Earnings Plummet at CNA Financial

Investment portfolio hit hard by market woes, yet core P/C operations remain sound, says new CEO.

By CYRIL TUOHY, managing editor of Risk & Insurance®

It was a rough re-entry into the property/casualty business for CNA Chairman and CEO Thomas Motamed,

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Barely a month on the job following a six month hiatus after leaving Chubb Corp. as chief operating officer, Motamed had to explain in his first conference call with investors and analysts how and why the company had coughed up nearly $300 million in losses in 2008.

"Prolonged and severe disruptions in debt and equity market resulted in significant losses in our investment portfolio as well as declines in our net investment incomes during 2008," he said.

And that was about it. Investors and buyers looking for more insight, news nuggets or the company's ability to pay claims will have to wait until the first quarter conference call.

"It would be great to make a lot of promises today but I really want to do the right research and be able to tell you something at the end of the first quarter that has staying power," he said.

For the moment buyers and investors looking for clues into CNA's financial health will have to make do with the dismal fourth-quarter earnings reports, which showed the company swung to a loss of $336 million, or $1.31 cents per share, down from net income of $164 million or $0.60 cents per share in the year-ago period.

Full-year net losses for 2008 came to $299 million, or $1.18 per share compared with a net profit of $851 million or $3.13 per share in the year-ago period.

CNA on Feb. 9, was the latest carrier to report dismal 2008 fourth quarter and year-end earnings. ACE and The Hartford the previous week also reported losses, due mostly to a brutal stock market.

While stock market results of 2008 have as a rule battered insurance carriers, Motamed also had some good news. The company's core property/casualty operations were in good shape, turning in a profitable quarter.

"Operating performance for core property/casualty was a much better story," Motamed said.

Strictly speaking, of course, Motamed wasn't fibbing. Net income from the company's property/casualty operations for 2008 clocked in at $201 million, a bright spot indeed, but it was still well below the $1.07 billion in net income the segment delivered in 2007.

Again, it was the losses, $502 million worth, on the investment side of the company's P/C portfolio that was drag on the segment's 2008 earnings.

Similar to its competitors ACE and the Hartford, CNA's still writing plenty of business; a total of $1.56 billion worth of net written premium in the fourth quarter, down slightly from $1.6 billion in the year-ago quarter.

For the year, net written premium dropped to $6.48 billion in 2008 from $6.77 billion in 2007. Decreasing rates, while moderating in the last half of 2007, are still making for a competitive marketplace.

"Carriers are fighting to hold their renewals and new-business pricing on the best accounts is still very aggressive," Motamed said.

Motamed will no doubt have more to say about pricing trends as well--but buyers, investors and analysts will just have to wait until after the first quarter.

March 3, 2009

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