Ҵý

Ҵý Financial Announces Third Quarter 2019 Results

CHICAGO, Oct. 28, 2019 /PRNewswire/ --Ҵý Financial Corporation (NYSE: Ҵý) today announced third quarter 2019 net income of $107 million, or $0.39 per share, and core income of $102 million, or $0.37 per share. Net income for the nine months ended September 30, 2019 was $727 million, or $2.67 per share, and core income was $714 million, or $2.62 per share. Property & Casualty Operations combined ratio for the third quarter was 97.6%and the underlying combined ratio was 94.6%. Net investment income, after tax, was $399 million for the third quarter of 2019, including $13 million from limited partnership and common stock investments.

Property & Casualty segments, excluding third party captives, generated gross written premium growth of 9% and net written premium growth of 8% for the third quarter of 2019.

Core loss for the third quarter of 2019 for our Life & Group segment was $(122) million. Life & Group results include a $170 million after-tax charge related to unlocking active life reserves to recognize a premium deficiency as a result of the gross premium valuation (GPV) completed in the quarter and a $44 million after-tax reduction in claim reserves resulting from the annual claim experience study. Core loss for our Corporate & Other segment was $(17) million.

Ҵý Financial declared a quarterly dividend of $0.35 per share, payable December2, 2019 to stockholders of record on November11, 2019.


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30

($ millions, except per share data)

2019


2018


2019


2018

Net income

$

107



$

336



$

727



$

897


Core income (a)

102



317



714



868










Net income per diluted share

$

0.39



$

1.23



$

2.67



$

3.29


Core income per diluted share

0.37



1.17



2.62



3.19



























September30, 2019


December31, 2018

Book value per share

$





44.66



$





41.32


Book value per share excluding AOCI




44.14






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 third quarter results reflect the ongoing strength of our P&C business, which delivered an underlying combined ratio of 94.6%, net written premium growth of 8% and rate increases of 6%," said Dino E. Robusto, Chairman & Chief Executive Officer of Ҵý Financial Corporation. "In addition, the changes made to our Long Term Care assumptions as a part of our annual reserve review reflect our continued prudent management of this runoff portfolio."

Property & Casualty Operations


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30

($ millions)

2019


2018


2019


2018

Gross written premiums ex. 3rdparty captives

$

1,856




$

1,701




$

5,843




$

5,497



GWP ex. 3rdparty captives change (% year over year)

9


%





6


%




Net written premiums

$

1,708




$

1,581




$

5,388




$

5,163



NWP change (% year over year)

8


%





4


%




Net investment income

$

274




$

282




$

937




$

869



Core income

241




305




853




951















Loss ratio excluding catastrophes and development

61.7


%


61.1


%


61.1


%


60.8


%

Effect of catastrophe impacts

1.8




2.6




2.5




2.1



Effect of development-related items

1.2




(3.2)




(0.2)




(2.8)



Loss ratio

64.7


%


60.5


%


63.4


%


60.1


%













Expense ratio

32.5


%


33.3


%


33.3


%


33.2


%













Combined ratio

97.6


%


94.2


%


97.1


%


93.7


%

Combined ratio excluding catastrophes and development

94.6


%


94.8


%


94.8


%


94.4


%

  • The combined ratio excluding catastrophes and development improved 0.2 points for the third quarter of 2019 as compared with the prior year quarter. The expense ratio improved 0.8 points driven by a favorable acquisition ratio in the current quarter. This was partially offset by a 0.6 point increase in the underlying loss ratio.
  • The combined ratio increased 3.4 points for the third quarter of 2019 as compared with the prior year quarter. Net catastrophe losses were $32 million, or 1.8 points of the loss ratio in the quarter compared with $46 million, or 2.6 points of the loss ratio, for the prior year quarter. Unfavorable net prior period development increased the loss ratio by 1.2 points in the quarter driven by legacy reserves within Commercial compared with 3.2 points of favorable development decreasing the loss ratio in the prior year quarter.
  • Net written premiums grew 8% as compared with the prior year quarter. U.S. P&C segments net written premiums grew 9%.

Business Operating Highlights

Specialty


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30

($ millions)

2019


2018


2019


2018

Gross written premiums ex. 3rd party captives

$

778




$

714




$

2,263




$

2,130



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

9


%





6


%




Net written premiums

$

732




$

688




$

2,143




$

2,062



NWP change (% year over year)

6


%





4


%




Core income

$

153




$

177




$

483




$

531















Loss ratio excluding catastrophes and development

60.1


%


59.8


%


60.2


%


60.2


%

Effect of catastrophe impacts

0.5




2.4




0.8




1.1



Effect of development-related items

(2.8)




(7.7)




(2.9)




(6.2)



Loss ratio

57.8


%


54.5


%


58.1


%


55.1


%













Expense ratio

31.8


%


32.3


%


32.6


%


31.8


%













Combined ratio

89.8


%


87.0


%


90.9


%


87.1


%

Combined ratio excluding catastrophes and development

92.1


%


92.3


%


93.0


%


92.2


%

  • The combined ratio excluding catastrophes and development improved 0.2 points for the third quarter of 2019 as compared with the prior year quarter. The expense ratio improved 0.5 points driven by a favorable acquisition ratio in the current quarter. This was partially offset by a 0.3 point increase in the underlying loss ratio.
  • The combined ratio increased 2.8 points for the third quarter of 2019 as compared with the prior year quarter. Net catastrophe losses were $3 million, or 0.5 points of the loss ratio compared with $16 million, or 2.4 points of the loss ratio, for the prior year quarter. Favorable net prior period development improvedthe loss ratio by 2.8 points in the quarter compared with a 7.7 point improvement in the prior year quarter.
  • Net written premiums for Specialty grew 6% for the third quarter of 2019 as compared with the prior year quarter driven by strong retention and favorable rate.

Commercial


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30

($ millions)

2019


2018


2019


2018

Gross written premiums ex. 3rdparty captives

$

852




$

756




$

2,742




$

2,483



GWP ex. 3rdparty captives change (% year over year)

13


%





10


%




Net written premiums

$

775




$

697




$

2,536




$

2,339



NWP change (% year over year)

11


%





8


%




Core income

$

97




$

127




$

356




$

403















Loss ratio excluding catastrophes and development

61.5


%


60.4


%


61.8


%


60.4


%

Effect of catastrophe impacts

3.0




3.1




4.3




3.1



Effect of development-related items

4.8







1.5




(0.5)



Loss ratio

69.3


%


63.5


%


67.6


%


63.0


%













Expense ratio

31.7


%


33.2


%


32.7


%


33.3


%













Combined ratio

101.6


%


97.4


%


100.9


%


97.0


%

Combined ratio excluding catastrophes and development

93.8


%


94.3


%


95.1


%


94.4


%

  • The combined ratio excluding catastrophes and development improved 0.5 points for the third quarter of 2019 as compared with the prior year quarter. The expense ratio improved 1.5 points driven by a favorable acquisition ratio in the current quarter. This was partially offset by a 1.1 point increase in the underlying loss ratio.
  • The combined ratio increased 4.2 points for the third quarter of 2019 as compared with the prior year quarter. Net catastrophe losses were $25 million, or 3.0 points of the loss ratio compared with $25 million, or 3.1 points of the loss ratio, for the prior year quarter. Unfavorable net prior period developmentincreased the loss ratio by 4.8 points in the quarter driven by legacy reserves from accident years 2009 and prior compared with no net prior year development effect in the prior year quarter.
  • Net written premiums for Commercial grew 11% for the third quarter of 2019 as compared with the prior year quarter driven by higher new business and favorable rate.

International


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30

($ millions)

2019


2018


2019


2018

Gross written premiums

$

226




$

230




$

837




$

884



GWP change (% year over year)

(2)


%





(5)


%




Net written premiums

$

201




$

196




$

709




$

762



NWP change (% year over year)

3


%





(7)


%




Core income (loss)

$

(9)




$

1




$

14




$

17















Loss ratio excluding catastrophes and development

67.3


%


66.3


%


61.4


%


64.1


%

Effect of catastrophe impacts

1.7




2.1




1.4




1.5



Effect of development-related items

0.4




(0.8)




1.9




(0.6)



Loss ratio

69.4


%


67.6


%


64.7


%


65.0


%













Expense ratio

38.0


%


36.3


%


37.5


%


36.8


%













Combined ratio

107.4


%


103.9


%


102.2


%


101.8


%

Combined ratio excluding catastrophes and development

105.3


%


102.6


%


98.9


%


100.9


%

  • The combined ratio excluding catastrophes and development increased 2.7 points for the third quarter of 2019 as compared with the prior year quarter driven by a 1.7 point increase in the expense ratio and a 1.0 point increase in the underlying loss ratio.
  • The combined ratio increased 3.5 points for the third quarter of 2019 as compared with the prior year quarter. Net catastrophe losses were $4 million, or 1.7 points of the loss ratio compared with $5 million, or 2.1 points for the prior year quarter. Unfavorable net prior period development increased the loss ratio by 0.4 points in the quarter compared with 0.8 points of favorable development decreasing the loss ratio in the prior year quarter.
  • Excluding currency fluctuations, net written premiums for International increased 5% for the third quarter of 2019 as compared with the prior year quarter driven by a change in the timing of ceded reinsurance contract renewals.

Life & Group


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30

($ millions)

2019


2018


2019


2018

Net investment income

$

207




$

200




$

616




$

598



Total operating revenues

336




332




1,006




996



Core (loss) income

(122)




32




(105)




36



Core results decreased $154 million for the third quarter of 2019 as compared with the prior year quarter. The decrease was driven by a $170 million charge related to recognition of an active life reserve premium deficiency primarily driven by lower discount rate assumptions partially offset by a $44 million reduction in long term care claim reserves resulting from the annual claim experience study. The prior year quarter included a $24 million reduction in long term care claims reserves resulting from the 2018 annual claim experience study.

Corporate & Other


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30

($ millions)

2019


2018


2019


2018

Net investment income

$

6




$

5




$

20




$

16



Interest expense

31




33




99




101



Core loss

(17)




(20)




(34)




(119)



Core loss of $(17) million improved $3 million for the third quarter of 2019 as compared with the prior year quarter. The prior period included $4 million of non-recurring costs associated with the transition to a new IT infrastructure service provider.

Net Investment Income


Results for the Three Months
Ended September 30


Results for the Nine Months
Ended September 30


2019



2018



2019



2018


Pretax net investment income

$

487




487




$

1,573




$

1,483



Net investment income, after tax

399




400




1,284




1,221



Net investment income, after tax, decreased $1 million for the third quarter of 2019 as compared with 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

  • Specialtyprovides 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.
  • Commercialworks 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.
  • Internationalunderwrites property and casualty coverages on a global basis through its U.K.-based insurance company, a branch operation in Canada as well as through its presence at Lloyd's of London (Hardy).
  • 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.

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 ratiois the percentage of net incurred claim and claim adjustment expenses to net earned premiums.
  • Underlying loss ratiorepresents the loss ratio excluding catastrophes and development.
  • Expense ratiois the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums.
  • Dividend ratiois the ratio of policyholders' dividends incurred to net earned premiums.
  • Combined ratiois the sum of the loss, expense and dividend ratios.
  • Underlying combined ratiois the sum of the underlying loss, expense and dividend ratios.
  • Renewal premium changerepresents the estimated change in average premium on policies that renew, including rate and exposure changes.
  • Raterepresents 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.
  • Retentionrepresents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew.
  • New businessrepresents premiums from policies written with new customers and additional policies written with existing customers.

Gross written premiums ex. 3rd party captivesexcludes 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 to Core Income

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 necessarily consistent with key drivers of underwriting performance, and are therefore not considered an indication of trends in insurance 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 September 30


Results for the Nine Months
Ended September 30

($ millions)

2019


2018


2019


2018

Net income

$

107



$

336



$

727



$

897


Less: Net investment gains

5



13



13



23


Less: Net deferred tax asset remeasurement



6





6


Core income

$

102



$

317



$

714



$

868


Reconciliation of Net Income per Diluted Share to Core Income 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 September 30


Results for the Nine Months
Ended September 30


2019


2018


2019


2018

Net income per diluted share

$

0.39



$

1.23



$

2.67



$

3.29


Less: Net investment gains

0.02



0.04



0.05



0.08


Less: Net deferred tax asset remeasurement



0.02





0.02


Core income per diluted share

$

0.37



$

1.17



$

2.62



$

3.19


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.


September30,
2019


December31,
2018

Book value per share

$

44.66



$

41.32


Less: Per share impact of AOCI

0.52



(3.23)


Book value per share excluding AOCI

$

44.14



$

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 September 30


Results for the Nine Months
Ended September 30


($ millions)

2019


2018


2019


2018


Annualized net income

$

428



$

1,343



$

970



$

1,196



Average stockholders' equity including AOCI (a)

12,105



11,463



11,670



11,877



Return on equity

3.5


%

11.7


%

8.3


%

10.1


%










Annualized core income

$

406



$

1,270



$

952



$

1,158



Average stockholders' equity excluding AOCI (a)

11,975



12,143



12,039



12,239



Core return on equity

3.4


%

10.5


%

7.9


%

9.5


%



(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