loews 2 CNA Lilienthal Mense

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loews 2 CNA Lilienthal Mense

  1. 1. Loews Corporation 2008 Investor Meeting Stephen W. Lilienthal, CPCU Chief Executive Officer D. Craig Mense Chief Financial Officer November 5, 2008 Copyright © 2008 CNA Financial Corporation. All rights reserved.
  2. 2. Loews Corporation 2008 Investor Meeting November 5, 2008 CNA Financial Corporation Solid foundation built… • Much improved level of financial performance • Solid P&C operating earnings and strong competitive position • Highly diversified product portfolio and market leadership • Controlled, orderly run-off operations • Strong balance sheet and capital position …consistent, sustained progress 1
  3. 3. Loews Corporation 2008 Investor Meeting November 5, 2008 CNAF Financial Review Strong operating earnings drive… Net Operating Income Book Value Per Share excluding AOCI 12.0% $m 11.0% 9.8% $38.16 8.8% $37.63 $36.98 7.4% $36.79 3.3% 3.0% $34.00 $29.85 $1,070 $1,060 $29.05 $846 ex cats & commutations $599 $251 $253 $250 $221 ex cats $83 2004 2005 2006 2007 Q1 08 Q2 08 Q3 08 2004 2005 2006 2007 Mar 31 Jun 30 Sep 30 2008 2008 2008 Full Year Quarterly NOI Operating ROE (as reported) …growth in book value 2
  4. 4. Loews Corporation 2008 Investor Meeting November 5, 2008 CNAF Financial Review Steady performance in core securities income… Core Securities Net Investment Income Limited Partnership Investment Income Pretax $m Pretax $m 17.1% 16.2% $2,240 $2,089 9.1% $288 $1,757 2.0% $254 (1.8%) (3.5%) $183 $46 $550 $539 $534 ($39) ($77) 2005 2006 2007 Q1 08 Q2 08 Q3 08 2005 2006 2007 Q1 08 Q2 08 Q3 08 Full Year Quarterly Full Year Quarterly Return (%) …with solid long-term returns from limited partnerships 3
  5. 5. Loews Corporation 2008 Investor Meeting November 5, 2008 Net Operating Income Solid Property & Casualty earnings… CNA Financial Corporation Property & Casualty Operations $m $m $1,221 $1,081 $1,070 $1,060 $846 $817 ex cats & ex cats & commutations commutations $260 $295 $251 $269 $253 $250 $221 $219 ex cats ex cats $92 $83 2005 2006 2007 Q1 08 Q2 08 Q3 08 2005 2006 2007 Q1 08 Q2 08 Q3 08 Full Year Quarterly Full Year Quarterly …drive the Company’s results 4
  6. 6. Loews Corporation 2008 Investor Meeting November 5, 2008 Net Operating Income Controlled, orderly run-off operations… Life & Group Corporate Segment $m $m $80 ex commutations ($3) ($14) $27 ($30) ($36) $11 ($51) $9 $5 $3 ($2) ($159) 2005 2006 2007 Q1 08 Q2 08 Q3 08 2005 2006 2007 Q1 08 Q2 08 Q3 08 Full Year Quarterly Full Year Quarterly … mitigate earnings risks 5
  7. 7. Loews Corporation 2008 Investor Meeting November 5, 2008 P&C Operations – Key Ratios Focus on operating fundamentals… Combined Ratio Expense Ratio 110.0% 107.0% 98.1% 97.7% 31.5% 96.4% 94.8% 30.2% 29.5% 29.5% 28.4% 98.4% 28.2% ex cats & 91.3% commutations ex cats 2005 2006 2007 Q1 08 Q2 08 Q3 08 2005 2006 2007 Q1 08 Q2 08 Q3 08 Full Year Quarterly Full Year Quarterly …generates solid results despite softening market 6
  8. 8. Loews Corporation 2008 Investor Meeting November 5, 2008 P&C Operations – Premium Metrics Disciplined participation in the marketplace… Net Written Premium Rate and Retention $B 83% 83% 82% 82% 80% 80% $7.0 $6.8 $6.8 $1.7 $1.6 $1.6 (0%) (0%) (4%) (4%) (4%) (5%) 2005 2006 2007 Q1 08 Q2 08 Q3 08 2005 2006 2007 Q1 08 Q2 08 Q3 08 Full Year Quarterly Full Year Quarterly Rate Retention …with solid retention and rational pricing 7
  9. 9. Loews Corporation 2008 Investor Meeting November 5, 2008 P&C Operations – Disciplined Underwriting Appropriate levels of new business… Net Written Premium – New Business New Business – Cross Sell $B $B 41% 40% 37% 35% 21% 33% 19% 18% 17% 17% 17% 29% $7.0 $1.5 $6.8 $6.8 $1.4 $1.2 $1.7 $1.6 $1.6 $0.3 $0.3 $0.3 2005 2006 2007 Q1 08 Q2 08 Q3 08 2005 2006 2007 Q1 08 Q2 08 Q3 08 Full Year Quarterly Quarterly Full Year Net Written Premium New Business % New Business Cross Sell % …enhanced by cross sell successes 8
  10. 10. Loews Corporation 2008 Investor Meeting November 5, 2008 P&C Operations – Diversified Portfolio Leveraging our highly diversified portfolio… Geographic Distribution Commercial Lines Ranking 1 to 5 6 to 10 11 to 15 16 to 20 21 to 25 Source: Company filings Industry Business …to reduce volatility and to optimize earnings 9
  11. 11. Loews Corporation 2008 Investor Meeting November 5, 2008 P&C Market Leadership A highly respected industry leader in many specialty businesses… Specialty Market Rankings • Accountants: 1st • Aging Services: 1st • Architects & Engineers: 1st • Dentists: 1st • Law firms: 1st • Nurses: 1st • Real estate agents: 1st • Surety: 3rd …with strong financial results 10
  12. 12. Loews Corporation 2008 Investor Meeting November 5, 2008 Claim Business Model Consistent metrics and reporting… • People/Culture – Assigning the right level of work to the right level Four Cornerstones of employee • Customer Service – Simplified intake process with reduced handoffs – Single point of contact for claim inquiries – Improved claim access through CNA Central – Consistent experience no matter where claims are handled • Business Partnership – Recognizing the different needs of different customers • Total Claim Outcome – Reduced number of non-integrated systems – Streamlined workflows – Improving fraud detection …drive effective and efficient claim handling 11
  13. 13. Craig Mense Chief Financial Officer
  14. 14. Loews Corporation 2008 Investor Meeting November 5, 2008 Key P&C Reserve Metrics Better than industry reserve adequacy metrics for long-tailed lines… Ratio of Paid Loss to Ultimate Incurred Ratio of Bulk IBNR Reserves to Ultimate Incurred AY CNA Industry AY CNA Industry 10.6% 77.3% 2002 9.0% 2002 82.4% 16.6% 71.5% 2003 12.9% 2003 75.5% 20.4% 65.0% 2004 18.8% 2004 66.0% 29.6% 2005 28.8% 51.9% 2005 53.1% 47.1% 2006 43.2% 31.4% 2006 36.5% 67.6% 2007 60.1% 14.0% 2007 18.7% • The lower the net paid-to-ultimate incurred ratios, all • The higher the IBNR-to-ultimate incurred ratios, all other things being equal, the stronger the reserves other things being equal, the stronger the reserves Source: CNA data is from 2007 filed annual statutory statements Industry data is from A.M. Best 2007 total P/C industry …reflective of CNA’s solid reserve position 13
  15. 15. Loews Corporation 2008 Investor Meeting November 5, 2008 Reinsurance Recoverables Reduced reliance on reinsurance… Reinsurance Recoverables Reinsurance Recoverables – Secured and Unsecured $B $B 7.4% 6.6% 6.5% 6.2% 5.7% $15.9 $15.9 $12.4 $12.4 $6.2 $9.9 $9.9 $8.7 $4.1 $8.0 $8.7 $2.7 $2.4 $8.0 $2.1 $9.7 $8.3 $7.2 $6.3 $5.9 2004 2005 2006 2007 Sep 30 2004 2005 2006 2007 Sep 30 2008 2008 Unsecured Secured Bad Debt Reserve as % of Unsecured …mitigates counterparty credit risk 14
  16. 16. Loews Corporation 2008 Investor Meeting November 5, 2008 Investment Portfolio Highly liquid investment portfolio… Quality & Sector Profile Liquidity Profile September 30, 2008 Total Invested Assets: $37.1B Fair Value …AA- average credit quality 15
  17. 17. Loews Corporation 2008 Investor Meeting November 5, 2008 Structured Securities Portfolio High quality structured portfolio… 89% September 30, 2008 MBS/CMO/ABS/CDO Fair Value Distribution % of Total ($m) MBS CMO ABS CDO Total Investments U.S. Government Agencies 448 5.1% 1,061 12.1% — — — — 1,509 17.2% 4.1% AAA — — 4,379 49.8% 1,929 21.9% 9 0.1% 6,317 71.8% 17.0% — AA — 42 0.5% 294 3.3% 25 0.3% 361 4.1% 1.0% A — — 1 0.0% 107 1.2% 71 0.8% 179 2.0% 0.5% BBB — — 33 0.4% 291 3.3% 10 0.1% 334 3.8% 0.9% <BBB & Equity Tranches — — 27 0.3% 43 0.5% 23 0.3% 93 1.1% 0.2% 2,664 138 8,793 Total MBS/CMO/ABS/CDO 448 5.1% 5,543 63.1% 30.2% 138 1.6% 100.0% 23.7% Sub- prime — — 1,371 7 1,378 15.7% 3.7% (Included above) Alt - A (Included above) — 1,084 — 4 1,088 12.4% 2.9% MBS: Mortgage-backed securities CMO: Collateralized mortgage obligations ABS: Asset-backed securities CDO: Collateralized debt obligation …generating over $150 million of principal cash flow per month 16
  18. 18. Loews Corporation 2008 Investor Meeting November 5, 2008 Net Unrealized Gains/(Losses) by Quality Extreme market valuations drive unrealized losses… Book Market Net Unrealized ($m) Rating Value Value Gain / (Loss) Investment Grade U.S. Govts/Agencies 4,490 4,574 84 AAA 12,336 11,477 (859) AA 5,232 4,684 (548) A 5,649 4,813 (836) BBB 6,679 5,777 (902) Total Investment Grade 34,386 31,325 (3,061) Below Investment Grade BB 2,189 1,935 (254) B 1,191 992 (199) CCC 266 218 (48) CC and below 28 27 (1) Total Below Inv Grade 3,674 3,172 (502) Common Stock 213 390 177 Total 38,273 34,887 (3,386) ...90% in investment grade holdings 17
  19. 19. Loews Corporation 2008 Investor Meeting November 5, 2008 Liquidity Healthy level of cash flow… $B $4.7 $4.4 $3.9 $3.1 Principal & $2.8 Maturity Payments $2.7 $2.7 $2.2 Operating Cash Flow $1.9 $1.7 $1.2 $0.9 2005 2006 2007 Sep 30 2008 YTD …generates significant investable cash 18
  20. 20. Loews Corporation 2008 Investor Meeting November 5, 2008 Capital Actions Anticipatory actions taken… Capital Structure Key Terms/Actions $B 18.3% • CNAF to issue $1.25B in perpetual preferred securities 18.1% 17.5% 15.9% $11.9 to Loews at 10% annual dividend $12.3 $10.6 $11.0 $2.1 $2.1 $2.0 Debt Debt $1.7 – Callable at Par, in whole or in part $0.7 Preferred $1.25 Preferred – Dividend reset every 5 years at 700 bps over then $10.2 $9.8 Common $8.2 $7.7 Common current 10 year Treasury subject to 10% minimum Equity Equity • CNAF suspends $0.15 quarterly shareholder dividend 2005 2006 2007 Sep 30 2008 Proforma • CCC to issue $1B surplus note to CNAF with 10% Debt-to-Capital coupon …positioned to act on expected opportunities 19
  21. 21. Loews Corporation 2008 Investor Meeting November 5, 2008 Capital Actions Rationale • Establish unquestioned financial strength • Strengthen capital and liquidity in highly volatile environment • Protect against further financial market stress • Positions us to act on opportunities likely to emerge in marketplace • Reasonable cost 20
  22. 22. Loews Corporation 2008 Investor Meeting November 5, 2008 Financial Flexibility Abundant holding company cash and strong surplus… CNAF Holding Company Cash & Short Term Statutory Surplus & Risk Based Capital Continental Casualty Company $m $B $960 400% 377% 370% 333% $8.3 $7.9 $7.8 $6.7 $359 $280 $198 2005 2006 2007 Sep 30 2008 2005 2006 2007 Sep 30 2008 Proforma Estimate Surplus RBC Ratio (Authorized Control Level) …add higher level of protection during abnormal markets 21
  23. 23. Loews Corporation 2008 Investor Meeting November 5, 2008 CNA Financial Corporation CNA is a company that… • Has strong, competitive property & casualty operations • Is producing steady, meaningful operating income • Is generating significant positive cash flow • Has abundant liquidity • Has a strong balance sheet to mitigate additional financial market stresses and to act on likely market opportunities …is positioned for future success 22
  24. 24. Loews Corporation 2008 Investor Meeting November 5, 2008 Notices and Disclaimers Forward Looking Statements The statements made in the course of this presentation and/or contained in the presentation materials may include statements which relate to anticipated future events (forward-looking statements) rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes”, “expects”, “intends”, “anticipates”, “estimates”, and similar expressions. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected. Many of these risks and uncertainties cannot be controlled by CNA. For a detailed description of these risks and uncertainties, please refer to CNA’s filings with the Securities and Exchange Commission available at www.cna.com. As such, any forward-looking statements and other financial information contained in this presentation speak only as of the date of this presentation. Further, CNA does not have any obligation to update or revise any forward-looking statement made in the course of this presentation and/or contained in the presentation materials even if CNA’s expectations or any related events, conditions or circumstances change. Non-GAAP Measures This presentation, along with the presentation materials, may also reference or contain financial measures that are not in accordance with generally accepted accounting principles (GAAP). For reconciliations of non-GAAP measures to the most comparable GAAP measures, please refer to CNA's Supplemental Financial Information. CNA's Supplemental Financial Information is available at www.cna.com CNA is a registered service mark, trade name and domain name of CNA Financial Corporation. Copyright © 2008 CNA Financial Corporation. All rights reserved. 23
  25. 25. Loews Corporation 2008 Investor Meeting November 5, 2008 24

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