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| 8-K - 8-K - CNA FINANCIAL CORP | a2017q48ksegmentrecast.htm |
CNA Financial Corporation
Supplemental Financial Information
Specialty and Commercial Segments - Results of Operations
Revised Quarterly and Annual Results for 2017 and 2016
This report is for informational purposes only and includes 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 and Quarterly Reports on Form 10-Q.
Table of Contents
Page | |
Segment Results of Operations | |
Specialty............................................................................................................................................................................................................................ | |
Commercial ...................................................................................................................................................................................................................... | |
Definitions and Presentation............................................................................................................................................................................................ | |
Segment Realignment
As previously disclosed in our Annual Report 10-K for the year ended December 31, 2017, in the first quarter of 2018, CNA changed the segment presentation of its life sciences business and technology and media related errors and omissions (E&O) business within Specialty and Commercial business segments as a result of a change in management responsibility for those businesses. The life sciences business, with approximately $110 million of net written premium, provides product liability and other coverages such as property and workers compensation associated with the life sciences industry. This business, which was previously reported as part of the Specialty business segment, is now reported as part of the Commercial business segment. The technology and media related E&O business, with approximately $70 million of net written premium, provides network security and privacy, media and E&O coverage primarily for technology risks. This business, which was previously reported as part of the Commercial business segment, is now reported as part of the Specialty business segment.
These changes in management responsibility were made to better align the line of business underwriting expertise and the manner in which the products are sold. There was no change to the International, Life & Group and Corporate & Other business segments. Segment data for prior reporting periods has been adjusted to reflect the new segment reporting.
The reclassification of historical segment information has no effect on the Company's previously reported consolidated results of operations, financial condition or cash flows.
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Specialty - Results of Operations
2017 | 2016 | ||||||||||||||||||||||||||||||||||||||||
(In millions) | YTD | Q4 | Q3 | Q2 | Q1 | YTD | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||||||
Gross written premiums | $ | 6,904 | $ | 1,748 | $ | 1,753 | $ | 1,665 | $ | 1,738 | $ | 6,760 | $ | 1,670 | $ | 1,780 | $ | 1,687 | $ | 1,623 | |||||||||||||||||||||
Net written premiums | 2,731 | 665 | 695 | 701 | 670 | 2,738 | 663 | 720 | 681 | 674 | |||||||||||||||||||||||||||||||
Net earned premiums | 2,712 | 688 | 692 | 678 | 654 | 2,743 | 681 | 695 | 693 | 674 | |||||||||||||||||||||||||||||||
Net investment income | 522 | 128 | 129 | 117 | 148 | 497 | 131 | 135 | 128 | 103 | |||||||||||||||||||||||||||||||
Other revenues | 391 | 99 | 100 | 98 | 94 | 362 | 93 | 92 | 90 | 87 | |||||||||||||||||||||||||||||||
Total operating revenues | 3,625 | 915 | 921 | 893 | 896 | 3,602 | 905 | 922 | 911 | 864 | |||||||||||||||||||||||||||||||
Insurance claims and policyholders' benefits | 1,537 | 382 | 359 | 395 | 401 | 1,493 | 387 | 346 | 374 | 386 | |||||||||||||||||||||||||||||||
Amortization of deferred acquisition costs | 590 | 150 | 151 | 147 | 142 | 586 | 147 | 150 | 147 | 142 | |||||||||||||||||||||||||||||||
Other insurance related expenses | 279 | 76 | 65 | 71 | 67 | 295 | 74 | 76 | 71 | 74 | |||||||||||||||||||||||||||||||
Other expenses | 342 | 94 | 85 | 83 | 80 | 312 | 81 | 77 | 78 | 76 | |||||||||||||||||||||||||||||||
Total claims, benefits and expenses | 2,748 | 702 | 660 | 696 | 690 | 2,686 | 689 | 649 | 670 | 678 | |||||||||||||||||||||||||||||||
Core income (loss) before income tax | 877 | 213 | 261 | 197 | 206 | 916 | 216 | 273 | 241 | 186 | |||||||||||||||||||||||||||||||
Income tax (expense) benefit on core income (loss) | (295 | ) | (72 | ) | (88 | ) | (66 | ) | (69 | ) | (310 | ) | (73 | ) | (94 | ) | (81 | ) | (62 | ) | |||||||||||||||||||||
Core income (loss) | $ | 582 | $ | 141 | $ | 173 | $ | 131 | $ | 137 | $ | 606 | $ | 143 | $ | 179 | $ | 160 | $ | 124 | |||||||||||||||||||||
Other Performance Metrics | |||||||||||||||||||||||||||||||||||||||||
Underwriting gain (loss) | $ | 306 | $ | 80 | $ | 117 | $ | 65 | $ | 44 | $ | 369 | $ | 73 | $ | 123 | $ | 101 | $ | 72 | |||||||||||||||||||||
Loss & LAE ratio | 56.5 | % | 55.5 | % | 51.7 | % | 58.1 | % | 61.2 | % | 54.3 | % | 57.1 | % | 49.3 | % | 53.8 | % | 57.1 | % | |||||||||||||||||||||
Acquisition expense ratio | 20.1 | 20.6 | 20.0 | 20.1 | 19.9 | 20.1 | 20.2 | 20.0 | 20.1 | 20.0 | |||||||||||||||||||||||||||||||
Underwriting expense ratio | 11.9 | 12.3 | 11.2 | 11.9 | 12.0 | 12.0 | 12.3 | 12.4 | 11.3 | 12.1 | |||||||||||||||||||||||||||||||
Expense ratio | 32.0 | 32.9 | 31.2 | 32.0 | 31.9 | 32.1 | 32.5 | 32.4 | 31.4 | 32.1 | |||||||||||||||||||||||||||||||
Dividend ratio | 0.2 | 0.2 | 0.2 | 0.2 | 0.1 | 0.2 | (0.3 | ) | 0.6 | 0.2 | 0.2 | ||||||||||||||||||||||||||||||
Combined ratio | 88.7 | % | 88.6 | % | 83.1 | % | 90.3 | % | 93.2 | % | 86.6 | % | 89.3 | % | 82.3 | % | 85.4 | % | 89.4 | % | |||||||||||||||||||||
Combined ratio excluding catastrophes and development | 93.8 | % | 94.5 | % | 92.6 | % | 93.2 | % | 94.9 | % | 95.4 | % | 96.5 | % | 95.8 | % | 94.2 | % | 94.9 | % | |||||||||||||||||||||
Net accident year catastrophe losses incurred | $ | 44 | $ | — | $ | 35 | $ | 5 | $ | 4 | $ | 17 | $ | 3 | $ | 1 | $ | 9 | $ | 4 | |||||||||||||||||||||
Effect on loss & LAE ratio | 1.6 | % | (0.1 | ) | % | 5.0 | % | 0.9 | % | 0.6 | % | 0.6 | % | 0.5 | % | 0.1 | % | 1.3 | % | 0.6 | % | ||||||||||||||||||||
Net prior year development and other: (favorable) / unfavorable | $ | (187 | ) | $ | (41 | ) | $ | (102 | ) | $ | (27 | ) | $ | (17 | ) | $ | (264 | ) | $ | (52 | ) | $ | (95 | ) | $ | (72 | ) | $ | (45 | ) | |||||||||||
Effect on loss & LAE ratio | (6.7 | ) | % | (5.8 | ) | % | (14.5 | ) | % | (3.8 | ) | % | (2.3 | ) | % | (9.4 | ) | % | (7.7 | ) | % | (13.6 | ) | % | (10.1 | ) | % | (6.1 | ) | % | |||||||||||
Rate | 1 | % | 1 | % | — | % | 1 | % | 1 | % | 1 | % | 1 | % | 1 | % | — | % | 2 | % | |||||||||||||||||||||
Renewal premium change | 2 | 1 | — | 3 | 3 | 2 | 1 | 2 | 1 | 3 | |||||||||||||||||||||||||||||||
Retention | 88 | 86 | 90 | 89 | 88 | 88 | 86 | 89 | 89 | 88 | |||||||||||||||||||||||||||||||
New business | $ | 242 | $ | 65 | $ | 60 | $ | 62 | $ | 55 | $ | 239 | $ | 56 | $ | 63 | $ | 57 | $ | 63 | |||||||||||||||||||||
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Commercial - Results of Operations
2017 | 2016 | ||||||||||||||||||||||||||||||||||||||||
(In millions) | YTD | Q4 | Q3 | Q2 | Q1 | YTD | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||||||
Gross written premiums | $ | 3,119 | $ | 766 | $ | 733 | $ | 861 | $ | 759 | $ | 3,041 | $ | 710 | $ | 729 | $ | 814 | $ | 788 | |||||||||||||||||||||
Net written premiums | 2,922 | 719 | 697 | 782 | 724 | 2,883 | 678 | 697 | 750 | 758 | |||||||||||||||||||||||||||||||
Net earned premiums | 2,881 | 752 | 752 | 716 | 661 | 2,840 | 711 | 728 | 705 | 696 | |||||||||||||||||||||||||||||||
Net investment income | 658 | 163 | 166 | 146 | 183 | 657 | 178 | 180 | 169 | 130 | |||||||||||||||||||||||||||||||
Other revenues | 32 | 8 | 6 | 9 | 9 | 32 | 11 | 8 | 7 | 6 | |||||||||||||||||||||||||||||||
Total operating revenues | 3,571 | 923 | 924 | 871 | 853 | 3,529 | 900 | 916 | 881 | 832 | |||||||||||||||||||||||||||||||
Insurance claims and policyholders' benefits | 1,948 | 478 | 614 | 430 | 426 | 1,914 | 551 | 437 | 476 | 450 | |||||||||||||||||||||||||||||||
Amortization of deferred acquisition costs | 481 | 122 | 122 | 120 | 117 | 475 | 120 | 119 | 118 | 118 | |||||||||||||||||||||||||||||||
Other insurance related expenses | 530 | 137 | 136 | 129 | 128 | 566 | 140 | 152 | 132 | 142 | |||||||||||||||||||||||||||||||
Other expenses | 57 | 26 | 6 | 10 | 15 | 36 | 10 | 10 | 12 | 4 | |||||||||||||||||||||||||||||||
Total claims, benefits and expenses | 3,016 | 763 | 878 | 689 | 686 | 2,991 | 821 | 718 | 738 | 714 | |||||||||||||||||||||||||||||||
Core income (loss) before income tax | 555 | 160 | 46 | 182 | 167 | 538 | 79 | 198 | 143 | 118 | |||||||||||||||||||||||||||||||
Income tax (expense) benefit on core income (loss) | (186 | ) | (54 | ) | (14 | ) | (62 | ) | (56 | ) | (183 | ) | (27 | ) | (68 | ) | (47 | ) | (41 | ) | |||||||||||||||||||||
Core income (loss) | $ | 369 | $ | 106 | $ | 32 | $ | 120 | $ | 111 | $ | 355 | $ | 52 | $ | 130 | $ | 96 | $ | 77 | |||||||||||||||||||||
Other Performance Metrics | |||||||||||||||||||||||||||||||||||||||||
Underwriting gain (loss) | $ | (78 | ) | $ | 15 | $ | (120 | ) | $ | 37 | $ | (10 | ) | $ | (115 | ) | $ | (100 | ) | $ | 20 | $ | (21 | ) | $ | (14 | ) | ||||||||||||||
Loss & LAE ratio | 67.0 | % | 62.6 | % | 81.2 | % | 59.6 | % | 63.9 | % | 67.1 | % | 77.3 | % | 59.7 | % | 67.2 | % | 64.1 | % | |||||||||||||||||||||
Acquisition expense ratio | 18.0 | 17.8 | 18.0 | 17.2 | 19.1 | 18.3 | 19.3 | 18.2 | 17.3 | 18.4 | |||||||||||||||||||||||||||||||
Underwriting expense ratio | 17.1 | 16.9 | 16.2 | 17.2 | 18.2 | 18.4 | 17.5 | 18.9 | 18.4 | 18.8 | |||||||||||||||||||||||||||||||
Expense ratio | 35.1 | 34.7 | 34.2 | 34.4 | 37.3 | 36.7 | 36.8 | 37.1 | 35.7 | 37.2 | |||||||||||||||||||||||||||||||
Dividend ratio | 0.6 | 0.9 | 0.5 | 0.6 | 0.5 | 0.3 | (0.1 | ) | 0.5 | 0.4 | 0.4 | ||||||||||||||||||||||||||||||
Combined ratio | 102.7 | % | 98.2 | % | 115.9 | % | 94.6 | % | 101.7 | % | 104.1 | % | 114.0 | % | 97.3 | % | 103.3 | % | 101.7 | % | |||||||||||||||||||||
Combined ratio excluding catastrophes and development | 95.9 | % | 95.5 | % | 94.7 | % | 94.0 | % | 100.0 | % | 98.9 | % | 100.4 | % | 98.4 | % | 97.6 | % | 99.2 | % | |||||||||||||||||||||
Net accident year catastrophe losses incurred | $ | 272 | $ | 34 | $ | 176 | $ | 35 | $ | 27 | $ | 117 | $ | 22 | $ | 12 | $ | 55 | $ | 28 | |||||||||||||||||||||
Effect on loss & LAE ratio | 9.5 | % | 4.7 | % | 23.9 | % | 4.7 | % | 3.9 | % | 4.1 | % | 3.0 | % | 1.7 | % | 7.9 | % | 4.0 | % | |||||||||||||||||||||
Net prior year development and other: (favorable) / unfavorable | $ | (69 | ) | $ | (15 | ) | $ | (23 | ) | $ | (30 | ) | $ | (1 | ) | $ | 29 | $ | 78 | $ | (22 | ) | $ | (16 | ) | $ | (11 | ) | |||||||||||||
Effect on loss & LAE ratio | (2.7 | ) | % | (2.0 | ) | % | (2.7 | ) | % | (4.1 | ) | % | (2.2 | ) | % | 1.1 | % | 10.6 | % | (2.8 | ) | % | (2.2 | ) | % | (1.5 | ) | % | |||||||||||||
Rate | — | % | — | % | — | % | — | % | — | % | (2 | ) | % | (1 | ) | % | (2 | ) | % | (2 | ) | % | (2 | ) | % | ||||||||||||||||
Renewal premium change | 2 | 2 | 1 | 1 | 1 | 3 | 1 | 5 | 4 | 3 | |||||||||||||||||||||||||||||||
Retention | 86 | 86 | 86 | 87 | 85 | 84 | 85 | 84 | 85 | 84 | |||||||||||||||||||||||||||||||
New business | $ | 568 | $ | 136 | $ | 138 | $ | 154 | $ | 140 | $ | 530 | $ | 109 | $ | 139 | $ | 144 | $ | 138 | |||||||||||||||||||||
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Definitions and Presentation
• | Collectively, CNA Financial Corporation (CNAF) and its subsidiaries are referred to as CNA or the Company. |
• | Management uses the core income (loss) financial measure (formerly referred to as net operating income) to monitor the Company’s operations. Please refer to Note O to the Consolidated Financial Statements within the December 31, 2017 Form 10-K for further discussion of this non-GAAP financial 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 and Commercial, 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 renewal premium change, rate, retention and new business in evaluating operating trends. Renewal premium change represents the estimated change in average premium on policies that renew, including rate and exposure changes. Rate represents the average change in price on policies that renew excluding exposure change. Exposure represents the measure of risk used in the pricing of the insurance product. Retention represents the percentage of premium dollars renewed in comparison to the expiring premium dollars from policies available to renew. Rate, renewal premium change and retention presented for the prior year is updated to reflect subsequent activity on policies written in the period. New business represents premiums from policies written with new customers and additional policies written with existing customers. |
• | This financial supplement may also reference or contain financial measures that are not in accordance with GAAP. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio. Core income, which is derived from certain income statement amounts, is used by management to monitor performance of the Company's insurance operations. The Company'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. |
• | Core income (loss) is calculated by excluding from net income (loss) the after-tax effects of i) net realized 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 realized investment gains or losses because net realized 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. For reconciliations of non-GAAP measures to the most comparable GAAP measures and other information, please refer herein and/or to CNA's most recent 10-K on file with the Securities and Exchange Commission, as well as the press release, available at www.cna.com. |
• | Pretax net prior year development and other includes the effects of interest accretion and change in allowance for uncollectible reinsurance and deductible amounts. |
• | Certain immaterial differences are due to rounding. |
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