealized losses on equity securities, consisting of common and non-redeemable
preferred stocks, were $260 million, including 150 securities which were, in
aggregate, approximately 45.0% below cost.
The
classification between investment grade and non-investment grade is based on a
ratings methodology that takes into account ratings from the three major
providers, Standard & Poors (“S&P”), Moody’s Investor Services, Inc.
(“Moody’s”) and Fitch Ratings (“Fitch”) in that order of preference. If a
security is not rated by any of the three,
the
Company formulates an internal rating. For securities with credit support from
third party guarantees, the rating reflects the greater of the underlying rating
of the issuer or the insured rating.
Based on
current facts and circumstances, the Company has determined that the securities
presented in the above unrealized gain/loss tables were temporarily impaired
when evaluated at March 31, 2009 and December 31, 2008, and therefore no related
realized losses were recorded. A discussion of some of the factors reviewed in
making that determination as of March 31, 2009 is presented below.
The
market disruption that emerged in 2008 generally continued into the first
quarter of 2009. While the government has initiated programs intended to
stabilize and improve markets and the economy, the impact of these programs
remains uncertain. Certain sectors of the financial markets began to show signs
of improvement during the first quarter of 2009 while other sectors continued to
lag. As a result, the Company incurred realized losses in its investment
portfolio primarily driven by the continuing credit issues attributable to the
asset-backed and financial sectors, which have adversely impacted its results of
operations.
Asset-Backed
Securities
The
unrealized losses on the Company’s investments in asset-backed securities are
due to a combination of factors related to the market disruption caused by
credit concerns that began with the sub-prime issue, but then also extended into
other collateral supporting securities in the Company’s portfolio.
The
majority of the holdings in this category are collateralized mortgage
obligations (“CMOs”), typically collateralized with prime residential mortgages,
and corporate asset-backed structured securities (“ABS”). The holdings in these
sectors include 471 securities in a gross unrealized loss position aggregating
$1,873 million. The aggregate severity of the unrealized loss was approximately
24.8% of amortized cost. The contractual cash flows on the asset-backed
structured securities are passed through, but may be structured into classes of
preference. The securities in this category are modeled in order to evaluate the
risks of default on the performance of the underlying collateral. Within this
analysis multiple factors are analyzed including probable risk of default, loss
severity upon a default, payment delinquency, over collateralization and
interest coverage triggers, credit support from lower-rated tranches and rating
agency actions amongst others. Securities are modeled against base-case and
reasonable stress scenarios of probable default activity, given current market
conditions, and then analyzed for potential impact to the Company’s particular
holdings. The structured securities held are generally secured by over
collateralization or default protection provided by subordinated tranches. OTTI
losses of $196 million were recorded on asset-backed securities for the three
months ended March 31, 2009. These losses were primarily attributable to adverse
changes in the experience of certain underlying collateral and the resulting
future expected default and recovery assumptions in the cash flow
models.
The
remainder of the holdings in this category includes mortgage-backed securities
guaranteed by an agency of the U.S. Government. There were 195 agency
mortgage-backed pass-through securities and 1 agency CMO in an unrealized loss
position aggregating $1 million as of March 31, 2009. The cumulative unrealized
losses on these securities were approximately 1.0% of amortized cost. These
securities do not tend to be influenced by the credit of the issuer but rather
the characteristics and projected cash flows of the underlying collateral. For
the three months ended March 31, 2009, there were no OTTI losses recorded for
mortgage-backed securities guaranteed by an agency of the U.S.
Government.
The
asset-backed securities in an unrealized loss position by ratings distribution
are as follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
March
31, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$ |
5,541 |
|
|
$ |
4,519 |
|
|
$ |
1,022 |
|
AA
|
|
|
643 |
|
|
|
354 |
|
|
|
289 |
|
A
|
|
|
434 |
|
|
|
185 |
|
|
|
249 |
|
BBB
|
|
|
320 |
|
|
|
225 |
|
|
|
95 |
|
Non-investment
grade
|
|
|
609 |
|
|
|
390 |
|
|
|
219 |
|
Total
|
|
$ |
7,547 |
|
|
$ |
5,673 |
|
|
$ |
1,874 |
|
The
Company believes the decline in fair value is primarily attributable to broader
deteriorating market conditions, liquidity concerns and wider than historical
bid/ask spreads brought about as a result of portfolio liquidations and is not
indicative of the quality of the underlying collateral. Because the Company has
the ability and intent to hold these investments until an anticipated recovery
of fair value, which may be maturity, the Company considers these investments to
be temporarily impaired at March 31, 2009.
States,
Municipalities and Political Subdivisions – Tax-Exempt Securities
The
unrealized losses on the Company’s investments in tax-exempt municipal
securities are due to overall market conditions, changes in credit spreads, and
to a lesser extent, changes in interest rates. Market conditions in the
tax-exempt sector have improved during the first quarter of 2009; however,
yields continue to be higher than expected relative to after tax returns on
alternative classes. The holdings in this category include 676 securities. The
aggregate severity of the total unrealized losses was approximately 14.1% of
amortized cost.
The
ratings distribution of tax-exempt securities in an unrealized loss position are
as follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
March
31, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$ |
1,968 |
|
|
$ |
1,813 |
|
|
$ |
155 |
|
AA
|
|
|
2,494 |
|
|
|
2,294 |
|
|
|
200 |
|
A
|
|
|
1,113 |
|
|
|
904 |
|
|
|
209 |
|
BBB
|
|
|
907 |
|
|
|
555 |
|
|
|
352 |
|
Total
|
|
$ |
6,482 |
|
|
$ |
5,566 |
|
|
$ |
916 |
|
The
portfolio consists primarily of special revenue and assessment bonds,
representing 79.0% of the overall portfolio, followed by general obligation
political subdivision bonds at 13.0%, and state general obligation bonds at
8.0%.
The
largest exposures at March 31, 2009 as measured by unrealized losses were
special revenue bonds issued by several states backed by tobacco settlement
funds with unrealized losses of $332 million and several separate issues of
Puerto Rico Sales Tax revenue bonds with unrealized losses of $104 million. All
of these securities are investment grade. Based on the Company’s current
evaluation of these securities and its ability and intent to hold them until an
anticipated recovery in value, the Company does not consider these to be
other-than-temporarily impaired at March 31, 2009. There were no OTTI losses
recorded for tax-exempt municipal securities for the three months ended March
31, 2009.
Corporate
and Other Taxable Bonds
The
holdings in this category include 754 securities in a gross unrealized loss
position aggregating $2,351 million. The aggregate severity of the unrealized
losses was approximately 23.9% of amortized cost.
The
corporate and other taxable bonds in an unrealized loss position across industry
sectors and by ratings distribution are as follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
March
31, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
$ |
1,498 |
|
|
$ |
1,230 |
|
|
$ |
268 |
|
Consumer,
Cyclical
|
|
|
1,251 |
|
|
|
931 |
|
|
|
320 |
|
Consumer,
Non-cyclical
|
|
|
971 |
|
|
|
810 |
|
|
|
161 |
|
Energy
|
|
|
1,061 |
|
|
|
880 |
|
|
|
181 |
|
Financial
|
|
|
2,345 |
|
|
|
1,495 |
|
|
|
850 |
|
Industrial
|
|
|
760 |
|
|
|
589 |
|
|
|
171 |
|
Utilities
|
|
|
1,171 |
|
|
|
952 |
|
|
|
219 |
|
Other
|
|
|
764 |
|
|
|
583 |
|
|
|
181 |
|
Total
|
|
$ |
9,821 |
|
|
$ |
7,470 |
|
|
$ |
2,351 |
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
March
31, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$ |
130 |
|
|
$ |
102 |
|
|
$ |
28 |
|
AA
|
|
|
201 |
|
|
|
170 |
|
|
|
31 |
|
A
|
|
|
2,078 |
|
|
|
1,682 |
|
|
|
396 |
|
BBB
|
|
|
4,608 |
|
|
|
3,538 |
|
|
|
1,070 |
|
Non-investment
grade
|
|
|
2,804 |
|
|
|
1,978 |
|
|
|
826 |
|
Total
|
|
$ |
9,821 |
|
|
$ |
7,470 |
|
|
$ |
2,351 |
|
The
Company has invested in securities with characteristics of both debt and equity
investments, often referred to as hybrid debt securities. Such securities are
typically debt instruments issued with long or extendable maturity dates, may
provide for the ability to defer interest payments without defaulting and are
usually lower in the capital structure of the issuer than traditional bonds. The
financial industry sector presented above includes hybrid debt securities with
an aggregate fair value of $456 million and an aggregate amortized cost of $928
million.
The
decline in fair value was primarily attributable to deterioration and volatility
in the broader credit markets throughout 2008 that resulted in widening of
credit spreads over risk free rates well beyond historical norms and macro
conditions in certain sectors that the market viewed as out of favor. These
conditions generally continued into 2009 but have improved slightly from the
lows in 2008. The Company monitors the financial performance of the corporate
bond issuers for potential factors that may cause a change in outlook and
addresses securities that are deemed to be OTTI. Because these declines were not
related to any issuer specific credit events, and because the Company has the
ability and intent to hold these investments until an anticipated recovery of
fair value, which may be maturity, the Company considers these investments to be
temporarily impaired at March 31, 2009. For the three months ended March 31,
2009, OTTI losses of $190 million were recorded on corporate and other taxable
bonds.
Preferred
Stock
The
unrealized losses on the Company’s investments in preferred stock were caused by
similar factors as those that affected the Company’s corporate bond portfolio.
Approximately 83.0% of the gross unrealized losses in this
category
come from securities issued by financial institutions, 11.0% from utilities and
6.0% from entities in the communications sector. The holdings in this category
include 27 securities in a gross unrealized loss position aggregating $274
million, with 93.0% of these unrealized losses attributable to non-redeemable
preferred stocks.
Preferred
stocks by ratings distribution are as follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
March
31, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
$ |
142 |
|
|
$ |
68 |
|
|
$ |
74 |
|
BBB
|
|
|
452 |
|
|
|
258 |
|
|
|
194 |
|
Non-investment
grade
|
|
|
33 |
|
|
|
27 |
|
|
|
6 |
|
Total
|
|
$ |
627 |
|
|
$ |
353 |
|
|
$ |
274 |
|
The
Company believes the holdings in this category have been adversely impacted by
significant credit spread widening brought on by a combination of factors in the
capital markets. The majority of securities in this category are related to the
banking and mortgage industries and are experiencing what the Company believes
to be temporarily depressed valuations. The Company monitors this sector for all
relevant news and believes, given current facts and circumstances, the remaining
issuers in this sector with unrealized losses will recover in value. Because the
Company has the ability and intent to hold these investments until an
anticipated recovery of fair value, the Company considers these investments to
be temporarily impaired at March 31, 2009. This evaluation was made on the basis
that these securities possess characteristics similar to debt securities and
maintain their ability to pay dividends. For the three months ended March 31,
2009, there were OTTI losses of $225 million recorded on preferred stock
including $188 million related to a major U.S. financial institution. The
ratings of several preferred stock issues of this institution were downgraded to
below investment grade during the first quarter of 2009.
Investment
Commitments
As of
March 31, 2009, the Company had committed approximately $277 million to future
capital calls from various third-party limited partnership investments in
exchange for an ownership interest in the related partnerships.
The
Company invests in multiple bank loan participations as part of its overall
investment strategy and has committed to additional future purchases and sales.
The purchase and sale of these investments are recorded on the date that the
legal agreements are finalized and cash settlement is made. As of March 31,
2009, the Company had commitments to purchase $22 million and sell $32 million
of various bank loan participations. When loan participation purchases are
settled and recorded they may contain both funded and unfunded amounts. An
unfunded loan represents an obligation by the Company to provide additional
amounts under the terms of the loan participation. The funded portions are
reflected on the Consolidated Condensed Balance Sheets, while any unfunded
amounts are not recorded until a draw is made under the loan facility. As of
March 31, 2009, the Company had obligations on unfunded bank loan participations
in the amount of $10 million.
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.
|
The
Company attempts to establish fair value as an exit price in an orderly
transaction consistent with normal settlement market conventions. The Company is
responsible for the valuation process and seeks to obtain quoted market prices
for all securities. When quoted market prices in active markets are not
available, the Company uses a number of methodologies to establish fair value
estimates, including discounted cash flow models, prices from recently executed
transactions of similar securities or broker/dealer quotes, utilizing market
observable information to the extent possible. In conjunction with modeling
activities, the Company may use external data as inputs. The modeled inputs are
consistent with observable market information, when available, or with the
Company’s assumptions as to what market participants would use to value the
securities. The Company also uses pricing services as a significant source of
data. The Company monitors all pricing inputs to determine if the markets from
which the data is gathered are active. As further validation of the Company’s
valuation process, the Company samples its past fair value estimates and
compares the valuations to actual transactions executed in the market on similar
dates.
The fair
values of CNA’s life settlement contracts investments are included in Other
assets. The fair values of discontinued operations investments are included in
Other liabilities. Assets and liabilities measured at fair value on a recurring
basis are summarized in the tables below:
March
31, 2009
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
284 |
|
|
$ |
25,493 |
|
|
$ |
2,978 |
|
|
$ |
28,755 |
|
Equity
securities
|
|
|
702 |
|
|
|
89 |
|
|
|
210 |
|
|
|
1,001 |
|
Short
term investments
|
|
|
6,667 |
|
|
|
896 |
|
|
|
|
|
|
|
7,563 |
|
Receivables
|
|
|
|
|
|
|
195 |
|
|
|
13 |
|
|
|
208 |
|
Life
settlement contracts
|
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
127 |
|
Separate
account business
|
|
|
35 |
|
|
|
303 |
|
|
|
38 |
|
|
|
376 |
|
Payable
to brokers
|
|
|
(161 |
) |
|
|
(217 |
) |
|
|
(71 |
) |
|
|
(449 |
) |
Discontinued
operations investments
|
|
|
78 |
|
|
|
55 |
|
|
|
13 |
|
|
|
146 |
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
2,358 |
|
|
$ |
24,383 |
|
|
$ |
2,710 |
|
|
$ |
29,451 |
|
Equity
securities
|
|
|
881 |
|
|
|
94 |
|
|
|
210 |
|
|
|
1,185 |
|
Short
term investments
|
|
|
5,421 |
|
|
|
608 |
|
|
|
|
|
|
|
6,029 |
|
Receivables
|
|
|
|
|
|
|
182 |
|
|
|
40 |
|
|
|
222 |
|
Life
settlement contracts
|
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
129 |
|
Separate
account business
|
|
|
40 |
|
|
|
306 |
|
|
|
38 |
|
|
|
384 |
|
Payable
to brokers
|
|
|
(168 |
) |
|
|
(260 |
) |
|
|
(112 |
) |
|
|
(540 |
) |
Discontinued
operations investments
|
|
|
83 |
|
|
|
59 |
|
|
|
15 |
|
|
|
157 |
|
The
tables below present reconciliations for all assets and liabilities measured at
fair value on a recurring basis using significant unobservable inputs (Level
3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2009
|
|
$ |
2,710 |
|
|
$ |
210 |
|
|
|
|
|
$ |
129 |
|
|
$ |
38 |
|
|
$ |
15 |
|
|
$ |
(72 |
) |
Total
net realized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
net change in Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
(losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in Net income (loss)
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Included
in Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
(loss)
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(10 |
) |
Purchases,
sales, issuances and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settlements
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
6 |
|
Net
transfers in (out) of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
3
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2009
|
|
$ |
2,978 |
|
|
$ |
210 |
|
|
$ |
- |
|
|
$ |
127 |
|
|
$ |
38 |
|
|
$ |
13 |
|
|
$ |
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008
|
|
$ |
2,909 |
|
|
$ |
199 |
|
|
$ |
85 |
|
|
$ |
115 |
|
|
$ |
30 |
|
|
$ |
42 |
|
|
$ |
(19 |
) |
Total
net realized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
net change in Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
(losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in Net income (loss)
|
|
|
(43 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
Included
in Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
(loss)
|
|
|
(215 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Purchases,
sales, issuances and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settlements
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(52 |
) |
Net
transfers in (out) of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
3
|
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2008
|
|
$ |
2,471 |
|
|
$ |
196 |
|
|
$ |
85 |
|
|
$ |
118 |
|
|
$ |
47 |
|
|
$ |
41 |
|
|
$ |
(90 |
) |
The
tables below summarize gains and losses due to changes in fair value, including
both realized and unrealized gains and losses, recorded in Net income (loss) for
Level 3 assets and liabilities measured at fair value on a recurring
basis:
Three
Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
$ |
5 |
|
Investment
gains (losses)
|
|
|
(73 |
) |
|
|
|
|
|
|
|
$ |
6 |
|
|
|
(67 |
) |
Other
revenues
|
|
|
|
|
|
|
|
|
$ |
11 |
|
|
|
12 |
|
|
|
23 |
|
Total
|
|
$ |
(68 |
) |
|
$ |
- |
|
|
$ |
11 |
|
|
$ |
18 |
|
|
$ |
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment loss
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2 |
) |
Investment
losses
|
|
|
(41 |
) |
|
$ |
(2 |
) |
|
|
|
|
|
$ |
(22 |
) |
|
|
(65 |
) |
Other
revenues
|
|
|
|
|
|
|
|
|
|
$ |
18 |
|
|
|
(9 |
) |
|
|
9 |
|
Total
|
|
$ |
(43 |
) |
|
$ |
(2 |
) |
|
$ |
18 |
|
|
$ |
(31 |
) |
|
$ |
(58 |
) |
The
tables below summarize changes in unrealized gains or losses recorded in Net
income (loss) for Level 3 assets and liabilities measured at fair value on a
recurring basis still held at March 31, 2009 and 2008.
Three
Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
gains (losses)
|
|
$ |
(75 |
) |
|
|
|
|
|
|
|
$ |
24 |
|
|
$ |
(51 |
) |
Other
revenues
|
|
|
|
|
|
|
|
|
$ |
2 |
|
|
|
|
|
|
|
2 |
|
Total
|
|
$ |
(75 |
) |
|
$ |
- |
|
|
$ |
2 |
|
|
$ |
24 |
|
|
$ |
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment loss
|
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(4 |
) |
Investment
losses
|
|
|
(43 |
) |
|
$ |
(2 |
) |
|
|
|
|
|
$ |
(84 |
) |
|
|
(129 |
) |
Other
revenues
|
|
|
|
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
|
4 |
|
Total
|
|
$ |
(47 |
) |
|
$ |
(2 |
) |
|
$ |
4 |
|
|
$ |
(84 |
) |
|
$ |
(129 |
) |
Securities
transferred into Level 3 for the three months ended March 31, 2009 relate
primarily to structured securities with underlying auto loan collateral,
included within fixed maturity securities. These were previously
valued using observable prices for similar securities, but due to decreased
market activity, fair value is determined by cash flow models using market
observable and unobservable inputs. Unobservable inputs include
estimates of future cash flows and the maturity assumption.
4.
Derivative Financial Instruments
The
Company invests in certain derivative instruments for a number of purposes,
including: (i) asset and liability management activities, (ii) income
enhancements for its portfolio management strategy, and (iii) 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 the Company’s portfolio strategy.
The
Company does not believe that any of the derivative instruments utilized by it
are unusually complex, nor do these instruments contain embedded leverage
features which would expose the Company to a higher degree of risk.
The
Company uses derivatives in the normal course of business, primarily in an
attempt to reduce its exposure to market risk (principally interest rate risk,
equity stock price risk, commodity price risk and foreign currency risk)
stemming from various assets and liabilities and credit risk (the ability of an
obligor to make timely payment of principal and/or interest). The Company’s
principal objective under such risk strategies is to achieve the desired
reduction in economic risk, even if the position will not receive hedge
accounting treatment.
CNA’s use
of derivatives is limited by statutes and regulations promulgated by the various
regulatory bodies to which it is subject, and by its own derivative policy. The
derivative policy limits the authorization to initiate derivative transactions
to certain personnel. Derivatives entered into for hedging, regardless of the
choice to designate hedge accounting, shall have a maturity that effectively
correlates to the underlying hedged asset or liability. The policy prohibits the
use of derivatives containing greater than one-to-one leverage with respect to
changes in the underlying price, rate or index. The policy also prohibits the
use of borrowed funds, including funds obtained through securities lending, to
engage in derivative transactions.
The
Company has exposure to economic losses due to interest rate risk arising from
changes in the level or volatility of interest rates. The Company attempts to
mitigate its exposure to interest rate risk through portfolio management, which
includes rebalancing its existing portfolios of assets and liabilities, as well
as changing the characteristics of investments to be purchased or sold in the
future. In addition, various derivative financial instruments are used to modify
the interest rate risk exposures of certain assets and liabilities. These
strategies
include
the use of interest rate swaps, interest rate caps and floors, options, futures,
forwards and commitments to purchase securities. These instruments are generally
used to lock interest rates or market values, to shorten or lengthen durations
of fixed maturity securities or investment contracts, or to hedge (on an
economic basis) interest rate risks associated with investments and variable
rate debt. The Company infrequently designates these types of instruments as
hedges against specific assets or liabilities.
The
Company is exposed to equity price risk as a result of its investment in equity
securities and equity derivatives. Equity price risk results from changes in the
level or volatility of equity prices, which affect the value of equity
securities, or instruments that derive their value from such securities. The
Company attempts to mitigate its exposure to such risks by limiting its
investment in any one security or index. The Company may also manage this risk
by utilizing instruments such as options, swaps, futures and collars to protect
appreciation in securities held.
The
Company has exposure to credit risk arising from the uncertainty associated with
a financial instrument obligor’s ability to make timely principal and/or
interest payments. The Company attempts to mitigate this risk by limiting credit
concentrations, practicing diversification, and frequently monitoring the credit
quality of issuers and counterparties. In addition, the Company may utilize
credit derivatives such as credit default swaps (“CDS”) to modify the credit
risk inherent in certain investments. CDS involve a transfer of credit risk from
one party to another in exchange for periodic payments. The Company infrequently
designates these types of instruments as hedges against specific
assets.
Foreign
exchange rate risk arises from the possibility that changes in foreign currency
exchange rates will impact the fair value of financial instruments denominated
in a foreign currency. The Company’s foreign transactions are primarily
denominated in Australian dollars, Brazilian reais, British pounds, Canadian
dollars and the European Monetary Unit. The Company typically manages this risk
via asset/liability currency matching and through the use of foreign currency
futures and forwards. The Company infrequently designates these types of
instruments as hedges against specific assets or liabilities.
In
addition to the derivatives used for risk management purposes described above,
the Company may also use derivatives for purposes of income enhancement. Income
enhancement transactions are entered into with the intention of providing
additional income or yield to a particular portfolio segment or instrument.
Income enhancement transactions are limited in scope and primarily involve the
sale of covered options in which the Company receives premium in exchange for
selling a call or put option.
The
Company will also use CDS to sell credit protection against a specified credit
event. In selling credit protection, CDS are used to replicate fixed income
securities when credit exposure to certain issuers is not available or when it
is economically beneficial to transact in the derivative market compared to the
cash market alternative. Credit risk includes both the default event risk and
market value exposure due to fluctuations in credit spreads. In selling CDS
protection, the Company receives a periodic premium in exchange for providing
credit protection on a single name reference obligation or a credit derivative
index. If there is an event of default as defined by the CDS agreement, the
Company is required to pay the counterparty the referenced notional amount of
the CDS contract and in exchange the Company is entitled to receive the
referenced defaulted security or the cash equivalent.
At March
31, 2009, the Company had $146 million notional value of outstanding CDS
contracts where the Company sold credit protection. The maximum payment related
to these CDS contracts is $146 million assuming there is no residual value in
the defaulted securities that the Company would receive as part of the contract
terminations. The current fair value of these contracts is a liability of $74
million which represents the amount that the Company would have to pay to exit
these derivative positions.
The table
below summarizes credit default swap contracts where the Company sold credit
protection. The largest single reference obligation in the table below
represents 20.5% of the total notional value and is rated BB.
March
31, 2009
|
|
Fair
Value of Credit
Default Swaps
|
|
|
Maximum
Amount of Future
Payments under Credit
Default Swaps
|
|
|
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA/AA/A
|
|
$ |
(13 |
) |
|
$ |
38 |
|
|
|
18.0 |
|
BBB
|
|
|
|
|
|
|
25 |
|
|
|
0.7 |
|
BB
|
|
|
(27 |
) |
|
|
30 |
|
|
|
8.0 |
|
B
|
|
|
(1 |
) |
|
|
8 |
|
|
|
3.9 |
|
CCC
and lower
|
|
|
(33 |
) |
|
|
45 |
|
|
|
4.2 |
|
Total
|
|
$ |
(74 |
) |
|
$ |
146 |
|
|
|
8.0 |
|
Credit
exposure associated with non-performance by the counterparties to derivative
instruments is generally limited to the uncollateralized fair value of the asset
related to the instruments recognized on the Consolidated Balance Sheets. The
Company attempts to mitigate the risk of non-performance by monitoring the
creditworthiness of counterparties and diversifying derivatives to multiple
counterparties. The Company generally requires that all over-the-counter
derivative contracts be governed by an International Swaps and Derivatives
Association (“ISDA”) Master Agreement, and exchanges collateral under the terms
of these agreements with its derivative investment counterparties depending on
the amount of the exposure and the credit rating of the counterparty. The
Company does not offset its net derivative positions against the fair value of
the collateral provided. The fair value of collateral provided by the Company
was $73 million at March 31, 2009 and primarily consisted of cash and U.S.
Treasury Bills. The fair value of cash collateral received from counterparties
was $10 million at March 31, 2009.
See Note
3 for information regarding the fair value of derivative
instruments.
A summary
of the aggregate contractual or notional amounts and gross estimated fair values
related to derivative financial instruments follows. Equity options purchased
are included in Equity securities, and all other derivative assets are reported
as Receivable from brokers. Derivative liabilities are included in Payable to
brokers on the Consolidated Condensed Balance Sheets. Embedded derivative
instruments subject to bifurcation are reported together with the host contract,
at fair value. 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.
March
31
|
|
2009
|
|
|
Contractual/
|
|
|
|
|
|
Notional
|
|
|
Estimated
Fair Value
|
|
|
Amount
|
|
|
Asset
|
|
|
(Liability)
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
hedge designation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate risk:
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
1,600 |
|
|
|
|
|
$ |
(176 |
) |
Commodities:
|
|
|
|
|
|
|
|
|
|
|
|
Forwards
– short
|
|
|
404 |
|
|
$ |
168 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Without
hedge designation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options –
purchased
|
|
|
178 |
|
|
|
67 |
|
|
|
|
|
–
written
|
|
|
226 |
|
|
|
|
|
|
|
(52 |
) |
Currency
forwards – short
|
|
|
102 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to purchase government and municipal securities
|
|
|
156 |
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
1,009 |
|
|
|
|
|
|
|
(22 |
) |
Credit
default swaps – purchased protection
|
|
|
390 |
|
|
|
34 |
|
|
|
(1 |
) |
–
sold protection
|
|
|
146 |
|
|
|
|
|
|
|
(74 |
) |
Other
|
|
|
45 |
|
|
|
6 |
|
|
|
(1 |
) |
Total
|
|
$ |
4,256 |
|
|
$ |
275 |
|
|
$ |
(341 |
) |
Derivatives without hedge designation
– For derivatives not held in a trading portfolio, new derivative
transactions entered into totaled approximately $6.1 billion in notional value
while derivative termination activity totaled approximately $6.1 billion during
the three months ended March 31, 2009. The activity during the quarter was
primarily attributable to interest rate swaps, interest rate futures and
interest rate options.
A summary of the
recognized gains (losses) related to derivative financial instruments without
hedge designation follows. The derivatives held for trading purposes were
carried at fair value with the related gains and losses included within Net
investment income on the Consolidated Condensed Statements of
Operations.
Three
Months Ended March 31
|
|
2009
|
|
(In
millions)
|
|
|
|
|
|
|
|
Included
in Net investment income:
|
|
|
|
Equity
options – written
|
|
$ |
5 |
|
Currency
forwards – long
|
|
|
(8 |
) |
– short
|
|
|
7 |
|
Interest
rate risk:
|
|
|
|
|
Credit
default swaps – purchased protection
|
|
|
9 |
|
– sold protection
|
|
|
(6 |
) |
Options
on government securities – short
|
|
|
11 |
|
Futures
– long
|
|
|
5 |
|
Other
|
|
|
(3 |
) |
|
|
|
|
|
Included
in Investment gains (losses):
|
|
|
|
|
Equity
options – written
|
|
|
11 |
|
Interest
rate risk:
|
|
|
|
|
Interest
rate swaps
|
|
|
21 |
|
Credit
default swaps – purchased protection
|
|
|
(9 |
) |
– sold protection
|
|
|
(6 |
) |
Futures
– short
|
|
|
14 |
|
Total
|
|
$ |
51 |
|
Cash flow hedges − A
significant portion of the Company’s hedge strategies represents cash flow
hedges of the variable price risk associated with the purchase and sale of
natural gas and other energy-related products. As of March 31, 2009,
approximately 47.2 billion cubic feet of natural gas equivalents was hedged by
qualifying cash flow hedges. These derivatives have settlement dates in 2009 and
2010. The Company and certain of its subsidiaries also use interest rate swaps
to hedge its exposure to variable interest rates or risk attributable to changes
in interest rates on long term debt. Any ineffectiveness is recorded currently
in Investment gains (losses) in the Consolidated Condensed Statements of
Operations. The effective portion of the hedges is amortized to interest expense
over the term of the related notes. For the three months ended March 31, 2009,
the net amounts recognized due to ineffectiveness were less than $1
million.
The
following table summarizes the effective portion of the net derivative gains or
losses included in Accumulated other comprehensive income (loss) (“AOCI”) and
the amount reclassified into Net income (loss) for derivatives designated as
cash flow hedges:
Three
Months Ended March 31, 2009
|
|
Amount
of Gain (Loss) Recognized
in AOCI
|
|
|
Location
of Gain (Loss) Reclassified
from AOCI into
Net income (loss)
|
|
Amount
of Gain (Loss) Reclassified
from AOCI into Net
income (loss)
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
$ |
92 |
|
|
Other
revenues
|
|
$ |
74 |
|
Interest
rate risks
|
|
|
(9 |
) |
|
Interest
|
|
|
(14 |
) |
Total
|
|
$ |
83 |
|
|
|
|
$ |
60 |
|
The
Company also enters into short sales as part of its portfolio management
strategy. Short sales are commitments to sell a financial instrument not owned
at the time of sale, usually done in anticipation of a price decline. These
sales resulted in proceeds of $124 million with fair value liabilities of $108
million at March 31, 2009. These positions are marked to market and investment
gains or losses are included in the Consolidated Condensed Statements of
Operations.
5.
Earnings Per Share
Companies
with complex capital structures are required to present basic and diluted
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing net income (loss) attributable to each class of common stock by the
weighted average number of common shares of each class of common stock
outstanding for the period. Diluted earnings 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.
Prior to
the disposal of its entire ownership interest in Lorillard, the Company had two
classes of common stock: former Carolina Group stock, a tracking stock intended
to reflect the economic performance of a group of the Company’s assets and
liabilities, called the former Carolina Group, principally consisting of
Lorillard, Inc. and Loews common stock, representing the economic performance of
the Company’s remaining assets, including the interest in the former Carolina
Group not represented by former Carolina Group stock.
The
attribution of income (loss) to each class of common stock for the three months
ended March 31, 2009 and 2008 was as follows:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions, except %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
net income (loss) -
Loews
|
|
$ |
(647 |
) |
|
$ |
662 |
|
Less
income attributable to former Carolina Group stock
|
|
|
|
|
|
|
107 |
|
Income
(loss)
|
|
$ |
(647 |
) |
|
$ |
555 |
|
|
|
|
|
|
|
|
|
|
Former
Carolina Group stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to former Carolina Group stock
|
|
|
|
|
|
$ |
171 |
|
Weighted
average economic interest of the former Carolina Group
|
|
|
|
|
|
|
62.4 |
% |
|
|
|
|
|
|
|
|
|
Income
attributable to former Carolina Group stock
|
|
$ |
- |
|
|
$ |
107 |
|
The
following is a reconciliation of basic weighted shares outstanding to diluted
weighted shares:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding-basic
|
|
|
435.12 |
|
|
|
529.70 |
|
Stock
options and stock appreciation rights (a)
|
|
|
|
|
|
|
1.20 |
|
Weighted
average shares outstanding-diluted
|
|
|
435.12 |
|
|
|
530.90 |
|
|
|
|
|
|
|
|
|
|
Former
Carolina Group stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding-basic
|
|
|
|
|
|
|
108.47 |
|
Stock
options and stock appreciation rights
|
|
|
|
|
|
|
0.14 |
|
Weighted
average shares outstanding-diluted
|
|
|
- |
|
|
|
108.61 |
|
(a)
|
For
the three months ended March 31, 2009, common equivalent shares,
consisting solely of stock options and stock appreciation rights (“SARs”),
are excluded from the calculation of diluted net loss per share as their
effects are antidilutive.
|
Certain
options and SARs were not included in the diluted weighted shares amount due to
the exercise price being greater than the average stock price for the respective
periods. The number of weighted average shares not included in the diluted
computations is as follows:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Loews
common stock
|
|
|
5,602,771 |
|
|
|
1,173,372 |
|
Former
Carolina Group stock
|
|
|
|
|
|
|
201,841 |
|
6.
Receivables
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
$ |
7,545 |
|
|
$ |
7,761 |
|
Other
insurance
|
|
|
2,031 |
|
|
|
2,039 |
|
Receivable
from brokers
|
|
|
632 |
|
|
|
936 |
|
Accrued
investment income
|
|
|
389 |
|
|
|
360 |
|
Federal
income taxes
|
|
|
420 |
|
|
|
382 |
|
Other
|
|
|
977 |
|
|
|
844 |
|
Total
|
|
|
11,994 |
|
|
|
12,322 |
|
Less: allowance
for doubtful accounts on reinsurance receivables
|
|
|
365 |
|
|
|
366 |
|
allowance for other doubtful
accounts
|
|
|
295 |
|
|
|
284 |
|
Receivables
|
|
$ |
11,334 |
|
|
$ |
11,672 |
|
7. Property,
Plant and Equipment
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
70 |
|
|
$ |
70 |
|
Buildings
and building equipment
|
|
|
633 |
|
|
|
635 |
|
Offshore
drilling equipment
|
|
|
5,809 |
|
|
|
5,668 |
|
Machinery
and equipment
|
|
|
1,288 |
|
|
|
1,375 |
|
Pipeline
equipment
|
|
|
6,151 |
|
|
|
3,978 |
|
Natural
gas and oil proved and unproved properties
|
|
|
3,432 |
|
|
|
3,345 |
|
Construction
in process
|
|
|
286 |
|
|
|
2,210 |
|
Leaseholds
and leasehold improvements
|
|
|
76 |
|
|
|
75 |
|
Total
|
|
|
17,745 |
|
|
|
17,356 |
|
Less
accumulated depreciation, depletion and amortization
|
|
|
5,585 |
|
|
|
4,464 |
|
Property,
plant and equipment
|
|
$ |
12,160 |
|
|
$ |
12,892 |
|
HighMount
Impairment of Natural Gas and Oil Properties
At March
31, 2009, HighMount recorded a non-cash ceiling test impairment charge of $1,036
million ($660 million after tax) related to its carrying value of natural gas
and oil properties. The impairment was recorded as a credit to Accumulated
depreciation, depletion and amortization. The write-down was the result of
declines in commodity prices at March 31, 2009. Had the effects of HighMount’s
cash flow hedges not been considered in calculating the ceiling limitation, the
impairment would have been $1,230 million ($784 million after tax).
Boardwalk
Pipeline Expansion Projects
In the
first quarter of 2009, Boardwalk Pipeline placed in service the remaining
pipeline assets associated with the Southeast Expansion project. Boardwalk
Pipeline also placed in service the Gulf Crossing Project and Fayetteville and
Greenville Laterals. Due to these expansion projects being placed in service,
approximately $2.1 billion was transferred from Construction in process to
Pipeline equipment. The assets will generally be depreciated over a term of 35
years.
8. Claim
and Claim Adjustment Expense Reserves
CNA’s
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. CNA’s reserve projections are based primarily on detailed analysis of the
facts in each case, CNA’s 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 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 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.
Catastrophes
are an inherent risk of the property and casualty insurance business and have
contributed to material period-to-period fluctuations in the Company’s results
of operations and/or equity. CNA reported catastrophe losses, net of
reinsurance, of $13 million and $53 million for the three months ended March 31,
2009 and 2008 for events occurring in those periods. Catastrophe losses in the
first quarter of 2009 related primarily to tornadoes, floods and winter storms.
There can be no assurance that CNA’s ultimate cost for catastrophes will not
exceed current estimates.
The
following provides discussion of CNA’s asbestos and environmental pollution
(“A&E”) reserves.
A&E
Reserves
CNA’s
property and casualty insurance subsidiaries have actual and potential exposures
related to A&E claims. The following table provides data related to CNA’s
A&E claim and claim adjustment expense reserves.
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
|
|
|
Environmental
|
|
|
|
Asbestos
|
|
|
Pollution
|
|
|
Asbestos
|
|
|
Pollution
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
reserves
|
|
$ |
2,020 |
|
|
$ |
376 |
|
|
$ |
2,112 |
|
|
$ |
392 |
|
Ceded
reserves
|
|
|
(869 |
) |
|
|
(128 |
) |
|
|
(910 |
) |
|
|
(130 |
) |
Net
reserves
|
|
$ |
1,151 |
|
|
$ |
248 |
|
|
$ |
1,202 |
|
|
$ |
262 |
|
Asbestos
There was
no asbestos-related net claim and claim adjustment reserve development recorded
for the three months ended March 31, 2009. CNA recorded $2 million of
unfavorable asbestos-related net claim and claim adjustment expense reserve
development for the three months ended March 31, 2008. CNA paid asbestos-related
claims, net of reinsurance recoveries, of $51 million and $49 million for the
three months ended March 31, 2009 and 2008.
The
ultimate cost of reported claims, and in particular A&E claims, is subject
to a great many uncertainties, including future developments of various kinds
that CNA does not control and that are difficult or impossible to foresee
accurately. With respect to the litigation identified below in particular,
numerous factual and legal issues remain unresolved. Rulings on those issues by
the courts are critical to the evaluation of the ultimate cost to CNA. The
outcome of the litigation cannot be predicted with any reliability. Accordingly,
the extent of losses beyond any amounts that may be accrued are not readily
determinable at this time.
Some
asbestos-related defendants have asserted that their insurance policies are not
subject to aggregate limits on coverage. CNA has such claims from a number of
insureds. Some of these claims involve insureds facing exhaustion of products
liability aggregate limits in their policies, who have asserted that their
asbestos-related claims fall within so-called “non-products” liability coverage
contained within their policies rather than products liability coverage, and
that the claimed “non-products” coverage is not subject to any aggregate limit.
It is difficult to predict the ultimate size of any of the claims for coverage
purportedly not subject to aggregate limits or predict to what extent, if any,
the attempts to assert “non-products” claims outside the products liability
aggregate will succeed. CNA’s policies also contain other limits applicable to
these claims and CNA has additional coverage defenses to certain claims. CNA has
attempted to manage its asbestos exposure by aggressively seeking to settle
claims on acceptable terms. There can be no assurance that any of these
settlement efforts will be successful, or that any such claims can be settled on
terms acceptable to CNA. Where CNA cannot settle a claim on acceptable terms,
CNA aggressively litigates the claim. However, adverse developments with respect
to such matters could have a material adverse effect on the Company’s results of
operations and/or equity.
Certain
asbestos claim litigation in which CNA is currently engaged is described
below:
On
February 13, 2003, CNA announced it had resolved asbestos-related coverage
litigation and claims involving A.P. Green Industries, A.P. Green Services and
Bigelow–Liptak Corporation. Under the agreement, CNA is required to pay $70
million, net of reinsurance recoveries, over a ten year period commencing after
the final approval of a bankruptcy plan of reorganization. The settlement
received initial bankruptcy court approval on August 18, 2003. The debtor’s plan
of reorganization includes an injunction to protect CNA from any future claims.
The bankruptcy court issued an opinion on September 24, 2007 recommending
confirmation of that plan. On July 25, 2008, the District Court affirmed the
Bankruptcy Court’s ruling. Several insurers have appealed that ruling to the
Third Circuit Court of Appeals; that appeal is pending at this
time.
CNA is
engaged in insurance coverage litigation in New York State Court, filed in 2003,
with a defendant class of underlying plaintiffs who have asbestos bodily injury
claims against the former Robert A. Keasbey Company (“Keasbey”) (Continental Casualty Co. v.
Employers Ins. of Wausau et al., No. 601037/03 (N.Y. County)). Keasbey, a
currently dissolved corporation, was a seller and installer of
asbestos-containing insulation products in New York and New Jersey. Thousands of
plaintiffs have filed bodily injury claims against Keasbey. However, under New
York court rules, asbestos claims are not cognizable unless they meet certain
minimum medical impairment standards. Since 2002, when these court rules were
adopted, only a small portion of such claims have met medical impairment
criteria under New York court rules and as to the remaining claims, Keasbey’s
involvement at a number of work sites is a highly contested issue.
CNA
issued Keasbey primary policies for 1970-1987 and excess policies for 1971-1978.
CNA has paid an amount substantially equal to the policies’ aggregate limits for
products and completed operations claims in the confirmed CNA policies.
Claimants against Keasbey allege, among other things, that CNA owes coverage
under sections of the policies not subject to the aggregate limits, an
allegation CNA vigorously contests in the lawsuit. In the litigation, CNA and
the claimants seek declaratory relief as to the interpretation of various policy
provisions.
On
December 30, 2008, a New York appellate court entered a unanimous decision in
favor of CNA on multiple alternative grounds including findings that claims
arising out of Keasbey’s asbestos insulating activities are included within the
products hazard/completed operations coverage, which has been exhausted; and
that the defendant claimant class is subject to the affirmative defenses that
CNA may have had against Keasbey, barring all coverage claims. The parties have
the right to seek further appellate review of the decision.
CNA has
insurance coverage disputes related to asbestos bodily injury claims against a
bankrupt insured, Burns & Roe Enterprises, Inc. (“Burns & Roe”). These
disputes are currently part of coverage litigation (stayed in view of the
bankruptcy) and an adversary proceeding in In re: Burns & Roe Enterprises,
Inc., pending in the U.S. Bankruptcy Court for the District of New
Jersey, No. 00-41610. Burns & Roe provided engineering and related services
in connection with construction projects. At the time of its bankruptcy filing,
on December 4, 2000, Burns & Roe asserted that it faced approximately 11,000
claims alleging bodily injury resulting from exposure to asbestos as a result of
construction projects in which Burns & Roe was involved. CNA allegedly
provided primary liability coverage to Burns & Roe from 1956-1969 and
1971-1974, along with certain project-specific policies from 1964-1970. In
September of 2007, CNA entered into an agreement with Burns & Roe, the
Official Committee of Unsecured Creditors appointed by the Bankruptcy Court and
the Future Claims Representative (the “Addendum”), which provides that claims
allegedly covered by CNA policies will be adjudicated in the tort system, with
any coverage disputes related to those claims to be decided in coverage
litigation. With the approval of the Bankruptcy Court, Burns & Roe included
the Addendum as part of its Fourth Amended Plan (the “Plan”), which was
confirmed on February 23, 2009. On March 5, 2009, Fireman’s Fund Insurance Co.
filed a motion to clarify and modify the confirmation order. It is not possible
to predict with any reliability when the Fourth Amended Plan will become
effective or when the Trust created under the Fourth Amended Plan will begin
processing asbestos claims. With respect to both confirmation of the Plan and
coverage issues, numerous factual and legal issues remain to be resolved that
are critical to the final result, the outcome of which cannot be predicted with
any reliability. These factors include, among others: (i) whether CNA has any
further responsibility to compensate claimants against Burns & Roe under its
policies and, if so, under which; (ii) whether CNA’s responsibilities under its
policies extend to a particular claimant’s entire claim or only to a limited
percentage of the claim; (iii) whether CNA’s responsibilities under its policies
are limited by the occurrence limits or other provisions of the policies; (iv)
whether certain exclusions, including professional liability exclusions, in some
of CNA’s policies apply to exclude certain claims; (v) the extent to which
claimants can establish exposure to asbestos materials as to which Burns &
Roe has any responsibility; (vi) the legal theories which must be pursued by
such claimants to establish the liability of Burns & Roe and whether such
theories can, in fact, be established; (vii) the diseases and damages alleged by
such claimants; (viii) the extent that any liability of Burns & Roe would be
shared with other potentially responsible parties; (ix) whether any party will
appeal the confirmation of the Plan, which includes the Addendum, and if so
whether confirmation will be affirmed; and (x) the impact of bankruptcy
proceedings on claims and coverage issue resolution. Accordingly, the extent of
losses beyond any amounts that may be accrued are not readily determinable at
this time.
Suits
have also been initiated directly against the CNA companies and numerous other
insurers in two jurisdictions: Texas and Montana. Approximately 80 lawsuits were
filed in Texas beginning in 2002, against two CNA companies and numerous other
insurers and non-insurer corporate defendants asserting liability for failing to
warn of the dangers of asbestos (e.g. Boson v. Union Carbide Corp.,
(Nueces County, Texas)). During 2003, several of the Texas suits were dismissed
and while certain of the Texas courts’ rulings were appealed, plaintiffs later
dismissed their appeals. A different Texas court, however, denied similar
motions seeking dismissal. After that court denied a related challenge to
jurisdiction, the insurers transferred the case, among others, to a state
multi-district litigation court in Harris County charged with handling asbestos
cases. In February 2006, the insurers petitioned the appellate court in Houston
for an order of mandamus, requiring the multi-district litigation court to
dismiss the case on jurisdictional and substantive grounds. On February 29,
2008, the appellate court denied the insurers’ mandamus petition on procedural
grounds, but did not reach a decision on the merits of the petition. Instead,
the appellate court allowed to stand the multi-district litigation court’s
determination that the case remained on its inactive docket and that no further
action can be taken unless qualifying reports are filed or the filing of such
reports is waived. With respect to the cases that are still pending in Texas, in
June 2008, plaintiffs in the only active case dropped the remaining CNA company
from that suit, leaving only inactive cases against CNA companies. In those
inactive cases, numerous factual and legal issues remain to be resolved that are
critical to the final result, the outcome of which cannot be predicted with any
reliability. These factors include: (i) the speculative nature and unclear scope
of any alleged duties owed to individuals exposed to asbestos and the resulting
uncertainty as to the potential pool of potential claimants; (ii) the fact that
imposing such duties on all insurer and non-insurer corporate defendants would
be unprecedented and, therefore, the legal boundaries of recovery are difficult
to estimate; (iii) the fact that many of the claims brought to date are barred
by the Statute of Limitations and it is unclear whether future claims would also
be barred; (iv) the unclear nature of the required nexus between the acts of the
defendants and the right of any particular claimant to recovery; and (v) the
existence of hundreds of co-defendants in some of the suits and the
applicability of the legal theories pled by the claimants to thousands of
potential defendants. Accordingly, the extent of losses beyond any amounts that
may be accrued is not readily determinable at this time.
On March
22, 2002, a direct action was filed in Montana (Pennock, et al. v. Maryland
Casualty, et al. First Judicial District Court of Lewis & Clark
County, Montana) by eight individual plaintiffs (all employees of W.R. Grace
& Co. (“W.R. Grace”)) and their spouses against CNA, Maryland Casualty and
the State of Montana. This action alleges that the carriers failed to warn of or
otherwise protect W.R. Grace employees from the dangers of
asbestos
at a W.R. Grace vermiculite mining facility in Libby, Montana. The Montana
direct action is currently stayed because of W.R. Grace’s pending bankruptcy. On
April 7, 2008, W.R. Grace announced a settlement in principle with the asbestos
personal injury claimants committee subject to confirmation of a plan of
reorganization by the bankruptcy court. The confirmation hearing is currently
scheduled to begin in June 2009. The settlement in principle with the asbestos
claimants has no present impact on the stay currently imposed on the Montana
direct action and with respect to such claims, numerous factual and legal issues
remain to be resolved that are critical to the final result, the outcome of
which cannot be predicted with any reliability. These factors include: (i) the
unclear nature and scope of any alleged duties owed to people exposed to
asbestos and the resulting uncertainty as to the potential pool of potential
claimants; (ii) the potential application of Statutes of Limitation to many of
the claims which may be made depending on the nature and scope of the alleged
duties; (iii) the unclear nature of the required nexus between the acts of the
defendants and the right of any particular claimant to recovery; (iv) the
diseases and damages claimed by such claimants; (v) the extent that such
liability would be shared with other potentially responsible parties; and (vi)
the impact of bankruptcy proceedings on claims resolution. Accordingly, the
extent of losses beyond any amounts that may be accrued are not readily
determinable at this time.
CNA is
vigorously defending these and other cases and believes that it has meritorious
defenses to the claims asserted. However, there are numerous factual and legal
issues to be resolved in connection with these claims, and it is extremely
difficult to predict the outcome or ultimate financial exposure represented by
these matters. Adverse developments with respect to any of these matters could
have a material adverse effect on CNA’s business, insurer financial strength and
debt ratings, and the Company’s results of operations and/or
equity.
Environmental
Pollution
There was
no environmental pollution net claim and claim adjustment reserve development
recorded for the three months ended March 31, 2009 or 2008. CNA paid
environmental pollution-related claims, net of reinsurance recoveries, of $14
million and $19 million for the three months ended March 31, 2009 and
2008.
Net
Prior Year Development
The net
prior year development presented below includes premium development due to its
direct relationship to claim and allocated claim adjustment expense reserve
development. The net prior year development presented below includes the impact
of commutations, but excludes the impact of increases or decreases in the
allowance for uncollectible reinsurance.
Three
Months Ended March 31, 2009
|
|
Standard
Lines
|
|
|
Specialty
Lines
|
|
|
Other
Insurance
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior
|
|
|
|
|
|
|
|
|
|
|
|
|
year
claim and allocated claim adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
reserve development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
(Non-A&E)
|
|
$ |
(30 |
) |
|
$ |
(41 |
) |
|
$ |
1 |
|
|
$ |
(70 |
) |
A&E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
before impact of premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
(30 |
) |
|
|
(41 |
) |
|
|
1 |
|
|
|
(70 |
) |
Pretax
(favorable) unfavorable premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
17 |
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
14 |
|
Total
pretax (favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
$ |
(13 |
) |
|
$ |
(43 |
) |
|
$ |
- |
|
|
$ |
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
claim and allocated claim adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
reserve development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
(Non-A&E)
|
|
$ |
(35 |
) |
|
$ |
17 |
|
|
$ |
3 |
|
|
$ |
(15 |
) |
A&E
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Pretax
(favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
before impact of premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
(35 |
) |
|
|
17 |
|
|
|
5 |
|
|
|
(13 |
) |
Pretax
(favorable) unfavorable premium development
|
|
|
9 |
|
|
|
(19 |
) |
|
|
(1 |
) |
|
|
(11 |
) |
Total
pretax (favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
$ |
(26 |
) |
|
$ |
(2 |
) |
|
$ |
4 |
|
|
$ |
(24 |
) |
2009
Net Prior Year Development
Standard
Lines
The
favorable claim and allocated claim adjustment expense reserve development was
primarily due to experience in property coverages, including $31 million
resulting from favorable frequency and severity on claims relating to
catastrophes in accident year 2008.
Specialty
Lines
The
favorable claim and allocated claim adjustment expense reserve development was
primarily due to experience in liability coverages. This favorable development
was the result of decreased frequency of large claims in accident years 2007 and
prior.
An
additional $7 million of favorable claim and allocated claim adjustment expense
reserve development was a result of favorable outcomes on claims relating to
catastrophes in accident years 2005 and 2008.
2008
Net Prior Year Development
Standard
Lines
Approximately
$20 million of favorable claim and allocated claim adjustment expense reserve
development was recorded in property coverages. This favorable development was
due to lower than expected frequency in accident year 2007 and favorable
outcomes on several individual claims in accident years 2006 and
prior.
Approximately
$23 million of favorable claim and allocated claim adjustment expense reserve
development was recorded in general liability due to favorable outcomes on
individual claims causing lower severity in accident years 2003 and
prior.
Approximately
$24 million of unfavorable claim and allocated claim adjustment expense reserve
development was recorded in excess workers’ compensation due to higher than
expected frequency and severity in accident years 2003 and prior. This is a
result of continued claim cost inflation in older accident years, driven by
increasing medical inflation and advances in medical care.
Specialty
Lines
Approximately
$10 million of favorable premium development was recorded due to a change in
ultimate premiums within a foreign affiliate’s property and financial lines.
This was offset by approximately $9 million of related unfavorable claim and
allocated claim adjustment expense reserve development.
9. Benefit
Plans
Pension
Plans - The Company has several non-contributory defined benefit plans for
eligible employees. Benefits for certain plans are determined annually based on
a specified percentage of annual earnings (based on the participant’s age or
years of service) and a specified interest rate (which is established annually
for all participants) applied to accrued balances. The benefits for another plan
which cover salaried employees are based on formulas which include, among
others, years of service and average pay. The Company’s funding policy is to
make contributions in accordance with applicable governmental regulatory
requirements.
Other
Postretirement Benefit Plans - The Company has several postretirement benefit
plans covering eligible employees and retirees. Participants generally become
eligible after reaching age 55 with required years of service. Actual
requirements for coverage vary by plan. Benefits for retirees who were covered
by bargaining units vary by each unit and contract. Benefits for certain
retirees are in the form of a Company health care account.
Benefits
for retirees reaching age 65 are generally integrated with Medicare. Other
retirees, based on plan provisions, must use Medicare as their primary coverage,
with the Company reimbursing a portion of the unpaid amount; or are reimbursed
for the Medicare Part B premium or have no Company coverage. The benefits
provided by the Company are basically health and, for certain retirees, life
insurance type benefits.
The
Company funds certain of these benefit plans and accrues postretirement benefits
during the active service of those employees who would become eligible for such
benefits when they retire.
Net
periodic benefit cost components:
|
|
|
|
|
Other
|
|
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
7 |
|
|
$ |
8 |
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest
cost
|
|
|
43 |
|
|
|
40 |
|
|
|
3 |
|
|
|
3 |
|
Expected
return on plan assets
|
|
|
(39 |
) |
|
|
(48 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Amortization
of net loss
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
Amortization
of prior service cost
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
(5 |
) |
Actuarial
loss
|
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Regulatory
asset decrease
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Net
periodic benefit cost
|
|
$ |
18 |
|
|
$ |
2 |
|
|
$ |
(1 |
) |
|
$ |
(1 |
) |
10. Business
Segments
The
Company’s reportable segments are primarily based on its individual operating
subsidiaries. Each principal operating subsidiary 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 Financial, are included in the
Corporate and other segment.
CNA’s
business primarily consists of commercial property and casualty insurance. Its
reportable segments are Standard Lines, Specialty Lines, Life and Group
Non-Core, and Other Insurance.
Diamond
Offshore’s business primarily consists of operating 45 offshore drilling rigs
that are chartered on a contract basis for fixed terms by companies engaged in
exploration and production of hydrocarbons. Offshore rigs are mobile units that
can be relocated based on market demand. On March 31, 2009, 17 of these rigs
were located in the Gulf of Mexico region with the remainder operating in
Brazil, the North Sea, Australia and various other foreign markets.
HighMount’s
business consists primarily of natural gas exploration and production operations
located in the Permian Basin in Texas, the Antrim Shale in Michigan and the
Black Warrior Basin in Alabama.
Boardwalk
Pipeline is engaged in the interstate transportation and storage of natural gas.
This segment consists of three interstate natural gas pipeline systems
originating in the Gulf Coast area and running north and east through Texas,
Louisiana, Mississippi, Alabama, Florida, Arkansas, Tennessee, Kentucky,
Indiana, Ohio, Illinois and Oklahoma.
Loews
Hotels owns and/or operates 18 hotels, 16 of which are in the United States and
two are in Canada.
The
Corporate and other segment consists primarily of corporate investment income,
corporate interest expenses and other corporate administrative
costs.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. In addition, CNA does not maintain a
distinct investment portfolio for each of its insurance segments, and
accordingly, allocation of assets to each segment is not performed. Therefore,
net investment income and investment gains (losses) are allocated based on each
segment’s carried insurance reserves, as adjusted.
The
following tables set forth the Company’s consolidated revenues and income (loss)
attributable to Loews Corporation by business segment:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
Standard
Lines
|
|
$ |
665 |
|
|
$ |
945 |
|
Specialty
Lines
|
|
|
861 |
|
|
|
1,049 |
|
Life
and Group Non-Core
|
|
|
124 |
|
|
|
237 |
|
Other
Insurance
|
|
|
(12 |
) |
|
|
51 |
|
Total
CNA Financial
|
|
|
1,638 |
|
|
|
2,282 |
|
Diamond
Offshore
|
|
|
886 |
|
|
|
792 |
|
HighMount
|
|
|
175 |
|
|
|
189 |
|
Boardwalk
Pipeline
|
|
|
224 |
|
|
|
213 |
|
Loews
Hotels
|
|
|
73 |
|
|
|
97 |
|
Corporate
and other
|
|
|
27 |
|
|
|
39 |
|
Total
|
|
$ |
3,023 |
|
|
$ |
3,612 |
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
Standard
Lines
|
|
$ |
(100 |
) |
|
$ |
114 |
|
Specialty
Lines
|
|
|
68 |
|
|
|
191 |
|
Life
and Group Non-Core
|
|
|
(240 |
) |
|
|
(36 |
) |
Other
Insurance
|
|
|
(60 |
) |
|
|
(3 |
) |
Total
CNA Financial
|
|
|
(332 |
) |
|
|
266 |
|
Diamond
Offshore
|
|
|
451 |
|
|
|
405 |
|
HighMount
|
|
|
(1,006 |
) |
|
|
75 |
|
Boardwalk
Pipeline
|
|
|
51 |
|
|
|
89 |
|
Loews
Hotels
|
|
|
(29 |
) |
|
|
18 |
|
Corporate
and other
|
|
|
(3 |
) |
|
|
9 |
|
Total
|
|
$ |
(868 |
) |
|
$ |
862 |
|
|
|
|
|
|
|
|
|
|
Net
income (loss) - Loews (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
Standard
Lines
|
|
$ |
(50 |
) |
|
$ |
76 |
|
Specialty
Lines
|
|
|
41 |
|
|
|
107 |
|
Life
and Group Non-Core
|
|
|
(131 |
) |
|
|
(12 |
) |
Other
Insurance
|
|
|
(30 |
) |
|
|
|
|
Total
CNA Financial
|
|
|
(170 |
) |
|
|
171 |
|
Diamond
Offshore
|
|
|
163 |
|
|
|
136 |
|
HighMount
|
|
|
(641 |
) |
|
|
47 |
|
Boardwalk
Pipeline
|
|
|
22 |
|
|
|
39 |
|
Loews
Hotels
|
|
|
(18 |
) |
|
|
11 |
|
Corporate
and other
|
|
|
(3 |
) |
|
|
5 |
|
Income
(loss) from continuing operations
|
|
|
(647 |
) |
|
|
409 |
|
Discontinued
operations
|
|
|
|
|
|
|
253 |
|
Total
|
|
$ |
(647 |
) |
|
$ |
662 |
|
(a)
|
Investment
gains (losses) included in Revenues, Income (loss) before income tax and
Net income (loss) attributable to Loews Corporation are as
follows:
|
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
and Income (loss) before income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
Standard
Lines
|
|
$ |
(179 |
) |
|
$ |
(16 |
) |
Specialty
Lines
|
|
|
(116 |
) |
|
|
(9 |
) |
Life
and Group Non-Core
|
|
|
(190 |
) |
|
|
(17 |
) |
Other
Insurance
|
|
|
(47 |
) |
|
|
(9 |
) |
Total
CNA Financial
|
|
|
(532 |
) |
|
|
(51 |
) |
Corporate
and other
|
|
|
1 |
|
|
|
|
|
Total
|
|
$ |
(531 |
) |
|
$ |
(51 |
) |
|
|
|
|
|
|
|
|
|
Net
income (loss) - Loews:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
Standard
Lines
|
|
$ |
(105 |
) |
|
$ |
(10 |
) |
Specialty
Lines
|
|
|
(66 |
) |
|
|
(5 |
) |
Life
and Group Non-Core
|
|
|
(111 |
) |
|
|
(10 |
) |
Other
Insurance
|
|
|
(28 |
) |
|
|
(4 |
) |
Total
|
|
$ |
(310 |
) |
|
$ |
(29 |
) |
11. Legal
Proceedings
California
Long Term Care Litigation
Shaffer v. Continental Casualty
Company, et al., U.S. District Court, Central District of California,
CV06-2235 RGK, is a class action on behalf of certain California individual long
term health care policyholders, alleging that CCC and CNA knowingly or
negligently used unrealistic actuarial assumptions in pricing these policies. On
January 8, 2008, CCC, CNA and the plaintiffs entered into a binding agreement
settling the case on a nationwide basis for the policy forms potentially
affected by the allegations of the complaint. Following a fairness hearing,
the Court entered an order approving the settlement. This order was
appealed to the Ninth Circuit Court of Appeals. The appeal has been fully
briefed. No oral argument has yet been scheduled. CNA believes it has
meritorious defenses to this appeal and intends to defend the appeal
vigorously. The agreement did not have a material impact on the Company’s
results of operations, however it still remains subject to the favorable
resolution of the appeal.
Insurance
Brokerage Antitrust Litigation
On August
1, 2005, CNA and several of its insurance subsidiaries were joined as
defendants, along with other insurers and brokers, in multidistrict litigation
pending in the United States District Court for the District of New Jersey,
In re Insurance Brokerage
Antitrust Litigation, Civil No. 04-5184 (FSH). The plaintiffs allege bid
rigging and improprieties in the payment of contingent commissions in connection
with the sale of insurance that violated federal and state antitrust laws, the
federal Racketeer Influenced and Corrupt Organizations (“RICO”) Act and state
common law. After discovery, the District Court dismissed the federal antitrust
claims and the RICO claims, and declined to exercise supplemental jurisdiction
over the state law claims. The plaintiffs have appealed the dismissal of their
complaint to the Third Circuit Court of Appeals. The parties have filed their
briefs on the appeal. Oral argument was held on April 21, 2009, and the Court
took the matter under advisement. CNA believes it has meritorious defenses to
this action and intends to defend the case vigorously.
The
extent of losses beyond any amounts that may be accrued are not readily
determinable at this time. However, based on facts and circumstances presently
known, in the opinion of management, an unfavorable outcome will not materially
affect the equity of the Company, although results of operations may be
adversely affected.
Global
Crossing Limited Litigation
CCC has
been named as a defendant in an action brought by the bankruptcy estate of
Global Crossing Limited (“Global Crossing”) in the United States Bankruptcy
Court for the Southern District of New York, Global Crossing Estate
Representative, for itself and as the Liquidating Trustee of the Global Crossing
Liquidating Trust v. Gary
Winnick, et al., Case No. 04
Civ. 2558 (“GEL”). In the complaint, plaintiff seeks damages from CCC and the
other defendants for alleged fraudulent transfers and alleged breaches of
fiduciary duties arising from actions taken by Global Crossing while CCC was a
shareholder of Global Crossing. The parties have executed a settlement
agreement, which provides for a dismissal with prejudice of all claims against
CCC. The settlement is subject to entry by the Court of an order barring all
claims against CCC under certain conditions and subject to certain limitations.
The settlement approximates the amount accrued at March 31, 2009.
A&E
Reserves
CNA is also a party to litigation and claims related to A&E cases arising in
the ordinary course of business. See Note 8 for further discussion.
TOBACCO
RELATED
The
Company has been named as a defendant in the following three cases alleging
substantial damages based on alleged health effects caused by smoking cigarettes
or exposure to tobacco smoke, all of which also name a former subsidiary,
Lorillard, Inc., or one of its subsidiaries, as a defendant. In Cypret vs. The American Tobacco
Company, Inc. et al. (1998, Circuit Court, Jackson County, Missouri), the
Company would contest jurisdiction and make use of all available defenses in the
event it receives personal service of this action. In Clalit vs. Philip Morris, Inc., et
al. (1998, Jerusalem District Court of Israel), the court initially
permitted plaintiff to serve the Company outside the jurisdiction but it
cancelled the leave of service in response to the Company’s application, and
plaintiff’s appeal is pending. In Young vs. The American Tobacco
Company, Inc. et al. (1997, Civil District Court, Orleans Parish,
Louisiana), the Company filed an exception for lack of personal jurisdiction
during 2000, which remains pending. In a fourth case that had been pending
against the Company, Cochran
vs. R.J. Reynolds Tobacco Company, et al. (2002, Circuit Court, George
County, Mississippi), the plaintiff and the defendants stipulated to a dismissal
without prejudice during March 2009.
The
Company does not believe it is a proper defendant in any of the foregoing
tobacco related cases and as a result, does not believe the outcome will have a
material affect on the Company’s results of operations or equity. Further,
pursuant to the Separation Agreement dated May 7, 2008 between the Company and
Lorillard and its subsidiaries, Lorillard and its subsidiaries have agreed to
indemnify and hold the Company harmless from all costs and expenses based upon
or arising out of the operation or conduct of Lorillard’s business, including
among other things, smoking and health claims and litigation such as the three
cases described above.
While the
Company intends to defend vigorously all tobacco products liability litigation,
it is not possible to predict the outcome of any of this litigation. Litigation
is subject to many uncertainties. It is possible that one or more of the pending
actions could be decided unfavorably.
OTHER
LITIGATION
The
Company and its subsidiaries are also parties to other litigation arising in the
ordinary course of business. The outcome of this other litigation will not, in
the opinion of management, materially affect the Company’s results of operations
or equity.
12. Commitments
and Contingencies
Guarantees
In the
course of selling business entities and assets to third parties, CNA has agreed
to indemnify purchasers for losses arising out of breaches of representation and
warranties with respect to the business entities or assets being sold,
including, in certain cases, losses arising from undisclosed liabilities or
certain named litigation. Such indemnification provisions generally survive for
periods ranging from nine months following the applicable closing date to the
expiration of the relevant statutes of limitation. As of March 31, 2009, the
aggregate amount of quantifiable indemnification agreements in effect for sales
of business entities, assets and third party loans was $873
million.
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, 2009, 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 purchaser’s 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. These indemnification agreements survive until the applicable
statutes of limitation expire, or until the agreed upon contract terms
expire.
In
connection with the issuance of preferred securities by CNA Surety Capital Trust
I (“Issuer Trust”), CNA Surety, a 62% owned and consolidated subsidiary of CNA,
has also guaranteed the dividend payments and redemption of the preferred
securities issued by the Issuer Trust. The maximum amount of undiscounted future
payments CNA could make under the guarantee is approximately $66 million,
consisting of annual dividend payments of approximately $1 million through April
2034 and the redemption value of $30 million. Because payment under the
guarantee would only be required if CNA does not fulfill its obligations under
the debentures held by the Issuer Trust, CNA has not recorded any additional
liabilities related to this guarantee. There has been no change in the
underlying assets of the trust and CNA does not believe that a payment is likely
under this guarantee.
Boardwalk
Pipeline Purchase Commitments
Boardwalk
Pipeline is engaged in several major expansion projects that will require the
investment of significant capital resources. As of March 31, 2009, Boardwalk
Pipeline had purchase commitments of $163 million primarily related to its
expansion projects.
13. Discontinued
Operations
The results of discontinued
operations are as follows:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
1 |
|
|
$ |
12 |
|
Manufactured
products
|
|
|
|
|
|
|
921 |
|
Investment
gains
|
|
|
|
|
|
|
1 |
|
Total
(a)
|
|
|
1 |
|
|
|
934 |
|
Expenses:
|
|
|
|
|
|
|
|
|
Insurance
related expenses
|
|
|
1 |
|
|
|
4 |
|
Cost
of manufactured products sold
|
|
|
|
|
|
|
555 |
|
Other
operating expenses
|
|
|
|
|
|
|
100 |
|
Interest
|
|
|
|
|
|
|
1 |
|
Total
|
|
|
1 |
|
|
|
660 |
|
Income
before income tax
|
|
|
- |
|
|
|
274 |
|
Income
tax expense
|
|
|
|
|
|
|
(101 |
) |
Results
of discontinued operations
|
|
|
- |
|
|
|
173 |
|
Gain
on disposal (after tax of $44)
|
|
|
|
|
|
|
80 |
|
Net
income from discontinued operations - Loews
|
|
$ |
- |
|
|
$ |
253 |
|
(a)
|
Lorillard’s
revenues and pretax income amounted to 99.7% and 100.0% of the total
discontinued operations for the three months ended March 31,
2008.
|
Net
liabilities of discontinued operations included in Other liabilities in the
Consolidated Condensed Balance Sheets are as follows:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Investments
|
|
$ |
146 |
|
|
$ |
157 |
|
Receivables
|
|
|
6 |
|
|
|
6 |
|
Other
assets
|
|
|
1 |
|
|
|
1 |
|
Total
assets
|
|
|
153 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Insurance
reserves
|
|
|
154 |
|
|
|
162 |
|
Other
liabilities
|
|
|
7 |
|
|
|
8 |
|
Total
liabilities
|
|
|
161 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
Net
liabilities of discontinued operations (a)
|
|
$ |
(8 |
) |
|
$ |
(6 |
) |
(a)
|
The
net liabilities of CNA’s discontinued operations totaling $8 million and
$6 million as of March 31, 2009 and December 31, 2008 are included in
Other liabilities in the Consolidated Condensed Balance Sheets. CNA’s
accounting and reporting for discontinued operations is in accordance with
APB No. 30, “Reporting the Results of Operations – Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.” In accordance with APB
No. 30, CNA’s assets and liabilities of discontinued operations are
presented net in Other liabilities. At March 31, 2009 and December 31,
2008, the insurance reserves are net of discounts of $74 million and $75
million, respectively.
|
Lorillard
As
discussed in Note 1, in June of 2008, the Company disposed of its entire
ownership interest in Lorillard. See Note 2 of the Notes to Consolidated
Financial Statements in the Company’s 2008 Annual Report on Form
10-K.
CNA
CNA has
discontinued operations, which consist of run-off insurance and reinsurance
operations acquired in its merger with the Continental Corporation in 1995. The
remaining run-off business is administered by Continental Reinsurance
Corporation International, Ltd., a wholly owned Bermuda subsidiary. The business
consists of facultative property and casualty, treaty excess casualty and treaty
pro-rata reinsurance with underlying exposure to a diverse, multi-line domestic
and international book of business encompassing property, casualty and marine
liabilities.
The
income (loss) from discontinued operations reported above related to CNA
primarily represents the net investment income, realized investment gains and
losses, foreign currency transaction gains and losses, effects of the accretion
of the loss reserve discount and re-estimation of the ultimate claim and claim
adjustment expense reserve of the discontinued operations.
Bulova
The
Company sold Bulova Corporation (“Bulova”) for approximately $263 million in
January of 2008. The Company recorded a pretax gain of approximately $126
million, $82 million after tax, for the three months ended March 31,
2008.
14. Consolidating
Financial Information
The
following schedules present the Company’s consolidating balance sheet
information at March 31, 2009 and December 31, 2008, and consolidating
statements of operations information for the three months ended March 31, 2009
and 2008. 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 Company’s subsidiaries due to adjustments for purchase
accounting, income taxes and noncontrolling interests. In addition, many of the
Company’s 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 company’s investment in
its subsidiaries, invested cash portfolio, the discontinued operations of
Lorillard and Bulova and corporate long term debt. The elimination adjustments
are for intercompany assets and liabilities, interest and dividends, the parent
company’s 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.
Loews
Corporation
Consolidating
Balance Sheet Information
March
31, 2009
|
|
|
|
|
|
|
|
HighMount
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
35,441 |
|
|
$ |
779 |
|
|
$ |
28 |
|
|
$ |
108 |
|
|
$ |
59 |
|
|
$ |
2,676 |
|
|
|
|
|
$ |
39,091 |
|
Cash
|
|
|
94 |
|
|
|
32 |
|
|
|
1 |
|
|
|
8 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
138 |
|
Receivables
|
|
|
9,984 |
|
|
|
787 |
|
|
|
217 |
|
|
|
129 |
|
|
|
43 |
|
|
|
176 |
|
|
$ |
(2 |
) |
|
|
11,334 |
|
Property,
plant and equipment
|
|
|
326 |
|
|
|
3,480 |
|
|
|
1,789 |
|
|
|
6,173 |
|
|
|
349 |
|
|
|
43 |
|
|
|
|
|
|
|
12,160 |
|
Deferred
income taxes
|
|
|
3,451 |
|
|
|
|
|
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(972 |
) |
|
|
3,145 |
|
Goodwill
and other intangible assets
|
|
|
105 |
|
|
|
20 |
|
|
|
584 |
|
|
|
163 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
875 |
|
Investments
in capital stocks of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,029 |
|
|
|
(12,029 |
) |
|
|
- |
|
Other
assets
|
|
|
806 |
|
|
|
210 |
|
|
|
57 |
|
|
|
304 |
|
|
|
27 |
|
|
|
12 |
|
|
|
|
|
|
|
1,416 |
|
Deferred
acquisition costs of insurance subsidiaries
|
|
|
1,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,132 |
|
Separate
account business
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376 |
|
Total
assets
|
|
$ |
51,715 |
|
|
$ |
5,308 |
|
|
$ |
3,342 |
|
|
$ |
6,885 |
|
|
$ |
483 |
|
|
$ |
14,937 |
|
|
$ |
(13,003 |
) |
|
$ |
69,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
reserves
|
|
$ |
38,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,591 |
|
Payable
to brokers
|
|
|
268 |
|
|
$ |
213 |
|
|
$ |
193 |
|
|
|
|
|
|
$ |
1 |
|
|
$ |
194 |
|
|
|
|
|
|
|
869 |
|
Collateral
on loaned securities
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
Short
term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Long
term debt
|
|
|
2,058 |
|
|
|
504 |
|
|
|
1,715 |
|
|
|
3,051 |
|
|
|
208 |
|
|
|
866 |
|
|
|
|
|
|
|
8,402 |
|
Reinsurance
balances payable
|
|
|
344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344 |
|
Deferred
income taxes
|
|
|
|
|
|
|
461 |
|
|
|
|
|
|
|
120 |
|
|
|
51 |
|
|
|
340 |
|
|
$ |
(972 |
) |
|
|
- |
|
Other
liabilities
|
|
|
2,610 |
|
|
|
663 |
|
|
|
148 |
|
|
|
484 |
|
|
|
16 |
|
|
|
201 |
|
|
|
(2 |
) |
|
|
4,120 |
|
Separate
account business
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376 |
|
Total
liabilities
|
|
|
44,288 |
|
|
|
1,841 |
|
|
|
2,056 |
|
|
|
3,665 |
|
|
|
294 |
|
|
|
1,601 |
|
|
|
(974 |
) |
|
|
52,771 |
|
Total
shareholders’ equity
|
|
|
6,443 |
|
|
|
1,766 |
|
|
|
1,286 |
|
|
|
2,380 |
|
|
|
189 |
|
|
|
13,336 |
|
|
|
(12,029 |
) |
|
|
13,371 |
|
Noncontrolling
interests
|
|
|
984 |
|
|
|
1,701 |
|
|
|
|
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,525 |
|
Total
equity
|
|
|
7,427 |
|
|
|
3,467 |
|
|
|
1,286 |
|
|
|
3,220 |
|
|
|
189 |
|
|
|
13,336 |
|
|
|
(12,029 |
) |
|
|
16,896 |
|
Total
liabilities and equity
|
|
$ |
51,715 |
|
|
$ |
5,308 |
|
|
$ |
3,342 |
|
|
$ |
6,885 |
|
|
$ |
483 |
|
|
$ |
14,937 |
|
|
$ |
(13,003 |
) |
|
$ |
69,667 |
|
Loews
Corporation
Consolidating
Balance Sheet Information
December
31, 2008
|
|
|
|
|
|
|
|
HighMount
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
34,980 |
|
|
$ |
701 |
|
|
$ |
46 |
|
|
$ |
313 |
|
|
$ |
70 |
|
|
$ |
2,340 |
|
|
|
|
|
$ |
38,450 |
|
Cash
|
|
|
85 |
|
|
|
36 |
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
5 |
|
|
|
|
|
|
131 |
|
Receivables
|
|
|
10,290 |
|
|
|
575 |
|
|
|
225 |
|
|
|
92 |
|
|
|
23 |
|
|
|
482 |
|
|
$ |
(15 |
) |
|
|
11,672 |
|
Property,
plant and equipment
|
|
|
327 |
|
|
|
3,429 |
|
|
|
2,771 |
|
|
|
5,972 |
|
|
|
350 |
|
|
|
43 |
|
|
|
|
|
|
|
12,892 |
|
Deferred
income taxes
|
|
|
3,532 |
|
|
|
|
|
|
|
306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(910 |
) |
|
|
2,928 |
|
Goodwill
and other intangible assets
|
|
|
105 |
|
|
|
20 |
|
|
|
584 |
|
|
|
163 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
875 |
|
Investments
in capital stocks of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,973 |
|
|
|
(11,973 |
) |
|
|
- |
|
Other
assets
|
|
|
796 |
|
|
|
210 |
|
|
|
79 |
|
|
|
275 |
|
|
|
48 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
1,413 |
|
Deferred
acquisition costs of insurance subsidiaries
|
|
|
1,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,125 |
|
Separate
account business
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384 |
|
Total
assets
|
|
$ |
51,624 |
|
|
$ |
4,971 |
|
|
$ |
4,012 |
|
|
$ |
6,817 |
|
|
$ |
496 |
|
|
$ |
14,849 |
|
|
$ |
(12,899 |
) |
|
$ |
69,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
reserves
|
|
$ |
38,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1 |
) |
|
$ |
38,770 |
|
Payable
to brokers
|
|
|
124 |
|
|
$ |
37 |
|
|
$ |
191 |
|
|
|
|
|
|
$ |
1 |
|
|
$ |
326 |
|
|
|
|
|
|
|
679 |
|
Collateral
on loaned securities
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Short
term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
71 |
|
Long
term debt
|
|
|
2,058 |
|
|
|
504 |
|
|
|
1,715 |
|
|
$ |
2,889 |
|
|
|
155 |
|
|
|
866 |
|
|
|
|
|
|
|
8,187 |
|
Reinsurance
balances payable
|
|
|
316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316 |
|
Deferred
income taxes
|
|
|
|
|
|
|
453 |
|
|
|
|
|
|
|
103 |
|
|
|
46 |
|
|
|
308 |
|
|
|
(910 |
) |
|
|
- |
|
Other
liabilities
|
|
|
2,732 |
|
|
|
579 |
|
|
|
188 |
|
|
|
571 |
|
|
|
12 |
|
|
|
255 |
|
|
|
(15 |
) |
|
|
4,322 |
|
Separate
account business
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384 |
|
Total
liabilities
|
|
|
44,391 |
|
|
|
1,573 |
|
|
|
2,094 |
|
|
|
3,563 |
|
|
|
285 |
|
|
|
1,755 |
|
|
|
(926 |
) |
|
|
52,735 |
|
Total
shareholders’ equity
|
|
|
6,281 |
|
|
|
1,732 |
|
|
|
1,918 |
|
|
|
1,870 |
|
|
|
211 |
|
|
|
13,094 |
|
|
|
(11,973 |
) |
|
|
13,133 |
|
Noncontrolling
interests
|
|
|
952 |
|
|
|
1,666 |
|
|
|
|
|
|
|
1,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,002 |
|
Total
equity
|
|
|
7,233 |
|
|
|
3,398 |
|
|
|
1,918 |
|
|
|
3,254 |
|
|
|
211 |
|
|
|
13,094 |
|
|
|
(11,973 |
) |
|
|
17,135 |
|
Total
liabilities and equity
|
|
$ |
51,624 |
|
|
$ |
4,971 |
|
|
$ |
4,012 |
|
|
$ |
6,817 |
|
|
$ |
496 |
|
|
$ |
14,849 |
|
|
$ |
(12,899 |
) |
|
$ |
69,870 |
|
Loews
Corporation
Consolidating
Statement of Operations Information
Three
Months Ended March 31, 2009
|
|
|
|
|
|
|
|
HighMount
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
premiums
|
|
$ |
1,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,672 |
|
Net
investment income
|
|
|
420 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
$ |
26 |
|
|
|
|
|
|
447 |
|
Intercompany
interest and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
$ |
(235 |
) |
|
|
- |
|
Investment
gains (losses)
|
|
|
(532 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(531 |
) |
Contract
drilling revenues
|
|
|
|
|
|
|
856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
856 |
|
Other
|
|
|
78 |
|
|
|
29 |
|
|
$ |
175 |
|
|
$ |
224 |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
579 |
|
Total
|
|
|
1,638 |
|
|
|
887 |
|
|
|
175 |
|
|
|
224 |
|
|
|
73 |
|
|
|
261 |
|
|
|
(235 |
) |
|
|
3,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
claims and policyholders’benefits
|
|
|
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,342 |
|
Amortization
of deferred acquisition costs
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349 |
|
Contract
drilling expenses
|
|
|
|
|
|
|
294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294 |
|
Impairment
of natural gas and oil properties
|
|
|
|
|
|
|
|
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036 |
|
Other
operating expenses
|
|
|
248 |
|
|
|
140 |
|
|
|
126 |
|
|
|
146 |
|
|
|
100 |
|
|
|
16 |
|
|
|
|
|
|
|
776 |
|
Interest
|
|
|
31 |
|
|
|
1 |
|
|
|
19 |
|
|
|
27 |
|
|
|
2 |
|
|
|
14 |
|
|
|
|
|
|
|
94 |
|
Total
|
|
|
1,970 |
|
|
|
435 |
|
|
|
1,181 |
|
|
|
173 |
|
|
|
102 |
|
|
|
30 |
|
|
|
- |
|
|
|
3,891 |
|
Income
(loss) before income tax
|
|
|
(332 |
) |
|
|
452 |
|
|
|
(1,006 |
) |
|
|
51 |
|
|
|
(29 |
) |
|
|
231 |
|
|
|
(235 |
) |
|
|
(868 |
) |
Income
tax (expense) benefit
|
|
|
149 |
|
|
|
(116 |
) |
|
|
365 |
|
|
|
(15 |
) |
|
|
11 |
|
|
|
1 |
|
|
|
|
|
|
|
395 |
|
Net
income (loss)
|
|
|
(183 |
) |
|
|
336 |
|
|
|
(641 |
) |
|
|
36 |
|
|
|
(18 |
) |
|
|
232 |
|
|
|
(235 |
) |
|
|
(473 |
) |
(Deduct)
add amounts attributable to noncontrolling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
|
|
|
13 |
|
|
|
(173 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(174 |
) |
Net
income (loss) attributable to Loews Corporation
|
|
$ |
(170 |
) |
|
$ |
163 |
|
|
$ |
(641 |
) |
|
$ |
22 |
|
|
$ |
(18 |
) |
|
$ |
232 |
|
|
$ |
(235 |
) |
|
$ |
(647 |
) |
Loews
Corporation
Consolidating
Statement of Operations Information
Three
Months Ended March 31, 2008
|
|
|
|
|
|
|
|
HighMount
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
premiums
|
|
$ |
1,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1 |
) |
|
$ |
1,812 |
|
Net
investment income
|
|
|
434 |
|
|
$ |
4 |
|
|
|
|
|
$ |
1 |
|
|
|
|
|
$ |
40 |
|
|
|
|
|
|
|
479 |
|
Intercompany
interest and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
501 |
|
|
|
(501 |
) |
|
|
- |
|
Investment
losses
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Contract
drilling revenues
|
|
|
|
|
|
|
770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
770 |
|
Other
|
|
|
86 |
|
|
|
18 |
|
|
$ |
189 |
|
|
|
212 |
|
|
$ |
97 |
|
|
|
|
|
|
|
|
|
|
|
602 |
|
Total
|
|
|
2,282 |
|
|
|
792 |
|
|
|
189 |
|
|
|
213 |
|
|
|
97 |
|
|
|
541 |
|
|
|
(502 |
) |
|
|
3,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
claims and policyholders’ benefits
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,389 |
|
Amortization
of deferred acquisition costs
|
|
|
368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
368 |
|
Contract
drilling expenses
|
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285 |
|
Other
operating expenses
|
|
|
225 |
|
|
|
101 |
|
|
|
96 |
|
|
|
105 |
|
|
|
76 |
|
|
|
17 |
|
|
|
(1 |
) |
|
|
619 |
|
Interest
|
|
|
34 |
|
|
|
1 |
|
|
|
18 |
|
|
|
19 |
|
|
|
3 |
|
|
|
14 |
|
|
|
|
|
|
|
89 |
|
Total
|
|
|
2,016 |
|
|
|
387 |
|
|
|
114 |
|
|
|
124 |
|
|
|
79 |
|
|
|
31 |
|
|
|
(1 |
) |
|
|
2,750 |
|
Income
before income tax
|
|
|
266 |
|
|
|
405 |
|
|
|
75 |
|
|
|
89 |
|
|
|
18 |
|
|
|
510 |
|
|
|
(501 |
) |
|
|
862 |
|
Income
tax expense
|
|
|
(64 |
) |
|
|
(125 |
) |
|
|
(28 |
) |
|
|
(25 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(253 |
) |
Income
from continuing operations
|
|
|
202 |
|
|
|
280 |
|
|
|
47 |
|
|
|
64 |
|
|
|
11 |
|
|
|
506 |
|
|
|
(501 |
) |
|
|
609 |
|
Discontinued
operations, net
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
253 |
|
Net
income
|
|
|
201 |
|
|
|
280 |
|
|
|
47 |
|
|
|
64 |
|
|
|
11 |
|
|
|
760 |
|
|
|
(501 |
) |
|
|
862 |
|
Deduct
amounts attributable to noncontrolling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests
|
|
|
(31 |
) |
|
|
(144 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
Net
income attributable to Loews Corporation
|
|
$ |
170 |
|
|
$ |
136 |
|
|
$ |
47 |
|
|
$ |
39 |
|
|
$ |
11 |
|
|
$ |
760 |
|
|
$ |
(501 |
) |
|
$ |
662 |
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Management’s
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, 2008. This MD&A is comprised of the following
sections:
|
Page
|
|
No.
|
|
|
Overview
|
43
|
|
Consolidated Financial Results
|
44
|
|
Parent Company Structure
|
44
|
|
Critical Accounting Estimates
|
45
|
|
Results of Operations by Business Segment
|
45
|
|
CNA Financial
|
45
|
|
Standard Lines
|
46
|
|
Specialty Lines
|
47
|
|
Life and Group Non-Core
|
48
|
|
Other Insurance
|
49
|
|
A&E Reserves
|
50
|
|
Diamond Offshore
|
52
|
|
HighMount
|
55
|
|
Boardwalk Pipeline
|
57
|
|
Loews Hotels
|
60
|
|
Corporate and Other
|
61
|
|
Liquidity and Capital Resources
|
61
|
|
CNA Financial
|
61
|
|
Diamond Offshore
|
62
|
|
HighMount
|
63
|
|
Boardwalk Pipeline
|
63
|
|
Loews Hotels
|
65
|
|
Corporate and Other
|
65
|
|
Investments
|
65
|
|
Accounting Standards
|
73
|
|
Forward-Looking Statements
|
73
|
|
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
50.4% owned subsidiary);
|
|
·
|
exploration,
production and marketing of natural gas, natural gas liquids and, to a
lesser extent, oil (HighMount Exploration & Production LLC
(“HighMount”), a wholly owned
subsidiary);
|
|
·
|
operation
of interstate natural gas transmission pipeline systems including
integrated storage facilities (Boardwalk Pipeline Partners, LP (“Boardwalk
Pipeline”), a 74% owned subsidiary);
and
|
|
·
|
operation 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,” “we,” “our,” “us” or like terms refer to the
business of Loews Corporation excluding its subsidiaries.
Consolidated
Financial Results
Net
income (loss) and earnings (loss) per share information attributable to Loews
common stock and former Carolina Group stock is summarized in the table
below.
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to Loews common stock:
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
(647 |
) |
|
$ |
409 |
|
Discontinued
operations, net
|
|
|
|
|
|
|
146 |
|
Net
income (loss) attributable to Loews common stock
|
|
|
(647 |
) |
|
|
555 |
|
Net
income attributable to former Carolina Group stock - Discontinued
operations
|
|
|
|
|
|
|
107 |
|
Net
income (loss) attributable to Loews Corporation
|
|
$ |
(647 |
) |
|
$ |
662 |
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
Loews
common stock:
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
(1.49 |
) |
|
$ |
0.77 |
|
Discontinued
operations, net
|
|
|
|
|
|
|
0.28 |
|
Loews
common stock
|
|
$ |
(1.49 |
) |
|
$ |
1.05 |
|
Former
Carolina Group stock - Discontinued operations
|
|
$ |
- |
|
|
$ |
0.98 |
|
Consolidated
results for the first quarter of 2009 amounted to a Net loss attributable to
Loews common stock of $647 million, or $1.49 per share, compared to Net income
attributable to Loews common stock of $555 million, or $1.05 per share in the
first quarter of 2008.
Loss from
continuing operations attributable to Loews common stock in the first quarter of
2009 was $647 million, or $1.49 per Loews common share, as compared to
income from continuing operations of $409 million, or $0.77 per Loews common
share, in the first quarter of 2008.
Results
for 2009 reflect a non-cash impairment charge of $1.0 billion ($660 million
after tax) related to the carrying value of HighMount’s natural gas and oil
properties. This charge reflects declines in commodity prices at
March 31, 2009. There were no comparable charges in the prior year
period.
Higher
investment losses and lower investment income at CNA also contributed to the
loss from continuing operations for the first quarter of 2009, as compared to
the first quarter of 2008. The continuing volatility in the capital markets and
continued economic slowdown resulted in realized losses of $532 million ($310
million after tax and noncontrolling interest) in CNA’s investment portfolio and
a decline in net investment income during the first quarter of
2009.
These
declines were partially offset by improved results at Diamond
Offshore.
In June
2008, the Company disposed of its entire ownership interest in Lorillard, Inc.
(“Lorillard”) through the redemption of Carolina Group stock in exchange for
Lorillard common stock and an exchange of our remaining Lorillard common stock
for Loews common stock. The Carolina Group and Carolina Group stock have been
eliminated. The Company also sold Bulova Corporation (“Bulova”) in January 2008.
Lorillard’s results of operations and the gain on disposal of Bulova have been
classified as discontinued operations.
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 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 (see
Liquidity and Capital Resources –CNA Financial, below). 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.
At March
31, 2009, the book value per share of Loews common stock was $30.73 compared to
$30.18 at December 31, 2008. Book value increased primarily due to the
recognition of $536 million of deferred gains in additional paid-in capital,
upon adoption of Statement of Financial Accounting Standards No. 160,
“Noncontrolling Interests in Consolidated Financial Statements.” See Note 1 of
the Notes to Consolidated Condensed Financial Statements included
under
Item 1. The increase was also due to unrealized investment gains recorded in
other comprehensive income (loss) partially offset by the net loss for the three
months ended March 31, 2009.
CRITICAL ACCOUNTING ESTIMATES
The
preparation of the consolidated condensed financial statements in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”) requires us to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and the related notes. Actual
results could differ from those estimates.
The
consolidated condensed financial statements and accompanying notes have been
prepared in accordance with GAAP, applied on a consistent basis. We continually
evaluate the accounting policies and estimates used to prepare the consolidated
condensed financial statements. In general, our estimates are based on
historical experience, evaluation of current trends, information from third
party professionals and various other assumptions that we believe are reasonable
under the known facts and circumstances.
We
consider the accounting policies discussed below to be critical to an
understanding of our consolidated condensed financial statements as their
application places the most significant demands on our judgment.
|
·
|
Valuation
of Investments and Impairment of
Securities
|
|
·
|
Long
Term Care Products
|
|
·
|
Pension
and Postretirement Benefit
Obligations
|
|
·
|
Valuation
of HighMount’s Proved Reserves
|
Due to
the inherent uncertainties involved with these types of judgments, actual
results could differ significantly from estimates, which may have a material
adverse impact on our results of operations or equity. 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 Form 10-K for
the year ended December 31, 2008 for further information.
RESULTS
OF OPERATIONS BY BUSINESS SEGMENT
Unless
the context otherwise requires, references to net operating income (loss), net
realized investment results, net income (loss) and net results reflect amounts
attributable to Loews Corporation.
CNA
Financial
Insurance operations are conducted by subsidiaries of CNA Financial Corporation (“CNA”). CNA is a
90% owned subsidiary.
CNA’s
core property and casualty commercial insurance operations are reported in two
business segments: Standard Lines and Specialty Lines. Standard Lines includes
standard property and casualty coverages sold to small businesses and middle
market entities and organizations in the U.S. primarily through an independent
agency distribution system. Standard Lines also includes commercial insurance
and risk management products sold to large corporations in the U.S. primarily
through insurance brokers. Specialty Lines provides a broad array of
professional, financial and specialty property and casualty products and
services, including excess and surplus lines, primarily through insurance
brokers and managing general underwriters. Specialty Lines also includes
insurance coverages sold globally through CNA’s foreign operations (“CNA
Global”). The non-core operations are managed in Life & Group Non-Core
segment and Other Insurance segment. Life & Group Non-Core primarily
includes the results of the life and group lines of business sold or placed in
run-off. Other Insurance primarily includes the results of certain property and
casualty lines of business placed in run-off, including CNA Reinsurance Company
Limited. This segment also includes the results related to the centralized
adjusting and settlements of A&E claims.
Segment
Results
The
following discusses the results of continuing operations for CNA’s operating
segments. CNA utilizes the net operating income financial measure to monitor its
operations. Net operating income is calculated by excluding from net income
(loss) the after tax and noncontrolling interest effects of (i) net realized
investment gains or losses, (ii) income or loss from discontinued operations and
(iii) any cumulative effects of changes in accounting principles. In evaluating
the results of CNA’s Standard Lines and Specialty Lines segments, CNA’s
management utilizes the loss ratio, the expense ratio, the dividend ratio, and
the combined ratio. These ratios are calculated using GAAP financial results.
The loss ratio is the percentage of net incurred claim and claim adjustment
expenses to net earned premiums. The expense ratio is the percentage of
insurance underwriting and acquisition expenses, including the amortization of
deferred acquisition costs, to net earned premiums. The dividend ratio is the
ratio of policyholders’ dividends incurred to net earned premiums. The combined
ratio is the sum of the loss, expense and dividend ratios.
Standard
Lines
The
following table summarizes the results of operations for Standard
Lines.
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In millions, except %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums
|
|
$ |
763 |
|
|
$ |
771 |
|
Net earned premiums
|
|
|
710 |
|
|
|
783 |
|
Net investment income
|
|
|
120 |
|
|
|
164 |
|
Net operating income
|
|
|
55 |
|
|
|
86 |
|
Net realized investment losses
|
|
|
(105 |
) |
|
|
(10 |
) |
Net income
(loss)
|
|
|
(50 |
) |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense
|
|
|
71.8 |
% |
|
|
73.7 |
% |
Expense
|
|
|
34.0 |
|
|
|
30.2 |
|
Dividend
|
|
|
0.5 |
|
|
|
0.5 |
|
Combined
|
|
|
106.3 |
% |
|
|
104.4 |
% |
Three
Months Ended March 31, 2009 Compared to 2008
Net
written premiums for Standard Lines decreased $8 million for the three months
ended March 31, 2009 as compared with the same period in 2008. Despite higher
retention and new business in the current year period, premiums written were
unfavorably impacted by lower premium rates and general economic conditions
resulting in decreased production, as compared with the first quarter of 2008,
across both CNA’s Business and Commercial Insurance groups. The current economic
conditions have led to decreased industry insured exposures, particularly in the
construction industry with smaller payrolls and reduced sales levels. This,
along with the competitive market conditions, may continue to put ongoing
pressure on premium and income levels, and the expense ratio. Net earned
premiums decreased $73 million for the three months ended March 31, 2009 as
compared with the same period in 2008, consistent with the trend of lower net
written premiums in 2008 as compared to 2007.
Standard
Lines averaged rate decreases of 2.0% for the three months ended March 31, 2009,
as compared to decreases of 6.0% for the three months ended March 31, 2008 for
the contracts that renewed during those periods. Retention rates of 83.0% and
81.0% were achieved for those contracts that were available for renewal in each
period.
Net
results decreased $126 million for the three months ended March 31, 2009 as
compared with the same period in 2008. This decrease was due to higher net
realized investment losses and decreased net operating income. See the
Investments section of this MD&A for further discussion of the net realized
investment results and net investment income.
Net
operating income decreased $31 million for the three months ended March 31, 2009
as compared with the same period in 2008. This decrease was primarily due to
lower net investment income and decreased underwriting results.
The
combined ratio increased 1.9 points for the three months ended March 31, 2009 as
compared with the same period in 2008. The expense ratio increased 3.8 points
for the three months ended March 31, 2009 as compared with the same period in
2008, primarily related to increased underwriting expenses and a lower net
earned premium base. Underwriting expenses increased due to higher
employee-related costs, including increased pension expense.
The loss
ratio improved 1.9 points primarily due to decreased catastrophe losses.
Catastrophe losses were $12 million, or 1.7 points of the loss ratio, in the
first quarter of 2009 as compared to $53 million, or 6.8 points of the loss
ratio, in the first quarter of 2008. This favorability was partially offset by
an increase in the current accident year loss ratio driven by a number of large
property losses in the three months ended March 31, 2009, and the impact of
decreased favorable net prior year development.
Favorable
net prior year development of $13 million was recorded for the three months
ended March 31, 2009, reflecting $30 million of favorable claim and
allocated claim adjustment expense reserve development and $17 million of
unfavorable premium development. Favorable net prior year development of $26
million, reflecting $35 million of favorable claim and allocated claim
adjustment expense reserve development and $9 million of unfavorable
premium development, was recorded for the three months ended March 31, 2008.
Further information on Standard Lines net prior year development for the three
months ended March 31, 2009 and 2008 is included in Note 8 of the Notes to
Consolidated Condensed Financial Statements included under Item 1.
The
following table summarizes the gross and net carried reserves for Standard
Lines.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Case Reserves
|
|
$ |
6,090 |
|
|
$ |
6,158 |
|
Gross
IBNR Reserves
|
|
|
5,803 |
|
|
|
5,890 |
|
Total
Gross Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
11,893 |
|
|
$ |
12,048 |
|
|
|
|
|
|
|
|
|
|
Net
Case Reserves
|
|
$ |
4,886 |
|
|
$ |
4,995 |
|
Net
IBNR Reserves
|
|
|
4,885 |
|
|
|
4,875 |
|
Total
Net Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
9,771 |
|
|
$ |
9,870 |
|
Specialty
Lines
The
following table summarizes the results of operations for Specialty
Lines.
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In millions, except %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums
|
|
$ |
829 |
|
|
$ |
848 |
|
Net earned premiums
|
|
|
812 |
|
|
|
873 |
|
Net investment income
|
|
|
108 |
|
|
|
132 |
|
Net operating income
|
|
|
107 |
|
|
|
112 |
|
Net realized investment losses
|
|
|
(66 |
) |
|
|
(5 |
) |
Net income
|
|
|
41 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expense
|
|
|
61.4 |
% |
|
|
64.8 |
% |
Expense
|
|
|
29.2 |
|
|
|
26.8 |
|
Dividend
|
|
|
0.4 |
|
|
|
0.8 |
|
Combined
|
|
|
91.0 |
% |
|
|
92.4 |
% |
Three
Months Ended March 31, 2009 Compared to 2008
Net
written premiums for Specialty Lines decreased $19 million for the three months
ended March 31, 2009 as compared with the same period in 2008. After adjusting
for foreign exchange, net written premiums increased modestly, primarily due to
increased production in CNA Global. Despite higher retention and new business in
the current year period, premiums written were unfavorably impacted by foreign
exchange and lower premium rates as compared with the first quarter of 2008. The
current economic conditions have led to decreased industry insured exposures,
particularly in the surety bond, architects, engineers and realtors professional
liability marketplace. This, along with the competitive market conditions, may
continue to put ongoing pressure on premium and income levels, and the expense
ratio. Net earned premiums decreased $61 million for the three months ended
March 31, 2009 as compared with the same period in 2008, consistent with the
trend of lower net written premiums in 2008 as compared to
2007.
Specialty
Lines averaged rate decreases of 2.0% for the three months ended March 31, 2009
as compared to decreases of 3.0% for the three months ended March 31, 2008 for
the contracts that renewed during those periods. Retention rates of 86.0% and
84.0% were achieved for those contracts that were available for renewal in each
period.
Net
income decreased $66 million for the three months ended March 31, 2009 as
compared with the same period in 2008. This decrease was primarily due to higher
net realized investment losses. See the Investments section of this MD&A for
further discussion of the net realized investment results and net investment
income.
Net
operating income decreased $5 million for the three months ended March 31, 2009
as compared with the same period in 2008. This decrease was primarily due to
lower net investment income, partially offset by improved underwriting
results.
The
combined ratio improved 1.4 points for the three months ended March 31, 2009 as
compared with the same period in 2008. The loss ratio improved 3.4 points,
primarily due to increased favorable net prior year development for the three
months ended March 31, 2009 as compared with the same period in 2008. This was
partially offset by higher current accident year loss ratios recorded in several
lines of business.
The
expense ratio increased 2.4 points for the three months ended March 31, 2009 as
compared with the same period in 2008. The increase primarily related to
increased underwriting expenses and the lower net earned premium base.
Underwriting expenses increased due to higher employee-related costs, including
increased pension expense.
Favorable
net prior year development of $43 million, reflecting $41 million of favorable
claim and allocated claim adjustment expense reserve development and $2 million
of favorable premium development, was recorded for the three months ended March
31, 2009. Favorable net prior year development of $2 million, reflecting $17
million of unfavorable claim and allocated claim adjustment expense reserve
development and $19 million of favorable premium development, was recorded for
the three months ended March 31, 2008. Further information on Specialty Lines
net prior year development for the three months ended March 31, 2009 and 2008 is
included in Note 8 of the Notes to Consolidated Condensed Financial Statements
included under Item 1.
The
following table summarizes the gross and net carried reserves for Specialty
Lines.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Case Reserves
|
|
$ |
2,621 |
|
|
$ |
2,719 |
|
Gross
IBNR Reserves
|
|
|
5,669 |
|
|
|
5,563 |
|
Total
Gross Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
8,290 |
|
|
$ |
8,282 |
|
|
|
|
|
|
|
|
|
|
Net
Case Reserves
|
|
$ |
2,095 |
|
|
$ |
2,149 |
|
Net
IBNR Reserves
|
|
|
4,775 |
|
|
|
4,694 |
|
Total
Net Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
6,870 |
|
|
$ |
6,843 |
|
Life
& Group Non-Core
The
following table summarizes the results of operations for Life & Group
Non-Core.
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums
|
|
$ |
150 |
|
|
$ |
157 |
|
Net investment income
|
|
|
159 |
|
|
|
84 |
|
Net operating loss
|
|
|
(20 |
) |
|
|
(2 |
) |
Net realized investment losses
|
|
|
(111 |
) |
|
|
(10 |
) |
Net loss
|
|
|
(131 |
) |
|
|
(12 |
) |
Three
Months Ended March 31, 2009 Compared to 2008
Net
earned premiums for Life & Group Non-Core decreased $7 million for the three
months ended March 31, 2009 as compared with the same period in 2008. Net earned
premiums relate primarily to the group and individual long term care
businesses.
Net loss
increased $119 million for the three months ended March 31, 2009 as compared
with the same period in 2008. The increase in net loss was primarily due to
increased net realized investment losses and adverse performance on CNA’s
remaining pension deposit business. Certain of the separate account investment
contracts related to CNA’s pension deposit business guarantee principal and a
minimum rate of interest, for which CNA recorded an additional pretax liability
of $13 million in Policyholders’ funds during the first quarter of 2009.
Additionally, CNA’s long term care, payout annuity and life-settlement contract
business lines experienced favorable results in 2008.
Net
investment income for the three months ended March 31, 2008 included trading
portfolio losses of $68 million, which were substantially offset by a
corresponding decrease in the policyholders’ funds reserves supported by the
trading portfolio. The trading portfolio supported the indexed group annuity
portion of CNA’s pension deposit business which was exited during 2008. That
business had a net loss of $4 million during the three months ended March 31,
2008. See the Investments section of this MD&A for further discussion of net
investment income and net realized investment results.
Other
Insurance
The
following table summarizes the results of operations for the Other Insurance
segment, including A&E and intrasegment eliminations.
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
33 |
|
|
$ |
54 |
|
Revenues
|
|
|
(12 |
) |
|
|
51 |
|
Net
operating income (loss)
|
|
|
(2 |
) |
|
|
4 |
|
Net
realized investment losses
|
|
|
(28 |
) |
|
|
(4 |
) |
Net
income (loss)
|
|
|
(30 |
) |
|
|
|
|
Three
Months Ended March 31, 2009 Compared to 2008
Revenues
decreased $63 million for the three months ended March 31, 2009 as compared
with the same period in 2008. Revenues were unfavorably impacted by lower net
investment income and higher net realized investment losses. See the Investments
section of this MD&A for further discussion of net investment income and net
realized investment results.
Net
results decreased $30 million for the three months ended March 31, 2009 as
compared with the same period in 2008. The decrease was primarily due to
decreased revenues as discussed above.
There was
$1 million of unfavorable claim and allocated claim adjustment expense reserve
development and $1 million of favorable premium development, resulting in no net
prior year development recorded for the three months ended March 31, 2009.
Unfavorable net prior year development of $4 million was recorded for the
three months ended March 31, 2008, reflecting $5 million of unfavorable
claim and allocated claim adjustment expense reserve development and $1 million
of favorable premium development.
The
following table summarizes the gross and net carried reserves for Other
Insurance.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Case Reserves
|
|
$ |
1,727 |
|
|
$ |
1,823 |
|
Gross
IBNR Reserves
|
|
|
2,476 |
|
|
|
2,578 |
|
Total
Gross Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
4,203 |
|
|
$ |
4,401 |
|
|
|
|
|
|
|
|
|
|
Net
Case Reserves
|
|
$ |
1,049 |
|
|
$ |
1,126 |
|
Net
IBNR Reserves
|
|
|
1,526 |
|
|
|
1,561 |
|
Total
Net Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
2,575 |
|
|
$ |
2,687 |
|
A&E
Reserves
CNA’s
property and casualty insurance subsidiaries have actual and potential exposures
related to asbestos and environmental pollution (“A&E”) claims. Further
information on A&E claim and claim adjustment expense reserves and net prior
year development is included in Note 8 of the Notes to Consolidated Condensed
Financial Statements included under Item 1.
Asbestos
CNA has
resolved a number of its large asbestos accounts by negotiating settlement
agreements. Structured settlement agreements provide for payments over multiple
years as set forth in each individual agreement.
In 1985,
47 asbestos producers and their insurers, including The Continental Insurance
Company (“CIC”), executed the Wellington Agreement. The agreement was intended
to resolve all issues and litigation related to coverage for asbestos exposures.
Under this agreement, signatory insurers committed scheduled policy limits and
made the limits available to pay asbestos claims based upon coverage blocks
designated by the policyholders in 1985, subject to extension by policyholders.
CIC was a signatory insurer to the Wellington Agreement.
CNA has
also used coverage in place agreements to resolve large asbestos exposures.
Coverage in place agreements are typically agreements between CNA and its
policyholders identifying the policies and the terms for payment of asbestos
related liabilities. Claim payments are contingent on presentation of
documentation supporting the demand for claim payment. Coverage in place
agreements may have annual payment caps. Coverage in place agreements are
evaluated based on claim filing trends and severities.
CNA
categorizes active asbestos accounts as large or small accounts. CNA defines a
large account as an active account with more than $100 thousand of cumulative
paid losses. CNA has made resolving large accounts a significant management
priority. Small accounts are defined as active accounts with $100 thousand or
less of cumulative paid losses. Approximately 80.4% and 81.0% of CNA’s total
active asbestos accounts are classified as small accounts at March 31, 2009 and
December 31, 2008.
CNA also
evaluates its asbestos liabilities arising from its assumed reinsurance business
and its participation in various pools, including Excess & Casualty
Reinsurance Association (“ECRA”).
CNA
carries unassigned IBNR reserves for asbestos. These reserves relate to
potential development on accounts that have not settled and potential future
claims from unidentified policyholders.
The
tables below depict CNA’s overall pending asbestos accounts and associated
reserves:
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholders
with settlement agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured settlements
|
|
|
18 |
|
|
$ |
9 |
|
|
$ |
124 |
|
|
|
10.8 |
% |
Wellington
|
|
|
3 |
|
|
|
|
|
|
|
9 |
|
|
|
0.8 |
|
Coverage in place
|
|
|
38 |
|
|
|
6 |
|
|
|
115 |
|
|
|
10.0 |
|
Total with settlement agreements
|
|
|
59 |
|
|
|
15 |
|
|
|
248 |
|
|
|
21.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other policyholders with active accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large asbestos accounts
|
|
|
240 |
|
|
|
23 |
|
|
|
220 |
|
|
|
19.1 |
|
Small asbestos accounts
|
|
|
984 |
|
|
|
8 |
|
|
|
84 |
|
|
|
7.3 |
|
Total other policyholders
|
|
|
1,224 |
|
|
|
31 |
|
|
|
304 |
|
|
|
26.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed reinsurance and pools
|
|
|
|
|
|
|
5 |
|
|
|
110 |
|
|
|
9.5 |
|
Unassigned IBNR
|
|
|
|
|
|
|
|
|
|
|
489 |
|
|
|
42.5 |
|
Total
|
|
|
1,283 |
|
|
$ |
51 |
|
|
$ |
1,151 |
|
|
|
100.0 |
% |
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholders
with settlement agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured settlements
|
|
|
18 |
|
|
$ |
17 |
|
|
$ |
133 |
|
|
|
11.1 |
% |
Wellington
|
|
|
3 |
|
|
|
1 |
|
|
|
11 |
|
|
|
0.9 |
|
Coverage in place
|
|
|
36 |
|
|
|
16 |
|
|
|
94 |
|
|
|
7.8 |
|
Total with settlement agreements
|
|
|
57 |
|
|
|
34 |
|
|
|
238 |
|
|
|
19.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other policyholders with active accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large asbestos accounts
|
|
|
236 |
|
|
|
62 |
|
|
|
234 |
|
|
|
19.4 |
|
Small asbestos accounts
|
|
|
1,009 |
|
|
|
32 |
|
|
|
91 |
|
|
|
7.6 |
|
Total other policyholders
|
|
|
1,245 |
|
|
|
94 |
|
|
|
325 |
|
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed reinsurance and pools
|
|
|
|
|
|
|
19 |
|
|
|
114 |
|
|
|
9.5 |
|
Unassigned IBNR
|
|
|
|
|
|
|
|
|
|
|
525 |
|
|
|
43.7 |
|
Total
|
|
|
1,302 |
|
|
$ |
147 |
|
|
$ |
1,202 |
|
|
|
100.0 |
% |
Some
asbestos-related defendants have asserted that their insurance policies are not
subject to aggregate limits on coverage. CNA has such claims from a number of
insureds. Some of these claims involve insureds facing exhaustion of products
liability aggregate limits in their policies, who have asserted that their
asbestos-related claims fall within so-called “non-products” liability coverage
contained within their policies rather than products liability coverage, and
that the claimed “non-products” coverage is not subject to any aggregate limit.
It is difficult to predict the ultimate size of any of the claims for coverage
purportedly not subject to aggregate limits or predict to what extent, if any,
the attempts to assert “non-products” claims outside the products liability
aggregate will succeed. CNA’s policies also contain other limits applicable to
these claims and CNA has additional coverage defenses to certain claims. CNA has
attempted to manage its asbestos exposure by aggressively seeking to settle
claims on acceptable terms. There can be no assurance that any of these
settlement efforts will be successful, or that any such claims can be settled on
terms acceptable to CNA. Where CNA cannot settle a claim on acceptable terms,
CNA aggressively litigates the claim. However, adverse developments with respect
to such matters could have a material adverse effect on the Company’s results of
operations and/or equity.
CNA is
involved in significant asbestos-related claim litigation, which is described in
Note 8 of the Notes to Consolidated Condensed Financial Statements included
under Item 1.
Environmental
Pollution
CNA
classifies its environmental pollution accounts into several categories, which
include structured settlements, coverage in place agreements and active
accounts. Structured settlement agreements provide for payments over multiple
years as set forth in each individual agreement.
CNA has
also used coverage in place agreements to resolve pollution exposures. Coverage
in place agreements are typically agreements between CNA and its policyholders
identifying the policies and the terms for payment of pollution related
liabilities. Claim payments are contingent on presentation of adequate
documentation of damages during the policy periods and other documentation
supporting the demand for claim payment. Coverage in place agreements may have
annual payment caps.
CNA
categorizes active accounts as large or small accounts in the pollution area.
CNA defines a large account as an active account with more than $100 thousand
cumulative paid losses. CNA has made closing large accounts a significant
management priority. Small accounts are defined as active accounts with $100
thousand or less of cumulative paid losses. Approximately 73.3% of CNA’s total
active pollution accounts are classified as small accounts as of March 31, 2009
and December 31, 2008.
CNA also
evaluates its environmental pollution exposures arising from its assumed
reinsurance and its participation in various pools, including ECRA.
CNA
carries unassigned IBNR reserves for environmental pollution. These reserves
relate to potential development on accounts that have not settled and potential
future claims from unidentified policyholders.
The
tables below depict CNA’s overall pending environmental pollution accounts and
associated reserves:
March
31, 2009
|
|
Number
of Policyholders
|
|
|
Net
Paid Losses
|
|
|
Net
Environmental Pollution Reserves
|
|
|
Percent
of Environmental Pollution Net Reserve
|
|
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholders with settlement agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured settlements
|
|
|
13 |
|
|
$ |
5 |
|
|
$ |
5 |
|
|
|
2.1 |
% |
Coverage in place
|
|
|
16 |
|
|
|
|
|
|
|
13 |
|
|
|
5.2 |
|
Total with settlement agreements
|
|
|
29 |
|
|
|
5 |
|
|
|
18 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other policyholders with active accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large pollution accounts
|
|
|
114 |
|
|
|
4 |
|
|
|
45 |
|
|
|
18.1 |
|
Small pollution accounts
|
|
|
313 |
|
|
|
5 |
|
|
|
37 |
|
|
|
14.9 |
|
Total other policyholders
|
|
|
427 |
|
|
|
9 |
|
|
|
82 |
|
|
|
33.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed reinsurance and pools
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
10.9 |
|
Unassigned IBNR
|
|
|
|
|
|
|
|
|
|
|
121 |
|
|
|
48.8 |
|
Total
|
|
|
456 |
|
|
$ |
14 |
|
|
$ |
248 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholders with settlement agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured settlements
|
|
|
16 |
|
|
$ |
5 |
|
|
$ |
9 |
|
|
|
3.4 |
% |
Coverage in place
|
|
|
16 |
|
|
|
3 |
|
|
|
13 |
|
|
|
5.0 |
|
Total with settlement agreements
|
|
|
32 |
|
|
|
8 |
|
|
|
22 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other policyholders with active accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large pollution accounts
|
|
|
116 |
|
|
|
40 |
|
|
|
48 |
|
|
|
18.3 |
|
Small pollution accounts
|
|
|
320 |
|
|
|
11 |
|
|
|
41 |
|
|
|
15.7 |
|
Total other policyholders
|
|
|
436 |
|
|
|
51 |
|
|
|
89 |
|
|
|
34.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed reinsurance and pools
|
|
|
|
|
|
|
4 |
|
|
|
27 |
|
|
|
10.3 |
|
Unassigned IBNR
|
|
|
|
|
|
|
|
|
|
|
124 |
|
|
|
47.3 |
|
Total
|
|
|
468 |
|
|
$ |
63 |
|
|
$ |
262 |
|
|
|
100.0 |
% |
Diamond
Offshore
Diamond
Offshore Drilling, Inc. and subsidiaries (“Diamond Offshore”). Diamond Offshore
is a 50.4% owned subsidiary.
The
global economic recession continued to reduce energy demand in the first quarter
of 2009. As a result, crude oil prices generally remained below $50 per barrel
in the period, compared to a 2008 mid-summer high of $146 per barrel and remain
volatile. With falling energy prices, project economics for Diamond Offshore’s
customers have continued to deteriorate. 2009 exploration budgets have been
trimmed, and demand and pricing for available drilling rigs is declining with
customers actively seeking to farm out time on many of the contracted rigs to
other operators. In effect, farming out rigs creates additional supply against
which Diamond Offshore must compete when its rigs become available at the end of
a contract and can put negative pressure on dayrates. Diamond Offshore’s
extensive contract backlog should help mitigate the impact of the current
market; however, a prolonged decline in commodity prices and the global economy
would be expected to have a negative impact on Diamond Offshore. Possible
negative impacts, among others, could include customer credit problems,
customers seeking bankruptcy protection, customers attempting to terminate
contracts, a further slowing in the pace of new contracting activity, additional
declines in dayrates for new contracts, declines in utilization and the stacking
of idle equipment.
During
the remaining three quarters of 2009, four of Diamond Offshore’s rigs will
require 5-year surveys, and Diamond Offshore expects that these rigs will be out
of service for approximately 160 days in the aggregate. Diamond Offshore also
expects to spend an additional approximately 780 days during the remainder of
2009 for intermediate surveys, the mobilization of rigs, contractually required
modifications for international contracts and extended maintenance projects. In
addition, Diamond Offshore expects the Ocean Bounty to be taken out
of service at some time during the second quarter of 2009 for shipyard work
which Diamond Offshore expects to extend until at least the end
of
2009.
Diamond Offshore can provide no assurance as to the exact timing and/or duration
of downtime associated with regulatory inspections, planned rig mobilizations
and other shipyard projects.
Contract
Drilling Backlog
The
following table reflects Diamond Offshore’s contract drilling backlog as of
April 15, 2009 and February 5, 2009 (the date reported in our Annual Report on
Form 10-K for the year ended December 31, 2008). Contract drilling backlog is
calculated by multiplying the contracted operating dayrate by the firm contract
period and adding one half of any potential rig performance bonuses. Diamond
Offshore’s 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 95-98%
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 Offshore’s contract drilling backlog
between periods are 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.
|
|
April
15,
|
|
|
February
5,
|
|
|
|
2009
|
|
|
2009
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
specification floaters
|
|
$ |
4,059 |
|
|
$ |
4,346 |
|
Intermediate
semisubmersible rigs
|
|
|
5,148 |
|
|
|
5,567 |
|
Jack-ups
|
|
|
390 |
|
|
|
346 |
|
Total
|
|
$ |
9,597 |
|
|
$ |
10,259 |
|
The
following table reflects the amount of Diamond Offshore’s contract drilling
backlog by year as of April 15, 2009.
Year
Ended December 31
|
|
Total
|
|
|
2009
(a)
|
|
|
2010
|
|
|
2011
|
|
|
|
2012
- 2016 |
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
specification floaters
|
|
$ |
4,059 |
|
|
$ |
1,132 |
|
|
$ |
1,260 |
|
|
$ |
832 |
|
|
$ |
835 |
|
Intermediate
semisubmersible rigs
|
|
|
5,148 |
|
|
|
1,277 |
|
|
|
1,379 |
|
|
|
953 |
|
|
|
1,539 |
|
Jack-ups
|
|
|
390 |
|
|
|
254 |
|
|
|
108 |
|
|
|
28 |
|
|
|
|
|
Total
|
|
$ |
9,597 |
|
|
$ |
2,663 |
|
|
$ |
2,747 |
|
|
$ |
1,813 |
|
|
$ |
2,374 |
|
(a)
|
Represents
a nine month period beginning April 1,
2009.
|
The
following table reflects the percentage of rig days committed by year as of
April 15, 2009. 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 Offshore’s fleet to total
available days (number of rigs multiplied by the number of days in a particular
year).
Year
Ended December 31
|
|
2009 (a) (b)
|
|
|
2010 (b)
|
|
|
2011
|
|
|
|
2012
- 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
specification floaters
|
|
|
93.0 |
% |
|
|
72.0 |
% |
|
|
43.0 |
% |
|
|
10.0 |
% |
Intermediate
semisubmersible rigs
|
|
|
95.0 |
|
|
|
73.0 |
|
|
|
48.0 |
|
|
|
16.0 |
|
Jack-ups
|
|
|
47.0 |
|
|
|
15.0 |
|
|
|
4.0 |
|
|
|
|
|
(a)
|
Represents
a nine month period beginning April 1,
2009.
|
(b)
|
Includes
approximately 890 and 490 scheduled shipyard, survey and mobilization days
for 2009 and 2010.
|
Results
of Operations
The following table summarizes the
results of operations for Diamond Offshore for the three months ended March 31,
2009 and 2008 as presented in Note 14 of the Notes to Consolidated Condensed
Financial Statements included in Item 1 of this Report:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Contract
drilling
|
|
$ |
856 |
|
|
$ |
770 |
|
Net
investment income
|
|
|
1 |
|
|
|
4 |
|
Investment
gains
|
|
|
1 |
|
|
|
|
|
Other
revenue
|
|
|
29 |
|
|
|
18 |
|
Total
|
|
|
887 |
|
|
|
792 |
|
Expenses:
|
|
|
|
|
|
|
|
|
Contract
drilling
|
|
|
294 |
|
|
|
285 |
|
Other
operating
|
|
|
140 |
|
|
|
101 |
|
Interest
|
|
|
1 |
|
|
|
1 |
|
Total
|
|
|
435 |
|
|
|
387 |
|
Income
before income tax
|
|
|
452 |
|
|
|
405 |
|
Income
tax expense
|
|
|
(116 |
) |
|
|
(125 |
) |
Net
income
|
|
|
336 |
|
|
|
280 |
|
Deduct
amounts attributable to noncontrolling interests
|
|
|
(173 |
) |
|
|
(144 |
) |
Net
income attributable to Loews Corporation
|
|
$ |
163 |
|
|
$ |
136 |
|
Three
Months Ended March 31, 2009 Compared to 2008
Revenues
increased by $95 million, or 12.0%, and net income increased by $27 million, or
19.9%, in the three months ended March 31, 2009, as compared to the
corresponding period of the prior year. The high overall utilization and
historically high dayrates for Diamond Offshore’s floater fleet contributed to
an overall increase in net income. In many of the floater markets in which
Diamond Offshore operates, average realized dayrates increased as Diamond
Offshore’s rigs operated under contracts at higher dayrates in the first quarter
of 2009 than those earned during the first quarter of 2008. However, overall
revenue increases for Diamond Offshore’s floater fleet were negatively impacted
by the effect of downtime associated with scheduled shipyard projects and
mandatory inspections or surveys. In addition, the U.S. Gulf of Mexico jack-up
market continued to experience reduced demand and dayrates during the first
quarter of 2009. The international jack-up market, which had been strong
throughout the majority of 2008, also reflected softening demand and reduced
dayrates during the first three months of 2009.
Revenues
from high specification floaters and intermediate semisubmersible rigs increased
by $75 million in the three months ended March 31, 2009, as compared to the
corresponding period of the prior year. The increase primarily reflects
increased dayrates of $105 million, partially offset by decreased utilization of
$26 million.
Revenues
from jack-up rigs increased $11 million in the three months ended March 31,
2009, as compared to the corresponding period of the prior year, due primarily
to increased dayrates of $6 million and increased utilization of $6 million.
Revenues were unfavorably impacted by a decrease in the recognition of
mobilization fees and other operating revenues.
Net
income increased in the three months ended March 31, 2009, as compared to the
corresponding period of the prior year, due to the revenue increases as noted
above, partially offset by increased contract drilling expenses. Overall higher
costs during the 2009 period reflect the inclusion of normal operating costs for
the recently upgraded Ocean
Monarch and Diamond Offshore’s new
jack-ups Ocean Shield
and Ocean Scepter, as
well as survey and related maintenance costs, contract preparation and
mobilization costs, partially offset by lower operating costs resulting from the
decline in utilization. Depreciation expense increased $16 million during the
first quarter of 2009 due to a higher depreciable asset base.
HighMount
HighMount
Exploration & Production LLC (“HighMount”). HighMount is a wholly owned
subsidiary.
We use
the following terms throughout this discussion of HighMount’s results of
operations, with “equivalent” volumes computed with oil and NGL quantities
converted to Mcf, on an energy equivalent ratio of one barrel to six
Mcf:
Bbl
|
-
|
Barrel (of oil or NGLs)
|
Bcf
|
-
|
Billion cubic feet (of natural gas)
|
Bcfe
|
-
|
Billion cubic feet of natural gas equivalent
|
Mbbl
|
-
|
Thousand
barrels (of oil or NGLs)
|
Mcf
|
-
|
Thousand cubic feet (of natural gas)
|
Mcfe
|
-
|
Thousand cubic feet of natural gas equivalent
|
Proved
reserves
|
|
Estimated
quantities of natural gas, NGL and oil which, upon analysis of geologic
and engineering data, appear with reasonable certainty to be recoverable
in the future from known reservoirs under existing economic and operating
conditions
|
HighMount’s revenues, profitability
and future growth depend substantially on natural gas and NGL prices and
HighMount’s ability to increase its natural gas and NGL production. In recent
years, there has been significant price volatility in natural gas and NGL prices
due to a variety of factors HighMount cannot control or predict. These factors,
which include weather conditions, political and economic events, and competition
from other energy sources, impact supply and demand for natural gas, which
determines the pricing. In addition, the price HighMount realizes for its gas
production is affected by HighMount’s hedging activities as well as locational
differences in market prices. The level of natural gas production is dependent
upon HighMount’s ability to realize attractive returns on its capital investment
program. Returns are affected by commodity prices, capital and operating costs.
In recent months, natural gas prices decreased significantly due largely to
increased onshore natural gas production, plentiful levels of working gas in
storage and reduced commercial demand. The increase in the onshore natural gas
production was due largely to increased production from “unconventional” sources
of natural gas such as shale gas, coalbed methane and
tight sandstones, made possible in recent years by modern technology in creating
extensive artificial fractures around well bores and advances in horizontal
drilling technology. Other key factors contributing to the softness of natural
gas prices likely included a lower level of industrial demand for natural gas,
as a result of the ongoing economic downturn, and relatively low crude oil
prices. In light of these developments, HighMount elected to reduce its 2009
drilling activity which HighMount anticipates will result in a decrease in
production in future periods.
HighMount’s operating income, which
represents revenues less operating expenses, is primarily affected by revenue
factors, but is also a function of varying levels of production expenses,
production and ad valorem taxes, as well as depreciation, depletion and
amortization (“DD&A”) expenses. HighMount’s production expenses represent
all costs incurred to operate and maintain wells and related equipment and
facilities. The principal components of HighMount’s production expenses are,
among other things, direct and indirect costs of labor and benefits, repairs and
maintenance, materials, supplies and fuel. During the first quarter of 2009, the
price of natural gas declined significantly while production expenses remained
high, primarily due to high costs of labor, fuel, materials and supplies.
HighMount’s production and ad valorem taxes increase primarily when prices of
natural gas and NGLs increase, but they are also affected by changes in
production, as well as appreciated property values. HighMount calculates
depletion using the units-of-production method, which depletes the capitalized
costs and future development costs associated with evaluated properties based on
the ratio of production volumes for the current period to total remaining
reserve volumes for the evaluated properties. HighMount’s depletion expense is
affected by its capital spending program and projected future development costs,
as well as reserve changes resulting from drilling programs, well performance,
and revisions due to changing commodity prices.
Presented below are production and sales
statistics related to HighMount’s operations:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Gas
production (Bcf)
|
|
|
19.7 |
|
|
|
19.7 |
|
Gas
sales (Bcf)
|
|
|
18.1 |
|
|
|
18.2 |
|
Oil
production/sales (Mbbls)
|
|
|
102.8 |
|
|
|
84.5 |
|
NGL
production/sales (Mbbls)
|
|
|
920.7 |
|
|
|
911.7 |
|
Equivalent
production (Bcfe)
|
|
|
25.8 |
|
|
|
25.7 |
|
Equivalent
sales (Bcfe)
|
|
|
24.2 |
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
Average
realized prices, without hedging results:
|
|
|
|
|
|
|
|
|
Gas
(per Mcf)
|
|
$ |
4.16 |
|
|
$ |
7.50 |
|
NGL
(per Bbl)
|
|
|
20.67 |
|
|
|
55.64 |
|
Oil
(per Bbl)
|
|
|
39.07 |
|
|
|
94.85 |
|
Equivalent
(per Mcfe)
|
|
|
4.06 |
|
|
|
8.08 |
|
|
|
|
|
|
|
|
|
|
Average
realized prices, with hedging results:
|
|
|
|
|
|
|
|
|
Gas
(per Mcf)
|
|
$ |
7.68 |
|
|
$ |
7.43 |
|
NGL
(per Bbl)
|
|
|
31.08 |
|
|
|
46.92 |
|
Oil
(per Bbl)
|
|
|
39.07 |
|
|
|
94.85 |
|
Equivalent
(per Mcfe)
|
|
|
7.08 |
|
|
|
7.70 |
|
|
|
|
|
|
|
|
|
|
Average
cost per Mcfe:
|
|
|
|
|
|
|
|
|
Production
expenses
|
|
$ |
1.17 |
|
|
$ |
0.91 |
|
Production
and ad valorem taxes
|
|
|
0.46 |
|
|
|
0.65 |
|
General
and administrative expenses
|
|
|
0.59 |
|
|
|
0.71 |
|
Depletion
expense
|
|
|
1.37 |
|
|
|
1.43 |
|
Results
of Operations
The
following table summarizes the results of operations for HighMount for the three
months ended March 31, 2009 and 2008 as presented in Note 14 of the Notes to
Consolidated Condensed Financial Statements included under Item 1 of this
Report:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Other revenue, primarily
operating
|
|
$ |
175 |
|
|
$ |
189 |
|
Total
|
|
|
175 |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Impairment
of natural gas and oil properties
|
|
|
1,036 |
|
|
|
|
|
Operating
|
|
|
126 |
|
|
|
96 |
|
Interest
|
|
|
19 |
|
|
|
18 |
|
Total
|
|
|
1,181 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax
|
|
|
(1,006 |
) |
|
|
75 |
|
Income
tax (expense) benefit
|
|
|
365 |
|
|
|
(28 |
) |
Net
income (loss) attributable to Loews Corporation
|
|
$ |
(641 |
) |
|
$ |
47 |
|
Three
Months Ended March 31, 2009 Compared to 2008
HighMount’s
revenues decreased by $14 million to $175 million for the three months ended
March 31, 2009, compared to $189 million for the first quarter of
2008. This decrease was primarily due to lower commodity prices which
decreased revenues by $97 million, partially offset by an increase of $82
million due to the effect of HighMount’s hedging activities. HighMount has
hedges in place that cover approximately 44.1% and 6.6% of HighMount’s total
estimated remaining 2009 and 2010 natural gas equivalent production at a
weighted average price of $8.55 and $10.12 per Mcfe.
At March
31, 2009, HighMount recorded a non-cash ceiling test impairment charge of $1,036
million ($660 million after tax) related to the carrying value of its natural
gas and oil properties. The write-down was the result of declines in commodity
prices. Had the effects of HighMount’s cash flow hedges not been considered in
calculating the ceiling limitation, the impairment would have been $1,230
million ($784 million after tax). If natural gas prices continue to decline
below March 31, 2009 prices, a future ceiling test impairment is
possible.
Operating
expenses primarily consist of production expenses, production and ad valorem
taxes, general and administrative costs and DD&A. Operating expenses
increased by $30 million to $126 million for the three months ended March 31,
2009, compared to $96 million for the first quarter of 2008. In the first
quarter of 2009, HighMount elected to terminate contracts for five drilling rigs
at its Permian Basin properties in the Sonora, Texas area and reduce its 2009
drilling activity which will reduce future production volumes. The estimated fee
payable to the rig contractor for exercising this early termination right of $23
million was charged to Operating expense during the first quarter of 2009.
Operating expenses in 2009 also included a $9 million impairment charge related
to a decline in the market value of tubular goods inventory.
Production
expenses totaled $28 million, or $1.17 per Mcfe sold during the three months
ended March 31, 2009, compared to $22 million, or $0.91 per Mcfe sold in the
first quarter of 2008. The increase in production expense of $6 million was
primarily due to a higher cost environment. Production and ad valorem taxes
were $11 million and $16 million for the three months ended March 31, 2009 and
2008. The decrease of $5 million was due primarily to
decreased production taxes as a result of lower natural gas and NGL prices
during 2009. Production and ad valorem taxes were $0.46 per Mcfe in 2009 as
compared to $0.65 per Mcfe in 2008. General and administrative expenses
decreased by $3 million to $15 million during 2009, compared to $18 million
during 2008. General and administrative expense decreased on a per Mcfe
basis from $0.71 in 2008 to $0.59 in 2009 primarily due to a decrease in
compensation related expenses.
DD&A
expenses remained flat at $40 million for both periods. DD&A expenses
included depletion of natural gas and NGL properties of $35 million and $37
million for 2009 and 2008. HighMount’s depletion rate per Mcfe decreased by
$0.06 per Mcfe to $1.37 per Mcfe in 2009, compared to $1.43 per Mcfe in 2008.
The decrease in depletion on a per unit basis was primarily due to an
impairment of natural gas and oil properties recorded in December 2008, as well
as lower capital costs throughout 2009, lower projected future development
costs, reflecting lower costs particularly for steel and diesel fuel and other
economic conditions.
Boardwalk
Pipeline
Boardwalk Pipeline Partners, LP and subsidiaries (“Boardwalk Pipeline”). Boardwalk Pipeline is a
74% owned subsidiary.
Boardwalk
Pipeline derives revenues primarily from the interstate transportation and
storage of natural gas for third parties. Transportation services consist of
firm transportation, whereby the customer pays a capacity reservation charge to
reserve pipeline capacity at certain receipt and delivery points along pipeline
systems, plus a commodity and fuel charge on the volume of natural gas actually
transported, and interruptible transportation, whereby the customer pays to
transport gas only when capacity is available and used. Boardwalk Pipeline
offers firm storage services in which the customer reserves and pays for a
specific amount of storage capacity, including injection and withdrawal rights,
and interruptible storage and parking and lending (“PAL”) services where the
customer receives and pays for capacity only when it is available and used. Some
PAL agreements are paid for at inception of the service and revenues for these
agreements are recognized as service is provided over the term of the
agreement.
Changes
in the price of natural gas can affect the overall supply and demand of natural
gas, which in turn can affect the results of Boardwalk Pipeline’s operations.
Trends involving natural gas price levels and natural gas price spreads,
including spreads between physical locations on the pipeline system impact
transportation revenues, and spreads in natural gas prices across time (for
example summer to winter), primarily impact storage and PAL
revenues.
During
the first quarter of 2009, Boardwalk Pipeline placed in service the remaining
pipeline assets and the initial compression assets associated with its major
pipeline expansion projects, all of which are now transporting natural gas.
Additional compression facilities will be constructed in 2010 on the Gulf
Crossing Pipeline and the Fayetteville and Greenville Laterals to increase the
peak-day delivery capacity of those projects.
Boardwalk
Pipeline is seeking authority from the Pipelines and Hazardous
Material Safety Administration (“PHMSA”) to operate the new expansion pipelines
under special permits that would allow them to be operated at higher
operating pressures, thereby increasing the peak-day transmission capacity. During this permitting
process, Boardwalk Pipeline discovered anomalies in pipe segments on each
of its expansion pipelines. Boardwalk Pipeline has tested a significant portion
of the expansion pipeline joints and has identified anomalies (slight expansion
of the pipe) in less than 1.0% of the joints. Testing for anomalies is
continuing on the remaining portions of the expansion pipelines. In
response
to these
discoveries, and in consultation with PHMSA, Boardwalk Pipeline has reduced
operating pressures on all of its expansion pipelines to levels below normal
operating pressures and this reduction will continue until Boardwalk Pipeline
obtains permission from PHMSA to increase operating pressures. This reduction
has limited Boardwalk Pipeline’s ability to transport the maximum contracted
amounts on the expansion pipelines which lowers transportation
revenues.
The
following provides information on the volumes currently being transported by
each of Boardwalk Pipeline’s expansion pipelines. The anticipated peak-day
delivery capacity stated below for each expansion pipeline assumes that pipe
anomalies have been remediated and that authority has been received from PHMSA
to operate the pipeline at higher operating pressures under a special
permit:
East Texas Pipeline –
Boardwalk Pipeline is currently flowing approximately 1.1 billion cubic feet
(“Bcf”) per day of natural gas, out of the anticipated peak-day delivery
capacity of 1.4 Bcf per day.
Southeast Expansion –
Boardwalk Pipeline is currently flowing approximately 0.5 Bcf per day of natural
gas, out of the anticipated peak-day delivery capacity of 1.9 Bcf per
day.
Gulf Crossing Project –
Boardwalk Pipeline is currently flowing approximately 0.7 Bcf per day of natural
gas, out of the anticipated peak-day delivery capacity of 1.4 Bcf per day.
Boardwalk Pipeline expects to increase the peak-day delivery capacity to 1.7 Bcf
per day by adding compression, which is expected to be in service in 2010,
subject to Federal Energy Regulatory Commission (“FERC”) approval.
Fayetteville and Greenville
Laterals – Boardwalk Pipeline is currently flowing approximately 0.7 Bcf
per day of natural gas on the Fayetteville Lateral and 0.4 Bcf per day on the
Greenville Lateral, in each case out of the anticipated peak-day delivery
capacity of 0.8 Bcf per day. In early 2010, Boardwalk Pipeline expects to
increase the peak-day delivery capacities to 1.3 Bcf per day on the Fayetteville
Lateral and 1.0 Bcf per day on the Greenville Lateral with the addition of
compression facilities. During the second quarter of 2009, Boardwalk Pipeline
expects to replace a section of this line comprised of 18-inch pipe running
under the Little Red River in Arkansas with 36-inch pipe.
As a
result of these reduced transportation volumes, Boardwalk Pipeline’s revenues
from the expansion pipelines were lower than expected in the first quarter of
2009. In addition, Boardwalk Pipeline expects to temporarily shut down each
expansion pipeline for periods of time during the remainder of 2009 to remove
and replace affected pipe joints as necessary. As a result, Boardwalk Pipeline
expects throughput on these expansion pipelines to be below the full capacity
which its shippers have contracted for, causing reduced transportation revenues
in future periods. Until Boardwalk Pipeline has remediated the pipe anomalies,
performed additional testing required by PHMSA and obtained PHMSA’s consent to
increase operating pressures to normal levels, as well as the higher levels
under the special permits, Boardwalk Pipeline will not be able to operate at its
peak-day transmission capacity. PHMSA retains discretion as to whether to grant,
or to maintain in force, authority to operate a pipeline at higher operating
pressures.
In
addition to the projects previously described, Boardwalk Pipeline recently
signed shipper agreements for approximately 0.4 Bcf per day of capacity that
will support a further expansion of the Gulf South system to transport natural
gas from the Haynesville production area in Louisiana. This expansion, which
Boardwalk Pipeline anticipates will be in service in late 2010, will be
accomplished by adding compression at an expected cost of up to approximately
$200 million subject to FERC approval.
Boardwalk
Pipeline is also engaged in Phase III of its western Kentucky storage expansion
project. Boardwalk Pipeline has placed in service approximately 5.4 Bcf of new
working gas capacity. In the first quarter of 2009, Boardwalk Pipeline sold the
remaining capacity available and expects to place into service another 3.0 Bcf
of working gas capacity in November of 2009. Boardwalk Pipeline expects this
project to cost approximately $88 million, of which Boardwalk Pipeline has spent
approximately $51 million as of March 31, 2009.
Results
of Operations
The
following table summarizes the results of operations for Boardwalk Pipeline for
the three months ended March 31, 2009 and 2008 as presented in Note 14 of the
Notes to Consolidated Condensed Financial Statements included under Item 1 of
this Report:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Other revenue, primarily
operating
|
|
$ |
224 |
|
|
$ |
212 |
|
Net investment
income
|
|
|
|
|
|
|
1 |
|
Total
|
|
|
224 |
|
|
|
213 |
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating
|
|
|
146 |
|
|
|
105 |
|
Interest
|
|
|
27 |
|
|
|
19 |
|
Total
|
|
|
173 |
|
|
|
124 |
|
Income
before income tax
|
|
|
51 |
|
|
|
89 |
|
Income
tax expense
|
|
|
(15 |
) |
|
|
(25 |
) |
Net
income
|
|
|
36 |
|
|
|
64 |
|
Deduct
amounts attributable to noncontrolling interests
|
|
|
(14 |
) |
|
|
(25 |
) |
Net
income attributable to Loews Corporation
|
|
$ |
22 |
|
|
$ |
39 |
|
Three
Months Ended March 31, 2009 Compared to 2008
Total
revenues increased $11 million to $224 million for the first quarter of 2009,
compared to $213 million for the 2008 period. Operating revenues increased by
$26 million primarily due to a $28 million increase in gas transportation
revenues, excluding fuel, due mainly to Boardwalk Pipeline’s expansion
projects. This increase was partially offset by a decrease in fuel
revenues of $7 million due to unfavorable natural gas prices. Other
revenues in the first quarter of 2008 were favorably impacted by an $11 million
gain from the settlement of a contract claim.
Operating
expenses increased $41 million to $146 million for the first quarter of
2009. This increase was primarily driven by a $31 million increase in
depreciation and other taxes, primarily comprised of property taxes, due to an
increase in Boardwalk Pipeline’s asset base from the expansion projects and a $6
million increase in operations and maintenance expense due to major maintenance
projects and expansion project operations. Interest expense increased $8 million
in the first quarter of 2009 to $27 million due to increased debt levels in 2009
and lower capitalized interest associated with Boardwalk Pipeline’s expansion
projects.
Net
income decreased $17 million to $22 million in the first quarter of 2009,
compared to $39 million in the first quarter of 2008 due to increased expenses
that more than offset the increase in revenues from the expansion projects,
which were approximately $12 million lower than expected as a result of
operating the expansion pipelines at reduced pressures.
Loews
Hotels
Loews
Hotels Holding Corporation and subsidiaries (“Loews Hotels”). Loews Hotels is a
wholly owned subsidiary.
The
following table summarizes the results of operations for Loews Hotels for the
three months ended March 31, 2009 and 2008 as presented in Note 14 of the Notes
to Consolidated Condensed Financial Statements included in Item 1 of this
Report:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Other revenue, primarily
operating
|
|
$ |
73 |
|
|
$ |
97 |
|
Total
|
|
|
73 |
|
|
|
97 |
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating
|
|
|
100 |
|
|
|
76 |
|
Interest
|
|
|
2 |
|
|
|
3 |
|
Total
|
|
|
102 |
|
|
|
79 |
|
Income
(loss) before income tax
|
|
|
(29 |
) |
|
|
18 |
|
Income
tax (expense) benefit
|
|
|
11 |
|
|
|
(7 |
) |
Net
income (loss) attributable to Loews Corporation
|
|
$ |
(18 |
) |
|
$ |
11 |
|
Three
Months Ended March 31, 2009 Compared to 2008
Revenues
decreased by $24 million or 24.7%, and there was a net loss of $18 million for
the three months ended March 31, 2009 as compared to net income of $11 million
in the corresponding period of 2008.
Revenues
decreased in the three months ended March 31, 2009, as compared to the
corresponding period of 2008, due to a decrease in revenue per available room to
$137.56, compared to $185.54 in the prior year, reflecting an 8.5% decrease in
occupancy rates and a decrease in average room rates of $41.07, or
15.7%.
Results
at Loews Hotels for the three months ended March 31, 2009 were negatively
impacted by the ongoing economic downturn, exacerbated by significant negative
publicity surrounding conventions and other corporate group events typically
held at hotels. These factors have affected all of the markets in which Loews
Hotels operates, however, the Las Vegas market has been the most severely
impacted. During the first quarter of 2009, Loews Hotels wrote down its entire
investment in the Loews Lake Las Vegas Resort, resulting in a pretax impairment
charge of $27 million. Loews Hotels is a 25% owner of that property through a
joint venture and continues to manage this hotel.
Hotel
bookings for 2009 remain significantly below levels seen in recent years and we
expect revenue per available room and operating results at Loews Hotels to be
significantly below prior period results in the near-term. Revenue per available
room is an industry measure of the combined effect of occupancy rates and
average room rates on room revenues. Other hotel operating revenues primarily
include guest charges for food and beverages.
Corporate
and Other
Corporate operations consist primarily of investment income
at the Parent Company, corporate interest expenses and other corporate
administrative costs. Discontinued operations include the results of operations
for Lorillard and the gain on the sale of Bulova in January of
2008.
The
following table summarizes the results of operations for Corporate and Other for
the three months ended March 31, 2009 and 2008 as presented in Note 14 of the
Notes to Consolidated Condensed Financial Statements included in Item 1 of this
Report:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Net investment
income
|
|
$ |
26 |
|
|
$ |
40 |
|
Total
|
|
|
26 |
|
|
|
40 |
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating
|
|
|
16 |
|
|
|
17 |
|
Interest
|
|
|
14 |
|
|
|
14 |
|
Total
|
|
|
30 |
|
|
|
31 |
|
Income
(loss) before income tax
|
|
|
(4 |
) |
|
|
9 |
|
Income
tax (expense) benefit
|
|
|
1 |
|
|
|
(4 |
) |
Income
(loss) from continuing operations
|
|
|
(3 |
) |
|
|
5 |
|
Discontinued
operations, net
|
|
|
|
|
|
|
254 |
|
Net
income (loss) attributable to Loews Corporation
|
|
$ |
(3 |
) |
|
$ |
259 |
|
Three
Months Ended March 31, 2009 Compared to 2008
Revenues
decreased by $14 million for the three months ended March 31, 2009 as compared
to the corresponding period of 2008. There was a net loss of $3 million for the
three months ended March 31, 2009 as compared to net income of $259 million in
the corresponding period of 2008.
Revenues
and the results of continuing operations decreased in the three months ended
March 31, 2009, as compared to the corresponding period of 2008, due primarily
to decreased net investment income. Results in 2009 also reflect reduced
invested cash balances due to the parent company’s equity investments in its CNA
and Boardwalk Pipeline subsidiaries in 2008.
In 2008,
the Company completed the sale of Bulova and disposed of its entire ownership
interest in Lorillard. Discontinued operations for the three months ended March
31, 2008 primarily includes the results of operations for Lorillard and an $82
million gain on the sale of Bulova.
LIQUIDITY AND CAPITAL RESOURCES
CNA Financial
Cash Flow
CNA’s
principal operating cash flow sources are premiums and investment income from
its insurance subsidiaries. CNA’s primary operating cash flow uses are payments
for claims, policy benefits and operating expenses.
For the
three months ended March 31, 2009, net cash provided by operating activities was
$187 million as compared with $303 million for the same period in 2008. Cash
provided by operating activities was unfavorably impacted by decreased
investment income and decreased premium collections in the first quarter of 2009
as compared with the same period in 2008.
For the
three months ended March 31, 2009, net cash used by investing activities was
$150 million as compared with $11 million provided by investing activities for
the same period in 2008. Cash flows used by investing activities related
principally to purchases of fixed maturity securities and short term
investments. The cash flow from investing activities is impacted by various
factors such as the anticipated payment of claims, financing activity,
asset/liability management and individual security buy and sell decisions made
in the normal course of portfolio management.
For the
three months ended March 31, 2009, net cash used by financing activities was $26
million as compared with $273 million for the same period in 2008. Net cash used
by financing activities in 2009 was primarily related to the payment of
dividends on the 2008 Senior Preferred stock to Loews.
Liquidity
CNA
believes that its present cash flows from operations, investing activities and
financing activities are sufficient to fund its working capital and debt
obligation needs and CNA does not expect this to change in the near term due to
the following factors:
|
·
|
CNA
does not anticipate changes in its core property and casualty commercial
insurance operations which would significantly impact liquidity and CNA
continues to maintain reinsurance contracts which limit the impact of
potential catastrophic events.
|
|
·
|
CNA
has entered into several settlement agreements and assumed reinsurance
contracts that require collateralization of future payment obligations and
assumed reserves if CNA’s ratings or other specific criteria fall below
certain thresholds. The ratings triggers are generally more than one level
below CNA’s current ratings. A downgrade below CNA’s current ratings
levels would also result in additional collateral requirements for
derivative contracts for which CNA is in a liability position at any given
point in time. The maximum potential collateralization requirements are
approximately $90 million.
|
|
·
|
As
of March 31, 2009, CNA’s holding company held short term investments of
$504 million. CNA’s holding company’s ability to meet its debt service and
other obligations is significantly dependent on receipt of dividends from
its subsidiaries. The payment of dividends to CNA by its insurance
subsidiaries without prior approval of the insurance department of each
subsidiary’s domiciliary jurisdiction is limited by formula.
Notwithstanding this limitation, CNA believes that it has sufficient
liquidity to fund its preferred stock dividend and debt service payments
in 2009.
|
CNA has
an effective shelf registration statement under which it may issue $2.0 billion
of debt or equity securities.
Diamond
Offshore
Cash and
investments, net of receivables and payables, totaled $711 million at March 31,
2009 compared to $737 million at December 31, 2008. In 2009, Diamond Offshore
paid cash dividends totaling $278 million, consisting of special cash dividends
of $261 million and regular quarterly cash dividends of $17 million. In April of
2009, Diamond Offshore declared a special dividend of $1.875 per share and a
regular quarterly dividend of $0.125 per share.
Diamond
Offshore’s cash flows from operations are impacted by the ability of its
customers to weather the continuing, current global financial and credit crisis,
as well as the volatility in commodity prices. In general, before working for a
customer with whom Diamond Offshore has not had a prior business relationship
and/or whose financial stability may be uncertain, Diamond Offshore performs a
credit review on that company. Based on that analysis, Diamond Offshore may
require that the customer present a letter of credit, prepay or provide other
credit enhancements. Tightening of the credit markets may preclude Diamond
Offshore from doing business with potential customers and could have an impact
on its existing customers, causing them to fail to meet their obligations to
Diamond Offshore.
Cash
provided by operating activities was $407 million in the three months ended
March 31, 2009, compared to $299 million in the comparable period of 2008. The
increase in cash flows from operations in the first quarter of 2009 is primarily
the result of higher average dayrates earned by Diamond Offshore’s floater
fleet, most notably in the Australia/Asia markets, as well as contributions to
earnings by the newly constructed Ocean Scepter and Ocean Shield and the recently
upgraded Ocean
Monarch.
Diamond
Offshore has budgeted approximately $400 million of capital expenditures for
2009 associated with its ongoing rig equipment replacement and enhancement
programs, equipment required for its long term international contracts and other
corporate requirements. During the first quarter of 2009, Diamond Offshore spent
approximately $130 million pursuant to these programs. In addition, Diamond
Offshore expects to spend an additional $70 million in 2009 in connection with
shipyard projects for the Ocean Bounty. Diamond
Offshore expects to finance its 2009 capital expenditures through the use of its
existing cash balances or internally generated funds. From time to time,
however, Diamond Offshore may also make use of its credit facility to finance
capital expenditures.
As of
March 31, 2009, there were no loans outstanding under Diamond Offshore’s $285
million credit facility; however, $65 million in letters of credit were issued
and outstanding under the credit facility.
Diamond
Offshore’s liquidity and capital requirements are primarily a function of its
working capital needs, capital expenditures and debt service requirements. Cash required
to meet Diamond Offshore’s capital commitments is determined by evaluating the
need to upgrade rigs to meet specific customer requirements and by evaluating
Diamond Offshore’s ongoing rig equipment replacement and enhancement programs,
including water depth and drilling capability upgrades. It is the opinion of
Diamond Offshore’s management that its operating cash flows and cash reserves
will be sufficient to fund its ongoing operations and capital projects over the
next twelve months; however, Diamond Offshore will continue to make periodic
assessments based on industry conditions and will adjust capital spending
programs if required.
Under
Diamond Offshore’s insurance policy that expired on May 1, 2009, Diamond
Offshore’s deductible for physical damage was $75 million per occurrence (or
lower for some rigs if they are declared a constructive total loss) in the U.S.
Gulf of Mexico due to named windstorms with an annual aggregate limit of $125
million. Accordingly, Diamond Offshore’s insurance coverage for all physical
damage to its rigs and equipment caused by named windstorms in the U.S. Gulf of
Mexico for the policy period ending May 1, 2009 was limited to $125
million.
Diamond
Offshore renewed its principal insurance coverages effective May 1, 2009.
Diamond Offshore has elected to self-insure for physical damage to rigs and
equipment caused by named windstorms in the U.S. Gulf of Mexico. If named
windstorms in the U.S. Gulf of Mexico cause significant damage to Diamond
Offshore’s rigs, it could have a material adverse effect on our financial
position, results of operations and cash flows. However, Diamond Offshore
continues to carry physical damage insurance for certain losses other than those
caused by named windstorms in the U.S. Gulf of Mexico. Diamond Offshore's
coverage and policy limits for physical damage insurance are
otherwise similar except that Diamond Offshore's deductible for
physical damage is $25 million per occurrence.
On May 4,
2009, Diamond Offshore issued $500 million aggregate principal amount of 5.9%
senior notes due May 1, 2019. Diamond Offshore intends to use the net proceeds
from the sale of the notes for general corporate purposes.
HighMount
At March
31, 2009 and December 31, 2008, cash and investments amounted to $29 million and
$47 million. Net cash flows provided by operating activities were $95 million in
the three months ended March 31, 2009, compared to $156 million in 2008. Key
drivers of net operating cash flows are commodity prices, production volumes and
operating costs.
The
primary driver of cash used in investing activities was capital spending. Cash
used for investing activities in the three months ended March 31, 2009 was $113
million compared to $134 million in 2008 primarily due to additions to
HighMount’s natural gas and oil proved reserves. HighMount spent $69 million and
$92 million on capital expenditures for its drilling program in the three months
ended March 31, 2009 and 2008. The decrease in capital expenditures was due to
reduced drilling activity in the first quarter of 2009. Drilling costs decreased
and at the end of the first quarter of 2009 reached levels consistent with the
first quarter of 2008.
At March
31, 2009, $115 million was outstanding under HighMount’s $400 million revolving
credit facility. In addition, a $5 million letter of credit was outstanding,
which reduced the available capacity under the facility to $280 million. A
financial institution which has a $30 million funding commitment under the
revolving credit facility has not funded its portion of HighMount’s borrowing
requests since September of 2008. All other lenders met their revolving
commitments on the HighMount’s borrowings. Absent this commitment, the available
capacity under the facility would be reduced to $259 million from $280
million.
The
agreements governing HighMount’s $1.6 billion term loans and revolving credit
facility contain financial covenants typical for these types of agreements,
including a maximum debt to capitalization ratio. The credit agreement also
contains customary restrictions or limitations on HighMount’s ability to enter
or engage in certain transactions, including transactions with affiliates. At
March 31, 2009, HighMount was in compliance with all of its debt covenants under
the credit agreement and anticipates remaining in compliance in the
future.
Boardwalk
Pipeline
At March
31, 2009 and December 31, 2008, cash and investments amounted to $116 million
and $315 million. Funds from operations for the three months ended March 31,
2009 amounted to $28 million, compared to $74 million in 2008. In the three
months ended March 31, 2009 and 2008, Boardwalk Pipeline’s capital expenditures
were $302 million and $543 million.
Boardwalk
Pipeline has undertaken significant capital expansion projects, substantially
all of which have been or are expected to be funded with proceeds from its
equity and debt financings. Boardwalk Pipeline expects the total cost of these
projects to be as follows:
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
Expansion
|
|
$ |
775 |
|
|
$ |
736 |
|
Gulf
Crossing Project
|
|
|
1,800 |
|
|
|
1,519 |
|
Fayetteville
and Greenville Laterals
|
|
|
1,290 |
|
|
|
803 |
|
Total
|
|
$ |
3,865 |
|
|
$ |
3,058 |
|
(a)
|
Boardwalk
Pipeline’s cost estimates are based on internally developed financial
models and timelines. Factors in the estimates include, but are not
limited to, those related to pipeline costs based on mileage, size and
type of pipe, materials and construction and engineering
costs.
|
Boardwalk
Pipeline will incur costs to remediate the pipeline anomalies previously
described including costs associated with the East Texas Pipeline. Additionally,
Boardwalk Pipeline is still testing portions of the expansion pipelines for
anomalies, thereby making the full cost of remediating the pipelines unknown.
However, Boardwalk Pipeline anticipates that the cost to remediate the anomalies
will not require an increase in the previously announced estimated total cost to
complete the expansion projects due to lower costs experienced during the
initial phase of the construction.
Boardwalk
Pipeline expects to incur capital expenditures of approximately $800 million for
the remainder of 2009 and in 2010 to complete the pipeline expansion projects.
The majority of the expenditures are expected to occur in 2009, with the balance
to be incurred in early 2010. Boardwalk Pipeline also expects to spend up to
$200 million for the Haynesville project. These expenditures are expected to
occur in 2010.
On May 1,
2009, Boardwalk Pipeline and a subsidiary of the Company (“BPHC”) entered into a
Subordinated Loan Agreement under which BPHC has agreed to make up to $200
million of subordinated loans (the “Loan”) to Boardwalk Pipeline. Boardwalk
Pipeline borrowed $100 million of the Loan on May 4, 2009 and expects to borrow
the balance of the Loan during the second quarter. Amounts outstanding under the
Loan bear interest at 8.0% per annum, payable semi-annually, and mature and are
payable in full six months after maturity (including any term-out option period)
of the revolving credit facility discussed below. The Loan must be prepaid with
the net cash proceeds from the issuance by Boardwalk Pipeline of additional
equity securities or the incurrence by Boardwalk Pipeline or its subsidiaries of
certain indebtedness. The Loan is subordinated in right of payment to the
obligations under the revolving credit facility pursuant to the terms of a
Subordination Agreement between BPHC and Wachovia Bank, National Association, as
representative of the lenders under the revolving credit facility. The terms of
the Loan have been approved by Boardwalk Pipeline’s independent Conflicts
Committee.
Assuming
funding of the balance of the Loan, Boardwalk Pipeline anticipates the need to
finance approximately $500 million to complete its expansion projects, including
the Haynesville project, which Boardwalk Pipeline expects to finance through the
issuance of both debt and equity. The Company has advised Boardwalk Pipeline
that it is willing to provide up to $300 million of additional capital to fund
these projects to the extent that public markets remain unavailable on
acceptable terms. Any additional financing provided by the Company would be
subject to review and approval, as to fairness, by Boardwalk Pipeline’s
independent Conflicts Committee.
Maintenance
capital expenditures for the three months ended March 31, 2009 and 2008 were $9
million and $5 million. Boardwalk Pipeline expects to fund the remaining 2009
maintenance capital expenditures of approximately $59 million from its operating
cash flows.
Boardwalk
Pipeline maintains a revolving credit facility which has aggregate lending
commitments of $1.0 billion. A financial institution which has a $50 million
commitment under the revolving credit facility filed for bankruptcy protection
in 2008 and has not funded its portion of Boardwalk Pipeline’s borrowing
requests since that time. As of March 31, 2009, Boardwalk Pipeline has fully
borrowed against all commitments available under its revolving credit facility,
resulting in loans outstanding of $954 million with a weighted-average interest
rate on the borrowings of 0.8%. Boardwalk Pipeline was in compliance with all
covenant requirements under its credit facility at March 31,
2009.
During
the three months ended March 31, 2009, Boardwalk Pipeline paid cash
distributions of $86 million, including $63 million to us. In April of 2009,
Boardwalk Pipeline declared a quarterly distribution of $0.485 per common
unit.
Loews
Hotels
Cash and
investments totaled $61 million at March 31, 2009, as compared to $72 million at
December 31, 2008. Funds for capital expenditures and working capital
requirements are expected to be provided from existing cash balances, operations
and advances or capital contributions from us.
Corporate
and Other
Parent
Company cash and investments, net of receivables and payables, at March 31, 2009
totaled $2.5 billion, as compared to $2.3 billion at December 31, 2008. The
increase in net cash and investments is primarily due to the receipt of $235
million in dividends from our subsidiaries, partially offset by $27 million of
dividends paid to our shareholders.
On May 1,
2009, Boardwalk Pipeline and a subsidiary of the Company ("BPHC") entered into a
Subordinated Loan Agreement under which BPHC has agreed to make up to $200
million of subordinated loans to Boardwalk Pipeline as described in “Liquidity
and Capital Resources – Boardwalk Pipeline.”
As of
March 31, 2009, there were 435,159,670 shares of Loews common stock
outstanding.
Depending
on market and other conditions, we may purchase shares of our and our
subsidiaries’ outstanding common stock in the open market or otherwise. During
the three months ended March 31, 2009, we purchased 329,500 shares of CNA common
stock at an aggregate cost of $2 million.
We have
an effective Registration Statement on Form S-3 registering the future sale of
an unlimited amount of our debt and equity securities.
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.
INVESTMENTS
Investment
activities of non-insurance companies include investments in fixed income
securities, equity securities including short sales, derivative instruments and
short term investments, and are carried at fair value. Securities that are
considered part of our trading portfolio, short sales and certain derivative
instruments are marked to market and reported as Net investment income in the
Consolidated Condensed Statements of Operations.
We enter
into short sales and invest in certain derivative instruments 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
counter parties. We occasionally require collateral from our derivative
investment counterparties depending on the amount of the exposure and the credit
rating of the counterparty.
We do not
believe that any of the derivative instruments we use are unusually complex, nor
do the use of these instruments, in our opinion, result in a higher degree of
risk. Please read Notes 2 and 4 of the Notes to Consolidated Condensed Financial
Statements included under Item 1 of this report for additional information with
respect to derivative instruments, including recognized gains and losses on
these instruments.
For more
than a year, capital and credit markets have experienced severe levels of
volatility, illiquidity, uncertainty and overall disruption. This market
disruption generally continued into the first quarter of 2009. While the
government has initiated programs intended to stabilize and improve markets and
the economy, the impact of these programs remains uncertain. Certain sectors of
the financial markets began to show signs of improvement during the first
quarter of 2009 while other sectors continued to lag. As a result, we incurred
realized and losses, primarily driven by continuing credit issues attributable
to the asset-backed and financial sectors, which have adversely impacted our
results of operations.
Insurance
CNA
maintains a large portfolio of fixed maturity and equity securities, including
large amounts of corporate and government issued debt securities, collateralized
mortgage obligations (“CMOs”), asset-backed and other structured securities,
equity and equity-based securities and investments in limited partnerships which
pursue a variety of long and short investment strategies across a broad array of
asset classes. CNA’s investment portfolio supports its obligation to pay future
insurance claims and provides investment returns which are an important part of
CNA’s overall profitability.
Net Investment Income
The
significant components of CNA’s net investment income are presented in the
following table:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$ |
475 |
|
|
$ |
518 |
|
Short term investments
|
|
|
10 |
|
|
|
39 |
|
Limited partnerships
|
|
|
(70 |
) |
|
|
(39 |
) |
Equity securities
|
|
|
14 |
|
|
|
5 |
|
Trading portfolio (a)
|
|
|
|
|
|
|
(77 |
) |
Other
|
|
|
3 |
|
|
|
6 |
|
Total investment income
|
|
|
432 |
|
|
|
452 |
|
Investment expense
|
|
|
(12 |
) |
|
|
(18 |
) |
Net investment income
|
|
$ |
420 |
|
|
$ |
434 |
|
(a)
|
The
change in net unrealized losses on trading securities included in net
investment income was $13 for the three months ended March 31, 2008. As of
March 31, 2009, CNA no longer had a trading
portfolio.
|
Net
investment income decreased by $14 million for the three months ended March 31,
2009 compared with the same period in 2008. Excluding trading portfolio losses
of $77 million in 2008, net investment income declined $91 million. This
decrease was primarily driven by a decline in interest rates and higher losses
from limited partnerships. Limited partnerships generally present greater
volatility, higher illiquidity and greater risk, than fixed maturity
investments. The trading portfolio losses were related to our indexed group
annuity business and were substantially offset by a corresponding decrease in
the policyholders’ funds reserves supported by the trading portfolio, which was
included in Insurance claims and policyholders’ benefits on the Consolidated
Condensed Statements of Operations. CNA exited the indexed group annuity
business in 2008.
The bond
segment of the fixed maturity investment portfolio provided an income yield of
5.1% and 5.9% for the three months ended March 31, 2009 and
2008.
Net
Realized Investment Gains (Losses)
The
components of CNA’s net realized investment results are presented in the
following table:
Three
Months Ended March 31
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses):
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
U.S.
Treasury securities and obligations of government agencies
|
|
$ |
(21 |
) |
|
$ |
32 |
|
Corporate and other taxable bonds
|
|
|
(173 |
) |
|
|
(31 |
) |
States,
municipalities and political subdivisions-tax exempt
securities
|
|
|
37 |
|
|
|
40 |
|
Asset-backed
securities
|
|
|
(192 |
) |
|
|
(39 |
) |
Redeemable preferred stock
|
|
|
(9 |
) |
|
|
(4 |
) |
Total fixed maturity securities
|
|
|
(358 |
) |
|
|
(2 |
) |
Equity securities
|
|
|
(216 |
) |
|
|
(15 |
) |
Derivative securities
|
|
|
31 |
|
|
|
(44 |
) |
Short term investments
|
|
|
13 |
|
|
|
2 |
|
Other invested assets, including dispositions
|
|
|
(2 |
) |
|
|
8 |
|
Total realized investment losses
|
|
|
(532 |
) |
|
|
(51 |
) |
Income tax benefit
|
|
|
187 |
|
|
|
18 |
|
Net
realized investment losses
|
|
|
(345 |
) |
|
|
(33 |
) |
Add
amounts attributable to noncontrolling interests
|
|
|
35 |
|
|
|
4 |
|
Net realized investment
losses attributable to Loews Corporation
|
|
$ |
(310 |
) |
|
$ |
(29 |
) |
Net
realized investment losses increased by $281 million for the three months ended
March 31, 2009 compared with the same period in 2008. This increase was
primarily driven by an increase in other-than-temporary impairment (“OTTI”)
losses. Further information on CNA’s OTTI losses and impairment decision process
is set forth in Note 2 of the Notes to Consolidated Condensed Financial
Statements included under Item 1.
The
following table provides details of the largest realized investment losses for
the three months ended March 31, 2009 from sales of securities aggregated by
issuer, including: the fair value of the securities at date of sale, the amount
of the loss recorded and the period of time that the securities had been in an
unrealized loss position prior to sale. The period of time that the securities
had been in an unrealized loss position prior to sale can vary due to the timing
of individual security purchases. Also included is a narrative providing the
industry sector along with the facts and circumstances giving rise to the
loss.
Issuer
Description and Discussion
|
|
Fair
Value at Date of Sale
|
|
|
|
|
|
Months
in Unrealized Loss Prior To Sale
(a)
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various
notes and bonds issued by the United States Treasury.
Securities sold due to outlook on interest rates.
|
|
$ |
2,870 |
|
|
$ |
31 |
|
|
|
0-6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
income securities of a provider of wireless and wire line
communication products. Economic conditions have caused
a weakness in sales which have resulted in cash flow
issues causing additional financial deterioration.
|
|
|
37 |
|
|
|
17 |
|
|
|
0-12 |
+ |
|
|
$ |
2,907 |
|
|
$ |
48 |
|
|
|
|
|
(a)
|
Represents
the range of consecutive months the various positions were in an
unrealized loss prior to sale. 0-12+ means certain positions were less
than 12 months, while others were greater than 12
months.
|
Gross
Unrealized Losses
The
following tables summarize the fair value and gross unrealized loss aging for
fixed income investment and non-investment grade securities categorized first by
the length of time, as measured by the first date those securities have been in
a continuous unrealized loss position, and then further categorized by the
severity of the unrealized loss position in 10% increments:
|
|
Estimated
|
|
|
Fair
Value as a Percentage of Amortized Cost
|
|
|
|
|
March
31, 2009
|
|
Fair
Value
|
|
|
|
90-99 |
% |
|
|
80-89 |
% |
|
|
70-79 |
% |
|
|
60-69 |
% |
|
|
50-59 |
% |
|
|
40-49 |
% |
|
<40%
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6
months
|
|
$ |
3,324 |
|
|
$ |
85 |
|
|
$ |
77 |
|
|
$ |
26 |
|
|
$ |
35 |
|
|
|
|
|
|
$ |
3 |
|
|
$ |
31 |
|
|
$ |
257 |
|
7-11
months
|
|
|
5,313 |
|
|
|
184 |
|
|
|
185 |
|
|
|
173 |
|
|
|
118 |
|
|
$ |
98 |
|
|
|
50 |
|
|
|
13 |
|
|
|
821 |
|
12-24
months
|
|
|
6,752 |
|
|
|
112 |
|
|
|
262 |
|
|
|
437 |
|
|
|
363 |
|
|
|
645 |
|
|
|
311 |
|
|
|
431 |
|
|
|
2,561 |
|
Greater
than 24 months
|
|
|
1,623 |
|
|
|
31 |
|
|
|
55 |
|
|
|
120 |
|
|
|
35 |
|
|
|
16 |
|
|
|
74 |
|
|
|
148 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment grade
|
|
|
17,012 |
|
|
|
412 |
|
|
|
579 |
|
|
|
756 |
|
|
|
551 |
|
|
|
759 |
|
|
|
438 |
|
|
|
623 |
|
|
|
4,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-investment
grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6
months
|
|
|
369 |
|
|
|
14 |
|
|
|
8 |
|
|
|
23 |
|
|
|
5 |
|
|
|
23 |
|
|
|
|
|
|
|
3 |
|
|
|
76 |
|
7-11
months
|
|
|
756 |
|
|
|
8 |
|
|
|
39 |
|
|
|
75 |
|
|
|
81 |
|
|
|
13 |
|
|
|
25 |
|
|
|
48 |
|
|
|
289 |
|
12-24
months
|
|
|
1,235 |
|
|
|
7 |
|
|
|
54 |
|
|
|
82 |
|
|
|
118 |
|
|
|
182 |
|
|
|
118 |
|
|
|
107 |
|
|
|
668 |
|
Greater
than 24 months
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
9 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-investment grade
|
|
|
2,369 |
|
|
|
29 |
|
|
|
101 |
|
|
|
180 |
|
|
|
204 |
|
|
|
218 |
|
|
|
145 |
|
|
|
167 |
|
|
|
1,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
19,381 |
|
|
$ |
441 |
|
|
$ |
680 |
|
|
$ |
936 |
|
|
$ |
755 |
|
|
$ |
977 |
|
|
$ |
583 |
|
|
$ |
790 |
|
|
$ |
5,162 |
|
|
|
Estimated
|
|
|
Fair
Value as a Percentage of Amortized Cost
|
|
|
|
|
December 31,
2008
|
|
Fair
Value
|
|
|
|
90-99 |
% |
|
|
80-89 |
% |
|
|
70-79 |
% |
|
|
60-69 |
% |
|
|
50-59 |
% |
|
|
40-49 |
% |
|
<40%
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6
months
|
|
$ |
6,749 |
|
|
$ |
169 |
|
|
$ |
264 |
|
|
$ |
167 |
|
|
$ |
58 |
|
|
$ |
7 |
|
|
$ |
11 |
|
|
$ |
5 |
|
|
$ |
681 |
|
7-11
months
|
|
|
6,159 |
|
|
|
126 |
|
|
|
376 |
|
|
|
315 |
|
|
|
364 |
|
|
|
262 |
|
|
|
118 |
|
|
|
30 |
|
|
|
1,591 |
|
12-24
months
|
|
|
3,549 |
|
|
|
55 |
|
|
|
143 |
|
|
|
128 |
|
|
|
355 |
|
|
|
449 |
|
|
|
230 |
|
|
|
443 |
|
|
|
1,803 |
|
Greater
than 24 months
|
|
|
1,778 |
|
|
|
27 |
|
|
|
67 |
|
|
|
151 |
|
|
|
68 |
|
|
|
52 |
|
|
|
8 |
|
|
|
136 |
|
|
|
509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment grade
|
|
|
18,235 |
|
|
|
377 |
|
|
|
850 |
|
|
|
761 |
|
|
|
845 |
|
|
|
770 |
|
|
|
367 |
|
|
|
614 |
|
|
|
4,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-investment
grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6
months
|
|
|
853 |
|
|
|
10 |
|
|
|
47 |
|
|
|
93 |
|
|
|
50 |
|
|
|
44 |
|
|
|
16 |
|
|
|
30 |
|
|
|
290 |
|
7-11
months
|
|
|
374 |
|
|
|
1 |
|
|
|
20 |
|
|
|
43 |
|
|
|
40 |
|
|
|
33 |
|
|
|
19 |
|
|
|
17 |
|
|
|
173 |
|
12-24
months
|
|
|
1,078 |
|
|
|
3 |
|
|
|
30 |
|
|
|
83 |
|
|
|
193 |
|
|
|
94 |
|
|
|
203 |
|
|
|
41 |
|
|
|
647 |
|
Greater
than 24 months
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-investment grade
|
|
|
2,317 |
|
|
|
14 |
|
|
|
97 |
|
|
|
219 |
|
|
|
288 |
|
|
|
171 |
|
|
|
240 |
|
|
|
88 |
|
|
|
1,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
20,552 |
|
|
$ |
391 |
|
|
$ |
947 |
|
|
$ |
980 |
|
|
$ |
1,133 |
|
|
$ |
941 |
|
|
$ |
607 |
|
|
$ |
702 |
|
|
$ |
5,701 |
|
The
classification between investment grade and non-investment grade is based on a
ratings methodology that takes into account ratings from the three major
providers, S&P, Moody’s and Fitch in that order of preference. If a security
is not rated by any of the three, CNA formulates an internal rating. For
securities with credit support from third party guarantees, the rating reflects
the greater of the underlying rating of the issuer or the insured
rating.
Non-investment
grade bonds, as presented in the tables above, are primarily high-yield
securities rated below BBB- by rating agencies, as well as other unrated
securities that, according to CNA’s analysis, are below investment grade.
Non-investment grade securities generally involve a greater degree of risk than
investment grade securities.
As part
of the ongoing OTTI monitoring process, CNA evaluated the facts and
circumstances based on available information for each of these securities and
determined that the securities presented in the above tables were temporarily
impaired when evaluated as of March 31, 2009 and December 31, 2008. This
determination was based on a number of factors that it regularly considers
including, but not limited to: the issuers’ ability to meet current and future
interest and principal payments, an evaluation of the issuers’ financial
condition and near term prospects, CNA’s assessment of the sector outlook and
estimates of the fair value of any underlying collateral. In all cases where a
decline in value is judged to be temporary, CNA has the intent and ability to
hold these securities for a period of time sufficient to recover the amortized
cost of its investment through an anticipated recovery in the fair value of such
securities or by holding the securities to maturity. In many cases, the
securities held are matched to liabilities as part of ongoing asset/liability
duration management. As such, CNA continually assesses its ability to hold
securities for a time sufficient to recover any temporary loss in value or until
maturity. CNA believes it has sufficient levels of liquidity so as to not impact
the asset/liability management process. Further information on CNA’s unrealized
losses by asset class and its considerations in determining that the securities
were temporarily impaired at March 31, 2009 is included in Note 2 of the Notes
to Consolidated Condensed Financial Statements included under Item
1.
CNA’s
fixed income portfolio consists primarily of high quality bonds, 89.9% and 91.0%
of which were rated as investment grade (rated BBB- or higher) at March 31, 2009
and December 31, 2008.
The
following table summarizes the ratings of CNA’s general account bond portfolio
at carrying value.
|
|
March 31,
2009
|
|
|
December 31, 2008
|
|
(In millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and affiliated agency securities
|
|
$ |
1,124 |
|
|
|
4.0 |
% |
|
$ |
2,993 |
|
|
|
10.4 |
% |
Other AAA rated
|
|
|
9,698 |
|
|
|
34.1 |
|
|
|
10,112 |
|
|
|
35.1 |
|
AA and A rated
|
|
|
9,366 |
|
|
|
33.0 |
|
|
|
8,166 |
|
|
|
28.3 |
|
BBB rated
|
|
|
5,348 |
|
|
|
18.8 |
|
|
|
5,000 |
|
|
|
17.3 |
|
Non-investment grade
|
|
|
2,873 |
|
|
|
10.1 |
|
|
|
2,569 |
|
|
|
8.9 |
|
Total
|
|
$ |
28,409 |
|
|
|
100.0 |
% |
|
$ |
28,840 |
|
|
|
100.0 |
% |
At March
31, 2009 and December 31, 2008, approximately 97.0% of the portfolio was issued
by U.S. Government and affiliated agencies or was rated by S&P or Moody’s.
The remaining bonds were rated by other rating agencies or CNA.
The
carrying value of securities that are either subject to trading restrictions or
trade in illiquid private placement markets at March 31, 2009 was $346 million,
which represents 1.0% of CNA’s total investment portfolio. These securities were
in a net unrealized gain position of $173 million at March 31,
2009.
The
following table provides the composition of fixed maturity securities
available-for-sale in a gross unrealized loss position at March 31, 2009 by
maturity profile. Securities not due at a single date are allocated based on
weighted average life.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
|
9.0 |
% |
|
|
9.0 |
% |
Due
after one year through five years
|
|
|
23.0 |
|
|
|
21.0 |
|
Due
after five years through ten years
|
|
|
15.0 |
|
|
|
19.0 |
|
Due
after ten years
|
|
|
53.0 |
|
|
|
51.0 |
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Duration
A primary
objective in the management of the fixed maturity and equity portfolios is to
optimize return relative to underlying liabilities and respective liquidity
needs. CNA’s 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
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 underlying liabilities and the ability to align the
duration of the portfolio to those liabilities 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 liabilities primarily in the Life & Group
Non-Core segment including annuities, structured benefit settlements and long
term care products. The remaining investments are managed to support the
Standard Lines, Specialty Lines and Other Insurance segments.
The
effective durations of fixed income securities, short term investments,
preferred stocks and interest rate derivatives are presented in the table below.
Short term investments are net of securities lending collateral and account
payable and receivable amounts for securities purchased and sold, but not yet
settled.
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
Fair
Value
|
|
|
Effective
Duration (Years)
|
|
|
Fair
Value
|
|
|
Effective
Duration (Years)
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segregated
investments
|
|
$ |
8,072 |
|
|
|
10.0 |
|
|
$ |
8,168 |
|
|
|
9.9 |
|
Other
interest sensitive investments
|
|
|
25,428 |
|
|
|
3.6 |
|
|
|
25,194 |
|
|
|
4.5 |
|
Total
|
|
$ |
33,500 |
|
|
|
5.2 |
|
|
$ |
33,362 |
|
|
|
5.8 |
|
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 Form 10-K.
Short
Term Investments
The
carrying value of the components of the general account short term investment
portfolio is presented in the following table:
|
|
March
31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term investments available-for-sale:
|
|
|
|
|
|
|
Commercial
paper
|
|
$ |
1,164 |
|
|
$ |
563 |
|
U.S. Treasury
securities
|
|
|
2,516 |
|
|
|
2,258 |
|
Money market
funds
|
|
|
262 |
|
|
|
329 |
|
Other, including collateral
held related to securities lending
|
|
|
641 |
|
|
|
384 |
|
Total
short term investments
|
|
$ |
4,583 |
|
|
|
3,534 |
|
The fair
value of cash collateral held related to securities lending, included in other
short term investments, was $41 million at March 31, 2009. There was no cash
collateral held at December 31, 2008.
Asset-backed
and Sub-prime Mortgage Exposure
The
following table provides detail of the Company’s exposure to asset-backed and
sub-prime mortgage related securities:
|
|
Security
Type
|
|
|
|
|
|
Percent
of Total Security
|
|
|
|
|
March
31, 2009
|
|
MBS
(a)
|
|
|
CMO
(b)
|
|
|
ABS
(c)
|
|
|
CDO
(d)
|
|
|
Total
|
|
|
Type
|
|
|
Investments
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government agencies
|
|
$ |
502 |
|
|
$ |
1,190 |
|
|
|
|
|
|
|
|
$ |
1,692 |
|
|
|
22.4 |
% |
|
|
4.3 |
% |
AAA
|
|
|
|
|
|
|
2,995 |
|
|
$ |
1,421 |
|
|
|
|
|
|
4,416 |
|
|
|
58.5 |
|
|
|
11.3 |
|
AA
|
|
|
|
|
|
|
218 |
|
|
|
169 |
|
|
$ |
8 |
|
|
|
395 |
|
|
|
5.2 |
|
|
|
1.0 |
|
A
|
|
|
|
|
|
|
107 |
|
|
|
78 |
|
|
|
14 |
|
|
|
199 |
|
|
|
2.6 |
|
|
|
0.5 |
|
BBB
|
|
|
|
|
|
|
114 |
|
|
|
200 |
|
|
|
1 |
|
|
|
315 |
|
|
|
4.2 |
|
|
|
0.8 |
|
Non-investment
grade and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
tranches
|
|
|
|
|
|
|
455 |
|
|
|
68 |
|
|
|
4 |
|
|
|
527 |
|
|
|
7.1 |
|
|
|
1.3 |
|
Total
fair value
|
|
$ |
502 |
|
|
$ |
5,079 |
|
|
$ |
1,936 |
|
|
$ |
27 |
|
|
$ |
7,544 |
|
|
|
100.0 |
% |
|
|
19.2 |
% |
Total
amortized cost
|
|
$ |
492 |
|
|
$ |
6,029 |
|
|
$ |
2,693 |
|
|
$ |
156 |
|
|
$ |
9,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime
(included above)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
$ |
922 |
|
|
$ |
1 |
|
|
$ |
923 |
|
|
|
12.2 |
% |
|
|
2.4 |
% |
Amortized
cost
|
|
|
|
|
|
|
|
|
|
|
1,313 |
|
|
|
1 |
|
|
|
1,314 |
|
|
|
14.0 |
% |
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A
(included above)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
|
|
|
|
$ |
854 |
|
|
|
|
|
|
$ |
2 |
|
|
$ |
856 |
|
|
|
11.3 |
% |
|
|
2.2 |
% |
Amortized
cost
|
|
|
|
|
|
|
1,101 |
|
|
|
|
|
|
|
6 |
|
|
|
1,107 |
|
|
|
11.8 |
% |
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Mortgage-backed securities (“MBS”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
Collateralized mortgage obligations (“CMO”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
Asset-backed securities (“ABS”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
Collateralized debt obligations (“CDO”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in our fixed maturity securities at March 31, 2009 were $7,544 million of
asset-backed securities, at fair value, which represented 19.2% of total
invested assets. Of the total asset-backed securities, 80.9% were U.S.
Government Agency issued or AAA rated. Of the total invested assets, $923
million or 2.4% have exposure to sub-prime residential mortgage (“sub-prime”)
collateral, while $856 million or 2.2% have exposure to Alternative A
residential mortgages that have lower than normal standards of loan
documentation (“Alt-A”) collateral, as measured by the original deal structure.
Of the securities with sub-prime exposure, approximately 93.0% were rated
investment grade, while 79.0% of the Alt-A securities were rated investment
grade. We believe that each of these securities would be rated investment grade
even without the benefit of any applicable third-party guarantees. In addition
to sub-prime exposure in fixed maturity securities, there is exposure of
approximately $30 million through limited partnerships and sold credit default
swaps which provide the buyer protection against declines in sub-prime
indices.
Included
in the table above within the ABS and CDO security types are commercial
mortgage-backed securities (“CMBS”), which had an aggregate fair value of $627
million and an aggregate amortized cost of $1,062 million at March 31, 2009. Of
these holdings, 82.0% are rated AAA and 99.0% are rated investment grade. Most
of our CMBS holdings are in the form of senior tranches of securitization, which
benefit from significant credit support from subordinated tranches.
All
asset-backed securities in an unrealized loss position are reviewed as part of
the ongoing OTTI process, which resulted in OTTI losses of $114 million after
tax and noncontrolling interest for the three months ended March 31, 2009.
Included in this OTTI loss was $96 million after tax and noncontrolling interest
related to securities with sub-prime and Alt-A exposure. These losses were
primarily attributable to adverse changes in the experience of certain
underlying collateral and the resulting future expected default and recovery
assumptions in the cash flow models. Our review of these securities includes an
analysis of cash flow modeling under various default scenarios, the seniority of
the specific tranche within the deal structure, the composition of the
collateral and the actual default experience. Given current market conditions
and the specific facts and circumstances related to our individual sub-prime,
Alt-A and CMBS exposures, we believe that all remaining unrealized losses are
temporary in nature. Continued deterioration in these markets beyond our current
expectations may cause us to reconsider and record additional OTTI losses. See
Note 2 of the Notes to Consolidated Condensed Financial Statements included
under Item 1 for additional information related to unrealized losses on
asset-backed securities.
ACCOUNTING
STANDARDS
For a
discussion of recent accounting pronouncements not yet adopted, 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.
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. These risks and uncertainties
include, among others:
Risks
and uncertainties primarily affecting us and our insurance
subsidiaries
|
·
|
conditions
in the capital and credit markets including severe levels of volatility,
illiquidity, uncertainty and overall disruption, as well as sharply
reduced economic activity, that may impact the returns, types, liquidity
and valuation of CNA’s investments;
|
|
·
|
the
impact of competitive products, policies and pricing and the competitive
environment in which CNA operates, including changes in CNA’s book of
business;
|
|
·
|
product
and policy availability and demand and market responses, including the
level of CNA’s ability to obtain rate increases and decline or non-renew
under priced accounts, to achieve premium targets and profitability and to
realize growth and retention
estimates;
|
|
·
|
development
of claims and the impact on loss reserves, including changes in claim
settlement policies;
|
|
·
|
the
performance of reinsurance companies under reinsurance contracts with
CNA;
|
|
·
|
regulatory
limitations, impositions and restrictions upon CNA, including the effects
of assessments and other surcharges for guaranty funds and second-injury
funds, other mandatory pooling arrangements and future
assessments levied on insurance companies and other financial industry
participants under the Emergency Economic Stabilization Act of 2008
recoupment provisions;
|
|
·
|
weather
and other natural physical events, including the severity and frequency of
storms, hail, snowfall and other winter conditions, natural disasters such
as hurricanes and earthquakes, as well as climate change, including
effects on weather patterns, greenhouse gases, sea, land and air
temperatures, sea levels, rain and
snow;
|
|
·
|
regulatory
requirements imposed by coastal state regulators in the wake of hurricanes
or other natural disasters, including limitations on the ability to exit
markets or to non-renew, cancel or change terms and conditions in
policies, as well as mandatory assessments to fund any shortfalls arising
from the inability of quasi-governmental insurers to pay
claims;
|
|
·
|
man-made
disasters, including the possible occurrence of terrorist attacks and the
effect of the absence or insufficiency of applicable terrorism legislation
on coverages;
|
|
·
|
the
unpredictability of the nature, targets, severity or frequency of
potential terrorist events, as well as the uncertainty as to CNA’s ability
to contain its terrorism exposure effectively, notwithstanding the
extension until 2014 of the Terrorism Risk Insurance Act of
2002;
|
|
·
|
the
occurrence of epidemics;
|
|
·
|
exposure
to liabilities due to claims made by insureds and others relating to
asbestos remediation and health-based asbestos impairments, as well as
exposure to liabilities for environmental pollution, construction defect
claims and exposure to liabilities due to claims made by insureds and
others relating to lead-based paint and other mass
torts;
|
|
·
|
the
sufficiency of CNA’s loss reserves and the possibility of future increases
in reserves;
|
|
·
|
regulatory
limitations and restrictions, including limitations upon CNA’s ability to
receive dividends from its insurance subsidiaries imposed by state
regulatory agencies and minimum risk-based capital standards established
by the National Association of Insurance
Commissioners;
|
|
·
|
the
risks and uncertainties associated with CNA’s loss reserves as outlined
under “Results of Operations by Business Segment - CNA Financial - Reserves – Estimates
and Uncertainties” in the MD&A portion of this
Report;
|
|
·
|
the
possibility of further changes in CNA’s ratings by ratings agencies,
including the inability to access certain markets or distribution
channels, and the required collateralization of future payment obligations
as a result of such changes, and changes in rating agency policies and
practices;
|
|
·
|
the
effects of mergers and failures of a number of prominent financial
institutions and government sponsored entities, as well as the effects of
accounting and financial reporting scandals and other major failures in
internal controls and governance on capital and credit markets, as well as
on the markets for directors and officers and errors and omissions
coverages;
|
|
·
|
general
economic and business conditions, including recessionary conditions that
may decrease the size and number of CNA’s insurance customers and create
higher exposures to CNA’s lines of business, especially those that provide
management and professional liability insurance, as well as surety bonds,
to businesses engaged in real estate, financial services and professional
services, and inflationary pressures on medical care costs, construction
costs and other economic sectors that increase the severity of
claims;
|
|
·
|
the
effectiveness of current initiatives by claims management to reduce the
loss and expense ratios through more efficacious claims handling
techniques; and
|
|
·
|
conditions
in the capital and credit markets that may limit CNA’s ability to raise
significant amounts of capital on favorable terms, as well as restrictions
on the ability or willingness of the Company to provide additional capital
support to CNA;
|
Risks
and uncertainties primarily affecting us and our energy
subsidiaries
|
·
|
the
impact of changes in worldwide demand for oil and natural gas and oil and
gas price fluctuations on E&P activity, including possible write downs
of the carrying value of natural gas and NGL properties and impairments of
goodwill;
|
|
·
|
costs
and timing of rig upgrades;
|
|
·
|
market
conditions in the offshore oil and gas drilling industry, including
utilization levels and dayrates;
|
|
·
|
timing
and duration of required regulatory inspections for offshore oil and gas
drilling rigs;
|
|
·
|
the
risk of physical damage to rigs and equipment caused by named windstorms
in the U.S. Gulf of Mexico;
|
|
·
|
the
availability and cost of insurance;
|
|
·
|
regulatory
issues affecting natural gas transmission, including ratemaking and other
proceedings particularly affecting our gas transmission
subsidiaries;
|
|
·
|
the
ability of Boardwalk Pipeline to maintain or replace expiring customer
contracts on favorable terms;
|
|
·
|
the
successful completion, timing, cost, scope and future financial
performance of planned expansion projects as well as the financing of such
projects;
|
|
·
|
the
ability of Boardwalk Pipeline to obtain and maintain authority to operate
its expansion project pipelines at higher operating pressures under
special permits issued by PHMSA;
and
|
|
·
|
the
development of additional natural gas reserves and changes in reserve
estimates.
|
Risks
and uncertainties affecting us and our subsidiaries generally
|
·
|
general
economic and business conditions;
|
|
·
|
changes
in domestic and foreign political, social and economic conditions,
including the impact of the global war on terrorism, the war in Iraq, the
future outbreak of hostilities and future acts of
terrorism;
|
|
·
|
potential
changes in accounting policies by the Financial Accounting Standards
Board, the Securities and Exchange Commission or regulatory agencies for
any of our subsidiaries’ industries which may cause us or our subsidiaries
to revise their financial accounting and/or disclosures in the future, and
which may change the way analysts measure our and our subsidiaries’
business or financial performance;
|
|
·
|
the
impact of regulatory initiatives and compliance with governmental
regulations, judicial rulings and jury
verdicts;
|
|
·
|
the
results of financing efforts; by us and our subsidiaries, including any
additional investments by us in our
subsidiaries;
|
|
·
|
the
ability of customers and suppliers to meet their obligations to us and our
subsidiaries;
|
|
·
|
the
closing of any contemplated transactions and
agreements;
|
|
·
|
the
successful integration, transition and management of acquired
businesses;
|
|
·
|
the
outcome of pending or future litigation, including any tobacco-related
suits to which we are or may become a party;
and
|
|
·
|
the
availability of indemnification by Lorillard and its subsidiaries for any
tobacco-related liabilities that we may incur as a result of
tobacco-related lawsuits or otherwise, as provided in the Separation
Agreement.
|
Developments
in any of these areas, which are more fully described elsewhere in this Report,
could cause our results to differ materially from results that have been or may
be anticipated or projected. Forward-looking statements speak only as of the
date of this Report and we expressly disclaim any obligation or undertaking to
update these statements to reflect any change in our expectations or beliefs or
any change in events, conditions or circumstances on which any forward-looking
statement is based.
Item
3. Quantitative and Qualitative Disclosures about Market Risk.
There
were no material changes in our market risk components for the three months
ended March 31, 2009. See the Quantitative and Qualitative Disclosures About
Market Risk included in Item 7A of our Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 2008 for further
information. Additional information related to portfolio duration and market
conditions is discussed in the Investments section of the Management’s
Discussion and Analysis of Financial Condition and Results of Operations
included in Part I, Item 2.
Item
4. Controls and Procedures.
The
Company maintains a system of disclosure controls and procedures which are
designed to ensure that information required to be disclosed by the Company in
reports that it files or submits to the Securities and Exchange Commission under
the Securities Exchange Act of 1934 (the “Exchange Act”), including this report,
is recorded, processed, summarized and reported on a timely basis. These
disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed under the Exchange Act is
accumulated and communicated to the Company’s management on a timely basis to
allow decisions regarding required disclosure.
The
Company’s principal executive officer (“CEO”) and principal financial officer
(“CFO”) undertook an evaluation of the Company’s disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as
of
the end
of the period covered by this report. The CEO and CFO have concluded that the
Company’s controls and procedures were effective as of March 31,
2009.
There
were no changes in the Company’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in
connection with the foregoing evaluation that occurred during the quarter ended
March 31, 2009 that have materially affected or that are reasonably likely to
materially affect the Company’s internal control over financial
reporting.
PART
II. OTHER INFORMATION
Item 1. Legal Proceedings.
Information
with respect to legal proceedings is incorporated by reference to Note 11 of the
Notes to Consolidated Condensed Financial Statements included in Part I of this
Report.
Item
1A. Risk Factors.
Our
Annual Report on Form 10-K for the year ended December 31, 2008 includes a
detailed discussion of certain material risk factors facing our company. The
information presented below describes updates and additions to such risk factors
and should be read in conjunction with the risk factors and information
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2008.
The risk
factor in our Annual Report on Form 10-K for the year ended December 31, 2008
captioned “Diamond Offshore is
self-insured for a portion of physical damage to rigs and equipment caused by
named windstorms in the U.S. Gulf of Mexico.” is no longer applicable and
is deleted in its entirety.
The
following new risk factor is added:
Diamond
Offshore has elected to self-insure for physical damage to rigs and equipment
caused by named windstorms in the U.S. Gulf of Mexico.
Because
the amount of insurance coverage available to Diamond Offshore has been
significantly limited and the cost for such coverage has increased
substantially, Diamond Offshore has elected to self-insure for physical damage
to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico.
This change results in a higher risk of losses, which could be material, that
are not covered by third party insurance contracts. If one or more named
windstorms in the U.S. Gulf of Mexico cause significant damage to Diamond
Offshore’s rigs or equipment, it could have a material adverse effect on our
financial position, results of operations or cash flows.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
Items 2
(a), (b) and (c) are inapplicable.
Item 6. Exhibits.
|
Exhibit
|
Description
of Exhibit
|
Number
|
|
|
Certification by the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a)
|
31.1*
|
|
|
Certification by the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) and Rule 15d-14(a)
|
31.2*
|
|
|
Certification by the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
|
32.1*
|
|
|
Certification by the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
|
32.2*
|
*Filed herewith.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, hereunto duly
authorized.
|
LOEWS CORPORATION
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
Dated:
May 4, 2009
|
By:
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/s/ Peter W. Keegan
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PETER W. KEEGAN
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Senior Vice President and
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Chief Financial Officer
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(Duly authorized officer
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and principal financial
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officer)
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