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CNA’s Q1: Net Income Plunges but Underwriting Improves

May 2, 2016

CNA Financial Corp.’s first three months of 2016 produced a mixed bag of results. Fallout from a 2010 agreement to cede Asbestos and Environmental Pollution liabilities to National Indemnity Company also caused some financial pain.

The Chicago-based carrier reported plunging net income and investment losses, along with higher catastrophe costs. Its struggling commercial division saw a drop in net written premiums. On the positive side, CNA cited improved combined ratios for its property/casualty, specialty and commercial division, though commercial remained above 100. Its international arm also saw an uptick in net premiums written.

For Q1, overall net income overall hit $66 million, or $0.24 per diluted share during the 2016 first quarter. Both are large drops from $233 million, or $0.86 per diluted share, generated during the same period a year ago.

CNA’s property/casualty division, the biggest of three, reported a 96.1 combined ratio, improved compared to the 98.9 combined ratio in the 2015 first quarter. But net written premiums, at more than $1.6 billion, are about $14 million lower compared to a year ago, a trend the insurer blamed on lower new business due to competitive market conditions. Net investment income, at $245 million, dropped from $373 million in the same, year-ago quarter.

As well, CNA’s P/C arm booked $24 million in catastrophe losses, versus $19 million in Q1 2015.

Property/casualty net income landed at $191 million, versus $269 million in the 2015 first quarter.

Chairman and CEO Thomas Motamed noted the P/C combined ratio improvement, and suggested in prepared remarks that the division results “reflect continued underwriting discipline and steady progress in our underwriting performance.”

Additional results:

CNA’s commercial division produced $748 million in net written premiums in Q1 2016, down from $759 million in the 2015 first quarter. Commercial produced $62 million in net income, versus $121 million in Q1 2015. The combined ratio here was at 101.9, a high number, but better than the 103.3 produced over the same period a year ago.

The specialty division reported $684 million in net written premiums during Q1, compared to $698 million in the 2015 first quarter. Net income dipped to $120 million, down from $138 million last year. The combined ratio came in at 89.4, improved over the 94.6 produced a year ago, thanks to higher net favorable prior year reserve development.

CNA’s international division booked $236 million in net written premiums, up from $212 million in Q1 2015. Net income dipped to $9 million, however, from $10 million a year ago. The combined ratio was at 99, up from 98.3 in the first quarter last year, something the insurer blamed on political risk losses, though that was offset by premium increases and development.

CNA said that net operating loss increased $92 million for the first quarter of 2016 versus the same period a year ago. During Q1 2016, the insurer recorded unfavorable development of $200 million related to its Asbestos and Environmental Polution reserves. This unfavorable development was ceded under the 2010 A&EP Loss Portfolio Transfer; however CNA’s reported earnings were negatively affected by $83 million, after tax, due to the application of retroactive reinsurance accounting.

Source: CNA