CNA Financial: A Steady, Dividend-Oriented Insurer Navigating Through Higher Loss Trends

seekingalpha11-06

CNA Financial delivers steady underwriting performance and high single-digit premium growth, resulting in gradual dividend increases and special dividend declarations.Despite higher catastrophe losses...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCNA Financial: A Steady, Dividend-Oriented Insurer Navigating Through Higher Loss Trends\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-06 03:14 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4733314-cna-financial-steady-insurer-navigating-through-higher-loss-trends><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>CNA Financial delivers steady underwriting performance and high single-digit premium growth, resulting in gradual dividend increases and special dividend declarations.Despite higher catastrophe losses...</p>\n\n<a href=\"https://seekingalpha.com/article/4733314-cna-financial-steady-insurer-navigating-through-higher-loss-trends\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"CNA","symbol_name":"CAN金融","start_time":0,"source_url":"https://seekingalpha.com/article/4733314-cna-financial-steady-insurer-navigating-through-higher-loss-trends","article_id":"2481615421","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/694533142/image_694533142.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481615421","pubTimestamp":1730834059,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"CNA Financial delivers steady underwriting performance and high single-digit premium growth, resulting in gradual dividend increases and special dividend declarations.Despite higher catastrophe losses","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"CNA":"CAN金融","BK4107":"财产与意外伤害保险"},"translate_title":"CNA Financial：一家稳定、以股息为导向的保险公司，应对更高的损失趋势","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CNA":0.9},"content_text":"CNA Financial delivers steady underwriting performance and high single-digit premium growth, resulting in gradual dividend increases and special dividend declarations.Despite higher catastrophe losses, strong investment income drove a 12% year-over-year net income increase in Q3 2024.CNA's valuation is attractive with a price-to-book ratio of 1.18 and a conservative debt profile, making it appealing for dividend-focused investors.With stable financials and expected dividend raises, CNA Financial should offer dependable returns and is a solid option for income and stability seekers.rarrarorro/iStock Editorial via Getty Images  CNA Financial Corporation (NYSE:CNA) is one of the stocks I have held for a long time. I am still a proud shareholder of the property and casualty insurance carrier, which is largely owned by Loews Corporation (L). Although the insurance carrier is not a fast revenue grower nor an exceptional performer in terms of underwriting performance, unlike Chubb Limited (CB), for example, the company has succeeded over the years in combining steady and recurring underwriting performance with high single-digit premium growth. These combined effects have resulted in gradual increases in the dividend, coupled with special dividend declarations. As of November 4, 2024, the company published its third-quarter results, and as usual, I wanted to provide insight into the recently shared results and their implications for the company's valuation or dividend safety. Despite the catastrophe losses from hurricanes Helene and Milton, the company reported strong results in the third quarter of 2024, with net income of $283 million, a 12% year-over-year increase from $258 million in Q3 2023. The growth was driven mostly by higher investment income, as underwriting margins faced pressure from increased catastrophe losses associated with four larger events, which resulted in reduced underwriting income. Fixed-income investments benefited from rising yields, with the effective yield reaching 4.8% in Q3 2024, up from 4.7% in the prior year. CNA Financial's Q3 2024 Presentation However, it appears that the effective yield has reached a plateau, unless the company decides to be more aggressive with strategic asset allocation. However, I do not expect the company to be more aggressive at this point, either by extending the portfolio bond duration or by investing in lower-quality bonds. On a year-to-date basis, net income grew by 12% to $938 million, benefiting from higher investment revenues, which offset the lower underwriting income from property and casualty operations. CNA Financial's Q3 2024 Financial Exhibit In my opinion, the insurance carrier remains a well-managed, prudent company, focused on fueling the capital needs of its majority shareholder, Loews, via recurring and increasing dividend payments. CNA Financial is a good example of the insurance firm which delivers recurring underwriting cash flows, coupled with gradually increasing investment income. Investment Income Driving Earnings Growth Investment income played a significant role in CNA's performance, with $626 million earned in the quarter, a 13% increase compared to Q3 2023. On a year-to-date basis, investment income totaled $1.85 billion. This increase was primarily due to higher reinvestment rates on CNA's fixed-income portfolio, which provided a solid earnings boost, coupled with strong limited partnership and common stock returns, which had a trailing twelve-month return of 13%. For the full year, investment income is expected to reach at least $2.175 billion, a 5% increase over 2023, and it could even go to $2.48 billion if the non-fixed income portfolio continues to perform well. Furthermore, the investment income should continue benefiting from the higher asset base, as the insurance portfolio remains profitable, despite the lower underwriting margins caused by costly catastrophe events. Underwriting Performance: Mixed Results The property and casualty segments demonstrated consistent underwriting gains. However, CNA's overall combined ratio deteriorated to 97.2% in Q3 2024 from the prior year, impacted by higher catastrophe losses. On a year-to-date basis, the combined ratio worsened by 1.6 points to 95.6%, resulting in a reduced pre-tax underwriting gain of $318 million, compared to $399 million one year ago at the same period. CNA Financial's Q3 2024 Presentation All business segments suffered from a deterioration in their underwriting margins, although the specialty insurance segment maintained a strong combined ratio of 93% for Q3 2024 and 92.1% for the first nine months of the year. CNA Financial's Q3 2024 Presentation Both expense and loss ratios deteriorated, driven by higher loss trends and low single-digit growth. The lower growth was driven by continued pricing pressure in management liability lines, which have now experienced ten consecutive quarters of rate declines. Despite a 15% third-quarter premium growth supported by favorable rate changes and high retention, the commercial division suffered from catastrophe events, which resulted in a severe deterioration of the combined ratio. The quarterly contribution was negative, with a combined ratio of 100.2%, and year-to-date underwriting income amounted to $65 million, or a combined ratio of 98.3%. CNA Financial's Q3 2024 Presentation In terms of rate changes, the rate changes in Commercial was 6%, down one point compared to last quarter as the rate in property dropped two points but was still a healthy 7%. Commercial auto rates continued to rise and were 15% this quarter, and excess casualty rates were 10%, remaining double-digit all year. Primary general liability rates continued to increase in the mid-single-digit range, with renewal premium change in the high single digits. For commercial casualty lines, including auto, primary general liability, and excess casualty, renewal premium change was 11%. In workers' compensation, rates continued to be negative due to favorable loss ratio results, but the company observed beneficial exposure increases due to rising payrolls. These positive rate changes are expected to help maintain profitability or at least partially mitigate the impact of loss trends. Despite facing strong competition and a decline in rates, CNA's international segment has shown resilience, delivering a year-to-date underwriting gain of $58 million, compared to $66 million from the prior year. CNA Financial's Q3 2024 Presentation The negative growth in net written premiums could nonetheless be concerning going forward, as it may impact the expense ratio, which was affected by higher employee-related costs during the third quarter. Despite reduced overall underwriting gains, CNA Financial's underwriting performance remains solid, with a total year-to-date combined ratio of 95.6%. The pretax net catastrophe losses related to Hurricane Milton, estimated between $25 million and $55 million, will likely impact the fourth-quarter and FY2024 results. Last year, catastrophe losses were $22 million during the fourth quarter, or 1.0 points of the loss ratio. With a forecasted amount ranging between $25 million and $55 million, and fourth-quarter net earned premiums of around $2.5 billion, resulting in total FY2024 net earned premiums of $9.7 billion, the maximum impact on the loss ratio would be 2.2 points for the fourth quarter and 0.6 points on an annual basis. Therefore, the insurance carrier should not be massively affected by the adverse impacts of Hurricane Milton. Although it is a really challenging exercise to foresee the future, we may look at historical trends to estimate a potential impact on fourth-quarter results. In Q4 2023, the reported combined ratio was 92.1%. By adding the impact of Hurricane Milton, the fourth-quarter combined ratio is projected to reach 94.3%, yielding a pre-tax underwriting gain of $141 million, based on a quarterly net earned premium amount of approximately $2.5 billion. Nonetheless, I would advise caution on the fourth-quarter underwriting results, as the Q4 2023 combined ratio was exceptionally low. To illustrate, a one-point deterioration in the quarterly combined ratio would result in a reduction in underwriting income of $25 million. Valuation and Financial Stability CNA Financial's book value per share is $39.72, giving it a price-to-book ratio of 1.18. This valuation is relatively attractive compared to the broader P&C insurance sector, where competitors often trade at multiples of 1.5 times book value or higher. CNA's debt-to-capital ratio stands at 21.6%, with manageable debt consisting mostly of fixed-rate instruments. The company issued $500 million in senior notes in 2024 to refinance existing obligations, maintaining a conservative leverage profile. The next debt maturity of $500 million is due in the first quarter of 2026. Therefore, the insurance carrier has more than a year to refinance if needed. CNA's substantial ownership by Loews Corporation (which holds approximately 90% of the company) continues to play a significant role in its strategic direction and capital management. Outlook and Conclusion Looking forward, CNA Financial's performance is expected to remain stable, supported by a high-quality, diversified investment portfolio and consistent underwriting discipline. Despite some pressure from inflation and catastrophe losses, the company is well-positioned to generate reliable cash flows. With expected net earned premiums of $9.7 billion for FY2024 and a projected combined ratio between 94% and 96%, CNA's P&C operations should produce solid underwriting income, ranging from $387 million to $581 million pre-tax, combined with a more than $2.2 billion of pre-tax investment income. Both underwriting and investment operations are expected to contribute to a dividend raise in 2025 and potentially support a special dividend payment, as the company has done every year since 2014. In the meantime, the dividend's safety is not endangered, as the payout ratio remains in the 30% range.  CNA Financial may not be a high-growth stock but offers dependable returns, particularly appealing to dividend-focused investors. With its stable financial foundation, conservative debt profile, and solid positioning in niche markets, the stock is an attractive option for investors seeking income and stability. For these investors, purchasing the stock at or below 1.0 times book value could provide a favorable entry point with a safety margin.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481615421"}