CNA Chief Motamed: What’s Ahead for CNA, Economy, Industry

After 30 years at Chubb Corp, Thomas Motamed joined Chicago-based commercial lines insurer CNA Financial in January 2009 as chairman and CEO. In this edited interview with Insurance Journal’s Andrew Simpson, Motamed talks about his goals and changes at CNA, as well as the state of the economy and the financial and competitive environment facing the property/casualty insurance industry. He also adds some advice for agents and brokers.

What goals have you set for yourself at CNA, and what changes are underway?

Motamed: Clearly, the most important objective is to improve the bottom line. And with that, we’re also going to have to improve the top line. We’re going to have to become a more agent-friendly company. We’re going to have to develop a broader and more specific appetite; we’ve heard that from our agents. And we have to simplify how we do business. We tend to be too complex, both internally and externally. And we have to learn how to communicate and collaborate, not only within CNA but outside CNA, with our clients and brokers and agents.

So are there structural and personnel changes underway?

Motamed: We have made a bunch of, number one, strategy changes, from an underwriting perspective. What we’re interested in, we’re taking much more of a customer-centric approach to the business, focusing on approximately 10 industry segments that we like, for both property/casualty business as well as specialty business. With that, we are aligning our structure to support the strategy, both in the field and the home-office operation. And with that, we are bringing in talent. We have changed seven of the top 14 jobs, well, since 2008. So we’re making more changes, and we’re hiring lots more people to help us execute the strategy in the branches at the point of sale.

What are some of those industry sectors that you’re targeting?

Motamed: Health care and construction are two that we really were known for. CNA is looked at as a leader in those industries. But besides that, we’re looking at financial institutions, retail, wholesale distribution, professional services, business services, manufacturing, education. And I’m sure I’ve missed one or two others, but a pretty broad appetite.

Do you have a growth strategy and a mergers or acquisitions part of it?

Motamed: We’re not interested in mergers, acquisitions. We’d like to do this organically. We think, by broadening our appetite and working with our existing agents, we’ll be able to grow. A difficult time to grow in the industry, but that gives us some time to get things in shape, so we think it’ll work out over time. But we’re not interested in acquisitions.

The third-quarter results for CNA, as well as for a number of other insurers, were vastly improved over the same time a year ago. What do you see as the contributing factors to that improvement?

Motamed: I think the big thing is the investment side of the balance sheet is improving for a lot of companies, including CNA. With the subprime and economic meltdown that occurred in 2008, a lot of balance sheets took a hit, including CNA’s. And there has been a recovery, so, clearly, that is the biggest sign of improvement on operating earnings. If you look at the true underwriting results, I think you’d have to take the position they’re not getting better. They’re actually getting worse. Although there are plenty of companies running combined ratios under 100, we went over 100 in the third quarter, first time for many quarters, and really a reflection of the pricing environment in the marketplace, and the fact that the economic situation is having a big impact on exposure, which, in many cases, is measured by sales and payrolls. And both of those are down for most businesses out there today.

When you released your CNA third-quarter results, you did suggest that some rate trends were encouraging.

Motamed: Yeah, in both our commercial and specialty business, rates improved. To kind of put it in comparison, at the beginning of the year, rates were off about five percent for us. At the third-quarter mark, they were pretty much flat: just slightly below flat. So that’s a pretty big improvement, five points. We are pushing rates, and we’re going to continue to push rates because rates are the big part of profitability. That’s where you get margin compression. If you give up rate, you’re going to have margin compression. If you can get some rate, that’s going to help you make some money.

[Video] CEO Motamed Says Changes Underway at CNA

How much of the premium volume was tied to the recession, and do you see a recovery underway?

Motamed: I think, if you look at almost all industries in this country–and we do have a business in Europe and Canada as well–they are all feeling the effects of the recession. Companies are laying people off. I don’t have to tell you, unemployment’s 10 percent. And the other thing is sales are down. I just saw a report the other day about retail shopping before the holiday season, everybody hoping that it’ll pick up. It’s not picking up. So people are saving more, and they’re not spending. And when they don’t spend, that prohibits economic expansion.

Do you see signs of a recovery? What’s your forecast?

Motamed: I don’t see anything in the very near future. I think housing has a lot to do with it. If we can get the housing market to improve, then people spend money on other things related to their house. But right now, I think it’s pretty much the doldrums.

You mentioned CNA’s investment picture improved the last quarter. But as Dr. Robert Hartwig of the Insurance Information Institute suggests, overall for the industry, investment income has been down and is likely to stay down. It’s not likely to rebound anytime soon. Do you think the industry is prepared to operate on lower investment returns?

Motamed: It has no choice. I mean, if you want to be in the business, you’re going to have to operate under the new, I’ll say, factors that we’re going to live with. But investment income’s down. That makes more important to all of us to understand we have to make it on the underwriting side. So we can’t afford, with lower investment income, not to grow or increase our profits or improve our profits on the underwriting side. That’s what’s going to get us through this. It’s going to be underwriting discipline, pricing discipline,

What have you found to be the effect of the troubles at AIG on the commercial-insurance marketplace, in pricing, and in competition, and for CNA in particular?

Motamed: Well, first of all, AIG is a very big company. Part of it is property/casualty insurance, and that’s my world. They are still a competitor. We run into them all the time. Fortunately for us, we don’t really play in the areas that they play in. We are more in the middle market and smaller accounts, so we don’t run into them that much. But they’re still out there. I hear agents and brokers telling me they’re active. And I think, if you look at that firm, they have provided a valuable service to agents, brokers, and clients, and quite honestly, I wish them the best.

There’s been a lot of talk of an exodus of employees, perhaps, from AIG. Has CNA tapped any of the AIG people?

Motamed: Not that I’m aware of, but I’m sure it’s happened. But that’s not a strategy to go after people at a particular firm like AIG. We go, selectively, after people for roles that we need filled. But no, there’s been no migration to CNA from AIG.

Healthcare reform is certainly under debate in Washington, and one of the proposals would repeal the antitrust exemption for medical malpractice insurers. Are you concerned about that?

Motamed: At this point, we’re not really very concerned about it. I think the thing about Washington is what they say today is not necessarily what’ll be the result at the end. So we’ll watch and we’ll see what’s going on. But right now, from our vantage point, we’re OK.

Overall, do you see healthcare reform affecting the healthcare liability market?

Motamed: I’m sure it will. I don’t think most of us know how that will happen. There are a lot of people out there that have opinions. I think we’re more concerned what the impact would be on workers’ compensation because, really, then you would have a system that’s regulated by the states’ workers’ comp, and then you’d have more of a federal approach to health care. Is there an overlap? Are there problems with that? All of a sudden, you see more medical costs going into the work-comp system, where they can charge maybe more money than the federal system will allow providers to charge.

So some shifting might occur.

Motamed: There might be some shifting.

Are there other proposals out of Washington that you’re keeping your eye on or are concerned about?

Motamed: Well, we follow the debate on Office of National Insurance. From our standpoint, that’s probably a good thing, because they will have some, I’ll say, big-picture oversight, but really not meddling. So you won’t have two forms of regulation there. And I think the other thing ONI possibly can give us is a link to countries other than ours, relative to the international marketplace, and regulatory bodies, whether they be in Bermuda, Europe, or elsewhere. So that might be a good thing. The Consumer Protection Bureau that’s been proposed, if I understand it, does not apply to property-casualty companies, so we’ll wait and see. We’ll find out what happens on the overall potential regulation of our industry.

You come from a strong agent/broker/carrier background. Is there a particular message you’d like to get out to agents and brokers as you take CNA into the future?

Motamed: I think they have to be close to their clients and close to their markets. I think that the most important thing is they have to build relationships with us, as we try to build relationships with them. And the client’s got to be in there. So it’s kind of a triangle. I think we have to work together and really try to keep customers for a long time, with CNA or whatever market that agent has placed them with. But I think that’s probably the biggest thing. And I think the only other thing is this is a people-to-people business. You can’t hide behind technology. So, when in doubt, talk to somebody. And I think we need to have a lot of communication and collaboration. Whether it’s in more challenging times like today, or even the best times, we’ve got to be talking to each other.

[Video] Economy Has Long Way to Go, CNA Chief Says

Listen to the entire Insurance Journal interview with Tom Motamed: Motamed Settled In As CNA CEO.

Topics Agencies Legislation Washington Property Casualty AIG