CNA FINANCIAL CORP Q2 FY2024 earnings call

• CEO Transition: Dino Robusto to assume role of Executive Chairman, Doug Worman to become CEO effective January 1, 2025
• Second Quarter Results: Core income increased by $18 million to $326 million; first half core income $681 million (record high); net investment income $618 million (+$43 million y-o-y)
• Loss Cost Trends: Long-run average 6.5%, but commercial auto and excess casualty have low double-digit trends due to social inflation; primary general liability slightly above average, property slightly below, workers’ compensation lower than average
• Reserve Development: Mixed across segments; Commercial auto and general liability had unfavorable development, while workers’ compensation had favorable development
• Production Performance: Gross written premiums excluding captives grew 7%, net written premiums grew 6%; retention at 85%; new business reached record high of $595 million

Commercial

• All-in combined ratio: 97.0%
• Underlying combined ratio: 91.0% (0.6 points lower than prior year quarter)
• Underlying loss ratio: 62.0%
• Expense ratio: 28.5%
• Underlying underwriting gain: $115 million (record high)
• Gross written premiums excluding captives: grew 12% in the quarter, extending nine consecutive quarters of double-digit growth
• Net written premiums: grew 10%
• New business: grew 18%
• Retention: 84%

Specialty

• All-in combined ratio: 92.7%
• Underlying combined ratio: 93.1%
• Underlying loss ratio: 59.6%
• Expense ratio: 33.2%
• Gross written premiums excluding captives: grew 2%
• Net written premiums: grew 4%

International

• All-in combined ratio: 91.9%
• Underlying combined ratio: 90.9%
• Underlying loss ratio: 58.1%
• Expense ratio: 32.8%
• Gross written premiums: down 1%
• Net written premiums: flat

Life & Group

• Core loss: $1 million in Q2 (vs. $20 million prior year quarter)
• Reduced impact from long-term care policy buyouts
• Higher investment income of $10 million

Corporate

• Core loss: $53 million in Q2 (vs. $46 million prior year quarter)
• $28 million after-tax charge related to unfavorable prior period development in legacy mass tort abuse claims
• $5 million after-tax charge for ongoing office consolidation

• Investment Income: Expect $545 million in Q3, full-year 2024 investment income expected to be ~$2,180 million (+6% vs. 2023)
• Dividend: Regular quarterly dividend of $0.44 per share to be paid on August 29, 2024
• Expense Ratio: Expected to be around 30.7% for the full year

• Loss Cost Trends: Possible increase in loss cost trends, especially in commercial auto and casualty lines affected by social inflation
• Market Competition: Strong competition in International segment, with flat rates and lower retention
• Commercial Real Estate Exposure: Direct exposure to commercial real estate via fixed income securities, CMBS, REIT debt, and mortgage loans; ~8% of total investment portfolio; modest exposure to central business district office properties

Q: What do you expect the loss impact to be from the CrowdStrike event?

A: It is still very early; however, we do not expect this to be a major claims event for us Q: Where is pricing going? What do you expect?

A: Financial lines: little variability month to month, moderation in rate decreases; workers’ compensation: mid-single-digit negative; property: low to mid-single-digit; casualty lines pressured by social inflation: commercial auto and excess casualty in low double-digits, rates need to continue increasing; International: rate aggregate roughly flat Q: Do you think loss cost trends could increase?

A: Loss cost trends are unchanged in aggregate, but up over a point in commercial auto even with reduced court backlogs. Possible for trends to continue higher, will watch and react accordingly Q: Can you please remind us of your investment portfolio exposure to the commercial real estate sector, in particular office properties?

A: Direct exposure through fixed income securities (CMBS, REIT debt), direct mortgage loan portfolio; ~8% of total investment portfolio; high quality, well diversified; CMBS and REIT portfolios over 95% investment grade, ~60% A or higher; limited exposure in limited partnership portfolio