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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the quarterly period ended September 30, 2021
OR

| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the transition period from _____ to _____
Commission File Number 1-5823

CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware |  | 36-6169860
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

151 N. Franklin |  | 60606
Chicago, | Illinois |  | (Zip Code)
(Address of principal executive offices) |  |

(312) 822-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, Par value $2.50 |  | "CNA" |  | New York Stock Exchange
|  |  |  | Chicago Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2021, 271,359,883 shares of common stock were outstanding.

Item Number |  | Page Number
| PART I |
1. | Condensed Consolidated Financial Statements: | 3
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited) | 3
| Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (Unaudited) | 4
| Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020 | 5
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited) | 6
| Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited) | 7
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 8
2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 44
3. | Quantitative and Qualitative Disclosures About Market Risk | 66
4. | Controls and Procedures | 66
| PART II |
1. | Legal Proceedings | 67
1A. | Risk Factors | 67
6. | Exhibits | 71

2

Table of Contents
PART I
Item 1. Condensed Consolidated Financial Statements
CNA Financial Corporation
Condensed Consolidated Statements of Operations (Unaudited)

Periods ended September 30 | Three Months |  | Nine Months
(In millions, except per share data) | 2021 |  | 2020 |  | 2021 |  | 2020
Revenues |  |  |  |  |  |  |
Net earned premiums | $ | 2,059 |  |  | $ | 1,953 |  |  | $ | 6,056 |  |  | $ | 5,672 |
Net investment income | 513 |  |  | 517 |  |  | 1,608 |  |  | 1,380 |
Net investment gains (losses) | 22 |  |  | 27 |  |  | 117 |  |  | (120) |
Non-insurance warranty revenue | 357 |  |  | 317 |  |  | 1,054 |  |  | 926 |
Other revenues | 8 |  |  | 6 |  |  | 19 |  |  | 19 |
Total revenues | 2,959 |  |  | 2,820 |  |  | 8,854 |  |  | 7,877 |
Claims, Benefits and Expenses |  |  |  |  |  |  |
Insurance claims and policyholders’ benefits | 1,632 |  |  | 1,616 |  |  | 4,684 |  |  | 4,683 |
Amortization of deferred acquisition costs | 368 |  |  | 360 |  |  | 1,084 |  |  | 1,046 |
Non-insurance warranty expense | 330 |  |  | 293 |  |  | 973 |  |  | 859 |
Other operating expenses | 287 |  |  | 269 |  |  | 874 |  |  | 852 |
Interest | 28 |  |  | 32 |  |  | 85 |  |  | 94 |
Total claims, benefits and expenses | 2,645 |  |  | 2,570 |  |  | 7,700 |  |  | 7,534 |
Income before income tax | 314 |  |  | 250 |  |  | 1,154 |  |  | 343 |
Income tax expense | (58) |  |  | (37) |  |  | (218) |  |  | (40) |
Net income | $ | 256 |  |  | $ | 213 |  |  | $ | 936 |  |  | $ | 303 |
Basic earnings per share | $ | 0.94 |  |  | $ | 0.79 |  |  | $ | 3.44 |  |  | $ | 1.12 |
Diluted earnings per share | $ | 0.94 |  |  | $ | 0.79 |  |  | $ | 3.43 |  |  | $ | 1.11 |
Weighted Average Outstanding Common Stock and Common Stock Equivalents |  |  |  |  |  |  |
Basic | 271.7 |  | 271.7 |  | 271.8 |  | 271.6
Diluted | 272.7 |  | 272.3 |  | 272.8 |  | 272.3

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
3

Table of Contents
CNA Financial Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Comprehensive Income |  |  |  |  |  |  |
Net income | $ | 256 |  |  | $ | 213 |  |  | $ | 936 |  |  | $ | 303 |
Other Comprehensive Income (Loss), net of tax |  |  |  |  |  |  |
Changes in: |  |  |  |  |  |  |
Net unrealized gains and losses on investments with an allowance for credit losses | — |  |  | 6 |  |  | — |  |  | (3) |
Net unrealized gains and losses on other investments | (138) |  |  | 207 |  |  | (465) |  |  | 354 |
Net unrealized gains and losses on investments | (138) |  |  | 213 |  |  | (465) |  |  | 351 |
Foreign currency translation adjustment | (33) |  |  | 37 |  |  | (19) |  |  | (16) |
Pension and postretirement benefits | 8 |  |  | 7 |  |  | 27 |  |  | 25 |
Other comprehensive (loss) income, net of tax | (163) |  |  | 257 |  |  | (457) |  |  | 360 |
Total comprehensive income | $ | 93 |  |  | $ | 470 |  |  | $ | 479 |  |  | $ | 663 |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
4

Table of Contents
CNA Financial Corporation
Condensed Consolidated Balance Sheets

(In millions, except share data) | September 30, 2021 (Unaudited) |  | December 31, 2020
Assets |  |  |
Investments: |  |  |
Fixed maturity securities at fair value (amortized cost of $40,342 and $38,953, less allowance for credit loss of $31 and $40) | $ | 45,069 |  |  | $ | 44,631 |
Equity securities at fair value (cost of $976 and $941) | 1,045 |  |  | 992 |
Limited partnership investments | 1,874 |  |  | 1,619 |
Other invested assets | 82 |  |  | 76 |
Mortgage loans (less allowance for uncollectible receivables of $26 and $26) | 1,031 |  |  | 1,068 |
Short term investments | 1,135 |  |  | 1,907 |
Total investments | 50,236 |  |  | 50,293 |
Cash | 625 |  |  | 419 |
Reinsurance receivables (less allowance for uncollectible receivables of $21 and $21) | 5,328 |  |  | 4,457 |
Insurance receivables (less allowance for uncollectible receivables of $30 and $33) | 2,799 |  |  | 2,607 |
Accrued investment income | 397 |  |  | 380 |
Deferred acquisition costs | 721 |  |  | 708 |
Deferred income taxes | 135 |  |  | 66 |
Property and equipment at cost (less accumulated depreciation of $257 and $231) | 234 |  |  | 252 |
Goodwill | 148 |  |  | 148 |
Deferred non-insurance warranty acquisition expense | 3,418 |  |  | 3,068 |
Other assets | 2,481 |  |  | 1,628 |
Total assets | $ | 66,522 |  |  | $ | 64,026 |
Liabilities |  |  |
Insurance reserves: |  |  |
Claim and claim adjustment expenses | $ | 23,832 |  |  | $ | 22,706 |
Unearned premiums | 5,577 |  |  | 5,119 |
Future policy benefits | 13,198 |  |  | 13,318 |
Long term debt | 2,778 |  |  | 2,776 |
Deferred non-insurance warranty revenue | 4,443 |  |  | 4,023 |
Other liabilities (includes $31 and $89 due to Loews Corporation) | 4,030 |  |  | 3,377 |
Total liabilities | 53,858 |  |  | 51,319 |
Commitments and contingencies (Notes C and F) |  |  |
Stockholders' Equity |  |  |
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 271,356,177 and 271,391,603 shares outstanding) | 683 |  |  | 683 |
Additional paid-in capital | 2,208 |  |  | 2,211 |
Retained earnings | 9,500 |  |  | 9,081 |
Accumulated other comprehensive income | 346 |  |  | 803 |
Treasury stock (1,684,066 and 1,648,640 shares), at cost | (73) |  |  | (71) |
Total stockholders’ equity | 12,664 |  |  | 12,707 |
Total liabilities and stockholders' equity | $ | 66,522 |  |  | $ | 64,026 |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine months ended September 30 |  |  |
(In millions) | 2021 |  | 2020
Cash Flows from Operating Activities |  |  |
Net income | $ | 936 |  |  | $ | 303 |
Adjustments to reconcile net income to net cash flows provided by operating activities: |  |  |
Deferred income tax expense (benefit) | 46 |  |  | (41) |
Trading portfolio activity | 13 |  |  | 2 |
Net investment (gains) losses | (117) |  |  | 120 |
Equity method investees | (106) |  |  | 12 |
Net amortization of investments | (58) |  |  | (51) |
Depreciation and amortization | 41 |  |  | 46 |
Changes in: |  |  |
Receivables, net | (1,076) |  |  | (271) |
Accrued investment income | (17) |  |  | (6) |
Deferred acquisition costs | (15) |  |  | (36) |
Insurance reserves | 1,891 |  |  | 1,479 |
Other, net | (184) |  |  | (149) |
Net cash flows provided by operating activities | 1,354 |  |  | 1,408 |
Cash Flows from Investing Activities |  |  |
Dispositions: |  |  |
Fixed maturity securities - sales | 2,510 |  |  | 5,023 |
Fixed maturity securities - maturities, calls and redemptions | 3,360 |  |  | 2,706 |
Equity securities | 237 |  |  | 275 |
Limited partnerships | 178 |  |  | 281 |
Mortgage loans | 90 |  |  | 41 |
Purchases: |  |  |
Fixed maturity securities | (7,127) |  |  | (8,466) |
Equity securities | (242) |  |  | (373) |
Limited partnerships | (281) |  |  | (144) |
Mortgage loans | (63) |  |  | (154) |
Change in other investments | 3 |  |  | (4) |
Change in short term investments | 755 |  |  | 403 |
Purchases of property and equipment | (16) |  |  | (16) |
Other, net | (1) |  |  | 21 |
Net cash flows used by investing activities | (597) |  |  | (407) |
Cash Flows from Financing Activities |  |  |
Dividends paid to common stockholders | (518) |  |  | (850) |
Proceeds from the issuance of debt | — |  |  | 495 |
Repayment of debt | — |  |  | (419) |
Purchase of treasury stock | (18) |  |  | (18) |
Other, net | (9) |  |  | (9) |
Net cash flows used by financing activities | (545) |  |  | (801) |
Effect of foreign exchange rate changes on cash | (6) |  |  | — |
Net change in cash | 206 |  |  | 200 |
Cash, beginning of year | 419 |  |  | 242 |
Cash, end of period | $ | 625 |  |  | $ | 442 |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Common Stock |  |  |  |  |  |  |
Balance, beginning of period | $ | 683 |  |  | $ | 683 |  |  | $ | 683 |  |  | $ | 683 |
Balance, end of period | 683 |  |  | 683 |  |  | 683 |  |  | 683 |
Additional Paid-in Capital |  |  |  |  |  |  |
Balance, beginning of period | 2,201 |  |  | 2,196 |  |  | 2,211 |  |  | 2,203 |
Stock-based compensation | 7 |  |  | 6 |  |  | (3) |  |  | (1) |
Balance, end of period | 2,208 |  |  | 2,202 |  |  | 2,208 |  |  | 2,202 |
Retained Earnings |  |  |  |  |  |  |
Balance, beginning of period, as previously reported | 9,348 |  |  | 8,683 |  |  | 9,081 |  |  | 9,348 |
Cumulative effect adjustments from changes in accounting guidance, net of tax | — |  |  | — |  |  | — |  |  | (5) |
Balance, beginning of period, as adjusted | 9,348 |  |  | 8,683 |  |  | 9,081 |  |  | 9,343 |
Dividends to common stockholders ($0.38, $0.37, $1.89 and $3.11 per share) | (104) |  |  | (100) |  |  | (517) |  |  | (850) |
Net income | 256 |  |  | 213 |  |  | 936 |  |  | 303 |
Balance, end of period | 9,500 |  |  | 8,796 |  |  | 9,500 |  |  | 8,796 |
Accumulated Other Comprehensive Income |  |  |  |  |  |  |
Balance, beginning of period | 509 |  |  | 154 |  |  | 803 |  |  | 51 |
Other comprehensive (loss) income | (163) |  |  | 257 |  |  | (457) |  |  | 360 |
Balance, end of period | 346 |  |  | 411 |  |  | 346 |  |  | 411 |
Treasury Stock |  |  |  |  |  |  |
Balance, beginning of period | (73) |  |  | (71) |  |  | (71) |  |  | (70) |
Stock-based compensation | — |  |  | — |  |  | 16 |  |  | 17 |
Purchase of treasury stock | — |  |  | — |  |  | (18) |  |  | (18) |
Balance, end of period | (73) |  |  | (71) |  |  | (73) |  |  | (71) |
Total stockholders' equity | $ | 12,664 |  |  | $ | 12,021 |  |  | $ | 12,664 |  |  | $ | 12,021 |

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
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CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements
Note A. General
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of CNA Financial Corporation (CNAF) and its subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. Loews Corporation (Loews) owned approximately 89.6% of the outstanding common stock of CNAF as of September 30, 2021.
The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany amounts have been eliminated. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, including certain financial statement notes, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2020, including the summary of significant accounting policies in Note A. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
The interim financial data as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 is unaudited. However, in the opinion of management, the interim data includes all adjustments, including normal recurring adjustments, necessary for a fair statement of the Company's results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Accounting Standards Pending Adoption
In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entities to annually update cash flow assumptions, including morbidity and persistency, and update discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in the Company's results of operations and the effect of changes in discount rate assumptions will be recorded in Other comprehensive income. This guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. The guidance may be applied using either a modified retrospective transition method or a full retrospective transition method. The guidance requires restatement of prior periods presented. The Company plans to adopt on the effective date, using the modified retrospective transition method and is currently evaluating the effect the updated guidance will have on its financial statements, including the increased disclosure requirements. The annual updating of cash flow assumptions is expected to increase income statement volatility. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the business and related cash flows will be unchanged.
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Note B. Earnings (Loss) Per Share
Earnings (loss) per share is based on weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing Net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the three and nine months ended September 30, 2021, approximately 1,015 thousand and 980 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, approximately 4 thousand and 3 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because the effect would have been antidilutive.
For the three and nine months ended September 30, 2020, approximately 620 thousand and 730 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, approximately 9 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because the effect would have been antidilutive.
The Company repurchased 377,615 and 435,376 shares of CNAF common stock at an aggregate cost of $18 million during each of the nine months ended September 30, 2021 and 2020.
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Note C. Investments
The significant components of Net investment income are presented in the following table.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed maturity securities | $ | 425 |  |  | $ | 432 |  |  | $ | 1,278 |  |  | $ | 1,300 |
Equity securities | 4 |  |  | 18 |  |  | 53 |  |  | 24 |
Limited partnership investments | 85 |  |  | 64 |  |  | 274 |  |  | 38 |
Mortgage loans | 13 |  |  | 14 |  |  | 42 |  |  | 42 |
Short term investments | 1 |  |  | 1 |  |  | 1 |  |  | 9 |
Trading portfolio | 1 |  |  | 4 |  |  | 8 |  |  | 13 |
Other | (1) |  |  | — |  |  | — |  |  | 2 |
Gross investment income | 528 |  |  | 533 |  |  | 1,656 |  |  | 1,428 |
Investment expense | (15) |  |  | (16) |  |  | (48) |  |  | (48) |
Net investment income | $ | 513 |  |  | $ | 517 |  |  | $ | 1,608 |  |  | $ | 1,380 |

During the three and nine months ended September 30, 2021, $(7) million and $11 million of Net i nvestment income was recognized due to the change in fair value of common stock still held as of September 30, 2021. During the three and nine months ended September 30, 2020, $4 million and $9 million of Net investment income was recognized due to the change in fair value of common stock still held as of September 30, 2020.
Net investment gains (losses) are presented in the following table.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Net investment gains (losses): |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |
Gross gains | $ | 50 |  |  | $ | 44 |  |  | $ | 159 |  |  | $ | 175 |
Gross losses | (28) |  |  | (18) |  |  | (68) |  |  | (207) |
Net investment gains (losses) on fixed maturity securities | 22 |  |  | 26 |  |  | 91 |  |  | (32) |
Equity securities | (2) |  |  | 25 |  |  | 17 |  |  | (45) |
Derivatives | 2 |  |  | (2) |  |  | 7 |  |  | (7) |
Mortgage loans | — |  |  | (3) |  |  | — |  |  | (16) |
Short term investments and other | — |  |  | (19) |  |  | 2 |  |  | (20) |
Net investment gains (losses) | $ | 22 |  |  | $ | 27 |  |  | $ | 117 |  |  | $ | (120) |

During the three and nine months ended September 30, 2021, $(2) million of losses and $15 million of gains w ere recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2021. During the three and nine months ended September 30, 2020, $25 million of gains and $(44) million of losses were recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2020. Short term investments and other included a $(20) million loss for the three and nine months ended September 30, 2020 related to the third quarter 2020 redemption of the Company's $400 million senior notes due August 2021.
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The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and purchased credit-deteriorated (PCD) assets. Accrued interest receivable on available-for-sale fixed maturity securities totaled $387 million, $371 million and $390 million as of September 30, 2021, December 31, 2020 and September 30, 2020 and is excluded from the estimate of expected credit losses and the amortized cost basis in the tables included within this Note.

(In millions) | Corporate and other bonds |  | Asset-backed |  | Total
Allowance for credit losses: |  |  |  |  |
Balance as of July 1, 2021 | $ | 24 |  |  | $ | 21 |  |  | $ | 45 |
Additions to the allowance for credit losses: |  |  |  |  |
Securities for which credit losses were not previously recorded | — |  |  | — |  |  | — |
Available-for-sale securities accounted for as PCD assets | 2 |  |  | — |  |  | 2 |
Reductions to the allowance for credit losses: |  |  |  |  |
Securities sold during the period (realized) | — |  |  | — |  |  | — |
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | — |  |  | — |  |  | — |
Write-offs charged against the allowance | 16 |  |  | — |  |  | 16 |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | — |  |  | — |  |  | — |
Balance as of September 30, 2021 | $ | 10 |  |  | $ | 21 |  |  | $ | 31 |

(In millions) | Corporate and other bonds |  | Asset-backed |  | Total
Allowance for credit losses: |  |  |  |  |
Balance as of July 1, 2020 | $ | 39 |  |  | $ | 12 |  |  | $ | 51 |
Additions to the allowance for credit losses: |  |  |  |  |
For securities for which credit losses were not previously recorded | 4 |  |  | — |  |  | 4 |
For available-for-sale securities accounted for as PCD assets | 1 |  |  | — |  |  | 1 |
Reductions to the allowance for credit losses: |  |  |  |  |
Securities sold during the period (realized) | 9 |  |  | — |  |  | 9 |
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | — |  |  | — |  |  | — |
Write-offs charged against the allowance | — |  |  | — |  |  | — |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | (1) |  |  | 1 |  |  | — |
Balance as of September 30, 2020 | $ | 34 |  |  | $ | 13 |  |  | $ | 47 |

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(In millions) | Corporate and other bonds |  | Asset-backed |  | Total
Allowance for credit losses: |  |  |  |  |
Balance as of January 1, 2021 | $ | 23 |  |  | $ | 17 |  |  | $ | 40 |
Additions to the allowance for credit losses: |  |  |  |  |
Securities for which credit losses were not previously recorded | 14 |  |  | — |  |  | 14 |
Available-for-sale securities accounted for as PCD assets | 4 |  |  | 4 |  |  | 8 |
Reductions to the allowance for credit losses: |  |  |  |  |
Securities sold during the period (realized) | 6 |  |  | — |  |  | 6 |
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | — |  |  | — |  |  | — |
Write-offs charged against the allowance | 16 |  |  | — |  |  | 16 |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | (9) |  |  | — |  |  | (9) |
Balance as of September 30, 2021 | $ | 10 |  |  | $ | 21 |  |  | $ | 31 |

(In millions) | Corporate and other bonds |  | Asset-backed |  | Total
Allowance for credit losses: |  |  |  |  |
Balance as of January 1, 2020 | $ | — |  |  | $ | — |  |  | $ | — |
Additions to the allowance for credit losses: |  |  |  |  |
Impact of adopting ASC 326 | 6 |  |  | — |  |  | 6 |
For securities for which credit losses were not previously recorded | 62 |  |  | 12 |  |  | 74 |
For available-for-sale securities accounted for as PCD assets | 3 |  |  | — |  |  | 3 |
Reductions to the allowance for credit losses: |  |  |  |  |
Securities sold during the period (realized) | 15 |  |  | — |  |  | 15 |
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis | 1 |  |  | — |  |  | 1 |
Write-offs charged against the allowance | — |  |  | — |  |  | — |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period | (21) |  |  | 1 |  |  | (20) |
Balance as of September 30, 2020 | $ | 34 |  |  | $ | 13 |  |  | $ | 47 |

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The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed maturity securities available-for-sale: |  |  |  |  |  |  |
Corporate and other bonds | $ | — |  |  | $ | 4 |  |  | $ | 5 |  |  | $ | 94 |
Asset-backed | 11 |  |  | 1 |  |  | 11 |  |  | 14 |
Impairment losses (gains) recognized in earnings | $ | 11 |  |  | $ | 5 |  |  | $ | 16 |  |  | $ | 108 |

The Company also recognized $3 million and $16 million of losses on mortgage loans during the three and nine months ended September 30, 2020 primarily due to changes in expected credit losses. There were no losses recognized on mortgage loans during the three and nine months ended September 30, 2021.
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The following tables present a summary of fixed maturity securities.

September 30, 2021 | Cost or Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Allowance for Credit Losses |  | Estimated Fair Value
(In millions) |  |  |  |
Fixed maturity securities available-for-sale: |  |  |  |  |  |  |  |  |
Corporate and other bonds | $ | 21,608 |  |  | $ | 2,967 |  |  | $ | 42 |  |  | $ | 10 |  |  | $ | 24,523 |
States, municipalities and political subdivisions | 10,384 |  |  | 1,610 |  |  | 15 |  |  | — |  |  | 11,979 |
Asset-backed: |  |  |  |  |  |  |  |  |
Residential mortgage-backed | 3,176 |  |  | 89 |  |  | 6 |  |  | — |  |  | 3,259 |
Commercial mortgage-backed | 2,064 |  |  | 85 |  |  | 16 |  |  | 17 |  |  | 2,116 |
Other asset-backed | 2,429 |  |  | 76 |  |  | 4 |  |  | 4 |  |  | 2,497 |
Total asset-backed | 7,669 |  |  | 250 |  |  | 26 |  |  | 21 |  |  | 7,872 |
U.S. Treasury and obligations of government-sponsored enterprises | 139 |  |  | 1 |  |  | 4 |  |  | — |  |  | 136 |
Foreign government | 521 |  |  | 19 |  |  | 2 |  |  | — |  |  | 538 |
Redeemable preferred stock | 12 |  |  | — |  |  | — |  |  | — |  |  | 12 |
Total fixed maturity securities available-for-sale | 40,333 |  |  | 4,847 |  |  | 89 |  |  | 31 |  |  | 45,060 |
Total fixed maturity securities trading | 9 |  |  | — |  |  | — |  |  | — |  |  | 9 |
Total fixed maturity securities | $ | 40,342 |  |  | $ | 4,847 |  |  | $ | 89 |  |  | $ | 31 |  |  | $ | 45,069 |

December 31, 2020 | Cost or Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Allowance for Credit Losses |  | Estimated Fair Value
(In millions) |  |  |  |
Fixed maturity securities available-for-sale: |  |  |  |  |  |  |  |  |
Corporate and other bonds | $ | 20,792 |  |  | $ | 3,578 |  |  | $ | 22 |  |  | $ | 23 |  |  | $ | 24,325 |
States, municipalities and political subdivisions | 9,729 |  |  | 1,863 |  |  | — |  |  | — |  |  | 11,592 |
Asset-backed: |  |  |  |  |  |  |  |  |
Residential mortgage-backed | 3,442 |  |  | 146 |  |  | 1 |  |  | — |  |  | 3,587 |
Commercial mortgage-backed | 1,933 |  |  | 93 |  |  | 42 |  |  | 17 |  |  | 1,967 |
Other asset-backed | 2,179 |  |  | 81 |  |  | 9 |  |  | — |  |  | 2,251 |
Total asset-backed | 7,554 |  |  | 320 |  |  | 52 |  |  | 17 |  |  | 7,805 |
U.S. Treasury and obligations of government-sponsored enterprises | 339 |  |  | 2 |  |  | 3 |  |  | — |  |  | 338 |
Foreign government | 512 |  |  | 32 |  |  | — |  |  | — |  |  | 544 |
Redeemable preferred stock | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total fixed maturity securities available-for-sale | 38,926 |  |  | 5,795 |  |  | 77 |  |  | 40 |  |  | 44,604 |
Total fixed maturity securities trading | 27 |  |  | — |  |  | — |  |  | — |  |  | 27 |
Total fixed maturity securities | $ | 38,953 |  |  | $ | 5,795 |  |  | $ | 77 |  |  | $ | 40 |  |  | $ | 44,631 |

The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (AOCI). When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group segment would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). As of September 30, 2021 and December 31, 2020, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $2,481 million and $2,773 million.
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The following tables present the estimated fair value and gross unrealized losses of fixed maturity securities in a gross unrealized loss position for which an allowance for credit loss has not been recorded, by the length of time in which the securities have continuously been in that position.

| Less than 12 Months |  | 12 Months or Longer |  | Total
September 30, 2021 | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses
(In millions) |  |  |  |  |
Fixed maturity securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds | $ | 1,853 |  |  | $ | 37 |  |  | $ | 88 |  |  | $ | 5 |  |  | $ | 1,941 |  |  | $ | 42 |
States, municipalities and political subdivisions | 885 |  |  | 15 |  |  | — |  |  | — |  |  | 885 |  |  | 15 |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed | 1,295 |  |  | 6 |  |  | — |  |  | — |  |  | 1,295 |  |  | 6 |
Commercial mortgage-backed | 317 |  |  | 4 |  |  | 194 |  |  | 12 |  |  | 511 |  |  | 16 |
Other asset-backed | 439 |  |  | 3 |  |  | 58 |  |  | 1 |  |  | 497 |  |  | 4 |
Total asset-backed | 2,051 |  |  | 13 |  |  | 252 |  |  | 13 |  |  | 2,303 |  |  | 26 |
U.S. Treasury and obligations of government-sponsored enterprises | 65 |  |  | 4 |  |  | 1 |  |  | — |  |  | 66 |  |  | 4 |
Foreign government | 73 |  |  | 2 |  |  | — |  |  | — |  |  | 73 |  |  | 2 |
Total | $ | 4,927 |  |  | $ | 71 |  |  | $ | 341 |  |  | $ | 18 |  |  | $ | 5,268 |  |  | $ | 89 |

| Less than 12 Months |  | 12 Months or Longer |  | Total
December 31, 2020 | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses
(In millions) |  |  |  |  |
Fixed maturity securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds | $ | 609 |  |  | $ | 21 |  |  | $ | 12 |  |  | $ | 1 |  |  | $ | 621 |  |  | $ | 22 |
States, municipalities and political subdivisions | 33 |  |  | — |  |  | — |  |  | — |  |  | 33 |  |  | — |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed | 71 |  |  | 1 |  |  | 11 |  |  | — |  |  | 82 |  |  | 1 |
Commercial mortgage-backed | 533 |  |  | 40 |  |  | 28 |  |  | 2 |  |  | 561 |  |  | 42 |
Other asset-backed | 344 |  |  | 9 |  |  | 13 |  |  | — |  |  | 357 |  |  | 9 |
Total asset-backed | 948 |  |  | 50 |  |  | 52 |  |  | 2 |  |  | 1,000 |  |  | 52 |
U.S. Treasury and obligations of government-sponsored enterprises | 63 |  |  | 3 |  |  | — |  |  | — |  |  | 63 |  |  | 3 |
Foreign government | 13 |  |  | — |  |  | — |  |  | — |  |  | 13 |  |  | — |
Total | $ | 1,666 |  |  | $ | 74 |  |  | $ | 64 |  |  | $ | 3 |  |  | $ | 1,730 |  |  | $ | 77 |

Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 2021 securities in a gross unrealized loss position table above are not indicative of the ultimate collectability of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional impairment losses to be recorded as of September 30, 2021.
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Contractual Maturity
The following table presents available-for-sale fixed maturity securities by contractual maturity.

| September 30, 2021 |  | December 31, 2020
(In millions) | Cost or Amortized Cost |  | Estimated Fair Value |  | Cost or Amortized Cost |  | Estimated Fair Value
Due in one year or less | $ | 1,648 |  |  | $ | 1,656 |  |  | $ | 1,456 |  |  | $ | 1,458 |
Due after one year through five years | 10,776 |  |  | 11,517 |  |  | 12,304 |  |  | 13,098 |
Due after five years through ten years | 13,628 |  |  | 14,794 |  |  | 12,319 |  |  | 13,878 |
Due after ten years | 14,281 |  |  | 17,093 |  |  | 12,847 |  |  | 16,170 |
Total | $ | 40,333 |  |  | $ | 45,060 |  |  | $ | 38,926 |  |  | $ | 44,604 |

Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.
Derivative Financial Instruments
The Company holds an embedded derivative on a funds withheld liability with a notional value of $272 million and $190 million and a fair value of $(11) million an d $(19) million as of September 30, 2021 and December 31, 2020. The embedded derivative on the funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.
Investment Commitments
As part of its overall investment strategy, the Company invests in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications, and obligations related to private placement securities. As of September 30, 2021, the Company had commitments to purchase or fund approximately $1,250 million and sell approximately $55 million under the terms of these investments.
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Mortgage Loans
The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination. The primary credit quality indicators utilized are debt service coverage ratios (DSCR) and loan-to-value ratios (LTV).

September 30, 2021 | Mortgage Loans Amortized Cost Basis by Origination Year (1)
(In millions) | 2021 |  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | Prior |  | Total
DSCR ≥1.6x |  |  |  |  |  |  |  |  |  |  |  |  |
LTV less than 55% | $ | 8 |  |  | $ | 75 |  |  | $ | 16 |  |  | $ | 37 |  |  | $ | 116 |  |  | $ | 203 |  |  | $ | 455 |
LTV 55% to 65% | — |  |  | 38 |  |  | 15 |  | 18 |  |  | — |  |  | 1 |  |  | 72
LTV greater than 65% | 17 |  |  | — |  |  | 14 |  |  | 7 |  |  | — |  |  | 23 |  |  | 61
DSCR 1.2x - 1.6x |  |  |  |  |  |  |  |  |  |  |  |  |
LTV less than 55% | 13 |  |  | 15 |  |  | 95 |  |  | — |  |  | 5 |  |  | 58 |  |  | 186
LTV 55% to 65% | 25 |  |  | — |  |  | — |  |  | 24 |  |  | 10 |  |  | 4 |  |  | 63
LTV greater than 65% | — |  |  | 24 |  |  | 9 |  |  | — |  |  | 8 |  |  | — |  |  | 41
DSCR ≤1.2 |  |  |  |  |  |  |  |  |  |  |  |  |
LTV less than 55% | — |  |  | — |  |  | 35 |  |  | — |  |  | 30 |  |  | — |  |  | 65
LTV 55% to 65% | — |  |  | — |  |  | 42 |  |  | — |  |  | — |  |  | — |  |  | 42
LTV greater than 65% | — |  |  | 9 |  |  | 56 |  |  | — |  |  | — |  |  | 7 |  |  | 72
Total | $ | 63 |  |  | $ | 161 |  |  | $ | 282 |  |  | $ | 86 |  |  | $ | 169 |  |  | $ | 296 |  |  | $ | 1,057 |

(1) The values in the table above reflect DSCR on a standardized amortization period and LTV based on the most recent appraised values trended forward using changes in a commercial real estate price index.
As of September 30, 2021, accrued interest receivable on mortgage loans totaled $4 million and is excluded from the amortized cost basis disclosed in the table above and the estimate of expected credit losses.
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Note D. Fair Value
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.
The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include i) the review of pricing service methodologies or broker pricing qualifications, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, and iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities.
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Assets and Liabilities Measured at Fair Value
Assets and liabilities measured at fair value on a recurring basis are presented in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.

September 30, 2021 |  |  |  |  |  |  | Total Assets/Liabilities at Fair Value
(In millions) | Level 1 |  | Level 2 |  | Level 3 |
Assets |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |
Corporate bonds and other | $ | 146 |  |  | $ | 24,195 |  |  | $ | 877 |  |  | $ | 25,218 |
States, municipalities and political subdivisions | — |  |  | 11,922 |  |  | 57 |  |  | 11,979 |
Asset-backed | — |  |  | 7,394 |  |  | 478 |  |  | 7,872 |
Total fixed maturity securities | 146 |  |  | 43,511 |  |  | 1,412 |  |  | 45,069 |
Equity securities: |  |  |  |  |  |  |
Common stock | 209 |  |  | — |  |  | 19 |  |  | 228 |
Non-redeemable preferred stock | 67 |  |  | 745 |  |  | 5 |  |  | 817 |
Total equity securities | 276 |  |  | 745 |  |  | 24 |  |  | 1,045 |
Short term and other | 992 |  |  | — |  |  | — |  |  | 992 |
Total assets | $ | 1,414 |  |  | $ | 44,256 |  |  | $ | 1,436 |  |  | $ | 47,106 |
Liabilities |  |  |  |  |  |  |
Other liabilities | $ | — |  |  | $ | 12 |  |  | $ | — |  |  | $ | 12 |
Total liabilities | $ | — |  |  | $ | 12 |  |  | $ | — |  |  | $ | 12 |

December 31, 2020 |  |  |  |  |  |  | Total Assets/Liabilities at Fair Value
(In millions) | Level 1 |  | Level 2 |  | Level 3 |
Assets |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |
Corporate bonds and other | $ | 355 |  |  | $ | 24,109 |  |  | $ | 770 |  |  | $ | 25,234 |
States, municipalities and political subdivisions | — |  |  | 11,546 |  |  | 46 |  |  | 11,592 |
Asset-backed | — |  |  | 7,497 |  |  | 308 |  |  | 7,805 |
Total fixed maturity securities | 355 |  |  | 43,152 |  |  | 1,124 |  |  | 44,631 |
Equity securities: |  |  |  |  |  |  |
Common stock | 175 |  |  | — |  |  | 20 |  |  | 195 |
Non-redeemable preferred stock | 68 |  |  | 722 |  |  | 7 |  |  | 797 |
Total equity securities | 243 |  |  | 722 |  |  | 27 |  |  | 992 |
Short term and other | 1,761 |  |  | 28 |  |  | — |  |  | 1,789 |
Total assets | $ | 2,359 |  |  | $ | 43,902 |  |  | $ | 1,151 |  |  | $ | 47,412 |
Liabilities |  |  |  |  |  |  |
Other liabilities | $ | — |  |  | $ | 19 |  |  | $ | — |  |  | $ | 19 |
Total liabilities | $ | — |  |  | $ | 19 |  |  | $ | — |  |  | $ | 19 |

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The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

Level 3 (In millions) | Corporate bonds and other |  | States, municipalities and political subdivisions |  | Asset-backed |  | Equity securities |  | Total
Balance as of July 1, 2021 | $ | 883 |  |  | $ | 57 |  |  | $ | 410 |  |  | $ | 25 |  |  | $ | 1,375 |
Total realized and unrealized investment gains (losses): |  |  |  |  |  |  |  |  |
Reported in Net investment gains (losses) | 1 |  |  | — |  |  | — |  |  | (3) |  |  | (2) |
Reported in Net investment income | — |  |  | — |  |  | 1 |  |  | 1 |  |  | 2 |
Reported in Other comprehensive income (loss) | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 2 |
Total realized and unrealized investment gains (losses) | 2 |  |  | — |  |  | 2 |  |  | (2) |  |  | 2 |
Purchases | 55 |  |  | — |  |  | 83 |  |  | 1 |  |  | 139 |
Sales | — |  |  | — |  |  | (9) |  |  | (11) |  |  | (20) |
Settlements | (11) |  |  | — |  |  | (11) |  |  | — |  |  | (22) |
Transfers into Level 3 | — |  |  | — |  |  | 41 |  |  | 11 |  |  | 52 |
Transfers out of Level 3 | (52) |  |  | — |  |  | (38) |  |  | — |  |  | (90) |
Balance as of September 30, 2021 | $ | 877 |  |  | $ | 57 |  |  | $ | 478 |  |  | $ | 24 |  |  | $ | 1,436 |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2021 recognized in Net income (loss) in the period | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | (3) |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2021 recognized in Other comprehensive income (loss) in the period | 2 |  |  | — |  |  | — |  |  | — |  |  | 2 |

Level 3 (In millions) | Corporate bonds and other |  | States, municipalities and political subdivisions |  | Asset-backed |  | Equity securities |  | Total
Balance as of July 1, 2020 | $ | 555 |  |  | $ | — |  |  | $ | 222 |  |  | $ | 11 |  |  | $ | 788 |
Total realized and unrealized investment gains (losses): |  |  |  |  |  |  |  |  |
Reported in Net investment gains (losses) | — |  |  | — |  |  | — |  |  | — |  |  | — |
Reported in Net investment income | — |  |  | — |  |  | — |  |  | — |  |  | — |
Reported in Other comprehensive income (loss) | 5 |  |  | — |  |  | 9 |  |  | — |  |  | 14 |
Total realized and unrealized investment gains (losses) | 5 |  |  | — |  |  | 9 |  |  | — |  |  | 14 |
Purchases | 129 |  |  | 45 |  |  | 20 |  |  | 12 |  |  | 206 |
Sales | — |  |  | — |  |  | — |  |  | — |  |  | — |
Settlements | (3) |  |  | — |  |  | (14) |  |  | — |  |  | (17) |
Transfers into Level 3 | 8 |  |  | — |  |  | — |  |  | — |  |  | 8 |
Transfers out of Level 3 | — |  |  | — |  |  | (2) |  |  | — |  |  | (2) |
Balance as of September 30, 2020 | $ | 694 |  |  | $ | 45 |  |  | $ | 235 |  |  | $ | 23 |  |  | $ | 997 |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Net income (loss) in the period | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Other comprehensive income (loss) in the period | 5 |  |  | — |  |  | 8 |  |  | — |  |  | 13 |

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Level 3 (In millions) | Corporate bonds and other |  | States, municipalities and political subdivisions |  | Asset-backed |  | Equity securities |  | Total
Balance as of January 1, 2021 | $ | 770 |  |  | $ | 46 |  |  | $ | 308 |  |  | $ | 27 |  |  | $ | 1,151 |
Total realized and unrealized investment gains (losses): |  |  |  |  |  |  |  |  |
Reported in Net investment gains (losses) | (9) |  |  | — |  |  | — |  |  | (2) |  |  | (11) |
Reported in Net investment income | — |  |  | — |  |  | 4 |  |  | 2 |  |  | 6 |
Reported in Other comprehensive income (loss) | (23) |  |  | — |  |  | (4) |  |  | — |  |  | (27) |
Total realized and unrealized investment gains (losses) | (32) |  |  | — |  |  | — |  |  | — |  |  | (32) |
Purchases | 219 |  |  | 12 |  |  | 197 |  |  | 1 |  |  | 429 |
Sales | (3) |  |  | — |  |  | (9) |  |  | (15) |  |  | (27) |
Settlements | (35) |  |  | (1) |  |  | (38) |  |  | — |  |  | (74) |
Transfers into Level 3 | 10 |  |  | — |  |  | 71 |  |  | 11 |  |  | 92 |
Transfers out of Level 3 | (52) |  |  | — |  |  | (51) |  |  | — |  |  | (103) |
Balance as of September 30, 2021 | $ | 877 |  |  | $ | 57 |  |  | $ | 478 |  |  | $ | 24 |  |  | $ | 1,436 |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2021 recognized in Net income (loss) in the period | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1) |  |  | $ | (1) |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2021 recognized in Other comprehensive income (loss) in the period | (22) |  |  | — |  |  | (5) |  |  | — |  |  | (27) |

Level 3 (In millions) | Corporate bonds and other |  | States, municipalities and political subdivisions |  | Asset-backed |  | Equity securities |  | Total
Balance as of January 1, 2020 | $ | 468 |  |  | $ | — |  |  | $ | 165 |  |  | $ | 18 |  |  | $ | 651 |
Total realized and unrealized investment gains (losses): |  |  |  |  |  |  |  |  |
Reported in Net investment gains (losses) | — |  |  | — |  |  | — |  |  | (4) |  |  | (4) |
Reported in Net investment income | — |  |  | — |  |  | — |  |  | (3) |  |  | (3) |
Reported in Other comprehensive income (loss) | 27 |  |  | — |  |  | 18 |  |  | — |  |  | 45 |
Total realized and unrealized investment gains (losses) | 27 |  |  | — |  |  | 18 |  |  | (7) |  |  | 38 |
Purchases | 200 |  |  | 45 |  |  | 100 |  |  | 12 |  |  | 357 |
Sales | — |  |  | — |  |  | (9) |  |  | — |  |  | (9) |
Settlements | (9) |  |  | — |  |  | (22) |  |  | — |  |  | (31) |
Transfers into Level 3 | 8 |  |  | — |  |  | — |  |  | — |  |  | 8 |
Transfers out of Level 3 | — |  |  | — |  |  | (17) |  |  | — |  |  | (17) |
Balance as of September 30, 2020 | $ | 694 |  |  | $ | 45 |  |  | $ | 235 |  |  | $ | 23 |  |  | $ | 997 |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Net income (loss) in the period | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (7) |  |  | $ | (7) |
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Other comprehensive income (loss) in the period | 29 |  |  | — |  |  | 19 |  |  | — |  |  | 48 |

Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume.
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Valuation Methodologies and Inputs
The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.
Fixed Maturity Securities
Level 1 securities include highly liquid government securities and exchange traded bonds, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology, or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable.
Equity Securities
Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with some inputs that are not market observable.
Short Term and Other Invested Assets
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented on the Condensed Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.
As of September 30, 2021 and December 31, 2020, there were $65 million and $71 million of overseas deposits within Other invested assets, which can be redeemed at net asset value in 90 days or less. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded using the net asset value per share (or equivalent) practical expedient.
Derivative Financial Investments
The embedded derivative on funds withheld liability is valued using the change in fair value of the assets supporting the funds withheld liability, which are fixed maturity securities primarily valued with observable inputs.
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Significant Unobservable Inputs
The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to the Company. The weighted average rate is calculated based on fair value.

September 30, 2021 | Estimated Fair Value (In millions) |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted Average)
Fixed maturity securities | $ | 1,154 |  |  | Discounted cash flow |  | Credit spread |  | 1% - 7% (2%)

December 31, 2020 | Estimated Fair Value (In millions) |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted Average)
Fixed maturity securities | $ | 966 |  |  | Discounted cash flow |  | Credit spread |  | 1% - 8% (3%)

For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.
Financial Assets and Liabilities Not Measured at Fair Value
The carrying amount and estimated fair value of the Company's financial assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are presented in the following tables.

September 30, 2021 | Carrying Amount |  | Estimated Fair Value
(In millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |  |
Mortgage loans | $ | 1,031 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,106 |  |  | $ | 1,106 |
Liabilities |  |  |  |  |  |  |  |  |
Long term debt | $ | 2,778 |  |  | $ | — |  |  | $ | 3,027 |  |  | $ | — |  |  | $ | 3,027 |

December 31, 2020 | Carrying Amount |  | Estimated Fair Value
(In millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |  |
Mortgage loans | $ | 1,068 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,151 |  |  | $ | 1,151 |
Liabilities |  |  |  |  |  |  |  |  |
Long term debt | $ | 2,776 |  |  | $ | — |  |  | $ | 3,148 |  |  | $ | — |  |  | $ | 3,148 |

The carrying amounts reported on the Condensed Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain Other assets and Other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.
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Note E. Claim and Claim Adjustment Expense Reserves
Property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including incurred but not reported (IBNR) claims as of the reporting date. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions, including inflation, and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.
Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers' compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the Company's ultimate cost for insurance losses will not exceed current estimates.
Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company's results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $178 million and $357 million for the three and nine months ended September 30, 2021. Catastrophe losses for the three months ended September 30, 2021 included $114 million for Hurricane Ida. Catastrophe losses for the nine months ended September 30, 2021 were driven by severe weather related events, primarily Hurricane Ida and Winter Storms Uri and Viola. The Company reported catastrophe losses, net of reinsurance, of $160 million and $536 million for the three and nine months ended September 30, 2020. Net catastrophe losses for the three months ended September 30, 2020 were driven by severe weather related events, primarily Hurricanes Laura, Isaias and Sally, and the Midwest derecho. Net catastrophe losses for the nine months ended September 30, 2020 included $273 million related primarily to severe weather related events, $195 million related to the COVID-19 pandemic and $68 million related to civil unrest.
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Liability for Unpaid Claim and Claim Adjustment Expenses
The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of the Life & Group segment.

For the nine months ended September 30 |  |  |
(In millions) | 2021 |  | 2020
Reserves, beginning of year: |  |  |
Gross | $ | 22,706 |  |  | $ | 21,720 |
Ceded | 4,005 |  |  | 3,835 |
Net reserves, beginning of year | 18,701 |  |  | 17,885 |
Reduction of net reserves due to Excess Workers' Compensation Loss Portfolio Transfer | (632) |  |  | — |
Net incurred claim and claim adjustment expenses: |  |  |
Provision for insured events of current year | 4,474 |  |  | 4,425 |
Increase (decrease) in provision for insured events of prior years | (130) |  |  | (68) |
Amortization of discount | 137 |  |  | 143 |
Total net incurred (1) | 4,481 |  |  | 4,500 |
Net payments attributable to: |  |  |
Current year events | (629) |  |  | (556) |
Prior year events | (2,874) |  |  | (3,285) |
Total net payments | (3,503) |  |  | (3,841) |
Foreign currency translation adjustment and other | (51) |  |  | 39 |
Net reserves, end of period | 18,996 |  |  | 18,583 |
Ceded reserves, end of period | 4,836 |  |  | 3,951 |
Gross reserves, end of period | $ | 23,832 |  |  | $ | 22,534 |

(1) Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Condensed Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, the loss on the Excess Workers' Compensation Loss Portfolio Transfer, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above.
Net Prior Year Development
Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (development). These changes can be favorable or unfavorable. The following table presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Pretax (favorable) unfavorable development: |  |  |  |  |  |  |
Specialty | $ | (15) |  |  | $ | (16) |  |  | $ | (40) |  |  | $ | (47) |
Commercial | 2 |  |  | 1 |  |  | 2 |  |  | (8) |
International | 3 |  |  | — |  |  | 2 |  |  | (3) |
Corporate & Other | — |  |  | — |  |  | 40 |  |  | 50 |
Total pretax (favorable) unfavorable development | $ | (10) |  |  | $ | (15) |  |  | $ | 4 |  |  | $ | (8) |

Unfavorable development of $40 million and $50 million was recorded within the Corporate & Other segment for the nine months ended September 30, 2021 and 2020 due to higher than expected emergence in mass tort exposures in older accident years primarily related to abuse.
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Specialty
The following table presents further detail of the development recorded for the Specialty segment.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Pretax (favorable) unfavorable development: |  |  |  |  |  |  |
Medical Professional Liability | $ | 8 |  |  | $ | 25 |  |  | $ | 16 |  |  | $ | 35 |
Other Professional Liability and Management Liability | — |  |  | — |  |  | 10 |  |  | (6) |
Surety | (15) |  |  | (40) |  |  | (53) |  |  | (70) |
Warranty | (6) |  |  | — |  |  | (14) |  |  | (3) |
Other | (2) |  |  | (1) |  |  | 1 |  |  | (3) |
Total pretax (favorable) unfavorable development | $ | (15) |  |  | $ | (16) |  |  | $ | (40) |  |  | $ | (47) |

Three Months
2021
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
2020
Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years and unfavorable development on a latent claim for an older accident year.
Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior.
Nine Months
2021
Unfavorable development in medical professional liability was due to higher than expected frequency of large losses in recent accident years.
Unfavorable development in other professional liability and management liability was due to higher than expected claim severity and frequency in the Company’s cyber business in recent accident years.
Favorable development in surety was primarily due to lower than expected frequency and lack of systemic activity in recent accident years.
Favorable development in warranty was due to lower than expected loss emergence in a recent accident year.
2020
Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years, unfavorable development on a latent claim for an older accident year and unfavorable outcomes on specific claims in accident years 2015 and 2016 in the Company's aging services business.
Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior.
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Commercial
The following table presents further detail of the development recorded for the Commercial segment.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Pretax (favorable) unfavorable development: |  |  |  |  |  |  |
Commercial Auto | $ | — |  |  | $ | 9 |  |  | $ | 30 |  |  | $ | 33 |
General Liability | — |  |  | 15 |  |  | — |  |  | 15 |
Workers' Compensation | 2 |  |  | (23) |  |  | (40) |  |  | (97) |
Property and Other | — |  |  | — |  |  | 12 |  |  | 41 |
Total pretax (favorable) unfavorable development | $ | 2 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | (8) |

Three Months
2020
Unfavorable development in general liability was primarily due to increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in the Company’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Nine Months
2021
Unfavorable development in commercial auto was due to higher than expected claim severity in the Company’s construction and middle market businesses in recent accident years.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in the Company’s marine business in multiple accident years.
2020
Unfavorable development in commercial auto was due to unfavorable claim severity in the Company's middle market and construction businesses in accident years 2017 through 2019.
Unfavorable development in general liability was driven by increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in the Company’s umbrella business in accident years 2015 through 2019.
Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.
Unfavorable development in property and other was primarily due to higher than expected large loss activity in the Company's middle market, national accounts and marine business units in accident year 2019.
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International
The following table presents further detail of the development recorded for the International segment.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Pretax (favorable) unfavorable development: |  |  |  |  |  |  |
Casualty | $ | (4) |  |  | $ | (5) |  |  | $ | (3) |  |  | $ | (11) |
Property, Energy and Marine | (14) |  |  | 9 |  |  | (17) |  |  | 10 |
Specialty | 21 |  |  | (4) |  |  | 22 |  |  | (2) |
Total pretax (favorable) unfavorable development | $ | 3 |  |  | $ | — |  |  | $ | 2 |  |  | $ | (3) |

Three Months
2021
Favorable development in property, energy and marine was due to lower than expected loss emergence across multiple accident years.
Unfavorable development in specialty was due to higher than expected claim severity in the Company’s medical treatment business.
Nine Months
2021
Favorable development in property, energy and marine was due to lower than expected loss emergence across multiple accident years.
Unfavorable development in specialty was due to higher than expected claim severity in the Company’s medical treatment business.
2020
Favorable development in casualty was primarily driven by better than expected loss experience across Europe and Canada in multiple accident years.
Unfavorable development in property, energy and marine was driven by adverse attritional and large loss experience on discontinued lines, primarily in the Company’s construction and renewable energy business in recent accident years.
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Asbestos & Environmental Pollution (A&EP) Reserves
In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO through a Loss Portfolio Transfer (LPT). At the effective date of the transaction, the Company ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third-party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third-party reinsurance related to these liabilities. The Company paid NICO a reinsurance premium of $2 billion and transferred to NICO billed third-party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.
In years subsequent to the effective date of the LPT, the Company recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which the Company recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders' benefits on the Condensed Consolidated Statements of Operations.
The impact of the LPT on the Condensed Consolidated Statements of Operations was the recognition of a retroactive reinsurance benefit of $8 million and $9 million for the three months ended September 30, 2021 and 2020 and $30 million and $43 million for the nine months ended September 30, 2021 and 2020. As of September 30, 2021 and December 31, 2020, the cumulative amounts ceded under the LPT were $3.3 billion. The unrecognized deferred retroactive reinsurance benefit was $368 million and $398 million as of September 30, 2021 and December 31, 2020 and is included within Other liabilities on the Condensed Consolidated Balance Sheets.
NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $2.9 billion as of September 30, 2021. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the majority of the Company’s A&EP claims.
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Excess Workers' Compensation LPT
On February 5, 2021, CCC completed a transaction with Cavello Bay Reinsurance Limited (Cavello), a subsidiary of Enstar Group Limited, under which certain legacy excess workers’ compensation (EWC) liabilities were ceded to Cavello. Under the terms of the transaction, based on reserves in place as of January 1, 2020, the Company ceded approximately $690 million of net EWC claim and allocated claim adjustment expense reserves to Cavello under an LPT with an aggregate limit of $1 billion. The Company paid Cavello a reinsurance premium of $697 million, less claims paid between January 1, 2020 and the closing date of the agreement of $64 million. After transaction costs, the Company recognized an after-tax loss of approximately $12 million in the Corporate & Other segment in the first quarter of 2021 related to the EWC LPT.
As of September 30, 2021, the cumulative amount ceded under the EWC LPT was $690 million.
Cavello established a collateral trust account as security for its obligations to the Company, which will be maintained at 105% of outstanding reserves.
Credit Risk for Ceded Reserves
The majority of the Company’s outstanding voluntary reinsurance receivables are due from reinsurers with financial strength ratings of A- or higher. Receivables due from reinsurers with lower financial strength ratings are primarily due from captive reinsurers and are backed by collateral arrangements.
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Life & Group Policyholder Reserves
The Company’s Life & Group segment includes its run-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and the Company has the ability to increase policy premiums, subject to state regulatory approval.
The Company maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for the Life & Group segment. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for long term care policies, the Company’s actuaries perform a detailed claim reserve review on an annual basis. The review analyzes the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, the Company's actuaries review mortality experience on an annual basis. The Company’s recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent reviews.
The Company completed its annual claim reserve reviews in the third quarters of 2021 and 2020 resulting in $40 million and $37 million pretax reductions in long term care reserves primarily due to lower claim severity than anticipated in the reserve estimates and $2 million and $46 million pretax increases in the structured settlement claim reserves primarily due to lower discount rate assumptions and mortality assumption changes.
Future policy benefit reserves consist of active life reserves related to the Company’s long term care policies for policyholders that are not currently receiving benefits and represent the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.
The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, the Company’s long term care reserves may be subject to material increases if actual experience develops adversely to the Company’s expectations.
Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a gross premium valuation (GPV) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in the Company’s results of operations in the period in which the need for such adjustment is determined. If the GPV required reserves are less than the existing recorded reserves, assumptions remain locked in and no adjustment is required.
The GPV for the long term care future policy benefit reserves, performed in the third quarter of 2021, indicated recorded reserves included a pretax margin of approximately $72 million as of September 30, 2021.
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The GPV for the long term care future policy benefit reserves, performed in the third quarter of 2020, indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the premium deficiency resulted in a $74 million pretax increase in policyholders' benefits reflected in the Company's results of operations for the three and nine months ended September 30, 2020.
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Note F. Legal Proceedings, Contingencies and Guarantees
The Company is a party to various claims and litigation incidental to its business, which, based on the facts and circumstances currently known, are not material to the Company's results of operations or financial position.
Data Breach-related Contingency
As previously disclosed, the Company sustained a sophisticated cybersecurity attack in March 2021 involving ransomware. The Company’s investigation revealed that an unauthorized third party copied some personal information relating to certain current and former employees, contractor workers and their dependents and certain other persons, including some policyholders. In July 2021, we provided notifications to the impacted individuals and to regulators, in accordance with applicable law. The Company may be subject to subsequent investigations, fines or penalties, as well as other legal claims and actions, related to the foregoing. The likelihood is reasonably possible, but the amount of such fines, penalties or costs, if any, cannot be estimated at this time.
Based on the information currently known, we do not believe that the March 2021 cybersecurity attack will have a material impact on our business, results of operations or financial condition, but no assurances can be given as we continue to assess the full impact from the incident, including costs, expenses and insurance coverage.
Guarantees
The Company has provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities issued by a previously owned subsidiary. As of September 30, 2021, the potential amount of future payments the Company could be required to pay under these guarantees was approximately $1.6 billion, which will be paid over the lifetime of the annuitants. The Company does not believe any payment is likely under these guarantees, as the Company is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.
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Note G. Benefit Plans
The components of net periodic pension cost (benefit) are presented in the following table.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Net periodic pension cost (benefit) |  |  |  |  |  |  |
Interest cost on projected benefit obligation | $ | 15 |  |  | $ | 20 |  |  | $ | 46 |  |  | $ | 60 |
Expected return on plan assets | (38) |  |  | (38) |  |  | (115) |  |  | (116) |
Amortization of net actuarial (gain) loss | 12 |  |  | 11 |  |  | 35 |  |  | 33 |
Settlement loss | — |  |  | — |  |  | 1 |  |  | 2 |
Total net periodic pension cost (benefit) | $ | (11) |  |  | $ | (7) |  |  | $ | (33) |  |  | $ | (21) |

The following table indicates the line items in which the non-service cost (benefit) is presented in the Condensed Consolidated Statements of Operations.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Non-Service Cost (Benefit): |  |  |  |  |  |  |
Insurance claims and policyholder's benefits | $ | (3) |  |  | $ | (2) |  |  | $ | (9) |  |  | $ | (6) |
Other operating expenses | (8) |  |  | (5) |  |  | (24) |  |  | (15) |
Total net periodic pension cost (benefit) | $ | (11) |  |  | $ | (7) |  |  | $ | (33) |  |  | $ | (21) |

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Note H. Accumulated Other Comprehensive Income (Loss) by Component
The tables below display the changes in Accumulated other comprehensive income (loss) by component.

(In millions) | Net unrealized gains (losses) on investments with an allowance for credit losses |  | Net unrealized gains (losses) on other investments |  | Pension and postretirement benefits |  | Cumulative foreign currency translation adjustment |  | Total
Balance as of July 1, 2021 | $ | — |  |  | $ | 1,418 |  |  | $ | (829) |  |  | $ | (80) |  |  | $ | 509 |
Other comprehensive income (loss) before reclassifications | — |  |  | (121) |  |  | (1) |  |  | (33) |  |  | (155) |
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $—, $(5), $2, $— and $(3) | — |  |  | 17 |  |  | (9) |  |  | — |  |  | 8 |
Other comprehensive income (loss) net of tax (expense) benefit of $—, $37, $(2), $— and $35 | — |  |  | (138) |  |  | 8 |  |  | (33) |  |  | (163) |
Balance as of September 30, 2021 | $ | — |  |  | $ | 1,280 |  |  | $ | (821) |  |  | $ | (113) |  |  | $ | 346 |

(In millions) | Net unrealized gains (losses) on investments with an allowance for credit losses |  | Net unrealized gains (losses) on other investments |  | Pension and postretirement benefits |  | Cumulative foreign currency translation adjustment |  | Total
Balance as of July 1, 2020 | $ | (9) |  |  | $ | 1,172 |  |  | $ | (815) |  |  | $ | (194) |  |  | $ | 154 |
Other comprehensive income (loss) before reclassifications | 2 |  |  | 231 |  |  | (2) |  |  | 37 |  |  | 268 |
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $(7), $2, $— and $(4) | (4) |  |  | 24 |  |  | (9) |  |  | — |  |  | 11 |
Other comprehensive income (loss) net of tax (expense) benefit of $(1), $(56), $(3), $— and $(60) | 6 |  |  | 207 |  |  | 7 |  |  | 37 |  |  | 257 |
Balance as of September 30, 2020 | $ | (3) |  |  | $ | 1,379 |  |  | $ | (808) |  |  | $ | (157) |  |  | $ | 411 |

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(In millions) | Net unrealized gains (losses) on investments with an allowance for credit losses |  | Net unrealized gains (losses) on other investments |  | Pension and postretirement benefits |  | Cumulative foreign currency translation adjustment |  | Total
Balance as of January 1, 2021 | $ | — |  |  | $ | 1,745 |  |  | $ | (848) |  |  | $ | (94) |  |  | $ | 803 |
Other comprehensive income (loss) before reclassifications | (2) |  |  | (391) |  |  | (1) |  |  | (19) |  |  | (413) |
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $(20), $7, $— and $(12) | (2) |  |  | 74 |  |  | (28) |  |  | — |  |  | 44 |
Other comprehensive income (loss) net of tax (expense) benefit of $—, $124, $(7), $— and $117 | — |  |  | (465) |  |  | 27 |  |  | (19) |  |  | (457) |
Balance as of September 30, 2021 | $ | — |  |  | $ | 1,280 |  |  | $ | (821) |  |  | $ | (113) |  |  | $ | 346 |

(In millions) | Net unrealized gains (losses) on investments with an allowance for credit losses |  | Net unrealized gains (losses) on other investments |  | Pension and postretirement benefits |  | Cumulative foreign currency translation adjustment |  | Total
Balance as of January 1, 2020 | $ | — |  |  | $ | 1,025 |  |  | $ | (833) |  |  | $ | (141) |  |  | $ | 51 |
Other comprehensive income (loss) before reclassifications | (48) |  |  | 374 |  |  | (3) |  |  | (16) |  |  | 307 |
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $12, $(5), $7, $— and $14 | (45) |  |  | 20 |  |  | (28) |  |  | — |  |  | (53) |
Other comprehensive income (loss) net of tax (expense) benefit of $1, $(92), $(7), $— and $(98) | (3) |  |  | 354 |  |  | 25 |  |  | (16) |  |  | 360 |
Balance as of September 30, 2020 | $ | (3) |  |  | $ | 1,379 |  |  | $ | (808) |  |  | $ | (157) |  |  | $ | 411 |

Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:

Component of AOCI |  | Consolidated Statements of Operations Line Item Affected by Reclassifications
Net unrealized gains (losses) on investments with an allowance for credit losses and Net unrealized gains (losses) on other investments |  | Net investment gains (losses)
Pension and postretirement benefits |  | Other operating expenses and Insurance claims and policyholders' benefits

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Note I. Business Segments
The Company's property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International. These three segments are collectively referred to as Property & Casualty Operations. The Company's operations outside of Property & Casualty Operations are managed and reported in two segments: Life & Group and Corporate & Other.
Effective January 1, 2021, and in connection with the ceding of certain legacy reserves under a retroactive reinsurance agreement executed in February 2021, management changed the segment presentation of a legacy portfolio of excess workers’ compensation policies relating to business written in 2007 and prior. This business, which was previously reported as part of the Commercial business segment, is now reported as part of the Corporate & Other business segment. Further information on this retroactive reinsurance agreement is provided in Note E. In addition, a determination was made to change the segment presentation of certain legacy mass tort reserves. Similar to the aforementioned excess workers’ compensation legacy business, these legacy mass tort reserves were previously reported in the Commercial business segment and are now reported as part of the Corporate & Other business segment. These changes were made to better reflect the manner in which the Company is organized for purposes of making operating decisions and assessing performance. Prior period information has been conformed to the new segment presentation.
The accounting policies of the segments are the same as those described in Note A to the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2020. The Company manages most of its assets on a legal entity basis, while segment operations are generally conducted across legal entities. As such, only Insurance and Reinsurance receivables, Insurance reserves, Deferred acquisition costs, Goodwill and Deferred non-insurance warranty acquisition expense and revenue are readily identifiable for individual segments. Distinct investment portfolios are not maintained for every individual segment; accordingly, allocation of assets to each segment is not performed. Therefore, a significant portion of Net investment income and Net investment gains or losses are allocated primarily based on each segment's net carried insurance reserves, as adjusted. All significant intersegment income and expense have been eliminated. Income taxes have been allocated on the basis of the taxable income of the segments.
In the following tables, certain financial measures are presented to provide information used by management to monitor the Company's operating performance. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio.
The performance of the Company's insurance operations is monitored by management through core income (loss), which is derived from certain income statement amounts. The Company's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk.
Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of net investment gains or losses and any cumulative effects of changes in accounting guidance. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not necessarily reflective of our primary operations.
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The Company's results of operations and selected balance sheet items by segment are presented in the following tables.

Three months ended September 30, 2021 | Specialty |  | Commercial |  | International |  | Life & Group |  | Corporate & Other |  |  |  |
(In millions) |  |  |  |  |  | Eliminations |  | Total
Operating revenues |  |  |  |  |  |  |  |  |  |  |  |  |
Net earned premiums | $ | 773 |  |  | $ | 893 |  |  | $ | 271 |  |  | $ | 123 |  |  | $ | — |  |  | $ | (1) |  |  | $ | 2,059 |
Net investment income | 116 |  |  | 141 |  |  | 14 |  |  | 240 |  |  | 2 |  |  | — |  |  | 513 |
Non-insurance warranty revenue | 357 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 357 |
Other revenues | 1 |  |  | 7 |  |  | — |  |  | (1) |  |  | 2 |  |  | (1) |  |  | 8 |
Total operating revenues | 1,247 |  |  | 1,041 |  |  | 285 |  |  | 362 |  |  | 4 |  |  | (2) |  |  | 2,937 |
Claims, benefits and expenses |  |  |  |  |  |  |  |  |  |  |  |  |
Net incurred claims and benefits | 446 |  |  | 720 |  |  | 171 |  |  | 296 |  |  | (6) |  |  | — |  |  | 1,627 |
Policyholders’ dividends | — |  |  | 5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5 |
Amortization of deferred acquisition costs | 165 |  |  | 148 |  |  | 55 |  |  | — |  |  | — |  |  | — |  |  | 368 |
Non-insurance warranty expense | 330 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 330 |
Other insurance related expenses | 71 |  |  | 125 |  |  | 32 |  |  | 27 |  |  | (1) |  |  | (1) |  |  | 253 |
Other expenses | 13 |  |  | 8 |  |  | 4 |  |  | 1 |  |  | 37 |  |  | (1) |  |  | 62 |
Total claims, benefits and expenses | 1,025 |  |  | 1,006 |  |  | 262 |  |  | 324 |  |  | 30 |  |  | (2) |  |  | 2,645 |
Core income (loss) before income tax | 222 |  |  | 35 |  |  | 23 |  |  | 38 |  |  | (26) |  |  | — |  |  | 292 |
Income tax (expense) benefit on core income (loss) | (49) |  |  | (8) |  |  | (6) |  |  | 3 |  |  | 5 |  |  | — |  |  | (55) |
Core income (loss) | $ | 173 |  |  | $ | 27 |  |  | $ | 17 |  |  | $ | 41 |  |  | $ | (21) |  |  | $ | — |  |  | 237 |
Net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | 22 |
Income tax (expense) benefit on net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | (3) |
Net investment gains (losses), after tax |  |  |  |  |  |  |  |  |  |  |  |  | 19 |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | 256 |

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Three months ended September 30, 2020 | Specialty |  | Commercial |  | International |  | Life & Group |  | Corporate & Other |  |  |  |
(In millions) |  |  |  |  |  | Eliminations |  | Total
Operating revenues |  |  |  |  |  |  |  |  |  |  |  |  |
Net earned premiums | $ | 734 |  |  | $ | 857 |  |  | $ | 236 |  |  | $ | 127 |  |  | $ | — |  |  | $ | (1) |  |  | $ | 1,953 |
Net investment income | 126 |  |  | 151 |  |  | 15 |  |  | 208 |  |  | 17 |  |  | — |  |  | 517 |
Non-insurance warranty revenue | 317 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 317 |
Other revenues | — |  |  | 5 |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | 6 |
Total operating revenues | 1,177 |  |  | 1,013 |  |  | 251 |  |  | 335 |  |  | 18 |  |  | (1) |  |  | 2,793 |
Claims, benefits and expenses |  |  |  |  |  |  |  |  |  |  |  |  |
Net incurred claims and benefits | 433 |  |  | 671 |  |  | 150 |  |  | 363 |  |  | (6) |  |  | — |  |  | 1,611 |
Policyholders’ dividends | — |  |  | 5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5 |
Amortization of deferred acquisition costs | 158 |  |  | 150 |  |  | 52 |  |  | — |  |  | — |  |  | — |  |  | 360 |
Non-insurance warranty expense | 293 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 293 |
Other insurance related expenses | 66 |  |  | 128 |  |  | 31 |  |  | 28 |  |  | (1) |  |  | (1) |  |  | 251 |
Other expenses | 14 |  |  | 7 |  |  | (8) |  |  | 3 |  |  | 34 |  |  | — |  |  | 50 |
Total claims, benefits and expenses | 964 |  |  | 961 |  |  | 225 |  |  | 394 |  |  | 27 |  |  | (1) |  |  | 2,570 |
Core income (loss) before income tax | 213 |  |  | 52 |  |  | 26 |  |  | (59) |  |  | (9) |  |  | — |  |  | 223 |
Income tax (expense) benefit on core income (loss) | (45) |  |  | (11) |  |  | 1 |  |  | 24 |  |  | 1 |  |  | — |  |  | (30) |
Core income (loss) | $ | 168 |  |  | $ | 41 |  |  | $ | 27 |  |  | $ | (35) |  |  | $ | (8) |  |  | $ | — |  |  | 193 |
Net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | 27 |
Income tax (expense) benefit on net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | (7) |
Net investment gains (losses), after tax |  |  |  |  |  |  |  |  |  |  |  |  | 20 |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | 213 |

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Nine months ended September 30, 2021 | Specialty |  | Commercial |  | International |  | Life & Group |  | Corporate & Other |  |  |  |
(In millions) |  |  |  |  |  | Eliminations |  | Total
Operating revenues |  |  |  |  |  |  |  |  |  |  |  |  |
Net earned premiums | $ | 2,270 |  |  | $ | 2,629 |  |  | $ | 789 |  |  | $ | 369 |  |  | $ | — |  |  | $ | (1) |  |  | $ | 6,056 |
Net investment income | 367 |  |  | 463 |  |  | 42 |  |  | 724 |  |  | 12 |  |  | — |  |  | 1,608 |
Non-insurance warranty revenue | 1,054 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,054 |
Other revenues | 1 |  |  | 17 |  |  | 1 |  |  | (1) |  |  | 5 |  |  | (4) |  |  | 19 |
Total operating revenues | 3,692 |  |  | 3,109 |  |  | 832 |  |  | 1,092 |  |  | 17 |  |  | (5) |  |  | 8,737 |
Claims, benefits and expenses |  |  |  |  |  |  |  |  |  |  |  |  |
Net incurred claims and benefits | 1,312 |  |  | 1,947 |  |  | 485 |  |  | 899 |  |  | 23 |  |  | — |  |  | 4,666 |
Policyholders’ dividends | 2 |  |  | 16 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 18 |
Amortization of deferred acquisition costs | 478 |  |  | 449 |  |  | 157 |  |  | — |  |  | — |  |  | — |  |  | 1,084 |
Non-insurance warranty expense | 973 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 973 |
Other insurance related expenses | 212 |  |  | 376 |  |  | 106 |  |  | 77 |  |  | 9 |  |  | (1) |  |  | 779 |
Other expenses | 36 |  |  | 28 |  |  | (4) |  |  | 5 |  |  | 119 |  |  | (4) |  |  | 180 |
Total claims, benefits and expenses | 3,013 |  |  | 2,816 |  |  | 744 |  |  | 981 |  |  | 151 |  |  | (5) |  |  | 7,700 |
Core income (loss) before income tax | 679 |  |  | 293 |  |  | 88 |  |  | 111 |  |  | (134) |  |  | — |  |  | 1,037 |
Income tax (expense) benefit on core income (loss) | (148) |  |  | (60) |  |  | (21) |  |  | 9 |  |  | 24 |  |  | — |  |  | (196) |
Core income (loss) | $ | 531 |  |  | $ | 233 |  |  | $ | 67 |  |  | $ | 120 |  |  | $ | (110) |  |  | $ | — |  |  | 841 |
Net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | 117 |
Income tax (expense) benefit on net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | (22) |
Net investment gains (losses), after tax |  |  |  |  |  |  |  |  |  |  |  |  | 95 |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | 936 |

September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |
(In millions) |  |  |  |  |  |  |  |  |  |  |  |  |
Reinsurance receivables | $ | 1,153 |  |  | $ | 936 |  |  | $ | 347 |  |  | $ | 410 |  |  | $ | 2,503 |  |  | $ | — |  |  | $ | 5,349 |
Insurance receivables | 1,087 |  |  | 1,422 |  |  | 313 |  |  | 5 |  |  | 2 |  |  | — |  |  | 2,829 |
Deferred acquisition costs | 354 |  |  | 275 |  |  | 92 |  |  | — |  |  | — |  |  | — |  |  | 721 |
Goodwill | 117 |  |  | — |  |  | 31 |  |  | — |  |  | — |  |  | — |  |  | 148 |
Deferred non-insurance warranty acquisition expense | 3,418 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,418 |
Insurance reserves |  |  |  |  |  |  |  |  |  |  |  |  |
Claim and claim adjustment expenses | 6,293 |  |  | 8,856 |  |  | 2,251 |  |  | 3,703 |  |  | 2,729 |  |  | — |  |  | 23,832 |
Unearned premiums | 2,882 |  |  | 2,020 |  |  | 559 |  |  | 116 |  |  | — |  |  | — |  |  | 5,577 |
Future policy benefits | — |  |  | — |  |  | — |  |  | 13,198 |  |  | — |  |  | — |  |  | 13,198 |
Deferred non-insurance warranty revenue | 4,443 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,443 |

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Nine months ended September 30, 2020 | Specialty |  | Commercial |  | International |  | Life & Group |  | Corporate & Other |  |  |  |
(In millions) |  |  |  |  | Eliminations |  | Total
Operating revenues |  |  |  |  |  |  |  |  |  |  |  |  |
Net earned premiums | $ | 2,124 |  |  | $ | 2,470 |  |  | $ | 699 |  |  | $ | 380 |  |  | $ | — |  |  | $ | (1) |  |  | $ | 5,672 |
Net investment income | 315 |  |  | 354 |  |  | 44 |  |  | 622 |  |  | 45 |  |  | — |  |  | 1,380 |
Non-insurance warranty revenue | 926 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 926 |
Other revenues | 1 |  |  | 18 |  |  | — |  |  | — |  |  | 3 |  |  | (3) |  |  | 19 |
Total operating revenues | 3,366 |  |  | 2,842 |  |  | 743 |  |  | 1,002 |  |  | 48 |  |  | (4) |  |  | 7,997 |
Claims, benefits and expenses |  |  |  |  |  |  |  |  |  |  |  |  |
Net incurred claims and benefits | 1,346 |  |  | 1,840 |  |  | 480 |  |  | 983 |  |  | 17 |  |  | — |  |  | 4,666 |
Policyholders’ dividends | 2 |  |  | 15 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 17 |
Amortization of deferred acquisition costs | 462 |  |  | 441 |  |  | 143 |  |  | — |  |  | — |  |  | — |  |  | 1,046 |
Non-insurance warranty expense | 859 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 859 |
Other insurance related expenses | 208 |  |  | 379 |  |  | 106 |  |  | 79 |  |  | (2) |  |  | (1) |  |  | 769 |
Other expenses | 37 |  |  | 25 |  |  | 3 |  |  | 6 |  |  | 109 |  |  | (3) |  |  | 177 |
Total claims, benefits and expenses | 2,914 |  |  | 2,700 |  |  | 732 |  |  | 1,068 |  |  | 124 |  |  | (4) |  |  | 7,534 |
Core income (loss) before income tax | 452 |  |  | 142 |  |  | 11 |  |  | (66) |  |  | (76) |  |  | — |  |  | 463 |
Income tax (expense) benefit on core income (loss) | (98) |  |  | (29) |  |  | 4 |  |  | 49 |  |  | 11 |  |  | — |  |  | (63) |
Core income (loss) | $ | 354 |  |  | $ | 113 |  |  | $ | 15 |  |  | $ | (17) |  |  | $ | (65) |  |  | $ | — |  |  | 400 |
Net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | (120) |
Income tax (expense) benefit on net investment gains (losses) |  |  |  |  |  |  |  |  |  |  |  |  | 23 |
Net investment gains (losses), after tax |  |  |  |  |  |  |  |  |  |  |  |  | (97) |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | 303 |

December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
(In millions) |  |  |  |  |  |  |  |  |  |  |  |  |
Reinsurance receivables | $ | 886 |  |  | $ | 848 |  |  | $ | 302 |  |  | $ | 390 |  |  | $ | 2,052 |  |  | $ | — |  |  | $ | 4,478 |
Insurance receivables | 1,052 |  |  | 1,254 |  |  | 328 |  |  | 4 |  |  | 2 |  |  | — |  |  | 2,640 |
Deferred acquisition costs | 330 |  |  | 281 |  |  | 97 |  |  | — |  |  | — |  |  | — |  |  | 708 |
Goodwill | 117 |  |  | — |  |  | 31 |  |  | — |  |  | — |  |  | — |  |  | 148 |
Deferred non-insurance warranty acquisition expense | 3,068 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,068 |
Insurance reserves |  |  |  |  |  |  |  |  |  |  |  |  |
Claim and claim adjustment expenses | 5,748 |  |  | 8,250 |  |  | 2,091 |  |  | 3,743 |  |  | 2,874 |  |  | — |  |  | 22,706 |
Unearned premiums | 2,635 |  |  | 1,824 |  |  | 546 |  |  | 114 |  |  | — |  |  | — |  |  | 5,119 |
Future policy benefits | — |  |  | — |  |  | — |  |  | 13,318 |  |  | — |  |  | — |  |  | 13,318 |
Deferred non-insurance warranty revenue | 4,023 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,023 |

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The following table presents operating revenues by line of business for each reportable segment.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Specialty |  |  |  |  |  |  |
Management & Professional Liability | $ | 684 |  |  | $ | 668 |  |  | $ | 2,044 |  |  | $ | 1,881 |
Surety | 157 |  |  | 153 |  |  | 454 |  |  | 444 |
Warranty & Alternative Risks | 406 |  |  | 356 |  |  | 1,194 |  |  | 1,041 |
Specialty revenues | 1,247 |  |  | 1,177 |  |  | 3,692 |  |  | 3,366 |
Commercial |  |  |  |  |  |  |
Middle Market | 363 |  |  | 379 |  |  | 1,119 |  |  | 1,069 |
Construction | 345 |  |  | 298 |  |  | 978 |  |  | 823 |
Small Business | 144 |  |  | 126 |  |  | 413 |  |  | 352 |
Other Commercial | 189 |  |  | 210 |  |  | 599 |  |  | 598 |
Commercial revenues | 1,041 |  |  | 1,013 |  |  | 3,109 |  |  | 2,842 |
International |  |  |  |  |  |  |
Canada | 87 |  |  | 73 |  |  | 253 |  |  | 214 |
Europe | 123 |  |  | 96 |  |  | 349 |  |  | 282 |
Hardy | 75 |  |  | 82 |  |  | 230 |  |  | 247 |
International revenues | 285 |  |  | 251 |  |  | 832 |  |  | 743 |
Life & Group revenues | 362 |  |  | 335 |  |  | 1,092 |  |  | 1,002 |
Corporate & Other revenues | 4 |  |  | 18 |  |  | 17 |  |  | 48 |
Eliminations | (2) |  |  | (1) |  |  | (5) |  |  | (4) |
Total operating revenues | 2,937 |  |  | 2,793 |  |  | 8,737 |  |  | 7,997 |
Net investment gains (losses) | 22 |  |  | 27 |  |  | 117 |  |  | (120) |
Total revenues | $ | 2,959 |  |  | $ | 2,820 |  |  | $ | 8,854 |  |  | $ | 7,877 |

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Note J. Non-Insurance Revenues from Contracts with Customers
The Company had deferred non-insurance warranty revenue balances of $4.4 billion and $4.0 billion reported in Deferred non-insurance warranty revenue as of September 30, 2021 and December 31, 2020. For the three and nine months ended September 30, 2021, the Company recognized $0.3 billion and $0.9 billion of revenues that were included in the deferred revenue balance as of January 1, 2021. For the three and nine months ended September 30, 2020, the Company recognized $0.3 billion and $0.8 billion of revenues that were included in the deferred revenue balance as of January 1, 2020. For the three and nine months ended September 30, 2021 and 2020, Non-insurance warranty revenue recognized from performance obligations related to prior periods due to a change in estimate was not material. The Company expects to recognize approximately $0.3 billion of the deferred revenue in the remainder of 2021, $1.2 billion in 2022, $1.0 billion in 2023 and $1.9 billion thereafter.
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Item 2. Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
OVERVIEW
The following discussion highlights significant factors affecting the Company. References to “we,” “our,” “us” or like terms refer to the business of CNA.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q, as well as the updates and additions to our Risk Factors disclosed under Part II, Item 1A of this Form 10-Q. The following discussion should also be read in conjunction with Item 1A Risk Factors and Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2020.
We utilize the core income (loss) financial measure to monitor our operations. Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of net investment gains or losses and any cumulative effects of changes in accounting guidance. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not necessarily reflective of our primary operations. Management monitors core income (loss) for each business segment to assess segment performance. Presentation of consolidated core income (loss) is deemed to be a non-GAAP financial measure. See further discussion regarding how we manage our business in Note I to the Condensed Consolidated Financial Statements included under Part I, Item 1. For reconciliations of non-GAAP measures to the most comparable GAAP measures and other information, please refer herein and/or to CNA's most recent Annual Report on Form 10-K on file with the Securities and Exchange Commission.
In evaluating the results of our Specialty, Commercial and International segments, we utilize the loss ratio, the loss ratio excluding catastrophes and development, the expense ratio, the dividend ratio, the combined ratio and the combined ratio excluding catastrophes and development. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The loss ratio excluding catastrophes and development excludes net catastrophes losses and changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years from the loss ratio. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. The combined ratio excluding catastrophes and development is the sum of the loss ratio excluding catastrophes and development, the expense ratio and the dividend ratio. In addition we also utilize renewal premium change, rate, retention and new business in evaluating operating trends. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. Rate represents the average change in price on policies that renew excluding exposure change. For certain products within Small Business, where quantifiable, rate includes the influence of new business as well. Exposure represents the measure of risk used in the pricing of the insurance product. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. Renewal premium change, rate and retention presented for the prior year are updated to reflect subsequent activity on policies written in the period. New business represents premiums from policies written with new customers and additional policies written with existing customers. Gross written premiums, excluding third party captives, excludes business which is ceded to third party captives, including business related to large warranty programs.
Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development within this MD&A. These changes can be favorable or unfavorable. Net prior year loss reserve development does not include the effect of any related acquisition expenses. Further information on our reserves is provided in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
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CRITICAL ACCOUNTING ESTIMATES
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the amount of revenues and expenses reported during the period. Actual results may differ from those estimates.
Our Condensed Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. We continually evaluate the accounting policies and estimates used to prepare the Condensed Consolidated Financial Statements. In general, our estimates are based on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.
The accounting estimates discussed below are considered by us to be critical to an understanding of our Condensed Consolidated Financial Statements as their application places the most significant demands on our judgment:
•Insurance Reserves
•Long Term Care Reserves
•Reinsurance and Insurance Receivables
•Valuation of Investments and Impairment of Securities
•Income Taxes
Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from our estimates and may have a material adverse impact on our results of operations, financial condition, equity, business, and insurer financial strength and corporate debt ratings. See the Critical Accounting Estimates section of our Management's Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 for further information.
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CONSOLIDATED OPERATIONS
Results of Operations
The following table includes the consolidated results of our operations including our financial measure, core income (loss). For more detailed components of our business operations and a discussion of the core income (loss) financial measure, see the Segment Results section within this MD&A. For further discussion of Net investment income and Net investment gains or losses, see the Investments section of this MD&A.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Operating Revenues |  |  |  |  |  |  |
Net earned premiums | $ | 2,059 |  |  | $ | 1,953 |  |  | $ | 6,056 |  |  | $ | 5,672 |
Net investment income | 513 |  |  | 517 |  |  | 1,608 |  |  | 1,380 |
Non-insurance warranty revenue | 357 |  |  | 317 |  |  | 1,054 |  |  | 926 |
Other revenues | 8 |  |  | 6 |  |  | 19 |  |  | 19 |
Total operating revenues | 2,937 |  |  | 2,793 |  |  | 8,737 |  |  | 7,997 |
Claims, Benefits and Expenses |  |  |  |  |  |  |
Net incurred claims and benefits | 1,627 |  |  | 1,611 |  |  | 4,666 |  |  | 4,666 |
Policyholders' dividends | 5 |  |  | 5 |  |  | 18 |  |  | 17 |
Amortization of deferred acquisition costs | 368 |  |  | 360 |  |  | 1,084 |  |  | 1,046 |
Non-insurance warranty expense | 330 |  |  | 293 |  |  | 973 |  |  | 859 |
Other insurance related expenses | 253 |  |  | 251 |  |  | 779 |  |  | 769 |
Other expenses | 62 |  |  | 50 |  |  | 180 |  |  | 177 |
Total claims, benefits and expenses | 2,645 |  |  | 2,570 |  |  | 7,700 |  |  | 7,534 |
Core income before income tax | 292 |  |  | 223 |  |  | 1,037 |  |  | 463 |
Income tax expense on core income | (55) |  |  | (30) |  |  | (196) |  |  | (63) |
Core income | 237 |  |  | 193 |  |  | 841 |  |  | 400 |
Net investment gains (losses) | 22 |  |  | 27 |  |  | 117 |  |  | (120) |
Income tax (expense) benefit on net investment gains (losses) | (3) |  |  | (7) |  |  | (22) |  |  | 23 |
Net investment gains (losses), after tax | 19 |  |  | 20 |  |  | 95 |  |  | (97) |
Net income | $ | 256 |  |  | $ | 213 |  |  | $ | 936 |  |  | $ | 303 |

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Three Month Comparison
Core income increased $44 million for the three months ended September 30, 2021 as compared with the same period in 2020. Core income for our Property & Casualty Operations decreased $19 million primarily due to higher net catastrophe losses and lower net investment income partially offset by improved non-catastrophe current accident year underwriting results. Core results for our Life & Group segment improved $76 million while core loss for our Corporate & Other segment increased $13 million.
Net catastrophe losses were $178 million and $160 million for the three months ended September 30, 2021 and 2020. Catastrophe losses for the three months ended September 30, 2021 included $114 million for Hurricane Ida. Catastrophe losses for the three months ended September 30, 2020 were driven by severe weather related events, primarily Hurricanes Laura, Isaias and Sally, and the Midwest derecho. Favorable net prior year loss reserve development of $10 million and $15 million was recorded for the three months ended September 30, 2021 and 2020 related to our Specialty, Commercial, International and Corporate & Other segments. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Nine Month Comparison
Core income increased $441 million for the nine months ended September 30, 2021 as compared with the same period in 2020. Core income for our Property & Casualty Operations increased $349 million primarily due to improved current accident year underwriting results and higher net investment income driven by limited partnership and common stock returns. Core results for our Life & Group segment improved $137 million while core loss for our Corporate & Other segment increased $45 million.
Net catastrophe losses were $357 million and $536 million for nine months ended September 30, 2021 and 2020. Catastrophe losses for the nine months ended September 30, 2021 were driven by severe weather related events, primarily Hurricane Ida and Winter Storms Uri and Viola. Catastrophe losses for the nine months ended September 30, 2020 include $273 million related primarily to severe weather related events, $195 million related to COVID-19 and $68 million related to civil unrest. Unfavorable net prior year loss reserve development of $4 million was recorded for the nine months ended September 30, 2021 as compared with favorable net prior year loss reserve development of $8 million for the nine months ended September 30, 2020 related to our Specialty, Commercial, International and Corporate & Other segments. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
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SEGMENT RESULTS
The following discusses the results of operations for our business segments. Our property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International, which we refer to collectively as Property & Casualty Operations. Our operations outside of Property & Casualty Operations are managed and reported in two segments: Life & Group and Corporate & Other.
Effective January 1, 2021, we changed the segment presentation of a legacy portfolio of excess workers’ compensation policies and certain legacy mass tort reserves. These businesses were previously reported in the Commercial business segment and are now reported as part of the Corporate & Other business segment. Prior period information has been conformed to the new segment presentation. See Note I to the Condensed Consolidated Financial Statements included under Part I, Item 1 for more information on the changes to our business segments.
Recent Developments
As previously disclosed, we sustained a sophisticated cybersecurity attack in March 2021 involving ransomware that caused a network disruption and impacted certain of our systems. We have incurred expenses within our Corporate Segment related to the cybersecurity attack and expect these expenses will continue. Additionally, we anticipate making continued investments in technology to improve our security and infrastructure, which will increase our expenses in future periods. While we do not believe that the March 2021 cybersecurity attack will have a material impact on our business, results of operations or financial condition, no assurances can be given at this time as we continue to assess the full impact from the incident, including costs, expenses and insurance coverage.
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Specialty
The following table details the results of operations for Specialty.

Periods ended September 30 | Three Months |  | Nine Months
(In millions, except ratios, rate, renewal premium change and retention) | 2021 |  | 2020 |  | 2021 |  | 2020
Gross written premiums | $ | 1,953 |  |  | $ | 1,855 |  |  | $ | 5,650 |  |  | $ | 5,331 |
Gross written premiums excluding third party captives | 943 |  |  | 861 |  |  | 2,656 |  |  | 2,413 |
Net written premiums | 822 |  |  | 795 |  |  | 2,350 |  |  | 2,231 |
Net earned premiums | 773 |  |  | 734 |  |  | 2,270 |  |  | 2,124 |
Net investment income | 116 |  |  | 126 |  |  | 367 |  |  | 315 |
Core income | 173 |  |  | 168 |  |  | 531 |  |  | 354 |
Other performance metrics: |  |  |  |  |  |  |
Loss ratio excluding catastrophes and development | 59.1 | % |  | 60.0 | % |  | 59.1 | % |  | 59.8 | %
Effect of catastrophe impacts | 0.4 |  |  | 1.0 |  |  | 0.4 |  |  | 5.7 |
Effect of development-related items | (1.8) |  |  | (2.0) |  |  | (1.7) |  |  | (2.1) |
Loss ratio | 57.7 |  |  | 59.0 |  |  | 57.8 |  |  | 63.4 |
Expense ratio | 30.6 |  |  | 30.5 |  |  | 30.4 |  |  | 31.5 |
Dividend ratio | (0.1) |  |  | — |  |  | 0.1 |  |  | 0.1 |
Combined ratio | 88.2 | % |  | 89.5 | % |  | 88.3 | % |  | 95.0 | %
Combined ratio excluding catastrophes and development | 89.6 | % |  | 90.5 | % |  | 89.6 | % |  | 91.4 | %
Rate | 9 | % |  | 13 | % |  | 10 | % |  | 12 | %
Renewal premium change | 8 |  |  | 15 |  |  | 10 |  |  | 13 |
Retention | 80 |  |  | 87 |  |  | 84 |  |  | 86 |
New business | $ | 147 |  |  | $ | 105 |  |  | $ | 370 |  |  | $ | 275 |

Three Month Comparison
Gross written premiums, excluding third party captives, for Specialty increased $82 million for the three months ended September 30, 2021 as compared with the same period in 2020 driven by rate and higher new business. Net written premiums for Specialty increased $27 million for the three months ended September 30, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums.
Core income increased $5 million for the three months ended September 30, 2021 as compared with the same period in 2020 primarily due to improved current accident year underwriting results partially offset by lower net investment income.
The combined ratio of 88.2% improved 1.3 points for the three months ended September 30, 2021 as compared with the same period in 2020 due to a 1.3 point improvement in the loss ratio driven by improved current accident year underwriting results. Net catastrophe losses were $3 million, or 0.4 points of the loss ratio, for the three months ended September 30, 2021, as compared with $7 million, or 1.0 points of the loss ratio, for the three months ended September 30, 2020.
Favorable net prior year loss reserve development of $15 million and $16 million was recorded for the three months ended September 30, 2021 and 2020. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
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Nine Month Comparison
Gross written premiums, excluding third party captives, for Specialty increased $243 million for the nine months ended September 30, 2021 as compared with the same period in 2020 driven by rate and higher new business. Net written premiums for Specialty increased $119 million for the nine months ended September 30, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums.
Core income increased $177 million for the nine months ended September 30, 2021 as compared with the same period in 2020 due to lower net catastrophe losses, improved non-catastrophe current accident year underwriting results and higher net investment income driven by limited partnership and common stock returns.
The combined ratio of 88.3% improved 6.7 points for the nine months ended September 30, 2021 as compared with the same period in 2020 due to a 5.6 point improvement in the loss ratio and a 1.1 point improvement in the expense ratio. The improvement in the loss ratio was primarily due to lower net catastrophe losses and improved non-catastrophe current accident year underwriting results. Net catastrophe losses were $9 million, or 0.4 points of the loss ratio, for the nine months ended September 30, 2021, as compared with $120 million, or 5.7 points of the loss ratio, for the nine months ended September 30, 2020. The improvement in the expense ratio was driven by higher net earned premiums.
Favorable net prior year loss reserve development of $40 million and $47 million was recorded for the nine months ended September 30, 2021 and 2020. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for Specialty.

(In millions) | September 30, 2021 |  | December 31, 2020
Gross case reserves | $ | 1,517 |  |  | $ | 1,567 |
Gross IBNR reserves | 4,776 |  |  | 4,181 |
Total gross carried claim and claim adjustment expense reserves | $ | 6,293 |  |  | $ | 5,748 |
Net case reserves | $ | 1,344 |  |  | $ | 1,410 |
Net IBNR reserves | 3,858 |  |  | 3,488 |
Total net carried claim and claim adjustment expense reserves | $ | 5,202 |  |  | $ | 4,898 |

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Commercial
The following table details the results of operations for Commercial.

Periods ended September 30 | Three Months |  | Nine Months
(In millions, except ratios, rate, renewal premium change and retention) | 2021 |  | 2020 |  | 2021 |  | 2020
Gross written premiums | $ | 1,010 |  |  | $ | 915 |  |  | $ | 3,284 |  |  | $ | 3,103 |
Gross written premiums excluding third party captives | 1,005 |  |  | 915 |  |  | 3,176 |  |  | 3,018 |
Net written premiums | 831 |  |  | 804 |  |  | 2,622 |  |  | 2,703 |
Net earned premiums | 893 |  |  | 857 |  |  | 2,629 |  |  | 2,470 |
Net investment income | 141 |  |  | 151 |  |  | 463 |  |  | 354 |
Core income | 27 |  |  | 41 |  |  | 233 |  |  | 113 |
Other performance metrics: |  |  |  |  |  |  |
Loss ratio excluding catastrophes and development | 61.5 | % |  | 60.8 | % |  | 60.8 | % |  | 60.1 | %
Effect of catastrophe impacts | 18.6 |  |  | 17.0 |  |  | 12.6 |  |  | 14.3 |
Effect of development-related items | 0.5 |  |  | 0.6 |  |  | 0.6 |  |  | 0.1 |
Loss ratio | 80.6 |  |  | 78.4 |  |  | 74.0 |  |  | 74.5 |
Expense ratio | 30.4 |  |  | 32.3 |  |  | 31.4 |  |  | 33.2 |
Dividend ratio | 0.6 |  |  | 0.6 |  |  | 0.6 |  |  | 0.6 |
Combined ratio | 111.6 | % |  | 111.3 | % |  | 106.0 | % |  | 108.3 | %
Combined ratio excluding catastrophes and development | 92.5 | % |  | 93.7 | % |  | 92.8 | % |  | 93.9 | %
Rate | 6 | % |  | 11 | % |  | 8 | % |  | 10 | %
Renewal premium change | 8 |  |  | 9 |  |  | 9 |  |  | 9 |
Retention | 83 |  |  | 82 |  |  | 82 |  |  | 84 |
New business | $ | 204 |  |  | $ | 168 |  |  | $ | 615 |  |  | $ | 564 |

Three Month Comparison
Gross written premiums for Commercial increased $95 million for the three months ended September 30, 2021 as compared with the same period in 2020 driven by rate and higher new business. Net written premiums for Commercial increased $27 million for the three months ended September 30, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums.
Core income decreased $14 million for the three months ended September 30, 2021 as compared with the same period in 2020 primarily due to higher net catastrophe losses and lower net investment income partially offset by improved non-catastrophe current accident year underwriting results.
The combined ratio of 111.6% increased 0.3 points for the three months ended September 30, 2021 as compared with the same period in 2020 due to a 2.2 point increase in the loss ratio largely offset by a 1.9 improvement in the expense ratio. The increase in the loss ratio was driven by higher net catastrophe losses. Net catastrophe losses were $166 million, or 18.6 points of the loss ratio, for the three months ended September 30, 2021, as compared with $146 million, or 17.0 points of the loss ratio, for the three months ended September 30, 2020. The improvement in the expense ratio was primarily due to higher net earned premiums and lower acquisition costs driven by ceded commissions.
Unfavorable net prior year loss reserve development of $2 million and $1 million was recorded for the three months ended September 30, 2021 and 2020. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
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Nine Month Comparison
Gross written premiums for Commercial increased $181 million for the nine months ended September 30, 2021 as compared with the same period in 2020 driven by rate and higher new business. Net written premiums for Commercial decreased $81 million for the nine months ended September 30, 2021 as compared with the same period in 2020 driven by the impact of the June 1, 2021 written premium catch-up resulting from the addition of the quota share treaty to our property reinsurance program. Excluding the impact of the June 1, 2021 written
premium catch-up, net written premiums increased $31 million for the nine months ended September 30, 2021 as compared with the same period in 2020. Net earned premiums for Commercial increased $159 million for the nine months ended September 30, 2021 as compared with the same period in 2020. The increase in net earned premiums was partially impacted by a reduction in estimated audit premiums related to COVID-19 in 2020.
Core income increased $120 million for the nine months ended September 30, 2021 as compared with the same period in 2020 primarily due to higher net investment income driven by limited partnership and common stock returns and improved current accident year underwriting results.
The combined ratio of 106.0% improved 2.3 points for the nine months ended September 30, 2021 as compared with the same period in 2020 primarily due to a 1.8 point improvement in the expense ratio. The improvement in the expense ratio was primarily due to higher net earned premiums and a favorable acquisition ratio. Net catastrophe losses were $332 million, or 12.6 points of the loss ratio, for the nine months ended September 30, 2021, as compared with $354 million, or 14.3 points of the loss ratio, for the nine months ended September 30, 2020.
Unfavorable net prior year loss reserve development of $2 million was recorded for the nine months ended September 30, 2021 as compared with favorable net prior year loss reserve development of $8 million for the nine months ended September 30, 2020. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for Commercial.

(In millions) | September 30, 2021 |  | December 31, 2020
Gross case reserves | $ | 3,214 |  |  | $ | 3,215 |
Gross IBNR reserves | 5,642 |  |  | 5,035 |
Total gross carried claim and claim adjustment expense reserves | $ | 8,856 |  |  | $ | 8,250 |
Net case reserves | $ | 2,903 |  |  | $ | 2,885 |
Net IBNR reserves | 5,110 |  |  | 4,590 |
Total net carried claim and claim adjustment expense reserves | $ | 8,013 |  |  | $ | 7,475 |

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International
The following table details the results of operations for International.

Periods ended September 30 | Three Months |  | Nine Months
(In millions, except ratios, rate, renewal premium change and retention) | 2021 |  | 2020 |  | 2021 |  | 2020
Gross written premiums | $ | 276 |  |  | $ | 238 |  |  | $ | 958 |  |  | $ | 822 |
Net written premiums | 256 |  |  | 222 |  |  | 783 |  |  | 680 |
Net earned premiums | 271 |  |  | 236 |  |  | 789 |  |  | 699 |
Net investment income | 14 |  |  | 15 |  |  | 42 |  |  | 44 |
Core income | 17 |  |  | 27 |  |  | 67 |  |  | 15 |
Other performance metrics: |  |  |  |  |  |  |
Loss ratio excluding catastrophes and development | 58.9 | % |  | 60.1 | % |  | 59.2 | % |  | 60.1 | %
Effect of catastrophe impacts | 3.4 |  |  | 3.0 |  |  | 2.0 |  |  | 8.9 |
Effect of development-related items | 1.1 |  |  | 0.1 |  |  | 0.3 |  |  | (0.4) |
Loss ratio | 63.4 |  |  | 63.2 |  |  | 61.5 |  |  | 68.6 |
Expense ratio | 32.1 |  |  | 34.9 |  |  | 33.3 |  |  | 35.6 |
Combined ratio | 95.5 | % |  | 98.1 | % |  | 94.8 | % |  | 104.2 | %
Combined ratio excluding catastrophes and development | 91.0 | % |  | 95.0 | % |  | 92.5 | % |  | 95.7 | %
Rate | 13 | % |  | 17 | % |  | 13 | % |  | 13 | %
Renewal premium change | 12 |  |  | 15 |  |  | 12 |  |  | 11 |
Retention | 79 |  |  | 69 |  |  | 76 |  |  | 71 |
New business | $ | 54 |  |  | $ | 54 |  |  | $ | 204 |  |  | $ | 184 |

Three Month Comparison
Gross written premiums for International increased $38 million for the three months ended September 30, 2021 as compared with the same period in 2020. Excluding the effect of foreign currency exchange rates, gross written premiums increased $26 million driven by rate and retention. Net written premiums for International increased $34 million for the three months ended September 30, 2021 as compared with the same period in 2020. Excluding the effects of foreign currency exchange rates, net written premiums increased $23 million for the three months ended September 30, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums.
Core income for the three months ended September 30, 2021 was generally consistent with the same period in 2020.
The combined ratio of 95.5% improved 2.6 points for the three months ended September 30, 2021 as compared with the same period in 2020 primarily due to a 2.8 point improvement in the expense ratio. The improvement in the expense ratio was driven by higher net earned premiums and lower acquisition costs. Net catastrophe losses were $9 million, or 3.4 points of the loss ratio, for the three months ended September 30, 2021, as compared with $7 million, or 3.0 points of the loss ratio, for the three months ended September 30, 2020.
Unfavorable net prior year loss reserve development of $3 million was recorded for the three months ended September 30, 2021 as compared with no net prior year loss reserve development for the three months ended September 30, 2020. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
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Nine Month Comparison
Gross written premiums for International increased $136 million for the nine months ended September 30, 2021 as compared with the same period in 2020. Excluding the effect of foreign currency exchange rates, gross written premiums increased $82 million driven by rate and higher new business. Net written premiums for International increased $103 million for the nine months ended September 30, 2021 as compared with the same period in 2020. Excluding the effects of foreign currency exchange rates, net written premiums increased $57 million for the nine months ended September 30, 2021 as compared with the same period in 2020. The increase in net earned premiums was consistent with the trend in net written premiums.
Core income improved $52 million for the nine months ended September 30, 2021 as compared with the same period in 2020 driven by lower net catastrophe losses and improved non-catastrophe current accident year underwriting results.
The combined ratio of 94.8% improved 9.4 points for the nine months ended September 30, 2021 as compared with the same period in 2020 due to a 7.1 point improvement in the loss ratio and a 2.3 point improvement in the expense ratio. The improvement in the loss ratio was driven by lower net catastrophe losses and improved non-catastrophe current accident year underwriting results. Net catastrophe losses were $16 million, or 2.0 points of the loss ratio, for the nine months ended September 30, 2021, as compared with $62 million, or 8.9 points of the loss ratio, for the nine months ended September 30, 2020. The improvement in the expense ratio was driven by a favorable acquisition ratio and higher net earned premiums.
Unfavorable net prior year loss reserve development of $2 million was recorded for the nine months ended September 30, 2021 as compared with favorable net prior year loss reserve development of $3 million for the nine months ended September 30, 2020. Further information on net prior year loss reserve development is in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
The following table summarizes the gross and net carried reserves for International.

(In millions) | September 30, 2021 |  | December 31, 2020
Gross case reserves | $ | 880 |  |  | $ | 892 |
Gross IBNR reserves | 1,371 |  |  | 1,199 |
Total gross carried claim and claim adjustment expense reserves | $ | 2,251 |  |  | $ | 2,091 |
Net case reserves | $ | 760 |  |  | $ | 777 |
Net IBNR reserves | 1,160 |  |  | 1,045 |
Total net carried claim and claim adjustment expense reserves | $ | 1,920 |  |  | $ | 1,822 |

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Life & Group
The following table summarizes the results of operations for Life & Group.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Net earned premiums | $ | 123 |  |  | $ | 127 |  |  | $ | 369 |  |  | $ | 380 |
Net investment income | 240 |  |  | 208 |  |  | 724 |  |  | 622 |
Core income (loss) before income tax | 38 |  |  | (59) |  |  | 111 |  |  | (66) |
Income tax benefit on core loss | 3 |  |  | 24 |  |  | 9 |  |  | 49 |
Core income (loss) | 41 |  |  | (35) |  |  | 120 |  |  | (17) |

Three Month Comparison
Core results improved $76 million for the three months ended September 30, 2021 as compared with the same period in 2020.
Life & Group results for the three months ended September 30, 2021 included no unlocking event for active life reserves as a result of the gross premium valuation (GPV). Core income for the three months ended September 30, 2021 included a $31 million favorable impact from the reduction in long term care claim reserves resulting from the annual claim reserve reviews in the third quarter of 2021. Core loss for the three months ended September 30, 2020 included a $59 million charge related to the recognition of an active life reserve premium deficiency for long term care policies. The results for the three months ended September 30, 2020 also included a $36 million charge related to the increase in the structured settlement claim reserves partially offset by a $30 million impact from the reduction in long term care claim reserves, both resulting from the annual claim reserve reviews in the third quarter of 2020.
Nine Month Comparison
Results for the nine months ended September 30, 2021 were generally consistent with the three month summary above.
Life & Group Policyholder Reserves
Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a GPV to determine if there is a premium deficiency. See Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1 for further information on the reserving process.
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The September 30, 2021 GPV indicated that our recorded reserves included a margin of approximately $72 million. A summary of the changes in the estimated reserve margin is presented in the table below:

Long Term Care Active Life Reserve - Change in estimated reserve margin (In millions) |
September 30, 2020 Estimated Margin | $ | — |
Changes in underlying discount rate assumptions (1) | 65 |
Changes in underlying morbidity assumptions | 205 |
Changes in underlying persistency assumptions | (233) |
Changes in underlying premium rate action assumptions | 27 |
Changes in underlying expense and other assumptions | 8 |
September 30, 2021 Estimated Margin | $ | 72 |

(1) Including cost of care inflation assumption.
The increase in the margin in 2021 was primarily driven by changes in discount rate assumptions due to higher near-term expected reinvestment rates and favorable changes to underlying morbidity assumptions. These favorable drivers were partially offset by unfavorable changes to underlying persistency assumptions.
The Company has determined that additional future policy benefit reserves for profits followed by losses are not currently required based on the most recent projection.
The table below summarizes the estimated pretax impact on our results of operations from various hypothetical revisions to our active life reserve assumptions. The annual GPV process involves updating all assumptions to management's then current best estimate, and historically all significant assumptions have been revised each year. In the table below, we have assumed that revisions to such assumptions would occur in each policy type, age and duration within each policy group and would occur absent any changes, mitigating or otherwise, in the other assumptions. Although such hypothetical revisions are not currently required or anticipated, we believe they could occur based on past variances in experience and our expectations of the ranges of future experience that could reasonably occur. Any required increase in the recorded reserves resulting from a hypothetical revision in the table below would first reduce the margin in our carried reserves before it would affect results from operations. Any actual adjustment would be dependent on the specific policies affected and, therefore, may differ from the estimates summarized below. The estimated impacts to results of operations in the table below are after consideration of the existing margin.

September 30, 2021 |
| Estimated reduction to pretax income
Hypothetical revisions (In millions)
Morbidity: |
2.5% increase in morbidity | $ | 300 |
5% increase in morbidity | 600 |
Persistency: |
5% decrease in active life mortality and lapse | $ | 100 |
10% decrease in active life mortality and lapse | 300 |
Discount Rates: |
25 basis point decline in new money interest rates | $ | 100 |
50 basis point decline in new money interest rates | 200 |
Premium Rate Actions: |
25% decrease in anticipated future premium rate increases | $ | — |
50% decrease in anticipated future premium rate increases | — |

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The following table summarizes policyholder reserves for Life & Group.

September 30, 2021 |  |  |  |  |
(In millions) | Claim and claim adjustment expenses |  | Future policy benefits |  | Total
Long term care | $ | 2,839 |  |  | $ | 9,971 |  |  | $ | 12,810 |
Structured settlement annuities | 530 |  |  | — |  |  | 530 |
Other | 10 |  |  | — |  |  | 10 |
Total | 3,379 |  |  | 9,971 |  |  | 13,350 |
Shadow adjustments (1) | 203 |  | 2,938 |  | 3,141 |
Ceded reserves (2) | 121 |  |  | 289 |  |  | 410 |
Total gross reserves | $ | 3,703 |  |  | $ | 13,198 |  |  | $ | 16,901 |

December 31, 2020 |  |  |  |  |
(In millions) | Claim and claim adjustment expenses |  | Future policy benefits |  | Total
Long term care | $ | 2,844 |  |  | $ | 9,762 |  |  | $ | 12,606 |
Structured settlement annuities | 543 |  |  | — |  |  | 543 |
Other | 10 |  |  | — |  |  | 10 |
Total | 3,397 |  |  | 9,762 |  |  | 13,159 |
Shadow adjustments (1) | 218 |  | 3,293 |  | 3,511 |
Ceded reserves (2) | 128 |  |  | 263 |  |  | 391 |
Total gross reserves | $ | 3,743 |  |  | $ | 13,318 |  |  | $ | 17,061 |

(1) To the extent that unrealized gains on fixed income securities supporting long term care products and annuity contracts would result in a premium deficiency if those gains were realized, an increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).
(2) Ceded reserves relate to claim or policy reserves fully reinsured in connection with a sale or exit from the underlying business.
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Corporate & Other
The following table summarizes the results of operations for the Corporate & Other segment, including intersegment eliminations.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Net investment income | $ | 2 |  |  | $ | 17 |  |  | $ | 12 |  |  | $ | 45 |
Interest expense | 28 |  |  | 32 |  |  | 84 |  |  | 94 |
Core loss | (21) |  |  | (8) |  |  | (110) |  |  | (65) |

Three Month Comparison
Core loss increased $13 million for the three months ended September 30, 2021 as compared with the same period in 2020 primarily driven by lower net investment income.
Nine Month Comparison
Core loss increased $45 million for the nine months ended September 30, 2021 as compared with the same period in 2020 driven by lower net investment income, expenses related to the March 2021 cybersecurity attack, the recognition of a $12 million after-tax loss resulting from the legacy excess workers' compensation (EWC) loss portfolio transfer (LPT), and lower amortization of the deferred gain related to the asbestos & environmental pollution (A&EP) LPT. These results were partially offset by lower unfavorable net prior year loss reserve development on legacy mass tort exposures. The A&EP LPT, EWC LPT and net prior year loss reserve development are further discussed in Note E to the Condensed Consolidated Financial Statements included under Part I, Item I.
The following table summarizes the gross and net carried reserves for Corporate & Other.

(In millions) | September 30, 2021 |  | December 31, 2020
Gross case reserves | $ | 1,575 |  |  | $ | 1,614 |
Gross IBNR reserves | 1,154 |  |  | 1,260 |
Total gross carried claim and claim adjustment expense reserves | $ | 2,729 |  |  | $ | 2,874 |
Net case reserves | $ | 140 |  |  | $ | 560 |
Net IBNR reserves | 139 |  |  | 331 |
Total net carried claim and claim adjustment expense reserves | $ | 279 |  |  | $ | 891 |

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INVESTMENTS
Net Investment Income
The significant components of Net investment income are presented in the following table. Fixed income securities, as presented, include both fixed maturity securities and non-redeemable preferred stock.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed income securities: |  |  |  |  |  |  |
Taxable fixed income securities | $ | 360 |  |  | $ | 363 |  |  | $ | 1,075 |  |  | $ | 1,094 |
Tax-exempt fixed income securities | 77 |  |  | 80 |  |  | 236 |  |  | 238 |
Total fixed income securities | 437 |  |  | 443 |  |  | 1,311 |  |  | 1,332 |
Limited partnership and common stock investments | 77 |  |  | 71 |  |  | 294 |  |  | 30 |
Other, net of investment expense | (1) |  |  | 3 |  |  | 3 |  |  | 18 |
Net investment income | $ | 513 |  |  | $ | 517 |  |  | $ | 1,608 |  |  | $ | 1,380 |
Effective income yield for the fixed income securities portfolio | 4.3 | % |  | 4.5 | % |  | 4.3 | % |  | 4.6 | %
Limited partnership and common stock return | 3.8 | % |  | 4.1 | % |  | 16.4 | % |  | 1.7 | %

Net investment income increased $228 million for the nine months ended September 30, 2021 as compared with the same period in 2020 driven by limited partnership and common stock returns partially offset by lower yields in our fixed income portfolio.
Net Investment Gains (Losses)
The components of Net investment gains (losses) are presented in the following table.

Periods ended September 30 | Three Months |  | Nine Months
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed maturity securities: |  |  |  |  |  |  |
Corporate and other bonds | $ | 36 |  |  | $ | 14 |  |  | $ | 115 |  |  | $ | (105) |
States, municipalities and political subdivisions | 1 |  |  | 6 |  |  | — |  |  | 39 |
Asset-backed | (15) |  |  | 6 |  |  | (24) |  |  | 34 |
Total fixed maturity securities | 22 |  |  | 26 |  |  | 91 |  |  | (32) |
Non-redeemable preferred stock | (2) |  |  | 25 |  |  | 17 |  |  | (45) |
Short term and other | 2 |  |  | (21) |  |  | 9 |  |  | (27) |
Mortgage loans | — |  |  | (3) |  |  | — |  |  | (16) |
Net investment gains (losses) | 22 |  |  | 27 |  |  | 117 |  |  | (120) |
Income tax (expense) benefit on net investment gains (losses) | (3) |  |  | (7) |  |  | (22) |  |  | 23 |
Net investment gains (losses), after tax | $ | 19 |  |  | $ | 20 |  |  | $ | 95 |  |  | $ | (97) |

N et investment gains (losses) decreased $5 million for the three months ended September 30, 2021 as compared with the same period in 2020. Short term and other for the three months ended September 30, 2020 included a $20 million loss on the redemption of our $400 million senior notes due August 2021.
Net investment gains (losses) increased $237 million for the nine months ended September 30, 2021 as compared with the same period in 2020. The increase was driven by lower impairment losses and the favorable change in fair value of non-redeemable preferred stock. Additionally, Short term and other for the nine months ended September 30, 2020 included a $20 million loss on the redemption of our $400 million senior notes due August 2021.
Further information on ou r investment gains and losses is set forth in Note C to the Condensed Consolidated Financial Statements included under Part 1, Item 1.
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Portfolio Quality
The following table presents the estimated fair value and net unrealized gains (losses) of our fixed maturity securities by rating distribution.

| September 30, 2021 |  | December 31, 2020
(In millions) | Estimated Fair Value |  | Net Unrealized Gains (Losses) |  | Estimated Fair Value |  | Net Unrealized Gains (Losses)
U.S. Government, Government agencies and Government-sponsored enterprises | $ | 2,938 |  |  | $ | 57 |  |  | $ | 3,672 |  |  | $ | 117 |
AAA | 3,778 |  |  | 371 |  |  | 3,627 |  |  | 454 |
AA | 7,737 |  |  | 833 |  |  | 7,159 |  |  | 1,012 |
A | 9,538 |  |  | 1,159 |  |  | 9,543 |  |  | 1,390 |
BBB | 18,505 |  |  | 2,215 |  |  | 18,007 |  |  | 2,596 |
Non-investment grade | 2,573 |  |  | 123 |  |  | 2,623 |  |  | 149 |
Total | $ | 45,069 |  |  | $ | 4,758 |  |  | $ | 44,631 |  |  | $ | 5,718 |

As of September 30, 2021 and December 31, 2020, 1% of our fixed maturity portfolio was rated internally. AAA rated securities included $1.7 billion and $1.8 billion of pre-refunded municipal bonds as of September 30, 2021 and December 31, 2020.
The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.

| September 30, 2021
(In millions) | Estimated Fair Value |  | Gross Unrealized Losses
U.S. Government, Government agencies and Government-sponsored enterprises | $ | 1,200 |  |  | $ | 9 |
AAA | 388 |  |  | 5 |
AA | 906 |  |  | 16 |
A | 1,191 |  |  | 18 |
BBB | 1,187 |  |  | 31 |
Non-investment grade | 396 |  |  | 10 |
Total | $ | 5,268 |  |  | $ | 89 |

The following table presents the maturity profile for these available-for-sale fixed maturity securities. Securities not due to mature on a single date are allocated based on weighted average life.

| September 30, 2021
(In millions) | Estimated Fair Value |  | Gross Unrealized Losses
Due in one year or less | $ | 133 |  |  | $ | 5 |
Due after one year through five years | 709 |  |  | 13 |
Due after five years through ten years | 2,639 |  |  | 33 |
Due after ten years | 1,787 |  |  | 38 |
Total | $ | 5,268 |  |  | $ | 89 |

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Duration
A primary objective in the management of the investment portfolio is to optimize return relative to the corresponding liabilities and respective liquidity needs. Our views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions as well as domestic and global economic conditions, are some of the factors that enter into an investment decision. We also continually monitor exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on our views of a specific issuer or industry sector.
A further consideration in the management of the investment portfolio is the characteristics of the corresponding liabilities and the ability to align the duration of the portfolio to those liabilities and to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios where future liability cash flows are determinable and typically long term in nature, we segregate investments for asset/liability management purposes. The segregated investments support the long term care and structured settlement liabilities in the Life & Group segment.
The effective durations of fixed income securities and short term investments are presented in the following table. Amounts presented are net of payable and receivable amounts for securities purchased and sold, but not yet settled.

| September 30, 2021 |  | December 31, 2020
(In millions) | Estimated Fair Value |  | Effective Duration (In years) |  | Estimated Fair Value |  | Effective Duration (In years)
Investments supporting Life & Group | $ | 18,431 |  |  | 9.3 |  |  | $ | 18,518 |  |  | 9.2 |
Other investments | 28,520 |  |  | 5.1 |  |  | 28,839 |  |  | 4.5 |
Total | $ | 46,951 |  |  | 6.7 |  |  | $ | 47,357 |  |  | 6.3 |

The investment portfolio is periodically analyzed for changes in duration and related price risk. Certain securities have duration characteristics that are variable based on market interest rates, credit spreads and other factors that may drive variability in the amount and timing of cash flows. Additionally, we periodically review the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures About Market Risk included under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020.
Short Term Investments
The carrying value of the components of the Short term investments are presented in the following table.

(In millions) | September 30, 2021 |  | December 31, 2020
Short term investments: |  |  |
U.S. Treasury securities | $ | 916 |  |  | $ | 1,702 |
Other | 219 |  |  | 205 |
Total short term investments | $ | 1,135 |  |  | $ | 1,907 |

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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary operating cash flow sources are premiums and investment income. Our primary operating cash flow uses are payments for claims, policy benefits and operating expenses, including interest expense on corporate debt. Additionally, cash may be paid or received for income taxes.
For the nine months ended September 30, 2021, net cash provided by operating activities was $1,354 million as compared with $1,408 million for the same period in 2020. The decrease in cash provided by operating activities was driven by the payment of the EWC LPT premium, increased ceded premiums paid and higher taxes paid, partially offset by an increase in gross premiums collected, lower claim payments and a higher level of distributions from limited partnerships. The EWC LPT is further discussed in Note E to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Cash flows from investing activities include the purchase and disposition of financial instruments, excluding those held as trading, and may include the purchase and sale of businesses, equipment and other assets not generally held for resale.
Net cash used by investing activities was $597 million for the nine months ended September 30, 2021, as compared with $407 million for the same period in 2020. Net cash used or provided by investing activities is primarily driven by cash available from operations and other factors, such as financing activities.
Cash flows from financing activities may include proceeds from the issuance of debt and equity securities, and outflows for stockholder dividends, repayment of debt and purchases of treasury stock.
For the nine months ended September 30, 2021, net cash used by financing activities was $545 million as compared with $801 million for the same period in 2020. Financing activities for the periods presented include:
•During the nine months ended September 30, 2021, we paid dividends of $518 million and repurchased 377,615 shares of our common stock at an aggregate cost of $18 million.
•During the nine months ended September 30, 2020, we paid dividends of $850 million and repurchased 435,376 shares of our common stock at an aggregate cost of $18 million.
•In the third quarter of 2020, we issued $500 million of 2.05% senior notes due August 15, 2030 and redeemed the $400 million outstanding aggregate principal balances of our 5.750% senior notes due August 15, 2021.
Common Stock Dividends
Cash dividends of $1.89 per share on our common stock, including a special cash dividend of $0.75 per share, were declared and paid during the nine months ended September 30, 2021. On October 29, 2021, our Board of Directors declared a quarterly cash dividend of $0.38 per share, payable December 2, 2021 to stockholders of record on November 15, 2021. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition, business needs and regulatory constraints.
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Liquidity
We believe that our present cash flows from operating, investing and financing activities are sufficient to fund our current and expected working capital and debt obligation needs and we do not expect this to change in the near term. There are currently no amounts outstanding under our $250 million senior unsecured revolving credit facility and no borrowings outstanding through our membership in the Federal Home Loan Bank of Chicago (FHLBC).
Dividends from Continental Casualty Company (CCC) are subject to the insurance holding company laws of the State of Illinois, the domiciliary state of CCC. Under these laws, ordinary dividends, or dividends that do not require prior approval by the Illinois Department of Insurance (the Department), are determined based on the greater of the prior year's statutory net income or 10% of statutory surplus as of the end of the prior year, as well as timing and amount of dividends paid in the preceding twelve months. Additionally, ordinary dividends may only be paid from earned surplus, which is calculated by removing unrealized gains from unassigned surplus. As of September 30, 2021, CCC was in a positive earned surplus position. CCC paid dividends of $600 million and $855 million during the nine months ended September 30, 2021 and 2020. The actual level of dividends paid in any year is determined after an assessment of available dividend capacity, holding company liquidity and cash needs as well as the impact the dividends will have on the statutory surplus of the applicable insurance company.
We have an effective automatic shelf registration statement on file with the Securities and Exchange Commission under which we may publicly issue debt, equity or hybrid securities from time to time.
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ACCOUNTING STANDARDS UPDATE
For a discussion of Accounting Standards Updates, see Note A to the Condensed Consolidated Financial Statements included under Part 1, Item 1.
FORWARD-LOOKING STATEMENTS
This report contains a number of forward-looking statements which relate to anticipated future events rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions. Forward-looking statements in this report include any and all statements regarding expected developments in our insurance business, including losses and loss reserves (note that loss reserves for long term care, A&EP and other mass tort claims are more uncertain, and therefore more difficult to estimate than loss reserves respecting traditional property and casualty exposures); the impact of routine ongoing insurance reserve reviews we are conducting; our expectations concerning our revenues, earnings, expenses and investment activities; volatility in investment returns; and our proposed actions in response to trends in our business. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected in the forward-looking statement. We cannot control many of these risks and uncertainties. These risks and uncertainties include, but are not limited to, the following as well as those risks contained in the Risk Factors section of our 2020 Annual Report on Form 10-K and this report:
Company-Specific Factors
•the risks and uncertainties associated with our insurance reserves, as outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of our 2020 Annual Report on Form 10-K and this report, including the sufficiency of the reserves and the possibility for future increases, which would be reflected in the results of operations in the period that the need for such adjustment is determined;
•the risk that the other parties to the transactions in which, subject to certain limitations, we ceded our legacy A&EP and EWC liabilities, respectively, will not fully perform their respective obligations to CNA, the uncertainty in estimating loss reserves for A&EP and EWC liabilities and the possible continued exposure of CNA to liabilities for A&EP and EWC claims that are not covered under the terms of the respective transactions;
•the performance of reinsurance companies under reinsurance contracts with us; and
•the risks and uncertainties associated with potential acquisitions and divestitures, including the consummation of such transactions, the successful integration of acquired operations and the potential for subsequent impairment of goodwill or intangible assets.
Industry and General Market Factors
•the COVID-19 pandemic, and actions seeking to mitigate the spread of the virus, have resulted in significant risk across our enterprise; economic uncertainty and depressed business conditions brought on by the crisis may materially and adversely impact our business operations and may lead to increased claim and litigation activity and unfavorable regulatory outcomes.
•the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;
•product and policy availability and demand and market responses, including the level of ability to obtain rate increases and decline or non-renew underpriced accounts, to achieve premium targets and profitability and to realize growth and retention estimates;
•general economic and business conditions, including recessionary conditions that may decrease the size and number of our insurance customers and create losses to our lines of business and inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;
•conditions in the capital and credit markets, including uncertainty and instability in these markets, as well as the overall economy, and their impact on the returns, types, liquidity and valuation of our investments;
•conditions in the capital and credit markets that may limit our ability to raise significant amounts of capital on favorable terms; and
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•the possibility of changes in our ratings by ratings agencies, including the inability to access certain markets or distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices.
Regulatory and Legal Factors
•regulatory and legal initiatives and compliance with governmental regulations and other legal requirements, including with respect to cyber security protocols (which may be enhanced following completion of work relating to the sophisticated cyber incident sustained by the Company in March 2021 as discussed in Risk Factors, Part II, Item 1A of this report), legal inquiries by state authorities, judicial interpretations within the regulatory framework, including interpretation of policy provisions, decisions regarding coverage and theories of liability, legislative actions that increase claimant activity, including those revising applicability of statutes of limitations, trends in litigation and the outcome of any litigation involving us and rulings and changes in tax laws and regulations;
•regulatory limitations, impositions and restrictions upon us, including with respect to our ability to increase premium rates, and the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies;
•regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our insurance subsidiaries, imposed by regulatory authorities, including regulatory capital adequacy standards; and
•regulatory and legal implications relating to the sophisticated cyber incident sustained by the Company in March 2021 that may arise.
Impact of Natural and Man-Made Disasters and Mass Tort Claims
•weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, wildfires, rain, hail and snow;
•regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
•man-made disasters, including the possible occurrence of terrorist attacks, the unpredictability of the nature, targets, severity or frequency of such events, and the effect of the absence or insufficiency of applicable terrorism legislation on coverages;
•the occurrence of epidemics and pandemics; and
•mass tort claims, including those related to exposure to potentially harmful products or substances such as glyphosate, lead paint and opioids; and claims arising from changes that repeal or weaken tort reforms, such as those related to abuse reviver statutes.
Our forward-looking statements speak only as of the date of the filing of this Quarterly Report on Form 10-Q and we do not undertake any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of the statement, even if our expectations or any related events or circumstances change.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our market risk components for the nine months ended September 30, 2021. See the Quantitative and Qualitative Disclosures About Market Risk included in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020 for further information. Additional information related to portfolio duration is discussed in the Investments section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including this report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management on a timely basis to allow decisions regarding required disclosure.
As of September 30, 2021, the Company's management, including the Company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective as of September 30, 2021.
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. Other Information
Item 1. Legal Proceedings
Information on our legal proceedings is set forth in Note F to the Condensed Consolidated Financial Statements included under Part I, Item 1.
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report on Form 10-Q for each of the first two quarters of 2021, include detailed discussions of certain material risk factors facing us. The information presented below describes updates and additions to and should be read in conjunction with the risk factors and information disclosed in our Form 10-K and restates in their entirety the risk factors contained in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.
Any significant interruption in the operation of our business functions, facilities and systems or our vendors' facilities and systems could result in a materially adverse effect on our operations.
Our business is highly dependent upon our ability to perform, in an efficient and uninterrupted manner, through our employees or vendor relationships, necessary business functions, such as internet support and 24-hour call centers, processing new and renewal business, processing and paying claims and other obligations and issuing financial statements.
Our, or our vendors’, facilities and systems could become unavailable, inoperable, or otherwise impaired from a variety of causes, including natural events, such as hurricanes, tornadoes, windstorms, earthquakes, severe winter weather and fires, or other events, such as explosions, terrorist attacks, computer security breaches or cyberattacks, riots, hazardous material releases, medical epidemics or pandemics, utility outages, interruptions of our data processing and storage systems or the systems of third-party vendors, or unavailability of communications facilities. An interruption of our system availability occurred in March 2021 as a result of a cybersecurity attack sustained by the Company. Please refer to the immediately following risk factor for further information regarding this incident. Likewise, we could experience a significant failure, interruption or corruption of one or more of our or our vendors’ information technology, telecommunications, or other systems for various reasons, including significant failures or interruptions that might occur as existing systems are replaced or upgraded. The shut-down or unavailability of one or more of our or our vendors' systems or facilities for these and other reasons could significantly impair our ability to perform critical business functions on a timely basis.
In addition, because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such events could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner, or perform other necessary business functions, including the ability to issue financial statements in a timely manner.
The foregoing risks could also expose us to monetary and reputational damages. Potential exposures resulting from the March 2021 cybersecurity attack, described in the immediately following risk factor, as well as any future incidents may include substantially increased compliance costs, as well as increased costs relating to investments in computer system and security-related upgrades, with those costs potentially not recoverable under relevant insurance coverage. The Company anticipates making continued investments to improve its security and infrastructure. These expenses are not recoverable under relevant insurance coverage. If our business continuity plans or system security do not sufficiently address these risks, they could have a material adverse effect on our business, results of operations and financial condition.
Based on the information currently known, we do not believe that the March 2021 cybersecurity attack will have a material impact on our business, results of operations or financial condition, but no assurances can be given as we continue to assess the full impact from the incident, including costs, expenses and insurance coverage. We may also be subject to future incidents that could have a material adverse effect on our business, results of operations or financial condition or may result in operational impairments and financial losses, as well as significant harm to our reputation.
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Any significant breach in our data security infrastructure or our vendors’ facilities and systems could disrupt business, cause financial losses and damage our reputation, and insurance coverage may not be available for claims related to a breach.
A significant breach of our data security infrastructure may result from actions by our employees, vendors, third-party administrators, or unknown third parties or through cyber-attacks. The risk of a breach can exist whether software services are in our data centers or we use cloud-based software services. Breaches have occurred, and may occur again, in our systems and in the systems of our vendors and third party administrators.
Such a breach could affect our data framework or cause a failure to protect the personal information of our customers, claimants or employees, or sensitive and confidential information regarding our business and may result in operational impairments and financial losses, as well as significant harm to our reputation. The breach of confidential information also could give rise to legal liability and regulatory action under data protection and privacy laws, as well as evolving regulation in this regard. During the third quarter of 2021, we were notified of a breach of certain systems of a third-party administrator, which resulted in breach notifications sent by such administrator to potentially impacted persons, including a limited number of Company claimants. While we do not believe such notifications and resultant actions will have a material adverse effect on our business, this or similar incidents, or any other such breach of our or our vendors’ data security infrastructure could have a material adverse effect on our business, results of operations and financial condition.
We sustained a sophisticated cybersecurity attack in March 2021 involving ransomware that caused a network disruption and impacted certain of our systems. Upon detection, we undertook steps to address the incident, including engaging a team of third-party forensic experts and notifying law enforcement and key regulators. We restored network systems and resumed normal operations. We are continuing to assess all actions that we will take to improve our existing systems.
Our investigation revealed that an unauthorized third party copied some personal information relating to certain current and former employees, contractor workers and their dependents and certain other persons, including some policyholders. In July 2021, we provided notifications to the impacted individuals and to regulators, in accordance with applicable law. Although we currently have no indication that the impacted data has been misused, or that CNA or its policyholder data was specifically targeted by the unauthorized third party, we may be subject to subsequent investigations, claims or actions in addition to other costs, fines, penalties, or other obligations related to impacted data, whether or not such data is misused. In addition, the misuse, or perceived misuse, of sensitive or confidential information regarding our business or policyholders could cause harm to our reputation and result in the loss of business with existing or potential customers, which could adversely impact our business, results of operations and financial condition.
Although we maintain cybersecurity insurance coverage insuring against costs resulting from cyber-attacks (including the March 2021 attack), we do not expect the amount available under our coverage and/or our coverage policy to cover all losses. Costs and expenses incurred and likely to be incurred by the Company in connection with the March 2021 attack include both direct and indirect costs and not all may be covered by our insurance coverage. In addition, potential disputes with our insurers about the availability of insurance coverage for claims relating to the March 2021 attack or any future incident could occur. Further, both as a result of the March 2021 attack and industry trends generally, the Company will incur higher costs for the replenishment of the Company’s current policy through the end of the term, as well as future cybersecurity insurance coverage beyond the current term.
Based on the information currently known, we do not believe that the March 2021 cybersecurity attack will have a material impact on our business, results of operations or financial condition, but no assurances can be given as we continue to assess the full impact from the incident, including costs, expenses and insurance coverage. We may also be subject to future incidents that could have a material adverse effect on our business, results of operations or financial condition or may result in operational impairments and financial losses, as well as significant harm to our reputation.
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Item 6. Exhibits
See Exhibit Index.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|  | CNA Financial Corporation
Dated: November 1, 2021 | By | /s/ Larry Haefner
|  | Larry Haefner Interim Chief Financial Officer (Duly authorized officer and principal financial and accounting officer)

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EXHIBIT INDEX

Description of Exhibit | Exhibit Number
Certification of Chief Executive Officer | 31.1
Certification of Chief Financial Officer | 31.2
Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002) | 32.1
Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002) | 32.2
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | 101.INS
Inline XBRL Taxonomy Extension Schema | 101.SCH
Inline XBRL Taxonomy Extension Calculation Linkbase | 101.CAL
Inline XBRL Taxonomy Extension Definition Linkbase | 101.DEF
Inline XBRL Taxonomy Label Linkbase | 101.LAB
Inline XBRL Taxonomy Extension Presentation Linkbase | 101.PRE
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | 104.1

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