Loews : Fourth Quarter 2022 Earnings Remarks

Loews Corporation Fourth Quarter 2022 Earnings Remarks

James Tisch, President & CEO:

Loews had a strong fourth quarter, finishing the year with our consolidated subsidiaries producing stellar results. Before discussing these financial results, however, I'd like to provide an update concerning the litigation related to our 2018 acquisition of the minority interest in Boardwalk Pipelines. We are pleased to report that in late December of 2022 the Delaware Supreme Court ruled in Loews's favor, reversing the lower Court of Chancery's ruling that had awarded former Boardwalk minority unitholders damages in the amount of $690 million, plus interest -- or just over $900 million in total. With the main issue settled and behind us, there remain three unresolved issues still under consideration in the litigation process. In December, the case was remanded to the Chancery Court so that the Court could rule on these three remaining items.

Turning back to Loews's financial results, let's take a look at our property and casualty insurance subsidiary, CNA Financial.

CNA's performance was strong, with underwriting results at or near its top quartile peers. The company reported a fourth quarter and full year underlying combined ratio of 91.2%, which is in line with the company's excellent performance in 2021. CNA's all-in combined ratio increased slightly in the fourth quarter to 93.7% due to higher catastrophe losses from winter storm Elliott. For the full year, however, the all-in combined ratio improved from the prior year by 3.0 points to 93.2% driven by lower catastrophes and more favorable prior year development. In more good news, net written premiums grew 9% in 2022, due to improved retention and strong new business, which grew by 13%.

Last year's substantial interest rate increase was also positive for CNA, since it is enabling the company to reinvest its cash flow at significantly higher yields. And while book value per share has suffered a decline due to those higher interest rates, this decline does not imply any deterioration in the credit quality of the portfolio. On average, CNA reinvests about $300 million a month in its fixed-income portfolio, and higher interest rates will improve that portfolio's yield

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over time. Higher rates are particularly helpful for CNA's long-term care book of business, which has longer duration liabilities than CNA's P&C business. During 2022, the company was able to buy long-term securities at higher yields than it previously could, allowing it to advantageously lengthen the duration of this portion of its portfolio.

Given the company's strong underwriting performance, CNA raised its regular quarterly dividend from $0.40 per share to $0.42 per share. Additionally, the company also announced a special dividend of $1.20 per share. Including regular dividends paid in 2022, these dividends represent about 85% of its net income, a percentage that is generally consistent with the last three-year average.

Loews Hotels had a phenomenal year. The company reported full year adjusted EBITDA of $345 million, far exceeding its pre-pandemic 2019 results. Several new resort and convention properties developed by Loews Hotels have opened over the past few years, and the company's favorable performance has certainly been positively impacted by the addition of these attractively situated properties. This past November, Loews Hotels expanded its presence in the South Florida market with the addition of the Loews Coral Gables Hotel. Loews Hotels owns a 20% interest in this 242-room property. The company now owns and/or operates 26 hotels and resorts across the US and Canada. Construction also continues on the Loews Arlington Hotel, the company's nearly 900-room property in Arlington, Texas, slated to open in the first quarter of 2024. With these additions, roughly 70% of the company's over-16,000 rooms are at resort properties.

Boardwalk Pipelines also had a great year, reporting full year 2022 EBITDA of $892 million. The company benefited from stronger natural gas flows and improved pricing. Natural gas remains an essential part of our nation's energy future because of its ability to fuel dispatchable electricity. We are happy that, over the course of the year, Boardwalk grew its revenue backlog by about $65 million to $9.1 billion, more than 70% of which is with investment grade customers. We also believe that Boardwalk has done an exceptional job of transforming its customer base from mostly marketers to mostly end users. In 2015, 36% of the company's revenue was derived

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from end users; today, approximately 70% of its customers are end users-- primarily power generators, LNG exporters and industrial companies.

Next I'd like to provide a quick update on our capital allocation decisions during 2022. At Loews, one of our major capital allocation levers is investing in the companies we know best - namely, our subsidiaries. These companies tend to finance their own growth, but at times Loews invests in major projects, and in 2022 this was indeed the case. Last year our packaging subsidiary Altium completed a major acquisition and Loews provided $79 million of the $270 million purchase price. Loews Corp. invested $33 million with Loews Hotels to fund new developments, primarily the construction of the Loews Arlington Hotel. This was only 10% of the $316 million invested by Hotels in its own growth in 2022. Boardwalk also made substantial investments in its own business this year, spending $344 million on capital projects to maintain and expand service to its customers.

Share repurchases remained Loews's largest capital allocation lever in 2022. We repurchased nearly 12.7 million shares for a total cost of about $738 million, which represents about 5% of the shares outstanding at the beginning of the year. We were conservative in the amount we allocated to share repurchases in 2022 in view of the judgment then pending against Loews in Delaware that was reversed in late December.

Over the past five years, we have repurchased over 97 million shares of Loews stock and reduced our share count by about 29%. We feel that share repurchases are a great use of the company's capital and that they create value for our shareholders over the medium to long term. As long as our shares trade below our view of their intrinsic value, we will continue to repurchase them.

In conclusion, let me emphasize that it is no accident that Loews and our subsidiaries have had such a good year, given the talent, hard work, and dedication of our employees. I am incredibly grateful for their contributions and look forward to another successful year of creating value for all our stakeholders.

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Jane Wang, Chief Financial Officer:

For the fourth quarter of 2022, Loews reported net income of $364 million or $1.53 per share, which compares favorably to net income of $343 million or $1.36 per share in last year's fourth quarter. This year-over-year increase was driven by higher investment income from the parent company and higher income from Boardwalk, partially offset by lower net income from CNA.

For the full year, Loews reported net income of $1.012 billion or $4.16 per share compared to $1.578 billion or $6.07 per share in 2021. Last year's results included a $438 million after-tax investment gain from the partial sale and deconsolidation of Altium Packaging. Putting aside lower investment income at both CNA and Loews, all of our subsidiaries posted strong growth in operating performance, which I will discuss in more detail later.

Book value per share declined from $71.84 at the end of 2021 to $61.86 at the end of 2022 due to the effect of higher interest rates lowering the fair value of CNA's fixed income investments. Excluding accumulated other comprehensive income, where this unrealized loss sits, book value per share increased by nearly 7% from $71.09 to $75.78. The increase was driven by 2022's earnings and accretive share repurchases.

Turning to our insurance subsidiary: CNA contributed net income of $223 million to Loews in the fourth quarter of 2022, compared to $239 million in 2021. The slight year-over-year decrease was driven by lower investment results and higher catastrophes due to Winter Storm Elliott, partially offset by higher underlying underwriting income. The fourth quarter of 2022 also benefited from lower adverse reserve development on CNA's loss portfolio transfer related to asbestos and environmental liabilities.

For the full year, CNA contributed net income of $802 million to Loews versus $1.077 billion in 2021. The decrease was driven by unfavorable results in the company's LP and common stock portfolios, which masked a record year of P&C underwriting income for CNA.

For the year, LPs and common stocks in the CNA portfolio together posted a negative 1.4% return, versus a positive return of 22.3% in 2021. Additionally, in 2022, CNA experienced investment losses driven by unfavorable changes in the fair value of nonredeemable preferred stock and

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from realized losses on sales related to portfolio repositioning activities. CNA was able to increase duration on its Life & Group investment portfolio from 9.2 years at the end of 2021 to 9.9 years at the end of 2022.

In 2022 CNA posted its highest year of P&C underwriting income ever, up 93% from 2021. This increase was driven by continued profitable growth in this hard insurance market.

Net written premiums grew by 9% in 2022, driven by three factors:

• First, new business grew by 13%,
• Second, retention increased by 4pts to 86%, and
• Third, while net written rate increases decelerated to 5%, exposure growth increased to nearly 3%.

The company's 2022 combined ratio of 93.2% is a 3.0 point improvement over 2021, driven by

2.1 points of improvement in catastrophe losses and a 0.7-point improvement in favorable prior year development. Catastrophe losses in 2021 included both Hurricane Ida and Winter Storm Uri.

Beginning in Q1 2023, long-term care will be accounted for under the new GAAP accounting standard of "long duration targeted improvement", otherwise known as LDTI. Under this accounting, changes in discount rate and operating assumptions will decouple as discount rates will run through the balance sheet under AOCI, and changes in operating assumptions will run through the income statement. Discount rate assumptions will be based on single A-rated yields and updated on a quarterly basis. Operating assumptions such as morbidity and persistency will be reviewed at least annually. While the change is effective January 1, 2023, CNA, as well as Loews, will be applying these changes from the transition date of January 1, 2021. In other words, there will be one year of restated financial results in our quarterly reports and two years of restated financial results in our annual 10-K filing. More to come on this topic next quarter, but the main point to note is that this change in accounting has no impact on the cash flows or underlying economics of CNA's long-term care business, nor does it impact capital and surplus under statutory accounting practices.

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