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| Diluted Earnings (Loss) Per Share Available to Common Stockholders |
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| Results for the Three Months Ended September 30 | Results for the Nine Months Ended September 30 |
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| 2008 | 2007 | 2008 | 2007 |
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| Net operating income Net realized investment losses | $ 0.31 (1.57) | $ 0.78 (0.14) | $ 2.06 (1.96) | $ 3.08 (0.52) |
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| Net (loss) income from continuing operations Net income (loss) from discontinued operations | (1.26) 0.03 | 0.64 - | 0.10 0.04 | 2.56 (0.03) |
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| Net (loss) income | $ (1.23) | $ 0.64 | $ 0.14 | $ 2.53 |
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Net operating income from continuing operations for the three months ended September 30, 2008 decreased $129 million as compared with the same period in 2007. Net operating results for our core Property & Casualty Operations decreased $239 million, while our Non-Core operations increased $110 million. The overall decrease primarily resulted from higher catastrophe impacts and lower net investment income. The catastrophe impacts were $168 million after-tax in the third quarter of 2008, as compared with $7 million after-tax in the third quarter of 2007. The third quarter of 2007 results included an after-tax loss of $108 million in connection with the settlement of an arbitration proceeding related to a run-off book of business in the Life & Group Non-Core segment. Property & Casualty Operations produced combined ratios of 107.0% and 91.6% in the third quarters of 2008 and 2007, or 91.3% and 91.0% before the 15.7 point and 0.6 point impacts related to catastrophes.
Pretax net investment income for the third quarter of 2008 decreased $141 million over the same period of 2007. This decline was primarily driven by decreased results from limited partnerships, short term investments and the trading portfolio.
Net realized investment losses for the three months ended September 30, 2008 increased $385 million after-tax as compared with the same period in 2007. For the three months ended September 30, 2008, other-than-temporary impairment (OTTI) losses of $380 million after-tax, driven by credit issues, were recorded primarily in the non-redeemable preferred equity securities and corporate and other taxable bonds sectors. For the three months ended September 30, 2007, OTTI losses of $122 million after-tax were recorded.
Net realized investment losses, including OTTI losses, for the three months ended September 30, 2008, included $198 million related to securities issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, $65 million related to securities issued by Washington Mutual, $63 million related to securities issued by Icelandic banks and $23 million related to securities issued by American International Group.
Net results for the three months ended September 30, 2008 decreased $505 million as compared with the same period in 2007. This decrease was primarily due to higher net realized investment losses and lower net operating income.
CNA also announced that it will issue, and Loews Corporation has agreed to purchase, $1.25 billion of non-voting cumulative senior preferred stock (Preferred Issue). The Preferred Issue is perpetual and has a dividend rate of 10% for the first 5 years, with a dividend rate reset thereafter. No dividends may be declared on CNA’s common stock until the Preferred Issue has been paid in full. As such, CNA has suspended its quarterly dividend payment. The terms of the Preferred Issue were approved by a special committee of independent members of CNA’s Board of Directors. To support statutory capital impacted by the continued volatility and uncertainty in the capital markets, CNA will use $1 billion of the proceeds from the Preferred Issue to increase the statutory surplus of its principal insurance subsidiary, Continental Casualty Company.
“We believe by taking this proactive step, we further augment our solid capital base and are well positioned to both meet the challenges and act on the opportunities likely to emerge in the marketplace,” said Stephen W. Lilienthal, Chairman and Chief Executive Officer of CNA Financial Corporation. “I remain very positive about the underlying performance of our core Property & Casualty Operations, as measured by a 91.3% combined ratio before catastrophes. We continue to focus on the fundamentals of disciplined underwriting, portfolio optimization and expense management.”
Net operating income from continuing operations for the nine months ended September 30, 2008 decreased $283 million as compared with the same period in 2007. Net operating income for our core Property & Casualty Operations decreased $372 million, while our Non-Core operations increased $89 million. The overall decrease primarily resulted from the same factors discussed in the three month comparison above. The catastrophe impacts were $233 million after-tax for the nine months ended September 30, 2008, as compared to $35 million after-tax for the same period in 2007. Property & Casualty Operations produced combined ratios of 100.9% and 93.8% for the nine months ended September 30, 2008 and 2007, or 93.6% and 92.7% before the 7.3 point and 1.1 point impacts related to catastrophes.
Pretax net investment income for the nine months ended September 30, 2008 decreased $410 million over the same period in 2007 primarily due to the same factors discussed above for the three month period. Net investment income included a decline in trading portfolio results of $145 million, which was offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio.
Net realized investment losses for the nine months ended September 30, 2008 increased $385 million after-tax as compared with the same period in 2007. For the nine months ended September 30, 2008, OTTI losses of $546 million after-tax were recorded primarily in the non-redeemable preferred equity securities, corporate and other taxable bonds and asset-backed bonds sectors. For the nine months ended September 30, 2007, OTTI losses of $293 million after-tax were recorded.
Net income for the nine months ended September 30, 2008 decreased $650 million as compared with the same period in 2007, primarily due to the same factors discussed above for the three month period.
| Segment Results for the Three Months Ended September 30, 2008 | | | |
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| ($ millions) | Standard Lines | Specialty Lines | Total P&C Ops. | Life & Group Non-Core | Corporate & Other Non-Core | | Total |
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| Net operating income (loss) Net realized investment losses | $ (53) (115) | $ 145 (75) | $ 92 (190) | $ (36) (194) | $ 27 (39) | $ | 83 (423) |
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| Net (loss) income from continuing operations | $ (168) | $ 70 | $ (98) | $ (230) | $ (12) | $ | (340) |
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| Segment Results for the Three Months Ended September 30, 2007 | | | |
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| ($ millions) | Standard Lines | Specialty Lines | Total P&C Ops. | Life & Group Non-Core | Corporate & Other Non-Core | | Total |
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| Net operating income (loss) Net realized investment losses | $ 178 (19) | $ 153 (9) | $ 331 (28) | $ (131) (6) | $ 12 (4) | $ | 212 (38) |
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| Net income (loss) from continuing operations | $ 159 | $ 144 | $ 303 | $ (137) | $ 8 | $ | 174 |
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| Segment Results for the Nine Months Ended September 30, 2008 | | | |
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| ($ millions) | Standard Lines | Specialty Lines | Total P&C Ops. | Life & Group Non-Core | Corporate & Other Non-Core | | Total |
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| Net operating income (loss) Net realized investment losses | $ 166 (165) | $ 414 (99) | $ 580 (264) | $ (69) (209) | $ 43 (54) | $ | 554 (527) |
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| Net income (loss) from continuing operations | $ 1 | $ 315 | $ 316 | $ (278) | $ (11) | $ | 27 |
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| Segment Results for the Nine Months Ended September 30, 2007 | | | |
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| ($ millions) | Standard Lines | Specialty Lines | Total P&C Ops. | Life & Group Non-Core | Corporate & Other Non-Core | | Total |
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| Net operating income (loss) Net realized investment losses | $ 478 (76) | $ 474 (41) | $ 952 (117) | $ (142) (17) | $ 27 (8) | $ | 837 (142) |
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| Net income (loss) from continuing operations | $ 402 | $ 433 | $ 835 | $ (159) | $ 19 | $ | 695 |
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| Property & Casualty Operations Gross Written Premiums |
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| | Three Months Ended September 30 | Nine Months Ended September 30 | | ($ millions) | | 2008 | 2007 | 2008 | 2007 | | Standard Lines Specialty Lines | | $ 804 1,290 | $ 856 1,337 | $ 2,580 3,864 | $ 2,796 4,128 | | Total P&C Operations | | $ 2,094 | $ 2,193 | $ 6,444 | $ 6,924 |
| Property & Casualty Operations Net Written Premiums |
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| | Three Months Ended September 30 | Nine Months Ended September 30 | | ($ millions) | | 2008 | 2007 | 2008 | 2007 | | Standard LinesSpecialty Lines | | $ 723 875 | $ 753 886 | $ 2,342 2,583 | $ 2,524 2,619 | | Total P&C Operations | | $ 1,598 | $ 1,639 | $ 4,925 | $ 5,143 |
| Property & Casualty Calendar Year Loss Ratios |
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| Three Months Ended September 30 | Nine Months Ended September 30 | | 2008 | 2007 | 2008 | 2007 | | Standard Lines Specialty Lines Total P&C Operations Total P&C Companies (a) | 96.3% 58.5% 76.0% 82.5% | 60.9% 62.8% 61.9% 80.7% | 81.1% 62.8% 71.4% 80.2% | 66.2% 62.7% 64.4% 77.0% |
| Property & Casualty Calendar Year Combined Ratios |
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| | Three Months Ended September 30 | Nine Months Ended September 30 | | | 2008 | 2007 | 2008 | 2007 | | Standard Lines Specialty Lines Total P&C Operations Total P&C Companies (a) | | 129.3%87.8% 107.0%114.1% | 93.6% 89.6% 91.6% 110.5% | 112.2% 91.0% 100.9% 110.3% | 98.4% 89.2% 93.8% 106.7% |
(a) P&C Companies includes Standard Lines, Specialty Lines and P&C business written in Life & Group Non-Core and Corporate & Other Non-Core, including CNA Re and asbestos and environmental pollution exposures.
| Property & Casualty Gross Accident Year Loss Ratios | |
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| | Accident year 2008 Evaluated at September 30, 2008 | Accident year 2007 Evaluated at December 31, 2007 | Accident year 2007 Evaluated at September 30, 2008 | | Standard Lines | | 79.9% | 66.6% | 65.4% | | Specialty Lines | | 63.7% | 59.2% | 59.0% | | Total P&C Operations | | 70.1% | 62.2% | 61.6% |
| Property & Casualty Net Accident Year Loss Ratios | |
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| | Accident year 2008 Evaluated at September 30, 2008 | Accident year 2007 Evaluated at December 31, 2007 | Accident year 2007 Evaluated at September 30, 2008 | | Standard Lines | | 82.4% | 70.1% | 69.2% | | Specialty Lines | | 65.4% | 63.8% | 64.2% | | Total P&C Operations | | 73.4% | 66.9% | 66.6% |
Conference Call and Webcast Information:
A conference call for investors and the professional investment community will be held at 10:00 a.m. ET today. On the conference call will be Stephen W. Lilienthal, Chairman and Chief Executive Officer of CNA Financial Corporation, and other members of senior management. Participants can access the call by dialing (866) 409-1563, or for international callers, (913) 312-0842. The call will also be broadcast live on the internet at http://investor.cna.com or you may go to the investor relations pages of the CNA website (www.cna.com) for further details.
The call is available to the media, but questions will be restricted to investors and the professional investment community. A taped replay of the call will be available through November 3, 2008 by dialing (888) 203-1112, or for international callers, (719) 457-0820. The replay passcode is 4272590. The replay will also be available on CNA’s website. Financial supplement information related to the third quarter results is available on the investor relations pages of the CNA website or by contacting David Adams at (312) 8222183.
FINANCIAL MEASURES
In evaluating the results of the Standard Lines and Specialty Lines, management utilizes the combined ratio, the loss ratio, the expense ratio and the dividend ratio. These ratios are calculated using accounting principles generally accepted in the United States of America (GAAP) financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders’ dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios.
This press release may also reference or contain financial measures that are not in accordance with GAAP. For reconciliations of non-GAAP measures to the most comparable GAAP measures, please refer to CNA’s filings with the Securities and Exchange Commission, as well as the financial supplement, available at www.cna.com.
FORWARD-LOOKING STATEMENT
This press release may include statements which relate to anticipated future events (forward-looking statements) rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes”, “expects”, “intends”, “anticipates”, “estimates” and similar expressions. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected. Many of these risks and uncertainties cannot be controlled by CNA. For a detailed description of these risks and uncertainties please refer to CNA’s filings with the Securities and Exchange Commission, available at www.cna.com.
Any forward-looking statements made in this press release are made by CNA as of the date of this press release. Further, CNA does not have any obligation to update or revise any forward-looking statement contained in this press release, even if CNA’s expectations or any related events, conditions or circumstances change.
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