Business Segments

3 Months Ended

Mar. 31, 2018

The Company's property and casualty commercial insurance operations are managed and reported in three business segments: Specialty, Commercial and International. These three segments are collectively referred to as Property & Casualty Operations. The Company's operations outside of Property & Casualty Operations are managed and reported in two segments: Life & Group and Corporate & Other.

Effective January 1, 2018, management changed the segment presentation of the life sciences business and technology and media related errors and omissions business within the Specialty and Commercial business segments. The life sciences business moved from the Specialty business segment to the Commercial business segment and the technology and media related errors and omissions business moved from the Commercial business segment to the Specialty business segment. The new management responsibility for these businesses better aligns with line of business underwriting expertise and the manner in which the products are sold. Prior period information has been conformed to the new segment presentation.

The accounting policies of the segments are the same as those described in Note A to the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2017. 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 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.

Core 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.

Core 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, iii) any cumulative effects of changes in accounting guidance and iv) deferred tax asset and liability remeasurement as a result of an enacted U.S. Federal tax rate change. The calculation of core income (loss) excludes net realized investment gains or losses because net realized investment gains or losses 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 March 31, 2018	Specialty			Commercial			International			Life & Group		Corporate & Other
(In millions)															Eliminations			Total
Operating revenues
Net earned premiums	$	672		$	743		$	236		$	134	$	—		$	—		$	1,785
Net investment income	122			149			14			200		5			—			490
Non-insurance warranty revenue	238			—			—			—		—			—			238
Other revenues	1			8			—			1		1			(1		)	10
Total operating revenues	1,033			900			250			335		6			(1		)	2,523
Claims, benefits and expenses
Net incurred claims and benefits	379			468			142			303		41			—			1,333
Policyholders’ dividends	1			5			—			—		—			—			6
Amortization of deferred acquisition costs	145			121			30			—		—			—			296
Non-insurance warranty expense	216			—			—			—		—			—			216
Other insurance related expenses	64			127			56			30		—			—			277
Other expenses	11			11			(4		)	2		42			(1		)	61
Total claims, benefits and expenses	816			732			224			335		83			(1		)	2,189
Core income (loss) before income tax	217			168			26			—		(77		)	—			334
Income tax (expense) benefit on core income (loss)	(46		)	(35		)	(3		)	14		17			—			(53		)
Core income (loss)	$	171		$	133		$	23		$	14	$	(60	)	$	—		281
Net realized investment gains (losses)																		12
Income tax (expense) benefit on net realized investment gains (losses)																		(2		)
Net realized investment gains (losses), after tax																		10
Net income																		$	291



March 31, 2018
(In millions)
Reinsurance receivables	$	737	$	690	$	244	$	436	$	2,330	$	—		$	4,437
Insurance receivables	947		1,140		315		11		1		—			2,414
Deferred acquisition costs	318		241		106		—		—		—			665
Goodwill	117		—		32		—		—		—			149
Insurance reserves
Claim and claim adjustment expenses	5,696		8,718		1,718		3,501		2,434		—			22,067
Unearned premiums	2,063		1,490		559		145		—		(1		)	4,256
Future policy benefits	—		—		—		10,783		—		—			10,783



Three months ended March 31, 2017	Specialty			Commercial			International			Life & Group			Corporate & Other
(In millions)																Eliminations		Total
Operating revenues
Net earned premiums	$	654		$	661		$	197		$	133		$	—		$	—	$	1,645
Net investment income	148			183			12			197			5			—		545
Non-insurance warranty revenue	93			—			—			—			—			—		93
Other revenues	1			9			—			1			—			—		11
Total operating revenues	896			853			209			331			5			—		2,294
Claims, benefits and expenses
Net incurred claims and benefits	400			423			115			330			21			—		1,289
Policyholders’ dividends	1			3			—			—			—			—		4
Amortization of deferred acquisition costs	142			117			46			—			—			—		305
Non-insurance warranty expense	70			—			—			—			—			—		70
Other insurance related expenses	67			128			27			32			—			—		254
Other expenses	10			15			(6		)	2			44			—		65
Total claims, benefits and expenses	690			686			182			364			65			—		1,987
Core income (loss) before income tax	206			167			27			(33		)	(60		)	—		307
Income tax (expense) benefit on core income (loss)	(69		)	(56		)	(7		)	37			23			—		(72		)
Core income (loss)	$	137		$	111		$	20		$	4		$	(37	)	$	—	235
Net realized investment gains (losses)																		36
Income tax (expense) benefit on net realized investment gains (losses)																		(11		)
Net realized investment gains (losses), after tax																		25
Net income																		$	260



December 31, 2017
(In millions)
Reinsurance receivables	$	671	$	654	$	212	$	438	$	2,315	$	—	$	4,290
Insurance receivables	969		1,103		254		8		2		—		2,336
Deferred acquisition costs	318		223		93		—		—		—		634
Goodwill	117		—		31		—		—		—		148
Insurance reserves
Claim and claim adjustment expenses	5,669		8,764		1,636		3,499		2,436		—		22,004
Unearned premiums	2,020		1,409		472		128		—		—		4,029
Future policy benefits	—		—		—		11,179		—		—		11,179

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



Three months ended March 31
(In millions)	2018			2017
Specialty
Management & Professional Liability	$	624		$	638
Surety	129			124
Warranty & Alternative Risks⁽¹⁾	280			134
Specialty revenues	1,033			896
Commercial
Middle Market	504			468
Small Business	119			96
Other Commercial Insurance	277			289
Commercial revenues	900			853
International
Canada	58			51
CNA Europe	88			72
Hardy	104			86
International revenues	250			209
Life & Group revenues	335			331
Corporate & Other revenues	6			5
Eliminations	(1		)	—
Total operating revenues	2,523			2,294
Net realized investment gains (losses)	12			36
Total revenues	$	2,535		$	2,330


(1)	As of January 1, 2018, the Company adopted ASU 2014-09 Revenue Recognition (Topic 606): Revenue from Contracts with Customers. See Note A to the Condensed Consolidated Financial Statements for additional information.