CNA Financial Corp: Form 10-Q for the period ended Mar 31, 2023

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 and 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, 2022.

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. 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 and management believes some investors may find this measure useful to evaluate our primary operations. See further discussion regarding how we manage our business in Note J 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 underlying loss ratio, the expense ratio, the dividend ratio, the combined ratio and the underlying combined ratio. 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 underlying loss ratio excludes the impact of catastrophe losses and development-related items from the loss ratio. Development-related items represents net prior year loss reserve and premium development, and includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts. 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 underlying combined ratio is the sum of the underlying loss ratio, 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. The change in exposure represents the change in premium dollars on policies that renew as a result of the change in risk of the policy. Retention represents the percentage of premium dollars renewed, excluding rate and exposure changes, in comparison to the expiring premium dollars from policies available to renew. 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. We use underwriting gain (loss), calculated using GAAP financial results, to monitor our insurance operations. Underwriting gain (loss) is pretax and is calculated as net earned premiums less total insurance expenses, which includes insurance claims and policyholders' benefits, amortization of deferred acquisition costs and other insurance related expenses.

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.

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, 2022 for further information on the accounting estimates related to Reinsurance and Insurance Receivables, Valuation of Investments and Impairment of Securities and Income Taxes.

The information presented below restates in their entirety, as a result of the adoption of ASU 2018-12 and its impact on long term care reserves, the accounting estimates related to Insurance Reserves and Long Term Care Reserves included under 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, 2022. Further information on the long term care reserving process under the new guidance is included in Note A and Note F to the Condensed Consolidated Financial Statements included under Part I, Item I.

Insurance Reserves

Insurance reserves are established for both short and long-duration insurance contracts. Short-duration contracts are primarily related to property and casualty insurance policies where the reserving process is based on actuarial estimates of the amount of loss, including amounts for known and unknown claims. Long-duration contracts are primarily related to long term care policies and the reserves are recorded as Future policy benefits reserves as discussed below. The reserve for unearned premiums represents the portion of premiums written related to the unexpired terms of coverage. The reserving process is discussed in further detail in the Reserves - Estimates and Uncertainties section of our Annual Report on Form 10-K for the year ended December 31, 2022.

Long Term Care Reserves

Future policy benefits reserves for our long term care policies are based on certain assumptions, including morbidity, persistency (inclusive of mortality), future premium rate increases, and expenses. The adequacy of the reserves is contingent upon actual experience and our future expectations related to these key assumptions. If actual or expected future experience differs from these assumptions, the reserves may not be adequate, requiring us to increase reserves. The reserves are discounted using upper-medium grade fixed income instrument yields as of each reporting date. In addition, we may not receive regulatory approval for the level of premium rate increases we request.

These changes to our reserves could materially adversely impact our results of operations, financial condition and equity.

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.

(In millions)

(1) As of January 1, 2023, we adopted ASU 2018-12 using the modified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts presented in the financial statements have been adjusted to reflect application of the new guidance. See Note A to the Condensed Consolidated Financial Statements for additional information.

Core income increased $27 million for the three months ended March 31, 2023 as compared with the same period in 2022. Core income for our Property & Casualty Operations increased $25 million primarily due to higher net investment income and improved non-catastrophe current accident year underwriting results partially offset by higher catastrophe losses and unfavorable net prior year loss reserve development. Core results for our Life & Group segment decreased $8 million, while core loss for our Corporate & Other segment improved $10 million.

Catastrophe losses were $52 million and $19 million for the three months ended March 31, 2023 and 2022. Unfavorable net prior year loss reserve development of $13 million was recorded for the three months ended March 31, 2023 as compared with favorable net prior year loss reserve development of $12 million recorded for the three months ended March 31, 2022 related to our Specialty, Commercial and International 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.

Results for the three months ended March 31, 2023 were impacted by unfavorable net pension costs related to our legacy United States of America (U.S.) pension plan primarily due to higher interest cost on projected benefit obligations as a result of an increase in discount rates year over year, as well as a lower expected return on plan assets as a result of a lower plan asset base given actual asset returns in 2022. A portion of this additional cost has resulted in an unfavorable impact on our expense ratio for the three months ended March 31, 2023. The components of our net periodic pension cost (benefit) are presented in Note H to the Condensed Consolidated Financial Statements included under Part I, Item I.

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.

Specialty

The following table details the results of operations for Specialty.

(In millions, except ratios, rate, renewal premium change and retention)

Gross written premiums, excluding third-party captives, for Specialty for the three months ended March 31, 2023 were largely consistent with the same period in 2022. Net written premiums for Specialty increased $17 million for the three months ended March 31, 2023 as compared with the same period in 2022. The increase in net earned premiums was consistent with the trend in net written premiums.

Core income increased $8 million for the three months ended March 31, 2023 as compared with the same period in 2022 primarily due to higher net investment income partially offset by no net prior year loss reserve development recorded for the three months ended March 31, 2023 as compared with favorable net prior year loss reserve development recorded for the three months ended March 31, 2022.

The combined ratio of 90.0% increased 1.3 points for the three months ended March 31, 2023 as compared with the same period in 2022 due to a 0.8 point increase in the loss ratio and a 0.5 point increase in the expense ratio. The increase in the loss ratio was primarily driven by no net prior year loss reserve development recorded for the three months ended March 31, 2023 as compared with $10 million of favorable net prior year loss reserve development recorded for the three months ended March 31, 2022, partially offset by improved current accident year underwriting results. There were no catastrophe losses for the three months ended March 31, 2023 and 2022. The increase in the expense ratio was primarily driven by employee related costs.

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)

46

Commercial

The following table details the results of operations for Commercial.

(In millions, except ratios, rate, renewal premium change and retention)

Gross written premiums for Commercial increased $234 million for the three months ended March 31, 2023 as compared with the same period in 2022 driven by higher new business and rate. Net written premiums for Commercial increased $187 million for the three months ended March 31, 2023 as compared with the same period in 2022. The increase in net earned premiums was consistent with the trend in net written premiums.

Core income increased $19 million for the three months ended March 31, 2023 as compared with the same period in 2022, driven by higher net investment income and improved non-catastrophe underwriting results partially offset by higher catastrophe losses.

The combined ratio of 96.0% increased 1.5 points for the three months ended March 31, 2023 as compared with the same period in 2022 due to a 2.4 increase in the loss ratio partially offset by a 0.9 point improvement in the expense ratio. The increase in the loss ratio was driven by higher catastrophe losses. Catastrophe losses were $44 million, or 4.2 points of the loss ratio, for the three months ended March 31, 2023, as compared with $16 million, or 1.8 points of the loss ratio, for the three months ended March 31, 2022. The improvement in the expense ratio was driven by higher net earned premiums partially offset by employee related costs.

Favorable net prior year loss reserve development of $2 million was recorded for the three months ended March 31, 2023 and 2022. 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)

48

International

The following table details the results of operations for International.

(In millions, except ratios, rate, renewal premium change and retention)

Gross written premiums for International increased $35 million for the three months ended March 31, 2023 as compared with the same period in 2022. Excluding the effect of foreign currency exchange rates, gross written premiums increased $55 million driven by retention and higher new business. Net written premiums for International increased $20 million for the three months ended March 31, 2023 as compared with the same period in 2022. Excluding the effect of foreign currency exchange rates, net written premiums increased $35 million for the three months ended March 31, 2023 as compared with the same period in 2022. The increase in net earned premiums was consistent with the trend in net written premiums.

Core income for the three months ended March 31, 2023 was largely consistent with the same period in 2022.

The combined ratio of 97.2% increased 4.8 points for the three months ended March 31, 2023 as compared with the same period in 2022 due to a 5.6 point increase in the loss ratio partially offset by a 0.8 point improvement in the expense ratio. The increase in the loss ratio was largely driven by unfavorable net prior period loss reserve development. Catastrophe losses were $8 million, or 2.8 points of the loss ratio, for the three months ended March 31, 2023, as compared with $3 million, or 1.2 points of the loss ratio, for the three months ended March 31, 2022. The improvement in the expense ratio was largely driven by higher net earned premiums.

Unfavorable net prior year loss reserve development of $15 million was recorded for the three months ended March 31, 2023 as compared with no net prior year loss reserve development for the three months ended March 31, 2022. 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)

50

Life & Group

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

(In millions)

(1) As of January 1, 2023, we adopted ASU 2018-12 using the modified retrospective method applied as of the transition date of January 1, 2021. Prior period amounts presented in the financial statements have been adjusted to reflect application of the new guidance. See Note A and Note F to the Condensed Consolidated Financial Statements for additional information.

Core results decreased $8 million for the three months ended March 31, 2023 as compared with the same period in 2022 primarily due to long term care policy buyouts.

Corporate & Other

The following table summarizes the results of operations for the Corporate & Other segment, including intersegment eliminations.

(In millions)

Core loss decreased $10 million for the three months ended March 31, 2023 as compared with the same period in 2022 driven by higher net investment income.

The following table summarizes the gross and net carried reserves for Corporate & Other.

(In millions)

52

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.

(In millions)

Net investment income increased $77 million for the three months ended March 31, 2023 as compared with the same period in 2022 driven by higher income from fixed income securities and other, and higher limited partnership and common stock returns.

Net Investment (Losses) Gains

The components of Net investment (losses) gains are presented in the following table.

(In millions)

Pretax net investment results decreased $24 million for three months ended March 31, 2023 as compared with the same period in 2022. The decrease was driven by higher net losses on fixed maturity securities partially offset by the favorable relative change in fair value of non-redeemable preferred stock in the three months ended March 31, 2023 as compared with the same period in 2022. The three months ended March 31, 2022 also included gains on a funds withheld embedded derivative which related to a coinsurance agreement on our legacy annuity business that was novated in the fourth quarter of 2022.

Further information on our investment gains and losses is set forth in Note C to the Condensed Consolidated Financial Statements included under Part I, Item 1.

Portfolio Quality

The following table presents the estimated fair value and net unrealized gains (losses) of our fixed maturity securities by rating distribution.

(In millions)

As of March 31, 2023 and December 31, 2022, 1% of our fixed maturity portfolio was rated internally. AAA rated securities included $0.3 billion of prefunded municipal bonds as of March 31, 2023 and December 31, 2022.

The following table presents available-for-sale fixed maturity securities in a gross unrealized loss position by ratings distribution.

(In millions)

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.

(In millions)

54

Commercial Real Estate

Our investment portfolio has exposure to the commercial real estate sector primarily through our fixed maturity securities and mortgage loan portfolios. The performance of these assets is dependent on a number of factors, including the performance of the underlying collateral (which is influenced by cash flows from underlying property leases), changes in the fair value of collateral, refinancing risk, and the creditworthiness of tenants of credit tenant loan properties (where lease payments directly service the loan).

Within our fixed maturity securities portfolio, our exposure is primarily through our commercial mortgage-backed securities portfolio and our corporate and other bonds portfolio, which contains obligations of real estate investment trust (REIT) issuers. Commercial mortgage-backed securities include both single asset, single borrower collateral that is securitized independently and conduit collateral that is securitized in diversified pools.

The following tables present the estimated fair value and net unrealized gains (losses) of our commercial mortgage-backed securities by property type and by ratings distribution.

(In millions)

(In millions)

55

The following tables present the estimated fair value and net unrealized gains (losses) of the REIT issuer exposure within our corporate and other bonds portfolio by property type and by ratings distribution.

(In millions)

(1) Other includes a diversified mix of property type strategies including self-storage, healthcare and apartments.

(In millions)

Mortgage loans are commercial in nature and are carried at unpaid principal balance, net of unamortized fees and an allowance for expected credit losses. The allowance for expected credit losses is developed by assessing the credit quality of pools of mortgage loans in good standing using debt service coverage ratios (DSCR) and loan-to-value ratios (LTV). This assessment utilizes historical credit loss experience adjusted to reflect current conditions and reasonable and supportable forecasts. As of March 31, 2023 the allowance for expected credit losses on our mortgage portfolio was $24 million, or 2% of our amortized cost basis.

The following table presents the amortized cost basis of mortgage loans by property type.

(In millions)

56

In addition to our mortgage loan portfolio, we invest in securitized credit tenant loans and ground lease financings that are classified as fixed maturity securities, all of which are investment grade quality. As of March 31, 2023, these holdings had an estimated fair value of $484 million and net unrealized losses of $82 million.

We own other fixed maturity securities which have exposure to cell towers, data centers and other collateral types that could be viewed as having real estate characteristics. We view these securities to have risks more akin to operating enterprises that do not share the same risks as the broader commercial real estate market.

We do not hold any direct investments in commercial real estate. Additionally, we do not have significant exposure through our limited partnership portfolio to funds whose primary strategy is real estate focused.

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.

(In millions)

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, 2022.

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 three months ended March 31, 2023, net cash provided by operating activities was $436 million as compared with $645 million for the same period in 2022. The decrease in cash provided by operating activities was driven by higher net claim payments, including long term care policy buyouts, and lower distributions from limited partnerships partially offset by an increase in premiums collected.

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.

For the three months ended March 31, 2023, net cash provided by investing activities was $51 million as compared with net cash used by investing activities of $129 million for the same period in 2022. Net cash used or provided by investing activities is primarily driven by cash available from operations and by 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 our common stock.

For the three months ended March 31, 2023, net cash used by financing activities was $480 million as compared with $688 million for the same period in 2022. In the first quarter of 2023, we paid dividends of $445 million and repurchased 550,000 shares of our common stock at an aggregate cost of $24 million. In the first quarter of 2022, we paid dividends of $657 million and repurchased 445,000 shares of our common stock at an aggregate cost of $21 million.

Common Stock Dividends

Cash dividends of $1.62 per share on our common stock, including a special cash dividend of $1.20 per share, were declared and paid during the three months ended March 31, 2023. On April 28, 2023, our Board of Directors declared a quarterly cash dividend of $0.42 per share, payable June 1, 2023 to stockholders of record on May 15, 2023. 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.

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 March 31, 2023, CCC was in a positive earned surplus position. CCC paid dividends of $475 million and $535 million during the three months ended March 31, 2023 and 2022. 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 an unspecified amount of debt, equity or hybrid securities from time to time.

ACCOUNTING STANDARDS UPDATE

In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12). The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. For us, this includes our long term care business in the Life & Group segment. For a discussion of Accounting Standards, see Note A to the Condensed Consolidated Financial Statements included under Part I, Item 1.

The following table presents the effect of adoption of ASU 2018-12 on selected 2022 and 2021 financial data.

(In millions, except per share data)

Core income for 2022 decreased from what was previously reported generally driven by the cumulative effect of assumption differences and differences in reserving methodologies between legacy and new accounting guidance.

Core income for the third quarter of 2022 decreased $170 million from what was previously reported under legacy accounting guidance, primarily related to our third quarter 2022 annual review of cash flow reserving assumptions. Under legacy accounting guidance, the third quarter 2022 gross premium valuation assessment indicated a pretax margin of $125 million and no unlocking event occurred. Under the new guidance favorable changes to the upper-medium grade fixed income instrument discount rate were recorded through Accumulated other comprehensive income quarterly, while the net unfavorable impact of increased cost of care inflation offset by favorable premium rate action assumptions was recorded in income.

Other comprehensive loss decreased from what was previously reported driven by increases in the upper-medium grade fixed-income instrument yield beginning in 2021 and through 2022, which was used as the discount rate to re-measure the LFPB.

The following table presents the effect of adoption of ASU 2018-12 on selected 2022 and 2021 balance sheet data.

(In millions)

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 conduct; 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 statements. 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 2022 Annual Report on Form 10-K:

Company-Specific Factors

• the risks and uncertainties associated with our insurance reserves, as outlined in the Critical Accounting Estimates sections of our 2022 Annual Report on Form 10-K and this report, and the Reserves - Estimates

and Uncertainties section of our 2022 Annual Report on Form 10-K, 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 excess workers' compensation (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

• 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;
• the effects of social inflation, including frequency of nuclear verdicts and increased litigation activity, on the severity of claims;
• 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;
• the COVID-19 pandemic and measures to mitigate the spread of the virus may continue to result in increased claims and related litigation risk across our enterprise;
• 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
• 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, which are increasing in complexity and number, change frequently, sometimes conflict, and could expose us to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions, including regulations related to cyber security protocols (which continue to evolve in breadth, sophistication and maturity in response to an ever-evolving threat landscape), 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, tornados 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, per- and polyfluoroalkyl substances (PFAS) 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.

There were no material changes in our market risk components for the three months ended March 31, 2023. 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, 2022 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.

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 March 31, 2023, 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 Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective as of March 31, 2023.

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 March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.