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CNA Financial Corporation (CNA)
Q2 2010 Earnings Call Transcript
August 2, 2010 10:00 am ET
Nancy Bufalino – VP, IR
Tom Motamed – Chairman and CEO
Craig Mense – EVP and CFO
Amit Kumar – Macquarie
Jay Cohen – Bank of America
Ron Bobman – Capital Returns
Bob Glasspiegel – Langen McAlenney
Previous Statements by CNA
» CNA Financial Corporation Q4 2009 Earnings Call Transcript
» CNA Financial Corp. Q3 2009 Earnings Call Transcript
» CNA Financial Corp. Q2 2009 Earnings Call Transcript
Thank you, Kelly [ph], and good morning, everyone. Welcome to CNA’s discussion of second quarter 2010 financial results. Our press release was issued earlier this morning. And hopefully, everyone has had an opportunity to review it along with the financial supplement, which can be found on the CNA Web site.
With us this morning are Tom Motamed, our chairman and chief executive officer; and, Craig Mense, our chief financial officer. Tom and Craig will provide their remarks about the quarter, and then we will open it up for questions.
Before we get started, I would like to remind everyone that during this call, there may be forward-looking statements made and references to non-GAAP financial measures. Please see the sections of the earnings release headed "Financial Measures and Forward-Looking Statements" for further detail.
In addition, the forward-looking statements speak only as of today, August 2nd, 2010. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call. This call is being recorded and webcast. During the week, the call may be accessed again on CNA's Web site at www.cna.com.
And with that, I'll turn the call over to CNA's chairman and CEO, Tom Motamed.
Thank you, Nancy. Good morning, everyone, and thank you for joining us today. We are pleased to report on our second quarter, which was marked by solid operating and financial performance as well as an important agreement to transfer CNA’s legacy asbestos and pollution liabilities to National Indemnity Company, a subsidiary of Berkshire Hathaway.
Second quarter net operating income was $269 million or $0.91 per common share as compared to $305 million or $1.02 per common share in the second quarter of 2009. Net income was $283 million or $0.96 per common share, compared with $105 million or $0.27 per common share in 2009. Our results were driven by favorable prior year loss development, substantial investment income, and positive real life investment results.
We are also pleased to report improvement in our capital position. Book value for common share increased 13% from year-end 2009 to $40.43, reflecting $10.9 billion of GAAP common shareholders' equity.
In our core property and casualty operations, the second quarter combined ratio was 89.4, compared with 98.1 in the second quarter of 2009. The difference is primarily due to 18.4 points of favorable prior year loss development, compared with 4.9 points in last year’s second quarter. In addition to development, the combined ratio included 3.3 points of catastrophe losses, as compared to 2.9 points in the second quarter last year. Before development and catastrophes, the second quarter combined ratio was 104.5 as compared to 100.1 in 2009.
The accident year ex-cat loss ratio was 70.2 in the second quarter as compared to 68.6 in the prior year period. The 2010 accident year ex-cat loss ratio was 69.3 as compared to 69.1 in 2009.
Net written premiums decreased 7%, reflecting the ongoing competitive market and weak economy. We continue to execute our underwriting strategy to improve the profitability of our commercial segment. The second quarter of property and casualty expense ratio increased 2.3 points to 33.8, approximately one point is attributable to reduce earned premium. The other point relates to the investments we are making in our field operations.
CNA specialty continues to perform very well, delivering a combined ratio of 79, compared with 89.8 in the second quarter of 2009. These ratios benefited from favorable prior year loss development of 18.6 points and 5.1 points, respectively. Catastrophes added a 0.5 point, compared with 0.3 points in the second quarter last year. Before catastrophes and development, specialty's combined ratio was 97.1, compared with 94.6 in the second quarter of 2009. The increase was driven by higher expenses and the impact of negative earned rate.
Specialty's accident year ex-cat loss ratio was 66.3 in the second quarter as compared to 65.2 in the prior year period. The 2010 accident year ex-cat loss ratio was 65.9 as compared to 65 in 2009.
Specialty's net written premiums declined 1% in the quarter and 2% year-to-date. With respect to renewals, our rates decreased 2%, a slight deterioration from the prior year period. Retention improved one point to 85%. The ratio of new-to-loss business in specialty was 1.2 to 1. Quarter-over-quarter submissions increased 20%, and new policies were up 10%.
Turning to CNA commercial, the second quarter combined ratio was 98.2, compared with 104.6 in the prior year period. These ratios benefited from favorable prior year loss development of 18 points and 4.5 points, respectively. Catastrophes added 5.7 points, compared with 4.8 points in the second quarter of last year. Before catastrophes and development, the combined ratio was 110.5, compared with 104.3 in the second quarter of 2009.