Loews Corporation (L)

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Loews Corporation (L)

Q3 2009 Earnings Call

November 2, 2009 11:00 am ET


Darren Daugherty – Director of Investor Relations

James S. Tisch – Chief Executive Officer

Peter W. Keegan – Chief Financial Officer

Tim Parker – Chief Executive Officer of HighMount


Robert Glasspiegel – Langen McAlenney

David Adelman – Morgan Stanley

Michael Millman – Millman Research Associates

Stephen Velgot – Susquehanna Financial Group

Adrian Day – Adrian Day Asset Management



Welcome to the Loews Third Quarter 2009 Earnings Conference Call. (Operator Instructions) I will now turn the call over to Darren Daugherty, Director of Investor Relations.

Darren Daugherty

Welcome to Loews Corporations Third Quarter 2009 Earnings Conference Call. A copy of the earnings release may be found on our website Loews.com. One the call this morning are Jim Tisch the Chief Executive Officer of Loews, and Peter Keegan the Chief Financial Officer of Loews.

Before we begin, I'd like to make a few brief disclosures concerning forward-looking statements. This conference call will include the use of statements that are forward-looking in nature. Actual results achieved by the company may differ materially from those projections made in any forward-looking statements. Forward-looking statements reflect circumstances at the time they are made and the company expressly disclaims any obligation to update or revise any forward-looking statements.

This disclaimer is only a brief summary of the company's statutory forward-looking statements disclaimer. We urge you to read the full disclaimer which is included in the company's filings with the SEC. I'd also like to remind you that during this call today we may discuss certain non-GAAP financial measures. Please refer to our security filings for reconciliation to the most comparable GAAP measures.

After Jim and Peter have discussed our results, we will have a question and answer session. If you would like to ask questions and are listening via the webcast, please use the dial in number to participate, 877-692-2592.

I'll now turn the call over to Loews Chief Executive Officer, Jim Tisch.

Jim S. Tisch

Loews reported a solid quarter reflecting improved results in CNA, continued strong results in Diamond Offshore, and higher investment income in the holding company portfolio. During the third quarter Loews' book value per common share increased by over 14%, primarily as a result of the $1.7 billion increase in the mark-to-market value of CNA's investment portfolio. What a difference a quarter makes.

CNA reported another quarter of solid operating income driven by improved investment income and low catastrophe losses. In its core property and casualty operations, CNA continues to focus on growing its specialty lines of business, as well as improving performance in its standard lines of business. CNA specialty lines continues to be the most profitable business in CNA's portfolio benefiting from diversification by product, geography, and industry class.

With respect to its standard lines [Tom Multomad] has brought in new leadership to focus intently on improving profitability. A key part of that process is improving underwriting results and growing the top line in the small and middle market space while maintaining competitive expense levels. Perhaps most significantly CNA's investment portfolio continued the strong recovery that began earlier this year.

At the end of the third quarter, CNA's book value per share stood at $35.38 compared to $20.92 at year end '08. This improvement was primarily the result of narrowing credit spreads in the fixed income market. While we are quite pleased to see the improvement in CNA's balance sheet, the volatility of fixed income security prices over the past year underscores how one could be potentially mislead by mark-to-market accounting, especially with the respect to unrealized losses at property and casualty insurance companies.

Each quarter CNA goes through an extensive and rigorous process of recognizing losses on securities that it judges to be credit impaired or that it intends to sell. These losses run through CNA's income statement. Mark-to-market losses on all other securities are reflected solely on CNA's balance sheet. Since the beginning of this year, after-tax net unrealized losses included accumulated other comprehensive income for AOCI has moved from a loss of $3.4 billion to a gain of $127 million as of quarter end.

Not only is this a welcome improvement to CNA's balance sheet, it is also consistent with what we have expected all along, that the bulk of the securities held by CNA would ultimately recover in value. This is why we tend to focus on book value per share before unrealized gains and losses, especially given the rigor of CNA's impairment process.

The rule of new accounting may seem out of place on an earnings call, but the reality is that the volatility of securities market values and their impact on book value per share have received enormous focus recently within the P&C insurance industry.

In managing the CNA portfolio, the imperative is to own credit worthy securities that match the duration and liquidity requirements of our insurance liabilities. Recognizing these unrealized losses on the balance sheet has been unpleasant over the past few quarters, but it has been our expectation that the vast majority of securities in the portfolio would recover in value, and they have.

And with that I'll get off my accounting soapbox and get back to our results. Diamond Offshore reported another quarter of excellent results. The big story for the quarter was Diamond's purchase of the Ocean Valor, a newly constructed dynamically positioned drilling rig that is capable of operating in 7,500 feet of water.

Read the rest of this transcript for free on seekingalpha.com