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General | 9 Months Ended
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Sep. 30, 2023
Accounting Policies [Abstract] |
General | 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 91.7% of the outstanding common stock of CNAF as of September 30, 2023. 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 (SEC) for the year ended December 31, 2022, 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, 2023 and for the three and nine months ended September 30, 2023 and 2022 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 in accordance with GAAP. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The December 31, 2022 Consolidated Balance Sheet included in this Quarterly Report on Form 10-Q was derived from audited financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC, adjusted for the application of ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12). Recently Adopted Accounting Standards Updates (ASU) ASU 2018-12: In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-12, which requires changes to the measurement and disclosure of long-duration contracts. Entities are required to review, and update if there is a change, cash flow assumptions (including morbidity and persistency) used to measure the liability for future policyholder benefits (LFPB) at least annually. The LFPB must also be updated for actual experience at least annually. The LFPB is reflected as Insurance reserves: Future policy benefits on the Condensed Consolidated Balance Sheet. The discount rate assumption used to measure the LFPB must be updated quarterly using an upper-medium grade (low credit risk) fixed-income instrument yield, commonly interpreted as a single-A rate. The effect of changes in cash flow assumptions and actual variances from expected experience are recorded in the Company's results of operations within Insurance claims and policyholders’ benefits. The effect of changes in discount rate assumptions are recorded in Other comprehensive income (loss). In contrast, under legacy accounting guidance, cash flow and discount rate assumptions were locked-in unless a premium deficiency emerged. The discount rate assumption under legacy accounting guidance was determined using the Company’s internal investment portfolio yield, which was generally higher than a single-A yield. The new guidance eliminates the need to hold shadow reserves associated with the Company’s long term care reserves. Under legacy accounting guidance, to the extent that unrealized gains on fixed maturity securities supporting long term care reserves would have resulted in a premium deficiency if realized, a related increase to Insurance reserves was recorded, net of tax, as a reduction of net unrealized gains (losses), through Other comprehensive income (loss) (shadow reserves). The unit of account is the level at which reserves are measured. Under the new guidance, the unit of account used to measure the LFPB is the cohort. Cohorts are comprised of insurance contracts issued no more than one year apart, and must be further disaggregated according to policy benefit and insurance risk characteristics. Under legacy accounting guidance, the LFPB was generally measured at the individual policy level. Under the new guidance, the Net Premium Ratio (NPR) is capped at 100%. To the extent that NPR would otherwise exceed 100%, the LFPB is increased and a loss is recognized immediately in the Company’s results of operations. The NPR cap is applied at the cohort level each quarter when NPR is updated. In contrast, under legacy accounting guidance, premium deficiency testing was performed annually at the product level. See Note F to the Condensed Consolidated Financial Statements for further explanation of the NPR and LFPB calculations. The Company adopted the new guidance effective January 1, 2023, using the modified retrospective method applied as of the transition date of January 1, 2021. The Company's run-off long term care business is in scope of the new guidance. All prior periods presented in the financial statements have been adjusted to reflect application of the new guidance. The Company’s original locked in discount rate, utilized for purposes of calculating the NPR under the new guidance, was based on the discount rate assumption used to calculate the LFPB immediately prior to the transition date. While the requirements of the new guidance represent a material change from legacy accounting, the new guidance does not impact capital and surplus under statutory accounting practices, cash flows or the underlying economics of the business. In December 2022, the FASB issued ASU 2022-05, Financial Services-Insurance (Topic 944): Transition for Sold Contracts (ASU 2022-05). This guidance permits companies to make an election to exclude from the scope of ASU 2018-12 any insurance contracts that have been de-recognized prior to the effective date of ASU 2018-12, assuming that the company has no significant continuing involvement with the de-recognized contracts. In the fourth quarter of 2022, the Company novated its block of legacy annuity business, which was fully-ceded prior to novation. The Company has elected the ASU 2022-05 transition relief, and has excluded the novated legacy annuity business from the scope of ASU 2018-12. Explanation of ASU 2018-12 Transition Impacts: The following table presents a roll-forward of the pre-transition LFPB balance as of January 1, 2021:
(In millions) |
Balance as of December 31, 2020, as previously reported | $ | 13,318 |
Reclassification of reserves for policyholders currently receiving benefits to Future policy benefits (1) | 2,844 |
De-recognition of shadow reserves | (3,293) |
Re-measurement using an upper-medium grade fixed income instrument yield discount rate | 6,255 |
Other adjustments | 8 |
Balance as of January 1, 2021, as adjusted | $ | 19,132 |
(1) In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the Company reclassified the long term care reserves for policyholders currently receiving benefits from Claim and claim adjustment expenses to Future policy benefits. This change was applied retrospectively as of January 1, 2021. Shadow reserves associated with the Company’s long term care business were de-recognized as of the transition date in Accumulated other comprehensive income (AOCI). The effect of re-measuring the LFPB at the single-A discount rate as of the transition date was similarly recorded in AOCI. The Company did not have any cohorts for which the NPR exceeded 100% at the transition date. The Company’s practice under legacy accounting guidance was to calculate and record premium deficiency reserves at the policy level. Accordingly, an allocation methodology was not required to assign historical premium deficiency reserves to cohorts upon transition to ASU 2018-12. The following table presents after tax adjustments to the opening balance of Stockholders’ equity resulting from adoption of ASU 2018-12:
(In millions) | Accumulated other comprehensive income (loss) |  | Retained earnings
Balance as of December 31, 2020, as previously reported | $ | 803 |  |  | $ | 9,081 |
De-recognition of shadow reserves | 2,601 |  |  | — |
Re-measurement of LFPB using an upper-medium grade fixed income instrument yield discount rate | (4,941) |  |  | — |
Other adjustments | — |  |  | (6) |
Balance as of January 1, 2021, as adjusted | $ | (1,537) |  |  | $ | 9,075 |
The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Operations for the three months ended September 30, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Insurance claims and policyholders’ benefits (1) | $ | 1,665 |  |  | $ | 215 |  |  | $ | 1,880 |
Income (loss) before income tax | 164 |  |  | (215) |  |  | (51) |
Income tax (expense) benefit | (36) |  |  | 45 |  |  | 9 |
Net income | 128 |  |  | (170) |  |  | (42) |
Basic earnings (loss) per share | 0.47 |  |  | (0.62) |  |  | (0.15) |
Diluted earnings (loss) per share | 0.47 |  |  | (0.62) |  |  | (0.15) |
(1) The effect of adopting ASU 2018-12 on Insurance claims and policyholders’ benefits is inclusive of the re-measurement gain (loss) of $(211) million, which is presented parenthetically on the Condensed Consolidated Statement of Operations. The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Insurance claims and policyholders’ benefits (1) | $ | 4,703 |  |  | $ | 256 |  |  | $ | 4,959 |
Income (loss) before income tax | 787 |  |  | (256) |  |  | 531 |
Income tax (expense) benefit | (141) |  |  | 53 |  |  | (88) |
Net income | 646 |  |  | (203) |  |  | 443 |
Basic earnings (loss) per share | 2.38 |  |  | (0.75) |  |  | 1.63 |
Diluted earnings (loss) per share | 2.37 |  |  | (0.74) |  |  | 1.63 |
(1) The effect of adopting ASU 2018-12 on Insurance claims and policyholders’ benefits is inclusive of the re-measurement gain (loss) of $(205) million, which is presented parenthetically on the Condensed Consolidated Statement of Operations. The effects of adoption of ASU 2018-12 on the Condensed Consolidated Balance Sheet as of December 31, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Deferred income taxes | $ | 1,178 |  |  | $ | 73 |  |  | $ | 1,251 |
Total assets | 60,927 |  |  | 73 |  |  | 61,000 |
Claim and claim adjustment expenses (1) | 25,099 |  |  | (2,979) |  |  | 22,120 |
Future policy benefits (1) | 10,151 |  |  | 3,329 |  |  | 13,480 |
Total liabilities | 52,102 |  |  | 350 |  |  | 52,452 |
Retained earnings | 9,572 |  |  | (236) |  |  | 9,336 |
Accumulated other comprehensive income (loss) | (3,557) |  |  | (41) |  |  | (3,598) |
Total stockholders' equity | 8,825 |  |  | (277) |  |  | 8,548 |
(1) In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the Company reclassified the long term care reserves for policyholders currently receiving benefits from Claim and claim adjustment expenses to Future policy benefits. This change was applied retrospectively as of January 1, 2021. The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Comprehensive Income (Loss) for the three months ended September 30, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Changes in: Net unrealized gains and losses on other investments | $ | (1,327) |  |  | $ | (408) |  |  | $ | (1,735) |
Net unrealized gains and losses on investments | (1,329) |  |  | (408) |  |  | (1,737) |
Impact of changes in discount rates used to measure long-duration contract liabilities | — |  |  | 994 |  |  | 994 |
Other comprehensive income (loss), net of tax | (1,426) |  |  | 586 |  |  | (840) |
Total comprehensive income (loss) | (1,298) |  |  | 416 |  |  | (882) |
The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Comprehensive Income (Loss) for the nine months ended September 30, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Changes in: Net unrealized gains and losses on other investments | $ | (4,284) |  |  | $ | (2,320) |  |  | $ | (6,604) |
Net unrealized gains and losses on investments | (4,292) |  |  | (2,320) |  |  | (6,612) |
Impact of changes in discount rates used to measure long-duration contract liabilities | — |  |  | 4,136 |  |  | 4,136 |
Other comprehensive income (loss), net of tax | (4,459) |  |  | 1,816 |  |  | (2,643) |
Total comprehensive income (loss) | (3,813) |  |  | 1,613 |  |  | (2,200) |
The effects of adoption of ASU 2018-12 on the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Net income | $ | 646 |  |  | $ | (203) |  |  | $ | 443 |
Deferred income tax expense (benefit) | (18) |  |  | (53) |  |  | (71) |
Changes in: Insurance reserves | 1,743 |  |  | 256 |  |  | 1,999 |
The effects of adoption of ASU 2018-12 on segment results of operations of the Life & Group segment for the three months ended September 30, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Net incurred claims and benefits (1) | $ | 310 |  |  | $ | 215 |  |  | $ | 525 |
Core income (loss) before income tax | (36) |  |  | (215) |  |  | (251) |
Income tax (expense) benefit on core income (loss) | 14 |  |  | 45 |  |  | 59 |
Core income (loss) | (22) |  |  | (170) |  |  | (192) |
(1) The effect of adopting ASU 2018-12 on Net incurred claims and benefits is inclusive of the re-measurement gain (loss) of $(211) million, which is presented parenthetically on the Condensed Consolidated Statement of Operations. The effects of adoption of ASU 2018-12 on segment results of operations of the Life & Group segment for the nine months ended September 30, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Net incurred claims and benefits (1) | $ | 884 |  |  | $ | 256 |  |  | $ | 1,140 |
Core income (loss) before income tax | (24) |  |  | (256) |  |  | (280) |
Income tax (expense) benefit on core income (loss) | 31 |  |  | 53 |  |  | 84 |
Core income (loss) | 7 |  |  | (203) |  |  | (196) |
(1) The effect of adopting ASU 2018-12 on Net incurred claims and benefits is inclusive of the re-measurement gain (loss) of $(205) million, which is presented parenthetically on the Condensed Consolidated Statement of Operations. The effects of adoption of ASU 2018-12 on segment results for selected balance sheet lines of the Life & Group segment as of December 31, 2022 were as follows:
(In millions) | Prior to Adoption |  | Effect of Adoption |  | As reported
Claim and claim adjustment expenses (1) | $ | 3,674 |  |  | $ | (2,979) |  |  | $ | 695 |
Future policy benefits (1) | 10,151 |  |  | 3,329 |  |  | 13,480 |
(1) In conjunction with the adoption of ASU 2018-12, at January 1, 2023, the Company reclassified the long term care reserves for policyholders currently receiving benefits from Claim and claim adjustment expenses to Future policy benefits. This change was applied retrospectively as of January 1, 2021.

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