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Text: I am pleased to share our fourth quarter results and our full-year performance in what was clearly an unprecedented year.
Importantly, our industry rose to meet the challenges and effectively deliver on our commitments.
I'm very proud of our CNA employees who effectively served the needs of our agents and brokers, as well as our insurers, and have positioned us well to continue to take advantage of the hardening market conditions.
Before I provide detail on the quarter, here are a few highlights for the full-year.
Core income was $735 million, or $2.70 per share, and net income for the year was $690 million, or $2.53 per share.
This compares to $979 million and $1 billion in 2019, respectively.
The shortfall from the prior year primarily attributed to the impact of the elevated pre-tax catastrophe losses of $550 million, which included our reserve charge for the pandemic of $195 million that we announced in the second quarter of 2020 as compared to $179 million of catastrophe losses in 2019.
On the other hand, our P&C underlying underwriting profit for the full-year increased 38% to $498 million as the underlying combined ratio improved 1.7 points to 93.1%.
It is the fourth consecutive year of improvement in the underlying combined ratio.
The improvement in the underlying combined ratio came from both the loss ratio and the expense ratio.
Our underlying loss ratio improved 0.8 points from 2019.
A half a point of the improvement reflected the favorable claim frequency from the shelter-in-place directives.
The frequency benefit was relatively muted for us because, as I said on the second quarter call, a substantial portion of our insureds are in essential industries, such as healthcare, construction and manufacturing, which were not subject to shelter-in-place restrictions.
The expense ratio improved 0.9 points from 2019 to 32.6%, which reflected our disciplined approach to managing expenses as we grow the business and continue to make meaningful investments in talent, technology and analytics.
The all-in combined ratio was 100.9% with 7.7 points of catastrophe losses and flat prior period development.
Gross written premium growth ex-captives grew 9% in 2020 despite the impacts of the economic downturn, which reduced our exposure almost 3 points from the prior year.
Net written premium increased 6% for the full-year.
We successfully achieved rate increases of 11% for the full-year, more than double our 2019 rate increases, and new business was up 6% for the year.
We continue to leverage this hardening market to build margin, all else equal, as rates continue to earn-out above our long run loss cost trends.
The 11% of written rate we achieved in 2020 was 8 points on an earned basis for the full-year, while our long run loss cost trends were about 4 points.
However, as I have said before, we are going to continue to be prudent on how we act on any margin due to the global pandemic's disruptive impact obfuscating claim trends [Phonetic], in particular social inflation.
Moreover, the economy has not recovered nor have court dockets reverted to pre-pandemic activity, therefore, we are staying the course.
Turning to the fourth quarter.
Our results in the quarter evidenced our strong execution in every aspect of our business, including significant growth driven by double-digit rate, strong new business growth, and improved retention, as well as an improved underlying loss ratio and expense ratio.
We also benefited from a low catastrophe quarter and strong investment performance.
Core income for the quarter was a record $335 million, $1.23 per share, an increase of $70 million over the prior year fourth quarter.
The increase was largely driven by improved underlying underwriting profits.
Net income for the quarter was $387 million, or $1.42 per share, and was an increase of $114 million over 2019's fourth quarter.
The P&C underlying combined ratio was 92.7%, a significant improvement over last year's fourth quarter results and in line with Q3 results, both of which are the best two underlying combined ratios CNA has had in over 10 years.
The all-in combined ratio was 93.5%, slightly more than 2 points of improvement compared to the fourth quarter a year ago, driven by commercial, which improved 4.4 points to 96.2% and international, which improved 3.4 points to 96.9%.
Although specialty had less favorable prior period development in the fourth quarter a year ago, they had a very strong combined ratio of 89.4%.
Pre-tax catastrophe losses were benign at $14 million, or 0.8 points of the combined ratio.
Our estimated ultimate losses from COVID-19 are unchanged at $195 million as claim activity continues to unfold slowly, as we expected.
Prior period development had no impact on the combined ratio in the quarter.
The underlying loss ratio was 60.5% for the quarter, a 0.4 point year-over-year improvement and consistent with Q3.
Specialty was 60%, commercial was 61.1%, and international was 60.1%.
In the fourth quarter, the expense ratio was 32%, 1.7 points better than the prior year quarter as we maintained a disciplined approach to managing expenses as we continue to grow the business.
We are pleased with the improvement and as our growth continues to earn out through 2021, we expect that to drive additional improvement.
Gross written premium ex our captive business grew 15% in the quarter with significant contributions across all operating segments, with specialty at plus 17% and commercial at plus 13%.
International was also strong at plus 14%, fueled by strong rate in the quarter in our London operation and strong rate and new business growth in our Canadian operations.
Net written premium for total P&C increased 12% in the quarter.
In the quarter, the hardening market persisted as evidenced by our continued double-digit rate achievement of plus 12%, while increasing our retention by 3 points to 85% from the third quarter.
We achieved strong rate across the board with specialty at plus 13%, commercial at plus 12%, and international at plus 18%.
In addition to double-digit rate achievement for the quarter, we continued to implement tighter terms and conditions across our portfolio.
These improved terms and conditions, as I have mentioned before, are equally important to strong pricing as they improve attritional loss ratios, help prevent unintended coverage, and are typically slower to be relaxed once market conditions start to soften.
New business growth was strong in the quarter, 17% higher compared to last year's fourth quarter.
Specialty grew 23% and commercial 22%, while international remained slightly negative.
We are writing high-quality accounts within our target market segments.
Examples, we continue to grow our profitable specialty affinity portfolio, we grew our very profitable construction segment within commercial, and we are building our management liability portfolio at a time when we can get excellent terms and conditions.
We carefully monitor pricing on new business relative to renewal policies, and the new to renewal relativities have been stable all year across the portfolio, indicating rate on new business has increased commensurately and obviously contributed to the overall growth in new business.
We are well positioned to grow in these hardening market conditions and indeed, we believe it is the best time to grow.
In addition to restoring pricing to these levels and improving terms and conditions, the disruption from insured dislocation in a hardening market causes broad remarketing by agents and brokers that also ferrets out tremendous high-quality new business opportunities, and we have been able to secure more of these opportunities as we are leveraging all the investments we have made in the last few years to deepen our specialized underwriting expertise and provide improved solutions to our customers.
Finally, we completed our annual asbestos and pollution reserve review, which resulted in a non-economic after-tax charge of $39 million, which compares to last year's after-tax charge of $48 million, and we also had positive core income of $26 million from our life and group operations.
Al will provide more detail on this, as well as our asbestos and pollution review.
As Dino mentioned, I will provide more detail on the Life & Group results, as well as our corporate segment, including the asbestos, environmental reserve review.
Before I do that, let me just highlight a few items related to our overall results, as well as our P&C operations.
Core income for the quarter was a record at $335 million, 26% higher than the prior year quarter results.
With a core ROE of 11.4% for the period, we are certainly pleased with the close to 2020 and the significant progress made to build upon our underlying underwriting profitability.
Dino spoke about this progress with regards to our combined ratio improvement.
A meaningful contributor was the expense ratio.
I would like to highlight the advancements made during 2020.
Our fourth quarter expense ratio of 32% reflects significant progress on a year-over-year basis, as well as on a sequential quarter basis during 2020.
The expense ratio improvement was reflected in all three of our P&C business segments, especially in international notably recording improvements of 2 and 3 points, respectively, versus the prior year quarter.
We are particularly pleased with the international results as the efforts to reduce acquisition costs as part of our reunderwriting strategy is paying dividends.
Likewise, with respect to specialty and commercial, the significant progress we have made on our expense ratio reflects our ability to grow while being disciplined about our expense spend and also making investments back into the business.
Considering the trajectory of our net written premium, we would expect that our earned premium growth will further aid our progress on the expense ratio in 2021.
Turning to net prior period development and reserves, for the fourth quarter overall P&C net prior period development was flat compared to 2.2 points of favorable development in Q4 2019.
Favorable development in specialty during the quarter driven by professional and management liability was offset by adverse premium development on general liability within commercial.
For the full-year 2020, overall development was essentially flat versus 0.7 points of favorable development in 2019.
In terms of our COVID reserves, we have made no changes to our catastrophe loss estimates during the quarter.
We continually review our COVID reserves and our previously established estimate of ultimate loss remains appropriate, and our loss estimate is still virtually all in IBNR.
Finally, with regards to the P&C operations, on January 1 several of our reinsurance treaties were renewed, the main ones being for management liability and casualty lines of business.
These treaties renewed with more favorable terms and conditions relative to expectations given current market conditions.
Now, turning to Life & Group.
This segment produced core income of $26 million in the quarter and $9 million for the full-year.
This compares with Q4 2019 loss of $4 million and a full-year 2019 loss of $109 million.
Favorable long-term care results for full-year 2020 relative to 2019 reflects the lower reserve charge in the current year relative to the prior year, as well as better-than-expected morbidity experienced in 2020 amid the effects of COVID-19.
Specifically, since the onset of COVID, we've experienced lower-than-usual new claim frequency, higher claim termination, and more favorable claim severity as policyholders favor home healthcare versus the use of long-term care facilities.
The higher level of claim terminations is largely being driven by an elevated level of mortality and claimant recoveries.
As referenced in the previous quarters, given the uncertainty of these trends, we've been taking a cautious approach from an income recognition perspective, and accordingly, we've been holding a higher level of IBNR reserves.
As well, in our annual gross premium valuation review completed in third quarter of 2020, we did not build any of this favorable experience into our ongoing reserving assumptions.
With all of this in mind, we are closely evaluating these favorable claim trends to assess the extent to which they may persist beyond the pandemic.
Our Corporate segment produced a core loss of $60 million in the fourth quarter and $108 million for the full-year.
This compares to a $68 million loss in Q4 2019 and $102 million loss for the full-year 2019.
The loss for Q4 2020 was driven by our annual asbestos, environmental reserve review concluded during the quarter.
The results of the review included a non-economic after-tax charge of $39 million driven by the strengthening of reserves associated with higher defense and indemnity costs on existing claims, and this compares to last year's non-economic charge of $48 million.
Following this review, we have incurred cumulative losses of $3.3 billion, well within the $4 billion limit of our loss portfolio transfer cover that we purchased in 2010, and paid losses are now at $2.1 billion.
You will recall from previous years' reviews that while we continue to be covered under this OPT limit, there is a timing difference with respect to recognizing the benefit of the cover relative to incurred losses as we can only do so in proportion to the paid losses recovered under the treaty.
As such, the loss recognized today will be recaptured over time through the amortization of the deferred accounting gain as paid losses ultimately catch up with incurred losses.
As previously announced, we've entered into a loss portfolio transfer transaction with a subsidiary of Enstar Corporation and related to legacy excess worker comp reserves.
This non-core portfolio has been in runoff for over 10 years and the transaction enables us to strengthen our focus on going forward operations while reducing potential future reserve volatility.
The transaction closed on February 5.
Going forward, we'll report the impacts associated with this line of business and the associated loss portfolio transfer through the Corporate segment.
Turning now to investments.
Pre-tax net investment income was $555 million in the fourth quarter, compared with $545 million in the prior year quarter.
The results reflected more favorable returns from our limited partnership and common equity portfolios relative to the prior year, more than offsetting the decline in net investment income from our fixed income portfolio and attributable to lower reinvestment yields.
As a point of reference, pre-tax effective yield on our fixed income holdings was 4.4% at Q4 2020 compared to 4.7% as of Q4 2019.
Pre-tax net investment income for the full-year was $1.9 billion, compared with $2.1 billion in the prior year.
While lower interest rates have certainly been a headwind for our net investment income, it's also driven the increase of our unrealized gain position on our fixed income portfolio, which stood at $5.7 billion at year end, up from $5 billion at the end of the third quarter and $4.1 billion at the end of 2019.
The change in unrealized during the quarter was driven by the tightening of credit spreads across the market, our risk-free rates have remained low.
Fixed income invested assets that support our P&C liabilities had an effective duration of 4.5 years at quarter end.
The effective duration of the fixed income assets that support our Life & Group liabilities was 9.2 years at quarter end.
Our balance sheet continues to be very solid.
At quarter end, shareholders' equity was $12.7 billion, or $46.82 per share, reflective of the increase in our unrealized gain position during the quarter.
Shareholders' equity excluding accumulated other comprehensive income was $11.9 billion, or $43.86 per share.
Book value per share ex-AOCI and excluding the impact of dividends paid has grown by 6% over the last year.
We have a conservative capital structure with a leverage ratio below 18% and continue to maintain capital above target levels in support of our ratings.
In the fourth quarter, operating cash flow was strong at $367 million, compared to $160 million during Q4 2019.
On a full-year basis, operating cash flow was $1.8 billion versus $1.1 billion for 2019, a significant increase substantially driven by the improvement in our current accident year underwriting profitability and a lower level of paid losses.
In addition to our strong operating cash flow, we continue to maintain liquidity in the form of cash and short-term investments and have sufficient liquidity to meet obligations and withstand significant business variability.
Finally, we are pleased to announce an increase in our regular quarterly dividend to $0.38.
This increase reflects our confidence that we can continue to grow our underwriting profits and build upon our financial strength.
In addition, notwithstanding an extraordinary year in 2020, including the elevated impact of catastrophe on our results, we were pleased to declare a special dividend of $0.75 per share.
In summary, we had a great quarter generating record core income as we effectively leveraged the opportunities from the hardening market, as we did throughout the year, and we are confident in our ability to continue to do so as these market conditions persist in 2021.

user
compname posts q4 earnings per share $1.42.
compname announces q4 2020 net income of $1.42 per share and core income of $1.23 per share.
compname announces full year 2020 net income of $2.53 per share and core income of $2.70 per share.
q4 core earnings per share $1.23.
q4 earnings per share $1.42.
book value per share $46.82 at december 31, 2020 versus $45.00 at december 31, 2019.

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