Loews Corporation (L)

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Loews (L)

Q4 2010 Earnings Call

February 07, 2011 11:00 am ET

Executives

Darren Daugherty -

James Tisch - Chief Executive Officer, President, Member of Office of the President, Director, Member of Executive Committee, Member of Finance Committee, Chairman of Diamond Offshore and Director of CNA

Peter Keegan - Chief Financial Officer and Senior Vice President

Analysts

Michael Shinnick

Michael Millman - Millman Research Associates

Unknown Speaker

Robert Glasspiegel - Langen McAlenney

David Adelman - Morgan Stanley

Amit Kumar - Macquarie Research

Presentation

Operator

Good morning. My name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Loews Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Darren Daugherty, Director of Investor Relations. Please go ahead.

Darren Daugherty

Thank you, Jackie. Good morning, everyone. Welcome to Loews Corporation's Fourth Quarter 2010 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, Chief Executive Officer of Loews; and Peter Keegan, the Chief Financial Officer of Loews. Following our prepared remarks this morning, we will have a question-and-answer session.

Before we begin, however, I will remind you that this conference call might include 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, which is included in the company’s 10-K and 10-Q filings with the SEC.

During the call today, we might also discuss certain non-GAAP financial measures. Please refer to our security filings for reconciliations to the most comparable GAAP measures.

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

James Tisch

Thank you, Darren. Good morning, and thank you for joining us on our call today.

Results for the quarter and the full year reflect growth at Boardwalk Pipeline, steady performance at CNA and some ongoing challenges facing Diamond Offshore, HighMount E&P and Loews Hotels.

CNA reported good results for the fourth quarter benefiting from increased investment income and favorable prior-year development in its core property and casualty operations. CNA has reported favorable prior-year reserve development for 16 consecutive quarters. CNA's results for both the quarter and the full year demonstrate a strong P&C underwriting and the progress it has made on its profit-improvement strategy. CNA's underwriting discipline is demonstrated by five consecutive quarters of rate increases in the Commercial segment as well as continued strength of the Specialty segment.

CNA finished the year with a strong balance sheet and with a book value per share increasing by 13% during 2010. During the fourth quarter, however, CNA's book value per share decreased by 5%, reflecting declines in CNA's net unrealized gains position, primarily as the result of higher interest rates.

I'm sure that most everyone understand the impact of interest rates on fixed income portfolio. Nonetheless, I want to reiterate that in the future, interest rates in the U.S. could and probably will rise. And if this occurs, CNA, along with most P&C insurance companies, would likely see a negative impact on the market value of their fixed income investment portfolios, which would in turn negatively impact GAAP book value. But there is a silver lining to a higher interest rate environment: CNA will have the ability to invest its significant cash flows into higher-yielding securities.

CNA finished the year with a strong capital position, which allowed it in the fourth quarter to redeem the remaining $500 million of the $1.25 billion of preferred stock that was purchased by Loews in November of '08. Additionally, given its strong capital position and solid insurance operations, CNA today announced the initiation of a $0.10 per share quarterly dividend. This action will deliver cash to CNA shareholders, including roughly $24 million to Loews in dividends in the first quarter of this year.

Turning to the offshore drilling industry. During the first quarter, Diamond Offshore announced that it entered into a contract with Hyundai Heavy Industries to build two ultra-deepwater drillships. They are scheduled for delivery in 2013.

These dynamically positioned drillships are designed to operate in up to 12,000 feet of water. The total cost per rig including commissioning, spares and project management is expected to be approximately $590 million. Two or three years ago, these ships would've cost more than $750 million.

To enhance its ultra-deepwater capabilities at attractive capital costs, over the last four years, Diamond has purchased, ordered or upgraded seven rigs capable of operating in ultra-deepwaters up to 10,000 feet. Upon completion of these latest two drillships, Diamond will have 16 deepwater and ultra-deepwater rigs in its fleet.

Diamond's results for the quarter and the full year were negatively impacted by the U.S. Gulf of Mexico drilling moratorium. Although the moratorium was technically lifted in October, the Bureau of Ocean Energy Management has issued what I call a permatorium [ph]. It is issuing very few drilling permits, so in effect, the U.S. Gulf of Mexico remains under a de facto drilling ban for the foreseeable future, especially for new deepwater oil wells. Our orders for new drillships, however, demonstrate Diamond's confidence in the strength of the international deepwater markets in the years ahead.

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