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P&C combined ratio improves one point to 97.4% for CNA Financial, net income at US$209 million for Q2 2016


August 2, 2016   by Canadian Underwriter


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CNA Financial Corporation has announced a one point improvement in its P&C combined ratio for the second quarter of 2016 ending June 30, from 98.4% last year to 97.4% in the most recent quarter.

Businesswoman preparing profit report on digital tabletFor the first six months of the year, the company’s combined ratio improved from 98.6% in H1 2015 to 96.8% in H1 2016.

Overall, the company said in its financial results released on Monday, its Q2 2016 net income was US$209 million, with a net operating income of US$201 million. P&C Operations’ net operating income was US$229 million for the second quarter of 2016 compared to US$237 million in the prior year quarter.

“Improved underwriting results were more than offset by foreign currency exchange rate losses and lower investment income,” CNA said in a statement. Catastrophe losses were US$58 million after tax compared to US$39 million after tax in the prior year quarter. Cat losses in Q2 resulted primarily from weather-related events in the United States and the Fort McMurray wildfire.

CNA reported that net operating results for its non-core segments improved US$77 million from the prior year quarter, reflecting a US$54 million after-tax charge in 2015 related to the application of retroactive reinsurance accounting to adverse reserve development ceded under the 2010 Asbestos and Environmental Pollution Loss Portfolio Transfer. Net investment income, after tax, was US$362 million compared to US$356 million in the prior year quarter.

For P&C Operations specifically, net written premiums (NWP) were down slightly from US$1.638 billion in Q2 2015 to US$1.625 billion in the most recent quarter. NWP for the first six months of the year were US$3.293 billion, compared with US$3.307 billion in H1 2015, the statement said.

CNA’s Specialty segment saw a net operating income increase of US$27 million for Q2 2016 compared with the prior year quarter (US$137 million), primarily due to a higher favourable net prior year development. The segment’s combined ratio improved 5.8 points to 85.4% as compared with the prior year quarter (91.2%). The loss ratio improved 6.4 points to 53.9%, primarily due to higher favourable net prior year reserve development partially offset by a higher non-catastrophe current accident year loss ratio. Cat losses were US$9 million as compared to US$5 million for the prior year quarter. NWP increased US$19 million to US$691 million as compared with the prior year quarter, reflecting “steady retention, positive rate and a modest amount of new business,” CNA said in the statement. Average rate increased 1% for the policies that renewed in the second quarter of 2016, while achieving a retention of 86%.

The company’s Commercial line net operating income increased to US$92 million in Q2 2016 from US$78 million in Q2 2015, primarily due to favourable net prior year reserve development. The Commercial combined ratio improved 3.7 points to 103.5% in the most recent quarter from 107.2% in Q2 2015, while the loss ratio improved 4.7 points due to favourable net prior year reserve development and an improved non-catastrophe current accident year loss ratio. Cat losses were US$55 million, similar to US$54 million in the prior year quarter. NWP increased US$23 million to US$740 million in Q2 2016 from US$717 million in Q2 2015, driven by higher retention and a steady level of new business.

For the International segment, net operating results decreased US$49 million for the second quarter of 2016, primarily due to a higher level of large losses as well as higher cat losses, CNA Financial reported, adding that the comparison was negatively affected by US$13 million in fluctuations in foreign currency exchange rates. The segment’s combined ratio increased 26.4 points, from 92.2% in Q2 2015 to 118.6% in the most recent quarter and the loss ratio increased 24.8 points to 79.8%, “driven by large losses related to political risk, property and financial institutions, partially offset by higher favourable net prior year loss development,” the statement said. Cat losses were US$21 million, primarily driven by the Fort McMurray wildfire, as compared to US$1 million for the prior year quarter. In addition, NWP decreased US$55 million to US$194 million. Excluding the effect of foreign currency exchange rates and the timing of reinsurance spend, net NWP for the second quarter of 2016 decreased 12% primarily due to lower retention and rate. Average rate decreased 2% for the policies that renewed in the second quarter of 2016 while achieving a retention of 70%.

Lastly, the Corporate line saw a net operating loss for Q2 2016 of US$24 million as compared with the prior year quarter of US$81 million. Results in 2015 were negatively affected by a US$54 million after-tax charge related to the application of retroactive reinsurance accounting to adverse reserve development ceded under the 2010 A&EP Loss Portfolio Transfer, as the company completed the reserve review in the second quarter of 2015 and in the first quarter of 2016.

“Overall I am pleased with the result this quarter,” said Thomas F. Motamed, chairman and CEO of CNA, in the statement. “Although our International segment had a disappointing quarter, all of our North American businesses produced solid results, led by another great underwriting result in our Specialty segment.”