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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, 2021
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 Exchange Act). Yes No
As of May 5, 2021, 271,656,848 shares of common stock were outstanding.





Item NumberPage
Number
PART I
1.
2.
3.
4.
PART II
1.
1A.
2.
6.
2

Table of Contents
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)20212020
Revenues
Net earned premiums$1,962 $1,869 
Net investment income504 329 
Net investment gains (losses)57 (216)
Non-insurance warranty revenue338 301 
Other revenues5 8 
Total revenues2,866 2,291 
Claims, Benefits and Expenses
Insurance claims and policyholders’ benefits1,506 1,425 
Amortization of deferred acquisition costs359 344 
Non-insurance warranty expense311 281 
Other operating expenses 284 299 
Interest28 31 
Total claims, benefits and expenses2,488 2,380 
Income (loss) before income tax378 (89)
Income tax (expense) benefit(66)28 
Net income (loss)$312 $(61)
Basic earnings (loss) per share$1.15 $(0.23)
Diluted earnings (loss) per share$1.14 $(0.23)
Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic271.9271.5
Diluted272.9271.5
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

3

Table of Contents
CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
Three months ended March 31
(In millions)20212020
Comprehensive Loss
Net income (loss)$312 $(61)
Other Comprehensive Loss, net of tax
Changes in:
Net unrealized gains and losses on investments with an allowance for credit losses (11)
Net unrealized gains and losses on other investments(627)(1,044)
Net unrealized gains and losses on investments(627)(1,055)
Foreign currency translation adjustment2 (77)
Pension and postretirement benefits9 11 
Other comprehensive loss, net of tax(616)(1,121)
Total comprehensive loss$(304)$(1,182)
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
4

Table of Contents
CNA Financial Corporation
Condensed Consolidated Balance Sheets
(In millions, except share data)March 31, 2021 (Unaudited) December 31, 2020
Assets  
Investments:  
Fixed maturity securities at fair value (amortized cost of $39,291 and $38,953, less allowance for credit loss of $43 and $40)
$43,579 $44,631 
Equity securities at fair value (cost of $927 and $941)
984 992 
Limited partnership investments1,654 1,619 
Other invested assets77 76 
Mortgage loans (less allowance for uncollectible receivables of $26 and $26)
1,043 1,068 
Short term investments1,334 1,907 
Total investments48,671 50,293 
Cash588 419 
Reinsurance receivables (less allowance for uncollectible receivables of $22 and $21)
5,111 4,457 
Insurance receivables (less allowance for uncollectible receivables of $33 and $33)
2,652 2,607 
Accrued investment income399 380 
Deferred acquisition costs741 708 
Deferred income taxes197 66 
Property and equipment at cost (less accumulated depreciation of $243 and $231)
244 252 
Goodwill148 148 
Deferred non-insurance warranty acquisition expense3,149 3,068 
Other assets1,813 1,628 
Total assets$63,713 $64,026 
Liabilities  
Insurance reserves: 
Claim and claim adjustment expenses$23,056 $22,706 
Unearned premiums5,319 5,119 
Future policy benefits12,772 13,318 
Long term debt2,777 2,776 
Deferred non-insurance warranty revenue4,119 4,023 
Other liabilities (includes $130 and $89 due to Loews Corporation)
3,581 3,377 
Total liabilities51,624 51,319 
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; 271,644,861 and 271,391,603 shares outstanding)
683 683 
Additional paid-in capital2,194 2,211 
Retained earnings9,084 9,081 
Accumulated other comprehensive income187 803 
Treasury stock (1,395,382 and 1,648,640 shares), at cost
(59)(71)
Total stockholders’ equity12,089 12,707 
Total liabilities and stockholders' equity$63,713 $64,026 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
5

Table of Contents
CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31
(In millions)20212020
Cash Flows from Operating Activities  
Net income (loss)$312 $(61)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Deferred income tax expense (benefit)30 (37)
Trading portfolio activity(8)7 
Net investment (gains) losses(57)216 
Equity method investees14 98 
Net amortization of investments(24)(15)
Depreciation and amortization14 16 
Changes in:
Receivables, net(700)(229)
Accrued investment income(19)(8)
Deferred acquisition costs(32)(27)
Insurance reserves605 510 
Other, net(53)(258)
Net cash flows provided by operating activities82 212 
Cash Flows from Investing Activities  
Dispositions:
Fixed maturity securities - sales907 823 
Fixed maturity securities - maturities, calls and redemptions1,084 799 
Equity securities119 98 
Limited partnerships49 204 
Mortgage loans42 15 
Purchases:
Fixed maturity securities(2,203)(1,818)
Equity securities(81)(220)
Limited partnerships(61)(32)
Mortgage loans(16)(61)
Change in other investments(2)(6)
Change in short term investments573 1,267 
Purchases of property and equipment(3)(3)
Other, net 21 
Net cash flows provided by investing activities408 1,087 
Cash Flows from Financing Activities
Dividends paid to common stockholders(310)(649)
Purchase of treasury stock(3)(18)
Other, net(8)(8)
Net cash flows used by financing activities(321)(675)
Effect of foreign exchange rate changes on cash (9)
Net change in cash169 615 
Cash, beginning of year419 242 
Cash, end of period$588 $857 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
6

Table of Contents
CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended March 31
(In millions)20212020
Common Stock
Balance, beginning of period$683 $683 
Balance, end of period683 683 
Additional Paid-in Capital
Balance, beginning of period2,211 2,203 
Stock-based compensation(17)(16)
Balance, end of period2,194 2,187 
Retained Earnings
Balance, beginning of period, as previously reported9,081 9,348 
Cumulative effect adjustments from changes in accounting guidance, net of tax (5)
Balance, beginning of period, as adjusted9,081 9,343 
Dividends to common stockholders ($1.13 and $2.37 per share)
(309)(648)
Net income (loss)312 (61)
Balance, end of period9,084 8,634 
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period803 51 
Other comprehensive loss(616)(1,121)
Balance, end of period187 (1,070)
Treasury Stock
Balance, beginning of period(71)(70)
Stock-based compensation15 16 
Purchase of treasury stock (3)(18)
Balance, end of period(59)(72)
Total stockholders' equity$12,089 $10,362 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

7

Table of Contents
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 89.5% of the outstanding common stock of CNAF as of March 31, 2021.
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, 2020, 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, 2021 and for the three months ended March 31, 2021 and 2020 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. 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, 2022, with early adoption permitted. The guidance may be applied using either a modified retrospective transition method or a full retrospective transition method. The guidance requires restatement of prior periods presented. The Company plans to adopt on the effective date, using the modified retrospective transition method and is currently evaluating 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.





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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 months ended March 31, 2021, approximately 1,020 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 same period, approximately 120 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 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.
The Company repurchased 66,000 and 435,376 shares of CNAF common stock at an aggregate cost of $3 million and $18 million during the three months ended March 31, 2021 and 2020.
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Note C. Investments
The significant components of Net investment income are presented in the following table.
Three months ended March 31
(In millions)20212020
Fixed maturity securities$428 $438 
Equity securities29 (44)
Limited partnership investments43 (70)
Mortgage loans14 14 
Short term investments 7 
Trading portfolio5 1 
Other2  
Gross investment income521 346 
Investment expense(17)(17)
Net investment income$504 $329 
During the three months ended March 31, 2021 and 2020, $13 million    and $(45) million of Net investment income was recognized due to the change in fair value of common stock still held as of March 31, 2021 and 2020.
Net investment gains (losses) are presented in the following table.
Three months ended March 31
(In millions)20212020
Net investment gains (losses):
Fixed maturity securities:
Gross gains$58 $29 
Gross losses(20)(104)
Net investment gains (losses) on fixed maturity securities38 (75)
Equity securities2 (133)
Derivatives17 5 
Mortgage loans (13)
Net investment gains (losses)$57 $(216)
During the three months ended March 31, 2021 and 2020, $2 million of gains and $(133) 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 March 31, 2021 and 2020.











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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 $389 million, $371 million and $390 million as of March 31, 2021, December 31, 2020 and March 31, 2020 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 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 assets2  2 
Reductions to the allowance for credit losses:
Securities sold during the period (realized)6  6 
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(6)(1)(7)
Balance as of March 31, 2021
$27 $16 $43 
(In millions)Corporate and other bondsAsset-backedTotal
Allowance for credit losses:
Balance as of January 1, 2020$ $ $ 
Additions to the allowance for credit losses:
Impact of adopting ASC 3266  6 
Securities for which credit losses were not previously recorded48  48 
Available-for-sale securities accounted for as PCD assets1  1 
Reductions to the allowance for credit losses:
Securities sold during the period (realized)5  5 
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis1  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   
Balance as of March 31, 2020
$49 $ $49 






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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)20212020
Fixed maturity securities available-for-sale:
Corporate and other bonds$7 $91 
Asset-backed(1)1 
Impairment losses recognized in earnings$6 $92 
There were no losses recognized on mortgage loans during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company recognized $13 million of losses related to mortgage loans due to changes in expected credit losses.
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The following tables present a summary of fixed maturity securities.
March 31, 2021Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
 Losses
Estimated
Fair
Value
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds$21,110 $2,644 $71 $27 $23,656 
States, municipalities and political subdivisions10,041 1,590 31  11,600 
Asset-backed:
Residential mortgage-backed3,215 108 40  3,283 
Commercial mortgage-backed1,952 76 24 16 1,988 
Other asset-backed2,281 71 7  2,345 
Total asset-backed7,448 255 71 16 7,616 
U.S. Treasury and obligations of government-sponsored enterprises138 1 7  132 
Foreign government508 23 2  529 
Redeemable preferred stock12    12 
Total fixed maturity securities available-for-sale39,257 4,513 182 43 43,545 
Total fixed maturity securities trading34 — — — 34 
Total fixed maturity securities$39,291 $4,513 $182 $43 $43,579 
December 31, 2020Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
 Losses
Estimated
Fair
Value
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds$20,792 $3,578 $22 $23 $24,325 
States, municipalities and political subdivisions9,729 1,863   11,592 
Asset-backed:
Residential mortgage-backed3,442 146 1  3,587 
Commercial mortgage-backed1,933 93 42 17 1,967 
Other asset-backed2,179 81 9  2,251 
Total asset-backed7,554 320 52 17 7,805 
U.S. Treasury and obligations of government-sponsored enterprises339 2 3  338 
Foreign government512 32   544 
Redeemable preferred stock     
Total fixed maturity securities available-for-sale38,926 5,795 77 40 44,604 
Total fixed maturity securities trading27 — — — 27 
Total fixed maturity securities$38,953 $5,795 $77 $40 $44,631 
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, 2021 and December 31, 2020, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $2,301 million and $2,773 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
March 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$1,868 $66 $82 $5 $1,950 $71 
States, municipalities and political subdivisions866 31   866 31 
Asset-backed:
Residential mortgage-backed1,584 40 12  1,596 40 
Commercial mortgage-backed320 9 285 15 605 24 
Other asset-backed337 3 97 4 434 7 
Total asset-backed2,241 52 394 19 2,635 71 
U.S. Treasury and obligations of government-sponsored enterprises65 7   65 7 
Foreign government45 2   45 2 
Total$5,085 $158 $476 $24 $5,561 $182 
Less than 12 Months12 Months or LongerTotal
December 31, 2020Estimated
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$609 $21 $12 $1 $621 $22 
States, municipalities and political subdivisions33    33 — 
Asset-backed:
Residential mortgage-backed71 1 11  82 1 
Commercial mortgage-backed533 40 28 2 561 42 
Other asset-backed344 9 13  357 9 
Total asset-backed948 50 52 2 1,000 52 
U.S. Treasury and obligations of government-sponsored enterprises63 3   63 3 
   Foreign government13    13  
Total$1,666 $74 $64 $3 $1,730 $77 
Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 2021 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional impairment losses to be recorded as of March 31, 2021.

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Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.
March 31, 2021December 31, 2020
(In millions)Cost or
Amortized
Cost
Estimated
Fair
Value
Cost or
Amortized
Cost
Estimated
Fair
Value
Due in one year or less$1,468 $1,473 $1,456 $1,458 
Due after one year through five years10,837 11,583 12,304 13,098 
Due after five years through ten years13,640 14,685 12,319 13,878 
Due after ten years13,312 15,804 12,847 16,170 
Total$39,257 $43,545 $38,926 $44,604 
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 $256 million and $190 million and a fair value of $(2) million and $(19) million as of March 31, 2021 and December 31, 2020. 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 March 31, 2021, the Company had commitments to purchase or fund approximately $1,365 million and sell approximately $100 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).
March 31, 2021
Mortgage Loans Amortized Cost Basis by Origination Year (1)
(In millions)20212020201920182017PriorTotal
DSCR ≥1.6x
LTV less than 55%$ $75 $32 $36 $114 $187 $444 
LTV 55% to 65% 1420141511 74
LTV greater than 65%5  5   24 34
DSCR 1.2x - 1.6x
LTV less than 55%  16  5 77 98
LTV 55% to 65% 20 40 53 27  140
LTV greater than 65%10 52 44  9 12 127
DSCR ≤1.2
LTV less than 55%  50  8 10 68
LTV 55% to 65%  48    48
LTV greater than 65%  29   7 36
Total$15 $161 $284 $103 $178 $328 $1,069 
(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, 2021, 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.
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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.
March 31, 2021   Total
Assets/Liabilities
at Fair Value
(In millions)Level 1Level 2Level 3
Assets    
Fixed maturity securities:    
Corporate bonds and other$152 $23,444 $767 $24,363 
States, municipalities and political subdivisions 11,556 44 11,600 
Asset-backed7,3013157,616
Total fixed maturity securities 152 42,301 1,126 43,579 
Equity securities:
Common stock177  21 198 
Non-redeemable preferred stock67 711 8 786 
Total equity securities244 711 29 984 
Short term and other1,178 25  1,203 
Total assets$1,574 $43,037 $1,155 $45,766 
Liabilities
Other liabilities$ $2 $ $2 
Total liabilities$ $2 $ $2 

December 31, 2020   Total
Assets/Liabilities
at Fair Value
(In millions)Level 1Level 2Level 3
Assets    
Fixed maturity securities:    
Corporate bonds and other$355 $24,109 $770 $25,234 
States, municipalities and political subdivisions 11,546 46 11,592 
Asset-backed 7,497 308 7,805 
Total fixed maturity securities 355 43,152 1,124 44,631 
Equity securities:
Common stock175  20 195 
Non-redeemable preferred stock68 722 7 797 
Total equity securities243 722 27 992 
Short term and other1,761 28  1,789 
Total assets$2,359 $43,902 $1,151 $47,412 
Liabilities  
Other liabilities$ $19 $ $19 
Total liabilities$ $19 $ $19 
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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 January 1, 2021$770 $46 $308 $27 $1,151 
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)(13)  1 (12)
Reported in Net investment income  2 1 3 
Reported in Other comprehensive income (loss)(40)(2)(9) (51)
Total realized and unrealized investment gains (losses)(53)(2)(7)2 (60)
Purchases42  30  72 
Sales     
Settlements(2) (17) (19)
Transfers into Level 310  9  19 
Transfers out of Level 3  (8) (8)
Balance as of March 31, 2021$767 $44 $315 $29 $1,155 
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2021 recognized in Net income (loss) in the period$ $ $ $2 $2 
Unrealized gains (losses) on Level 3 assets and liabilities held as of March 31, 2021 recognized in Other comprehensive income (loss) in the period(40)(2)(9) (51)

Level 3
(In millions)
Corporate bonds and otherStates, municipalities and political subdivisionsAsset-backedEquity securitiesTotal
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)
Purchases67  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)
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 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, 2021 and December 31, 2020, there were $72 million and $71 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.
March 31, 2021Estimated Fair Value
(In millions)
Valuation Technique(s)Unobservable Input(s)Range
 (Weighted Average)
Fixed maturity securities$936 Discounted cash flowCredit spread
1% - 8% (2%)
December 31, 2020Estimated Fair Value
(In millions)
Valuation Technique(s)Unobservable Input(s)Range
 (Weighted Average)
Fixed maturity securities$966 Discounted cash flowCredit spread
1% - 8% (3%)
For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.
Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount 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, 2021Carrying
Amount
Estimated Fair Value
(In millions)Level 1Level 2Level 3Total
Assets
Mortgage loans$1,043 $ $ $1,107 $1,107 
Liabilities
Long term debt$2,777 $ $3,016 $ $3,016 
December 31, 2020Carrying
Amount
Estimated Fair Value
(In millions)Level 1Level 2Level 3Total
Assets
Mortgage loans$1,068 $ $ $1,151 $1,151 
Liabilities
Long term debt$2,776 $ $3,148 $ $3,148 
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 $125 million and $75 million for the three months ended March 31, 2021 and 2020. Net catastrophe losses for the three months ended March 31, 2021 were primarily driven by Winter Storms Uri and Viola. 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.

















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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 three months ended March 31, 2021
(In millions)20212020
Reserves, beginning of year:
Gross$22,706 $21,720 
Ceded4,005 3,835 
Net reserves, beginning of year18,701 17,885 
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 year1,474 1,355 
Increase (decrease) in provision for insured events of prior years(54)(8)
Amortization of discount50 51 
Total net incurred (1)
1,470 1,398 
Net payments attributable to:
Current year events(85)(72)
Prior year events(1,067)(1,218)
Total net payments(1,152)(1,290)
Foreign currency translation adjustment and other(32)(88)
Net reserves, end of period18,355 17,905 
Ceded reserves, end of period4,701 3,967 
Gross reserves, end of period$23,056 $21,872 
(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.
Three months ended March 31
(In millions)20212020
Pretax (favorable) unfavorable development:
Specialty$(15)$(11)
Commercial (4)
International  
Corporate & Other  
Total pretax (favorable) unfavorable development$(15)$(15)





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Specialty
The following table presents further detail of the development recorded for the Specialty segment.
Three months ended March 31
(In millions)20212020
Pretax (favorable) unfavorable development:
Medical Professional Liability$8 $10 
Other Professional Liability and Management Liability 3 
Surety(15)(30)
Warranty(8) 
Other 6 
Total pretax (favorable) unfavorable development$(15)$(11)
2021
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
2020
Unfavorable development in medical professional liability was primarily due to unfavorable outcomes on specific claims in accident years 2015 and 2016 in the Company's aging services business.
Favorable development in surety was primarily due to lower than expected frequency for accident years 2017 and prior.
Commercial
The following table presents further detail of the development recorded for the Commercial segment.
Three months ended March 31
(In millions)20212020
Pretax (favorable) unfavorable development:
Commercial Auto$ $9 
General Liability  
Workers' Compensation (13)
Property and Other  
Total pretax (favorable) unfavorable development$ $(4)
2020
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in accident years 2016 through 2018.
International
There was no development recorded in the International segment for the three months ended March 31, 2021 and 2020.






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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 $10 million and $14 million for the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, the cumulative amounts ceded under the LPT were $3.3 billion. The unrecognized deferred retroactive reinsurance benefit was $388 million and $398 million as of March 31, 2021 and December 31, 2020 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 $4.6 billion and $4.2 billion as of March 31, 2021 and December 31, 2020. 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.
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Excess Workers' Compensation LPT
On February 5, 2021, CCC completed a transaction with Cavello Bay Reinsurance Limited (Cavello), a subsidiary of Enstar Group Limited, under which certain legacy excess workers’ compensation (EWC) liabilities were ceded to Cavello. Under the terms of the transaction, based on reserves in place as of January 1, 2020, the Company ceded approximately $690 million of net EWC claim and allocated claim adjustment expense reserves to Cavello under an LPT with an aggregate limit of $1 billion. The Company paid Cavello a reinsurance premium of $697 million, less claims paid between January 1, 2020 and the closing date of the agreement of $64 million. After transaction costs, the Company recognized an after-tax loss of approximately $12 million in the Corporate & Other segment for the three months ended March 31, 2021 related to the EWC LPT.
Cavello established a collateral trust account as security for its obligations to the Company, which will be maintained at 105% of outstanding reserves. As of March 31, 2021, the remaining amount available under the $1 billion aggregate limit of the EWC LPT was $310 million on an incurred basis.

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
As of March 31, 2021 and December 31, 2020, 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, 2021, 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.
Three months ended March 31
(In millions)20212020
Net periodic pension cost (benefit)
Interest cost on projected benefit obligation$15 $20 
Expected return on plan assets(38)(39)
Amortization of net actuarial (gain) loss12 11 
Settlement loss 1 
Total net periodic pension cost (benefit)$(11)$(7)
For the three months ended March 31, 2021, the Company recognized $3 million of non-service benefit in Insurance claims and policyholders' benefits and $8 million of non-service benefit in Other operating expenses related to net periodic pension benefit. 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 related to net periodic pension benefit.

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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 January 1, 2021$ $1,745 $(848)$(94)$803 
Other comprehensive income (loss) before reclassifications(3)(593) 2 (594)
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $(8), $2, $ and $(5)
(3)34 (9) 22 
Other comprehensive income (loss) net of tax (expense) benefit of $, $162, $(2), $ and $160
 (627)9 2 (616)
Balance as of March 31, 2021$ $1,118 $(839)$(92)$187 
(In millions)Net unrealized gains (losses) on investments with an allowance for credit lossesNet unrealized gains (losses) on other investmentsPension and postretirement benefitsCumulative foreign currency translation adjustmentTotal
Balance as of January 1, 2020$ $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)

Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:
Component of AOCIConsolidated 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.
Effective January 1, 2021, and in connection with the ceding of certain legacy reserves under a retroactive reinsurance agreement executed in February 2021, management changed the segment presentation of a legacy portfolio of excess workers’ compensation policies relating to business written in 2007 and prior. This business, which was previously reported as part of the Commercial business segment, is now reported as part of the Corporate & Other business segment. Further information on this retroactive reinsurance agreement is provided in Note E. In addition, a determination was made to change the segment presentation of certain legacy mass tort reserves. Similar to the aforementioned excess workers’ compensation legacy business, these legacy mass tort reserves were previously reported in the Commercial business segment and are now reported as part of the Corporate & Other business segment. These changes were made to better reflect the manner in which the Company is organized for purposes of making operating decisions and assessing performance. Prior period information has been conformed to the new segment presentation.
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, 2020. 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 March 31, 2021
Specialty

Commercial
InternationalLife &
Group
Corporate
& Other
  
(In millions)EliminationsTotal
Operating revenues 
Net earned premiums$735 $855 $252 $120 $ $ $1,962 
Net investment income117 148 14 219 6  504 
Non-insurance warranty revenue338      338 
Other revenues 5  1 1 (2)5 
Total operating revenues1,190 1,008 266 340 7 (2)2,809 
Claims, benefits and expenses      
Net incurred claims and benefits427 639 155 281 (2) 1,500 
Policyholders’ dividends1 5     6 
Amortization of deferred acquisition costs154 153 52    359 
Non-insurance warranty expense311      311 
Other insurance related expenses70 115 35 25 10  255 
Other expenses11 9 (5)2 42 (2)57 
Total claims, benefits and expenses974 921 237 308 50 (2)2,488 
Core income (loss) before income tax216 87 29 32 (43) 321 
Income tax (expense) benefit on core income (loss)(46)(18)(5)4 7  (58)
Core income (loss) $170 $69 $24 $36 $(36)$ 263 
Net investment gains (losses)57 
Income tax (expense) benefit on net investment gains (losses)(8)
Net investment gains (losses), after tax49 
Net income (loss)$312 
March 31, 2021
(In millions)      
Reinsurance receivables$957 $859 $300 $389 $2,628 $ $5,133 
Insurance receivables1,004 1,322 357 2   2,685 
Deferred acquisition costs340 299 102    741 
Goodwill117  31    148 
Deferred non-insurance warranty acquisition expense3,149      3,149 
Insurance reserves 
Claim and claim adjustment expenses5,916 8,449 2,142 3,726 2,823  23,056 
Unearned premiums2,666 1,930 588 135   5,319 
Future policy benefits   12,772   12,772 
Deferred non-insurance warranty revenue4,119      4,119 
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Three months ended March 31, 2020
Specialty

Commercial
InternationalLife &
Group
Corporate
& Other
  
(In millions)EliminationsTotal
Operating revenues 
Net earned premiums$685 $818 $239 $127 $ $ $1,869 
Net investment income56 42 15 208 8  329 
Non-insurance warranty revenue301      301 
Other revenues1 8   1 (2)8 
Total operating revenues1,043 868 254 335 9 (2)2,507 
Claims, benefits and expenses    
Net incurred claims and benefits405 555 154 316 (11) 1,419 
Policyholders’ dividends1 5     6 
Amortization of deferred acquisition costs151 144 49    344 
Non-insurance warranty expense281      281 
Other insurance related expenses69 127 36 26   258 
Other expenses13 6 13 3 39 (2)72 
Total claims, benefits and expenses920 837 252 345 28 (2)2,380 
Core income (loss) before income tax123 31 2 (10)(19) 127 
Income tax (expense) benefit on core income (loss)(27)(8) 14 2  (19)
Core income (loss)$96 $23 $2 $4 $(17)$ 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)
December 31, 2020
(In millions)
Reinsurance receivables$886 $848 $302 $390 $2,052 $ $4,478 
Insurance receivables1,052 1,254 328 4 2  2,640 
Deferred acquisition costs330 281 97    708 
Goodwill117  31    148 
Deferred non-insurance warranty acquisition expense3,068      3,068 
Insurance reserves 
Claim and claim adjustment expenses5,748 8,250 2,091 3,743 2,874  22,706 
Unearned premiums2,635 1,824 546 114   5,119 
Future policy benefits   13,318   13,318 
Deferred non-insurance warranty revenue4,023      4,023 

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The following table presents operating revenues by line of business for each reportable segment.
Three months ended March 31
(In millions)20212020
Specialty
Management & Professional Liability$667 $568 
Surety142 138 
Warranty & Alternative Risks381 337 
Specialty revenues1,190 1,043 
Commercial
Middle Market375 335 
Construction309 250 
Small Business126 112 
Other Commercial198 171 
Commercial revenues1,008 868 
International
Canada79 73 
Europe111 92 
Hardy76 89 
International revenues266 254 
Life & Group revenues340 335 
Corporate & Other revenues 7 9 
Eliminations(2)(2)
Total operating revenues2,809 2,507 
Net investment gains (losses)57 (216)
Total revenues$2,866 $2,291 

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Note J. Non-Insurance Revenues from Contracts with Customers
The Company had deferred non-insurance warranty revenue balances of $4.1 billion and $4.0 billion reported in Deferred non-insurance warranty revenue as of March 31, 2021 and December 31, 2020. For the three months ended March 31, 2021 and 2020, the Company recognized $0.3 billion of revenues that were included in the deferred revenue balance as of January 1, 2021 and 2020. For the three months ended March 31, 2021 and 2020, 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 $0.9 billion of the deferred revenue in the remainder of 2021, $1.0 billion in 2022, $0.8 billion in 2023 and $1.3 billion thereafter.





























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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 updates and additions to our Risk Factors 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, 2020.
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 loss ratio excluding catastrophes and development, the expense ratio, the dividend ratio, the combined ratio and the combined ratio excluding catastrophes and development. 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 loss ratio excluding catastrophes and development excludes net catastrophes losses and changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years from the loss ratio. 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. The combined ratio excluding catastrophes and development is the sum of the loss ratio excluding catastrophes and development, the expense ratio and the dividend ratio. 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 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.


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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, financial condition, 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, 2020 for further information.
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CONSOLIDATED OPERATIONS
Results of Operations
The following table includes the consolidated results of our operations including our financial measure, core income (loss). For more detailed components of our business operations and a discussion of the core income (loss) financial measure, see the Segment Results section 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.
Three months ended March 31
(In millions)20212020
Operating Revenues
Net earned premiums$1,962 $1,869 
Net investment income504 329 
Non-insurance warranty revenue338 301 
Other revenues
Total operating revenues2,809 2,507 
Claims, Benefits and Expenses
Net incurred claims and benefits1,500 1,419 
Policyholders' dividends
Amortization of deferred acquisition costs359 344 
Non-insurance warranty expense311 281 
Other insurance related expenses255 258 
Other expenses57 72 
Total claims, benefits and expenses2,488 2,380 
Core income before income tax321 127 
Income tax expense on core income(58)(19)
Core income263 108 
Net investment gains (losses)57 (216)
Income tax (expense) benefit on net investment gains (losses)(8)47 
Net investment gains (losses), after tax49 (169)
Net income (loss)$312 $(61)
Core income increased $155 million for the three months ended March 31, 2021 as compared with the same period in 2020. Core income for our Property & Casualty Operations increased $142 million primarily due to higher net investment income driven by limited partnership and common stock returns and improved non-catastrophe current accident year underwriting results. These results were partially offset by higher net catastrophe losses. Core income for our Life & Group segment increased $32 million while core loss for our Corporate & Other segment increased $19 million.
Net catastrophe losses were $125 million and $75 million for the three months ended March 31, 2021 and 2020. Favorable net prior year loss reserve development of $15 million was recorded in the three months ended March 31, 2021 and 2020 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.
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SEGMENT RESULTS
The following discusses the results of operations for our business segments. 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.
Effective January 1, 2021, we changed the segment presentation of a legacy portfolio of excess workers’ compensation policies and certain legacy mass tort reserves. These businesses were previously reported in the Commercial business segment and are now reported as part of the Corporate & Other business segment. Prior period information has been conformed to the new segment presentation. See Note I to the Condensed Consolidated Financial Statements included under Part I, Item 1 for more information on the changes to our business segments.
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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)20212020
Gross written premiums$1,794 $1,714 
Gross written premiums excluding third party captives816 741 
Net written premiums742 694 
Net earned premiums735 685 
Net investment income117 56 
Core income 170 96 
Other performance metrics:
Loss ratio excluding catastrophes and development59.4 %59.5 %
Effect of catastrophe impacts0.7 1.1 
Effect of development-related items(2.1)(1.5)
Loss ratio58.0 59.1 
Expense ratio30.6 32.0 
Dividend ratio0.2 0.2 
Combined ratio88.8 %91.3 %
Combined ratio excluding catastrophes and development90.2 %91.7 %
Rate10 %10 %
Renewal premium change11 
Retention86 83 
New business$103 $74 
Gross written premiums, excluding third party captives, for Specialty increased $75 million for the three months ended March 31, 2021 as compared with the same period in 2020 driven by higher new business and strong rate. Net written premiums for Specialty increased $48 million for the three months ended March 31, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums.
Core income increased $74 million for the three months ended March 31, 2021 as compared with the same period in 2020 primarily due to higher net investment income driven by limited partnership and common stock returns and improved underwriting results.
The combined ratio of 88.8% improved 2.5 points for the three months ended March 31, 2021 as compared with the same period in 2020 due to a 1.4 point improvement in the expense ratio and a 1.1 point improvement in the loss ratio. The improvement in the loss ratio was primarily due to higher favorable net prior year loss reserve development and lower net catastrophe losses. Net catastrophe losses were $5 million, or 0.7 points of the loss ratio, for the three months ended March 31, 2021, as compared with $8 million, or 1.1 points of the loss ratio, for the three months ended March 31, 2020. The improvement in the expense ratio was driven by higher net earned premiums.
Favorable net prior year loss reserve development of $15 million and $11 million was recorded for the three months ended March 31, 2021 and 2020. 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.
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The following table summarizes the gross and net carried reserves for Specialty.
(In millions)March 31, 2021December 31, 2020
Gross case reserves$1,575 $1,567 
Gross IBNR reserves4,341 4,181 
Total gross carried claim and claim adjustment expense reserves$5,916 $5,748 
Net case reserves$1,418 $1,410 
Net IBNR reserves3,577 3,488 
Total net carried claim and claim adjustment expense reserves$4,995 $4,898 

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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)20212020
Gross written premiums$1,113 $1,062 
Gross written premiums excluding third party captives1,111 1,059 
Net written premiums960 950 
Net earned premiums855 818 
Net investment income148 42 
Core income69 23 
Other performance metrics:
Loss ratio excluding catastrophes and development60.8 %60.8 %
Effect of catastrophe impacts13.4 7.0 
Effect of development-related items0.5 — 
Loss ratio74.7 67.8 
Expense ratio31.4 33.2 
Dividend ratio0.6 0.6 
Combined ratio106.7 %101.6 %
Combined ratio excluding catastrophes and development92.8 %94.6 %
Rate10 %%
Renewal premium change
Retention84 86 
New business$211 $198 
Gross written premiums for Commercial increased $51 million for the three months ended March 31, 2021 as compared with the same period in 2020 driven by higher new business and strong rate. Net written premiums for Commercial increased $10 million for the three months ended March 31, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums in recent quarters.
Core income increased $46 million for the three months ended March 31, 2021 as compared with the same period in 2020 primarily due to higher net investment income driven by limited partnership and common stock returns partially offset by higher net catastrophe losses.
The combined ratio of 106.7% increased 5.1 points for the three months ended March 31, 2021 as compared with the same period in 2020 due to a 6.9 point increase in the loss ratio partially offset by a 1.8 point improvement in the expense ratio. The increase in the loss ratio was primarily due to higher net catastrophe losses. Net catastrophe losses were $115 million, or 13.4 points of the loss ratio, for the three months ended March 31, 2021, as compared with $57 million, or 7.0 points of the loss ratio, for the three months ended March 31, 2020. The improvement in the expense ratio was driven by favorable acquisition expenses and higher net earned premiums.
There was no net prior year loss reserve development recorded for the three months ended March 31, 2021 as compared with favorable net prior year loss reserve development of $4 million for the three months ended March 31, 2020. 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.



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The following table summarizes the gross and net carried reserves for Commercial.
(In millions)March 31, 2021December 31, 2020
Gross case reserves$3,238 $3,215 
Gross IBNR reserves5,211 5,035 
Total gross carried claim and claim adjustment expense reserves$8,449 $8,250 
Net case reserves$2,925 $2,885 
Net IBNR reserves4,732 4,590 
Total net carried claim and claim adjustment expense reserves$7,657 $7,475 
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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)20212020
Gross written premiums$343 $307 
Net written premiums235 219 
Net earned premiums252 239 
Net investment income14 15 
Core income24 
Other performance metrics:
Loss ratio excluding catastrophes and development59.6 %60.3 %
Effect of catastrophe impacts2.0 4.3 
Effect of development-related items(0.1)(0.1)
Loss ratio61.5 64.5 
Expense ratio34.4 35.4 
Combined ratio95.9 %99.9 %
Combined ratio excluding catastrophes and development94.0 %95.7 %
Rate14 %%
Renewal premium change11 
Retention74 70 
New business$80 $68 
Gross written premiums for International increased $36 million for the three months ended March 31, 2021 as compared with the same period in 2020. Excluding the effect of foreign currency exchange rates, gross written premiums increased $19 million driven by growth in Europe and Canada. Net written premiums for International increased $16 million for the three months ended March 31, 2021 as compared with the same period in 2020. Excluding the effects of foreign currency exchange rates, net written premiums increased $3 million for the three months ended March 31, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums.
Core income increased $22 million for the three months ended March 31, 2021 as compared with the same period in 2020 driven by improved current accident year underwriting results.
The combined ratio of 95.9% improved 4.0 points for the three months ended March 31, 2021 as compared with the same period in 2020 due to a 3.0 point improvement in the loss ratio and a 1.0 point improvement in the expense ratio. The improvement in the loss ratio was driven by improved current accident year underwriting results. Net catastrophe losses were $5 million, or 2.0 points of the loss ratio, for the three months ended March 31, 2021, as compared with $10 million, or 4.3 points of the loss ratio, for the three months ended March 31, 2020. The improvement in the expense ratio was driven by favorable commission rates and higher net earned premiums.
There was no net prior year loss reserve development recorded for the three months ended March 31, 2021 and 2020. 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.





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The following table summarizes the gross and net carried reserves for International.
(In millions)March 31, 2021December 31, 2020
Gross case reserves$861 $892 
Gross IBNR reserves1,281 1,199 
Total gross carried claim and claim adjustment expense reserves$2,142 $2,091 
Net case reserves$740 $777 
Net IBNR reserves1,112 1,045 
Total net carried claim and claim adjustment expense reserves$1,852 $1,822 
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Life & Group
The following table summarizes the results of operations for Life & Group.
Three months ended March 31
(In millions)20212020
Net earned premiums$120 $127 
Net investment income219 208 
Core income (loss) before income tax32 (10)
Income tax benefit on core loss14 
Core income36 
Core income improved $32 million for the three months ended March 31, 2021 as compared with the same period in 2020 driven by better than expected morbidity in the long term care business and higher net investment income. The increase in net investment income was driven by returns in the limited partnership portfolio. Further, during the first quarter of 2021, relative to expectations, we experienced lower new claim frequency, higher claim terminations and more favorable claim severity in the long term care business amid the effects of COVID-19. Given the uncertainty of these trends, we increased our IBNR reserves in anticipation of increased claim activity as the COVID-19 pandemic abates.
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)20212020
Net investment income$$
Interest expense28 31 
Core loss(36)(17)
Core loss increased $19 million for the three months ended March 31, 2021 as compared with the same period in 2020 driven by the recognition of a $12 million after-tax loss resulting from the legacy excess workers' compensation (EWC) Loss Portfolio Transfer (LPT). The EWC 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, 2021December 31, 2020
Gross case reserves$1,626 $1,614 
Gross IBNR reserves1,197 1,260 
Total gross carried claim and claim adjustment expense reserves$2,823 $2,874 
Net case reserves$123 $560 
Net IBNR reserves130 331 
Total net carried claim and claim adjustment expense reserves$253 $891 

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INVESTMENTS
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)20212020
Fixed income securities:
Taxable fixed income securities$359 $371 
Tax-exempt fixed income securities80 78 
Total fixed income securities439 449 
Limited partnership investments43 (70)
Common stock18 (55)
Other, net of investment expense
Net investment income$504 $329 
Effective income yield for the fixed income securities portfolio4.4 %4.6 %
Limited partnership and common stock return3.4 %(7.0)%
Net investment income increased $175 million for the three months ended March 31, 2021 as compared with the same period in 2020 driven by limited partnership and common stock returns.
Net Investment Gains (Losses)
The components of Net investment gains (losses) are presented in the following table.
Three months ended March 31
(In millions)20212020
Fixed maturity securities:
Corporate and other bonds$36 $(79)
States, municipalities and political subdivisions(1)— 
Asset-backed
Total fixed maturity securities38 (75)
Non-redeemable preferred stock(133)
Short term and other17 
Mortgage loans— (13)
Net investment gains (losses) 57 (216)
Income tax (expense) benefit on net investment gains (losses)(8)47 
Net investment gains (losses), after tax$49 $(169)
Net investment gains (losses) increased $273 million for the three months ended March 31, 2021 as compared with the same period in 2020 driven by the favorable relative change in fair value of non-redeemable preferred stock and lower impairment losses.
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.
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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, 2021December 31, 2020

(In millions)
Estimated Fair ValueNet Unrealized Gains (Losses)Estimated Fair ValueNet Unrealized Gains (Losses)
U.S. Government, Government agencies and Government-sponsored enterprises$3,149 $36 $3,672 $117 
AAA3,589 385 3,627 454 
AA 7,221 802 7,159 1,012 
A9,380 1,057 9,543 1,390 
BBB17,692 1,920 18,007 2,596 
Non-investment grade2,548 131 2,623 149 
Total$43,579 $4,331 $44,631 $5,718 
As of March 31, 2021 and December 31, 2020, 1% of our fixed maturity portfolio was rated internally. AAA rated securities included $1.9 billion and $1.8 billion of pre-refunded municipal bonds as of March 31, 2021 and December 31, 2020.
The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.
March 31, 2021
(In millions)Estimated Fair ValueGross Unrealized Losses
U.S. Government, Government agencies and Government-sponsored enterprises$1,631 $47 
AAA202 
AA896 29 
A1,096 33 
BBB1,372 47 
Non-investment grade364 17 
Total$5,561 $182 
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, 2021
(In millions)Estimated Fair ValueGross Unrealized Losses
Due in one year or less$135 $
Due after one year through five years672 21 
Due after five years through ten years3,090 82 
Due after ten years1,664 74 
Total$5,561 $182 
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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, 2021December 31, 2020
(In millions)Estimated Fair ValueEffective
Duration
(In years)
Estimated Fair ValueEffective
Duration
(In years)
Investments supporting Life & Group$17,952 9.1 $18,518 9.2 
Other investments27,666 4.9 28,839 4.5 
Total$45,618 6.5 $47,357 6.3 
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, 2020.
Short Term Investments
The carrying value of the components of the Short term investments are presented in the following table.
(In millions)March 31, 2021December 31, 2020
Short term investments:
U.S. Treasury securities$1,109 $1,702 
Other225 205 
Total short term investments$1,334 $1,907 

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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary operating cash flow sources are premiums and investment income. 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.
For the three months ended March 31, 2021, net cash provided by operating activities was $82 million as compared with $212 million for the same period in 2020. The decrease in cash provided by operating activities was driven by the payment of the EWC LPT premium partially offset by lower net claim payments and an increase in premiums collected. The EWC LPT is further discussed in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
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 $408 million for the three months ended March 31, 2021, as compared with $1,087 million for the same period in 2020. Net cash used or provided by investing activities is primarily driven by cash available from operations and other factors, such as financing activities.
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, 2021, net cash used by financing activities was $321 million as compared with $675 million for the same period in 2020. In the first quarter of 2021, we paid dividends of $310 million and repurchased 66,000 shares of common stock at an aggregate cost of $3 million. 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.
Common Stock Dividends
A quarterly cash dividend of $0.38 per share and a special cash dividend of $0.75 per share on our common stock were declared and paid in the first quarter of 2021. On April 30, 2021, our Board of Directors declared a quarterly cash dividend of $0.38 per share, payable June 3, 2021 to stockholders of record on May 17, 2021. 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.
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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. 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 Continental Casualty Company (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, 2021, CCC was in a positive earned surplus position. CCC paid dividends of $330 million and $670 million during the three months ended March 31, 2021 and 2020. 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 on file with the Securities and Exchange Commission under which we may publicly issue debt, equity or hybrid securities from time to time.
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ACCOUNTING STANDARDS UPDATE
For a discussion of Accounting Standards Updates, see Note A to the Condensed Consolidated Financial Statements included under Part 1, 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 (note that loss reserves for long term care, A&EP and other mass tort claims 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 as well as those risks contained in the Risk Factors section of our 2020 Annual Report on Form 10-K and this report:
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 2020 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; economic uncertainty and depressed business conditions brought on by the crisis may materially and adversely impact our business operations and may lead to 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 losses to our lines of business 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
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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 and Legal Factors
regulatory and legal initiatives and compliance with governmental regulations and other legal requirements, including with respect to cyber security protocols (which may be enhanced following completion of work relating to the sophisticated cyber incident sustained by the Company in March 2021 as discussed in Risk Factors, Part II, Item 1A of this report), 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;
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; and
regulatory and legal implications relating to the sophisticated cyber incident sustained by the Company in March 2021 that may arise.
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, wildfires, 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.
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.
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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, 2021. 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, 2020 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, 2021, 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, 2021.
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, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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, 2020, 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.
Any significant interruption in the operation of our business functions, facilities and systems or our vendors' facilities and systems could result in a materially adverse effect on our operations.
Our business is highly dependent upon our ability to perform, in an efficient and uninterrupted manner, through our employees or vendor relationships, necessary business functions, such as internet support and 24-hour call centers, processing new and renewal business and processing and paying claims and other obligations.
Our or our vendors' facilities and systems could become unavailable, inoperable, or otherwise impaired from a variety of causes, including natural events, such as hurricanes, tornadoes, windstorms, earthquakes, severe winter weather and fires, or other events, such as explosions, terrorist attacks, computer security breaches or cyber attacks, riots, hazardous material releases, medical epidemics or pandemics, utility outages, interruptions of our data processing and storage systems or the systems of third-party vendors, or unavailability of communications facilities. An interruption of our system availability occurred in March 2021 as a result of a cybersecurity attack sustained by the Company. Please refer to following risk factor for further information regarding this incident. Likewise, we could experience a significant failure, interruption or corruption of one or more of our or our vendors’ information technology, telecommunications, or other systems for various reasons, including significant failures or interruptions that might occur as existing systems are replaced or upgraded. The shut-down or unavailability of one or more of our or our vendors' systems or facilities for these and other reasons could significantly impair our ability to perform critical business functions on a timely basis.
In addition, because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such events could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner, or perform other necessary business functions, including the ability to issue financial statements in a timely manner.
The foregoing risks could also expose us to monetary and reputational damages. Potential exposures resulting from the March 2021 cybersecurity attack, described in the following risk factor, as well as any future incidents may include substantially increased compliance costs and required computer system upgrades and security-related investments. If our business continuity plans or system security do not sufficiently address these risks, they could have a material adverse effect on our business, results of operations and financial condition.
Based on the information currently known, we do not believe that the March 2021 cybersecurity attack will have a material impact on our business, results of operations or financial condition. However, no assurances can be given, and we may be subject to future incidents that could have a material adverse effect or result in operational impairments and financial losses as well as significant harm to our reputation.
Any significant breach in our data security infrastructure could disrupt business, cause financial losses and damage our reputation, and insurance coverage may not be available for claims related to a breach.
A significant breach of our data security infrastructure may result from actions by our employees, vendors, third-party administrators, or unknown third parties or through cyber attacks. The risk of a breach can exist whether software services are in our data centers or we use cloud-based software services.
Such a breach could affect our data framework or cause a failure to protect the personal information of our customers, claimants or employees, or sensitive and confidential information regarding our business and may
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result in operational impairments and financial losses, as well as significant harm to our reputation. The breach of confidential information also could give rise to legal liability and regulatory action under data protection and privacy laws, as well as evolving regulation in this regard. Any such breach of our data security infrastructure could have a material adverse effect on our business, results of operations and financial condition.
We sustained a sophisticated cybersecurity attack in March 2021 involving ransomware that caused a network disruption and impacted certain of our systems. Promptly upon detection, we undertook steps to address the incident, including engaging a team of third-party forensic experts and notifying law enforcement and key regulators. As of the date of this report, we have restored network systems and resumed normal operations. We are continuing to assess the full extent of the impact from the incident, as well as determining any additional actions we may take to improve our existing systems. Although the investigation is ongoing, should we determine that personal information was impacted, it is possible that notification to individuals, other parties and/or regulators may be required based on applicable law. As a result or otherwise related to the incident, we may be subject to subsequent investigations, claims or actions in addition to other costs, fines, penalties, or other obligations.
Although we maintain cybersecurity insurance coverage insuring against costs resulting from cyber attacks (including the attack described above), it is possible losses may exceed the amount available under our coverage and our coverage policy may not cover all losses. Further, future cybersecurity insurance coverage may be difficult to obtain or may only be available at significantly higher costs to us.
Based on the information currently known, we do not believe that the March 2021 cybersecurity attack will have a material impact on our business, results of operations or financial condition. However, no assurances can be given, and we may be subject to future incidents that could have such a material adverse effect or may result in operational impairments and financial losses, as well as significant harm to our reputation.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Items 2 (a) and (b) are not applicable
(c) The table below details the repurchases of our common stock made during the three months ended March 31, 2021.
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)
March 1, 2021 - March 31, 202166,000 $46.32 N/AN/A
Total66,000 N/AN/A
Item 6. Exhibits
See Exhibit Index.
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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 7, 2021By/s/ Albert J. Miralles
Albert J. Miralles
Executive Vice President and
Chief Financial Officer
(Duly authorized officer and principal financial and accounting officer)
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EXHIBIT INDEX
Description of ExhibitExhibit Number
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 document101.INS
Inline XBRL Taxonomy Extension Schema101.SCH
Inline XBRL Taxonomy Extension Calculation Linkbase101.CAL
Inline XBRL Taxonomy Extension Definition Linkbase101.DEF
Inline XBRL Taxonomy Label Linkbase101.LAB
Inline XBRL Taxonomy Extension Presentation Linkbase101.PRE
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)104.1
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