CNA Financial Corporation (CNA)

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CNA Financial (CNA)

Q1 2011 Earnings Call

May 02, 2011 10:00 am ET

Executives

Nancy Bufalino - Assistant Treasurer

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

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

Analysts

Ron Bobman - Capital Returns

Robert Glasspiegel - Langen McAlenney

Jay Cohen - BofA Merrill Lynch

Amit Kumar - Macquarie Research

Unknown Analyst -

Presentation

Operator

Good day, and welcome to the CNA Financial Corporation's First Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Nancy Bufalino. Please go ahead, ma'am.

Nancy Bufalino

Thank you, Casey. Good morning, and welcome to CNA's discussion of our first quarter 2011 financial results. Our press release was issued earlier this morning and can be found on the CNA website at www.cna.com along with our financial supplement.

On the call this morning are Tom Motamed, our Chairman and Chief Executive Officer; and Craig Mense, our Chief Financial Officer. Following Tom and Craig's discussion of the quarterly results, we will open it up for your questions.

Before turning it over to Tom, 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 results -- 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, May 2, 2011, and CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call.

With respect to non-GAAP measures, reconciliations with the most comparable GAAP measures have also been provided in our most recent 10-K and 10-Q, as well as the financial supplement. Finally, this call is being recorded and webcast. During the next week, the call may be accessed again on CNA's website. 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 first quarter results. The highlights were: Our core Property & Casualty Operations' net written premiums increased 6%, driven by growth in CNA Specialty; CNA Commercial's net written premiums were flat, a dramatic improvement from last year's negative trend; our Commercial segment generated slightly over one point of improvement in the accident year loss ratio before catastrophes, reflecting the positive impact of our ongoing underwriting initiatives to improve profitability: our capital position continued to improve, book value per common share increased 3% to $41.75, with GAAP common shareholders' equity increasing to $11.2 billion; we completed a $400 million debt offering, with the proceeds used to prepay senior notes due in August of this year; we signed a definitive merger agreement with CNA Surety: finally, we announced a quarterly common stock dividend of $0.10 per share.

Turning to our financial results. First quarter net operating income was $216 million or $0.80 cents per common share in 2011 as compared to $223 million or $0.74 per common share in 2010. Net income in the first quarter was $223 million or $0.83 per common share as compared to $245 million or $0.82 per common share in the first quarter of 2010. First quarter net operating income for Property & Casualty Operations improved to $261 million in 2011 from $226 million in 2010. Our catastrophe losses were higher quarter-over-quarter, but the increase was more than offset by higher investment income and improved underwriting results before catastrophes. The first quarter net operating loss from our Non-Core segments increased to $45 million in 2011 from $3 million in 2010. Craig will discuss the Non-Core segment results in a moment.

The Property & Casualty Operations combined ratio improved slightly to 101.9% as compared to 102.1% in the prior year period. The ratio included [ph] 3.7 points of catastrophe losses in the current quarter as compared to 2.7 points in the first quarter of 2010. Favorable prior year development reduced the first quarter combined ratio by 2 points in 2011 compared with a 2.7 point help in 2010. Excluding development and catastrophes, the first quarter of 2011 combined ratio improved nearly 2 points to 100.2%, which was primarily expense driven. The first quarter expense ratio was 31.7% in 2011 as compared to 33.5% in 2010. Two nonrecurring items accounted for the improvement. This year's first quarter expenses were reduced by recoveries of insurance receivables written off in prior years. Last year's first quarter included onetime expense charges associated with our IT outsourcing initiative.

The Property & Casualty Operations' first quarter accident year loss ratio excluding catastrophes was 68.5% in both 2011 and 2010. In CNA Specialty, we grew net written premiums 13% in the first quarter, a continuation of the growth we achieved in last year's fourth quarter. Renewal rates were essentially flat in this year's first quarter, a one point improvement over last year's first quarter. First quarter renewal retention was 85% in 2011 as compared to 86% in 2010. Exposures increased approximately 1% in the first quarter.

Specialty's first quarter ratio of new-to-loss business was 1.7:1. Quarter-over-quarter, submissions increased 23%. The hit ratio improved by 3 points to 36%. We are especially pleased by strong new business production in Professional & Management Liability as well as our warranty business. We generated 5% growth in policy count in Professional & Management Liability. These results validate our investment in more than 70 additional Specialty underwriters since mid-2009. Specialty's first quarter combined ratio was 94.9% in 2011 as compared to 92.5% in the first quarter of 2010. Favorable prior year development reduced these ratios by 3 points and 4.2 points, respectively. The impact of catastrophes was minimal in both periods. Before development and catastrophes, Specialty's first quarter combined ratio was 97.6% in 2011 compared with 96.4% in 2010. Specialty's x cat accident year loss ratio was 66.9% in the first quarter of 2011, an increase of 1.5 points over first quarter of 2010 but relatively unchanged from full year 2010.

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