CNA Financial Corporation

Ladies and gentlemen, good day and welcome to the CNA first quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. If you would like to ask a question at the conclusion of prepared remarks, you may press star and then one on your telephone keypad. To withdraw your questions, you may press star and two. As a reminder, today's conference is being recorded. At this time, I'd like to turn the call over to Rulita Todorova, VP of Investor Relations and Rating Agencies, for opening remarks and introduction of today's speakers. Please go ahead.

Thank you, Jamie. Good morning, and welcome to CNA's discussion of our first quarter 2024 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 their 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 6, 2024. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call. Regarding the 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, Dino Robusto.

Thank you, Ralitza, and good morning all. In the first quarter, we produced very strong results with excellent profitability, higher investment income, robust top line growth, and accelerating rate achievement in our commercial casualty lines, as well as strong retention in all segments. Core income increased by 30 million in the first quarter to 355 million, our highest first quarter core income on record. The last two quarters have produced the largest volume of core income on record for our organization, a testament to our underwriting performance strong investment returns, and overall profitable growth. Net investment income of $609 million pre-tax increased $84 million year over year, with our alternatives portfolio and our fixed income portfolio contributing almost equally to the increased income. The all-in combined ratio was 94.6%. with pre-tax catastrophe losses of 88 million or 3.8 points of the combined ratio compared to the relatively benign first quarter last year with 52 million or 2.4 points. This year was more in line with our first quarter average of 3.7 points over the last five years. Prior period development for PNC overall was favorable by 0.2 points on the combined ratio. Our pre-tax PNC underlying underwriting gain was over 200 million for the fourth successive quarter with a PNC underlying combined ratio of 91%. This is the 13th consecutive quarter with an underlying combined ratio below 92%. The underlying loss ratio was 60.5% and the expense ratio was 30.1% in the quarter. the underlying loss ratio was up a little more than half a point compared to the most recent four-quarter average. This slight increase was driven mainly by a mixed shift within the commercial segment, which had greater growth in national accounts in recent quarters, where the casualty lines carry a higher underlying loss ratio. The remainder is from several puts and takes, including the negative rate pressure for several quarters in management liability lines which impacts specialty and to a lesser degree international as well. In the quarter, we continued to achieve strong production performance with 8% growth in gross written premiums ex-captives and 6% growth in net written premium. Renault premium change overall was 6%, up a point from the fourth quarter. rate change was up half a point but still rounds to 4%, and exposure was also up half a point. In the U.S., where there has been persistent pressure from social inflation, rate was plus 6% ex-work comp, and renewal premium change was plus 8%, which continues to be above our long-run lost cost trends of 6.5% in the U.S. Outside the U.S., long run loss cost trends in the aggregate are about a point lower than in the U.S. as we don't experience the same level of social inflation pressure. So our overall PNC long run loss cost trend remains between six and six and a half percent. New business was up five percent in the quarter to 529 million with continued strong growth in our commercial business units. as we achieved throughout 2023. Overall P&C retention remained high at 85% this quarter, consistent with last quarter. Turning to our three business units, the all-in combined ratio for commercial was 97.6%. Cat losses of 82 million this quarter added 6.8 points to the combined ratio. The underlying combined ratio of 90.8%. was a record low and one point lower than last year. The underlying underwriting gain of 111 million in commercial was a record high. The underlying loss ratio was 62% and the expense ratio was 28.2%, the lowest on record. As I mentioned last quarter, the loss ratios for the post-pandemic accident years in the classes of business most impacted by social inflation. Med mal, auto, GL, and excess casualty continue to hold up well as we took a conservative approach in those initial loss ratio selections. For the remaining classes in aggregate, we have experienced favorable development from the more recent accident years based on our initial loss ratio picks. Of course, These recent years are still immature and we will continue to monitor for any emergence over time that deviates from our initial expectations. Gross written premium ex-captives grew 17% in the quarter and net written premium growth was 13%. New business grew 18% and retention improved by two points to 85% in the quarter. Renewal premium change in commercial was 8%, with rate up 6% and exposure increases up 2%. Rate and renewal premium change excluding work comp were 9% and 10% respectively, continuing to exceed long-run loss cost trends. An area we have repeatedly highlighted for you is our success at pushing for higher pricing in our U.S. commercial casualty lines. And in the first quarter, commercial auto rate increases were up 14 percent, excess casualty was up 11 percent, and primary general liability was up mid-single digit with renewal premium change of high single digit due to rising revenues and payrolls. These rate increases are double what they were six quarters ago. Our national accounts rate increases are down a few points compared to the fourth quarter, which is mainly a function of quarter-to-quarter variability given the impact individual large accounts can have on the overall rate change. Although still early in the second quarter, we are not seeing that lower trend continue. In work comp, overall renewal premium change is about flat in the quarter, with exposure increase offsetting low to mid-single-digit rate decreases. Within specialty, the all-in combined ratio was 90.7% in the first quarter, including 0.6 points of favorable prior period development, making this 15 straight quarters below 91%. The underlying combined ratio was 91.3%, with an underlying loss ratio of 59.2%, and the expense ratio was 31.8%. Gross written premium ex-captives growth for specialty was down 1% this quarter, and net written premium growth was up plus one. We capitalized on some growth opportunities in portions of our healthcare portfolio, but this was partially offset by our decision to remain prudent in our management liability lines until we see further improvement in the pricing environment. Within specialty, rates in aggregate were up plus 2% this quarter, reflecting a two-point improvement from the fourth quarter. The rate declines in our financial institutions and management liability classes moderated this quarter, and public D&O was only slightly negative. improving in each of the last three quarters. Our healthcare rates continue to improve and are in the high single digits. And the cumulative rate and improved terms and conditions we achieved over the hard market years is allowing us to profitably grow this business again. Our profitable affinity programs continue to produce stable rate change in the low to mid single digit range. Down slightly this quarter, which is impacted by program mix seasonality. Retention in specialty remained very strong at 88% for the quarter, and retentions have been at or above 87% for almost two straight years. For international, the all-in combined ratio was 93.3% in the quarter, including 6 million or two points of CAT losses. The underlying combined ratio was 91.3% with an underlying loss ratio of 58.1% and the expense ratio was 33.2%. The underlying combined ratio in international has been below 92% for 11 consecutive quarters. International gross written premiums were down 6% and net written premiums were down 4% in the quarter. Similar to the U.S. specialty actions, we remained prudent in our management liability lines, which limited our new business opportunities. We also had a two-point impact on retention from our underwriting actions to non-renew our political violence exposure, which we initiated in the fourth quarter. Rates in international at 1% are down a point from the fourth quarter. Given the cumulative rate increases and extensive re-underwriting actions we took for the last several years, we expect our international operations to be an increasingly consistent contributor to our overall profitable growth.