Loews Corporation (L)

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Loews Corporation (L)

Q3 2010 Earnings Call Transcript

November 1, 2010 11:00 am ET

Executives

Darren Daugherty – Director, IR

Jim Tisch – President and CEO

Pete Keegan – SVP and CFO

Analysts

Bob Glasspiegel – Langen McAlenney

David Adelman – Morgan Stanley

Adrian Day – Adrian Day Asset Management

Mike Shinnick – Wasatch

Presentation

Operator

Good morning. My name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Loews third quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions).

Thank you. I would now like to turn the conference over to Darren Daugherty, Director of Investor Relations. Please go ahead, sir.

Darren Daugherty

Thank you, operator. Good morning, everyone. Welcome to Loews Corporation’s third quarter 2010 earnings conference call. A copy of the earnings release may be found on our Web site loews.com.

On the call this morning are Jim Tisch, Chief Executive Officer of Loews; and Peter Keegan, 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 10-K and 10-Q 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’ll have a question-and-answer session.

With that, I’ll now turn the call over to Loews’s Chief Executive Officer, Jim Tisch.

Jim Tisch

Thank you, Darren, good morning and thanks for joining us on our call today. For the third quarter, Loews reported net income of $36 million versus $468 million in the prior year’s third quarter. The decline primarily reflects the $328 million after-tax charge related to CNA’s previously reported agreement to seed its legacy asbestos and pollution liabilities to a subsidiary of Berkshire Hathaway.

Additionally, all results reflect lowering net income from Diamond Offshore, which saw lower rig utilization rates due primarily to the Deepwater Horizon accident and its aftermath. Upon to a charge associated with the legacy asbestos and pollution liability loss portfolio transfer net operating income at CNA declined in large part as a result of decreased limited partnership income.

This was partially offset by favorable prior year reserve development of $93 million in CNAs property and casualty operations, which lowered the calendar year loss ratio by over six points. This was CNAs 15th consecutive quarter of favorable prior year reserve development, reflecting disciplined underwriting and reserving practices.

CNA’s investment portfolio continued to perform well, with its unrealized gain position improving by $1.2 billion from the end of the second quarter. Over the same period, CNA’s book value increased 6% to $42.76. But before you celebrate too much, I would caution that increases in interest rates and credit spread can negatively impact CNA’s unrealized gain position and book value per share.

During the third quarter, CNA completed a $500 million debt offering with proceeds going towards paying down the $1 billion of outstanding senior preferred stock held by Loews.

Additionally, CNA today announced that it intend to redeem out internally generated funds through remaining $500 million of preferred stock during the fourth quarter. The full redemption of $1.25 billion of preferred securities issued just two years ago reflects the strong financial position of CNA.

This morning, CNA also announced that it is proposed to acquire for $22 per share all of the outstanding shares of common stock of its 62% owned subsidiary CNA Surety Corporation that are currently not owned by CNA. This offer representing a 14% premium to the closing price on Friday provides CNA Surety’s minority shareholders the opportunity to monetize their investment at a substantial premium to the current and historical stock price.

For CNA, the transaction represents an investment in a business that it knows well, and at the proposed price is expected to be modestly accretive to earnings and have only a slight impact on its capital position. The transaction offers compelling benefit for the shareholders of both companies, and is consistent with CNA’s strategic objective to grow its specialty franchise.

Diamond Offshore’s third quarter results were negatively impacted by the U.S. Gulf of Mexico drilling moratorium which has caused the contractual force majeure dispute with a customer related to the Ocean Monarch.

Aside from rigs being idle in Gulf, Diamond’s results for the quarter also reflect higher than normal rig downtime related to special surveys, shipyard maintenance, and acceptance testing as well as the mobilization of rigs out the U.S. Gulf.

Although, the moratorium has been lifted, the Bureau of Ocean Energy Management has issued drilling permits at remarkably slower pace than the before the moratorium. Drilling cannot commence unless companies obtain these permits and Diamond believes the permitting process will be slow for the foreseeable future, especially for new deepwater oil wells.

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