Q3 Profit Rises at CNA; CEO Motamed Sees ‘Encouraging’ Rate Trends

November 2, 2009

CNA Financial Corp.’s third quarter 2009 results included net operating income of $331 million and net income of $263 million along with a combined ratio for property/ casualty operations of 101.0%.

Net operating income for the three months ended Sept. 30, 2009 improved $248 million as compared with the same period in 2008. Net operating income for our core property/ casualty operations increased $179 million, while results for our non-core operations increased $69 million.

According to the insurer, the improvement was primarily due to lower catastrophe losses, higher net investment income and a $61 million after-tax gain from a settlement that resolved litigation related to the placement of personal accident reinsurance.

Catastrophe losses were $15 million after-tax in the third quarter of 2009, as compared to $168 million in the third quarter of 2008. Partially offsetting these favorable items was an unfavorable change in current accident year underwriting results excluding catastrophes. The Property & Casualty Operations produced third quarter combined ratios of 101.0% and 107.0% in 2009 and 2008, or 99.5% and 91.3% before the 1.5 point and 15.7 point impacts related to catastrophes.

Thomas F. Motamed, chairman and chief executive officer of CNA Financial Corp., said the company was pleased with the performance of the specialty lines segment and will look to improve profitability in the standard lines segment.

“Rate trends are encouraging across our portfolio. However, the recession has reduced exposures, putting downward pressure on premium volume,” Motamed said.

Pretax net investment income for the third quarter of 2009 increased $221 million as compared with the same period in 2008. This increase was primarily driven by improved results from limited partnership investments. After-tax net realized investment losses decreased $356 million for the three months, driven by decreased other-than-temporary impairment (OTTI) losses recorded in the period.

Net results for the three months ended Sept. 30, 2009 improved $594 million as compared with the same period in 2008. This improvement was due to lower net realized investment losses and higher net operating income.

For the nine months ending Sept. 30, ther Property & Casualty Operations produced combined ratios of 99.1%, or 97.4% before the impacts related to catastrophes.

CNA is the country’s seventh largest commercial insurance writer and the thirteenth largest property/ casualty company.

Business Operating Highlights

Standard Lines:

  • Net written premiums decreased $91 million for the third quarter of 2009 as compared with the same period in 2008. The current economic conditions have led to decreased insured exposures. Average rate was flat for the third quarter of 2009, as compared to decreases of 5% for the third quarter of 2008 for the policies that renewed during those periods. Retention rates of 80% and 81% were achieved for those policies that were available for renewal in each period.
  • Net operating results improved $165 million for the third quarter of 2009 as compared with the same period in 2008. This improvement was primarily due to lower catastrophe losses and higher net investment income. Catastrophe losses were $13 million after-tax in the third quarter of 2009, as compared to catastrophe impacts of $160 million after-tax in the third quarter of 2008. Partially offsetting these favorable items was an unfavorable change in current accident year underwriting results excluding catastrophes.
  • The combined ratio improved 17.1 points for the third quarter of 2009 as compared with the same period in 2008. The loss ratio improved 22.3 points primarily due to decreased catastrophe losses, partially offset by the impact of higher current accident year non-catastrophe loss ratios. The expense ratio increased 3.3 points, primarily related to higher underwriting expenses, unfavorable changes in estimates for insurance-related assessments, and the lower net earned premium base. Underwriting expenses increased primarily due to higher employee-related costs.
  • Net results for the third quarter of 2009 improved $235 million as compared with the same period in 2008. This increase was primarily attributable to improved net operating results and lower net realized investment losses.

Specialty Lines:

  • Net written premiums decreased $30 million for the third quarter of 2009 as compared with the same period in 2008. This decrease reflects lower net written premiums for CNA Global, partially offset by growth in U.S. Specialty lines. CNA Global written premiums were unfavorably impacted by current economic conditions and foreign exchange. Modest growth in U.S. Specialty written premiums was driven by strong rate increases in the financial institutions and directors and officers lines, partially offset by the impact of current economic conditions. Average rate was flat for the third quarter of 2009, as compared to decreases of 3% for the third quarter of 2008 for the policies that renewed during those periods. Retention rates of 84% were achieved for those policies that were available for renewal in both periods.
  • Net operating income improved $14 million for the third quarter of 2009 as compared with the same period in 2008. This improvement was primarily due to higher net investment income, partially offset by decreased favorable net prior year development and an unfavorable change in current accident year underwriting results.
  • The combined ratio increased 4.1 points for the third quarter of 2009 as compared with the same period in 2008. The loss ratio increased 3.6 points primarily due to less favorable net prior year development and higher current accident year loss ratios recorded in several lines of business. The expense ratio increased 0.6 points primarily related to the lower net earned premium base.
  • Net income improved $64 million for the third quarter of 2009 as compared with the same period in 2008. This improvement was primarily attributable to lower net realized investment losses.

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