Ladies and gentlemen, good day and welcome to the CNA Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Ralitza Todorova, Vice President of Investor Relations and Rating Agencies for opening remarks and introduction of today’s speakers. Please go ahead.

Thank you, Jason. Good morning and welcome to CNA’s discussion of our third quarter 2023 financial results. Our third 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, October 30, 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 maybe 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 third quarter, CNA continued to produce very strong results with a significant increase in core income driven by higher investment income, record P&C underlying underwriting gain, lower levels of catastrophe loss and improved results in Life & Group. Our top line production continues to be driven by our Commercial Business segment, with broad success across our middle market, construction and national accounts units. And as discussed in prior quarters, we have continued to push for appropriate rate in those lines which have been adversely affected by social inflation. Last quarter, I specifically addressed the inflection point that we saw in excess casualty and commercial auto, where rate increases accelerated. And this quarter, that trend continued. We believe higher rates for longer are appropriate in these lines and we are pleased that there is an increasing awareness for this need in the marketplace. Drilling down on the details for the quarter, core income increased considerably in the third quarter to $289 million from $43 million in the prior year period. We conducted our annual Life & Group reserve assumption review in the quarter, resulting in an essentially neutral change in total. Last year, the reserve assumption review resulted in a loss of $143 million after tax adjusted to reflect LDTI accounting. Excluding the impacts of Life & Group reserve assumption review in both periods, core income was still up 56%. Net investment income was up 31% with positive income in our alternatives portfolio compared to a loss in the prior year quarter and a higher gain in our fixed income portfolio due to greater yield and a higher volume of invested assets. Scott will provide more detail on investments and Life & Group results. P&C core income was up 35% in the…

Thank you, Dino, and good morning, everyone. I will provide some additional information on our results as Dino indicated. Core income of $289 million in the quarter compares to $43 million last year, and our core return on equity was 9.4%. On a year-to-date basis, core income of $922 million is a record high. Our third quarter P&C expense ratio was 30.1%, which is a decrease when compared to last year’s third quarter expense ratio of 30.8%. The lower expense ratio in the current year is the result of higher net earned premium as well as a favorable reinsurance acquisition-related catch-up adjustment in the International segment, which reduced the total P&C expense ratio by 0.6 points. We continue to believe that a 31% expense ratio is a reasonable run rate going forward. The P&C net prior period development impact on the combined ratio was favorable by 0.2 points. In the Specialty segment, favorable development in surety, was partially offset with unfavorable development in professional and management liability. The P&C paid-to-incurred ratio was 0.82 for both the current quarter and on a year-to-date basis. Our Corporate segment produced a core loss of $33 million in the third quarter compared to a $25 million loss in the prior year quarter. The Corporate segment results include a $16 million after-tax charge related to unfavorable prior period development largely associated with legacy mass tort abuse claims. As a reminder, our specialists and environmental reserves are reviewed every fourth quarter. In Life & Group, we had a core loss of $29 million compared to $192 million core loss last year. Both periods were impacted by our annual reserve assumption update and essentially neutral $2 million unfavorable after-tax impact for the third quarter of 2023 and a $143 million unfavorable impact for Q3 2022. As we…

Thanks Scott. The recap, CNA had an excellent quarter with strong levels of core and net income driven by increased levels of net investment income, which will continue to be a tailwind going into 2024, continued improvement in our core P&C underlying underwriting income and prudent cat management. We experienced continued pricing improvement in the quarter in the areas we believe need to stay higher for longer. Property pricing remains historically high in large national accounts and at a high watermark in our package business, which is rational given the persistent elevated levels of industry cat losses. Commercial casualty lines, most impacted by social inflation improved further in the quarter. And overall, Specialty pricing turned back positive on the pricing improvements in management liability and med mal. And finally, the dedicated focus to de-risk our runoff long-term care portfolio has had a major impact as policy counts are down more than 40% since the block was closed to new participants. And with that, we would be happy to take your questions.

[Operator Instructions] Our first question comes from Josh Shanker from Bank of America. Please go ahead.

Yes. Thank you for taking my question. Good morning everybody.

Good morning.

So look, the combined ratio results are excellent in the P&C industry, you have been doing this a long time. Can you frame for us 30 years, 40 years of experience in markets, are we at the bottom? Can combined ratios get better 10 years from now, 5 years now, 3 years from now? How should we be thinking about what this business can underwrite to compared with where we are right now?

Okay. There is a heck of a start of a question, Josh. Thanks for the question. I mean Josh, all I can say is after the financial crisis, there was a lot of concern about whether the insurance industry faced with lower interest rates for longer, could actually continue to generate similar strong return on equities, that it would require a considerable decrease in combined ratios. And I think there was some skepticism back then in ‘07, ‘08, and I think the industry and in particular, the best players have clearly responded. And I guess as we look over the last few years, one of the things that clearly surprised us was the impact of social inflation that we started to see in 2017 and literally doubled our long-run loss cost trends in the last 3 years or 4 years in the industry, along with its elevated cats responded, I think effectively in pushing for better pricing and better terms and conditions. It doesn’t specifically tell you what’s going to happen in 5 years or 10 years from now, Josh. But I think it reflects the resiliency of this industry. It’s increased discipline to do what it needs to do to maintain reasonable returns. And I guess that’s the best I can offer you.

Okay. Switching gears, I know, I mean the P&C results are great and maybe a lot of long-term care in the past. But when I am looking at the long-term care book with the third quarter reserve review ongoing, to what extent are the policies in that, I guess maybe as a percentage or maybe as sort of a block, are they being offered alternatives in terms of changing the terms of the policy? And what’s the take-up rate on those who are offered changes in terms?

Hey Josh, it’s Scott here. Thanks for the question. So, we really started the policy buyouts late last year. We do those in conjunction with rate increases. Same with the benefit reduction options, we started those a few years back actually. And again, they are offered in connection with rate actions, rate increases. So, it’s going to vary state-by-state. We had significant amount of activity in our group business for several large states earlier this year. It’s still early days as far as take rates go, I would say, just off the top of the head, individual, we have seen 2% to 4% take rates, on the group business, somewhat higher, 5% to 8%. But we are still very much in the midst of these offers. Some of these numbers are still developing. I would say right now, it’s been a relatively small proportion of policies that have been offered, benefit reductions and policy buyouts. Again, the buyout piece, we really just started right about a year ago or so. So, we still have some runway to go on that. We are – our rate increase programs are ongoing. We were fairly successful this year in achieving rate increases, and we expect that to continue going forward and expect to continue to offer those buyout options going forward.

So, just to understand, only a small percentage of the policies have been offered these options? And when I look at the amount taking up, it’s in a single-digit percentage of the policies either took a buyout or a benefit reduction?

That’s correct.

And when someone takes a benefit reduction, is it immediately beneficial to your capital position, or what are the economics for CNA when somebody says, I will limit the number of years of payout or I will cap my benefit, what happens to your balance sheet, your capital position when that occurs?

So, that’s an improvement. I mean that’s a reduction in our reserves, both statutory and GAAP. So, it’s obviously reflective of the lower risk in that policy going forward, and that’s reflected in our results when that happens.

Premium goes down, but capital goes up, I guess, is that right?

In effect, correct because the reserve will come down. Reserves may come down too. Yes. Sure. Thanks for the question.

[Operator Instructions] Our next question comes from Meyer Shields from KBW. Please go ahead.

Great. Thanks and good morning. One question on long-term care, if I can, so Slide 14 notes that premium rates are 45% higher than 2015. What’s the corresponding number for loss trend over that period?

I am sorry, can you just repeat that? Corresponding and loss trend?

Yes, the loss trend that corresponds to the 45%.

Yes. Meyer, I don’t have that number on the top of my head. We can take that offline follow-up. So, we can get that for you.

Yes. Perfect, will do. And then a couple of other small questions. First, third-party captive gross written premium has been declining for almost 2 years. And I understand that has not been an impact on underwriting results, but I was just trying to understand what’s going on there.

Yes. It’s really – and the captive is with respect to the cell phone business, and there has been merger there, and so we lost some premium on the cell phone capital. That’s all it is, Meyer.

Okay. That’s helpful. And then final question, and this is absolutely not CNA-centric, but the industry has been struggling with commercial auto for a long time, and it’s great to hear that rate increases are accelerating. What has seen anything you do differently so that this perpetual problem of not being able to catch up with loss trends is no longer an issue?

Yes. It’s clearly been a catch-up game on commercial auto. It seems to be even though we don’t have it, it seems to be some similar trends in personal auto. And I think it is the issue really around the same thing that’s impacting, sort of excess casualty lines. The social inflation impacts had a big – has a big impact. But on commercial auto, you tend to see it impact the results quicker than on complex sort of BI losses. And so it’s just a catch-up game. And I think it started off slowly, but it seems to be picking up momentum. And I really do think this is going to be a continuing trend for longer. And really, that’s what you have to do. It just needs more pricing. And that’s why we have been particularly focused on it. And whenever we do something like that, we highlight it to you. And we have seen an increase in this third quarter and in the second quarter. Now, we just got to keep pushing because the social inflation, I think impacts it quicker.

Okay. That’s perfect. Thank you so much.

[Operator Instructions] There are no more questions in the queue. This concludes our question-and-answer session. And I would like to turn the conference back over to Dino Robusto for any closing remarks.

No, that’s great. Thank you everyone for joining us today and we will talk to you in a quarter.

Conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.