CNA Financial Corporation (CNA) is a well-established insurance holding company with a diversified portfolio of property and casualty (P&C) insurance products. Founded in 1900, CNA has a rich history of providing innovative risk management solutions to individuals and businesses across the United States and internationally. With a focus on delivering exceptional customer service and maintaining a strong financial position, CNA has navigated the ever-changing insurance industry with resilience and adaptability.
Business Overview and History
CNA Financial Corporation traces its origins back to 1897 when it was founded as the Continental Casualty Company. Over the course of the 20th century, the company expanded its product offerings and geographic reach, establishing itself as a leading P&C insurer. In 1967, Continental Casualty Company became a subsidiary of Loews Corporation, which maintains a majority stake in the company to this day.
Throughout its history, CNA has faced numerous challenges, including managing its exposure to long-tail liabilities such as asbestos, environmental, and mass tort claims. In 2010, the company took a significant step to address these issues by completing a major transaction with National Indemnity Company. This transaction allowed CNA to cede substantially all of its legacy asbestos and environmental pollution liabilities, providing greater financial certainty around those exposures.
In recent years, CNA has had to navigate the impacts of natural catastrophe events, including severe weather events and hurricanes, which have periodically affected the company’s underwriting results. To manage these exposures, CNA has implemented disciplined underwriting practices, robust reinsurance programs, and a strong focus on risk management.
Despite these challenges, CNA has maintained its position as a leading property and casualty insurance provider, particularly known for its expertise in specialty lines such as management liability, professional liability, and surety. The company has also diversified its revenue streams by growing its non-insurance warranty business, which has provided an additional source of income and risk diversification.
Financials and Performance
Over the past decade, CNA has demonstrated its resilience and ability to adapt to changing market conditions. The company’s financial performance has been robust, with consistent revenue growth and a strong balance sheet.
As of the latest reported quarter (Q3 2024), CNA’s net earned premiums stood at $7.53 billion, up from $7.00 billion in the same period a year earlier. This increase was driven by growth across the company’s Specialty, Commercial, and International segments, reflecting its ability to capitalize on favorable market conditions.
CNA’s net investment income has also been a key contributor to its financial performance, growing from $1.65 billion in the first nine months of 2023 to $1.85 billion in the same period of 2024. This improvement was primarily due to higher returns from the company’s fixed-income securities and limited partnership investments.
In terms of profitability, CNA’s core income (a non-GAAP measure that excludes the impact of net investment gains and losses and pension settlement transactions) increased from $922 million in the first nine months of 2023 to $974 million in the same period of 2024, representing a 5.6% year-over-year improvement.
For the most recent fiscal year (2023), CNA reported revenue of $13.12 billion, net income of $1.21 billion, operating cash flow of $2.29 billion, and free cash flow of $2.19 billion. In the most recent quarter (Q3 2024), revenue reached $3.62 billion, up 8.8% year-over-year, while net income increased by 10% to $283 million. The company’s operating cash flow for the quarter was $748 million, with free cash flow of $730 million. The increase in revenue and net income was primarily driven by higher net investment income from favorable returns on limited partnerships and common stock investments, as well as a larger invested asset base. This was partially offset by higher catastrophe losses of $143 million, including $55 million from Hurricane Helene.
Liquidity
CNA’s financial strength is further evidenced by its strong balance sheet and liquidity position. As of September 30, 2024, the company’s total assets stood at $67.36 billion, with a debt-to-capital ratio of just 21.6%, indicating a prudent approach to leverage and a solid foundation for future growth.
The company’s debt-to-equity ratio was 0.22, reflecting a conservative capital structure. CNA maintained $456 million in cash and had access to a $250 million senior unsecured revolving credit facility, with no outstanding borrowings as of September 30, 2024. The company’s current ratio and quick ratio both stood at 0.51, indicating adequate short-term liquidity.
Operational Highlights and Segmental Performance
CNA’s success can be attributed to its diversified business model and its focus on delivering tailored insurance solutions to its clients.
The Specialty segment, which includes management and professional liability, surety, and warranty alternative risks, contributed $517 million in core income during the first nine months of 2024, compared to $526 million in the same period of 2023. This slight decline was primarily due to higher claim costs in the non-insurance auto warranty business, partially offset by stronger investment income. In the third quarter of 2024, the segment reported net earned premiums of $848 million, up from $829 million in the prior year period. The combined ratio increased to 93.0% from 90.1%, driven by a 2.1 percentage point increase in the loss ratio to 60.1% and a 0.9 percentage point increase in the expense ratio to 32.7%. The increase in the loss ratio was primarily due to continued pricing pressure in management liability lines. New business for the quarter was $129 million, up from $121 million in the prior year period, with strong retention at 89%.
The Commercial segment, which offers a range of products for middle market, construction, and small business customers, generated $464 million in core income in the first nine months of 2024, up from $443 million in the same period of 2023. This improvement was driven by higher net investment income and better underlying underwriting results, despite the impact of elevated catastrophe losses. In the third quarter of 2024, the segment’s net earned premiums increased to $1.32 billion from $1.17 billion in the prior year quarter. The combined ratio rose to 100.2% from 98.9%, primarily due to higher catastrophe losses and an increase in the underlying loss ratio driven by elevated loss cost trends in commercial auto. Catastrophe losses for the quarter were $127 million, or 9.6 percentage points of the loss ratio, compared to $87 million, or 7.4 percentage points, in the prior year quarter.
The International segment, which includes operations in Canada, Europe, and Asia, reported $117 million in core income for the first nine months of 2024, up from $102 million in the same period of 2023. This increase was primarily due to higher net investment income and favorable prior-year loss reserve development, partially offset by lower underlying underwriting results. In the third quarter of 2024, the segment’s net earned premiums grew to $311 million from $296 million in the prior year quarter. The combined ratio increased to 96.1% from 88.3%, driven by a 5.5 percentage point increase in the expense ratio to 33.6% and a 2.3 percentage point increase in the loss ratio to 62.5%. Catastrophe losses for the quarter were $16 million, or 5.1 percentage points of the loss ratio, compared to $7 million, or 2.3 percentage points, in the prior year quarter.
CNA’s Life & Group segment, which primarily includes the company’s long-term care business, reported a core loss of $5 million in the first nine months of 2024, compared to a core loss of $52 million in the same period of 2023. The improvement was largely attributable to higher net investment income. In the third quarter of 2024, the segment had net earned premiums of $110 million, compared to $112 million in the prior year quarter. The segment reported a core loss of $9 million, an improvement from a core loss of $29 million in the prior year quarter, primarily due to higher net investment income.
The Corporate & Other segment, which includes corporate expenses, interest expenses on corporate debt, and run-off asbestos, environmental pollution, and other exposures, reported a core loss of $119 million for the first nine months of 2024, compared to a core loss of $97 million in the prior year period. The increase in core loss was primarily due to $13 million of after-tax charges related to office consolidation and a $57 million after-tax charge for unfavorable prior year reserve development.
Risks and Challenges
While CNA has demonstrated its ability to navigate various industry challenges, the company faces several risks that merit investor attention:
Long-Tail Liability Claims: CNA’s long-tail liability lines, such as workers’ compensation and professional liability, are subject to inherent uncertainty regarding the ultimate cost of claims. Changes in economic conditions, social inflation, and legal environments can significantly impact the company’s loss reserves and profitability.
Regulatory Landscape: The insurance industry is heavily regulated, and changes in laws, regulations, and interpretations can have a substantial impact on CNA’s operations, pricing, and profitability. The company must remain vigilant in monitoring and adapting to evolving regulatory requirements.
Investment Portfolio Risk: CNA’s investment portfolio, which includes fixed-income securities, equity investments, and alternative assets, is exposed to market volatility and interest rate fluctuations. Effective management of this portfolio is crucial to the company’s overall financial performance.
Talent Retention and Succession Planning: As an industry leader, CNA’s continued success depends on its ability to attract, retain, and develop top talent. Effective succession planning and leadership development are essential to ensuring the company’s long-term sustainability.
Outlook and Conclusion
Despite the challenges faced by the insurance industry, CNA Financial has demonstrated its ability to adapt and thrive. The company’s diversified business model, strong financial position, and focus on innovation position it well to capitalize on future growth opportunities.
Looking ahead, CNA’s management has provided a positive outlook, highlighting the company’s continued efforts to enhance its underwriting discipline, expand its product offerings, and optimize its investment portfolio. The company’s strong brand recognition, deep industry expertise, and commitment to customer service are expected to drive its future performance.
The property and casualty insurance industry has seen steady growth, with a 5-year CAGR of 4.2% from 2018-2023. The industry has benefited from improved pricing, prudent underwriting, and a stable economic environment, which bodes well for CNA’s future prospects.
Overall, CNA Financial’s resilience, financial strength, and strategic vision make it a compelling investment opportunity for those seeking exposure to the dynamic P&C insurance sector. As the company navigates the evolving landscape, investors can look forward to its continued pursuit of sustainable growth and shareholder value creation.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.