Loews Corporation (L)
Q4 2009 Earnings Call Transcript
February 8, 2009 11:00 am ET
Darren Daugherty – Director, IR
Jim Tisch – President and CEO
Peter Keegan – SVP and CFO
Robert Glasspiegel – Langen McAlenney
Sachin Shah – Capstone Global Markets
Michael Millman – Millman Associates
David Adelman – Morgan Stanley
Stephen Velgot – Susquehanna Financial Group
Alan Grand [ph]
Adrian Day – Adrian Day Asset Management
Joe Lu [ph] – Mass Capital [ph]
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(Operator instructions) I will now turn the call over to Darren Daugherty, Director of Investor Relations. Sir, you may begin.
Thank you, Melissa. Good morning everyone. Welcome to Loews Corporations’ Fourth Quarter 2009 Earnings Conference Call. A copy of the earnings release may be found on our website Loews.com. On 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 would 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 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 10-K and 10-Q filings with the SEC. I would 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.
I will now turn the call over Loews’ Chief Executive Officer, Jim Tisch.
Thank you, Darren. Good morning and thank you for joining us on our call today. Loews’ wrapped up the year with a solid fourth quarter that benefited from good operating results of G&A, ongoing earnings strength at Diamond Offshore and improved investment income from the holding company investment portfolio. CNA reported solid net operating income for both the quarter and full-year, primarily due to improvement in net investment income.
In ’09, Tom Motamed, the CEO of CNA wants the strategy to drive top and bottom line growth, and in support of this strategy, CNA has strengthened its leadership team, opened new field offices and added underwriting staff. Within its core property and casualty operations, CNA specialty segment continued to deliver very strong performance. And within its commercial segment, the improvement initiatives are beginning to take hold. CNA has seen continued recovery of its investment portfolio, which together with earnings has boosted CNA's book value per common share by 72% from year-end ’08, representing a $5.4 billion free tax improvement in its unrealized gain position.
Last quarter during our earnings conference call, I elaborated on how mark-to-market accounting rules could potentially be misleading with respect to unrealized losses at property and casualty insurance company. While it was unpleasant last year to see unrealized losses on the asset side of the balance sheet, we believe that the bulk of the securities held by CNA would ultimately recover in value as they have.
CNA finished ’09 with its balance sheet and investment portfolio in very good shape. The reason I’m revisiting this issue however, is that at some point in the future, interest rates could again rise in the United States. Should this occur or more realistically when this occurs most PMC insurance companies including CNA will likely suffer a negative impact on the market value of their fixed income investment portfolios, which would in turn have a negative impact on GAAP book value. But because CNA’s portfolio is generally comprised of securities that attempt to match the duration and liquidity requirements of its insurance liability, a decline in market value caused by an interest rate rise would not meaningfully impact the company’s ability to pay claims.
We therefore tend to focus on book value per share before unrealized gains and losses. And notwithstanding the decline in stated GAAP book value as a result of increasing interest rates, there is an offsetting benefit to a higher interest rate environment. CNA would be able to invest a significant cash flow into higher-yielding securities. During the fourth quarter, CNA completed a $350 million bond offering at a competitive yield, which underscores the market confidence and CNA’s financial strength. Of the proceeds, $250 million will be used to regain the preferred stock owned by Loews, which continues to hold $1 billion of the preferred shares in CNA. For ‘09, Diamond Offshore posted record earnings stemming from strong day rates and utilization rates for it semisubmersible drilling rates.
Energy prices have recovered from one year ago, but the uncertain economic outlook has somewhat dampened demand for offshore drilling services and the day rates that Diamond has been able to command the new contract. Despite these market challenges, Diamond entered 2010 with a contract backlog of about $8.5 billion and with approximately 75% of its floater fleet fully committed.