CNA - Earnings call transcript Q1 2021 | CNA Financial Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning and welcome to CNA’s discussion of its 2021 First Quarter Financial Results. CNA’s first quarter earnings release presentation and financial supplements were released this morning and are available via its website, www.cna.com.

Speaking today we will have Dino Robusto, CNA’s Chairman and Chief Executive Officer, and Al Miralles, CNA’s Chief Financial Officer.

Following their prepared remarks, we will open the line for questions. Today’s call may include forward-looking statements and reference to non-GAAP financial measures. risk 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 concerning risks contained the Information is CNA’s filings. SEC earnings most in and

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

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

During be the next accessed on week, the call CNA’s may website.

this If CEO, not please I will you the Dino are thus errors reading and a call for the the reviewed turn materially that transcript it may of to of intent transcripts could With contain CNA’s meaning Chairman transcription call, Robusto. that statements. the that, accuracy, over may note be alter or

Dino Robusto

and earnings getting which on with Thank improved incident. first results, underlying you, cyber the record before a catastrophe started Ashley order ratio to wanted I year our investment our We setting and for morning losses. an from largely everyone. offset solid But returns into good good combined comment together, and

we late our which network sustained undertook out of of cross by from March, the know, sophisticated that abundance cybersecurity address at and a contained the caution external attack, attack to risk to were steps contamination. ensure As not likely Promptly upon you disconnecting parties proactively we systems our in caused was most we determined we Ransomware. detection, incident, importantly of including an

I'm incident regulatory in efforts to that There I remediation the systems and back cybersecurity or third-party report and enforcement was external no personally company. evidence proud and We recovery other and full key to the team experts agencies. also of law a the scope back been and has contained or I'm indicate are is insurance a are our incident. were to pleased the of parties notified infection that and investigate of transparency normal. meet our and fully of of share attack determine we and responded agents them agents receive online as received kept restoration and provided open our involved way we latest to operations engaged developments the brokers upraised questions. brokers to feedback the the and able to were incident our with updates recognized commitment should incident clients the to three-week from at and due communication. importantly, risk their they the throughout Most We needs of to to we positive and them process throughout consistently cross-contamination continue that customers and with this

incident flexibility. brokers and been supportive I their want remarkable to for through and them have thank understanding agents very and Our this

with any impacted make. to obligations to others legal continuing extent We to review to are determine the the To as required. impacted any may of them or data insurance, respect notifications data we directly employees notify will we incident our required be this

we quarter improved the driven by winter increase largely XXXX. compared the In year, a three ratio the The year all was first strong last combined underlying X quarter combined in performance in XX.X underlying losses quarter business was combined per in $X.XX compared are was our loss quarter increase point The ratio XX.X% or X.X core portfolio. $X.XX was year quarter ratio were XXXX of or into point or and to over XX.X%, The combined $XXX this the was underlying Net due for losses for was points X.X expense point year's favorable to X.X period points million X.X ratio. QX the higher to improved The of were lowest share. The ratio. at the quarter. million the of Each quarter ago. for than as in losses points points ago. by XX.X%, combined the $XXX Uri the to had XX.X%, the The share. the considerably turning last the by improvement quarter We improvement XX.X% XXX.X%, underlying X.X ratio $XXX for from Cat primarily to Specialty is Prior results offset The combined ratio X.X versus year. last ratio points in International quarter. a income Commercial ratio. development points units improved on Now of Cat very ratio point ratio XX for pretax first X.X and P&C earns income was a in increase. the storms years. of catastrophe the first X.X lower combined or their Viola. re-underwriting million the it quarter combined the first catastrophe per combined results over executed the a

We continue XX.X%, expense in as half a than on although lowering rate loss the to of less expense XXXX. the as our underlying ratio will ratio prior growth was quarters in. have quarter earned our well periods the three ratio higher Net the premium first add improvement of written up XXXX point than to quarter the as earns premium this X% more The see past development. I in over quarter. fourth was a

continue However, frequency the fourth benefit. quarter's results had COVID a

being in loss Excluding the actually from of first assumptions. our improved loss to from X XXXX, ratio due about trend the underlying above this and the point earned that quarter is quarter cost year of fourth long-run benefit the COVID, rate well acknowledging

inflation. the earned will we come business significantly there we rate is such we about full been ratio as higher pandemic. said margin out management inflation points But And of marginally even underlying because social lines is as rebounds, social successful leads our particularly, capacity have of prudent us as are and have which than date, how the the that XX umbrella, social inflation that back loss growing we to before, have and liability evidence to been meaningfully extinguished have economy to been nothing at throughout trends change acknowledged. play lowering believe and clear impacted by courts has our course we until Of profitably

Now, continue expected a long equal. underlying the over all few our to to outpace as of said all see quarters trends is ratio to having position in rate loss to else we our earned be that, improvement cost run further loss the in assumptions, should next continue

was rate plus plus For marginally basis, XX% unit for consistent quarter, was strong XX%, while Commercial excluding continued On increase. be is full the XXXX plus rate QX P&C to business and first with was comp. year which the XX% quarter, first the total consistent a with several increases XXXX the work while essentially at was was negative. the XX% XX%. were negative plus International In areas Specialty better XXXX, Similar than manufacturing, achieved full [ph] overall included slightly slightly rate quarter. positive year also XXXX, like aggregated the to rate rate double-digit which of rate first comp comps work other work in for first flat, which quarter flat areas the

Specialty of due down was impacted quarters, it Although prior three from business. to mix was the

quarter than E&O Professional the renewal down, to rates XX% Specialty like a in our than get As quarter the in XX%, programs rate of first which it, Specialty continued drill the premiums X rate Affinity you services was that public points higher QX. increased year. where larger cyber in double-digit and in agent continued XX% When in need on first rest Rates rates areas D&O. increased incidentally percentage of the the increased are to

where trends an merited loss X remain market because the point environmental loss P&C long get total for is by fourth Whereas commented the five necessary. cycle of cost we you months. over compound less them is consistently roughly we hardening the quarters the of all rate only increases of trends with last XX When quarter, this plus and periods, the put to this competitive rates increases exceeded prior continue Although which cost not through than price the appropriate it rates, industry first issues earned defined over have how to operates, cover like is run for phase. have long underwriting quarter our in run context annually, the quarters. do year, All on double-digit that XX long

think we loss casualty too see cost for behind appropriately trends year So, and reality, as lines to we potentially long run accelerating against we loss otherwise we need fall well we such end. lines calls. several so have rate Therefore, we to discussed continue quickly can this prior do and on through long rate run above the with persisting trends, that higher when cost increases about business adequacy, will in and push of

for higher of Retention we our re-underwriting across provide other implement language. over was but the case terms in was can policy We QX to case X XX%.The percentages, operation. deductibles our in also conditions to from immediate cases tighter instance or where continue materialize time, due XXXX down portfolio, at decrease Lloyd's in benefit point which coinsurance and strengthen

and the Specialty the at dates. Retentions XXXX, although some the renewal respectively. Now quarter programs in early XX% to fourth were made and at quarter certain XXXX XX% Commercial decisions of policies with fourth eliminate remain in consistent

X% by plus at premium plus new extra at written stronger International and quarter. the the XX%, growth with captive double-digit plus business growth Net in increased Specialty in and led achievement, With growing of rate XX%, at premium gross written the in in our business double-digit business Commercial new plus plus X% Our grew quarter at successful continued XX%. which our was rate X% line XX%. QX

to to on With to the throughout various we the over continue conditions across so production I Al. turn will that, quarter, to So, the the expect capitalize as year. favorable effectively do it metrics look we market for continue and

Al Miralles

morning good to Thanks Dino and everyone.

to reporting results, are few our into for can changes and how segment provided to refined it retention to the production information to of this of found provide highlight the to to a presentation our [inaudible] rate Before I X detailed Commercial enhance get the metrics you related intended presentation. pages manage the business. align more I be materials metrics will Even earnings would and a specifically This and these sub and earnings breakdown I our we information more with businesses. of into segments Specialty on the and X like

Affinity we the business out E&O very Specialty, dynamics. liability business given different financial Professional for program management separated Specifically from

been for term, long in programs before, our renewal place As have many said multiyear with years periods. Affinity we

management the may on have by underwriting rate As such, told has you we retention these the been the in very to as been successful area these market. pricing last years, few traditional hand, typical of the dynamics cycle. we've business and impacted over lines for other be less the growth penetrating are and day-to-day in programs us dynamics Financial liability a

been been classified on not item note Healthcare. for related the category. now also business will business. Malpractice, You line Affinity It medical would malpractice, included previously did as Malpractice we've would line included Medical including This have and a of Specialty previously Professional Management have the that Liability any the Medical all in which include item Affinity includes that

for growth our and the we includes therein. and being both provide believe which On dynamics these the the of into Commercial the on National will business Large Account Casualty. business targeting rate insights lines the Overall, unique granularity Large of side out we made. Account retention important business been additional business, Again, information have the have these the business, pages metrics we and and progress Accounts which reflect separated Property

for purposes. information four for been has the restated all here previous Finally, comparative quarters

catastrophes. compared the for contributor expense profitability a to build income was to notwithstanding we on our quarter. Core underwriting quarter of for was the results made results. progress the $XXXmillion a the X.X% period, million for for A ROE year period $XXX With upon the to continue to the core turning the meaningful elevated ratio. prior underwriting our of Now quarter

versus Our ratio first points lowest segments. X.X and ratios which business prior improvement and in quarter all ratio P&C the XXXX three is X.X of improvement year XX.X% reflects the of our point improvement fourth quarter was The sequential quarter. our since expense of expense from achieved

and The talent, in earned in spend, was ratio primarily net our and which expense progress analytics. growth, by XXXX, translates of expectation written while earned trajectory that overall our investing further would fruition was During driven the will and ratio results expense expense coming proud in the the that benefiting are then business. our funding and benefit We our [ph] is assist investments progress into on front. rational This we of inspire growth continue anticipate this to to clearly the technology, subsequently judiciously expense premium managing ratio. into

Favorable flat development overall International favorable, Turning primarily Surety year development the development essentially to were six reserves, prior in for business. from material quarter net period first no Commercial point impacts a by prior in There development period in prior tenth Specialty period the of was P&C prior quarter quarter. segments. the was driven the net during and

catastrophe continually In terms all and loss COVID COVID estimates previously made of virtually changes loss reserves, loss review the we still no of reserves and our our established for estimate appropriate to our ultimate IBNR. our our in estimate quarter. We remains is

Life favorable income the in turning This claim quarter year frequency, Now last to those prior the in segment the quarter. higher Group. core & million of terminations claim $X million severity. $XX new Consistent benefited from lower produced and more claim compared several quarters with

reserves. from quarterly the As of uncertainty given we cautious quarters in previous perspective been higher been a income these and ongoing have holding referenced taking IBNR we've levels a approach the trends, of an recognition

the compared first core year. a a legacy results $XX The worker's reserves. $XX with in loss loss for $XX the from produced loss million million the tax quarter loss closing in segment the of to quarter the portfolio million excess Corporate after associated included transaction Our prior of a comp

X we this previously and into as previously As business business year. Corporation part Corporate of announced, This the segment. this on transaction now is which February subsidiary of of business as Commercial reported of of with reported and was part Enstar segment Other a transaction the the closed block entered

part now and mass were reflect These tort a of the are made reserves. Commercial these reflect manner the were legacy to in segment changes in Other reported organized managing worker's Corporate assessing are block the the businesses also which as of performance. results better presentation excess and comp reserves we segment. of to mass previously segment the the for business, business addition, business purposes made to Similar reported In for and the change certain tort legacy

prior in partnership and quarter. $XXX was year prior the included with Pre-tax common Results million million equity year of as limited portfolios on from quarter compared Turning $XXX to to the investments $XX net million the these Investments. quarter. income $XXX a of loss investment income compared first in our million from

decrease the income Our moderately The quarters last earnings, reinvestment few portfolio relative prior of down relative quarter. investment lower to year-over-year consistent was year fixed continues net yields. to and largely the to to effect stable the provide attributable

as the years the QX end, our remain gain portfolio interest rate during this the recent a And low our the point reinvestment at the on $X.X in quarter on interest resulted X.X% billion of a environment. help yield persistently on XXXX. XXXX. portfolio compared at the X.X to headwind the end business. of income, income to & of decline increase As fixed duration effective rates a liabilities in QX reflects fixed position sheet rates increase reference, in the was may of the unrealized XXXX income while our assets invested liabilities The of at for over that rates alleviate pressure a quarter perspective, our in to Life years time X.X From pre-tax the billion quarter some fixed absolute interest decrease support quarter support income effect income in X.X% end. earnings of cumulative effective balance from in Group Fixed $X.X down effective duration had of P&C our was end. that an our at assets The yield

details additional results of portfolio. the from our you of and our composition investment earnings the slides presentation provide with usual, will As investment

position billion continues other shareholders unrealized quarter. sheet Shareholders or $XX.X income was during per or equity per $XX.XX share. balance our of At reflective excluding quarter decrease Our accumulated solid. in share, comprehensive $XX.X to $XX.XX the the end, was billion equity very be gain

XX% leverage maintain ratio to transfer target below above conservative $XXX capital a continue associated and our support quarter, structure a have impacted in levels capital million the first with million loss and portfolio a $XX with In was of transaction. ratings. payment operating flow a by We cash

XXXX $XXX paid million and at Excluding this underwriting of very current lower was compared year, and profitability, losses. to level payment, the operating accident by a cash at improvement driven of million QX, $XXX flow our strong

liquidity form operating and these variability. cash withstand meet term continue the In investments we business to sufficient to and liquidity to maintain obligations, of addition have flows, and to holdings in cash net short significant

announce regular I turn it back will Finally, we dividend With our Dino. to that, of pleased quarterly are $X.XX. to

Dino Robusto

Al. Thank you,

the favorable take are to We as same we performance, to persist environment opportunity on our very conditions, we as have the improve meaningful of will believe ready with are years. expect market capitalizing over pleased the to continuing we underwriting throughout several with done your as underlying year. the market production last execution, And well as we our do consistently the And questions. favorable that, more

Operator

instructions] Bank go ahead. first our question of Thank America. take of [Operator Shanker We'll from you. Joshua Please

Joshua Shanker

good Thanks taking Yes, for questions. everybody. morning my

So, to you results There's frequency as there's and incidence, or issue last, improvement say, data of said occurred things then interpolate and that's falls the and actual over and about other. there's your two not call sort into the why imagined. of the good you whether the that, the of inflation number whether But hold material or loss like, ready numbers yet knowledge don’t about claims, it that you're incidence no they frequency the as not one not frequencies, whether the like on there's social had or it's we isn't way slip you have workers or XX or the the months? of comp evidence, or

Dino Robusto

had healthcare contracting, a potential essential benefits construction, indicated which manufacturing, when of get a with the to that it had to all nature all of other Yes, anticipated many many actually, pandemic we we were started, type the of the Joshua, of seeing business, services. just frequency lot of And, carriers and thanks. We we do. insurance lot the less

we have a there probably the play standpoint, base off and that obviously, was half a comments, was a out referenced I nothing -- and out. a benefit I did started a frequency lot As Again, from in think we this first it that continue point we than started my to to play others about fourth quarter, that see in I from quarter. less in

So in more it that sense. we and underlying some down came to suggesting actually of why by the recognized loss that of trying it taking had that's and sort and then Hope frequency point. comparing actually out X normalize it ratios than sort makes benefit

Joshua Shanker

the and there. that trend months? take to their in the to And social inflation, accelerating competitors Is social there, there saying this quarter, assumptions loss is modeling. one your any with over social is regard stuff some increased in the There's inflation hesitancy inflation then XX I understand of cost have inflation, worse social last but concerns down is over evidence -- that their

Dino Robusto

I the so, had you see. categorized really We way let maybe -- take back didn't that and some Okay, we it context. provide me was

in about because or you X our the long in inflation programs. various big of of bulk first contemplate year, cost changes some basis due throughout umbrella. loss at Josh, If long trends lines, cyber, remarks, such liability, or trends as these also, beginning management sort last aging casualty affinity And the at the our you trends trends we our though, of in of increased for had higher, what social run several And losses the pandemic, we lines, the frequency during the recall, we a quarters, and mal our in we services, to experienced hold the to loss did we also substantially party had loss to think, points. XXXX, mix to XXX Since elevated and levels. during referenced, And time, I casualty cost we medical they're points grew severity. remained the cost XXXX we referenced at have then going run higher as indicated like both that elevated because also prepared

cost So basis about roughly and Josh increased did points. long this specifically, helped. another XX sits trends now that at X.X it what we we points, year, run at question beginning the our your loss Hope of to

Joshua Shanker

around about versus information That convalescent would term changed related and term whatnot? and pandemic the nursing and we whether home for long have means item. other longer what care care, severity pandemic care When how in-home losses one has helps modeling care, that future frequency of behaviors

Dino Robusto

Al. Yes, over I'll turn Al? that

Al Miralles

pandemic, those Yes, trends hi of To abated. through trends. it are week-to-week, Josh. not looking month-to-month Look, has the date that and at evaluating we've we to relative really seen the

frequency, continue and home terminations towards claim higher an more see to lower claim health of inclination care. We

continue So to to date that in we're very IBNR higher levels. closely could to and see we change certainly looking that as hasn't and pre-pandemic we abate but back that anticipation changed, I mentioned, hold

Joshua Shanker

care or changed, in-home have long term choose versus nursing negative expensive? more If because the that people to permanent nursing is carriers care, is care expensive care opt positive in-home care or behaviors for more is

Al Miralles

Home health less care is typically expensive.

an what some is through health that the care lower been is is less. because our care but of And positive holding frequency, more so home there's effects perspective of care. cost towards is our cost we're we're of come results IVR has What been that seeing propensity a from actually the

Joshua Shanker

all the for and putting Okay, up me. with well, thanks answers

Dino Robusto

Thanks, Josh.

Operator

from take question Please Dowling of next our Partners. go Ransom We'll ahead. & Gary

Gary Ransom

Yes, that heard good wanted or in going ratio, this that a and anything that unusual really up the to was wasn't in What is that quarter? unusual expectation there is correct follow reasonable was the I just I anything at the ratio. all forward, on expense morning. number expense there

Al Miralles

Nothing Yes, hi Gary, unusual. it’s Al.

I growth earned the XXXX. think expected been we growth you, storyline would net giving to with begin in really we've written that our kick-in

on going would At expect I you're ratio, I this earned seeing we of you we've quarter. investments seeing will about target. make up of growth a XX% but a think and good respect think that. come is a the and spend continuation same The show kind I'd around level while analytics business, the not that and are you're in manage the continue to to that just -- in in our variable talent, seeing our With Gary expense kind disciplined look, our a you're we'll it technology, move continue is time is path forward, to to been therefore and expense seeing of the bit You're only we as straight little line, the we give around have. and investments

Gary Ransom

All an hardware I'm right, the attack. understand were I -- though, this your a sure arrangement all place. if of ask still in you And the from that on that wanted with the as thank terrific. you -- vendor I handles for info Dino, you cyber to have that entirely company fixing separate is not was think that's it. I that in experienced? they -- and But an involved what

Dino Robusto

Gary, and all everyone involved use, have have our and we our when hired and we security, vendors that and we IT experts obviously infrastructure in-house along forensic event also other this was started. some partners, technology that and we with

did, opinion, period. up in So everyone the job around working in everyone get was and the back of running course it involved, incredible clock quite three-week to that an my

Gary Ransom

in fixed is at considerations this if are shape I not So in this, problem, only you ago, in protective there, the you you you months cyber today, terms have where your say are is six technology? look security terms of better of versus around

Dino Robusto

and and removed mean, a additional first, know, did so further I this look, secure endpoint also of steps say detection, I measures, we of cetera, you host tools, Yes, obviously monitoring the event. number environment, a et actions, just took but the the would post we hackers

Gary Ransom

And risk necessarily. whether ratios tail that's to I loss you about of of are on going might I on. think any in you if why have back rising. the ratios social they've least the the strong happen the, think we at to time past, in that's that. where at the ratios for very with loss a going look reasons ratios cycle, the when you what's then today potential those loss of the kind this But And your trying know favorably. this about inflation, underwriting, in to to had you those lines concern still reasonably a develop of if happened Thank the downside cycle reflect outside tendency, long we don't apply quarter, from loss Every back reasons accident, stage that now? do this are historically assess at Okay.

Dino Robusto

That’s cost contextualize on -- I every the you it's my of prepared we, look loss and I cycle loss quarters you we're something as I increases trends, said, and commenting XX and with think low was little where day. I quarters, was long in ratio I the back it about at mean, when our in many the adequacy even remarks, X. above at rate see now sort case you rate how a run

you'd out, if have rate of from bit so, ratios at a And and think least context. you longer to, plays point, a adequacy, that about think little vantage loss my

not that one this could the Of could the course, make the observation cycle, ones. having hit other different same than highs be

clearly the really unlike anything social inflation several And is decades. seen in I've last

bar. whether seen not it involved the And the it's in to our T sure know. so, changed capital plaintiffs' We've impact hard not lines, being really during pandemic pandemic, the

do did we before try as little we bias best prudence you bit that as -- can, for try of transparent we be we may adding Right? in to to it. in right out and I Gary there So, in past. as decisions. what's difficult we making front and take think it we the can for play look, be So a to think going it's as how whether us to we're suggested We sure the of about know

Gary Ransom

Right.

Thank it from helpful. that's I guess you thoughts those Okay, and for me. that's

Dino Robusto

you, All right, thank Gary.

Gary Ransom

you. Thank

Operator

Meyer Please question We'll from take go KBW. our next Instructions] of Shields [Operator ahead.

Meyer Shields

Great, thanks.

we higher only more what's the hoping in where and and on broken a was rates sequential I'm year-over-year color in going basis, for curious outline as because market? little saw to I business small the retention higher on a it's Commercial, within there So, on

Dino Robusto

small able real us. headwind work retention. opportunities on to positive pressure see on more be seeing for been business you rate has know continue small Meyer, So, to little less to our grow comp. a business, a hold we We're to the

to loss and strong. going continuing it and historically side production The contribute profitability we So, and both significantly, it's on the very very, ratio been envision side forward.

We are highly focused small business. on the

Meyer Shields

hear or only that business small new business formation, Commercial? flow into we does When commentary about macroeconomic Specialty formation,

Dino Robusto

I'm our again? Meyer. up? that Where small Say sorry shows business

Meyer Shields

up up wondering market, Commercial, new shows hear formation lines excess it whether to Specialty hit but tends know that that Commercial and Well shows in the surplus the when I segment? I'm about or we business in

Dino Robusto

know I'm all of following all E&O business up up show everything not Specialty that. lines – obviously Professional in else, and Commercial. sure I'm P&C the Affinity the show you other in Affinity small programs where the all small Yes, if on the the

architects will the of -- components engineer program, example, in and up like P&C if will Professional if not if helps. show it, example law Specialty and So, for and show E&O, the the firms just Commercial on Affinity and singular for engineers sure up an that architect is the

Meyer Shields

Done, was I exactly was that looking yes for. what

Dino Robusto

Okay.

Meyer Shields

question, final The then maturity like you I to And could fixed through what us relatively what's I duration looked low I rates term that? hoping moved long driving and talk up guess interest abruptly compared still P&C was guess.

Al Miralles

sure. that's an X.X, have Meyer, Yes, Yes, P&C by with went we the largely Hi to it's Al. X.X agency rates here the driven portfolio. backup duration in from RMBS

that duration you speed rates bit. extends the as So, you would get imagine a slower prepayment and backing up with for

what's of duration driver that of -- pickup there. predominant that’s So,

Meyer Shields

the average Is rating? Okay. that what also drove

Al Miralles

term made so minus higher of that level up, but kind of commentary, Yes, the just Obviously held little rated, so on of portfolio, pretty to also my higher P&C one move could be it. But payment LPT. is dropped so we year, we at from other. then it's short short the A, the to from bit really a from toggle be term investments we're a and and that the our then on end line, flip easy laid clear between it to of that, that investments A to

Meyer Shields

Got it.

much. Okay, great. you so Thank

Al Miralles

Meyer. Thanks

Operator

call Dino. time. the there back to further no to this at would like And hand are questions I

Dino Robusto

you we you next forward safe. everyone quarter. Thank Great. chatting to with Be and look

Operator

your concludes Thank the Thank now participation. you for That call. you.

You may now disconnect.

CNA Financial (CNA) 3 May 212021 Q1 Earnings call transcript