CNA FINANCIAL CORP Q4 FY2024 earnings call

Before discussing results, expressed sympathies to California wildfire victims. Fourth quarter had strong results: record underlying underwriting gain, highest net investment income of the year, 10% quarterly net written premium growth. P&C all-in combined ratio 93.1%, increase from prior year due to higher catastrophe losses. Commercial segment had lowest all-in combined ratio since 2008, underlying combined ratio a record low. Specialty segment had all-in combined ratio 93.8% in Q4. International segment had all-in combined ratio 94.8% in Q4. Full year core income $1,316 million, record high. P&C underlying combined ratio 91.5% for the year. Expense ratio for P&C was 30.0% in Q4 and 30.2% for full year, lowest since 2008. Highlighted Dino Robusto's eight-year tenure as CEO and Douglas Worman succeeding him.

In the fourth quarter, the Commercial segment had an all-in combined ratio of 92.3%, the lowest since 2008, with an underlying combined ratio of 90.0%, a record low. Gross written premiums excluding captives grew 11% and net written premium growth was 12%. The Specialty segment had an all-in combined ratio of 93.8% in the fourth quarter, with a underlying loss ratio of 60.1% and gross written premium growth excluding captives of 4%. The International segment had an all-in combined ratio of 94.8% in the quarter, with gross written premiums growing 8%. For the full year, Commercial's all-in combined ratio was 96.7%, underlying 90.6%; Specialty's all-in combined ratio was 92.6%, underlying 92.9%; International's all-in combined ratio was 94.0%, underlying 91.2%. Net investment income for the fourth quarter was $644 million, up 5% from the prior year quarter, and full year net investment income was nearly $2.5 billion, up 10% from 2023. The P&C underlying underwriting gain for the full year was a record high of $840 million.

Expect income from fixed income and other investments in 2025 to be about $2,225 million, a 2% increase from 2024. First quarter 2025 income from fixed income and other investments expected to be about $550 million, flat compared to Q4 2024. Increasing regular quarterly dividend 5% from $0.44 per share to $0.46 per share and declaring a special dividend of $2.00 per share, both payable on March 13, 2025.

Catastrophe losses impacted P&C all-in combined ratio, with Q4 losses from Hurricane Milton and full year $358 million from catastrophes. Corporate segment reserve review led to charges from A&EP reserve review and legacy mass tort abuse claims. Life & Group segment had unfavorable morbidity experience. International segment core income impacted by pretax foreign currency exchange loss due to U.S. dollar strengthening against British pound.

Q: Net written premium growth was higher than gross written premium growth excluding captives in all three segments. What is driving the higher net written premium growth?

A: Net written premium growth was favorable to gross growth due to mix of business related impacts in Commercial and Specialty and favorable adjustments on prior year reinsurance treaties in International.

Q: CNA's expectations for income from fixed income and other investments implies a 2% increase from 2024 results. Why would there not be a higher increase given a continued higher interest rate environment?

A: While we expect long-term interest rates will continue to benefit the reinvestment outlook of our fixed income portfolio, we expect our other investments, which includes our short-term portfolio, will see lower income next year as short-term rates have come down in recent months and may continue to do so in 2025. We expect the growth in our long-term, fixed income portfolio to be closer to 4% in 2025, which is more comparable to the growth we saw in 2024.

Q: In review of CNA's Financial Supplement, for the International segment in the other expenses line for the fourth quarter there is a $21 million variance from a $6 million gain last year to a $15 million loss this year -- can you tell me what is happening here?

A: The International segment's core income was unfavorably impacted in the current quarter by a pretax foreign currency exchange (FX) loss of approximately $15 million compared to a pretax gain of approximately $6 million in the fourth quarter of 2023, which drove the variance in the other expenses line. The FX loss this quarter was driven by the U.S. dollar strengthening against the British pound during the quarter. Our Lloyd's syndicate has U.S. dollar insurance reserves that revalue to the syndicate's functional currency of the British pound through the income statement. Note that economically our Lloyd's investment portfolio is also denominated in the U.S. dollar, thus effectively hedging our currency risk and the change in invested asset value due to foreign currency rate movement is reflected through other comprehensive income within stockholders' equity.