Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
|
|
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 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 July 24, 2009
|
Common
stock, $0.01 par value
|
|
|
|
433,026,621
shares
|
INDEX
|
Page
|
|
No.
|
|
|
Part
I. Financial Information
|
|
|
|
|
|
|
|
|
Item 1. Financial
Statements (unaudited)
|
|
|
|
|
|
Consolidated Condensed Balance
Sheets
|
|
|
June 30, 2009 and December 31,
2008
|
3
|
|
|
|
|
Consolidated Condensed
Statements of Operations
|
|
|
Three and six months ended June
30, 2009 and 2008
|
4
|
|
|
|
|
Consolidated Condensed
Statements of Comprehensive Income
|
|
|
Three and six months ended June
30, 2009 and 2008
|
6
|
|
|
|
|
Consolidated Condensed
Statements of Equity
|
|
|
June 30, 2009 and
2008
|
7
|
|
|
|
|
Consolidated Condensed
Statements of Cash Flows
|
|
|
Six months ended June 30, 2009
and 2008
|
9
|
|
|
|
|
Notes to Consolidated Condensed
Financial Statements
|
11
|
|
|
|
|
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
51
|
|
|
|
|
Item 3. Quantitative
and Qualitative Disclosures about Market Risk
|
84
|
|
|
|
|
Item 4. Controls and
Procedures
|
84
|
|
|
|
|
Part
II. Other Information
|
85
|
|
|
|
|
Item 1. Legal
Proceedings
|
85
|
|
|
|
|
Item 1A. Risk
Factors
|
85
|
|
|
|
|
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
|
86
|
|
|
|
|
Item 4. Submission of Matters
to a Vote of Security Holders
|
86
|
|
|
|
|
Item
6. Exhibits
|
88
|
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED BALANCE SHEETS
(Unaudited)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(Dollar
amounts in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
Fixed maturities, amortized
cost of $34,638 and $34,767
|
|
$ |
31,826 |
|
|
$ |
29,451 |
|
Equity securities, cost of $958
and $1,402
|
|
|
1,053 |
|
|
|
1,185 |
|
Limited partnership
investments
|
|
|
1,975 |
|
|
|
1,781 |
|
Other
investments
|
|
|
5 |
|
|
|
4 |
|
Short term
investments
|
|
|
6,454 |
|
|
|
6,029 |
|
Total
investments
|
|
|
41,313 |
|
|
|
38,450 |
|
Cash
|
|
|
136 |
|
|
|
131 |
|
Receivables
|
|
|
11,529 |
|
|
|
11,672 |
|
Property,
plant and equipment
|
|
|
12,671 |
|
|
|
12,892 |
|
Deferred
income taxes
|
|
|
2,189 |
|
|
|
2,928 |
|
Goodwill
|
|
|
856 |
|
|
|
856 |
|
Other
assets
|
|
|
1,378 |
|
|
|
1,432 |
|
Deferred
acquisition costs of insurance subsidiaries
|
|
|
1,145 |
|
|
|
1,125 |
|
Separate
account business
|
|
|
413 |
|
|
|
384 |
|
Total
assets
|
|
$ |
71,630 |
|
|
$ |
69,870 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
reserves:
|
|
|
|
|
|
|
|
|
Claim and claim adjustment
expense
|
|
$ |
27,100 |
|
|
$ |
27,593 |
|
Future policy
benefits
|
|
|
7,746 |
|
|
|
7,529 |
|
Unearned
premiums
|
|
|
3,508 |
|
|
|
3,405 |
|
Policyholders’
funds
|
|
|
217 |
|
|
|
243 |
|
Total insurance
reserves
|
|
|
38,571 |
|
|
|
38,770 |
|
Payable
to brokers
|
|
|
930 |
|
|
|
679 |
|
Collateral
on loaned securities and derivatives
|
|
|
6 |
|
|
|
6 |
|
Short
term debt
|
|
|
23 |
|
|
|
71 |
|
Long
term debt
|
|
|
8,647 |
|
|
|
8,187 |
|
Reinsurance
balances payable
|
|
|
350 |
|
|
|
316 |
|
Other
liabilities
|
|
|
3,928 |
|
|
|
4,322 |
|
Separate
account business
|
|
|
413 |
|
|
|
384 |
|
Total
liabilities
|
|
|
52,868 |
|
|
|
52,735 |
|
Preferred
stock, $0.10 par value:
|
|
|
|
|
|
|
|
|
Authorized – 100,000,000
shares
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value:
|
|
|
|
|
|
|
|
|
Authorized – 1,800,000,000
shares
|
|
|
|
|
|
|
|
|
Issued – 435,213,891 and
435,091,667 shares
|
|
|
4 |
|
|
|
4 |
|
Additional
paid-in capital
|
|
|
3,894 |
|
|
|
3,340 |
|
Retained
earnings
|
|
|
13,122 |
|
|
|
13,375 |
|
Accumulated
other comprehensive loss
|
|
|
(1,972 |
) |
|
|
(3,586 |
) |
|
|
|
15,048 |
|
|
|
13,133 |
|
Less
treasury stock, at cost (1,195,900 shares)
|
|
|
32 |
|
|
|
|
|
Total shareholders’
equity
|
|
|
15,016 |
|
|
|
13,133 |
|
Noncontrolling
interests
|
|
|
3,746 |
|
|
|
4,002 |
|
Total equity
|
|
|
18,762 |
|
|
|
17,135 |
|
Total
liabilities and equity
|
|
$ |
71,630 |
|
|
$ |
69,870 |
|
See
accompanying Notes to Consolidated Condensed Financial
Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
premiums
|
|
$ |
1,656 |
|
|
$ |
1,774 |
|
|
$ |
3,328 |
|
|
$ |
3,586 |
|
Net investment
income
|
|
|
735 |
|
|
|
697 |
|
|
|
1,182 |
|
|
|
1,176 |
|
Investment gains
(losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairment losses
|
|
|
(484 |
) |
|
|
(170 |
) |
|
|
(1,098 |
) |
|
|
(256 |
) |
Portion
of loss recognized in Accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive
income (loss)
|
|
|
89 |
|
|
|
|
|
|
|
89 |
|
|
|
|
|
Net
impairment losses recognized in earnings
|
|
|
(395 |
) |
|
|
(170 |
) |
|
|
(1,009 |
) |
|
|
(256 |
) |
Transactional
realized investment gains
|
|
|
98 |
|
|
|
59 |
|
|
|
181 |
|
|
|
94 |
|
Total investment
losses
|
|
|
(297 |
) |
|
|
(111 |
) |
|
|
(828 |
) |
|
|
(162 |
) |
Gain on issuance of subsidiary
stock
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Contract drilling
revenues
|
|
|
923 |
|
|
|
937 |
|
|
|
1,779 |
|
|
|
1,707 |
|
Other
|
|
|
517 |
|
|
|
623 |
|
|
|
1,096 |
|
|
|
1,225 |
|
Total
|
|
|
3,534 |
|
|
|
3,922 |
|
|
|
6,557 |
|
|
|
7,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance claims and
policyholders’ benefits
|
|
|
1,295 |
|
|
|
1,472 |
|
|
|
2,637 |
|
|
|
2,861 |
|
Amortization of deferred
acquisition costs
|
|
|
349 |
|
|
|
360 |
|
|
|
698 |
|
|
|
728 |
|
Contract drilling
expenses
|
|
|
306 |
|
|
|
273 |
|
|
|
600 |
|
|
|
558 |
|
Impairment of natural gas and
oil properties
|
|
|
|
|
|
|
|
|
|
|
1,036 |
|
|
|
|
|
Other operating
expenses
|
|
|
717 |
|
|
|
622 |
|
|
|
1,493 |
|
|
|
1,241 |
|
Interest
|
|
|
110 |
|
|
|
88 |
|
|
|
204 |
|
|
|
177 |
|
Total
|
|
|
2,777 |
|
|
|
2,815 |
|
|
|
6,668 |
|
|
|
5,565 |
|
Income
(loss) before income tax
|
|
|
757 |
|
|
|
1,107 |
|
|
|
(111 |
) |
|
|
1,969 |
|
Income
tax (expense) benefit
|
|
|
(197 |
) |
|
|
(340 |
) |
|
|
198 |
|
|
|
(593 |
) |
Income
from continuing operations
|
|
|
560 |
|
|
|
767 |
|
|
|
87 |
|
|
|
1,376 |
|
Discontinued
operations, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of
operations
|
|
|
(1 |
) |
|
|
170 |
|
|
|
(1 |
) |
|
|
343 |
|
Gain on
disposal
|
|
|
|
|
|
|
4,282 |
|
|
|
|
|
|
|
4,362 |
|
Net
income
|
|
|
559 |
|
|
|
5,219 |
|
|
|
86 |
|
|
|
6,081 |
|
Amounts attributable to
noncontrolling interests
|
|
|
(219 |
) |
|
|
(256 |
) |
|
|
(393 |
) |
|
|
(456 |
) |
Net
income (loss) attributable to Loews Corporation
|
|
$ |
340 |
|
|
$ |
4,963 |
|
|
$ |
(307 |
) |
|
$ |
5,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$ |
341 |
|
|
$ |
511 |
|
|
$ |
(306 |
) |
|
$ |
920 |
|
Discontinued operations,
net
|
|
|
(1 |
) |
|
|
4,348 |
|
|
|
(1 |
) |
|
|
4,494 |
|
Loews common
stock
|
|
|
340 |
|
|
|
4,859 |
|
|
|
(307 |
) |
|
|
5,414 |
|
Former Carolina Group stock -
discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
211 |
|
Total
|
|
$ |
340 |
|
|
$ |
4,963 |
|
|
$ |
(307 |
) |
|
$ |
5,625 |
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per Loews common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$ |
0.79 |
|
|
$ |
1.00 |
|
|
$ |
(0.70 |
) |
|
$ |
1.77 |
|
Discontinued operations,
net
|
|
|
|
|
|
|
8.56 |
|
|
|
|
|
|
|
8.66 |
|
Net income
(loss)
|
|
$ |
0.79 |
|
|
$ |
9.56 |
|
|
$ |
(0.70 |
) |
|
$ |
10.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per Loews common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$ |
0.78 |
|
|
$ |
1.00 |
|
|
$ |
(0.70 |
) |
|
$ |
1.77 |
|
Discontinued operations,
net
|
|
|
|
|
|
|
8.54 |
|
|
|
|
|
|
|
8.64 |
|
Net income
(loss)
|
|
$ |
0.78 |
|
|
$ |
9.54 |
|
|
$ |
(0.70 |
) |
|
$ |
10.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per former Carolina Group share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations,
net
|
|
$ |
- |
|
|
$ |
0.97 |
|
|
$ |
- |
|
|
$ |
1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per former Carolina Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations,
net
|
|
$ |
- |
|
|
$ |
0.96 |
|
|
$ |
- |
|
|
$ |
1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews common
stock
|
|
|
435.07 |
|
|
|
508.16 |
|
|
|
435.09 |
|
|
|
518.93 |
|
Former Carolina Group
stock
|
|
|
- |
|
|
|
108.48 |
|
|
|
- |
|
|
|
108.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews common
stock
|
|
|
435.63 |
|
|
|
509.43 |
|
|
|
435.09 |
|
|
|
520.17 |
|
Former Carolina Group
stock
|
|
|
- |
|
|
|
108.60 |
|
|
|
- |
|
|
|
108.60 |
|
See
accompanying Notes to Consolidated Condensed Financial Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
559 |
|
|
$ |
5,219 |
|
|
$ |
86 |
|
|
$ |
6,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
|
|
1,458 |
|
|
|
(165 |
) |
|
|
1,857 |
|
|
|
(1,021 |
) |
Unrealized gains (losses) on
cash flow hedges
|
|
|
(12 |
) |
|
|
(68 |
) |
|
|
3 |
|
|
|
(203 |
) |
Foreign
currency
|
|
|
77 |
|
|
|
2 |
|
|
|
70 |
|
|
|
(17 |
) |
Pension
liability
|
|
|
1 |
|
|
|
32 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
1,524 |
|
|
|
(199 |
) |
|
|
1,930 |
|
|
|
(1,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
2,083 |
|
|
|
5,020 |
|
|
|
2,016 |
|
|
|
4,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to
noncontrolling interests
|
|
|
(377 |
) |
|
|
(228 |
) |
|
|
(600 |
) |
|
|
(329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income attributable to Loews
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
1,706 |
|
|
$ |
4,792 |
|
|
$ |
1,416 |
|
|
$ |
4,536 |
|
See
accompanying Notes to Consolidated Condensed Financial
Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF EQUITY
(Unaudited)
|
|
|
|
|
Loews
Corporation Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
Loews
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Held
in
|
|
|
Noncontrolling
|
|
|
|
Total
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Treasury
|
|
|
Interests
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, “Accounting for Convertible Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments
That May Be Settled in Cash Upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion”
|
|
|
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 |
|
Adjustment
to initially apply FASB Staff Position No.
FAS 115-2 and FAS 124-2, “Recognition and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presentation of Other-Than- Temporary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments,” as of April
1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
Purchase
of subsidiary shares from noncontrolling
interests
|
|
|
(2 |
) |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Net
income (loss)
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
(307 |
) |
|
|
|
|
|
|
|
|
|
|
393 |
|
Other
comprehensive income
|
|
|
1,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,723 |
|
|
|
|
|
|
|
207 |
|
Dividends
paid
|
|
|
(375 |
) |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
(321 |
) |
Issuance
of Loews common stock
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of Loews treasury stock
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
|
|
Stock-based
compensation
|
|
|
9 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Other
|
|
|
9 |
|
|
|
|
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
16 |
|
Balance,
June 30, 2009
|
|
$ |
18,762 |
|
|
$ |
4 |
|
|
$ |
3,894 |
|
|
$ |
13,122 |
|
|
$ |
(1,972 |
) |
|
$ |
(32 |
) |
|
$ |
3,746 |
|
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF EQUITY
(Unaudited)
|
|
|
|
|
Loews
Corporation Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
Loews
|
|
|
Carolina
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Group
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Held
in
|
|
|
Noncontrolling
|
|
|
|
Total
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Treasury
|
|
|
Interests
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
Issuance
of equity securities by
subsidiary
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243 |
|
Adjustments
related to purchase of
subsidiary Class B units
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
Net
income
|
|
|
6,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,625 |
|
|
|
|
|
|
|
|
|
|
|
456 |
|
Other
comprehensive loss
|
|
|
(1,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,089 |
) |
|
|
|
|
|
|
(127 |
) |
Dividends
paid
|
|
|
(398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
|
(233 |
) |
Issuance
of Loews common stock
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of former Carolina Group
stock
|
|
|
(542 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(602 |
) |
|
|
53 |
|
|
|
8 |
|
|
|
|
|
Exchange
of Lorillard common stock
for Loews common stock
|
|
|
(4,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,650 |
) |
|
|
|
|
Stock-based
compensation
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Retirement
of treasury stock
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(700 |
) |
|
|
(3,949 |
) |
|
|
|
|
|
|
4,650 |
|
|
|
|
|
Other
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
5 |
|
Balance,
June 30, 2008
|
|
$ |
21,048 |
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
3,337 |
|
|
$ |
14,548 |
|
|
$ |
(1,101 |
) |
|
$ |
- |
|
|
$ |
4,260 |
|
See
accompanying Notes to Consolidated Condensed Financial
Statements.
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six
Months Ended June 30
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
86 |
|
|
$ |
6,081 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
(used) by operating activities, net
|
|
|
1,849 |
|
|
|
(4,233 |
) |
Changes
in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Reinsurance
receivables
|
|
|
424 |
|
|
|
447 |
|
Other
receivables
|
|
|
(62 |
) |
|
|
(271 |
) |
Federal income
tax
|
|
|
(320 |
) |
|
|
(32 |
) |
Deferred acquisition
costs
|
|
|
(20 |
) |
|
|
(6 |
) |
Insurance
reserves
|
|
|
(245 |
) |
|
|
(148 |
) |
Reinsurance balances
payable
|
|
|
34 |
|
|
|
(28 |
) |
Other
liabilities
|
|
|
(268 |
) |
|
|
(504 |
) |
Trading
securities
|
|
|
177 |
|
|
|
1,488 |
|
Other, net
|
|
|
9 |
|
|
|
(114 |
) |
Net
cash flow operating activities - continuing operations
|
|
|
1,664 |
|
|
|
2,680 |
|
Net
cash flow operating activities - discontinued operations
|
|
|
(12 |
) |
|
|
151 |
|
Net
cash flow operating activities - total
|
|
|
1,652 |
|
|
|
2,831 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of fixed maturities
|
|
|
(12,402 |
) |
|
|
(28,260 |
) |
Proceeds
from sales of fixed maturities
|
|
|
11,083 |
|
|
|
26,260 |
|
Proceeds
from maturities of fixed maturities
|
|
|
1,723 |
|
|
|
2,464 |
|
Purchases
of equity securities
|
|
|
(240 |
) |
|
|
(133 |
) |
Proceeds
from sales of equity securities
|
|
|
441 |
|
|
|
132 |
|
Purchases
of property, plant and equipment
|
|
|
(1,380 |
) |
|
|
(1,779 |
) |
Change
in collateral on loaned securities and derivatives
|
|
|
|
|
|
|
(63 |
) |
Change
in short term investments
|
|
|
(897 |
) |
|
|
(1,542 |
) |
Other,
net
|
|
|
5 |
|
|
|
(137 |
) |
Net
cash flow investing activities - continuing operations
|
|
|
(1,667 |
) |
|
|
(3,058 |
) |
Net
cash flow investing activities - discontinued operations,
|
|
|
|
|
|
|
|
|
including
proceeds from dispositions
|
|
|
12 |
|
|
|
618 |
|
Net
cash flow investing activities - total
|
|
|
(1,655 |
) |
|
|
(2,440 |
) |
Loews
Corporation and Subsidiaries
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six
Months Ended June 30
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
$ |
(54 |
) |
|
$ |
(165 |
) |
Dividends
paid to noncontrolling interests
|
|
|
(321 |
) |
|
|
(233 |
) |
Purchases
of treasury shares
|
|
|
(32 |
) |
|
|
|
|
Purchases
of treasury shares by subsidiary
|
|
|
(2 |
) |
|
|
(70 |
) |
Issuance
of common stock
|
|
|
2 |
|
|
|
2 |
|
Proceeds
from subsidiaries’ equity issuances
|
|
|
|
|
|
|
245 |
|
Principal
payments on debt
|
|
|
(260 |
) |
|
|
(747 |
) |
Issuance
of debt
|
|
|
666 |
|
|
|
886 |
|
Receipts
of investment contract account balances
|
|
|
2 |
|
|
|
2 |
|
Return
of investment contract account balances
|
|
|
(10 |
) |
|
|
(299 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
|
|
|
|
3 |
|
Other
|
|
|
12 |
|
|
|
3 |
|
Net
cash flow financing activities - continuing operations
|
|
|
3 |
|
|
|
(373 |
) |
Net
cash flow financing activities - discontinued
operations
|
|
|
|
|
|
|
|
|
Net
cash flow financing activities - total
|
|
|
3 |
|
|
|
(373 |
) |
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange rate on cash - continuing operations
|
|
|
5 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
5 |
|
|
|
17 |
|
Net
cash transactions from:
|
|
|
|
|
|
|
|
|
Continuing operations to
discontinued operations
|
|
|
|
|
|
|
780 |
|
Discontinued operations to
continuing operations
|
|
|
|
|
|
|
(780 |
) |
Cash,
beginning of period
|
|
|
131 |
|
|
|
160 |
|
Cash,
end of period
|
|
$ |
136 |
|
|
$ |
177 |
|
|
|
|
|
|
|
|
|
|
Cash,
end of period:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
136 |
|
|
$ |
168 |
|
Discontinued
operations
|
|
|
|
|
|
|
9 |
|
Total
|
|
$ |
136 |
|
|
$ |
177 |
|
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 75% 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 14 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 June 30, 2009 and December 31, 2008 and the
results of operations and comprehensive income for the three and six months
ended June 30, 2009 and 2008 and changes in cash flows for the six months ended
June 30, 2009 and 2008. The Company’s management evaluated subsequent events
through July 31, 2009.
Net income (loss) for the second
quarter and first half 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.
Supplementary cash flow
information – As discussed above, in June of 2008, the Company disposed
of its entire ownership interest in Lorillard resulting in a non-cash gain on
disposal of $4.3 billion. Investing activities includes net accrued capital
expenditures of $125 million for the six months ended June 30, 2009. For the six
months ended June 30, 2008, net cash outflows increased by $162 million due to
payment of previously accrued capital expenditures.
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.
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. The Company’s
adoption of this standard did not impact the financial condition or results of
operations of the Company. See Note 3.
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 other-than-temporary
impairment (“OTTI”) loss model for fixed maturity securities. A fixed maturity
security is impaired if the fair value of the security is less than its
amortized cost basis, which is its cost adjusted for accretion, amortization and
previously recorded OTTI losses. FSP No. FAS 115-2 and FAS 124-2 requires an
OTTI loss equal to the difference between fair value and amortized cost to be
recognized in earnings if the Company intends to sell the fixed maturity
security or if it is more likely than not the Company will be required to sell
the fixed maturity security before recovery of its amortized cost
basis.
The remaining fixed maturity securities
in an unrealized loss position are evaluated to determine if a credit loss
exists. If the Company does not expect to recover the entire amortized cost
basis of a fixed maturity security, the security is deemed to be
other-than-temporarily impaired for credit reasons. For these securities, FSP
No. FAS 115-2 and FAS 124-2 requires the bifurcation of OTTI losses into a
credit component and a non-credit component. The credit component is recognized
in earnings and represents the difference between the present value of the
future cash flows that the Company expects to collect and a fixed maturity
security’s amortized cost basis. The non-credit component is recognized in other
comprehensive income and represents the difference between fair value and the
present value of the future cash flows that the Company expects to
collect.
Prior to the adoption of FSP No. FAS
115-2 and FAS 124-2, OTTI losses were not bifurcated between credit and
non-credit components. The difference between fair value and amortized cost was
recognized in earnings for all securities for which the Company did not expect
to recover the amortized cost basis, or for which the Company did not have the
ability and intent to hold until recovery of fair value to amortized
cost.
The
adoption of FSP No. FAS 115-2 and FAS 124-2 as of April 1, 2009 resulted in a
cumulative effect adjustment of $109 million, after tax and noncontrolling
interests, reclassified to Accumulated other comprehensive income (“AOCI”) from
Retained earnings on the Consolidated Condensed Statement of Equity. The
cumulative effect adjustment represents the non-credit component of those
previously impaired fixed maturity securities that are still considered OTTI,
and the entire amount previously recorded as an OTTI loss on fixed maturity
securities no longer considered OTTI as of April 1, 2009. FSP No. FAS 115-2 and
FAS 124-2 also prospectively requires disclosures regarding expected cash flows,
credit losses, and additional security types within the aging of securities with
unrealized
losses for each reporting period. The Company has complied with the additional
prospective disclosure requirements in Note 2.
In April of 2009, the FASB issued FSP
No. 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 also
prospectively expands and increases the frequency of existing disclosures
related primarily to additional security types and valuation methodologies. The
Company’s adoption of this standard did not impact the financial condition or
results of operations of the Company. The Company has complied with the
additional prospective disclosure requirements in Note 3.
New accounting pronouncements not yet
adopted - In June of 2009,
the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).”
SFAS No. 167 amends the requirements for determination of the primary
beneficiary of a variable interest entity, requires an ongoing assessment of
whether an entity is the primary beneficiary and requires enhanced interim and
annual disclosures that will provide users of financial statements information
regarding an enterprise’s involvement in a variable interest entity. SFAS No.
167 is effective for annual reporting periods beginning after November 15, 2009.
The adoption of SFAS No. 167 is not expected to have a material impact on the
Company’s financial condition or results of operations.
2. Investments
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
487 |
|
|
$ |
476 |
|
|
$ |
962 |
|
|
$ |
994 |
|
Short
term investments
|
|
|
13 |
|
|
|
36 |
|
|
|
24 |
|
|
|
89 |
|
Limited
partnerships
|
|
|
159 |
|
|
|
46 |
|
|
|
89 |
|
|
|
7 |
|
Equity
securities
|
|
|
14 |
|
|
|
39 |
|
|
|
28 |
|
|
|
44 |
|
Trading
portfolio
|
|
|
72 |
|
|
|
103 |
|
|
|
98 |
|
|
|
51 |
|
Other
|
|
|
1 |
|
|
|
9 |
|
|
|
4 |
|
|
|
21 |
|
Total
investment income
|
|
|
746 |
|
|
|
709 |
|
|
|
1,205 |
|
|
|
1,206 |
|
Investment
expenses
|
|
|
(11 |
) |
|
|
(12 |
) |
|
|
(23 |
) |
|
|
(30 |
) |
Net
investment income
|
|
$ |
735 |
|
|
$ |
697 |
|
|
$ |
1,182 |
|
|
$ |
1,176 |
|
Investment
gains (losses) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
(392 |
) |
|
$ |
(158 |
) |
|
$ |
(750 |
) |
|
$ |
(160 |
) |
Equity
securities
|
|
|
64 |
|
|
|
(14 |
) |
|
|
(152 |
) |
|
|
(29 |
) |
Derivative
instruments
|
|
|
33 |
|
|
|
56 |
|
|
|
64 |
|
|
|
12 |
|
Short
term investments
|
|
|
(5 |
) |
|
|
5 |
|
|
|
9 |
|
|
|
7 |
|
Other
|
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
8 |
|
Investment
losses (a)
|
|
|
(297 |
) |
|
|
(111 |
) |
|
|
(828 |
) |
|
|
(162 |
) |
Gain
on issuance of subsidiary stock
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
(297 |
) |
|
|
(109 |
) |
|
|
(828 |
) |
|
|
(160 |
) |
Income
tax benefit
|
|
|
99 |
|
|
|
39 |
|
|
|
285 |
|
|
|
57 |
|
Amounts
attributable to noncontrolling interests
|
|
|
20 |
|
|
|
6 |
|
|
|
55 |
|
|
|
10 |
|
Investment
losses, net - Loews
|
|
$ |
(178 |
) |
|
$ |
(64 |
) |
|
$ |
(488 |
) |
|
$ |
(93 |
) |
(a)
|
Includes
gross realized gains of $173, $90, $281 and $211 and gross realized losses
of ($501), ($262), ($1,183) and ($400) on available-for-sale
securities for the three and six months ended June 30, 2009 and
2008.
|
A security is impaired if the fair value
of the security is less than its cost adjusted for accretion, amortization and
previously recorded OTTI losses, otherwise defined as an unrealized loss. When a
security 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 loss has occurred for a security. 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 evaluating 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. Fixed maturity securities that CNA intends to sell, or it is more
likely than not will be required to sell before recovery of amortized cost, are
considered to be other-than-temporarily impaired and the entire difference
between the amortized cost basis and fair value of the security is recognized as
an OTTI loss in earnings. The remaining fixed maturity securities in an
unrealized loss position are evaluated to determine if a credit loss exists. In
order to determine if a credit loss exists, the factors considered by the
Impairment Committee include (i) the financial condition and near term prospects
of the issuer, (ii) whether the debtor is current on interest and principal
payments, (iii) credit ratings of the securities and (iv) general market
conditions and industry or sector specific outlook. CNA also considers results
and analysis of cash flow modeling for asset-backed securities, and when
appropriate, other fixed maturity securities. The focus of the analysis for
asset-backed securities is on assessing the sufficiency and quality of
underlying collateral and timing of cash flows based on test scenarios. If the
present value of the modeled expected cash flows equals or exceeds the amortized
cost of a security, no credit loss is judged to exist and the asset-backed
security is deemed to be temporarily impaired. If the present value of the
expected cash flows is less than amortized cost, the security is judged to be
other-than-temporarily impaired for credit reasons and that shortfall, referred
to as the credit component, is recognized as an OTTI loss in earnings. The
difference between the adjusted amortized cost basis and fair value, referred to
as the non-credit component, is recognized as an OTTI loss in Other
comprehensive income.
CNA performs the discounted cash flow
analysis using distressed scenarios to determine future expectations regarding
recoverability. For asset-backed securities significant assumptions enter into
these cash flow projections including delinquency rates, probable risk of
default, loss severity upon a default, over collateralization and interest
coverage triggers, credit support from lower level tranches and impacts of
rating agency downgrades. The discount rate utilized is either the yield at
acquisition, or for lower rated structured securities, the current
yield.
CNA applies the same impairment model as
described above for the majority of the non-redeemable preferred stock
securities. For all other equity securities, in determining whether the security
is other-than-temporarily impaired, 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 and (iv) general market conditions and industry or
sector specific outlook.
Prior to adoption of FSP No. FAS 115-2
and FAS 124-2, CNA applied the impairment model described above for all other
equity securities to both debt and equity securities.
The amortized cost and fair values of
securities are as follows:
|
|
Cost
or
|
|
|
Gross
|
|
|
Gross
Unrealized Losses
|
|
|
|
|
|
Unrealized
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Less
Than
|
|
|
12
Months
|
|
|
Estimated
|
|
|
OTTI
|
|
June
30, 2009
|
|
Cost
|
|
|
Gains
|
|
|
12
Months
|
|
|
or
Greater
|
|
|
Fair
Value
|
|
|
Losses
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury securities and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of government
agencies
|
|
$ |
1,008 |
|
|
$ |
43 |
|
|
$ |
80 |
|
|
|
|
|
$ |
971 |
|
|
|
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
securities
|
|
|
7,458 |
|
|
|
41 |
|
|
|
308 |
|
|
$ |
926 |
|
|
|
6,265 |
|
|
$ |
141 |
|
Commercial mortgage-backed
securities
|
|
|
901 |
|
|
|
1 |
|
|
|
10 |
|
|
|
240 |
|
|
|
652 |
|
|
|
7 |
|
Other asset-backed
securities
|
|
|
476 |
|
|
|
9 |
|
|
|
1 |
|
|
|
54 |
|
|
|
430 |
|
|
|
|
|
Total asset-backed
securities
|
|
|
8,835 |
|
|
|
51 |
|
|
|
319 |
|
|
|
1,220 |
|
|
|
7,347 |
|
|
|
148 |
|
States, municipalities and
political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions-tax exempt
securities
|
|
|
8,289 |
|
|
|
106 |
|
|
|
263 |
|
|
|
494 |
|
|
|
7,638 |
|
|
|
|
|
Corporate and other taxable
bonds
|
|
|
15,526 |
|
|
|
543 |
|
|
|
564 |
|
|
|
582 |
|
|
|
14,923 |
|
|
|
2 |
|
Redeemable
preferred stock
|
|
|
69 |
|
|
|
2 |
|
|
|
5 |
|
|
|
4 |
|
|
|
62 |
|
|
|
|
|
Fixed
maturities available-for-sale
|
|
|
33,727 |
|
|
|
745 |
|
|
|
1,231 |
|
|
|
2,300 |
|
|
|
30,941 |
|
|
|
150 |
|
Fixed
maturities, trading
|
|
|
911 |
|
|
|
4 |
|
|
|
5 |
|
|
|
25 |
|
|
|
885 |
|
|
|
|
|
Total
fixed maturities
|
|
|
34,638 |
|
|
|
749 |
|
|
|
1,236 |
|
|
|
2,325 |
|
|
|
31,826 |
|
|
|
150 |
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
92 |
|
|
|
206 |
|
|
|
|
|
|
|
3 |
|
|
|
295 |
|
|
|
|
|
Preferred stock
|
|
|
578 |
|
|
|
31 |
|
|
|
41 |
|
|
|
112 |
|
|
|
456 |
|
|
|
|
|
Equity
securities available-for-sale
|
|
|
670 |
|
|
|
237 |
|
|
|
41 |
|
|
|
115 |
|
|
|
751 |
|
|
|
|
|
Equity
securities, trading
|
|
|
288 |
|
|
|
76 |
|
|
|
23 |
|
|
|
39 |
|
|
|
302 |
|
|
|
|
|
Total
equity securities
|
|
|
958 |
|
|
|
313 |
|
|
|
64 |
|
|
|
154 |
|
|
|
1,053 |
|
|
|
- |
|
Short
term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments
available-for-sale
|
|
|
5,683 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
5,684 |
|
|
|
|
|
Short term investments,
trading
|
|
|
770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
770 |
|
|
|
|
|
Total
short term investments
|
|
|
6,453 |
|
|
|
2 |
|
|
|
1 |
|
|
|
- |
|
|
|
6,454 |
|
|
|
- |
|
Total
|
|
$ |
42,049 |
|
|
$ |
1,064 |
|
|
$ |
1,301 |
|
|
$ |
2,479 |
|
|
$ |
39,333 |
|
|
$ |
150 |
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities 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
securities
|
|
|
8,557 |
|
|
|
90 |
|
|
|
609 |
|
|
|
623 |
|
|
|
7,415 |
|
Corporate and other taxable
bonds
|
|
|
12,993 |
|
|
|
275 |
|
|
|
1,164 |
|
|
|
1,374 |
|
|
|
10,730 |
|
Redeemable preferred
stock
|
|
|
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
amount of net unrealized losses on available-for-sale securities reclassified
out of AOCI into earnings was $328 million pretax for the three months ended
June 30, 2009.
Activity for the three months ended
June 30, 2009 related to the pretax fixed maturity credit loss component
reflected within Retained earnings for securities still held, was as
follows:
|
|
2009
|
|
(In
millions)
|
|
|
|
|
|
|
|
Beginning
balance of credit losses on fixed maturity securities
|
|
$ |
192 |
|
|
|
|
|
|
Additional
credit losses for which an OTTI loss was previously
recognized
|
|
|
21 |
|
Additional
credit losses for which an OTTI loss was not previously
recognized
|
|
|
84 |
|
Reductions
for securities sold during the period
|
|
|
(36 |
) |
Reduction
for securities the Company intends to sell or more likely than not will
be
|
|
|
|
|
required to
sell
|
|
|
(49 |
) |
|
|
|
|
|
Ending
balance of credit losses on fixed maturity securities
|
|
$ |
212 |
|
Based on current facts and
circumstances, the Company has determined that no additional OTTI losses related
to the securities in an unrealized loss position presented in the June 30, 2009
summary of fixed maturity and equity securities table above are required to be
recorded. A discussion of some of the factors reviewed in making that
determination is presented below.
The classification between investment
grade and non-investment grade presented in the discussion below 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.
The market disruption that emerged in
2008 has subsided moderately during the second quarter of 2009. While the
government has initiated programs intended to stabilize and improve markets and
the economy, the ultimate impact of these programs remains uncertain and
economic conditions in the U.S. remain challenging. As a result, the Company
incurred realized losses in its investment portfolio during both the first and
second quarters of 2009 which have adversely impacted its results of operations.
The first quarter losses were primarily driven by the continuing credit issues
attributable to the asset-backed and financial sectors. The second quarter
losses were primarily driven by the actual and anticipated impact of difficult
economic conditions on residential and commercial mortgage-backed
securities.
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 fair value of these securities does
not tend to be influenced by the credit of the issuer but rather the
characteristics and projected cash flows of the underlying
collateral.
Residential mortgage-backed securities
include 333 structured securities in a gross unrealized loss position. In
addition there were 110 agency mortgage-backed pass-through securities in a
gross unrealized loss position, which are guaranteed by agencies of the U.S.
Government. The aggregate severity of the gross unrealized loss was
approximately 21.0% of amortized cost.
Commercial mortgage-backed securities
include 60 securities in a gross unrealized loss position. The aggregate
severity of the gross unrealized loss was approximately 31.1% of amortized
cost.
Other asset-backed securities include 19
securities in a gross unrealized loss position. The aggregate severity of the
gross unrealized loss was approximately 17.9% of amortized cost.
The asset-backed securities in a gross
unrealized loss position by ratings distribution are as follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
June
30, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies
|
|
$ |
732 |
|
|
$ |
714 |
|
|
$ |
18 |
|
AAA
|
|
|
4,327 |
|
|
|
3,431 |
|
|
|
896 |
|
AA
|
|
|
491 |
|
|
|
308 |
|
|
|
183 |
|
A
|
|
|
427 |
|
|
|
249 |
|
|
|
178 |
|
BBB
|
|
|
353 |
|
|
|
269 |
|
|
|
84 |
|
Non-investment
grade and equity tranches
|
|
|
657 |
|
|
|
477 |
|
|
|
180 |
|
Total
|
|
$ |
6,987 |
|
|
$ |
5,448 |
|
|
$ |
1,539 |
|
The Company believes the unrealized
losses were primarily attributable to broader economic 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. The Company has no current intent to sell these securities, nor is
it more likely than not that it will be required to sell prior to recovery of
amortized cost. Generally, non-investment grade securities relate to investments
which were investment grade at the time of purchase but have subsequently been
downgraded and are primarily related to holdings senior to the equity tranche.
Additionally, the Company has judged that the unrealized losses on these
securities were not due to factors regarding credit worthiness, collateral
shortfalls, or substantial changes in future cash flow expectations and, as
such, the Company has determined that there are no additional OTTI losses to be
recorded at June 30, 2009.
OTTI losses of $480 million were
recognized in earnings on the Consolidated Condensed Statements of Operations
related to asset-backed securities, reflecting $268 million related to
residential mortgage-backed securities, $181 million related to commercial
mortgage-backed securities and $31 million related to other asset-backed
securities for the six months ended June 30, 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 half of 2009; however, yields for certain issuers and types of
securities, such as auction rate and tobacco securitizations, continue to be
higher than historical norms relative to after-tax returns on alternative
classes. The holdings for all tax-exempt securities in this category include 573
securities in a gross unrealized loss position. The aggregate severity of the
total gross unrealized losses was approximately 13.7% of amortized
cost.
The ratings distribution of tax-exempt
securities in a gross unrealized loss position are as follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
June
30, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$ |
1,673 |
|
|
$ |
1,548 |
|
|
$ |
125 |
|
AA
|
|
|
1,883 |
|
|
|
1,669 |
|
|
|
214 |
|
A
|
|
|
1,015 |
|
|
|
913 |
|
|
|
102 |
|
BBB
|
|
|
943 |
|
|
|
627 |
|
|
|
316 |
|
Total
|
|
$ |
5,514 |
|
|
$ |
4,757 |
|
|
$ |
757 |
|
The portfolio consists primarily of
special revenue and assessment bonds, representing 93.0% of the overall
portfolio, followed by state general obligation bonds at 4.0% and general
obligation political subdivision bonds at 3.0%.
The largest exposures at June 30, 2009
as measured by gross unrealized losses were special revenue bonds issued by
several states backed by tobacco settlement funds with gross unrealized losses
of $284 million, and several separate issues of Puerto Rico Sales Tax revenue
bonds with gross unrealized losses of $86 million. All of these securities are
investment grade.
The Company has no current intent to
sell these securities, nor is it more likely than not that it will be required
to sell prior to recovery of amortized cost. Additionally, the Company has
judged that the unrealized losses on these securities were not due to factors
regarding credit worthiness and, as such, the Company has determined that there
are no additional OTTI losses to be recorded at June 30, 2009.
The tax-exempt portfolio includes
auction rate securities primarily issued by student loan agencies from nine
states which are substantially guaranteed by The Federal Family Education Loan
Program. These securities had a fair value at June 30, 2009 of $745 million, no
gross unrealized gains and gross unrealized losses of $36 million. At June 30,
2009 none of the auction rate securities held was paying below market penalty
rates. The average rating on these holdings was AAA.
The obligations of both the State of
California and political subdivisions in that State have not recovered as much
as the majority of the municipal market, reflecting both the heavy impact that
the current national recession has had on the California tax base as well as the
political difficulties that the State had in reaching agreement on a budget. At
June 30, 2009, the Company owned securities issued by 71 California obligors,
with a fair value of $514 million, $8 million of gross unrealized gains and $61
million gross unrealized losses.
OTTI losses of $15 million were
recognized in earnings on the Consolidated Condensed Statements of Operations
related to tax-exempt securities for the six months ended June 30,
2009.
Corporate
and Other Taxable Bonds
The holdings in this category include
608 securities in a gross unrealized loss position. The aggregate severity of
the gross unrealized losses was approximately 15.3% of amortized
cost.
The corporate and other taxable bonds in
a gross unrealized loss position across industry sectors and by ratings
distribution are as follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
June
30, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
Sectors:
|
|
|
|
|
|
|
|
|
|
Communications
|
|
$ |
939 |
|
|
$ |
853 |
|
|
$ |
86 |
|
Consumer, Cyclical
|
|
|
927 |
|
|
|
781 |
|
|
|
146 |
|
Consumer,
Non-cyclical
|
|
|
504 |
|
|
|
441 |
|
|
|
63 |
|
Energy
|
|
|
609 |
|
|
|
547 |
|
|
|
62 |
|
Financial
|
|
|
2,446 |
|
|
|
1,932 |
|
|
|
514 |
|
Industrial
|
|
|
537 |
|
|
|
472 |
|
|
|
65 |
|
Utilities
|
|
|
859 |
|
|
|
730 |
|
|
|
129 |
|
Other
|
|
|
673 |
|
|
|
592 |
|
|
|
81 |
|
Total
|
|
$ |
7,494 |
|
|
$ |
6,348 |
|
|
$ |
1,146 |
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
June
30, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings
distribution:
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$ |
323 |
|
|
$ |
308 |
|
|
$ |
15 |
|
AA
|
|
|
285 |
|
|
|
274 |
|
|
|
11 |
|
A
|
|
|
1,269 |
|
|
|
1,080 |
|
|
|
189 |
|
BBB
|
|
|
3,540 |
|
|
|
3,001 |
|
|
|
539 |
|
Non-investment
grade
|
|
|
2,077 |
|
|
|
1,685 |
|
|
|
392 |
|
Total
|
|
$ |
7,494 |
|
|
$ |
6,348 |
|
|
$ |
1,146 |
|
The unrealized losses on corporate and
other taxable bonds were 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 from the lows in
2008. The Company has no current intent to sell these securities, nor is it more
likely than not that it will be required to sell prior to recovery of amortized
cost. Additionally, the Company has judged that the unrealized losses were not
due to factors regarding credit worthiness and, as such, the Company has
determined that there are no additional OTTI losses to be recorded at June 30,
2009.
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
$593 million and an aggregate amortized cost of $855 million.
OTTI losses of $284 million were
recognized in earnings on the Consolidated Condensed Statements of Operations
related to corporate and other taxable bonds for the six months ended June 30,
2009.
Non-Redeemable
Preferred Stock
The unrealized losses on the
Company’s investments in non-redeemable preferred stock were caused by similar
factors as those that affected the Company’s corporate bond portfolio.
Approximately 81.0% of the gross unrealized losses in this category come from
securities issued by financial institutions, and 19.0% from utilities. The
holdings in this category include 24 securities in a gross unrealized loss
position.
Non-redeemable preferred stocks in a
gross unrealized loss position by ratings distribution are as
follows:
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Unrealized
|
|
June
30, 2009
|
|
Cost
|
|
|
Fair
Value
|
|
|
Loss
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
$ |
104 |
|
|
$ |
75 |
|
|
$ |
29 |
|
BBB
|
|
|
421 |
|
|
|
304 |
|
|
|
117 |
|
Non-investment
grade
|
|
|
18 |
|
|
|
11 |
|
|
|
7 |
|
Total
|
|
$ |
543 |
|
|
$ |
390 |
|
|
$ |
153 |
|
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 has no current intent to sell these securities, nor is
it more likely
than
not it will be required to sell prior to recovery of amortized cost.
Additionally, the Company has judged that the unrealized losses on these
securities were not due to factors regarding credit worthiness and, as such, the
Company has determined that there are no additional OTTI losses to be recorded
at June 30, 2009. This evaluation was made on the basis that these securities
possess characteristics similar to debt securities and maintain their ability to
pay dividends.
There were OTTI losses of $217 million
recognized in earnings on the Consolidated Condensed Statements of Operations on
non-redeemable preferred stock, including $188 million related to a major U.S.
financial institution for the six months ended June 30, 2009.
Contractual
Maturity
The following table summarizes
available-for-sale fixed maturity securities by contractual maturity at June 30,
2009 and December 31, 2008. Actual maturities may differ from contractual
maturities because certain securities may be called or prepaid with or without
call or prepayment penalties. Securities not due at a single date are allocated
based on weighted average life.
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$ |
1,280 |
|
|
$ |
1,203 |
|
|
$ |
3,105 |
|
|
$ |
2,707 |
|
Due
after one year through five years
|
|
|
9,247 |
|
|
|
8,718 |
|
|
|
10,295 |
|
|
|
9,210 |
|
Due
after five years through ten years
|
|
|
8,021 |
|
|
|
7,422 |
|
|
|
5,929 |
|
|
|
4,822 |
|
Due
after ten years
|
|
|
15,179 |
|
|
|
13,598 |
|
|
|
14,825 |
|
|
|
12,147 |
|
Total
|
|
$ |
33,727 |
|
|
$ |
30,941 |
|
|
$ |
34,154 |
|
|
$ |
28,886 |
|
Limited
Partnerships
The carrying value of limited
partnerships as of June 30, 2009 and December 31, 2008 was approximately $2.0
billion and $1.8 billion. At June 30, 2009, limited partnerships comprising
52.4% of the total carrying value are reported on a current basis through June
30, 2009 with no reporting lag, 39.1% are reported on a one month lag and the
remainder are reported on more than a one month lag. The Company had 83 and 85
active limited partnership investments as of June 30, 2009 and December 31,
2008. The number of limited partnerships held and the strategies employed
provide diversification to the limited partnership portfolio and the overall
invested asset portfolio. The Company does not generally invest in highly
leveraged partnerships.
Of the limited partnerships held, 92.0%
or approximately $1.8 billion in carrying value at June 30, 2009 and 89.5% or
approximately $1.6 billion in carrying value at December 31, 2008, employ
strategies that generate returns through investing in securities that are
marketable while engaging in various management techniques primarily in public
fixed income and equity markets. These hedge fund strategies include both long
and short positions in fixed income, equity and derivative instruments. The
hedge fund strategies may seek to generate gains from mispriced or undervalued
securities, price differentials between securities, distressed investments,
sector rotation, or various arbitrage disciplines. Within hedge fund strategies,
approximately 46.9% are equity related, 31.9% pursue a multi-strategy approach,
16.5% are focused on distressed investments and 4.7% are fixed income
related.
Limited partnerships representing 5.6%
or $110 million at June 30, 2009 and 7.1% or $126 million at December 31, 2008
were invested in private equity. The remaining 2.4% or $48 million at June 30,
2009 and 3.4% or $61 million at December 31, 2008 were invested in various other
partnerships including real estate. The ten largest limited partnership
positions held totaled $1,118 million and $915 million as of June 30, 2009 and
December 31, 2008. Based on the most recent information available regarding the
Company’s percentage ownership of the individual limited partnerships, the
carrying value reflected on the Consolidated Condensed Balance Sheets represents
approximately 4.4% and 3.4% of the aggregate partnership equity at June 30, 2009
and December 31, 2008, and the related income reflected on the Consolidated
Condensed Statements of Operations represents 3.7%
and
3.3% of the changes in partnership equity for all limited partnership
investments for the six months ended June 30, 2009 and 2008.
The risks
associated with limited partnership investments may include losses due to
leveraging, short-selling, derivatives or other speculative investment
practices. The use of leverage increases the level of returns and volatility
generated by the underlying investment strategies.
Investment
Commitments
As of June 30, 2009, the Company had
committed approximately $262 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 June 30, 2009, the Company had commitments to
purchase $213 million and sell $174 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 June 30, 2009, the Company had obligations on unfunded bank loan
participations in the amount of $2 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:
June
30, 2009
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and
obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
government
agencies
|
|
$ |
184 |
|
|
$ |
787 |
|
|
|
|
|
$ |
971 |
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
securities
|
|
|
|
|
|
|
5,457 |
|
|
$ |
808 |
|
|
|
6,265 |
|
Commercial mortgage-backed
securities
|
|
|
|
|
|
|
477 |
|
|
|
175 |
|
|
|
652 |
|
Other asset-backed
securities
|
|
|
|
|
|
|
289 |
|
|
|
141 |
|
|
|
430 |
|
Total asset-backed
securities
|
|
|
|
|
|
|
6,223 |
|
|
|
1,124 |
|
|
|
7,347 |
|
States, municipalities and
political subdivisions-tax-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exempt
securities
|
|
|
|
|
|
|
6,853 |
|
|
|
785 |
|
|
|
7,638 |
|
Corporate and other taxable
bonds
|
|
|
105 |
|
|
|
14,088 |
|
|
|
730 |
|
|
|
14,923 |
|
Redeemable preferred
stock
|
|
|
21 |
|
|
|
40 |
|
|
|
1 |
|
|
|
62 |
|
Fixed
maturities available-for-sale
|
|
|
310 |
|
|
|
27,991 |
|
|
|
2,640 |
|
|
|
30,941 |
|
Fixed
maturities, trading
|
|
|
571 |
|
|
|
85 |
|
|
|
229 |
|
|
|
885 |
|
Total
fixed maturities
|
|
$ |
881 |
|
|
$ |
28,076 |
|
|
$ |
2,869 |
|
|
$ |
31,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$ |
102 |
|
|
$ |
3 |
|
|
$ |
190 |
|
|
$ |
295 |
|
Preferred stock
|
|
|
353 |
|
|
|
84 |
|
|
|
19 |
|
|
|
456 |
|
Equity
securities available-for-sale
|
|
|
455 |
|
|
|
87 |
|
|
|
209 |
|
|
|
751 |
|
Equity
securities, trading
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
302 |
|
Total
equity securities
|
|
$ |
757 |
|
|
$ |
87 |
|
|
$ |
209 |
|
|
$ |
1,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term investments
|
|
$ |
5,383 |
|
|
$ |
1,071 |
|
|
|
|
|
|
$ |
6,454 |
|
Receivables
|
|
|
|
|
|
|
124 |
|
|
$ |
13 |
|
|
|
137 |
|
Life
settlement contracts
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
126 |
|
Separate
account business
|
|
|
55 |
|
|
|
320 |
|
|
|
38 |
|
|
|
413 |
|
Payable
to brokers
|
|
|
(161 |
) |
|
|
(146 |
) |
|
|
(20 |
) |
|
|
(327 |
) |
Discontinued
operations investments
|
|
|
79 |
|
|
|
52 |
|
|
|
13 |
|
|
|
144 |
|
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 table below presents reconciliations
for all assets and liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the three months ended June 30,
2009 and 2008:
|
|
|
|
|
Net
Realized Gains (Losses)
and Net Change in
Unrealized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in
|
|
|
|
|
|
Issuances
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
Liabilities
|
|
|
|
Balance,
|
|
|
Net
Income
|
|
|
Included
in
|
|
|
and
|
|
|
Transfers
|
|
|
out
of
|
|
|
Balance,
|
|
|
Held
at
|
|
2009
|
|
April
1
|
|
|
(Loss)
(a)
|
|
|
AOCI
|
|
|
Settlements
|
|
|
into
Level 3
|
|
|
Level
3
|
|
|
June
30
|
|
|
June
30 (a)
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
$ |
743 |
|
|
$ |
(6 |
) |
|
$ |
35 |
|
|
$ |
(25 |
) |
|
$ |
71 |
|
|
$ |
(10 |
) |
|
$ |
808 |
|
|
$ |
(5 |
) |
Commercial
mortgage-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
backed
securities
|
|
|
158 |
|
|
|
(155 |
) |
|
|
155 |
|
|
|
(9 |
) |
|
|
26 |
|
|
|
|
|
|
|
175 |
|
|
|
(155 |
) |
Other asset-backed
securities
|
|
|
252 |
|
|
|
|
|
|
|
10 |
|
|
|
(2 |
) |
|
|
|
|
|
|
(119 |
) |
|
|
141 |
|
|
|
|
|
Total
asset-backed securities
|
|
|
1,153 |
|
|
|
(161 |
) |
|
|
200 |
|
|
|
(36 |
) |
|
|
97 |
|
|
|
(129 |
) |
|
|
1,124 |
|
|
|
(160 |
) |
States,
municipalities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political subdivisions-tax-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exempt
securities
|
|
|
784 |
|
|
|
|
|
|
|
18 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
785 |
|
|
|
|
|
Corporate
and other taxable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bonds
|
|
|
809 |
|
|
|
|
|
|
|
47 |
|
|
|
(137 |
) |
|
|
16 |
|
|
|
(5 |
) |
|
|
730 |
|
|
|
(1 |
) |
Redeemable
preferred stock
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
1 |
|
|
|
|
|
Fixed
maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
|
2,765 |
|
|
|
(161 |
) |
|
|
265 |
|
|
|
(190 |
) |
|
|
113 |
|
|
|
(152 |
) |
|
|
2,640 |
|
|
|
(161 |
) |
Fixed
maturities, trading
|
|
|
213 |
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
4 |
|
|
|
|
|
|
|
229 |
|
|
|
4 |
|
Total
fixed maturities
|
|
$ |
2,978 |
|
|
$ |
(155 |
) |
|
$ |
265 |
|
|
$ |
(184 |
) |
|
$ |
117 |
|
|
$ |
(152 |
) |
|
$ |
2,869 |
|
|
$ |
(157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$ |
191 |
|
|
|
|
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
190 |
|
|
|
|
|
Preferred stock
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
Equity
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
$ |
210 |
|
|
|
|
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
settlement contracts
|
|
$ |
127 |
|
|
$ |
5 |
|
|
|
|
|
|
$ |
(6 |
) |
|
|
|
|
|
|
|
|
|
$ |
126 |
|
|
|
|
|
Separate
account business
|
|
|
38 |
|
|
|
|
|
|
$ |
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
|
|
13 |
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
Derivative
financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments,
net
|
|
|
(58 |
) |
|
|
17 |
|
|
|
(2 |
) |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(11 |
) |
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
2,471 |
|
|
$ |
(81 |
) |
|
$ |
(55 |
) |
|
$ |
80 |
|
|
$ |
1,159 |
|
|
$ |
(140 |
) |
|
$ |
3,434 |
|
|
$ |
(92 |
) |
Equity
securities
|
|
|
196 |
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
48 |
|
|
|
22 |
|
|
|
|
|
|
|
263 |
|
|
|
(3 |
) |
Short
term investments
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85 |
) |
|
|
- |
|
|
|
|
|
Life
settlement contracts
|
|
|
118 |
|
|
|
12 |
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
118 |
|
|
|
1 |
|
Separate
account business
|
|
|
47 |
|
|
|
|
|
|
|
(4 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(17 |
) |
|
|
23 |
|
|
|
|
|
Derivative
financial instruments,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
|
|
|
(90 |
) |
|
|
10 |
|
|
|
(9 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
(83 |
) |
|
|
15 |
|
The table below presents reconciliations
for all assets and liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the six months ended June 30, 2009
and 2008:
|
|
|
|
|
Net
Realized Gains (Losses)
and Net Change in
Unrealized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in
|
|
|
|
|
|
Issuances
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
Liabilities
|
|
|
|
Balance,
|
|
|
Net
Income
|
|
|
Included
in
|
|
|
and
|
|
|
Transfers
|
|
|
out
of
|
|
|
Balance,
|
|
|
Held
at
|
|
2009
|
|
January
1
|
|
|
(Loss)
(a)
|
|
|
AOCI
|
|
|
Settlements
|
|
|
into
Level 3
|
|
|
Level
3
|
|
|
June
30
|
|
|
June
30 (a)
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
$ |
782 |
|
|
$ |
(23 |
) |
|
$ |
36 |
|
|
$ |
(48 |
) |
|
$ |
71 |
|
|
$ |
(10 |
) |
|
$ |
808 |
|
|
$ |
(12 |
) |
Commercial
mortgage-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
backed
securities
|
|
|
186 |
|
|
|
(165 |
) |
|
|
142 |
|
|
|
(14 |
) |
|
|
26 |
|
|
|
|
|
|
|
175 |
|
|
|
(165 |
) |
Other asset-backed
securities
|
|
|
139 |
|
|
|
(30 |
) |
|
|
40 |
|
|
|
(42 |
) |
|
|
153 |
|
|
|
(119 |
) |
|
|
141 |
|
|
|
(31 |
) |
Total asset-backed
securities
|
|
|
1,107 |
|
|
|
(218 |
) |
|
|
218 |
|
|
|
(104 |
) |
|
|
250 |
|
|
|
(129 |
) |
|
|
1,124 |
|
|
|
(208 |
) |
States, municipalities
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political
subdivisions-tax-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exempt
securities
|
|
|
750 |
|
|
|
|
|
|
|
55 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
785 |
|
|
|
|
|
Corporate and other
taxable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bonds
|
|
|
622 |
|
|
|
(5 |
) |
|
|
46 |
|
|
|
67 |
|
|
|
18 |
|
|
|
(18 |
) |
|
|
730 |
|
|
|
(7 |
) |
Redeemable preferred
stock
|
|
|
13 |
|
|
|
(9 |
) |
|
|
8 |
|
|
|
7 |
|
|
|
|
|
|
|
(18 |
) |
|
|
1 |
|
|
|
(9 |
) |
Fixed
maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
|
2,492 |
|
|
|
(232 |
) |
|
|
327 |
|
|
|
(50 |
) |
|
|
268 |
|
|
|
(165 |
) |
|
|
2,640 |
|
|
|
(224 |
) |
Fixed
maturities, trading
|
|
|
218 |
|
|
|
9 |
|
|
|
|
|
|
|
(2 |
) |
|
|
4 |
|
|
|
|
|
|
|
229 |
|
|
|
4 |
|
Total
fixed maturities
|
|
$ |
2,710 |
|
|
$ |
(223 |
) |
|
$ |
327 |
|
|
$ |
(52 |
) |
|
$ |
272 |
|
|
$ |
(165 |
) |
|
$ |
2,869 |
|
|
$ |
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$ |
191 |
|
|
|
|
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
190 |
|
|
|
|
|
Preferred stock
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
Equity
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
$ |
210 |
|
|
|
|
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
settlement contracts
|
|
$ |
129 |
|
|
$ |
16 |
|
|
|
|
|
|
$ |
(19 |
) |
|
|
|
|
|
|
|
|
|
$ |
126 |
|
|
$ |
2 |
|
Separate
account business
|
|
|
38 |
|
|
|
|
|
|
$ |
4 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
Derivative
financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments,
net
|
|
|
(72 |
) |
|
|
35 |
|
|
|
(12 |
) |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(15 |
) |
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
2,909 |
|
|
$ |
(124 |
) |
|
$ |
(270 |
) |
|
$ |
81 |
|
|
$ |
1,254 |
|
|
$ |
(416 |
) |
|
$ |
3,434 |
|
|
$ |
(139 |
) |
Equity
securities
|
|
|
199 |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
48 |
|
|
|
22 |
|
|
|
|
|
|
|
263 |
|
|
|
(5 |
) |
Short
term investments
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85 |
) |
|
|
- |
|
|
|
|
|
Life
settlement contracts
|
|
|
115 |
|
|
|
30 |
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
118 |
|
|
|
5 |
|
Separate
account business
|
|
|
30 |
|
|
|
|
|
|
|
(4 |
) |
|
|
(1 |
) |
|
|
20 |
|
|
|
|
|
|
|
45 |
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(17 |
) |
|
|
23 |
|
|
|
|
|
Derivative
financial instruments,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
|
|
|
(19 |
) |
|
|
(21 |
) |
|
|
3 |
|
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
(83 |
) |
|
|
(69 |
) |
(a)
|
Net
realized and unrealized gains and losses are reported in Net income (loss)
as follows:
|
|
Major
Category of Assets and Liabilities
|
|
Consolidated
Condensed Statements of Operations Line Items |
|
|
|
Fixed
maturity securities available-for-sale
|
|
Investment
gains (losses)
|
Fixed
maturity securities, trading
|
|
Net
investment income
|
Equity
securities available-for-sale
|
|
Investment
gains (losses)
|
Equity
securities, trading
|
|
Net
investment income
|
Derivative
financial instruments held in a trading portfolio
|
|
Net
investment income
|
Derivative
financial instruments, other
|
|
Investment
gains (losses) and Other revenues
|
Life
settlement contracts
|
|
Other
revenues
|
Securities transferred into Level 3 for
the three months ended June 30, 2009 relate primarily to structured securities
with residential and commercial mortgage collateral. For the six months ended
June 30, 2009 transfers into Level 3 relate primarily to structured securities
with underlying auto loan collateral and structured securities with residential
and commercial mortgage collateral. 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.
The following section describes the
valuation methodologies used to measure different financial instruments at fair
value, including an indication of the level in the fair value hierarchy in which
the instrument is generally classified.
Fixed
Maturity Securities
Level 1 securities include highly liquid
government bonds within the U.S. Treasury securities and corporate and other
taxable bond categories for which quoted market prices are available. Level 1
securities may also include securities that have firm sale commitments and
prices that are not recorded until the settlement date. The remaining fixed
maturity securities are valued using pricing for similar securities, recently
executed transactions, cash flow models with yield curves, broker/dealer quotes
and other pricing models utilizing observable inputs. The valuation for most
fixed maturity securities is classified as Level 2. Securities within Level 2
include certain corporate bonds, municipal bonds, asset-backed securities,
mortgage-backed pass-through securities and redeemable preferred stock.
Securities are generally assigned to Level 3 in cases where broker/dealer quotes
are significant inputs to the valuation and there is a lack of transparency as
to whether these quotes are based on information that is observable in the
marketplace. Level 3 securities include certain corporate bonds, asset-backed
securities, municipal bonds and redeemable preferred stock. Within corporate
bonds and municipal bonds, Level 3 securities also include tax-exempt auction
rate certificates. Fair value of auction rate securities is determined utilizing
a pricing model with three primary inputs. The interest rate and spread inputs
are observable from like instruments while the maturity date assumption is
unobservable due to the uncertain nature of the principal prepayments prior to
maturity.
Equity
Securities
Level 1 securities include publicly
traded securities valued using quoted market prices. Level 2 securities are
primarily non-redeemable preferred securities and common stocks valued using
pricing for similar securities, recently executed transactions, broker/dealer
quotes and other pricing models utilizing observable inputs. Level 3 securities
include one equity security, which represents 87.7% of the total at June 30,
2009, in an entity which is not publicly traded and is valued based on a
discounted cash flow analysis model which is adjusted for the Company’s
assumption regarding an inherent lack of liquidity in the security. The
remaining non-redeemable preferred stocks and equity securities are primarily
valued using inputs including broker/dealer quotes for which there is a lack of
transparency as to whether these quotes are based on information that is
observable in the marketplace.
Derivative
Financial Instruments
Exchange traded derivatives are valued
using quoted market prices and are classified within Level 1 of the fair value
hierarchy. Level 2 derivatives include currency forwards valued using observable
market forward rates. Over-the-counter derivatives, principally interest rate
swaps, credit default swaps, equity warrants and options are valued
using inputs including
broker/dealer quotes and are classified within Level 2 or Level 3 of the
valuation hierarchy, depending on the amount of transparency as to whether these
quotes are based on information that is observable in the marketplace.
Short
Term Investments
The valuation of securities that are
actively traded or have quoted prices are classified as Level 1. These
securities include money market funds and U.S. Treasury bills. Level 2 includes
commercial paper, for which all inputs are observable.
Life
Settlement Contracts
The fair values of life settlement
contracts are estimated using discounted cash flows based on CNA’s own
assumptions for mortality, premium expense, and the rate of return that a buyer
would require on the contracts, as no comparable market pricing data is
available.
Discontinued
Operations Investments
Assets relating to CNA’s discontinued
operations include fixed maturity securities and short term investments. The
valuation methodologies for these asset types have been described
above.
Separate
Account Business
Separate account business includes fixed
maturity securities, equities and short term investments. The valuation
methodologies for these asset types have been described above.
Assets
and Liabilities Not Measured at Fair Value
The Company did not have any
financial instrument assets which are not measured at fair value. The carrying
amount and estimated fair value of the Company’s financial instrument
liabilities which are not measured at fair value on the Consolidated Condensed
Balance Sheets are listed in the table below.
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
Amount
|
|
|
Fair
Value
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
deposits and annuity contracts
|
|
$ |
106 |
|
|
$ |
107 |
|
|
$ |
111 |
|
|
$ |
113 |
|
Short
term debt
|
|
|
23 |
|
|
|
23 |
|
|
|
71 |
|
|
|
71 |
|
Long
term debt
|
|
|
8,647 |
|
|
|
8,201 |
|
|
|
8,187 |
|
|
|
7,166 |
|
The following methods and assumptions
were used in estimating the fair value of these financial
liabilities.
Premium deposits and annuity contracts
were valued based on cash surrender values, estimated fair values or
policyholder liabilities, net of amounts ceded related to sold
businesses.
Fair value of debt was based on
quoted market prices when available. When quoted market prices were not
available, the fair value for debt was based on quoted market prices of
comparable instruments adjusted for differences between the quoted instruments
and the instruments being valued or is estimated using discounted cash flow
analyses, based on current incremental borrowing rates for similar types of
borrowing arrangements.
4. 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 does 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.
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. Beginning
in May of 2009, Diamond Offshore began a hedging strategy and designated certain
of its qualifying foreign currency forward exchange contracts as cash flow
hedges.
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 a 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 June 30, 2009, the Company had $33
million notional value of outstanding CDS contracts where it had sold credit
protection. The maximum payment related to these CDS contracts was $33 million
assuming there was 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 was a liability of $1 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 75.8% of the total
notional value and is rated BBB.
June
30, 2009
|
|
Fair
Value of Credit
Default Swaps
|
|
|
Maximum
Amount of Future Payments
under Credit Default
Swaps
|
|
|
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBB
|
|
|
|
|
$ |
25 |
|
|
|
0.5 |
|
B
|
|
$ |
(1 |
) |
|
|
8 |
|
|
|
3.6 |
|
Total
|
|
$ |
(1 |
) |
|
$ |
33 |
|
|
|
1.2 |
|
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 Condensed 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 $87 million at June 30, 2009 and primarily consisted of cash and U.S.
Treasury Bills. The fair value of cash collateral received from counterparties
was $6 million at June 30, 2009.
The agreements governing HighMount’s
derivative instruments contain certain covenants, including a maximum debt to
capitalization ratio. If HighMount does not comply with these covenants, the
counterparties to the derivative instruments could terminate the agreements and
request payment on those derivative instruments in net liability positions. The
aggregate fair value of HighMount’s derivative instruments that are in a
liability position was $150 million at June 30, 2009. HighMount was not required
to post any collateral under the governing agreements.
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
Receivables. 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.
June
30
|
|
2009
|
|
|
|
Contractual/
|
|
|
|
|
|
|
Notional
|
|
|
Estimated
Fair Value
|
|
|
|
Amount
|
|
|
Asset
|
|
|
(Liability)
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
hedge designation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate risk:
|
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
$ |
1,600 |
|
|
|
|
|
$ |
(145 |
) |
Foreign
exchange:
|
|
|
|
|
|
|
|
|
|
|
|
Forwards – short
|
|
|
119 |
|
|
$ |
6 |
|
|
|
|
|
Commodities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards – short
|
|
|
498 |
|
|
|
120 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Without
hedge designation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options –
purchased
|
|
|
217 |
|
|
|
61 |
|
|
|
|
|
–
written
|
|
|
285 |
|
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate risks:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
on government securities - short
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
Futures –
long
|
|
|
463 |
|
|
|
|
|
|
|
|
|
–
short
|
|
|
1,429 |
|
|
|
|
|
|
|
|
|
Credit default swaps –
purchased protection
|
|
|
328 |
|
|
|
5 |
|
|
|
(14 |
) |
–
sold protection
|
|
|
33 |
|
|
|
|
|
|
|
(1 |
) |
Other
|
|
|
42 |
|
|
|
6 |
|
|
|
|
|
Total
|
|
$ |
5,014 |
|
|
$ |
198 |
|
|
$ |
(225 |
) |
Derivatives without hedge designation
– For derivatives not held in a trading portfolio, new derivative
transactions entered into totaled approximately $4.4 billion and $10.5 billion
in notional value while derivative termination activity totaled approximately
$5.3 billion and $11.4 billion during the three and six months ended June 30,
2009. The activity during the three and six months ended June 30, 2009 was
primarily attributable to interest rate futures, interest rate options and
interest rate swaps.
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
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2009
|
|
|
June
30, 2009
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in Net investment income:
|
|
|
|
|
|
|
Equity
markets:
|
|
|
|
|
|
|
Options
– purchased
|
|
$ |
(18 |
) |
|
$ |
(20 |
) |
–
written
|
|
|
25 |
|
|
|
30 |
|
Futures –
long
|
|
|
11 |
|
|
|
11 |
|
Currency
forwards – long
|
|
|
2 |
|
|
|
(6 |
) |
–
short
|
|
|
|
|
|
|
7 |
|
Interest
rate risk:
|
|
|
|
|
|
|
|
|
Credit
default swaps – purchased protection
|
|
|
3 |
|
|
|
12 |
|
–
sold protection
|
|
|
(2 |
) |
|
|
(8 |
) |
Options on government
securities – short
|
|
|
3 |
|
|
|
14 |
|
Futures –
long
|
|
|
|
|
|
|
5 |
|
Other
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
Included
in Investment gains (losses):
|
|
|
|
|
|
|
|
|
Equity
options – written
|
|
|
4 |
|
|
|
15 |
|
Interest
rate risk:
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
|
38 |
|
|
|
59 |
|
Credit default swaps –
purchased protection
|
|
|
(26 |
) |
|
|
(35 |
) |
–
sold protection
|
|
|
8 |
|
|
|
2 |
|
Futures – short
|
|
|
9 |
|
|
|
23 |
|
Included
in Other revenues:
|
|
|
|
|
|
|
|
|
Currency forwards -
short
|
|
|
9 |
|
|
|
9 |
|
Total
|
|
$ |
62 |
|
|
$ |
113 |
|
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 June 30, 2009,
approximately 66.9 billion cubic feet of natural gas equivalents was hedged by
qualifying cash flow hedges. Approximately 93.1% of 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. The effective
portion of the hedges is amortized to interest expense over the term of the
related notes. Any ineffectiveness is recorded currently in Investment gains
(losses) in the Consolidated Condensed Statements of Operations. For the three
and six months ended June 30, 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 AOCI and the
amount reclassified into Net income (loss) for derivatives designated as cash
flow hedges:
Three
Months Ended June 30, 2009
|
|
Amount
of Gain 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
|
|
$ |
11 |
|
Other
revenues
|
|
$ |
65 |
|
Foreign
exchange
|
|
|
6 |
|
Contract
drilling expenses
|
|
|
|
|
Interest
rate risks
|
|
|
13 |
|
Interest
|
|
|
(17 |
) |
Total
|
|
$ |
30 |
|
|
|
$ |
48 |
|
Six
Months Ended June 30, 2009
|
|
Amount
of Gain 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
|
|
$ |
103 |
|
Other
revenues
|
|
$ |
139 |
|
Foreign
exchange
|
|
|
6 |
|
Contract
drilling expenses
|
|
|
|
|
Interest
rate risks
|
|
|
4 |
|
Interest
|
|
|
(31 |
) |
Total
|
|
$ |
113 |
|
|
|
$ |
108 |
|
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 $99 million
with fair value liabilities of $102 million at June 30, 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 and six months ended June 30, 2009 and 2008
was as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions, except %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
- Loews
|
|
$ |
340 |
|
|
$ |
4,963 |
|
|
$ |
(307 |
) |
|
$ |
5,625 |
|
Less income attributable to
former Carolina Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
211 |
|
Income (loss)
|
|
$ |
340 |
|
|
$ |
4,859 |
|
|
$ |
(307 |
) |
|
$ |
5,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
Carolina Group stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to former
Carolina Group stock
|
|
|
|
|
|
$ |
168 |
|
|
|
|
|
|
$ |
339 |
|
Weighted average economic
interest of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
former Carolina
Group
|
|
|
|
|
|
|
62.4 |
% |
|
|
|
|
|
|
62.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to former
Carolina Group stock
|
|
$ |
- |
|
|
$ |
104 |
|
|
$ |
- |
|
|
$ |
211 |
|
The following is a reconciliation of
basic weighted shares outstanding to diluted weighted shares:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews
common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding-basic
|
|
|
435.07 |
|
|
|
508.16 |
|
|
|
435.09 |
|
|
|
518.93 |
|
Stock
options and stock appreciation rights
|
|
|
0.56 |
|
|
|
1.27 |
|
|
|
|
|
|
|
1.24 |
|
Weighted
average shares outstanding-diluted
|
|
|
435.63 |
|
|
|
509.43 |
|
|
|
435.09 |
|
|
|
520.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
Carolina Group stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding-basic
|
|
|
|
|
|
|
108.48 |
|
|
|
|
|
|
|
108.47 |
|
Stock
options and stock appreciation rights
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
0.13 |
|
Weighted
average shares outstanding-diluted
|
|
|
- |
|
|
|
108.60 |
|
|
|
- |
|
|
|
108.60 |
|
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. For the six months ended June 30, 2009, as a result of the net loss, no
potential shares attributable to exercises under stock-based employee
compensation plans were included in the calculation of loss per share as the
effect would have been antidilutive. The number of weighted average shares not
included in the diluted computations is as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews
common stock
|
|
|
3,381,844 |
|
|
|
1,179,504 |
|
|
|
5,678,645 |
|
|
|
1,176,438 |
|
Former
Carolina Group stock
|
|
|
- |
|
|
|
310,125 |
|
|
|
- |
|
|
|
255,983 |
|
6. Receivables
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
$ |
7,337 |
|
|
$ |
7,761 |
|
Other
insurance
|
|
|
2,060 |
|
|
|
2,039 |
|
Receivable
from brokers
|
|
|
806 |
|
|
|
936 |
|
Accrued
investment income
|
|
|
387 |
|
|
|
360 |
|
Federal
income taxes
|
|
|
595 |
|
|
|
382 |
|
Other
|
|
|
966 |
|
|
|
844 |
|
Total
|
|
|
12,151 |
|
|
|
12,322 |
|
Less: allowance
for doubtful accounts on reinsurance receivables
|
|
|
358 |
|
|
|
366 |
|
allowance for other doubtful accounts
|
|
|
264 |
|
|
|
284 |
|
Receivables
|
|
$ |
11,529 |
|
|
$ |
11,672 |
|
7. Property,
Plant and Equipment
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
70 |
|
|
$ |
70 |
|
Buildings
and building equipment
|
|
|
638 |
|
|
|
635 |
|
Offshore
drilling equipment
|
|
|
6,343 |
|
|
|
5,668 |
|
Machinery
and equipment
|
|
|
1,225 |
|
|
|
1,375 |
|
Pipeline
equipment
|
|
|
6,321 |
|
|
|
3,978 |
|
Natural
gas and oil proved and unproved properties
|
|
|
3,459 |
|
|
|
3,345 |
|
Construction
in process
|
|
|
217 |
|
|
|
2,210 |
|
Leaseholds
and leasehold improvements
|
|
|
78 |
|
|
|
75 |
|
Total
|
|
|
18,351 |
|
|
|
17,356 |
|
Less
accumulated depreciation, depletion and amortization
|
|
|
5,680 |
|
|
|
4,464 |
|
Property,
plant and equipment
|
|
$ |
12,671 |
|
|
$ |
12,892 |
|
Diamond
Offshore
In June 2009, Diamond Offshore acquired
the Ocean Courage, a newbuild,
semisubmersible drilling rig for $460 million, exclusive of final commissioning
and initial mobilization costs, drill string and other necessary capital
spares.
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 2009, Boardwalk Pipeline placed in
service its Gulf Crossing Project and Fayetteville and Greenville Laterals and
the remaining compression facilities associated with its Southeast Expansion
project. As a result, approximately $2.3 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 $43 million and
$56 million for the three and six months ended June 30, 2009 for events
occurring in those periods. Catastrophe losses in 2009 related primarily to
tornadoes, floods, hail and wind. CNA reported catastrophe losses, net of
reinsurance, of $47 million and $100 million for the three and six months ended
June 30, 2008 for events occurring in those periods. 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.
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
|
|
|
Environmental
|
|
|
|
Asbestos
|
|
|
Pollution
|
|
|
Asbestos
|
|
|
Pollution
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
reserves
|
|
$ |
1,964 |
|
|
$ |
366 |
|
|
$ |
2,112 |
|
|
$ |
392 |
|
Ceded
reserves
|
|
|
(851 |
) |
|
|
(126 |
) |
|
|
(910 |
) |
|
|
(130 |
) |
Net
reserves
|
|
$ |
1,113 |
|
|
$ |
240 |
|
|
$ |
1,202 |
|
|
$ |
262 |
|
Asbestos
There was no asbestos-related net
claim and claim adjustment expense reserve development recorded for the six
months ended June 30, 2009. CNA recorded $6 million of unfavorable
asbestos-related net claim and claim adjustment expense reserve development for
the six months ended June 30, 2008. CNA paid asbestos-related claims, net of
reinsurance recoveries, of $89 million and $99 million for the six months ended
June 30, 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 CNA’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,
currently a 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 claimants have sought further
appellate review of the decision. The New York appellate court denied leave to
appeal to the Court of Appeals. The Claimants have sought leave to appeal
directly from the Court of Appeals and the decision whether to accept appeal is
pending. Accordingly, the extent of losses beyond any amounts that may be
accrued are not readily determinable at this time.
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 June 15, 2009, the confirmation order became
final and may not be appealed. Numerous factual, legal and coverage 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; and (ix) 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
held in two phases. The first was held in June 2009 and the second phase begins
in September 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 expense reserve development recorded for the six
months ended June 30, 2009. CNA recorded $2 million of unfavorable environmental
pollution net claim and claim adjustment expense reserve development for the six
months ended June 30, 2008. CNA paid environmental pollution-related claims, net
of reinsurance recoveries, of $22 million and $36 million for the six months
ended June 30, 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
Month Comparison
|
|
Standard
|
|
|
Specialty
|
|
|
Other
|
|
|
|
|
Three
Months Ended June 30, 2009
|
|
Lines
|
|
|
Lines
|
|
|
Insurance
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior
|
|
|
|
|
|
|
|
|
|
|
|
|
year claim and allocated claim
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
expense reserve
development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
(Non-A&E)
|
|
$ |
(80 |
) |
|
$ |
(40 |
) |
|
$ |
4 |
|
|
$ |
(116 |
) |
A&E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development before impact of
premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
(80 |
) |
|
|
(40 |
) |
|
|
4 |
|
|
|
(116 |
) |
Pretax
(favorable) unfavorable premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
59 |
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
56 |
|
Total
pretax (favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
$ |
(21 |
) |
|
$ |
(41 |
) |
|
$ |
2 |
|
|
$ |
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year claim and allocated claim
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense reserve
development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
(Non-A&E)
|
|
$ |
(15 |
) |
|
$ |
1 |
|
|
$ |
5 |
|
|
$ |
(9 |
) |
A&E
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
6 |
|
Pretax
(favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development before impact of
premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
(15 |
) |
|
|
1 |
|
|
|
11 |
|
|
|
(3 |
) |
Pretax
(favorable) unfavorable premium development
|
|
|
(8 |
) |
|
|
1 |
|
|
|
1 |
|
|
|
(6 |
) |
Total
pretax (favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
$ |
(23 |
) |
|
$ |
2 |
|
|
$ |
12 |
|
|
$ |
(9 |
) |
2009
Net Prior Year Development
Standard
Lines
Favorable claim and allocated claim
adjustment expense reserve development was primarily due to experience in
property coverages. Prior year catastrophe reserves decreased approximately $33
million, driven by the favorable settlement of several claims primarily in
accident years 2005 and 2007. An additional $17 million of favorable claim and
allocated claim adjustment expense reserve development was due to
non-catastrophe related favorable loss emergence on large property coverages,
primarily in accident years 2007 and 2008.
Approximately $25 million of
favorable claim and allocated claim adjustment expense reserve development was
due to decreased frequency and severity trends related to construction defect
exposures in accident years 2003 and prior.
Approximately $40 million of adverse
premium development was related to changes in estimated ultimate premium on
retrospectively rated coverages. Additional adverse premium development was due
to an estimated liability for an assessment related to a reinsurance association
and less premium processing on auditable policies than expected.
Specialty
Lines
Favorable claim and allocated claim
adjustment expense reserve development of approximately $25 million for medical
professional liability was primarily due to better than expected frequency and
severity in accident years 2005 and prior, including individual claims closing
favorable to expectations.
Approximately $8 million of favorable
claim and allocated claim adjustment expense reserve development was recorded
for professional liability coverages due primarily to favorable experience on a
number of large claims, primarily related to financial institutions in accident
years 2003 and prior.
2008
Net Prior Year Development
Standard
Lines
Approximately $29 million of
favorable claim and allocated claim adjustment expense reserve development was
recorded due to favorable outcomes on claims relating to catastrophes, primarily
in accident year 2005.
Approximately $8 million of favorable
premium development was recorded across several coverages and accident years due
to additional premium processing on auditable policies and changes to ultimate
premium estimates. This favorable development was partially offset by additional
unfavorable claim and allocated claim adjustment expense reserve
development.
Other
Insurance
The unfavorable claim and allocated
claim adjustment expense reserve development was primarily related to
commutation activity, a portion of which was offset by a release of a previously
established allowance for uncollectible reinsurance.
Six
Month Comparison
|
|
Standard
|
|
|
Specialty
|
|
|
Other
|
|
|
|
|
Six
Months Ended June 30, 2009
|
|
Lines
|
|
|
Lines
|
|
|
Insurance
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior
|
|
|
|
|
|
|
|
|
|
|
|
|
year claim and allocated claim
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
expense reserve
development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
(Non-A&E)
|
|
$ |
(110 |
) |
|
$ |
(81 |
) |
|
$ |
5 |
|
|
$ |
(186 |
) |
A&E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development before impact of
premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
(110 |
) |
|
|
(81 |
) |
|
|
5 |
|
|
|
(186 |
) |
Pretax
(favorable) unfavorable premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
76 |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
70 |
|
Total
pretax (favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
$ |
(34 |
) |
|
$ |
(84 |
) |
|
$ |
2 |
|
|
$ |
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax
(favorable) unfavorable net prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year claim and allocated claim
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense reserve
development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
(Non-A&E)
|
|
$ |
(50 |
) |
|
$ |
18 |
|
|
$ |
8 |
|
|
$ |
(24 |
) |
A&E
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
8 |
|
Pretax
(favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development before impact of
premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
(50 |
) |
|
|
18 |
|
|
|
16 |
|
|
|
(16 |
) |
Pretax
(favorable) unfavorable premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
1 |
|
|
|
(18 |
) |
|
|
|
|
|
|
(17 |
) |
Total
pretax (favorable) unfavorable net prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
$ |
(49 |
) |
|
$ |
- |
|
|
$ |
16 |
|
|
$ |
(33 |
) |
2009
Net Prior Year Development
Standard
Lines
Favorable claim and allocated claim
adjustment expense reserve development was primarily due to experience in
property coverages. Prior year catastrophe reserves decreased approximately $64
million, driven by the favorable settlement of several claims primarily in
accident years 2005 and 2007, and favorable frequency and severity on
claims relating to catastrophes in accident
year 2008. An additional $17 million of favorable claim and allocated claim
adjustment expense reserve development was due to non-catastrophe related
favorable loss emergence on large property coverages, primarily in accident
years 2007 and 2008.
Approximately $25 million of
favorable claim and allocated claim adjustment expense reserve development was
due to decreased frequency and severity trends related to construction defect
exposures in accident years 2003 and prior.
Approximately $40 million of adverse
premium development was related to changes in estimated ultimate premium on
retrospectively rated coverages. Additional adverse premium development was due
to an estimated liability for an assessment related to a reinsurance association
and less premium processing on auditable policies than expected.
Specialty
Lines
Favorable claim and allocated claim
adjustment expense reserve development of approximately $25 million for medical
professional liability was primarily due to better than expected frequency and
severity in accident years 2005 and prior, including claims closing favorable to
expectations.
Approximately $28 million of
favorable claim and allocated claim adjustment expense reserve development was
recorded for professional liability coverages due primarily to favorable
experience on a number of large claims related to financial institutions in
accident years 2003 and prior and decreased frequency of large claims in
accident years 2007 and prior.
An additional $4 million of favorable
claim and allocated claim adjustment expense reserve development was a result of
favorable outcomes on claims relating to catastrophes in accident year
2005.
2008
Net Prior Year Development
Standard
Lines
Approximately $49 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, including approximately $29
million related to catastrophes, primarily in accident year 2005.
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 estimated 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.
Other
Insurance
The net prior year development
recorded for the six months ended June 30, 2008 relates to the same reasons
included in the three month discussion.
9. Debt
In May of 2009, Diamond Offshore issued
$500 million aggregate principal amount of 5.9% senior notes due May 1, 2019.
Diamond Offshore used the net proceeds of $496 million from the sale of the
notes for general corporate purposes.
10. 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:
|
|
Pension
Benefits
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
6 |
|
|
$ |
7 |
|
|
$ |
13 |
|
|
$ |
15 |
|
Interest
cost
|
|
|
43 |
|
|
|
42 |
|
|
|
86 |
|
|
|
82 |
|
Expected
return on plan assets
|
|
|
(39 |
) |
|
|
(48 |
) |
|
|
(78 |
) |
|
|
(96 |
) |
Amortization
of net loss
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
Actuarial
loss
|
|
|
6 |
|
|
|
1 |
|
|
|
12 |
|
|
|
2 |
|
Net
periodic benefit cost
|
|
$ |
17 |
|
|
$ |
2 |
|
|
$ |
35 |
|
|
$ |
4 |
|
|
|
Other
Postretirement Benefits
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
|
|
|
|
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest
cost
|
|
$ |
3 |
|
|
$ |
3 |
|
|
|
6 |
|
|
|
6 |
|
Expected
return on plan assets
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Amortization
of prior service benefit
|
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(12 |
) |
|
|
(12 |
) |
Actuarial
loss
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Regulatory
asset decrease
|
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
3 |
|
Net
periodic benefit cost
|
|
$ |
(2 |
) |
|
$ |
(2 |
) |
|
$ |
(3 |
) |
|
$ |
(3 |
) |
11. 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, 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 & Group
Non-Core, and Other Insurance.
Diamond Offshore’s business primarily
consists of operating 46 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 June 30, 2009, these rigs were located offshore in 12
countries in addition to the United States.
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 of which 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, income (loss) before income tax and net income
(loss) - Loews by business segment:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Lines
|
|
$ |
767 |
|
|
$ |
922 |
|
|
$ |
1,432 |
|
|
$ |
1,867 |
|
Specialty Lines
|
|
|
974 |
|
|
|
1,039 |
|
|
|
1,835 |
|
|
|
2,088 |
|
Life & Group
Non-Core
|
|
|
329 |
|
|
|
308 |
|
|
|
453 |
|
|
|
545 |
|
Other Insurance
|
|
|
26 |
|
|
|
52 |
|
|
|
14 |
|
|
|
103 |
|
Total
CNA Financial
|
|
|
2,096 |
|
|
|
2,321 |
|
|
|
3,734 |
|
|
|
4,603 |
|
Diamond
Offshore
|
|
|
957 |
|
|
|
970 |
|
|
|
1,843 |
|
|
|
1,762 |
|
HighMount
|
|
|
147 |
|
|
|
201 |
|
|
|
322 |
|
|
|
390 |
|
Boardwalk
Pipeline
|
|
|
201 |
|
|
|
206 |
|
|
|
425 |
|
|
|
419 |
|
Loews
Hotels
|
|
|
73 |
|
|
|
105 |
|
|
|
146 |
|
|
|
202 |
|
Corporate
and other
|
|
|
60 |
|
|
|
119 |
|
|
|
87 |
|
|
|
158 |
|
Total
|
|
$ |
3,534 |
|
|
$ |
3,922 |
|
|
$ |
6,557 |
|
|
$ |
7,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Lines
|
|
$ |
39 |
|
|
$ |
119 |
|
|
$ |
(61 |
) |
|
$ |
233 |
|
Specialty Lines
|
|
|
163 |
|
|
|
201 |
|
|
|
231 |
|
|
|
392 |
|
Life & Group
Non-Core
|
|
|
(42 |
) |
|
|
(67 |
) |
|
|
(282 |
) |
|
|
(103 |
) |
Other Insurance
|
|
|
(26 |
) |
|
|
3 |
|
|
|
(86 |
) |
|
|
|
|
Total
CNA Financial
|
|
|
134 |
|
|
|
256 |
|
|
|
(198 |
) |
|
|
522 |
|
Diamond
Offshore
|
|
|
520 |
|
|
|
590 |
|
|
|
971 |
|
|
|
995 |
|
HighMount
|
|
|
46 |
|
|
|
76 |
|
|
|
(960 |
) |
|
|
151 |
|
Boardwalk
Pipeline
|
|
|
18 |
|
|
|
64 |
|
|
|
69 |
|
|
|
153 |
|
Loews
Hotels
|
|
|
6 |
|
|
|
32 |
|
|
|
(23 |
) |
|
|
50 |
|
Corporate
and other
|
|
|
33 |
|
|
|
89 |
|
|
|
30 |
|
|
|
98 |
|
Total
|
|
$ |
757 |
|
|
$ |
1,107 |
|
|
$ |
(111 |
) |
|
$ |
1,969 |
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) - Loews (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Lines
|
|
$ |
31 |
|
|
$ |
76 |
|
|
$ |
(19 |
) |
|
$ |
152 |
|
Specialty Lines
|
|
|
94 |
|
|
|
113 |
|
|
|
135 |
|
|
|
220 |
|
Life & Group
Non-Core
|
|
|
(15 |
) |
|
|
(31 |
) |
|
|
(146 |
) |
|
|
(43 |
) |
Other Insurance
|
|
|
(10 |
) |
|
|
4 |
|
|
|
(40 |
) |
|
|
4 |
|
Total
CNA Financial
|
|
|
100 |
|
|
|
162 |
|
|
|
(70 |
) |
|
|
333 |
|
Diamond
Offshore
|
|
|
181 |
|
|
|
194 |
|
|
|
344 |
|
|
|
330 |
|
HighMount
|
|
|
29 |
|
|
|
48 |
|
|
|
(612 |
) |
|
|
95 |
|
Boardwalk
Pipeline
|
|
|
8 |
|
|
|
28 |
|
|
|
30 |
|
|
|
67 |
|
Loews
Hotels
|
|
|
3 |
|
|
|
19 |
|
|
|
(15 |
) |
|
|
30 |
|
Corporate
and other
|
|
|
20 |
|
|
|
60 |
|
|
|
17 |
|
|
|
65 |
|
Income
from continuing operations
|
|
|
341 |
|
|
|
511 |
|
|
|
(306 |
) |
|
|
920 |
|
Discontinued
operations
|
|
|
(1 |
) |
|
|
4,452 |
|
|
|
(1 |
) |
|
|
4,705 |
|
Total
|
|
$ |
340 |
|
|
$ |
4,963 |
|
|
$ |
(307 |
) |
|
$ |
5,625 |
|
(a)
|
Investment
gains (losses) included in Revenues, Income (loss) before income tax and
Net income (loss) - Loews are as
follows:
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
and Income (loss) before income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Lines
|
|
$ |
(170 |
) |
|
$ |
(60 |
) |
|
$ |
(349 |
) |
|
$ |
(76 |
) |
Specialty Lines
|
|
|
(96 |
) |
|
|
(30 |
) |
|
|
(212 |
) |
|
|
(39 |
) |
Life & Group
Non-Core
|
|
|
13 |
|
|
|
(6 |
) |
|
|
(177 |
) |
|
|
(23 |
) |
Other Insurance
|
|
|
(44 |
) |
|
|
(15 |
) |
|
|
(91 |
) |
|
|
(24 |
) |
Total
CNA Financial
|
|
|
(297 |
) |
|
|
(111 |
) |
|
|
(829 |
) |
|
|
(162 |
) |
Corporate
and other
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
Total
|
|
$ |
(297 |
) |
|
$ |
(109 |
) |
|
$ |
(828 |
) |
|
$ |
(160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) - Loews:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA
Financial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Lines
|
|
$ |
(100 |
) |
|
$ |
(35 |
) |
|
$ |
(205 |
) |
|
$ |
(45 |
) |
Specialty Lines
|
|
|
(61 |
) |
|
|
(17 |
) |
|
|
(127 |
) |
|
|
(22 |
) |
Life & Group
Non-Core
|
|
|
8 |
|
|
|
(3 |
) |
|
|
(103 |
) |
|
|
(13 |
) |
Other Insurance
|
|
|
(25 |
) |
|
|
(10 |
) |
|
|
(53 |
) |
|
|
(14 |
) |
Total
CNA Financial
|
|
|
(178 |
) |
|
|
(65 |
) |
|
|
(488 |
) |
|
|
(94 |
) |
Corporate
and other
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Total
|
|
$ |
(178 |
) |
|
$ |
(64 |
) |
|
$ |
(488 |
) |
|
$ |
(93 |
) |
12. 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 was 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 sought 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 entered into a settlement agreement during the
first quarter of 2009 providing for a payment by CCC of an amount that
approximated the amount accrued at March 31, 2009. In the second quarter of
2009, the Court entered an order dismissing with prejudice all claims against
CCC. As a result, this matter has been fully and finally resolved.
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.
13. 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 June 30, 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 June 30, 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 $63 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 June 30, 2009, Boardwalk Pipeline had purchase commitments of
$138 million primarily related to its expansion projects.
14. Discontinued
Operations
The results of discontinued
operations are as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
$ |
2 |
|
|
$ |
6 |
|
|
$ |
3 |
|
|
$ |
18 |
|
Manufactured
products
|
|
|
|
|
|
|
829 |
|
|
|
|
|
|
|
1,750 |
|
Investment
gains
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
Total
(a)
|
|
|
2 |
|
|
|
836 |
|
|
|
3 |
|
|
|
1,770 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance related
expenses
|
|
|
3 |
|
|
|
1 |
|
|
|
4 |
|
|
|
6 |
|
Cost of manufactured products
sold
|
|
|
|
|
|
|
485 |
|
|
|
|
|
|
|
1,039 |
|
Other operating
expenses
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
172 |
|
Interest
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
Total
|
|
|
3 |
|
|
|
559 |
|
|
|
4 |
|
|
|
1,219 |
|
Income
(loss) before income tax
|
|
|
(1 |
) |
|
|
277 |
|
|
|
(1 |
) |
|
|
551 |
|
Income
tax expense
|
|
|
|
|
|
|
(107 |
) |
|
|
|
|
|
|
(208 |
) |
Results
of discontinued operations
|
|
|
(1 |
) |
|
|
170 |
|
|
|
(1 |
) |
|
|
343 |
|
Gain
on disposal (after tax of $7 and $51)
|
|
|
|
|
|
|
4,282 |
|
|
|
|
|
|
|
4,362 |
|
Net
income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Loews
|
|
$ |
(1 |
) |
|
$ |
4,452 |
|
|
$ |
(1 |
) |
|
$ |
4,705 |
|
(a)
|
Lorillard’s
revenues amounted to 99.6% and 99.7% of the total discontinued operations
for the three and six months ended June 30, 2008. Lorillard’s pretax
income amounted to approximately 100.0% of total pretax income of
discontinued operations for the three and six months ended June 30,
2008.
|
Net liabilities of discontinued
operations included in Other liabilities in the Consolidated Condensed Balance
Sheets are as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Investments
|
|
$ |
144 |
|
|
$ |
157 |
|
Receivables
|
|
|
5 |
|
|
|
6 |
|
Other assets
|
|
|
1 |
|
|
|
1 |
|
Total
assets
|
|
|
150 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Insurance
reserves
|
|
|
154 |
|
|
|
162 |
|
Other
liabilities
|
|
|
4 |
|
|
|
8 |
|
Total
liabilities
|
|
|
158 |
|
|
|
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 June 30, 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 June 30, 2009 and December 31, 2008, the insurance
reserves are net of discounts of $61 million and $75
million.
|
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, $75 million after tax, for
the six months ended June 30, 2008.
15. Consolidating
Financial Information
The following schedules present the
Company’s consolidating balance sheet information at June 30, 2009 and December
31, 2008, and consolidating statements of operations information for the six
months ended June 30, 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
|
|
CNA
|
|
|
Diamond
|
|
|
|
|
|
Boardwalk
|
|
|
Loews
|
|
|
Corporate
|
|
|
|
|
|
|
|
June
30, 2009
|
|
Financial
|
|
|
Offshore
|
|
|
HighMount
|
|
|
Pipeline
|
|
|
Hotels
|
|
|
and
Other
|
|
|
Eliminations
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
38,052 |
|
|
$ |
644 |
|
|
$ |
45 |
|
|
$ |
71 |
|
|
$ |
67 |
|
|
$ |
2,434 |
|
|
|
|
|
$ |
41,313 |
|
Cash
|
|
|
98 |
|
|
|
27 |
|
|
|
4 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
136 |
|
Receivables
|
|
|
10,110 |
|
|
|
762 |
|
|
|
168 |
|
|
|
94 |
|
|
|
19 |
|
|
|
579 |
|
|
$ |
(203 |
) |
|
|
11,529 |
|
Property,
plant and equipment
|
|
|
316 |
|
|
|
3,930 |
|
|
|
1,792 |
|
|
|
6,239 |
|
|
|
351 |
|
|
|
43 |
|
|
|
|
|
|
|
12,671 |
|
Deferred
income taxes
|
|
|
2,575 |
|
|
|
|
|
|
|
655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,041 |
) |
|
|
2,189 |
|
Goodwill
|
|
|
86 |
|
|
|
20 |
|
|
|
584 |
|
|
|
163 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
856 |
|
Investments
in capital stocks of
subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,831 |
|
|
|
(13,831 |
) |
|
|
- |
|
Other
assets
|
|
|
733 |
|
|
|
229 |
|
|
|
58 |
|
|
|
320 |
|
|
|
29 |
|
|
|
9 |
|
|
|
|
|
|
|
1,378 |
|
Deferred
acquisition costs of
insurance subsidiaries
|
|
|
1,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,145 |
|
Separate
account business
|
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
413 |
|
Total
assets
|
|
$ |
53,528 |
|
|
$ |
5,612 |
|
|
$ |
3,306 |
|
|
$ |
6,890 |
|
|
$ |
471 |
|
|
$ |
16,898 |
|
|
$ |
(15,075 |
) |
|
$ |
71,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
reserves
|
|
$ |
38,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,571 |
|
Payable
to brokers
|
|
|
494 |
|
|
|
|
|
|
$ |
167 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
267 |
|
|
|
|
|
|
|
930 |
|
Collateral
on loaned securities and
derivatives
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Short
term debt
|
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Long
term debt
|
|
|
2,058 |
|
|
|
999 |
|
|
|
1,715 |
|
|
|
3,002 |
|
|
|
206 |
|
|
|
867 |
|
|
$ |
(200 |
) |
|
|
8,647 |
|
Reinsurance
balances payable
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350 |
|
Deferred
income taxes
|
|
|
|
|
|
|
492 |
|
|
|
|
|
|
|
132 |
|
|
|
41 |
|
|
|
376 |
|
|
|
(1,041 |
) |
|
|
- |
|
Other
liabilities
|
|
|
2,590 |
|
|
|
537 |
|
|
|
119 |
|
|
|
459 |
|
|
|
12 |
|
|
|
214 |
|
|
|
(3 |
) |
|
|
3,928 |
|
Separate
account business
|
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
413 |
|
Total
liabilities
|
|
|
44,477 |
|
|
|
2,032 |
|
|
|
2,001 |
|
|
|
3,599 |
|
|
|
279 |
|
|
|
1,724 |
|
|
|
(1,244 |
) |
|
|
52,868 |
|
Total
shareholders’ equity
|
|
|
7,890 |
|
|
|
1,822 |
|
|
|
1,305 |
|
|
|
2,464 |
|
|
|
192 |
|
|
|
15,174 |
|
|
|
(13,831 |
) |
|
|
15,016 |
|
Noncontrolling
interests
|
|
|
1,161 |
|
|
|
1,758 |
|
|
|
|
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,746 |
|
Total
equity
|
|
|
9,051 |
|
|
|
3,580 |
|
|
|
1,305 |
|
|
|
3,291 |
|
|
|
192 |
|
|
|
15,174 |
|
|
|
(13,831 |
) |
|
|
18,762 |
|
Total
liabilities and equity
|
|
$ |
53,528 |
|
|
$ |
5,612 |
|
|
$ |
3,306 |
|
|
$ |
6,890 |
|
|
$ |
471 |
|
|
$ |
16,898 |
|
|
$ |
(15,075 |
) |
|
$ |
71,630 |
|
Loews
Corporation
Consolidating
Balance Sheet Information
|
|
CNA
|
|
|
Diamond
|
|
|
|
|
|
Boardwalk
|
|
|
Loews
|
|
|
Corporate
|
|
|
|
|
|
|
|
December
31, 2008
|
|
Financial
|
|
|
Offshore
|
|
|
HighMount
|
|
|
Pipeline
|
|
|
Hotels
|
|
|
and
Other
|
|
|
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
|
|
|
86 |
|
|
|
20 |
|
|
|
584 |
|
|
|
163 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
856 |
|
Investments
in capital stocks
of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,973 |
|
|
|
(11,973 |
) |
|
|
- |
|
Other
assets
|
|
|
815 |
|
|
|
210 |
|
|
|
79 |
|
|
|
275 |
|
|
|
48 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
1,432 |
|
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 and
derivatives
|
|
|
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
Six
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
HighMount
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
premiums
|
|
$ |
3,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,328 |
|
Net
investment income
|
|
|
1,095 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
$ |
85 |
|
|
|
|
|
|
1,182 |
|
Intercompany
interest and
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471 |
|
|
$ |
(471 |
) |
|
|
- |
|
Investment
gains (losses)
|
|
|
(829 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(828 |
) |
Contract
drilling revenues
|
|
|
|
|
|
|
1,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,779 |
|
Other
|
|
|
140 |
|
|
|
62 |
|
|
$ |
322 |
|
|
$ |
425 |
|
|
$ |
146 |
|
|
|
1 |
|
|
|
|
|
|
|
1,096 |
|
Total
|
|
|
3,734 |
|
|
|
1,844 |
|
|
|
322 |
|
|
|
425 |
|
|
|
146 |
|
|
|
557 |
|
|
|
(471 |
) |
|
|
6,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
claims and
policyholders’
benefits
|
|
|
2,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,637 |
|
Amortization
of deferred
acquisition costs
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698 |
|
Contract
drilling expenses
|
|
|
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600 |
|
Impairment
of natural gas and oil
properties
|
|
|
|
|
|
|
|
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036 |
|
Other
operating expenses
|
|
|
536 |
|
|
|
260 |
|
|
|
207 |
|
|
|
296 |
|
|
|
164 |
|
|
|
30 |
|
|
|
|
|
|
|
1,493 |
|
Interest
|
|
|
61 |
|
|
|
12 |
|
|
|
39 |
|
|
|
60 |
|
|
|
5 |
|
|
|
27 |
|
|
|
|
|
|
|
204 |
|
Total
|
|
|
3,932 |
|
|
|
872 |
|
|
|
1,282 |
|
|
|
356 |
|
|
|
169 |
|
|
|
57 |
|
|
|
|
|
|
|
6,668 |
|
Income
(loss) before income tax
|
|
|
(198 |
) |
|
|
972 |
|
|
|
(960 |
) |
|
|
69 |
|
|
|
(23 |
) |
|
|
500 |
|
|
|
(471 |
) |
|
|
(111 |
) |
Income
tax (expense) benefit
|
|
|
137 |
|
|
|
(263 |
) |
|
|
348 |
|
|
|
(20 |
) |
|
|
8 |
|
|
|
(12 |
) |
|
|
|
|
|
|
198 |
|
Income
(loss) from continuing
operations
|
|
|
(61 |
) |
|
|
709 |
|
|
|
(612 |
) |
|
|
49 |
|
|
|
(15 |
) |
|
|
488 |
|
|
|
(471 |
) |
|
|
87 |
|
Discontinued
operations, net
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Net
income (loss)
|
|
|
(62 |
) |
|
|
709 |
|
|
|
(612 |
) |
|
|
49 |
|
|
|
(15 |
) |
|
|
488 |
|
|
|
(471 |
) |
|
|
86 |
|
Amounts attributable
to
noncontrolling interests
|
|
|
(9 |
) |
|
|
(365 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(393 |
) |
Net
income (loss) attributable to
Loews
Corporation
|
|
$ |
(71 |
) |
|
$ |
344 |
|
|
$ |
(612 |
) |
|
$ |
30 |
|
|
$ |
(15 |
) |
|
$ |
488 |
|
|
$ |
(471 |
) |
|
$ |
(307 |
) |
Loews
Corporation
Consolidating
Statement of Operations Information
|
|
CNA
|
|
|
Diamond
|
|
|
|
|
|
Boardwalk
|
|
|
Loews
|
|
|
Corporate
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2008
|
|
Financial
|
|
|
Offshore
|
|
|
HighMount
|
|
|
Pipeline
|
|
|
Hotels
|
|
|
and
Other
|
|
|
Eliminations
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
premiums
|
|
$ |
3,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1 |
) |
|
$ |
3,586 |
|
Net
investment income
|
|
|
1,010 |
|
|
$ |
7 |
|
|
|
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
157 |
|
|
|
|
|
|
|
1,176 |
|
Intercompany
interest and
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
876 |
|
|
|
(876 |
) |
|
|
- |
|
Investment
losses
|
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162 |
) |
Gain
on issuance of subsidiary
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Contract
drilling revenues
|
|
|
|
|
|
|
1,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,707 |
|
Other
|
|
|
168 |
|
|
|
48 |
|
|
$ |
390 |
|
|
|
418 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
1,225 |
|
Total
|
|
|
4,603 |
|
|
|
1,762 |
|
|
|
390 |
|
|
|
419 |
|
|
|
202 |
|
|
|
1,035 |
|
|
|
(877 |
) |
|
|
7,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
claims and policyholders’
benefits
|
|
|
2,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,861 |
|
Amortization
of deferred acquisition
costs
|
|
|
728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
728 |
|
Contract
drilling expenses
|
|
|
|
|
|
|
558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558 |
|
Other
operating expenses
|
|
|
425 |
|
|
|
206 |
|
|
|
202 |
|
|
|
229 |
|
|
|
146 |
|
|
|
34 |
|
|
|
(1 |
) |
|
|
1,241 |
|
Interest
|
|
|
67 |
|
|
|
3 |
|
|
|
37 |
|
|
|
37 |
|
|
|
6 |
|
|
|
27 |
|
|
|
|
|
|
|
177 |
|
Total
|
|
|
4,081 |
|
|
|
767 |
|
|
|
239 |
|
|
|
266 |
|
|
|
152 |
|
|
|
61 |
|
|
|
(1 |
) |
|
|
5,565 |
|
Income
before income tax
|
|
|
522 |
|
|
|
995 |
|
|
|
151 |
|
|
|
153 |
|
|
|
50 |
|
|
|
974 |
|
|
|
(876 |
) |
|
|
1,969 |
|
Income
tax expense
|
|
|
(128 |
) |
|
|
(315 |
) |
|
|
(56 |
) |
|
|
(41 |
) |
|
|
(20 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
(593 |
) |
Income
from continuing operations
|
|
|
394 |
|
|
|
680 |
|
|
|
95 |
|
|
|
112 |
|
|
|
30 |
|
|
|
941 |
|
|
|
(876 |
) |
|
|
1,376 |
|
Discontinued
operations, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343 |
|
|
|
|
|
|
|
343 |
|
Gain
on disposal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,362 |
|
|
|
|
|
|
|
4,362 |
|
Net
income
|
|
|
394 |
|
|
|
680 |
|
|
|
95 |
|
|
|
112 |
|
|
|
30 |
|
|
|
5,646 |
|
|
|
(876 |
) |
|
|
6,081 |
|
Amounts
attributable to
noncontrolling interests
|
|
|
(61 |
) |
|
|
(350 |
) |
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456 |
) |
Net
income attributable to Loews
Corporation
|
|
$ |
333 |
|
|
$ |
330 |
|
|
$ |
95 |
|
|
$ |
67 |
|
|
$ |
30 |
|
|
$ |
5,646 |
|
|
$ |
(876 |
) |
|
$ |
5,625 |
|
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
|
51
|
|
Consolidated Financial
Results
|
52
|
|
Parent Company
Structure
|
53
|
|
Critical
Accounting Estimates
|
53
|
|
Results
of Operations by Business Segment
|
53
|
|
CNA Financial
|
53
|
|
Standard Lines
|
54
|
|
Specialty Lines
|
56
|
|
Life & Group
Non-Core
|
58
|
|
Other Insurance
|
58
|
|
A&E
Reserves
|
59
|
|
Diamond Offshore
|
62
|
|
HighMount
|
65
|
|
Boardwalk
Pipeline
|
68
|
|
Loews Hotels
|
71
|
|
Corporate and
Other
|
72
|
|
Liquidity
and Capital Resources
|
72
|
|
CNA Financial
|
72
|
|
Diamond Offshore
|
73
|
|
HighMount
|
74
|
|
Boardwalk
Pipeline
|
75
|
|
Loews Hotels
|
76
|
|
Corporate and
Other
|
76
|
|
Investments
|
76
|
|
Accounting
Standards
|
81
|
|
Forward-Looking
Statements
|
81
|
|
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 75% 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
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to Loews common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
341 |
|
|
$ |
511 |
|
|
$ |
(306 |
) |
|
$ |
920 |
|
Discontinued
operations, net
(a)
|
|
|
(1 |
) |
|
|
4,348 |
|
|
|
(1 |
) |
|
|
4,494 |
|
Net
income (loss) attributable to Loews common stock
|
|
|
340 |
|
|
|
4,859 |
|
|
|
(307 |
) |
|
|
5,414 |
|
Net
income attributable to former Carolina Group stock -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
211 |
|
Net
income (loss) attributable to Loews Corporation
|
|
$ |
340 |
|
|
$ |
4,963 |
|
|
$ |
(307 |
) |
|
$ |
5,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loews common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$ |
0.78 |
|
|
$ |
1.00 |
|
|
$ |
(0.70 |
) |
|
$ |
1.77 |
|
Discontinued operations,
net
(a)
|
|
|
|
|
|
|
8.54 |
|
|
|
|
|
|
|
8.64 |
|
Loews common
stock
|
|
$ |
0.78 |
|
|
$ |
9.54 |
|
|
$ |
(0.70 |
) |
|
$ |
10.41 |
|
Former Carolina Group stock -
Discontinued operations
|
|
$ |
- |
|
|
$ |
0.96 |
|
|
$ |
- |
|
|
$ |
1.95 |
|
(a)
|
Includes
a tax-free non-cash gain of $4,287 for the three and six months ended June
30, 2008 related to the separation of Lorillard, Inc. and an after tax
gain of $75 for the six months ended June 30, 2008 from the sale of Bulova
Corporation.
|
(b)
|
The
Carolina Group and the former Carolina Group stock were eliminated
effective June 10, 2008 as part of the separation of
Lorillard.
|
Consolidated
Financial Results
Income from continuing operations for
the 2009 second quarter was $341 million, or $0.78 per share, compared to $511
million, or $1.00 per share, in the 2008 second quarter. Loss from continuing
operations attributable to Loews common stock for the six months ended June 30,
2009 was $306 million, or $0.70 per share, compared to income from continuing
operations of $920 million, or $1.77 per share, in the prior year.
Book value per common share increased
to $34.60 at June 30, 2009, as compared to $30.73 at March 31, 2009 and $30.18
at December 31, 2008. The increase during the second quarter of 2009 was
primarily driven by a $1.2 billion (after tax and noncontrolling interests)
improvement in fair value of the Company’s fixed maturities investment portfolio
reflecting a narrowing of credit spreads.
The decrease in income from
continuing operations primarily reflects higher net investment losses offset by
an increase in net investment income at CNA and strong results at Diamond
Offshore. Net investment income benefited from higher limited partnership
results, partially offset by the impact of lower short-term interest
rates.
Income from continuing operations
includes net investment losses of $178 million (after tax and noncontrolling
interests) in the second quarter of 2009 compared to $64 million in the
comparable prior year period. Net investment losses in the second quarter of
2009 were primarily driven by other-than-temporary impairment losses recognized
in CNA’s available-for-sale portfolio.
The loss from continuing operations
in 2009 primarily reflects higher net investment losses at CNA and a non-cash
impairment charge of $1.0 billion ($660 million after tax) recorded in the first
quarter of 2009, related to the carrying value of HighMount’s natural gas and
oil properties, reflecting declines in commodity prices, partially offset by
strong results at Diamond Offshore. There were no comparable impairment charges
in the prior year period. Lower investment income in the first half of 2009 also
contributed to the unfavorable comparison to the prior year period.
Net investment losses were $488
million (after tax and noncontrolling interests) in the first half of 2009,
compared to $93 million in the comparable prior year period.
In June of 2008, the Company disposed
of its entire ownership interest in Lorillard, Inc. 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 in January 2008. Lorillard’s results of operations and the
gain on disposal of Lorillard and 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.
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. Effective April 1,
2009, we adopted Financial Accounting Standards Board (“FASB”) Staff Position
(“FSP”) No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,” which requires us to bifurcate
other-than-temporary impairment (“OTTI”) losses into a credit component and
non-credit component. Please read Note 1 of the Notes to Consolidated Condensed
Financial Statements included under Item 1.
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 the 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
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions, except %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
written premiums
|
|
$ |
761 |
|
|
$ |
848 |
|
|
$ |
1,524 |
|
|
$ |
1,619 |
|
Net
earned premiums
|
|
|
671 |
|
|
|
768 |
|
|
|
1,381 |
|
|
|
1,551 |
|
Net
investment income
|
|
|
252 |
|
|
|
199 |
|
|
|
372 |
|
|
|
363 |
|
Net
operating income
|
|
|
131 |
|
|
|
111 |
|
|
|
186 |
|
|
|
197 |
|
Net
realized investment losses
|
|
|
(100 |
) |
|
|
(35 |
) |
|
|
(205 |
) |
|
|
(45 |
) |
Net
income (loss)
|
|
|
31 |
|
|
|
76 |
|
|
|
(19 |
) |
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment
expense
|
|
|
71.3 |
% |
|
|
73.7 |
% |
|
|
71.5 |
% |
|
|
73.7 |
% |
Expense
|
|
|
34.4 |
|
|
|
29.0 |
|
|
|
34.2 |
|
|
|
29.6 |
|
Dividend
|
|
|
(0.2 |
) |
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.5 |
|
Combined
|
|
|
105.5 |
% |
|
|
103.2 |
% |
|
|
105.9 |
% |
|
|
103.8 |
% |
Three
Months Ended June 30, 2009 Compared to 2008
Net written premiums for Standard
Lines decreased $87 million for the three months ended June 30, 2009 as compared
with the same period in 2008. Despite favorable new business in the current
three month period, premiums written were unfavorable in both CNA’s Business and
Commercial Insurance groups, impacted by general economic conditions and lower
premium rates, as compared with the second quarter of 2008. The current economic
conditions have led to decreased industry insured exposures, particularly in the
construction industry with smaller payrolls and reduced project volume. 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 $97 million for the three months ended June 30, 2009 as
compared with the same period in 2008, consistent with the trend of lower net
written premiums as well as unfavorable premium development in
2009.
Standard Lines averaged rate
decreases of 1.0% for the three months ended June 30, 2009, as compared to
decreases of 5.0% for the three months ended June 30, 2008 for the contracts
that renewed during those periods. Retention rates of 80.0% and 81.0% were
achieved for those contracts that were available for renewal in each
period.
Net income decreased $45 million for
the three months ended June 30, 2009 as compared with the same period in 2008.
This decrease was due to higher net realized investment losses, partially offset
by improved 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 improved $20
million for the three months ended June 30, 2009 as compared with the same
period in 2008. This improvement was primarily due to higher net investment
income, partially offset by decreased underwriting results.
The combined ratio increased
2.3 points for the three months ended June 30, 2009 as compared with the
same period in 2008. The loss ratio improved 2.4 points primarily due to
favorable loss development.
The expense ratio increased 5.4
points for the three months ended June 30, 2009 as compared with the same period
in 2008, primarily related to higher underwriting expenses and the lower net
earned premium base. Underwriting expenses increased primarily due to higher
employee-related costs. Additionally, the 2008 results included favorable
changes in estimates for insurance-related assessment liabilities. These
unfavorable impacts were partially offset by a change in estimate of the
ultimate assessment from the Texas Windstorm Insurance Association related to
catastrophe losses incurred in the third quarter of 2008.
The dividend ratio decreased 0.7
points due to favorable development recorded on workers’ compensation
coverages.
Favorable net prior year development of
$21 million was recorded for the three months ended June 30, 2009, reflecting
$80 million of favorable claim and allocated claim adjustment expense reserve
development and $59 million of unfavorable premium development. Favorable net
prior year development of $23 million, reflecting $15 million of favorable claim
and allocated claim adjustment expense reserve development and $8 million of
favorable premium development, was recorded for the three months ended June 30,
2008. Further information on Standard Lines net prior year development for the
three months ended June 30, 2009 and 2008 is included in Note 8 of the Notes to
Consolidated Condensed Financial Statements included under Item 1.
Six
Months Ended June 30, 2009 Compared to 2008
Net written premiums for Standard
Lines decreased $95 million and net earned premiums decreased $170 million for
the six months ended June 30, 2009 as compared with the same period in 2008, due
primarily to the same reasons discussed above in the three month
comparison.
Standard Lines averaged rate
decreases of 1.0% for the six months ended June 30, 2009, as compared to
decreases of 6.0% for the six months ended June 30, 2008 for the contracts that
renewed during those periods. Retention rates of 81.0% and 81.0% were achieved
for those contracts that were available for renewal in each period.
Net results decreased $171 million
for the six months ended June 30, 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 $11
million for the six months ended June 30, 2009 as compared with the same period
in 2008. This decline was primarily due to decreased underwriting
results.
The combined ratio increased
2.1 points for the six months ended June 30, 2009 as compared with the same
period in 2008. The loss ratio improved 2.2 points primarily due to decreased
catastrophe losses. Catastrophe losses were $52 million, or 3.8 points of the
loss ratio, for the six months ended June 30, 2009 as compared to $98 million,
or 6.3 points of the loss ratio, for the same period in 2008.
The expense ratio increased 4.6
points for the six months ended June 30, 2009 as compared with the same period
in 2008, primarily related to the reasons discussed in the three month
comparison.
Favorable net prior year development
of $34 million was recorded for the six months ended June 30, 2009, reflecting
$110 million of favorable claim and allocated claim adjustment expense
reserve development and $76 million of unfavorable premium development.
Favorable net prior year development of $49 million, reflecting $50 million of
favorable claim and allocated claim adjustment expense reserve development and
$1 million of unfavorable premium development, was recorded for the six months
ended June 30, 2008. Further information on Standard Lines net prior year
development for the six months ended June 30, 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.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Case Reserves
|
|
$ |
6,030 |
|
|
$ |
6,158 |
|
Gross
IBNR Reserves
|
|
|
5,675 |
|
|
|
5,890 |
|
Total
Gross Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
11,705 |
|
|
$ |
12,048 |
|
|
|
|
|
|
|
|
|
|
Net
Case Reserves
|
|
$ |
4,838 |
|
|
$ |
4,995 |
|
Net
IBNR Reserves
|
|
|
4,817 |
|
|
|
4,875 |
|
Total
Net Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
9,655 |
|
|
$ |
9,870 |
|
Specialty
Lines
The following table summarizes the
results of operations for Specialty Lines.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions, except %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
written premiums
|
|
$ |
834 |
|
|
$ |
860 |
|
|
$ |
1,663 |
|
|
$ |
1,708 |
|
Net
earned premiums
|
|
|
834 |
|
|
|
859 |
|
|
|
1,646 |
|
|
|
1,732 |
|
Net
investment income
|
|
|
188 |
|
|
|
155 |
|
|
|
296 |
|
|
|
287 |
|
Net
operating income
|
|
|
155 |
|
|
|
130 |
|
|
|
262 |
|
|
|
242 |
|
Net
realized investment losses
|
|
|
(61 |
) |
|
|
(17 |
) |
|
|
(127 |
) |
|
|
(22 |
) |
Net
income
|
|
|
94 |
|
|
|
113 |
|
|
|
135 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment
expense
|
|
|
62.5 |
% |
|
|
65.2 |
% |
|
|
62.0 |
% |
|
|
65.0 |
% |
Expense
|
|
|
29.2 |
|
|
|
27.6 |
|
|
|
29.2 |
|
|
|
27.1 |
|
Dividend
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
0.5 |
|
Combined
|
|
|
92.1 |
% |
|
|
92.9 |
% |
|
|
91.6 |
% |
|
|
92.6 |
% |
Three
Months Ended June 30, 2009 Compared to 2008
Net written premiums for Specialty
Lines decreased $26 million for the three months ended June 30, 2009 as compared
with the same period in 2008. Premiums written were unfavorably impacted by
foreign exchange and current economic conditions. 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 $25 million for the three months ended June 30, 2009
as compared with the same period in 2008, consistent with the trend of lower net
written premiums.
Specialty Lines averaged rate
decreases of 1.0% for the three months ended June 30, 2009 as compared to
decreases of 3.0% for the three months ended June 30, 2008 for the contracts
that renewed during those periods. Retention rates of 84.0% were achieved for
those contracts that were available for renewal in both periods.
Net income decreased $19 million for
the three months ended June 30, 2009 as compared with the same period in 2008.
This decrease was due to higher net realized investment losses, partially offset
by increased 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 improved $25
million for the three months ended June 30, 2009 as compared with the same
period in 2008. This improvement was primarily due to higher net investment
income and a $13 million favorable income tax adjustment related to CNA’s
European operation.
The combined ratio improved 0.8
points for the three months ended June 30, 2009 as compared with the same period
in 2008. The loss ratio improved 2.7 points, primarily due to favorable net
prior year development in the current period
as compared with unfavorable net prior year
development in the prior year period. This was partially offset by higher
current accident year loss ratios recorded in several lines of business.
The expense ratio increased 1.6
points for the three months ended June 30, 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 primarily
to higher employee-related costs.
Favorable net prior year development
of $41 million, reflecting $40 million of favorable claim and allocated claim
adjustment expense reserve development and $1 million of favorable premium
development, was recorded for the three months ended June 30, 2009. Unfavorable
net prior year development of $2 million, reflecting $1 million of unfavorable
claim and allocated claim adjustment expense reserve development and $1 million
of unfavorable premium development, was recorded for the three months ended June
30, 2008. Further information on Specialty Lines net prior year development for
the three months ended June 30, 2009 and 2008 is included in Note 8 of the Notes
to Consolidated Condensed Financial Statements included under Item
1.
Six
Months Ended June 30, 2009 Compared to 2008
Net written premiums for Specialty
Lines decreased $45 million and net earned premiums decreased $86 million for
the six months ended June 30, 2009 as compared with the same period in 2008, due
primarily to the same reasons discussed above in the three month
comparison.
Specialty Lines averaged rate
decreases of 1.0% for the six months ended June 30, 2009 as compared to
decreases of 3.0% for the same period in 2008 for the contracts that renewed
during those periods. Retention rates of 84.0% were achieved for those contracts
that were available for renewal in both periods.
Net income decreased $85 million for
the six months ended June 30, 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.
Net operating income increased $20
million for the six months ended June 30, 2009 as compared with the same period
in 2008, due to the same reasons discussed above in the three month
comparison.
The combined ratio improved 1.0 point
for the six months ended June 30, 2009 as compared with the same period in 2008.
The loss ratio improved 3.0 points and the expense ratio increased 2.1 points,
primarily due to the reasons discussed above in the three month
comparison.
Favorable net prior year development
of $84 million, reflecting $81 million of favorable claim and allocated claim
adjustment expense reserve development and $3 million of favorable premium
development, was recorded for the six months ended June 30, 2009. Unfavorable
claim and allocated claim adjustment expense reserve development of $18 million
and favorable premium development of $18 million was recorded for the six months
ended June 30, 2008, resulting in no net prior year development. Further
information on Specialty Lines net prior year development for the six months
ended June 30, 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.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Case Reserves
|
|
$ |
2,719 |
|
|
$ |
2,719 |
|
Gross
IBNR Reserves
|
|
|
5,743 |
|
|
|
5,563 |
|
Total
Gross Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
8,462 |
|
|
$ |
8,282 |
|
|
|
|
|
|
|
|
|
|
Net
Case Reserves
|
|
$ |
2,194 |
|
|
$ |
2,149 |
|
Net
IBNR Reserves
|
|
|
4,894 |
|
|
|
4,694 |
|
Total
Net Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
7,088 |
|
|
$ |
6,843 |
|
Life
& Group Non-Core
The following table summarizes the
results of operations for Life & Group Non-Core.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earned premiums
|
|
$ |
148 |
|
|
$ |
149 |
|
|
$ |
298 |
|
|
$ |
306 |
|
Net
investment income
|
|
|
168 |
|
|
|
157 |
|
|
|
327 |
|
|
|
241 |
|
Net
operating loss
|
|
|
(23 |
) |
|
|
(28 |
) |
|
|
(43 |
) |
|
|
(30 |
) |
Net
realized investment losses
|
|
|
8 |
|
|
|
(3 |
) |
|
|
(103 |
) |
|
|
(13 |
) |
Net
loss
|
|
|
(15 |
) |
|
|
(31 |
) |
|
|
(146 |
) |
|
|
(43 |
) |
Three
Months Ended June 30, 2009 Compared to 2008
Net earned premiums for Life &
Group Non-Core decreased $1 million for the three months ended June 30, 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 decreased $16 million for
the three months ended June 30, 2009 as compared with the same period in 2008.
The decrease in net loss was due to favorable performance on CNA’s remaining
pension deposit business and improved net realized investment results. 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 had
previously recorded an additional pretax liability in Policyholders’ funds. CNA
decreased this pretax liability by $31 million during the second quarter of 2009
based on the results of the investments supporting this business. Partially
offsetting these favorable items was a $25 million after tax and noncontrolling
interest legal accrual recorded in the second quarter of 2009 related to a
previously held limited partnership investment. The limited partnership
investment supported the indexed group annuity portion of CNA’s pension deposit
business, which CNA exited during 2008.
Six
Months Ended June 30, 2009 Compared to 2008
Net earned premiums for Life &
Group Non-Core decreased $8 million for the six months ended June 30, 2009 as
compared with the same period in 2008.
Net loss increased $103 million for
the six months ended June 30, 2009 as compared with the same period in 2008. The
increase in net loss was due to higher net realized investment losses and the
legal accrual related to the limited partnership investment as discussed above
in the three month comparison. These unfavorable impacts were partially offset
by favorable performance on CNA’s remaining pension deposit business. For the
six months ended June 30, 2009, the pretax liability related to principal and
interest guarantees, as discussed above, was decreased by $18
million.
Net investment income for the six
months ended June 30, 2008 included trading portfolio losses of $81 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 for the six months ended June 30, 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
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
67 |
|
|
$ |
65 |
|
|
$ |
100 |
|
|
$ |
119 |
|
Net
operating income
|
|
|
15 |
|
|
|
14 |
|
|
|
13 |
|
|
|
18 |
|
Net
realized investment losses
|
|
|
(25 |
) |
|
|
(10 |
) |
|
|
(53 |
) |
|
|
(14 |
) |
Net
income (loss)
|
|
|
(10 |
) |
|
|
4 |
|
|
|
(40 |
) |
|
|
4 |
|
Three
Months Ended June 30, 2009 Compared to 2008
Net results decreased $14 million for
the three months ended June 30, 2009 as compared with the same period in 2008.
The decrease was primarily due to 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.
Unfavorable net prior year
development of $2 million, reflecting $4 million of unfavorable claim and
allocated claim adjustment expense reserve development and $2 million of
favorable premium development, was recorded for the three months ended June 30,
2009. Unfavorable net prior year development of $12 million, reflecting $11
million of unfavorable net prior year claim and allocated claim adjustment
expense reserve development and $1 million of unfavorable premium development,
was recorded for the three months ended June 30, 2008.
Six
Months Ended June 30, 2009 Compared to 2008
Net results decreased $44 million for
the six months ended June 30, 2009 as compared with the same period in 2008. The
decrease was primarily due to higher net realized investment losses and lower
net investment income. See the Investments section of this MD&A for further
discussion of net investment income and net realized investment
results.
Unfavorable net prior year
development of $2 million, reflecting $5 million of unfavorable claim and
allocated claim adjustment expense reserve development and $3 million of
favorable premium development, was recorded for the six months ended June 30,
2009. Unfavorable net prior year claim and allocated claim adjustment expense
reserve development of $16 million was recorded for the six months ended June
30, 2008. There was no premium development recorded for the six months ended
June 30, 2008.
The following table summarizes the gross
and net carried reserves for Other Insurance.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Case Reserves
|
|
$ |
1,685 |
|
|
$ |
1,823 |
|
Gross
IBNR Reserves
|
|
|
2,386 |
|
|
|
2,578 |
|
Total
Gross Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
4,071 |
|
|
$ |
4,401 |
|
|
|
|
|
|
|
|
|
|
Net
Case Reserves
|
|
$ |
1,000 |
|
|
$ |
1,126 |
|
Net
IBNR Reserves
|
|
|
1,481 |
|
|
|
1,561 |
|
Total
Net Carried Claim and Claim Adjustment Expense Reserves
|
|
$ |
2,481 |
|
|
$ |
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 80.1% and 81.0% of CNA’s total active asbestos accounts are
classified as small accounts at June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
Percent
of
|
|
|
|
Number
of
|
|
|
Net
Paid
|
|
|
Net
Asbestos
|
|
|
Asbestos
Net
|
|
June
30, 2009
|
|
Policyholders
|
|
|
Losses
|
|
|
Reserves
|
|
|
Reserves
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholders
with settlement agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured
settlements
|
|
|
18 |
|
|
$ |
19 |
|
|
$ |
132 |
|
|
|
11.9 |
% |
Wellington
|
|
|
3 |
|
|
|
1 |
|
|
|
8 |
|
|
|
0.7 |
|
Coverage in
place
|
|
|
38 |
|
|
|
6 |
|
|
|
101 |
|
|
|
9.1 |
|
Total
with settlement agreements
|
|
|
59 |
|
|
|
26 |
|
|
|
241 |
|
|
|
21.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
policyholders with active accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large asbestos
accounts
|
|
|
244 |
|
|
|
47 |
|
|
|
208 |
|
|
|
18.7 |
|
Small asbestos
accounts
|
|
|
981 |
|
|
|
10 |
|
|
|
77 |
|
|
|
6.9 |
|
Total
other policyholders
|
|
|
1,225 |
|
|
|
57 |
|
|
|
285 |
|
|
|
25.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
reinsurance and pools
|
|
|
|
|
|
|
6 |
|
|
|
108 |
|
|
|
9.7 |
|
Unassigned
IBNR
|
|
|
|
|
|
|
|
|
|
|
479 |
|
|
|
43.0 |
|
Total
|
|
|
1,284 |
|
|
$ |
89 |
|
|
$ |
1,113 |
|
|
|
100.0 |
% |
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 73.7% and 73.4% of CNA’s total active pollution accounts are
classified as small accounts as of June 30, 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:
|
|
|
|
|
|
|
|
Net
|
|
|
Percent
of
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
Environmental
|
|
|
|
Number
of
|
|
|
Net
|
|
|
Pollution
|
|
|
Pollution
Net
|
|
June
30, 2009
|
|
Policyholders
|
|
|
Paid
Losses
|
|
|
Reserves
|
|
|
Reserve
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholders
with settlement agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured
settlements
|
|
|
13 |
|
|
$ |
6 |
|
|
$ |
19 |
|
|
|
7.9 |
% |
Coverage in
place
|
|
|
16 |
|
|
|
1 |
|
|
|
12 |
|
|
|
5.0 |
|
Total
with settlement agreements
|
|
|
29 |
|
|
|
7 |
|
|
|
31 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
policyholders with active accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large pollution
accounts
|
|
|
115 |
|
|
|
8 |
|
|
|
41 |
|
|
|
17.1 |
|
Small pollution
accounts
|
|
|
322 |
|
|
|
7 |
|
|
|
41 |
|
|
|
17.1 |
|
Total
other policyholders
|
|
|
437 |
|
|
|
15 |
|
|
|
82 |
|
|
|
34.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
reinsurance and pools
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
11.3 |
|
Unassigned
IBNR
|
|
|
|
|
|
|
|
|
|
|
100 |
|
|
|
41.6 |
|
Total
|
|
|
466 |
|
|
$ |
22 |
|
|
$ |
240 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
Net
|
|
|
Percent
of
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
Environmental
|
|
|
|
Number
of
|
|
|
Net
|
|
|
Pollution
|
|
|
Pollution
Net
|
|
December
31, 2008
|
|
Policyholders
|
|
|
Paid
Losses
|
|
|
Reserves
|
|
|
Reserve
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 weigh on energy demand in the second quarter of 2009. Crude oil
prices remained volatile, and Diamond Offshore’s customers are continuing to
defer new drilling programs until project economics improve. Against this
background, demand and pricing for available drilling rigs is continuing to
deteriorate, 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. The decline in
drilling activity is expected to be further exacerbated by the influx of
newbuild rigs over the next several years. Diamond Offshore expects its
extensive contract backlog to help mitigate the impact of the current market at
least through the end of 2009 and into 2010; however, Diamond Offshore has
experienced negative effects of the current market such as customer credit
problems, customers seeking bankruptcy protection, customers attempting to
renegotiate or terminate contracts, a further slowing in the pace of new
contracting activity, declines in dayrates for new contracts, declines in
utilization and the stacking of idle equipment. Diamond Offshore would expect a
prolonged decline in energy prices and the global economy to have a further
negative impact.
The weak market allowed Diamond
Offshore to complete the opportunistic purchase of a newbuild, semisubmersible
offshore drilling rig, formerly known as PetroRig I, from Jurong Shipyard
Pte Ltd. in June of 2009. The purchase price for the dynamically positioned rig,
which has been renamed Ocean
Courage, was $460 million exclusive of final commissioning and initial
mobilization costs, drillstring and other necessary capital spares. Diamond
Offshore has received several inquires for the 10,000-ft. water depth rated rig
from potential customers regarding availability of the unit. Diamond Offshore
estimates that the earliest the rig could commence work is the fourth quarter of
2009, allowing time to identify and secure a drilling contract and to
subsequently mobilize the rig from Singapore to the contract
location.
Diamond Offshore currently expects to
spend approximately 394 rig days during the remainder of 2009 to complete a
5-year survey for the Ocean
Yatzy, 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 third quarter of 2009 for shipyard work which
Diamond Offshore currently 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 July 20, 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.
|
|
July
20,
|
|
|
February
5,
|
|
|
|
2009
|
|
|
2009
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
specification floaters
|
|
$ |
4,016 |
|
|
$ |
4,346 |
|
Intermediate
semisubmersible rigs
|
|
|
4,391 |
|
|
|
5,567 |
|
Jack-ups
|
|
|
311 |
|
|
|
346 |
|
Total
|
|
$ |
8,718 |
|
|
$ |
10,259 |
|
The following table reflects the amount
of Diamond Offshore’s contract drilling backlog by year as of July 20,
2009.
Year
Ended December 31
|
|
Total
|
|
|
2009
(a)
|
|
|
2010
|
|
|
2011
|
|
|
|
2012
- 2016 |
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
specification floaters
|
|
$ |
4,016 |
|
|
$ |
723 |
|
|
$ |
1,351 |
|
|
$ |
1,031 |
|
|
$ |
911 |
|
Intermediate
semisubmersible rigs
|
|
|
4,391 |
|
|
|
795 |
|
|
|
1,269 |
|
|
|
876 |
|
|
|
1,451 |
|
Jack-ups
|
|
|
311 |
|
|
|
174 |
|
|
|
109 |
|
|
|
28 |
|
|
|
|
|
Total
|
|
$ |
8,718 |
|
|
$ |
1,692 |
|
|
$ |
2,729 |
|
|
$ |
1,935 |
|
|
$ |
2,362 |
|
(a)
|
Represents
a six month period beginning July 1,
2009.
|
The following table reflects the
percentage of rig days committed by year as of July 20, 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). Total available days
have been calculated based on the expected final commissioning date for the
Ocean
Courage.
Year
Ended December 31
|
|
2009 (a) (b)
|
|
|
2010
(b)
|
|
|
2011
|
|
|
|
2012
- 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
specification floaters
|
|
|
83.0 |
% |
|
|
74.0 |
% |
|
|
49.0 |
% |
|
|
10.0 |
% |
Intermediate
semisubmersible rigs
|
|
|
88.0 |
|
|
|
67.0 |
|
|
|
46.0 |
|
|
|
15.0 |
|
Jack-ups
|
|
|
54.0 |
|
|
|
17.0 |
|
|
|
4.0 |
|
|
|
|
|
(a)
|
Represents
a six month period beginning July 1, 2009.
|
(b)
|
Includes
approximately 477 and 520 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 and six months ended
June 30, 2009 and 2008 as presented in Note 15 of the Notes to Consolidated
Condensed Financial Statements included in Item 1 of this Report:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
drilling
|
|
$ |
923 |
|
|
$ |
937 |
|
|
$ |
1,779 |
|
|
$ |
1,707 |
|
Net investment
income
|
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
|
|
7 |
|
Investment
gains
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Other revenue
|
|
|
33 |
|
|
|
30 |
|
|
|
62 |
|
|
|
48 |
|
Total
|
|
|
957 |
|
|
|
970 |
|
|
|
1,844 |
|
|
|
1,762 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
drilling
|
|
|
306 |
|
|
|
273 |
|
|
|
600 |
|
|
|
558 |
|
Other operating
|
|
|
120 |
|
|
|
105 |
|
|
|
260 |
|
|
|
206 |
|
Interest
|
|
|
11 |
|
|
|
2 |
|
|
|
12 |
|
|
|
3 |
|
Total
|
|
|
437 |
|
|
|
380 |
|
|
|
872 |
|
|
|
767 |
|
Income
before income tax
|
|
|
520 |
|
|
|
590 |
|
|
|
972 |
|
|
|
995 |
|
Income
tax expense
|
|
|
(147 |
) |
|
|
(190 |
) |
|
|
(263 |
) |
|
|
(315 |
) |
Net
income
|
|
|
373 |
|
|
|
400 |
|
|
|
709 |
|
|
|
680 |
|
Amounts
attributable to noncontrolling interests
|
|
|
(192 |
) |
|
|
(206 |
) |
|
|
(365 |
) |
|
|
(350 |
) |
Net
income attributable to Loews Corporation
|
|
$ |
181 |
|
|
$ |
194 |
|
|
$ |
344 |
|
|
$ |
330 |
|
Revenues decreased $13 million and
increased $82 million, or 1.3% and 4.7%, and net income decreased $13 million
and increased $14 million, or 6.7% and 4.2%, in the three and six months ended
June 30, 2009, as compared to the corresponding periods of the prior year.
During the first half of 2009, Diamond Offshore’s contracted revenue backlog
partially mitigated the impact of the global economic recession on its industry.
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 three and six months ended June 30, 2009 than those
earned during the corresponding periods in the prior year. However, revenues for
Diamond Offshore’s floater fleet were negatively impacted by the effect of
downtime associated with scheduled shipyard projects and mandatory inspections
or surveys, as well as stacked time for rigs without work. In addition, the U.S.
Gulf of Mexico jack-up market continued to experience reduced demand and
dayrates during the first six months of 2009 which resulted in Diamond
Offshore’s decision to cold stack three mat-supported rigs. The international
jack-up market, which had been strong throughout the majority of 2008, also
reflected softening demand and reduced dayrates during the three and six months
ended June 30, 2009.
Revenues from high specification
floaters and intermediate semisubmersible rigs decreased $18 million and
increased $56 million in the three and six months ended June 30, 2009, as
compared to the corresponding periods of the prior year. Revenues decreased in
the second quarter of 2009, primarily due to decreased utilization of $27
million, partially offset by increased dayrates of $9 million. Revenues
increased in the six months ended June 30, 2009, primarily due to increased
dayrates of $117 million, partially offset by decreased utilization of $57
million. Revenues were unfavorably impacted by a decrease in the recognition of
mobilization fees.
Revenues from jack-up rigs increased $5
million and $16 million in the three and six months ended June 30, 2009, as
compared to the corresponding periods of the prior year, due primarily to
increased dayrates of $7 million and $19 million, partially offset by decreased
utilization of $6 million in both periods. Revenues were favorably impacted by
an increase in the recognition of mobilization fees.
Net income decreased in the three
months and increased in the six months ended June 30, 2009 as compared to the
corresponding periods of the prior year, partially due to the changes in
revenues as noted above. 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 $15 million and $31
million during the three and six months ended June 30, 2009 due to a higher
depreciable asset base. Interest expense increased in the three and six months
ended June 30, 2009,
primarily due to reduced capitalized interest
in 2009 of $5 million and $11 million and the additional expense related to the
issuance of 5.9% senior notes in May of 2009.
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.
During the last twelve months,
natural gas prices have decreased significantly due largely to increased onshore
natural gas production, plentiful levels of working gas in storage and reduced
commercial demand. The increase in onshore natural gas production is 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. In light of these developments,
HighMount elected to substantially 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 six months 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.
As part of the acquisition of
exploration and production assets from Dominion Resources, Inc. in July of 2007,
HighMount assumed an obligation to deliver specified quantities of natural gas
under previously existing Volumetric Production Payment (“VPP”) agreements,
which expired in February of 2009. Natural gas sales and production costs
related to the VPP agreements were not recognized in HighMount’s results. Upon
expiration of the VPP agreements, HighMount recognized additional gas sales
volume of 2.4 Bcf and 3.4 Bcf and the related production costs during the three
and six months ended June 30, 2009.
Presented below are production and sales
statistics related to HighMount’s operations:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
production (Bcf)
|
|
|
20.3 |
|
|
|
19.9 |
|
|
|
40.0 |
|
|
|
39.6 |
|
Gas
sales (Bcf)
|
|
|
18.6 |
|
|
|
18.3 |
|
|
|
36.7 |
|
|
|
36.4 |
|
Oil
production/sales (Mbbls)
|
|
|
107.1 |
|
|
|
88.7 |
|
|
|
209.9 |
|
|
|
173.2 |
|
NGL
production/sales (Mbbls)
|
|
|
891.6 |
|
|
|
938.8 |
|
|
|
1,812.3 |
|
|
|
1,850.5 |
|
Equivalent
production (Bcfe)
|
|
|
26.4 |
|
|
|
26.0 |
|
|
|
52.2 |
|
|
|
51.7 |
|
Equivalent
sales (Bcfe)
|
|
|
24.6 |
|
|
|
24.5 |
|
|
|
48.8 |
|
|
|
48.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized prices, without hedging results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (per Mcf)
|
|
$ |
3.31 |
|
|
$ |
10.21 |
|
|
$ |
3.73 |
|
|
$ |
8.86 |
|
NGL (per Bbl)
|
|
|
24.31 |
|
|
|
61.11 |
|
|
|
22.46 |
|
|
|
58.41 |
|
Oil (per Bbl)
|
|
|
54.04 |
|
|
|
117.21 |
|
|
|
46.71 |
|
|
|
106.31 |
|
Equivalent (per
Mcfe)
|
|
|
3.62 |
|
|
|
10.41 |
|
|
|
3.84 |
|
|
|
9.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized prices, with hedging results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (per Mcf)
|
|
$ |
6.40 |
|
|
$ |
7.90 |
|
|
$ |
7.03 |
|
|
$ |
7.67 |
|
NGL (per Bbl)
|
|
|
24.31 |
|
|
|
46.15 |
|
|
|
27.75 |
|
|
|
46.53 |
|
Oil (per Bbl)
|
|
|
54.04 |
|
|
|
117.21 |
|
|
|
46.71 |
|
|
|
106.31 |
|
Equivalent (per
Mcfe)
|
|
|
5.96 |
|
|
|
8.11 |
|
|
|
6.51 |
|
|
|
7.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
cost per Mcfe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
expenses
|
|
$ |
1.14 |
|
|
$ |
0.98 |
|
|
$ |
1.15 |
|
|
$ |
0.94 |
|
Production and ad valorem
taxes
|
|
|
0.38 |
|
|
|
0.82 |
|
|
|
0.42 |
|
|
|
0.74 |
|
General and administrative
expenses
|
|
|
0.63 |
|
|
|
0.68 |
|
|
|
0.61 |
|
|
|
0.70 |
|
Depletion
expense
|
|
|
0.87 |
|
|
|
1.61 |
|
|
|
1.11 |
|
|
|
1.52 |
|
Results
of Operations
The following table summarizes the
results of operations for HighMount for the three and six months ended June 30,
2009 and 2008 as presented in Note 15 of the Notes to Consolidated Condensed
Financial Statements included under Item 1 of this Report:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue, primarily
operating
|
|
$ |
147 |
|
|
$ |
201 |
|
|
$ |
322 |
|
|
$ |
390 |
|
Total
|
|
|
147 |
|
|
|
201 |
|
|
|
322 |
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of natural gas and
oil properties
|
|
|
|
|
|
|
|
|
|
|
1,036 |
|
|
|
|
|
Operating
|
|
|
81 |
|
|
|
106 |
|
|
|
207 |
|
|
|
202 |
|
Interest
|
|
|
20 |
|
|
|
19 |
|
|
|
39 |
|
|
|
37 |
|
Total
|
|
|
101 |
|
|
|
125 |
|
|
|
1,282 |
|
|
|
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax
|
|
|
46 |
|
|
|
76 |
|
|
|
(960 |
) |
|
|
151 |
|
Income
tax (expense) benefit
|
|
|
(17 |
) |
|
|
(28 |
) |
|
|
348 |
|
|
|
(56 |
) |
Net
income (loss) attributable to Loews Corporation
|
|
$ |
29 |
|
|
$ |
48 |
|
|
$ |
(612 |
) |
|
$ |
95 |
|
Three
Months Ended June 30, 2009 Compared to 2008
HighMount’s revenues decreased by $54
million in the second quarter of 2009, compared to the second quarter of 2008.
This decrease was primarily due to lower commodity prices which decreased
revenues by $167 million, partially offset by an increase of $114 million due to
the effect of HighMount’s hedging activities. HighMount has hedges in place that
cover approximately 56.0% and 30.8% of HighMount’s total estimated remaining
2009 and 2010 natural gas
equivalent production at a weighted average
price of $7.79 and $6.99 per Mcfe. HighMount sales volumes were 24.6 Bcfe in the
second quarter of 2009 compared to 24.5 Bcfe in the second quarter of 2008. This
increase reflects the absence of the VPP agreements in 2009, offset by the
reduction in HighMount’s drilling activity beginning in late 2008.
Operating expenses primarily consist
of production expenses, production and ad valorem taxes, general and
administrative costs and DD&A. Operating expenses decreased by $25 million
to $81 million for the second quarter of 2009, compared to $106 million for the
second quarter of 2008.
Production expenses totaled $28
million during the second quarter of 2009, compared to $24 million in the second
quarter of 2008. The increase in production expenses of $4 million was primarily
due to additional costs recognized as a result of the absence of the VPP
agreements. Production expenses on a per unit basis were $1.14 in the second
quarter of 2009 compared to $0.98 in 2008 due to lower sales volumes. Production
and ad valorem taxes were $9 million and $20 million for the three months ended
June 30, 2009 and 2008. The decrease of $11 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 $0.38 per Mcfe in the second
quarter of 2009 as compared to $0.82 per Mcfe in 2008. General and
administrative expenses declined to $15 million during the second quarter of
2009, compared to $16 million during 2008 primarily due to a decrease in
compensation related expenses. General and administrative expenses on a per Mcfe
basis were $0.68 in 2008 compared to $0.63 in 2009.
DD&A expenses declined to $29
million from $46 million for the second quarter of 2008. DD&A expenses
included depletion of natural gas and NGL properties of $23 million and $42
million for the three months ended June 30, 2009 and 2008. HighMount’s depletion
rate per Mcfe decreased by $0.74 per Mcfe to $0.87 per Mcfe in 2009, compared to
$1.61 per Mcfe in 2008. The decrease in depletion on a per unit basis was
primarily due to impairments of natural gas and oil properties recorded in
December of 2008 and March of 2009, as well as lower projected future
development costs.
Six
Months Ended June 30, 2009 Compared to 2008
HighMount’s revenues decreased by $68
million in the first six months of 2009, compared to the first six months of
2008. This decrease was primarily due to lower commodity prices which decreased
revenues by $264 million, partially offset by an increase of $196 million due to
the effect of HighMount’s hedging activities. HighMount sales volumes were 48.8
Bcfe in the first six months of 2009 compared to 48.6 Bcfe during the same
period of 2008. This increase reflects the expiration of the VPP agreements in
2009, offset by the reduction in HighMount’s drilling activity beginning in late
2008.
In the first quarter of 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). There was no related impairment charge in the
second quarter of 2009. If natural gas prices continue to decline, a future
ceiling test impairment is possible.
Operating expenses increased by $5
million to $207 million in the first six months of 2009, compared to $202
million in the first six months 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 expenses. Operating expenses in the first quarter of 2009
also included a $9 million impairment charge related to a decline in the market
value of tubular goods inventory.
Production expenses totaled $56
million during the first six months of 2009, compared to $46 million in 2008.
The increase in production expense of $10 million was primarily due to a higher
cost environment and additional costs recognized as a result of the expiration
of the VPP agreements in February of 2009. Production expenses on a per unit
basis were $1.15 in the first six months of 2009 compared to $0.94 in 2008 due
to lower sales volumes. Production and ad valorem taxes were $20 million and $36
million for the six months ended June 30, 2009 and 2008. The decrease of $16
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
$0.42 per Mcfe in the first six months of 2009 as compared to $0.74 per Mcfe in
2008. General and administrative expenses declined to $30 million during the
first six months of 2009, compared to $34 million during 2008 primarily due to a
decrease in compensation related expenses. General and administrative expenses
on a per Mcfe basis were $0.70 in 2008 compared to $0.61 in 2009.
DD&A expenses declined to $69
million from $86 million for the first six months of 2008. DD&A expenses
included depletion of natural gas and NGL properties of $58 million and $79
million for the six months ended June 30, 2009 and
2008. HighMount’s depletion rate per Mcfe
decreased by $0.41 per Mcfe to $1.11 per Mcfe in 2009, compared to $1.52 per
Mcfe in 2008. The decrease in depletion on a per unit basis was primarily due to
impairments of natural gas and oil properties recorded in December of 2008 and
March of 2009, as well as lower projected future development costs.
Boardwalk
Pipeline
Boardwalk Pipeline Partners, LP and
subsidiaries (“Boardwalk Pipeline”). Boardwalk Pipeline is a 75% 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
capacities of those projects.
As previously reported, Boardwalk
Pipeline is seeking authority from the Pipeline and Hazardous Materials Safety
Administration (“PHMSA”) to operate its new expansion pipeline projects under
special permits that would allow each pipeline to operate at higher than normal
operating pressures (80.0% of the pipe’s Specified Minimum Yield Strength, or
SMYS, as opposed to the normal operating pressure of 72.0% SMYS), thereby
increasing its maximum peak-day transmission capacity. For each expansion
pipeline, Boardwalk Pipeline has entered into firm transportation contracts with
shippers which would utilize the maximum capacity available from operating at
higher operating pressures.
During the permitting process
Boardwalk Pipeline discovered anomalies in certain pipeline segments on each of
the expansion projects. Accordingly, the operating pressures on each pipeline
were reduced below normal operating pressures as Boardwalk Pipeline proceeds to
perform additional testing procedures, remediate the anomalies and seek
authority from PHMSA to increase operating pressures, first to normal operating
pressures and subsequently to higher operating pressures under the special
permit. Boardwalk Pipeline has also shut down pipeline segments for periods of
time to remediate anomalies. Boardwalk Pipeline entered into an agreement with
PHMSA during the second quarter of 2009 which modified each of the special
permits that define the testing protocol and remediation efforts, including
replacement of certain pipe joints, performing investigative digs to physically
inspect the pipe sections and conducting metallurgical testing and analysis on a
variety of pipe samples.
The pressure reductions and shutdowns
that have been undertaken to remediate anomalies on the expansion pipeline
projects have reduced throughput and adversely impacted Boardwalk Pipeline’s
transportation revenues, net income and cash flow. At the same time, operating
costs and expenses, particularly depreciation and property taxes, have increased
due to costs associated with the expansion project pipelines being placed into
service.
With respect to each of the expansion
pipelines, 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 higher levels under special
permits, it will not be able to operate that pipeline at the anticipated
peak-day transmission capacity, which could continue to have a material adverse
affect on Boardwalk Pipeline’s business, financial condition, results of
operations and cash flow, including its ability to make distributions to
unitholders. PHMSA retains discretion as to whether to grant, or to maintain in
force, authority to operate a pipeline at higher operating
pressures.
Set forth below is information with
respect to the operating pressures and expected transportation revenue based on
the projected reservation charges under firm contracts for each of the four
pipeline expansion projects.
East Texas
Pipeline. Portions of this pipeline were shut down for periods
of time in May and July of 2009, during which time the requisite anomaly
remediation was completed. Effective July 27, 2009, Boardwalk Pipeline received
authority from PHMSA to operate the East Texas pipeline at normal operating
pressures which resulted in peak-day transmission capacity for this pipeline of
approximately 1.4 billion cubic feet (“Bcf”) per day. If additional testing is
successful, Boardwalk Pipeline expects to request permission from PHMSA to
operate this pipeline under a special permit at higher operating pressures which
would increase peak-day transmission capacity by approximately 50.0 million
cubic feet per day.
Southeast
Expansion. Portions of this pipeline were shut down for
periods of time in May and July of 2009, during which time the requisite anomaly
remediation was completed. Effective July 27, 2009, Boardwalk Pipeline received
authority from PHMSA to operate the Southeast expansion pipeline at normal
operating pressures which resulted in peak-day transmission capacity for this
pipeline of approximately 1.6 Bcf per day. If additional testing is successful,
Boardwalk Pipeline expects to request permission from PHMSA to operate this
pipeline under a special permit at higher operating pressures which would
increase peak-day transmission capacity to approximately 1.9 Bcf per
day.
Gulf Crossing
Project. The Gulf Crossing Project was shut down the entire
month of June of 2009, during which time the requisite anomaly remediation was
completed. Effective July 1, 2009, Boardwalk Pipeline received authority from
PHMSA to operate the Gulf Crossing Project at normal operating pressures which
resulted in peak-day transmission capacity for this pipeline of approximately
1.2 Bcf per day. If additional testing is successful, Boardwalk Pipeline expects
to request permission from PHMSA to operate this pipeline under a special permit
at higher operating pressures which would increase peak-day transmission
capacity to approximately 1.4 Bcf per day. Boardwalk Pipeline expects to further
increase peak-day transmission capacity to approximately 1.7 Bcf per day,
assuming authority is received to operate under a special permit, by adding
compression in 2010.
Fayetteville and Greenville
Laterals. Boardwalk Pipeline is continuing to test the
Fayetteville and Greenville Laterals for anomalies. A high resolution
deformation tool has been run on these pipelines, and based on preliminary test
results, Boardwalk Pipeline believes there are anomalies in approximately 1.0%
of the pipeline joints. Boardwalk Pipeline is working with PHMSA on a
remediation protocol to be adopted to return these pipelines to normal operating
pressures. Boardwalk Pipeline cannot predict when this protocol will be
completed and if it will be approved by PHMSA. Currently the Fayetteville
Lateral is transporting approximately 0.6 Bcf per day and the Greenville Lateral
is currently transporting approximately 0.3Bcf per day. If Boardwalk Pipeline
receives authority from PHMSA to operate the Fayetteville and Greenville
Laterals at normal operating pressures, the Fayetteville and Greenville Laterals
will each have peak-day transmission capacities of approximately 0.8 Bcf per
day. If additional testing is successful, Boardwalk Pipeline expects to request
permission from PHMSA to operate the Fayetteville Lateral under special permits
at higher operating pressures which would enable it to transport up to
approximately 1.0 Bcf per day. In addition, Boardwalk Pipeline plans to add
compression in 2010 that will increase peak-day delivery capacities to
approximately 1.0 Bcf per day on the Greenville Lateral, and assuming the
Fayetteville Lateral is operating at the higher operating pressures, increase
peak-day delivery capacities to approximately 1.3 Bcf per day on the
Fayetteville Lateral. During the second quarter of 2009, Boardwalk Pipeline
replaced the portion of the Fayetteville Lateral consisting of 18-inch diameter
pipe running under the Little Red River in Arkansas with 36-inch diameter pipe,
thus completing this river crossing.
Assuming Boardwalk Pipeline operates
the expansion pipelines on an uninterrupted basis at normal operating pressures,
based on the current level of reservation charges under firm contracts,
transportation revenues from those projects would be approximately $4 million
per month less in the aggregate than if those pipelines had operated at the
higher operating pressures contemplated. This shortfall would increase over time
as volumes increase under Boardwalk Pipeline’s existing firm contracts and
compression is added to these projects, as planned.
In addition to the projects
previously described, Boardwalk Pipeline is continuing with efforts to expand
the Gulf South system in the Haynesville production area in Louisiana. This
expansion, which Boardwalk Pipeline anticipates will be in service in late 2010,
consists of adding compression at an expected cost of approximately $185
million, subject to approval by the Federal Energy Regulatory Commission.
Customers have contracted for approximately 0.4 Bcf per day of capacity on this
project which will be able to be delivered at normal operating
pressures.
Boardwalk Pipeline is also engaged in
Phase III of the western Kentucky storage expansion project, which consists of
developing approximately 8.3 Bcf of new storage capacity. Boardwalk Pipeline has
placed in service approximately 5.4 Bcf of new working gas capacity and expects
to place the remaining working gas capacity into service in November of 2009.
Boardwalk Pipeline expects this project to cost approximately $88 million, of
which approximately $57 million has been spent as of June 30, 2009.
Due to the substantial completion of
construction on the expansion projects, Boardwalk Pipeline’s materials and
supplies inventory has increased. Boardwalk Pipeline is in the process of
evaluating the level of inventory required to support its ongoing operations and
growth projects and expects this review to be completed in 2009.
Results
of Operations
The following table summarizes the
results of operations for Boardwalk Pipeline for the three and six months ended
June 30, 2009 and 2008 as presented in Note 15 of the Notes to Consolidated
Condensed Financial Statements included under Item 1 of this
Report:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue, primarily
operating
|
|
$ |
201 |
|
|
$ |
206 |
|
|
$ |
425 |
|
|
$ |
418 |
|
Net investment
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Total
|
|
|
201 |
|
|
|
206 |
|
|
|
425 |
|
|
|
419 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
150 |
|
|
|
124 |
|
|
|
296 |
|
|
|
229 |
|
Interest
|
|
|
33 |
|
|
|
18 |
|
|
|
60 |
|
|
|
37 |
|
Total
|
|
|
183 |
|
|
|
142 |
|
|
|
356 |
|
|
|
266 |
|
Income
before income tax
|
|
|
18 |
|
|
|
64 |
|
|
|
69 |
|
|
|
153 |
|
Income
tax expense
|
|
|
(5 |
) |
|
|
(16 |
) |
|
|
(20 |
) |
|
|
(41 |
) |
Net
income
|
|
|
13 |
|
|
|
48 |
|
|
|
49 |
|
|
|
112 |
|
Amounts
attributable to noncontrolling interests
|
|
|
(5 |
) |
|
|
(20 |
) |
|
|
(19 |
) |
|
|
(45 |
) |
Net
income attributable to Loews Corporation
|
|
$ |
8 |
|
|
$ |
28 |
|
|
$ |
30 |
|
|
$ |
67 |
|
Three
Months Ended June 30, 2009 Compared to 2008
Total revenues decreased $5 million
to $201 million for the second quarter of 2009, compared to $206 million for the
2008 period primarily due to a $25 million decrease in fuel revenues due to
unfavorable natural gas prices. Revenues in the second quarter of 2008 were
favorably impacted by a $15 million gain on the sale of gas associated with
Boardwalk Pipeline’s western Kentucky storage expansion project. Partially
offsetting these decreases were a $31 million increase in gas transportation
revenues, excluding fuel, due mainly to Boardwalk Pipeline’s expansion projects
and an increase in PAL revenues of $4 million due to favorable summer to summer
natural gas price spreads.
Operating expenses increased $26
million to $150 million for the second quarter of 2009. This increase was
primarily driven by a $30 million increase in depreciation and property taxes
due to a larger asset base from the expansion projects, a $7 million increase in
operations and maintenance expense due to major maintenance projects and
expansion project operations and $4 million of pipeline investigation and
retirement costs related to the East Texas Pipeline remediation efforts. These
increases were partially offset by a decrease in fuel and transportation
expenses of $20 million primarily as a result of lower natural gas prices.
Interest expense increased $15 million in the second quarter of 2009 to $33
million due to higher debt levels in the second quarter of 2009 and lower
capitalized interest associated with Boardwalk Pipeline’s expansion
projects.
Net income decreased $20 million to
$8 million in the second quarter of 2009, compared to $28 million in the second
quarter of 2008 due to increased expenses, mainly as a result of increased
depreciation and property taxes due to a larger asset base associated with the
expansion projects, that more than offset the increase in revenues from the
expansion projects. The revenues from the pipeline expansion projects were
approximately $58 million lower than expected as a result of operating the
expansion pipelines at reduced operating pressures, with portions of the
expansion pipelines being shut down for periods of time during the second
quarter of 2009.
Six
Months Ended June 30, 2009 Compared to 2008
Total revenues increased $6 million to
$425 million for the first half of 2009, compared to $419 million for the 2008
period primarily due to a $60 million increase in gas transportation revenues,
excluding fuel, due mainly to Boardwalk Pipeline’s expansion projects, an
increase in PAL revenues of $6 million as a result of favorable winter to summer
natural gas price spreads and an increase in gas storage revenues of $4 million
related to an increase in storage capacity associated with the western Kentucky
storage expansion project. These increases were partially offset by a decrease
in fuel revenues of $32 million due to unfavorable natural gas prices. Other
revenues in the first six months of 2008 were
favorably impacted by a $15 million gain
recognized on the sale of gas associated with Boardwalk Pipeline’s western
Kentucky storage expansion project and an $11 million gain from the settlement
of a contract claim.
Operating expenses increased $67
million to $296 million for the first half of 2009. This increase was primarily
driven by a $59 million increase in depreciation and property taxes due to a
larger asset base from the expansion projects, a $12 million increase in
operations and maintenance expense due to major maintenance projects and
expansion project operations, $4 million of pipeline investigation
and retirement costs related to the East Texas Pipeline remediation efforts and
a $7 million increase in administrative and general expense due to higher
outside service costs, unit-based compensation from an increase in the price of
Boardwalk Pipeline’s common units and employee benefits as a result of
reductions in trust assets for the pension and post-retirement benefit plans
driven by investment losses. These increases were partially offset by
a decrease in fuel and gas transportation expenses of $21 million primarily as a
result of lower natural gas prices. Interest expense increased $23 million in
the first half of 2009 to $60 million due to higher debt levels in 2009 and
lower capitalized interest associated with Boardwalk Pipeline’s expansion
projects.
Net income decreased $37 million to
$30 million in the first half of 2009, compared to $67 million in the first half
of 2008 due to increased expenses, mainly as a result of increased depreciation
and property taxes due to a larger asset base associated with the expansion
projects, that more than offset the increase in revenues from the expansion
projects. The revenues from the pipeline expansion projects were approximately
$70 million lower than expected as a result of operating the pipelines at
reduced operating pressures for the majority of the year, with portions of the
expansion pipelines being shut down for periods of time during the second
quarter of 2009.
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 and six months ended June
30, 2009 and 2008 as presented in Note 15 of the Notes to Consolidated Condensed
Financial Statements included in Item 1 of this Report:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue, primarily
operating
|
|
$ |
73 |
|
|
$ |
104 |
|
|
$ |
146 |
|
|
$ |
201 |
|
Net investment
income
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Total
|
|
|
73 |
|
|
|
105 |
|
|
|
146 |
|
|
|
202 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
64 |
|
|
|
70 |
|
|
|
164 |
|
|
|
146 |
|
Interest
|
|
|
3 |
|
|
|
3 |
|
|
|
5 |
|
|
|
6 |
|
Total
|
|
|
67 |
|
|
|
73 |
|
|
|
169 |
|
|
|
152 |
|
Income
(loss) before income tax
|
|
|
6 |
|
|
|
32 |
|
|
|
(23 |
) |
|
|
50 |
|
Income
tax (expense) benefit
|
|
|
(3 |
) |
|
|
(13 |
) |
|
|
8 |
|
|
|
(20 |
) |
Net
income (loss) attributable to Loews Corporation
|
|
$ |
3 |
|
|
$ |
19 |
|
|
$ |
(15 |
) |
|
$ |
30 |
|
Revenues decreased by $32 million and
$56 million or 30.5% and 27.7% for the three and six months ended June 30, 2009
as compared to the corresponding periods of 2008. Net income decreased by $16
million for the three months ended June 30, 2009 as compared to the
corresponding period in 2008. There was a net loss of $15 million for the six
months ended June 30, 2009 as compared to net income of $30 million in the
corresponding period of 2008.
Revenues decreased in the three and six
months ended June 30, 2009, as compared to the corresponding periods of 2008,
due to a decrease in revenue per available room to $139.21 and $138.39, compared
to $200.71 and $193.12 in the prior year, reflecting a 9.4% and 9.0% decrease in
occupancy rates and a decrease in average room rates of $54.05 and $47.99, or
21.3% and 18.6%.
Results at Loews Hotels for the three
and six months ended June 30, 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
six months ended June 30, 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. Pretax
income for the three and six months ended June 30, 2008 reflect an $11 million
gain related to an adjustment in the carrying value of a 50% interest in a joint
venture investment.
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 and gain on disposal of Lorillard and the gain on the sale
of Bulova in 2008.
The following table summarizes the
results of operations for Corporate and Other for the three and six months ended
June 30, 2009 and 2008 as presented in Note 15 of the Notes to Consolidated
Condensed Financial Statements included in Item 1 of this Report:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
$ |
59 |
|
|
$ |
117 |
|
|
$ |
85 |
|
|
$ |
157 |
|
Investment
gains
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Other
revenue
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Total
|
|
|
60 |
|
|
|
119 |
|
|
|
86 |
|
|
|
159 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
14 |
|
|
|
17 |
|
|
|
30 |
|
|
|
34 |
|
Interest
|
|
|
13 |
|
|
|
13 |
|
|
|
27 |
|
|
|
27 |
|
Total
|
|
|
27 |
|
|
|
30 |
|
|
|
57 |
|
|
|
61 |
|
Income
before income tax
|
|
|
33 |
|
|
|
89 |
|
|
|
29 |
|
|
|
98 |
|
Income
tax expense
|
|
|
(13 |
) |
|
|
(29 |
) |
|
|
(12 |
) |
|
|
(33 |
) |
Income
from continuing operations
|
|
|
20 |
|
|
|
60 |
|
|
|
17 |
|
|
|
65 |
|
Discontinued
operations, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of
operations
|
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
343 |
|
Gain on
disposal
|
|
|
|
|
|
|
4,282 |
|
|
|
|
|
|
|
4,362 |
|
Net
income attributable to Loews Corporation
|
|
$ |
20 |
|
|
$ |
4,511 |
|
|
$ |
17 |
|
|
$ |
4,770 |
|
Revenues decreased by $59 million and
$73 million for the three and six months ended June 30, 2009 as compared to the
corresponding periods of 2008. Income from continuing operations decreased by
$40 million and $48 million in the three and six months ended June 30, 2009, as
compared to the corresponding periods of 2008. These declines were due primarily
to decreased performance of the trading portfolio.
In 2008, the Company completed the sale
of Bulova and disposed of its entire ownership interest in Lorillard.
Discontinued operations for the three and six months includes a $4.3 billion
gain on the separation of Lorillard. Discontinued operations for the six months
ended June 30, 2008 also includes a $75 million after tax 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 six months ended June 30,
2009, net cash provided by operating activities was $287 million as compared
with $812 million for the same period in 2008. Cash provided by operating
activities in 2008 was favorably impacted by increased net sales of trading
securities to fund policyholders' withdrawals of investment contract products
issued by CNA, which are reflected as financing cash flows. The primary source
of these cash flows was the indexed group annuity portion of CNA’s pension
deposit business which CNA exited in 2008. Additionally, during the second
quarter of 2009 CNA resumed the use of a trading portfolio for income
enhancement purposes, resulting in the use of operating cash flows during 2009
to fund these activities.
For the six months ended June 30,
2009, net cash used by investing activities was $220 million as compared with
$231 million 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 six months ended June 30,
2009, net cash used by financing activities was $59 million as compared with
$594 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 $70 million.
|
|
·
|
As
of June 30, 2009, CNA’s holding company held short term investments of
$454 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 $671 million at June 30, 2009 compared to $737 million at
December 31, 2008. In the first six months of 2009, Diamond Offshore paid cash
dividends totaling $558 million, consisting of special cash dividends of $523
million and regular quarterly cash dividends of $35 million. In July 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 energy 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 appear 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, including attempts to renegotiate existing terms.
Cash provided by operating activities
was $705 million in the six months ended June 30, 2009, compared to $594 million
in the comparable period of 2008. The increase in cash flows from operations in
the first six months 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.
In June of 2009, Diamond Offshore
acquired the Ocean
Courage, a newbuild, dynamically positioned, semisubmersible drilling
rig, for $460 million, exclusive of final commissioning and initial mobilization
costs, drill string and other necessary capital spares. Diamond Offshore expects
that the rig will be available for drilling operations in the fourth quarter of
2009.
Diamond Offshore has budgeted
approximately $425 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 six months of 2009, Diamond Offshore spent approximately $226
million pursuant to these programs. In addition, Diamond Offshore expects to
spend an aggregate of $510 million during 2009 on rig acquisitions and the
completion of major upgrade activities, including the purchase of the Ocean Courage noted above and
completion of the Ocean
Monarch upgrade in the first quarter of 2009. 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.
In May of 2009, Diamond Offshore issued
$500 million aggregate principal amount of 5.9% senior notes due May 1, 2019.
Diamond Offshore used the net proceeds of $496 million from the sale of the
notes for general corporate purposes.
As of June 30, 2009, there were no loans
outstanding under Diamond Offshore’s $285 million credit facility; however, $63
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.
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,
under Diamond Offshore’s insurance policy that expires on May 1, 2010, 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 for which
Diamond Offshore’s deductible for physical damage is $25 million per
occurrence.
HighMount
At June 30, 2009 and December 31, 2008,
cash and investments amounted to $49 million and $47 million. Net cash flows
provided by operating activities were $151 million in the six months ended June
30, 2009, compared to $274 million in 2008. Key drivers of net operating cash
flows are commodity prices, production volumes and operating costs.
Cash used for investing activities in
the six months ended June 30, 2009 was $150 million compared to $288 million in
2008. The primary driver of cash used in investing activities was capital spent
developing HighMount’s natural gas and oil reserves. HighMount spent $83 million
and $200 million on capital expenditures for its drilling program in the six
months ended June 30, 2009 and 2008. The decrease in capital expenditures was
due to reduced drilling activity in the first six months of 2009.
HighMount maintains a $400 million
revolving credit facility. At June 30, 2009, $115 million in borrowings and a $5
million letter of credit were outstanding under the facility. In addition, 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. Absent this commitment, the available capacity
under the facility is $259 million. All other lenders met their revolving
commitments on the HighMount’s borrowings.
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 June 30, 2009,
HighMount was in compliance with all of its covenants under the credit
agreement.
Boardwalk
Pipeline
At June 30, 2009 and December 31, 2008,
cash and investments amounted to $74 million and $315 million. Funds from
operations for the six months ended June 30, 2009 amounted to $168 million,
compared to $172 million in 2008. In the six months ended June 30, 2009 and
2008, Boardwalk Pipeline’s capital expenditures were $497 million and $1,090
million.
Boardwalk Pipeline has incurred and
will continue to incur costs to remediate the pipeline anomalies previously
described. Additionally, Boardwalk Pipeline is still testing portions of the
Fayetteville and Greenville Laterals for anomalies, thereby making the full cost
of remediating the pipelines unknown. However, it is anticipated that the cost
to remediate the anomalies will not require Boardwalk Pipeline to increase its
previously announced estimated total cost to complete the expansion projects.
The following table presents the estimated total capital expenditures and the
amounts invested through June 30, 2009, for the remaining pipeline expansion
projects and the 42-inch pipe remediation efforts:
|
|
Estimated
|
|
|
Cash
Invested
|
|
|
|
Total
Capital
|
|
|
Through
|
|
|
|
Expenditures
(a)
|
|
|
June
30, 2009
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
Expansion
|
|
$ |
755 |
|
|
$ |
744 |
|
Gulf
Crossing Project
|
|
|
1,765 |
|
|
|
1,582 |
|
Fayetteville
and Greenville Laterals
|
|
|
1,290 |
|
|
|
901 |
|
Haynesville
Project
|
|
|
185 |
|
|
|
|
|
42-inch
Pipe Remediation (b)
|
|
|
55 |
|
|
|
10 |
|
Total
|
|
$ |
4,050 |
|
|
$ |
3,237 |
|
(a)
|
The
estimated total capital expenditures reflect the latest cost estimates,
including those for the 42-inch pipe remediation. These 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.
|
(b)
|
This
estimate represents the cost of remediating the 42-inch pipeline expansion
projects, including the East Texas Pipeline, the Southeast Expansion and
the Gulf Crossing Project. Testing on the Fayetteville and Greenville
Laterals is ongoing, therefore the estimated total capital expenditures
related to the Fayetteville and Greenville Laterals remain unknown at the
time of the filing of this Form
10-Q.
|
Boardwalk Pipeline expects to incur
additional capital expenditures of approximately $815 million to complete the
expansion projects including remediation efforts. The majority of the
expenditures relating to the expansion projects are expected to occur in 2009,
with the balance to be incurred in 2010.
Boardwalk Pipeline has financed its
expansion capital costs through the issuance of equity and debt, borrowings
under its revolving credit facility and available operating cash flow in excess
of its operating needs. Boardwalk Pipeline anticipates the need to finance
approximately $350 million to complete its expansion projects, 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 $150
million of additional capital to fund these projects to the extent the 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 six months ended June 30, 2009 and 2008 were $20 million and $13 million.
The remaining 2009 maintenance capital expenditures of approximately $48 million
are expected to be funded from Boardwalk Pipeline’s operating cash
flows.
In May of 2009, Boardwalk Pipeline
entered into a Subordinated Loan Agreement to a subsidiary of the
Company ("BPHC") under which Boardwalk Pipeline could borrow up to $200
million (“Subordinated Loans”). Boardwalk Pipeline borrowed $100 million of
Subordinated Loans in May of 2009 and borrowed the remaining $100 million of
Subordinated Loans in June of 2009, all of which proceeds were used to fund a
portion of the cost of the expansion projects and to reduce borrowings under the
revolving credit facility described below. The Subordinated Loans bear interest
at 8.0% per year, payable semi-
annually in June and December, commencing
December of 2009, and mature six months after the maturity (including any
term-out option period) of the revolving credit facility.
In June of 2009, Boardwalk Pipeline
issued and sold approximately 6.7 million of common units to BPHC at a price of
$21.99 per unit, receiving net cash proceeds of approximately $150 million,
including a $3 million contribution received from its general partner to
maintain its 2% general partner interest.
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 June 30, 2009, borrowings outstanding under the credit facility were $704
million with a weighted-average interest rate of 0.6%. In July of 2009,
Boardwalk Pipeline borrowed an additional $50 million under the credit facility,
which increased its borrowings to $754 million. Boardwalk Pipeline was in
compliance with all covenant requirements under the credit facility at June 30,
2009.
During the six months ended June 30,
2009, Boardwalk Pipeline paid cash distributions, including incentive
distribution rights, of $173 million, of which $127 million was
received by the Company. In July of 2009, Boardwalk Pipeline declared a
quarterly distribution of $0.49 per common unit.
Loews
Hotels
Cash and investments totaled $69 million
at June 30, 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 June 30, 2009 totaled $2.4 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 $471 million in dividends and interest from
our subsidiaries, partially offset by the funding of $200 million of
subordinated loans to Boardwalk Pipeline, the purchase of $150 million of common
units from Boardwalk Pipeline as described in “Liquidity and Capital Resources –
Boardwalk Pipeline” and $54 million of dividends paid to our
shareholders.
As of June 30, 2009, there were
434,017,991 shares of our common stock outstanding. During the six months ended
June 30, 2009, we purchased 1,195,900 shares of our common stock at an aggregate
cost of $32 million and 329,500 shares of CNA common stock at an aggregate cost
of $2 million. During the month of July 2009, we purchased 1,000,000 shares of
our common stock at an aggregate cost of $26 million. Depending on market and
other conditions, we may purchase shares of our and our subsidiaries’ common
stock in the open market or otherwise.
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 subsided moderately
during the second quarter of 2009. While the government has initiated programs
intended to stabilize and improve markets and the economy, the ultimate impact
of these programs remains uncertain and economic conditions in the U.S. remain
challenging. As a result, we incurred realized losses during both the first and
second quarters of 2009 which have adversely impacted our results of operations.
The first quarter losses were primarily driven by continuing credit issues
attributable to the asset-backed and financial sectors. The second quarter
losses were primarily driven by the actual and anticipated impact of difficult
economic conditions on residential and commercial mortgage-backed
securities.
Insurance
CNA maintains a large portfolio of
fixed maturity and equity securities, including large amounts of corporate and
government issued debt securities, residential and commercial mortgage-backed
securities, and other asset-backed securities and investments in limited
partnerships which pursue a variety of long and short investment strategies
across a broad array of asset classes. 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
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturity securities
|
|
$ |
487 |
|
|
$ |
476 |
|
|
$ |
962 |
|
|
$ |
994 |
|
Short
term investments
|
|
|
11 |
|
|
|
26 |
|
|
|
21 |
|
|
|
65 |
|
Limited
partnerships
|
|
|
165 |
|
|
|
46 |
|
|
|
95 |
|
|
|
7 |
|
Equity
securities
|
|
|
14 |
|
|
|
39 |
|
|
|
28 |
|
|
|
44 |
|
Trading
portfolio
|
|
|
8 |
|
|
|
(4 |
) |
|
|
8 |
|
|
|
(81 |
) |
Other
|
|
|
1 |
|
|
|
5 |
|
|
|
4 |
|
|
|
11 |
|
Total
investment income
|
|
|
686 |
|
|
|
588 |
|
|
|
1,118 |
|
|
|
1,040 |
|
Investment
expense
|
|
|
(11 |
) |
|
|
(12 |
) |
|
|
(23 |
) |
|
|
(30 |
) |
Net
investment income
|
|
$ |
675 |
|
|
$ |
576 |
|
|
$ |
1,095 |
|
|
$ |
1,010 |
|
Net investment income increased by
$99 million for the three months ended June 30, 2009 compared with the same
period in 2008. The increase was primarily driven by improved results from
limited partnership investments. This increase was partially offset by the
impact of lower risk-free interest rates, particularly in short term rates.
Limited partnership investments generally present greater volatility, higher
illiquidity, and greater risk than fixed income investments.
Net investment income increased by
$85 million for the six months ended June 30, 2009 compared with the same period
in 2008. Excluding trading portfolio losses of $81 million in 2008, net
investment income increased by $4 million. The trading portfolio losses were
related to CNA’s 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 fixed maturity investment
portfolio and short term investments provided an income yield of 5.1% and 5.7%
for the six months ended June 30, 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
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and
obligations of government agencies
|
|
$ |
(6 |
) |
|
$ |
(46 |
) |
|
$ |
(27 |
) |
|
$ |
(14 |
) |
Corporate and other taxable
bonds
|
|
|
(96 |
) |
|
|
(8 |
) |
|
|
(269 |
) |
|
|
(39 |
) |
States, municipalities and
political subdivisions-tax exempt securities
|
|
|
17 |
|
|
|
10 |
|
|
|
54 |
|
|
|
50 |
|
Asset-backed
securities
|
|
|
(307 |
) |
|
|
(118 |
) |
|
|
(499 |
) |
|
|
(157 |
) |
Redeemable preferred
stock
|
|
|
|
|
|
|
4 |
|
|
|
(9 |
) |
|
|
|
|
Total fixed maturity
securities
|
|
|
(392 |
) |
|
|
(158 |
) |
|
|
(750 |
) |
|
|
(160 |
) |
Equity
securities
|
|
|
64 |
|
|
|
(14 |
) |
|
|
(152 |
) |
|
|
(29 |
) |
Derivative
securities
|
|
|
33 |
|
|
|
56 |
|
|
|
64 |
|
|
|
12 |
|
Short term
investments
|
|
|
(5 |
) |
|
|
5 |
|
|
|
8 |
|
|
|
7 |
|
Other
|
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
8 |
|
Total
realized investment losses
|
|
|
(297 |
) |
|
|
(111 |
) |
|
|
(829 |
) |
|
|
(162 |
) |
Income
tax benefit
|
|
|
98 |
|
|
|
40 |
|
|
|
285 |
|
|
|
58 |
|
Net
realized investment losses
|
|
|
(199 |
) |
|
|
(71 |
) |
|
|
(544 |
) |
|
|
(104 |
) |
Amounts
attributable to noncontrolling interests
|
|
|
21 |
|
|
|
6 |
|
|
|
56 |
|
|
|
10 |
|
Net
realized investment losses attributable to Loews Corporation
|
|
$ |
(178 |
) |
|
$ |
(65 |
) |
|
$ |
(488 |
) |
|
$ |
(94 |
) |
Net realized investment losses
increased by $113 million for the three months ended June 30, 2009 compared with
the same period in 2008. Net realized investment losses increased by $394
million for the six months ended June 30, 2009 compared with the same period in
2008 driven by OTTI losses recognized in earnings. Further information on CNA’s
realized gains and losses, including OTTI losses and impairment decision
process, is set forth in Note 2 of the Notes to Consolidated Condensed Financial
Statements included under Item 1. During the second quarter of 2009, the Company
adopted FSP No. FAS 115-2 and FAS 124-2, as discussed in Note 1 of the Notes to
Consolidated Condensed Financial Statements included under Item 1. The adoption
of FSP No. FAS 115-2 and FAS 124-2 resulted in a cumulative effect adjustment of
$109 million, after tax and noncontrolling interests, which reclassified the
non-credit component of previously recorded OTTI losses to Accumulated other
comprehensive income from Retained earnings on the Consolidated Condensed
Statement of Equity. Losses resulting from sales and OTTI of securities within
the cumulative effect adjustment inventory of $47 million, after tax and
noncontrolling interests, were recognized in earnings in the second quarter of
2009 and are reflected in the table above.
CNA’s fixed maturity portfolio
consists primarily of high quality bonds, 90.4% and 91.2% of which were rated as
investment grade (rated BBB- or higher) at June 30, 2009 and December 31, 2008.
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.
The following table summarizes the
ratings of CNA’s fixed maturity portfolio at carrying value.
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and Agencies
|
|
$ |
3,128 |
|
|
|
10.1 |
% |
|
$ |
4,611 |
|
|
|
16.0 |
% |
AAA
rated
|
|
|
7,165 |
|
|
|
23.1 |
|
|
|
8,494 |
|
|
|
29.4 |
|
AA
and A rated
|
|
|
10,436 |
|
|
|
33.6 |
|
|
|
8,166 |
|
|
|
28.3 |
|
BBB
rated
|
|
|
7,324 |
|
|
|
23.6 |
|
|
|
5,029 |
|
|
|
17.3 |
|
Non-investment
grade
|
|
|
2,987 |
|
|
|
9.6 |
|
|
|
2,587 |
|
|
|
9.0 |
|
Total
|
|
$ |
31,040 |
|
|
|
100.0 |
% |
|
$ |
28,887 |
|
|
|
100.0 |
% |
Non-investment grade bonds, as
presented in the table below, 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.
The following table summarizes the
ratings of CNA’s non-investment grade fixed maturity bond portfolio at carrying
value.
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BB
|
|
$ |
1,244 |
|
|
|
41.6 |
% |
|
$ |
1,585 |
|
|
|
61.3 |
% |
B
|
|
|
1,084 |
|
|
|
36.3 |
|
|
|
754 |
|
|
|
29.1 |
|
CCC-C
|
|
|
602 |
|
|
|
20.2 |
|
|
|
232 |
|
|
|
9.0 |
|
D
|
|
|
57 |
|
|
|
1.9 |
|
|
|
16 |
|
|
|
0.6 |
|
Total
|
|
$ |
2,987 |
|
|
|
100.0 |
% |
|
$ |
2,587 |
|
|
|
100.0 |
% |
The increase in non-investment grade
holdings primarily reflects the downgrade of previously investment grade rated
asset-backed securities aggregating $441 million of fair value. The remaining
change in non-investment grade was attributable to price appreciation and net
sales.
Included within the fixed maturity
portfolio are securities that contain credit support from third party guarantees
from mono-line insurers. The ratings on these securities reflect the greater of
the underlying rating of the issuer or the insured rating. At June 30, 2009,
$678 million of the carrying value of the fixed maturity portfolio carried a
third party guarantee that increased the underlying average rating of those
securities from A+ to AA+. Of this amount, 90.0% was within the tax-exempt bond
segment. The third party credit support on tax-exempt bonds is provided by seven
mono-line insurers, the largest exposure based on fair value being Financial
Security Assurance Inc. at 65.0%, National Re Corporation at 16.0% and Assured
Guarantee Corporation at 11.0%.
At June 30, 2009 and December 31,
2008, approximately 97.0% of the fixed maturity 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 June 30, 2009 was $341 million, which represents less
than 1.0% of CNA’s total investment portfolio. These securities were in a net
unrealized gain position of $179 million at June 30, 2009.
The following table provides the
composition of available-for-sale fixed maturity securities in a gross
unrealized loss position at June 30, 2009 by maturity profile. Securities not
due at a single date are allocated based on weighted average life.
|
|
Percent
of
|
|
|
Percent
of
|
|
|
|
Market
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
|
4.0 |
% |
|
|
3.0 |
% |
Due
after one year through five years
|
|
|
23.0 |
|
|
|
21.0 |
|
Due
after five years through ten years
|
|
|
21.0 |
|
|
|
23.0 |
|
Due
after ten years
|
|
|
52.0 |
|
|
|
53.0 |
|
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
maturity securities, short term investments, non-redeemable 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.
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
Effective
Duration
|
|
|
|
|
|
Effective
Duration
|
|
|
|
Fair
Value
|
|
|
(Years)
|
|
|
Fair
Value
|
|
|
(Years)
|
|
(In
millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segregated
investments
|
|
$ |
9,161 |
|
|
|
10.5 |
|
|
$ |
8,168 |
|
|
|
9.9 |
|
Other
interest sensitive investments
|
|
|
26,705 |
|
|
|
4.0 |
|
|
|
25,194 |
|
|
|
4.5 |
|
Total
|
|
$ |
35,866 |
|
|
|
5.6 |
|
|
$ |
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:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term investments available-for-sale:
|
|
|
|
|
|
|
Commercial
paper
|
|
$ |
986 |
|
|
$ |
563 |
|
U.S. Treasury
securities
|
|
|
2,483 |
|
|
|
2,258 |
|
Money market
funds
|
|
|
238 |
|
|
|
329 |
|
Other, including collateral
held related to securities lending
|
|
|
774 |
|
|
|
384 |
|
Total
short term investments
|
|
$ |
4,481 |
|
|
$ |
3,534 |
|
There was no cash collateral held
related to securities lending, included in other short term investments, at June
30, 2009 or 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
June
30, 2009
|
|
RMBS
(a)
|
|
|
CMBS
(b)
|
|
|
ABS
(c)
|
|
|
Total
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government agencies
|
|
$ |
2,089 |
|
|
|
|
|
|
|
|
$ |
2,089 |
|
AAA
|
|
|
3,091 |
|
|
$ |
511 |
|
|
$ |
328 |
|
|
|
3,930 |
|
AA
|
|
|
259 |
|
|
|
72 |
|
|
|
6 |
|
|
|
337 |
|
A
|
|
|
203 |
|
|
|
50 |
|
|
|
9 |
|
|
|
262 |
|
BBB
|
|
|
255 |
|
|
|
7 |
|
|
|
87 |
|
|
|
349 |
|
Non-investment
grade and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
tranches
|
|
|
609 |
|
|
|
12 |
|
|
|
|
|
|
|
621 |
|
Total
fair value
|
|
$ |
6,506 |
|
|
$ |
652 |
|
|
$ |
430 |
|
|
$ |
7,588 |
|
Total
amortized cost
|
|
$ |
7,699 |
|
|
$ |
901 |
|
|
$ |
476 |
|
|
$ |
9,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime
(included above)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
$ |
715 |
|
|
|
|
|
|
|
|
|
|
$ |
715 |
|
Amortized
cost
|
|
|
1,109 |
|
|
|
|
|
|
|
|
|
|
|
1,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A
(included above)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
$ |
838 |
|
|
|
|
|
|
|
|
|
|
$ |
838 |
|
Amortized
cost
|
|
|
1,055 |
|
|
|
|
|
|
|
|
|
|
|
1,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Residential mortgage-backed securities (“RMBS”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
Commercial mortgage obligations (“CMBS”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
Other asset-backed securities (“Other ABS”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The exposure to sub-prime residential
mortgage (sub-prime) collateral and Alternative A residential mortgages that
have lower than normal standards of loan documentation (Alt-A) collateral is
measured by the original deal structure. Of the securities with sub-prime
exposure, approximately 93.0% were rated investment grade, while 78.0% of the
Alt-A securities were rated investment grade. At June 30, 2009, $7 million of
the carrying value of the sub-prime and Alt-A securities carried a third-party
guarantee. We believe that each of these securities would be rated investment
grade even without the benefit of any applicable third-party
guarantees.
Included in the $480 million of OTTI
losses related to asset-backed securities recognized in earnings on the
Consolidated Condensed Statements of Operations for the six months ended June
30, 2009, $250 million was related to securities with sub-prime and Alt-A
exposure. Continued deterioration in these markets beyond our current
expectations may cause us to reconsider and incur 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 six months ended June 30, 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 June 30, 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 June 30, 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 12 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 reflects
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 following risk factors are
restated in their entirety:
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
flow.
A portion of the expected maximum
daily capacity of Boardwalk Pipeline’s pipeline expansion projects is contingent
on receiving and maintaining authority from PHMSA to operate at higher operating
pressures.
Boardwalk Pipeline is seeking
authority from PHMSA to operate its new expansion pipeline projects under
special permits that would allow each pipeline to operate at higher than normal
operating pressures (80.0% of the pipe’s Specified Minimum Yield Strength, or
SMYS, as opposed to the normal operating pressure of 72.0% SMYS). The ability to
operate at higher operating pressures increases the transportation capacity of
the pipelines, thereby increasing its maximum peak-day transmission capacity.
For each expansion pipeline, Boardwalk Pipeline has entered into firm
transportation contracts with shippers which would utilize the maximum capacity
available from operating at higher operating pressures. Therefore,
absent such authority, Boardwalk Pipeline will not be able to transport all of
the contracted quantities of natural gas on these pipelines.
During the permitting process
Boardwalk Pipeline discovered anomalies in certain pipeline segments on each of
its expansion projects. Accordingly, operating pressures on each
pipeline were reduced below normal operating pressures as Boardwalk Pipeline
proceeds to perform additional testing procedures, remediate the anomalies and
seek authority from PHMSA to increase operating pressures, first to normal
operating pressures and subsequently to higher operating pressures under the
special permit. Boardwalk Pipeline has also shut down pipeline segments for
periods of time to remediate anomalies. During the second quarter of 2009,
Boardwalk Pipeline entered into an agreement with PHMSA, modifying each of its
special permits, that define the testing protocol and remediation efforts,
including replacement of certain pipe joints, performing investigative digs to
physically inspect the pipe sections and conducting metallurgical testing and
analysis on a variety of pipe samples, that Boardwalk Pipeline needs to complete
in order to return to normal operating pressures and to operate at higher
operating pressures. PHMSA retains discretion as to whether to grant,
or to maintain in force, authority to operate a pipeline at higher operating
pressures.
The pressure reductions and shutdowns
that have been undertaken to remediate anomalies on Boardwalk Pipeline’s
expansion pipeline projects have reduced throughput and adversely impacted
Boardwalk Pipeline’s transportation revenues, net income and cash flow. With
respect to each of the expansion pipelines, 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 higher levels under the special permits, Boardwalk Pipeline will not
be able to operate that pipeline at its anticipated peak-day
transmission capacity, which could continue to have a material adverse affect on
its business, financial condition, results of operations and cash
flow, including the ability to make distributions to unitholders. In addition,
Boardwalk Pipeline has incurred and will continue to incur costs, which may be
significant, to inspect, test and replace defective pipe segments on each of its
expansion pipelines.
Boardwalk
Pipeline is undertaking large, complex expansion projects which involve
significant risks that may adversely affect its business.
Boardwalk Pipeline is currently
undertaking several large, complex pipeline and storage expansion projects and
may also undertake additional expansion projects in the future. In pursuing
these and previous projects, Boardwalk Pipeline
experienced significant cost overruns and may
experience cost increases in the future. Boardwalk Pipeline also experienced
delays in constructing and commissioning these pipelines and may experience
additional delays in the future. Delays in construction and commissioning of new
pipelines could result from a variety of factors and have resulted in penalties
under customer contracts such as liquidated damage payments and could in the
future result in similar losses. In some cases, certain customers could have the
right to terminate their transportation agreements if the related expansion
project is not completed by a date specified in their precedent agreements and
the exercise of such rights could have a material adverse effect on Boardwalk
Pipeline’s results of operations and cash flow, including the ability to make
distributions to unitholders.
The cost overruns and construction
and commissioning delays experienced by Boardwalk Pipeline have resulted from a
variety of factors, including the following:
|
§
|
delays
in obtaining regulatory approvals, including delays in receiving
authorization from PHMSA to operate the expansion pipelines at higher
operating pressures under special permits following the discovery of
anomalies in portions of its expansion
pipelines;
|
|
§
|
difficult
construction conditions, including adverse weather conditions, difficult
river crossings and higher density rock formations than
anticipated;
|
|
§
|
delays
in obtaining key materials; and
|
|
§
|
shortages
of qualified labor and escalating costs of labor and materials resulting
from the high level of construction activity in the pipeline
industry.
|
In pursuing current or future
expansion projects, Boardwalk Pipeline could experience additional delays or
cost increases for the reasons described above or as a result of other factors.
Boardwalk Pipeline may not be able to complete its current or future expansion
projects on the expected terms, cost or schedule, or at all. In addition,
Boardwalk Pipeline cannot be certain that, if completed, it will be able to
operate these projects, or that they will perform, in accordance with
expectations. Other areas of Boardwalk Pipeline’s business may suffer as a
result of the diversion of management’s attention and other resources from other
business concerns to its expansion projects. Any of these factors could impair
Boardwalk Pipeline’s ability to realize revenues from its expansion projects
sufficient to cover the costs associated with owning and operating these
pipelines and to provide the anticipated benefits from the projects, which could
have a material adverse effect on Boardwalk Pipeline’s business, results of
operations and cash flow, including the ability to make distributions to
unitholders.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
Items 2 (a) and (b) are
inapplicable.
(c) STOCK REPURCHASES
Period
|
|
(a)
Total number
of
shares
purchased
|
|
|
(b)
Average
price
paid per
share
|
|
|
(c)
Total number of shares purchased as
part
of publicly announced plans or programs
|
|
|
(d)
Maximum number of shares (or approximate dollar value)
of
shares that may yet be purchased under the plans or programs (in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
1, 2009 -
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
|
1,195,900 |
|
|
$ |
26.79 |
|
|
|
N/A |
|
|
|
N/A |
|
Item
4. Submission of Matters to a Vote of Security
Holders.
Set forth below is information
relating to the 2009 Annual Meeting of Shareholders of the
Registrant.
The annual meeting was called to
order at 11:00 A.M., May 12, 2009. Represented at the meeting, in person or by
proxy, were shares representing 394,095,402 votes, approximately 90.5% of the
votes represented by issued and outstanding shares entitled to
vote.
The following business was
transacted:
Election of
Directors
Over 79.0% of the votes cast for
directors were voted for the election of the following directors. The number of
votes for, against and abstained with respect to each director was as
follows:
|
Votes For
|
|
Votes Against
|
|
Votes Abstained
|
|
|
|
|
|
|
|
|
Ann
E. Berman
|
390,429,390
|
|
3,465,990
|
|
200,022
|
|
Joseph
L. Bower
|
372,249,466
|
|
21,602,595
|
|
243,341
|
|
Charles
M. Diker
|
390,042,499
|
|
3,849,236
|
|
203,667
|
|
Paul
J. Fribourg
|
386,786,449
|
|
7,049,642
|
|
259,311
|
|
Walter
L. Harris
|
313,766,725
|
|
80,053,597
|
|
275,080
|
|
Philip
A. Laskawy
|
365,434,438
|
|
28,386,306
|
|
274,658
|
|
Ken
Miller
|
390,380,620
|
|
3,497,741
|
|
217,041
|
|
Gloria
R. Scott
|
386,978,592
|
|
6,851,142
|
|
265,668
|
|
Andrew
H. Tisch
|
385,934,963
|
|
7,976,759
|
|
183,680
|
|
James
S. Tisch
|
385,443,338
|
|
8,477,923
|
|
174,141
|
|
Jonathan
M. Tisch
|
385,960,446
|
|
7,962,571
|
|
172,385
|
|
Ratification of the
appointment of independent auditors
Approved – 389,955,003 votes,
approximately 98.9% of the votes cast, voted to ratify the appointment of
Deloitte & Touche, LLP as independent auditors for the Company. 3,947,967
votes, approximately 1.0% of the votes cast, voted against, and shares
representing 192,432 votes, approximately 0.1% of the votes cast,
abstained.
Approval of charter
amendment
Approved – 392,007,063 votes,
approximately 90.1% of the votes represented by outstanding shares, voted to
approve the proposed amendment to the Company’s charter. 1,382,179 votes,
approximately 0.3% of the votes represented by shares outstanding, voted
against, and shares present at the meeting representing 706,160 votes,
approximately 0.2% of the votes represented by shares outstanding,
abstained.
Shareholder proposal
relating to cumulative voting
Rejected – 292,297,710 votes,
approximately 80.4% of the votes cast, voted against this shareholder proposal.
70,729,353 votes, approximately 19.4% of the votes cast, were cast for, and
shares representing 726,320 votes, approximately 0.2% of the votes cast,
abstained. In addition, there were shares representing 30,342,019 votes as to
which brokers indicated that they did not have authority to vote.
Item
6. Exhibits.
|
Exhibit
|
Description
of Exhibit
|
Number
|
|
|
Certificate
of Amendment of Certificate of Incorporation of Loews Corporation dated
May 12, 2009
|
3.1*
|
|
|
Lease
Agreement dated November 20, 2001 between 61st
& Park Ave. Corp. and Preston R. Tisch and Joan Tisch
|
10.1*
|
|
|
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*
|
|
|
Financial
statements from the quarterly report on Form 10-Q of the Company for
the quarter ended June 30, 2009, filed on August 4, 2009, formatted in
eXtensible Business Reporting Language: (i) the Consolidated
Condensed Balance Sheets, (ii) the Consolidated Condensed Statements
of Operations, (iii) the Consolidated Condensed Statements of
Comprehensive Income, (iv) the Consolidated Condensed Statements of
Equity, (v) the Consolidated Condensed Statements of Cash Flows and
(vi) the Notes to Consolidated Condensed Financial Statements tagged
as blocks of text.
|
101**
|
*
|
Filed
herewith.
|
**
|
To be filed
within 30 days in accordance with Rule 405(a) (2) of Regulation
S-T.
|
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:
August 3, 2009
|
By:
|
/s/
Peter W. Keegan
|
|
|
PETER
W. KEEGAN
|
|
|
Senior
Vice President and
|
|
|
Chief
Financial Officer
|
|
|
(Duly
authorized officer
|
|
|
and
principal financial
|
|
|
officer)
|