Q3 2012 Earnings Call
October 29, 2012 11:00 am ET
Mary Skafidas - Vice President of Investor and Public Relations
Previous Statements by L
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Peter W. Keegan - Chief Financial Officer and Senior Vice President
Michael Millman - Millman Research Associates
David J. Adelman - Morgan Stanley, Research Division
Robert Glasspiegel - Janney Montgomery Scott LLC, Research Division
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 Third Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mary Skafidas, Vice President, Investor and Public Relations. Please go ahead.
Thank you, Jackie, and good morning, everyone. I'd like to welcome you to Loews Third Quarter 2012 Earnings Conference Call. A copy of our earnings release may be found on our website, loews.com.
On the call this morning, we have our Chief Executive Officer, Jim Tisch; and our Chief Financial Officer, Peter Keegan. Following their 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 received by the company -- achieved by the company may differ materially from those projections made in any forward-looking statements. Forward-looking statements reflect circumstance 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 filings with the SEC.
During the call today, we may also discuss non-GAAP financial measures. Please refer to our security filings for a reconciliation to the most comparable GAAP measures.
I will now turn the call over to Loews' Chief Executive Officer, Jim Tisch. Jim?
James S. Tisch
Thank you, Mary, and good morning, everyone. And I hope everybody is staying dry and staying safe. As you know by now, Loews reported earnings for the quarter of $177 million, or $0.47 -- $0.45 per share, compared to $162 million, or $0.40 per share, that Loews earned in the third quarter of 2011. Results for the third quarter of 2012 include impairment charges of $166 million after tax at HighMount relating to the carrying value of its producing properties. These charges were the result of declines in natural gas and natural gas liquids prices. Absent the ceiling test impairment charges, our quarterly net income would have been $343 million or $0.87 per share.
Loews ended the third quarter with $3.8 billion in cash and investments at the holding company level. In the third quarter, we spent approximately $88 million buying back about 2.2 million shares of Loews' common stock. Our book value per share increased to $50.41 at the end of the third quarter from $47.33 a year -- at year end 2011.
Now let's take a closer look at each of our subsidiaries. CNA had another solid quarter. Results for the quarter were driven primarily by increased investment income, especially from limited partnerships. CNA continues to execute its strategy of focusing on select customer segments. About half of CNA's new business is now coming from these 7 focus segments, including health care and construction, areas where CNA has specialized underwriting capabilities.
Rates continued to improve and increased approximately 6% during the quarter in CNA's P&C operations. In CNA commercial, rates were up 8% for the quarter versus 7% in the second quarter and 2% during the third quarter of 2011. Rate increases, combined with management's underwriting strategies, are leading to improvements in CNA's underwriting results. CNA's loss ratio before catastrophes and prior year development continued to improve during the third quarter. In CNA commercial, for example, this ratio improved by almost 2.5 points versus last year's third quarter. Over the past few years, as management's actions have taken hold, CNA has narrowed the loss ratio gap with peers in its core commercial business.
This is the first quarter CNA has included Hardy Underwriting in its results. Hardy is CNA's recently acquired Lloyd's syndicate and is off to a strong start.
Turning to Diamond Offshore and the offshore drilling market. Diamond had a good quarter, although its net income was down $79 million versus the same period last year. Two main factors drove the profit decline. First, a number of rigs rolled off of record high day rates from contracts that had been signed during the previous subcycle. Second main factor was unplanned downtime, which was slightly above average compared to better-than-average downtime in the prior quarter.
Demand in the drilling market for mid-water, deepwater and ultra-deepwater rigs remained strong, as indicated by recent contracts signed by Diamond and other drillers. Diamond has entered into new contracts or extended existing contracts with attractive day rates and durations. Also during the third quarter, Diamond announced plans to rebuild the Ocean Apex, a Victory-class semisubmersible rig that will be delivered from the shipyard in Singapore in 2014 at an all-in cost of about $300 million. The Ocean Apex is the last of Diamond's Victory-class rebuilds. There are 9 Victory-class hulls in the world and Diamond owns all 9 of them. These Victory-class hulls have extremely long life spans. And since the mid-1990s, Diamond has used each of these hulls as the base upon which to build a new rig, including all new drilling equipment. The end product is the equivalent of a new-build rig. These Victory-class rebuilds, along with Diamond's other new-build rig acquisitions, are just a few examples of the company's strategy for enhancing its fleet at significantly reduced cost, a strategy that has returned tremendous value to Diamond and to Loews.