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, 2018

[ ] 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				(I.R.S. Employer
incorporation or organization)				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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 20, 2018
Common stock, $0.01 par value				315,982,102 shares

INDEX


	Page
	No.
Part I. Financial Information

Item 1. Financial Statements (unaudited)

Consolidated Condensed Balance Sheets June 30, 2018 and December 31, 2017		3

Consolidated Condensed Statements of Income Three and six months ended June 30, 2018 and 2017		4

Consolidated Condensed Statements of Comprehensive Income (Loss) Three and six months ended June 30, 2018 and 2017		5

Consolidated Condensed Statements of Equity Six months ended June 30, 2018 and 2017		6

Consolidated Condensed Statements of Cash Flows Six months ended June 30, 2018 and 2017		7

Notes to Consolidated Condensed Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		36

Item 3. Quantitative and Qualitative Disclosures about Market Risk		56

Item 4. Controls and Procedures		56

Part II. Other Information		56

Item 1. Legal Proceedings		56

Item 1A. Risk Factors		56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		57

Item 6. Exhibits		58

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


	June 30, 2018				December 31, 2017
(Dollar amounts in millions, except per share data)

Assets:

Investments:
Fixed maturities, amortized cost of $38,568 and $38,861		$	40,441			$	42,133
Equity securities, cost of $1,320 and $1,177			1,305				1,224
Limited partnership investments			3,310				3,278
Other invested assets, primarily mortgage loans			976				945
Short term investments			4,437				4,646
Total investments			50,469				52,226
Cash			453				472
Receivables			8,217				7,613
Property, plant and equipment			15,471				15,427
Goodwill			658				659
Other assets			4,791				2,555
Deferred acquisition costs of insurance subsidiaries			673				634
Total assets		$	80,732			$	79,586


Liabilities and Equity:

Insurance reserves:
Claim and claim adjustment expense		$	21,990			$	22,004
Future policy benefits			10,667				11,179
Unearned premiums			4,410				4,029
Total insurance reserves			37,067				37,212
Payable to brokers			311				60
Short term debt			181				280
Long term debt			11,290				11,253
Deferred income taxes			879				749
Other liabilities			9,146				5,466
Total liabilities			58,874				55,020

Commitments and contingent liabilities

Preferred stock, $0.10 par value:
Authorized – 100,000,000 shares
Common stock, $0.01 par value:
Authorized – 1,800,000,000 shares
Issued – 332,684,645 and 332,487,815 shares			3				3
Additional paid-in capital			3,809				3,151
Retained earnings			16,532				16,096
Accumulated other comprehensive loss			(625	)			(26	)
			19,719				19,224
Less treasury stock, at cost (16,017,088 and 400,000 shares)			(808	)			(20	)
Total shareholders’ equity			18,911				19,204
Noncontrolling interests			2,947				5,362
Total equity			21,858				24,566
Total liabilities and equity		$	80,732			$	79,586

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,
	2018				2017				2018				2017
(In millions, except per share data)

Revenues:
Insurance premiums		$	1,815			$	1,734			$	3,600			$	3,379
Net investment income			551				478				1,057				1,082
Investment gains (losses):
Other-than-temporary impairment losses							(2	)			(6	)			(4	)
Other net investment gains (losses)			(3	)			45				12				81
Total investment gains (losses)			(3	)			43				6				77
Operating revenues and other			1,227				1,104				2,508				2,121
Total			3,590				3,359				7,171				6,659

Expenses:
Insurance claims and policyholders’ benefits			1,327				1,280				2,666				2,573
Amortization of deferred acquisition costs			359				312				655				617
Operating expenses and other			1,454				1,281				2,854				2,331
Interest			143				139				284				281
Total			3,283				3,012				6,459				5,802
Income before income tax			307				347				712				857
Income tax expense			(59	)			(69	)			(84	)			(188	)
Net income			248				278				628				669
Amounts attributable to noncontrolling interests			(18	)			(47	)			(105	)			(143	)
Net income attributable to Loews Corporation		$	230			$	231			$	523			$	526


Basic net income per share		$	0.72			$	0.69			$	1.62			$	1.56


Diluted net income per share		$	0.72			$	0.69			$	1.61			$	1.56


Dividends per share		$	0.0625			$	0.0625			$	0.125			$	0.125


Weighted average shares outstanding:
Shares of common stock			318.87				336.91				323.30				336.90
Dilutive potential shares of common stock			0.91				0.81				0.93				0.80
Total weighted average shares outstanding assuming dilution			319.78				337.72				324.23				337.70

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2018				2017				2018				2017
(In millions)

Net income		$	248			$	278			$	628			$	669

Other comprehensive income (loss), after tax
Changes in:
Net unrealized gains (losses) on investments with other-than-temporary impairments			(1	)							(10	)			(4	)
Net other unrealized gains (losses) on investments			(159	)			77				(588	)			144
Total unrealized gains (losses) on investments			(160	)			77				(598	)			140
Unrealized gains on cash flow hedges			4								14
Pension liability			9				7				19				15
Foreign currency translation			(52	)			42				(41	)			53

Other comprehensive income (loss)			(199	)			126				(606	)			208

Comprehensive income			49				404				22				877

Amounts attributable to noncontrolling interests			2				(60	)			(41	)			(164	)

Total comprehensive income (loss) attributable to Loews Corporation		$	51			$	344			$	(19	)		$	713

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

(Unaudited)


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

Balance, January 1, 2017		$	23,361			$	3		$	3,187			$	15,196			$	(223	)		$	-			$	5,198
Net income			669											526												143
Other comprehensive income			208															187								21
Dividends paid			(138	)										(42	)											(96	)
Purchases of Loews treasury stock			(6	)																		(6	)
Stock-based compensation			14							(9	)															23
Other			(2	)										(3	)											1
Balance, June 30, 2017		$	24,106			$	3		$	3,178			$	15,677			$	(36	)		$	(6	)		$	5,290


Balance, January 1, 2018, as reported		$	24,566			$	3		$	3,151			$	16,096			$	(26	)		$	(20	)		$	5,362
Cumulative effect adjustments from changes in accounting standards (Note 1)			(91	)										(43	)			(28	)							(20	)
Balance, January 1, 2018, as adjusted			24,475				3			3,151				16,053				(54	)			(20	)			5,342
Net income			628											523												105
Other comprehensive loss			(606	)														(542	)							(64	)
Dividends paid			(140	)										(40	)											(100	)
Purchase of Boardwalk Pipeline common units			(1,715	)						661								(29	)							(2,347	)
Purchases of Loews treasury stock			(788	)																		(788	)
Stock-based compensation			8							1																7
Other			(4	)						(4	)			(4	)											4
Balance, June 30, 2018		$	21,858			$	3		$	3,809			$	16,532			$	(625	)		$	(808	)		$	2,947

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


Six Months Ended June 30	2018				2017
(In millions)

Operating Activities:

Net income		$	628			$	669
Adjustments to reconcile net income to net cash provided (used) by operating activities, net			494				614
Changes in operating assets and liabilities, net:
Receivables			(507	)			(223	)
Deferred acquisition costs			(43	)			(41	)
Insurance reserves			563				262
Other assets			(151	)			(108	)
Other liabilities			(115	)			(79	)
Trading securities			1,282				137
Net cash flow operating activities			2,151				1,231

Investing Activities:

Purchases of fixed maturities			(5,608	)			(4,840	)
Proceeds from sales of fixed maturities			4,781				3,142
Proceeds from maturities of fixed maturities			1,306				1,770
Purchases of limited partnership investments			(73	)			(47	)
Proceeds from sales of limited partnership investments			94				119
Purchases of property, plant and equipment			(480	)			(476	)
Acquisitions			(10	)			(1,222	)
Dispositions			2				69
Change in short term investments			(1,104	)			(29	)
Other, net			(145	)			(40	)
Net cash flow investing activities			(1,237	)			(1,554	)

Financing Activities:

Dividends paid			(40	)			(42	)
Dividends paid to noncontrolling interests			(100	)			(96	)
Purchases of Loews treasury stock			(799	)			(6	)
Principal payments on debt			(605	)			(908	)
Issuance of debt			533				1,401
Other, net			83				(1	)
Net cash flow financing activities			(928	)			348

Effect of foreign exchange rate on cash			(5	)			5

Net change in cash			(19	)			30
Cash, beginning of period			472				327
Cash, end of period		$	453			$	357

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 89% owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (“Diamond Offshore”), a 53% owned subsidiary); transportation and storage of natural gas and natural gas liquids (Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”), a wholly owned subsidiary); the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels & Co”), a wholly owned subsidiary); and the manufacture of rigid plastic packaging solutions (Consolidated Container Company LLC (“Consolidated Container”), a 99% 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 attributable to Loews Corporation” as used herein means Net income attributable to Loews Corporation shareholders.

In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of June 30, 2018 and December 31, 2017, results of operations and comprehensive income for the three and six months ended June 30, 2018 and 2017 and changes in shareholders’ equity and cash flows for the six months ended June 30, 2018 and 2017. 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. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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. There were no shares and 0.6 million shares attributable to employee stock-based compensation awards excluded from the diluted weighted average shares outstanding amounts for the three and six months ended June 30, 2018 and 2017 because the effect would have been antidilutive.

Accounting changes – In May of 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The core principle of the new accounting guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new accounting guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires enhanced disclosures about revenue. The standard excludes from its scope the accounting for insurance contracts, financial instruments and certain other agreements that are subject to other guidance in the FASB Accounting Standards Codification, which limits the impact of this change in accounting for the Company.

On January 1, 2018, the Company adopted the updated accounting guidance using the modified retrospective method, with a cumulative effect adjustment to the opening balance sheet. Upon adoption, the new guidance was applied to all contracts subject to the standard that were not completed as of the date of adoption. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. At adoption, the cumulative effect adjustment decreased beginning Retained earnings by $62 million (after tax and noncontrolling interests), resulted in a deferred tax asset of $23 million and increased Other assets by approximately $1.9 billion and Other liabilities by approximately $2.0 billion.

The impact of the new guidance is primarily related to revenue on CNA’s non-insurance warranty products and services, which will be recognized more slowly as compared to the historic revenue recognition pattern. For the warranty products in which CNA acts as principal, Operating revenues and other and Operating expenses and other are increased to reflect the gross amount paid by consumers, including the retail seller’s markup, which is considered a commission to the Company’s agent. This gross-up of revenues and expenses resulted in an increase to Other assets and Other liabilities on the Consolidated Condensed Balance Sheet, as the revenue and expense are recognized over the actuarially determined expected claims emergence pattern. Prior to the adoption of ASU 2014-09, Other assets and Other liabilities would have been $2.7 billion and $7.0 billion as of June 30, 2018, as compared to $2.6 billion and $5.5 billion as of December 31, 2017. The impact of adopting the new guidance resulted in an increase to Operating revenues and other of $143 million and $274 million for the three and six months ended June 30, 2018 and

an increase to Operating expenses and other of $141 million and $274 million for the three and six months ended June 30, 2018. See Note 7 for additional information on revenues from contracts with customers.

In January of 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The updated accounting guidance requires changes to the reporting model for financial instruments. The guidance primarily changes the model for equity securities by requiring changes in the fair value of equity securities (except those accounted for under the equity method of accounting, those without readily determinable fair values and those that result in consolidation of the investee) to be recognized through the income statement. With the adoption of the new guidance, equity securities are no longer classified as available-for-sale or trading. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. As of January 1, 2018, the Company adopted the updated accounting guidance and recognized a cumulative effect adjustment of $25 million (after tax and noncontrolling interests) as an increase to beginning Retained earnings. For the three and six months ended June 30, 2018, a decrease in the fair value of equity securities of approximately $8 million and $23 million was recognized in the Company’s Consolidated Condensed Statements of Income as a result of this change. For the three and six months ended June 30, 2017, a $2 million and $6 million increase in the fair value of equity securities was recognized in Other comprehensive income.

In October of 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The updated guidance amends the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. As of January 1, 2018, the Company adopted this updated guidance using the modified retrospective approach with a cumulative effect adjustment of $9 million (after noncontrolling interests) as a decrease to beginning Retained earnings with an offset to a deferred income tax liability.

In February of 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). Current accounting guidance requires the remeasurement of deferred tax liabilities and assets due to a change in tax laws or rates with the effect included in Net income in the reporting period that includes the enactment date. Because the remeasurement of deferred taxes due to a reduction in the federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) is required to be included in Net income, the tax effects of items within Accumulated Other Comprehensive Income (“AOCI”) do not reflect the appropriate rate (referred to as “stranded tax effects”). The updated accounting guidance allows a reclassification from AOCI to Retained earnings for the stranded tax effects resulting from the Tax Act. The Company early adopted the updated guidance effective January 1, 2018 and elected to reclassify the stranded tax effects from AOCI to Retained earnings. The impact of the change resulted in a $3 million (after noncontrolling interests) increase in Retained earnings and a corresponding decrease in AOCI. The decrease in AOCI is comprised of a $130 million (after noncontrolling interests) decrease in pension liability and a $127 million (after noncontrolling interests) increase in unrealized gains (losses) on investments. The Company releases tax effects from AOCI utilizing the security-by-security approach for investments and using enacted tax rates based on the pretax adjustments for pension and postretirement benefits.

Recently issued ASUs – In February of 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and nonlease components in a contract in accordance with the new revenue guidance in ASU 2014-09. The updated guidance is effective for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

In June of 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through net income. The guidance is effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements, and expects the primary changes to be the use of the expected credit loss model for the mortgage loan portfolio and reinsurance receivables and the use of the allowance method rather than the write-down method for credit losses within the available-for-sale fixed maturities portfolio. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. Under the allowance method for available-for-sale debt securities the Company will record reversals of credit losses if the estimate of credit losses declines.

Income tax reform update – Based on the Company’s interpretation of the Tax Act, a non-cash provisional $200 million increase to net income (net of noncontrolling interests) was recorded during the fourth quarter of 2017. This increase included a one-time mandatory repatriation of previously deferred earnings of certain of Diamond Offshore’s non-U.S. subsidiaries inclusive of the utilization of certain tax attributes offset by a provisional liability for uncertain

tax positions related to such attributes. In 2018, the U.S. Department of the Treasury and the Internal Revenue Service issued additional guidance which clarified certain of Diamond Offshore’s tax positions, which resulted in a $23 million increase to net income (net of noncontrolling interests) in the first quarter of 2018 for uncertain tax positions related to the mandatory repatriation toll charges in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 allows companies to report the income tax effects of the Tax Act as a provisional amount based on a reasonable estimate, which would be subject to adjustment during a reasonable measurement period, not to exceed twelve months, until the accounting and analysis under ASC 740 is complete.

The Company is still in the process of evaluating the estimate as it relates to the tax effect of: (i) the amount of deferred tax assets and liabilities subject to the income tax rate change from 35% to 21%, including the calculation of the mandatory deemed repatriation aspect of the Tax Act and the state tax effect of adjustments made to the federal temporary differences, (ii) the ability to more likely than not realize the benefit of deferred tax assets, including net operating losses and foreign tax credits, (iii) the effect of re-computing CNA’s insurance reserves and the transition adjustment from existing law, the effects of which will have no impact on the effective tax rate and (iv) the special accounting method provisions for recognizing income for U.S. federal income tax purposes no later than financial accounting purposes and the transition adjustment from existing law, which will also have no impact on the effective tax rate.

2. Purchase of Boardwalk Pipeline Common Units

On June 29, 2018, Boardwalk GP, LP (“General Partner”), the general partner of Boardwalk Pipeline and an indirect wholly owned subsidiary of the Company, elected to exercise its right to purchase all of the issued and outstanding common units representing limited partnership interests in Boardwalk Pipeline not already owned by the General Partner or its affiliates pursuant to Section 15.1(b) of Boardwalk Pipeline’s Third Amended and Restated Agreement of Limited Partnership, as amended (“Limited Partnership Agreement”) for a cash purchase price, determined in accordance with the Limited Partnership Agreement, of $12.06 per unit, or approximately $1.5 billion, in the aggregate. The election to exercise the call option resulted in the Boardwalk Pipeline noncontrolling interests being reclassified as mandatorily redeemable equity. The noncontrolling interest liability was removed and $1.5 billion was recorded in Other liabilities on the Consolidated Condensed Balance Sheet as of June 30, 2018. The purchase price of the common units was lower than the carrying value of the noncontrolling interests for Boardwalk Pipeline, resulting in an increase to Additional paid-in capital of $661 million, an increase to deferred income tax liabilities of $211 million and a decrease to AOCI of $29 million, which were recorded as of June 30, 2018. The transaction was completed on July 18, 2018.

Following completion of the transaction on July 18, 2018, Boardwalk Pipelines Holding Corp., a wholly owned subsidiary of Loews Corporation, directly or indirectly owned all of the equity interests of Boardwalk Pipeline. As a result of the transaction, Boardwalk Pipeline has withdrawn the common units from listing on the New York Stock Exchange and from registration under Section 12(b) of the Securities Exchange Act of 1934.

3. Investments

Net investment income is as follows:


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2018				2017				2018				2017
(In millions)

Fixed maturity securities		$	444			$	457			$	890			$	912
Limited partnership investments			60				23				108				139
Short term investments			11				4				20				8
Equity securities			12				2				22				3
Income (loss) from trading portfolio (a)			23				(1	)			20				33
Other			17				8				28				16
Total investment income			567				493				1,088				1,111
Investment expenses			(16	)			(15	)			(31	)			(29	)
Net investment income		$	551			$	478			$	1,057			$	1,082

(a)	Net unrealized gains (losses) related to changes in fair value on securities still held were $(4) and $(6) for the three months ended June 30, 2018 and 2017 and $(25) and $19 for the six months ended June 30, 2018 and 2017.

Investment gains (losses) are as follows:


	Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017
(In millions)

Fixed maturity securities		$	4			$	44			$	22			$	76
Equity securities			(10	)							(25	)
Derivative instruments			4				(3	)			9				(2	)
Short term investments and other			(1	)			2								3
Investment gains (a)		$	(3	)		$	43			$	6			$	77

(a)

Gross realized gains on available-for-sale securities were $37 and $57 for the three months ended June 30, 2018 and 2017 and $106 for the six months ended June 30, 2018 and 2017. Gross realized losses on available-for-sale securities were $33 and $13 for the three months ended June 30, 2018 and 2017 and $84 and $30 for the six months ended June 30, 2018 and 2017. Net unrealized losses related to changes in fair value on non-redeemable preferred stock still held were $11 and $25 for the three and six months ended June 30, 2018.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
(In millions)

Fixed maturity securities available-for-sale:
Corporate and other bonds			$	2	$	5	$	4
Asset-backed						1
Net OTTI losses recognized in earnings	$	-	$	2	$	6	$	4

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

June 30, 2018

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Unrealized
OTTI Losses
(Gains)

(In millions)

Fixed maturity securities:

Corporate and other bonds

17,883

938

203

18,618

States, municipalities and political subdivisions

10,856

1,161

12,009

Asset-backed:

Residential mortgage-backed

4,961

4,948

(25)

Commercial mortgage-backed

2,082

2,072

Other asset-backed

1,557

Total asset-backed

8,600

104

127

8,577

(25)

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

127

Foreign government

436

437

Redeemable preferred stock

Fixed maturities available-for-sale

37,911

2,213

346

39,778

(25)

Fixed maturities trading

657

663

Total fixed maturity securities

38,568

2,220

347

40,441

(25)


December 31, 2017	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Estimated Fair Value			Unrealized OTTI Losses (Gains)
(In millions)

Fixed maturity securities:
Corporate and other bonds		$	17,210		$	1,625		$	28		$	18,807
States, municipalities and political subdivisions			12,478			1,551			2			14,027		$	(11)
Asset-backed:
Residential mortgage-backed			5,043			109			32			5,120			(27)
Commercial mortgage-backed			1,840			46			14			1,872
Other asset-backed			1,083			16			5			1,094
Total asset-backed			7,966			171			51			8,086			(27)
U.S. Treasury and obligations of government- sponsored enterprises			111			2			4			109
Foreign government			437			9			2			444
Redeemable preferred stock			10			1						11
Fixed maturities available-for-sale			38,212			3,359			87			41,484			(38)
Fixed maturities trading			649			2			2			649
Total fixed maturities			38,861			3,361			89			42,133			(38)
Equity securities:
Common stock			21			7			1			27
Preferred stock			638			31			1			668
Equity securities available-for-sale			659			38			2			695			-
Equity securities trading			518			92			81			529
Total equity securities			1,177			130			83			1,224			-
Total fixed maturity and equity securities		$	40,038		$	3,491		$	172		$	43,357		$	(38)

The net unrealized gains on available-for-sale investments included in the tables above are recorded as a component of AOCI. When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting long term care products and structured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (“Shadow Adjustments”). As of June 30, 2018 and December 31, 2017, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1.1 billion and $1.3 billion (after tax and noncontrolling interests).

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, 2018	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		$	6,963		$	192		$	193		$	11		$	7,156		$	203
States, municipalities and political subdivisions			723			8			3						726			8
Asset-backed:
Residential mortgage-backed			3,183			68			344			17			3,527			85
Commercial mortgage-backed			913			16			228			17			1,141			33
Other asset-backed			632			6			27			3			659			9
Total asset-backed			4,728			90			599			37			5,327			127
U.S. Treasury and obligations of government- sponsored enterprises			49			1			19			2			68			3
Foreign government			178			3			40			2			218			5
Total fixed maturity securities		$	12,641		$	294		$	854		$	52		$	13,495		$	346


	Less than 12 Months						12 Months or Longer						Total
December 31, 2017	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		$	1,354		$	21		$	168		$	7		$	1,522		$	28
States, municipalities and political subdivisions			72			1			85			1			157			2
Asset-backed:
Residential mortgage-backed			1,228			5			947			27			2,175			32
Commercial mortgage-backed			403			4			212			10			615			14
Other asset-backed			248			3			18			2			266			5
Total asset-backed			1,879			12			1,177			39			3,056			51
U.S. Treasury and obligations of government- sponsored enterprises			49			2			21			2			70			4
Foreign government			166			2			4						170			2
Total fixed maturity securities			3,520			38			1,455			49			4,975			87
Equity securities:
Common stock			7			1									7			1
Preferred stock			93			1									93			1
Total equity securities			100			2			-			-			100			2
Total fixed maturity and equity securities		$	3,620		$	40		$	1,455		$	49		$	5,075		$	89

Based on current facts and circumstances, the Company believes the unrealized losses presented in the June 30, 2018 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded as of June 30, 2018.

The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held as of June 30, 2018 and 2017 for which a portion of an OTTI loss was recognized in Other comprehensive income.


	Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017
(In millions)

Beginning balance of credit losses on fixed maturity securities		$	25			$	32			$	27			$	36
Reductions for securities sold during the period			(4	)			(2	)			(6	)			(6	)
Ending balance of credit losses on fixed maturity securities		$	21			$	30			$	21			$	30

Contractual Maturity

The following table presents available-for-sale fixed maturity securities by contractual maturity.


	June 30, 2018						December 31, 2017
	Cost or Amortized Cost			Estimated Fair Value			Cost or Amortized Cost			Estimated Fair Value
(In millions)

Due in one year or less		$	1,301		$	1,322		$	1,135		$	1,157
Due after one year through five years			8,211			8,421			8,165			8,501
Due after five years through ten years			16,138			16,240			16,060			16,718
Due after ten years			12,261			13,795			12,852			15,108
Total		$	37,911		$	39,778		$	38,212		$	41,484

Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.

Derivative Financial Instruments

A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.


	June 30, 2018									December 31, 2017
	Contractual/									Contractual/
	Notional			Estimated Fair Value						Notional			Estimated Fair Value
	Amount			Asset			(Liability)			Amount			Asset			(Liability)
(In millions)

With hedge designation:

Interest rate swaps		$	500		$	19					$	500		$	4

Without hedge designation:

Equity markets:
Options – purchased			198			9						224			12
– written			204					$	(8)			290					$	(7)
Futures – short			148									265			1
Commodity futures – long			51									44
Embedded derivative on funds withheld liability			161			4						167						(3)

4. Fair Value

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

•

Level 1 – Quoted prices for identical instruments in active markets.

•

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

•

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.

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

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

Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises and foreign governments and redeemable preferred stock.


June 30, 2018	Level 1				Level 2			Level 3			Total
(In millions)

Fixed maturity securities:
Corporate bonds and other		$	166			$	18,932		$	94		$	19,192
States, municipalities and political subdivisions							12,008			1			12,009
Asset-backed							8,304			273			8,577
Fixed maturities available-for-sale			166				39,244			368			39,778
Fixed maturities trading							656			7			663
Total fixed maturities		$	166			$	39,900		$	375		$	40,441


Equity securities		$	683			$	604		$	18		$	1,305
Short term and other			3,361				1,050						4,411
Receivables							19						19
Payable to brokers			(11	)									(11	)

December 31, 2017

Fixed maturity securities:
Corporate bonds and other		$	128			$	19,145		$	98		$	19,371
States, municipalities and political subdivisions							14,026			1			14,027
Asset-backed							7,751			335			8,086
Fixed maturities available-for-sale			128				40,922			434			41,484
Fixed maturities trading			10				635			4			649
Total fixed maturities		$	138			$	41,557		$	438		$	42,133


Equity securities available-for-sale		$	91			$	584		$	20		$	695
Equity securities trading			527							2			529
Total equity securities		$	618			$	584		$	22		$	1,224



Short term and other		$	3,669			$	958					$	4,627
Receivables			1				4						5
Payable to brokers			(12	)									(12	)

The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2018 and 2017:


				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)																													Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
				Included in																			Transfers			Transfers							Liabilities
	Balance,			Net Income				Included in															into			out of				Balance,			Held at
2018	April 1			(Loss)				OCI				Purchases			Sales				Settlements				Level 3			Level 3				June 30			June 30
(In millions)

Fixed maturity securities:
Corporate bonds and other		$	100						$	(1	)		$	2		$	(5	)		$	(2	)									$	94
States, municipalities and political subdivisions			1																													1
Asset-backed			279							(1	)			41							(6	)		$	13		$	(53	)			273
Fixed maturities available-for-sale			380		$	-				(2	)			43			(5	)			(8	)			13			(53	)			368		$	-
Fixed maturities trading			7																													7
Total fixed maturities		$	387		$	-			$	(2	)		$	43			$ (5	)		$	(8	)		$	13		$	(53	)		$	375		$	-


Equity securities		$	20		$	(1	)									$	(1	)													$	18		$	(1	)


				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)																											Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
				Included in																	Transfers			Transfers							Liabilities
	Balance,			Net Income			Included in														into			out of				Balance,			Held at
2017	April 1			(Loss)			OCI			Purchases			Sales				Settlements				Level 3			Level 3				June 30			June 30
(In millions)

Fixed maturity securities:
Corporate bonds and other		$	121															$	(11	)					$	(10	)		$	100
States, municipalities and political subdivisions			1																											1
Asset-backed			256		$	1		$	1		$	13							(7	)		$	24			(70	)			218
Fixed maturities available-for-sale			378			1			1			13							(18	)			24			(80	)			319		$	-
Fixed maturities trading			5																											5			(1	)
Total fixed maturities		$	383		$	1		$	1		$	13		$	-			$	(18	)		$	24		$	(80	)		$	324		$	(1	)


Equity securities available-for-sale		$	19					$	1					$	(1	)													$	19
Equity securities trading			1																											1
Total equity securities		$	20		$	-		$	1		$	-		$	(1	)		$	-			$	-		$	-			$	20		$	-


Life settlement contracts		$	46											$	(45	)													$	1


				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)																													Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
				Included in																			Transfers			Transfers							Liabilities
	Balance,			Net Income				Included in															into			out of				Balance,			Held at
2018	January 1			(Loss)				OCI				Purchases			Sales				Settlements				Level 3			Level 3				June 30			June 30
(In millions)

Fixed maturity securities:
Corporate bonds and other		$	98		$	(1	)		$	(1	)		$	2		$	(5	)		$	(4	)		$	5						$	94
States, municipalities and political subdivisions			1																													1
Asset-backed			335			7				(6	)			71			(72	)			(12	)			13		$	(63	)			273
Fixed maturities available-for-sale			434			6				(7	)			73			(77	)			(16	)			18			(63	)			368		$	-
Fixed maturities trading			4			3																										7			3
Total fixed maturities		$	438		$	9			$	(7	)		$	73		$	(77	)		$	(16	)		$	18		$	(63	)		$	375		$	3


Equity securities		$	22		$	(3	)									$	(1	)													$	18		$	(3	)


				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)																												Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
				Included in																		Transfers			Transfers							Liabilities
	Balance,			Net Income				Included in														into			out of				Balance,			Held at
2017	January 1			(Loss)				OCI			Purchases			Sales				Settlements				Level 3			Level 3				June 30			June 30
(In millions)

Fixed maturity securities:
Corporate bonds and other		$	130						$	1		$	5		$	(1	)		$	(25	)					$	(10	)		$	100
States, municipalities and political subdivisions			1																												1
Asset-backed			199		$	1				3			51							(13	)		$	52			(75	)			218
Fixed maturities available-for-sale			330			1				4			56			(1	)			(38	)			52			(85	)			319		$	-
Fixed maturities trading			6			(1	)																								5			(1	)
Total fixed maturities		$	336		$	-			$	4		$	56		$	(1	)		$	(38	)		$	52		$	(85	)		$	324		$	(1	)


Equity securities available-for-sale		$	19						$	2		$	1		$	(3	)													$	19
Equity securities trading			1																												1
Total equity securities		$	20		$	-			$	2		$	1		$	(3	)		$	-			$	-		$	-			$	20		$	-


Life settlement contracts		$	58		$	6									$	(58	)		$	(5	)									$	1
Derivative financial instruments, net			-			1										(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		Investment gains (losses) and 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 Operating revenues and other
Life settlement contracts		Operating revenues and other

Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume. During the three months ended June 30, 2018, there were no transfers between Level 1 and Level 2. During the six months ended June 30, 2018, there were $29 million of transfers from Level 2 to Level 1 and no transfers from Level 1 to Level 2. During the three and six months ended June 30, 2017 there were no transfers between Level 1 and Level 2. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods.

Valuation Methodologies and Inputs

The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.

Fixed Maturity Securities

Level 1 securities include highly liquid and exchange traded bonds and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation, and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with inputs that are not market observable.

Equity Securities

Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with inputs that are not market observable.

Derivative Financial Instruments

Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace.

Short Term and Other Invested Assets

Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded open-end funds valued using quoted market prices. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented in the Consolidated Condensed Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.

Life Settlement Contracts

CNA sold its life settlement contracts to a third party in 2017. The valuation of the life settlement contracts was based on the terms of sale. The contracts were classified as Level 3 as there was not an active market for life settlement contracts.

Significant Unobservable Inputs

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


June 30, 2018	Estimated Fair Value	Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(In millions)

Fixed maturity securities	$ 130	Discounted cash flow	Credit spread		1	% –12% (3%)

December 31, 2017

Fixed maturity securities	$ 136	Discounted cash flow	Credit spread		1	% – 12% (3%)

For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value

The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude capital lease obligations. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.


	Carrying		Estimated Fair Value
June 30, 2018	Amount		Level 1	Level 2		Level 3		Total
(In millions)

Assets:
Other invested assets, primarily mortgage loans	$	865				$	850	$	850

Liabilities:
Short term debt		178		$	36		142		178
Long term debt		11,273			10,550		631		11,181

December 31, 2017

Assets:
Other invested assets, primarily mortgage loans	$	839				$	844	$	844

Liabilities:
Short term debt		278		$	156		122		278
Long term debt		11,236			10,966		525		11,491

The fair values of mortgage loans, included in Other invested assets, were based on the present value of the expected future cash flows discounted at the current interest rate for similar financial instruments, adjusted for specific loan risk.

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 incurred but not reported (“IBNR”) claims 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 claim reserving trends and 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 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 $26 million and $39 million for the three months ended June 30, 2018 and 2017 and $60 million and $73 million for the six months ended June 30, 2018 and 2017. Net catastrophe losses in 2018 and 2017 related primarily to U.S. weather-related events.

Liability for Unpaid Claim and Claim Adjustment Expenses Rollforward

The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of Other Insurance Operations.


Six Months Ended June 30	2018			2017
(In millions)

Reserves, beginning of year:
Gross	$	22,004		$	22,343
Ceded		3,934			4,094
Net reserves, beginning of year		18,070			18,249

Net incurred claim and claim adjustment expenses:
Provision for insured events of current year		2,552			2,443
Decrease in provision for insured events of prior years		(112	)		(159	)
Amortization of discount		92			93
Total net incurred (a)		2,532			2,377

Net payments attributable to:
Current year events		(312	)		(266	)
Prior year events		(2,387	)		(2,331	)
Total net payments		(2,699	)		(2,597	)

Foreign currency translation adjustment and other		(70	)		70

Net reserves, end of period		17,833			18,099
Ceded reserves, end of period		4,157			4,080
Gross reserves, end of period	$	21,990		$	22,179

(a)

Total net incurred above does not agree to Insurance claims and policyholders’ benefits as reflected in the Consolidated Condensed Statements of Income due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and loss deductible receivables and benefit expenses related to future policy benefits, which are not reflected in the table above.

Net Prior Year Development

Changes in estimates of claim and claim adjustment expense reserves net of reinsurance, for prior years are defined as net prior year loss reserve development. These changes can be favorable or unfavorable.

Favorable net prior year development of $59 million and $55 million for the three months ended June 30, 2018 and 2017 and $98 million and $112 million for the six months ended June 30, 2018 and 2017 was recorded for CNA’s commercial property and casualty operations (“Property & Casualty Operations”).

The following table and discussion present details of the net prior year claim and claim adjustment expense reserve development in CNA’s Property & Casualty Operations:


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2018				2017				2018				2017
(In millions)

Medical professional liability		$	3			$	2			$	23			$	22
Other professional liability and management liability			(34	)			(37	)			(68	)			(69	)
Surety			(15	)							(30	)
Commercial auto							1				(1	)			(25	)
General liability			26				1				18				(17	)
Workers’ compensation			(6	)			(47	)			(12	)			(47	)
Other			(33	)			25				(28	)			24
Total pretax (favorable) unfavorable development		$	(59	)		$	(55	)		$	(98	)		$	(112	)

Three Months

2018

Favorable development in other professional liability and management liability was primarily in professional liability errors and omissions (“E&O”) reflecting lower than expected claim frequency in accident years 2014 through 2016 and favorable severity for accident years 2012 and prior.

Favorable development in surety was driven by continued lower than expected loss emergence on accident years 2015 and prior.

Unfavorable development in general liability was driven by higher than expected claim severity in umbrella in accident years 2013 through 2015.

Favorable development for other coverages was primarily due to lower than expected claim severity from catastrophes in accident year 2017 for property and other and lower than expected frequency in accident years 2015 and prior related to healthcare in Europe in healthcare and technology. This favorable development was partially offset by unfavorable development in property driven by higher than expected severity in Canada and higher than expected frequency in Hardy, both in accident year 2017 and increased severity in accident year 2017 related to professional indemnity in specialty.

2017

Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency in accident years 2013 through 2015 and lower than expected severity in accident years 2014 through 2016 for professional liability.

Favorable development for workers’ compensation was primarily related to decreases in frequency and severity in recent accident years, partially attributable to California reforms related to decreases in medical costs.

Unfavorable development for other coverages was primarily due to higher than expected severity in accident year 2016 for property and other, higher than expected severity in accident year 2015 arising from the management liability business and adverse large claims experience in the Hardy political risks portfolio, relating largely to accident year 2016. This unfavorable development was partially offset by favorable development in accident years 2014 and prior for the management liability business and better than expected frequency in accident years 2014 through 2016, for property.

Six Months

2018

Unfavorable development for medical professional liability was primarily due to higher than expected severity in accident years 2014 and 2017 in CNA’s hospitals business.

Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency for accident years 2013 through 2017 related to financial institutions. Additional favorable development was in professional liability E&O reflecting lower than expected claims frequency in accident years 2014 through 2016 and favorable severity for accident years 2012 and prior.

Favorable development for surety was due to continued lower than expected loss emergence for accident years 2015 and prior.

Unfavorable development in general liability was driven by higher than expected claim severity in umbrella in accident years 2013 through 2015.

The drivers of development for other coverages were consistent with the three month summary above.

2017

Unfavorable development in medical professional liability was primarily due to continued higher than expected frequency in aging services.

Favorable development in other professional liability and management liability was primarily due to favorable settlements on closed claims and a lower than expected frequency of large losses for accident years 2011 through 2016 for professional and management liability, lower than expected claim frequency in accident years 2013 through 2015 for professional liability and lower than expected severity in accident years 2014 through 2016 for professional liability.

Favorable development for commercial auto was primarily due to lower than expected severity in accident years 2013 through 2015.

Favorable development for general liability was due to lower than expected severity in life sciences.

The drivers of development for other coverages were generally consistent with the three month summary above.

Asbestos and Environmental Pollution (“A&EP”) Reserves

In 2010, Continental Casualty Company (“CCC”) together with several of CNA’s other insurance subsidiaries completed a transaction with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., under which substantially all of CNA’s legacy A&EP liabilities were ceded to NICO through a loss portfolio transfer (“loss portfolio transfer” or “LPT”). At the effective date of the transaction, CNA ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4.0 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third party reinsurance related to these liabilities. CNA paid NICO a reinsurance premium of $2.0 billion and transferred to NICO billed third party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.

In years subsequent to the effective date of the LPT, CNA recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which CNA recognizes

a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders’ benefits in the Consolidated Condensed Statements of Income.

The following table presents the impact of the loss portfolio transfer on the Consolidated Condensed Statements of Income.


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2018				2017				2018				2017
(In millions)

Additional amounts ceded under LPT:
Net A&EP adverse development before consideration of LPT		$	-			$	-			$	113			$	60
Provision for uncollectible third-party reinsurance on A&EP											(16	)
Total additional amounts ceded under LPT			-				-				97				60
Retroactive reinsurance benefit recognized			(15	)			(3	)			(72	)			(43	)
Pretax impact of deferred retroactive reinsurance		$	(15	)		$	(3	)		$	25			$	17

Based upon CNA’s annual A&EP reserve review, net unfavorable prior year development of $113 million and $60 million was recognized before consideration of cessions to the LPT for the six months ended June 30, 2018 and 2017. Additionally, in 2018, CNA released a portion of its provision for uncollectible third party reinsurance. The 2018 unfavorable development was driven by higher than anticipated defense costs on direct asbestos environmental accounts and paid losses on assumed reinsurance exposures. The 2017 unfavorable development was driven by modestly higher anticipated payouts on claims from known sources of asbestos exposure. While the unfavorable development was ceded to NICO under the LPT, CNA’s reported earnings in the six month periods were negatively affected due to the application of retroactive reinsurance accounting.

As of June 30, 2018 and December 31, 2017, the cumulative amounts ceded under the LPT were $3.0 billion and $2.9 billion. The unrecognized deferred retroactive reinsurance benefit was $351 million and $326 million as of June 30, 2018 and December 31, 2017.

NICO established a collateral trust account as security for its obligations to CNA. The fair value of the collateral trust account was $3.0 billion and $3.1 billion as of June 30, 2018 and December 31, 2017. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to CNA’s A&EP claims.

6. Shareholders’ Equity

Accumulated other comprehensive income (loss)

The tables below present the changes in AOCI by component for the three and six months ended June 30, 2017 and 2018:


	OTTI Gains (Losses)			Unrealized Gains (Losses) on Investments				Cash Flow Hedges			Pension Liability			Foreign Currency Translation			Total Accumulated Other Comprehensive Income (Loss)
(In millions)

Balance, April 1, 2017		$	23		$	636			$	(2)		$	(638)		$	(168)		$	(149)
Other comprehensive income (loss) before reclassifications, after tax of $1, $(63), $0, $0 and $0			(1)			108										42			149
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $(1), $15, $0, $(3) and $0			1			(31	)						7						(23)
Other comprehensive income			-			77				-			7			42			126
Amounts attributable to noncontrolling interests						(8	)						(1)			(4)			(13)
Balance, June 30, 2017		$	23		$	705			$	(2)		$	(632)		$	(130)		$	(36)


Balance, April 1, 2018		$	18		$	386			$	10		$	(753)		$	(78)		$	(417)
Other comprehensive income (loss) before reclassifications, after tax of $1, $45, $0, $0 and $0			(1)			(156	)			4						(52)			(205)
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $0, $1, $0, $(2) and $0						(3	)						9						6
Other comprehensive income (loss)			(1)			(159	)			4			9			(52)			(199)
Amounts attributable to noncontrolling interests						17							(2)			5			20
Purchase of Boardwalk Pipeline common units										(1)			(28)						(29)
Balance, June 30, 2018		$	17		$	244			$	13		$	(774)		$	(125)		$	(625)


	OTTI Gains (Losses)				Unrealized Gains (Losses) on Investments				Cash Flow Hedges				Pension Liability				Foreign Currency Translation				Total Accumulated Other Comprehensive Income (Loss)
(In millions)

Balance, January 1, 2017		$	27			$	576			$	(2	)		$	(646	)		$	(178	)		$	(223	)
Other comprehensive income (loss) before reclassifications, after tax of $0, $(110), $0, $0 and $0			(1	)			193				(1	)							53				244
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $1, $24, $0, $(7) and $0			(3	)			(49	)			1				15								(36	)
Other comprehensive income (loss)			(4	)			144				-				15				53				208
Amounts attributable to noncontrolling interests							(15	)							(1	)			(5	)			(21	)
Balance, June 30, 2017		$	23			$	705			$	(2	)		$	(632	)		$	(130	)		$	(36	)


Balance, January 1, 2018, as reported		$	22			$	673			$	-			$	(633	)		$	(88	)		$	(26	)
Cumulative effect adjustment for adoption of ASU 2016-01 (a), after tax of $0, $8, $0, $0 and $0							(25	)															(25	)
Cumulative effect adjustment for adoption of ASU 2018-02 (a)			4				123								(130	)							(3	)
Balance, January 1, 2018, as adjusted			26				771				-				(763	)			(88	)			(54	)
Other comprehensive income (loss) before reclassifications, after tax of $3, $150, $(2), $0 and $0			(11	)			(570	)			12								(41	)			(610	)
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $0, $5, $0, $(5) and $0			1				(18	)			2				19								4
Other comprehensive income (loss)			(10	)			(588	)			14				19				(41	)			(606	)
Amounts attributable to noncontrolling interests			1				61								(2	)			4				64
Purchase of Boardwalk Pipeline common units											(1	)			(28	)							(29	)
Balance, June 30, 2018		$	17			$	244			$	13			$	(774	)		$	(125	)		$	(625	)

(a)	For information regarding this accounting standard see Note 1.

Amounts reclassified from AOCI shown above are reported in Net income as follows:


Major Category of AOCI		Affected Line Item

OTTI gains (losses)		Investment gains (losses)
Unrealized gains (losses) on investments		Investment gains (losses)
Cash flow hedges		Operating revenues and other and Operating expenses and other
Pension liability		Operating expenses and other

Treasury Stock

The Company repurchased 15.6 million and 0.1 million shares of Loews common stock at aggregate costs of $788 million and $6 million during the six months ended June 30, 2018 and 2017.

7. Revenue from Contracts with Customers

Disaggregation of revenues – Revenue from contracts with customers, other than insurance premiums, is reported within Operating revenues and other on the Consolidated Condensed Statements of Income. The following table presents revenues from contracts with customers disaggregated by revenue type along with the reportable segment and a reconciliation to Operating revenues and other as reported in Note 11:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017 (a)			2018			2017 (a)
(In millions)

Non-insurance warranty – CNA Financial		$	248		$	98		$	486		$	191
Contract drilling – Diamond Offshore			268			398			564			773
Transportation and storage of natural gas and NGLs and other services – Boardwalk Pipeline			281			303			612			654
Lodging and related services – Loews Hotels & Co			200			181			383			348
Rigid plastic packaging and recycled resin – Corporate			216			91			429			91
Total revenues from contracts with customers			1,213			1,071			2,474			2,057
Other revenues			14			33			34			64
Operating revenues and other		$	1,227		$	1,104		$	2,508		$	2,121

(a) Prior period amounts have not been adjusted under the modified retrospective method of adoption for ASU 2014-09.

CNA’s non-insurance warranty revenues are primarily generated from separately-priced service contracts that provide mechanical breakdown and other coverages to vehicle or consumer goods owners, which generally provide coverage from one month to ten years. Additionally, CNA provides warranty administration services for dealer and manufacturer warranty products. Non-insurance revenues are recognized when obligations under the terms of the contract with CNA’s customers are satisfied, which is generally over time as obligations are fulfilled. CNA recognizes non-insurance warranty revenues over the service period in proportion to the actuarially determined expected claims emergence pattern. Customers pay in full at the inception of the warranty contract. A liability for unearned warranty revenue is recorded when cash payments are received or due in advance of CNA’s performance, including amounts which are refundable upon cancellation.

Diamond Offshore’s contract drilling revenues primarily result from providing a drilling rig and the crew and supplies necessary to operate the rig, mobilizing and demobilizing the rig to and from the drill site and performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue for the purchase of supplies, equipment, personnel services and other services requested by the customer. Diamond Offshore accounts for these integrated services provided within its drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which drilling services are provided. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. The standard contract term ranges from two to 60 months.

Boardwalk Pipeline primarily earns revenues by providing transportation and storage services for natural gas and natural gas liquids and hydrocarbons (referred to together as “NGLs”) on a firm and interruptible basis and provides interruptible natural gas parking and lending services. The majority of Boardwalk Pipeline’s operating subsidiaries are subject to Federal Energy Regulatory Commission (“FERC”) regulations and certain revenues collected, under certain circumstances, may be subject to possible refunds to its customers. An estimated refund liability is recorded considering regulatory proceedings, advice of counsel and estimated total exposure. The majority of Boardwalk Pipeline’s revenues are from firm service contracts which are accounted for as a single promise to stand ready each month of the contract term to provide the committed capacity for either transportation or storage services. The transaction price is comprised of a fixed fee based on the capacity reserved plus a usage fee paid on the volume of commodity transported or injected and withdrawn from storage. Both the fixed and the usage fees are allocated to the single performance obligation of providing transportation or storage service and recognized over time as control is passed to the customer. These service contracts can range in term from one to 20 years and are invoiced monthly.

Loews Hotels & Co provides lodging and related goods and services as well as management and marketing services. Loews Hotels & Co allocates the lodging transaction price to the distinct goods and services based on the market price. Lodging and related revenues are recognized as the guest takes possession of the goods or receives the services. Management and marketing services revenues are recognized as the services are provided and billed on a monthly basis. In addition, Loews Hotels & Co recognizes revenue for the reimbursement of payroll expenses incurred on behalf of the owners of joint venture and managed hotel properties.

Consolidated Container manufactures rigid plastic packaging and recycled resins and provides packaging solutions to end markets such as beverage, food and household chemicals through a network of manufacturing locations across North America. Consolidated Container recognizes revenue as control is transferred to the customer.

Receivables from contracts with customers – As of June 30, 2018 and January 1, 2018, receivables from contracts with customers were approximately $422 million and $488 million and are included within Receivables on the Consolidated Condensed Balance Sheets.

Deferred revenue – The Company records deferred revenue, which is primarily related to non-insurance warranty contracts, when payment is received in advance of satisfying the performance obligations. As of June 30, 2018 and January 1, 2018, deferred revenue resulting from contracts with customers was approximately $3.2 billion and $3.0 billion and is included in Other liabilities on the Consolidated Condensed Balance Sheets. The increase in deferred revenue is primarily due to cash payments received in advance of satisfying performance obligations, partially offset by cancellations and revenues recognized during the period. Approximately $473 million of revenues recognized during the six months ended June 30, 2018 were included in deferred revenue as of January 1, 2018.

Contract costs – Costs to obtain or fulfill contracts with customers are deferred and recorded as Other assets. These costs are expected to be recoverable over the duration of the contract and are amortized in the same manner the related revenue is recognized. As of June 30, 2018, the Company had approximately $2.4 billion of costs to obtain contracts with customers, primarily related to CNA for amounts paid to dealers and other agents to obtain non-insurance warranty contracts, which are included in Other assets on the Consolidated Condensed Balance Sheet. For the three and six months ended June 30, 2018, amortization expense totaled $179 million and $350 million and is included in Operating expenses and other in the Consolidated Condensed Statement of Income.

For CNA’s non-insurance warranty contract costs, a premium deficiency arises to the extent that estimated future costs associated with these contracts exceed unrecognized revenue. Anticipated investment income is also considered in the determination of the recoverability of deferred costs. CNA evaluates its deferred costs for recoverability as part of its premium deficiency assessment. If necessary, adjustments to deferred costs and a premium deficiency reserve, if any, are recorded in current period results of operations. No premium deficiency was recognized in the six months ended June 30, 2018.

Performance obligations – As of June 30, 2018, approximately $12.3 billion of estimated operating revenues is expected to be recognized in the future related to outstanding performance obligations. The balance relates primarily to revenues for transportation and storage of natural gas and NGLs at Boardwalk Pipeline and non-insurance warranty services at CNA. Approximately $1.1 billion will be recognized during the remaining six months of 2018, $1.9 billion in 2019 and the remainder in following years. The actual timing of recognition may vary due to factors outside of the Company’s control. The Company has elected to exclude variable consideration related entirely to wholly unsatisfied performance obligations and contracts where revenue is recognized based upon the right to invoice the customer. Therefore, the estimated operating revenues exclude contract drilling dayrate revenue at Diamond Offshore and interruptible service contract revenue at Boardwalk Pipeline.

8. Benefit Plans

The Company and its subsidiaries have several non-contributory defined benefit plans and postretirement benefit plans covering eligible employees and retirees.

The following table presents the components of net periodic (benefit) cost for the plans:


	Pension Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
(In millions)

Service cost	$	2		$	2		$	4		$	4
Interest cost		28			29			55			59
Expected return on plan assets		(45	)		(43	)		(90	)		(86	)
Amortization of unrecognized net loss		10			11			21			22
Settlement charge		3			1			7			3
Net periodic (benefit) cost	$	(2	)	$	-		$	(3	)	$	2


	Other Postretirement Benefits
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
(In millions)

Interest cost							$	1		$	1
Expected return on plan assets	$	(1	)	$	(1	)		(2	)		(2	)
Amortization of unrecognized prior service benefit								(1	)		(1	)
Net periodic (benefit) cost	$	(1	)	$	(1	)	$	(2	)	$	(2	)

9. Legal Proceedings

CNA Financial

In September of 2016, a class action lawsuit was filed against CCC, Continental Assurance Company (“CAC”) (a former subsidiary of CCC), CNA, the Investment Committee of the CNA 401(k) Plus Plan (“Plan”), The Northern Trust Company and John Does 1-10 (collectively “Defendants”) related to the Plan. The complaint alleges that Defendants breached fiduciary duties to the Plan and caused prohibited transactions in violation of the Employee Retirement Income Security Act of 1974 when the Plan’s Fixed Income Fund’s annuity contract with CAC was canceled. The plaintiff alleges he and a proposed class of the Plan participants who had invested in the Fixed Income Fund suffered lower returns in Plan investments as a consequence of these alleged violations and seeks relief on behalf of the putative class. The Plan trustees have provided notice to their fiduciary coverage insurance carriers.

The plaintiff, Defendants and the Plan’s fiduciary insurance carriers have agreed on terms to settle this matter and have executed settlement agreements. The plaintiff and Defendants have proposed a class settlement for court approval, and the court granted preliminary approval subject to a fairness hearing. Based on the executed settlement agreements, management has recorded its best estimate of CNA’s probable loss and does not believe that the ultimate resolution of this matter will have a material impact on its consolidated financial statements.

Other Litigation

The Company and its subsidiaries are from time to time parties to other litigation arising in the ordinary course of business. While it is difficult to predict the outcome or effect of any litigation, management does not believe that the outcome of any such pending litigation will materially affect the Company’s results of operations or equity.

10. Commitments and Contingencies

CNA Guarantees

In the course of selling business entities and assets to third parties, CNA agreed to guarantee the performance of certain obligations of previously owned subsidiaries and to indemnify purchasers for losses arising out of breaches of representations and warranties with respect to the business entities or assets sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such guarantee and indemnification agreements in effect for sales of business entities, assets and third party loans may include provisions that survive indefinitely. As of June 30, 2018, the aggregate amount related to quantifiable guarantees was $375 million and the aggregate amount related to quantifiable indemnification agreements was $252 million. In certain cases, should CNA be required to make payments under any such guarantee, it would have the right to seek reimbursement from an affiliate of a previously owned subsidiary.

In addition, CNA has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of June 30, 2018, 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. Certain provisions of the indemnification agreements survive indefinitely while others survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire.

CNA also provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities provided by a previously owned subsidiary. As of June 30, 2018, the potential amount of future payments CNA could be required to pay under these guarantees was approximately $1.8 billion, which will be paid over the lifetime of the annuitants. CNA does not believe any payment is likely under these guarantees, as CNA is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.

CNA Small Business Premium Rate Adjustment

In 2016 and 2017, CNA identified rating errors related to its multi-peril package product and workers’ compensation policies within its Small Business unit and determined that it would voluntarily issue premium refunds along with interest on affected policies. After the rating errors were identified, written and earned premium have been reported net of any impact from the premium rate adjustments. CNA increased earned premium by $1 million and reduced earned premium by $37 million for three and six months ended June 30, 2017. Interest expense increased for interest due to policyholders on the premium rate adjustments by $1 million and $6 million for the three and six months ended June 30, 2017.

The policyholder refunds for the multi-peril package product were issued in the third quarter of 2017. The policyholder refunds for workers’ compensation policies are in process and are expected to be completed by the end of 2018. Interest expense of $1 million was recorded for the six months ended June 30, 2018. The estimated refund liability, including interest, for the workers’ compensation policies as of June 30, 2018 was $47 million.

11. Segments

The Company has five reportable segments comprised of four individual operating subsidiaries, CNA, Diamond Offshore, Boardwalk Pipeline and Loews Hotels & Co; and the Corporate segment. The operations of Consolidated Container are included in the Corporate segment for the three and six months ended June 30, 2018 and the period from the acquisition date, May 22, 2017 through June 30, 2017. Each of the operating subsidiaries is headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position. For additional disclosures regarding the composition of the Company’s segments, see Note 19 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The following tables present the reportable segments of the Company and their contribution to the Consolidated Condensed Statements of Income. 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.

Statements of Income by segment are presented in the following tables.

Three Months Ended June 30, 2018

CNA
Financial

Diamond
Offshore

Boardwalk
Pipeline

Loews
Hotels & Co

Corporate

Total

(In millions)

Revenues:

Insurance premiums

1,815

Net investment income

506

551

Investment losses

(3)

)

Operating revenues and other

256

269

285

200

217

1,227

Total

2,574

271

285

201

259

3,590

Expenses:

Insurance claims and policyholders’ benefits

1,327

Amortization of deferred acquisition costs

359

Operating expenses and other

524

320

203

169

238

1,454

Interest

143

Total

2,245

350

246

177

265

3,283

Income (loss) before income tax

329

(79

)

307

Income tax (expense) benefit

(60)

)

(7)

(59

)

Net income (loss)

269

(69

)

248

Amounts attributable to noncontrolling interests

(29)

(21

)

(18

)

Net income (loss) attributable to Loews Corporation

240

(37

)

230


Three Months Ended June 30, 2017	CNA Financial		Diamond Offshore			Boardwalk Pipeline			Loews Hotels & Co		Corporate			Total
(In millions)

Revenues:

Insurance premiums	$	1,734												$	1,734
Net investment income		475	$	1							$	2			478
Investment gains		43													43
Operating revenues and other		114		398		$	318		$	181		93			1,104
Total		2,366		399			318			181		95			3,359

Expenses:

Insurance claims and policyholders’ benefits		1,280													1,280
Amortization of deferred acquisition costs		312													312
Operating expenses and other		364		381			251			155		130			1,281
Interest		40		27			44			6		22			139
Total		1,996		408			295			161		152			3,012
Income (loss) before income tax		370		(9	)		23			20		(57	)		347
Income tax (expense) benefit		(98)		23			(5	)		(10)		21			(69	)
Net income (loss)		272		14			18			10		(36	)		278
Amounts attributable to noncontrolling interests		(28)		(7	)		(12	)							(47	)
Net income (loss) attributable to Loews Corporation	$	244	$	7		$	6		$	10	$	(36	)	$	231

Six Months Ended June 30, 2018

CNA
Financial

Diamond
Offshore

Boardwalk
Pipeline

Loews
Hotels & Co

Corporate

Total

(In millions)

Revenues:

Insurance premiums

3,600

Net investment income

996

1,057

Investment gains

Operating revenues and other

507

566

622

383

430

2,508

Total

5,109

570

622

384

486

7,171

Expenses:

Insurance claims and policyholders’ benefits

2,666

Amortization of deferred acquisition costs

655

Operating expenses and other

1,042

616

401

325

470

2,854

Interest

284

Total

4,433

674

488

340

524

6,459

Income (loss) before income tax

676

(104

)

134

(38

)

712

Income tax (expense) benefit

(115)

(14

)

(14)

(84

)

Net income (loss)

561

(50

)

120

(33

)

628

Amounts attributable to noncontrolling interests

(60)

(68

)

(105

)

Net income (loss) attributable to Loews Corporation

501

(27

)

(33

)

523


Six Months Ended June 30, 2017	CNA Financial		Diamond Offshore		Boardwalk Pipeline		Loews Hotels & Co		Corporate		Total
(In millions)

Revenues:

Insurance premiums	$	3,379									$	3,379
Net investment income		1,020	$	1					$	61		1,082
Investment gains		77										77
Operating revenues and other		219		775	$	686	$	348		93		2,121
Total		4,695		776		686		348		154		6,659

Expenses:

Insurance claims and policyholders’ benefits		2,573										2,573
Amortization of deferred acquisition costs		617										617
Operating expenses and other		707		705		455		296		168		2,331
Interest		83		55		90

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