Fitch Ratings has affirmed Loews Corporation's Long-Term Issuer Default Rating (IDR) and senior unsecured notes at 'A'.

The Rating Outlook remains Stable.

In accordance with Fitch's Investment Holding Companies Rating Criteria, the most important driver in assessing Loews' IDR is the quality of its income stream. Loews' rating is supported by the Fitch-calculated Blended Income Stream Rating (BBB+), and additional uplift from other factors specified in the holding companies' criteria. The Stable Outlook also reflects the rating of majority-owned subsidiary CNA Financial Corporation (A-/Stable), which accounts for the majority of Loews' income stream.

Key Rating Drivers

Steady CNA Dividends: The majority of dividends paid to parent Loews come from subsidiary CNA Financial. In 2023, Fitch expects special and regular dividends to total approximately $702 million, down modestly from 2022's level of $876 million. Dividends are expected to be lower for Loews to bolster capital in support of robust premium growth at CNA. Fitch views CNA's 2022 performance as strong, with one of the best financial performances in the company's history. Net written premiums grew 9% YoY, while catastrophe losses were 3% of the combined ratio, down from 5.1% in 2021. Higher favorable prior year development of 1% also contributed to solid results.

Fitch currently rates CNA's LT IDR 'A-' with a Stable Outlook, reflecting the company's favorable financial performance, capital, and debt servicing capabilities and financial flexibility. Offsetting these positives is CNA's exposure to the runoff of the long-term care (LTC) business and a modestly elevated expense ratio.

Strong Dividend Stream from Boardwalk: Boardwalk Pipelines, LP (BWP) is generating increasing FCF given moderating capex requirements. Fitch expects dividends from Boardwalk in 2023 could be up to $300 million, representing an increase over 2022's $102 million level, as excess cash remaining on the balance sheet after capex may be distributed to the parent. Over time, Fitch expects run rate dividends from Boardwalk to trend above the historical range as FCF improves. In February 2022, Fitch upgraded BWP's IDR to 'BBB'/Outlook Stable from 'BBB-'. The upgrade and Stable Outlook reflect the reduction in leverage following a trend of rising EBITDA in Fitch's forecast, and the completion of its major expansion projects enabled by support from its parent, Loews Corporation.

High Revenue Concentration: While Loews' subsidiaries operate in diverse industries, Fitch views Loews' income stream as having low diversity. CNA generated over 90% of dividend income and 80% of total income for Loews since 2015, which marked the beginning of the downturn in energy and dividends from energy-related investments. The BWP buy-in in 2018 modestly reduced parent reliance on CNA dividends but has remained flat, and Fitch does not expect Loews Hotels or Altium will be regular dividend payers.

Robust Credit Metrics: Loews' credit metrics are consistent with the 'A' rating category and support a two-notch uplift to the Blended Income Stream Rating. Fitch uses a hybrid of cash flow-based and loan-to-value metrics in its assessment of Loews' financial structure. As of YE 2022, the Fitch-calculated interest coverage was 11.1x, gross debt to dividend income was 2.4x, while loan to value was also strong at 14.3%. However, the amount of headroom in the Blended Income Stream Rating itself is constrained.

Conservative Financial Strategy: Management's conservative capital policy also supports the rating. Loews' capital structure contains modest levels of long-dated holdco debt and has had negative net debt over the past decade. The debt lacks material financial covenants, and has no cross defaults to subsidiary-level debt. The company's large, highly liquid investment portfolio further anchors Loews' financial flexibility.

Adequate Revenue Stability: Consolidated dividend payments have shown reasonable stability, despite changes in their underlying composition, highlighting the benefit of a noncorrelated portfolio of subsidiaries. In 2023, Fitch anticipates solid CNA dividends in line with historical levels. Fitch considers the revenues from the investment portfolio as a durable income stream despite some volatility in the investment portfolio, and includes them in the assessment of Loews' credit profile.

Derivation Summary

In accordance with Fitch's Investment Holding Companies Rating Criteria, the most important driver in assessing Loews' IDR is the quality of its income stream. The Fitch-calculated Blended Income Stream Rating for Loews was 'BBB+' based on the weighted projected contributions from CNA Financial, Boardwalk Pipeline and Loews net investment income. Both CNA and BWP are Fitch-rated entities, which together contributed approximately 90% of the expected blended income stream for Loews, with the rest made up of investment income.

Other Loews subsidiaries were excluded from the Blended Income Stream Calculation based on the lack of recent dividends to the parent or Fitch's expectation that such dividends would not be recurring. This includes Loews Hotels, currently in expansion mode, and Altium Packaging, which paid a $199 million dividend to its parent in 2021 as a one-time distribution linked to the company's recapitalization, and which is focusing on investment opportunities in the fragmented packaging industry. Separately, Fitch notes that Loews has comfortable cash coverage ratios for the rating category, so that dividends from other subsidiaries are not needed to maintain comfortable cash coverage ratios for the parent rating.

Fitch considers Loews to have low dividend diversification despite owning four largely uncorrelated businesses, because its investment in CNA generates most of its income. Fitch applies no rating upgrade from diversification to Loews' rating.

However, Loews' rating receives a positive two-notch upgrade from supplemental rating factors, including good financial structure, with a loan-to-value ratio well below 25%; high dividend to gross interest coverage and low gross debt to dividend metrics leverage; robust ability to cover its maturities given its negative net debt position; good dividend stability; and a clear commitment to maintain a conservative investment and financial policy. The two-notch upgrade is toward the high end of the maximum three-notch uplift Fitch may apply under its criteria. Both cash flow-based and value-based leverage metrics were used in the rating derivation for Loews.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer

CNA dividends to parent of $702 million in 2023, $729 million in 2024 and $757 million in 2025;

BWP dividends of $300 million in 2023 then toward to modestly above historical trends thereafter;

No dividends paid to parent from Altium Packaging or Loews Hotels over the forecast period;

No additional acquisitions over the forecast period;

$100 million in run-rate investments in subsidiaries;

$500 million March 2023 bond maturity paid from cash;

Excess cash mostly funnelled to share buybacks.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Improvements in the underlying credit quality of investees resulting in an upgrade to Loews' Fitch-calculated Blended Income Stream Rating;

Material improvement in dividend diversification resulting in an additional upgrade above the Blended Income Stream Rating.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Deterioration in the underlying credit quality of investees resulting in a downgrade to Loews' Fitch-calculated Blended Income Stream Rating;

Material decline in one or more supplemental rating factors leading to a reduction in the current upgrade in notching;

Change in investment or financial policy at the holding company level resulting in acquisitions and/or shareholder-friendly actions inconsistent with the current ratings profile;

Increased volatility in dividends received at the parent, or increased restrictions on ability to upstream dividends to the parent.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

Strong Liquidity Position: Loews' liquidity is anchored by its large, highly liquid investment portfolio. Management's strategy is to hold significant amounts of cash and low risk equivalents to moderate the effect of a down cycle in the markets, both for defensive reasons and to allow the company to act opportunistically if attractive M&A prospects emerge. Loews' investment portfolio has averaged just around $3.5 billion over the past five years and has recently been invested around 81% in highly liquid Treasuries and related government securities. As of Dec. 31, 2022, the investment portfolio stood at $3.24 billion. Loews has a long-dated, well-laddered debt maturity profile stretching to 2043, with one maturity of $500 million in 2023 which it intends to pay in cash. The holding company is not subject to any material financial covenants, and its debt does not have any cross defaults to any subsidiary-level financial obligations.

Issuer Profile

Loews Corporation (NYSE: L) is a diversified holding company which currently owns one publicly-traded subsidiaries - CNA Financial Corporation (NYSE: CNA-90.0% owned), along with three privately owned operating subsidiaries: Boardwalk Pipeline Partners, LP (BWP-100% owned), Loews Hotels & Co (100% owned) and Altium Packaging (f/k/a Consolidated Container Company LLC (CCC-53% owned).

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Not applicable as there is no navigator

RATING ACTIONS

Entity / Debt

Rating

Prior

Loews Corporation

LT IDR

A

Affirmed

A

senior unsecured

LT

A

Affirmed

A

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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