Edgar Filing: LOEWS CORP

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 1-6541

LOEWS CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		13-2646102
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

667 Madison Avenue, New York, N.Y. 10065-8087

(Address of principal executive offices) (Zip Code)

(212) 521-2000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X No Not Applicable

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X


Class				Outstanding at April 22, 2013
Common stock, $0.01 par value				388,965,441 shares

INDEX


	Page No.

Part I. Financial Information

Item 1. Financial Statements (unaudited)

Consolidated Condensed Balance Sheets March 31, 2013 and December 31, 2012		3

Consolidated Condensed Statements of Income Three months ended March 31, 2013 and 2012		4

Consolidated Condensed Statements of Comprehensive Income Three months ended March 31, 2013 and 2012		5

Consolidated Condensed Statements of Equity Three months ended March 31, 2013 and 2012		6

Consolidated Condensed Statements of Cash Flows Three months ended March 31, 2013 and 2012		7

Notes to Consolidated Condensed Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3. Quantitative and Qualitative Disclosures about Market Risk		56

Item 4. Controls and Procedures		56

Part II. Other Information		57

Item 1. Legal Proceedings		57

Item 1A. Risk Factors		57

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

Item 6. Exhibits		58

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


	March 31, 2013		December 31, 2012

(Dollar amounts in millions, except per share data)

Assets:

Investments:
Fixed maturities, amortized cost of $38,668 and $38,324	$	42,912	$	42,765
Equity securities, cost of $709 and $893		691		898
Limited partnership investments		3,207		3,090
Other invested assets, primarily mortgage loans		473		460
Short term investments		5,901		5,835

Total investments		53,184		53,048
Cash		179		228
Receivables		9,605		9,366
Property, plant and equipment		14,204		13,935
Goodwill		993		996
Other assets		1,529		1,538
Deferred acquisition costs of insurance subsidiaries		641		598
Separate account business		279		312

Total assets	$	80,614	$	80,021


Liabilities and Equity:

Insurance reserves:
Claim and claim adjustment expense	$	24,511	$	24,763
Future policy benefits		11,469		11,475
Unearned premiums		3,759		3,610
Policyholders’ funds		154		157

Total insurance reserves		39,893		40,005
Payable to brokers		738		205
Short term debt		19		19
Long term debt		9,418		9,191
Deferred income taxes		895		840
Other liabilities		4,654		4,773
Separate account business		279		312

Total liabilities		55,896		55,345

Preferred stock, $0.10 par value:
Authorized – 100,000,000 shares
Common stock, $0.01 par value:
Authorized – 1,800,000,000 shares
Issued – 392,242,941 and 392,054,766 shares		4		4
Additional paid-in capital		3,589		3,595
Retained earnings		15,410		15,192
Accumulated other comprehensive income		566		678

		19,569		19,469
Less treasury stock, at cost (2,344,500 and 249,600 shares)		(102)		(10)

Total shareholders’ equity		19,467		19,459
Noncontrolling interests		5,251		5,217

Total equity		24,718		24,676

Total liabilities and equity	$	80,614	$	80,021

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)


Three Months Ended March 31	2013			2012

(In millions, except per share data)

Revenues:
Insurance premiums	$	1,764		$	1,649
Net investment income		641			726
Investment gains (losses):
Other-than-temporary impairment losses		(18	)		(15)
Portion of other-than-temporary impairment losses recognized in Other comprehensive income (loss)					(12)

Net impairment losses recognized in earnings		(18	)		(27)
Other net investment gains		42			59

Total investment gains		24			32
Contract drilling revenues		700			755
Other		605			582

Total		3,734			3,744


Expenses:
Insurance claims and policyholders’ benefits		1,429			1,381
Amortization of deferred acquisition costs		328			295
Contract drilling expenses		375			397
Other operating expenses		982			819
Interest		108			111

Total		3,222			3,003

Income before income tax		512			741
Income tax expense		(114	)		(222)

Net income		398			519
Amounts attributable to noncontrolling interests		(156	)		(152)

Net income attributable to Loews Corporation	$	242		$	367


Basic net income per share	$	0.62		$	0.93


Diluted net income per share	$	0.62		$	0.92


Dividends per share	$	0.0625		$	0.0625


Weighted-average shares outstanding:
Shares of common stock		391.39			396.77
Dilutive potential shares of common stock		0.77			0.67

Total weighted-average shares outstanding assuming dilution		392.16			397.44

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


Three Months Ended March 31	2013			2012

(In millions)

Net income	$	398		$	519


Other comprehensive income (loss), after tax
Changes in:
Net unrealized gains on investments with other-than-temporary impairments		14			40
Net other unrealized gains (losses) on investments		(62	)		217

Total unrealized gains (losses) on available-for-sale investments		(48	)		257
Unrealized gains (losses) on cash flow hedges		(21	)		15
Pension liability		4			7
Foreign currency		(61	)		21


Other comprehensive income (loss)		(126	)		300


Comprehensive income		272			819

Amounts attributable to noncontrolling interests		(142	)		(183)


Total comprehensive income attributable to Loews Corporation	$	130		$	636

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

(Unaudited)


				Loews Corporation Shareholders

	Total			Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Common Stock Held in Treasury			Noncontrolling Interests

(In millions)

Balance, January 1, 2012	$	23,203		$	4	$	3,494	$	14,890	$	384	$	-		$	4,431
Net income		519							367							152
Other comprehensive income		300									269					31
Dividends paid		(133	)						(25)							(108)
Issuance of equity securities by subsidiary		222					36				1					185
Issuance of Loews common stock		5					5
Stock-based compensation		6					5									1
Other		(1	)				(2)									1

Balance, March 31, 2012	$	24,121		$	4	$	3,538	$	15,232	$	654	$	-		$	4,693


Balance, January 1, 2013	$	24,676		$	4	$	3,595	$	15,192	$	678	$	(10	)	$	5,217
Net income		398							242							156
Other comprehensive loss		(126	)								(112)					(14)
Dividends paid		(146	)						(24)							(122)
Purchase of Loews treasury stock		(92	)										(92	)
Issuance of Loews common stock		3					3
Stock-based compensation		4					(9)									13
Other		1														1

Balance, March 31, 2013	$	24,718		$	4	$	3,589	$	15,410	$	566	$	(102	)	$	5,251

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


Three Months Ended March 31	2013			2012

(In millions)

Operating Activities:

Net income	$	398		$	519
Adjustments to reconcile net income to net cash provided (used) by operating activities, net		335			270
Changes in operating assets and liabilities, net:
Receivables		(68	)		142
Deferred acquisition costs		(40	)		(15)
Insurance reserves		79			99
Other assets		(3	)		(6)
Other liabilities		(101	)		(187)
Trading securities		8			(494)

Net cash flow operating activities		608			328


Investing Activities:

Purchases of fixed maturities		(2,720	)		(2,842)
Proceeds from sales of fixed maturities		1,409			1,929
Proceeds from maturities of fixed maturities		866			683
Purchases of equity securities		(12	)		(12)
Proceeds from sales of equity securities		51			19
Purchases of limited partnership investments		(41	)		(66)
Proceeds from sales of limited partnership investments		58			97
Purchases of property, plant and equipment		(602	)		(238)
Dispositions		5			41
Change in short term investments		375			(88)
Other, net		(22	)		(36)

Net cash flow investing activities		(633	)		(513)


Financing Activities:

Dividends paid		(24	)		(25)
Dividends paid to noncontrolling interests		(122	)		(108)
Purchases of treasury shares		(95	)
Issuance of common stock		3			5
Proceeds from sale of subsidiary stock		1			245
Principal payments on debt		(196	)		(331)
Issuance of debt		420			370
Other, net		(4	)		(2)

Net cash flow financing activities		(17	)		154


Effect of foreign exchange rate on cash		(7	)		1


Net change in cash		(49	)		(30)
Cash, beginning of period		228			129

Cash, end of period	$	179		$	99

See accompanying Notes to Consolidated Condensed Financial Statements.

Loews Corporation and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Loews Corporation is a holding company. Its subsidiaries are engaged in the following lines of business: commercial property and casualty insurance (CNA Financial Corporation (“CNA”), a 90% owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (“Diamond Offshore”), a 50.4% owned subsidiary); transportation and storage of natural gas and natural gas liquids and gathering and processing of natural gas (Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”), a 55% owned subsidiary); exploration, production and marketing of natural gas and oil (including condensate and natural gas liquids), (HighMount Exploration & Production LLC (“HighMount”), a wholly owned subsidiary); and the operation of a chain of hotels (Loews Hotels Holding Corporation (“Loews Hotels”), a wholly owned subsidiary). Unless the context otherwise requires, the terms “Company,” “Loews” and “Registrant” as used herein mean Loews Corporation excluding its subsidiaries and the term “Net income (loss) attributable to Loews Corporation” as used herein means Net income (loss) attributable to Loews Corporation shareholders.

In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 2013 and December 31, 2012 and the results of operations, comprehensive income and changes in shareholders’ equity and cash flows for the three months ended March 31, 2013 and 2012.

Net income for the first quarter of each of the years is not necessarily indicative of net income for that entire year.

Reference is made to the Notes to Consolidated Financial Statements in the 2012 Annual Report on Form 10-K which should be read in conjunction with these Consolidated Condensed Financial Statements.

The Company presents basic and diluted net income per share on the Consolidated Condensed Statements of Income. Basic net income per share excludes dilution and is computed by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Stock appreciation rights (“SARs”) of 2.0 million and 2.2 million shares were not included in the diluted weighted average shares amount for the three months ended March 31, 2013 and 2012 due to the exercise price being greater than the average stock price.

Impairment of Natural Gas and Oil Properties – For the three months ended March 31, 2013 and 2012, HighMount recorded a non-cash ceiling test impairment charge of $145 million and $44 million ($92 million and $28 million after tax) related to the carrying value of its natural gas and oil properties. The impairments were recorded within Other operating expenses and as credits to Accumulated depreciation, depletion and amortization. The 2013 write-down was attributable to reduced average natural gas liquids (“NGL”) and oil prices used in the ceiling test calculation and negative reserve revisions. Had the effects of HighMount’s cash flow hedges not been considered in calculating the ceiling limitation, the impairments would have been $195 million and $69 million ($124 million and $44 million after tax) for the three months ended March 31, 2013 and 2012. As a result of the ceiling test impairment charge, HighMount performed a goodwill impairment test and no impairment charge was required.

2. Investments

Net investment income is as follows:


Three Months Ended March 31	2013			2012

(In millions)

Fixed maturity securities	$	499		$	516
Short term investments		2			3
Limited partnership investments		146			143
Equity securities		3			4
Income (loss) from trading portfolio (a)		(3	)		70
Other		6			4

Total investment income		653			740
Investment expenses		(12	)		(14)

Net investment income	$	641		$	726

(a)	Includes net unrealized gains (losses) related to changes in fair value on trading securities still held of $(15) million and $36 million for the three months ended March 31, 2013 and 2012.

Investment gains (losses) are as follows:


Three Months Ended March 31	2013			2012

(In millions)

Fixed maturity securities	$	32		$	30
Equity securities		(13	)		1
Derivative instruments		2			(1)
Short term investments and other		3			2

Investment gains (a)	$	24		$	32

(a)	Includes gross realized gains of $46 million and $72 million and gross realized losses of $27 million and $41 million on available-for-sale securities for the three months ended March 31, 2013 and 2012.

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


Three Months Ended March 31	2013		2012

(In millions)

Fixed maturity securities available-for-sale:
Corporate and other bonds	$	3	$	10
Asset-backed:
Residential mortgage-backed				14
U.S. Treasury and obligations of government-sponsored enterprises				1

Total fixed maturities available-for-sale		3		25

Equity securities available-for-sale:
Common stock				2
Preferred stock		15

Total equity securities available-for-sale		15		2

Net OTTI losses recognized in earnings	$	18	$	27

A security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded OTTI losses, otherwise defined as an unrealized loss. When a security is impaired, the impairment is evaluated to determine whether it is temporary or other-than-temporary.

Significant judgment is required in the determination of whether an OTTI loss has occurred for a security. CNA follows a consistent and systematic process for determining and recording an OTTI loss. CNA has established a committee responsible for the OTTI process. This committee, referred to as the Impairment Committee, is made up of three officers appointed by CNA’s Chief Financial Officer. The Impairment Committee is responsible for evaluating all securities in an unrealized loss position on at least a quarterly basis.

The Impairment Committee’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that CNA intends to sell, or it more likely than not will be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. The factors considered by the Impairment Committee include: (i) the financial condition and near term prospects of the issuer, (ii) whether the debtor is current on interest and principal payments, (iii) credit ratings of the securities and (iv) general market conditions and industry or sector specific outlook. CNA also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities.

The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit

component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as OTTI in Other comprehensive income. In subsequent reporting periods, a change in intent to sell or further credit impairment on a security whose fair value has not deteriorated will cause the non-credit component originally recorded as OTTI in Other comprehensive income to be recognized as an OTTI loss in earnings.

CNA performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability. For asset-backed securities, significant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers and credit support from lower level tranches.

CNA applies the same impairment model as described above for the majority of non-redeemable preferred stock securities on the basis that these securities possess characteristics similar to debt securities and that the issuers maintain their ability to pay dividends. For all other equity securities, in determining whether the security is other-than-temporarily impaired, the Impairment Committee considers a number of factors including, but not limited to: (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near term prospects of the issuer, (iii) the intent and ability of CNA to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (iv) general market conditions and industry or sector specific outlook.

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

March 31, 2013

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Unrealized
OTTI Losses
(Gains)

(In millions)

Fixed maturity securities:

Corporate and other bonds

$ 19,747

$ 2,562

$ 18

$22,291

States, municipalities and political subdivisions

9,599

1,408

10,948

Asset-backed:

Residential mortgage-backed

5,518

235

5,683

$ (49)

Commercial mortgage-backed

1,853

147

1,990

(3)

Other asset-backed

932

955

Total asset-backed

8,303

405

8,628

(52)

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

170

181

Foreign government

528

552

Redeemable preferred stock

123

136

Fixed maturities available-for-sale

38,470

4,424

158

42,736

(52)

Fixed maturities, trading

198

176

Total fixed maturities

38,668

4,424

180

42,912

(52)

Equity securities:

Common stock

Preferred stock

139

146

Equity securities available-for-sale

177

201

Equity securities, trading

532

490

Total equity securities

709

691

Total

$ 39,377

$ 4,499

$ 273

$43,603

$ (52)


December 31, 2012	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Unrealized OTTI Losses (Gains)

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	19,530		$ 2,698	$	21	$	22,207
States, municipalities and political subdivisions		9,372		1,455		44		10,783
Asset-backed:
Residential mortgage-backed		5,745		246		71		5,920	$	(28)
Commercial mortgage-backed		1,692		147		17		1,822		(3)
Other asset-backed		929		23				952

Total asset-backed		8,366		416		88		8,694		(31)
U.S. Treasury and obligations of government-sponsored enterprises		172		11		1		182
Foreign government		588		25				613
Redeemable preferred stock		113		13		1		125

Fixed maturities available-for-sale		38,141		4,618		155		42,604		(31)
Fixed maturities, trading		183				22		161

Total fixed maturities		38,324		4,618		177		42,765		(31)

Equity securities:
Common stock		38		14				52
Preferred stock		190		7				197

Equity securities available-for-sale		228		21		-		249		-
Equity securities, trading		665		80		96		649

Total equity securities		893		101		96		898		-

Total	$	39,217		$ 4,719	$	273	$	43,663	$	(31)

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 noncontrolling interests and any required Shadow Adjustments. At March 31, 2013 and December 31, 2012, the net unrealized gains on investments included in AOCI were net of Shadow Adjustments of $1.3 billion and $1.4 billion. To the extent that unrealized gains on fixed income securities supporting certain products within CNA’s Life & Group Non-Core segment would result in a premium deficiency if realized, a related decrease in Deferred acquisition costs, and/or increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains (losses) through Other comprehensive income (Shadow Adjustments).

The available-for-sale securities in a gross unrealized loss position are as follows:

Less than

12 Months

or Longer

Total

Gross

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

March 31, 2013

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In millions)

Fixed maturity securities:

Corporate and other bonds

951

1,001

States, municipalities and political subdivisions

683

121

804

Asset-backed:

Residential mortgage-backed

920

347

1,267

Commercial mortgage-backed

155

141

296

Total asset-backed

1,075

488

1,563

Redeemable preferred stock

Total

2,743

659

107

3,402

158


	Less than				12 Months
	12 Months				or Longer				Total

			Gross				Gross				Gross
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
December 31, 2012	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	846	$	13	$	108	$	8	$	954	$	21
States, municipalities and political subdivisions		254		5		165		39		419		44
Asset-backed:
Residential mortgage-backed		583		5		452		66		1,035		71
Commercial mortgage-backed		85		2		141		15		226		17

Total asset-backed		668		7		593		81		1,261		88
U.S. Treasury and obligations of government- sponsored enterprises		23		1						23		1
Redeemable preferred stock		28		1						28		1

Total	$	1,819	$	27	$	866	$	128	$	2,685	$	155

The amount of pretax net realized gains on available-for-sale securities reclassified out of AOCI into earnings was $19 million and $32 million for the three months ended March 31, 2013 and 2012.

Based on current facts and circumstances, the Company believes the unrealized losses presented in the table above are primarily attributable to broader economic conditions, changes in interest rates and credit spreads, market illiquidity and other market factors, but are not indicative of the ultimate collectibility of the current amortized cost of the securities. The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at March 31, 2013.

The following table summarizes the activity for the three months ended March 31, 2013 and 2012 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at March 31, 2013 and 2012 for which a portion of an OTTI loss was recognized in Other comprehensive income.


Three Months Ended March 31	2013			2012

(In millions)

Beginning balance of credit losses on fixed maturity securities	$	95		$	92
Additional credit losses for securities for which an OTTI loss was previously recognized					11
Credit losses for securities for which an OTTI loss was not previously recognized					1
Reductions for securities sold during the period		(3	)		(4)

Ending balance of credit losses on fixed maturity securities	$	92		$	100

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at March 31, 2013 and December 31, 2012. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life.

March 31, 2013

December 3 1, 2012

Cost or

Estimated

Cost or

Estimated

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

(In millions)

Due in one year or less

1,783

1,819

1,648

1,665

Due after one year through five years

12,916

13,731

13,603

14,442

Due after five years through ten years

9,430

10,267

8,726

9,555

Due after ten years

14,341

16,919

14,164

16,942

Total

38,470

42,736

38,141

42,604

Investment Commitments

As of March 31, 2013, the Company had committed approximately $247 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. As of March 31, 2013, the Company had commitments to purchase or fund additional amounts of $167 million and sell $210 million under the terms of such securities.

3. 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.

The type of financial instruments being measured and the methodologies and inputs used at March 31, 2013 were consistent with those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2012.

Prices may fall within Level 1, 2 or 3 depending upon the methodologies 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 methodologies and inputs the Company believes market participants would use to value the assets.

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 include (i) the review of pricing service or broker pricing methodologies, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where changes in price, period-over-period, are reviewed and challenged with the pricing service or broker based on exception criteria, (iv) detailed analysis, where the Company independently validates information regarding inputs and assumptions for individual securities and (v) pricing validation, where prices received are compared to prices independently estimated by the Company.

The fair values of CNA’s life settlement contracts are included in Other assets on the Consolidated Condensed Balance Sheets. Equity options purchased are included in Equity securities, and all other derivative assets are included in Receivables. Derivative liabilities are included in Payable to brokers. Assets and liabilities measured at fair value on a recurring basis are summarized in the tables below:

March 31, 2013

Level 1

Level 2

Level 3

Total

(In millions)

Fixed maturity securities:

Corporate and other bonds

21,980

283

22,291

States, municipalities and political subdivisions

10,819

129

10,948

Asset-backed:

Residential mortgage-backed

5,233

450

5,683

Commercial mortgage-backed

1,813

177

1,990

Other asset-backed

559

396

955

Total asset-backed

7,605

1,023

8,628

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

155

181

Foreign government

104

448

552

Redeemable preferred stock

136

Fixed maturities available-for-sale

338

40,937

1,461

42,736

Fixed maturities, trading

107

176

Total fixed maturities

342

41,002

1,568

42,912

Equity securities available-for-sale

120

201

Equity securities, trading

487

490

Total equity securities

607

691

Short term investments

5,448

397

5,850

Other invested assets

Receivables

Life settlement contracts

Separate account business

266

279

Payable to brokers

(379

)

(18

)

(402)


December 31, 2012	Level 1			Level 2			Level 3			Total

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	6		$	21,982		$	219		$	22,207
States, municipalities and political subdivisions					10,687			96			10,783
Asset-backed:
Residential mortgage-backed					5,507			413			5,920
Commercial mortgage-backed					1,693			129			1,822
Other asset-backed					584			368			952

Total asset-backed					7,784			910			8,694
U.S. Treasury and obligations of government-sponsored enterprises		158			24						182
Foreign government		140			473						613
Redeemable preferred stock		40			59			26			125

Fixed maturities available-for-sale		344			41,009			1,251			42,604
Fixed maturities, trading					72			89			161

Total fixed maturities	$	344		$	41,081		$	1,340		$	42,765


Equity securities available-for-sale	$	117		$	98		$	34		$	249
Equity securities, trading		642						7			649

Total equity securities	$	759		$	98		$	41		$	898


Short term investments	$	4,990		$	799		$	6		$	5,795
Other invested assets					58			1			59
Receivables					32			11			43
Life settlement contracts								100			100
Separate account business		4			306			2			312
Payable to brokers		(95	)		(11	)		(6	)		(112)

The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2013 and 2012:


2013	Balance, January 1		Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)				Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, March 31		Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities


			Included in Net Income		Included in OCI														Held at March 31

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	219			$	2	$	91	$	(17)	$	(20)	$	26	$	(18)	$	283	$	(1)
States, municipalities and political subdivisions		96	$	(3)				85		(47)		(2)						129
Asset-backed:
Residential mortgage-backed		413		3				61				(11)				(16)		450
Commercial mortgage- backed		129		1		5		73				(7)				(24)		177
Other asset-backed		368		3		1		136		(99)		(13)						396

Total asset-backed		910		7		6		270		(99)		(31)		-		(40)		1,023		-
Redeemable preferred stock		26																26

Fixed maturities available-for-sale		1,251		4		8		446		(163)		(53)		26		(58)		1,461		(1)
Fixed maturities, trading		89		1				19		(2)								107		1

Total fixed maturities	$	1,340	$	5	$	8	$	465	$	(165)	$	(53)	$	26	$	(58)	$	1,568	$	-


Equity securities available-for-sale	$	34	$	(15)	$	1									$	(1)	$	19	$	(15)
Equity securities trading		7		(3)					$	(1)								3		(3)

Total equity securities	$	41	$	(18)	$	1	$	-	$	(1)	$	-	$	-	$	(1)	$	22	$	(18)


Short term investments	$	6							$	(1)							$	5
Other invested assets		1								(1)								-
Life settlement contracts		100	$	7							$	(12)						95
Separate account business		2																2
Derivative financial instruments, net		5		3	$	(4)				1		(3)						2


				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)														Transfers		Transfers						Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities
2012	Balance, January 1			Included in Net Income			Included in OCI			Purchases		Sales			Settlements			into Level 3		out of Level 3			Balance, March 31			Held at March 31

(In millions)

Fixed maturity securities:
Corporate and other bonds	$	482		$	3		$	4		$	78	$	(86	)	$	(19	)	$	33	$	(10	)	$	485
States, municipalities and political subdivisions		171						2																173
Asset-backed:
Residential mortgage-backed		452			1			(4	)		38					(7	)				(33	)		447
Commercial mortgage- backed		59						4			42													105
Other asset-backed		343			4			4			176		(77	)		(25	)				(41	)		384

Total asset-backed		854			5			4			256		(77	)		(32	)		-		(74	)		936
Redeemable preferred stock		-									53													53

Fixed maturities available-for-sale		1,507			8			10			387		(163	)		(51	)		33		(84	)		1,647
Fixed maturities, trading		101			(7	)					7													101		$	(7)

Total fixed maturities	$	1,608		$	1		$	10		$	394	$	(163	)	$	(51	)	$	33	$	(84	)	$	1,748		$	(7)


Equity securities available-for-sale	$	67					$	(3	)	$	11	$	(1	)									$	74		$	(2)
Equity securities trading		14		$	(3	)																		11			(3)

Total equity securities	$	81		$	(3	)	$	(3	)	$	11	$	(1	)	$	-		$	-	$	-		$	85		$	(5)


Short term investments	$	27								$	12				$	(39	)						$	-
Other invested assets		11																						11
Life settlement contracts		117		$	3											(5	)							115		$	(1)
Separate account business		23										$	(19	)										4
Derivative financial instruments, net		(15	)		(6	)	$	13			1		(5	)		4								(8	)		1

Net realized and unrealized gains and losses are reported in Net income as follows:


Major Category of Assets and Liabilities		Consolidated Condensed Statements of Income Line Items


Fixed maturity securities available-for-sale		Investment gains (losses)
Fixed maturity securities, trading		Net investment income
Equity securities available-for-sale		Investment gains (losses)
Equity securities, trading		Net investment income
Other invested assets		Investment gains (losses) and Net investment income
Derivative financial instruments held in a trading portfolio		Net investment income
Derivative financial instruments, other		Investment gains (losses) and Other revenues
Life settlement contracts		Other revenues

Securities shown in the Level 3 tables may be transferred in or out of Level 3 based on the availability of observable market information used to determine the fair value of the security. The availability of observable market information varies based on market conditions and trading volume and may cause securities to move in and out of Level 3 from reporting period to reporting period. There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2013 and 2012. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods.

Significant Unobservable Inputs

The table below presents 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 table below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available to the Company.

March 31, 2013

Fair Value

Valuation
Technique(s)

Unobservable

Input(s)

Range

(Weighted

Average)

(In millions)

Assets

Fixed maturity securities

Discounted cash
flow

Expected call date

3.0 – 4.6 years (4.0 years)

Credit spread adjustment

0.02% – 0.48% (0.17%)

Market approach

Private offering price

$34.70 – $122.09 ($102.97)

Equity securities

Market approach

Private offering price

$33.73 –$3,970.99 per share

($1,114.32 per share)

Life settlement contracts

Discounted cash
flow

Discount rate risk premium

Mortality assumption

69% – 883% (209.2%)

December 31, 2012

Assets

Fixed maturity securities

121

Discounted cash flow

Expected call date

3.3 – 5.3 years (4.3 years)

Credit spread adjustment

0.02% – 0.48% (0.17%)

Market approach

Private offering price

$42.39 – $102.32 ($100.11)

Equity securities

Market approach

Private offering price

$4.54 – $3,842.00 per share

($571.17 per share)

Life settlement contracts

100

Discounted cash flow

Discount rate risk premium

Mortality assumption

69% – 883% (208.9%)

For fixed maturity securities, an increase to the expected call date assumption and credit spread adjustment or decrease in the private offering price would result in a lower fair value measurement. For equity securities, an increase in the private offering price would result in a higher fair value measurement. For life settlement contracts, an increase in the discount rate risk premium or decrease in the mortality assumption would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value

The methods and assumptions used to estimate the fair value for financial assets and liabilities not measured at fair value were consistent with those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2012.

The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial instrument assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are listed in the tables below. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.


	Carrying		Estimated Fair Value
March 31, 2013	Amount		Level 1	Level 2		Level 3		Total
(In millions)

Financial Assets:
Other invested assets, primarily mortgage loans	$	425				$	449	$	449

Financial Liabilities:
Premium deposits and annuity contracts		96					100		100
Short term debt		19		$	13		6		19
Long term debt		9,418			10,216		350		10,566

December 31, 2012

Financial Assets:
Other invested assets, primarily mortgage loans	$	401				$	418	$	418

Financial Liabilities:
Premium deposits and annuity contracts		100					104		104
Short term debt		19		$	13		6		19
Long term debt		9,191			10,170		202		10,372

4. Derivative Financial Instruments

A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments.


	March 31, 2013						December 31, 2012

	Contractual/ Notional		Estimated Fair Value				Contractual/ Notional		Estimated Fair Value

	Amount		Asset		(Liability)		Amount		Asset		(Liability)

(In millions)

With hedge designation:

Interest rate risk:
Interest rate swaps	$	300			$	(5)	$	300			$	(6)
Commodities:
Forwards – short		319	$	20		(14)		288	$	39		(3)
Foreign exchange:
Currency forwards – short		125		3		(1)		144		4

Without hedge designation:

Equity markets:
Options – purchased		972		19				255		19
– written		866				(13)		374				(11)
Equity swaps and warrants
– long		13		3				14		6

Interest rate risk:
Credit default swaps
– purchased protection		73				(3)		78				(2)
– sold protection		27						33				(2)
Foreign exchange:
Currency forwards – long		63		1				404				(2)
– short		72						128

Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets. There would be no significant difference in the balance included in such accounts if the estimated fair values were presented net for the periods ended March 31, 2013 and December 31, 2012.

For derivative financial instruments without hedge designation, changes in the fair value of derivatives not held in a trading portfolio are reported in Investment gains (losses) and changes in the fair value of derivatives held for trading purposes are reported in Net investment income on the Consolidated Condensed Statements of Income. Gains of $2 million and losses of $1 million were included in Investment gains (losses) for the three months ended March 31, 2013 and 2012. Losses of $13 million and $4 million were included in Net investment income for the three months ended March 31, 2013 and 2012.

The Company’s derivative financial instruments with cash flow hedge designation hedge variable price risk associated with the purchase and sale of natural gas and other energy-related products, exposure to foreign currency losses on future foreign currency expenditures, as well as risks attributable to changes in interest rates on long term debt. Losses of $18 million and gains of $34 million were recognized in OCI related to these cash flow hedges for the three months ended March 31, 2013 and 2012. Gains of $13 million and $9 million were reclassified from AOCI into income for the three months ended March 31, 2013 and 2012. As of March 31, 2013, the estimated amount of net unrealized gains associated with these cash flow hedges that will be reclassified from AOCI into earnings during the next twelve months was $4 million. The net amounts recognized due to ineffectiveness were less than $1 million for the three months ended March 31, 2013 and 2012.

5. Claim and Claim Adjustment Expense Reserves

CNA’s property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including claims that are incurred but not reported (“IBNR”) as of the reporting date. CNA’s reserve projections are based primarily on detailed analysis of the facts in each case, CNA’s experience with similar cases and various historical development patterns. Consideration is given to such historical patterns as field reserving trends and claims settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions including inflation and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.

Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can all affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers’ compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that CNA’s ultimate cost for insurance losses will not exceed current estimates.

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in CNA’s results of operations and/or equity. CNA reported catastrophe losses, net of reinsurance, of $39 million and $28 million for the three months ended March 31, 2013 and 2012. Catastrophe losses in the first quarter of 2013 related primarily to U.S. storms.

Net Prior Year Development

The following tables and discussion include the net prior year development recorded for CNA Specialty, CNA Commercial and Other.


	CNA		CNA
Three Months Ended March 31, 2013	Specialty		Commercial		Other		Total

(In millions)

Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(15)	$	(11)			$	(26)
Pretax (favorable) unfavorable premium development		(8)		(10)	$	5		(13)

Total pretax (favorable) unfavorable net prior year development	$	(23)	$	(21)	$	5	$	(39)


Three Months Ended March 31, 2012


Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(6)	$	(14)	$	2	$	(18)
Pretax (favorable) unfavorable premium development		(9)		(17)		1		(25)

Total pretax (favorable) unfavorable net prior year development	$	(15)	$	(31)	$	3	$	(43)

For the three months ended March 31, 2013 and 2012, favorable premium development was recorded for CNA Commercial primarily due to premium adjustments on auditable policies arising from increased exposures.

CNA Specialty

The following table and discussion provide further detail of the net prior year claim and allocated claim adjustment expense reserve development (“development”) recorded for the CNA Specialty segment:


Three Months Ended March 31	2013		2012

(In millions)

Medical professional liability	$	(3)	$	(6)
Other professional liability		(1)		4
Surety		1		1
Warranty				(1)
Other		(12)		(4)

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(15)	$	(6)

2013

Overall, favorable development for medical professional liability reflects favorable experience in accident years 2009 and prior. Unfavorable development was recorded for accident years 2010 and 2011 due to higher than expected large loss activity.

Other includes standard property and casualty coverages provided to CNA Specialty customers. Favorable development for other coverages was primarily due to better than expected loss emergence in property coverages in accident years 2010 and subsequent.

2012

Favorable development for medical professional liability was primarily due to reductions in the estimated frequency of large losses in accident years 2008 and prior.

CNA Commercial

The following table and discussion provide further detail of the development recorded for the CNA Commercial segment:


Three Months Ended March 31	2013		2012

(In millions)

Commercial auto	$	(5)
General liability		(21)	$	8
Workers’ compensation		25		(19)
Property and other		(10)		(3)

Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(11)	$	(14)

2013

Favorable development in the general liability coverages was primarily due to better than expected loss emergence in accident years 2002 and prior.

Unfavorable development for workers’ compensation was primarily due to higher than expected large losses and increased severity in the state of California in accident year 2010.

2012

Overall, favorable development for workers’ compensation reflects favorable experience in accident years 2001 and prior. Unfavorable development was recorded in accident year 2010 related to increased medical severity.

6. Accumulated Other Comprehensive Income (“AOCI”)

The table below presents the change in AOCI by component for the three months ended March 31, 2013.


																						Total
							Cash Flow Hedges															Accumulated

	Unrealized Gains (Losses) On Investments			OTTI Gains (Losses)			Interest Rate Swaps			Commodity Hedges			Foreign Currency Forwards			Pension Liability			Foreign Currency Translation			Other Comprehensive Income (Loss)

(In millions)

Balance, January 1, 2013	$	1,233		$	18		$	(9	)	$	24		$	1		$	(732	)	$	143		$	678

Other comprehensive income (loss) before reclassifications, after tax of $29, $(7), $0, $6, $0, $0 and $0		(49	)		14			1			(13	)								(61	)		(108)
Reclassification of (gains) losses from accumulated other comprehensive income, after tax of $6, $0,$(1), $4, $1, $(3) and $0		(13	)					(1	)		(7	)		(1	)		4						(18)

Other comprehensive income (loss)		(62	)		14			-			(20	)		(1	)		4			(61	)		(126)
Amounts attributable to noncontrolling interests		5			(1	)					2			1			1			6			14

Balance, March 31, 2013	$	1,176		$	31		$	(9	)	$	6		$	1		$	(727	)	$	88		$	566

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


Major Category of AOCI		Affected Line Item


Unrealized gains (losses) on investments		Investment gains (losses)
OTTI gains (losses)		Investment gains (losses)
Cash flow hedges
Interest rate swaps		Interest expense
Commodity hedges		Other revenues
Foreign currency forwards		Contract drilling expenses
Pension liability		Other operating expenses

7. Benefit Plans

Pension Plans - The Company has several non-contributory defined benefit plans for eligible employees. Benefits for certain plans are determined annually based on a specified percentage of annual earnings (based on the participant’s age or years of service) and a specified interest rate (which is established annually for all participants) applied to accrued balances. The benefits for another plan which cover salaried employees are based on formulas which include, among others, years of service and average pay. The Company’s funding policy is to make contributions in accordance with applicable governmental regulatory requirements.

Other Postretirement Benefit Plans - The Company has several postretirement benefit plans covering eligible employees and retirees. Participants generally become eligible after reaching age 55 with required years of service. Actual requirements for coverage vary by plan. Benefits for retirees who were covered by bargaining units vary by each unit and contract. Benefits for certain retirees are in the form of a Company health care account.

Benefits for retirees reaching age 65 are generally integrated with Medicare. Other retirees, based on plan provisions, must use Medicare as their primary coverage, with the Company reimbursing a portion of the unpaid amount; or are reimbursed for the Medicare Part B premium or have no Company coverage. The benefits provided by the Company are basically health and, for certain retirees, life insurance type benefits.

The Company funds certain of these benefit plans and accrues postretirement benefits during the active service of those employees who would become eligible for such benefits when they retire.

The components of net periodic benefit cost are as follows:


	Pension Benefits				Other Postretirement Benefits

Three Months Ended March 31	2013		2012		2013		2012

(In millions)

Service cost		$ 6		$ 6
Interest cost		34		38		$ 1		$ 1
Expected return on plan assets		(49)		(47)		(1)		(1)
Amortization of unrecognized net loss		14		11
Amortization of unrecognized prior service benefit						(6)		(6)

Net periodic benefit cost		$ 5		$ 8		$ (6)		$ (6)

8. Business Segments

The Company’s reportable segments are primarily based on its individual operating subsidiaries. Each of the principal operating subsidiaries are headed by a chief executive officer who is responsible for the operation of its business and has the duties and authority commensurate with that position. Investment gains (losses) and the related income taxes, excluding those of CNA, are included in the Corporate and other segment.

CNA’s results are reported in four business segments: CNA Specialty, CNA Commercial, Life & Group Non-Core and Other. CNA Specialty provides a broad array of professional, financial and specialty property and casualty products and services, primarily through insurance brokers and managing general underwriters. CNA Commercial includes property and casualty coverages sold to small businesses and middle market entities and organizations primarily through an independent agency distribution system. CNA Commercial also includes commercial insurance and risk management products sold to large corporations primarily through insurance brokers. Life & Group Non-Core primarily includes the results of the life and group lines of business that are in run-off. Other includes the operations of Hardy Underwriting Bermuda Limited (“Hardy”) since its acquisition date of July 2, 2012, corporate expenses, including interest on corporate debt, and the results of certain property and casualty business primarily in run-off, including CNA Re and asbestos and environmental pollution. Hardy is a specialized Lloyd’s of London underwriter primarily of short-tail exposures in marine and aviation, non-marine property, specialty lines and property treaty reinsurance.

Diamond Offshore owns and operates offshore drilling rigs that are chartered on a contract basis for fixed terms by companies engaged in exploration and production of hydrocarbons. Offshore rigs are mobile units that can be relocated based on market demand. Diamond Offshore’s fleet consists of 44 drilling rigs, including four new-build rigs which are under construction and two rigs being constructed utilizing the hulls of Diamond Offshore’s existing mid-water floaters. On March 31, 2013, Diamond Offshore’s drilling rigs were located offshore 12 countries in addition to the United States.

Boardwalk Pipeline is engaged in the interstate transportation and storage of natural gas and natural gas liquids (“NGLs”) and gathering and processing of natural gas. This segment consists of interstate natural gas pipeline systems originating in the Gulf Coast region, Oklahoma and Arkansas, and extending north and east through the midwestern states of Tennessee, Kentucky, Illinois, Indiana and Ohio, natural gas storage facilities in four states and NGL pipelines and storage facilities in Louisiana, with approximately 14,410 miles of pipeline.

HighMount is engaged in the exploration, production and marketing of natural gas and oil (including condensate and NGLs), primarily located in the Permian Basin in West Texas as well as the Mississippian Lime in Oklahoma and the Texas Panhandle regions.

Loews Hotels operates a chain of 19 hotels, 17 of which are in the United States and two are in Canada.

The Corporate and other segment consists primarily of corporate investment income, corporate interest expense and other unallocated expenses.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. In addition, CNA does not maintain a distinct investment portfolio for every insurance segment, and accordingly, allocation of assets to each segment is not performed. Therefore, a significant portion of net investment income and investment gains (losses) are allocated based on each segment’s carried insurance reserves, as adjusted.

The following tables set forth the Company’s consolidated revenues and income (loss) by business segment:


Three Months Ended March 31	2013			2012

(In millions)

Revenues (a):

CNA Financial:
CNA Specialty	$	956		$	945
CNA Commercial		1,101			1,088
Life and Group Non-Core		363			350
Other		83			18

Total CNA Financial		2,503			2,401
Diamond Offshore		732			796
Boardwalk Pipeline		329			314
HighMount		68			76
Loews Hotels		94			80
Corporate and other		8			77

Total	$	3,734		$	3,744


Income (loss) before income tax and noncontrolling interests (a):

CNA Financial:
CNA Specialty	$	215		$	209
CNA Commercial		198			227
Life and Group Non-Core		(9	)		(37)
Other		(40	)		(33)

Total CNA Financial		364			366
Diamond Offshore		205			252
Boardwalk Pipeline		99			92
HighMount		(139	)		(34)
Loews Hotels					7
Corporate and other		(17	)		58

Total	$	512		$	741


Three Months Ended March 31	2013			2012

(In millions)

Net income (loss) (a):

CNA Financial:
CNA Specialty	$	128		$	125
CNA Commercial		115			131
Life and Group Non-Core		8			(10)
Other		(25	)		(20)

Total CNA Financial		226			226
Diamond Offshore		82			87
Boardwalk Pipeline		33			35
HighMount		(88	)		(22)
Loews Hotels					4
Corporate and other		(11	)		37

Total	$	242		$	367

(a)	Investment gains included in Revenues, Income before income tax and noncontrolling interests and Net income are as follows:


Three Months Ended March 31	2013		2012


Revenues and Income before income tax and noncontrolling interests:

CNA Financial:
CNA Specialty	$	3	$	8
CNA Commercial		4		11
Life and Group Non-Core		14		13
Other		3

Total	$	24	$	32


Net income:

CNA Financial:
CNA Specialty	$	2	$	5
CNA Commercial		2		6
Life and Group Non-Core		8		7
Other		2		1

Total	$	14	$	19

9. Legal Proceedings

The Company and its subsidiaries are parties to litigation arising in the ordinary course of business. The outcome of this litigation will not, in the opinion of management, materially affect the Company’s results of operations or equity.

10. Commitments and Contingencies

Guarantees

In the course of selling business entities and assets to third parties, CNA has agreed to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such indemnification provisions generally survive for periods ranging from nine months following the applicable closing date to the expiration of the relevant statutes of limitation. As of March 31, 2013, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities, assets and third party loans was $724 million.

In addition, CNA has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of March 31, 2013, CNA had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser’s ownership of an entity or asset, defects in title at the time of

sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. These indemnification agreements survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire.

Offshore Rig Purchase Obligations

Diamond Offshore has entered into four turnkey construction contracts with Hyundai Heavy Industries, Co. Ltd. for the construction of four dynamically positioned, ultra-deepwater drillships, the first two of which are expected to be delivered in the second and fourth quarters of 2013. Diamond Offshore expects the aggregate cost of the construction of its drillships, including commissioning, spares and project management costs, to be approximately $2.6 billion, of which approximately $650 million in contractual installment payments have been paid. These amounts are included in Construction in process within Property, plant and equipment in the Consolidated Condensed Balance Sheets. Diamond Offshore expects to pay a total of approximately $790 million as the two drillships are delivered in 2013.

In December of 2011 and August of 2012, Diamond Offshore entered into agreements for the construction of two moored semisubmersible deepwater rigs with expected completion dates in the third quarter of 2013 and the second quarter of 2014. The rigs will be constructed utilizing the hulls of two of Diamond Offshore’s mid-water floaters and the aggregate cost of the two rigs, including commissioning, spares and project management costs, is estimated to be approximately $690 million, of which $121 million in contractual installment payments have been paid.

In February of 2013, Diamond Offshore entered into a vessel modification agreement for enhancements to a mid-water floater that will enable the rig to work in the North Sea. The contracted price with the shipyard is $29 million, of which $6 million has been paid. The total cost of the project is estimated to be approximately $120 million, including shipyard costs, owner-furnished equipment and labor, commissioning and spares, with an expected completion date in the first quarter of 2014.

Boardwalk Pipeline

Boardwalk Pipeline’s future capital commitments are comprised of binding commitments under purchase orders for materials ordered but not received and firm commitments under binding construction service agreements. The commitments as of March 31, 2013 were approximately $130 million, all of which are expected to be settled within the next twelve months.

Loews Hotels

Loews Hotels has commitments aggregating approximately $285 million for development and renovation of hotel properties.

11. Consolidating Financial Information

The following schedules present the Company’s consolidating balance sheet information at March 31, 2013 and December 31, 2012, and consolidating statements of income information for the three months ended March 31, 2013 and 2012. These schedules present the individual subsidiaries of the Company and their contribution to the Consolidated Condensed Financial Statements. Amounts presented will not necessarily be the same as those in the individual financial statements of the Company’s subsidiaries due to adjustments for purchase accounting, income taxes and noncontrolling interests. In addition, many of the Company’s subsidiaries use a classified balance sheet which also leads to differences in amounts reported for certain line items.

The Corporate and Other column primarily reflects the parent company’s investment in its subsidiaries, invested cash portfolio and corporate long term debt. The elimination adjustments are for intercompany assets and liabilities, interest and dividends, the parent company’s investment in capital stocks of subsidiaries, and various reclasses of debit or credit balances to the amounts in consolidation. Purchase accounting adjustments have been pushed down to the appropriate subsidiary.

Loews Corporation

Consolidating Balance Sheet Information

March 31, 2013

CNA
Financial

Diamond
Offshore

Boardwalk
Pipeline

HighMount

Loews
Hotels

Corporate
and Other

Eliminations

Total

(In millions)

Assets:

Investments

$ 47,593

$ 1,433

$ 10

$ 63

$ 4,085

$ 53,184

Cash

123

$ 4

179

Receivables

8,861

489

101

$ (6

)

9,605

Property, plant and equipment

295

4,973

7,250

1,055

585

14,204

Deferred income taxes

794

(840

)

Goodwill

115

271

584

993

Investments in capital stocks of subsidiaries

17,094

(17,094

)

Other assets

735

338

317

1,529

Deferred acquisition costs of insurance subsidiaries

641

Separate account business

279

Total assets

$ 58,688

$ 7,277

$ 7,929

$ 2,517

$ 780

$ 21,354

$ (17,931

)

$ 80,614

Liabilities and Equity:

Insurance reserves

$ 39,893

Payable to brokers

325

$ 1

$ 5

$ 14

$ 393

738

Short term debt

$ 6

Long term debt

2,558

1,489

3,607

720

350

694

9,418

Deferred income taxes

492

635

561

$ (831

)

895

Other liabilities

3,254

643

379

122

239

)

4,654

Separate account business

279

Total liabilities

46,322

2,625

4,626

856

417

1,887

(837

)

55,896

Total shareholders’ equity

11,129

2,357

1,586

1,661

361

19,467

(17,094

)

19,467

Noncontrolling interests

1,237

2,295

1,717

5,251

Total equity

12,366

4,652

3,303

1,661

363

19,467

(17,094

)

24,718

Total liabilities and equity

$ 58,688

$ 7,277

$ 7,929

$ 2,517

$ 780

$ 21,354

$ (17,931

)

$ 80,614

Loews Corporation

Consolidating Balance Sheet Information


December 31, 2012	CNA Financial		Diamond Offshore		Boardwalk Pipeline		HighMount		Loews Hotels		Corporate and Other		Eliminations			Total

(In millions)

Assets:

Investments	$	47,636	$	1,435	$	1		$ 8	$	33	$	3,935				$	53,048
Cash		156		53		3		2		10		4					228
Receivables		8,516		503		89		69		25		183		$ (19	)		9,366
Property, plant and equipment		297		4,870		7,252		1,136		333		47					13,935
Deferred income taxes		119						734						(853	)		-
Goodwill		118		20		271		584		3							996
Investments in capital stocks of subsidiaries												16,936		(16,936	)		-
Other assets		730		366		330		22		84		4		2			1,538
Deferred acquisition costs of insurance subsidiaries		598															598
Separate account business		312															312

Total assets	$	58,482	$	7,247	$	7,946		$ 2,555	$	488	$	21,109		$ (17,806	)	$	80,021


Liabilities and Equity:

Insurance reserves	$	40,005														$	40,005
Payable to brokers		61						$ 10			$	134					205
Short term debt		13							$	6							19
Long term debt		2,557	$	1,489	$	3,539		710		203		693					9,191
Deferred income taxes				483		619				37		552		$ (851	)		840
Other liabilities		3,260		675		432		120		42		263		(19	)		4,773
Separate account business		312															312

Total liabilities		46,208		2,647		4,590		840		288		1,642		(870	)		55,345

Total shareholders’ equity		11,058		2,331		1,624		1,715		200		19,467		(16,936	)		19,459
Noncontrolling interests		1,216		2,269		1,732											5,217

Total equity		12,274		4,600		3,356		1,715		200		19,467		(16,936	)		24,676

Total liabilities and equity	$	58,482	$	7,247	$	7,946		$ 2,555	$	488	$	21,109		$ (17,806	)	$	80,021

Loews Corporation

Consolidating Statement of Income Information

Three Months Ended March 31, 2013

CNA
Financial

Diamond
Offshore

Boardwalk
Pipeline

HighMount

Loews
Hotels

Corporate
and Other

Eliminations

Total

(In millions)

Revenues:

Insurance premiums

1,764

Net investment income

633

641

Intercompany interest and dividends

182

$ (182

)

Investment gains

Contract drilling revenues

700

Other

329

$ 68

605

Total

2,503

732

329

190

(182

)

3,734

Expenses:

Insurance claims and policyholders’ benefits

1,429

Amortization of deferred acquisition costs

328

Contract drilling expenses

375

Other operating expenses

340

144

190

202

982

Interest

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