The nation’s seventh largest commercial lines insurer, CNA Financial Corp., reported a $331 million net loss for the third quarter chiefly due to catastrophe claims and investment losses and said it will receive $1.25 billion from its parent, Loews Corp., to bolster its main insurance unit, Continental Casualty.
The insurer also said that its current CEO, Stephen Lillienthal, will step down at year’s end, which is earlier than planned, and be replaced by Thomas F. Motamed, a former Chubb executive who was not originally scheduled to take the helm until June 2009.
For the third quarter, CNA reported:
Net operating income of $83 million, down $129 million compared to the same period last year.
A $239 million decline in net operating results for its core property/ casualty operations.
A net loss of $331 million, compared to a profit of $174 million a year earlier.
A property/ casualty combined ratio for the quarter of 107.0 percent including catastrophe losses; 91.3 percent before the 15.7 point impact related to catastrophes.
The company also said it has suspended its quarterly common stock dividend.
To improve its situation, CNA announced that its parent, Loews Corp., has agreed to purchase, $1.25 billion of non-voting cumulative senior preferred stock. CNA said it will use $1 billion of the proceeds to increase the statutory surplus of its principal insurance subsidiary, Continental Casualty Co.
“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 Lilienthal, current chairman and CEO of CNA Financial Corp. “I remain very positive about the underlying performance of our core property/ casualty operations, as measured by a 91.3 percent combined ratio before catastrophes. We continue to focus on the fundamentals of disciplined underwriting, portfolio optimization and
expense management.”
CNA said that former Chubb executive Motamed will take over as CNA chairman and CEO on Jan. 1, 2009, succeeding Lilienthal, who will retire on that date. Under a previously announced succession plan, Lilienthal would have retired on June 8, 2009, when Motamed was able to join CNA under the terms of his non-compete agreement with Chubb. CNA said a subsequent agreement has been reached with Chubb, allowing the transition date to be accelerated.
Net operating results for the insurers’ core property/ casualty operations decreased $239 million. The company said that 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, compared to $7 million after-tax in the third quarter of 2007.
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, according to the company.
Net realized investment losses for the three months ended Sept. 30, 2008 increased $385 million after-tax as compared with the same period in 2007. For the quarter, 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 Sept. 30, 2007, OTTI losses of $122 million after-tax were recorded.
Net realized investment losses, including OTTI losses, for the quarter included $198 million related to securities issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corp., $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 Sept. 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.
For the quarter, net written premiums in CNA’s standard commercial lines business written through independent agents decreased $30 million as compared to the same period in 2007. Standard Lines retention increased 7 points to 80 percent as compared to the same period in 2007. Rates on average decreased 5 percent during the third quarter of 2008.
Specialty Lines net written premiums decreased $11 million for the third quarter of 2008 compared to the same period in 2007. Rates on average decreased 3 percent during the third quarter of 2008.
Net income for specialty lines decreased $74 million for the third quarter of 2008, primarily due to higher investment losses.
Source: CNA Financial Corp.
www.cna.com
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