Business Overview: A Legacy of Strength and Adaptation
CNA Financial Corporation has a rich history dating back to its inception in 1967. The company was incorporated as an insurance holding company, with its primary operations conducted through subsidiaries such as Continental Casualty Company (CCC), The Continental Insurance Company, Western Surety Company, CNA Insurance Company Limited, Hardy Underwriting Bermuda Limited and its subsidiaries (Hardy), and CNA Insurance Company Europe S.A. A significant aspect of CNA's ownership structure is that Loews Corporation owned approximately 92% of CNA's outstanding common stock as of December 31, 2024.
CNA's core business revolves around providing a wide range of commercial insurance products, including property, casualty, surety, and specialty lines. The company's services extend beyond traditional insurance offerings to include warranty, risk management information services, and claims administration. CNA's products and services are primarily marketed through independent agents, brokers, and managing general underwriters, catering to a diverse customer base that includes small, medium, and large businesses, insurance companies, associations, professionals, and other groups.
The company's operations are organized into three main segments: Specialty, Commercial, and International, each catering to distinct client needs and market dynamics.
Specialty segment: This division focuses on management and professional liability coverages, as well as specialty products and services, leveraging a network of brokers, independent agencies, and managing general underwriters. The Specialty segment provides management and professional liability as well as other coverages through property and casualty products and services. Key business groups within this segment include Management Professional Liability, which offers professional liability coverages and risk management services to various professional firms, including architects, real estate agents, accounting firms, and law firms, with a focus on small to mid-size firms, both public and privately held, as well as not-for-profit organizations. This group also provides insurance products for the healthcare industry. The Surety group offers small, medium, and large contract and commercial surety bonds in all 50 states. The Warranty and Alternative Risks group provides extended service contracts and insurance products that protect consumers from the financial burden associated with mechanical breakdown and other related losses, primarily for vehicles, portable electronic communication devices, and other consumer goods.
Commercial segment: This unit serves a diverse customer base, ranging from small businesses to middle-market and large commercial entities, offering a comprehensive suite of property and casualty insurance solutions. The Commercial segment works with a network of brokers and independent agents to market a broad range of property and casualty insurance products. Key product offerings include standard and excess property, marine, and boiler and machinery coverages, as well as standard casualty insurance products such as workers compensation, general and product liability, commercial auto, umbrella, and excess and surplus lines coverages. The segment also offers specialized loss-sensitive insurance programs and total risk management services.
International segment: CNA's global footprint includes operations in Canada, the United Kingdom, Europe, and its Lloyds-based syndicate, Hardy. This segment provides property and casualty coverages to clients worldwide. The International segment underwrites property and casualty coverages on a global basis through a branch operation in Canada, a European business consisting of insurance companies based in the U.K. and Luxembourg, and Hardy, the company's Lloyd's of London syndicate. Key product offerings include standard commercial and specialty insurance products in Canada, primarily in the marine, oil and gas, construction, manufacturing, and life science industries. In Europe, CNA offers a diverse range of specialty and commercial insurance products with a focus on specific areas including the middle market, marine, healthcare, financial, and professional services sectors. Hardy operates through Lloyd's Syndicate 382, underwriting energy, marine, property, casualty, and specialty lines with risks located in many countries around the world.
In addition to its core insurance operations, CNA also maintains a Life & Group segment, which manages the company's run-off long-term care business, as well as a Corporate Other segment that oversees certain corporate expenses and run-off property and casualty portfolios.
Throughout its history, CNA has faced and overcome various challenges. A significant milestone in the company's risk management strategy occurred in 2010 when CNA completed a transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. This transaction involved ceding substantially all of CNA's legacy asbestos and environmental pollution (AEP) liabilities to NICO through a loss portfolio transfer, effectively mitigating the company's exposure to AEP claims and claim adjustment expenses.
Another ongoing challenge for CNA has been navigating the evolving insurance regulatory environment, both in the U.S. and internationally. The company's operations are subject to comprehensive and detailed regulation and supervision by various insurance regulatory agencies, requiring CNA to continuously adapt its business practices to comply with changing regulations.
Financial Performance: Weathering the Storms
CNA's financial performance has been marked by both resilience and adaptability. In the face of industry challenges, the company has consistently demonstrated its ability to navigate through turbulent times.
Over the past three years, CNA has reported the following financial results: - Annual net income: N/A - Annual revenue: N/A - Annual operating cash flow: N/A - Annual free cash flow: N/A
The company's quarterly performance has also been noteworthy, with CNA consistently delivering solid results across its business segments.
In the most recent quarter (Q4 2024), CNA reported: - Revenue: $3.61 billion - Net Income: $21 million - Quarterly Operating Cash Flow: N/A - Quarterly Free Cash Flow: N/A
Year-over-year growth figures were not provided for the most recent quarter.
CNA reported core income of $342 million in the most recent quarter, reflecting higher investment income and higher underlying underwriting income, partially offset by increased catastrophe losses. The Property & Casualty (P&C) operations delivered core income of $451 million, driven by the strong performance in the Commercial and Specialty segments.
CNA's Life & Group segment, however, faced some headwinds, recording a core loss of $18 million in the quarter, primarily due to unfavorable morbidity experience. The Corporate Other segment also reported a core loss of $91 million, which included a charge related to the company's annual review of asbestos and environmental pollution (A&EP) reserves.
For the full year 2024, CNA reported record core income of $1.32 billion, which was $32 million greater than 2023 and exceeded their previous guidance. The P&C underlying combined ratio was 91.5% for the full year 2024, consistent with their previous guidance. Net investment income increased 10% for the full year 2024 to a record $2.5 billion, exceeding their previous guidance.
Segment Performance:
Specialty Segment: In 2024, the Specialty segment reported net written premiums of $3.44 billion, up from $3.33 billion in 2023. Core income for the segment was $694 million in 2024, compared to $708 million in 2023. The combined ratio was 92.6% in 2024, up from 90.4% in 2023, driven by an increase in the underlying loss ratio, primarily due to continued pricing pressure in management liability lines.
Commercial Segment: In 2024, the Commercial segment reported net written premiums of $5.47 billion, up from $4.88 billion in 2023. Core income for the segment was $702 million in 2024, compared to $652 million in 2023. The combined ratio was 96.7% in 2024, up from 96.0% in 2023, primarily due to higher catastrophe losses and an increase in the underlying loss ratio, driven by elevated loss cost trends in commercial auto and changes in the mix of business.
International Segment: In 2024, the International segment reported net written premiums of $1.26 billion, up from $1.24 billion in 2023. Core income for the segment was $153 million in 2024, compared to $145 million in 2023. The combined ratio was 94.0% in 2024, up from 92.6% in 2023, primarily due to a higher expense ratio, partially offset by favorable prior year reserve development.
Liquidity and Capital Management
CNA's strong balance sheet and prudent capital management have enabled the company to maintain a solid financial footing, allowing it to navigate through various market cycles and continue delivering value to its shareholders. The company's focus on maintaining adequate liquidity and managing its capital efficiently has been crucial in supporting its operations and strategic initiatives.
As of December 31, 2024, CNA had a $250 million senior unsecured revolving credit facility with no outstanding borrowings. This facility provides additional liquidity and financial flexibility to support the company's operations and strategic initiatives.
Navigating Challenges and Adapting for the Future
CNA's ability to navigate through challenges has been a hallmark of the company's success. From addressing the evolving insurance landscape to managing the impact of catastrophic events, CNA has demonstrated its resilience and adaptability.
One notable challenge CNA has faced in recent years is the rise of social inflation, which has put pressure on certain lines of business, such as commercial auto and general liability. The company has proactively addressed this issue by implementing disciplined pricing strategies and closely monitoring loss trends, enabling it to maintain a strong underwriting performance.
Additionally, CNA has been actively managing its exposure to long-term care insurance, a historically challenging line of business for the industry. The company's decision to focus on its core commercial insurance operations and reduce its long-term care exposure has been a strategic move to enhance its overall risk profile and stability.
Looking ahead, CNA is well-positioned to capitalize on emerging opportunities in the insurance market. The company's investments in technology, data analytics, and talent development are aimed at strengthening its competitive edge and enhancing its ability to serve its customers effectively.
For 2025, CNA has provided the following guidance: - Expense ratio of about 30.5% as a reasonable run rate, based on higher net earned premiums and continued expense discipline. - Income from fixed income and other investments of about $2.23 billion, a 2% increase compared to 2024. - Effective tax rate on core income of 21%, with some quarter-to-quarter variability. - Increasing regular quarterly dividend by 5% from $0.44 per share to $0.46 per share, and declaring a special dividend of $2.00 per share.
These projections demonstrate CNA's confidence in its ability to maintain strong financial performance and return value to shareholders.
Conclusion: A Resilient Insurer Poised for the Future
CNA Financial Corporation's long-standing history, diverse product portfolio, and disciplined approach to risk management have positioned the company as a resilient player in the insurance industry. By adapting to the evolving market conditions and addressing emerging challenges, CNA has demonstrated its ability to navigate through turbulent times and emerge stronger.
The strength of CNA's diversified business model, with a focus on specialized commercial insurance products and services, has enabled the company to navigate challenging market conditions and deliver consistent financial performance across its operating segments. The company's solid performance in 2024, exceeding previous guidance in key areas, underscores its ability to execute effectively on its strategic initiatives.
As the insurance landscape continues to evolve, CNA's focus on innovation, customer-centricity, and operational excellence will be crucial in maintaining its competitive edge and delivering sustainable growth. The company's forward-looking guidance for 2025 reflects a commitment to continued improvement in financial performance and shareholder returns.
Investors seeking a well-established insurance provider with a track record of resilience and a clear strategy for future growth may find CNA Financial Corporation an attractive option for their portfolios. With its strong market position, diverse product offerings, and prudent financial management, CNA is well-positioned to capitalize on opportunities in the dynamic insurance market and deliver long-term value to its stakeholders.