Ҵý

Ҵý Financial Announces Fourth Quarter 2019 Results

CHICAGO, Feb. 10, 2020 /PRNewswire/ --Ҵý Financial Corporation (NYSE: Ҵý) today announced fourth quarter 2019 net income of $273 million, or $1.00 per share, and core income of $265 million, or $0.97 per share. Net income for the full year 2019 was $1.0 billion, or $3.67 per share, and core income was $979 million, or $3.59 per share. Property & Casualty Operations combined ratio for the fourth quarter was 95.6% and the underlying combined ratio was 94.9%. Net investment income, after tax, was $443 million for the fourth quarter of 2019, including $56 million from limited partnership and common stock investments.

Excluding third party captives, Property & Casualty Operations generated gross written premium growth of 8% and net written premium growth of 6% for the fourth quarter of 2019.

Our Life & Group and Corporate & Other segments produced core losses for the fourth quarter of 2019 of $(4) million and $(68) million, respectively, with the latter driven by a $48 million after-tax non-economic charge related to asbestos and environmental pollution.

Ҵý Financial declared a quarterly dividend of $0.37 per share and a special dividend of $2.00 per share, payable March12, 2020 to stockholders of record on February24, 2020.


Results for the Three Months

Ended December 31


Results for the Year Ended

December 31

($ millions, except per share data)

2019


2018


2019


2018

Net income (loss)

$

273



$

(84)



$

1,000



$

813


Core income (loss) (a)

265



(23)



979



845










Net income (loss) per diluted share

$

1.00



$

(0.31)



$

3.67



$

2.98


Core income (loss) per diluted share

0.97



(0.08)



3.59



3.10



December31, 2019


December31, 2018

Book value per share

$

45.00



$

41.32


Book value per share excluding AOCI


44.81




44.55




(a)

Management utilizes the core income (loss) financial measure to monitor the Ҵý's operations. Please refer herein to the Reconciliation of GAAP Measures to Non-GAAP Measures section of this press release for further discussion of this non-GAAP measure.


"Our fourth quarter results reflect a strong underwriting quarter in line with a strong underwriting year in which our underlying combined ratio improved for the third consecutive year to 94.9%," said Dino E. Robusto, Chairman and Chief Executive Officer of Ҵý Financial Corporation. "With fourth quarter premium rates increasing to 7% and gross premiums increasing to 8%, Ҵý is well positioned going into 2020."

Property & Casualty Operations


Results for the Three

Months Ended December31


Results for the Year Ended

December31

($ millions)

2019


2018


2019


2018

Gross written premiums ex. 3rd party captives

$

1,892




$

1,755




$

7,735




$

7,252



GWP ex. 3rd party captives change (% year over year)

8


%





7


%




Net written premiums

$

1,746




$

1,659




$

7,134




$

6,822



NWP change (% year over year)

5


%





5


%




Net investment income

$

336




$

127




$

1,273




$

996



Core income

337




16




1,190




967















Loss ratio excluding catastrophes and development

60.9


%


64.4


%


61.0


%


61.8


%

Effect of catastrophe impacts

2.9




8.6




2.6




3.7



Effect of development-related items

(2.2)




(1.2)




(0.7)




(2.4)



Loss ratio

61.6


%


71.8


%


62.9


%


63.1


%













Expense ratio

33.7


%


33.2


%


33.5


%


33.2


%













Combined ratio

95.6


%


105.4


%


96.7


%


96.7


%

Combined ratio excluding catastrophes and development

94.9


%


98.0


%


94.8


%


95.4


%

  • The fourth quarter combined ratio excluding catastrophes and development improved 3.1 points as compared with the prior year quarter. The underlying loss ratio improved 3.5 points due to elevated property losses and professional liability in our London operation in the prior year quarter. This was partially offset by a 0.5 point increase in the expense ratio driven by year-end true-ups in acquisition expenses.
  • For the full year, the combined ratio excluding catastrophes and development improved 0.6 points as compared with the prior year. The underlying loss ratio improved 0.8 points.
  • The fourth quarter combined ratio improved 9.8 points as compared with the prior year quarter. Net catastrophe losses were $51 million, or 2.9 points of the loss ratio in the quarter compared with $146 million, or 8.6 points of the loss ratio, for the prior year quarter. Favorable net prior period development improved the loss ratio by 2.2 points in the quarter compared with a 1.2 point improvement in the prior year quarter.
  • For the full year, the combined ratio was consistent with the prior year. Net catastrophe losses were $179 million, or 2.6 points of the loss ratio for the full year compared with $252 million, or 3.7 points of the loss ratio, for the prior year. Favorable net prior period development improved the loss ratio by 0.7 points in the current year compared with a 2.4 point improvement in the prior year.
  • Net written premiums grew 5% in both the fourth quarter and full year while U.S. P&C segments net written premiums grew 6% in the fourth quarter and for the full year.

Business Operating Highlights

Specialty


Results for the Three

Months Ended December31


Results for the Year Ended

December31

($ millions)

2019


2018


2019


2018

Gross written premiums ex. 3rd party captives

$

752




$

705




$

3,015




$

2,834



GWP ex. 3rd party captives change (% year over year)

7


%





6


%




Net written premiums

$

705




$

682




$

2,848




$

2,744



NWP change (% year over year)

3


%





4


%




Core income

$

188




$

98




$

671




$

629















Loss ratio excluding catastrophes and development

60.7


%


61.1


%


60.3


%


60.4


%

Effect of catastrophe impacts

(0.2)




0.6




0.5




1.0



Effect of development-related items

(4.9)




(3.7)




(3.3)




(5.5)



Loss ratio

55.6


%


58.0


%


57.5


%


55.9


%













Expense ratio

32.4


%


33.0


%


32.5


%


32.1


%













Combined ratio

88.2


%


91.2


%


90.2


%


88.2


%

Combined ratio excluding catastrophes and development

93.3


%


94.3


%


93.0


%


92.7


%

  • The combined ratio excluding catastrophes and development improved 1.0 point for the fourth quarter of 2019 as compared with the prior year quarter. The expense ratio improved 0.6 points driven by the acquisition ratio. The underlying loss ratio improved 0.4 points.
  • The combined ratio improved 3.0 points for the fourth quarter of 2019 as compared with the prior year quarter. Net catastrophe losses were $(1) million, or (0.2) points of the loss ratio in the quarter compared with $4 million, or 0.6 points of the loss ratio, for the prior year quarter. Favorable net prior period development improved the loss ratio by 4.9 points in the quarter compared with 3.7 points of improvement in the prior year quarter.
  • Net written premiums for Specialty grew 3% for the fourth quarter of 2019 driven by favorable rate.

Commercial


Results for the Three

Months Ended December31


Results for the Year Ended

December31

($ millions)

2019


2018


2019


2018

Gross written premiums ex. 3rd party captives

$

867




$

784




$

3,609




$

3,267



GWP ex. 3rd party captives change (% year over year)

11


%





10


%




Net written premiums

$

779




$

721




$

3,315




$

3,060



NWP change (% year over year)

8


%





8


%




Core income (loss)

$

133




$

(46)




$

489




$

357















Loss ratio excluding catastrophes and development

61.4


%


63.9


%


61.7


%


61.2


%

Effect of catastrophe impacts

6.5




15.7




4.9




6.4



Effect of development-related items

(1.3)




0.7




0.7




(0.3)



Loss ratio

66.6


%


80.3


%


67.3


%


67.3


%













Expense ratio

33.6


%


32.3


%


32.9


%


33.1


%













Combined ratio

100.6


%


113.3


%


100.8


%


101.1


%

Combined ratio excluding catastrophes and development

95.4


%


96.9


%


95.2


%


95.0


%

  • The combined ratio excluding catastrophes and development improved 1.5 points for the fourth quarter of 2019 as compared with the prior year quarter. The underlying loss ratio improved 2.5 points driven by a lower level of large property losses. This was partially offset by a 1.3 point increase in the expense ratio driven by a higher acquisition ratio.
  • The combined ratio improved 12.7 points for the fourth quarter of 2019 as compared with the prior year quarter. Net catastrophe losses were $52 million, or 6.5 points of the loss ratio in the fourth quarter of 2019 compared with $120 million, or 15.7 points of the loss ratio, for the prior year quarter. Favorable net prior period development decreased the loss ratio by 1.3 points in the quarter compared with 0.7 points of unfavorable development increasing the loss ratio in the prior year quarter.
  • Net written premiums for Commercial grew 8% for the fourth quarter of 2019 driven by strong retention, higher new business and favorable rate.

International


Results for the Three

Months Ended December31


Results for the Year Ended

December31

($ millions)

2019


2018


2019


2018

Net written premiums

$

262




$

256




$

971




$

1,018



NWP change (% year over year)

2


%





(5)


%




Core income (loss)

$

16




$

(36)




$

30




$

(19)















Loss ratio excluding catastrophes and development

59.7


%


74.9


%


60.9


%


66.9


%

Effect of catastrophe impacts




8.2




1.1




3.3



Effect of development-related items

2.6




0.2




2.1




(0.4)



Loss ratio

62.3


%


83.3


%


64.1


%


69.8


%













Expense ratio

38.0


%


36.2


%


37.7


%


36.7


%













Combined ratio

100.3


%


119.5


%


101.8


%


106.5


%

Combined ratio excluding catastrophes and development

97.7


%


111.1


%


98.6


%


103.6


%

  • The combined ratio excluding catastrophes and development improved 13.4 points for the fourth quarter of 2019 as compared with the prior year quarter. The underlying loss ratio improved 15.2 points due to elevated property losses and professional liability in our London operation in the prior year quarter. This was partially offset by a 1.8 point increase in the expense ratio driven by lower net earned premiums.
  • The combined ratio improved 19.2 points for the fourth quarter of 2019 as compared with the prior year quarter. There were no net catastrophe losses recorded for the fourth quarter of 2019, compared with $22 million of net catastrophe losses, an 8.2 point impact on the loss ratio, for the prior year quarter. Unfavorable net prior year development increased the loss ratio by 2.6 points in the quarter compared with 0.2 points in the prior year quarter.
  • Excluding currency fluctuations, net written premiums for International increased 3% for the fourth quarter of 2019 as compared with the prior year quarter driven by growth in Canada and Europe partially offset by the premium reduction from Hardy's strategic exit from certain business classes announced in the fourth quarter of 2018.

Life & Group


Results for the Three

Months Ended December31


Results for the Year Ended

December31

($ millions)

2019


2018


2019


2018

Net investment income

$

204




$

203




$

820




$

801



Total operating revenues

334




337




1,340




1,333



Core (loss) income

(4)




7




(109)




43



Due to the recognition of the premium deficiency and resetting of actuarial assumptions in the third quarter of 2019, the operating results for our long term care business now reflect the variance between actual experience and the expected results contemplated in our best estimate reserves.


Corporate & Other


Results for the Three

Months Ended December31


Results for the Year Ended

December31

($ millions)

2019


2018


2019


2018

Net investment income

$

5




$

4




$

25




$

20



Interest expense

32




34




131




135



Core loss

(68)




(46)




(102)




(165)



Core loss increased $22 million for the fourth quarter of 2019 as compared with the prior year quarter. The application of retroactive reinsurance accounting to additional cessions to the A&EP Loss Portfolio Transfer in both periods resulted in after-tax non-economic charges of $48 million and $28 million in 2019 and 2018, respectively. The additional cessions in those periods were $125 million and $65 million, respectively.

Net Investment Income


Results for the Three

Months Ended December31


Results for the Year Ended

December31


2019



2018



2019



2018


Pretax net investment income

$

545




$

334




$

2,118




$

1,817



Net investment income, after tax

443




279




1,727




1,500



Net investment income, after tax, increased $164 million for the fourth quarter of 2019 as compared with the prior year quarter. The increase was driven by limited partnership and common stock investments, which returned 3.7%, or $69 million for the fourth quarter of 2019 compared with (5.7)%, or a loss of $138 million in the prior year quarter.

About the Ҵý

Ҵý is one of the largest U.S. commercial property and casualty insurance companies. Ҵý provides a broad range of standard and specialized property and casualty insurance products and services for businesses and professionals in the U.S., Canada and Europe, backed by more than 120 years of experience and approximately $45 billion of assets.For more information, please visit Ҵý at .

Conference Call and Webcast/Presentation Information

A conference call for investors and the professional investment community will be held at 9:00 a.m. (CT) today. On the conference call will be Dino E. Robusto, Chairman and Chief Executive Officer of Ҵý Financial Corporation, James M. Anderson, Executive Vice President and Chief Financial Officer of Ҵý Financial Corporation and other members of senior management. Participants can access the call by dialing (800) 289-0571, or for international callers, +1 (720) 543-0206. The call will also be broadcast live on the internet and may be accessed from the Investor Relations page of the Ҵý website (). A presentation will be posted and available on the Ҵý website and will provide additional insight into the results.

The call is available to the media, but questions will be restricted to investors and the professional investment community. An online replay will be available on Ҵý's website following the call. Financial supplement information related to the results is available on the investor relations pages of the Ҵý website or by contacting investor.relations@cna.com.

Definition of Reported Segments

  • Specialty provides management and professional liability and other coverages through property and casualty products and services using a network of brokers, independent agencies and managing general underwriters.
  • Commercial works with a network of brokers and independent agents to market a broad range of property and casualty insurance products and services to small, middle-market and large businesses.
  • International underwrites property and casualty coverages on a global basis through two insurance companies based in the U.K. and Luxembourg, a branch operation in Canada as well as through our Lloyd's Syndicate.
  • Life & Group primarily includes the results of the individual and group long term care businesses that are in run off.
  • Corporate & Other primarily includes certain corporate expenses, including interest on corporate debt, and the results of certain property and casualty business in run-off, including Ҵý Re and asbestos and environmental pollution (A&EP).

Financial Measures

Management utilizes the following metrics in their evaluation of the Property & Casualty Operations. These ratios are calculated using financial results prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

  • Loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums.
  • Underlying loss ratio represents the loss ratio excluding catastrophes and development.
  • Expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums.
  • Dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums.
  • Combined ratio is the sum of the loss, expense and dividend ratios.
  • Underlying combined ratio is the sum of the underlying loss, expense and dividend ratios.
  • Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes.
  • Rate represents the average change in price on policies that renew excluding exposure change. For certain products within Small Business, where quantifiable, rate includes the influence of new business as well.
  • Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew.
  • New business represents premiums from policies written with new customers and additional policies written with existing customers.

Gross written premiums ex. 3rd party captivesrepresents gross written premiums excluding business which is mostly ceded to third party captives, including business related to large warranty programs.

The Ҵý's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk.

Reconciliation of GAAP Measures to Non-GAAP Measures

This press release also contains financial measures that are not in accordance with GAAP. Management utilizes these financial measures to monitor the Ҵý's insurance operations and investment portfolio. The Ҵý believes the presentation of these measures provides investors with a better understanding of the significant factors that comprise the Ҵý's operating performance. Reconciliations of these measures to the most comparable GAAP measures follow below.

Reconciliation of Net Income (Loss) to Core Income (Loss)

Core income (loss)is calculated by excluding from net income (loss) the after-tax effects of i) net investment gains or losses, ii) income or loss from discontinued operations, iii) any cumulative effects of changes in accounting guidance and iv) deferred tax asset and liability remeasurement as a result of an enacted U.S. Federal tax rate change. The calculation of core income (loss) excludes net investment gains or losses because net investment gains or losses are generally driven by economic factors that are not reflective of our primary operations. Management monitors core income (loss) for each business segment to assess segment performance. Presentation of consolidated core income (loss) is deemed to be a non-GAAP financial measure.


Results for the Three Months

Ended December 31


Results for the Year Ended

December 31

($ millions)

2019


2018


2019


2018

Net income (loss)

$

273



$

(84)



$

1,000



$

813


Less: Net investment gains (losses)

8



(61)



21



(38)


Less: Net deferred tax asset remeasurement







6


Core income (loss)

$

265



$

(23)



$

979



$

845


Reconciliation of Net Income (Loss) per Diluted Share to Core Income (Loss) per Diluted Share

Core income (loss) per diluted share provides management and investors with a valuable measure of the Ҵý's operating performance for the same reasons applicable to its underlying measure, core income (loss). Core income (loss) per diluted share is core income (loss) on a per diluted share basis.


Results for the Three Months

Ended December 31


Results for the Year Ended

December 31


2019


2018


2019


2018

Net income (loss) per diluted share

$

1.00



$

(0.31)



$

3.67



$

2.98


Less: Net investment gains (losses)

0.03



(0.23)



0.08



(0.14)


Less: Net deferred tax asset remeasurement







0.02


Core income (loss) per diluted share

$

0.97



$

(0.08)



$

3.59



$

3.10


Reconciliation of Book Value per Share to Book Value per Share Excluding AOCI

Book value per share excluding AOCI allows management and investors to analyze the amount of the Ҵý's net worth primarily attributable to the Ҵý's business operations. The Ҵý believes this measurement is useful as it reduces the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates.


December31,

2019


December31,

2018

Book value per share

$

45.00



$

41.32


Less: Per share impact of AOCI

0.19



(3.23)


Book value per share excluding AOCI

$

44.81



$

44.55


Calculation of Return on Equity and Core Return on Equity

Core return on equityprovides management and investors with a measure of how effectively the Ҵý is investing the portion of the Ҵý's net worth that is primarily attributable to its business operations.


Results for the Three Months

Ended December 31


Results for the Year Ended

December 31


($ millions)

2019


2018


2019


2018


Annualized net income (loss)

$

1,090



$

(336)



$

1,000



$

813



Average stockholders' equity including AOCI (a)

12,169



11,363



11,716



11,730



Return on equity

9.0


%

(3.0)


%

8.5


%

6.9


%










Annualized core income (loss)

$

1,060



$

(91)



$

979



$

845



Average stockholders' equity excluding AOCI (a)

12,073



12,180



12,129



12,152



Core return on equity

8.8


%

(0.7)


%

8.1


%

7.0


%



(a)

Average stockholders' equity is calculated using a simple average of the beginning and ending balances for the period.

For additional information, please refer to Ҵý's most recent 10-K on file with the Securities and Exchange Commission, as well as the financial supplement, available at .

Forward-Looking Statements

This press release includes statements that 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 Ҵý. For a detailed description of these risks and uncertainties please refer to Ҵý's filings with the Securities and Exchange Commission, available at .

Any forward-looking statements made in this press release are made by Ҵý as of the date of this press release. Further, Ҵý does not have any obligation to update or revise any forward-looking statement contained in this press release, even if Ҵý's expectations or any related events, conditions or circumstances change.

Any descriptions of coverage under Ҵý policies or programs in this press release are provided for convenience only and are not to be relied upon with respect to questions of coverage, exclusions or limitations. With regard to all such matters, the terms and provisions of relevant insurance policies are primary and controlling. In addition, please note that all coverages may not be available in all states.

"Ҵý" is a registered trademark of Ҵý Financial Corporation. Certain Ҵý Financial Corporation subsidiaries use the "Ҵý" trademark in connection with insurance underwriting and claims activities. Copyright © 2019 Ҵý. All rights reserved.

CONTACT:






MEDIA:


ANALYSTS:

Brandon Davis, 312-822-5885


James Anderson, 312-822-7757

Ҵý logo. (PRNewsFoto/Ҵý Financial Corporation) (PRNewsfoto/Ҵý)

SOURCE Ҵý Financial Corporation