Cna Financial Corp 10-Q for FY2020 Q1

Cna Financial Corp (CNA)

10-Q 2020-05-04 For: 2020-03-31

Added on April 11, 2026

About this 10-Q

Cna Financial Corp filed this 10-Q on May 4, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.29B; down 15.0% from $2.7B a year earlier
Net loss: $61M; compared with net income of $342M a year earlier
Diluted EPS: -$0.23; compared with $1.25 a year earlier

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Delaware		36-6169860
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



151 N. Franklin		60606
Chicago,	Illinois	(Zip Code)
(Address of principal executive offices)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par value $2.50	"CNA"	New York Stock Exchange
		Chicago Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐



Item Number		Page Number
	PART I
1.	Condensed Consolidated Financial Statements:	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2020 and 2019 (Unaudited)	4
	Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2020 and 2019 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
3.	Quantitative and Qualitative Disclosures About Market Risk	59
4.	Controls and Procedures	59
	PART II
1.	Legal Proceedings	60
1A.	Risk Factors	60
2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
6.	Exhibits	62



	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Three months ended March 31
(In millions, except per share data)	2020			2019
Revenues
Net earned premiums	$	1,869		$	1,803
Net investment income	329			571
Net investment (losses) gains	(216		)	31
Non-insurance warranty revenue	301			281
Other revenues	8			9
Total revenues	2,291			2,695
Claims, Benefits and Expenses
Insurance claims and policyholders’ benefits	1,425			1,357
Amortization of deferred acquisition costs	344			342
Non-insurance warranty expense	281			260
Other operating expenses	299			283
Interest	31			34
Total claims, benefits and expenses	2,380			2,276
(Loss) income before income tax	(89		)	419
Income tax benefit (expense)	28			(77		)
Net (loss) income	$	(61	)	$	342

Basic (loss) earnings per share	$	(0.23	)	$	1.26

Diluted (loss) earnings per share	$	(0.23	)	$	1.25

Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic	271.5			271.6
Diluted	271.5			272.6



Three months ended March 31
(In millions)	2020			2019
Comprehensive (Loss) Income
Net (loss) income	$	(61	)	$	342
Other Comprehensive (Loss) Income, net of tax
Changes in:
Net unrealized gains and losses on investments with an allowance for credit losses	(11		)	—
Net unrealized gains and losses on other investments	(1,044		)	530
Net unrealized gains and losses on investments	(1,055		)	530
Foreign currency translation adjustment	(77		)	17
Pension and postretirement benefits	11			7
Other comprehensive (loss) income, net of tax	(1,121		)	554
Total comprehensive (loss) income	$	(1,182	)	$	896



(In millions, except share data)	March 31, 2020 (Unaudited)			December 31, 2019
Assets
Investments:
Fixed maturity securities at fair value (amortized cost of $38,034 and $38,126, less allowance for credit loss of $49 and $-)	$	40,098		$	42,207
Equity securities at fair value (cost of $936 and $820)	799			865
Limited partnership investments	1,509			1,752
Other invested assets	63			65
Mortgage loans (less allowance for uncollectible receivables of $20 and $-)	1,021			994
Short term investments	596			1,861
Total investments	44,086			47,744
Cash	857			242
Reinsurance receivables (less allowance for uncollectible receivables of $23 and $25)	4,328			4,179
Insurance receivables (less allowance for uncollectible receivables of $30 and $32)	2,502			2,449
Accrued investment income	402			395
Deferred acquisition costs	683			662
Deferred income taxes	518			199
Property and equipment at cost (less accumulated depreciation of $224 and $215)	271			282
Goodwill	145			147
Deferred non-insurance warranty acquisition expense	2,905			2,840
Other assets (includes $15 and $21 due from Loews Corporation)	1,708			1,473
Total assets	$	58,405		$	60,612
Liabilities
Insurance reserves:
Claim and claim adjustment expenses	$	21,872		$	21,720
Unearned premiums	4,745			4,583
Future policy benefits	11,734			12,311
Long term debt	2,680			2,679
Deferred non-insurance warranty revenue	3,848			3,779
Other liabilities (includes $7 and $21 due to Loews Corporation)	3,164			3,325
Total liabilities	48,043			48,397
Commitments and contingencies (Notes C and F)
Stockholders' Equity
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 271,370,988 and 271,412,591 shares outstanding)	683			683
Additional paid-in capital	2,187			2,203
Retained earnings	8,634			9,348
Accumulated other comprehensive (loss) income	(1,070		)	51
Treasury stock (1,669,255 and 1,627,652 shares), at cost	(72		)	(70		)
Total stockholders’ equity	10,362			12,215
Total liabilities and stockholders' equity	$	58,405		$	60,612



Three months ended March 31
(in millions)	Corporate and other bonds
Allowance for credit losses:
Beginning balance	$	—
Additions to the allowance for credit losses:
Impact of adopting ASC 326	6
For securities for which credit losses were not previously recorded	48
For available-for-sale securities accounted for as PCD assets	1

Reductions to the allowance for credit losses:
Securities sold during the period (realized)	5
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis	1
Write-offs charged against the allowance	—
Recoveries of amounts previously written off	—

Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period	—
Ending balance as of March 31, 2020	$	49



March 31, 2020	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses⁽¹⁾		Estimated Fair Value
(In millions)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses⁽¹⁾		Estimated Fair Value
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	20,181	$	1,419	$	817	$	49	$	20,734
States, municipalities and political subdivisions	8,957		1,536		2		—		10,491
Asset-backed:
Residential mortgage-backed	4,198		207		8		—		4,397
Commercial mortgage-backed	2,207		36		153		—		2,090
Other asset-backed	1,868		9		133		—		1,744
Total asset-backed	8,273		252		294		—		8,231
U.S. Treasury and obligations of government-sponsored enterprises	147		8		—		—		155
Foreign government	452		15		4		—		463
Redeemable preferred stock	9		—		—		—		9
Total fixed maturity securities available-for-sale	38,019		3,230		1,117		49		40,083
Total fixed maturity securities trading	15		—		—		—		15
Total fixed maturity securities	$	38,034	$	3,230	$	1,117	$	49	$	40,098



December 31, 2019	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Unrealized OTTI Losses (Gains)
(In millions)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Unrealized OTTI Losses (Gains)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	19,789	$	2,292	$	32	$	22,049	$	—
States, municipalities and political subdivisions	9,093		1,559		—		10,652		—
Asset-backed:
Residential mortgage-backed	4,387		133		1		4,519		(17		)
Commercial mortgage-backed	2,265		86		5		2,346		1
Other asset-backed	1,925		41		4		1,962		(3		)
Total asset-backed	8,577		260		10		8,827		(19		)
U.S. Treasury and obligations of government-sponsored enterprises	146		1		2		145		—
Foreign government	491		14		1		504		—
Redeemable preferred stock	10		—		—		10		—
Total fixed maturity securities available-for-sale	38,106		4,126		45		42,187		$	(19	)
Total fixed maturity securities trading	20		—		—		20
Total fixed maturity securities	$	38,126	$	4,126	$	45	$	42,207



	Less than 12 Months				12 Months or Longer				Total
March 31, 2020	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
(In millions)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	7,036	$	804	$	44	$	13	$	7,080	$	817
States, municipalities and political subdivisions	82		2		—		—		82		2
Asset-backed:
Residential mortgage-backed	166		7		22		1		188		8
Commercial mortgage-backed	1,185		151		12		2		1,197		153
Other asset-backed	1,510		131		9		2		1,519		133
Total asset-backed	2,861		289		43		5		2,904		294
U.S. Treasury and obligations of government-sponsored enterprises	2		—		—		—		2		—
Foreign government	76		4		—		—		76		4
Redeemable preferred stock	9		—		—		—		9		—
Total	$	10,066	$	1,099	$	87	$	18	$	10,153	$	1,117



	Mortgage Loans Amortized Cost Basis by Origination Year ⁽¹⁾
As of March 31, 2020	2020		2019		2018		2017		2016		Prior		Total
DSCR ≥1.6x
LTV less than 55%	$	60	$	32	$	19	$	92	$	41	$	130	$	374
LTV 55% to 65%	—		32		29		55		4		—		120
LTV greater than 65%	—		5		—		—		—		—		5
DSCR 1.2x - 1.6x
LTV less than 55%	—		33		10		13		16		126		198
LTV 55% to 65%	—		73		32		32		—		—		137
LTV greater than 65%	—		85		—		—		—		—		85
DSCR ≤1.2
LTV less than 55%	—		1		11		27		—		9		48
LTV 55% to 65%	—		14		14		—		—		—		28
LTV greater than 65%	—		22		—		—		24		—		46
Total	$	60	$	297	$	115	$	219	$	85	$	265	$	1,041



Three months ended March 31
(In millions)	2020			2019
Cash Flows from Operating Activities
Net (loss) income	$	(61	)	$	342
Adjustments to reconcile net (loss) income to net cash flows provided by operating activities:
Deferred income tax (benefit) expense	(37		)	32
Trading portfolio activity	7			(3		)
Net investment losses (gains)	216			(31		)
Equity method investees	98			14
Net amortization of investments	(15		)	(25		)
Depreciation and amortization	16			19
Changes in:
Receivables, net	(229		)	44
Accrued investment income	(8		)	(15		)
Deferred acquisition costs	(27		)	(30		)
Insurance reserves	510			57
Other, net	(258		)	(117		)
Net cash flows provided by operating activities	212			287
Cash Flows from Investing Activities
Dispositions:
Fixed maturity securities - sales	823			2,259
Fixed maturity securities - maturities, calls and redemptions	799			576
Equity securities	98			64
Limited partnerships	204			186
Mortgage loans	15			35
Purchases:
Fixed maturity securities	(1,818		)	(2,447		)
Equity securities	(220		)	(36		)
Limited partnerships	(32		)	(114		)
Mortgage loans	(61		)	(59		)
Change in other investments	(6		)	(6		)
Change in short term investments	1,267			(177		)
Purchases of property and equipment	(3		)	(8		)
Other, net	21			16
Net cash flows provided by investing activities	1,087			289
Cash Flows from Financing Activities
Dividends paid to common stockholders	(649		)	(643		)
Purchase of treasury stock	(18		)	(14		)



March 31, 2020	Estimated Fair Value		Gross Unrealized Losses
(In millions)	Estimated Fair Value		Gross Unrealized Losses
Corporate and other bonds:
Basic Materials	$	727	$	78
Communications	349		27
Consumer, cyclical - Other	390		56
Consumer, non-cyclical - Other	401		27
Energy - Oil & Gas	575		191
Energy - Pipelines	523		112
Entertainment	148		23
Financial - Other	1,711		89
Financial - Real Estate/REITS	599		45
Industrial	468		55
Retail	150		18
Technology	290		30
Transportation	73		5
Travel & Related	269		37
Utilities	407		24
Total Corporate and other bonds	$	7,080	$	817



	March 31, 2020				December 31, 2019
(In millions)	Cost or Amortized Cost		Estimated Fair Value		Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,331	$	1,325	$	1,334	$	1,356
Due after one year through five years	11,554		11,812		9,746		10,186
Due after five years through ten years	13,078		13,069		14,892		15,931
Due after ten years	12,056		13,877		12,134		14,714
Total	$	38,019	$	40,083	$	38,106	$	42,187


(1)	The values in the table above reflect DSCR on a standardized amortization period and LTV based on the most recent appraised values trended forward using changes in a commercial real estate price index.



March 31, 2020							Total Assets/Liabilities at Fair Value
(In millions)	Level 1		Level 2		Level 3		Total Assets/Liabilities at Fair Value
Assets
Fixed maturity securities:
Corporate bonds and other	$	175	$	20,705	$	496	$	21,376
States, municipalities and political subdivisions	—		10,491		—		10,491
Asset-backed	—		8,034		197		8,231
Total fixed maturity securities	175		39,230		693		40,098
Equity securities:
Common stock	187		—		4		191
Non-redeemable preferred stock	59		538		11		608
Total equity securities	246		538		15		799
Short term and other	135		365		—		500
Total assets	$	556	$	40,133	$	708	$	41,397
Liabilities
Other liabilities	$	—	$	1	$	—	$	1
Total liabilities	$	—	$	1	$	—	$	1



Level 3 (In millions)	Corporate bonds and other			States, municipalities and political subdivisions		Asset-backed			Equity securities			Total
Balance as of January 1, 2020	$	468		$	—	$	165		$	18		$	651
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)	—			—		—			—			—
Reported in Net investment income	—			—		—			(3		)	(3		)
Reported in Other comprehensive income (loss)	(37		)	—		(9		)	—			(46		)
Total realized and unrealized investment gains (losses)	(37		)	—		(9		)	(3		)	(49		)
Purchases	67			—		45			—			112
Sales	—			—		—			—			—
Settlements	(2		)	—		(3		)	—			(5		)
Transfers into Level 3	—			—		—			—			—
Transfers out of Level 3	—			—		(1		)	—			(1		)
Balance as of March 31, 2020	$	496		$	—	$	197		$	15		$	708
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2020 recognized in Net income (loss) in the period	$	—		$	—	$	—		$	(3	)	$	(3	)
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2020 recognized in Other comprehensive income (loss) in the period	(35		)	—		(9		)	—			(44		)



March 31, 2020	Estimated Fair Value (In millions)		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Fixed maturity securities	$	583	Discounted cash flow	Credit spread	1% - 10% (4%)



March 31, 2020	Carrying Amount		Estimated Fair Value
(In millions)	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets
Mortgage loans	$	1,021	$	—	$	—	$	1,036	$	1,036
Liabilities
Long term debt	$	2,680	$	—	$	2,730	$	—	$	2,730



For the three months ended March 31
(In millions)	2020			2019
Reserves, beginning of year:
Gross	$	21,720		$	21,984
Ceded	3,835			4,019
Net reserves, beginning of year	17,885			17,965
Net incurred claim and claim adjustment expenses:
Provision for insured events of current year	1,355			1,309
Increase (decrease) in provision for insured events of prior years	(8		)	8
Amortization of discount	51			50
Total net incurred ⁽¹⁾	1,398			1,367
Net payments attributable to:
Current year events	(72		)	(100		)
Prior year events	(1,218		)	(1,309		)
Total net payments	(1,290		)	(1,409		)
Foreign currency translation adjustment and other	(88		)	13
Net reserves, end of period	17,905			17,936
Ceded reserves, end of period	3,967			3,900
Gross reserves, end of period	$	21,872		$	21,836


(1)	Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Condensed Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above.


(1)	Effective January 1, 2020 the Property and Energy and Marine lines of business have been combined in the International segment. Prior period information has been conformed to the new line of business presentation.



(In millions)	Net unrealized gains (losses) on investments with an allowance for credit losses⁽¹⁾			Net unrealized gains (losses) on other investments⁽¹⁾			Pension and postretirement benefits			Cumulative foreign currency translation adjustment			Total
Balance as of January 1, 2020	$	—		$	1,025		$	(833	)	$	(141	)	$	51
Other comprehensive income (loss) before reclassifications	(48		)	(1,066		)	1			(77		)	(1,190		)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $10, $6, $3, $- and $19	(37		)	(22		)	(10		)	—			(69		)
Other comprehensive income (loss) net of tax (expense) benefit of $3, $281, $(3), $- and $281	(11		)	(1,044		)	11			(77		)	(1,121		)
Balance as of March 31, 2020	$	(11	)	$	(19	)	$	(822	)	$	(218	)	$	(1,070	)



Component of AOCI		Condensed Consolidated Statements of Operations Line Item Affected by Reclassifications
Net unrealized gains (losses) on investments with an allowance for credit losses, Net unrealized gains (losses) on investments with OTTI losses and Net unrealized gains (losses) on other investments		Net investment gains (losses)
Pension and postretirement benefits		Other operating expenses and Insurance claims and policyholders' benefits



Three months ended March 31, 2020	Specialty			Commercial			International		Life & Group			Corporate & Other
(In millions)															Eliminations			Total
Operating revenues
Net earned premiums	$	685		$	818		$	239	$	127		$	—		$	—		$	1,869
Net investment income	56			47			15		208			3			—			329
Non-insurance warranty revenue	301			—			—		—			—			—			301
Other revenues	1			7			—		—			2			(2		)	8
Total operating revenues	1,043			872			254		335			5			(2		)	2,507
Claims, benefits and expenses
Net incurred claims and benefits	405			558			154		316			(14		)	—			1,419
Policyholders’ dividends	1			5			—		—			—			—			6
Amortization of deferred acquisition costs	151			144			49		—			—			—			344
Non-insurance warranty expense	281			—			—		—			—			—			281
Other insurance related expenses	69			127			36		26			—			—			258
Other expenses	13			6			13		3			39			(2		)	72
Total claims, benefits and expenses	920			840			252		345			25			(2		)	2,380
Core income (loss) before income tax	123			32			2		(10		)	(20		)	—			127
Income tax (expense) benefit on core income (loss)	(27		)	(8		)	—		14			2			—			(19		)
Core income (loss)	$	96		$	24		$	2	$	4		$	(18	)	$	—		108
Net investment gains (losses)																		(216		)
Income tax (expense) benefit on net investment gains (losses)																		47
Net investment gains (losses), after tax																		(169		)
Net income (loss)																		$	(61	)



March 31, 2020
(In millions)
Reinsurance receivables	$	793	$	883	$	233	$	370	$	2,072	$	—		$	4,351
Insurance receivables	953		1,267		302		8		2		—			2,532
Deferred acquisition costs	316		277		90		—		—		—			683
Goodwill	117		—		28		—		—		—			145
Deferred non-insurance warranty acquisition expense	2,905		—		—		—		—		—			2,905
Insurance reserves
Claim and claim adjustment expenses	5,472		8,704		1,818		3,712		2,166		—			21,872
Unearned premiums	2,363		1,751		495		137		—		(1		)	4,745
Future policy benefits	—		—		—		11,734		—		—			11,734
Deferred non-insurance warranty revenue	3,848		—		—		—		—		—			3,848



Three months ended March 31, 2019	Specialty			Commercial			International		Life & Group			Corporate & Other
(In millions)															Eliminations			Total
Operating revenues
Net earned premiums	$	661		$	763		$	250	$	130		$	—		$	(1	)	$	1,803
Net investment income	155			190			15		204			7			—			571
Non-insurance warranty revenue	281			—			—		—			—			—			281
Other revenues	1			7			—		1			2			(2		)	9
Total operating revenues	1,098			960			265		335			9			(3		)	2,664
Claims, benefits and expenses
Net incurred claims and benefits	392			510			162		308			(21		)	—			1,351
Policyholders’ dividends	1			5			—		—			—			—			6
Amortization of deferred acquisition costs	147			127			68		—			—			—			342
Non-insurance warranty expense	260			—			—		—			—			—			260
Other insurance related expenses	70			130			25		28			(1		)	(1		)	251
Other expenses	12			11			4		2			39			(2		)	66
Total claims, benefits and expenses	882			783			259		338			17			(3		)	2,276
Core income (loss) before income tax	216			177			6		(3		)	(8		)	—			388
Income tax (expense) benefit on core income (loss)	(47		)	(38		)	—		13			2			—			(70		)
Core income (loss)	$	169		$	139		$	6	$	10		$	(6	)	$	—		318
Net investment gains (losses)																		31
Income tax (expense) benefit on net investment gains (losses)																		(7		)
Net investment gains (losses), after tax																		24
Net income (loss)																		$	342


(1)	Effective January 1, 2020, the Construction line of business is presented separately in the Commercial segment to better align with our underwriting expertise and the manner in which the products are sold. Prior period information has been conformed to the new line of business presentation.



(In millions)	March 31, 2020
A- to A++	$	2,662
B- to B++	859
Insolvent	4
Total voluntary reinsurance outstanding balance⁽¹⁾	$	3,525


(1)	Expected credit losses for legacy A&EP receivables are ceded to NICO and the reinsurance limit on the LPT has not been exhausted, therefore no allowance is recorded for these receivables and they are excluded from the table above. Refer to Note E for information regarding the LPT. The Company has also excluded receivables from involuntary pools.



Three months ended March 31
(In millions, except ratios, rate, renewal premium change and retention)	2020			2019
Gross written premiums	$	1,714		$	1,701
Gross written premiums excluding third party captives	741			730
Net written premiums	694			698
Net earned premiums	685			661
Net investment income	56			155
Core income	96			169

Other performance metrics:
Loss and loss adjustment expense ratio	59.1		%	59.3		%
Expense ratio	32.0			32.8
Dividend ratio	0.2			0.2
Combined ratio	91.3		%	92.3		%

Rate	9		%	3		%
Renewal premium change	9			6
Retention	84			89
New business	$	74		$	86


•	the risk that the other parties to the transaction in which, subject to certain limitations, we ceded our legacy A&EP liabilities will not fully perform their obligations to CNA, the uncertainty in estimating loss reserves for A&EP liabilities and the possible continued exposure of CNA to liabilities for A&EP claims that are not covered under the terms of the transaction;


•	the performance of reinsurance companies under reinsurance contracts with us; and


•	the risks and uncertainties associated with potential acquisitions and divestitures, including the consummation of such transactions, the successful integration of acquired operations and the potential for subsequent impairment of goodwill or intangible assets.


•	the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;