CNA Financial Corporation (CNA) reported second-quarter 2014 earnings of $1.00 per share, outperforming the Zacks Consensus Estimate of 82 cents by 22%. Results also improved 35% year over year, largely driven by better results at CNA Specialty and Life & Group.
Including income from discontinued operations, net income increased 36.1% year over year to 98 cents per share in the quarter.
Net premiums written at CNA Financial fell 3.8% year over year to $1.6 billion due lower premiums written at CNA Specialty, CNA Commercial and Hardy segments.
CNA Financial's property & casualty operations' net operating income came in at $236 million, down 8.5%year over year. This decrease was owing to strengthening of reserves in the Commercial segment.
Net investment income of CNA Financial increased 6.3% year over year to $391 million, driven by better performance at limited partnership and fixed maturity securities.
The loss ratio excluding catastrophes (CAT) and development of CNA Financial improved by 170 basis points (bps) due to an enhanced performance in the CNA Specialty and CNA Commercial segments.
Segment Update
Net written premium at CNA Specialty fell 2% year over year to $42 million. The decline stemmed from termination of a MGA relationship that has not been performing well. Net operating income increased 23% from the prior-year quarter due to better underwriting results. Combined ratio improved by 400 bps year over year due to improved current accident year loss ratio and increased favorable net prior year development.
CNA Commercial’s net written premium of $779 million fell 5.7% year over year, largely due to previous underwriting action taken in certain business classes and lower new businesses, though rate increases provided some cushion. Net operating income declined 47.3% year over year due to rise in unfavorable net prior year development, partially offset by improved current accident year underwriting results. Combined ratio deteriorated 330 bps year over year due to increase in loss ratio, stemming from higher unfavorable net prior-year development. This was partly offset by lower catastrophe losses and an improved non-catastrophe current accident year loss ratio.
Hardy reported net premium of $133 million, down 3.6% year over year. Net operating loss widened to $5 million from a loss of $2 million in the year-ago quarter, largely due to weak underwriting results. Combined ratio deteriorated by 450 bps year over year due to deterioration in the current accident year loss ratio, including higher catastrophe losses. This was partially offset by lower unfavorable net prior year development.
Life and Group reported improved net operating results by $50 million year over year, driven by long-term care business and higher net investment income. Net operating income in the reported quarter was $9 million, rebounding from a loss in the year-ago quarter.
Corporate & Other’s net operating results improved $45 million year over year in the reported quarter. The results also include after-tax benefit related to post-retirement plan curtailment of $56 million. Net operating income in the reported quarter was $27 million against a loss in the year-ago quarter.
Divestiture
CNA Financial closed the divestment of Continental Assurance Company to Wilton Re. The property and casualty insurer made a 100% reinsurance agreement with a Bermuda-based subsidiary to Wilton, where CNA Financial will maintain the legal ownership of assets related to the transaction and the economic risk will be absorbed by Wilton.
The completion of this transaction will result in disposition of Life & Group Non-Core gross GAAP insurance reserves of $3.5 billion, representing a majority payout of annuity business.
Dividend Update
The board of directors of CNA Financial declared a quarterly dividend of 25 cents per share, payable on Sep 3 to shareholders of record on Aug 18.
Book value per share of CNA Financial increased 4% from 2013 end-level to $48.43 as of Jun 30, 2014. Excluding accumulated other comprehensive income, book value increased 2%.
Zacks Rank
Currently, CNA Financial has a Zacks Rank #3 (Hold).
Performance of Other Property and Casualty Insurers
Progressive Corp. (PGR) reported second-quarter operating earnings of 45 cents per share, falling short of the Zacks Consensus Estimate by a couple of cents. However, earnings improved 10% year over year.
RLI Corp.’s (RLI) second-quarter operating income of 66 cents per share came in line with the Zacks Consensus Estimate. The figure also marked a 4.8% year-over-year increase.
Everest Re Group, Ltd. (RE) posted second-quarter operating income of $5.41 per share, lagging the Zacks Consensus Estimate by 6.3%. However, earnings improved 6.1% year over year.
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