UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Item 2.02 Results of Operations and Financial Condition.
On October 30, 2023 , Loews Corporation issued a press release and posted on its website (www.loews.com) earnings remarks providing information on its results of operations for the third quarter of 2023. The press release is furnished as Exhibit 99.1 and the earnings remarks are furnished as Exhibit 99.2 to this Form 8-K.
The information under Item 2.02 and in Exhibits 99.1 and 99.2 in this Current Report is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information under Item 2.02 and in Exhibits 99.1 and 99.2 in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits.
(d)Exhibits:
See Exhibit Index.
2
EXHIBIT INDEX
| Exhibit No. | Description | |||||||
Loews Corporation press release, issued | ||||||||
Loews Corporation earnings remarks, posted on its website | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| LOEWS CORPORATION | ||||||||
| (Registrant) | ||||||||
Dated: | By: | /s/ Marc A. Alpert | ||||||
| Marc A. Alpert | ||||||||
| Senior Vice President, | ||||||||
| General Counsel | ||||||||
| and Secretary | ||||||||
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Exhibit 99.1
 | |||||||||||||||||||||||||||||||||||||||||
NEWS RELEASE
LOEWS CORPORATION REPORTS NET INCOME OF $253 MILLION
FOR THE THIRD QUARTER OF 2023
New York, NY, October 30, 2023: Loews Corporation (NYSE: L) today released its third quarter 2023 financial results.
Third Quarter highlights:
Loews Corporation reported net income of $253 million, or $1.12 per share, in the third quarter of 2023 compared to a net loss of $22 million, or $0.09 per share, in the third quarter of 2022. This year’s third quarter results included a $37 million after-tax charge for the termination of a defined benefit pension plan. Results for the prior year have been adjusted to reflect the application of the accounting standard for long-duration contracts (LDTI). The following highlight key drivers of our third quarter results:
•CNA Financial Corporation’s (NYSE: CNA) net income improved year-over-year due to higher net investment income, higher underwriting income, and a significantly lower unfavorable impact from the long-term care annual reserve reviews performed in the third quarter of each year.
•The parent company posted higher investment returns on equity securities and short-term investments.
•Loews Corporation repurchased 1.9 million shares of its common stock for a total cost of $118 million through the end of the quarter and repurchased an additional 1.0 million shares for $64 million since September 30, 2023.
•Book value per share, excluding AOCI, increased to $79.92 as of September 30, 2023, from $74.88 as of December 31, 2022 due to repurchases of common shares and strong operating results during the year.
•Loews Corporation purchased 4.5 million shares of CNA common stock for a total cost of $175 million.
•As of September 30, 2023, the parent company had $2.3 billion of cash and investments and $1.8 billion of debt.
CEO commentary:
“Loews had another good quarter with strong performance across each of our consolidated subsidiaries. CNA reported strong underwriting results and net income despite high industry catastrophe losses.”
–James S. Tisch, President and CEO, Loews Corporation
Consolidated highlights:
| September 30, | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| (In millions, except per share data) | 2023 | 2022 (a) | 2023 | 2022 (a) | ||||||||||
| Net income attributable to Loews Corporation before net investment gains (losses) | $ | 280 | $ | 54 | $ | 1,027 | $ | 582 | ||||||
| Net investment gains (losses): | ||||||||||||||
| CNA | (27) | (76) | (75) | (115) | ||||||||||
| Loews Hotels & Co | 36 | |||||||||||||
| Total net investment gains (losses): | (27) | (76) | (39) | (115) | ||||||||||
| Net income (loss) attributable to Loews Corporation | $ | 253 | $ | (22) | $ | 988 | $ | 467 | ||||||
| Net income (loss) per share | $ | 1.12 | $ | (0.09) | $ | 4.31 | $ | 1.90 | ||||||
| September 30, 2023 | December 31, 2022 (a) | ||||||||||
| Book value per share | $ | 64.43 | $ | 60.81 | |||||||
| Book value per share excluding AOCI | 79.92 | 74.88 | |||||||||
| (a) | As of January 1, 2023, Loews Corporation adopted Accounting Standards Update 2018-12, “Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”), which was applied retrospectively effective January 1, 2021. Previously reported amounts have been adjusted to reflect application of the new guidance. See pages 4 and 5 of this release for more information. | ||||
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Three months ended September 30, 2023 compared to 2022
CNA:
•Net income attributable to Loews Corporation improved to $235 million from a loss of $37 million.
•Core income increased to $289 million from $43 million.
•The annual Life and Group reserve reviews for long-term care resulted in a $6 million unfavorable impact compared to an unfavorable impact of $131 million driven by the increase in cost of care inflation assumptions.
•Results include higher net investment income from limited partnerships, common stock investments and fixed income securities.
•Property and Casualty underwriting results were higher due to improved underlying underwriting income and lower net catastrophe losses, partially offset by lower favorable net prior year loss reserve development.
•Net written premium growth of 6%.
•Property and Casualty combined ratio was 94.3% compared to 95.8%. Property and Casualty underlying combined ratio was 90.4% compared to 91.1%.
•Net income was positively impacted by lower investment losses on fixed maturity securities.
Boardwalk:
•Net income increased $15 million to $49 million compared to $34 million.
•EBITDA increased $10 million to $202 million compared to $192 million.
•Net income and EBITDA increased due to higher revenues from re-contracting at higher rates, higher natural gas liquids and other hydrocarbons transportation revenues, recently completed growth projects and improved storage and parking and lending revenues due to favorable market conditions. These increases were partially offset by increased repairs and maintenance costs associated with pipeline safety regulatory requirements, as well as higher employee related expenses.
Loews Hotels:
•Net income decreased $8 million to $17 million compared to $25 million.
•Adjusted EBITDA decreased $16 million to $60 million compared to $76 million.
•Net income decreased due to lower equity income from joint ventures driven by decreased overall occupancy rates and higher operating costs.
Corporate & Other:
•Net loss increased $4 million to $48 million from $44 million.
•The company recorded a charge of $37 million after tax in the third quarter of 2023 related to the termination of a defined benefit plan.
•Excluding this charge, results improved $33 million mostly due to higher investment income for the parent company from equity securities and short-term investments.
Nine months ended September 30, 2023 compared to 2022
Loews Corporation reported net income of $988 million, or $4.31 per share, compared to $467 million, or $1.90 per share. The following are key highlights:
•CNA’s Property and Casualty underwriting results were lower due to higher net catastrophe losses and unfavorable net prior year loss reserve development in 2023 compared to favorable net prior year loss reserve development in 202, partially offset by improved underlying underwriting income.
•Property and Casualty combined ratio was 94.0% compared to 93.0%. Property and Casualty underlying combined ratio was 90.8% compared to 91.1%.
•CNA’s net written premiums increased 9%.
•Loews Hotels & Co’s net income included an after-tax gain of $36 million related to the acquisition of an additional equity interest in, and the consolidation of, a previously unconsolidated joint venture property in the second quarter of 2023.
•All other segment drivers of results for the nine months ended September 30, 2023 as compared to the comparable prior year period are consistent with the three-month period discussed above.
Page 2 of 7
Share Purchases:
•On September 30, 2023, there were 224.3 million shares of Loews common stock outstanding.
•For the three months ended September 30, 2023, Loews repurchased 1.9 million shares of its common stock at an aggregate cost of $118 million.
•Loews has repurchased an additional 1.0 million shares for $64 million since September 30, 2023.
•For the three months ended September 30, 2023, Loews purchased 4.5 million shares of CNA common stock at an aggregate cost of $175 million.
•Depending on market conditions, Loews may from time to time purchase shares of its and its subsidiaries’ outstanding common stock in the open market, in privately negotiated transactions or otherwise.
Reconciliation of GAAP Measures to Non-GAAP Measures
This news release contains financial measures that are not in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Management believes some investors may find these measures useful to evaluate our and our subsidiaries’ financial performance. CNA utilizes core income, Boardwalk utilizes earnings before interest, income tax expense, depreciation and amortization (“EBITDA”), and Loews Hotels utilizes Adjusted EBITDA. These measures are defined and reconciled to the most comparable GAAP measures on pages 6 and 7 of this release.
Earnings Remarks and Conference Calls
For Loews Corporation
–Today, October 30, 2023, earnings remarks will be available on our website.
–Remarks will include commentary from Loews’s president and chief executive officer and chief financial officer.
For CNA
–Today, October 30, 2023, CNA will host an earnings call at 9:00 a.m. ET.
–A live webcast will be available via the Investor Relations section of CNA’s website at www.cna.com.
–To participate by phone, dial 1-844-481-2830 (USA toll-free) or +1-412-317-1850 (International).
About Loews Corporation
Loews Corporation is a diversified company with businesses in the insurance, energy, hospitality and packaging industries. For more information, please visit www.loews.com.
Forward-Looking Statements
Statements contained in this news release which are not historical facts are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are inherently uncertain and subject to a variety of risks that could cause actual results to differ materially from those expected by management of the Company. A discussion of the important risk factors and other considerations that could materially impact these matters, as well as the Company’s overall business and financial performance, can be found in the Company’s reports filed with the Securities and Exchange Commission and readers of this release are urged to review those reports carefully when considering these forward-looking statements. Copies of these reports are available through the Company’s website (www.loews.com). Given these risk factors, investors and analysts should not place undue reliance on forward-looking statements. Any such forward-looking statements speak only as of the date of this news release. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based.
Investor relations and media relations contact:
Chris Nugent
1-212-521-2403
Page 3 of 7
Loews Corporation and Subsidiaries
Selected Financial Information
| September 30, | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Revenues: | ||||||||||||||
| CNA Financial (a) | $ | 3,336 | $ | 2,957 | $ | 9,792 | $ | 8,768 | ||||||
| Boardwalk Pipelines | 363 | 339 | 1,125 | 1,045 | ||||||||||
| Loews Hotels & Co (b) | 196 | 180 | 642 | 532 | ||||||||||
| Corporate investment income (loss) and other | 31 | (15) | 84 | (94) | ||||||||||
| Total | $ | 3,926 | $ | 3,461 | $ | 11,643 | $ | 10,251 | ||||||
| Income (Loss) Before Income Tax: | ||||||||||||||
| CNA Financial (a) (c) | $ | 326 | $ | (51) | $ | 1,058 | $ | 531 | ||||||
| Boardwalk Pipelines | 66 | 47 | 257 | 221 | ||||||||||
| Loews Hotels & Co (b) | 24 | 34 | 159 | 120 | ||||||||||
| Corporate: | ||||||||||||||
| Investment income (loss), net | 31 | (19) | 84 | (100) | ||||||||||
| Other (d) | (91) | (36) | (175) | (123) | ||||||||||
| Total (c) | $ | 356 | $ | (25) | $ | 1,383 | $ | 649 | ||||||
| Net Income (Loss) Attributable to Loews Corporation: | ||||||||||||||
| CNA Financial (a) (c) | $ | 235 | $ | (37) | $ | 758 | $ | 398 | ||||||
| Boardwalk Pipelines | 49 | 34 | 191 | 164 | ||||||||||
| Loews Hotels & Co (b) | 17 | 25 | 115 | 84 | ||||||||||
| Corporate: | ||||||||||||||
| Investment income (loss), net | 24 | (15) | 66 | (79) | ||||||||||
| Other (d) | (72) | (29) | (142) | (100) | ||||||||||
| Net income (loss) attributable to Loews Corporation (c) | $ | 253 | $ | (22) | $ | 988 | $ | 467 | ||||||
(a)The three months ended September 30, 2023 and 2022 include net investment losses of $38 million and $96 million ($27 million and $76 million after tax and noncontrolling interests). The nine months ended September 30, 2023 and 2022 include net investment losses of $105 million and $166 million ($75 million and $115 million after tax and noncontrolling interests).
(b)Includes a gain of $46 million ($36 million after tax) for the nine months ended September 30, 2023 related to Loews Hotels & Co’s acquisition of an additional equity interest in, and the consolidation of, a previously unconsolidated joint venture property.
(c)The effects of adopting ASU 2018-12 on the Selected Financial Information were as follows:
| Three Months Ended September 30, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Income (Loss) Before Income Tax: | |||||||||||||||||
| CNA Financial | $ | 164 | $ | (215) | $ | (51) | |||||||||||
| Total | 190 | (215) | (25) | ||||||||||||||
| Net Income (Loss) Attributable to Loews Corporation: | |||||||||||||||||
| CNA Financial | $ | 115 | $ | (152) | $ | (37) | |||||||||||
| Total | 130 | (152) | (22) | ||||||||||||||
| Nine Months Ended September 30, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Income (Loss) Before Income Tax: | |||||||||||||||||
| CNA Financial | $ | 787 | $ | (256) | $ | 531 | |||||||||||
| Total | 905 | (256) | 649 | ||||||||||||||
| Net Income (Loss) Attributable to Loews Corporation: | |||||||||||||||||
| CNA Financial | $ | 579 | $ | (181) | $ | 398 | |||||||||||
| Total | 648 | (181) | 467 | ||||||||||||||
(d)Consists of parent company interest expense, corporate expenses and the equity income (loss) of Altium Packaging. The three and nine months ended September 30, 2023 include a charge of $47 million ($37 million after tax) related to the termination of a defined benefit plan.
Page 4 of 7
Loews Corporation and Subsidiaries
Consolidated Financial Review
| September 30, | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| (In millions, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Revenues: | ||||||||||||||
| Insurance premiums | $ | 2,406 | $ | 2,221 | $ | 7,001 | $ | 6,435 | ||||||
| Net investment income | 592 | 404 | 1,752 | 1,202 | ||||||||||
| Investment losses (a) | (38) | (96) | (59) | (166) | ||||||||||
| Operating revenues and other | 966 | 932 | 2,949 | 2,780 | ||||||||||
| Total | 3,926 | 3,461 | 11,643 | 10,251 | ||||||||||
| Expenses: | ||||||||||||||
| Insurance claims and policyholders’ benefits (b) | 1,826 | 1,880 | 5,258 | 4,959 | ||||||||||
| Operating expenses and other | 1,744 | 1,606 | 5,002 | 4,643 | ||||||||||
| Total | 3,570 | 3,486 | 10,260 | 9,602 | ||||||||||
| Income (loss) before income tax (b) | 356 | (25) | 1,383 | 649 | ||||||||||
| Income tax expense (b) | (80) | (2) | (315) | (137) | ||||||||||
| Net income (loss) (b) | 276 | (27) | 1,068 | 512 | ||||||||||
| Amounts attributable to noncontrolling interests (b) | (23) | 5 | (80) | (45) | ||||||||||
| Net income (loss) attributable to Loews Corporation (b) | $ | 253 | $ | (22) | $ | 988 | $ | 467 | ||||||
| Net income (loss) per share attributable to Loews Corporation (b) | $ | 1.12 | $ | (0.09) | $ | 4.31 | $ | 1.90 | ||||||
| Weighted average number of shares | 225.99 | 240.76 | 229.16 | 245.03 | ||||||||||
(a)Includes a gain of $46 million ($36 million after tax) for the nine months ended September 30, 2023 related to Loews Hotels & Co’s acquisition of an additional equity interest in, and the consolidation of, a previously unconsolidated joint venture property.
(b)The effects of adopting ASU 2018-12 on the Consolidated Financial Review were as follows:
| Three Months Ended September 30, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Insurance claims and policyholders’ benefits | $ | 1,665 | $ | 215 | $ | 1,880 | |||||||||||
| Income (Loss) before income tax | 190 | (215) | (25) | ||||||||||||||
| Income tax expense | (47) | 45 | (2) | ||||||||||||||
| Net income (loss) | 143 | (170) | (27) | ||||||||||||||
| Amounts attributable to noncontrolling interests | (13) | 18 | 5 | ||||||||||||||
| Net income (loss) attributable to Loews Corporation | 130 | (152) | (22) | ||||||||||||||
| Net income (loss) per share attributable to Loews Corporation | 0.54 | (0.63) | (0.09) | ||||||||||||||
| Nine Months Ended September 30, 2022 | As Reported | Effect of Adoption | As Adjusted | ||||||||||||||
| (In millions) | |||||||||||||||||
| Insurance claims and policyholders’ benefits | $ | 4,703 | $ | 256 | $ | 4,959 | |||||||||||
| Income (loss) before income tax | 905 | (256) | 649 | ||||||||||||||
| Income tax expense | (190) | 53 | (137) | ||||||||||||||
| Net income (loss) | 715 | (203) | 512 | ||||||||||||||
| Amounts attributable to noncontrolling interests | (67) | 22 | (45) | ||||||||||||||
| Net income (loss) attributable to Loews Corporation | 648 | (181) | 467 | ||||||||||||||
| Net income (loss) per share attributable to Loews Corporation | 2.64 | (0.74) | 1.90 | ||||||||||||||
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Definitions of Non-GAAP Measures and Reconciliation of GAAP Measures to Non-GAAP Measures:
CNA Financial Corporation
Core income is calculated by excluding from CNA’s net income attributable to Loews Corporation the after-tax effects of investment gains (losses). In addition, core income excludes the effects of noncontrolling interests. The calculation of core income excludes investment gains (losses) because these are generally driven by economic factors that are not necessarily reflective of CNA’s primary operations. The following table presents a reconciliation of CNA net income attributable to Loews Corporation to core income:
| September 30, | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||
| CNA net income (loss) attributable to Loews Corporation | $ | 235 | $ | (37) | $ | 758 | $ | 398 | ||||||
| Investment losses | 31 | 84 | 84 | 127 | ||||||||||
| Consolidation adjustments including noncontrolling interests | 23 | (4) | 80 | 46 | ||||||||||
| Core income | $ | 289 | $ | 43 | $ | 922 | $ | 571 | ||||||
Boardwalk Pipelines
EBITDA is defined as earnings before interest, income tax expense, depreciation and amortization. The following table presents a reconciliation of Boardwalk net income attributable to Loews Corporation to EBITDA:
| September 30, | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Boardwalk net income attributable to Loews Corporation | $ | 49 | $ | 34 | $ | 191 | $ | 164 | ||||||
| Interest, net | 33 | 42 | 106 | 126 | ||||||||||
| Income tax expense | 17 | 13 | 66 | 57 | ||||||||||
| Depreciation and amortization | 103 | 103 | 306 | 297 | ||||||||||
| EBITDA | $ | 202 | $ | 192 | $ | 669 | $ | 644 | ||||||
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Loews Hotels & Co
Adjusted EBITDA is calculated by excluding from Loews Hotels & Co’s EBITDA, noncontrolling interest share of EBITDA adjustments, state and local government development grants, gains or losses on asset acquisitions and dispositions, asset impairments, and equity method income, and including Loews Hotels & Co’s pro rata Adjusted EBITDA of equity method investments. Pro rata Adjusted EBITDA of equity method investments is calculated by applying Loews Hotels & Co’s ownership percentage to the underlying equity method investment’s components of EBITDA and excluding distributions in excess of basis.
The following table presents a reconciliation of Loews Hotels & Co net income attributable to Loews Corporation to Adjusted EBITDA:
| September 30, | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Loews Hotels & Co net income attributable to Loews Corporation | $ | 17 | $ | 25 | $ | 115 | $ | 84 | ||||||
| Interest, net | 1 | (1) | 5 | 6 | ||||||||||
| Income tax expense | 7 | 9 | 44 | 36 | ||||||||||
| Depreciation and amortization | 18 | 16 | 51 | 47 | ||||||||||
| EBITDA | 43 | 49 | 215 | 173 | ||||||||||
| Noncontrolling interest share of EBITDA adjustments | (2) | (1) | (3) | (1) | ||||||||||
| Gain on asset acquisition | (46) | |||||||||||||
| Asset impairments | 8 | 9 | 22 | |||||||||||
| Equity investment adjustments: | ||||||||||||||
| Loews Hotels & Co’s equity method income | (26) | (36) | (98) | (115) | ||||||||||
| Pro rata Adjusted EBITDA of equity method investments | 45 | 56 | 168 | 180 | ||||||||||
| Consolidation adjustments | (1) | |||||||||||||
| Adjusted EBITDA | $ | 60 | $ | 76 | $ | 245 | $ | 258 | ||||||
The following table presents a reconciliation of Loews Hotels & Co’s equity method income to Pro rata Adjusted EBITDA of equity method investments:
| September 30, | ||||||||||||||
| Three Months | Nine Months | |||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Loews Hotels & Co’s equity method income | $ | 26 | $ | 36 | $ | 98 | $ | 115 | ||||||
| Pro rata share of equity method investments: | ||||||||||||||
| Interest, net | 10 | 10 | 33 | 28 | ||||||||||
| Income tax expense | ||||||||||||||
| Depreciation and amortization | 12 | 12 | 37 | 37 | ||||||||||
| Distributions in excess of basis | (3) | (3) | ||||||||||||
| Consolidation adjustments | 1 | |||||||||||||
| Pro rata Adjusted EBITDA of equity method investments | $ | 45 | $ | 56 | $ | 168 | $ | 180 | ||||||
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Exhibit 99.2
Loews Corporation Third Quarter 2023 Earnings Remarks
James Tisch, President & CEO:
Good morning. Loews had a great third quarter, with our three consolidated subsidiaries firing on all cylinders. Each one of these businesses is experiencing substantial growth, and today I want to focus on what that growth looks like in each subsidiary. The management teams at all three companies have worked hard to grow their businesses, and I continue to be frustrated that the market is not acknowledging their efforts with higher valuations.
The market’s valuation of CNA is particularly perplexing. Not only has the company grown, it has also vastly improved the performance of its underlying business. Over the past five years, net written premiums increased by 35% from $6.8 billion in 2018 to $9.2 billion over the past 12 months. At the same time, the company became markedly more profitable due to its laser-like focus on underwriting. During that time, the underlying combined ratio has improved by five points from 95.4% in 2018 to 90.4% in the third quarter of 2023. As a result, underwriting income has more than doubled over the past five years, increasing from $226 million in 2018 to $533 million over the past 12 months.
CNA has also done an exceptional job of actively managing its run-off long-term care (LTC) book of business, significantly mitigating this long-tailed risk. The number of its active LTC policies has declined by more than 40%, from 420,000 in 2015 to 242,000 today. Not only has the number of active policies been reduced, the profile of the underlying LTC business has also substantially improved. For example, since 2015 CNA has increased long-term care premium rates by 45%. Additionally, to date, the company has managed well over 100,000 long-term care claims, providing CNA with credible and reliable claims experience. This experience gives us even more confidence in CNA’s reserving assumptions for long-term care.
Moreover, CNA has been able to take advantage of rising interest rates to strategically lengthen the duration of its long-term care portfolio to better match its liability duration, which further reduces the risk associated with this business. The duration of the long-term care investment portfolio is now nearly 10 years, which has increased from nine years at the end of 2021. CNA continues to purchase very attractive, highly rated, long-duration assets that meet or exceed its reinvestment assumptions.
Higher interest rates have also positively impacted the investment income in CNA’s P&C portfolio and should continue to do so for the foreseeable future. Current market yields are about 200 basis points higher than securities that are currently maturing in CNA’s portfolio. CNA generally invests $300 million to $400 million per quarter in its P&C portfolio, so higher yields will be accretive to investment income over time.
CNA’s third quarter performance clearly demonstrates its ongoing profitable growth. Third quarter net written premiums grew by 6% over the prior year’s third quarter and retention remained high at 84%.
Notwithstanding these improvements, the company’s share price is approximately 25% lower today than it was at the beginning of 2018. Our view is that CNA is a compelling value, and this quarter we put our money where our mouth is by purchasing nearly 4.5 million shares of CNA for around $175 million. We continue to be bullish on the outlook for CNA’s business.
Boardwalk has also grown meaningfully over the past five years due, in part, to substantial investments in its business during that time period. In the third quarter, Boardwalk acquired Bayou Ethane for $348 million from Williams Companies. Bayou Ethane is a 380-mile ethane pipeline from Mont Belvieu, Texas to the Mississippi River Corridor in Louisiana. This pipeline is a good strategic fit for Boardwalk’s existing gas
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liquids business. Inclusive of that acquisition, the company’s EBITDA is expected to approach $1 billion next year compared to $761 million in 2018.
Growth has also been strong at Loews Hotels. Including an estimated $230 million of growth capital in 2023, Loews Hotels has invested almost $800 million of equity in growth projects since 2018. Those equity investments were mainly financed through internally generated cash flow at Loews Hotels. As a result of those projects, Adjusted EBITDA has grown substantially and exceeded $300 million over the past 12 months. Also, recent results do not yet reflect the earning power of nearly 2,900 rooms under development in Arlington, Texas and Orlando, Florida.
As a reminder, the new Loews Arlington Hotel will open in the first quarter of next year. This property will contain nearly 900 guest rooms, as well as about 250,000 square feet of best-in-class meeting and event space, including the largest ballroom in North Texas. In Orlando, construction continues on three new hotels with a combined total of 2,000 rooms within the Universal theme park’s new “Epic Universe” campus. Those hotels are expected to be completed in 2025, at which point Loews Hotels will have a 50% interest in a total of 11 hotels with 11,000 rooms at Universal Orlando.
After this review of the growth story at our subsidiaries, I hope my remarks have clarified why we are continuing to repurchase Loews’s shares. Not only do the shares trade at a substantial discount to our view of their intrinsic sum-of-the-parts value, but our subsidiaries are also growing rapidly and performing exceptionally well.
As long as our stock trades at a substantial discount to our view of its intrinsic sum-of-the-parts value, share repurchases will remain Loews’s primary capital allocation lever. Since the beginning of the year, Loews repurchased nearly 12.9 million of its own shares for a total cost of $775 million. This represents more than 5% of our outstanding shares at the beginning of the year. Loews currently has about 223.3 million shares outstanding, which represents a nearly one-third reduction of shares outstanding since the end of 2017.
Jane Wang, Chief Financial Officer:
For the third quarter of 2023, Loews reported net income of $253 million or $1.12 per share, compared with net loss of $22 million or $0.09 per share in last year’s third quarter. This year’s third quarter results included a $37 million non-cash after-tax charge for the termination of a defined benefit pension plan. As a reminder, last year’s third quarter financials were restated for the adoption of the LDTI (Long Duration Targeted Improvements) accounting standard.
Book value per share increased from $60.81 at the end of 2022 to $64.43 at the end of the third quarter of 2023. Book value per share excluding AOCI (Accumulated Other Comprehensive Income) increased from $74.88 at the end of 2022 to $79.92 at the end of the third quarter. This increase was driven by earnings and accretive share repurchases in the first nine months of the year.
We are pleased with the performance of our largest subsidiary, CNA, which contributed net income of $235 million to Loews in 2023’s third quarter compared to a loss of $37 million in the third quarter of last year. The year-over-year increase was driven by higher investment income, higher P&C underwriting income, and a significantly lower impact from the annual reserve assumption review of long-term care.
The increase in net investment income was driven by improved returns on limited partnerships and common stocks as well as higher interest rates on fixed income securities, which continue to be a tailwind. The pre-tax yield on the company’s fixed income portfolio increased approximately 30 basis points from 4.4% in the third quarter of 2022 to 4.7% in the third quarter of 2023.
On the underwriting side, CNA continues to post profitable growth with net written premiums increasing 6%. Net written premium growth consisted of written rate increases of 5% and exposure growth of 1%. Retention
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also remains high at 84%. As a result of this growth, CNA’s underlying combined ratio improved 0.7 points year-over-year to 90.4%. The company also benefited from lower catastrophe losses in this year’s third quarter compared to the third quarter of 2022, which was impacted by Hurricane Ian, resulting in an all-in combined ratio improvement of 1.5 points to 94.3%. This quarter’s catastrophe losses for CNA were the lowest third quarter catastrophe losses since the third quarter of 2019.
CNA continues to proactively manage its run-off long-term care business. The annual reserve assumption review performed in this year’s third quarter resulted in no material change to its reserves as compared to a $131 million charge in last year’s third quarter. As a reminder, under LDTI, discount rates and operating cash flow assumptions have been decoupled – discount rates assumption changes run through the balance sheet under AOCI, and operating assumptions run through the income statement. Last year’s review was unfavorable largely due to the increase of the cost-of-care inflation assumption. In this year’s review, outperformance on premium rate actions and favorable updates to claim severity assumptions offset unfavorable changes to group lapse rate assumptions. In addition, CNA continues to reduce reserves through benefit reductions and cash buyout strategies. Through the third quarter, CNA has spent $160 million on cash buyouts. Although this strategy results in a short-term loss through the income statement, it reduces overall risk in the long run. Higher interest rates have also significantly reduced reinvestment risk in the Life and Group investment portfolio.
Moving on to our natural gas pipeline business, Boardwalk contributed EBITDA of $202 million to Loews in 2023’s third quarter, which represents an increase of $10 million from $192 million in the third quarter of 2022. The company generated higher revenues in this year’s third quarter as the result of higher re-contracting rates, the impact of growth projects, and higher storage revenues due to favorable market conditions. The increase in revenues was partially offset by higher operation and maintenance expenses as a result of pipeline safety compliance rules and higher employee-related costs.
Boardwalk contributed $49 million of net income to Loews in the third quarter of 2023 compared to $34 million in the third quarter of 2022. Net income was impacted by higher depreciation expense from recently completed growth projects, which was partially offset by lower interest expense due to lower borrowings.
As Jim mentioned in his remarks, Boardwalk closed the acquisition of Bayou Ethane from Williams Companies on September 29th. The $348 million purchase price was funded with cash on Boardwalk’s balance sheet, resulting in a remaining cash balance of $265 million at the end of the third quarter.
Loews Hotels continues to post strong results, albeit lower than last year’s record performance. For the third quarter of 2023, Loews Hotels contributed $60 million of Adjusted EBITDA and $17 million of net income versus $76 million and $25 million, respectively, in the prior year’s third quarter. The year-over-year decrease was driven by lower occupancy and rates as leisure travel patterns have returned to pre-pandemic levels. Occupancy was 80.1% in the third quarter of 2023 compared with 84.7% in the prior year’s third quarter.
Finally, turning to the corporate segment: we recorded after-tax investment income of $24 million in 2023’s third quarter compared to an after-tax loss of $15 million in the third quarter of 2022. The increase was driven by improved performance in the parent company’s common stock portfolio as well as higher interest rates on the cash and short-term investment portfolio.
In the third quarter of this year, we terminated our parent company cash balance retirement plan. Since that plan was fully funded, we took the opportunity to pay distributions to eligible participants who elected lump sum payments and transferred the remaining portion of the assets and liabilities to an insurance company. The settlement accounting resulted in a non-cash after-tax charge of $37 million in the third quarter to recognize unrealized losses which were included in AOCI.
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From a cash flow perspective, we received $104 million in dividends from CNA in the third quarter of 2023. Since the end of the second quarter, Loews has repurchased an incremental 2.9 million shares of its common stock at a cost of $182 million. That brings our total year-to-date share repurchases through last Friday to 12.9 million shares at a total cost of $775 million.
Loews ended the third quarter with $2.3 billion in cash and short-term investments and $1.8 billion of parent company debt.
Investor Q&A
Loews has been investing a substantial amount of capital into Loews Hotels. What are the expected returns on those projects?
We typically evaluate the attractiveness of new hotel projects using a cash-on-cash return metric. Specifically, we compare the project’s stabilized cash flow projections to the amount of equity required and we generally target mid-to-high teens returns based on that metric.
Jane, can you provide some color on how rising interest rates will impact the subsidiaries?
Most of our subsidiaries have fixed rate debt. Altium has floating rate debt, but approximately half is hedged until 2028. While refinancings will result in higher interest expense, the overall financial impact to Loews is positive as CNA is able to re-invest its portfolio at more attractive yields.
Jim, can you discuss Loews’s recent purchase of $175 million of CNA stock?
In the past we have purchased CNA shares to signal to the market that we believe that CNA is significantly undervalued, and this time was no different. I would also point out that this purchase did not impede our ability to continue buying Loews shares. Year-to-date we have spent $775 million to repurchase 12.9 million shares of Loews.
Jim, would you like to make any general remarks about the economy?
In my second quarter remarks I discussed how, in the past 10 years, we got to where we are today in terms of the economy and interest rates. At that time, I made the statement that fixed income securities were becoming an investible class of assets for money managers after being non-investible for the past 15 years. Today, ten-year notes yield about 4.85%, up from just under 4% three months ago. While fixed income securities may be investible, I also said not to expect capital gains from investing in those securities. They would provide a good flow of income but might not provide much in the capital gains department.
A big problem with investing in fixed income securities is that the U.S. government will have what seems to be unsustainably large deficits as far as the eye can see . . . and even farther. The current forecast is for federal budget deficits to be in the $2 trillion range going forward. That means the government will have to raise $2 trillion every year in the debt markets – a very tall order. Already we are in the danger zone with government debt at more than 120% of GDP . . . and that ratio of government debt to GDP will go up in the future if these large deficits continue.
In my comments last quarter, I said that from 2007 to 2020 “federal interest expense increased by just over 20% from $413 billion in 2007 to $508 billion in 2020, even as the national debt increased by a factor of three from $9.2 trillion to $27.7 trillion.” Because of the combination of ZIRP (zero interest rate policy) and QE (quantitative easing) interest rates stayed low in that period. But inflation has forced the Fed to come to the realization that the printing presses can't go on forever without serious repercussions on the interest rate front. And so the narcotic of loose money that cheered the bond market for 15 years has ended and we are faced with the reality of higher inflation, and higher interest rates, and therefore greater deficits.
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Today we have budget deficits of 5.4% of GDP and federal spending at around $6.3 trillion. The federal government will be borrowing about 25% of its annual spending. And relative to the size of the economy, the CBO projects that the nation’s budgetary shortfall will climb from 5.8% of GDP in 2024 to 7.3% in 2033.
As a result of all these factors, there’s lots of uncertainty on the budgetary front, and also on the inflation front. But an investor can, as they say, have his cake and eat it too (whatever that means!). If you’re worried about inflation and budget deficits, and therefore don’t want to be invested in the fixed income markets, there’s a security that is custom-made for you. The government sells inflation protected or real yield bonds known as TIPS (which stands for Treasury Inflation-Protected Securities) which pay a fixed real interest rate above the year-over-year CPI inflation rate. If inflation goes up, so does your return- and vice versa if inflation goes down. So, no matter what happens to inflation, you will earn a pre-determined real rate of return (i.e., after considering inflation).
The government started selling TIPS in the late ‘90s. At the turn of the century, TIPS traded at a real yield of more than 4% . . . but that was eons ago and the world was much different. In the past 15 years, 10-year TIPS traded between a -1% and 2% real yield. Today they are at 2.4%. That means that for the next 10 years, the government will pay you a 2.4% premium over the inflation rate. So if the CPI goes up to 5% in one year you will earn 7.4%, and if the CPI is 2% you will earn 4.4%. Think of it: a government-backed 10-year security that will pay you 240 basis points over the inflation rate. In today’s world with all the attendant risks, that sounds like a pretty good deal to me.
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Reconciliation of GAAP Measures to Non-GAAP Measures
These earnings remarks contain financial measures that are not in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Management believes some investors may find these measures useful to evaluate our and our subsidiaries’ financial performance. Boardwalk Pipelines utilizes earnings before interest, income tax expense, depreciation and amortization (“EBITDA”), and Loews Hotels & Co utilizes Adjusted EBITDA. These measures are defined and reconciled to the most comparable GAAP measures on pages 7 and 8 of these remarks.
About Loews Corporation
Loews Corporation is a diversified company with businesses in the insurance, energy, hospitality and packaging industries. For more information, please visit www.loews.com.
Forward-Looking Statements
Statements contained in these earnings remarks which are not historical facts are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are inherently uncertain and subject to a variety of risks that could cause actual results to differ materially from those expected by management of the Company. A discussion of the important risk factors and other considerations that could materially impact these matters as well as the Company's overall business and financial performance can be found in the Company's reports filed with the Securities and Exchange Commission and readers of this release are urged to review those reports carefully when considering these forward-looking statements. Copies of these reports are available through the Company's website (www.loews.com). Given these risk factors, investors and analysts should not place undue reliance on forward-looking statements. Any such forward-looking statements speak only as of the date of these remarks. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based.
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Definitions of Non-GAAP Measures and Reconciliation of GAAP Measures to Non-GAAP Measures:
Boardwalk Pipelines
EBITDA is defined as earnings before interest, income tax expense, depreciation and amortization. The following table presents a reconciliation of Boardwalk net income attributable to Loews Corporation to EBITDA:
| Three Months Ended September 30, | ||||||||
| (In millions) | 2023 | 2022 | ||||||
| Boardwalk net income attributable to Loews Corporation | $ | 49 | $ | 34 | ||||
| Interest, net | 33 | 42 | ||||||
| Income tax expense | 17 | 13 | ||||||
| Depreciation and amortization | 103 | 103 | ||||||
| EBITDA | $ | 202 | $ | 192 | ||||
Please refer to Loews’s Q4 2018 Earnings Results Supplement, available on the investor relations section of our website, for a reconciliation of Boardwalk’s 2018 net income attributable to Loews to its 2018 EBITDA.
Loews Hotels & Co
Adjusted EBITDA is calculated by excluding from Loews Hotels & Co’s EBITDA, noncontrolling interest share of EBITDA adjustments, state and local government development grants, gains or losses on asset acquisitions and dispositions, asset impairments, and equity method income, and including Loews Hotels & Co’s pro rata Adjusted EBITDA of equity method investments. Pro rata Adjusted EBITDA of equity method investments is calculated by applying Loews Hotels & Co’s ownership percentage to the underlying equity method investment’s components of EBITDA and excluding distributions in excess of basis.
The following table presents a reconciliation of Loews Hotels & Co net income attributable to Loews Corporation to Adjusted EBITDA:
| Three Months Ended September 30, | Trailing Twelve Months (a) | ||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Loews Hotels & Co net income attributable to Loews Corporation | $ | 17 | $ | 25 | $ | 148 | |||||
| Interest, net | 1 | (1) | 9 | ||||||||
| Income tax expense | 7 | 9 | 52 | ||||||||
| Depreciation and amortization | 18 | 16 | 68 | ||||||||
| EBITDA | 43 | 49 | 277 | ||||||||
| Noncontrolling interest share of EBITDA adjustments | (2) | (1) | (3) | ||||||||
| Gain on asset acquisition | (46) | ||||||||||
| Asset impairments | 8 | 12 | |||||||||
| Equity investment adjustments: | |||||||||||
| Loews Hotels & Co’s equity method income | (26) | (36) | (131) | ||||||||
| Pro rata Adjusted EBITDA of equity method investments | 45 | 56 | 222 | ||||||||
| Consolidation adjustments | (1) | ||||||||||
| Adjusted EBITDA | $ | 60 | $ | 76 | $ | 330 | |||||
The following table presents a reconciliation of Loews Hotels & Co’s equity method income to Pro rata Adjusted EBITDA of equity method investments:
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| Three Months Ended September 30, | Trailing Twelve Months (a) | ||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Loews Hotels & Co’s equity method income | $ | 26 | $ | 36 | $ | 131 | |||||
| Pro rata share of equity method investments: | |||||||||||
| Interest, net | 10 | 10 | 44 | ||||||||
| Income tax expense | |||||||||||
| Depreciation and amortization | 12 | 12 | 49 | ||||||||
| Distributions in excess of basis | (3) | (3) | (3) | ||||||||
| Consolidation adjustments | 1 | 1 | |||||||||
| Pro rata Adjusted EBITDA of equity method investments | $ | 45 | $ | 56 | $ | 222 | |||||
| (a) | Represents the twelve months ended September 30, 2023. | ||||
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