Business Segments

9 Months Ended

Sep. 30, 2017

The Company's core property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International. The Company's non-core operations are managed and reported in two segments: Life & Group Non-Core and Corporate & Other Non-Core.

The accounting policies of the segments are the same as those described in Note A to the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2016. The Company manages most of its assets on a legal entity basis, while segment operations are generally conducted across legal entities. As such, only Insurance and Reinsurance receivables, Insurance reserves, Deferred acquisition costs and Goodwill are readily identifiable for all individual segments. Distinct investment portfolios are not maintained for every individual segment; accordingly, allocation of assets to each segment is not performed. Therefore, a significant portion of Net investment income and Realized investment gains or losses are allocated primarily based on each segment's net carried insurance reserves, as adjusted. All significant intersegment income and expense has been eliminated. Income taxes have been allocated on the basis of the taxable income of the segments.

In the following tables, certain financial measures are presented to provide information used by management to monitor the Company's operating performance. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio. Net operating income (loss), which is derived from certain income statement amounts, is used by management to monitor performance of the Company's insurance operations. The Company's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk. Based on such analyses, the Company may recognize an OTTI loss on an investment security in accordance with its policy, or sell a security, which may produce realized gains and losses.

Net operating income (loss) is calculated by excluding from net income (loss) the after-tax effects of i) net realized investment gains (losses) ii) income or loss from discontinued operations and iii) any cumulative effects of changes in accounting guidance. The calculation of net operating income excludes net realized investment gains (losses) because net realized investment gains (losses) are largely discretionary, except for some losses related to OTTI, and are generally driven by economic factors that are not necessarily consistent with key drivers of underwriting performance, and are therefore not considered an indication of trends in insurance operations.

The Company's results of operations and selected balance sheet items by segment are presented in the following tables.



Three months ended September 30, 2017	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core
(In millions)	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core			Eliminations		Total
Operating revenues
Net earned premiums	$	703		$	741		$	226		$	136		$	—		$	—	$	1,806
Net investment income	134			161			13			195			6			—		509
Other revenues	99			7			1			—			—			—		107
Total operating revenues	936			909			240			331			6			—		2,422
Claims, Benefits and Expenses
Net incurred claims and benefits	357			611			200			322			(15		)	—		1,475
Policyholders’ dividends	1			4			—			—			—			—		5
Amortization of deferred acquisition costs	153			120			36			—			—			—		309
Other insurance related expenses	68			133			48			32			—			—		281
Other expenses	85			6			(4		)	2			52			—		141
Total claims, benefits and expenses	664			874			280			356			37			—		2,211
Operating income (loss) before income tax	272			35			(40		)	(25		)	(31		)	—		211
Income tax (expense) benefit on operating income (loss)	(92		)	(10		)	2			35			13			—		(52		)
Net operating income (loss)	180			25			(38		)	10			(18		)	—		159
Net realized investment gains (losses)	4			6			4			3			(41		)	—		(24		)
Income tax (expense) benefit on net realized investment gains (losses)	(1		)	(3		)	(1		)	(1		)	15			—		9
Net realized investment gains (losses), after tax	3			3			3			2			(26		)	—		(15		)
Net income (loss)	$	183		$	28		$	(35	)	$	12		$	(44	)	$	—	$	144



Three months ended September 30, 2016	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core
(In millions)	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core			Eliminations		Total
Operating revenues
Net earned premiums	$	704		$	719		$	210		$	134		$	—		$	—	$	1,767
Net investment income	140			175			13			192			4			—		524
Other revenues	93			7			—			(4		)	—			—		96
Total operating revenues	937			901			223			322			4			—		2,387
Claims, Benefits and Expenses
Net incurred claims and benefits	330			446			117			313			(11		)	—		1,195
Policyholders’ dividends	4			3			—			—			—			—		7
Amortization of deferred acquisition costs	151			118			45			—			—			—		314
Other insurance related expenses	77			151			33			37			(3		)	—		295
Other expenses	78			9			1			2			57			—		147
Total claims, benefits and expenses	640			727			196			352			43			—		1,958
Operating income (loss) before income tax	297			174			27			(30		)	(39		)	—		429
Income tax (expense) benefit on operating income (loss)	(102		)	(60		)	(7		)	36			15			—		(118		)
Net operating income (loss)	195			114			20			6			(24		)	—		311
Net realized investment gains (losses)	9			12			6			17			2			—		46
Income tax (expense) benefit on net realized investment gains (losses)	(3		)	(3		)	(1		)	(6		)	(1		)	—		(14		)
Net realized investment gains (losses), after tax	6			9			5			11			1			—		32
Net income (loss)	$	201		$	123		$	25		$	17		$	(23	)	$	—	$	343



Nine months ended September 30, 2017	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core
(In millions)	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core			Eliminations			Total
Operating revenues
Net earned premiums	$	2,056		$	2,097		$	629		$	404		$	—		$	(1	)	$	5,185
Net investment income	407			482			38			587			15			—			1,529
Other revenues	291			25			—			1			1			—			318
Total operating revenues	2,754			2,604			667			992			16			(1		)	7,032
Claims, Benefits and Expenses
Net incurred claims and benefits	1,141			1,470			444			980			4			—			4,039
Policyholders’ dividends	3			11			—			—			—			—			14
Amortization of deferred acquisition costs	445			354			127			—			—			—			926
Other insurance related expenses	209			387			106			96			(1		)	(1		)	796
Other expenses	248			31			(11		)	5			146			—			419
Total claims, benefits and expenses	2,046			2,253			666			1,081			149			(1		)	6,194
Operating income (loss) before income tax	708			351			1			(89		)	(133		)	—			838
Income tax (expense) benefit on operating income (loss)	(238		)	(117		)	(9		)	108			51			—			(205		)
Net operating income (loss)	470			234			(8		)	19			(82		)	—			633
Net realized investment gains (losses)	25			36			17			20			(36		)	—			62
Income tax (expense) benefit on net realized investment gains (losses)	(9		)	(12		)	(3		)	(8		)	13			—			(19		)
Net realized investment gains (losses), after tax	16			24			14			12			(23		)	—			43
Net income (loss)	$	486		$	258		$	6		$	31		$	(105	)	$	—		$	676



September 30, 2017
(In millions)
Reinsurance receivables	$	819	$	590	$	227	$	453	$	2,280	$	—	$	4,369
Insurance receivables	984		1,087		256		11		2		—		2,340
Deferred acquisition costs	318		230		95		—		—		—		643
Goodwill	117		—		30		—		—		—		147
Insurance reserves
Claim and claim adjustment expenses	6,063		8,630		1,640		3,468		2,408		—		22,209
Unearned premiums	2,010		1,426		490		134		—		—		4,060
Future policy benefits	—		—		—		11,040		—		—		11,040



Nine months ended September 30, 2016	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core
(In millions)	Specialty			Commercial			International			Life & Group Non-Core			Corporate & Other Non-Core			Eliminations			Total
Operating revenues
Net earned premiums	$	2,088		$	2,103		$	605		$	401		$	—		$	(1	)	$	5,196
Net investment income	380			465			38			567			11			—			1,461
Other revenues	269			21			1			(1		)	3			—			293
Total operating revenues	2,737			2,589			644			967			14			(1		)	6,950
Claims, Benefits and Expenses
Net incurred claims and benefits	1,097			1,357			395			976			109			—			3,934
Policyholders’ dividends	6			9			—			—			—			—			15
Amortization of deferred acquisition costs	443			351			132			—			—			—			926
Other insurance related expenses	225			422			98			101			(3		)	(1		)	842
Other expenses	232			25			17			7			158			—			439
Total claims, benefits and expenses	2,003			2,164			642			1,084			264			(1		)	6,156
Operating income (loss) before income tax	734			425			2			(117		)	(250		)	—			794
Income tax (expense) benefit on operating income (loss)	(248		)	(145		)	(3		)	117			88			—			(191		)
Net operating income (loss)	486			280			(1		)	—			(162		)	—			603
Net realized investment gains (losses)	2			2			14			12			(4		)	—			26
Income tax (expense) benefit on net realized investment gains (losses)	(1		)	—			(3		)	(9		)	2			—			(11		)
Net realized investment gains (losses), after tax	1			2			11			3			(2		)	—			15
Net income (loss)	$	487		$	282		$	10		$	3		$	(164	)	$	—		$	618



December 31, 2016
(In millions)
Reinsurance receivables	$	760	$	621	$	131	$	462	$	2,479	$	—	$	4,453
Insurance receivables	982		1,021		233		17		2		—		2,255
Deferred acquisition costs	310		214		76		—		—		—		600
Goodwill	117		—		28		—		—		—		145
Insurance reserves
Claim and claim adjustment expenses	6,149		8,894		1,328		3,358		2,614		—		22,343
Unearned premiums	1,911		1,323		396		132		—		—		3,762
Future policy benefits	—		—		—		10,326		—		—		10,326

The following table presents revenue by line of business for each reportable segment. Revenues are comprised of operating revenues and net realized investment gains and losses.



Periods ended September 30	Three Months					Nine Months
(In millions)	2017			2016		2017			2016
Specialty
Management & Professional Liability	$	656		$	677	$	1,963		$	1,954
Surety	144			139		404			399
Warranty & Alternative Risks	140			130		412			386
Specialty revenues	940			946		2,779			2,739
Commercial
Middle Market	501			463		1,421			1,298
Small Business	131			154		357			448
Other Commercial Insurance	283			296		862			845
Commercial revenues	915			913		2,640			2,591
International
Canada	60			51		164			152
CNA Europe	87			82		239			241
Hardy	97			96		281			265
International revenues	244			229		684			658
Life & Group Non-Core revenues	334			339		1,012			979
Corporate & Other Non-Core revenues	(35		)	6		(20		)	10
Eliminations	—			—		(1		)	(1		)
Total revenues	$	2,398		$	2,433	$	7,094		$	6,976