CNA Financial Corp (NYSE: CNA) reported a strong financial performance for the third quarter of 2023, with significant increases in core income driven by higher investment income and a record underlying underwriting gain in property and casualty (P&C) insurance. The company's commercial business segment led top-line production, with success in the middle market, construction, and national accounts units. The company also reported a favorable P&C combined ratio and increased awareness of the need for higher rates in lines affected by social inflation.
Key takeaways from the call:
- CNA's core income for Q3 reached $289 million, compared to $43 million last year, with a core return on equity of 9.4%.
- The P&C combined ratio was strong at 94.3%, with pre-tax catastrophe losses of $94 million, lower than the prior year and below the 10-year average.
- The commercial segment saw double-digit growth in gross and net written premiums, driven by strong new business growth and rate increases.
- International operations contributed profitable growth to CNA, with a combined ratio of 86% and strong renewal retention.
- The company expects an effective tax rate of about 21% going forward and announced a regular quarterly dividend of $0.42 per share.
The company's core income reached a record high of $922 million on a year-to-date basis. The P&C expense ratio decreased to 30.1% from 30.8% in the prior year's third quarter, primarily due to higher net earned premium and a favorable reinsurance acquisition-related catch-up adjustment. Total pretax net investment income increased by 31% to $553 million in the third quarter, driven by limited partnership and common stock portfolios.
During the earnings call, CNA's CEO, Dino Robusto, discussed the impact of social inflation on the insurance industry. He noted that social inflation has doubled long-run loss cost trends in the past three to four years, leading to elevated catastrophe losses. However, the industry has responded effectively by pushing for better pricing and terms.
In the Life & Group segment, there was a core loss of $29 million compared to a $192 million loss last year, mainly due to reserve assumption updates. CNA's balance sheet remains solid, with stockholders' equity of $12.3 billion excluding Accumulated Other Comprehensive Income (AOCI). The company plans to take a $24 million pretax impairment charge in the fourth quarter related to optimizing its real estate footprint.
Robusto also mentioned that commercial auto insurance has been a challenging line of business due to social inflation, but rate increases are being implemented to address the issue. The company continues to focus on de-risking its long-term care portfolio, offering policy buyouts and benefit reductions, resulting in a reduction in reserves and improved capital position.
InvestingPro Insights
The performance of CNA Financial Corp (NYSE: CNA) is further illuminated by real-time data from InvestingPro. The company boasts a market cap of $10.62 billion and a P/E ratio of 10.78 as of Q2 2023. The revenue growth is also noteworthy, showing an increase of 5.92% in the last twelve months as of Q2 2023.
Two key InvestingPro Tips for CNAs are worth mentioning. Firstly, the company has a high earnings quality, with its free cash flow exceeding net income. This is a positive sign of the company's financial health. Secondly, despite a declining trend in earnings per share, CNA has consistently paid significant dividends to shareholders for 13 consecutive years. This commitment to returning capital to shareholders is an attractive feature for income-focused investors.
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