LOEWS CORP Q3 FY2023 earnings call

Management Statement and Operational Highlights

• CNA: Has seen substantial growth in net written premiums, improved combined ratio, actively managed run-off long-term care business with reduced policies and improved portfolio profile, and benefited from rising interest rates in managing LTC portfolio duration.
• Boardwalk: Made a strategic acquisition in the third quarter, with EBITDA expected to grow significantly in the coming year due to investments and acquisitions.
• Loews Hotels: Made significant equity investments in growth projects, with upcoming hotel openings in Arlington and Orlando, leveraging internally generated cash flow.
• Share Repurchases: Continues to repurchase Loews shares as they trade at a substantial discount to intrinsic value, with $775 million spent on repurchasing 12.9 million shares year-to-date.

Segment Performance

• CNA: In the third quarter, net written premiums grew by 6%, with net income contributing $235 million to Loews. Over the past five years, net written premiums increased from $6.8 billion in 2018 to $9.2 billion over the past 12 months. The underlying combined ratio improved to 90.4%. The number of active LTC policies has declined by over 40% since 2015. Third quarter net written premium growth consisted of 5% written rate increases and 1% exposure growth, with retention at 84%.
• Boardwalk: In the third quarter, contributed EBITDA of $202 million. Over the past five years, due to investments, EBITDA is expected to approach $1 billion next year compared to $761 million in 2018. In the third quarter, acquired Bayou Ethane for $348 million.
• Loews Hotels: Since 2018, has invested almost $800 million of equity in growth projects. Adjusted EBITDA exceeded $300 million over the past 12 months. The new Loews Arlington Hotel will open in the first quarter of next year with nearly 900 guest rooms. Three new hotels with 2,000 rooms are under construction in Orlando.
• Corporate: Recorded after-tax investment income of $24 million in the third quarter of 2023, up from an after-tax loss of $15 million in the same period last year. Ended the third quarter with $2.3 billion in cash and short-term investments and $1.8 billion of parent company debt.

Guidance

• Continues to be bullish on CNA's outlook and purchased nearly 4.5 million shares of CNA for around $175 million.
• Intends to continue share repurchases as long as Loews' stock trades at a discount to its intrinsic sum-of-the-parts value.
• Boardwalk expects EBITDA to approach $1 billion next year inclusive of the Bayou Ethane acquisition.
• Loews Hotels targets mid-to-high teens cash-on-cash returns for new hotel projects based on stabilized cash flow projections.

Risks

• Economic Uncertainty: Government deficits are substantial, with budgetary shortfalls projected to climb as a percentage of GDP. Uncertainty in inflation and interest rate environments. High debt levels relative to GDP pose risks.
• Long-Term Care Business: While CNA actively manages its run-off long-term care business, there remains potential risk associated with long-tailed liabilities.
• Interest Rate Impact: Refinancings may lead to higher interest expense, though overall impact on Loews is positive due to CNA's ability to reinvest at higher yields.

Question and Answer

Q: Loews has been investing a substantial amount of capital into Loews Hotels. What are the expected returns on those projects?

A: We typically evaluate the attractiveness of new hotel projects using a cash-on-cash return metric. Specifically, we compare the project's stabilized cash flow projections to the amount of equity required and we generally target mid-to-high teens returns based on that metric.

Q: Jane, can you provide some color on how rising interest rates will impact the subsidiaries?

A: Most of our subsidiaries have fixed rate debt. Altium has floating rate debt, but approximately half is hedged until 2028. While refinancings will result in higher interest expense, the overall financial impact to Loews is positive as CNA is able to re-invest its portfolio at more attractive yields.

Q: Jim, can you discuss Loews' recent purchase of $175 million of CNA stock?

A: In the past we have purchased CNA shares to signal to the market that we believe that CNA is significantly undervalued, and this time was no different. I would also point out that this purchase did not impede our ability to continue buying Loews shares. Year-to-date we have spent $775 million to repurchase 12.9 million shares of Loews.

Q: Jim, would you like to make any general remarks about the economy?

A: Discussed government deficits, debt levels, inflation, and interest rates, mentioning TIPS as an investment option to hedge against inflation and budget deficits