Business Segments

3 Months Ended

Mar. 31, 2020

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.

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, 2019. 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, Goodwill and Deferred non-insurance warranty acquisition expense and revenue 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 Net investment gains or losses are allocated primarily based on each segment's net carried insurance reserves, as adjusted. All significant intersegment income and expense have 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 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.

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



Three months ended March 31, 2020	Specialty			Commercial			International		Life & Group			Corporate & Other
(In millions)															Eliminations			Total
Operating revenues
Net earned premiums	$	685		$	818		$	239	$	127		$	—		$	—		$	1,869
Net investment income	56			47			15		208			3			—			329
Non-insurance warranty revenue	301			—			—		—			—			—			301
Other revenues	1			7			—		—			2			(2		)	8
Total operating revenues	1,043			872			254		335			5			(2		)	2,507
Claims, benefits and expenses
Net incurred claims and benefits	405			558			154		316			(14		)	—			1,419
Policyholders’ dividends	1			5			—		—			—			—			6
Amortization of deferred acquisition costs	151			144			49		—			—			—			344
Non-insurance warranty expense	281			—			—		—			—			—			281
Other insurance related expenses	69			127			36		26			—			—			258
Other expenses	13			6			13		3			39			(2		)	72
Total claims, benefits and expenses	920			840			252		345			25			(2		)	2,380
Core income (loss) before income tax	123			32			2		(10		)	(20		)	—			127
Income tax (expense) benefit on core income (loss)	(27		)	(8		)	—		14			2			—			(19		)
Core income (loss)	$	96		$	24		$	2	$	4		$	(18	)	$	—		108
Net investment gains (losses)																		(216		)
Income tax (expense) benefit on net investment gains (losses)																		47
Net investment gains (losses), after tax																		(169		)
Net income (loss)																		$	(61	)



March 31, 2020
(In millions)
Reinsurance receivables	$	793	$	883	$	233	$	370	$	2,072	$	—		$	4,351
Insurance receivables	953		1,267		302		8		2		—			2,532
Deferred acquisition costs	316		277		90		—		—		—			683
Goodwill	117		—		28		—		—		—			145
Deferred non-insurance warranty acquisition expense	2,905		—		—		—		—		—			2,905
Insurance reserves
Claim and claim adjustment expenses	5,472		8,704		1,818		3,712		2,166		—			21,872
Unearned premiums	2,363		1,751		495		137		—		(1		)	4,745
Future policy benefits	—		—		—		11,734		—		—			11,734
Deferred non-insurance warranty revenue	3,848		—		—		—		—		—			3,848



Three months ended March 31, 2019	Specialty			Commercial			International		Life & Group			Corporate & Other
(In millions)															Eliminations			Total
Operating revenues
Net earned premiums	$	661		$	763		$	250	$	130		$	—		$	(1	)	$	1,803
Net investment income	155			190			15		204			7			—			571
Non-insurance warranty revenue	281			—			—		—			—			—			281
Other revenues	1			7			—		1			2			(2		)	9
Total operating revenues	1,098			960			265		335			9			(3		)	2,664
Claims, benefits and expenses
Net incurred claims and benefits	392			510			162		308			(21		)	—			1,351
Policyholders’ dividends	1			5			—		—			—			—			6
Amortization of deferred acquisition costs	147			127			68		—			—			—			342
Non-insurance warranty expense	260			—			—		—			—			—			260
Other insurance related expenses	70			130			25		28			(1		)	(1		)	251
Other expenses	12			11			4		2			39			(2		)	66
Total claims, benefits and expenses	882			783			259		338			17			(3		)	2,276
Core income (loss) before income tax	216			177			6		(3		)	(8		)	—			388
Income tax (expense) benefit on core income (loss)	(47		)	(38		)	—		13			2			—			(70		)
Core income (loss)	$	169		$	139		$	6	$	10		$	(6	)	$	—		318
Net investment gains (losses)																		31
Income tax (expense) benefit on net investment gains (losses)																		(7		)
Net investment gains (losses), after tax																		24
Net income (loss)																		$	342



December 31, 2019
(In millions)
Reinsurance receivables	$	575	$	855	$	247	$	385	$	2,142	$	—	$	4,204
Insurance receivables	971		1,210		284		16		—		—		2,481
Deferred acquisition costs	311		257		94		—		—		—		662
Goodwill	117		—		30		—		—		—		147
Deferred non-insurance warranty acquisition expense	2,840		—		—		—		—		—		2,840
Insurance reserves
Claim and claim adjustment expenses	5,238		8,656		1,876		3,716		2,234		—		21,720
Unearned premiums	2,337		1,626		495		125		—		—		4,583
Future policy benefits	—		—		—		12,311		—		—		12,311
Deferred non-insurance warranty revenue	3,779		—		—		—		—		—		3,779

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



Three months ended March 31
(In millions)	2020			2019
Specialty
Management & Professional Liability	$	568		$	636
Surety	138			139
Warranty & Alternative Risks	337			323
Specialty revenues	1,043			1,098
Commercial
Middle Market	335			357
Construction ⁽¹⁾	250			248
Small Business	112			131
Other Commercial	175			224
Commercial revenues	872			960
International
Canada	73			66
Europe	92			91
Hardy	89			108
International revenues	254			265
Life & Group revenues	335			335
Corporate & Other revenues	5			9
Eliminations	(2		)	(3		)
Total operating revenues	2,507			2,664
Net investment gains (losses)	(216		)	31
Total revenues	$	2,291		$	2,695

(1)

Effective January 1, 2020, the Construction line of business is presented separately in the Commercial segment to better align with our underwriting expertise and the manner in which the products are sold. Prior period information has been conformed to the new line of business presentation.