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Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of CNA Financial Corporation (CNAF) and its subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. Loews Corporation (Loews) owned approximately 89.6% of the outstanding common stock of CNAF as of September 30, 2020.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Intercompany amounts have been eliminated. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, including certain financial statement notes, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2019, including the summary of significant accounting policies in Note A. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

The interim financial data as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 is unaudited. However, in the opinion of management, the interim data includes all adjustments, including normal recurring adjustments, necessary for a fair statement of the Company's results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Recently Adopted Accounting Standards Updates (ASU)

ASU 2016-13: In June 2016 the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated accounting guidance requires changes to the recognition of credit losses on financial instruments not accounted for at fair value through the Company’s results of operations. For financial assets measured at cost, the expected credit loss model requires immediate recognition of estimated credit losses over the life of the asset and presentation of the asset at the net amount expected to be collected. This new guidance applies to mortgage loan investments, reinsurance and insurance receivables and other financing receivables. For available-for-sale fixed maturity securities carried at fair value, estimated credit losses will continue to be measured at the present value of expected cash flows, however, the other than temporary impairment (OTTI) concept has been eliminated. Under the previous guidance, estimated credit impairments resulted in a write-down of amortized cost. Under the new guidance, estimated credit losses are recognized through an allowance and reversals of the allowance are permitted if the estimate of credit losses declines. For available-for-sale fixed maturity securities where the Company has an intent to sell, impairment will continue to result in a write-down of amortized cost.

On January 1, 2020, the Company adopted the updated guidance using a modified retrospective method with a cumulative effect adjustment recorded to beginning Retained earnings. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. A prospective transition approach is required for available-for-sale fixed maturity securities that were purchased with credit deterioration (PCD assets) or have recognized an OTTI write-down prior to the effective date. The cumulative effect of the accounting change resulted in a $5 million decrease in Retained earnings, with a corresponding $7 million allowance for credit losses recorded for Mortgage loans partially offset by a $2 million tax impact.

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The allowance for uncollectible insurance and reinsurance receivables was unchanged as a result of adopting the new guidance. At adoption, an allowance for credit losses of $6 million was established for available-for-sale fixed maturity securities that were PCD assets, with a corresponding increase to amortized cost, resulting in no adjustment to the carrying value of the securities. Below is a summary of the significant accounting policies impacted by the adoption of ASU 2016-13.

The allowance for credit losses is a valuation account that is reported as a reduction of a financial asset’s cost basis and is measured on a pool basis when similar risk characteristics exist. Management estimates the allowance using relevant available information from both internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses and adjustments may be made to reflect current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made for any additional factors that come to the Company’s attention. This could include significant shifts in counterparty financial strength ratings, aging of past due receivables, amounts sent to collection agencies, or other underlying portfolio changes. Amounts are considered past due when payments have not been received according to contractual terms. The Company also considers current and forecast economic conditions, using a variety of economic metrics and forecast indices. The sensitivity of expected credit losses relative to changes to these forecast economic conditions can vary by financial asset class. The Company considers a reasonable and supportable forecast period to be up to 24 months from the balance sheet date. After the forecast period, the Company reverts to historical credit experience. The Company uses collateral arrangements such as letters of credit and amounts held in beneficiary trusts to mitigate credit risk, which are considered in the estimate of net amount expected to be collected.

The Company has made a policy election to present accrued interest balances separately from the amortized cost basis of assets and has elected the practical expedient to exclude the accrued interest from the tabular disclosures for mortgage loans and available-for-sale securities. The Company has elected not to estimate an allowance for credit losses on accrued interest receivable. The accrual of interest income is discontinued and the asset is placed on nonaccrual status within 90 days of the interest becoming delinquent. Interest accrued but not received for assets on nonaccrual status is reversed through investment income. Interest received for assets that are on nonaccrual status is recognized as payment is received. The asset is returned to accrual status when the principal and interest amounts contractually due are brought current and future payments are expected. Interest receivable is presented as a component of accrued investment income on the Condensed Consolidated Balance Sheet.

See Note C and Note K to the Condensed Consolidated Financial Statements for additional information regarding credit losses.

Accounting Standards Pending Adoption

In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long Duration Contracts. The updated accounting guidance requires changes to the measurement and disclosure of long-duration contracts. The guidance requires entities to annually update cash flow assumptions, including morbidity and persistency, and update discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions will be recorded in the Company's results of operations and the effect of changes in discount rate assumptions will be recorded in Other comprehensive income. This guidance is effective for interim and annual periods beginning after December 15, 2021, however the FASB has approved a one year deferral of the effective date. Early adoption is permitted. The Company may elect to apply the guidance using either a modified retrospective transition method or a full retrospective transition method. The guidance requires restatement of prior periods presented. The Company plans to adopt using the modified retrospective transition method and is currently evaluating the effect the updated guidance will have on its financial statements, including the increased disclosure requirements. The annual updating of cash flow assumptions is expected to increase income statement volatility. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the business and related cash flows will be unchanged.

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Earnings (loss) per share is based on weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing Net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

For the three and nine months ended September 30, 2020, approximately 620 thousand and 730 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, 9 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share, because the effect would have been antidilutive.

For the three and nine months ended September 30, 2019, approximately 1 million and 920 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, less than 1 thousand and approximately 3 thousand potential shares attributable to exercises or conversions into common stock under stock-based employee compensation plans were not included in the calculation of diluted earnings per share, because the effect would have been antidilutive.

The Company repurchased 435,376 and 415,695 shares of CNAF common stock at an aggregate cost of $18 million during each of the nine months ended September 30, 2020 and 2019.

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The significant components of Net investment income are presented in the following table.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Fixed maturity securities	$	432			$	452			$	1,300			$	1,362
Equity securities	18				16				24				62
Limited partnership investments	64				12				38				125
Mortgage loans	14				13				42				37
Short term investments	1				8				9				27
Trading portfolio	4				2				13				6
Other	—				—				2				2
Gross investment income	533				503				1,428				1,621
Investment expense	(16		)		(16		)		(48		)		(48		)
Net investment income	$	517			$	487			$	1,380			$	1,573

During the three and nine months ended September 30, 2020, $4 million and $9 million of Net investment income was recognized due to the change in fair value of common stock still held as of September 30, 2020. During the three and nine months ended September 30, 2019, $5 million and $26 million of Net investment income was recognized due to the change in fair value of common stock still held as of September 30, 2019.

Net investment gains (losses) are presented in the following table.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Net investment gains (losses):
Fixed maturity securities:
Gross gains	$	44			$	34			$	175			$	98
Gross losses	(18		)		(31		)		(207		)		(104		)
Net investment gains (losses) on fixed maturity securities	26				3				(32		)		(6		)
Equity securities	25				7				(45		)		60
Derivatives	(2		)		(2		)		(7		)		(13		)
Mortgage loans	(3		)		—				(16		)		—
Short term investments and other	(19		)		(1		)		(20		)		(21		)
Net investment gains (losses)	$	27			$	7			$	(120	)		$	20

During the three and nine months ended September 30, 2020, $25 million of gains and $44 million of losses were recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2020. During the three and nine months ended September 30, 2019, $7 million and $60 million of gains were recognized in Net investment gains (losses) due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2019. Short term investments and other included a $20 million loss for the three and nine months ended September 30, 2020 related to the third quarter 2020 redemption of the Company's $400 million senior notes due August 2021 and a $21 million loss for the nine months ended September 30, 2019 related to the second quarter 2019 redemption of the Company's $500 million senior notes due August 2020.

For available-for-sale fixed maturity securities, a credit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis. The allowance for credit loss related to available-for-sale fixed maturity securities is the difference between present value of cash flows expected to be collected and the amortized cost basis, limited by the amount that the fair value is less than the amortized cost basis. The Company considers all available evidence when determining whether an investment requires a credit loss write-down or allowance to be recorded. Examples of such evidence may include the financial condition and near term prospects of the issuer, whether the issuer is current with interest and principal payments, credit ratings on the security or changes in ratings

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over time, general market conditions and industry, sector or other specific factors and whether it is likely that the Company will recover its amortized cost through the collection of cash flows. Changes in the allowance since acquisition are presented as a component of Net investment gains (losses) on the Condensed Consolidated Statements of Operations.

The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and PCD assets. Accrued interest receivable on available-for-sale fixed maturity securities totaled $390 million and is excluded from the estimate of expected credit losses and the amortized cost basis in the tables included within this Note.

Three months ended September 30
(In millions)	Corporate and other bonds				Asset-backed				Total
Allowance for credit losses:
Beginning balance	$	39			$	12			$	51
Additions to the allowance for credit losses:
For securities for which credit losses were not previously recorded	4				—				4
For available-for-sale securities accounted for as PCD assets	1				—				1
Reductions to the allowance for credit losses:
Securities sold during the period (realized)	9				—				9
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis	—				—				—
Write-offs charged against the allowance	—				—				—
Recoveries of amounts previously written off	—				—				—
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period	(1		)		1				—
Ending balance as of September 30, 2020	$	34			$	13			$	47

Nine months ended September 30
(In millions)	Corporate and other bonds				Asset-backed				Total
Allowance for credit losses:
Beginning balance	$	—			$	—			$	—
Additions to the allowance for credit losses:
Impact of adopting ASC 326	6				—				6
For securities for which credit losses were not previously recorded	62				12				74
For available-for-sale securities accounted for as PCD assets	3				—				3
Reductions to the allowance for credit losses:
Securities sold during the period (realized)	15				—				15
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis	1				—				1
Write-offs charged against the allowance	—				—				—
Recoveries of amounts previously written off	—				—				—
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period	(21		)		1				(20		)
Ending balance as of September 30, 2020	$	34			$	13			$	47

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The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	4			$	12			$	94			$	24
Asset-backed	1				2				14				10
Impairment losses recognized in earnings	$	5			$	14			$	108			$	34

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The following tables present a summary of fixed maturity securities.

September 30, 2020	Cost or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Allowance for Credit Losses(1)				Estimated Fair Value
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	20,734			$	3,047			$	89			$	34			$	23,658
States, municipalities and political subdivisions	9,459				1,766				1				—				11,224
Asset-backed:
Residential mortgage-backed	3,796				153				1				—				3,948
Commercial mortgage-backed	2,048				85				70				13				2,050
Other asset-backed	2,097				76				19				—				2,154
Total asset-backed	7,941				314				90				13				8,152
U.S. Treasury and obligations of government-sponsored enterprises	347				4				1				—				350
Foreign government	481				29				—				—				510
Redeemable preferred stock	—				—				—				—				—
Total fixed maturity securities available-for-sale	38,962				5,160				181				47				43,894
Total fixed maturity securities trading	7				—				—				—				7
Total fixed maturity securities	$	38,969			$	5,160			$	181			$	47			$	43,901

(1) As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Unrealized OTTI Losses (Gains) column that tracked subsequent valuation changes on securities for which a credit loss had previously been recorded has been replaced with the Allowance for Credit Losses column.

December 31, 2019	Cost or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value				Unrealized OTTI Losses (Gains)
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	19,789			$	2,292			$	32			$	22,049			$	—
States, municipalities and political subdivisions	9,093				1,559				—				10,652				—
Asset-backed:
Residential mortgage-backed	4,387				133				1				4,519				(17		)
Commercial mortgage-backed	2,265				86				5				2,346				1
Other asset-backed	1,925				41				4				1,962				(3		)
Total asset-backed	8,577				260				10				8,827				(19		)
U.S. Treasury and obligations of government-sponsored enterprises	146				1				2				145				—
Foreign government	491				14				1				504				—
Redeemable preferred stock	10				—				—				10				—
Total fixed maturity securities available-for-sale	38,106				4,126				45				42,187				$	(19	)
Total fixed maturity securities trading	20				—				—				20
Total fixed maturity securities	$	38,126			$	4,126			$	45			$	42,207

The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (AOCI). When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group segment would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). As of September 30, 2020 and December 31, 2019, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $2,559 million and $2,198 million.

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The following tables present the estimated fair value and gross unrealized losses of fixed maturity securities in a gross unrealized loss position for which an allowance for credit loss has not been recorded, by the length of time in which the securities have continuously been in that position.

	Less than 12 Months								12 Months or Longer								Total
September 30, 2020	Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	1,579			$	86			$	56			$	3			$	1,635			$	89
States, municipalities and political subdivisions	154				1				—				—				154				1
Asset-backed:
Residential mortgage-backed	98				1				13				—				111				1
Commercial mortgage-backed	693				69				19				1				712				70
Other asset-backed	432				18				13				1				445				19
Total asset-backed	1,223				88				45				2				1,268				90
U.S. Treasury and obligations of government-sponsored enterprises	25				1				—				—				25				1
Foreign government	20				—				—				—				20				—
Total	$	3,001			$	176			$	101			$	5			$	3,102			$	181

	Less than 12 Months								12 Months or Longer								Total
December 31, 2019	Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	914			$	21			$	186			$	11			$	1,100			$	32
States, municipalities and political subdivisions	34				—				—				—				34				—
Asset-backed:
Residential mortgage-backed	249				1				30				—				279				1
Commercial mortgage-backed	381				3				20				2				401				5
Other asset-backed	449				3				33				1				482				4
Total asset-backed	1,079				7				83				3				1,162				10
U.S. Treasury and obligations of government-sponsored enterprises	62				2				2				—				64				2
Foreign government	59				1				1				—				60				1
Total	$	2,148			$	31			$	272			$	14			$	2,420			$	45

Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 2020 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional impairment losses to be recorded as of September 30, 2020.

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Contractual Maturity

The following table presents available-for-sale fixed maturity securities by contractual maturity.

	September 30, 2020								December 31, 2019
(In millions)	Cost or Amortized Cost				Estimated Fair Value				Cost or Amortized Cost				Estimated Fair Value
Due in one year or less	$	1,372			$	1,392			$	1,334			$	1,356
Due after one year through five years	11,955				12,625				9,746				10,186
Due after five years through ten years	13,026				14,359				14,892				15,931
Due after ten years	12,609				15,518				12,134				14,714
Total	$	38,962			$	43,894			$	38,106			$	42,187

Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.

Derivative Financial Instruments

The Company holds an embedded derivative on a funds withheld liability with a notional value of $193 million and $182 million as of September 30, 2020 and December 31, 2019 and a fair value of $(16) million and $(7) million as of September 30, 2020 and December 31, 2019. The embedded derivative on the funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.

Investment Commitments

As part of its overall investment strategy, the Company invests in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications, and obligations related to private placement securities. As of September 30, 2020, the Company had commitments to purchase or fund approximately $1,170 million and sell approximately $55 million under the terms of these investments.

Mortgage Loans

The allowance for expected credit losses is developed by assessing the credit quality of pools of mortgage loans in good standing using debt service coverage ratios (DSCR) and loan-to-value ratios (LTV). The DSCR compares a property’s net operating income to its debt service payments, including principal and interest. The LTV ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. The pools developed to measure the credit loss allowance use increments of DSCR and LTV to draw distinctions between risk levels. Changes in the allowance for mortgage loans are presented as a component of Net investment gains (losses) on the Condensed Consolidated Statements of Operations.

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The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination.

September 30, 2020	Mortgage Loans Amortized Cost Basis by Origination Year (1)
(In millions)	2020				2019				2018				2017				2016				Prior				Total
DSCR ≥1.6x
LTV less than 55%	$	75			$	33			$	19			$	85			$	33			$	161			$	406
LTV 55% to 65%	—				33				29				55				12				—				129
LTV greater than 65%	—				5				—				—				—				12				17
DSCR 1.2x - 1.6x
LTV less than 55%	—				31				10				13				16				79				149
LTV 55% to 65%	20				54				32				24				—				—				130
LTV greater than 65%	48				103				—				—				—				—				151
DSCR ≤1.2
LTV less than 55%	—				—				—				—				—				—				—
LTV 55% to 65%	—				14				14				—				—				—				28
LTV greater than 65%	—				23				—				45				24				7				99
Total	$	143			$	296			$	104			$	222			$	85			$	259			$	1,109

(1)	The values in the table above reflect DSCR on a standardized amortization period and LTV based on the most recent appraised values trended forward using changes in a commercial real estate price index.

As of September 30, 2020, accrued interest receivable on mortgage loans totaled $4 million and is excluded from the amortized cost basis disclosed in the table above and the estimate of expected credit losses.

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Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.

Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.

The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include i) the review of pricing service methodologies or broker pricing qualifications, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, and iv) deep dives, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities.

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Assets and Liabilities Measured at Fair Value

Assets and liabilities measured at fair value on a recurring basis are presented in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.

September 30, 2020													Total Assets/Liabilities at Fair Value
(In millions)	Level 1				Level 2				Level 3
Assets
Fixed maturity securities:
Corporate bonds and other	$	372			$	23,459			$	694			$	24,525
States, municipalities and political subdivisions	—				11,179				45				11,224
Asset-backed	—				7,917				235				8,152
Total fixed maturity securities	372				42,555				974				43,901
Equity securities:
Common stock	157				—				16				173
Non-redeemable preferred stock	65				674				7				746
Total equity securities	222				674				23				919
Short term and other	1,301				25				—				1,326
Total assets	$	1,895			$	43,254			$	997			$	46,146
Liabilities
Other liabilities	$	—			$	16			$	—			$	16
Total liabilities	$	—			$	16			$	—			$	16

December 31, 2019													Total Assets/Liabilities at Fair Value
(In millions)	Level 1				Level 2				Level 3
Assets
Fixed maturity securities:
Corporate bonds and other	$	175			$	22,085			$	468			$	22,728
States, municipalities and political subdivisions	—				10,652				—				10,652
Asset-backed	—				8,662				165				8,827
Total fixed maturity securities	175				41,399				633				42,207
Equity securities:
Common stock	135				—				7				142
Non-redeemable preferred stock	54				658				11				723
Total equity securities	189				658				18				865
Short term and other	397				1,344				—				1,741
Total assets	$	761			$	43,401			$	651			$	44,813
Liabilities
Other liabilities	$	—			$	7			$	—			$	7
Total liabilities	$	—			$	7			$	—			$	7

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The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

Level 3 (In millions)	Corporate bonds and other				States, municipalities and political subdivisions				Asset-backed				Equity securities				Total
Balance as of July 1, 2020	$	555			$	—			$	222			$	11			$	788
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)	—				—				—				—				—
Reported in Net investment income	—				—				—				—				—
Reported in Other comprehensive income (loss)	5				—				9				—				14
Total realized and unrealized investment gains (losses)	5				—				9				—				14
Purchases	129				45				20				12				206
Sales	—				—				—				—				—
Settlements	(3		)		—				(14		)		—				(17		)
Transfers into Level 3	8				—				—				—				8
Transfers out of Level 3	—				—				(2		)		—				(2		)
Balance as of September 30, 2020	$	694			$	45			$	235			$	23			$	997
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Net income (loss) in the period	$	—			$	—			$	—			$	—			$	—
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Other comprehensive income (loss) in the period	5				—				8				—				13

Level 3 (In millions)	Corporate bonds and other				Asset-backed				Equity securities				Total
Balance as of July 1, 2019	$	338			$	193			$	22			$	553
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)	—				—				—				—
Reported in Net investment income	—				—				—				—
Reported in Other comprehensive income (loss)	14				1				—				15
Total realized and unrealized investment gains (losses)	14				1				—				15
Purchases	79				22				—				101
Sales	—				—				—				—
Settlements	(3		)		(4		)		—				(7		)
Transfers into Level 3	—				—				—				—
Transfers out of Level 3	—				(16		)		—				(16		)
Balance as of September 30, 2019	$	428			$	196			$	22			$	646
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Net income (loss) in the period	$	—			$	—			$	—			$	—
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Other comprehensive income (loss) in the period	14				2				—				16

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Level 3 (In millions)	Corporate bonds and other				States, municipalities and political subdivisions				Asset-backed				Equity securities				Total
Balance as of January 1, 2020	$	468			$	—			$	165			$	18			$	651
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)	—				—				—				(4		)		(4		)
Reported in Net investment income	—				—				—				(3		)		(3		)
Reported in Other comprehensive income (loss)	27				—				18				—				45
Total realized and unrealized investment gains (losses)	27				—				18				(7		)		38
Purchases	200				45				100				12				357
Sales	—				—				(9		)		—				(9		)
Settlements	(9		)		—				(22		)		—				(31		)
Transfers into Level 3	8				—				—				—				8
Transfers out of Level 3	—				—				(17		)		—				(17		)
Balance as of September 30, 2020	$	694			$	45			$	235			$	23			$	997
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Net income (loss) in the period	$	—			$	—			$	—			$	(7	)		$	(7	)
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2020 recognized in Other comprehensive income (loss) in the period	29				—				19				—				48

Level 3 (In millions)	Corporate bonds and other				Asset-backed				Equity securities				Total
Balance as of January 1, 2019	$	222			$	197			$	18			$	437
Total realized and unrealized investment gains (losses):
Reported in Net investment gains (losses)	—				—				2				2
Reported in Net investment income	—				—				—				—
Reported in Other comprehensive income (loss)	34				8				—				42
Total realized and unrealized investment gains (losses)	34				8				2				44
Purchases	211				42				2				255
Sales	—				—				—				—
Settlements	(7		)		(12		)		—				(19		)
Transfers into Level 3	—				45				—				45
Transfers out of Level 3	(32		)		(84		)		—				(116		)
Balance as of September 30, 2019	$	428			$	196			$	22			$	646
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Net income (loss) in the period	$	—			$	—			$	2			$	2
Unrealized gains (losses) on Level 3 assets and liabilities held as of September 30, 2019 recognized in Other comprehensive income (loss) in the period	29				9				—				38

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Valuation Methodologies and Inputs

The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.

Fixed Maturity Securities

Level 1 securities include highly liquid government securities and exchange traded bonds, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology, or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable.

Equity Securities

Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with some inputs that are not market observable.

Short Term and Other Invested Assets

Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented on the Condensed Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.

As of September 30, 2020 and December 31, 2019, there were $64 million and $60 million of overseas deposits within Other invested assets, which can be redeemed at net asset value in 90 days or less. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded using the net asset value per share (or equivalent) practical expedient.

Derivative Financial Investments

The embedded derivative on funds withheld liability is valued using the change in fair value of the assets supporting the funds withheld liability, which are fixed maturity securities primarily valued with observable inputs.

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Significant Unobservable Inputs

The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to the Company. The weighted average rate is calculated based on fair value.

September 30, 2020	Estimated Fair Value (In millions)				Valuation Technique(s)		Unobservable Input(s)		Range  (Weighted Average)
Fixed maturity securities	$	888			Discounted cash flow		Credit spread		1% - 10% (3%)

December 31, 2019	Estimated Fair Value (In millions)				Valuation Technique(s)		Unobservable Input(s)		Range  (Weighted Average)
Fixed maturity securities	$	525			Discounted cash flow		Credit spread		1% - 6% (2%)

For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value

The carrying amount and estimated fair value of the Company's financial assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are presented in the following tables.

September 30, 2020	Carrying Amount				Estimated Fair Value
(In millions)					Level 1				Level 2				Level 3				Total
Assets
Mortgage loans	$	1,088			$	—			$	—			$	1,159			$	1,159
Liabilities
Long term debt	$	2,776			$	—			$	3,118			$	—			$	3,118

December 31, 2019	Carrying Amount				Estimated Fair Value
(In millions)					Level 1				Level 2				Level 3				Total
Assets
Mortgage loans	$	994			$	—			$	—			$	1,025			$	1,025
Note receivable	21				—				—				21				21
Liabilities
Long term debt	$	2,679			$	—			$	2,906			$	—			$	2,906

In the first quarter of 2020, the note receivable was repaid in full. As of December 31, 2019, the note receivable was included within Other assets on the Condensed Consolidated Balance Sheets.

The carrying amounts reported on the Condensed Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain Other assets and Other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.

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Property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including incurred but not reported (IBNR) claims as of the reporting date. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to historical patterns such as claim reserving trends and settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions and economic conditions, including inflation, and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.

Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers' compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the Company's ultimate cost for insurance losses will not exceed current estimates.

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in our results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $160 million and $536 million for the three and nine months ended September 30, 2020. Net catastrophe losses for the three months ended September 30, 2020 were driven by severe weather related events, primarily Hurricanes Laura, Isaias and Sally, and the Midwest derecho. Net catastrophe losses for the nine months ended September 30, 2020 included $273 million related primarily to severe weather related events, $195 million related to the COVID-19 pandemic and $68 million related to civil unrest. The Company reported catastrophe losses, net of reinsurance, of $32 million and $128 million for the three and nine months ended September 30, 2019 related primarily to U.S. weather related events.

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Liability for Unpaid Claim and Claim Adjustment Expenses

The following table presents a reconciliation between beginning and ending claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves of the Life & Group segment.

For the nine months ended September 30
(In millions)	2020				2019
Reserves, beginning of year:
Gross	$	21,720			$	21,984
Ceded	3,835				4,019
Net reserves, beginning of year	17,885				17,965
Net incurred claim and claim adjustment expenses:
Provision for insured events of current year	4,425				3,968
Increase (decrease) in provision for insured events of prior years	(68		)		(65		)
Amortization of discount	143				143
Total net incurred (1)	4,500				4,046
Net payments attributable to:
Current year events	(556		)		(599		)
Prior year events	(3,285		)		(3,547		)
Total net payments	(3,841		)		(4,146		)
Foreign currency translation adjustment and other	39				29
Net reserves, end of period	18,583				17,894
Ceded reserves, end of period	3,951				3,702
Gross reserves, end of period	$	22,534			$	21,596

(1)	Total net incurred above does not agree to Insurance claims and policyholders' benefits as reflected on the Condensed Consolidated Statements of Operations due to amounts related to retroactive reinsurance deferred gain accounting, uncollectible reinsurance and benefit expenses related to future policy benefits, which are not reflected in the table above.

Net Prior Year Development

Changes in estimates of claim and claim adjustment expense reserves, net of reinsurance, for prior years are defined as net prior year loss reserve development (development). These changes can be favorable or unfavorable. The following table presents development recorded for the Specialty, Commercial, International and Corporate & Other segments.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Pretax (favorable) unfavorable development:
Specialty	$	(16	)		$	(20	)		$	(47	)		$	(58	)
Commercial	1				35				42				15
International	—				1				(3		)		14
Corporate & Other	—				—				—				—
Total pretax (favorable) unfavorable development	$	(15	)		$	16			$	(8	)		$	(29	)

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Specialty

The following table presents further detail of the development recorded for the Specialty segment.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Pretax (favorable) unfavorable development:
Medical Professional Liability	$	25			$	29			$	35			$	59
Other Professional Liability and Management Liability	—				(18		)		(6		)		(37		)
Surety	(40		)		(43		)		(70		)		(83		)
Warranty	—				—				(3		)		(7		)
Other	(1		)		12				(3		)		10
Total pretax (favorable) unfavorable development	$	(16	)		$	(20	)		$	(47	)		$	(58	)

Three Months

2020

Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years and unfavorable development on a latent claim for an older accident year.

Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior.

2019

Unfavorable development in medical professional liability was primarily due to higher than expected indemnity severity in accident years 2016 through 2018 in the Company's aging services business.

Favorable development in other professional liability and management liability was due to lower than expected large claim losses in recent accident years in the Company's public company directors and officers liability (D&O) business.

Favorable development in surety was due to lower than expected frequency for accident years 2015 through 2018.

Unfavorable development in other was primarily due to higher than expected severity in aging services related to auto liability coverages.

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Nine Months

2020

Unfavorable development in medical professional liability was primarily due to higher than expected frequency of large losses in recent accident years, unfavorable development on a latent claim for an older accident year and unfavorable outcomes on specific claims in accident years 2015 and 2016 in the Company's aging services business.

Favorable development in surety was due to lower than expected frequency and lack of systemic activity for accident years 2019 and prior.

2019

Unfavorable development in medical professional liability was primarily due to higher than expected indemnity severity in accident years 2016 through 2018 in the Company's aging services business, higher than expected severity in accident year 2013 in the Company's allied healthcare business, unfavorable outcomes on individual claims and higher than expected severity in accident year 2017 in the Company's dentists business.

Favorable development in other professional liability and management liability was primarily due to lower than expected claim frequency and favorable outcomes on individual claims in accident years 2017 and prior related to financial institutions and lower than expected large claim losses in recent accident years in the Company's public company D&O business.

Favorable development in surety was due to lower than expected frequency for accident years 2018 and prior.

Unfavorable development in other was primarily due to higher than expected severity in aging services related to auto liability coverages.

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Commercial

The following table presents further detail of the development recorded for the Commercial segment.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Pretax (favorable) unfavorable development:
Commercial Auto	$	9			$	(16	)		$	33			$	(24	)
General Liability	15				43				65				36
Workers' Compensation	(23		)		7				(97		)		2
Property and Other	—				1				41				1
Total pretax (favorable) unfavorable development	$	1			$	35			$	42			$	15

Three Months

2020

Unfavorable development in general liability was primarily due to increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in the Company’s umbrella business in accident years 2015 through 2019.

Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.

2019

Favorable development in commercial auto was primarily due to a decline in bodily injury frequency in accident year 2018 and continued lower than expected severity across accident years 2013 through 2016.

Unfavorable development in general liability was primarily due to higher than expected emergence in mass tort exposures related to accident years 2009 and prior, 2015 and 2016.

Nine Months

2020

Unfavorable development in commercial auto was due to unfavorable claim severity in the Company's middle market and construction business in accident years 2017 through 2019.

Unfavorable development in general liability was driven by higher than expected emergence in mass tort exposures, primarily due to New York reviver statute-related claims from accident years prior to 2010, increased bodily injury severities in accident years 2012 through 2016 and higher than expected frequency and severity in the Company’s umbrella business in accident years 2015 through 2019.

Favorable development in workers’ compensation was due to favorable medical trends driving lower than expected severity in multiple accident years.

Unfavorable development in property and other was primarily due to higher than expected large loss activity in accident year 2019 in the Company's middle market, national accounts and marine business units.

2019

Favorable development in commercial auto was primarily due to a decline in bodily injury frequency in accident year 2018 and continued lower than expected severity across accident years 2016 and prior.

Unfavorable development in general liability was primarily due to higher than expected emergence in mass tort exposures as well as higher than expected large loss experience in the Company's excess and umbrella business in accident year 2017.

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International

The following table presents further detail of the development recorded for the International segment.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Pretax (favorable) unfavorable development:
Casualty	$	(5	)		$	(6	)		$	(11	)		$	(11	)
Property, Energy and Marine(1)	9				4				10				23
Specialty	(4		)		3				(2		)		2
Total pretax (favorable) unfavorable development	$	—			$	1			$	(3	)		$	14

(1)	Effective January 1, 2020 the Property and Energy and Marine lines of business have been combined in the International segment. Prior period information has been conformed to the new line of business presentation.

Nine Months

2020

Favorable development in casualty was primarily driven by better than expected loss experience across Europe and Canada in multiple accident years.

Unfavorable development in property, energy and marine was driven by adverse attritional and large loss experience on discontinued lines, primarily in the Company’s construction and renewable energy business in recent accident years.

2019

Favorable development in casualty was driven by lower than expected large losses and claim severity in accident years 2014 and prior in Hardy and Europe.

Unfavorable development in property, energy and marine was driven by higher than expected claims in Hardy on 2018 accident year catastrophes.

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Asbestos and Environmental Pollution (A&EP) Reserves

In 2010, Continental Casualty Company (CCC) together with several of the Company’s insurance subsidiaries completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which substantially all of the Company’s legacy A&EP liabilities were ceded to NICO through a Loss Portfolio Transfer (LPT). At the effective date of the transaction, the Company ceded approximately $1.6 billion of net A&EP claim and allocated claim adjustment expense reserves to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 billion. The $1.6 billion of claim and allocated claim adjustment expense reserves ceded to NICO was net of $1.2 billion of ceded claim and allocated claim adjustment expense reserves under existing third-party reinsurance contracts. The NICO LPT aggregate reinsurance limit also covers credit risk on the existing third-party reinsurance related to these liabilities. The Company paid NICO a reinsurance premium of $2 billion and transferred to NICO billed third-party reinsurance receivables related to A&EP claims with a net book value of $215 million, resulting in total consideration of $2.2 billion.

In years subsequent to the effective date of the LPT, the Company recognized adverse prior year development on its A&EP reserves resulting in additional amounts ceded under the LPT. As a result, the cumulative amounts ceded under the LPT have exceeded the $2.2 billion consideration paid, resulting in the NICO LPT moving into a gain position, requiring retroactive reinsurance accounting. Under retroactive reinsurance accounting, this gain is deferred and only recognized in earnings in proportion to actual paid recoveries under the LPT. Over the life of the contract, there is no economic impact as long as any additional losses incurred are within the limit of the LPT. In a period in which the Company recognizes a change in the estimate of A&EP reserves that increases or decreases the amounts ceded under the LPT, the proportion of actual paid recoveries to total ceded losses is affected and the change in the deferred gain is recognized in earnings as if the revised estimate of ceded losses was available at the effective date of the LPT. The effect of the deferred retroactive reinsurance benefit is recorded in Insurance claims and policyholders' benefits in the Condensed Consolidated Statements of Operations.

The impact of the LPT on the Condensed Consolidated Statements of Operations was the recognition of a retroactive reinsurance benefit of $9 million and $7 million for the three months ended September 30, 2020 and 2019 and $43 million for the nine months ended September 30, 2020 and 2019. As of September 30, 2020 and December 31, 2019, the cumulative amounts ceded under the LPT were $3.2 billion. The unrecognized deferred retroactive reinsurance benefit was $349 million and $392 million as of September 30, 2020 and December 31, 2019 and is included within Other liabilities on the Condensed Consolidated Balance Sheets.

NICO established a collateral trust account as security for its obligations to the Company. The fair value of the collateral trust account was $3.5 billion and $3.7 billion as of September 30, 2020 and December 31, 2019. In addition, Berkshire Hathaway Inc. guaranteed the payment obligations of NICO up to the aggregate reinsurance limit as well as certain of NICO’s performance obligations under the trust agreement. NICO is responsible for claims handling and billing and collection from third-party reinsurers related to the majority of the Company’s A&EP claims.

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Life & Group Policyholder Reserves

The Company’s Life & Group segment includes its run-off long term care business as well as structured settlement obligations not funded by annuities related to certain property and casualty claimants. Long term care policies provide benefits for nursing homes, assisted living facilities and home health care subject to various daily and lifetime caps. Generally, policyholders must continue to make periodic premium payments to keep the policy in force and the Company has the ability to increase policy premiums, subject to state regulatory approval.

The Company maintains both claim and claim adjustment expense reserves as well as future policy benefit reserves for policyholder benefits for the Life & Group segment. Claim and claim adjustment expense reserves consist of estimated reserves for long term care policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported. In developing the claim and claim adjustment expense reserve estimates for long term care policies, the Company’s actuaries perform a detailed claim experience study on an annual basis. The study reviews the sufficiency of existing reserves for policyholders currently on claim and includes an evaluation of expected benefit utilization and claim duration. In addition, claim and claim adjustment expense reserves are also maintained for the structured settlement obligations. In developing the claim and claim adjustment expense reserve estimates for structured settlement obligations, the Company's actuaries monitor mortality experience on an annual basis. The Company’s recorded claim and claim adjustment expense reserves reflect management's best estimate after incorporating the results of the most recent studies.

The Company's most recent annual claim experience studies were completed in the third quarter of 2020 and resulted in a $46 million pretax increase in claim and claim adjustment expense reserve estimates for structured settlement obligations primarily due to lower discount rate assumptions and mortality assumption changes and a $37 million pretax reduction in claim and claim adjustment expense reserves for long term care policies primarily due to lower claim severity than anticipated in the reserve estimates. The Company's 2019 annual claim experience studies were completed in the third quarter of 2019 and resulted in a $56 million pretax reduction in claim and claim adjustment expense reserves for long term care policies primarily due to lower claim severity than anticipated in the reserve estimates.

Future policy benefit reserves represent the active life reserves related to the Company’s long term care policies for policyholders that are not currently receiving benefits, which represent the present value of expected future benefit payments and expenses less expected future premium. The determination of these reserves requires management to make estimates and assumptions about expected investment and policyholder experience over the life of the contract. Since many of these contracts may be in force for several decades, these assumptions are subject to significant estimation risk.

The actuarial assumptions that management believes are subject to the most variability are morbidity, persistency, discount rates and anticipated future premium rate increases. Morbidity is the frequency and severity of injury, illness, sickness and diseases contracted. Persistency is the percentage of policies remaining in force and can be affected by policy lapses, benefit reductions and death. Discount rates are influenced by the investment yield on assets supporting long term care reserves which is subject to interest rate and market volatility and may also be affected by changes to the Internal Revenue Code. Future premium rate increases are generally subject to regulatory approval, and therefore the exact timing and size of the approved rate increases are unknown. As a result of this variability, the Company’s long term care future policy benefit reserves may be subject to material increases if actual experience develops adversely to the Company’s expectations.

Annually, in the third quarter, management assesses the adequacy of its long term care future policy benefit reserves by performing a gross premium valuation (GPV) to determine if there is a premium deficiency. Under the GPV, management estimates required reserves using best estimate assumptions as of the date of the assessment without provisions for adverse deviation. The GPV required reserves are then compared to the existing recorded reserves. If the GPV required reserves are greater than the existing recorded reserves, the existing assumptions are unlocked and future policy benefit reserves are increased to the greater amount. Any such increase is reflected in the Company’s results of operations in the period in which the need for such adjustment is determined. If the GPV required reserves are less than the existing recorded reserves, assumptions remain locked in and no adjustment is required. Periodically, management engages independent third parties to assess the appropriateness of its best estimate assumptions. The most recent third party assessment, performed in 2019, validated the assumption setting process and confirmed the best estimate assumptions appropriately reflected the experience data at that time.

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The GPV for the long term care future policy benefit reserves, performed in the third quarter of 2020 and 2019, indicated a premium deficiency primarily driven by lower discount rate assumptions. Recognition of the premium deficiency resulted in a $74 million and a $216 million pretax increase in policyholders' benefits reflected in the Company's results of operations for the three and nine months ended September 30, 2020 and 2019.

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The Company is a party to various claims and litigation incidental to its business, which, based on the facts and circumstances currently known, are not material to the Company's results of operations or financial position.

Guarantees

As of September 30, 2020 and December 31, 2019, the Company had recorded liabilities of approximately $5 million related to guarantee and indemnification agreements. Management does not believe that any future indemnity claims will be significantly greater than the amounts recorded.

The Company has provided guarantees, if the primary obligor fails to perform, to holders of structured settlement annuities issued by a previously owned subsidiary. As of September 30, 2020, the potential amount of future payments the Company could be required to pay under these guarantees was approximately $1.7 billion, which will be paid over the lifetime of the annuitants. The Company does not believe any payment is likely under these guarantees, as the Company is the beneficiary of a trust that must be maintained at a level that approximates the discounted reserves for these annuities.

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The components of net periodic pension cost (benefit) are presented in the following table.

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Net periodic pension cost (benefit)
Interest cost on projected benefit obligation	$	20			$	25			$	60			$	75
Expected return on plan assets	(38		)		(36		)		(116		)		(107		)
Amortization of net actuarial (gain) loss	11				10				33				30
Settlement loss	—				—				2				—
Total net periodic pension cost (benefit)	$	(7	)		$	(1	)		$	(21	)		$	(2	)

For the three and nine months ended September 30, 2020, the Company recognized $2 million and $6 million of non-service benefit in Insurance claims and policyholders' benefits and $5 million and $15 million of non-service benefit in Other operating expenses. For the three and nine months ended September 30, 2019, the Company recognized less than $1 million and $1 million of non-service benefit in Insurance claims and policyholders' benefits and less than $1 million and $1 million of non-service benefit in Other operating expenses.

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The tables below display the changes in Accumulated other comprehensive income (loss) by component.

(In millions)	Net unrealized gains (losses) on investments with an allowance for credit losses(1)				Net unrealized gains (losses) on other investments(1)				Pension and postretirement benefits				Cumulative foreign currency translation adjustment				Total
Balance as of July 1, 2020	$	(9	)		$	1,172			$	(815	)		$	(194	)		$	154
Other comprehensive income (loss) before reclassifications	2				231				(2		)		37				268
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $1, $(7), $2, $- and $(4)	(4		)		24				(9		)		—				11
Other comprehensive income (loss) net of tax (expense) benefit of $(1), $(56), $(3), $- and $(60)	6				207				7				37				257
Balance as of September 30, 2020	$	(3	)		$	1,379			$	(808	)		$	(157	)		$	411

(In millions)	Net unrealized gains (losses) on investments with OTTI losses(1)				Net unrealized gains (losses) on other investments(1)				Pension and postretirement benefits				Cumulative foreign currency translation adjustment				Total
Balance as of July 1, 2019	$	20			$	1,023			$	(760	)		$	(163	)		$	120
Other comprehensive income (loss) before reclassifications	—				44				—				(29		)		15
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $-, $-, $2, $- and $2	—				3				(7		)		—				(4		)
Other comprehensive income (loss) net of tax (expense) benefit of $-, $(11), $(2), $- and $(13)	—				41				7				(29		)		19
Balance as of September 30, 2019	$	20			$	1,064			$	(753	)		$	(192	)		$	139

(1)

As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Net unrealized gains (losses) on investments with OTTI losses column that tracked the change in unrealized gains (losses) on investments with OTTI losses has been replaced with the Net unrealized gains (losses) on investments with an allowance for credit losses column. The balances previously reported in the Net unrealized gains (losses) on investments with OTTI losses column are now reported in the Net unrealized gains (losses) on other investments column.

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(In millions)	Net unrealized gains (losses) on investments with an allowance for credit losses(1)				Net unrealized gains (losses) on other investments(1)				Pension and postretirement benefits				Cumulative foreign currency translation adjustment				Total
Balance as of January 1, 2020	$	—			$	1,025			$	(833	)		$	(141	)		$	51
Other comprehensive income (loss) before reclassifications	(48		)		374				(3		)		(16		)		307
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $12, $(5), $7, $- and $14	(45		)		20				(28		)		—				(53		)
Other comprehensive income (loss) net of tax (expense) benefit of $1, $(92), $(7), $- and $(98)	(3		)		354				25				(16		)		360
Balance as of September 30, 2020	$	(3	)		$	1,379			$	(808	)		$	(157	)		$	411

(In millions)	Net unrealized gains (losses) on investments with OTTI losses(1)				Net unrealized gains (losses) on other investments(1)				Pension and postretirement benefits				Cumulative foreign currency translation adjustment				Total
Balance as of January 1, 2019	$	16			$	61			$	(775	)		$	(180	)		$	(878	)
Other comprehensive income (loss) before reclassifications	3				999				(1		)		(12		)		989
Amounts reclassified from accumulated other comprehensive income (loss) net of tax (expense) benefit of $-, $1, $6, $- and $7	(1		)		(4		)		(23		)		—				(28		)
Other comprehensive income (loss) net of tax (expense) benefit of $(2), $(266), $(6), $- and $(274)	4				1,003				22				(12		)		1,017
Balance as of September 30, 2019	$	20			$	1,064			$	(753	)		$	(192	)		$	139

(1)

As of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Net unrealized gains (losses) on investments with OTTI losses column that tracked the change in unrealized gains (losses) on investments with OTTI losses has been replaced with the Net unrealized gains (losses) on investments with an allowance for credit losses column. The balances previously reported in the Net unrealized gains (losses) on investments with OTTI losses column are now reported in the Net unrealized gains (losses) on other investments column.

Amounts reclassified from Accumulated other comprehensive income (loss) shown above are reported in Net income (loss) as follows:

Component of AOCI		Condensed Consolidated Statements of Operations Line Item Affected by Reclassifications
Net unrealized gains (losses) on investments with an allowance for credit losses, Net unrealized gains (losses) on investments with OTTI losses and Net unrealized gains (losses) on other investments		Net investment gains (losses)
Pension and postretirement benefits		Other operating expenses and Insurance claims and policyholders' benefits

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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.

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

Three months ended September 30, 2020	Specialty				Commercial				International				Life & Group				Corporate & Other
(In millions)																					Eliminations				Total
Operating revenues
Net earned premiums	$	734			$	857			$	236			$	127			$	—			$	(1	)		$	1,953
Net investment income	126				165				15				208				3				—				517
Non-insurance warranty revenue	317				—				—				—				—				—				317
Other revenues	—				6				—				—				—				—				6
Total operating revenues	1,177				1,028				251				335				3				(1		)		2,793
Claims, benefits and expenses
Net incurred claims and benefits	433				673				150				363				(8		)		—				1,611
Policyholders’ dividends	—				5				—				—				—				—				5
Amortization of deferred acquisition costs	158				150				52				—				—				—				360
Non-insurance warranty expense	293				—				—				—				—				—				293
Other insurance related expenses	66				127				31				28				—				(1		)		251
Other expenses	14				7				(8		)		3				34				—				50
Total claims, benefits and expenses	964				962				225				394				26				(1		)		2,570
Core income (loss) before income tax	213				66				26				(59		)		(23		)		—				223
Income tax (expense) benefit on core income (loss)	(45		)		(14		)		1				24				4				—				(30		)
Core income (loss)	$	168			$	52			$	27			$	(35	)		$	(19	)		$	—			193
Net investment gains (losses)																									27
Income tax (expense) benefit on net investment gains (losses)																									(7		)
Net investment gains (losses), after tax																									20
Net income (loss)																									$	213

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Three months ended September 30, 2019	Specialty				Commercial				International				Life & Group				Corporate & Other
(In millions)																					Eliminations				Total
Operating revenues
Net earned premiums	$	712			$	813			$	236			$	130			$	—			$	(1	)		$	1,890
Net investment income	121				136				17				207				6				—				487
Non-insurance warranty revenue	292				—				—				—				—				—				292
Other revenues	1				10				(1		)		(1		)		1				(1		)		9
Total operating revenues	1,126				959				252				336				7				(2		)		2,678
Claims, benefits and expenses
Net incurred claims and benefits	411				564				163				476				(7		)		—				1,607
Policyholders’ dividends	2				5				—				—				—				—				7
Amortization of deferred acquisition costs	155				134				56				—				—				—				345
Non-insurance warranty expense	278				—				—				—				—				—				278
Other insurance related expenses	71				123				35				29				—				(1		)		257
Other expenses	13				9				7				1				35				(1		)		64
Total claims, benefits and expenses	930				835				261				506				28				(2		)		2,558
Core income (loss) before income tax	196				124				(9		)		(170		)		(21		)		—				120
Income tax (expense) benefit on core income (loss)	(43		)		(27		)		—				48				4				—				(18		)
Core income (loss)	$	153			$	97			$	(9	)		$	(122	)		$	(17	)		$	—			102
Net investment gains (losses)																									7
Income tax (expense) benefit on net investment gains (losses)																									(2		)
Net investment gains (losses), after tax																									5
Net income (loss)																									$	107

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Nine months ended September 30, 2020	Specialty				Commercial				International				Life & Group				Corporate & Other
(In millions)																					Eliminations				Total
Operating revenues
Net earned premiums	$	2,124			$	2,470			$	699			$	380			$	—			$	(1	)		$	5,672
Net investment income	315				389				44				622				10				—				1,380
Non-insurance warranty revenue	926				—				—				—				—				—				926
Other revenues	1				18				—				—				3				(3		)		19
Total operating revenues	3,366				2,877				743				1,002				13				(4		)		7,997
Claims, benefits and expenses
Net incurred claims and benefits	1,346				1,897				480				983				(40		)		—				4,666
Policyholders’ dividends	2				15				—				—				—				—				17
Amortization of deferred acquisition costs	462				441				143				—				—				—				1,046
Non-insurance warranty expense	859				—				—				—				—				—				859
Other insurance related expenses	208				378				106				79				(1		)		(1		)		769
Other expenses	37				26				3				6				108				(3		)		177
Total claims, benefits and expenses	2,914				2,757				732				1,068				67				(4		)		7,534
Core income (loss) before income tax	452				120				11				(66		)		(54		)		—				463
Income tax (expense) benefit on core income (loss)	(98		)		(24		)		4				49				6				—				(63		)
Core income (loss)	$	354			$	96			$	15			$	(17	)		$	(48	)		$	—			400
Net investment gains (losses)																									(120		)
Income tax (expense) benefit on net investment gains (losses)																									23
Net investment gains (losses), after tax																									(97		)
Net income (loss)																									$	303

September 30, 2020
(In millions)
Reinsurance receivables	$	855			$	948			$	253			$	401			$	1,937			$	—			$	4,394
Insurance receivables	1,015				1,267				269				7				1				—				2,559
Deferred acquisition costs	324				285				88				—				—				—				697
Goodwill	117				—				29				—				—				—				146
Deferred non-insurance warranty acquisition expense	2,998				—				—				—				—				—				2,998
Insurance reserves
Claim and claim adjustment expenses	5,698				9,054				1,975				3,766				2,041				—				22,534
Unearned premiums	2,550				1,847				502				121				—				—				5,020
Future policy benefits	—				—				—				12,978				—				—				12,978
Deferred non-insurance warranty revenue	3,951				—				—				—				—				—				3,951

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Nine months ended September 30, 2019	Specialty				Commercial				International				Life & Group				Corporate & Other
(In millions)																					Eliminations				Total
Operating revenues
Net earned premiums	$	2,061			$	2,339			$	729			$	390			$	—			$	(2	)		$	5,517
Net investment income	410				480				47				616				20				—				1,573
Non-insurance warranty revenue	858				—				—				—				—				—				858
Other revenues	1				20				—				—				5				(4		)		22
Total operating revenues	3,330				2,839				776				1,006				25				(6		)		7,970
Claims, benefits and expenses
Net incurred claims and benefits	1,198				1,581				472				1,093				(40		)		—				4,304
Policyholders’ dividends	4				15				—				—				—				—				19
Amortization of deferred acquisition costs	454				391				180				—				—				—				1,025
Non-insurance warranty expense	801				—				—				—				—				—				801
Other insurance related expenses	217				372				94				87				(2		)		(2		)		766
Other expenses	37				27				14				5				108				(4		)		187
Total claims, benefits and expenses	2,711				2,386				760				1,185				66				(6		)		7,102
Core income (loss) before income tax	619				453				16				(179		)		(41		)		—				868
Income tax (expense) benefit on core income (loss)	(136		)		(97		)		(2		)		74				7				—				(154		)
Core income (loss)	$	483			$	356			$	14			$	(105	)		$	(34	)		$	—			714
Net investment gains (losses)																									20
Income tax (expense) benefit on net investment gains (losses)																									(7		)
Net investment gains (losses), after tax																									13
Net income (loss)																									$	727

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

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

Periods ended September 30	Three Months								Nine Months
(In millions)	2020				2019				2020				2019
Specialty
Management & Professional Liability	$	668			$	638			$	1,881			$	1,903
Surety	153				156				444				446
Warranty & Alternative Risks	356				332				1,041				981
Specialty revenues	1,177				1,126				3,366				3,330
Commercial
Middle Market	381				357				1,071				1,065
Construction (1)	298				265				823				754
Small Business	126				124				352				377
Other Commercial	223				213				631				643
Commercial revenues	1,028				959				2,877				2,839
International
Canada	73				70				214				204
Europe	96				91				282				270
Hardy	82				91				247				302
International revenues	251				252				743				776
Life & Group revenues	335				336				1,002				1,006
Corporate & Other revenues	3				7				13				25
Eliminations	(1		)		(2		)		(4		)		(6		)
Total operating revenues	2,793				2,678				7,997				7,970
Net investment gains (losses)	27				7				(120		)		20
Total revenues	$	2,820			$	2,685			$	7,877			$	7,990

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

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The Company reported $4.0 billion of Deferred non-insurance warranty revenue as of September 30, 2020 and $3.8 billion as of December 31, 2019. For the three and nine months ended September 30, 2020, the Company recognized $262 million and $826 million of revenues that were included in the deferred revenue balance as of January 1, 2020. For the three and nine months ended September 30, 2019, the Company recognized $236 million and $747 million of revenues that were included in the deferred revenue balance as of January 1, 2019. For the three and nine months ended September 30, 2020 and 2019, Non-insurance warranty revenue recognized from performance obligations related to prior periods due to a change in estimate was not material. The Company expects to recognize approximately $0.3 billion of the deferred revenue in the remainder of 2020, $1.1 billion in 2021, $0.9 billion in 2022 and $1.7 billion thereafter.

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The Company has established an allowance for uncollectible reinsurance receivables which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. For assessing expected credit losses, the Company separates reinsurance receivables into two pools: voluntary reinsurance receivables and involuntary reinsurance exposures to mandatory pools. The Company has not recorded an allowance for involuntary pools as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on voluntary reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. If the reinsurer is unrated, an internal financial strength rating is assigned based on the Company’s historical loss experience and the Company’s assessment of reinsurance counterparty risk profile, which generally corresponds with a B rating. Changes in the allowance are presented as a component of Insurance claims and policyholders' benefits on the Condensed Consolidated Statements of Operations.

The following table summarizes the outstanding amount of voluntary reinsurance receivables, gross of any collateral arrangements, by financial strength rating.

(In millions)	September 30, 2020
A- to A++	$	2,729
B- to B++	874
Insolvent	4
Total voluntary reinsurance outstanding balance(1)	$	3,607

(1)	Expected credit losses for legacy A&EP receivables are ceded to NICO and the reinsurance limit on the LPT has not been exhausted, therefore no allowance is recorded for these receivables and they are excluded from the table above. Refer to Note E for information regarding the LPT. The Company has also excluded receivables from involuntary pools.

Voluntary reinsurance receivables within the B- to B++ rating distribution are primarily due from captive reinsurers and backed by collateral arrangements.

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•	Insurance Reserves

•	Long Term Care Reserves

•	Reinsurance and Insurance Receivables

•	Valuation of Investments and Impairment of Securities

•	Income Taxes

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(1)	To the extent that unrealized gains on fixed income securities supporting long term care products and annuity contracts would result in a premium deficiency if those gains were realized, an increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).

(2)	Ceded reserves relate to claim or policy reserves fully reinsured in connection with a sale or exit from the underlying business.

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•	During the nine months ended September 30, 2020, we paid dividends of $850 million and repurchased 435,376 shares of our common stock at an aggregate cost of $18 million.

•	In the third quarter of 2020, we issued $500 million of 2.05% senior notes due August 15, 2030 and redeemed the $400 million outstanding aggregate principal balances of our 5.750% senior notes due August 15, 2021.

•	During the nine months ended September 30, 2019, we paid dividends of $834 million and repurchased 415,695 shares of our common stock at an aggregate cost of $18 million.

•	In the second quarter of 2019, we issued $500 million of 3.90% senior notes due May 1, 2029 and redeemed the $500 million outstanding aggregate principal balances of our 5.875% senior notes due August 15, 2020.

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•

the risks and uncertainties associated with our insurance reserves, as outlined in the Critical Accounting Estimates and the Reserves - Estimates and Uncertainties sections of our 2019 Annual Report on Form 10-K and this report, including the sufficiency of the reserves and the possibility for future increases, which would be reflected in the results of operations in the period that the need for such adjustment is determined;

•	the risk that the other parties to the transaction in which, subject to certain limitations, we ceded our legacy A&EP liabilities will not fully perform their obligations to CNA, the uncertainty in estimating loss reserves for A&EP liabilities and the possible continued exposure of CNA to liabilities for A&EP claims that are not covered under the terms of the transaction;

•	the performance of reinsurance companies under reinsurance contracts with us; and

•	the risks and uncertainties associated with potential acquisitions and divestitures, including the consummation of such transactions, the successful integration of acquired operations and the potential for subsequent impairment of goodwill or intangible assets.

•

the COVID-19 pandemic, and actions seeking to mitigate the spread of the virus, have resulted in significant risk across our enterprise, as economic uncertainty and depressed business conditions brought on by the crisis may materially and adversely impact our business, drive significant decreases in our premium volume and result in significant losses in our investment portfolio, increased claim and litigation activity and unfavorable regulatory outcomes.

•	the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;

•	product and policy availability and demand and market responses, including the level of ability to obtain rate increases and decline or non-renew underpriced accounts, to achieve premium targets and profitability and to realize growth and retention estimates;

•

general economic and business conditions, including recessionary conditions that may decrease the size and number of our insurance customers and create additional losses to our lines of business, especially those that provide management and professional liability insurance, as well as surety bonds, to businesses engaged in real estate, financial services and professional services and inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;

•	conditions in the capital and credit markets, including uncertainty and instability in these markets, as well as the overall economy, and their impact on the returns, types, liquidity and valuation of our investments;

•	conditions in the capital and credit markets that may limit our ability to raise significant amounts of capital on favorable terms; and

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•	the possibility of changes in our ratings by ratings agencies, including the inability to access certain markets or distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices.

•

regulatory and legal initiatives and compliance with governmental regulations and other legal requirements, including with respect to cyber security protocols, legal inquiries by state authorities, judicial interpretations within the regulatory framework, including interpretation of policy provisions, decisions regarding coverage and theories of liability, legislative actions that increase claimant activity, including those revising applicability of statutes of limitations, trends in litigation and the outcome of any litigation involving us and rulings and changes in tax laws and regulations;

•	regulatory limitations, impositions and restrictions upon us, including with respect to our ability to increase premium rates, and the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies; and

•	regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our insurance subsidiaries, imposed by regulatory authorities, including regulatory capital adequacy standards.

•	weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, wildfires, rain, hail and snow;

•	regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;

•	man-made disasters, including the possible occurrence of terrorist attacks, the unpredictability of the nature, targets, severity or frequency of such events, and the effect of the absence or insufficiency of applicable terrorism legislation on coverages;

•	the occurrence of epidemics and pandemics; and

•	mass tort claims, including those related to exposure to potentially harmful products or substances such as glyphosate, lead paint and opioids; and claims arising from changes that repeal or weaken tort reforms, such as those related to abuse reviver statutes.

•

in 2016, the U.K. approved an exit from the E.U., commonly referred to as "Brexit.” While the withdrawal of the U.K. from the E.U. was official as of January 31, 2020, until the transition period ends, there remains a lack of specificity and detail regarding the long term relationship between the two sides and how businesses operating in both jurisdictions may be affected. In any event, effective January 1, 2019, our E.U. business is no longer handled out of our U.K.-domiciled subsidiary, but through our European subsidiary in Luxembourg, which was established specifically to address the departure of the U.K. from the E.U. and to seek to ensure the Company’s ability to operate effectively throughout the E.U. As a result, the complexity and cost of regulatory compliance of our European business has increased and will likely continue to result in elevated expenses.

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