CNA Financial 8K Property & Casualty - Results of Operations | CNA 20 Feb 15

CNA Financial Corporation

Supplemental Financial Information

Property & Casualty - Results of Operations

Revised Quarterly Segment Results for 2014 and 2013

This report is for informational purposes only and includes financial exhibits that are unaudited. This report should be read in conjunction with documents filed with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Table of Contents



	Page
Property & Casualty - Results of Operations
Property & Casualty...........................................................................................................................................................................................................	1
Specialty............................................................................................................................................................................................................................	2
Commercial ......................................................................................................................................................................................................................	3
International.......................................................................................................................................................................................................................	4
Definitions and Presentation............................................................................................................................................................................................	5

Segment Realignment

As a result of realigned management responsibilities, CNA revised its property and casualty segments in the fourth quarter of 2014 to Specialty, Commercial and International. Results of CNA Europe and Canada that were previously included in the Specialty and Commercial segments, as well as the results of Hardy, are now included in the International segment. There was no change to the Life & Group Non-Core and Corporate & Other Non-Core segments. Prior period segment disclosures have been conformed to the current year presentation. The new segment structure reflects the way management currently reviews results and makes business decisions.

Property & Casualty - Results of Operations



	2014																2013
(In millions)	Q4				Q3				Q2				Q1				Q4				Q3				Q2				Q1
Gross written premiums	$	2,334			$	2,320			$	2,410			$	2,494			$	2,301			$	2,278			$	2,392			$	2,384
Net written premiums	1,555				1,560				1,654				1,767				1,684				1,619				1,720				1,776
Net earned premiums	1,646				1,671				1,672				1,668				1,743				1,686				1,662				1,624
Net investment income	326				298				370				350				425				379				363				421
Other revenues	87				86				82				78				77				78				127				71
Total operating revenues	2,059				2,055				2,124				2,096				2,245				2,143				2,152				2,116
Insurance claims and policyholders' benefits	984				1,053				1,136				1,143				1,084				1,031				1,140				1,099
Amortization of deferred acquisition costs	315				325				328				321				351				334				329				320
Other insurance related expenses	214				227				228				231				219				219				220				230
Other expenses	77				83				77				76				76				67				68				70
Total claims, benefits and expenses	1,590				1,688				1,769				1,771				1,730				1,651				1,757				1,719
Operating income before income tax	469				367				355				325				515				492				395				397
Income tax expense on operating income	(155		)		(126		)		(119		)		(106		)		(175		)		(162		)		(137		)		(140		)
Net operating income	$	314			$	241			$	236			$	219			$	340			$	330			$	258			$	257

Loss & LAE	59.6			%	62.8			%	67.8			%	68.3			%	62.0			%	60.9			%	68.4			%	67.5			%
Acquisition expense	17.6				19.5				19.3				19.4				18.2				19.7				19.5				19.4
Underwriting expense	14.4				13.6				14.0				13.7				14.6				13.2				13.4				14.4
Expense	32.0				33.1				33.3				33.1				32.8				32.9				32.9				33.8
Dividend	0.2				0.2				0.2				0.2				0.2				0.2				0.2				0.2
Combined ratio	91.8			%	96.1			%	101.3			%	101.6			%	95.0			%	94.0			%	101.5			%	101.5			%
Combined ratio excluding catastrophes and development	93.6			%	96.2			%	96.3			%	97.2			%	94.3			%	95.9			%	97.6			%	101.0			%

Pretax net accident year catastrophe losses incurred	$	9			$	17			$	56			$	74			$	23			$	42			$	65			$	39
Impact on loss & LAE ratio	0.6			%	1.0			%	3.4			%	4.5			%	1.3			%	2.5			%	3.9			%	2.4			%

Pretax net prior year development and other ⁽¹⁾: (favorable) / unfavorable	$	(39	)		$	(19	)		$	28			$	(13	)		$	(20	)		$	(71	)		$	(4	)		$	(35	)
Impact on loss & LAE ratio	(2.4		)	%	(1.1		)	%	1.6			%	(0.1		)	%	(0.6		)	%	(4.4		)	%	—			%	(1.9		)	%

Rate	3			%	3			%	3			%	4			%	5			%	6			%	7			%	8			%
Retention	79			%	78			%	76			%	80			%	78			%	78			%	78			%	81			%
New Business	$	192			$	224			$	230			$	269			$	224			$	266			$	284			$	308

(1) Other includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts.

Specialty - Results of Operations



	2014																2013
(In millions)	Q4				Q3				Q2				Q1				Q4				Q3				Q2				Q1
Gross written premiums	$	1,415			$	1,442			$	1,388			$	1,363			$	1,319			$	1,328			$	1,244			$	1,243
Net written premiums	689				736				701				713				708				737				705				730
Net earned premiums	712				725				709				692				712				717				695				671
Net investment income	137				126				153				144				170				151				144				164
Other revenues	77				76				74				68				67				67				63				60
Total operating revenues	926				927				936				904				949				935				902				895
Insurance claims and policyholders' benefits	416				369				405				443				347				401				420				431
Amortization of deferred acquisition costs	150				151				148				143				149				150				146				140
Other insurance related expenses	65				65				67				65				66				60				59				65
Other expenses	63				65				65				61				67				56				60				54
Total claims, benefits and expenses	694				650				685				712				629				667				685				690
Operating income before income tax	232				277				251				192				320				268				217				205
Income tax expense on operating income	(78		)		(93		)		(84		)		(63		)		(109		)		(90		)		(74		)		(69		)
Net operating income	$	154			$	184			$	167			$	129			$	211			$	178			$	143			$	136

Loss & LAE	58.1			%	50.7			%	57.0			%	63.9			%	48.7			%	55.5			%	60.3			%	64.1			%
Acquisition expense	19.5				19.7				19.9				19.7				19.5				19.7				19.4				19.7
Underwriting expense	10.7				10.1				10.4				10.3				10.7				9.6				10.1				10.7
Expense	30.2				29.8				30.3				30.0				30.2				29.3				29.5				30.4
Dividend	0.1				0.3				0.2				0.2				0.2				0.3				0.2				0.2
Combined ratio	88.4			%	80.8			%	87.5			%	94.1			%	79.1			%	85.1			%	90.0			%	94.7			%
Combined ratio excluding catastrophes and development	90.4			%	91.3			%	92.8			%	93.5			%	89.3			%	92.9			%	95.0			%	97.6			%

Pretax net accident year catastrophe losses incurred	$	—			$	5			$	5			$	11			$	2			$	13			$	6			$	1
Impact on loss & LAE ratio	—			%	0.7			%	0.6			%	1.6			%	0.2			%	1.9			%	0.8			%	0.1			%

Pretax net prior year development and other ⁽¹⁾: (favorable) / unfavorable	$	(14	)		$	(83	)		$	(43	)		$	(9	)		$	(74	)		$	(71	)		$	(42	)		$	(23	)
Impact on loss & LAE ratio	(2.0		)	%	(11.2		)	%	(5.9		)	%	(1.0		)	%	(10.4		)	%	(9.7		)	%	(5.8		)	%	(3.0		)	%

Rate	3			%	3			%	3			%	4			%	5			%	6			%	7			%	7			%
Retention	85			%	86			%	87			%	86			%	85			%	85			%	85			%	86			%
New Business	$	70			$	87			$	71			$	81			$	77			$	93			$	86			$	86

(1) Other includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts.

Commercial - Results of Operations



	2014																2013
(In millions)	Q4				Q3				Q2				Q1				Q4				Q3				Q2				Q1
Gross written premiums	$	714			$	672			$	747			$	826			$	751			$	722			$	847			$	868
Net written premiums	684				634				692				807				717				686				725				832
Net earned premiums	718				721				732				735				749				745				758				752
Net investment income	174				157				201				191				239				213				205				242
Other revenues	10				10				8				10				11				10				64				11
Total operating revenues	902				888				941				936				999				968				1,027				1,005
Insurance claims and policyholders' benefits	462				550				613				570				616				509				593				548
Amortization of deferred acquisition costs	122				122				126				123				130				129				135				132
Other insurance related expenses	111				125				125				126				108				130				130				130
Other expenses	6				10				7				8				8				10				7				7
Total claims, benefits and expenses	701				807				871				827				862				778				865				817
Operating income before income tax	201				81				70				109				137				190				162				188
Income tax expense on operating income	(69		)		(29		)		(21		)		(35		)		(46		)		(63		)		(53		)		(67		)
Net operating income	$	132			$	52			$	49			$	74			$	91			$	127			$	109			$	121

Loss & LAE	64.2			%	75.9			%	83.7			%	77.1			%	81.8			%	68.1			%	77.9			%	72.7			%
Acquisition expense	15.0				17.6				17.5				17.7				14.6				18.7				18.7				18.0
Underwriting expense	17.3				17.0				16.6				16.2				17.4				16.2				16.1				16.8
Expense	32.3				34.6				34.1				33.9				32.0				34.9				34.8				34.8
Dividend	0.3				0.2				0.3				0.3				0.3				0.3				0.3				0.2
Combined ratio	96.8			%	110.7			%	118.1			%	111.3			%	114.1			%	103.3			%	113.0			%	107.7			%
Combined ratio excluding catastrophes and development	95.6			%	98.1			%	99.3			%	101.4			%	97.8			%	99.1			%	101.1			%	103.9			%

Pretax net accident year catastrophe losses incurred	$	4			$	14			$	47			$	60			$	19			$	19			$	57			$	38
Impact on loss & LAE ratio	0.6			%	2.0			%	6.4			%	8.4			%	2.7			%	2.4			%	7.6			%	5.1			%

Pretax net prior year development and other ⁽¹⁾: (favorable) / unfavorable	$	5			$	76			$	90			$	6			$	102			$	18			$	30			$	(12	)
Impact on loss & LAE ratio	0.6			%	10.6			%	12.4			%	1.5			%	13.6			%	1.8			%	4.3			%	(1.3		)	%

Rate	4			%	5			%	5			%	6			%	7			%	9			%	10			%	10			%
Retention	77			%	74			%	69			%	74			%	73			%	71			%	74			%	77			%
New Business	$	95			$	116			$	133			$	147			$	120			$	148			$	163			$	192

(1) Other includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts.

International - Results of Operations



	2014																2013
(In millions)	Q4				Q3				Q2				Q1				Q4				Q3				Q2				Q1
Gross written premiums	$	205			$	206			$	275			$	305			$	231			$	228			$	301			$	273
Net written premiums	182				190				261				247				259				196				290				214
Net earned premiums	216				225				231				241				282				224				209				201
Net investment income	15				15				16				15				16				15				14				15
Other revenues	—				—				—				—				(1		)		1				—				—
Total operating revenues	231				240				247				256				297				240				223				216
Insurance claims and policyholders' benefits	106				134				118				130				121				121				127				120
Amortization of deferred acquisition costs	43				52				54				55				72				55				48				48
Other insurance related expenses	38				37				36				40				45				29				31				35
Other expenses	8				8				5				7				1				1				1				9
Total claims, benefits and expenses	195				231				213				232				239				206				207				212
Operating income before income tax	36				9				34				24				58				34				16				4
Income tax expense on operating income	(8		)		(4		)		(14		)		(8		)		(20		)		(9		)		(10		)		(4		)
Net operating income	$	28			$	5			$	20			$	16			$	38			$	25			$	6			$	—

Loss & LAE	49.2			%	59.7			%	50.8			%	54.2			%	43.0			%	54.3			%	60.6			%	59.7			%
Acquisition expense	19.8				24.5				23.2				23.8				24.6				23.0				22.4				23.9
Underwriting expense	17.9				14.8				15.9				15.5				16.8				14.4				15.4				17.5
Expense	37.7				39.3				39.1				39.3				41.4				37.4				37.8				41.4
Dividend	—				—				—				—				—				—				—				—
Combined ratio	86.9			%	99.0			%	89.9			%	93.5			%	84.4			%	91.7			%	98.4			%	101.1			%
Combined ratio excluding catastrophes and development	98.0			%	106.3			%	97.3			%	95.1			%	96.7			%	94.8			%	94.6			%	101.3			%

Pretax net accident year catastrophe losses incurred	$	5			$	(2	)		$	4			$	3			$	2			$	10			$	2			$	—
Impact on loss & LAE ratio	2.2			%	(1.0		)	%	1.8			%	1.2			%	0.6			%	4.6			%	0.7			%	—			%

Pretax net prior year development and other ⁽¹⁾: (favorable) / unfavorable	$	(30	)		$	(12	)		$	(19	)		$	(10	)		$	(48	)		$	(18	)		$	8			$	—
Impact on loss & LAE ratio	(13.3		)	%	(6.3		)	%	(9.2		)	%	(2.8		)	%	(12.9		)	%	(7.7		)	%	3.1			%	(0.2		)	%

Rate	(1		)	%	(1		)	%	(3		)	%	—			%	—			%	—			%	1			%	3			%
Retention	66			%	72			%	74			%	82			%	80			%	81			%	76			%	79			%
New Business	$	27			$	21			$	26			$	41			$	27			$	25			$	35			$	30

(1) Other includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts.

Definitions and Presentation


•	Collectively, CNA Financial Corporation and its subsidiaries are referred to as CNA or the Company.


•	P&C Operations includes Specialty, Commercial and International.


•	Life & Group Non-Core segment primarily includes the results of long term care businesses that are in run-off.


•	Corporate & Other Non-Core segment primarily includes certain corporate expenses including interest on corporate debt and the results of certain property and casualty business in run-off, including CNA Re and asbestos and environmental pollution. Intersegment eliminations are also included in this segment.


•	Management utilizes the net operating income financial measure to monitor the Company’s operations. Please refer to Note K to the Condensed Consolidated Financial Statements within the September 30, 2014 Form 10-Q for further discussion of this measure.

•

In the evaluation of the results of Specialty, Commercial and International, management utilizes the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using financial results prepared in accordance with accounting principles generally accepted in the United States of America. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios.


•	Certain immaterial differences are due to rounding.

CNA Financial (CNA) 8-KProperty & Casualty - Results of Operations