Merrill Lynch Insurance Investor Conference

Transcription

1 Merrill Lynch Insurance Investor Conference Stephen W. Lilienthal, CPCU Chief Executive Officer Copyright 2007 CNA Financial Corporation. All rights reserved.

2 Notices and Disclaimers Forward Looking Statements The statements made in the course of this presentation and/or contained in the presentation materials may include statements which relate to anticipated future events (forward-looking statements) rather than actual present conditions or historical events. You can identify forward-looking statements because they 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. As such, any forwardlooking statements and other financial information contained in this presentation speak only as of the date of this presentation. Further, CNA does not have any obligation to update or revise any forward-looking statement made in the course of this presentation and/or contained in the presentation materials even if CNA s expectations or any related events, conditions or circumstances change. Non-GAAP Measures This presentation, along with the presentation materials, may also reference or contain financial measures that are not in accordance with generally accepted accounting principles (GAAP). For reconciliations of non-gaap measures to the most comparable GAAP measures, please refer to CNA's Supplemental Financial Information. CNA's Supplemental Financial Information is available at CNA is a registered service mark, trade name and domain name of CNA Financial Corporation. Copyright 2007 CNA Financial Corporation. All rights reserved. 2

3 Agenda CNA Overview Transformation 2006 Financial Review CNA Going Forward Summary 3

4 CNA Overview Key Facts $9B Gross Written Premium $60B Total Assets $40B Total Invested Assets $21B Total Net Carried Loss Reserves P&C Ops Life & Group CNA Re And Other Corporate APMT $16.1B $1.9B $1.5B $1.9B 4

5 CNA Overview Key Facts 110 year old Chicago based company 7 th largest commercial lines insurer Primarily a U.S. Insurer with international capability Gross Written Premium Concentration U.S. 93% United Kingdom 3% Canada 2% Other 2% Total 100% 5

6 CNA Leading Commercial Lines Insurer Commercial Lines Ranking 2005 Net Premiums Written ($B) 1 AIG $ St. Paul Travelers $ Liberty Mutual $ Chubb $ Berkshire Hathaway $ Hartford $ CNA $ State Farm $ Zurich $ W.R. Berkley $ 4.4 Rankings exclude California State Comp Ins Fund ($5.9B) Source: Company filings 6

7 CNA Overview Key Facts 110 year old Chicago based company 7 th largest commercial lines insurer 9,795 Employees 9,210 U.S. 585 Non-U.S. 89% owned by Loews Corporation 7

8 Transformation CNA was a multi-line company Reinsurance Life/ Group P&C Ops P&C Ops Run-off that evolved into a highly focused P&C company 8

9 Transformation 2001 began a fast paced, five part transformation 1. Re Focused 2. Re Platformed 3. Re Underwritten 4. Re Capitalized 5. Re Staffed positioning CNA to effectively compete in the future 9

10 2006 Financial Review % Variance Net Operating Income $1,070M $253M 323% Net Income $1,108M $264M 320% EPS (NOI) $3.91 $ % Operating ROE 12.0% 3.0% 9 pts BV Per Share $36.03 $ % 10

11 P&C Operations Fixing The Mix Shifted to a more stable, diversified book Workers Comp. 18% Workers' Comp 13% Property 7% Property 8% D&O 4% D&O 3% Other 11% E&O 8% Other 14% E&O 10% Marine 7% Standard Lines 74% Specialty Lines 26% HealthPro 7% Marine 4% Standard Lines 67% Specialty Lines 33% HealthPro 13% Other 3% General Liability 17% Surety 5% General Liability 17% Other 1% Surety 5% Business Package Product 2% Auto 12% Business Package Product 3% Auto 8% GWP: $8B GWP: $9B weighted toward small and mid-size accounts 11

12 P&C Operations Combined Ratio Trends Strong business fundamentals Combined Ratio 120% 119.9% 121.4% Combined Ratio 120% 110% 110% 110.0% 100% 90% 99.0% 99.9% % 96.9% % 95.2% 94.5% % 95.1% 100% 90% 100.5% % 3 80% 80% 96.4% 98.4% 95.0% 70% 70% 60% 60% 50% 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 50% pts. cats pts. cats 20 pts. cats & commutations pts. cats & commutations 3.9 pts. cats & commutations pts. cats & commutations drive consistent underwriting improvement 12

13 P&C Operations Production Trends Production metrics remain strong Gross Written Premium Trend Gross Written Premium Full Year $B $3.0 $2.5 $ $B $10.0 $ $1.5 $8.0 $1.0 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 $ New Business / Cross-Sell Trend New Business / Cross-Sell Full Year $mm $380 $400 $379 $375 $373 $355 $339 30% 44% 40% 42% 30% 44% 40% Cross-Sell $315 46% $B $1.5 $1.5 23% 41% Cross-Sell $1.4 40% 100 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q and right where we expected 13

14 P&C Operations Rate and Retention Disciplined participation in current market Rate Retention % % retention steadily improving as underwriting initiatives play out 14

15 P&C Operations Expense Ratio Trend Continued focus on expenses 45% 0% 40% 40.0% (5%) (10%) 35% (15%) 30% 32.1% 30.5% 29.8% (20%) (25%) 25% P&C Ops Expense Ratio Cumulative Change in Expense $ (30%) with a significant reduction in expense dollars since

16 Expense Management Expense and headcount trend lower Normalized Managed Expense CNAF Headcount $m # $2,000 $1,500 $1,745 $1,627 $1,610 12,000 10,000 8,000 10,554 10,106 9,795 $1,000 6,000 $500 4,000 2,000 $ as focus continues on process improvement and efficiency gains 16

17 Net Investment Income 27% increase in net investment income in 2006 Net Investment Income Invested Assets Pretax $M 2006 Full Year $2.4B $B $570 $552 $600 $ $39.8 $ $38.6 $ st Qtr 2nd Qtr 3rd Qtr 4th Qtr st Qtr 2nd Qtr 3rd Qtr 4th Qtr Book Value; Excludes Securities Lending Collateral and Net Receivable/Payable reflecting $1.8B asset growth driven by improving cash flow 17

18 Balance Sheet Strengthening Commutations remove significant earnings drag Interest on Funds Withheld and Other Deposits Reinsurance Recoverables $M Interest Expense $335 $261 $166 $144 $B % 5.3% % 6.4% % 6.0% 4.0% $84 $68 $ Est % 0.0% Interest on Funds Withheld and Other Deposits Future interest expense before commutations Unsecured Recoverables Bad Debt / Unsecured Recov Secured Recoverables and reduce our reliance on reinsurance 18

19 Capital Management Eliminated expensive source of capital Debt-to-Total Capital 31% 27% 25% 18% Industry CNA Industry CNA August 2006 Refinancing: Retired Series H Preferred Stock Increased public float by approximately 30% Broadened investor base Enhanced profile Eliminated common dividend paying restriction Replaced expensive security with less expensive debt enhancing financial flexibility 19

20 P&C Ratings Rating agencies change outlook to Stable CNA P&C A.M. Best Moody s Fitch S&P A A3 A- A- 12/31/06 Outlook Stable Stable Stable Stable A A3 A- A- 12/31/03 Outlook Negative Negative Negative Negative in recognition of improved performance and balance sheet strength 20

21 CNA Going Forward Sustaining and Improving Operational Efficiency & Effectiveness Portfolio Optimization Sustaining Improved Performance Continued focus on expense management Enhanced MI capabilities Targeted, profitable growth Small/Midsize account focus Continue to build on cross-sell opportunities Highly segmented/specialized claim operation 21

22 Targeted Growth in Profitable Segments Even as the market softens... ($M GWP) Specialty Lines Total 06/05 CAGR HealthPro 06/05 CAGR Commercial Accounts 3.8% 4.1% 8.1% 8.9% $3,200 $1,200 $2,800 $900 $150 $75 06/05 9.7% CAGR 12.2% $2, $ $ Standard Lines Small Business 06/05 CAGR Large Property 06/05 CAGR Technology 7.0% -3.1% 57.6% 41.3% $600 $600 $200 $400 $500 $150 $200 06/05 1.2% CAGR 4.2% $ $ $ attractive growth opportunities exist across our portfolio 22

23 Small Account Focus Momentum builds in our Small Business unit Quote Activity - BOP 2006 New Policy Issuance - BOP (000 s) (000 s) Small Business Strategy Product # of Quotes # of Issued Policies 8 4 Technology- Transactional Efficiency Distribution Focus Scale 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Business Owner Policies (BOP) represent approximately 65% of Small Business premium. with plans to significantly grow in this profitable segment 23

24 February 15, 2006 Midsize Account Focus Middle market sweet spots are in selected industry segments Transportation and Utilities 3% Technology 2% Finl, Insur, and Real Estate 8% Other 1% Middle Market Strategy Product : Wholesale Trade 10% Construction 41% Technology Predictive & Analytic Tools Risk Control Retail Trade 9% Distribution Focus Custom Xpress Total Middle Market GWP Total Excluding Construction $2.0B $1.2B Services 9% Manufacturing 17% 2006 Middle Market Gross Written Premium by Industry Group and lower premium accounts 24

25 Cross-Sell Nearly $2 billion in new premium since Cross-Sell Premium $M $675 $615 $562 $450 $350 $225 $ with significant opportunities remaining 25

26 Summary Big company Diversified, well managed, focused P&C company Strong brand identity Consistently improving financial results Strong capital position and balance sheet Improved expense competitiveness Well positioned to profitably grow through market cycles 26

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