CNA Financial Corporation (CNA)

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CNA Financial (CNA)

Q4 2010 Earnings Call

February 07, 2011 10:00 am ET

Executives

Nancy M. Bufalino - VP of Finance

Thomas Motamed - Chairman, Chief Executive Officer, Member of Proxy Committee, Member of Executive Committee, Member of Awards Committee and Member of Finance Committee

D. Mense - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Dan Johnson - Citadel Investment Group

Ron Bobman - Capital Returns

Jay Cohen - BofA Merrill Lynch

Amit Kumar - Macquarie Research

Robert Glasspiegel - Janney Montgomery Scott LLC

Presentation

Operator

Good day, and welcome to the CNA Financial Corporation's Fourth Quarter and Full Year 2010 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Nancy Bufalino. Please go ahead, ma'am.

Nancy M. Bufalino

Thank you, Anna, and good morning. Welcome to CNA's discussion of our fourth quarter and full year 2010 financial results. Our press release was issued earlier this morning. Hopefully, you all had an opportunity to review it along with the financial supplement, which can be found on the CNA website at www.cna.com.

On the call 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 your question.

Before we get started, I would like to advise everyone that during this call, there may be forward-looking statements made and references to non-GAAP financial measures. Any forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made during this call. Information concerning those risks is contained in the earnings release and in CNA's most recent 10-K and 10-Q on file with the SEC. In addition, the forward-looking statements speak only as of today, February 7, 2011, and CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call.

With respect to the 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 supplement. This call is being recorded and webcast. During the next week, the call may be accessed again on CNA's website.

And with that, I'll turn the call over to CNA's Chairman and CEO, Tom Motamed.

Thomas Motamed

Thank you, Nancy. Good morning, everyone, and thank you for joining us today. We are pleased to report our fourth quarter and full year results. Along with our earnings, we announced today the resumption of our common stock dividend. I trust you have seen the announcement. We are proud of the progress we have made in restoring CNA's financial strength, producing sustained earnings and delivering value to shareholders.

Turning to our financial results. Fourth quarter net operating income increased 65% to $326 million or $1.18 per common share in 2010 as compared to $197 million or $0.63 per common share in 2009. Net income in the fourth quarter increased 23% to $302 million or $1.09 per common share, as compared to $246 million or $0.81 per common share in 2009.

CNA's fourth quarter results reflect increased investment income and continued favorable prior-year development in our Property & Casualty Operations. For the full year, net operating income was $660 million or $2.17 per common share. Net income was $690 million or $2.28 per common share. The full year results include a continuing operations loss of $344 million and a discontinued operation loss of $21 million from the loss portfolio transfer we completed in the third quarter. Excluding the impact of this transaction, 2010 net operating income was $1 billion as compared to $982 million in 2009. On the same basis, net income was $1.1 billion compared with $419 million in 2009.

Our capital position continued to improve. Book value per share increased 13% in 2010, and statutory surplus increased 5%.

In our core Property & Casualty Operations, we had an excellent fourth quarter combined ratio of 89.6%, which included 14.6 points of favorable development. Craig will provide more detail on this in his remarks.

Before development and catastrophes, the fourth quarter 2010 combined ratio improved to 102.8% from 103.9%. The improvement was driven by the expense ratio, which improved to 33.1% from 33.9%, primarily reflecting the favorable impact of recoveries on insurance receivables written off in prior periods. The accident year loss ratio, excluding catastrophes, in the fourth quarter improved to 69.1% from 69.5% in the fourth quarter of 2009.

Excluding the impact of the Argentine workers compensation operation we can be sold in June, fourth quarter net written premiums increased 1%. On the same basis, fourth quarter net written premiums decreased 6% in 2009. Fourth quarter renewal rates decreased less than a point in 2010 and 2009. Retention was steady at 82% in both periods. Exposures were flat in the fourth quarter versus a decrease of 0.9% in the fourth quarter of 2009.

For the full year, the 2010 Property & Casualty Operations' combined ratio improved more than two points to 94.8%, which equals our best in the past 10 years. The 2010 ratio included 10.6 points of favorable prior-year development compared with 6.1 points in 2009. In addition, the 2010 combined ratio included two points of catastrophe losses compared with 1.4 points last year.

Before development and catastrophes, the full year combined ratio was 103.4% in 2010 compared with 102.1% in 2009. The difference is primarily due to an uptick of 0.8 points in the expense ratio, due to negative growth in our investment in underwriting and production staff. The 2010 expense ratio was 33.4% compared with 32.6% in 2009. For 2010, accident year loss ratio before catastrophes was 69.6% as compared to 69.2% in 2009.

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