CNA FINANCIAL CORP - FORM 8-K - EX-99.2 - EXHIBIT

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8-K - FORM 8-K - CNA FINANCIAL CORP	q1168k.htm
EX-99.1 - EXHIBIT - CNA FINANCIAL CORP	q116exhibit991.htm

CNA Financial Corporation

Supplemental Financial Information

March 31, 2016

This report is for informational purposes only and includes consolidated financial statements and financial exhibits that are unaudited. This report should be read in conjunction with documents filed with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K.

Table of Contents



	Page
Consolidated Results
Statements of Operations..................................................................................................................................................................................................	1
Components of Income (Loss), Per Share Data and Return on Equity.............................................................................................................................	2
Selected Balance Sheet Data and Statement of Cash Flows Data...................................................................................................................................	3
Property & Casualty - Results of Operations
Property & Casualty...........................................................................................................................................................................................................	4
Specialty............................................................................................................................................................................................................................	5
Commercial.......................................................................................................................................................................................................................	6
International.......................................................................................................................................................................................................................	7
Non-Core - Results of Operations
Life & Group Non-Core......................................................................................................................................................................................................	8
Corporate & Other Non-Core.............................................................................................................................................................................................	9
Investment Information
Investment Summary - Consolidated................................................................................................................................................................................	10
Investment Summary - Property & Casualty and Corporate & Other Non-Core...............................................................................................................	11
Investment Summary - Life & Group Non-Core.................................................................................................................................................................	12
Investments - Fixed Maturity Securities by Credit Rating..................................................................................................................................................	13
Components of Net Investment Income............................................................................................................................................................................	14
Other
Claim & Claim Adjustment Expense Reserve Rollforward................................................................................................................................................	15
Life & Group Non-Core Policyholder Reserves.................................................................................................................................................................	16
Definitions and Presentation..............................................................................................................................................................................................	17

Statements of Operations



Three months ended March 31
(In millions)	2016			2015			Change
Revenues:
Net earned premiums	$	1,699		$	1,687		1		%
Net investment income	435			558			(22	)
Net realized investment gains (losses):
Other-than-temporary impairment (OTTI) losses	(23		)	(12		)
Other net realized investment gains (losses)	(13		)	22
Net realized investment gains (losses)	(36		)	10
Other revenues	97			97
Total revenues	2,195			2,352			(7	)
Claims, Benefits and Expenses:
Insurance claims and policyholders' benefits	1,408			1,339
Amortization of deferred acquisition costs	307			303
Other operating expenses	381			358
Interest	42			39
Total claims, benefits and expenses	2,138			2,039			(5	)
Income (loss) before income tax	57			313
Income tax (expense) benefit	9			(80		)
Net income (loss)	$	66		$	233		(72	)	%

Components of Income (Loss), Per Share Data and Return on Equity



Three months ended March 31
(In millions, except per share data)	2016				2015
Components of Income (Loss)
Net operating income (loss)	$	91			$	225
Net realized investment gains (losses)	(25		)		8
Net income (loss)	$	66			$	233

Diluted Earnings (Loss) Per Common Share
Net operating income (loss)	$	0.34			$	0.83
Net realized investment gains (losses)	(0.10		)		0.03
Diluted earnings (loss) per share	$	0.24			$	0.86

Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic	270.3				270.1
Diluted	270.9				270.7

Return on Equity
Net income (loss) ⁽¹⁾	2.3			%	7.4		%
Net operating income (loss) ⁽²⁾	3.1				7.4

(1) Annualized net income (loss) divided by the average stockholders' equity including accumulated other comprehensive income (loss) (AOCI) for the period. Average equity including AOCI is calculated using a simple average of the beginning and ending balances for the period.

(2) Annualized net operating income (loss) divided by the average stockholders' equity excluding AOCI for the period. Average equity excluding AOCI is calculated using a simple average of the beginning and ending balances for the period.

Selected Balance Sheet Data and Statement of Cash Flows Data



(In millions, except per share data)	March 31, 2016			December 31, 2015
Total investments	$	45,371		$	44,699
Reinsurance receivables, net of allowance for uncollectible receivables	4,692			4,453
Total assets	55,502			55,045
Insurance reserves	37,325			36,486
Debt	2,708			2,560
Total liabilities	44,032			43,289
Accumulated other comprehensive income (loss) ⁽¹⁾	(56		)	(315		)
Total stockholders' equity	11,470			11,756

Book value per common share	$	42.41		$	43.49
Book value per common share excluding AOCI	$	42.61		$	44.66

Outstanding shares of common stock (in millions of shares)	270.5			270.3

Statutory capital and surplus - Combined Continental Casualty Companies ⁽²⁾	$	10,260		$	10,723



Three months ended March 31	2016			2015
Net cash flows provided (used) by operating activities	$	334		$	94
Net cash flows provided (used) by investing activities	(9		)	526
Net cash flows provided (used) by financing activities	(469		)	(603		)
Net cash flows provided (used) by operating, investing and financing activities	$	(144	)	$	17

(1) As of March 31, 2016 and December 31, 2015, the net unrealized gains on investments included in AOCI were net of after-tax Shadow Adjustments of $1,311 million and $1,111 million. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group Non-Core segment would result in a premium deficiency if realized, an increase in Insurance reserves are recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).

(2) Statutory capital and surplus as of March 31, 2016 is preliminary.

Property & Casualty - Results of Operations



Three months ended March 31
(In millions)	2016				2015				Change
Gross written premiums	$	2,674			$	2,536			5		%
Net written premiums	1,668				1,669				—

Net earned premiums	1,568				1,549				1
Net investment income	245				373
Other revenues	94				87
Total operating revenues	1,907				2,009				(5	)
Insurance claims and policyholders' benefits	957				1,003
Amortization of deferred acquisition costs	307				296
Other insurance related expenses	244				233
Other expenses	89				80
Total claims, benefits and expenses	1,597				1,612				1
Operating income (loss) before income tax	310				397
Income tax (expense) benefit on operating income (loss)	(103		)		(133		)
Net operating income (loss)	$	207			$	264			(22	)	%

Other Performance Metrics
Underwriting gain (loss)	$	60			$	17			N/M		%

Loss & LAE ratio	60.7			%	64.5			%	3.8		pts
Acquisition expense ratio	19.4				19.4				—
Underwriting expense ratio	15.8				14.7				(1.1	)
Expense ratio	35.2				34.1				(1.1	)
Dividend ratio	0.2				0.3				0.1
Combined ratio	96.1			%	98.9			%	2.8
Combined ratio excluding catastrophes and development	97.4			%	96.7			%	(0.7	)	pts

Net accident year catastrophe losses incurred	$	36			$	29
Effect on loss & LAE ratio	2.3			%	1.9			%	(0.4	)	pts

Net prior year development and other: (favorable) / unfavorable	$	(61	)		$	8
Effect on loss & LAE ratio	(3.6		)	%	0.3			%	3.9		pts

Rate	—			%	1			%	(1	)	pts
Retention	83				80				3
New business ^(a)	$	262			$	249			5		%

(a) Beginning in 2016, new business includes Hardy. New business for Hardy was $31 million for the three months ended March 31, 2016.

Specialty - Results of Operations



Three months ended March 31
(In millions)	2016				2015				Change
Gross written premiums	$	1,632			$	1,489			10		%
Net written premiums	684				698				(2	)

Net earned premiums	682				680				—
Net investment income	107				155
Other revenues	87				78
Total operating revenues	876				913				(4	)
Insurance claims and policyholders' benefits	391				430
Amortization of deferred acquisition costs	144				144
Other insurance related expenses	75				69
Other expenses	75				67
Total claims, benefits and expenses	685				710				4
Operating income (loss) before income tax	191				203
Income tax (expense) benefit on operating income (loss)	(64		)		(68		)
Net operating income (loss)	$	127			$	135			(6	)	%

Other Performance Metrics
Underwriting gain (loss)	$	72			$	37			95		%

Loss & LAE ratio	57.1			%	63.1			%	6.0		pts
Acquisition expense ratio	19.9				19.9				—
Underwriting expense ratio	12.2				11.4				(0.8	)
Expense ratio	32.1				31.3				(0.8	)
Dividend ratio	0.2				0.2				—
Combined ratio	89.4			%	94.6			%	5.2
Combined ratio excluding catastrophes and development	94.8			%	93.7			%	(1.1	)	pts

Net accident year catastrophe losses incurred	$	4			$	7
Effect on loss & LAE ratio	0.6			%	1.1			%	0.5		pts

Net prior year development and other: (favorable) / unfavorable	$	(45	)		$	(4	)
Effect on loss & LAE ratio	(6.0		)	%	(0.2		)	%	5.8		pts

Rate	1			%	1			%	—		pts
Retention	87				86				1
New business	$	65			$	76			(14	)	%

Commercial - Results of Operations



Three months ended March 31
(In millions)	2016				2015				Change
Gross written premiums	$	779			$	786			(1	)	%
Net written premiums	748				759				(1	)

Net earned premiums	688				678				1
Net investment income	126				204
Other revenues	6				9
Total operating revenues	820				891				(8	)
Insurance claims and policyholders' benefits	445				457
Amortization of deferred acquisition costs	116				117
Other insurance related expenses	141				127
Other expenses	5				8
Total claims, benefits and expenses	707				709				—
Operating income (loss) before income tax	113				182
Income tax (expense) benefit on operating income (loss)	(39		)		(62		)
Net operating income (loss)	$	74			$	120			(38	)	%

Other Performance Metrics
Underwriting gain (loss)	$	(14	)		$	(23	)		39		%

Loss & LAE ratio	64.2			%	66.9			%	2.7		pts
Acquisition expense ratio	18.4				18.2				(0.2	)
Underwriting expense ratio	18.9				17.8				(1.1	)
Expense ratio	37.3				36.0				(1.3	)
Dividend ratio	0.4				0.4				—
Combined ratio	101.9			%	103.3			%	1.4
Combined ratio excluding catastrophes and development	99.3			%	100.5			%	1.2		pts

Net accident year catastrophe losses incurred	$	28			$	19
Effect on loss & LAE ratio	4.1			%	2.8			%	(1.3	)	pts

Net prior year development and other: (favorable) / unfavorable	$	(11	)		$	—
Effect on loss & LAE ratio	(1.5		)	%	—			%	1.5		pts

Rate	—			%	3			%	(3	)	pts
Retention	83				76				7
New business	$	137			$	138			(1	)	%

International - Results of Operations



Three months ended March 31
(In millions)	2016				2015				Change
Gross written premiums	$	263			$	261			1		%
Net written premiums	236				212				11

Net earned premiums	198				191				4
Net investment income	12				14
Other revenues	1				—
Total operating revenues	211				205				3
Insurance claims and policyholders' benefits	121				116
Amortization of deferred acquisition costs	47				35
Other insurance related expenses	28				37
Other expenses	9				5
Total claims, benefits and expenses	205				193				(6	)
Operating income (loss) before income tax	6				12
Income tax (expense) benefit on operating income (loss)	—				(3		)
Net operating income (loss)	$	6			$	9			(33	)	%

Other Performance Metrics
Underwriting gain (loss)	$	2			$	3			(33	)	%

Loss & LAE ratio	61.2			%	60.7			%	(0.5	)	pts
Acquisition expense ratio	21.0				21.6				0.6
Underwriting expense ratio	16.8				16.0				(0.8	)
Expense ratio	37.8				37.6				(0.2	)
Dividend ratio	—				—				—
Combined ratio	99.0			%	98.3			%	(0.7	)
Combined ratio excluding catastrophes and development	99.3			%	94.3			%	(5.0	)	pts

Net accident year catastrophe losses incurred	$	4			$	3
Effect on loss & LAE ratio	2.1			%	1.3			%	(0.8	)	pts

Net prior year development and other: (favorable) / unfavorable	$	(5	)		$	12
Effect on loss & LAE ratio	(2.4		)	%	2.7			%	5.1		pts

Rate	—			%	(1		)	%	1		pts
Retention	77				78				(1	)
New business ^(a)	60				35				71		%

(a) Beginning in 2016, new business includes Hardy. New business for Hardy was $31 million for the three months ended March 31, 2016.

Life & Group Non-Core - Results of Operations



Three months ended March 31
(In millions)	2016			2015			Change
Net earned premiums	$	131		$	138		(5	)	%
Net investment income	187			179
Other revenues	—			9
Total operating revenues	318			326			(2	)
Insurance claims and policyholders' benefits	323			340
Amortization of deferred acquisition costs	—			7
Other insurance related expenses	33			35
Other expenses	3			4
Total claims, benefits and expenses	359			386			7
Operating income (loss) before income tax	(41		)	(60		)
Income tax (expense) benefit on operating income (loss)	39			43
Net operating income (loss)	$	(2	)	$	(17	)	88		%

Corporate & Other Non-Core - Results of Operations



Three months ended March 31
(In millions)	2016			2015			Change
Net earned premiums	$	—		$	—
Net investment income	3			6
Other revenues	3			1
Total operating revenues	6			7			(14	)	%
Insurance claims and policyholders' benefits	128			(4		)
Amortization of deferred acquisition costs	—			—
Other insurance related expenses	—			—
Other expenses	54			45
Total claims, benefits and expenses	182			41			N/M
Operating income (loss) before income tax	(176		)	(34		)
Income tax (expense) benefit on operating income (loss)	62			12
Net operating income (loss)	$	(114	)	$	(22	)	N/M		%

Investment Summary - Consolidated



	March 31, 2016						December 31, 2015
(In millions)	Carrying Value			Net Unrealized Gains (Losses)			Carrying Value		Net Unrealized Gains (Losses)
Fixed maturity securities:
Corporate and other bonds	$	18,109		$	1,031		$	17,760	$	677
States, municipalities and political subdivisions:
Tax-exempt	10,251			1,244			10,114		1,076
Taxable	2,928			457			3,060		369
Total states, municipalities and political subdivisions	13,179			1,701			13,174		1,445
Asset-backed:
RMBS	5,206			178			5,072		137
CMBS	2,199			62			2,197		43
Other ABS	921			(16		)	921		(2		)
Total asset-backed	8,326			224			8,190		178
U.S. Treasury and obligations of government-sponsored enterprises	140			7			67		5
Foreign government	463			16			346		12
Redeemable preferred stock	35			2			35		2
Total fixed maturity securities	40,252			2,981			39,572		2,319
Equities	189			7			197		6
Limited partnership investments	2,562			—			2,548		—
Other invested assets	45			—			44		—
Mortgage loans	675			—			678		—
Short term investments	1,648			1			1,660		—
Total investments	$	45,371		$	2,989		$	44,699	$	2,325

Net receivable/(payable) on investment activity	$	(73	)				$	82

Effective portfolio duration (in years)	6.0						6.2
Weighted average rating of fixed maturity securities	A						A

RMBS - Residential mortgage-backed securities

CMBS - Commercial mortgage-backed securities

Other ABS - Other asset-backed securities

Investment Summary - Property & Casualty and Corporate & Other Non-Core



	March 31, 2016						December 31, 2015
(In millions)	Carrying Value			Net Unrealized Gains (Losses)			Carrying Value		Net Unrealized Gains (Losses)
Fixed maturity securities:
Corporate and other bonds	$	12,857		$	316		$	12,594	$	96
States, municipalities and political subdivisions:
Tax-exempt	2,427			156			2,441		133
Taxable	1,388			166			1,579		132
Total states, municipalities and political subdivisions	3,815			322			4,020		265
Asset-backed:
RMBS	4,926			172			4,828		131
CMBS	2,041			55			2,038		37
Other ABS	843			(13		)	837		(1		)
Total asset-backed	7,810			214			7,703		167
U.S. Treasury and obligations of government-sponsored enterprises	115			2			42		—
Foreign government	463			16			346		12
Redeemable preferred stock	13			1			13		1
Total fixed maturity securities	25,073			871			24,718		541
Equities	81			4			87		1
Limited partnership investments	2,562			—			2,548		—
Other invested assets	45			—			44		—
Mortgage loans	617			—			622		—
Short term investments	1,538			1			1,513		—
Total investments	$	29,916		$	876		$	29,532	$	542

Net receivable/(payable) on investment activity	$	(128	)				$	204

Effective portfolio duration (in years)	4.1						4.3
Weighted average rating of fixed maturity securities	A						A

Investment Summary - Life & Group Non-Core



	March 31, 2016					December 31, 2015
(In millions)	Carrying Value		Net Unrealized Gains (Losses)			Carrying Value			Net Unrealized Gains (Losses)
Fixed maturity securities:
Corporate and other bonds	$	5,252	$	715		$	5,166		$	581
States, municipalities and political subdivisions:
Tax-exempt	7,824		1,088			7,673			943
Taxable	1,540		291			1,481			237
Total states, municipalities and political subdivisions	9,364		1,379			9,154			1,180
Asset-backed:
RMBS	280		6			244			6
CMBS	158		7			159			6
Other ABS	78		(3		)	84			(1		)
Total asset-backed	516		10			487			11
U.S. Treasury and obligations of government-sponsored enterprises	25		5			25			5
Foreign government	—		—			—			—
Redeemable preferred stock	22		1			22			1
Total fixed maturity securities	15,179		2,110			14,854			1,778
Equities	108		3			110			5
Limited partnership investments	—		—			—			—
Other invested assets	—		—			—			—
Mortgage loans	58		—			56			—
Short term investments	110		—			147			—
Total investments	$	15,455	$	2,113		$	15,167		$	1,783

Net receivable/(payable) on investment activity	$	55				$	(122	)

Effective portfolio duration (in years)	9.2					9.6
Weighted average rating of fixed maturity securities	A					A

Investments - Fixed Maturity Securities by Credit Rating



March 31, 2016	U.S. Government, Government agencies and Government-sponsored enterprises					AAA					AA					A						BBB						Non-investment grade						Total
(In millions)	Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)		Fair Value			Net Unrealized Gains (Losses)			Fair Value			Net Unrealized Gains (Losses)			Fair Value			Net Unrealized Gains (Losses)			Fair Value			Net Unrealized Gains (Losses)
Corporate and other bonds	$	—		$	—	$	91		$	7	$	635		$	39	$	4,800		$	484		$	10,758		$	555		$	1,825		$	(54	)	$	18,109		$	1,031
States, municipalities and political subdivisions:
Tax-exempt	—			—		807			78		5,302			686		3,937			454			135			10			70			16			10,251			1,244
Taxable	—			—		320			38		1,932			298		604			120			29			—			43			1			2,928			457
Total states, municipalities and political subdivisions	—			—		1,127			116		7,234			984		4,541			574			164			10			113			17			13,179			1,701
Asset-backed:
RMBS	3,980			146		102			—		48			—		112			(1		)	72			1			892			32			5,206			178
CMBS	57			1		511			13		451			24		353			17			574			7			253			—			2,199			62
Other ABS	—			—		65			—		17			—		525			(13		)	314			(3		)	—			—			921			(16		)
Total asset-backed	4,037			147		678			13		516			24		990			3			960			5			1,145			32			8,326			224
U.S. Treasury and obligations of government-sponsored enterprises	140			7		—			—		—			—		—			—			—			—			—			—			140			7
Foreign government	—			—		64			5		373			11		21			—			5			—			—			—			463			16
Redeemable preferred stock	—			—		—			—		—			—		—			—			11			1			24			1			35			2
Total fixed maturity securities	$	4,177		$	154	$	1,960		$	141	$	8,758		$	1,058	$	10,352		$	1,061		$	11,898		$	571		$	3,107		$	(4	)	$	40,252		$	2,981

Percentage of total fixed maturity securities	10		%			5		%			22		%			26		%				29		%				8		%				100		%

Components of Net Investment Income



Three months ended March 31	Consolidated
(In millions)	2016				2015
Taxable fixed maturities	$	345			$	342
Tax-exempt fixed maturities	101				101
Total fixed maturity securities	446				443
Limited partnership investments	(14		)		114
Other, net of investment expense	3				1
Net investment income	$	435			$	558

Fixed maturity securities, after tax	$	322			$	318
Net investment income, after tax	$	315			$	394

Effective income yield for the fixed maturity securities portfolio, pretax	4.8			%	4.8		%
Effective income yield for the fixed maturity securities portfolio, after tax	3.4			%	3.4		%



	Property & Casualty and Corporate & Other Non-Core
Three months ended March 31	Property & Casualty and Corporate & Other Non-Core
(In millions)	2016				2015
Taxable fixed maturities	$	238			$	242
Tax-exempt fixed maturities	19				22
Total fixed maturity securities	257				264
Limited partnership investments	(14		)		114
Other, net of investment expense	5				1
Net investment income	$	248			$	379

Fixed maturity securities, after tax	$	174			$	179
Net investment income, after tax	$	168			$	255

Effective income yield for the fixed maturity securities portfolio, pretax	4.2			%	4.3		%
Effective income yield for the fixed maturity securities portfolio, after tax	2.9			%	2.9		%



Three months ended March 31	Life & Group Non-Core
(In millions)	2016				2015
Taxable fixed maturities	$	107			$	100
Tax-exempt fixed maturities	82				79
Total fixed maturity securities	189				179
Limited partnership investments	—				—
Other, net of investment expense	(2		)		—
Net investment income	$	187			$	179

Fixed maturity securities, after tax	$	148			$	139
Net investment income, after tax	$	147			$	139

Effective income yield for the fixed maturity securities portfolio, pretax	5.8			%	5.8		%
Effective income yield for the fixed maturity securities portfolio, after tax	4.5			%	4.5		%

Claim & Claim Adjustment Expense Reserve Rollforward



Three months ended March 31, 2016 (In millions)	Specialty			Commercial			International			P&C Operations			Life & Group Non-Core			Corporate & Other Non-Core			Total Operations
Claim & claim adjustment expense reserves, beginning of period
Gross	$	6,269		$	9,183		$	1,347		$	16,799		$	3,220		$	2,644		$	22,663
Ceded	701			607			128			1,436			290			2,361			4,087
Net	5,568			8,576			1,219			15,363			2,930			283			18,576

Net incurred claim & claim adjustment expenses	390			441			121			952			274			1			1,227
Net claim & claim adjustment expense payments	(394		)	(512		)	(121		)	(1,027		)	(190		)	(6		)	(1,223		)
Foreign currency translation adjustment and other	—			—			31			31			7			1			39

Claim & claim adjustment expense reserves, end of period
Net	5,564			8,505			1,250			15,319			3,021			279			18,619
Ceded	761			590			145			1,496			290			2,613			4,399
Gross	$	6,325		$	9,095		$	1,395		$	16,815		$	3,311		$	2,892		$	23,018

Life & Group Non-Core Policyholder Reserves



March 31, 2016
(In millions)	Claim and claim adjustment expenses		Future policy benefits		Total
Long term care	$	2,316	$	8,385	$	10,701
Structured settlement annuities	578		—		578
Other	19		—		19
Total	2,913		8,385		11,298
Shadow adjustments	108		1,909		2,017
Ceded reserves	290		206		496
Total gross reserves	$	3,311	$	10,500	$	13,811



December 31, 2015
(In millions)	Claim and claim adjustment expenses		Future policy benefits		Total
Long term care	$	2,229	$	8,335	$	10,564
Structured settlement annuities	581		—		581
Other	21		—		21
Total	2,831		8,335		11,166
Shadow adjustments	99		1,610		1,709
Ceded reserves	290		207		497
Total gross reserves	$	3,220	$	10,152	$	13,372

Definitions and Presentation


•	Collectively, CNA Financial Corporation (CNAF) and its subsidiaries are referred to as CNA or the Company.


•	P&C Operations includes Specialty, Commercial and International.


•	Life & Group Non-Core segment primarily includes the results of long term care businesses that are in run-off.


•	Corporate & Other Non-Core segment primarily includes certain corporate expenses including interest on corporate debt and the results of certain property and casualty business in run-off, including CNA Re and asbestos and environmental pollution. Intersegment eliminations are also included in this segment.


•	Management uses the net operating income (loss) financial measure to monitor the Company’s operations. Please refer to Note O to the Condensed Consolidated Financial Statements within the December 31, 2015 Form 10-K for further discussion of this measure.


•	Management uses underwriting results to monitor insurance operations. Underwriting results are pretax and are calculated as net earned premiums less total insurance expenses, which includes insurance claims and policyholders' benefits, amortization of deferred acquisition costs and other insurance related expenses.

•

In the evaluation of the results of Specialty, Commercial and International, management uses the loss ratio, the expense ratio, the dividend ratio and the combined ratio. These ratios are calculated using financial results prepared in accordance with accounting principles generally accepted in the United States of America. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders' dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. In addition, management also utilizes rate, retention and new business in evaluating operating trends. Rate represents the average change in price on policies that renew excluding exposure change. 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.


•	Pretax net prior year development and other includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts.

•

The majority of our limited partnership investments employ hedge fund strategies that generate returns primarily through investing in marketable securities in the public fixed income and equity markets. While the Company generally does not invest in highly leveraged partnerships, there are risks which may result in losses due to short-selling, derivatives or other speculative investment practices. The use of leverage increases volatility generated by the underlying investment strategies.


•	Certain immaterial differences are due to rounding.


•	N/M = Not Meaningful

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