CNA Financial Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; interim financial statements are unaudited. Comparatives are for Q1 2022 and have been adjusted for adoption of ASU 2018-12. Loews Corporation owned 90% of CNA’s outstanding common stock.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $3.152 billion | $2.885 billion |
| Net earned premiums | $2.248 billion | $2.059 billion |
| Net investment income | $525 million | $448 million |
| Net investment losses | $35 million | $11 million |
| Core income (non-GAAP) | $325 million | $298 million |
| Net income | $297 million | $295 million |
| Diluted EPS | $1.09 | $1.08 |
| Operating cash flow | $436 million | $645 million |
Core income excludes after-tax net investment gains or losses. Q1 2023 comprehensive income was $587 million, including $290 million of other comprehensive income, versus a $725 million comprehensive loss in Q1 2022, largely reflecting investment valuation and discount-rate movements.
At March 31, 2023, total assets were $62.1 billion, liabilities $53.4 billion, and stockholders’ equity $8.7 billion. Cash was $483 million and short-term investments were $1.167 billion. Short-term debt was $243 million and long-term debt $2.539 billion. The $250 million revolving credit facility was undrawn; there were no FHLB borrowings.
Material changes and operating performance
- Total revenue increased 9.3%; net income was nearly flat, while core income rose $27 million. Higher premiums and investment income supported results; net investment losses were larger than in the prior-year quarter.
- Property & Casualty core income increased $25 million, supported by higher investment income and improved non-catastrophe current-year underwriting, partly offset by higher catastrophe losses and unfavorable prior-year reserve development.
- Specialty core income was $171 million versus $163 million; combined ratio was 90.0% versus 88.7%.
- Commercial core income was $151 million versus $132 million; combined ratio was 96.0% versus 94.5%. Gross written premiums rose to $1.442 billion from $1.208 billion, driven by new business and rate.
- International core income was $24 million versus $26 million; combined ratio increased to 97.2% from 92.4%, reflecting unfavorable reserve development and higher catastrophe losses.
- Life & Group reported a $3 million core loss versus $5 million core income, primarily due to long-term-care policy buyouts. Corporate & Other core loss narrowed to $18 million from $28 million.
- Net catastrophe losses were $52 million versus $19 million. Net prior-year reserve development was unfavorable by $13 million, versus favorable development of $12 million a year earlier; the 2023 unfavorable development included $15 million in International.
Liquidity, capital allocation, outlook and risks
Operating cash flow fell to $436 million from $645 million, primarily due to higher net claim payments, including long-term-care policy buyouts, and lower limited-partnership distributions, partly offset by higher premium collections. Investing activities provided $51 million; financing activities used $480 million.
CNA paid $1.62 per share in Q1 dividends, including a $1.20 special dividend, and repurchased 550,000 shares for $24 million. On April 28, 2023, the board declared a further $0.42-per-share quarterly dividend. Management stated it believes cash flows are sufficient for current and expected working-capital and debt needs in the near term. The filing provides no specific earnings or revenue guidance.
Key uncertainties include the estimation of insurance and long-term-care reserves, reinsurance recoverability, inflation and social inflation, catastrophes, investment-market volatility, regulatory limits on premium rates and subsidiary dividends, and litigation. CNA reported $3.418 billion of gross unrealized losses on available-for-sale fixed maturities, which management attributed primarily to interest-rate and credit-spread changes; it stated it had no intent to sell and was not more likely than not required to sell before recovery. Commercial real estate exposure includes commercial mortgage-backed securities and mortgage loans; CNA reported no direct real-estate investments.
Long-term-care future policy benefits were $13.976 billion. Adoption of ASU 2018-12 changed the measurement and presentation of these reserves and materially restated comparative information; the company stated adoption did not affect statutory capital and surplus or cash flows. Q1 included $13 million of immediate long-term-care charges from cohorts whose net premium ratio exceeded 100%, partly offset by $11 million of reversals of earlier charges.
CNA’s A&EP liabilities are substantially ceded to NICO under a loss portfolio transfer with a $4 billion aggregate limit. The deferred retroactive reinsurance benefit was $417 million; collateral trust assets were $2.5 billion. The company also disclosed potential structured-settlement guarantee payments of approximately $1.5 billion over annuitants’ lifetimes, but does not expect payment, citing a supporting trust. Routine litigation was described as not material based on currently known facts.
Important facts for investors to verify
- Whether premium growth and Commercial new-business momentum can be sustained, and how renewal rates, retention, and underlying combined ratios develop.
- Whether catastrophe losses and unfavorable reserve development—especially International professional-liability development—continue or worsen.
- Long-term-care reserve assumptions, policyholder experience, approved premium-rate increases, and future NPR-related charges under ASU 2018-12.
- Investment portfolio credit quality, unrealized losses, liquidity needs, and commercial real estate exposures as market conditions change.
- Cash generation after claim payments, dividends, and repurchases, and the availability of dividends from regulated insurance subsidiaries.
- Performance and collateral sufficiency of reinsurers, including the NICO A&EP arrangement, and the backing trust for structured-settlement guarantees.