CNA Q3 Loss Driven by Asbestos Charge

CNA Financial Corp. announced third quarter 2010 results, which included a net operating loss of $158 million, and net loss of $140 million.

The third quarter 2010 results included an after-tax net loss of $365 million related to the previously announced agreement to cede asbestos and environmental pollution liabilities to Berkshire Hathaway’s National Indemnity Co.; $344 million was recognized in continuing operations and $21 million was recognized in discontinued operations.

The combined ratio for the third quarter for property/casualty operations was 97.9 percent.

Net operating results for the three months ended September 30, 2010 decreased $489 million as compared with the same period in 2009. Excluding the loss associated with the asbestos loss portfolio transfer, net operating income decreased $145 million. Net operating income for the company’s core property/ casualty operations decreased $19 million as they were unfavorably affected by lower net investment income.

Net operating results for non-core segments decreased $126 million, which includes the favorable impact in 2009 of a $61 million after-tax gain arising from a settlement that resolved litigation related to the placement of personal accident reinsurance.

For the three months ended September 30, 2010, catastrophe losses were $8 million after-tax, as compared to catastrophe losses of $15 million after-tax for the same period in 2009.

Highlights

CNA Specialty provides professional and management liability as well as other property/ casualty coverages and services, both domestically and abroad, through a network of brokers, managing general underwriters and independent agencies. Its third quarter saw:

• Net written premiums increased $16 million for the three months ended September 30, 2010 as compared with the same period in 2009. Net written premiums increased in our professional management and liability lines of business. This increase was partially offset by continued decreased insured exposures and lower rates in the architects & engineers and HealthPro lines of business due to current economic and competitive market conditions. Average rate decreased 2 percent for the three months ended September 30, 2010, as compared to a decrease of 1 percent for the three months ended September 30, 2009 for the policies that renewed in each period. Retention rates of 86 percent and 85 percent were achieved for those policies that were available for renewal in each period.
• Net operating income decreased $9 million for the three months ended September 30, 2010 as compared with the same period in 2009. This decrease was primarily due to decreased current accident year underwriting results and lower net investment income, partially offset by increased favorable net prior year development.
• The combined ratio improved 0.3 points for the three months ended September 30, 2010 as compared with the same period in 2009. The loss ratio improved 2.0 points, primarily due to increased favorable net prior year development, partially offset by the impact of a higher current accident year loss ratio. The expense ratio increased 1.6 points, primarily related to higher underwriting expenses.
• Net income increased $24 million for the three months ended September 30, 2010 as compared with the same period in 2009. This increase was due to improved net realized investment results, partially offset by lower net operating income.

CNA Commercial works with an independent agency distribution system and network of brokers to market a range of property/casualty insurance products and services to small, middle-market and large businesses and organizations domestically and abroad. For its third quarter:

• Net written premiums decreased $24 million for the three months ended September 30, 2010 as compared with the same period in 2009. Net written premiums were unfavorably impacted by decreased insured exposures and decreased new business as a result of competitive market conditions. Average rate was flat for the three months ended September 30, 2010 and 2009 for policies that renewed in each period. Retention rates of 81 percent and 80 percent were achieved for those policies that were available for renewal in each period.
• Net operating income decreased $10 million for the three months ended September 30, 2010 as compared with the same period in 2009. This decrease was primarily due to lower net investment income, driven by less favorable limited partnership income, partially offset by increased favorable net prior year development.
• The combined ratio improved 4.9 points for the three months ended September 30, 2010 as compared with the same period in 2009. The loss ratio improved 3.2 points, primarily due to increased favorable net prior year development and decreased catastrophe losses. The expense ratio improved 1.7 points primarily due to the favorable impact of a reduction in the allowance for uncollectible insurance receivables and decreased unfavorable changes in estimates for insurance-related assessments, partially offset by the unfavorable impact of the lower net earned premium base.
• Net income improved $50 million for the three months ended September 30, 2010 as compared with the same period in 2009. This improvement was due to improved net realized investment results, partially offset by lower net operating income.