CNA Financial Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial statements are unaudited; amounts are in U.S. dollars unless otherwise noted. Loews Corporation owned approximately 92% of CNA at quarter-end.
Financial results and position
| Metric | Q1 2024 | Q1 2023 / prior date | Change |
|---|---|---|---|
| Total revenues | $3.444 billion | $3.152 billion | Up 9% |
| Net earned premiums | $2.441 billion | $2.248 billion | Up 9% |
| Net investment income | $609 million | $525 million | Up $84 million |
| Net investment losses | $22 million | $35 million | Losses narrowed |
| Net income | $338 million | $297 million | Up 14% |
| Core income, non-GAAP | $355 million | $325 million | Up 9% |
| Diluted earnings per share | $1.24 | $1.09 | Up $0.15 |
| Operating cash flow | $504 million | $436 million | Up $68 million |
| Cash | $409 million | $345 million at Dec. 31, 2023 | Up $64 million |
| Total debt | $3.520 billion | $3.031 billion at Dec. 31, 2023 | Up $489 million |
| Stockholders’ equity | $9.662 billion | $9.893 billion at Dec. 31, 2023 | Down $231 million |
Net cash used in investing activities was $249 million, versus $51 million provided in Q1 2023. Financing activities used $189 million, including $667 million of common dividends, partly offset by $490 million of debt proceeds. The company issued $500 million of 5.125% notes due February 15, 2034. The $550 million of short-term debt was unchanged.
Management said cash flows are sufficient for current and expected working-capital and debt needs, with no near-term change expected. No amounts were outstanding under the $250 million revolving credit facility or through the Federal Home Loan Bank of Chicago at quarter-end.
Operating trends and comparison
- Core income increased $30 million. Management attributed the improvement primarily to higher investment income and favorable prior-year reserve development, partly offset by higher catastrophe losses.
- Property & Casualty combined results included $88 million of catastrophe losses, compared with $52 million a year earlier. Prior-year reserve development was favorable by $7 million, versus unfavorable development of $13 million in Q1 2023.
- Specialty: Core income was $177 million versus $171 million; combined ratio was 90.7% versus 90.0%. Premium growth was modest, while higher acquisition costs and underlying loss costs pressured the ratio.
- Commercial: Core income was $158 million versus $151 million; combined ratio was 97.6% versus 96.0%. Catastrophe losses rose to $82 million from $44 million. Underlying combined ratio improved to 90.8% from 91.8%.
- International: Core income was $37 million versus $24 million; combined ratio improved to 93.3% from 97.2%, mainly reflecting the absence of the prior-year quarter’s $15 million unfavorable reserve development. Gross written premiums declined.
- Life & Group: Core income improved to $5 million from a $3 million loss, primarily due to higher investment income. The segment includes run-off long-term-care business.
- Corporate & Other: Core loss widened to $22 million from $18 million, including a $5 million after-tax office-consolidation charge.
Outlook, risks, and unusual items
- The filing provides no specific quantitative earnings or premium guidance. Management’s liquidity statement is that current cash flows should meet near-term working-capital and debt obligations.
- Common dividends of $2.44 per share were paid in Q1, including a $2.00 special dividend. On May 2, 2024, the board declared a $0.44-per-share quarterly dividend, payable June 6, 2024. Future dividends remain subject to board discretion, business needs, financial condition, and regulatory constraints.
- Long-term-care reserves depend on estimates extending over decades and may increase if experience is adverse. Q1 included $20 million of immediate net-income charges from certain cohorts whose net premium ratio exceeded 100%, partly offset by $2 million of reversals.
- Insurance-reserve estimates are exposed to claim severity, medical and repair-cost inflation, litigation and social inflation, legal changes, and catastrophe experience. Management reported $88 million of catastrophe losses in the quarter.
- The investment portfolio had $3.096 billion of gross unrealized losses on fixed-maturity securities at March 31, 2024, versus $2.995 billion at year-end. Management attributed these losses primarily to interest-rate changes and said it did not intend, and was not more likely than not required, to sell affected securities before recovery.
- The legacy asbestos and environmental pollution reinsurance arrangement with NICO had $3.6 billion of cumulative ceded losses, a $405 million unrecognized deferred benefit, and $2.6 billion of collateral-trust assets at quarter-end. Recovery depends on the reinsurance arrangement and counterparty performance.
- Other disclosed risks include reinsurance collectability, reserve adequacy, severe weather and other catastrophes, mass-tort claims, market and credit conditions, regulation, and cybersecurity. The filing says routine litigation currently known is not material. It also discloses approximately $1.5 billion of potential structured-settlement guarantee payments over annuitants’ lifetimes, which management does not believe are likely.
Management reported no material change in market-risk components during the quarter. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether higher catastrophe losses and underlying claims trends persist, particularly in Commercial, and how renewal pricing and retention develop.
- Whether reserve estimates remain adequate, including long-tail casualty, long-term-care, and warranty exposures, and whether subsequent periods bring favorable or adverse development.
- Whether investment income gains continue and whether unrealized investment losses, interest rates, or credit conditions affect portfolio values or liquidity.
- How the new debt issuance, increased debt balance, and large special dividend affect capital flexibility and future dividend capacity.
- Whether reinsurance counterparties, including NICO, perform as expected and whether collateral and recoverables remain sufficient.