Loews (L)

• Article
• Discussion
• Edit
• History
• Bookmark

See all Bulls Reasons Bulls: Reasons To Buy Commitment to CNA has allowed it to fully pay off its debt 0% agree Commitment to CNA has allowed it to fully pay off its debt Loews Corporation’s commitment to CNA has allowed it to fully pay off its debt. View or Edit Reason 0 votes 0% agree Lorillard = Strength in Menthol 0% agree Lorillard = Strength in Menthol Lorillard has a strong presence in the menthol category which is the only category of cigarettes that has retained its consumer demand. View or Edit Reason 0 votes 0% agree Newport continues to gain ground with strong customer loyalty 0% agree Newport continues to gain ground with strong customer loyalty Newport is the second-largest cigarette brand in the US and it commands strong brand loyalty, steadily increasing its market share from 4.6% to 9% from 1990 to 2005. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Can't beat the Marlboro Man 0% agree Can't beat the Marlboro Man Though Newport is the second-largest cigarette brand in the country, it is vastly outsold by the leading brand, Marlboro (owned by Altria Group). View or Edit Reason 0 votes 0% agree Health effects of smoking continue to weigh heavily on cigarette demand 0% agree Health effects of smoking continue to weigh heavily on cigarette demand Anti-smoking campaigns and legislation restricting public smoking continue to negatively influence consumer market demand for cigarettes. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Tk Kryssia Uraguchi Related Articles Altria Group (MO) Cigarette excise taxes U.S. Economic Cycles Health & Wellness Hilton Hotels Related Blog Posts » See All Related Posts powered by Wikinvest Wire

This article discusses the holding company Loews. For the home improvement company, see Lowe's Companies (LOW).

Loews Corporation (NYSE: L) is a holding company with subsidiaries in the fields of natural gas transportation, luxury watch brands, property-casualty insurance, offshore drilling, hotels, and cigarettes. Loews management members are active in each of the subsidiaries’ boards --ensuring that the companies are always run in compliance with the Loews approach to investing. Loews is historically a conservative investor who maintains an ample amount of cash on reserve --$5.6 billion currently-- to provide the flexibility to act when needed on a new acquisition or to revive a struggling subsidiary. In 2006 Loews posted $17.9B in revenue with $2.5B in net income.

Loews does not invest in the latest technologies or consumer fads, preferring to buy businesses that are in financial trouble --at a price far below their value-- then nurture them into profit-turning assets over time. Approximately 85% of Loews’s revenue comes from just two of its subsidiaries --CNA Financial Corporation (insurance) and Lorillard, Inc. (cigarettes). CNA posted $1.1B in net income in 2006, suffered a $305MM revenue loss just a year earlier. Lorillard produces the Newport brand, the 2nd largest cigarette brand in the United States. Although Lorillard is currently a dominant player in the market it faces growing competition from other brands, notably those that also offer smokeless tobacco products. It also faces a declining customer base as government mandated health and wellness campaigns continue to take their toll.

[edit] History

Loews Corporation has, since the early 20th century, been successful in maintaining and adding to its liquid assets, while also taking advantage of struggling businesses in need of a bail out. In 1960, they took over Loews Theatres, razing several of the properties and selling the lots to real estate developers for a profit. In 1968, Lorillard was rapidly declining in market share value. Loews bought it, changed management, and turned it around. Loews did the same for Diamond Offshore Drilling, Bulova, and CNA which Loews boosted in 1974 from a $208 million loss to a $110 million profit in 1975. This pattern of stringent investing and acquisition remains the reason why Loews is able to maintain profitability in the face of ever-changing consumer whims.

[edit] Company Overview

[edit] Boardwalk Pipeline Partners, LP

Boardwalk Pipeline is comprised of two natural gas pipeline systems, Texas Gas and Gulf South, which cover 11 states with storage fields in 4 states. Boardwalk recently commenced projects to increase the scope of its network: East Texas to Mississippi Expansion, Gulf Crossing, Southeast Expansion, Fayetteville Shale, and Western Kentucky Storage Expansion. Loews owns 81.6% of Boardwalk Pipeline which accounts for 3% of its revenue.

[edit] Bulova Corporation

Bulova distributes luxury watches and clocks under the brands Bulova, Caravelle, Accutron, and Wittnauer. Bulova is the largest and best performing, seeing a 31% increase in sales from 2004 to 2006. Accutron and Wittnauer did well in the Swiss watch markets; Bulova increased sales in Canada, Mexico, and Italy. Loews owns 100% of Bulova.

[edit] CNA Financial Corporation

CNA Financial offers several forms of insurance including property, casualty, and marine liability to individuals, and management and professional liability insurance to several firms. CNA is the seventh-largest commercial insurer and fourteenth-largest property and casualty insurer in the nation. Over the last 2 years CNA's underwriters have cut costs and increased income by increasing client retention, selling additional CNA products to existing customers, and adding select new business --particularly in the profitable segment of large property coverage. By selling more coverage to existing customers, CNA gains more insight into underwriting making them better able to asses risk and make smarter decisions about types of coverage to offer and how to market them. Also, CNA staves off potential poaching by competitors by offering more services to clients who otherwise may have sought additional coverage elsewhere. The changes at CNA have resulted in drastically improved ratings by major credit rating agencies, and a full pay off of its debt to Loews.

In 2006, CNA’s net income reached $1.1 billion- up from a from a loss the previous year. Premium production climbed 4% from 2005. Customer renewal was 83% and new business made up 19% of the total premiums. Loews owns 91% of CNA which accounts for 62% of its revenue.

[edit] Diamond Offshore, Inc.

Diamond Offshore is an offshore drilling company which concentrates on securing contracts in the deepwater and mid-water drilling sectors. Diamond Offshore’s presence in the North Sea and Asia Pacific region enabled it to benefit from the increasing global mid-water market which offers the greatest number of contract opportunities. Loews owns 54.3% of Diamond Offshore which accounts for 8% of its revenue.

[edit] Loews Hotels

Loews Hotels is a leading luxury hotel chain with 18 hotels and resorts in both the United States and Canada. Loews Hotels recently acquired the Loews Lake Las Vegas Resort and assumed management of The Madison in Washington, DC. Revenue for Loews Hotels increased by $21 million to $371 million from 2005 to 2006. Occupancy also rose to 76.3% from 75.8%. Loews owns 100% of Loews Hotels which accounts for 2% of its revenue.

[edit] Lorillard, Inc.

Lorillard is the nation’s oldest tobacco company. It owns the brands Newport, Kent, True, Old Gold, and Maverick, with Newport as its flagship brand and greatest source of revenue. About 90% of Lorillard’s supply volume is Newport. Lorillard’s net income rose from $706 million in 2005 to $826 million in 2006. Loews owns 100% of Lorillard which accounts for 23% of its revenue.

[edit] How Loews Makes Money

[edit] Products and Strategy

Lorillard’s tobacco products include the brands Newport, Kent, True, Old Gold, and Maverick --and a smokeless tobacco product line in development with Swedish Match North America. Newport accounts for 92% of Lorillard’s sales volume; therefore, Lorillard’s strategy focuses heavily on increasing Newport’s total sales as well as its percent of the total premium market. In 2006, Newport remained the second-largest cigarette brand in the country with a market share having grown to 9%. Newport’s performance helped make Lorillard the only major cigarette manufacturer in the US who saw gains in both domestic market share and unit volume for the year.

[edit] Capital Allocation and Tracking Stock

Two features of the Loews investment strategy which distinguish Loews from competitors are its use of capital allocation and tracking stock.

[edit] Capital Allocation

A key factor in the Loews business methodology is its maintenance of a large cash reserve. From 2004 to 2006 Loews’s net cash has more than doubled leaving it currently at around $5.6 billion. Loews’s cash represents nearly 18% of the company’s annual worth.

In keeping with the Loews approach to management, a portion of the cash reserve was used to pay off debt from previously embroiled CNA by retiring an under-performing stock --a move which resulted in Loews receiving a $735 million payout in 2006. Loews Corporation also received approximately $120 million in dividends and sold 15 million shares of Lorillard stock which brought in $876 million to the cash reserve.

Sustaining a wealth of liquid assets is of paramount importance to Loews Corporation. It is one of the primary reasons why Loews’s subsidiaries are able to climb out of debt when faced with unfavorable market or environmental influences.

[edit] Tracking Stock

Though Loews Corporation owns 100% of Lorillard, it holds only a 38% economic interest in Lorillard. This is done through a tracking stock known as Carolina Group. In 2002, Loews created the Carolina Group to represent the publicly traded shares of Lorillard, so that there would be a separate stock to track the performance of its tobacco holdings. In addition, all the intergroup debt of Lorillard was assigned to Carolina Group.

Lorillard traditionally pays out a large percentage of Loews’s dividends. Since the establishment of Carolina Group, those dividends are allocated to Carolina Group and are used to, first, pay down debt owed to the Loews Group. At the time Carolina Group was created, the intergroup debt stood at $2.5 billion, but as of 2006, it was less than $1.4 billion. Higher unit price for Lorillard products and higher unit sales led to Carolina Group’s improved performance.

[edit] Trends and Forces

Since approximately 85% of all Loews revenue is derived from just two of its holdings --CNA Financial and Lorillard-- the following trends and forces are those which impact those two industries.

[edit] Lorrilard

[edit] The Menthol Category

Though the cigarette industry at-large has declined in profits, the menthol cigarette category has remained relatively flat. This benefits Lorillard as its top performer, Newport, is a menthol product. The menthol category represents approximately 27% of cigarette sales volume and of that about 78% are premium menthol products --again, such as Newport.

[edit] Economic Downturns

The tobacco industry has proven to be somewhat more resistant to the effects of economic downturns than other industries, perhaps due to the nature of their products or the brand loyalties. Cost-conscious consumers may stop smoking or downgrade to a value-priced brand during economic slumps, but most consume the same brands at the same, or slightly lower, level. As a result, Lorillard and other similar companies generally experience less of a decrease in revenues during recessions than the economy as a whole.

[edit] Premium vs. Value Brands

As cigarette prices have continued to rise, some consumers have switched from premium brands to value or deep-discount brands. cigarette brands are classified as premium, making it more sensitive to these shifts in consumption than some other tobacco companies with more equally-distributed product lines. Newport, a premium brand currently accounts for 90% of Lorillard's total volume.

[edit] Litigation Landscape

The tobacco industry is highly susceptible to litigation. Large, high-profile court cases generate negative publicity and can be very costly for tobacco companies, even before including any damages awarded. Because Lorillard is significantly smaller than its competitors Altria and Reynolds's, Lorillard is somewhat less likely than other tobacco firms to be targeted in a large lawsuit, decreasing its exposure to litigation headline risk relative to that of competitors.

In 2006, however, the litigation outlook improved significantly for U.S. tobacco companies. Three important cases in the industry resulted in victories for Altria and other tobacco companies, leading to a general improvement in the litigation environment. This is a positive factor for Lorillard, as litigation expenses should be more predictable and stable.

[edit] Consumer Demand

The demand for Lorillard products is subject to many health and wellness factors, including:

• Public awareness of health risks associated with smoking
  • The increase of public awareness about the dangers of smoking cigarettes has led to a decrease in the number of smokers (from roughly 50% of the population in the 1950s to around 20% in the early 2000s). While this factor could still affect future demand for Lorillard cigarettes, the likelihood of a significant decrease in consumption due to health concerns is small, since the health risks have been widely known for some time.
• Social acceptability of smoking
  • A decrease in the social acceptability of smoking could lead to reduced rates of cigarette consumption. Conversely, a glamorization of smoking could stimulate growth in demand for cigarettes. On the whole, smoking has become somewhat less socially acceptable in the U.S., due to both shifts in cultural attitudes and government regulations on smoking. For some, though, there is still a certain glamorous quality associated with smoking. Cigarettes' social acceptability varies depending on region, however.

[edit] Government Regulation

Governmental regulations can have a large impact on tobacco companies' revenues and, indirectly, consumer demand. There are two main ways in which governments attempt to regulate the consumption of cigarettes, excise taxes and regulations on smoking in public places.

• Cigarette excise taxes are per-pack taxes placed on cigarettes by governments. They serve two purposes: reducing public cigarette consumption and providing a large source of revenue for treasuries.
  • These two reasons put governments, especially state governments in the U.S., in a somewhat difficult position. While many policymakers want to reduce per-capita smoking rates, the excise taxes collected from tobacco companies number in the billions of dollars annually. As a result, governments have a vested interested in the continued viability of Lorillard and other tobacco companies, making them unwilling allies of the tobacco industry.
  • Excise taxes have risen dramatically in the past three decades and are expected to continue upward. Elected officials have realized that the large profitability of the tobacco industry allows individual companies to absorb a significant percentage of an increase in excise taxes without passing the full cost on to consumers. As such, governments can increase revenues from tobacco companies without severely harming demand for the companies' cigarettes.
• Restrictions on cigarette consumption include bans on smoking in public places such as restaurants, workplaces, etc. In the U.S., there has been a recent increase in the number of cities with smoking bans in effect. While having no impact on private consumption of cigarettes, these bans prohibit smoking in many public places, limiting the ability of consumers to choose when and where to smoke.

[edit] Loews and the Competition

Since the factors listed above are responsible for the dip in overall sales volume, Lorillard’s competitors are subject to them as well. Altria Group and Reynold's American are Lorillard’s top two peers with a 50% and 29% market share respectively. Philip Morris has the resources and revenue to maintain it’s top spot, but Newport continues to chip away at its market share. Reynolds American has discount brands that compete with Lorillard’s (Old Gold, Maverick, etc.) but as more consumers switch to cheaper brands, there is less brand loyalty and Lorillard can position itself to steal customers from Reynolds. Newport is currently the leading menthol brand but as Lorillard's competitors debut new products, Lorillard may see its steadily increasing market share challenged. The success of Lorillard's smokeless tobacco product venture with Swedish Match North America could also play a role in Lorillard's overall position in the cigarette market.

Source: Company Data

 Loews

	Select All  |  Select None Metrics Premiums Earned Premiums Assumed Investment Gain Total Investments Life Insurance Premiums Property & Casualty Premiums Health Insurance Premiums Reinsurance Recoverables Gross Premiums Premiums Ceded Investment Income Combined Ratio Loss Ratio Net Income Cancel

	Select All  |  Select None Companies Progressive (PGR) Allstate (ALL) American Physicians Capital (ACAP) Affirmative Insurance Holdings (AFFM) AmCOMP (AMCP) AMERISAFE (AMSF) Allianz SE (AZ) Commerce Group (CGI) Cincinnati Financial (CINF) CNA Financial (CNA) Employers Holdings (EIG) First Mercury Financial (FMR) GAINSCO (GAN) Hallmark Financial Services (HALL) Hartford Financial Services Group (HIG) Horace Mann Educators (HMN) Infinity Property and Casualty (IPCC) Kingsway Financial Services (KFS) Meadowbrook Insurance Group (MIG) ProCentury (PROS) RLI (RLI) Safety Insurance Group (SAFT) SeaBright Insurance Holdings (SEAB) State Auto Financial (STFC) Specialty Underwriters' Alliance (SUAI) American International Group (AIG) SAFECO (SAF) Chubb (CB) Alfa (ALFA) Allied World Assurance Company Holdings (AWH) American Safety Insurance Holdings (ASI) Arch Capital Group (ACGL) Argonaut Group (AGII) Aspen Insurance Holdings (AHL) Axis Capital Holdings (AXS) CRM Holdings (CRMH) Darwin Professional Underwriters (DR) EMC Insurance Group (EMCI) Endurance Specialty Holdings (ENH) Enstar Group (ESGR) Everest Re Group (RE) Harleysville Group (HGIC) HCC Insurance Holdings (HCC) James River Group (JRVR) Max Capital Group (MXGL) Mercer Insurance Group (MIGP) Mercury General (MCY) Midland Company (MLAN) Montpelier RE Holdings (MRH) National Atlantic Holdings (NAHC) National Interstate (NATL) Navigators Group (NAVG) National Security Group (NSEC) North Pointe Holdings (NPTE) Nymagic (NYM) RenaissanceRe Holdings (RNR) RTW (RTWI) W.R. Berkley (WRB) The Hanover Insurance Group (THG) XL CAPITAL LIMITED (XL) Zenith National Insurance (ZNT) Ace (ACE) White Mountains Insurance Group (WTM) American Financial Group (AFG) Baldwin & Lyons (BWINB) Donegal Group (DGICB) Markel (MKL) Quanta Capital Holdings (QNTA) Selective Insurance Group (SIGI) 21st Century Holding Company (TCHC) Hilltop Holdings Inc. (HTH) Loews (L) Cancel

Choose View:20042005200620072008Most Recent

2004 Data

2005 Data

2006 Data

2007 Data

2008 Data

Most Recent Data Available

+ Select more metrics (14)

Company	Data From	Gross Premiums	Premiums Ceded	Investment Income	Combined Ratio	Loss Ratio	Net Income
Ace (ACE)	2006	$17.4B[1]	($5.37B)[1]	$1.6B[2]	88.1%[2]	61.2%[2]	$2.31B[2]
Allstate (ALL)	2006	$31.3B[3]	$1.93B[3]	$6.18B[4]	83.6%[5]	58.5%[5]	$4.99B[4]
American International Group (AIG)	2006	$56.3B[6]	$12.9B[7]	$25.3B[8]	89.1%[9]	64.6%[9]	$14B[8]
Loews (L)	2006	$10.1B[10]	($2.52B)[10]	$991M[11]	102%[11]	70.1%[11]	$2.49B[12]
Progressive (PGR)	2007	Add	Add	Add	92.6%[13]	Add	Add

+ Select more companies (72)

See all Property & Casualty Insurance Industry WikiData

[edit] References

1. ↑ ^{1.0 1.1} Source: 2006 ACE 10-K pg F-6
2. ↑ ^{2.0 2.1 2.2 2.3} Source: 2006 ACE 10-K pg 35
3. ↑ ^{3.0 3.1} Source: 2006 ALL 10-K pg S-7
4. ↑ ^{4.0 4.1} Source: 2006 ALL 10-K pg 33
5. ↑ ^{5.0 5.1} Source: 2006 ALL 10-K pg 30
6. ↑ Source: 2006 AIG 10-K pg 4
7. ↑ Source: 2006 AIG 10-K pg 203
8. ↑ ^{8.0 8.1} Source: 2006 AIG 10-K pg 24
9. ↑ ^{9.0 9.1} Source: 2006 AIG 10-K pg 33
10. ↑ ^{10.0 10.1} Source:2006 LTR 10- K pg 198
11. ↑ ^{11.0 11.1 11.2} Source:2006 LTR 10- K pg 78
12. ↑ Source:2006 LTR 10- K pg 64
13. ↑ page 2 of 2007 10-k

The Hospitality Companies Hilton Hotels • Marriott International • Wynn Resorts • Loews • Starwood Hotels