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CNA(CNA) - 2022 Q3 - Quarterly Report
CNACNA(US:CNA)2022-10-30 16:00

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements of CNA Financial Corporation, including statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining accounting policies, estimates, and specific financial line items for the periods ended September 30, 2022 and 2021 Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended September 30) | Periods ended September 30 (In millions, except per share data) | Three Months 2022 | Three Months 2021 | | :-------------------------------------------------------------- | :---------------- | :---------------- | | Net earned premiums | $2,221 | $2,059 | | Net investment income | $422 | $513 | | Net investment (losses) gains | $(96) | $22 | | Non-insurance warranty revenue | $399 | $357 | | Total revenues | $2,957 | $2,959 | | Total claims, benefits and expenses | $2,793 | $2,645 | | Income before income tax | $164 | $314 | | Net income | $128 | $256 | | Basic earnings per share | $0.47 | $0.94 | | Diluted earnings per share | $0.47 | $0.94 | Condensed Consolidated Statements of Operations (Nine Months Ended September 30) | Periods ended September 30 (In millions, except per share data) | Nine Months 2022 | Nine Months 2021 | | :-------------------------------------------------------------- | :--------------- | :--------------- | | Net earned premiums | $6,435 | $6,056 | | Net investment income | $1,302 | $1,608 | | Net investment (losses) gains | $(166) | $117 | | Non-insurance warranty revenue | $1,173 | $1,054 | | Total revenues | $8,768 | $8,854 | | Total claims, benefits and expenses | $7,981 | $7,700 | | Income before income tax | $787 | $1,154 | | Net income | $646 | $936 | | Basic earnings per share | $2.38 | $3.44 | | Diluted earnings per share | $2.37 | $3.43 | Condensed Consolidated Statements of Comprehensive (Loss) Income Condensed Consolidated Statements of Comprehensive (Loss) Income (Three Months Ended September 30) | Periods ended September 30 (In millions) | Three Months 2022 | Three Months 2021 | | :--------------------------------------- | :---------------- | :---------------- | | Net income | $128 | $256 | | Other Comprehensive Loss, net of tax | $(1,426) | $(163) | | Total comprehensive (loss) income | $(1,298) | $93 | Condensed Consolidated Statements of Comprehensive (Loss) Income (Nine Months Ended September 30) | Periods ended September 30 (In millions) | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :--------------- | :--------------- | | Net income | $646 | $936 | | Other Comprehensive Loss, net of tax | $(4,459) | $(457) | | Total comprehensive (loss) income | $(3,813) | $479 | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (As of September 30, 2022 and December 31, 2021) | (In millions, except share data) | September 30, 2022 (Unaudited) | December 31, 2021 | | :------------------------------- | :----------------------------- | :---------------- | | Assets: | | | | Total investments | $42,137 | $50,328 | | Cash | $503 | $536 | | Total assets | $60,215 | $66,639 | | Liabilities: | | |\ | Total liabilities | $52,121 | $53,830 | | Stockholders' Equity: | | |\ | Total stockholders' equity | $8,094 | $12,809 | | Total liabilities and stockholders' equity | $60,215 | $66,639 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | (In millions) | 2022 | 2021 | | :---------------------------------------------- | :------ | :------ | | Net cash flows provided by operating activities | $1,990 | $1,354 | | Net cash flows used by investing activities | $(1,072) | $(597) | | Net cash flows used by financing activities | $(924) | $(545) | | Net change in cash | $(33) | $206 | | Cash, beginning of year | $536 | $419 | | Cash, end of period | $503 | $625 | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (Nine Months Ended September 30) | Periods ended September 30 (In millions) | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :--------------- | :--------------- | | Common Stock, beginning of period | $683 | $683 | | Additional Paid-in Capital, beginning of period | $2,215 | $2,211 | | Retained Earnings, beginning of period | $9,663 | $9,081 | | Accumulated Other Comprehensive (Loss) Income, beginning of period | $320 | $803 | | Treasury Stock, beginning of period | $(72) | $(71) | | Total stockholders' equity, beginning of period | $12,809 | $12,664 | | Net income | $646 | $936 | | Dividends to common stockholders | $(876) | $(517) | | Other comprehensive loss | $(4,459) | $(457) | | Purchase of treasury stock | $(39) | $(18) | | Total stockholders' equity, end of period | $8,094 | $12,664 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note A. General Note A outlines the basis of presentation for the Condensed Consolidated Financial Statements, confirming adherence to GAAP, the inclusion of CNA Financial Corporation and its subsidiaries, and Loews Corporation's approximate 90% ownership. It also details the upcoming adoption of ASU 2018-12 for long-duration contracts, effective January 1, 2023, which is expected to decrease Accumulated Other Comprehensive Income (AOCI) by approximately $2.3 billion at transition due to discount rate assumption changes - Loews Corporation owned approximately 90% of the outstanding common stock of CNAF as of September 30, 202226 - The Company will adopt ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, effective January 1, 2023, using the modified retrospective method27 - The most significant impact of ASU 2018-12 at transition is an expected decrease of approximately $2.3 billion in Accumulated other comprehensive income (AOCI) as of January 1, 2021, primarily due to updating the discount rate assumption27 Note B. Earnings (Loss) Per Share Note B details the calculation of basic and diluted earnings per share, which are based on net income and weighted average outstanding common shares. The company repurchased shares totaling $39 million during the nine months ended September 30, 2022 Earnings (Loss) Per Share (Three and Nine Months Ended September 30) | Periods ended September 30 (In millions, except per share data) | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :-------------------------------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Net income (loss) | $128 | $256 | $646 | $936 | | Basic earnings per share | $0.47 | $0.94 | $2.38 | $3.44 | | Diluted earnings per share | $0.47 | $0.94 | $2.37 | $3.43 | - The Company repurchased 890,000 shares of CNAF common stock at an aggregate cost of $39 million during the nine months ended September 30, 202232 Note C. Investments Note C provides a detailed breakdown of the Company's investment portfolio, including net investment income and gains/losses, impairment losses, fixed maturity securities by type and maturity, and mortgage loans. It highlights a significant decrease in net investment income and a shift from net investment gains to losses, primarily driven by unfavorable limited partnership and common stock results, and net losses on fixed maturity securities Net Investment Income (Three and Nine Months Ended September 30) | Periods ended September 30 (In millions) | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Fixed maturity securities | $454 | $425 | $1,324 | $1,278 | | Limited partnership investments | $(35) | $85 | $(11) | $274 | | Net investment income | $422 | $513 | $1,302 | $1,608 | Net Investment Gains (Losses) (Three and Nine Months Ended September 30) | Periods ended September 30 (In millions) | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Net investment gains (losses) | $(96) | $22 | $(166) | $117 | - Net investment gains (losses) for the three months ended September 30, 2022, include a $35 million net loss related to the expected novation of a coinsurance agreement on the Company's legacy annuity business36 Fixed Maturity Securities Available-for-Sale (As of September 30, 2022) | (In millions) | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | | :------------------------------------------- | :--------------------- | :--------------------- | :---------------------- | :-------------------------- | :--------------------- | | Corporate and other bonds | $23,082 | $231 | $2,398 | $— | $20,915 | | States, municipalities and political subdivisions | $9,244 | $259 | $1,080 | $— | $8,423 | | Total fixed maturity securities available-for-sale | $41,318 | $507 | $4,583 | $3 | $37,239 | Note D. Fair Value Note D defines the fair value hierarchy (Level 1, 2, and 3) and describes the valuation methodologies and inputs used for various financial instruments. It provides tables detailing assets and liabilities measured at fair value, including reconciliations for Level 3 assets, and discusses significant unobservable inputs like credit spread assumptions for fixed maturity securities - Fair value is categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)63 Assets and Liabilities Measured at Fair Value (As of September 30, 2022) | (In millions) | Level 1 | Level 2 | Level 3 | Total Assets/Liabilities at Fair Value | | :------------------------ | :------ | :------ | :------ | :------------------------------------- | | Fixed maturity securities | $118 | $35,573 | $1,560 | $37,251 | | Equity securities | $236 | $625 | $30 | $891 | | Total assets | $1,249 | $36,232 | $1,590 | $39,071 | - For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement77 Note E. Claim and Claim Adjustment Expense Reserves and Future Policy Benefit Reserves Note E details the Company's methodologies for estimating property and casualty insurance claim and claim adjustment expense reserves, emphasizing the inherent estimation risk due to various factors like litigation, medical costs, and economic conditions. It also covers catastrophe losses, prior year development, and specific reserve details for Specialty, Commercial, International, and Life & Group segments, including the impact of the A&EP Loss Portfolio Transfer and long-term care policyholder reserves - Catastrophe losses, net of reinsurance, were $114 million for the three months ended September 30, 2022, primarily due to severe weather events, including $87 million for Hurricane Ian80 Net Prior Year Development (Pretax (favorable) unfavorable development, Nine Months Ended September 30) | Periods ended September 30 (In millions) | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :--------------- | :--------------- | | Specialty | $(35) | $(40) | | Commercial | $(26) | $2 | | International | $(5) | $2 | | Corporate & Other | $64 | $40 | | Total pretax (favorable) unfavorable development | $(2) | $4 | - The A&EP Loss Portfolio Transfer (LPT) resulted in a retroactive reinsurance benefit of $40 million for the nine months ended September 30, 2022, with cumulative ceded amounts of $3.4 billion100 - The long term care claim reserve review in Q3 2022 resulted in a $25 million pretax reduction in reserves, driven by a $107 million favorable impact from IBNR release related to COVID-19, partially offset by an $82 million unfavorable impact from higher claim severity103 Note F. Legal Proceedings, Contingencies and Guarantees Note F states that the Company is involved in various claims and litigation, which are not currently considered material to its financial position. It also discloses guarantees for structured settlement annuities, with a potential future payment amount of approximately $1.6 billion, though no payments are deemed likely due to a supporting trust - The Company has provided guarantees for structured settlement annuities with a potential future payment amount of approximately $1.6 billion as of September 30, 2022108 - The Company does not believe any payment is likely under these guarantees, as a trust is maintained to approximate the discounted reserves for these annuities108 Note G. Benefit Plans Note G presents the components of net periodic pension cost (benefit), showing a net periodic pension benefit of $(13) million for the three months ended September 30, 2022, and $(41) million for the nine months ended September 30, 2022 Net Periodic Pension Cost (Benefit) (Three and Nine Months Ended September 30) | Periods ended September 30 (In millions) | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Interest cost on projected benefit obligation | $17 | $15 | $50 | $46 | | Expected return on plan assets | $(38) | $(38) | $(114) | $(115) | | Total net periodic pension cost (benefit) | $(13) | $(11) | $(41) | $(33) | Note H. Accumulated Other Comprehensive Income (Loss) by Component Note H details the changes in Accumulated Other Comprehensive Income (Loss) (AOCI) by component. For the nine months ended September 30, 2022, AOCI decreased significantly from $320 million to $(4,139) million, primarily due to substantial net unrealized losses on other investments Changes in Accumulated Other Comprehensive Income (Loss) (Nine Months Ended September 30, 2022) | (In millions) | Balance as of January 1, 2022 | Other comprehensive income (loss) net of tax | Balance as of September 30, 2022 | | :-------------------------------------------------------------------------- | :---------------------------- | :------------------------------------------- | :------------------------------- | | Net unrealized gains (losses) on investments with an allowance for credit losses | $(2) | $(8) | $(10) | | Net unrealized gains (losses) on other investments | $1,039 | $(4,284) | $(3,245) | | Pension and postretirement benefits | $(604) | $18 | $(586) | | Cumulative foreign currency translation adjustment | $(113) | $(185) | $(298) | | Total | $320 | $(4,459) | $(4,139) | Note I. Business Segments Note I outlines the Company's five business segments: Specialty, Commercial, International (collectively Property & Casualty Operations), Life & Group, and Corporate & Other. It defines 'core income (loss)' as a key management metric, excluding after-tax effects of net investment gains/losses and accounting changes. The note provides detailed operating revenues, claims, benefits, expenses, and core income for each segment for the three and nine months ended September 30, 2022 and 2021 - The Company's property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International. Operations outside of Property & Casualty are managed and reported in Life & Group and Corporate & Other117 - Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of net investment gains or losses and any cumulative effects of changes in accounting guidance117 Core Income (Loss) by Segment (Three Months Ended September 30) | (In millions) | Specialty | Commercial | International | Life & Group | Corporate & Other | Total | | :------------ | :-------- | :--------- | :------------ | :----------- | :---------------- | :---- | | 2022 | $161 | $80 | $19 | $(22) | $(25) | $213 | | 2021 | $173 | $27 | $17 | $41 | $(21) | $237 | Core Income (Loss) by Segment (Nine Months Ended September 30) | (In millions) | Specialty | Commercial | International | Life & Group | Corporate & Other | Total | | :------------ | :-------- | :--------- | :------------ | :----------- | :---------------- | :---- | | 2022 | $485 | $350 | $63 | $7 | $(131) | $774 | | 2021 | $531 | $233 | $67 | $120 | $(110) | $841 | Note J. Non-Insurance Revenues from Contracts with Customers Note J provides details on deferred non-insurance warranty revenue, which stood at $4.7 billion as of September 30, 2022. The Company recognized $0.3 billion and $1.0 billion of this deferred revenue for the three and nine months ended September 30, 2022, respectively, and expects to recognize approximately $0.5 billion in the remainder of 2022 - Deferred non-insurance warranty revenue balances were $4.7 billion as of September 30, 2022, and $4.5 billion as of December 31, 2021130 - The Company recognized $0.3 billion and $1.0 billion of deferred non-insurance warranty revenue for the three and nine months ended September 30, 2022, respectively130 - The Company expects to recognize approximately $0.5 billion of deferred revenue in the remainder of 2022, $1.5 billion in 2023, $1.2 billion in 2024, and $1.5 billion thereafter130 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides management's perspective on the Company's financial condition and results of operations, utilizing non-GAAP measures like core income (loss) and various insurance ratios. It discusses consolidated performance, segment-specific results, investment portfolio analysis, liquidity, capital resources, and critical accounting estimates, along with forward-looking statements and associated risks OVERVIEW - Management utilizes core income (loss) to monitor operations, excluding after-tax effects of net investment gains or losses and cumulative effects of accounting guidance changes132 - Key performance metrics for Specialty, Commercial, and International segments include loss ratio, expense ratio, dividend ratio, combined ratio, renewal premium change, rate, retention, and new business132 CRITICAL ACCOUNTING ESTIMATES - Critical accounting estimates include Insurance Reserves, Long Term Care Reserves, Reinsurance and Insurance Receivables, Valuation of Investments and Impairment of Securities, and Income Taxes135 - Actual results could differ significantly from estimates, potentially impacting results of operations, financial condition, equity, business, and ratings135 CONSOLIDATED OPERATIONS Results of Operations Consolidated Operating Revenues and Core Income (Three and Nine Months Ended September 30) | Periods ended September 30 (In millions) | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Total operating revenues | $3,053 | $2,937 | $8,934 | $8,737 | | Total claims, benefits and expenses | $2,793 | $2,645 | $7,981 | $7,700 | | Core income before income tax | $260 | $292 | $953 | $1,037 | | Core income | $213 | $237 | $774 | $841 | | Net investment (losses) gains, after tax | $(85) | $19 | $(128) | $95 | | Net income | $128 | $256 | $646 | $936 | Three Month Comparison - Core income decreased $24 million for the three months ended September 30, 2022, compared to the same period in 2021, primarily due to lower net investment income from limited partnerships and common stock results in Life & Group138 - Property & Casualty Operations' core income increased $43 million, driven by improved underwriting results and higher net investment income from fixed income securities138 - Catastrophe losses were $114 million in Q3 2022 (including $87 million for Hurricane Ian) compared to $178 million in Q3 2021 (including $114 million for Hurricane Ida)138 Nine Month Comparison - Core income decreased $67 million for the nine months ended September 30, 2022, compared to the same period in 2021140 - Property & Casualty Operations' core income increased $67 million, while Life & Group core income decreased $113 million and Corporate & Other core loss increased $21 million140 - Catastrophe losses were $171 million in YTD Q3 2022 (including $87 million for Hurricane Ian) compared to $357 million in YTD Q3 2021 (primarily Hurricane Ida and Winter Storms Uri and Viola)140 SEGMENT RESULTS Specialty Specialty Segment Performance (Three Months Ended September 30) | Metric | 2022 | 2021 | | :---------------------------------------- | :------ | :------ | | Gross written premiums (excl. 3rd party captives) | $958 | $943 | | Net earned premiums | $810 | $773 | | Core income | $161 | $173 | | Combined ratio | 88.7% | 88.2% | | Rate | 5% | 10% | | Retention | 87% | 80% | | New business | $130 | $147 | - Specialty's core income decreased $12 million for the three months ended September 30, 2022, primarily due to lower net investment income from limited partnership and common stock results145 - The combined ratio increased by 0.5 points to 88.7% in Q3 2022, driven by a 1.1 point increase in the expense ratio, partially offset by a 1.0 point improvement in the loss ratio145 Commercial Commercial Segment Performance (Three Months Ended September 30) | Metric | 2022 | 2021 | | :---------------------------------------- | :------- | :------- | | Gross written premiums (excl. 3rd party captives) | $1,184 | $1,005 | | Net earned premiums | $1,023 | $893 | | Core income | $80 | $27 |\ | Combined ratio | 101.9% | 111.6% | | Rate | 4% | 6% | | Retention | 84% | 83% | | New business | $246 | $204 | - Commercial's core income increased $53 million for the three months ended September 30, 2022, driven by lower catastrophe losses and improved non-catastrophe current accident year underwriting results152 - The combined ratio improved 9.7 points to 101.9% in Q3 2022, primarily due to a 9.1 point improvement in the loss ratio (lower catastrophe losses) and a 0.5 point improvement in the expense ratio152 International International Segment Performance (Three Months Ended September 30) | Metric | 2022 | 2021 | | :---------------------------------------- | :------ | :------ | | Gross written premiums | $288 | $276 | | Net earned premiums | $270 | $271 | | Core income | $19 | $17 | | Combined ratio | 94.4% | 95.5% | | Rate | 6% | 13% | | Retention | 82% | 79% | | New business | $79 | $54 | - International's core income improved $2 million for the three months ended September 30, 2022, driven by improved underwriting results, partially offset by unfavorable foreign currency exchange rates159 - The combined ratio improved 1.1 points to 94.4% in Q3 2022, due to a 0.7 point improvement in the loss ratio and a 0.4 point improvement in the expense ratio159 Life & Group Life & Group Segment Performance (Three and Nine Months Ended September 30) | Metric | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :---------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Net earned premiums | $118 | $123 | $356 | $369 | | Net investment income | $187 | $240 | $600 | $724 | | Core (loss) income | $(22) | $41 | $7 | $120 | - Life & Group's core results decreased $63 million for the three months ended September 30, 2022, primarily due to a $54 million pretax decline in net investment income from limited partnerships166 - Q3 2022 core loss included a $25 million pretax favorable impact from the reduction in long term care claim reserves, driven by a $107 million release of COVID-19 IBNR reserves, partially offset by an $82 million unfavorable impact from higher claim severity166 - The estimated margin in long term care active life reserves increased from $72 million in September 2021 to $125 million in September 2022, primarily due to changes in discount rate assumptions and higher estimated premium rate increases170 Corporate & Other Corporate & Other Segment Performance (Three and Nine Months Ended September 30) | Metric | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :---------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Net investment income | $5 | $2 | $10 | $12 | | Insurance claims and policyholders' benefits | $(13) | $(6) | $36 | $23 | | Core loss | $(25) | $(21) | $(131) | $(110) | - Corporate & Other's core loss increased $4 million for the three months ended September 30, 2022, compared to the same period in 2021178 - For the nine months ended September 30, 2022, core loss increased $21 million, driven by higher net prior year loss reserve development associated with legacy mass tort abuse claims and increased technology infrastructure investments179 INVESTMENTS Net Investment Income Net Investment Income (Three and Nine Months Ended September 30) | Periods ended September 30 (In millions) | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Fixed income securities | $465 | $437 | $1,357 | $1,311 | | Limited partnership and common stock investments | $(44) | $77 | $(51) | $294 | | Net investment income | $422 | $513 | $1,302 | $1,608 | | Effective income yield for fixed income securities portfolio | 4.4% | 4.3% | 4.3% | 4.3% | | Limited partnership and common stock return | (2.1)% | 3.8% | (2.4)% | 16.4% | - Net investment income decreased $91 million and $306 million for the three and nine months ended September 30, 2022, respectively, driven by unfavorable limited partnership and common stock results, partially offset by higher income from fixed income securities183 Net Investment Gains (Losses) Net Investment Gains (Losses) (Three and Nine Months Ended September 30) | Periods ended September 30 (In millions) | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 | | :--------------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Fixed maturity securities | $(52) | $22 | $(69) | $91 | | Non-redeemable preferred stock | $(2) | $(2) | $(111) | $17 | | Derivatives, short term and other | $(34) | $2 | $22 | $9 | | Mortgage loans | $(8) | $— | $(8) | $— | | Net investment (losses) gains | $(96) | $22 | $(166) | $117 | | Net investment (losses) gains, after tax | $(85) | $19 | $(128) | $95 | - Pretax net investment results decreased $118 million for the three months ended September 30, 2022, driven by net losses on fixed maturity securities compared to net gains in the prior year186 - Derivatives, short term and other for Q3 2022 includes a $35 million non-economic net loss related to the expected novation of a coinsurance agreement on legacy annuity business186 Portfolio Quality Fixed Maturity Securities by Rating Distribution (As of September 30, 2022) | (In millions) | Estimated Fair Value | Net Unrealized Gains (Losses) | | :------------------------------------------- | :------------------- | :---------------------------- | | U.S. Government, Government agencies and Government-sponsored enterprises | $2,452 | $(357) | | AAA | $2,374 | $(250) | | AA | $6,387 | $(792) | | A | $8,739 | $(667) | | BBB | $15,267 | $(1,776) | | Non-investment grade | $2,032 | $(234) | | Total | $37,251 | $(4,076) | - As of September 30, 2022, 1% of the fixed maturity portfolio was rated internally191 Duration Effective Durations of Fixed Income Securities and Short Term Investments (As of September 30, 2022 and December 31, 2021) | (In millions) | September 30, 2022 Estimated Fair Value | September 30, 2022 Effective Duration (In years) | December 31, 2021 Estimated Fair Value | December 31, 2021 Effective Duration (In years) | | :------------------------ | :-------------------------------------- | :----------------------------------------------- | :------------------------------------- | :---------------------------------------------- | | Investments supporting Life & Group | $14,253 | 9.8 | $18,458 | 9.2 | | Other investments | $24,739 | 4.8 | $28,915 | 4.9 | | Total | $38,992 | 6.7 | $47,373 | 6.6 | - The effective duration of Investments supporting Life & Group liabilities lengthened from 9.2 years (Dec 31, 2021) to 9.8 years (Sep 30, 2022), reflecting strategic repositioning to capitalize on higher rates and reduce reinvestment risk197 LIQUIDITY AND CAPITAL RESOURCES Cash Flows - Net cash provided by operating activities increased to $1,990 million for the nine months ended September 30, 2022, from $1,354 million in the prior year, driven by the prior year payment of the EWC LPT premium200 - Net cash used by investing activities was $1,072 million for the nine months ended September 30, 2022, compared to $597 million in the prior year200 - Net cash used by financing activities was $924 million for the nine months ended September 30, 2022, compared to $545 million in the prior year201 Common Stock Dividends - Cash dividends of $3.20 per share, including a special cash dividend of $2.00 per share, were declared and paid during the nine months ended September 30, 2022203 - On October 28, 2022, a quarterly cash dividend of $0.40 per share was declared, payable December 1, 2022203 Liquidity - The Company believes its present cash flows are sufficient to fund current and expected working capital and debt obligations205 - Continental Casualty Company (CCC) paid dividends of $845 million and $600 million during the nine months ended September 30, 2022 and 2021, respectively, subject to Illinois insurance holding company laws205 ACCOUNTING STANDARDS UPDATE - The Company will adopt ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, which will change measurement and disclosure for long-duration contracts207 - The most significant impact is an expected $2.3 billion decrease in Accumulated other comprehensive income as of January 1, 2021, due to updating discount rate assumptions207 - Under the new guidance, changes in cash flow assumptions from the annual assessment would be recorded in results of operations, while discount rate changes would be recorded quarterly through AOCI207 FORWARD-LOOKING STATEMENTS - The report contains forward-looking statements subject to inherent risks and uncertainties that could cause actual results to differ materially from projections208 - Key risk categories include Company-Specific Factors (e.g., insurance reserves, reinsurance performance), Industry and General Market Factors (e.g., competition, economic conditions, capital markets), Regulatory and Legal Factors (e.g., compliance, litigation, rate limitations), and Impact of Natural and Man-Made Disasters and Mass Tort Claims (e.g., weather events, pandemics, asbestos claims)209211212213 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there were no material changes in the Company's market risk components for the three months ended September 30, 2022, referring readers to the annual report for further information and noting additional discussion on portfolio duration in the Investments section of the MD&A - No material changes in market risk components for the three months ended September 30, 2022215 - Further information on market risk is available in Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2021215 Item 4. Controls and Procedures This section confirms that the Company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of September 30, 2022, and concluded they were effective. It also states that there were no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022216 - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022216 PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note F of the Condensed Consolidated Financial Statements for information regarding the Company's legal proceedings - Information on legal proceedings is detailed in Note F to the Condensed Consolidated Financial Statements218 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the three months ended September 30, 2022, indicating that 445,000 shares were purchased at an average price of $41.03 per share Common Stock Repurchases (Three Months Ended September 30, 2022) | Period | (a) Total number of shares purchased | (b) Average price paid per share | | :--------------------------- | :----------------------------------- | :------------------------------- | | August 1, 2022 - August 31, 2022 | 445,000 | $41.03 | | Total | 445,000 | | Item 6. Exhibits This section provides a comprehensive list of exhibits filed with the 10-Q report, including certifications from the CEO and CFO, written statements pursuant to Section 1350 of the Sarbanes-Oxley Act, and various XBRL-related documents for interactive data filing - Exhibits include certifications (31.1, 31.2) and written statements (32.1, 32.2) from the CEO and CFO, as well as XBRL instance and taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104.1)226