Good day, everyone, and welcome to the CNA Financial Corporation Third quarter 2017 Earnings Call. Just a reminder, today's call is being recorded. And now it's my pleasure to turn the conference over to Mr. James Anderson. Please go ahead, sir.

Thank you, Laurie. Good morning and welcome to CNA's discussion of our 2017 third quarter financial results. By now, hopefully all of you have seen our earnings release, financial supplement and presentation slides. If not, you may access these documents on our website, www.cna.com. With us on this morning's call are Dino Robusto, our Chairman and Chief Executive Officer; and Craig Mense, our Chief Financial Officer. Following Dino and Craig's remarks about our quarterly results, we will open it up for your questions. Before turning it over to Dino, I would like to advise everyone that during this call there may be forward-looking statements made 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 release and in CNA's most recent 10-Q and 10-K on file with the SEC. In addition, the forward-looking statements speak only as of today, Monday, October 30, 2017. 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 also been provided in the financial supplement. This call is being recorded and webcast. During the next week, the call may be accessed on CNA's website. With that, I will turn the call over to CNA's Chairman and CEO, Dino Robusto.

Thank you, James. Good morning, everyone. Let me start by saying that our industry's response to the catastrophe events in the past three months is what defined the value of the property and casualty insurance business. And I have been proud of the efforts of my colleagues here at CNA to ensure that our policyholders are able to regain stability as quickly and smoothly as possible. Now withstanding the catastrophes in the quarter, we are pleased with our results and the progress we are making. Our net after-tax catastrophe losses were 191 million, a result that was within expectations in light of the multiple catastrophes for the quarter. Move over similar to the second quarter performance, our P&C underlying combined ratio wasn't far with the best quarters that we have posted in the past 10 years, driven by improvements in our underlying accident year loss ratio. Additionally, our expense ratio continues to improve and is meaningfully lower than a year ago. We also had strong favorable prior period reserve development. Core investment income remained steady, while limited partnership income was slightly above expectations. And our long-term care business continued to perform slightly better than breakeven. Before we go into more detail on our results, let me give you the latest installment on our operational progress. Over the past three earnings calls, I have described the goal of growing underwriting profits by institutionalizing and in hearing expert underwriting culture here at CNA, which will close the gap between CNA's historical combined ratios in those of our best performing peers. Evolving the culture is an ongoing everyday effort and we are gaining significant momentum towards sustainable strong underwriting performance over the long term. I have also talked about reenergizing the dialog with our agents and brokerage regarding CNA's value proposition and are…

Thanks Dino. Good morning, everyone. Our third quarter 2017 net operating income of $159 million and net income of $144 million are quite strong given the $191 million of after tax catastrophe losses. Our property and casualty operations produced net operating income of $167 million, down from the prior year quarters $329 million of operation income. The $162 million decrease was entirely attributable to the $180 million increase in cat losses this quarter. Last year's third quarter had only $11 million of after tax cat losses as compared to the $191 million of cat losses that I just referenced this quarter. Our accident year non-cat underwriting profit nearly doubled, and our net favorable development was largely consistent year-over-year. Excluding the impact of catastrophes, P&C net operating income in the quarter was up 5% to $358 million compared with $339 million in the prior year. Our improving underwriting discipline is again evident in P&C operations underlying loss ratio of 60.8% which is a point better than the third quarter of 2016. In addition, we benefited from a $115 million of favorable loss reserve development. Our net pretax catastrophe losses inclusive of reinstatements were $275 million this quarter and reflective loss estimates of approximately $150 million for Harvey, $100 million for Irma and $20 million for Maria. We have minor losses from the other events in the quarters. While the California wildfires are still an active fourth quarter event and it's too early to offer an estimate of our losses. I would remind you that we did not write personal lines and therefore we do not expect this to be a big cat event for CNA. Our expense ratio of 33.5% is more than 1.5 points lower than the prior year's quarter and nearly a 0.5 better in our 2016 full year…

Thank Craig. Before we move to the question-and-answer portion of the call, let me leave you with some summary points. Our nine months net operating income of $633 million compared to $603 million in 2016, despite the Q3 cat events. Our return on equity of 7% on the year-to-date basis. The third quarter underlying combined ratio of 94.6% equaled the second quarter result and was also one of our best in the last ten years. Underlying loss ratio was 60.8%, a 1 point improvement from last year's third quarter. Our catastrophe losses in the quarter were within expectations. The expense ratio was more than a 0.5 lower than a year ago. The long-term care business continues to be stable and executing efficiently. With that, we will be glad to take your questions.

[Operator Instructions] And we'll go first to Josh Shanker at Deutsche Bank.

Yeah, good morning, everyone. Congratulations on the year, relatively good outcome in the unfortunate events this year.

Thanks.

So, my first question involves the dividend and how the board and you think about it. In the past, your partners over at lows, talked about the dividend, the special dividend as a great opportunity when the stock dip below 30 as it was paying, the company was paying a 10% dividend yield. How safe is the special portion of the dividend and how do we think about it and would you be willing to fund the dividend given your strong capital position this year?

Okay. Josh, so good question. Look I mean the cap losses were significant in the quarter, right, but as we said nine months were better than a year ago. So that's a good thing. Of course, just look there's a quarter still to go, so we're going to review the full year earnings at year-end like we usually do and will in our capital position as well as any other opportunities there might be to put capital work attractively and we'll make a decision then. But clearly, we're in a good position after nine months.

And two, do you have any comments around pricing and how you think that might affect the outwards reinsurance book and what impacts that might have on the opportunity for the new year?

I'm sorry. Just to make sure the reinsurance book.

I just want to make sure, I understand the question.

Your purchases of reinsurance.

Yeah. Well, we'll see what - we'll see how it plays out. Our cat reinsurance comes up on January 1, now we did not, our corporate, our North American corporate cats really got a retention of $250 million. We didn't hit it. So, we're going to remain everyone that over and over and over again. Hopefully, it doesn't hit us that much. But - because I think to a certain extent, it will be a function of individual performance, again potentially what could be a little bit of a rising tight on reinsurance pricing. So, we didn't hit the cat, corporate cat, we had a couple of smaller ones that we used that we had a little bit of reinstatement premium on.

Okay. Well thanks for the answers and good luck.

Thanks.

We'll go next to Bob Glasspiegel at Janney.

Good morning, CNA.

Good morning, Bob.

Looking at page 10 and it looks like you've got more momentum in your small, middle market pricing than other, in fact there's been sort of 4 basis points swing in small business pricing versus the trend a year ago. What's in other where the rate seems to be going a little bit the other direction and why are you getting a bit more pricing power in your small business?

Bob, Dino. So, both small business and middle market big areas of focus for us. We've got what we would consider to be a real solid value proposition there either us talk about it a lot writing. It's not only our coverage, it's our claims handling capability, it's our underwriting expertise but it's also our risk control. Right that all wakeups now. Having said that as I mentioned in the prepared remarks, look you're going to see there's quite a bit of differentiation in some accounts, you get a good rate increases in some, you get less on other where we have some of the more individual larger model line type product, model line casualty, you have some marine in there, it a larger one is usually a little bit more pressure on the pricing side and middle market and small where we're really, really honing on our value proposition. But there's differentiation even on the other right, you'll get rate increases and we have gotten rate increases on certain number of accounts and certain other larger property and you get some a little bit less, but always a little bit more pressure the larger the premiums you can tend with.

Thank you. My follow-up is just long term care, as we get to sort of the year end look at the reserves, the commentary along the quarters are that everything is performing in line with your weakest assumptions of 10 quarters ago I believe you said And I guess the other variables that we don't get a look in is rate increases, investment income looks like yields are flattish year-over-year, persistency, anything else that we should be thinking about that will be looked at in the reserve study that is an obvious swing back to when we're in?

I appreciate that question, Bob. There's nothing, that's an obvious swing factor. We're hard at the work. We conduct a very extensive review of all those different assumptions as well as the outcomes against them. We will complete them in the fourth quarter. So, as I remind you it's for both the claim reserve and the active life reserve that's complete in the fourth quarter. So, we're hard at it, but it's too early to draw any conclusions.

Anything on rate increases you want to just remind us on what you've been able to achieve year-to-date?

Yes, we've been able to achieve quite - the rate increase tailwind is very favorable and has been. We've been doing that's that important lever that we've been pulling, a big part of why we invested in changing our operating model, bring in claims back and how bringing the pricing function and investing in the pricing function and that's been pretty significant dividends across the board.

Thanks a lot, Craig. Good luck.

You're welcome, Bob. Thank you.

We'll go next to Jay Cohen of Bank of America. Please go ahead, sir.

Thank you. Question is on commercial auto, you seem to suggest the trends here are somewhat favorable which feels counter to what we're hearing from other companies. Can you talk a bit more about that business?

Maybe just try to put in some context. Our trend, the loss trend there are still elevated. That is less than we had expected. So, we still see loss trends in the mid-single-digits and by the way we're still getting great in the mid-single-digits because of it. So, what we're seeing is just we had a lot of large loss into a bunch of years ago. We increased our reserves for that. We've had favorable outcomes on large losses the last couple years, so we're seeing a little positive from both of that. So, it's running a little better than our expectations, but we'd say as we look at our loss ratio there used to be worse than the industry and now they're in line with the industry.

Got it. That's helpful. If you look, question is on the international business, the underlying combined ratio has been hovering around a breakeven for a while now. Is this disappointing to you, is it an okay result given the tail on the business that. It assumes that bigger effort has been made on the domestic side but is there a similar effort to improve the combined ratio on the international side?

Yeah, there clearly is there's been a lot of good actions taken on the international particular on the Lloyd's side. And although the quarter was relatively flat. Again, on a year-to-date basis, the underlying combined ratio improved substantially. And so, we view that very, very positively. We're clearly, we're focused on international just like other things and in particular on the Harvey, Lloyd portfolio, we have some real pockets of real profitability in a lot of this traditional branch. And again, at nine months, the underlying is down substantially year-over-year. And we consider that really a function of the efforts that they brought in and his team that manage the international operation directly correlated to their actions.

Thank, Dino. Last question, actually you know what that was the answer that. I'm good. Thank you, guys.

Thank Jay.

[Operator Instructions] And next we'll hear from Meyer Shields of KBW. Please go ahead, Sir.

Great. Good morning. So, this is clearly not evident in the reported results but beneath the surface, is there any change in frequency trends for some of the commercial casualty lines?

No. I think they're both they're all very stable. That went through standard commercial, I'd tell you that frequency and severity trends are favorable, and workers' comp continued to be favorable workers' comp. I've already comment on the autos, so you've got that. The rest of the loss trends have been relatively benign across the standard commercial book. In Specialty, just asking but just to be comprehensive in the answer. In Specialty, we continue to see favorable frequency trends across the professional liability book. In the healthcare sector, they're stable but we still see, we've mentioned before we have seen an elevated frequency trend in some parts of the healthcare book but specifically the nursing home business. In management liability and by that, I mean Public D&O, Private D&O, employing liability, the trends have been stable.

Okay. That's tremendously helpful. Question I guess probably for Dino, is that you've had considerable success in expanding the underlying underwriting margins. At what point, do you convert that into lower prices to produce more growth, more I guess long term value?

Okay. And it's a good question. Look, you know let's just go back to what we considered as a target, right. And I said which I had to close that combined ratio gap between us you know the historical ratio that CNA and you know that right think about 15-16 competitors break of quartile stick top quartile. We look that over three-year basis what their average is and we have to improve it about 5 or 6 points. Now you know it won't - it's come down, it's about 3 points but keep in mind that two quarters of this improvement against the three-year average it's not what I considered success yet, right. So, there is a lot of focus on sustaining the improvement in the other line combined ratio and improving it a little bit more, that's what we're principally focused on. Now, it's interesting, I can see you know why you generate a little bit of correlation between sort of your lower rate to get more but the reality is as I think in indicated on the last call, what are - the real areas of focus for us is just it's been whole reinvigorating our relationship with the agents and brokers bringing the value proposition to them and making them realize that look we're committed to being very talented on the segments that we want. We brought in a lot of talents. So, we're getting access, I think I mentioned at last quarter and it happen again in this quarter evidenced by particular in the middle market niches, we're up mid-single-digits and Craig mentioned the 5 points. So, the reality is we're seeing better business, that's what's really important to us and we are competing on it. Now, interesting like last quarter, we went after a few this quarter that we really wanted and we through we had a great value proposition at all the right people at the table. And you know you don't get them all. And - but that had more to do with, as we try to understand so why though we get it, you like that claims, you like that risk control you know. And so, the reality is, it's not about if you had a better price you would have got it, right. The issue is you know CNA is getting reengaged in the market place. The agents and brokers like it. Accounts just take time, right and it takes time to build those relationships. And so, we think there is so much for us to do that all be it, there is some correlation there as you suggest. That's not necessarily what we need to do to get access to the best business. And having said all of that first and foremost, keep in mind we're going after that combined ratio the big way.

Okay, that's very helpful, thanks much.

[Operator Instructions] And we go next to Gary Ransom at Dowling & Partners.

Yes, good morning. I had a question also on loss cost trends, it sounds like there benign or maybe even a little bit better this quarter and I was trying to get a sense of whether you thought the underlying loss ratio this quarter was actually a little bit better than what you might have expected as a run rate?

No, I think it's very much on. I mean when you look at this quarter or you look at the year-to-date, which is just a slight variation. Those are real. And so, we are pleased with the improvement.

Is it fair to say that the underlying loss ratio that you have this quarter, if you could keep that full year that you've reached your destination?

That you know Gary you know reached our destination is I just commenting on that you know to the prior question right. You know the destination is continuing to be even a little bit better. But you know is it kind of loss ratio is sustainable, we do believe so because you know you just we continue to focus on so many aspects of the underwriting culture. And you know I recognize that as you get better and better, it gets harder and harder. But we came from a place where we were much more elevated. And so, I think it's fair to assume that everybody pulls leverage but if you are a little bit further away from the better performing, your leverage are going to make a difference. And as you get closer and closer right it's diminishing marginal curves and there is no question about that that. But we come from a different place and we're pushing really hard and it is a different environment, a clear intensity around the underwriting a lot of, lot of work and effort being done with the new global underwriting committee under the new Chief Underwriting Officer a lot this collaboration I talked about. It's not to be underestimated right. It's between claims, risk control, all of that make the difference. And overtime as that place itself out, then it has a little bit less impact, but we think we have some movement, we feel good about it.

Thank you for that. That's helpful. One other question back on the reserve development, I was wondering, could you give us a sense of how or which accident years the favorable development came from if there was any concentration of it?

I think I did my remarks, I'm happy to repeat it. As far as the auto, it was just the last two 2015 and 2016 some so just claim outcomes, large losses less than we thought commercial auto. In surety, it 2015 in prior accident years and professional liability lines as I said, professional liability and manager liability lines, it was 2012 through 2015 where the preponderance of the favorable developments.

So, nothing that was significant from older years?

No.

No. Okay. And if I could just one more, I just, on the catastrophe losses and how you handle all of that, I know that was an issue for a number of companies to get enough people on site. Did you find that you had to use outside adjusters more or were you able to handle that mostly internally?

No, we do use outside adjusters, as you know right we don't right person lines. And you're going to have adjusters in what is a lot less frequency from a commercial standpoint. And so right you have one of these catastrophes you're fine. When three of them inside they knock on your door when in close proximity going to use them. But because we are a commercial, we're a commercial underwriter, we know that right that right, so we have certain relationships. There are all we home. We bring them into play. Having said that, once you start to use some of the better technology, some of the mapping that's out there now you can deploy that against, you want to turn the resources and the partnerships that you have that are well suited. And then what we do is because again it's just statistically it's always the same, right, you get in this case it was maybe 2%, 3% of our lot losses in Harvey, generate about 50% in Irma win the event little bit different, it was about 6%. But still it's small percentages. So, what you want to try to do there, get your people to those that could identify them, those are the one that are going to generate a huge compound and can go south on you, if you don't have good estimates and repair costs et cetera. So, you want to wrap your arms around those ones and then you get pretty comfortable relatively high confidences levels. And so, do that's what we do in a combination with our own in the external ones.

That's very helpful. Thank you very much then.

Okay. Thank you.

And we go back to Jay Cohen of Bank of America.

Thanks. I just wanted to ask on from a pricing standpoint, the Lloyd's markets seem to have gotten hit fairly hard this year. Are you a bit more optimistic look at in the Lloyd's market say versus the U.S. so you might see some improvement again given the property losses?

Yeah, that's a great question. So, if you look at it very, very early on, you're clearly more optimistic on the Lloyd because it reacted very quickly because your point got a few hits occurred there. And so, there was a lot more conversation. And so, again as I said, right you're always pushing the boundaries and you are going to push a little bit harder on boundaries and the boundaries are going to be a little bit less rigid, clearly going to be a little bit less rigid in the Lloyds, the U.S. as I said right. I mean we got you know you push every day, you learn, you keep going, you keep pushing, you keep teaching your underwriters you know had a better manage to rate retention trade-off, you are watch reading your audits, you talk about it, and you keep going. But specifically, to answer your questions is that's it clearly appears that in Lloyds it's going to be easier to push on those boundaries in particular on a cat post property.

Got it. Thanks Dino.

And gentlemen, we have no additional questions at this time, I'll turn the call back over to you for any additional remarks.

So that's great. Thanks very much, we see you next quarter.