CNA - Earnings call transcript Q2 2019 | CNA Financial Corporation

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Operator

Good morning, and welcome to CNA's Discussion of its 2019 Second Quarter Financial Results. CNA's second quarter earnings release, presentation and financial supplement were released this morning and are available via its Web site, www.cna.com.

Speaking today will be Dino Robusto, CNA's Chairman and Chief Executive Officer; and James Anderson, CNA's Chief Financial Officer.

Following their prepared remarks, we will open the lines for question.

Today's call may include forwarding-looking statements and references to non-GAAP financial measures. risks materially that during from involve results cause the statements differ to the forward-looking and may uncertainties actual call. Any statements made release recent those in the concerning risks contained the Information is SEC. CNA's on XX-K earnings most file with in and

the any as today In during call. forward-looking X, statements forward-looking Monday, to obligation speak disclaims expressively made CNA any statements update August only addition, of XXXX. or revise this

provided measures, non-GAAP webcast. other to the the GAAP call comparable This and been and reconciliations most information measures is have Regarding in recorded supplement. financial the being

the be Web During next on week, may the accessed call site. CNA's

With CEO, the Dino turn call and go Please CNA's ahead, sir. Chairman that, I Robusto. over will to

Dino Robusto

with you a reflecting Alison. the execution result, Good board. today, across everyone. strong you, to morning, results share pleased good Thank quarter I'm our second

underwriting was X.X%. care for X% up on the per income second business. Core result continued off good the stable This million of reflected continued equity or $X.XX our Core long-term performance share, $XXX underlying run investment performance, prior-year performance, return was pricing and quarter. momentum, over quarter improved

loss the of little the half-a-point For X.X ratio of the ratio points catastrophes year's of underlying X.X second improved of underlying development. was XX.X% quarter prior and quarter, points results combined The more The XX.X%. prior than with all-in combined compared a of XX.X% P&C a year. last from ratio period XX.X% included favorable

half-a-point XX.X%, was a quarter better the the in nearly ratio expense first than Our quarter.

quarter, down commercial particularly throughout resulting the was re-underwriting that written our from XX% segment, Syndicate up our third-party up continue net we premium captives generated Lloyd by in U.S. down premium discussed. international's driven net with excluding premium will previously X% was Growth as XX% our efforts in year have robust segment the the written was while We growth gross in written X%. and strong

point X%, point increases steady two each from so unit, continue the higher for down from and rate to We in commercial the achieving with more. rate quarter rate rate retentions U.S. for second for specialty one In quintessential manage and up dynamic the in quarter. overall the increases business quarter, We up was international drilled effectively the doing priority up first retention one first us. Pushing points is with a the each little and P&C

In XX our severity healthcare outside prior several E&O increased our with with further calls, quarter. second up Public the X% compared of program and points first to up quarter. of XX to points which refer specialty unit, experienced we points business the has in compared we rate was at in overall trends rate on movement, positive which our rate referenced was professional up retention Affinity. business, increases XX higher the as the points even have specialty's company momentum, similar as steady X% In XX context the in first And XX%. importantly, rate D&O in showed business, quarter

Commercials Overall higher while worker's rate was steady auto as all-in, included property the was well than X%, commercial also compensation XX%. X% up up first up X%. quarter, commercial and point at each rate and retention were X% umbrella, excluding as a

cost efforts. quarter exceeds quarter, X% our second first long-run the points trend. X% reflecting was the in with A was overall XX%, rate and retention rate again compared International in of re-underwriting our up loss four

obviously as recognize we sustained good improvement to needs As margin this any dynamic. before this be is result, mentioned result meaningful of but before, a a

given beyond that change comment period to is include quarter. the price price tailwind, It made I in encouraging is the and conditions is the trend. below environment, last that migrate it a most. and also that headwind cost in changes not this lasted continues tailwind where I'd fell reinforce several areas lost pricing is beginning needed years that If being terms when long-run a pricing to appropriate from Overall in headwind and improvement

property larger frequency schedules, specifically exposures, are broader In adoption services, more higher higher jurisdiction. readily-adopted aging is we tougher perils. a to professional tightening For deductibles particular language of and are there medical liability, deductibles, judicial successfully for catastrophe in in mitigate coverage

around During some as and a as simultaneous headwind terms the few terms conditions negatively affecting relaxed point, tend starting order requires price industry, and am period, And to environment. quarters given the which these environment restorative I above the to but lost process well this secure portfolio, optimistic backup deteriorating conditions continue the begins risk slowly this the ago why rate that clawing adjusted the pricing time a return cost long-run trend. is both time to and will in more CNA required, for at support

Turning second few the and other we're securing which of new in the the XX% was year successful in over have quarter, somewhat elements accounts by in a large U.S. business quarter. the in influenced second for been working up to on a quarter, was the we

As I this around fluctuate here strategy, just increasing first key an one success access accounts best tenant high business. time main securing business quality on the is than prior Indeed, have certain the referenced accounts point that cycle win. will can specifically quarter-to-quarter, more I the the very take calls pleased getting of have am in sophisticated I on we when larger new mentioned to although out past, renewal struck to with our

calls, performance, amongst success achieve In have addition in expertise, to talked to distribution and pursuing several this reenergizing order tenant, institutionalizing we deeper underwriting with other of quartile are about underwriting on relationships top including partners vectors I others. past our

reason enjoy segments our specialty drive our and also the interested added agents chain businesses significant those our their as that to behind on a being This This all of we deep performance not brokers talent, to industry set. approach is comment things and services specialization exposures we insurer. and a bear value expert approach generalist provide relationships includes prioritizing and clients. products commercial business. to strengthening tailored to and certain want to value technical all in as seek long-standing are with This enhance bringing I solution in Today, an

as very our creates Our customized surety, In have specialization. expert and a us value has generate year, affinity, warranty, such that commercial path meaningful excellent accelerated to the run. the evolution long business units proposition healthcare past of advantage enhanced businesses of the allowed the competitive we different over margins for along same

told are expertise see where brand targeting value would CNA. brokers We segments and they an agents approach on commitment and capitalize us and our and like to by those can our investments resources to we have stronger and our even better where

have expertise, customized our specialized Song investment most underwriting proven capabilities. risk as our this in announcement have is business, where this services And head added and mature and targeted construction Kim the control expert One industry example we resources. of construction a we business reflects of you claims new that a in would industry recently, our segment deep seen

specialization and The previously cultural services the business. to and on with middle our are we segments develop we same market like about is towards more spoken amongst technology focus our acceleration added institutions. Or recently happening specialties, as professional looking others have specific industry such

larger or of David announced Accounts National specialization and that business targeted and or coverages unit latter an clients. of recently Other for Casualty In national the our Unit. also the casualty marine commercial operation we within provides this area, accounts addition areas Hayes, head property P&C of industry priority small expert,

also they focus, re-underwriting target the specialty is house to our London-based exposures segments simultaneously building specialized similar business will within and the migrating expertise This is and operation a process. our happening commercial where Finally, upon more unit. to

the up take I'll So in develop results. to time show mind. in it and will keep

achieve to deep we Our guided focus fact our playing drive towards will are top sense that greater with performance yet the all of like specialization, long-term. strategy for proceed sustained urgency our tenants fundamental by the quartile of actions are the of and a

turn now it to over And James. turn I'll

James Anderson

and Dino, good Thanks, morning everyone.

and million underwriting second casualty core and income profit profit $XX was $XXX million. the pre-tax underwriting of produce property million with Our $XX in operations underlying quarter,

to Specialty's of our ratio gross of loss ex-third-party including business in underlying quarter Moving XX.X%, points was captives combined specialty's premium the grew included specialty an of a X.X P&C combined healthy quarter. favorable units, overall prior XX.X% written ratio XX.X% X% ratio period developments, each second underlying

combined a some as of costs of to half ratio April. within ratio onetime commercial related our was in continued quarter XX.X% loss quarter, included of underlying underlying claim less the point taken a actions a the into last Our the than XX.X% little mentioned segments department costs the I that

affecting XX.X% The The minimal premium our XX% combined ex-third-party second amount Commercial's for points quarter with or underlying reserve overall prior five including International development in was of period losses catastrophe the quarter. combined quarter. results. segment a XX.X% catastrophe combined in all-in ratio minimal ratio development. the written The favorable amount ratio for was second commercial grew a approximately was XX.X% gross captives and losses the of of

current Our P&C of is expense XX.X% rate. representative ratio our run of annual

is a development of points take and primarily healthcare was adverse. prior being talk prior our an surety, in quarter. to partially minute me affinity slightly by Specialty prior, Let X.X and about XXXX accident period years driven and warranty offset the by period favorable development

our reserves. favorable minimal unwinding and discounted a claim favorable in compensation amount had umbrella reserve Commercial and of by was workers workers property normal of net the development as development compensation offset unfavorable

pricing aggressive result, to taking actions as the and terms and severity businesses with the see namely In conditions underwriting we improve leading adverse we regard a higher continue had extent to lesser a healthcare those and attorney margins to aggressive where development actions businesses. been cleanup umbrella, to to more outcomes on we've

mentioned, our been date execution encouraging. has to very As Dino

of quarter. assumptions of morbidity segment reserve to results. produced Group & Life positive Our $X continues persistency the was experience in Long-term with income a care be driver our consistent the while core million

million compared segment million quarter. of investment quarter. $XXX million $XX prior income the second net produced in core year second the $XXX a was corporate quarter the loss Our in Pre-tax with in

produced portfolio year with Pre-tax our X.X% from and line Our million slightly in $XXX of prior higher pre-tax the quarter. the income $XX limited portfolios prior was return fixed income million, common partnership than year equity and income a quarter.

pre-tax liabilities in the duration quarter-end. support in X.X was in line our years The income Life on of of income & the yield effective quarter with The with portfolio targets. at at income effective X.X P&C an that Group that periods; years X.X% quarter fixed assets was portfolio liabilities support duration prior fixed line assets end at the effective fixed our

$XX.XX or share was billion at the in gain to Our balance decline extremely quarter rates. our in shareholder's to sheet equity the $X.X X% continues as billion up to position per increased strong interest be due $XX.X unrealized quarter-end

$XX Shareholder's second $XXX excluding quarter, million. was In income of or operating first the X% adjusted $X.XX from the quarters. year-end the during two dividends when other for accumulated an paid was $XX.XX equity per flow per share share comprehensive billion of cash XXXX increase

to maintain structure. continue very capital a We conservative

All above our metrics well targets of our are current capital adequacy and and credit internal ratings.

of And senior to million balance notes of X.X% sheet A+ oversubscribed million $XXX ratings. to upgraded came to higher the are of the August then and used issued and X on proceeds pleased momentum of of debt that and at redeem current peers a we to during $XXX credit our at our A.M. was The significantly in of our rating a of further May, our XXXX. business. the A+ issuer strength In ratings, rating than Fitch in our spreads rate strength validation comparable quarter with upgraded X-X subject our and financial providing we notch Best deal of rated due

to dividend $X.XX per pleased are we Finally, share. quarter of our announce

turn With to Dino. that, it back I will

Dino Robusto

Thanks James.

you on leave the level XX bringing quarter $XXX million, move me to core thoughts $XXX question-and-answer for million quarter. of overarching income the some Before the in years. the we to income second with let the was highest first-half portion Core the call,

core second Our equity X.XX. is quarter on return XXXX

for quarter XX.X% XX.X% year-to-date. Our underlying was P&C the ratio and loss

will be written than optimistic net grew X of rate rate point a environment the the the premium in first to And one we that tailwind. We U.S. higher X%. quarter. points achieved quarter, are continue

that, to will take glad your be we With questions.

Operator

sir. you, [Operator Deutsche take instructions] Bank. first Thank Josh with our from Please We question will ahead. Shanker go

Josh Shanker

morning, everyone. Good Yes.

Dino Robusto

morning. Good

James Anderson

Good morning.

Josh Shanker

up guess comp. lost industry you been commercial sluggish that of cost. economy the around up trends an excluding is but Historically is X% past have said pricing Two has questions, the aggregate, long-term. ahead In for first the than your the more X, X, In cost pricing long-term or XX years, loss X%. sat worker's I one, the

me of in up, that So, cost ex-worker's been it long-term some you total, just when we the than to about but can mean talk it's ahead X% pricing comfortably trends? that is that. X% trend, less probably cost on loss I about comp, maybe lost long-term that, give me color is seems

James Anderson

context of little me Yes, give Josh, let can if bit see here. you I a

you trends, have long-run So, when keep at loss the to makeup we our in our it's of our that of portfolio. look reflective cost mind --

that portfolio our in of lower around We Affinity it's significant as long-run we than trends, refer loss to X%. a component a normal actually, business our, what cost have our has

portfolio look XX% we point of that it's in trend, XX% and point when X So when aggregate we X.Xs about factor loss our between at what's portfolio. our in cost about

our So overall at when was look X%. our overall QX, rates, we rate in

So trend. in rate this overall X%. than And that the long-run higher P&C loss was was cost that quarter,

quarters of So, loss both cost being point X.X ahead trend. that

So hopefully that a little of… gives bit

Josh Shanker

for that's helpful. Child are of industry it? perspective outside And it? means And about Thank states York? York? how New should Yes, Victims some be you. New you thinking very thinking the Act you And shed in How can it about on what the

James Anderson

Sure.

time. quite for So we following It's been not have issue new. that's legislation this some

to consideration along, potential to be all our of how reserve have reserves continues about position. considering We overall part impact we that the and been think

our years. handling been these types for claims claim remember, department of has Now

we Or, York a wait result see to may have So any how states these of from are and other and deal generated with the of positioned activity we whatever is New well statutes. new come. as claim to much

really say sit Let here just today, strength. reserve good I about our overall I feel me as

Josh Shanker

set your the reserves probability be you assumption In you there let's the when the limitations prior of have initial up a that that a this had was will that year waived? for the changed, law to beginning did statute of reserves say

Dino Robusto

I into reiterate on into I what over just buckets, thinking would factoring this how I'm We've said. going Look, get been will not time. specifics IBNR but different our into to split the we

Josh Shanker

Okay, thank much. you very

Operator

from Dowling We next question the will Ransom & now Gary of take the line from Partners.

Gary Ransom

of and commercial, The a little in little Yes, underwriting and and give us ask specialty good light on acquisition And I can about expense of bit up expense especially expense split in underwriting. equally is morning. a expenses. you too. what's between at less just I I to underway. ratio the up initiatives other there sense a you or if then when wanted have bit wondered various more the was point about going ratio a look

James Anderson

did of to specialty, our the adjustments a quarter costs. Gary. in Sure, On specifically have one-time acquisition couple we

less things a to commercial, So we specialty a there's premium there With less bit lower that reoccur be good seeing a one more side basis. and we've little of being and net would underwriting little not we've going on to earns. lagging premium we're basis, premium that this premium a forward. you're earned things written and is expect the net recently. been written one terms that even would shown is and then regard both in as the been a lag of what doing seeing just of gross the It's as on written Though growth

would So, there. forward think we improvement when we expense see our on ratio expect some to

Gary Ransom

accelerating. but the just are And that, helpful. long-term that's to of market even for themselves Okay, trends thinking concerns wondering description in those the the as is about half three And accelerating are about today loss I'm whether to of and half wanted or trends one how or a is is involved trends, it the shift thinking the potential and thanks four. the you're becomes you two suddenly if in that a risk rate

James Anderson

run and a Yes, that two half is cost long trends. loss we our remember

flip we parts granular double-digits a when portfolio, where rate as our as of seeing trend rate we and increased getting when in so the by you're mentioned very cost for that's business. at offset Affinity do cost have example to they and example increases on so that seeing not in been trends healthcare and that basis an close loss is and we side, Surety, And cost XX% I in clearly look the increases today quarter, loss getting have And healthcare it an of portfolio, being on that trends. loss

a closely heavy costs. So, happening there getting of the term and with what's underneath we're is lot versus the there's short a monitoring there it we're and happening things correlation rate loss where covers

Gary Ransom

bottoming on and have rates just few those trends? to some worker's of Do on last Okay, go up. there places any maybe are one maybe change question thoughts signs and meaning you there's comp, starting

James Anderson

we're starting a less maybe we're it from to perspective rate so than starting flattening what to think has seeing, a see I bit get that negative rate is been.

that. maintained seeing benign a to a bit mean cost we're in also put frequency just if starting certainly, I context spot. it So loss to of has there, see we're severity a even the quite trends flatten

Gary Ransom

Thank you much. helpful. Okay, that's very

James Anderson

bet. You

Operator

We move KBW. on ahead. the Meyer Shields will Please question to next from go from

Meyer Shields

then big Two one thanks. questions if Great, can. picture I industry question and C&A

how hoping was accomplish the effort. us specialization that terms combined could the segments? you can through I between in of much of ratio commercial talk closing much How two First the gap

James Anderson

you mean been underwriting look years and showed over ultimately on I clearly talked half and clearly those and the to here, a understanding advantages that very different have a competitive be is focused the chain. across competitive priorities effective with I've specialty where last become I've the two within in some the we things very, I've to segments supply and of other comfortable of host one it's itself about really that really we advantage,

our advantage. less segments so now those of clearly other And capacity, underwriting, funnel have that in and good international our made with business. on some the with to resources claims investment risk happening property is the to ones -- want we more have We the control, the and what good do specific we de-prioritize we areas we you and within saw of decisions into underlying

it the done done over years. last X.X is methodically, everything Now time, methodically is the really was

resources. relationships, the the time of and And to for is now prioritize because of think underwriting was efforts advantage support our glide specialization, whether I specialization sustain the have And really leader additional area see what our you where terms within trends, add we challenged you opportunity we market the get that building conditions us just our to and pricing just it claims and pin having success path for marginal more the tenant for James chain really some to the able performance I the years, to it's it's think see referenced going just healthcare, vector clout it culture, execute been in down we of going those what the like investments of competitive can is gain so to other this exactly stay the think it ultimately, new initiatives, a XX is across when to have this And cortile and of And I be continue value the distribution have marketplace us those overtime, profitability. and to ones, talent. an so, stop even it some to me enhancing position institutionalizing you to the profitability is to this to difficult for that need but you certain in when and be. that

cortile you when us. think for performance about top Look,

going having a in three terms value that. some You we for referenced. price. little of just And think ratio a that the But from bit transcends James sustainability, continued on particular expense it's there's there's the that And on that and conditions. important know, proposition points to is come long-term you we're the we're rate at from as some a away XX.X, ratio, couple loss execute in

way that's describe best so, it can I And the of sort Meyer.

Meyer Shields

it maybe about low for question I very James, was talk and lost bit hoping think as is a helpful. affinity you. little I we trend as Can -- is? Thank a you why That's could Yes.

James Anderson

Why it is?

Meyer Shields

Yes.

James Anderson

time. with business. a Well, partners business have been over that relationships advantage strong is we've accounts. great very business a been time. small our to well in and clients in we have that for lots we of a data, homogeneous And with competitive able listen, service we've long very And It

to And than fundamental don't think there's give And that. it so, I I a much all us. kinds those think to more of advantage

Dino Robusto

Yes.

can to need as conditions says competitive you that keep profitable, indicating. you the terms able so, the James it sustain And to pricing advantage, with be and and just

Meyer Shields

it clearly set produces lost it's And that. that just about all showing was trends. understand I I business the wondering now, the what up. business well such is Right

Dino Robusto

know I it, to magic any don't if besides there's other Meyer that.

Meyer Shields

picture of at going And not question; sort is Okay, point can some no, normalizing workers rate our big of lot the and had industry then, that a expertise it's really strong say in do would conflict a lost or we've it. is to question, profits time, reductions follow-on compensation with trends Gary's I that and anticipating?

James Anderson

is see severity, question we that come we any be always, for going Well, in sure ensure that inflection the frankly whether so we us, we're can importantly, we that is, that not and more making points price to industry can are appropriate or that that always -- that's it happens? be frequency when the getting

Meyer Shields

Okay. Thank you very much.

James Anderson

bet. You

Operator

from next Cohen the question from Securities. take America We'll Bank Instructions] [Operator Jay of

Jay Cohen

Yes, thank you.

which little that in Just to this that quarter. the wanted more is this around? being long-term gears sustainable? maybe a jumps just I switch favorable something about Or a hear to persistency was something more block, you bit, see care that as Is

James Anderson

choices, on question persistency, put camp I long for that's time, long-term reduce something something rate the count the to a actually not policy, their seeing closely increases. care. they us decide different to last And that rates of is to they -- decide With the whether for on it's current of can the in getting to period you their thanks rate whether really increases pay would and regard policyholders maintain aligned in states. Jay, make or benefits

couple or the to lapsing meaning people a smaller and last is they rate we what take non-forfeiture years of status, not the increase take we've actually paying seen what would So over premium going into stop altogether. call actually benefit are

certainly happy we're now. see to we forever, a So to expect wouldn't at high-level that stay for but

Jay Cohen

the what can us you probably by price a are? And a they what state by you're varies but achieving now bit of sense quite give increases average are product,

James Anderson

all some XX%. getting, when I range wide cases a are to the way XXX%, like is I I state. rates. we And approaches say It some high cases, mean, in double-digit things mean, down by that in high, very

different depending increase it's third. outcomes, or or state, So on the very that first-rate it's the second depending whether on whether for the policyholder is you seeing the get

have So able they it's just industry, business realize be tell need rest the been at to least a pretty increases, well as they as giving write more to to regulators you break the much receptive broad range. of overall, us But rate I even. this carriers will who as that

Jay Cohen

All right, Thank very helpful, Yes. thanks. That's you. James.

James Anderson

You bet.

Operator

appears like It this questions call to time. there the are closing Dino further I'd for additional no to remarks. turn at Robusto or back any

Dino Robusto

great. Thank see you, So, in everyone, you and we'll that's another quarter.

Operator

Ladies and gentlemen, this concludes today's participation. much call. for Thank you your very

now You may disconnect.

CNA Financial (CNA) 5 Aug 192019 Q2 Earnings call transcript