CNA FINANCIAL CORP – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2020 Compared with 2019
This section of this Form 10-K generally discusses 2021 and 2020 results and
year-to-year comparisons between 2021 and 2020. With the exception of our
Commercial and Corporate & Other business segments where we changed the segment
presentation of a legacy portfolio of excess workers' compensation policies and
certain legacy mass tort reserves effective January 1, 2021, a discussion of
changes in our results of operations from 2020 to 2019 has been omitted from
this Form 10-K, but may be found in "Part II, Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" of our Form 10-K
for the year ended December 31, 2020, filed with the SEC on February 9, 2021.
Index to this MD&A
Management's discussion and analysis of financial condition and results of
operations is comprised of the following sections:
                                                 Page No.
  Overview                                          21
  Critical Accounting Estimates                     21
  Reserves - Estimates and Uncertainties            23
  Catastrophes and Related Reinsurance              29
  Consolidated Operations                           31
  Segment Results                                   32
  Specialty                                         34
  Commercial                                        37
  International                                     39
  Life & Group                                      41
  Corporate & Other                                 43
  Investments                                       44
  Net Investment Income                             44
  Net Investment Gains (Losses)                     44
  Portfolio Quality                                 45
  Duration                                          46
  Liquidity and Capital Resources                   47
  Cash Flows                                        47
  Liquidity                                         47
  Common Stock Dividends                            48
  Commitments, Contingencies and Guarantees         48
  Ratings                                           49
  Accounting Standards Updates                      50
  Forward-Looking Statements                        50


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OVERVIEW
The following discussion should be read in conjunction with Part I, Item 1A Risk
Factors and Part II, Item 8 Financial Statements and Supplementary Data of this
Form 10-K.
CRITICAL ACCOUNTING ESTIMATES
The preparation of 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 Consolidated Financial Statements and the amount
of revenues and expenses reported during the period. Actual results may differ
from those estimates.
Our 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 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 Consolidated Financial Statements as their application
places the most significant demands on our judgment. Note A to the Consolidated
Financial Statements included under Item 8 should be read in conjunction with
this section to assist with obtaining an understanding of the underlying
accounting policies related to these estimates. 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.
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 are
estimated using actuarial estimates about morbidity and persistency as well as
assumptions about expected investment returns and future premium rate increases.
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 below.
Long Term Care Reserves
Future policy benefit reserves for our long term care policies are based on
certain assumptions, including morbidity, persistency, inclusive of mortality,
discount rates and future premium rate increases. 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 add to
reserves.
A prolonged period during which investment returns remain at levels lower than
those anticipated in our reserving discount rate assumption could result in
shortfalls in investment income on assets supporting our obligations under long
term care policies, which may require increases to our reserves. 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. The reserving process is discussed
in further detail in the Reserves - Estimates and Uncertainties section below.
Reinsurance and Insurance Receivables
Exposure exists with respect to the collectibility of ceded property and
casualty and life reinsurance to the extent that any reinsurer is unable to meet
its obligations or disputes the liabilities we have ceded under reinsurance
agreements. An allowance for uncollectible reinsurance is recorded on the basis
of periodic evaluations of balances due from reinsurers, reinsurer financial
strength rating and solvency, industry
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experience and current and forecast economic conditions. Further information on
our reinsurance receivables is in Note G to the Consolidated Financial
Statements included under Item 8.
Additionally, exposure exists with respect to the collectibility of amounts due
from policyholders related to insurance contracts, including amounts due from
insureds under high deductible policies and retrospectively rated policies. An
allowance for uncollectible insurance receivables is recorded on the basis of
periodic evaluations of balances due from insureds, currently as well as in the
future, historical business default data, management's experience and current
and forecast economic conditions.
If actual experience differs from the estimates made by management in
determining the allowances for uncollectible reinsurance and insurance
receivables, net receivables as reflected on our Consolidated Balance Sheets may
not be collected. Therefore, our results of operations, financial condition or
equity could be materially adversely affected. Further information on our
process for determining the allowances for uncollectible reinsurance and
insurance receivables is in Note A to the Consolidated Financial Statements
included under Item 8.
Valuation of Investments and Impairment of Securities
Our fixed maturity and equity securities are carried at fair value on the
balance sheet. Fair value represents the price that would be received in a sale
of an asset in an orderly transaction between market participants on the
measurement date, the determination of which may require us to make a
significant number of assumptions and judgments. Securities with the greatest
level of subjectivity around valuation are those that rely on inputs that are
significant to the estimated fair value and that are not observable in the
market or cannot be derived principally from or corroborated by observable
market data. These unobservable inputs are based on assumptions consistent with
what we believe other market participants would use to price such securities.
Further information on our fair value measurements is in Note C to the
Consolidated Financial Statements included under Item 8.
Our fixed maturity securities are subject to market declines below amortized
cost that may result in the recognition of impairment losses in earnings.
Factors considered in the determination of whether or not an impairment loss is
recognized in earnings include a current intention or need to sell the security
or an indication that a credit loss exists. Significant judgment is required in
the determination of whether a credit loss has occurred for a security. We
consider all available evidence when determining whether a security requires a
credit allowance to be recorded, including the financial condition and expected
near-term and long-term prospects of the issuer, whether the issuer is current
with interest and principal payments, credit ratings on the security or changes
in ratings over time, general market conditions, industry, sector or other
specific factors and whether we expect to receive cash flows sufficient to
recover the entire amortized cost basis of the security.
Our mortgage loan portfolio is subject to the expected credit loss model, which
requires immediate recognition of estimated credit losses over the life of the
asset and the presentation of the asset at the net amount expected to be
collected. Significant judgment is required in the determination of estimated
credit losses and any changes in our expectation of the net amount to be
collected are recognized in earnings.
Further information on our process for evaluating impairments and expected
credit losses is in Note A to the Consolidated Financial Statements included
under Item 8.
Income Taxes
We account for income taxes under the asset and liability method. Under this
method, deferred income taxes are recognized for temporary differences between
the financial statement and tax return basis of assets and liabilities. Any
resulting future tax benefits are recognized to the extent that realization of
such benefits is more likely than not, and a valuation allowance is established
for any portion of a deferred tax asset that management believes will not be
realized. The assessment of the need for a valuation allowance requires
management to make estimates and assumptions about future earnings, reversal of
existing temporary differences and available tax planning strategies. If actual
experience differs from these estimates and assumptions, the recorded deferred
tax asset may not be fully realized resulting in an increase to income tax
expense in our results of operations. In addition, the ability to record
deferred tax assets in the future could be limited, resulting in a higher
effective tax rate in that future period.
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RESERVES - ESTIMATES AND UNCERTAINTIES
The level of reserves we maintain represents our best estimate, as of a
particular point in time, of what the ultimate settlement and administration of
claims will cost based on our assessment of facts and circumstances known at
that time. Reserves are not an exact calculation of liability but instead are
complex estimates that we derive, generally utilizing a variety of actuarial
reserve estimation techniques, from numerous assumptions and expectations about
future events, both internal and external, many of which are highly uncertain.
As noted below, we review our reserves for each segment of our business
periodically, and any such review could result in the need to increase reserves
in amounts which could be material and could adversely affect our results of
operations, equity, business and insurer financial strength and corporate debt
ratings. Further information on reserves is provided in Note E to the
Consolidated Financial Statements included under Item 8.
Property and Casualty Claim and Claim Adjustment Expense Reserves
We maintain loss reserves to cover our estimated ultimate unpaid liability for
claim and claim adjustment expenses, including the estimated cost of the claims
adjudication process, for claims that have been reported but not yet settled
(case reserves) and claims that have been incurred but not reported (IBNR). IBNR
includes a provision for development on known cases as well as a provision for
late reported incurred claims. Claim and claim adjustment expense reserves are
reflected as liabilities and are included on the Consolidated Balance Sheets
under the heading "Insurance Reserves." Adjustments to prior year reserve
estimates, if necessary, are reflected in results of operations in the period
that the need for such adjustments is determined. The carried case and IBNR
reserves as of each balance sheet date are provided in the Segment Results
section of this MD&A and in Note E to the Consolidated Financial Statements
included under Item 8.
As discussed in the Risk Factors discussion within Item 1A, there is a risk that
our recorded reserves are insufficient to cover our estimated ultimate unpaid
liability for claims and claim adjustment expenses. Unforeseen emerging or
potential claims and coverage issues are also difficult to predict and could
materially adversely affect the adequacy of our claim and claim adjustment
expense reserves and could lead to future reserve additions.
In addition, our property and casualty insurance subsidiaries also have actual
and potential exposures related to A&EP claims, which could result in material
losses. To mitigate the risks posed by our exposure to A&EP claims and claim
adjustment expenses, we completed a transaction with NICO under which
substantially all of our legacy A&EP liabilities were ceded to NICO effective
January 1, 2010. See Note E to the Consolidated Financial Statements included
under Item 8 for further discussion about the transaction with NICO, its impact
on our results of operations and the deferred retroactive reinsurance gains and
the amount of remaining reinsurance limit.
Establishing Property & Casualty Reserve Estimates
In developing claim and claim adjustment expense (loss or losses) reserve
estimates, our actuaries perform detailed reserve analyses that are staggered
throughout the year. The data is organized at a reserve group level. A reserve
group typically can be a line of business covering a subset of insureds such as
commercial automobile liability for small or middle market customers or it can
be a particular type of claim such as construction defect. Every reserve group
is reviewed at least once during the year, but most are reviewed more
frequently. The analyses generally review losses gross of ceded reinsurance and
apply the ceded reinsurance terms to the gross estimates to establish estimates
net of reinsurance. In addition to the detailed analyses, we review actual loss
emergence for all products each quarter.
Most of our business can be characterized as long-tail. For long-tail business,
it will generally be several years between the time the business is written and
the time when all claims are settled. Our long-tail exposures include commercial
automobile liability, workers' compensation, general liability, medical
professional liability, other professional liability and management liability
coverages, assumed reinsurance run-off and products liability. Short-tail
exposures include property, commercial automobile physical damage, marine,
surety and
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warranty. Specialty, Commercial and International contain both long-tail and
short-tail exposures. Corporate & Other contains run-off long-tail exposures.
Various methods are used to project ultimate losses for both long-tail and
short-tail exposures.
The paid development method estimates ultimate losses by reviewing paid loss
patterns and applying them to accident or policy years with further expected
changes in paid losses. Selection of the paid loss pattern may require
consideration of several factors, including the impact of economic, social and
medical inflation on claim costs, the rate at which claims professionals make
claim payments and close claims, the impact of judicial decisions, the impact of
underwriting changes, the impact of large claim payments and other factors.
Claim cost inflation itself may require evaluation of changes in the cost of
repairing or replacing property, changes in the cost of medical care, changes in
the cost of wage replacement, judicial decisions, legislative changes and other
factors. Because this method assumes that losses are paid at a consistent rate,
changes in any of these factors can affect the results. Since the method does
not rely on case reserves, it is not directly influenced by changes in their
adequacy.
For many reserve groups, paid loss data for recent periods may be too immature
or erratic for accurate predictions. This situation often exists for long-tail
exposures. In addition, changes in the factors described above may result in
inconsistent payment patterns. Finally, estimating the paid loss pattern
subsequent to the most mature point available in the data analyzed often
involves considerable uncertainty for long-tail products such as workers'
compensation.
The incurred development method is similar to the paid development method, but
it uses case incurred losses instead of paid losses. Since the method uses more
data (case reserves in addition to paid losses) than the paid development
method, the incurred development patterns may be less variable than paid
patterns. However, selection of the incurred loss pattern typically requires
analysis of all of the same factors described above. In addition, the inclusion
of case reserves can lead to distortions if changes in case reserving practices
have taken place, and the use of case incurred losses may not eliminate the
issues associated with estimating the incurred loss pattern subsequent to the
most mature point available.
The loss ratio method multiplies earned premiums by an expected loss ratio to
produce ultimate loss estimates for each accident or policy year. This method
may be useful for immature accident or policy periods or if loss development
patterns are inconsistent, losses emerge very slowly or there is relatively
little loss history from which to estimate future losses. The selection of the
expected loss ratio typically requires analysis of loss ratios from earlier
accident or policy years or pricing studies and analysis of inflationary trends,
frequency trends, rate changes, underwriting changes and other applicable
factors.
The Bornhuetter-Ferguson method using paid loss is a combination of the paid
development method and the loss ratio method. This method normally determines
expected loss ratios similar to the approach used to estimate the expected loss
ratio for the loss ratio method and typically requires analysis of the same
factors described above. This method assumes that future losses will develop at
the expected loss ratio level. The percent of paid loss to ultimate loss implied
from the paid development method is used to determine what percentage of
ultimate loss is yet to be paid. The use of the pattern from the paid
development method typically requires consideration of the same factors listed
in the description of the paid development method. The estimate of losses yet to
be paid is added to current paid losses to estimate the ultimate loss for each
year. For long-tail lines, this method will react very slowly if actual ultimate
loss ratios are different from expectations due to changes not accounted for by
the expected loss ratio calculation.
The Bornhuetter-Ferguson method using incurred loss is similar to the
Bornhuetter-Ferguson method using paid loss except that it uses case incurred
losses. The use of case incurred losses instead of paid losses can result in
development patterns that are less variable than paid patterns. However, the
inclusion of case reserves can lead to distortions if changes in case reserving
have taken place, and the method typically requires analysis of the same factors
that need to be reviewed for the loss ratio and incurred development methods.
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The frequency times severity method multiplies a projected number of ultimate
claims by an estimated ultimate average loss for each accident or policy year to
produce ultimate loss estimates. Since projections of the ultimate number of
claims are often less variable than projections of ultimate loss, this method
can provide more reliable results for reserve groups where loss development
patterns are inconsistent or too variable to be relied on exclusively. In
addition, this method can more directly account for changes in coverage that
affect the number and size of claims. However, this method can be difficult to
apply to situations where very large claims or a substantial number of unusual
claims result in volatile average claim sizes. Projecting the ultimate number of
claims may require analysis of several factors, including the rate at which
policyholders report claims to us, the impact of judicial decisions, the impact
of underwriting changes and other factors. Estimating the ultimate average loss
may require analysis of the impact of large losses and claim cost trends based
on changes in the cost of repairing or replacing property, changes in the cost
of medical care, changes in the cost of wage replacement, judicial decisions,
legislative changes and other factors.
Stochastic modeling produces a range of possible outcomes based on varying
assumptions related to the particular reserve group being modeled. For some
reserve groups, we use models which rely on historical development patterns at
an aggregate level, while other reserve groups are modeled using individual
claim variability assumptions supplied by the claims department. In either case,
multiple simulations using varying assumptions are run and the results are
analyzed to produce a range of potential outcomes. The results will typically
include a mean and percentiles of the possible reserve distribution which aid in
the selection of a point estimate.
For many exposures, especially those that can be considered long-tail, a
particular accident or policy year may not have a sufficient volume of paid
losses to produce a statistically reliable estimate of ultimate losses. In such
a case, our actuaries typically assign more weight to the incurred development
method than to the paid development method. As claims continue to settle and the
volume of paid loss increases, the actuaries may assign additional weight to the
paid development method. For most of our products, even the incurred losses for
accident or policy years that are early in the claim settlement process will not
be of sufficient volume to produce a reliable estimate of ultimate losses. In
these cases, we may not assign much, if any, weight to the paid and incurred
development methods. We may use the loss ratio, Bornhuetter-Ferguson and/or
frequency times severity methods. For short-tail exposures, the paid and
incurred development methods can often be relied on sooner, primarily because
our history includes a sufficient number of years to cover the entire period
over which paid and incurred losses are expected to change. However, we may also
use the loss ratio, Bornhuetter-Ferguson and/or frequency times severity methods
for short-tail exposures.
For other more complex reserve groups where the above methods may not produce
reliable indications, we use additional methods tailored to the characteristics
of the specific situation.
Periodic Reserve Reviews
The reserve analyses performed by our actuaries result in point estimates. Each
quarter, the results of the detailed reserve reviews are summarized and
discussed with senior management to determine the best estimate of reserves.
Senior management considers many factors in making this decision. Our recorded
reserves reflect our best estimate as of a particular point in time based upon
known facts and circumstances, consideration of the factors cited above and our
judgment. The carried reserve differs from the actuarial point estimate as
discussed further below.
Currently, our recorded reserves are modestly higher than the actuarial point
estimate. For Commercial, Specialty and International, the difference between
our reserves and the actuarial point estimate is primarily driven by uncertainty
with respect to immature accident years, claim cost inflation, changes in claims
handling, changes to the tort environment which may adversely affect claim costs
and the effects from the economy. For Corporate & Other, the difference between
our reserves and the actuarial point estimate is primarily driven by the
potential tail volatility of run-off exposures.
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The key assumptions fundamental to the reserving process are often different for
various reserve groups and accident or policy years. Some of these assumptions
are explicit assumptions that are required of a particular method, but most of
the assumptions are implicit and cannot be precisely quantified. An example of
an explicit assumption is the pattern employed in the paid development method.
However, the assumed pattern is itself based on several implicit assumptions
such as the impact of inflation on medical costs and the rate at which claim
professionals close claims. As a result, the effect on reserve estimates of a
particular change in assumptions typically cannot be specifically quantified,
and changes in these assumptions cannot be tracked over time.
Our recorded reserves are management's best estimate. In order to provide an
indication of the variability associated with our net reserves, the following
discussion provides a sensitivity analysis that shows the approximate estimated
impact of variations in significant factors affecting our reserve estimates for
particular types of business. These significant factors are the ones that we
believe could most likely materially affect the reserves. This discussion covers
the major types of business for which we believe a material deviation to our
reserves is reasonably possible. There can be no assurance that actual
experience will be consistent with the current assumptions or with the variation
indicated by the discussion. In addition, there can be no assurance that other
factors and assumptions will not have a material impact on our reserves.
The three areas for which we believe a significant deviation to our net reserves
is reasonably possible are (i) professional liability, management liability and
surety products; (ii) workers' compensation; and (iii) general liability.
Professional liability, management liability and surety products include US
professional liability coverages provided to various professional firms,
including architects, real estate agents, small and mid-sized accounting firms,
law firms and other professional firms. They also include directors and officers
(D&O), employment practices, fiduciary, fidelity and surety coverages, and
medical liability. The most significant factor affecting reserve estimates for
these liability coverages is claim severity. Claim severity is driven by the
cost of medical care, the cost of wage replacement, legal fees, judicial
decisions, legislative changes and other factors. Underwriting and claim
handling decisions, such as the classes of business written and individual claim
settlement decisions, can also affect claim severity. If the estimated claim
severity increases by 9%, we estimate that net reserves would increase by
approximately $450 million. If the estimated claim severity decreases by 3%, we
estimate that net reserves would decrease by approximately $150 million. Our net
reserves for these products were approximately $5.0 billion as of December 31,
2021.
For workers' compensation, since many years will pass from the time the business
is written until all claim payments have been made, the most significant factor
affecting workers' compensation reserve estimates is claim cost inflation on
claim payments. Workers' compensation claim cost inflation is driven by the cost
of medical care, the cost of wage replacement, expected claimant lifetimes,
judicial decisions, legislative changes and other factors. If estimated workers'
compensation claim cost inflation increases by 100 basis points for the entire
period over which claim payments will be made, we estimate that our net reserves
would increase by approximately $350 million. If estimated workers' compensation
claim cost inflation decreases by 100 basis points for the entire period over
which claim payments will be made, we estimate that our net reserves would
decrease by approximately $350 million. Our net reserves for workers'
compensation were approximately $3.9 billion as of December 31, 2021.
For general liability, the most significant factor affecting reserve estimates
is claim severity. Claim severity is driven by changes in the cost of repairing
or replacing property, the cost of medical care, the cost of wage replacement,
judicial decisions, legislation and other factors. If the estimated claim
severity for general liability increases by 6%, we estimate that our net
reserves would increase by approximately $200 million. If the estimated claim
severity for general liability decreases by 3%, we estimate that our net
reserves would decrease by approximately $100 million. Our net reserves for
general liability were approximately $3.2 billion as of December 31, 2021.
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Given the factors described above, it is not possible to quantify precisely the
ultimate exposure represented by claims and related litigation. As a result, we
regularly review the adequacy of our reserves and reassess our reserve estimates
as historical loss experience develops, additional claims are reported and
settled and additional information becomes available in subsequent periods. In
reviewing our reserve estimates, we make adjustments in the period that the need
for such adjustments is determined. These reviews have resulted in our
identification of information and trends that have caused us to change our
reserves in prior periods and could lead to our identification of a need for
additional material increases or decreases in claim and claim adjustment expense
reserves, which could materially affect our results of operations, equity,
business and insurer financial strength and corporate debt ratings positively or
negatively. See discussion within Note E to the Consolidated Financial
Statements included under Item 8 for additional information about reserve
development and the Ratings section of this MD&A for further information
regarding our financial strength and corporate debt ratings.
Life & Group Policyholder Reserves
Our Life & Group segment includes our 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 we have the ability to
increase policy premiums, subject to state regulatory approval.
We maintain both claim and claim adjustment expense reserves as well as future
policy benefit reserves for policyholder benefits for our 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 our long term care policies,
our 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 our structured settlement
obligations, our actuaries monitor mortality experience on an annual basis. Our
recorded claim and claim adjustment expense reserves reflect management's best
estimate after incorporating the results of the most recent reviews. Claim and
claim adjustment expense reserves for long term care policies and structured
settlement obligations are discounted as discussed in Note A to the Consolidated
Financial Statements included under Item 8.
Future policy benefit reserves consist of the active life reserves related to
our 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, our long term care reserves may be
subject to material increases if actual experience develops adversely to our
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
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existing assumptions are unlocked and future policy benefit reserves are
increased to the greater amount. Any such increase is reflected in our 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 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.
We have 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.
2021 GPV

                                                                              Estimated
                                                                            reduction to
Hypothetical revisions (In millions)                                        pretax income
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:
50% decrease in anticipated future premium rate increases                              -


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CATASTROPHES AND RELATED REINSURANCE
Various events can cause catastrophe losses. These events can be natural or
man-made, including hurricanes, windstorms, earthquakes, hail, severe winter
weather, fires, floods, riots, strikes, civil unrest, cyber-attacks, pandemics
and acts of terrorism that produce unusually large aggregate losses. In most,
but not all cases, our catastrophe losses from these events in the U.S. are
defined consistent with the definition of the Property Claims Service (PCS). PCS
defines a catastrophe as an event that causes damage of $25 million or more in
direct insured losses to property and affects a significant number of
policyholders and insurers. For events outside of the U.S., we define a
catastrophe as an industry recognized event that generates an accumulation of
claims amounting to more than $1 million for the International segment.
Catastrophes are an inherent risk of the property and casualty insurance
business and have contributed to material period-to-period fluctuations in our
results of operations and/or equity. We reported catastrophe losses, net of
reinsurance, of $397 million and $550 million for the years ended December 31,
2021 and 2020. Net catastrophe losses for the year ended December 31, 2021 were
driven by severe weather related events, primarily Hurricane Ida and Winter
Storms Uri and Viola. Net catastrophe losses for the year ended December 31,
2020 included $294 million related primarily to severe weather related events,
$195 million related to the COVID-19 pandemic and $61 million related to civil
unrest.
We use various analyses and methods, including using one of the industry
standard natural catastrophe models to estimate hurricane and earthquake losses
at various return periods, to inform underwriting and reinsurance decisions
designed to manage our exposure to catastrophic events. We generally seek to
manage our exposure through the purchase of catastrophe reinsurance and have
catastrophe reinsurance treaties that cover property and workers' compensation
losses. We conduct an ongoing review of our risk and catastrophe reinsurance
coverages and from time to time make changes as we deem appropriate.
During the second quarter of 2021, we added a quota share treaty to our property
reinsurance program, which covers policies written during the treaty term and
in-force as of June 1, 2021. As a result of the coverage of in-force policies,
net written premiums were reduced by $122 million during the second quarter for
the one-time catch-up under the treaty of unearned premium on policies
previously written as of the June 1, 2021 treaty inception. This ceded premium
will earn in future quarters consistent with the underlying gross policies.
The following discussion summarizes our most significant catastrophe reinsurance
coverage at January 1, 2022.
Group North American Property Treaty
We purchased corporate catastrophe excess-of-loss treaty reinsurance covering
our U.S. states and territories and Canadian property exposures underwritten in
our North American and European companies. Exposures underwritten through Hardy
are excluded and covered under a separate treaty. The treaty has a term of June
1, 2021 to June 1, 2022 and provides coverage for the accumulation of covered
losses from catastrophe occurrences above our per occurrence retention of $190
million up to $900 million for all losses other than earthquakes. Earthquakes
are covered up to $1.0 billion. Losses stemming from terrorism events are
covered unless they are due to a nuclear, biological or chemical attack. All
layers of the treaty provide for one full reinstatement.
Group Workers' Compensation Treaty
We also purchased corporate Workers' Compensation catastrophe excess-of-loss
treaty reinsurance for the period January 1, 2022 to January 1, 2023 providing
$275 million of coverage for the accumulation of covered losses related to
natural catastrophes above our per occurrence retention of $25 million. The
treaty also provides $475 million of coverage for the accumulation of covered
losses related to terrorism events above our retention of $25 million. Of this
$475 million in Terrorism coverage, $200 million is provided for nuclear,
biological chemical and radiation events. One full reinstatement is available
for the first $275 million above the retention, regardless of the covered peril.
Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA)
Our principal reinsurance protection against large-scale terrorist attacks,
including nuclear, biological, chemical or radiological attacks, is the coverage
currently provided through TRIPRA which runs through the end of 2027. TRIPRA
provides a U.S. government backstop for insurance-related losses resulting from
any "act of
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terrorism," which is certified by the Secretary of Treasury in consultation with
the Secretary of Homeland Security for losses that exceed a threshold of $200
million industry-wide for the calendar year 2022. Under the current provisions
of the program, in 2022, the federal government will reimburse 80% of our
covered losses in excess of our applicable deductible up to a total industry
program cap of $100 billion. Our deductible is based on eligible commercial
property and casualty earned premiums for the preceding calendar year. Based on
2021 earned premiums, our estimated deductible under the program is $915 million
for 2022. If an act of terrorism or acts of terrorism result in covered losses
exceeding the $100 billion annual industry aggregate limit, Congress would be
responsible for determining how additional losses in excess of $100 billion will
be paid.
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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.

Years ended December 31
(In millions)                                                      2021         2020
Operating Revenues
Net earned premiums                                              $ 8,175      $ 7,649
Net investment income                                              2,159        1,935
Non-insurance warranty revenue                                     1,430        1,252
Other revenues                                                        24           26
Total operating revenues                                          11,788       10,862
Claims, Benefits and Expenses
Net incurred claims and benefits                                   6,327    

6,149

Policyholders' dividends                                              22    

21

Amortization of deferred acquisition costs                         1,443    

1,410

Non-insurance warranty expense                                     1,328    

1,159

Other insurance related expenses                                   1,062    

1,028

Other expenses                                                       242    

220

Total claims, benefits and expenses                               10,424    

9,987

Core income before income tax                                      1,364    

875

Income tax expense on core income                                   (258)        (140)
Core income                                                        1,106          735
Net investment gains (losses)                                        120          (54)

Income tax (expense) benefit on net investment gains (losses) (24)

9

Net investment gains (losses), after tax                              96          (45)
Net income                                                       $ 1,202      $   690


2021 Compared with 2020
Core income increased $371 million in 2021 as compared with 2020. Core income
for our Property & Casualty Operations increased $344 million primarily due to
improved current accident year underwriting results and higher net investment
income driven by limited partnership and common stock returns. Core income for
our Life & Group segment improved $117 million. Core loss for our Corporate &
Other segment increased $90 million.
Net catastrophe losses were $397 million in 2021 as compared with $550 million
in 2020. Catastrophe losses for the year ended December 31, 2021 were driven by
severe weather related events, primarily Hurricane Ida and Winter Storms Uri and
Viola. Net catastrophe losses for the year ended December 31, 2020 included
$294 million related primarily to severe weather related events, $195 million
related to the COVID-19 pandemic and $61 million related to civil unrest.
Unfavorable net prior year loss reserve development of $11 million was recorded
in 2021 as compared with favorable net prior year loss reserve development of
$20 million in 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 Consolidated Financial Statements included under
Item 8.
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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. Specialty
provides management and professional liability and other coverages through
property and casualty products and services using a network of brokers,
independent agencies and managing general underwriters. Commercial works with a
network of brokers and independent agents to market a broad range of property
and casualty insurance products to all types of insureds targeting small
business, construction, middle markets and other commercial customers. The
International segment underwrites property and casualty coverages on a global
basis through a branch operation in Canada, a European business consisting of
insurance companies based in the U.K. and Luxembourg and Hardy, our Lloyd's
syndicate.
Our operations outside of Property & Casualty Operations are managed and
reported in two segments: Life & Group and Corporate & Other. Life & Group
primarily includes the results of our long term care business that is in
run-off. Corporate & Other primarily includes certain corporate expenses,
including interest on corporate debt, and the results of certain property and
casualty businesses in run-off, including CNA Re, A&EP, a legacy portfolio of
excess workers' compensation (EWC) policies and certain legacy mass tort
reserves. Intersegment eliminations are also included in this segment.
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 O to the Consolidated Financial Statements included under Item 8 for more
information on the changes to our business segments.
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 and reconciliations of non-GAAP measures to
the most comparable GAAP measures and other information in Note O to the
Consolidated Financial Statements included under Item 8.
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
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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 Consolidated Financial Statements included under Item 8.

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Specialty
Specialty provides management and professional liability and other coverages
through property and casualty products and services using a network of brokers,
independent agencies and managing general underwriters. Specialty includes the
following business groups:
Management & Professional Liability consists of the following coverages and
products:
•Professional liability coverages and risk management services to various
professional firms, including architects, real estate agents, accounting firms
and law firms.
•D&O, employment practices, fiduciary and fidelity coverages. Specific areas of
focus include small and mid-size firms, public as well as privately held firms
and not-for-profit organizations.
•Insurance products to serve the healthcare industry, including professional and
general liability as well as associated standard property and casualty
coverages. Key customer groups include aging services, allied medical
facilities, dentists, physicians, hospitals, nurses and other medical
practitioners.
Surety offers small, medium and large contract and commercial surety bonds.
Surety provides surety and fidelity bonds in all 50 states.
Warranty and Alternative Risks provides extended service contracts and insurance
products that provide protection from the financial burden associated with
mechanical breakdown and other related losses, primarily for vehicles, portable
electronic communication devices and other consumer goods. Service contracts are
generally distributed by commission-based independent representatives and sold
by auto dealerships and retailers in North America to customers in conjunction
with the purchase of a new or used vehicle or new consumer goods. Additionally,
our insurance companies may issue contractual liability insurance policies or
guaranteed asset protection reimbursement insurance policies to cover the
liabilities of these service contracts issued by affiliated entities or third
parties.
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The following table details the results of operations for Specialty.
Years ended December 31
(In millions, except ratios, rate, renewal premium change and retention)      2021               2020
Gross written premiums                                                    $   7,665          $   7,180
Gross written premiums excluding third-party captives                         3,672              3,296
Net written premiums                                                          3,225              3,040
Net earned premiums                                                           3,076              2,883
Net investment income                                                           497                449
Core income                                                                     704                535

Other performance metrics:
Loss ratio excluding catastrophes and development                              59.1  %            59.9  %
Effect of catastrophe impacts                                                   0.4                4.3
Effect of development-related items                                            (1.4)              (2.1)
Loss ratio                                                                     58.1               62.1
Expense ratio                                                                  30.5               31.3
Dividend ratio                                                                  0.1                0.1
Combined ratio                                                                 88.7  %            93.5  %
Combined ratio excluding catastrophes and development                          89.7  %            91.3  %

Rate                                                                             11  %              12  %
Renewal premium change                                                           11                 13
Retention                                                                        83                 86
New business                                                              $     551          $     389


2021 Compared with 2020
Gross written premiums, excluding third-party captives, for Specialty increased
$376 million in 2021 as compared with 2020 driven by rate and higher new
business. Net written premiums for Specialty increased $185 million in 2021 as
compared with 2020. The increase in net earned premiums was consistent with the
trend in net written premiums.
Core income increased $169 million in 2021 as compared with 2020 primarily 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 88.7% improved 4.8 points in 2021 as compared with 2020
due to a 4.0 point improvement in the loss ratio and a 0.8 point improvement in
the expense ratio. The improvement in the loss ratio was primarily due to lower
net catastrophe losses. Net catastrophe losses were $12 million, or 0.4 points
of the loss ratio, for 2021, as compared with $125 million, or 4.3 points of the
loss ratio, for 2020. The improvement in the expense ratio was driven by higher
net earned premiums.
Favorable net prior year loss reserve development of $45 million and $61 million
was recorded in 2021 and 2020. Further information on net prior year loss
reserve development is in Note E to the Consolidated Financial Statements
included under Item 8.
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The following table summarizes the gross and net carried reserves for Specialty.
December 31
(In millions)                                                        2021         2020
Gross case reserves                                                $ 1,578      $ 1,567
Gross IBNR reserves                                                  4,855        4,181

Total gross carried claim and claim adjustment expense reserves $ 6,433

    $ 5,748
Net case reserves                                                  $ 1,338      $ 1,410
Net IBNR reserves                                                    3,927        3,488

Total net carried claim and claim adjustment expense reserves $ 5,265

    $ 4,898



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Commercial
Commercial works with a network of brokers and independent agents to market a
broad range of property and casualty insurance products to all types of insureds
targeting small business, construction, middle markets and other commercial
customers. Property products include standard and excess property, marine and
boiler and machinery coverages. Casualty products include standard casualty
insurance products such as workers' compensation, general and product liability,
commercial auto and umbrella coverages. Most insurance programs are provided on
a guaranteed cost basis; however, we also offer specialized loss-sensitive
insurance programs and total risk management services relating to claim and
information services to the large commercial insurance marketplace.
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.

The following table details the results of operations for Commercial.
Years ended December 31
(In millions, except ratios, rate, renewal premium change and
retention)

                                                        2021              2020              2019
Gross written premiums                                         $  4,445          $  4,086          $  3,693
Gross written premiums excluding third-party captives             4,334             3,993             3,609
Net written premiums                                              3,595             3,565             3,315
Net earned premiums                                               3,552             3,323             3,162
Net investment income                                               624               513               605
Core income                                                         394               267               480

Other performance metrics:
Loss ratio excluding catastrophes and development                  61.0  %           60.4  %           61.5  %
Effect of catastrophe impacts                                      10.0              10.7               4.9
Effect of development-related items                                 0.5               0.5              (0.4)
Loss ratio                                                         71.5              71.6              66.0
Expense ratio                                                      31.1              33.0              32.9
Dividend ratio                                                      0.5               0.5               0.6
Combined ratio                                                    103.1  %          105.1  %           99.5  %
Combined ratio excluding catastrophes and development              92.6  %           93.9  %           95.0  %

Rate                                                                  7  %             10  %              4  %
Renewal premium change                                                8                10                 6
Retention                                                            82                84                86
New business                                                   $    843          $    761          $    682


2021 Compared with 2020
Gross written premiums for Commercial increased $359 million in 2021 as compared
with 2020 driven by rate and higher new business. Net written premiums for
Commercial increased $30 million in 2021 as compared with 2020. Net written
premiums for 2021 were unfavorably impacted by 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 $142 million for 2021 as compared with
2020. Net earned premiums for Commercial increased $229 million in 2021 as
compared with 2020. The increase in net earned premiums was partially impacted
by a reduction in estimated audit premiums related to COVID-19 in 2020.
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Core income increased $127 million in 2021 as compared with 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 103.1% improved 2.0 points in 2021 as compared with 2020
primarily due to a 1.9 point improvement in the expense ratio. The improvement
in the expense ratio was primarily due to higher net earned premiums and lower
acquisition costs. Net catastrophe losses were $358 million, or 10.0 points of
the loss ratio, for 2021, as compared with $358 million, or 10.7 points of the
loss ratio, for 2020.
Favorable net prior year loss reserve development of $6 million and $7 million
was recorded in 2021 and 2020. Further information on net prior year loss
reserve development is in Note E to the Consolidated Financial Statements
included under Item 8.
The following table summarizes the gross and net carried reserves for
Commercial.
December 31
(In millions)                                                        2021         2020
Gross case reserves                                                $ 3,184      $ 3,215
Gross IBNR reserves                                                  5,706        5,035

Total gross carried claim and claim adjustment expense reserves $ 8,890

    $ 8,250
Net case reserves                                                  $ 2,850      $ 2,885
Net IBNR reserves                                                    5,215        4,590

Total net carried claim and claim adjustment expense reserves $ 8,065

$ 7,475

2020 Compared with 2019
Gross written premiums for Commercial increased $393 million in 2020 as compared
with 2019 driven by strong rate and higher new business. Net written premiums
for Commercial increased $250 million in 2020 as compared with 2019. The
increase in net earned premiums was consistent with the trend in net written
premiums partially offset by a reduction in estimated audit premiums as a result
of the economic slowdown arising from COVID-19 and premium rate adjustments
impacting certain general liability policies.
Core income decreased $213 million in 2020 as compared with 2019, 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 105.1% increased 5.6 points in 2020 as compared with 2019
due to an increase in the loss ratio primarily driven by higher net catastrophe
losses. Net catastrophe losses were $358 million, or 10.7 points of the loss
ratio, for 2020, as compared with $154 million, or 4.9 points of the loss ratio,
for 2019. Net catastrophe losses in 2020 included $252 million related primarily
to severe weather related events, $58 million related to civil unrest and $48
million related to the COVID-19 pandemic. The expense ratio in 2020 was
consistent with 2019 as higher acquisition expenses were offset by higher net
earned premiums and lower underwriting expenses.
Favorable net prior year loss reserve development of $7 million and $40 million
was recorded in 2020 and 2019. Further information on net prior year loss
reserve development is in Note E to the Consolidated Financial Statements
included under Item 8.
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International
The International segment underwrites property and casualty coverages on a
global basis through a branch operation in Canada, a European business
consisting of insurance companies based in the U.K. and Luxembourg and Hardy,
our Lloyd's syndicate.
Canada provides standard commercial and specialty insurance products, primarily
in the marine, oil & gas, construction, manufacturing and life science
industries.
Europe provides a diverse range of specialty products as well as commercial
insurance products primarily in the marine, property, financial services and
healthcare & technology industries in the U.K. and Continental Europe on both a
domestic and cross-border basis.
Hardy operates through Lloyd's Syndicate 382 underwriting energy, marine,
property, casualty and specialty lines with risks located in many countries
around the world. The capacity of, and results from the syndicate, are 100%
attributable to CNA.
The following table details the results of operations for International.
Years ended December 31
(In millions, except ratios, rate, renewal premium change and retention)      2021               2020
Gross written premiums                                                    $   1,297          $   1,133
Net written premiums                                                          1,101                961
Net earned premiums                                                           1,057                940
Net investment income                                                            57                 58
Core income                                                                      86                 38

Other performance metrics:
Loss ratio excluding catastrophes and development                              59.0  %            60.1  %
Effect of catastrophe impacts                                                   2.6                7.1
Effect of development-related items                                             0.1               (0.3)
Loss ratio                                                                     61.7               66.9
Expense ratio                                                                  33.1               35.5
Combined ratio                                                                 94.8  %           102.4  %
Combined ratio excluding catastrophes and development                          92.1  %            95.6  %

Rate                                                                             13  %              14  %
Renewal premium change                                                           13                 12
Retention                                                                        78                 73
New business                                                              $     274          $     245


2021 Compared with 2020
Gross written premiums for International increased $164 million in 2021 as
compared with 2020. Excluding the effect of foreign currency exchange rates,
gross written premiums increased $104 million driven by rate and higher new
business. Net written premiums for International increased $140 million in 2021
as compared with 2020. Excluding the effect of foreign currency exchange rates,
net written premiums increased $85 million. The increase in net earned premiums
was consistent with the trend in net written premiums.
Core income increased $48 million in 2021 as compared with 2020 primarily due to
improved current accident year underwriting results.
The combined ratio of 94.8% improved 7.6 points in 2021 as compared with 2020
due to a 5.2 point improvement in the loss ratio and a 2.4 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 $27 million, or 2.6 points of
the loss ratio, for 2021, as
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compared with $67 million, or 7.1 points of the loss ratio, for 2020. The
improvement in the expense ratio was driven by lower acquisition costs.
Unfavorable net prior year loss reserve development of $2 million was recorded
in 2021 as compared with favorable net prior year loss reserve development of $2
million in 2020. Further information on net prior year loss reserve development
is in Note E to the Consolidated Financial Statements included under Item 8.
The following table summarizes the gross and net carried reserves for
International.
December 31
(In millions)                                                        2021         2020
Gross case reserves                                                $   859      $   892
Gross IBNR reserves                                                  1,421        1,199

Total gross carried claim and claim adjustment expense reserves $ 2,280

    $ 2,091
Net case reserves                                                  $   744      $   777
Net IBNR reserves                                                    1,196        1,045

Total net carried claim and claim adjustment expense reserves $ 1,940

$ 1,822

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Life & Group
The Life & Group segment includes our 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 were sold on both an
individual and group basis.
The following table summarizes the results of operations for Life & Group.
Years ended December 31
(In millions)                           2021       2020
Net earned premiums                    $ 491      $ 504
Net investment income                    966        851

Core income (loss) before income tax 105 (47)
Income tax benefit on core income 21 56
Core income

                              126          9


2021 Compared with 2020
Core income increased $117 million in 2021 as compared with 2020 primarily due
to higher net investment income driven by limited partnership returns.
Core income for 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 income for 2020 included a $59 million charge
related to the recognition of an active life reserve premium deficiency for long
term care policies. Core income for 2020 also included a $36 million charge
related to an 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.

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The following tables summarize policyholder reserves for Life & Group.
December 31, 2021
                                                        Claim and claim
                                                          adjustment           Future policy
(In millions)                                              expenses              benefits             Total
Long term care                                         $        2,905          $   10,012          $ 12,917
Structured settlement obligations                                    526                -               526
Other                                                                 10                -                10
Total                                                           3,441              10,012            13,453
Shadow adjustments (1)                                               200               2,936          3,136
Ceded reserves (2)                                                113                 288               401
Total gross reserves                                   $        3,754          $   13,236          $ 16,990


December 31, 2020
                                                        Claim and claim
                                                          adjustment           Future policy
(In millions)                                              expenses              benefits             Total
Long term care                                         $        2,844          $    9,762          $ 12,606
Structured settlement obligations                                    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 maturity securities supporting
structured settlements not funded by annuities were realized, or that unrealized
gains on fixed maturity securities supporting long term care products 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 (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
Corporate & Other primarily includes certain corporate expenses, including
interest on corporate debt and the results of certain property and casualty
business in run-off, including CNA Re, A&EP, a legacy portfolio of EWC policies
and certain legacy mass tort reserves.
The following table summarizes the results of operations for the Corporate &
Other segment, including intersegment eliminations.
Years ended December 31
(In millions)               2021       2020       2019
Net investment income      $  15      $  64      $ 74
Interest expense             112        122       131
Core loss                   (204)      (114)      (93)


2021 Compared with 2020
Core loss increased $90 million for 2021 as compared with 2020 driven by lower
net investment income, unfavorability related to the A&EP Loss Portfolio
Transfer (LPT), expenses related to the March 2021 cybersecurity attack, the
recognition of a $12 million after-tax loss resulting from the legacy EWC LPT
and higher unfavorable net prior year loss reserve development on legacy mass
tort exposures.
The application of retroactive reinsurance accounting to additional cessions to
the A&EP LPT in both periods resulted in after-tax charges of $25 million and
$5 million in 2021 and 2020, respectively, which have no economic impact. 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 Item 8.
The following table summarizes the gross and net carried reserves for Corporate
& Other.
December 31
(In millions)                                                        2021         2020
Gross case reserves                                                $ 1,551      $ 1,614
Gross IBNR reserves                                                  1,266        1,260

Total gross carried claim and claim adjustment expense reserves $ 2,817

    $ 2,874
Net case reserves                                                  $   146      $   560
Net IBNR reserves                                                      148          331

Total net carried claim and claim adjustment expense reserves $ 294

$ 891

2020 Compared with 2019
Core loss increased $21 million in 2020 as compared with 2019 primarily driven
by higher unfavorable net prior year loss reserve development on legacy mass
tort exposures and lower net investment income partially offset by a decrease in
interest expense on corporate debt and favorability related to the A&EP LPT.
The application of retroactive reinsurance accounting to additional cessions to
the A&EP LPT in both periods resulted in after-tax charges of $5 million and $14
million in 2020 and 2019, respectively, which have no economic impact. The net
prior year loss reserve development and A&EP LPT are further discussed in Note E
to the Consolidated Financial Statements included under Item 8.
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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.
Years ended December 31
(In millions)                                                         2021               2020
Fixed income securities:
Taxable fixed income securities                                   $   1,439          $   1,451
Tax-exempt fixed income securities                                      311                319
Total fixed income securities                                         1,750              1,770
Limited partnership and common stock investments                        402                144
Other, net of investment expense                                          7                 21
Net investment income                                             $   2,159 

$ 1,935

Effective income yield for the fixed income securities portfolio 4.3

  %             4.5  %
Limited partnership and common stock return                            22.3  %             8.3  %


Net investment income increased $224 million in 2021 as compared with 2020
driven by higher 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.
Years ended December 31
(In millions)                                                     2021       2020
Fixed maturity securities:
Corporate and other bonds                                        $ 134      $ (71)
States, municipalities and political subdivisions                    -      

40

Asset-backed                                                       (38)     

31

Total fixed maturity securities                                     96      

-

Non-redeemable preferred stock                                       4         (3)
Short term and other                                                10        (30)
Mortgage loans                                                      10        (21)
Net investment gains (losses)                                      120      

(54)

Income tax (expense) benefit on net investment gains (losses) (24)

9

Net investment gains (losses), after tax                         $  96      

$ (45)

Net investment gains (losses) increased $174 million for 2021 as compared with
2020 driven by lower impairment losses recognized in earnings. Additionally,
Short term and other for 2020 included a $20 million loss on the redemption of
our $400 million senior notes due August 2021.
Further information on our investment gains and losses is set forth in Notes A
and B to the Consolidated Financial Statements included under Item 8.
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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.
December 31                                                        2021                                        2020
                                                     Estimated          Net Unrealized           Estimated          Net Unrealized
(In millions)                                       Fair Value         

Gains (Losses) Fair Value Gains (Losses)
U.S. Government, Government agencies and
Government-sponsored enterprises

                   $    2,600          $           42          $    3,672          $          117
AAA                                                     3,784                     360               3,627                     454
AA                                                      7,665                     823               7,159                   1,012
A                                                       9,511                   1,087               9,543                   1,390
BBB                                                    18,458                   2,043              18,007                   2,596
Non-investment grade                                    2,362                      91               2,623                     149
Total                                              $   44,380          $        4,446          $   44,631          $        5,718


As of December 31, 2021 and 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 December 31, 2021 and 2020.
The following table presents available-for-sale fixed maturity securities in a
gross unrealized loss position by ratings distribution.
                                                                                       December 31, 2021
                                                                                                      Gross Unrealized
(In millions)                                                             Estimated Fair Value             Losses
U.S. Government, Government agencies and Government-sponsored
enterprises                                                              $           898              $           8
AAA                                                                                  368                          6
AA                                                                                   875                         17
A                                                                                  1,516                         23
BBB                                                                                1,812                         42
Non-investment grade                                                                 596                         16
Total                                                                    $         6,065              $         112


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.
                                                                            

December 31, 2021

                                                                                              Gross Unrealized
(In millions)                                                     Estimated Fair Value             Losses
Due in one year or less                                          $           144              $           4
Due after one year through five years                                      1,191                         22
Due after five years through ten years                                     2,803                         44
Due after ten years                                                        1,927                         42
Total                                                            $         6,065              $         112


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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.
December 31                                                 2021                                        2020
                                                                    Effective                                   Effective
                                              Estimated             Duration              Estimated             Duration
(In millions)                                Fair Value            (In years)            Fair Value            (In years)
Investments supporting Life & Group         $   18,458                  9.2             $   18,518                  9.2
Other investments                               28,915                  4.9                 28,839                  4.5
Total                                       $   47,373                  6.6             $   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.
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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 2021, net cash provided by operating activities was $1,997 million as
compared with $1,775 million for 2020. The increase in cash provided by
operating activities was driven by an increase in net premiums collected and
lower net claim payments, which were impacted by a slowdown in court dockets.
These items were partially offset by the payment of the EWC LPT premium. The EWC
LPT is further discussed in Note E to the Consolidated Financial Statements
included under Part II, Item 8.
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 $1,228 million for 2021, as compared
with $705 million for 2020. 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 treasury stock.
Net cash used by financing activities was $648 million and $902 million for 2021
and 2020. Financing activities for the periods presented include:
•In 2021, we paid dividends of $621 million and repurchased 377,615 shares of
our common stock at an aggregate cost of $18 million.
•In 2020, we paid dividends of $950 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
balance of our 5.75% senior notes due August 15, 2021.
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).
CCC paid dividends of $880 million and $975 million to CNAF during 2021 and
2020.
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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Common Stock Dividends
Cash dividends of $2.27 per share on our common stock, including a special cash
dividend of $0.75 per share, were declared and paid in 2021. On February 4,
2022, our Board of Directors declared a quarterly cash dividend of $0.40 per
share and a special cash dividend of $2.00 per share, payable March 10, 2022 to
stockholders of record on February 22, 2022. 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.
Our ability to pay dividends and other credit obligations is significantly
dependent on receipt of dividends from our subsidiaries. The payment of
dividends to us by our insurance subsidiaries without prior approval of the
insurance department of each subsidiary's domiciliary jurisdiction is limited by
formula. Dividends in excess of these amounts are subject to prior approval by
the respective state insurance departments.
Further information on our dividends from subsidiaries is provided in Note M to
the Consolidated Financial Statements included under Item 8.
Commitments, Contingencies and Guarantees
We have various commitments, contingencies and guarantees which arose in the
ordinary course of business. The impact of these commitments, contingencies and
guarantees should be considered when evaluating our liquidity and capital
resources.
A summary of our commitments is presented in the following table.
December 31, 2021
                                                     Less than 1                                                 More than 5
(In millions)                        Total              year              1-3 years           3-5 years             years
Debt (1)                          $  3,300          $      109          $      977          $      620          $    1,594
Lease obligations (2)                  297                  42                  67                  47                 141
Claim and claim adjustment
expense reserves (3)                24,955               6,015               6,719               3,401               8,820
Future policy benefit reserves
(4)                                 25,581                (301)                158                 909              24,815
Total (5)                         $ 54,133          $    5,865          $    7,921          $    4,977          $   35,370


(1)  Includes estimated future interest payments.
(2)  The lease obligations reflected above are not discounted.
(3)  The Claim and claim adjustment expense reserves reflected above are not
discounted and represent our estimate of the amount and timing of the ultimate
settlement and administration of gross claims based on our assessment of facts
and circumstances known as of December 31, 2021. See the Reserves - Estimates
and Uncertainties section of this MD&A for further information.
(4)  The Future policy benefit reserves reflected above are not discounted and
represent our estimate of the ultimate amount and timing of the settlement of
benefits net of expected premiums, and are based on our assessment of facts and
circumstances known as of December 31, 2021. See the Reserves - Estimates and
Uncertainties section of this MD&A for further information.
(5)  Does not include investment commitments of approximately $1,230 million
related to future capital calls from various third-party limited partnerships,
signed and accepted mortgage loan applications, and obligations related to
private placement securities.
Further information on our commitments, contingencies and guarantees is provided
in Notes A, B, E, F, H and L to the Consolidated Financial Statements included
under Item 8.
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Ratings
Ratings are an important factor in establishing the competitive position of
insurance companies. Our insurance company subsidiaries are rated by major
rating agencies and these ratings reflect the rating agency's opinion of the
insurance company's financial strength, operating performance, strategic
position and ability to meet its obligations to policyholders. Agency ratings
are not a recommendation to buy, sell or hold any security and may be revised or
withdrawn at any time by the issuing organization. Each agency's rating should
be evaluated independently of any other agency's rating. One or more of these
agencies could take action in the future to change the ratings of our insurance
subsidiaries.
The table below reflects the Insurer Financial Strength Ratings of CNA's
insurance company subsidiaries issued by A.M. Best, Moody's, S&P and Fitch. The
table also includes the ratings for CNAF's senior debt.
December 31, 2021      Insurer Financial Strength Ratings        Senior Debt Ratings
A.M. Best                              A                                bbb+
Moody's                                A2                               Baa2
S&P                                    A+                                A-
Fitch                                  A+                               BBB+


A.M. Best, Moody's, S&P and Fitch maintain stable outlooks across the Company's
Financial Strength and Senior Debt Ratings.
CNA Insurance Company Limited and CNA Insurance Company (Europe) S.A. are
included within S&P's Insurer Financial Strength Rating for the Company.
Syndicate 382 benefits from the Financial Strength Rating of Lloyd's, which is
rated A+ by S&P and A by A.M. Best with stable outlooks.

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ACCOUNTING STANDARDS UPDATE
For a discussion of Accounting Standards, see Note A to the Consolidated
Financial Statements included under Item 8.
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:
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 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 measures to mitigate the spread of the virus may
continue to result in increased claims and related litigation risk across our
enterprise;
•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, as well as social
inflation, 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
•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.
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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 I, 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
Annual Report on Form 10-K 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 filing of this Annual Report on Form 10-K, even if our
expectations or any related events or circumstances change.
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