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CNA FINANCIAL CORP - Quarter Report: 2022 June (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 June 30, 2022
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)
Delaware36-6169860
(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 classTrading 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 Act). Yes No
As of July 28, 2022, 271,319,228 shares of common stock were outstanding.



Item NumberPage
Number
PART I
1.
Condensed Consolidated Financial Statements:
2.
3.
4.
PART II
1.
6.
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PART I
Item 1. Condensed Consolidated Financial Statements
CNA Financial Corporation
Condensed Consolidated Statements of Operations (Unaudited)
Periods ended June 30Three MonthsSix Months
(In millions, except per share data)2022202120222021
Revenues
Net earned premiums$2,155 $2,035 $4,214 $3,997 
Net investment income432 591 880 1,095 
Net investment (losses) gains(59)38 (70)95 
Non-insurance warranty revenue392 359 774 697 
Other revenues13 11 
Total revenues2,926 3,029 5,811 5,895 
Claims, Benefits and Expenses
Insurance claims and policyholders’ benefits1,583 1,546 3,038 3,052 
Amortization of deferred acquisition costs374 357 718 716 
Non-insurance warranty expense367 332 721 643 
Other operating expenses 329 303 655 587 
Interest28 29 56 57 
Total claims, benefits and expenses2,681 2,567 5,188 5,055 
Income before income tax245 462 623 840 
Income tax expense(40)(94)(105)(160)
Net income$205 $368 $518 $680 
Basic earnings per share$0.75 $1.35 $1.91 $2.50 
Diluted earnings per share$0.75 $1.35 $1.90 $2.49 
Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic271.7271.9271.8271.9
Diluted272.6272.8272.7272.9
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Comprehensive (Loss) Income
Net income$205 $368 $518 $680 
Other Comprehensive (Loss) Income, net of tax
Changes in:
Net unrealized gains and losses on investments with an allowance for credit losses(2)— (6)— 
Net unrealized gains and losses on other investments(1,346)300 (2,957)(327)
Net unrealized gains and losses on investments(1,348)300 (2,963)(327)
Foreign currency translation adjustment(68)12 (82)14 
Pension and postretirement benefits10 12 19 
Other comprehensive (loss) income, net of tax(1,410)322 (3,033)(294)
Total comprehensive (loss) income$(1,205)$690 $(2,515)$386 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Condensed Consolidated Balance Sheets
(In millions, except share data)June 30, 2022 (Unaudited)December 31, 2021
Assets  
Investments:  
Fixed maturity securities at fair value (amortized cost of $41,215 and $39,952, less allowance for credit loss of $5 and $18)
$39,385 $44,380 
Equity securities at fair value (cost of $978 and $964)
898 1,035 
Limited partnership investments1,863 1,859 
Other invested assets71 91 
Mortgage loans (less allowance for uncollectible receivables of $16 and $16)
949 973 
Short term investments1,114 1,990 
Total investments44,280 50,328 
Cash560 536 
Reinsurance receivables (less allowance for uncollectible receivables of $21 and $21)
5,753 5,463 
Insurance receivables (less allowance for uncollectible receivables of $28 and $29)
3,210 2,945 
Accrued investment income382 377 
Deferred acquisition costs792 737 
Deferred income taxes927 142 
Property and equipment at cost (less accumulated depreciation of $266 and $255)
227 226 
Goodwill145 148 
Deferred non-insurance warranty acquisition expense3,593 3,476 
Other assets 2,360 2,261 
Total assets$62,229 $66,639 
Liabilities  
Insurance reserves: 
Claim and claim adjustment expenses$24,559 $24,174 
Unearned premiums6,289 5,761 
Future policy benefits10,926 13,236 
Long term debt2,780 2,779 
Deferred non-insurance warranty revenue4,638 4,503 
Other liabilities (includes $62 and $56 due to Loews Corporation)
3,525 3,377 
Total liabilities52,717 53,830 
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; 271,315,248 and 271,363,999 shares outstanding)
683 683 
Additional paid-in capital2,203 2,215 
Retained earnings9,415 9,663 
Accumulated other comprehensive (loss) income(2,713)320 
Treasury stock (1,724,995 and 1,676,244 shares), at cost
(76)(72)
Total stockholders’ equity9,512 12,809 
Total liabilities and stockholders' equity$62,229 $66,639 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30
(In millions)20222021
Cash Flows from Operating Activities  
Net income$518 $680 
Adjustments to reconcile net income to net cash flows provided by operating activities:
Deferred income tax (benefit) expense(10)27 
Trading portfolio activity19 
Net investment losses (gains)70 (95)
Equity method investees184 (79)
Net amortization of investments(56)(41)
Depreciation and amortization25 27 
Changes in:
Receivables, net(614)(1,087)
Accrued investment income(6)(3)
Deferred acquisition costs(63)(12)
Insurance reserves1,376 1,373 
Other, net(178)(124)
Net cash flows provided by operating activities1,253 685 
Cash Flows from Investing Activities  
Dispositions:
Fixed maturity securities - sales3,293 1,846 
Fixed maturity securities - maturities, calls and redemptions1,715 2,104 
Equity securities193 193 
Limited partnerships101 124 
Mortgage loans76 69 
Purchases:
Fixed maturity securities(6,251)(4,615)
Equity securities(195)(181)
Limited partnerships(168)(169)
Mortgage loans(53)(16)
Change in other investments15 
Change in short term investments868 442 
Purchases of property and equipment(25)(5)
Net cash flows used by investing activities(431)(202)
Cash Flows from Financing Activities
Dividends paid to common stockholders(765)(414)
Purchase of treasury stock(21)(18)
Other, net— (9)
Net cash flows used by financing activities(786)(441)
Effect of foreign exchange rate changes on cash(12)
Net change in cash24 43 
Cash, beginning of year536 419 
Cash, end of period$560 $462 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Common Stock
Balance, beginning of period$683 $683 $683 $683 
Balance, end of period683 683 683 683 
Additional Paid-in Capital
Balance, beginning of period2,195 2,194 2,215 2,211 
Stock-based compensation(12)(10)
Balance, end of period2,203 2,201 2,203 2,201 
Retained Earnings
Balance, beginning of period9,319 9,084 9,663 9,081 
Dividends to common stockholders ($0.40, $0.38, $2.80, $1.51 per share)
(109)(104)(766)(413)
Net income205 368 518 680 
Balance, end of period9,415 9,348 9,415 9,348 
Accumulated Other Comprehensive (Loss) Income
Balance, beginning of period(1,303)187 320 803 
Other comprehensive (loss) income(1,410)322 (3,033)(294)
Balance, end of period(2,713)509 (2,713)509 
Treasury Stock
Balance, beginning of period(77)(59)(72)(71)
Stock-based compensation17 16 
Purchase of treasury stock — (15)(21)(18)
Balance, end of period(76)(73)(76)(73)
Total stockholders' equity$9,512 $12,668 $9,512 $12,668 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements
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 89.6% of the outstanding common stock of CNAF as of June 30, 2022.
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, 2021, 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 June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 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.
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. For the Company, this includes the long term care and fully-ceded single premium immediate annuity business. Entities will be required to review, and update if there is a change, cash flow assumptions (including morbidity and persistency) at least annually, and to 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. The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted, and may be applied using either a modified retrospective transition method or a full retrospective transition method. Financial statements for prior periods presented shall be adjusted to reflect the effects of applying the new accounting guidance.
The Company will adopt the new guidance effective January 1, 2023, using the modified retrospective method applied as of the transition date of January 1, 2021. The Company will use a published spot rate curve constructed from A+, A and A- rated U.S. dollar denominated corporate bonds matched to the duration of the corresponding insurance liabilities, to calculate discount rates. The Company will group its long-duration contracts into calendar year cohorts based on the contract issue date and product line. Long term care contracts will be grouped separately from the Company’s fully-ceded single premium immediate annuity contracts.
The most significant impact at the transition date will be the effect of updating the discount rate assumption to reflect an upper-medium grade fixed-income instrument yield, which will be partially offset by the de-recognition of Shadow Adjustments associated with long-duration contracts. The Company expects the net impact of these changes will be a $2.2 billion - $2.5 billion decrease in Accumulated other comprehensive income as of the transition date of January 1, 2021. There is a minimal transition impact expected to retained earnings.
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The requirement to review, and update if there is a change, cash flow assumptions at least annually is expected to change the pattern of earnings being recognized. Adoption will also significantly expand the Company’s disclosures, and will impact systems, processes, and controls. While the requirements of the new guidance represent a material change from existing GAAP, the new guidance will not impact capital and surplus under statutory accounting practices, cash flows, or the underlying economics of the business.
The Company continues to make progress in connection with these matters and is in process of refining key accounting policy decisions, technology solutions and updates to internal controls associated with adoption of the new guidance. These in-progress activities include modifications of actuarial valuation systems, data sourcing, analytical procedures and reporting processes.
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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 and six months ended June 30, 2022, approximately 1 million 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 those same periods, approximately 10 thousand and 5 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share, because the effect would have been antidilutive.
For the three and six months ended June 30, 2021, approximately 1 million 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 those same periods, approximately 1 thousand and 3 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share, because the effect would have been antidilutive.
The Company repurchased 445,000 and 377,615 shares of CNAF common stock at an aggregate cost of $21 million and $18 million during the six months ended June 30, 2022 and 2021.


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Note C. Investments
The significant components of Net investment income are presented in the following table.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Fixed maturity securities$441 $425 $870 $853 
Equity securities(11)20 (9)49 
Limited partnership investments146 24 189 
Mortgage loans12 15 27 29 
Short term investments— — 
Trading portfolio— 
Other— (1)— 
Gross investment income450 607 915 1,128 
Investment expense(18)(16)(35)(33)
Net investment income$432 $591 $880 $1,095 
During the three and six months ended June 30, 2022, $22 million and $23 million of Net investment loss was recognized due to the change in fair value of common stock still held as of June 30, 2022. During the three and six months ended June 30, 2021, $9 million and $21 million of Net investment income was recognized due to the change in fair value of common stock still held as of June 30, 2021.
Net investment gains (losses) are presented in the following table.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Net investment gains (losses):
Fixed maturity securities:
Gross gains$45 $51 $71 $109 
Gross losses(60)(20)(88)(40)
Net investment gains (losses) on fixed maturity securities(15)31 (17)69 
Equity securities(71)17 (109)19 
Derivatives26 (12)55 
Short term investments and other
Net investment gains (losses)$(59)$38 $(70)$95 
During the three and six months ended June 30, 2022, $70 million and $108 million of losses were recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of June 30, 2022. During the three and six months ended June 30, 2021, $15 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 June 30, 2021.
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The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and purchased credit-deteriorated (PCD) assets. Accrued interest receivable on available-for-sale fixed maturity securities totaled $374 million, $369 million, and $374 million as of June 30, 2022, December 31, 2021 and June 30, 2021 and is excluded from the estimate of expected credit losses and the amortized cost basis in the tables included within this Note.
(In millions)Corporate and other bondsAsset-backedTotal
Allowance for credit losses:
Balance as of April 1, 2022$12 $$17 
Additions to the allowance for credit losses:
Securities for which credit losses were not previously recorded— — — 
Available-for-sale securities accounted for as PCD assets— 
Reductions to the allowance for credit losses:
Securities sold during the period (realized)— — — 
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis— — — 
Write-offs charged against the allowance12 — 12 
Recoveries of amounts previously written off— — — 
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period— (3)(3)
Balance as of June 30, 2022
$— $$
(In millions)Corporate and other bondsAsset-backedTotal
Allowance for credit losses:
Balance as of April 1, 2021$27 $16 $43 
Additions to the allowance for credit losses:
Securities for which credit losses were not previously recorded— — — 
Available-for-sale securities accounted for as PCD assets— 
Reductions to the allowance for credit losses:
Securities sold during the period (realized)— — — 
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis— — — 
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(3)(2)
Balance as of June 30, 2021
$24 $21 $45 
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(In millions)Corporate and other bondsAsset-backedTotal
Allowance for credit losses:
Balance as of January 1, 2022$11 $$18 
Additions to the allowance for credit losses:
Securities for which credit losses were not previously recorded— — — 
Available-for-sale securities accounted for as PCD assets— 
Reductions to the allowance for credit losses:
Securities sold during the period (realized)— — — 
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis— — — 
Write-offs charged against the allowance12 — 12 
Recoveries of amounts previously written off— — — 
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period(5)(4)
Balance as of June 30, 2022
$— $$
(In millions)Corporate and other bondsAsset-backedTotal
Allowance for credit losses:
Balance as of January 1, 2021$23 $17 $40 
Additions to the allowance for credit losses:
Securities for which credit losses were not previously recorded14 — 14 
Available-for-sale securities accounted for as PCD assets
Reductions to the allowance for credit losses:
Securities sold during the period (realized)— 
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis— — — 
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(9)— (9)
Balance as of June 30, 2021
$24 $21 $45 

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The components of available-for-sale impairment losses (gains) recognized in earnings by asset type are presented in the following table. The table includes losses (gains) on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Fixed maturity securities available-for-sale:
Corporate and other bonds$21 $(2)$29 $
Asset-backed(1)— 
Impairment losses (gains) recognized in earnings$20 $(1)$30 $
There were no losses recognized on mortgage loans during the three and six months ended June 30, 2022 or 2021.
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The following tables present a summary of fixed maturity securities.
June 30, 2022Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesEstimated
Fair
Value
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds$22,606 $499 $1,440 $— $21,665 
States, municipalities and political subdivisions9,822 492 676 — 9,638 
Asset-backed:
Residential mortgage-backed3,034 14 305 — 2,743 
Commercial mortgage-backed1,995 164 — 1,837 
Other asset-backed3,063 220 2,842 
Total asset-backed8,092 24 689 7,422 
U.S. Treasury and obligations of government-sponsored enterprises115 — 109 
Foreign government577 30 — 548 
Redeemable preferred stock— — — 
Total fixed maturity securities available-for-sale41,215 1,017 2,842 39,385 
Total fixed maturity securities trading— — — — — 
Total fixed maturity securities$41,215 $1,017 $2,842 $$39,385 
December 31, 2021Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesEstimated
Fair
Value
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds$21,444 $2,755 $56 $11 $24,132 
States, municipalities and political subdivisions10,358 1,599 14 — 11,943 
Asset-backed:
Residential mortgage-backed2,893 71 — 2,956 
Commercial mortgage-backed1,987 63 19 — 2,031 
Other asset-backed2,561 54 10 2,598 
Total asset-backed7,441 188 37 7,585 
U.S. Treasury and obligations of government-sponsored enterprises132 — 130 
Foreign government570 15 — 583 
Redeemable preferred stock— — — — — 
Total fixed maturity securities available-for-sale39,945 4,558 112 18 44,373 
Total fixed maturity securities trading— — — 
Total fixed maturity securities$39,952 $4,558 $112 $18 $44,380 
The net unrealized gains and losses 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 there are unrealized gains on fixed income securities supporting the reserves of certain products within the Life & Group segment that would result in a premium deficiency, or would impact the reserve balance if realized, a related increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains (losses) through Other comprehensive income (loss) (Shadow Adjustments). As of June 30, 2022 and December 31, 2021, the net unrealized gains and losses on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $482 million and $2,477 million.
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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 Months12 Months or LongerTotal
June 30, 2022Estimated
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$14,827 $1,366 $322 $74 $15,149 $1,440 
States, municipalities and political subdivisions4,121 666 32 10 4,153 676 
Asset-backed:
Residential mortgage-backed2,374 305 — 2,377 305 
Commercial mortgage-backed1,552 143 149 21 1,701 164 
Other asset-backed2,354 214 85 2,439 220 
Total asset-backed6,280 662 237 27 6,517 689 
U.S. Treasury and obligations of government-sponsored enterprises82 85 
Foreign government436 28 23 459 30 
Total$25,746 $2,728 $617 $114 $26,363 $2,842 
Less than 12 Months12 Months or LongerTotal
December 31, 2021Estimated
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$2,389 $48 $136 $$2,525 $56 
States, municipalities and political subdivisions730 14 — — 730 14 
Asset-backed:
Residential mortgage-backed1,043 — — 1,043 
Commercial mortgage-backed527 167 12 694 19 
Other asset-backed840 10 62 — 902 10 
Total asset-backed2,410 25 229 12 2,639 37 
U.S. Treasury and obligations of government-sponsored enterprises69 — 74 
   Foreign government97 — — 97 
Total$5,695 $92 $370 $20 $6,065 $112 
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The following table presents 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 ratings distribution.
June 30, 2022December 31, 2021

(In millions)
Estimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized Losses
U.S. Government, Government agencies and Government-sponsored enterprises$2,150 $223 $898 $
AAA1,232 205 368 
AA 4,078 581 875 17 
A5,454 493 1,516 23 
BBB11,806 1,111 1,812 42 
Non-investment grade1,643 229 596 16 
Total$26,363 $2,842 $6,065 $112 
Based on current facts and circumstances, the Company believes the unrealized losses presented in the June 30, 2022 securities in a gross unrealized loss position tables above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are primarily attributable to changes in risk-free interest rates and a general market widening of credit spreads. In reaching this determination, the Company considered the recent volatility in risk-free rates and credit spreads as well as the fact that its unrealized losses are concentrated in investment grade issuers. Additionally, 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 June 30, 2022.
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Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
June 30, 2022December 31, 2021
(In millions)Cost or
Amortized
Cost
Estimated
Fair
Value
Cost or
Amortized
Cost
Estimated
Fair
Value
Due in one year or less$1,150 $1,153 $1,603 $1,624 
Due after one year through five years9,330 9,154 10,637 11,229 
Due after five years through ten years14,434 13,549 13,294 14,338 
Due after ten years16,301 15,529 14,411 17,182 
Total$41,215 $39,385 $39,945 $44,373 
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 $285 million and $270 million and a fair value of $41 million and $(12) million as of June 30, 2022 and December 31, 2021. 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 private placement securities. As of June 30, 2022, the Company had commitments to purchase or fund approximately $1,455 million and sell approximately $25 million under the terms of these investments.
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Mortgage Loans
The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination. The primary credit quality indicators utilized are debt service coverage ratios (DSCR) and loan-to-value ratios (LTV).
June 30, 2022
Mortgage Loans Amortized Cost Basis by Origination Year (1)
(In millions)20222021202020192018PriorTotal
DSCR ≥1.6x
LTV less than 55%$$14 $112 $21 $54 $280 $490 
LTV 55% to 65%— — — 8— — 8
LTV greater than 65%18 11 — — — — 29
DSCR 1.2x - 1.6x
LTV less than 55%— 49 14 78 10 44 195
LTV 55% to 65%28 — 24 — — 60
LTV greater than 65%15 — — — — — 15
DSCR ≤1.2
LTV less than 55%— — — 52 — 17 69
LTV 55% to 65%— — — 55 — — 55
LTV greater than 65%10 21 — — 44
Total$80 $95 $150 $220 $64 $356 $965 
(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 June 30, 2022, accrued interest receivable on mortgage loans totaled $3 million and is excluded from the amortized cost basis disclosed in the table above and the estimate of expected credit losses.
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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.
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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.
June 30, 2022   Total
Assets/Liabilities
at Fair Value
(In millions)Level 1Level 2Level 3
Assets    
Fixed maturity securities:    
Corporate bonds and other$118 $21,361 $846 $22,325 
States, municipalities and political subdivisions— 9,592 46 9,638 
Asset-backed— 6,781 641 7,422 
Total fixed maturity securities 118 37,734 1,533 39,385 
Equity securities:
Common stock188 — 34 222 
Non-redeemable preferred stock59 604 13 676 
Total equity securities247 604 47 898 
Short term and other932 35 — 967 
Total assets$1,297 $38,373 $1,580 $41,250 
Liabilities
Other liabilities$— $(41)$— $(41)
Total liabilities$— $(41)$— $(41)

December 31, 2021   Total
Assets/Liabilities
at Fair Value
(In millions)Level 1Level 2Level 3
Assets    
Fixed maturity securities:    
Corporate bonds and other$140 $23,775 $937 $24,852 
States, municipalities and political subdivisions— 11,887 56 11,943 
Asset-backed— 7,029 556 7,585 
Total fixed maturity securities 140 42,691 1,549 44,380 
Equity securities:
Common stock220 — 13 233 
Non-redeemable preferred stock65 721 16 802 
Total equity securities285 721 29 1,035 
Short term and other1,798 74 — 1,872 
Total assets$2,223 $43,486 $1,578 $47,287 
Liabilities  
Other liabilities$— $12 $— $12 
Total liabilities$— $12 $— $12 
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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 otherStates, municipalities and political subdivisionsAsset-backedEquity securitiesTotal
Balance as of April 1, 2022$915 $51 $604 $44 $1,614 
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)(1)— (2)— 
Reported in Net investment income— — (1)
Reported in Other comprehensive income (loss)(82)(5)(52)— (139)
Total realized and unrealized investment gains (losses)(83)(5)(44)(3)(135)
Purchases51 — 92 — 143 
Sales— — (2)(3)(5)
Settlements(37)— (23)(51)
Transfers into Level 3— — 14 — 14 
Transfers out of Level 3— — — — — 
Balance as of June 30, 2022$846 $46 $641 $47 $1,580 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2022 recognized in Net income (loss) in the period$— $— $— $(3)$(3)
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2022 recognized in Other comprehensive income (loss) in the period(81)(5)(52)— (138)
Level 3
(In millions)
Corporate bonds and otherStates, municipalities and political subdivisionsAsset-backedEquity securitiesTotal
Balance as of April 1, 2021$767 $44 $315 $29 $1,155 
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)— — — 
Reported in Net investment income— — — 
Reported in Other comprehensive income (loss)16 — 22 
Total realized and unrealized investment gains (losses)19 — 26 
Purchases122 12 84 — 218 
Sales(3)— — (4)(7)
Settlements(22)(1)(10)— (33)
Transfers into Level 3— — 21 — 21 
Transfers out of Level 3— — (5)— (5)
Balance as of June 30, 2021$883 $57 $410 $25 $1,375 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2021 recognized in Net income (loss) in the period$— $— $— $— $— 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2021 recognized in Other comprehensive income (loss) in the period16 — 22 
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Level 3
(In millions)
Corporate bonds and otherStates, municipalities and political subdivisionsAsset-backedEquity securitiesTotal
Balance as of January 1, 2022$937 $56 $556 $29 $1,578 
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)(2)— (3)— 
Reported in Net investment income— — 
Reported in Other comprehensive income (loss)(153)(10)(84)— (247)
Total realized and unrealized investment gains (losses)(155)(10)(73)— (238)
Purchases118 — 232 12 362 
Sales(5)— (2)(3)(10)
Settlements(59)— (40)(90)
Transfers into Level 310 — 19 — 29 
Transfers out of Level 3— — (51)— (51)
Balance as of June 30, 2022$846 $46 $641 $47 $1,580 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2022 recognized in Net income (loss) in the period$— $— $— $(1)$(1)
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2022 recognized in Other comprehensive income (loss) in the period(153)(10)(83)— (246)
Level 3
(In millions)
Corporate bonds and otherStates, municipalities and political subdivisionsAsset-backedEquity securitiesTotal
Balance as of January 1, 2021$770 $46 $308 $27 $1,151 
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)(10)— — (9)
Reported in Net investment income— — 
Reported in Other comprehensive income (loss)(24)— (5)— (29)
Total realized and unrealized investment gains (losses)(34)— (2)(34)
Purchases164 12 114 — 290 
Sales(3)— — (4)(7)
Settlements(24)(1)(27)— (52)
Transfers into Level 310 — 30 — 40 
Transfers out of Level 3— — (13)— (13)
Balance as of June 30, 2021$883 $57 $410 $25 $1,375 
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2021 recognized in Net income (loss) in the period$— $— $— $$
Unrealized gains (losses) on Level 3 assets and liabilities held as of June 30, 2021 recognized in Other comprehensive income (loss) in the period(24)— (5)— (29)

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.
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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 non-U.S. government securities, 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 June 30, 2022 and December 31, 2021, there were $64 million and $74 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.
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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.
June 30, 2022Estimated Fair Value
(In millions)
Valuation Technique(s)Unobservable Input(s)Range
 (Weighted Average)
Fixed maturity securities$1,117 Discounted cash flowCredit spread
1% - 9% (3%)
December 31, 2021Estimated Fair Value
(In millions)
Valuation Technique(s)Unobservable Input(s)Range
 (Weighted Average)
Fixed maturity securities$1,225 Discounted cash flowCredit spread
1% - 7% (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.
June 30, 2022Carrying
Amount
Estimated Fair Value
(In millions)Level 1Level 2Level 3Total
Assets
Mortgage loans$949 $— $— $915 $915 
Liabilities
Long term debt$2,780 $— $2,654 $— $2,654 
December 31, 2021Carrying
Amount
Estimated Fair Value
(In millions)Level 1Level 2Level 3Total
Assets
Mortgage loans$973 $— $— $1,018 $1,018 
Liabilities
Long term debt$2,779 $— $2,978 $— $2,978 
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.
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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 $37 million and $57 million for the three and six months ended June 30, 2022 and $54 million and $179 million for the three and six months ended June 30, 2021 related primarily to severe weather related events.


















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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 six months ended June 30
(In millions)20222021
Reserves, beginning of year:
Gross$24,174 $22,706 
Ceded4,969 4,005 
Net reserves, beginning of year19,205 18,701 
Reduction of net reserves due to Excess Workers' Compensation Loss Portfolio Transfer— (632)
Net incurred claim and claim adjustment expenses:
Provision for insured events of current year2,974 2,930 
Increase (decrease) in provision for insured events of prior years(69)(78)
Amortization of discount90 95 
Total net incurred (1)
2,995 2,947 
Net payments attributable to:
Current year events(245)(317)
Prior year events(2,330)(1,949)
Total net payments(2,575)(2,266)
Foreign currency translation adjustment and other(222)(5)
Net reserves, end of period19,403 18,745 
Ceded reserves, end of period5,156 4,735 
Gross reserves, end of period$24,559 $23,480 
(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, the loss on the Excess Workers' Compensation Loss Portfolio Transfer, 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.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Pretax (favorable) unfavorable development:
Specialty$(10)$(10)$(20)$(25)
Commercial(22)— (24)— 
International(5)(1)(5)(1)
Corporate & Other64 40 64 40 
Total pretax (favorable) unfavorable development$27 $29 $15 $14 
Unfavorable development of $64 million was recorded within the Corporate & Other segment for the three and six months ended June 30, 2022 largely associated with legacy mass tort abuse claims, including the recent Diocese of Rochester proposed settlement. Unfavorable development of $40 million was recorded within the Corporate & Other segment for the three and six months ended June 30, 2021 due to legacy mass tort exposures, primarily related to abuse.
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Specialty
The following table presents further detail of the development recorded for the Specialty segment.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Pretax (favorable) unfavorable development:
Medical Professional Liability$$— $$
Other Professional Liability and Management Liability13 10 13 10 
Surety(19)(23)(28)(38)
Warranty— — (9)(8)
Other(5)(5)
Total pretax (favorable) unfavorable development$(10)$(10)$(20)$(25)
Three Months
2022
Unfavorable development in other professional liability and management liability was due to higher than expected claim severity and frequency in the Company’s cyber and professional E&O businesses in multiple accident years.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
2021
Unfavorable development in other professional liability and management liability was due to higher than expected claim severity and frequency in the Company’s cyber business in recent accident years.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Six Months
2022
Unfavorable development in other professional liability and management liability was due to higher than expected claim severity and frequency in the Company’s cyber and professional E&O businesses in multiple accident years.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
2021
Unfavorable development in other professional liability and management liability was due to higher than expected claim severity and frequency in the Company’s cyber business in recent accident years.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
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Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Pretax (favorable) unfavorable development:
Commercial Auto$21 $30 $21 $30 
General Liability41 — 41 — 
Workers' Compensation(82)(42)(84)(42)
Property and Other(2)12 (2)12 
Total pretax (favorable) unfavorable development$(22)$— $(24)$— 
Three Months
2022
Unfavorable development in commercial auto was due to higher than expected claim severity in the Company’s construction business in multiple accident years.
Unfavorable development in general liability was due to higher than expected claim severity in construction, middle market and small business across multiple accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
2021
Unfavorable development in commercial auto was due to higher than expected claim severity in the Company’s construction and middle market businesses in recent accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in the Company’s marine business in multiple accident years.
Six Months
2022
Unfavorable development in commercial auto was due to higher than expected claim severity in the Company’s construction business in multiple accident years.
Unfavorable development in general liability was due to higher than expected claim severity in construction, middle market and small business across multiple accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
2021
Unfavorable development in commercial auto was due to higher than expected claim severity in the Company’s construction and middle market businesses in recent accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in the Company’s marine business in multiple accident years.

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International
The following table presents further detail of the development recorded for the International segment.
Periods ended June 30Three MonthsSix Months
(In millions)2022
2021 (1)
2022
2021 (1)
Pretax (favorable) unfavorable development:
Commercial$(4)$— $(4)$— 
Specialty(1)(1)(1)(1)
Other— — — — 
Total pretax (favorable) unfavorable development $(5)$(1)$(5)$(1)
(1) Effective December 31, 2021 the International lines of business were consolidated to align with domestic operations. Prior period information has been conformed to the new line of business presentation.


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Asbestos & 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 on 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 $11 million and $12 million for the three months ended June 30, 2022 and 2021 and $23 million and $22 million for the six months ended June 30, 2022 and 2021. As of June 30, 2022 and December 31, 2021, the cumulative amounts ceded under the LPT were $3.4 billion. The unrecognized deferred retroactive reinsurance benefit was $406 million and $429 million as of June 30, 2022 and December 31, 2021 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 $2.4 billion as of June 30, 2022. 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.
Credit Risk for Ceded Reserves
The majority of the Company’s outstanding voluntary reinsurance receivables are due from reinsurers with financial strength ratings of A- or higher. Receivables due from reinsurers with lower financial strength ratings are primarily due from captive reinsurers and are backed by collateral arrangements.
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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
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 June 30, 2022, the potential amount of future payments the Company could be required to pay under these guarantees was approximately $1.6 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.
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Note G. Benefit Plans
The components of net periodic pension cost (benefit) are presented in the following table.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Net periodic pension cost (benefit)
Interest cost on projected benefit obligation$16 $16 $33 $31 
Expected return on plan assets(38)(39)(76)(77)
Amortization of net actuarial (gain) loss11 15 23 
Settlement loss— — 
Total net periodic pension cost (benefit)$(14)$(11)$(28)$(22)
The following table indicates the line items in which the non-service cost (benefit) is presented in the Condensed Consolidated Statements of Operations.
Periods ended June 30Three MonthsSix Months
(In millions)2022202120222021
Non-Service Cost (Benefit):
Insurance claims and policyholder's benefits$(4)$(3)$(8)$(6)
Other operating expenses(10)(8)(20)(16)
Total net periodic pension cost (benefit)$(14)$(11)$(28)$(22)
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Note H. Accumulated Other Comprehensive Income (Loss) by Component
The tables below display the changes in Accumulated other comprehensive income (loss) by component.
(In millions)Net unrealized gains (losses) on investments with an allowance for credit lossesNet unrealized gains (losses) on other investmentsPension and postretirement benefitsCumulative foreign currency translation adjustmentTotal
Balance as of April 1, 2022$(6)$(572)$(598)$(127)$(1,303)
Other comprehensive income (loss) before reclassifications(1)(1,360)— (68)(1,429)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $(1), $3, $1, $— and $3
(14)(6)— (19)
Other comprehensive income (loss) net of tax (expense) benefit of $—, $356, $(1), $— and $355
(2)(1,346)(68)(1,410)
Balance as of June 30, 2022$(8)$(1,918)$(592)$(195)$(2,713)

(In millions)Net unrealized gains (losses) on investments with an allowance for credit lossesNet unrealized gains (losses) on other investmentsPension and postretirement benefitsCumulative foreign currency translation adjustmentTotal
Balance as of April 1, 2021$— $1,118 $(839)$(92)$187 
Other comprehensive income (loss) before reclassifications323 — 12 336 
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $—, $(7), $3, $— and $(4)
23 (10)— 14 
Other comprehensive income (loss) net of tax (expense) benefit of $—, $(75), $(3), $— and $(78)
— 300 10 12 322 
Balance as of June 30, 2021$— $1,418 $(829)$(80)$509 








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(In millions)Net unrealized gains (losses) on investments with an allowance for credit lossesNet unrealized gains (losses) on other investmentsPension and postretirement benefitsCumulative foreign currency translation adjustmentTotal
Balance as of January 1, 2022$(2)$1,039 $(604)$(113)$320 
Other comprehensive income (loss) before reclassifications(5)(2,972)— (82)(3,059)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $(1), $4, $3, $— and $6
(15)(12)— (26)
Other comprehensive income (loss) net of tax (expense) benefit of $1, $780, $(3), $— and $778
(6)(2,957)12 (82)(3,033)
Balance as of June 30, 2022$(8)$(1,918)$(592)$(195)$(2,713)
(In millions)Net unrealized gains (losses) on investments with an allowance for credit lossesNet unrealized gains (losses) on other investmentsPension and postretirement benefitsCumulative foreign currency translation adjustmentTotal
Balance as of January 1, 2021$— $1,745 $(848)$(94)$803 
Other comprehensive income (loss) before reclassifications(2)(270)— 14 (258)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $(15), $5, $— and $(9)
(2)57 (19)— 36 
Other comprehensive income (loss) net of tax (expense) benefit of $—, $87, $(5), $— and $82
— (327)19 14 (294)
Balance as of June 30, 2021$— $1,418 $(829)$(80)$509 

Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:
Component of AOCICondensed Consolidated Statements of Operations Line Item Affected by Reclassifications
Net unrealized gains (losses) on investments with an allowance for credit losses and Net unrealized gains (losses) on other investmentsNet investment gains (losses)
Pension and postretirement benefitsOther operating expenses and Insurance claims and policyholders' benefits
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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, 2021. 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.
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The Company's results of operations and selected balance sheet items by segment are presented in the following tables.
Three months ended June 30, 2022
Specialty

Commercial
InternationalLife &
Group
Corporate
& Other
  
(In millions)EliminationsTotal
Operating revenues 
Net earned premiums$794 $974 $269 $118 $— $— $2,155 
Net investment income100 113 14 201 — 432 
Non-insurance warranty revenue392 — — — — — 392 
Other revenues— (1)
Total operating revenues1,286 1,091 284 320 (1)2,985 
Claims, benefits and expenses      
Net incurred claims and benefits456 610 160 293 57 — 1,576 
Policyholders’ dividends— — — — 
Amortization of deferred acquisition costs162 156 56 — — — 374 
Non-insurance warranty expense367 — — — — — 367 
Other insurance related expenses81 134 30 29 — 275 
Other expenses12 11 13 45 (1)82 
Total claims, benefits and expenses1,080 916 259 324 103 (1)2,681 
Core income (loss) before income tax206 175 25 (4)(98)— 304 
Income tax (expense) benefit on core income (loss)(45)(37)(7)10 20 — (59)
Core income (loss) $161 $138 $18 $$(78)$— 245 
Net investment gains (losses)(59)
Income tax (expense) benefit on net investment gains (losses)19 
Net investment gains (losses), after tax(40)
Net income (loss)$205 

















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Three months ended June 30, 2021
Specialty

Commercial
InternationalLife &
Group
Corporate
& Other
  
(In millions)EliminationsTotal
Operating revenues 
Net earned premiums$762 $881 $266 $126 $— $— $2,035 
Net investment income134 174 14 265 — 591 
Non-insurance warranty revenue359 — — — — — 359 
Other revenues— (1)(1)
Total operating revenues1,255 1,060 281 390 (1)2,991 
Claims, benefits and expenses    
Net incurred claims and benefits439 588 159 322 31 — 1,539 
Policyholders’ dividends— — — — 
Amortization of deferred acquisition costs159 148 50 — — — 357 
Non-insurance warranty expense332 — — — — — 332 
Other insurance related expenses71 136 39 25 — — 271 
Other expenses12 11 (3)40 (1)61 
Total claims, benefits and expenses1,014 889 245 349 71 (1)2,567 
Core income (loss) before income tax241 171 36 41 (65)— 424 
Income tax (expense) benefit on core income (loss)(53)(34)(10)12 — (83)
Core income (loss)$188 $137 $26 $43 $(53)$— 341 
Net investment gains (losses)38 
Income tax (expense) benefit on net investment gains (losses)(11)
Net investment gains (losses), after tax27 
Net income (loss)$368 















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Six months ended June 30, 2022
Specialty

Commercial
InternationalLife &
Group
Corporate
& Other
  
(In millions)EliminationsTotal
Operating revenues 
Net earned premiums$1,566 $1,878 $533 $238 $(1)$— $4,214 
Net investment income203 231 28 413 — 880 
Non-insurance warranty revenue774 — — — — — 774 
Other revenues12 — — (3)13 
Total operating revenues2,544 2,121 561 651 (3)5,881 
Claims, benefits and expenses      
Net incurred claims and benefits901 1,183 318 574 49 — 3,025 
Policyholders’ dividends10 — — — — 13 
Amortization of deferred acquisition costs319 304 95 — — — 718 
Non-insurance warranty expense721 — — — — — 721 
Other insurance related expenses162 264 77 60 — 566 
Other expenses25 18 14 86 (3)145 
Total claims, benefits and expenses2,131 1,779 504 639 138 (3)5,188 
Core income (loss) before income tax413 342 57 12 (131)— 693 
Income tax (expense) benefit on core income (loss)(89)(72)(13)17 25 — (132)
Core income (loss) $324 $270 $44 $29 $(106)$— 561 
Net investment gains (losses)(70)
Income tax (expense) benefit on net investment gains (losses)27 
Net investment gains (losses), after tax(43)
Net income (loss)$518 

June 30, 2022
(In millions)      
Reinsurance receivables$1,502 $964 $365 $458 $2,485 $— $5,774 
Insurance receivables1,097 1,751 389 (2)— 3,238 
Deferred acquisition costs375 314 103 — — — 792 
Goodwill117 — 28 — — — 145 
Deferred non-insurance warranty acquisition expense3,593 — — — — — 3,593 
Insurance reserves 
Claim and claim adjustment expenses6,861 8,954 2,307 3,670 2,767 — 24,559 
Unearned premiums3,093 2,428 650 118 — — 6,289 
Future policy benefits— — — 10,926 — — 10,926 
Deferred non-insurance warranty revenue4,638 — — — — — 4,638 
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Six months ended June 30, 2021
Specialty

Commercial
InternationalLife &
Group
Corporate
& Other
  
(In millions)EliminationsTotal
Operating revenues 
Net earned premiums$1,497 $1,736 $518 $246 $— $— $3,997 
Net investment income251 322 28 484 10 — 1,095 
Non-insurance warranty revenue697 — — — — — 697 
Other revenues— 10 — (3)11 
Total operating revenues2,445 2,068