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CNA FINANCIAL CORP - Quarter Report: 2020 March (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2020
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to _____
Commission File Number 1-5823
 
CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
36-6169860
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
151 N. Franklin
 
60606
Chicago,
Illinois
 
(Zip Code)
(Address of principal executive offices)
 
 
(312) 822-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, Par value $2.50
 
"CNA"
 
New York Stock Exchange
 
 
 
 
Chicago Stock Exchange
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☒ No ☐
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
☒

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 ☒
As of April 30, 2020, 271,376,098 shares of common stock were outstanding.



Item Number
 
Page
Number
 
 
1.
 
 
 
 
 
 
2.
3.
4.
 
PART II
 
1.
1A.
2.
6.

2

PART I
Item 1. Condensed Consolidated Financial Statements
CNA Financial Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Three months ended March 31
 
 
 
(In millions, except per share data)
2020
 
2019
Revenues
 
 
 
Net earned premiums
$
1,869

 
$
1,803

Net investment income
329

 
571

Net investment (losses) gains
(216
)
 
31

Non-insurance warranty revenue
301

 
281

Other revenues
8

 
9

Total revenues
2,291

 
2,695

Claims, Benefits and Expenses
 
 
 
Insurance claims and policyholders’ benefits
1,425

 
1,357

Amortization of deferred acquisition costs
344

 
342

Non-insurance warranty expense
281

 
260

Other operating expenses
299

 
283

Interest
31

 
34

Total claims, benefits and expenses
2,380

 
2,276

(Loss) income before income tax
(89
)
 
419

Income tax benefit (expense)
28

 
(77
)
Net (loss) income
$
(61
)
 
$
342

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

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

 
 
 
 
Weighted Average Outstanding Common Stock and Common Stock Equivalents
 
 
 
Basic
271.5

 
271.6

Diluted
271.5

 
272.6


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


3

CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Comprehensive (Loss) Income
 
 
 
Net (loss) income
$
(61
)
 
$
342

Other Comprehensive (Loss) Income, net of tax
 
 
 
Changes in:
 
 
 
Net unrealized gains and losses on investments with an allowance for credit losses
(11
)
 
—

Net unrealized gains and losses on other investments
(1,044
)
 
530

Net unrealized gains and losses on investments
(1,055
)
 
530

Foreign currency translation adjustment
(77
)
 
17

Pension and postretirement benefits
11

 
7

Other comprehensive (loss) income, net of tax
(1,121
)
 
554

Total comprehensive (loss) income
$
(1,182
)
 
$
896

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

4

CNA Financial Corporation
Condensed Consolidated Balance Sheets
(In millions, except share data)
March 31, 2020 (Unaudited)
 
December 31,
2019
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities at fair value (amortized cost of $38,034 and $38,126, less allowance for credit loss of $49 and $-)
$
40,098

 
$
42,207

Equity securities at fair value (cost of $936 and $820)
799

 
865

Limited partnership investments
1,509

 
1,752

Other invested assets
63

 
65

Mortgage loans (less allowance for uncollectible receivables of $20 and $-)
1,021

 
994

Short term investments
596

 
1,861

Total investments
44,086

 
47,744

Cash
857

 
242

Reinsurance receivables (less allowance for uncollectible receivables of $23 and $25)
4,328

 
4,179

Insurance receivables (less allowance for uncollectible receivables of $30 and $32)
2,502

 
2,449

Accrued investment income
402

 
395

Deferred acquisition costs
683

 
662

Deferred income taxes
518

 
199

Property and equipment at cost (less accumulated depreciation of $224 and $215)
271

 
282

Goodwill
145

 
147

Deferred non-insurance warranty acquisition expense
2,905

 
2,840

Other assets (includes $15 and $21 due from Loews Corporation)
1,708

 
1,473

Total assets
$
58,405

 
$
60,612

Liabilities
 

 
 

Insurance reserves:
 
 
 

Claim and claim adjustment expenses
$
21,872

 
$
21,720

Unearned premiums
4,745

 
4,583

Future policy benefits
11,734

 
12,311

Long term debt
2,680

 
2,679

Deferred non-insurance warranty revenue
3,848

 
3,779

Other liabilities (includes $7 and $21 due to Loews Corporation)
3,164

 
3,325

Total liabilities
48,043

 
48,397

Commitments and contingencies (Notes C and F)


 


Stockholders' Equity
 

 
 

Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 271,370,988 and 271,412,591 shares outstanding)
683

 
683

Additional paid-in capital
2,187

 
2,203

Retained earnings
8,634

 
9,348

Accumulated other comprehensive (loss) income
(1,070
)
 
51

Treasury stock (1,669,255 and 1,627,652 shares), at cost
(72
)
 
(70
)
Total stockholders’ equity
10,362

 
12,215

Total liabilities and stockholders' equity
$
58,405

 
$
60,612

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

5

CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Cash Flows from Operating Activities
 
 
 
Net (loss) income
$
(61
)
 
$
342

Adjustments to reconcile net (loss) income to net cash flows provided by operating activities:
 
 
 
Deferred income tax (benefit) expense
(37
)
 
32

Trading portfolio activity
7

 
(3
)
Net investment losses (gains)
216

 
(31
)
Equity method investees
98

 
14

Net amortization of investments
(15
)
 
(25
)
Depreciation and amortization
16

 
19

Changes in:
 
 
 
Receivables, net
(229
)
 
44

Accrued investment income
(8
)
 
(15
)
Deferred acquisition costs
(27
)
 
(30
)
Insurance reserves
510

 
57

Other, net
(258
)
 
(117
)
Net cash flows provided by operating activities
212

 
287

Cash Flows from Investing Activities
 

 
 

Dispositions:
 
 
 
Fixed maturity securities - sales
823

 
2,259

Fixed maturity securities - maturities, calls and redemptions
799

 
576

Equity securities
98

 
64

Limited partnerships
204

 
186

Mortgage loans
15

 
35

Purchases:
 
 
 
Fixed maturity securities
(1,818
)
 
(2,447
)
Equity securities
(220
)
 
(36
)
Limited partnerships
(32
)
 
(114
)
Mortgage loans
(61
)
 
(59
)
Change in other investments
(6
)
 
(6
)
Change in short term investments
1,267

 
(177
)
Purchases of property and equipment
(3
)
 
(8
)
Other, net
21

 
16

Net cash flows provided by investing activities
1,087

 
289

Cash Flows from Financing Activities
 
 
 
Dividends paid to common stockholders
(649
)
 
(643
)
Purchase of treasury stock
(18
)
 
(14
)
Other, net
(8
)
 
(8
)
Net cash flows used by financing activities
(675
)
 
(665
)
Effect of foreign exchange rate changes on cash
(9
)
 
2

Net change in cash
615

 
(87
)
Cash, beginning of year
242

 
310

Cash, end of period
$
857

 
$
223

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

6

CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Common Stock
 
 
 
Balance, beginning of period
$
683

 
$
683

Balance, end of period
683

 
683

Additional Paid-in Capital
 
 
 
Balance, beginning of period
2,203

 
2,192

Stock-based compensation
(16
)
 
(8
)
Balance, end of period
2,187

 
2,184

Retained Earnings
 
 
 
Balance, beginning of period, as previously reported
9,348

 
9,277

Cumulative effect adjustments from changes in accounting guidance, net of tax
(5
)
 
—

Balance, beginning of period, as adjusted
9,343

 
9,277

Dividends to common stockholders ($2.37 and $2.35 per share)
(648
)
 
(643
)
Net (loss) income
(61
)
 
342

Balance, end of period
8,634

 
8,976

Accumulated Other Comprehensive (Loss) Income
 
 
 
Balance, beginning of period
51

 
(878
)
Other comprehensive (loss) income
(1,121
)
 
554

Balance, end of period
(1,070
)
 
(324
)
Treasury Stock
 
 
 
Balance, beginning of period
(70
)
 
(57
)
Stock-based compensation
16

 
7

Purchase of treasury stock
(18
)
 
(14
)
Balance, end of period
(72
)
 
(64
)
Total stockholders' equity
$
10,362

 
$
11,455

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).


7

CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A. General
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of CNA Financial Corporation (CNAF) and its subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. Loews Corporation (Loews) owned approximately 89% of the outstanding common stock of CNAF as of March 31, 2020.
The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany amounts have been eliminated. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, including certain financial statement notes, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2019, including the summary of significant accounting policies in Note A. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
The interim financial data as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 is unaudited. However, in the opinion of management, the interim data includes all adjustments, including normal recurring adjustments, necessary for a fair statement of the Company's results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Recently Adopted Accounting Standards Updates (ASU)
ASU 2016-13: In June 2016 the Financial Accounting Standards Board (FASB) issued ASU No. 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 the Company’s results of operations. For financial assets measured at cost, the expected credit loss model requires immediate recognition of estimated credit losses over the life of the asset and presentation of the asset at the net amount expected to be collected. This new guidance applies to mortgage loan investments, reinsurance and insurance receivables and other financing receivables. For available-for-sale fixed maturity securities carried at fair value, estimated credit losses will continue to be measured at the present value of expected cash flows, however, the other than temporary impairment (OTTI) concept has been eliminated. Under the previous guidance, estimated credit impairments resulted in a write-down of amortized cost. Under the new guidance, estimated credit losses are recognized through an allowance and reversals of the allowance are permitted if the estimate of credit losses declines. For available-for-sale fixed maturity securities where the Company has an intent to sell, impairment will continue to result in a write-down of amortized cost.
On January 1, 2020, the Company adopted the updated guidance using a modified retrospective method with a cumulative effect adjustment recorded to beginning Retained earnings. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. A prospective transition approach is required for available-for-sale fixed maturity securities that were purchased with credit deterioration (PCD assets) or have recognized an OTTI write-down prior to the effective date. The cumulative effect of the accounting change resulted in a $5 million decrease in Retained earnings, with a corresponding $7 million allowance for credit losses recorded for Mortgage loans partially offset by a $2 million tax impact.

8

The allowance for uncollectible insurance and reinsurance receivables was unchanged as a result of adopting the new guidance. At adoption, an allowance for credit losses of $6 million was established for available-for-sale fixed maturity securities that were PCD assets, with a corresponding increase to amortized cost, resulting in no adjustment to the carrying value of the securities. Below is a summary of the significant accounting policies impacted by the adoption of ASU 2016-13.
The allowance for credit losses is a valuation account that is reported as a reduction of a financial asset’s cost basis and is measured on a pool basis when similar risk characteristics exist. Management estimates the allowance using relevant available information from both internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses and adjustments may be made to reflect current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made for any additional factors that come to the Company’s attention. This could include significant shifts in counterparty financial strength ratings, aging of past due receivables, amounts sent to collection agencies, or other underlying portfolio changes. Amounts are considered past due when payments have not been received according to contractual terms. The Company also considers current and forecast economic conditions, using a variety of economic metrics and forecast indices. The sensitivity of expected credit losses relative to changes to these forecast economic conditions can vary by financial asset class. The Company considers a reasonable and supportable forecast period to be up to 24 months from the balance sheet date. After the forecast period, the Company reverts to historical credit experience. The Company uses collateral arrangements such as letters of credit and amounts held in beneficiary trusts to mitigate credit risk, which are considered in the estimate of net amount expected to be collected.
The Company has made a policy election to present accrued interest balances separately from the amortized cost basis of assets and has elected the practical expedient to exclude the accrued interest from the tabular disclosures for mortgage loans and available-for-sale securities. The Company has elected not to estimate an allowance for credit losses on accrued interest receivable. The accrual of interest income is discontinued and the asset is placed on nonaccrual status in the quarter that payment becomes delinquent. Interest accrued but not received for assets on nonaccrual status is reversed through investment income. Interest received for assets that are on nonaccrual status is recognized as payment is received. The asset is returned to accrual status when the principal and interest amounts contractually due are brought current and future payments are expected. Interest receivable is presented as a component of accrued investment income on the Condensed Consolidated Balance Sheet.
See Note C and Note K to the Condensed Consolidated Financial Statements for additional information regarding credit losses.
Accounting Standards Pending Adoption
In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long Duration Contracts. The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entities to annually update cash flow assumptions, including morbidity and persistency, and update discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in the Company's results of operations and the effect of changes in discount rate assumptions will be recorded in Other comprehensive income. This guidance is effective for interim and annual periods beginning after December 15, 2021, and the Company will adopt it on January 1, 2022. The guidance requires restatement of prior periods presented. The Company is currently evaluating the method of adoption and the effect the updated guidance will have on its financial statements, including the increased disclosure requirements. The annual updating of cash flow assumptions is expected to increase income statement volatility. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the business and related cash flows will be unchanged.

9

Note B. Earnings (Loss) Per Share
Earnings (loss) per share is based on weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing Net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) 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.
For the three months ended March 31, 2020, approximately 1,015 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were excluded from the calculation of diluted loss per share because the effect would have been antidilutive due to the net loss position of the Company. For the three months ended March 31, 2019, approximately 971 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For the three months ended March 31, 2019 there were no antidilutive shares.
The Company repurchased 435,376 and 317,508 shares of CNAF common stock at an aggregate cost of $18 million and $14 million during the three months ended March 31, 2020 and 2019.

10

Note C. Investments
The significant components of Net investment income are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Fixed maturity securities
$
438

 
$
455

Equity securities
(44
)
 
30

Limited partnership investments
(70
)
 
76

Mortgage loans
14

 
12

Short term investments
7

 
10

Trading portfolio
1

 
2

Other
—

 
2

Gross investment income
346

 
587

Investment expense
(17
)
 
(16
)
Net investment income
$
329

 
$
571


During the three months ended March 31, 2020 and 2019, $(45) million and $17 million of Net investment income was recognized due to the change in fair value of common stock still held as of March 31, 2020 and 2019. During the three months ended March 31, 2020 and 2019, $(2) million and less than $1 million of Net investment income was recognized due to the change in fair value of trading securities still held as of March 31, 2020 and 2019. 
Net investment gains (losses) are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Net investment gains (losses):
 
 
 
Fixed maturity securities:
 
 
 
Gross gains
$
29

 
$
36

Gross losses
(104
)
 
(42
)
Net investment gains (losses) on fixed maturity securities
(75
)
 
(6
)
Equity securities
(133
)
 
42

Derivatives
5

 
(5
)
Mortgage loans
(13
)
 
—

Short term investments and other
—

 
—

Net investment gains (losses)
$
(216
)
 
$
31


During the three months ended March 31, 2020 and 2019, $(133) million of losses and $42 million of gains were recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of March 31, 2020 and 2019.
For available-for-sale fixed maturity securities, a credit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis. The allowance for credit loss related to available-for-sale fixed maturity securities is the difference between present value of cash flows expected to be collected and the amortized cost basis, limited by the amount that the fair value is less than the amortized cost basis. The Company considers all available evidence when determining whether an investment requires a credit loss write-down or allowance to be recorded. Examples of such evidence may include the financial condition and near term prospects of the issuer, whether the issuer is current with interest and principal payments, credit ratings on the security or changes in ratings over time, general market conditions and industry, sector or other specific factors and whether it is likely that the Company will recover its amortized cost through the collection of cash flows. Changes in the allowance are presented as a component of Net investment gains (losses) on the Condensed Consolidated Statements of Operations.

11

The following table presents the activity related to the allowance on available-for-sale securities with credit impairments and PCD assets for the three months ended March 31, 2020. Accrued interest receivable on available-for-sale fixed maturity securities totaled $390 million and is excluded from the estimate of expected credit losses and the amortized cost basis in the tables included within this Note.
Three months ended March 31
 
(in millions)
Corporate and other bonds
Allowance for credit losses:
 
Beginning balance
$
—

Additions to the allowance for credit losses:
 
Impact of adopting ASC 326
6

For securities for which credit losses were not previously recorded
48

For available-for-sale securities accounted for as PCD assets
1

 
 
Reductions to the allowance for credit losses:
 
Securities sold during the period (realized)
5

Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis
1

Write-offs charged against the allowance
—

Recoveries of amounts previously written off
—

 
 
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period
—

Ending balance as of March 31, 2020
$
49


The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date.
Three Months ended March 31
 
 
 
(In millions)
2020
 
2019
Fixed maturity securities available-for-sale:
 
 
 
Corporate and other bonds
$
91

 
$
6

Asset-backed
1

 
8

Impairment losses recognized in earnings
$
92

 
$
14



12

The following tables present a summary of fixed maturity securities.
March 31, 2020
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Allowance for Credit Losses(1)
 
Estimated
Fair
Value
(In millions)
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
20,181

 
$
1,419

 
$
817

 
$
49

 
$
20,734

States, municipalities and political subdivisions
8,957

 
1,536

 
2

 
—

 
10,491

Asset-backed:
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
4,198

 
207

 
8

 
—

 
4,397

Commercial mortgage-backed
2,207

 
36

 
153

 
—

 
2,090

Other asset-backed
1,868

 
9

 
133

 
—

 
1,744

Total asset-backed
8,273

 
252

 
294

 
—

 
8,231

U.S. Treasury and obligations of government-sponsored enterprises
147

 
8

 
—

 
—

 
155

Foreign government
452

 
15

 
4

 
—

 
463

Redeemable preferred stock
9

 
—

 
—

 
—

 
9

Total fixed maturity securities available-for-sale
38,019

 
3,230

 
1,117

 
49

 
40,083

Total fixed maturity securities trading
15

 
—

 
—

 
—

 
15

Total fixed maturity securities
$
38,034

 
$
3,230

 
$
1,117

 
$
49

 
$
40,098

(1) As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Unrealized OTTI Losses (Gains) column that tracked subsequent valuation changes on securities for which a credit loss had previously been recorded has been replaced with the Allowance for Credit Losses column.
December 31, 2019
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
OTTI
Losses (Gains)
(In millions)
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
19,789

 
$
2,292

 
$
32

 
$
22,049

 
$
—

States, municipalities and political subdivisions
9,093

 
1,559

 
—

 
10,652

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
4,387

 
133

 
1

 
4,519

 
(17
)
Commercial mortgage-backed
2,265

 
86

 
5

 
2,346

 
1

Other asset-backed
1,925

 
41

 
4

 
1,962

 
(3
)
Total asset-backed
8,577

 
260

 
10

 
8,827

 
(19
)
U.S. Treasury and obligations of government-sponsored enterprises
146

 
1

 
2

 
145

 
—

Foreign government
491

 
14

 
1

 
504

 
—

Redeemable preferred stock
10

 
—

 
—

 
10

 
—

Total fixed maturity securities available-for-sale
38,106

 
4,126

 
45

 
42,187

 
$
(19
)
Total fixed maturity securities trading
20

 
—

 
—

 
20

 
 
Total fixed maturity securities
$
38,126

 
$
4,126

 
$
45

 
$
42,207

 
 

The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (AOCI). When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group segment would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). As of March 31, 2020 and December 31, 2019, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1,700 million and $2,198 million.

13

The following tables present the estimated fair value and gross unrealized losses of fixed maturity securities in a gross unrealized loss position for which an allowance for credit loss has not been recorded, by the length of time in which the securities have continuously been in that position.
 
Less than 12 Months
 
12 Months or Longer
 
Total
March 31, 2020
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
7,036

 
$
804

 
$
44

 
$
13

 
$
7,080

 
$
817

States, municipalities and political subdivisions
82

 
2

 
—

 
—

 
82

 
2

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
166

 
7

 
22

 
1

 
188

 
8

Commercial mortgage-backed
1,185

 
151

 
12

 
2

 
1,197

 
153

Other asset-backed
1,510

 
131


9


2

 
1,519

 
133

Total asset-backed
2,861

 
289

 
43

 
5

 
2,904

 
294

U.S. Treasury and obligations of government-sponsored enterprises
2

 
—

 
—

 
—

 
2

 
—

Foreign government
76

 
4

 
—

 
—

 
76

 
4

Redeemable preferred stock
9


—


—


—


9


—

Total
$
10,066


$
1,099


$
87


$
18


$
10,153


$
1,117

 
Less than 12 Months
 
12 Months or Longer
 
Total
December 31, 2019
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Fixed maturity securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Corporate and other bonds
$
914

 
$
21

 
$
186

 
$
11

 
$
1,100

 
$
32

States, municipalities and political subdivisions
34

 
—

 
—

 
—

 
34

 
—

Asset-backed:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed
249

 
1

 
30

 
—

 
279

 
1

Commercial mortgage-backed
381

 
3

 
20

 
2

 
401

 
5

Other asset-backed
449

 
3

 
33

 
1

 
482

 
4

Total asset-backed
1,079

 
7

 
83

 
3

 
1,162

 
10

U.S. Treasury and obligations of government-sponsored enterprises
62

 
2

 
2

 
—

 
64

 
2

   Foreign government
59

 
1

 
1

 
—

 
60

 
1

Total
$
2,148

 
$
31

 
$
272

 
$
14

 
$
2,420

 
$
45



14

The following tables present the estimated fair value and gross unrealized losses of available-for-sale Corporate and other bonds in a gross unrealized loss position at March 31, 2020 across industry sectors and by rating distributions.
March 31, 2020
Estimated
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
Corporate and other bonds:
 
 
 
Basic Materials
$
727

 
$
78

Communications
349

 
27

Consumer, cyclical - Other
390

 
56

Consumer, non-cyclical - Other
401

 
27

Energy - Oil & Gas
575

 
191

Energy - Pipelines
523

 
112

Entertainment
148

 
23

Financial - Other
1,711

 
89

Financial - Real Estate/REITS
599

 
45

Industrial
468

 
55

Retail
150

 
18

Technology
290

 
30

Transportation
73

 
5

Travel & Related
269

 
37

Utilities
407

 
24

Total Corporate and other bonds
$
7,080

 
$
817

March 31, 2020
Estimated
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
 
Corporate and other bonds:
 
 
 
AAA
$
8

 
$
—

AA
134

 
4

A
608

 
17

BBB
4,987

 
516

Below investment grade
1,343

 
280

Total Corporate and other bonds
$
7,080

 
$
817



15

The following tables present the estimated fair value and gross unrealized losses of available-for-sale Commercial mortgage-backed securities in a gross unrealized loss position at March 31, 2020 by property type and by rating distributions.
March 31, 2020
Estimated
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
 
Commercial mortgage-backed:
 
 
 
Conduits (multi property, multi borrower pools)
$
211

 
$
11

Single asset, single borrower
986

 
142

Total Commercial mortgage-backed
$
1,197

 
$
153

March 31, 2020
Estimated
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
 
Commercial mortgage-backed:
 
 
 
US Government, Government agencies and Government sponsored enterprises
$
1

 
$
—

AAA
60

 
1

AA
245

 
17

A
214

 
22

BBB
484

 
78

Below investment grade
193

 
35

Total Commercial mortgage-backed
$
1,197

 
$
153

The following tables present the estimated fair value and gross unrealized losses of available-for-sale Other asset-backed securities in a gross unrealized loss position at March 31, 2020 by underlying collateral and by rating distributions.
March 31, 2020
Estimated
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
 
Other asset-backed:
 
 
 
Auto
$
290

 
$
6

Collateralized loan obligations
418

 
60

Franchise
414

 
39

Other
397

 
28

Total Other asset-backed
$
1,519

 
$
133


March 31, 2020
Estimated
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
 
Other asset-backed:
 
 
 
AAA
$
49

 
$
1

AA
83

 
2

A
821

 
74

BBB
566

 
56

Below investment grade
—

 
—

Total Other asset-backed
$
1,519

 
$
133



16

Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 2020 gross unrealized loss position tables above are not indicative of the ultimate collectibility of the current amortized cost of the securities. Rather, the Company believes the gross unrealized losses are attributable primarily to widening credit spreads over risk free rates beyond historic norms, as a result of market uncertainties stemming from the COVID-19 pandemic, as well as supply shocks in the energy sector coupled with demand shocks in multiple sectors from the COVID-19 pandemic, that originated during the first quarter of 2020. 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 impairment losses to be recorded as of March 31, 2020.
Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
 
March 31, 2020
 
December 31, 2019
(In millions)
Cost or
Amortized
Cost
 
Estimated
Fair
Value
 
Cost or
Amortized
Cost
 
Estimated
Fair
Value
Due in one year or less
$
1,331

 
$
1,325

 
$
1,334

 
$
1,356

Due after one year through five years
11,554

 
11,812

 
9,746

 
10,186

Due after five years through ten years
13,078

 
13,069

 
14,892

 
15,931

Due after ten years
12,056

 
13,877

 
12,134

 
14,714

Total
$
38,019

 
$
40,083

 
$
38,106

 
$
42,187


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
The Company holds an embedded derivative on a funds withheld liability with a notional value of $196 million and $182 million as of March 31, 2020 and December 31, 2019 and a fair value of $(1) million and $(7) million as of March 31, 2020 and December 31, 2019. The embedded derivative on the funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.
Investment Commitments
As part of its overall investment strategy, the Company invests in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications, and obligations related to privately placed debt securities. As of March 31, 2020, the Company had commitments to purchase or fund approximately $1,025 million and sell approximately $85 million under the terms of these investments.
Mortgage Loans
The allowance for expected credit losses is developed by assessing the credit quality of pools of mortgage loans in good standing using debt service coverage ratios (DSCR) and loan-to-value ratios (LTV). The DSCR compares a property’s net operating income to its debt service payments, including principal and interest. The LTV ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. The pools developed to measure the credit loss allowance use increments of DSCR and LTV to draw distinctions between risk levels. Changes in the allowance for mortgage loans are presented as a component of Net investment gains (losses) on the Condensed Consolidated Statements of Operations. The Company has adjusted the historical loss rate applied to mortgage loans over the forecast period to reflect higher expected credit losses based on observable economic forecasts, which increased the allowance by $13 million for the period ended March 31, 2020.

17

The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination as of March 31, 2020:
 
Mortgage Loans Amortized Cost Basis by Origination Year (1)
As of March 31, 2020
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Total
DSCR ≥1.6x
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV less than 55%
$
60

 
$
32

 
$
19

 
$
92

 
$
41

 
$
130

 
$
374

LTV 55% to 65%
—

 
32

 
29

 
55

 
4

 
—

 
120

LTV greater than 65%
—

 
5

 
—

 
—

 
—

 
—

 
5

DSCR 1.2x - 1.6x
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV less than 55%
—

 
33

 
10

 
13

 
16

 
126

 
198

LTV 55% to 65%
—

 
73

 
32

 
32

 
—

 
—

 
137

LTV greater than 65%
—

 
85

 
—

 
—

 
—

 
—

 
85

DSCR ≤1.2
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV less than 55%
—

 
1

 
11

 
27

 
—

 
9

 
48

LTV 55% to 65%
—

 
14

 
14

 
—

 
—

 
—

 
28

LTV greater than 65%
—

 
22

 
—

 
—

 
24

 
—

 
46

Total
$
60

 
$
297

 
$
115

 
$
219

 
$
85

 
$
265

 
$
1,041


(1)
The values in the table above reflect DSCR on a standardized amortization period and LTV based on the most recent appraised values trended forward using changes in a commercial real estate price index.
As of March 31, 2020, accrued interest receivable on mortgage loans totaled $4 million and is excluded from the amortized cost basis disclosed in the table above and the estimate of expected credit losses. There were no loans that were past due or placed in nonaccrual status as of March 31, 2020. No interest income was written off for the period ended March 31, 2020.


18

Note D. 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, and iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities.

19

Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are presented in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
March 31, 2020
 
 
 
 
 
 
Total
Assets/Liabilities
at Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate bonds and other
$
175

 
$
20,705

 
$
496

 
$
21,376

States, municipalities and political subdivisions
—

 
10,491

 
—

 
10,491

Asset-backed
—

 
8,034

 
197

 
8,231

Total fixed maturity securities
175

 
39,230

 
693

 
40,098

Equity securities:
 
 
 
 
 
 
 
Common stock
187

 
—

 
4

 
191

Non-redeemable preferred stock
59

 
538

 
11

 
608

Total equity securities
246

 
538

 
15

 
799

Short term and other
135

 
365

 
—

 
500

Total assets
$
556

 
$
40,133


$
708


$
41,397

Liabilities
 
 
 
 
 

 
 

Other liabilities
$
—

 
$
1

 
$
—

 
$
1

Total liabilities
$
—

 
$
1

 
$
—

 
$
1

December 31, 2019
 
 
 
 
 
 
Total
Assets/Liabilities
at Fair Value
(In millions)
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Corporate bonds and other
$
175

 
$
22,085

 
$
468

 
$
22,728

States, municipalities and political subdivisions
—

 
10,652

 
—

 
10,652

Asset-backed
—

 
8,662

 
165

 
8,827

Total fixed maturity securities
175

 
41,399

 
633

 
42,207

Equity securities:
 
 
 
 
 
 
 
Common stock
135

 
—

 
7

 
142

Non-redeemable preferred stock
54

 
658

 
11

 
723

Total equity securities
189

 
658

 
18

 
865

Short term and other
397

 
1,344

 
—

 
1,741

Total assets
$
761


$
43,401


$
651


$
44,813

Liabilities
 
 
 
 
 

 
 

Other liabilities
$
—

 
$
7

 
$
—

 
$
7

Total liabilities
$
—

 
$
7

 
$
—

 
$
7



20

The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Level 3
(In millions)
Corporate bonds and other
 
States, municipalities and political subdivisions
 
Asset-backed
 
Equity securities
 
Total
Balance as of January 1, 2020
$
468

 
$
—

 
$
165

 
$
18

 
$
651

Total realized and unrealized investment gains (losses):
 
 
 
 
 
 
 
 
 
Reported in Net investment gains (losses)
—

 
—

 
—

 
—

 
—

Reported in Net investment income
—

 
—

 
—

 
(3
)
 
(3
)
Reported in Other comprehensive income (loss)
(37
)
 
—

 
(9
)
 
—

 
(46
)
Total realized and unrealized investment gains (losses)
(37
)

—


(9
)

(3
)
 
(49
)
Purchases
67

 
—

 
45

 
—

 
112

Sales
—

 
—

 
—

 
—

 
—

Settlements
(2
)
 
—

 
(3
)
 
—

 
(5
)
Transfers into Level 3
—

 
—

 
—

 
—

 
—

Transfers out of Level 3
—

 
—

 
(1
)
 
—

 
(1
)
Balance as of March 31, 2020
$
496

 
$
—

 
$
197

 
$
15

 
$
708

Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2020 recognized in Net income (loss) in the period
$
—

 
$
—

 
$
—

 
$
(3
)
 
$
(3
)
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2020 recognized in Other comprehensive income (loss) in the period
(35
)
 
—

 
(9
)
 
—

 
(44
)

Level 3
(In millions)
Corporate bonds and other
 
States, municipalities and political subdivisions
 
Asset-backed
 
Equity securities
 
Total
Balance as of January 1, 2019
$
222

 
$
—

 
$
197

 
$
18

 
$
437

Total realized and unrealized investment gains (losses):
 
 
 
 
 
 
 
 


Reported in Net investment gains (losses)
—

 
—

 
—

 
2

 
2

Reported in Net investment income
—

 
—

 
—

 
—

 
—

Reported in Other comprehensive income (loss)
8

 
—

 
3

 
—

 
11

Total realized and unrealized investment gains (losses)
8


—


3


2

 
13

Purchases
56

 
—

 
20

 
—

 
76

Sales
—

 
—

 
—

 
—

 
—

Settlements
(2
)
 
—

 
(4
)
 
—

 
(6
)
Transfers into Level 3
—

 
—

 
5

 
—

 
5

Transfers out of Level 3
(31
)
 
—

 
(37
)
 
—

 
(68
)
Balance as of March 31, 2019
$
253

 
$
—

 
$
184

 
$
20

 
$
457

Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2019 recognized in Net income (loss) in the period
$
—

 
$
—

 
$
—

 
$
2

 
$
2

Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2019 recognized in Other comprehensive income (loss) in the period
7

 
—

 
3

 
—

 
10


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.

21

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 government securities and exchange traded bonds, 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 some inputs that are not market observable.
Equity Securities
Level 1 equity 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 some inputs that are not market observable.
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 and treasury bills. 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 on the Condensed Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
As of March 31, 2020 and December 31, 2019, there were $58 million and $60 million of overseas deposits within Other invested assets, which can be redeemed at net asset value in 90 days or less. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded using the net asset value per share (or equivalent) practical expedient.
Derivative Financial Investments
The embedded derivative on funds withheld liability is valued using the change in fair value of the assets supporting the funds withheld liability, which are fixed maturity securities primarily valued with observable inputs.

22

Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the 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 these unobservable inputs is neither provided nor reasonably available to the Company. The weighted average rate is calculated based on fair value.
March 31, 2020
Estimated Fair Value
(In millions)
 
Valuation Technique(s)
 
Unobservable Input(s)
 
Range
 (Weighted Average)
Fixed maturity securities
$
583

 
Discounted cash flow
 
Credit spread
 
1% - 10% (4%)
December 31, 2019
Estimated Fair Value
(In millions)
 
Valuation Technique(s)
 
Unobservable Input(s)
 
Range
 (Weighted Average)
Fixed maturity securities
$
525

 
Discounted cash flow
 
Credit spread
 
1% - 6% (2%)

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 and estimated fair value of the Company's financial assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are presented in the following tables.
March 31, 2020
Carrying
Amount
 
Estimated Fair Value
(In millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
Mortgage loans
$
1,021

 
$
—

 
$
—

 
$
1,036

 
$
1,036

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt
$
2,680

 
$
—

 
$
2,730

 
$
—

 
$
2,730

December 31, 2019
Carrying
Amount
 
Estimated Fair Value
(In millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
Mortgage loans
$
994

 
$
—

 
$
—

 
$
1,025

 
$
1,025

Note receivable
21

 
—

 
—

 
21

 
21

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt
$
2,679

 
$
—

 
$
2,906

 
$
—

 
$
2,906


The following methods and assumptions were used to estimate the fair value of these financial assets and liabilities.
The fair value of mortgage loans was based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk.
The fair value of the note receivable was based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar notes, adjusted for specific credit risk. During the three months ended March 31, 2020, the note receivable was repaid in full. As of December 31, 2019, the note receivable was included within Other assets on the Condensed Consolidated Balance Sheets.
The Company's senior notes and debentures were valued based on observable market prices. The fair value for other debt was estimated using discounted cash flows based on current incremental borrowing rates for similar borrowing arrangements.
The carrying amounts reported on the Condensed Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain Other assets and Other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.

23

Note E. Claim and Claim Adjustment Expense Reserves
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. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and 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 the Company'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 our results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $75 million and $58 million for the three months ended March 31, 2020 and 2019. Net catastrophe losses for the three months ended March 31, 2020 included $13 million related to the COVID-19 pandemic, with the remaining $62 million related primarily to U.S. weather related events. Net catastrophe losses for the three months ended March 31, 2019 related primarily to U.S. weather related events.

24

Liability for Unpaid Claim and Claim Adjustment Expenses
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of the Life & Group segment.
For the three months ended March 31
 
 
 
(In millions)
2020
 
2019
Reserves, beginning of year:
 
 
 
Gross
$
21,720

 
$
21,984

Ceded
3,835

 
4,019

Net reserves, beginning of year
17,885

 
17,965

Net incurred claim and claim adjustment expenses:
 
 
 
Provision for insured events of current year
1,355

 
1,309

Increase (decrease) in provision for insured events of prior years
(8
)
 
8

Amortization of discount
51

 
50

Total net incurred (1)
1,398

 
1,367

Net payments attributable to:
 
 
 
Current year events
(72
)
 
(100
)
Prior year events
(1,218
)
 
(1,309
)
Total net payments
(1,290
)
 
(1,409
)
Foreign currency translation adjustment and other
(88
)
 
13

Net reserves, end of period
17,905

 
17,936

Ceded reserves, end of period
3,967

 
3,900

Gross reserves, end of period
$
21,872

 
$
21,836


(1)
Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Condensed Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above.
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 (development). These changes can be favorable or unfavorable. The following table presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Pretax (favorable) unfavorable development:
 
 
 
Specialty
$
(11
)
 
$
(20
)
Commercial
(4
)
 
(8
)
International
—

 
14

Corporate & Other
—

 
—

Total pretax (favorable) unfavorable development
$
(15
)
 
$
(14
)


25

Specialty
The following table presents further detail of the development recorded for the Specialty segment.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Pretax (favorable) unfavorable development:
 
 
 
Medical Professional Liability
$
10

 
$
15

Other Professional Liability and Management Liability
3

 
(12
)
Surety
(30
)
 
(25
)
Warranty
—

 
—

Other
6

 
2

Total pretax (favorable) unfavorable development
$
(11
)
 
$
(20
)

2020
Unfavorable development in medical professional liability was primarily due to unfavorable outcomes on specific claims in accident years 2015 and 2016 in our aging services business.
Favorable development in surety was primarily due to lower than expected frequency for accident years 2017 and prior.
2019
Unfavorable development in medical professional liability was primarily due to higher than expected severity in accident year 2013 in our allied healthcare business.
Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency and favorable outcomes on individual claims in accident years 2017 and prior related to financial institutions. This was partially offset by unfavorable development in management liability in accident year 2014 due to large claim activity.
Favorable development in surety was due to lower than expected frequency for accident years 2016 and prior.

26

Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Pretax (favorable) unfavorable development:
 
 
 
Commercial Auto
$
9

 
$
(5
)
General Liability
—

 
(20
)
Workers' Compensation
(13
)
 
2

Property and Other
—

 
15

Total pretax (favorable) unfavorable development
$
(4
)
 
$
(8
)

2020
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in accident years 2016 through 2018.
2019
Favorable development in general liability was primarily due to lower than expected frequency on latent construction defect claims in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected frequency and large loss activity in accident year 2018 in our marine business.

27

International
The following table presents further detail of the development recorded for the International segment.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Pretax (favorable) unfavorable development:
 
 
 
Casualty
$
—

 
$
—

Property, Energy and Marine(1)
—

 
14

Specialty
—

 
—

Total pretax (favorable) unfavorable development
$
—

 
$
14


(1)
Effective January 1, 2020 the Property and Energy and Marine lines of business have been combined in the International segment. Prior period information has been conformed to the new line of business presentation.
2019
Unfavorable development in property, energy and marine was driven by higher than expected claims in Hardy for 2018 accident year catastrophes.

28

Asbestos and Environmental Pollution (A&EP) Reserves
In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO through a Loss Portfolio Transfer (LPT). At the effective date of the transaction, the Company 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 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. The Company paid NICO a reinsurance premium of $2 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, the Company 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 have 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 the Company 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 Condensed Consolidated Statements of Operations.
The impact of the LPT on the Condensed Consolidated Statements of Operations was the recognition of a retroactive reinsurance benefit of $14 million and $22 million for the three months ended March 31, 2020 and 2019. As of March 31, 2020 and December 31, 2019, the cumulative amounts ceded under the LPT were $3.2 billion. The unrecognized deferred retroactive reinsurance benefit was $378 million and $392 million as of March 31, 2020 and December 31, 2019 and is included within Other liabilities on the Condensed Consolidated Balance Sheets.
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $2.7 billion and $3.7 billion as of March 31, 2020 and December 31, 2019. The decrease in the fair value of the trust was driven by overall declines in equity markets. As of March 31, 2020, the fair market value of the trust represented more than 150% of the gross LPT reserves. 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 the majority of the Company’s A&EP claims.

29

Note F. Legal Proceedings, Contingencies and Guarantees
The Company is a party to various claims and litigation incidental to its business, which, based on the facts and circumstances currently known, are not material to the Company's results of operations or financial position.
Guarantees
As of March 31, 2020 and December 31, 2019, the Company had recorded liabilities of approximately $5 million related to guarantee and indemnification agreements. Management does not believe that any future indemnity claims will be significantly greater than the amounts recorded.
The Company has provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities issued by a previously owned subsidiary. As of March 31, 2020, the potential amount of future payments the Company could be required to pay under these guarantees was approximately $1.7 billion, which will be paid over the lifetime of the annuitants. The Company does not believe any payment is likely under these guarantees, as the Company is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.

30

Note G. Benefit Plans
The components of net periodic pension cost (benefit) are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Net periodic pension cost (benefit)
 
 
 
Interest cost on projected benefit obligation
$
20

 
$
25

Expected return on plan assets
(39
)
 
(36
)
Amortization of net actuarial (gain) loss
11

 
10

Settlement loss
1

 
—

Total net periodic pension cost (benefit)
$
(7
)
 
$
(1
)

For the three months ended March 31, 2020, the Company recognized $2 million of non-service benefit in Insurance claims and policyholders' benefits and $5 million of non-service benefit in Other operating expenses. For the three months ended March 31, 2019, the Company recognized less than $1 million of non-service benefit in Insurance claims and policyholders' benefits and $1 million of non-service benefit in Other operating expenses.


31

Note H. Accumulated Other Comprehensive Income (Loss) by Component
The tables below display the changes in Accumulated other comprehensive income (loss) by component.
(In millions)
Net unrealized gains (losses) on investments with an allowance for credit losses(1)
 
Net unrealized gains (losses) on other investments(1)
 
Pension and postretirement benefits
 
Cumulative foreign currency translation adjustment
 
Total
Balance as of January 1, 2020
$
—

 
$
1,025

 
$
(833
)
 
$
(141
)
 
$
51

Other comprehensive income (loss) before reclassifications
(48
)
 
(1,066
)
 
1

 
(77
)
 
(1,190
)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $10, $6, $3, $- and $19
(37
)
 
(22
)
 
(10
)
 
—

 
(69
)
Other comprehensive income (loss) net of tax (expense) benefit of $3, $281, $(3), $- and $281
(11
)
 
(1,044
)
 
11

 
(77
)
 
(1,121
)
Balance as of March 31, 2020
$
(11
)
 
$
(19
)
 
$
(822
)
 
$
(218
)
 
$
(1,070
)
(1)
As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Net unrealized gains (losses) on investments with OTTI losses column that tracked the change in unrealized gains (losses) on investments with OTTI losses has been replaced with the Net unrealized gains (losses) on investments with an allowance for credit losses column. The balance as of January 1, 2020 in the Net unrealized gains (losses) on investments with OTTI losses column is now reported in the Net unrealized gains (losses) on other investments column.
(In millions)
Net unrealized gains (losses) on investments with OTTI losses
 
Net unrealized gains (losses) on other investments
 
Pension and postretirement benefits
 
Cumulative foreign currency translation adjustment
 
Total
Balance as of January 1, 2019
$
16

 
$
61

 
$
(775
)
 
$
(180
)
 
$
(878
)
Other comprehensive income (loss) before reclassifications
4

 
521

 
(1
)
 
17

 
541

Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $-, $1, $2, $- and $3
—

 
(5
)
 
(8
)
 
—

 
(13
)
Other comprehensive income (loss) net of tax (expense) benefit of $(1), $(141), $(2), $- and $(144)
4

 
526

 
7

 
17

 
554

Balance as of March 31, 2019
$
20

 
$
587

 
$
(768
)
 
$
(163
)
 
$
(324
)

Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:
Component of AOCI
 
Condensed Consolidated Statements of Operations Line Item Affected by Reclassifications
Net unrealized gains (losses) on investments with an allowance for credit losses, Net unrealized gains (losses) on investments with OTTI losses and Net unrealized gains (losses) on other investments
 
Net investment gains (losses)
Pension and postretirement benefits
 
Other operating expenses and Insurance claims and policyholders' benefits


32

Note I. Business Segments
The Company's property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International. These three segments are collectively referred to as Property & Casualty Operations. The Company's operations outside of Property & Casualty Operations are managed and reported in two segments: Life & Group and Corporate & Other.
The accounting policies of the segments are the same as those described in Note A to the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2019. The Company manages most of its assets on a legal entity basis, while segment operations are generally conducted across legal entities. As such, only Insurance and Reinsurance receivables, Insurance reserves, Deferred acquisition costs, Goodwill and Deferred non-insurance warranty acquisition expense and revenue are readily identifiable for individual segments. Distinct investment portfolios are not maintained for every individual segment; accordingly, allocation of assets to each segment is not performed. Therefore, a significant portion of Net investment income and Net investment gains or losses are allocated primarily based on each segment's net carried insurance reserves, as adjusted. All significant intersegment income and expense have been eliminated. Income taxes have been allocated on the basis of the taxable income of the segments.
In the following tables, certain financial measures are presented to provide information used by management to monitor the Company's operating performance. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio.
The performance of the Company's insurance operations is monitored by management through core income (loss), which is derived from certain income statement amounts. The Company's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk.
Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of net investment gains or losses and any cumulative effects of changes in accounting guidance. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not necessarily reflective of our primary operations.


33

The Company's results of operations and selected balance sheet items by segment are presented in the following tables.
Three months ended March 31, 2020

Specialty
 

Commercial
 
International
 
Life &
Group
 
Corporate
& Other
 
 
 
 
(In millions)
 
 
 
 
 
Eliminations
 
Total
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 

Net earned premiums
$
685

 
$
818

 
$
239

 
$
127

 
$
—

 
$
—

 
$
1,869

Net investment income
56

 
47

 
15

 
208

 
3

 
—

 
329

Non-insurance warranty revenue
301

 
—

 
—

 
—

 
—

 
—

 
301

Other revenues
1

 
7

 
—

 
—

 
2

 
(2
)
 
8

Total operating revenues
1,043

 
872

 
254

 
335

 
5

 
(2
)
 
2,507

Claims, benefits and expenses
 

 
 

 
 
 
 

 
 

 
 

 
 

Net incurred claims and benefits
405

 
558

 
154

 
316

 
(14
)
 
—

 
1,419

Policyholders’ dividends
1

 
5

 
—

 
—

 
—

 
—

 
6

Amortization of deferred acquisition costs
151

 
144

 
49

 
—

 
—

 
—

 
344

Non-insurance warranty expense
281

 
—

 
—

 
—

 
—

 
—

 
281

Other insurance related expenses
69

 
127

 
36

 
26

 
—

 
—

 
258

Other expenses
13

 
6

 
13

 
3

 
39

 
(2
)
 
72

Total claims, benefits and expenses
920

 
840

 
252

 
345

 
25

 
(2
)
 
2,380

Core income (loss) before income tax
123

 
32

 
2

 
(10
)
 
(20
)
 
—

 
127

Income tax (expense) benefit on core income (loss)
(27
)
 
(8
)
 
—

 
14

 
2

 
—

 
(19
)
Core income (loss) 
$
96

 
$
24

 
$
2

 
$
4

 
$
(18
)
 
$
—

 
108

Net investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
(216
)
Income tax (expense) benefit on net investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
47

Net investment gains (losses), after tax
 
 
 
 
 
 
 
 
 
 
 
 
(169
)
Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
$
(61
)
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance receivables
$
793

 
$
883

 
$
233

 
$
370

 
$
2,072

 
$
—

 
$
4,351

Insurance receivables
953

 
1,267

 
302

 
8

 
2

 
—

 
2,532

Deferred acquisition costs
316

 
277

 
90

 
—

 
—

 
—

 
683

Goodwill
117

 
—

 
28

 
—

 
—

 
—

 
145

Deferred non-insurance warranty acquisition expense
2,905

 
—

 
—

 
—

 
—

 
—

 
2,905

Insurance reserves
 
 
 
 
 
 
 
 
 
 
 
 
 

Claim and claim adjustment expenses
5,472

 
8,704

 
1,818

 
3,712

 
2,166

 
—

 
21,872

Unearned premiums
2,363

 
1,751

 
495

 
137

 
—

 
(1
)
 
4,745

Future policy benefits
—

 
—

 
—

 
11,734

 
—

 
—

 
11,734

Deferred non-insurance warranty revenue
3,848

 
—

 
—

 
—

 
—

 
—

 
3,848


34

Three months ended March 31, 2019

Specialty
 

Commercial
 
International
 
Life &
Group
 
Corporate
& Other
 
 
 
 
(In millions)
 
 
 
 
Eliminations
 
Total
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 

Net earned premiums
$
661

 
$
763

 
$
250

 
$
130

 
$
—

 
$
(1
)
 
$
1,803

Net investment income
155

 
190

 
15

 
204

 
7

 
—

 
571

Non-insurance warranty revenue
281

 
—

 
—

 
—

 
—

 
—

 
281

Other revenues
1

 
7

 
—

 
1

 
2

 
(2
)
 
9

Total operating revenues
1,098

 
960

 
265

 
335

 
9

 
(3
)
 
2,664

Claims, benefits and expenses
 

 
 
 
 
 
 

 
 
 
 

 
 

Net incurred claims and benefits
392

 
510

 
162

 
308

 
(21
)
 
—

 
1,351

Policyholders’ dividends
1

 
5

 
—

 
—

 
—

 
—

 
6

Amortization of deferred acquisition costs
147

 
127

 
68

 
—

 
—

 
—

 
342

Non-insurance warranty expense
260

 
—

 
—

 
—

 
—

 
—

 
260

Other insurance related expenses
70

 
130

 
25

 
28

 
(1
)
 
(1
)
 
251

Other expenses
12

 
11

 
4

 
2

 
39

 
(2
)
 
66

Total claims, benefits and expenses
882

 
783

 
259

 
338

 
17

 
(3
)
 
2,276

Core income (loss) before income tax
216

 
177

 
6

 
(3
)
 
(8
)
 
—

 
388

Income tax (expense) benefit on core income (loss)
(47
)
 
(38
)
 
—

 
13

 
2

 
—

 
(70
)
Core income (loss)
$
169

 
$
139

 
$
6

 
$
10

 
$
(6
)
 
$
—

 
318

Net investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
31

Income tax (expense) benefit on net investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
(7
)
Net investment gains (losses), after tax
 
 
 
 
 
 
 
 
 
 
 
 
24

Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
$
342


December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance receivables
$
575

 
$
855

 
$
247

 
$
385

 
$
2,142

 
$
—

 
$
4,204

Insurance receivables
971

 
1,210

 
284

 
16

 
—

 
—

 
2,481

Deferred acquisition costs
311

 
257

 
94

 
—

 
—

 
—

 
662

Goodwill
117

 
—

 
30

 
—

 
—

 
—

 
147

Deferred non-insurance warranty acquisition expense
2,840

 
—

 
—

 
—

 
—

 
—

 
2,840

Insurance reserves
 
 
 
 
 
 
 
 
 
 
 
 
 

Claim and claim adjustment expenses
5,238

 
8,656

 
1,876

 
3,716

 
2,234

 
—

 
21,720

Unearned premiums
2,337

 
1,626

 
495

 
125

 
—

 
—

 
4,583

Future policy benefits
—

 
—

 
—

 
12,311

 
—

 
—

 
12,311

Deferred non-insurance warranty revenue
3,779

 
—

 
—

 
—

 
—

 
—

 
3,779




35

The following table presents operating revenue by line of business for each reportable segment.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Specialty
 
 
 
Management & Professional Liability
$
568

 
$
636

Surety
138

 
139

Warranty & Alternative Risks
337

 
323

Specialty revenues
1,043

 
1,098

Commercial
 
 


Middle Market
335

 
357

Construction (1)
250

 
248

Small Business
112

 
131

Other Commercial
175

 
224

Commercial revenues
872

 
960

International


 


Canada
73

 
66

Europe
92

 
91

Hardy
89

 
108

International revenues
254

 
265

Life & Group revenues
335

 
335

Corporate & Other revenues
5

 
9

Eliminations
(2
)
 
(3
)
Total operating revenues
2,507

 
2,664

Net investment gains (losses)
(216
)
 
31

Total revenues
$
2,291

 
$
2,695


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

36

Note J. Non-Insurance Revenues from Contracts with Customers
The Company had $3.8 billion reported in Deferred non-insurance warranty revenue as of March 31, 2020 and December 31, 2019. For the three months ended March 31, 2020, the Company recognized $286 million of revenues that were included in the deferred revenue balance as of January 1, 2020. For the three months ended March 31, 2019, the Company recognized $265 million of revenues that were included in the deferred revenue balance as of January 1, 2019. For the three months ended March 31, 2020 and 2019, Non-insurance warranty revenue recognized from performance obligations related to prior periods due to a change in estimate was not material. The Company expects to recognize approximately $831 million of the deferred revenue in the remainder of 2020, $951 million in 2021, $735 million in 2022 and $1.3 billion thereafter.

37

Note K. Expected Credit Losses - Uncollectible Reinsurance and Insurance Receivables
The Company has established an allowance for uncollectible reinsurance receivables which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. For assessing expected credit losses, the Company separates reinsurance receivables into two pools; voluntary reinsurance receivables and involuntary reinsurance exposures to mandatory pools. The Company has not recorded an allowance for involuntary pools as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on voluntary reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. If the reinsurer is unrated, an internal financial strength rating is assigned based on the Company’s historical loss experience and the Company’s assessment of reinsurance counterparty risk profile, which generally corresponds with a B rating. Changes in the allowance are presented as a component of Insurance claims and policyholders' benefits on the Condensed Consolidated Statements of Operations.
The following table summarizes the outstanding amount of voluntary reinsurance receivables, gross of any collateral arrangements, by financial strength rating as of March 31, 2020:
(In millions)
March 31, 2020
A- to A++
$
2,662

B- to B++
859

Insolvent
4

Total voluntary reinsurance outstanding balance(1)
$
3,525

(1)
Expected credit losses for legacy A&EP receivables are ceded to NICO and the reinsurance limit on the LPT has not been exhausted, therefore no allowance is recorded for these receivables and they are excluded from the table above. Refer to Note E for information regarding the LPT. The Company has also excluded receivables from involuntary pools.
Voluntary reinsurance receivables within the B- to B++ rating distribution are primarily due from captive reinsurers and backed by collateral arrangements.
The Company has established an allowance for uncollectible insurance receivables. A loss rate methodology is used to determine expected credit losses for premium receivables. This methodology uses the Company’s historical annual credit losses relative to gross premium written to develop a range of credit loss rates for each dollar of gross written premium underwritten. The expected credit loss for loss sensitive business in good standing is calculated on a pool basis, using historical default rate data obtained from major rating agencies. Changes in the allowance are presented as a component of Other operating expenses on the Condensed Consolidated Statements of Operations.

38

Item 2. Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
OVERVIEW
The following discussion highlights significant factors affecting the Company. References to “we,” “our,” “us” or like terms refer to the business of CNA.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q, as well as the supplemental risk factor regarding the COVID-19 pandemic disclosed under Part II, Item 1A of this Form 10-Q. The following discussion should also be read in conjunction with Item 1A Risk Factors and Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2019.
We utilize the core income (loss) financial measure to monitor our operations. Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of net investment gains or losses and any cumulative effects of changes in accounting guidance. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not necessarily reflective of our primary operations. Management monitors core income (loss) for each business segment to assess segment performance. Presentation of consolidated core income (loss) is deemed to be a non-GAAP financial measure. See further discussion regarding how we manage our business in Note I to the Condensed Consolidated Financial Statements included under Part I, Item 1. For reconciliations of non-GAAP measures to the most comparable GAAP measures and other information, please refer herein and/or to CNA's most recent Annual Report on Form 10-K on file with the Securities and Exchange Commission.
In evaluating the results of our Specialty, Commercial and International segments, we utilize the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. In addition we also utilize renewal premium change, rate, retention and new business in evaluating operating trends. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. Rate represents the average change in price on policies that renew excluding exposure change. For certain products within Small Business, where quantifiable, rate includes the influence of new business as well. Exposure represents the measure of risk used in the pricing of the insurance product. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. Renewal premium change, rate and retention presented for the prior year are updated to reflect subsequent activity on policies written in the period. New business represents premiums from policies written with new customers and additional policies written with existing customers. Gross written premiums, excluding third party captives, excludes business which is mostly ceded to third party captives, including business related to large warranty programs.
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 within this MD&A. These changes can be favorable or unfavorable. Net prior year loss reserve development does not include the effect of any related acquisition expenses. Further information on our reserves is provided in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

39

CRITICAL ACCOUNTING ESTIMATES
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the amount of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Condensed Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. We continually evaluate the accounting policies and estimates used to prepare the Condensed Consolidated Financial Statements. In general, our estimates are based on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.
The accounting estimates discussed below are considered by us to be critical to an understanding of our Condensed Consolidated Financial Statements as their application places the most significant demands on our judgment:
•
Insurance Reserves
•
Long Term Care Reserves
•
Reinsurance and Insurance Receivables
•
Valuation of Investments and Impairment of Securities
•
Income Taxes
Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from our estimates and may have a material adverse impact on our results of operations, equity, business, and insurer financial strength and corporate debt ratings. See the Critical Accounting Estimates section of our Management's Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019 for further information.

40

CONSOLIDATED OPERATIONS
Results of Operations
The COVID-19 pandemic and global, national, regional and local efforts to mitigate the spread of the virus have rapidly evolved and led to severely depressed economic conditions and financial market disruption, primarily beginning in the month of March. These conditions have had an impact across our enterprise during the first quarter of 2020. While the impact to our underwriting results was limited, we experienced significant declines in the value of our investment portfolio during the first quarter. Currently, we believe the future impact across our operations is likely to be reflected in continued volatility in our investment portfolio, and adverse effects on our underwriting results including decreased premiums, elevated expenses in the form of credit losses for uncollectible receivables, and increased claims reporting activity and related litigation, due to both the pandemic and depressed economic conditions. For more discussion of COVID-19 impacts on our underwriting results and detailed components of our business operations and a discussion of the core income (loss) financial measure, see the segment sections within this MD&A. For further discussion of Net investment income and Net investment gains or losses, see the Investments section of this MD&A. For further discussion of the risks to our business associated with COVID-19, see the Risk Factor included under Part II, Item 1A of this Form 10-Q.
The following table includes the consolidated results of our operations including our financial measure, core income (loss).
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Operating Revenues
 
 
 
Net earned premiums
$
1,869

 
$
1,803

Net investment income
329

 
571

Non-insurance warranty revenue
301

 
281

Other revenues
8

 
9

Total operating revenues
2,507

 
2,664

Claims, Benefits and Expenses
 
 
 
Net incurred claims and benefits
1,419

 
1,351

Policyholders' dividends
6

 
6

Amortization of deferred acquisition costs
344

 
342

Non-insurance warranty expense
281

 
260

Other insurance related expenses
258

 
251

Other expenses
72

 
66

Total claims, benefits and expenses
2,380

 
2,276

Core income before income tax
127

 
388

Income tax expense on core income
(19
)
 
(70
)
Core income
108


318

Net investment (losses) gains
(216
)
 
31

Income tax benefit (expense) on net investment (losses) gains
47

 
(7
)
Net investment (losses) gains, after tax
(169
)
 
24

Net (loss) income
$
(61
)
 
$
342


41

Core income decreased $210 million for the three months ended March 31, 2020 as compared with the same period in 2019. Core income for our Property & Casualty Operations decreased $192 million primarily due to lower net investment income driven by limited partnership and common stock returns. Our underwriting results for the three months ended March 31, 2020 included a $15 million pretax ($12 million after-tax) loss related to COVID-19 comprised of claims activity included in catastrophe losses and an increase in our allowance for uncollectible insurance receivables. Core income for our Life & Group segment decreased $6 million while the core loss for our Corporate & Other segment increased $12 million.
Net catastrophe losses were $75 million and $58 million for the three months ended March 31, 2020 and 2019. Catastrophe losses for the three months ended March 31, 2020 include $13 million related to COVID-19, which is being tracked as a separate catastrophe event. Favorable net prior year loss reserve development of $15 million and $14 million was recorded in the three months ended March 31, 2020 and 2019 related to our Specialty, Commercial, International and Corporate & Other segments. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.


42

SEGMENT RESULTS
The impact COVID-19 had on our insurance underwriting results was more limited in the first quarter of 2020 than we anticipate occurring in the second and third quarters of 2020, and possibly thereafter, as the situation continues to evolve. Currently, we believe the future impact on our underwriting results is likely to include declines in premium volume, driven by slower growth, especially for lines of business that are sensitive to rates of economic growth, as well as policy cancellations, refunds or return of premiums, as a result of decreased insured exposures for our current policyholders. In addition, many of our customers, across a broad spectrum of industries, are likely to be impacted by lost business, which may affect our ability to collect amounts owed to us, increasing our expenses for credit losses for uncollectible premiums. Lower premiums and higher expenses will result in an increase to our expense ratio. Further, while loss frequency may decrease related to lower exposures in certain lines, we expect an overall increase in insurance claims reporting activity and related litigation due to both the pandemic and depressed economic conditions. This includes increased frequency in claim submissions in lines that are implicated by the virus and the mitigating activities taken by our customers and governmental authorities in response to its spread. These include workers’ compensation, healthcare, commercial property coverage, and directors’ and officers’ liability and employment practices liability lines. In addition, our surety lines may experience increased losses, particularly in construction surety, where there is risk that contractors will be adversely impacted by general economic conditions. The costs associated with claims handling and defense, as well as the payment of claims for covered exposures, will likely increase our loss ratio. For further discussion of the risks to our business associated with COVID-19, see the Risk Factor included under Part II, Item 1A of this Form 10-Q.
The following discusses the results of operations for our business segments during the first quarter of 2020. Our property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International, which we refer to collectively as Property & Casualty Operations. Our operations outside of Property & Casualty Operations are managed and reported in two segments: Life & Group and Corporate & Other.


43

Specialty
The following table details the results of operations for Specialty.
Three months ended March 31
 
 
 
(In millions, except ratios, rate, renewal premium change and retention)
2020
 
2019
Gross written premiums
$
1,714

 
$
1,701

Gross written premiums excluding third party captives
741

 
730

Net written premiums
694

 
698

Net earned premiums
685

 
661

Net investment income
56

 
155

Core income
96

 
169

 
 
 
 
Other performance metrics:
 
 
 
Loss and loss adjustment expense ratio
59.1
%
 
59.3
%
Expense ratio
32.0

 
32.8

Dividend ratio
0.2

 
0.2

Combined ratio
91.3
%
 
92.3
%
 
 
 
 
Rate
9
%
 
3
%
Renewal premium change
9

 
6

Retention
84

 
89

New business
$
74

 
$
86

Gross written premiums, excluding third party captives, for Specialty increased $11 million for the three months ended March 31, 2020 as compared with the same period in 2019 driven by strong rate. Net written premiums for Specialty decreased $4 million for the three months ended March 31, 2020 as compared with the same period in 2019 driven by a higher level of ceded reinsurance. The increase in net earned premiums was consistent with the trend in net written premiums in recent quarters.
Core income decreased $73 million for the three months ended March 31, 2020 as compared with the same period in 2019 primarily due to lower net investment income driven by limited partnership and common stock returns partially offset by improved current accident year underwriting results.
The combined ratio of 91.3% improved 1.0 point for the three months ended March 31, 2020 as compared with the same period in 2019. The loss ratio improved 0.2 points driven by improved current accident year underwriting results largely offset by lower favorable net prior year loss reserve development in the current period. Net catastrophe losses were $8 million, or 1.1 points of the loss ratio, for the three months ended March 31, 2020, as compared with $12 million, or 1.8 points of the loss ratio, for the three months ended March 31, 2019. Net catastrophe losses for the three months ended March 31, 2020 included $6 million related to the COVID-19 pandemic. The expense ratio improved 0.8 points for the three months ended March 31, 2020 as compared with the same period in 2019 driven by higher net earned premiums.
Favorable net prior year loss reserve development of $11 million and $20 million was recorded for the three months ended March 31, 2020 and 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

44

The following table summarizes the gross and net carried reserves for Specialty.
(In millions)
March 31, 2020
 
December 31, 2019
Gross case reserves
$
1,527

 
$
1,481

Gross IBNR reserves
3,945

 
3,757

Total gross carried claim and claim adjustment expense reserves
$
5,472

 
$
5,238

Net case reserves
$
1,385

 
$
1,343

Net IBNR reserves
3,310

 
3,333

Total net carried claim and claim adjustment expense reserves
$
4,695

 
$
4,676


45

Commercial
The following table details the results of operations for Commercial.
Three months ended March 31
 
 
 
(In millions, except ratios, rate, renewal premium change and retention)
2020
 
2019
Gross written premiums
$
1,062

 
$
941

Gross written premiums excluding third party captives
1,059

 
932

Net written premiums
950

 
849

Net earned premiums
818

 
763

Net investment income
47

 
190

Core income
24

 
139

 
 
 
 
Other performance metrics:
 
 
 
Loss and loss adjustment expense ratio
68.1
%
 
66.9
%
Expense ratio
33.2

 
33.8

Dividend ratio
0.6

 
0.6

Combined ratio
101.9
%
 
101.3
%
 
 
 
 
Rate
8
%
 
2
%
Renewal premium change
9

 
4

Retention
85

 
85

New business
$
198

 
$
163

Gross written premiums for Commercial increased $121 million for the three months ended March 31, 2020 as compared with the same period in 2019 driven by higher new business and rate. Net written premiums for Commercial increased $101 million for the three months ended March 31, 2020 as compared with the same period in 2019. The increase in net earned premium was consistent with the trend in net written premiums.
Core income decreased $115 million for the three months ended March 31, 2020 as compared with the same period in 2019, primarily due to lower net investment income driven by limited partnership and common stock returns.
The combined ratio of 101.9% increased 0.6 points for the three months ended March 31, 2020 as compared with the same period in 2019. The loss ratio increased 1.2 points driven by higher net catastrophe losses partially offset by lower claim handling expenses. Net catastrophe losses were $57 million, or 7.0 points of the loss ratio, for the three months ended March 31, 2020, as compared with $40 million, or 5.2 points of the loss ratio, for the three months ended March 31, 2019. Net catastrophe losses for three months ended March 31, 2020 included $5 million related to the COVID-19 pandemic. The expense ratio for the three months ended March 31, 2020 improved 0.6 point as compared with the same period in 2019 driven by higher net earned premiums.
Favorable net prior year loss reserve development of $4 million and $8 million was recorded for the three months ended March 31, 2020 and 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for Commercial.
(In millions)
March 31, 2020
 
December 31, 2019
Gross case reserves
$
3,914

 
$
3,937

Gross IBNR reserves
4,790

 
4,719

Total gross carried claim and claim adjustment expense reserves
$
8,704

 
$
8,656

Net case reserves
$
3,477

 
$
3,543

Net IBNR reserves
4,414

 
4,306

Total net carried claim and claim adjustment expense reserves
$
7,891

 
$
7,849


46

International
The following table details the results of operations for International.
Three months ended March 31
 
 
 
(In millions, except ratios, rate, renewal premium change and retention)
2020
 
2019
Gross written premiums
$
307

 
$
324

Net written premiums
219

 
259

Net earned premiums
239

 
250

Net investment income
15

 
15

Core income
2

 
6

 
 
 
 
Other performance metrics:
 
 
 
Loss and loss adjustment expense ratio
64.5
%
 
64.8
%
Expense ratio
35.4

 
37.1

Combined ratio
99.9
%
 
101.9
%
 
 
 
 
Rate
8
%
 
5
%
Renewal premium change
8

 
2

Retention
72

 
69

New business
$
68

 
$
80

Gross written premiums for International decreased $17 million for the three months ended March 31, 2020 as compared with the same period in 2019 driven by the continued impact of the strategic exit from certain Lloyd’s business classes, offset by growth in Canada. Net written premiums decreased $40 million for the three months ended March 31, 2020 as compared with the same period in 2019. The decrease in net earned premiums was consistent with the trend in net written premiums.
Core income decreased $4 million for the three months ended March 31, 2020 as compared with the same period in 2019 driven by current accident year underwriting results.
The combined ratio of 99.9% improved 2.0 points for the three months ended March 31, 2020 as compared with the same period in 2019. The loss ratio improved 0.3 points driven by the absence of unfavorable net prior year loss reserve development in the current period partially offset by lower current accident year underwriting results. Net catastrophe losses were $10 million, or 4.3 points of the loss ratio, for the three months ended March 31, 2020, as compared with $6 million, or 2.3 points of the loss ratio, for the three months ended March 31, 2019. Net catastrophe losses for the three months ended March 31, 2020 included $2 million related to the COVID-19 pandemic. The expense ratio improved 1.7 points for the three months ended March 31, 2020 as compared with the same period in 2019 driven by lower acquisition expenses and employee costs.
There was no prior year loss reserve development recorded for the three months ended March 31, 2020 as compared with unfavorable development of $14 million for the three months ended March 31, 2019. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.

47

The following table summarizes the gross and net carried reserves for International.
(In millions)
March 31, 2020
 
December 31, 2019
Gross case reserves
$
807

 
$
858

Gross IBNR reserves
1,011

 
1,018

Total gross carried claim and claim adjustment expense reserves
$
1,818

 
$
1,876

Net case reserves
$
719

 
$
759

Net IBNR reserves
864

 
869

Total net carried claim and claim adjustment expense reserves
$
1,583

 
$
1,628


48

Life & Group
The following table summarizes the results of operations for Life & Group.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Net earned premiums
$
127

 
$
130

Net investment income
208

 
204

Core loss before income tax
(10
)
 
(3
)
Income tax benefit on core loss
14

 
13

Core income
4

 
10

Due to the recognition of the active life reserve premium deficiency and resetting of actuarial assumptions in the third quarter of 2019, the operating results for our long term care business in 2020 now reflect the variance between actual experience and the expected results contemplated in our best estimate reserves. Core income of $4 million for the three months ended March 31, 2020 is in line with expectations.
Corporate & Other
The following table summarizes the results of operations for the Corporate & Other segment, including intersegment eliminations.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Net investment income
$
3

 
$
7

Interest expense
31

 
34

Core loss
(18
)
 
(6
)
Core loss increased $12 million for the three months ended March 31, 2020 as compared with the same period in 2019 driven by lower amortization of the deferred gain related to the A&EP Loss Portfolio Transfer (LPT). The A&EP LPT is further discussed in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for Corporate & Other.
(In millions)
March 31, 2020
 
December 31, 2019
Gross case reserves
$
1,185

 
$
1,137

Gross IBNR reserves
981

 
1,097

Total gross carried claim and claim adjustment expense reserves
$
2,166

 
$
2,234

Net case reserves
$
92

 
$
92

Net IBNR reserves
78

 
83

Total net carried claim and claim adjustment expense reserves
$
170

 
$
175



49

INVESTMENTS
The financial market disruption in the first quarter of 2020 significantly impacted our investment portfolio during the period. Losses from our limited partnership and common and preferred equity portfolios, as well as the recognition of impairment losses on certain fixed maturity holdings, have negatively impacted our net income. Additionally, the overall fair value of our available for sale fixed maturity portfolio has declined, primarily as a result of credit spread widening. We currently expect some level of continued volatility in our investment portfolio as the situation continues to evolve.
Net Investment Income
The significant components of Net investment income are presented in the following table. Fixed income securities, as presented, include both fixed maturity securities and non-redeemable preferred stock.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Fixed income securities:
 
 
 
Taxable fixed income securities
$
371

 
$
383

Tax-exempt fixed income securities
78

 
82

Total fixed income securities
449

 
465

Limited partnership investments
(70
)
 
76

Common stock
(55
)
 
20

Other, net of investment expense
5

 
10

Pretax net investment income
$
329

 
$
571

Fixed income securities, after tax
$
367

 
$
380

Net investment income, after tax
279

 
465

 
 
 
 
Effective income yield for the fixed income securities portfolio, pretax
4.6
 %
 
4.8
%
Effective income yield for the fixed income securities portfolio, after tax
3.8
 %
 
3.9
%
Limited partnership and common stock return
(7.0
)%
 
4.5
%
Net investment income, after tax, decreased $186 million for the three months ended March 31, 2020 as compared with the same period in 2019 driven by limited partnership and common stock returns. The limited partnership returns for the three months ended March 31, 2020 include limited partnerships representing 51% reporting on a current basis with no reporting lag and 49% reporting on a lag, primarily three months or less. Limited partnerships reporting on a current basis include substantially all of the Company's hedge funds.

50

Net Investment Gains (Losses)
The components of Net investment gains (losses) are presented in the following table.
Three months ended March 31
 
 
 
(In millions)
2020
 
2019
Fixed maturity securities:

 
 
Corporate and other bonds
$
(79
)
 
$
—

States, municipalities and political subdivisions
—

 
8

Asset-backed
4

 
(14
)
Total fixed maturity securities
(75
)
 
(6
)
Non-redeemable preferred stock
(133
)
 
42

Short term and other
5

 
(5
)
Mortgage loans
(13
)
 
—

Net investment (losses) gains
(216
)
 
31

Income tax benefit (expense) on net investment (losses) gains
47

 
(7
)
Net investment (losses) gains, after tax
$
(169
)
 
$
24

Net investment results, after tax, decreased $193 million for the three months ended March 31, 2020 as compared with the same period in 2019. The decrease was driven by the unfavorable change in fair value of non-redeemable preferred stock and higher impairment losses for the quarter. Pretax impairment losses of $92 million were recognized in the current quarter, which includes $77 million related to the energy sector.
Further information on our investment gains and losses is set forth in Note C to the Condensed Consolidated Financial Statements included under Part 1, Item 1.

51

Portfolio Quality
The following table presents the estimated fair value and net unrealized gains (losses) of our fixed maturity securities by rating distribution.
 
March 31, 2020
 
December 31, 2019

(In millions)
Estimated Fair Value
 
Net Unrealized Gains (Losses)
 
Estimated Fair Value
 
Net Unrealized Gains (Losses)
U.S. Government, Government agencies and Government-sponsored enterprises
$
4,073

 
$
198

 
$
4,136

 
$
95

AAA
3,529

 
381

 
3,254

 
349

AA
6,328

 
747

 
6,663

 
801

A
8,751

 
819

 
9,062

 
1,051

BBB
15,284

 
255

 
16,839

 
1,684

Non-investment grade
2,133

 
(287
)
 
2,253

 
101

Total
$
40,098

 
$
2,113

 
$
42,207

 
$
4,081

As of March 31, 2020 and December 31, 2019, 1% of our fixed maturity portfolio was rated internally. AAA rated securities included $1.9 billion and $1.5 billion of pre-funded municipal bonds as of March 31, 2020 and December 31, 2019.
The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.
 
March 31, 2020
(In millions)
Estimated Fair Value
 
Gross Unrealized Losses
U.S. Government, Government agencies and Government-sponsored enterprises
$
6

 
$
—

AAA
196

 
4

AA
481

 
25

A
1,762

 
117

BBB
6,102

 
652

Non-investment grade
1,606

 
319

Total
$
10,153

 
$
1,117


52

The following table presents the maturity profile for these available-for-sale fixed maturity securities. Securities not due to mature on a single date are allocated based on weighted average life.
 
March 31, 2020
(In millions)
Estimated Fair Value
 
Gross Unrealized Losses
Due in one year or less
$
321

 
$
26

Due after one year through five years
2,780

 
199

Due after five years through ten years
5,418

 
632

Due after ten years
1,634

 
260

Total
$
10,153

 
$
1,117



The following table summarizes the available-for-sale Corporate and other bonds at March 31, 2020 across industry sectors.
March 31, 2020
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Allowance for Credit Losses
 
Estimated
Fair
Value
(In millions)
 
 
 
 
Corporate and other bonds:
 
 
 
 
 
 
 
 
 
Basic Materials
$
1,615

 
$
95

 
$
78

 
$
—

 
$
1,632

Communications
1,429

 
193

 
27

 
—

 
1,595

Consumer, cyclical - Other
605

 
16

 
56

 
—

 
565

Consumer, non-cyclical - Other
1,641

 
195

 
27

 
—

 
1,809

Energy - Oil & Gas
1,170

 
40

 
191

 
37

 
982

Energy - Other
23

 
7

 
—

 
—

 
30

Energy - Pipelines
1,056

 
43

 
112

 
11

 
976

Entertainment
177

 
—

 
23

 
—

 
154

Financial - Other
5,748

 
308

 
89

 
—

 
5,967

Financial - Real Estate/REITS
1,455

 
30

 
45

 
—

 
1,440

Industrial
1,481

 
135

 
55

 
—

 
1,561

Retail
527

 
67

 
18

 
—

 
576

Technology
853

 
38

 
30

 
1

 
860

Transportation
331

 
35

 
5

 
—

 
361

Travel & Related
490

 
26

 
37

 
—

 
479

Utilities
1,580

 
191

 
24

 
—

 
1,747

Total Corporate and other bonds
$
20,181

 
$
1,419

 
$
817

 
$
49

 
$
20,734



53

Duration
A primary objective in the management of the investment portfolio is to optimize return relative to the corresponding liabilities and respective liquidity needs. Our views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions as well as domestic and global economic conditions, are some of the factors that enter into an investment decision. We also continually monitor exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on our views of a specific issuer or industry sector.
A further consideration in the management of the investment portfolio is the characteristics of the corresponding liabilities and the ability to align the duration of the portfolio to those liabilities and to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios where future liability cash flows are determinable and typically long term in nature, we segregate investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in the Life & Group segment.
The effective durations of fixed income securities and short term investments are presented in the following table. Amounts presented are net of payable and receivable amounts for securities purchased and sold, but not yet settled.
 
March 31, 2020
 
December 31, 2019
(In millions)
Estimated Fair Value
 
Effective
Duration
(In years)
 
Estimated Fair Value
 
Effective
Duration
(In years)
Investments supporting Life & Group
$
17,201

 
8.7

 
$
18,015

 
8.9

Other investments
24,237

 
4.1

 
26,813

 
4.1

Total
$
41,438

 
6.0

 
$
44,828

 
6.0

The investment portfolio is periodically analyzed for changes in duration and related price risk. Certain securities have duration characteristics that are variable based on market interest rates, credit spreads and other factors that may drive variability in the amount and timing of cash flows. Additionally, we periodically review the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures About Market Risk included under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019.
Short Term Investments
The carrying value of the components of the Short term investments are presented in the following table.
(In millions)
March 31, 2020
 
December 31, 2019
Short term investments:
 
 
 
Commercial paper
$
326

 
$
1,181

U.S. Treasury securities
103

 
364

Other
167

 
316

Total short term investments
$
596

 
$
1,861


In addition to Short term investments, the Company held $857 million and $242 million of Cash as of March 31, 2020 and December 31, 2019.

54

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary operating cash flow sources are premiums and investment income from our insurance subsidiaries. Our primary operating cash flow uses are payments for claims, policy benefits and operating expenses, including interest expense on corporate debt. Additionally, cash may be paid or received for income taxes.
Related to the COVID-19 pandemic and efforts to mitigate the spread of the virus, cash flows may be adversely impacted by lower premium volumes, suspensions and cancellations of policies, return of premiums or premium refunds, and increased claim and defense cost payments in future quarters. At this time, we do not believe these impacts would give rise to a material liquidity concern given our overall liquid assets and anticipated future cash flows.
For the three months ended March 31, 2020, net cash provided by operating activities was $212 million as compared with $287 million for the same period in 2019. The decrease in cash provided by operating activities was driven by higher net claim payments and a lower level of distributions from limited partnerships partially offset by an increase in premiums collected.
Cash flows from investing activities include the purchase and disposition of financial instruments, excluding those held as trading, and may include the purchase and sale of businesses, equipment and other assets not generally held for resale.
Net cash provided by investing activities was $1,087 million for the three months ended March 31, 2020, as compared with $289 million for the same period in 2019. The cash flow from investing activities is affected by various factors such as the anticipated payment of claims, financing activity, asset/liability management and individual security buy and sell decisions made in the normal course of portfolio management.
Cash flows from financing activities may include proceeds from the issuance of debt and equity securities, and outflows for stockholder dividends, repayment of debt and purchases of treasury stock.
For the three months ended March 31, 2020, net cash used by financing activities was $675 million as compared with $665 million for the same period 2019. In the first quarter of 2020, we paid dividends of $649 million and repurchased 435,376 shares of our common stock at an aggregate cost of $18 million. In the first quarter of 2019, we paid dividends of $643 million and repurchased 317,508 shares of our common stock at an aggregate cost of $14 million.
Common Stock Dividends
A quarterly dividend of $0.37 per share and a special dividend of $2.00 per share of our common stock were declared and paid in the first quarter of 2020. On May 1, 2020, our Board of Directors declared a quarterly dividend of $0.37 per share, payable June 4, 2020 to stockholders of record on May 18, 2020. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition, business needs and regulatory constraints.

55

Liquidity
We believe that our present cash flows from operating, investing and financing activities are sufficient to fund our current and expected working capital and debt obligation needs and we do not expect this to change in the near term. In addition, we held $5 billion of cash, short term investments and highly liquid securities issued by US government agencies as of March 31, 2020, of which $506 million was held at the CNAF holding company. There are currently no amounts outstanding under our $250 million senior unsecured revolving credit facility and no borrowings outstanding through our membership in the Federal Home Loan Bank of Chicago (FHLBC).
Dividends from CCC are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the Department), are determined based on the greater of the prior year's statutory net income or 10% of statutory surplus as of the end of the prior year, as well as timing and amount of dividends paid in the preceding twelve months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of March 31, 2020, CCC was in a positive earned surplus position. The maximum allowable dividend CCC could pay during 2020 that would not be subject to the Department's prior approval is $1,078 million, less dividends paid during the preceding twelve months measured at that point in time. CCC paid dividends of $125 million during the three months ended June 30, 2019, $135 million during the three months ended September 30, 2019, $125 million during the three months ended December 31, 2019 and $670 million during the three months ended March 31, 2020. As of March 31, 2020, CCC is able to pay approximately $23 million of dividends that would not be subject to prior approval of the Department. The actual level of dividends paid in any year is determined after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.
We have an effective automatic shelf registration statement under which we may publicly issue debt, equity or hybrid securities from time to time.

56

ACCOUNTING STANDARDS UPDATE
For a discussion of Accounting Standards Updates adopted in the current period and that will be adopted in the future, see Note A to the Condensed Consolidated Financial Statements included under Part I, Item 1.
FORWARD-LOOKING STATEMENTS
This report contains a number of forward-looking statements which relate to anticipated future events rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions. Forward-looking statements in this report include any and all statements regarding expected developments in our insurance business, including losses and loss reserves for long term care, A&EP and other mass tort claims which are more uncertain, and therefore more difficult to estimate than loss reserves respecting traditional property and casualty exposures; the impact of routine ongoing insurance reserve reviews we are conducting; our expectations concerning our revenues, earnings, expenses and investment activities; volatility in investment returns; and our proposed actions in response to trends in our business. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected in the forward-looking statement. We cannot control many of these risks and uncertainties. These risks and uncertainties include, but are not limited to, the following:
Company-Specific Factors
•
the risks and uncertainties associated with our insurance reserves, as outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of our 2019 Annual Report on Form 10-K and this report, including the sufficiency of the reserves and the possibility for future increases, which would be reflected in the results of operations in the period that the need for such adjustment is determined;
•
the risk that the other parties to the transaction in which, subject to certain limitations, we ceded our legacy A&EP liabilities will not fully perform their obligations to CNA, the uncertainty in estimating loss reserves for A&EP liabilities and the possible continued exposure of CNA to liabilities for A&EP claims that are not covered under the terms of the transaction;
•
the performance of reinsurance companies under reinsurance contracts with us; and
•
the risks and uncertainties associated with potential acquisitions and divestitures, including the consummation of such transactions, the successful integration of acquired operations and the potential for subsequent impairment of goodwill or intangible assets.
Industry and General Market Factors
•
the COVID-19 pandemic, and actions seeking to mitigate the spread of the virus, have resulted in significant risk across our enterprise, as economic uncertainty and depressed business conditions brought on by the crisis may materially and adversely impact our business, driving significant decreases in our premium volume and resulting in significant losses in our investment portfolio, increased claim and litigation activity, and unfavorable regulatory outcomes.
•
the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;
•
product and policy availability and demand and market responses, including the level of ability to obtain rate increases and decline or non-renew underpriced accounts, to achieve premium targets and profitability and to realize growth and retention estimates;
•
general economic and business conditions, including recessionary conditions that may decrease the size and number of our insurance customers and create additional losses to our lines of business, especially those that provide management and professional liability insurance, as well as surety bonds, to businesses engaged in real estate, financial services and professional services and inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;
•
conditions in the capital and credit markets, including uncertainty and instability in these markets, as well as the overall economy, and their impact on the returns, types, liquidity and valuation of our investments;
•
conditions in the capital and credit markets that may limit our ability to raise significant amounts of capital on favorable terms; and

57

•
the possibility of changes in our ratings by ratings agencies, including the inability to access certain markets or distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices.
Regulatory Factors
•
regulatory and legal initiatives and compliance with governmental regulations and other legal requirements, including with respect to cyber security protocols, legal inquiries by state authorities, judicial interpretations within the regulatory framework, including interpretation of policy provisions, decisions regarding coverage and theories of liability, legislative actions that increase claimant activity, including those revising applicability of statutes of limitations, trends in litigation and the outcome of any litigation involving us and rulings and changes in tax laws and regulations;
•
regulatory limitations, impositions and restrictions upon us, including with respect to our ability to increase premium rates, and the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies; and
•
regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our insurance subsidiaries, imposed by regulatory authorities, including regulatory capital adequacy standards.
Impact of Natural and Man-Made Disasters and Mass Tort Claims
•
weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow;
•
regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
•
man-made disasters, including the possible occurrence of terrorist attacks, the unpredictability of the nature, targets, severity or frequency of such events, and the effect of the absence or insufficiency of applicable terrorism legislation on coverages;
•
the occurrence of epidemics and pandemics; and
•
mass tort claims, including those related to exposure to potentially harmful products or substances such as glyphosate, lead paint and opioids; and claims arising from changes that repeal or weaken tort reforms, such as those related to abuse reviver statutes.
Referendum on the United Kingdom's Membership in the European Union
•
in 2016, the U.K. approved an exit from the E.U., commonly referred to as "Brexit.” While the withdrawal of the U.K. from the E.U. was official as of January 31, 2020, until the transition period ends, there remains a lack of specificity and detail regarding the long term relationship between the two sides and how businesses operating in both jurisdictions may be affected. In any event, effective January 1, 2019, our E.U. business is no longer handled out of our U.K.-domiciled subsidiary, but through our European subsidiary in Luxembourg, which was established specifically to address the departure of the U.K. from the E.U. and to seek to ensure the Company’s ability to operate effectively throughout the E.U. As a result, the complexity and cost of regulatory compliance of our European business has increased and will likely continue to result in elevated expenses.
Our forward-looking statements speak only as of the date of the filing of this Quarterly Report on Form 10-Q and we do not undertake any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of the statement, even if our expectations or any related events or circumstances change.

58

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our market risk components for the three months ended March 31, 2020. See the Quantitative and Qualitative Disclosures About Market Risk included in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019 for further information. Additional information related to portfolio duration is discussed in the Investments section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including this report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management on a timely basis to allow decisions regarding required disclosure.
As of March 31, 2020, the Company's management, including the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective as of March 31, 2020.
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15 (f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

59

PART II. Other Information
Item 1. Legal Proceedings
Information on our legal proceedings is set forth in Note F to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended December 31, 2019, includes a detailed discussion of certain material risk factors facing us. The information presented below describes updates and additions to such risk factors and should be read in conjunction with the risk factors and information disclosed in our Form 10-K.
The COVID-19 pandemic and mitigating actions have resulted in significant risk across our enterprise, which may have a material adverse impact on our business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.
The COVID-19 outbreak, and actions seeking to mitigate the spread of the virus, accelerated in both breadth and scope through the month of February, with the World Health Organization declaring it a pandemic on March 11, 2020. The situation has continued to evolve exponentially with implicated exposures increasing given sustained uncertainties across the global marketplace. Because of the extensiveness of the pandemic, all of the direct and indirect consequences and implications of COVID-19 are not yet known and may not emerge for some time.
Risks presented by the ongoing effects of COVID-19 that are known at this time include the following:
Broad economic impact
The economic effect of the pandemic has been broad in nature and has significantly impacted business operations across all industries, including ours. Depressed economic conditions may lead to decreased insured exposures causing us to experience declines in premium volume, especially for lines of business that are sensitive to rates of economic growth. Significant decreases in premium volume would also directly and adversely impact our underwriting expense ratio. In addition, many of our customers, representing a broad spectrum of industries and markets, may potentially be impacted by lost business, which may affect our ability to collect amounts owed to us by policyholders.
The COVID-19 pandemic has also significantly impacted the financial markets. As investors embark on a flight to quality, risk free rates have decreased. In addition, extreme market volatility due to liquidity concerns and overall uncertainties have driven widening credit spreads and declining equity markets. These conditions have impacted our investment portfolio results and valuations and may continue to do so, resulting in additional losses in our investment portfolio. The value of our fixed maturity investments is subject to risk that certain investments may default or become impaired due to deterioration in the financial condition of issuers of the investments we hold or in the underlying collateral of the security or loan, particularly in industries heavily impacted by COVID-19 and mitigating actions, including energy, retail, travel, entertainment, and real estate. Our municipal bond portfolio is also subject to risks of default by state and local governments and agencies that are under increased strain related to the pandemic.
These significant economic and financial market disruptions may have a material impact on our business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.

60

Claims activity
Another aspect is claim activity and related litigation, which may increase significantly in certain of our lines of business as a result of the pandemic and mitigating actions. We may experience increased frequency in claim submissions in lines that are implicated by the virus and the mitigating activities taken by our customers and governmental authorities in response to its spread, as well as potential regulatory or legislative actions that are further described below under Regulatory impact. These include workers’ compensation, healthcare, commercial property coverage, and directors’ and officers’ liability and employment practices liability lines. In addition, our surety lines may experience increased losses, particularly in construction surety, where there is significant risk that contractors will be adversely and materially impacted by general economic conditions. Increased frequency or severity in any or all of the foregoing lines, or others where the exposure has yet to emerge, may have a material effect on our business, results of operations and financial condition, the extent of which cannot be determined with any certainty at this time.
Regulatory impact
The regulatory environment is rapidly evolving in direct response to the pandemic and the mitigating actions being taken. Numerous regulatory authorities to which our business is subject have implemented or are contemplating broad and significant regulations restricting and governing insurance company operations during the pandemic crisis. Such actions include, but are not limited to, premium moratoriums, premium refunds and reductions, restrictions on policy cancellations and potential legislation-driven expansion of policy terms. To date, certain state authorities have ordered premium refunds and certain regulatory and legislative bodies have proposed requiring insurers to cover business interruption under policies that were not written to provide for such coverage under the current circumstances. In addition, certain states have directed expansion of workers’ compensation coverage through presumption of compensability of claims for a broad category of workers. This highly fluid and challenging regulatory environment, and the new regulations we are now, and may be, subject to may have a material impact on our business, results of operation and financial condition, the extent of which cannot be determined with any certainty at this time.
Business operational impact
Beginning on March 17, 2020, we instituted mandatory work from home for all of our employees, across the United States and globally, including Canada, the United Kingdom and Europe, and moved to teleconference meetings only across the enterprise. As of the date of this report, the work from home mandate remains in place across our global workforce. Mandatory work from home may impact the productivity of our workforce, and increases the risk of information security exposure. Disruptions to our employees’ productivity, as well as their health and welfare, especially in the context of accelerated contagion of the virus (which has not occurred across our employee population at this time), along with the heightened security risks presented by widespread remote access to our computer systems, may have a material impact on our business operations, the extent of which cannot be determined with any certainty at this time.
In addition, in virtually all cases, our critical vendors have also had to impose workplace restrictions or work from home mandates on their employees, which may result in interruption in service delivery or failure by vendors to properly perform required services, including delivery in a manner more susceptible to significant information security risk. Such vendor issues may result in a material impact on our business operations, the extent of which cannot be determined with any certainty at this time.

61

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Items 2 (a) and (b) are not applicable.
(c) The table below details repurchases of our common stock made during the three months ended March 31, 2020.
Period
 
(a) Total number of shares purchased
 
(b) Average price paid per share
 
(c) Total number of shares purchased as part of publicly announced plans or programs
 
(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (in millions)
February 1, 2020 - February 29, 2020
 
88,848

 
$
45.24

 
N/A
 
N/A
March 1, 2020 - March 31, 2020
 
346,528

 
40.74

 
N/A
 
N/A
Total
 
435,376

 


 
N/A
 
N/A
Item 6. Exhibits
See Exhibit Index.

62

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
CNA Financial Corporation
 
 
 
Dated: May 4, 2020
By
/s/ Albert J. Miralles
 
 
Albert J. Miralles
Executive Vice President and
Chief Financial Officer
(Duly authorized officer and principal financial and accounting officer)

63

EXHIBIT INDEX
Description of Exhibit
Exhibit Number
10.1

 
 
10.2

 
 
31.1

 
 

31.2

 
 

32.1

 
 

32.2

 
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.INS

 
 
Inline XBRL Taxonomy Extension Schema
101.SCH

 
 
Inline XBRL Taxonomy Extension Calculation Linkbase
101.CAL

 
 
Inline XBRL Taxonomy Extension Definition Linkbase
101.DEF

 
 
Inline XBRL Taxonomy Label Linkbase
101.LAB

 
 
Inline XBRL Taxonomy Extension Presentation Linkbase
101.PRE

 
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
104.1


64