CNA Financial Corporation (CNA)

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CNA Financial Corporation (CNA)

Q3 2010 Earnings Call Transcript

November 1, 2010 10:00 am ET


Nancy Bufalino – IR

Tom Motamed – Chairman and CEO

Craig Mense – EVP and CFO

Richard Scott – SVP and Chief Investment Officer


Jay Cohen – Bank of America-Merrill Lynch

Bob Glasspiegel – Langen McAlenney

Amit Kumar – Macquarie

Michael Bunyaner [ph] – TLF Capital [ph]



Good day, and welcome to the CNA Financial Corporation’s third quarter 2010 earnings conference call. Please note today’s conference is being recorded. At this time, I’d like to turn the conference over to Ms. Nancy Bufalino. Please go ahead, ma’am.

Nancy Bufalino

Thank you, Holly, good morning, and welcome to CNA’s discussion of our third 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 CNA Web site at

With us this morning are Tom Motamed, our Chairman and Chief Executive Officer; and Craig Mense, our Chief Financial Officer. After Tom and Craig provide their remarks about the quarter, we will open it up for questions.

Before we get started, I would like to advise everyone that during this call there may be forward-looking statements made in references to non-GAAP financial measures. Any forward-looking statements involve risks and uncertainty that may cause actual results to differ materially from the statement made during this call. Information concerning those risks is contained in the earnings release and in CNA’s most recent 10-Q and 10-K on file with the SEC. In addition, the forward-looking statements speak only as of today, November 1, 2010. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call

With respect to references to non-GAAP measures, reconciliations to the most comparable GAAP measures have also been provided in our most recent 10-K and 10-Q as well as the financial supplements. This call is being recorded and webcast. During the next week the call may be accessed again on CNA’s Web site.

With that, I’ll turn the call over to CNA’s Chairman and CEO, Tom Motamed.

Tom Motamed

Thank you, Nancy. Good morning, everyone, and thank you for joining us today. Before I report on our third quarter results I would like to make a few comments about our announcement regarding CNA Surety.

We announced today a proposal to acquire the public minority of CNA Surety for $22 per share and our intention to seek negotiated transaction with a special committee of the company’s Board of Directors. We believe a buy-in of the Surety minority is the natural next step for CNA and when it fits with the strategic objectives that we articulated when I joined the company.

CNA Surety is a business we know extremely well and this field represents an opportunity to make an additional investment in our specialty franchise while at the same time simplifying our ownership structure.

CNA Surety is a market leader in surety industry. The company has a solid capital position and we believe that it will be well positioned to deliver consistent underwriting profitability as a wholly-owned subsidiary of CNA.

Following completion of this proposed transaction, we expect that CNA Surety will continue to run its business in a manner that is generally consistent with its current operations. Craig will share some additional color on the transaction later in the call.

Now on to our third quarter results; our core Property & Casualty operations delivered a combined ratio of 97.9%. Net-written premiums declined 1% and the expense ratio improved slightly to 33%.

Our investment portfolio continued to perform very well. Our unrealized position improved by $1.2 billion from the end of the second quarter. Over the same period, CNA’s book value increased 6% to $42.76.

We completed a major Loss Portfolio Transfer transaction. As announced last quarter, we ceded substantially all of our legacy asbestos and environmental pollution liabilities to National Indemnity Company, a subsidiary of Berkshire Hathaway. We also completed a $500 million debt offering and redeemed senior preferred stock with the proceeds.

Turning to the third quarter financial results, we reported a net operating loss of $158 million, or $0.66 per common share, and a net loss of $140 million or $0.59 per common share. These results include $365 million loss from the Loss Portfolio Transfer. We recognized $344 million of this loss in continuing operations and $21 million in discontinued operations.

Before the impact of the transaction, third quarter net operating income was $186 million or $0.62 per common share, as compared to $331 million or $1.11 per common share in the third quarter 2009. On the same basis, third quarter net income was $225 million or $0.77 per common share, compared with $263 million or $0.86 per common share in 2009.

In our core Property/Casualty operations, the third quarter combined ratio was 97.9% compared with 101% in the third quarter of 2009. The difference is primarily due to 6.5 points of favorable prior year loss development compared with 3.3 points in last year’s third quarter. Consistent with previous quarters, accident years 2004 through 2007 continue to develop favorably.

Craig will provide more detail in his remarks.

In addition to the favorable development, the combined ratio included 0.8 points of catastrophe losses, compared with 1.5 points in the third quarter last year. Before development and catastrophes, the third quarter combined ratio was 103.6% compared with 102.8% in 2009. The accident year loss ratio before catastrophes was 70.3% in the third quarter, as compared to just 69.2% in the prior year period.

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