Business Segments

6 Months Ended

Jun. 30, 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.

The performance of the Company's insurance operations is monitored by management through core income (loss), which is derived from certain income statement amounts. 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 June 30, 2018	Specialty			Commercial			International			Life & Group			Corporate & Other
(In millions)																Eliminations		Total
Operating revenues
Net earned premiums	$	683		$	753		$	248		$	131		$	—		$	—	$	1,815
Net investment income	130			157			15			198			6			—		506
Non-insurance warranty revenue	248			—			—			—			—			—		248
Other revenues	—			8			(1		)	—			(1		)	—		6
Total operating revenues	1,061			918			262			329			5			—		2,575
Claims, benefits and expenses
Net incurred claims and benefits	372			470			166			327			(14		)	—		1,321
Policyholders’ dividends	1			5			—			—			—			—		6
Amortization of deferred acquisition costs	149			127			83			—			—			—		359
Non-insurance warranty expense	225			—			—			—			—			—		225
Other insurance related expenses	70			126			10			30			—			—		236
Other expenses	12			10			7			1			67			—		97
Total claims, benefits and expenses	829			738			266			358			53			—		2,244
Core income (loss) before income tax	232			180			(4		)	(29		)	(48		)	—		331
Income tax (expense) benefit on core income (loss)	(49		)	(37		)	(3		)	19			9			—		(61		)
Core income (loss)	$	183		$	143		$	(7	)	$	(10	)	$	(39	)	$	—	270
Net realized investment gains (losses)																		(1		)
Income tax (expense) benefit on net realized investment gains (losses)																		1
Net realized investment gains (losses), after tax																		—
Net income																		$	270



Three months ended June 30, 2017	Specialty			Commercial			International			Life & Group			Corporate & Other
(In millions)																Eliminations			Total
Operating revenues
Net earned premiums	$	678		$	716		$	206		$	135		$	—		$	(1	)	$	1,734
Net investment income	117			146			13			195			4			—			475
Non-insurance warranty revenue	98			—			—			—			—			—			98
Other revenues	—			9			(1		)	—			1			—			9
Total operating revenues	893			871			218			330			5			(1		)	2,316
Claims, benefits and expenses
Net incurred claims and benefits	394			426			129			328			(2		)	—			1,275
Policyholders’ dividends	1			4			—			—			—			—			5
Amortization of deferred acquisition costs	147			120			45			—			—			—			312
Non-insurance warranty expense	72			—			—			—			—			—			72
Other insurance related expenses	71			129			31			32			(1		)	(1		)	261
Other expenses	11			10			(1		)	1			50			—			71
Total claims, benefits and expenses	696			689			204			361			47			(1		)	1,996
Core income (loss) before income tax	197			182			14			(31		)	(42		)	—			320
Income tax (expense) benefit on core income (loss)	(66		)	(62		)	(4		)	36			15			—			(81		)
Core income (loss)	$	131		$	120		$	10		$	5		$	(27	)	$	—		239
Net realized investment gains (losses)																			50
Income tax (expense) benefit on net realized investment gains (losses)																			(17		)
Net realized investment gains (losses), after tax																			33
Net income																			$	272



Six months ended June 30, 2018	Specialty			Commercial			International			Life & Group			Corporate & Other
(In millions)																Eliminations			Total
Operating revenues
Net earned premiums	$	1,355		$	1,496		$	484		$	265		$	—		$	—		$	3,600
Net investment income	252			306			29			398			11			—			996
Non-insurance warranty revenue	486			—			—			—			—			—			486
Other revenues	1			16			(1		)	1			—			(1		)	16
Total operating revenues	2,094			1,818			512			664			11			(1		)	5,098
Claims, benefits and expenses
Net incurred claims and benefits	751			938			308			630			27			—			2,654
Policyholders’ dividends	2			10			—			—			—			—			12
Amortization of deferred acquisition costs	294			248			113			—			—			—			655
Non-insurance warranty expense	441			—			—			—			—			—			441
Other insurance related expenses	134			253			66			60			—			—			513
Other expenses	23			21			3			3			109			(1		)	158
Total claims, benefits and expenses	1,645			1,470			490			693			136			(1		)	4,433
Core income (loss) before income tax	449			348			22			(29		)	(125		)	—			665
Income tax (expense) benefit on core income (loss)	(95		)	(72		)	(6		)	33			26			—			(114		)
Core income (loss)	$	354		$	276		$	16		$	4		$	(99	)	$	—		551
Net realized investment gains (losses)																			11
Income tax (expense) benefit on net realized investment gains (losses)																			(1		)
Net realized investment gains (losses), after tax																			10
Net income																			$	561



June 30, 2018
(In millions)
Reinsurance receivables	$	926	$	695	$	265	$	433	$	2,245	$	—		$	4,564
Insurance receivables	996		1,311		327		8		—		—			2,642
Deferred acquisition costs	317		248		108		—		—		—			673
Goodwill	117		—		30		—		—		—			147
Insurance reserves
Claim and claim adjustment expenses	5,816		8,599		1,706		3,522		2,347		—			21,990
Unearned premiums	2,103		1,608		564		136		—		(1		)	4,410
Future policy benefits	—		—		—		10,667		—		—			10,667



Six months ended June 30, 2017	Specialty			Commercial			International			Life & Group			Corporate & Other
(In millions)																Eliminations			Total
Operating revenues
Net earned premiums	$	1,332		$	1,377		$	403		$	268		$	—		$	(1	)	$	3,379
Net investment income	265			329			25			392			9			—			1,020
Non-insurance warranty revenue	191			—			—			—			—			—			191
Other revenues	1			18			(1		)	1			1			—			20
Total operating revenues	1,789			1,724			427			661			10			(1		)	4,610
Claims, benefits and expenses
Net incurred claims and benefits	794			849			244			658			19			—			2,564
Policyholders’ dividends	2			7			—			—			—			—			9
Amortization of deferred acquisition costs	289			237			91			—			—			—			617
Non-insurance warranty expense	142			—			—			—			—			—			142
Other insurance related expenses	138			257			58			64			(1		)	(1		)	515
Other expenses	21			25			(7		)	3			94			—			136
Total claims, benefits and expenses	1,386			1,375			386			725			112			(1		)	3,983
Core income (loss) before income tax	403			349			41			(64		)	(102		)	—			627
Income tax (expense) benefit on core income (loss)	(135		)	(118		)	(11		)	73			38			—			(153		)
Core income (loss)	$	268		$	231		$	30		$	9		$	(64	)	$	—		474
Net realized investment gains (losses)																			86
Income tax (expense) benefit on net realized investment gains (losses)																			(28		)
Net realized investment gains (losses), after tax																			58
Net income																			$	532



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.



Periods ended June 30	Three Months						Six Months
(In millions)	2018			2017			2018			2017
Specialty
Management & Professional Liability	$	627		$	620		$	1,251		$	1,258
Surety	145			136			274			260
Warranty & Alternative Risks⁽¹⁾	289			137			569			271
Specialty revenues	1,061			893			2,094			1,789
Commercial
Middle Market	521			469			1,025			937
Small Business	120			126			239			222
Other Commercial Insurance	277			276			554			565
Commercial revenues	918			871			1,818			1,724
International
Canada	63			52			121			103
CNA Europe	91			79			179			151
Hardy	108			87			212			173
International revenues	262			218			512			427
Life & Group revenues	329			330			664			661
Corporate & Other revenues	5			5			11			10
Eliminations	—			(1		)	(1		)	(1		)
Total operating revenues	2,575			2,316			5,098			4,610
Net realized investment gains (losses)	(1		)	50			11			86
Total revenues	$	2,574		$	2,366		$	5,109		$	4,696


(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.