CNA Financial's underlying underwriting margins weakened in the third quarter as rate increases slowed and loss costs rose in excess casualty and workers' compensation.
The commercial lines insurer said it is turning away business where pricing and terms no longer meet its standards.
The Chicago-based insurer's property and casualty combined ratio rose to 97.0% from 92.8% a year earlier. Excluding catastrophes and prior-year development, the underlying combined ratio increased 2.9 points to 94.2%. The underlying loss ratio rose 2.2 points to 64.1%, with increases in every segment, though it was consistent with the first half of the year.
Net income fell to $196 million, or $0.72 per share, from $403 million. Core income dropped to $203 million from $409 million, partly because of a long-term care reserve charge.
P&C net written premiums grew 3%. Renewal premium change was 3%, with written rate of 2%. CNA said rate increases remain substantial in casualty lines affected by social inflation and in its Specialty segment. These offset rate decreases in property, workers’ compensation and its International segment.
“There are areas across many portions of the portfolio where we chose to walk away given current market conditions do not support appropriate pricing, terms and conditions,” said Douglas Worman, chairman and chief executive.
Retention was stable at 83%, with modest growth in new business.
The pressure was sharpest in CNA’s Commercial segment, where the combined ratio rose 7 points to 99.7%. Catastrophe losses of $70 million added 4.8 points, and unfavorable prior-year development added 2.4 points. The segment’s underlying loss ratio rose 2.4 points to 65.8%, mainly because of increases in excess casualty and workers’ compensation.
Specialty’s combined ratio rose to 96.8% from 93.3%, with higher underlying losses across several lines and higher acquisition costs. International improved to 86.1%, helped by 10.1 points of favorable reserve development.
CNA’s run-off Life & Group segment posted a core loss of $171 million, compared with $22 million a year earlier. This reflected a $137 million after-tax charge from CNA’s annual long-term care reserve review, mainly because of higher-than-expected inflation in the cost of care and changes to morbidity assumptions, partly offset by better results from premium rate increases.
CNA said the charge was almost entirely offset economically by recent investment portfolio actions, although those benefits will only show up in investment income over time under GAAP accounting. Worman said the reserve update, together with recent fixed income trades, confirmed CNA’s view that the risk from the run-off block is contained.
For brokers placing commercial accounts, CNA’s results are a reminder that a softening market and rising losses don’t mix well. With written rate up only 2% and underlying losses up more than 2 points, margins are narrowing. Carriers in that position tend to tighten underwriting before they push rates up.
Worman’s comments about walking away are the clearest signal for brokers. Accounts with poor loss histories or difficult exposures, especially in excess casualty, may find CNA less willing to renew on current terms. In property and workers’ comp, where CNA is cutting rates, brokers may find more room to negotiate.
The rise in excess casualty and workers’ comp losses is consistent with other evidence of continuing pressure in US liability lines. Excess casualty is unlikely to soften significantly while carriers like CNA are seeing loss trends move against them.
