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Q2 2011 Earnings Call
August 01, 2011 11:00 am ET
Darren Daugherty -
Previous Statements by L
» Loews' CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Loews' CEO Discusses Q4 2010 Results - Earnings Call Transcript
» Loews Corp. Q2 2010 Earnings Call Transcript
Peter Keegan - Chief Financial Officer and Senior Vice President
Sam Yake - BGB Securities, Inc.
Michael Millman - Millman Research Associates
Robert Glasspiegel - Langen McAlenney
David Adelman - Morgan Stanley
Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Loews Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Darren Daugherty, Director of Investor Relations. Please go ahead.
Thank you, Melissa. Good morning, everyone. Welcome to Loews Corporation's Second Quarter 2011 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, our Chief Executive Officer; and Peter Keegan, our Chief Financial Officer.
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 reconciliation to the most comparable GAAP measures.
I will now turn the call over to Loews' Chief Executive Officer, Jim Tisch.
Thank you, Darren. Good morning, and thanks for joining us on the call today. In the second quarter, Loews' net income decreased to $252 million from $366 million in 2010.
The decline is mainly attributable to 2 factors at CNA. First, there was a lower level of favorable net prior year reserve development than in 2010; and second, CNA posted higher catastrophe losses during the quarter than during the second quarter of 2010. CNA continued to make progress growing and improving the underlying performance of its core property and casualty operations despite the natural catastrophe losses affecting the industry during the second quarter. Net written premiums grew by over 5% in CNA's core P&C operations. Growth in both its specialty and commercial segments was driven by new business and higher retention in targeted industry segments. In P&C operations, rate increased by 1% versus the prior year quarter.
Further expanding its specialty franchise, on June 10, CNA completed the acquisition of the minority shares of the CNA Surety, increasing the scale of the company's profitable specialty business. We continue to believe that CNA and its surety business will benefit from this strategic realignment.
This quarter, CNA reported favorable net prior year development of $72 million before tax and noncontrolling interest, the 18th consecutive quarter during which it released reserves. In the prior year quarter, CNA recorded favorable net prior year development of $265 million before tax and noncontrolling interest, hence the year-over-year decline.
Turning to Diamond Offshore. Diamond's results reflect an increase in average utilization of high-spec floaters versus the prior year quarter, although this was partially offset by decline in contract drilling revenues from mid-water and jack up fleet. Results for the quarter benefited from 3 high-spec floaters returning to work after being idle during the second quarter of last year following the Macondo accident. One of these rigs remains in the U.S. Gulf of Mexico, while the other 2 were mobilized in international markets.
This year, Diamond has ordered 3 new ultra-deepwater drill ships that are designed for operations in up to 12,000 feet of water. During the second quarter, Diamond announced that it entered into 5-year charters for the first 2 drill ships. These charters are expected to generate combined revenues of approximately $1.8 billion when the rigs begin working in 2013 and 2014.
Additionally, Diamond recently announced 10 new contracts that are expected to generate over $1 billion of revenue. And that represents over 14 years of contract drilling backlog. The addition of these new contracts brings total revenue backlog, as of July 21, to over $8.6 billion, and extending through 2019.
At Boardwalk Pipeline partners, the company increased revenues over the prior year period, primarily from continued growth from its expansion projects and strength in the power generation and industrial markets. Boardwalk's new CEO, Stan Horton, has now been on board for about 100 days, and we are pleased with the progress that's underway. Earlier today, on the Boardwalk Earnings Call, Stan enumerated a growth strategy that includes strengthening the company's existing pipeline assets by connecting new supplies and markets to its system.
Boardwalk will continue its efforts to diversify further into midstream sector via gathering and processing, but would also consider opportunities outside of the traditional natural gas sector that could help diversify its business mix. The goal over the next several years is to strengthen its traditional pipeline business while diversifying its products and services. Boardwalk will look for organic growth and acquisition opportunities that are accretive and that do not significantly increase its overall risk profile.