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CNA Financial (CNA)

Q2 2012 Earnings Call

July 30, 2012 10:00 am ET


Marie Hotza

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

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


Amit Kumar - Macquarie Research

Jay A. Cohen - BofA Merrill Lynch, Research Division

Ron Bobman - Capital Returns Management



Good day, ladies and gentlemen, and welcome to the CNA Financial Corporation's Second Quarter 2012 Earnings Call. Today's call is being recorded.

At this time, I'd like to turn the conference over to Ms. Marie Hotza of Investor Relations. Please go ahead, ma'am.

Marie Hotza

Thank you, Lea. Good morning and welcome to CNA's discussion of our second quarter 2012 financial results. With us on this morning's call are Tom Motamed, our Chairman and Chief Executive Officer; and Craig Mense, our Chief Financial Officer. Following Tom's and Craig's remarks about 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 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, Monday, July 30, 2012. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call.

Regarding 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 in the financial supplement. This call is being recorded and webcast. During the next week, the call maybe accessed on CNA's website.

Now I will turn the call over to CNA's Chairman and CEO, Tom Motamed.

Thomas F. Motamed

Thank you, Marie. Good morning, everyone, and thank you for joining us today. I would like to start by saying that I am very encouraged by a number of positive trends that we believe are well established across our businesses. We are pleased by the growth momentum across both our Property & Casualty businesses. Excluding the effects of last year's sale of First Insurance Company of Hawaii, net written premiums increased 5% this quarter consistent with the level of increase in our first quarter of this year. We are now achieving rate increases across all lines. The aggregate 6% rate increase in the quarter was up from the 4% we reported in the first quarter and well above the 1% achieved in last year's second quarter.

The second quarter Property & Casualty non-cat accident year loss ratio of 67.3% improved more than 2 points from last year's second quarter and was 1.5 points lower than where we ended 2011. As you know, catastrophe losses were again a big story for the industry in the second quarter. While CNA incurred significant wind and thunderstorm losses of $68 million, we believe that our 4.4 points of catastrophe losses reflect well on our disciplined approach to catastrophe management.

Our Specialty business continued to deliver solid underwriting results with a second quarter combined ratio of 94.4. Specialty sustained its growth momentum with a 5% increase in second quarter net written premiums. Specialty continues to build upon its positive rate trend. A 5% increase in the second quarter was 2 points better than this year's first quarter, while retention held steady at 86%.

Specialty's non-cat accident year loss ratio improved modestly this quarter to 67%, as rate increases achieved over the last 5 quarters begin to earn into the results.

In Commercial, our second quarter combined ratio was 108.1 this year. Catastrophes represented 8 points of Commercial's combined ratio and this year's second quarter. Excluding catastrophes and development, Commercial's second quarter combined ratio improved to 102.9 from 107.6 last year. We are pleased with Commercial's continued growth. Excluding First Insurance Company of Hawaii, net written premiums increased 5%.

Commercial continued a positive rate trend that began in late 2009. The 7% rate increase in the second quarter represented a 2-point improvement over this year's first quarter. Retention decreased slightly reflecting rate, account period and other underwriting actions geared toward improving profitability. Our efforts to improve Commercial's margins are reflected in the consistently improving non-cat accident year loss ratio which is now 3 points lower than second quarter 2011 and has sequentially improved more than 2.5 points from where we ended 2011.

With that, I'll turn it over to Craig.

D. Craig Mense

Thanks, Tom. Good morning, everyone. The second quarter was marked by a meaningful progress toward our longer-term objectives. Improved underwriting margins across our core P&C businesses, driven by both broad-based rate increases and underwriter risk selection, as well as steady revenue growth, were significant positives.

In July, we completed the acquisition of Hardy Underwriting Bermuda. The acquisition aligns well with our specialized approach to underwriting. The integration work is now well underway and we remain excited about our prospects.

In addition, we trust you saw Moody's recent announcement about CNA. In addition to upgrading our senior unsecured credit rating, Moody's affirmed our financial strength rating and revised the outlook on our financial strength ratings to positive from stable.

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