Edgar Filing: LOEWS CORP

Form 10-Q

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, 2013

[ ]

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.

Yes X No

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).

Yes X No Not Applicable

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).

Yes No X


Class		Outstanding at July 19, 2013
Common stock, $0.01 par value		387,316,565 shares

INDEX


	Page No.

Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets June 30, 2013 and December 31, 2012		3
Consolidated Condensed Statements of Income Three and six months ended June 30, 2013 and 2012		4
Consolidated Condensed Statements of Comprehensive Income Three and six months ended June 30, 2013 and 2012		5
Consolidated Condensed Statements of Equity Six months ended June 30, 2013 and 2012		6
Consolidated Condensed Statements of Cash Flows Six months ended June 30, 2013 and 2012		7
Notes to Consolidated Condensed Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		38
Item 3. Quantitative and Qualitative Disclosures about Market Risk		66
Item 4. Controls and Procedures		66
Part II. Other Information		67
Item 1. Legal Proceedings		67
Item 1A. Risk Factors		67
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		67
Item 6. Exhibits		68

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


	June 30, 2013		December 31, 2012

(Dollar amounts in millions, except per share data)

Assets:

Investments:
Fixed maturities, amortized cost of $39,114 and $38,324	$	41,595	$	42,765
Equity securities, cost of $903 and $893		856		898
Limited partnership investments		3,317		3,090
Other invested assets, primarily mortgage loans		473		460
Short term investments		6,091		5,835

Total investments		52,332		53,048
Cash		166		228
Receivables		9,519		9,366
Property, plant and equipment		14,525		13,935
Goodwill		989		996
Other assets		1,618		1,538
Deferred acquisition costs of insurance subsidiaries		650		598
Separate account business		247		312

Total assets	$	80,046	$	80,021


Liabilities and Equity:

Insurance reserves:
Claim and claim adjustment expense	$	24,339	$	24,763
Future policy benefits		10,787		11,475
Unearned premiums		3,869		3,610
Policyholders’ funds		133		157

Total insurance reserves		39,128		40,005
Payable to brokers		520		205
Short term debt		33		19
Long term debt		10,039		9,191
Deferred income taxes		749		840
Other liabilities		4,688		4,773
Separate account business		247		312

Total liabilities		55,404		55,345

Preferred stock, $0.10 par value:
Authorized – 100,000,000 shares
Common stock, $0.01 par value:
Authorized – 1,800,000,000 shares
Issued – 392,282,321 and 392,054,766 shares		4		4
Additional paid-in capital		3,643		3,595
Retained earnings		15,654		15,192
Accumulated other comprehensive income		37		678

		19,338		19,469

Less treasury stock, at cost (4,276,200 and 249,600 shares)		(187)		(10)

Total shareholders’ equity		19,151		19,459
Noncontrolling interests		5,491		5,217

Total equity		24,642		24,676

Total liabilities and equity	$	80,046	$	80,021

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2013		2012		2013		2012

(In millions, except per share data)

Revenues:
Insurance premiums	$	1,800	$	1,668	$	3,564	$	3,317
Net investment income		579		386		1,220		1,112
Investment gains (losses):
Other-than-temporary impairment losses		(16)		(12)		(34)		(27)
Portion of other-than-temporary impairment losses recognized in Other comprehensive income (loss)				(11)				(23)

Net impairment losses recognized in earnings		(16)		(23)		(34)		(50)
Other net investment gains		2		43		44		102

Total investment gains (losses)		(14)		20		10		52
Contract drilling revenues		745		726		1,445		1,481
Other		615		588		1,220		1,170

Total		3,725		3,388		7,459		7,132


Expenses:
Insurance claims and policyholders’ benefits		1,521		1,348		2,950		2,729
Amortization of deferred acquisition costs		335		309		663		604
Contract drilling expenses		369		405		744		802
Other operating expenses (Note 1)		807		1,001		1,789		1,820
Interest		112		111		220		222

Total		3,144		3,174		6,366		6,177

Income before income tax		581		214		1,093		955
Income tax expense		(169)		(16)		(283)		(238)

Net income		412		198		810		717
Amounts attributable to noncontrolling interests		(143)		(142)		(299)		(294)

Net income attributable to Loews Corporation	$	269	$	56	$	511	$	423


Basic net income per share	$	0.69	$	0.14	$	1.31	$	1.07


Diluted net income per share	$	0.69	$	0.14	$	1.31	$	1.06


Dividends per share	$	0.0625	$	0.0625	$	0.125	$	0.125


Weighted-average shares outstanding:
Shares of common stock		388.79		396.40		390.08		396.59
Dilutive potential shares of common stock		0.83		0.73		0.80		0.71

Total weighted-average shares outstanding assuming dilution		389.62		397.13		390.88		397.30

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,

	2013		2012		2013		2012

(In millions)

Net income	$	412	$	198	$	810	$	717


Other comprehensive income (loss), after tax
Changes in:
Net unrealized gains (losses) on investments with other-than-temporary impairments		(8)		(3)		6		37
Net other unrealized gains (losses) on investments		(585)		120		(647)		337

Total unrealized gains (losses) on available-for-sale investments		(593)		117		(641)		374
Unrealized gains (losses) on cash flow hedges		10		(2)		(11)		13
Pension liability		5		4		9		11
Foreign currency		(13)		(19)		(74)		2


Other comprehensive income (loss)		(591)		100		(717)		400


Comprehensive income (loss)		(179)		298		93		1,117

Amounts attributable to noncontrolling interests		(83)		(150)		(225)		(333)


Total comprehensive income (loss) attributable to Loews Corporation	$	(262)	$	148	$	(132)	$	784

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

(Unaudited)


			Loews Corporation Shareholders

	Total		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock Held in Treasury		Noncontrolling Interests

(In millions)

Balance, January 1, 2012	$	23,203	$	4	$	3,494	$	14,890	$	384	$	-	$	4,431
Net income		717						423						294
Other comprehensive income		400								361				39
Dividends paid		(266)						(50)						(216)
Issuance of equity securities by subsidiary		222				36				1				185
Purchase of Loews treasury stock		(51)										(51)
Issuance of Loews common stock		5				5
Stock-based compensation		11				10								1
Other		-				(2)								2

Balance, June 30, 2012	$	24,241	$	4	$	3,543	$	15,263	$	746	$	(51)	$	4,736


Balance, January 1, 2013	$	24,676	$	4	$	3,595	$	15,192	$	678	$	(10)	$	5,217
Net income		810						511						299
Other comprehensive loss		(717)								(643)				(74)
Dividends paid		(292)						(49)						(243)
Issuance of equity securities by subsidiary		337				51				2				284
Purchase of Loews treasury stock		(177)										(177)
Issuance of Loews common stock		3				3
Stock-based compensation		7				(6)								13
Other		(5)												(5)

Balance, June 30, 2013	$	24,642	$	4	$	3,643	$	15,654	$	37	$	(187)	$	5,491

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30	2013		2012

(In millions)

Operating Activities:

Net income	$	810	$	717
Adjustments to reconcile net income to net cash provided (used) by operating activities, net		613		673
Changes in operating assets and liabilities, net:
Receivables		(180)		257
Deferred acquisition costs		(43)		(17)
Insurance reserves		198		121
Other assets		(70)		(81)
Other liabilities		54		(87)
Trading securities		(879)		(477)

Net cash flow operating activities		503		1,106


Investing Activities:

Purchases of fixed maturities		(5,656)		(5,169)
Proceeds from sales of fixed maturities		3,143		3,303
Proceeds from maturities of fixed maturities		1,820		1,566
Purchases of equity securities		(33)		(27)
Proceeds from sales of equity securities		60		61
Purchases of limited partnership investments		(203)		(83)
Proceeds from sales of limited partnership investments		169		115
Purchases of property, plant and equipment		(1,150)		(869)
Dispositions		24		151
Change in short term investments		616		(116)
Other, net		(83)		(90)

Net cash flow investing activities		(1,293)		(1,158)


Financing Activities:

Dividends paid		(49)		(50)
Dividends paid to noncontrolling interests		(243)		(216)
Purchases of treasury shares		(180)		(51)
Issuance of common stock		3		5
Proceeds from sale of subsidiary stock		370		246
Principal payments on debt		(742)		(1,246)
Issuance of debt		1,598		1,375
Other, net		(23)		(4)

Net cash flow financing activities		734		59


Effect of foreign exchange rate on cash		(6)


Net change in cash		(62)		7
Cash, beginning of period		228		129

Cash, end of period	$	166	$	136

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); transportation and storage of natural gas and natural gas liquids and gathering and processing of natural gas (Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”), a 53% owned subsidiary); exploration, production and marketing of natural gas and oil (including condensate and natural gas liquids), (HighMount Exploration & Production LLC (“HighMount”), a wholly owned subsidiary); and the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels”), a wholly owned subsidiary). Unless the context otherwise requires, the terms “Company,” “Loews” and “Registrant” as used herein mean Loews Corporation excluding its subsidiaries and the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders.

In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 2013 and December 31, 2012 and the results of operations and comprehensive income for the three and six months ended June 30, 2013 and 2012 and changes in shareholders’ equity and cash flows for the six months ended June 30, 2013 and 2012.

Net income for the second quarter and first half of each of the years is not necessarily indicative of net income for that entire year.

Reference is made to the Notes to Consolidated Financial Statements in the 2012 Annual Report on Form 10-K which should be read in conjunction with these Consolidated Condensed Financial Statements.

The Company presents basic and diluted net income per share on the Consolidated Condensed Statements of Income. Basic net income per share excludes dilution and is computed by dividing net income attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Stock appreciation rights (“SARs”) of 1.4 million, 1.9 million, 1.7 million and 2.3 million shares were not included in the diluted weighted average shares amount for the three and six months ended June 30, 2013 and 2012 due to the exercise price being greater than the average stock price.

Bluegrass Project – In the second quarter of 2013, Boardwalk Pipeline executed an agreement with the Williams Companies, Inc. (“Williams”) to continue the development process for the Bluegrass Project, a project that would transport natural gas liquids from the Marcellus and Utica shale plays to the petrochemical and export complex in the U.S. Gulf Coast region, and related fractionation and storage facilities. In connection with the transaction, Boardwalk Pipeline and Boardwalk Pipelines Holding Corp. (“BPHC”), a wholly owned subsidiary of the Company, have entered into separate joint venture arrangements for purposes of funding the project. Boardwalk Pipeline and BPHC have contributed a total of $25 million to the project as of June 30, 2013. The approval of funding any additional capital for the project is dependent on, among other conditions, execution of customer contracts sufficient to support the project and the parties’ receipt of all necessary board and regulatory approvals.

Impairment of Natural Gas and Oil Properties – Results for the six months ended June 30, 2013, include a first quarter non-cash ceiling test impairment charge of $145 million ($92 million after tax) related to the carrying value of HighMount’s natural gas and oil properties. For the three and six months ended June 30, 2012, HighMount recorded non-cash ceiling test impairment charges of $222 million and $266 million ($142 million and $170 million after tax). The impairments were recorded within Other operating expenses and as credits to Accumulated depreciation, depletion and amortization. The 2013 write-down was primarily attributable to reduced average natural gas liquids (“NGL”) and oil prices used in the ceiling test calculations and negative reserve revisions. Had the effects of HighMount’s cash flow hedges not been considered in calculating the ceiling limitation, the impairments

would have been $195 million ($124 million after tax) for 2013, and $266 million and $335 million ($170 million and $214 million after tax) for the three and six months ended June 30, 2012. In periods which HighMount took ceiling test impairment charges, HighMount performed a goodwill impairment test. HighMount also performed its annual goodwill impairment test as of April 30, 2013 and 2012. No impairment charges were required as a result of either the annual or interim period testing.

2. Investments

Net investment income is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2013		2012		2013		2012

(In millions)

Fixed maturity securities	$	498	$	505	$	997	$	1,021
Short term investments		1		4		3		7
Limited partnership investments		84		(43)		230		100
Equity securities		3		2		6		6
Income (loss) from trading portfolio (a)		1		(74)		(2)		(4)
Other		6		7		12		11

Total investment income		593		401		1,246		1,141
Investment expenses		(14)		(15)		(26)		(29)

Net investment income	$	579	$	386	$	1,220	$	1,112

(a)	Includes net unrealized gains (losses) related to changes in fair value on trading securities still held of $(30), $(90), $(43) and $(60) for the three and six months ended June 30, 2013 and 2012.

Investment gains (losses) are as follows:


Fixed maturity securities	$	(5)	$	17	$	27	$	47
Equity securities		(2)				(15)		1
Derivative instruments		(5)		(1)		(3)		(2)
Short term investments and other		(2)		4		1		6

Investment gains (losses) (a)	$	(14)	$	20	$	10	$	52

(a)	Includes gross realized gains of $42, $51, $88 and $123 and gross realized losses of $49, $34, $76 and $75 on available-for-sale securities for the three and six months ended June 30, 2013 and 2012.

The components of other-than-temporary impairment (“OTTI”) losses recognized in earnings by asset type are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2013		2012		2013		2012

(In millions)

Fixed maturity securities available-for-sale:
Corporate and other bonds	$	5	$	6	$	8	$	16
Asset-backed:
Residential mortgage-backed		3		15		3		29
Other asset-backed		1				1

Total asset-backed		4		15		4		29
U.S. Treasury and obligations of government-sponsored enterprises								1

Total fixed maturities available-for-sale		9		21		12		46

Equity securities available-for-sale:
Common stock		2		2		2		4
Preferred stock		5				20

Total equity securities available-for-sale		7		2		22		4

Net OTTI losses recognized in earnings	$	16	$	23	$	34	$	50

The amortized cost and fair values of securities are as follows:

June 30, 2013

Cost or

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Estimated

Fair Value

Unrealized

OTTI Losses

(Gains)

(In millions)

Fixed maturity securities:

Corporate and other bonds

20,079

$ 1,826

147

$21,758

States, municipalities and political subdivisions

10,098

814

173

10,739

Asset-backed:

Residential mortgage-backed

5,031

153

5,096

(37)

Commercial mortgage-backed

1,941

2,009

(3)

Other asset-backed

933

947

Total asset-backed

7,905

264

117

8,052

(40)

U.S. Treasury and obligations of government-sponsored enterprises

167

176

Foreign government

528

544

Redeemable preferred stock

121

132

Fixed maturities available-for-sale

38,898

2,943

440

41,401

(40)

Fixed maturities, trading

216

194

Total fixed maturities

39,114

2,943

462

41,595

(40)

Equity securities:

Common stock

Preferred stock

138

142

Equity securities available-for-sale

185

199

Equity securities, trading

718

132

657

Total equity securities

903

132

856

Total

40,017

$ 3,028

594

$42,451

(40)


December 31, 2012	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Unrealized OTTI Losses (Gains)


Fixed maturity securities:
Corporate and other bonds	$	19,530	$	2,698	$	21	$	22,207
States, municipalities and political subdivisions		9,372		1,455		44		10,783
Asset-backed:
Residential mortgage-backed		5,745		246		71		5,920	$	(28)
Commercial mortgage-backed		1,692		147		17		1,822		(3)
Other asset-backed		929		23				952

Total asset-backed		8,366		416		88		8,694		(31)
U.S. Treasury and obligations of government-sponsored enterprises		172		11		1		182
Foreign government		588		25				613
Redeemable preferred stock		113		13		1		125

Fixed maturities available-for-sale		38,141		4,618		155		42,604		(31)
Fixed maturities, trading		183				22		161

Total fixed maturities		38,324		4,618		177		42,765		(31)

Equity securities:
Common stock		38		14				52
Preferred stock		190		7				197

Equity securities available-for-sale		228		21		-		249		-
Equity securities, trading		665		80		96		649

Total equity securities		893		101		96		898		-

Total	$	39,217	$	4,719	$	273	$	43,663	$	(31)

The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated Other Comprehensive Income (“AOCI”). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. At June 30, 2013 and December 31, 2012, the net unrealized gains on investments included in AOCI were net of Shadow Adjustments of $794 million and $1.4 billion. To the extent that unrealized gains on fixed income securities supporting certain products within CNA’s Life & Group Non-Core Segment would result in a premium deficiency if realized, a related decrease in Deferred acquisition costs, and/or increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains (losses) through Other comprehensive income (Shadow Adjustments).

The available-for-sale securities in a gross unrealized loss position are as follows:


	Less than 12 Months				12 Months or Longer				Total

June 30, 2013	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	3,478	$	143	$	33	$	4	$	3,511	$	147
States, municipalities and political subdivisions		2,075		130		119		43		2,194		173
Asset-backed:
Residential mortgage-backed		1,462		33		321		55		1,783		88
Commercial mortgage-backed		593		23		79		4		672		27
Other asset-backed		235		2						235		2

Total asset-backed		2,290		58		400		59		2,690		117
Foreign government		65		1						65		1
Redeemable preferred stock		39		2						39		2

Total	$	7,947	$	334	$	552	$	106	$	8,499	$	440

December 31, 2012


Fixed maturity securities:
Corporate and other bonds	$	846	$	13	$	108	$	8	$	954	$	21
States, municipalities and political subdivisions		254		5		165		39		419		44
Asset-backed:
Residential mortgage-backed		583		5		452		66		1,035		71
Commercial mortgage-backed		85		2		141		15		226		17

Total asset-backed		668		7		593		81		1,261		88
U.S. Treasury and obligations of government-sponsored enterprises		23		1						23		1
Redeemable preferred stock		28		1						28		1

Total	$	1,819	$	27	$	866	$	128	$	2,685	$	155

The amount of pretax net realized gains (losses) on available-for-sale securities reclassified out of AOCI into earnings was $(7) million, $15 million, $12 million and $47 million for the three and six months ended June 30, 2013 and 2012.

Based on current facts and circumstances, the Company believes the unrealized losses presented in the table above are primarily attributable to broader economic conditions, changes in interest rates and credit spreads, market illiquidity and other market factors, but are not indicative of the ultimate collectibility of the current amortized cost of the securities. The investments with longer duration, primarily included within the states, municipalities and political subdivision asset category, were more significantly impacted by changes in market interest rates. 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; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at June 30, 2013.

The following table summarizes the activity for the three and six months ended June 30, 2013 and 2012 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at June 30, 2013 and 2012 for which a portion of an OTTI loss was recognized in Other comprehensive income.


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2013		2012		2013		2012

(In millions)

Beginning balance of credit losses on fixed maturity securities	$	92	$	100	$	95	$	92
Additional credit losses for securities for which an OTTI loss was previously recognized		1		10		1		21
Credit losses for securities for which an OTTI loss was not previously recognized				1				2
Reductions for securities sold during the period		(4)		(4)		(7)		(8)
Reductions for securities the Company intends to sell or more likely than not will be required to sell				(8)				(8)

Ending balance of credit losses on fixed maturity securities	$	89	$	99	$	89	$	99

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at June 30, 2013 and December 31, 2012. 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, 2013				December 31, 2012

	Cost or Amortized Cost		Estimated Fair Value		Cost or Amortized Cost		Estimated Fair Value

(In millions)

Due in one year or less	$	2,105	$	2,153	$	1,648	$	1,665
Due after one year through five years		11,450		12,078		13,603		14,442
Due after five years through ten years		10,613		10,981		8,726		9,555
Due after ten years		14,730		16,189		14,164		16,942

Total	$	38,898	$	41,401	$	38,141	$	42,604

Investment Commitments

As of June 30, 2013, the Company had committed approximately $372 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 various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. As of June 30, 2013, the Company had commitments to purchase or fund additional amounts of $160 million and sell $150 million under the terms of such securities.

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 type of financial instruments being measured and the methodologies and inputs used at June 30, 2013 were consistent with those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2012.

Prices may fall within Level 1, 2 or 3 depending upon the methodologies and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using methodologies and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.

The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures include (i) the review of pricing service or broker pricing methodologies, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where changes in price, period-over-period, are reviewed and challenged with the pricing service or broker based on exception criteria, (iv) detailed analysis, where the Company independently validates information regarding inputs and assumptions for individual securities and (v) pricing validation, where prices received are compared to prices independently estimated by the Company.

The fair values of CNA’s life settlement contracts are included in Other assets on the Consolidated Condensed Balance Sheets. Equity options purchased are included in Equity securities, and all other derivative assets are included in Receivables. Derivative liabilities are included in Payable to brokers. Assets and liabilities measured at fair value on a recurring basis are summarized in the tables below:

June 30, 2013

Level 1

Level 2

Level 3

Total

(In millions)

Fixed maturity securities:

Corporate and other bonds

21,526

202

21,758

States, municipalities and political subdivisions

10,599

140

10,739

Asset-backed:

Residential mortgage-backed

4,668

428

5,096

Commercial mortgage-backed

1,844

165

2,009

Other asset-backed

560

387

947

Total asset-backed

7,072

980

8,052

U.S. Treasury and obligations of government-sponsored enterprises

147

176

Foreign government

446

544

Redeemable preferred stock

132

Fixed maturities available-for-sale

324

39,730

1,347

41,401

Fixed maturities, trading

194

Total fixed maturities

371

39,790

1,434

41,595

Equity securities available-for-sale

134

199

Equity securities, trading

655

657

Total equity securities

789

856

Short term investments

5,617

423

6,040

Other invested assets

Receivables

Life settlement contracts

Separate account business

239

247

Payable to brokers

(135)

(16)

(3)

(154)



December 31, 2012	Level 1		Level 2		Level 3		Total

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	6	$	21,982	$	219	$	22,207
States, municipalities and political subdivisions				10,687		96		10,783
Asset-backed:
Residential mortgage-backed				5,507		413		5,920
Commercial mortgage-backed				1,693		129		1,822
Other asset-backed				584		368		952

Total asset-backed				7,784		910		8,694
U.S. Treasury and obligations of government-sponsored enterprises		158		24				182
Foreign government		140		473				613
Redeemable preferred stock		40		59		26		125

Fixed maturities available-for-sale		344		41,009		1,251		42,604
Fixed maturities, trading				72		89		161

Total fixed maturities	$	344	$	41,081	$	1,340	$	42,765


Equity securities available-for-sale	$	117	$	98	$	34	$	249
Equity securities, trading		642				7		649

Total equity securities	$	759	$	98	$	41	$	898


Short term investments	$	4,990	$	799	$	6	$	5,795
Other invested assets				58		1		59
Receivables				32		11		43
Life settlement contracts						100		100
Separate account business		4		306		2		312
Payable to brokers		(95)		(11)		(6)		(112)

The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2013 and 2012:


	Balance, April 1		Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)				Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, June 30		Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities Held at June 30
2013	Balance, April 1		Included in Net Income		Included in OCI		Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, June 30

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	283	$	1	$	(3)	$	13	$	(54)	$	(6)			$	(32)	$	202	$	(1)
States, municipalities and political subdivisions		129				4		37		(32)		(3)	$	5				140
Asset-backed:
Residential mortgage-backed		450		(1)		(1)		50		(10)		(21)		4		(43)		428		(2)
Commercial mortgage-backed		177				4		5				(2)		21		(40)		165
Other asset-backed		396				(3)		38		(33)		(11)						387		(1)

Total asset-backed		1,023		(1)		-		93		(43)		(34)		25		(83)		980		(3)
Redeemable preferred stock		26				(1)												25

Fixed maturities available-for-sale		1,461		-		-		143		(129)		(43)		30		(115)		1,347		(4)
Fixed maturities, trading		107								(20)								87

Total fixed maturities	$	1,568	$	-	$	-	$	143	$	(149)	$	(43)	$	30	$	(115)	$	1,434	$	(4)


Equity securities available-for-sale	$	19	$	(5)	$	(1)											$	13	$	(5)
Equity securities trading		3		(1)														2		(2)

Total equity securities	$	22	$	(6)	$	(1)	$	-	$	-	$	-	$	-	$	-	$	15	$	(7)


Short term investments	$	5							$	(5)							$	-
Life settlement contracts		95	$	4							$	(8)						91	$	(1)
Separate account business		2																2
Derivative financial instruments, net		2		2	$	2	$	1		(1)		(1)						5


	Balance, April 1		Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)				Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, June 30		Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities Held at June 30
2012	Balance, April 1		Included in Net Income		Included in OCI		Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, June 30

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	485	$	3	$	2	$	68	$	(26)	$	(13)	$	9	$	(40)	$	488
States, municipalities and political subdivisions		173				1						(85)						89
Asset-backed:
Residential mortgage-backed		447		1		(18)		22				(9)						443
Commercial mortgage-backed		105		2		4		87		(12)		(4)				(16)		166
Other asset-backed		384		2		(1)		182		(99)		(34)						434

Total asset-backed		936		5		(15)		291		(111)		(47)		-		(16)		1,043
Redeemable preferred stock		53								(26)								27

Fixed maturities available-for-sale		1,647		8		(12)		359		(163)		(145)		9		(56)		1,647
Fixed maturities, trading		101								(3)						(4)		94

Total fixed maturities	$	1,748	$	8	$	(12)	$	359	$	(166)	$	(145)	$	9	$	(60)	$	1,741	$	-


Equity securities available-for-sale	$	74			$	19	$	15	$	(15)							$	93	$	(1)
Equity securities trading		11	$	(2)														9		(2)

Total equity securities	$	85	$	(2)	$	19	$	15	$	(15)	$	-	$	-	$	-	$	102	$	(3)


Short term investments	$	-					$	4									$	4
Other invested assets		11																11
Life settlement contracts		115	$	20							$	(19)						116	$	3
Separate account business		4							$	(1)								3
Derivative financial instruments, net		(8)		1	$	21				(1)		(1)						12


	Balance, January 1		Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)				Purchases		Sales		Settlements		Transfers		Transfers		Balance, June 30		Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities
2013	Balance, January 1		Included in Net Income		Included in OCI		Purchases		Sales		Settlements		into Level 3		out of Level 3		Balance, June 30		Held at June 30

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	219	$	1	$	(1)	$	104	$	(71)	$	(26)	$	26	$	(50)	$	202	$	(2)
States, municipalities and political subdivisions		96		(3)		4		122		(79)		(5)		5				140
Asset-backed:
Residential mortgage-backed		413		2		(1)		111		(10)		(32)		4		(59)		428		(2)
Commercial mortgage-backed		129		1		9		78				(9)		21		(64)		165
Other asset-backed		368		3		(2)		174		(132)		(24)						387		(1)

Total asset-backed		910		6		6		363		(142)		(65)		25		(123)		980		(3)
Redeemable preferred stock		26				(1)												25

Fixed maturities available-for-sale		1,251		4		8		589		(292)		(96)		56		(173)		1,347	$	(5)
Fixed maturities, trading		89		1				19		(22)								87		1

Total fixed maturities	$	1,340	$	5	$	8	$	608	$	(314)	$	(96)	$	56	$	(173)	$	1,434	$	(4)


Equity securities available-for-sale	$	34	$	(20)											$	(1)	$	13	$	(20)
Equity securities trading		7		(5)														2		(5)

Total equity securities	$	41	$	(25)	$	-	$	-	$	-	$	-	$	-	$	(1)	$	15	$	(25)


Short term investments	$	6							$	(6)							$	-
Other invested assets		1								(1)								-
Life settlement contracts		100	$	11							$	(20)						91	$	1
Separate account business		2																2
Derivative financial instruments, net		5		5	$	(2)	$	1				(4)						5		1


	Balance, January 1		Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)				Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, June 30		Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities Held at June 30
2012	Balance, January 1		Included in Net Income		Included in OCI		Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, June 30

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	482	$	6	$	6	$	146	$	(112)	$	(32)	$	42	$	(50)	$	488
States, municipalities and political subdivisions		171				3						(85)						89
Asset-backed:
Residential mortgage-backed		452		2		(22)		60				(16)				(33)		443
Commercial mortgage-backed		59		2		8		129		(12)		(4)				(16)		166
Other asset-backed		343		6		3		358		(176)		(59)				(41)		434

Total asset-backed		854		10		(11)		547		(188)		(79)		-		(90)		1,043
Redeemable preferred stock		-						53		(26)								27

Fixed maturities available-for-sale		1,507		16		(2)		746		(326)		(196)		42		(140)		1,647
Fixed maturities, trading		101		(7)				1		(1)								94	$	(7)

Total fixed maturities	$	1,608	$	9	$	(2)	$	747	$	(327)	$	(196)	$	42	$	(140)	$	1,741	$	(7)


Equity securities available-for-sale	$	67			$	16	$	26	$	(16)							$	93	$	(3)
Equity securities trading		14	$	(5)														9		(4)

Total equity securities	$	81	$	(5)	$	16	$	26	$	(16)	$	-	$	-	$	-	$	102	$	(7)


Short term investments	$	27					$	16			$	(39)					$	4
Other invested assets		11																11
Life settlement contracts		117	$	23								(24)						116	$	3
Separate account business		23							$	(20)								3
Derivative financial instruments, net		(15)		(4)	$	34				(6)		3						12		1

Net realized and unrealized gains and losses are reported in Net income as follows:


Major Category of Assets and Liabilities		Consolidated Condensed Statements of Income Line Items


Fixed maturity securities available-for-sale		Investment gains (losses)
Fixed maturity securities, trading		Net investment income
Equity securities available-for-sale		Investment gains (losses)
Equity securities, trading		Net investment income
Other invested assets		Investment gains (losses) and Net investment income
Derivative financial instruments held in a trading portfolio		Net investment income
Derivative financial instruments, other		Investment gains (losses) and Other revenues
Life settlement contracts		Other revenues

Securities shown in the Level 3 tables may be transferred in or out of Level 3 based on the availability of observable market information used to determine the fair value of the security. The availability of observable market information varies based on market conditions and trading volume and may cause securities to move in and out of Level 3 from reporting period to reporting period. There were no transfers between Level 1 and Level 2 during the three or six months ended June 30, 2013 and 2012. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods.

Significant Unobservable Inputs

The table below presents quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the table below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available to the Company.

June 30, 2013

Fair Value

Valuation
Technique(s)

Unobservable

Input(s)

Range

(Weighted

Average)

(In millions)

Assets

Fixed maturity securities

106

Discounted cash flow

Expected call date

1.6 - 3.5 years (3.1 years)

Credit spread

1.95% -7.95%(2.67%)

Market approach

Private offering price

$36.32 -$113.76($101.70)

Equity securities

Market approach

Private offering price

$33.73 - $4,017.00 per

share ($936.89 per share)

Life settlement contracts

Discounted cash flow

Discount rate risk premium

Mortality assumption

69% - 883%(209.2%)

December 31, 2012

Assets

Fixed maturity securities

121

Discounted cash flow

Expected call date

3.3 – 5.3 years (4.3 years)

Credit spread adjustment

0.02% – 0.48%(0.17%)

Market approach

Private offering price

$42.39 – $102.32($100.11)

Equity securities

Market approach

Private offering price

$4.54 –$3,842.00 per share

($571.17 per share)

Life settlement contracts

100

Discounted cash flow

Discount rate risk premium

Mortality assumption

69% – 883%(208.9%)

For fixed maturity securities, an increase to the expected call date assumption and credit spread adjustment or decrease in the private offering price would result in a lower fair value measurement. For equity securities, an increase in the private offering price would result in a higher fair value measurement. For life settlement contracts, an increase in the discount rate risk premium or decrease in the mortality assumption would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value

The methods and assumptions used to estimate the fair value for financial assets and liabilities not measured at fair value were consistent with those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2012.

The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial instrument assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are listed in the tables below. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.


	Carrying		Estimated Fair Value

June 30, 2013	Amount		Level 1	Level 2		Level 3		Total

(In millions)

Financial Assets:
Other invested assets, primarily mortgage loans	$	437				$	449	$	449

Financial Liabilities:
Premium deposits and annuity contracts		75					76		76
Short term debt		33		$	13		20		33
Long term debt		10,039			10,444		334		10,778
December 31, 2012


Financial Assets:
Other invested assets, primarily mortgage loans	$	401				$	418	$	418

Financial Liabilities:
Premium deposits and annuity contracts		100					104		104
Short term debt		19		$	13		6		19
Long term debt		9,191			10,170		202		10,372

4. Derivative Financial Instruments

A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments.


	June 30, 2013						December 31, 2012

	Contractual/						Contractual/
	Notional		Estimated Fair Value				Notional		Estimated Fair Value

	Amount		Asset		(Liability)		Amount		Asset		(Liability)

(In millions)

With hedge designation:

Interest rate risk:
Interest rate swaps	$	300	$	1	$	(4)	$	300			$	(6)
Commodities:
Forwards – short		295		29		(3)		288	$	39		(3)
Foreign exchange:
Currency forwards – short		222		1		(10)		144		4

Without hedge designation:

Equity markets:
Options – purchased		1,010		37				255		19
– written		606				(33)		374				(11)
Equity swaps and warrants
– long		18		13				14		6

Interest rate risk:
Credit default swaps
– purchased protection		63				(2)		78				(2)
– sold protection		18						33				(2)

Foreign exchange:
Currency forwards – long		75						404				(2)
– short		273		6				128

Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets. There would be no significant difference in the balance included in such accounts if the estimated fair values were presented net for the periods ended June 30, 2013 and December 31, 2012.

For derivative financial instruments without hedge designation, changes in the fair value of derivatives not held in a trading portfolio are reported in Investment gains (losses) and changes in the fair value of derivatives held for trading purposes are reported in Net investment income on the Consolidated Condensed Statements of Income. Losses of $5 million and $1 million for the three months ended June 30, 2013 and 2012 and losses of $3 million and $2 million for the six months ended June 30, 2013 and 2012 were included in Investment gains (losses). Losses of $3 million and gains of $5 million for three months ended June 30, 2013 and 2012 and losses of $16 million and gains of $1 million for the six months ended June 30, 2013 and 2012 were included in Net investment income.

The Company’s derivative financial instruments with cash flow hedge designation hedge variable price risk associated with the purchase and sale of natural gas and other energy-related products, exposure to foreign currency losses on future foreign currency expenditures, as well as risks attributable to changes in interest rates on long term debt. Gains of $19 million and $15 million were recognized in OCI related to these cash flow hedges for the three

months ended June 30, 2013 and 2012. Gains of $1 million and $49 million were recognized in OCI related to these cash flow hedges for the six months ended June 30, 2013 and 2012. For the three months ended June 30, 2013 and 2012, the amount of gains reclassified from AOCI into income were $6 million and $18 million. For the six months ended June 30, 2013 and 2012, the amount of gains reclassified from AOCI into income were $19 million and $27 million. As of June 30, 2013, the estimated amount of net unrealized gains associated with these cash flow hedges that will be reclassified from AOCI into earnings during the next twelve months was $10 million. The net amounts recognized due to ineffectiveness were less than $1 million for the three and six months ended June 30, 2013 and 2012.

5. 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 including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.

Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can all affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers’ compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that CNA’s ultimate cost for insurance losses will not exceed current estimates.

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in CNA’s results of operations and/or equity. CNA reported catastrophe losses, net of reinsurance, of $65 million and $68 million for the three months ended June 30, 2013 and 2012 and $104 million and $96 million for the six months ended June 30, 2013 and 2012. Catastrophe losses in 2013 related primarily to U.S. storms.

Net Prior Year Development

The following tables and discussion include the net prior year development recorded for CNA Specialty, CNA Commercial and Other.


Three Months Ended June 30, 2013	CNA Specialty			CNA Commercial		Other		Total

(In millions)

Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(41	)	$	27	$	9	$	(5)
Pretax (favorable) unfavorable premium development		(5	)		(5)		2		(8)

Total pretax (favorable) unfavorable net prior year development	$	(46	)	$	22	$	11	$	(13)


Three Months Ended June 30, 2012	CNA Specialty		CNA Commercial		Other		Total

(In millions)

Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(35)	$	(13)	$	(4)	$	(52)
Pretax (favorable) unfavorable premium development		(5)		(19)		1		(23)

Total pretax (favorable) unfavorable net prior year development	$	(40)	$	(32)	$	(3)	$	(75)


Six Months Ended June 30, 2013


Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(56)	$	16	$	9	$	(31)
Pretax (favorable) unfavorable premium development		(13)		(15)		7		(21)

Total pretax (favorable) unfavorable net prior year development	$	(69)	$	1	$	16	$	(52)


Six Months Ended June 30, 2012


Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(41)	$	(27)	$	(2)	$	(70)
Pretax (favorable) unfavorable premium development		(14)		(36)		2		(48)

Total pretax (favorable) unfavorable net prior year development	$	(55)	$	(63)	$	-	$	(118)

For the three and six months ended June 30, 2012, favorable premium development was recorded for CNA Commercial primarily due to premium adjustments on auditable policies arising from increased exposures.

CNA Specialty

The following table and discussion provide further detail of the net prior year claim and allocated claim adjustment expense reserve development (“development”) recorded for the CNA Specialty segment:


	Three Months Ended June 30,				Six Months Ended June 30,

	2013		2012		2013		2012

(In millions)

Medical professional liability	$	(17)	$	(9)	$	(20)	$	(15)
Other professional liability		(23)		(6)		(24)		(2)
Surety		1				2		1
Warranty								(1)
Other		(2)		(20)		(14)		(24)

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(41)	$	(35)	$	(56)	$	(41)

Three Month Comparison

2013

Favorable development for medical professional liability was primarily due to a decrease in incurred loss severity in accident years 2009 and prior.

Overall, favorable development for other professional liability was related to better than expected loss emergence in accident years 2007 through 2009. Unfavorable development was recorded in accident years 2010 through 2012 related to an increase in severity.

2012

Favorable development for medical professional liability was primarily due to a decrease in incurred loss severity in accident years 2008 through 2010.

Other includes standard property and casualty coverages provided to CNA Specialty customers. Favorable development for other coverages was primarily due to favorable loss emergence in property and workers’ compensation coverages in accident years 2005 and subsequent.

Six Month Comparison

2013

Overall, favorable development for medical professional liability reflects favorable experience in accident years 2009 and prior. Unfavorable development was recorded for accident years 2010 and 2011 due to higher than expected large loss activity.

Favorable development for other coverages was primarily due to better than expected loss emergence in property coverages in accident years 2010 and subsequent.

2012

Favorable development for medical professional liability was primarily due to a decrease in incurred loss severity in accident years 2008 through 2010 and reductions in the estimated frequency of large losses in accident years 2008 and prior.

Favorable development for other coverages was primarily due to favorable loss emergence in property and workers’ compensation coverages in accident years 2005 and subsequent.

CNA Commercial

The following table and discussion provide further detail of the development recorded for the CNA Commercial segment:


	Three Months Ended June 30,				Six Months Ended June 30,

	2013		2012		2013		2012

(In millions)

Commercial auto	$	2	$	2	$	(3)	$	2
General liability		15		(13)		(6)		(5)
Workers’ compensation		45		8		70		(11)
Property and other		(35)		(10)		(45)		(13)

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	27	$	(13)	$	16	$	(27)

Three Month Comparison

2013

Unfavorable development for general liability coverages was primarily related to increased incurred loss severity in accident years 2010 through 2012.

Unfavorable development for workers’ compensation was primarily in response to legislation enacted during 2013 related to the New York Fund for Reopened Cases. The law change necessitated an increase in reserves as re-opened workers’ compensation claims can no longer be turned over to the state for handling and payment after December 31, 2013.

Favorable development for property and other coverages was primarily related to favorable outcomes on litigated catastrophe claims in accident years 2005 and 2010 and favorable loss emergence on non-catastrophe losses in accident year 2012.

2012

Favorable development for general liability coverages was primarily related to favorable loss emergence in accident years 2005 and prior.

Favorable development for property and marine coverages was due to a favorable outcome on an individual claim in accident year 2005 and favorable loss emergence in non-catastrophe losses in accident year 2010.

Six Month Comparison

2013

Overall, favorable development for general liability coverages was primarily related to better than expected loss emergence in accident years 2002 and prior. Unfavorable development was recorded in accident years 2010 through 2012 primarily related to increased incurred loss severity.

Unfavorable development for workers’ compensation was recorded in response to legislation in New York as discussed above. Additional unfavorable development was primarily due to higher than expected large losses and increased severity in the state of California in accident year 2010.

2012

Overall, favorable development for workers’ compensation reflects favorable experience in accident years 2001 and prior. Unfavorable development was recorded in accident year 2010 related to increased medical severity and in accident year 2011 related to favorable premium development.

6. Debt

In May of 2013, the Company completed a public offering of $500 million aggregate principal amount of 2.6% senior notes due May 15, 2023 and $500 million aggregate principal amount of 4.1% senior notes due May 15, 2043. The Company received net proceeds of approximately $983 million, after deducting the underwriters’ discounts and commissions and offering expenses of $17 million, which will be amortized over the life of the notes. The proceeds for this offering are expected to be used for general corporate purposes.

7. Shareholders’ Equity

Accumulated other comprehensive income

The tables below present the changes in Accumulated other comprehensive income (“AOCI”) by component for the three and six months ended June 30, 2013:


	Unrealized Gains (Losses) On Investments		OTTI Gains (Losses)		Cash Flow Hedges						Pension Liability		Foreign Currency Translation		Total Accumulated Other Comprehensive Income (Loss)
					Cash Flow Hedges
					Interest Rate Swaps		Commodity Hedges		Foreign Currency Forwards



(In millions)

Balance, April 1, 2013	$	1,176	$	31	$	(9)	$	6	$	1	$	(727)	$	88	$	566

Other comprehensive income (loss) before reclassifications, after tax of $317, $4, $(1), $(8), $4, $0 and $0		(589)		(8)		2		18		(6)				(13)		(596)
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $(3), $0, $0, $2, $0, $(2) and $0		4						(3)		(1)		5				5
Issuance of equity securities by subsidiary												2				2

Other comprehensive income (loss)		(585)		(8)		2		15		(7)		7		(13)		(589)
Amounts attributable to noncontrolling interests		59						(3)		3		(1)		2		60

Balance, June 30, 2013	$	650	$	23	$	(7)	$	18	$	(3)	$	(721)	$	77	$	37


Balance, January 1, 2013	$	1,233	$	18	$	(9)	$	24	$	1	$	(732)	$	143	$	678

Other comprehensive income (loss) before reclassifications, after tax of $346, $(3), $(1), $(2), $4, $0 and $0		(638)		6		3		5		(6)				(74)		(704)
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $3, $0, $(1), $6, $1, $(5) and $0		(9)				(1)		(10)		(2)		9

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents