CNA Financial Corporation

Ladies and gentlemen, good day and welcome to the CNA first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. If you would like to ask a question at the conclusion of prepared remarks, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to Ralitsa Todorova, Assistant Vice President, Investor Relations, for opening remarks and introductions of today's speakers. Please go ahead.

Thank you, Andrew. Good morning, and welcome to CNA's discussion of our first quarter 2023 financial results. Our first quarter earnings press release, presentation, and financial supplement were released this morning and are available on the investor relations section of our website, www.cna.com. Speaking today will be Dino Robusto, Chairman and Chief Executive Officer, and Scott Lindquist, Chief Financial Officer. Following the prepared remarks, we will open the line for questions. Today's call may include forward-looking statements and references to non-GAAP financial measures. Any forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made during the call. Information concerning those risks is contained in the earnings press release and in CNA's most recent SEC filings. In addition, the forward-looking statements speak only as of today, Monday, May 1, 2023. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call. Regarding non-GAAP measures, reconciliations to the most comparable GAAP measures and other information have been provided in our earnings press release, financial supplements, and other filings with the SEC. This call is being recorded and webcast. A replay of the call may be accessed on our website. If you are reading a transcript of this call, please note that the transcript may not be reviewed for accuracy Thus, it may contain transcription errors that could materially alter the intent or meaning of the statements. With that, I will turn the call over to our Chairman and CEO, Steno Robusto.

Thank you, Roliza, and good morning, all. Before I begin my remarks on the quarter, I would like to acknowledge the contributions of Tom Motamed to our organization. As you all know, Tom passed away on April 18th, leaving behind an incredible legacy in our industry, which he served with distinction for 45 years. Tom was truly an insurance man through and through, climbing the ranks at Chubb for over 30 years and then joining CNA as chairman and CEO in 2009. His myriad contributions and effective leadership helped define CNA's capabilities and reputation. Our entire organization is saddened by Tom's passing and we will always be grateful for his commitment to not only CNA but to our entire industry. In the first quarter, CNA produced very strong results with excellent profitability and double digit top line growth from significant new business success, continued high retention and a rebound in rate change from the fourth quarter of last year. Our income increased by $27 million in the first quarter to $325 million. Net investment income of $525 million pre-tax increased $77 million year-over-year, and our pre-tax P&C underlying underwriting gain was up 19% to a record $197 million in the quarter. Against the backdrop of elevated industry catastrophe losses in the first quarter, the all-in combined ratio was very strong at 93.9%, with pre-tax catastrophe losses of 52 million for 2.4 points of the combined ratio, which is well below our 10-year first quarter average of 3.1 points, which we believe is strongly reflective of our prudent management of catastrophe exposures. Prior period development for P&C overall was slightly unfavorable by 0.7 points on the combined ratio. From adverse development on a professional liability segment we exited several years ago as part of our re-underwriting actions in our London portfolio. The P&C underlying combined ratio was 90.8 and is 0.6 points lower than the first quarter of last year. The underlying loss ratio in the first quarter of this year was 59.8%, down 0.3 points year over year, and the expense ratio of 30.7% was also down 0.3 points. In the quarter, we achieved very strong production performance, with 11% growth in both gross written premium ex-captives and net written premium, excluding currency fluctuation The growth was 12% for both metrics and was particularly strong in our commercial and international segments. Written rate increase was 5% in the quarter, up a point compared to the fourth quarter with acceleration in commercial, where rates were up two points to 7%. And commercial rates are up a full three points compared to the third quarter of last year. These higher levels of written rate will favorably impact earned rate throughout the year. Pricing remains rational, increasing where we need it most, and the overall renewal premium change remains strong at slightly more than 7%. And importantly, rate change and the portion of exposure change that acts like rate continues to cover our long-run lost cost trends, which are up a few tenths of a point this quarter, at close to 6.5%. New business was up 12% for the quarter to $503 million. The new business was particularly elevated across the board in commercial, where we capitalized on a number of opportunities in each of our target classes. Over the last several years, we've commented on strengthening our industry verticals. We built strong verticals in areas such as national accounts property, national accounts casualty, construction, and marine, in addition to verticals we have had for a long time, like middle market, surety, healthcare, and affinity programs. We have since built top industry expertise in those business segments, and not just in underwriting, but across the value chain in areas such as claim and risk control. Moreover, the re-underwriting I've discussed extensively in prior calls is well behind us, and so we are clearly engaged in the marketplace. We are single-mindedly focused on growing profit dollars across our business segments, and we closely track the strength of our new compared to renewal pricing, and that has remained consistent, as have the stronger terms and conditions achieved during the hard market years. In the first quarter, we saw more opportunities to grow new business in commercial and international than we saw in specialty, and that, of course, will vary across the quarters. Retention remained high at 86% this quarter and has been at this level for four straight quarters as we seek to retain as much of the business as possible. that has generated our strong underlying combined ratios of around 91% for the last two years. Turning to our three business units, the all-in and underlying combined ratios for specialty were each very strong at 90% in the first quarter. The underlying loss ratio improved 0.5 points to 58.4%, and the expense ratio was up by 0.5 points to 31%. We have limited exposure to community, regional, and large banks as part of our D&O portfolio. Our banking exposures represent less than 2% of our aggregate management liability portfolio, and we continue to maintain prudent current accident year loss ratio picks. Gross written premium ex captives growth for specialty was flat this quarter, and net written premium growth was up plus 2%. Growth was lower due to less new business in our transaction liability program from significantly fewer M&A opportunities in the quarter. Excluding this program, specialty gross growth was 5% in the quarter, and new business production in the other specialty lines of business was similar or slightly higher than the amounts we wrote in the first quarter of 2022. Within specialty, rates were plus two this quarter, down one point from the fourth quarter. Management liability experienced rate decreases of minus 3% this quarter, which is down from flat during the fourth quarter, largely impacted by D&O pricing. In D&O, the softening rate environment continued this quarter, where pricing was down 3%. three points from the fourth quarter to minus 12%. This line of business had a high double-digit cumulative rate throughout the hard market cycle, which peaked towards the end of the first quarter of 2022. Since that point, fewer new financial opportunities combined with new entrants into the market is creating this price softening in the near term. How long it will continue depends on the claims activity which can change pretty quickly in this line of business as history has taught us. We continue to underwrite conservatively and we will secure the right accounts at the needed terms and conditions which clearly exist as many clients value the proven track record associated with long-standing stable and expert insurers as they construct their towers of coverage. Retention remains very strong at 88% for the third straight quarter, with all products and specialty achieving high retention levels. Turning to commercial, the all-in combined ratio was 96%, which includes 4.2 points of cap loss in the first quarter. The underlying combined ratio was 91.8%, the lowest on record, and 0.9 points lower than last year. the underlying loss ratio of 61.5% was stable year over year. The expense ratio improved by almost a full point to 29.8% in the quarter, representing the lowest quarterly expense ratio in 15 years. Growth-written premiums, ex-captives, and net-written premium each grew by 19% this quarter. All business units within commercial benefited from stable to improved pricing, high retentions, and strong levels of new business. In the quarter, commercial renewal change was slightly higher than 9%. Rates were up plus 7% in commercial, up two points from the fourth quarter, driven by acceleration in property rates, wherein our national accounts property portfolio rate was above 25%. Price increases continued to climb through the quarter from the levels in January that I commented on during our fourth quarter call. Our middle market property accounts had rate increases in the high single digits, which is a great result given the multi-line nature of middle market package business, just a different competitive dynamic than the larger monoline property business. Looking forward, we do not see any signs of significant change in the marketplace. In fact, in some areas of national accounts property, we see rates accelerating beyond the high 20s level we are experiencing today. Outside of rates, we continue to capitalize on improved terms and conditions, which, as we described to you last quarter, have a significant positive impact on controlling our catastrophe exposure. We also remain extremely focused on securing appropriate insurance to value during these inflationary times. And valuation increases in national accounts property were high single digit in the first quarter. As you know, our major property reinsurance treaties renew on June 1. Although still a little early, our sentiment remains in line with what we said in the fourth quarter. We have had good results in our property business, which has also benefited our reinsurers, and the first quarter of this year reveals again our prudent management of CAT, and we expect all of that to help us at renewal. We expect to maintain a strong program in line with what we've had over the last several years, and while we anticipate securing the program at higher prices, we nonetheless expect pricing to reflect our strong performance and underwriting expertise. Outside of property, commercial auto rates also improved by more than a point in the first quarter to slightly above 9% and were even higher in the month of March. Excess casualty rates were mid-single digits and renewal premium change was over 8% for the quarter, keeping pace with long-run loss cost trend in this line. And rates moved higher throughout the quarter, and that trend continued in April, which is encouraging, as it is needed in light of the impact industry nuclear verdicts have on this line. As we have highlighted in the past, we also have brought down our limits profile over the last several years in response to the social inflationary pressure, and that has benefited the performance of this portfolio as well. Primary general liability, renewal premium change was mid-single digit in the quarter and also moved higher in April. Work comp pricing continued to be slightly negative. And in the quarter, overall commercial pricing excluding work comp rates were up 9% and renewal premium change was up 11%, which continues to be well above our long-run loss cost trends. Commercial retention remains strong at 86% and was strong in all business units. New business was up 36% and also strong across all business areas, as I mentioned earlier. Given the firming rates in commercial lines and our well-established and specialized business verticals, we anticipate quality new business opportunities to persist. For international, The all-in combined ratio was 97.2%, and the underlying combined ratio was 89.3%, a record low. International had strong top line this quarter, with gross written premiums up 10% or 17% excluding currency fluctuation. Net written premiums grew 8% or 16% excluding currency fluctuation. Renewal premium change was 8% in the quarter with both rate and exposure increase up 4%. Retention was strong and international at 83% for the quarter and has been at or above this level for four straight quarters. New business was up 9% in the quarter and 15% excluding currency fluctuations. Our international operation is now consistently growing and producing growth. meaningful profitability for CNA overall. And with that, I will turn it over to Scott.