Ladies and gentlemen, good day, and welcome to the CNA Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Ralitza Todorova, AVP, Investor Relations for opening remarks and introductions of today's speakers. Please go ahead.

Thank you, Rocco. Good morning, and welcome to CNA's discussion of our second quarter 2023 financial results. Our second quarter earnings press release, presentation, and financial supplement were released this morning and are available on the Investor Relations section of our website www.cna.com. Speaking today will be Dino Robusto, Chairman and Chief Executive Officer; and Scott Lindquist, Chief Financial Officer. Following their prepared remarks, we will open the line for questions. Today's call may include forward-looking statements and references to non-GAAP financial measures. Any forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made during the call. Information concerning those risks is contained in the earnings press release and in CNA's most recent SEC filings. In addition, the forward-looking statements speak only as of today, Monday, July 31st, 2023. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call. Regarding non-GAAP measures, reconciliations to the most comparable GAAP measures and other information have been provided in our earnings press release, financial supplement and other filings with the SEC. This call is being recorded and webcast. A replay of the call may be accessed on our website. If you are reading a transcript of this call, please note that the transcript may not be reviewed for accuracy thus, it may contain transcription errors that could materially alter the intent or meaning of the statements. With that, I will turn the call over to our Chairman and CEO, Dino Robusto.

Thank you, Ralitza, and good morning all. In the second quarter, CNA once again produced very strong results with excellent profitability and double-digit topline growth from continued strong renewal change, retention and new business success. Core income increased by 34% in the second quarter, compared to last year with net investment income, up 33% with strong income growth in our alternatives portfolio and a continued tailwind in our fixed-income portfolio. Scott will provide more detail on investments. The P&C all-in combined ratio was strong at 93.8% with pretax catastrophe losses of $68 million more 3.1 points of the combined ratio and 0.4 points of favorable prior-period development. The underlying combined ratio was 91.1%, generating a record $200 million of pre-tax, P&C underlying underwriting gain. The underlying loss ratio was 59.9% slightly less than the same period last year and the expense ratio was 30.9%, up four-tenths of a point, compared to last year, primarily due to higher pension expense. In the quarter, we achieved a very strong production performance with 12% growth in gross written premiums ex-captives and 9% growth in net written premium. Excluding currency fluctuation, gross growth was 12% and net growth was 10% led by our commercial and international segments this quarter. Renewal premium change was stable at 7%, but accelerated 2 points in commercial to 11%. Importantly, rate change and the portion of exposure change that acts like rate continues to cover our long-run loss cost trends which were unchanged at this quarter at roughly 6.5%. New business was up 11% in the quarter in-line with the growth in the first quarter and with the most significant opportunities continuing to be across our commercial business units. We continue to closely track, the strength of our pricing on new and renewal business and that has remained consistent…

Thank you, Dino, and good morning, everyone. I will provide some additional information on our results, as Dino indicated. Core income of $308 million is up 34%, compared to the second quarter of last year, leading to a core return on equity of 10.2%, while our P&C segment had record pretax underlying underwriting income of $200 million, and core income of $374 million. Our second quarter P&C expense ratio was 30.9%, which is a slight increase when compared to last year's second quarter expense ratio of 30.5%, due to higher legacy U.S. pension plan expense, reflecting financial market conditions at the time of valuation in late 2022. At the segment level, both Commercial and International saw improvements in their expense ratios, compared to prior primarily driven by strong growth in net earned premium. For Specialty, as Dino just noted, the expense ratio increased due to lower net earned premium growth, higher employee-related costs, including higher pension expense, as well as higher acquisition expense, partially due to mix of business in the quarter. As I have noted in prior calls, there will be a certain amount of variability quarter-to-quarter. However, we continue to believe an expense ratio of 31% is a reasonable run rate for 2023. The P&C net prior period development impact on the combined ratio was favorable by 0.4 points. In the Specialty segment, favorable development was driven by surety. And in the commercial segment, favorable development in workers’ compensation was partially offset by unfavorable development in general liability in auto. The P&C paid-to-incurred ratio was 0.83 in the second quarter, which is about flat with the first quarter of this year and is broadly consistent with the second quarter of 2022. The ratio, which fluctuates quarter-to-quarter has been consistently lower over the past three years. Our Corporate segment…

Thanks, Scott. To recap, we had an excellent quarter with strong top and bottom line performance and significant improvement in net investment income. The pricing cycle continues to be varied by line, reflecting the unique dynamics impacting loss cost trends. The rate decreases in management liability is consistent with prior underwriting cycles post very large spikes during the hard market years, and the firming in all commercial lines ex-work comp is a reflection of the market need for further rate increases for longer due to the elevated cats and the compounding impacts of economic and social inflation. This improved the commercial pricing continues to flow through to our new business writings. And with our major reinsurance treaty renewals complete with no substantial changes in protection, we feel confident about our ability to continue to leverage those segments and lines of business with the most favorable overall terms and conditions in the second-half of the year and to do so while covering our long-run loss cost trends. And with that, we will be happy to take your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Meyer Shields with KBW. Please go ahead.

Good morning. I was hoping to spend a little time on a couple of lines of business within Specialty. First, I guess, I was a little surprised that as rate decreases accelerated in financial institutions and management liability, I'm sure that's E&O, but we saw a sequential uptick in retention, which went sort of the off direction. I'm hoping you could talk us through that.

Yes, Meyer. Hi, thanks. It's Dino. Again, this is a very profitable portfolio. And as I indicated, you know, even if you account for the increase in loss cost trends, you know, the rates today are still above a pretty hard market. And so we feel good about the portfolio, and we obviously want to lock-in good, strong terms and conditions on our renewal book. As I said, I don't think it's very inconsistent some of the rate decreases given some of the large increases you've seen over the hard market. So I think, in general, all of the underwriters are doing a good job about balancing rate and retention in the management liability lines, and we still feel very comfortable with the portfolio.

Okay. Fair enough. Second question on medical malpractice. I guess I'm surprised that, that lines rate increases are decelerating just based on how some competitors are doing? Can you give us any insight into the Q&A specific book?

Yes. I think you hit the nail on the head. CNA's book today, Meyer, is unique, because of, as I alluded to in my prepared remarks, it's been a five-year process of remediating this portfolio. It's been a tremendous amount of re-underwriting the book is considerably smaller. We've gotten substantial cumulative rate increases, we started considerably before the broader market. And if you recall, Meyer, during those years, our retention had plummeted in the low-60s, a reflection of the fact that we were clearly swimming upstream in pursuit of the rate increases. But today, we find ourselves with a smaller portfolio. It's profitable. It's the segments of middle of medical mal that are typically more profitable, I think some of the rates reflect that, but make no mistake about it. We're going to continue to push for rates and continue to work on all of the underwriting strategies that we've had over the last five years. And I think it's fair to consider the CNA portfolio today somewhat unique.

Okay, perfect. Thank you so much.

Thanks.

[Operator Instructions] And it appears our next question is a follow-up from Meyer Shields. Please go ahead.

Thanks. One other thing I was hoping to ask about, and I apologize if I missed it, but we saw the P&C and Life & Group durations contract in the quarter. And again, that was a little bit surprising, and it's hoping that we could talk to that?

Sure. Meyer, it's Scott here. Thanks for the question. So I would say nothing dramatic at all changed within the portfolio -- either of the portfolio. So there's going to be a certain amount of variability based on just where interest rates are at quarter end, but I have -- we were probably carrying a little bit more cash in P&C right now than we were at last quarter end, that's probably the only thing I would flag for you on that other than that, no real significant or material change at all in the portfolio composition.

Okay, perfect. And I know the starting point is different from a lot of P&C carriers. So thank you.

Yes, sure.

Thank you. And our next question today comes from Kyle LaBarre with Dowling & Partners. Please go ahead.

Thank. Good morning. I just wanted to talk a little bit about the property growth. I know, Dino you gave some good commentary on the opening remarks from a rate perspective, but I was wondering if you could maybe dive a little bit deeper into what are the makeup of that portfolio, where you're seeing the best opportunity across National Accounts and Middle Market?

Yes. So I think we're seeing it both in National Accounts and Middle Market. But obviously, in the National Account space, you're seeing a lot more rate increases, larger schedules. We're also seeing larger valuation increases were also some opportunities in the E&S space, which we started about a year ago, and so we're seeing some good opportunities there. It's all within our target market, nothing has really changed in what we go after. But obviously, both in the [shared] (ph) and layered and ground up, there's plenty of opportunity and capacity needs. And so as I indicated, we're growing the portfolio, but also we continue to optimize it as we get better terms and conditions even at renewal today than we did a year ago before the market really hardened at Jan 1.

Great, thanks. And then just another question on loss cost trends. I imagine they were relatively stable. You've mentioned overall loss trend relatively stable at 6.5%. But we've heard some varying trends within the medical side so far during the reporting season. Curious what you're seeing there in terms of medical cost inflation.

When you look at our work comp, Kyle, medical costs are up and you got to be specific. You got to really look at the components of medical costs when you look at CPI that really impacts work comp like, for example, physician services. So -- but even with them being up somewhat, they are still well below our baked-in assumptions, which we have never lowered notwithstanding the benign trends for many years. So still very good, and we feel very good about the portfolio, and it's very profitable.

Perfect. And just one more for me. And we started to see some more headlines on whether it's the forever chemicals or the lead wiring, just sort of the increase in latent liability concerns I know you've got the reserve cover in place for A&E. But maybe just sort of from a high level, curious how you're thinking about those sorts of exposures. What are the things that we should be focused on as we think through what the impact for the industry could be?

Kyle, as Scott mentioned, right, we do a ground up mass toward review in the second quarter? And then as you also indicated, I mean if there's anything specific that might transpire during the year like abuse cases, then we'll act during the quarter. And we look at all of those things and we try to capture in our reserves and mass towards the information that we have. It's obviously evolving. It's going to take time to evolve, and we'll continue to incorporate the information as it develops. There's not much else we can say at this particular juncture.

Understood. Thanks very much.

Thank you.

Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to Dino Robusto for any closing remarks.

Well, thank you, everyone, and we'll chat again with you next quarter. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.