Good day ladies and gentlemen, and welcome to today’s CNA Financial Corporation Quarterly Earnings Call. I’d like to remind everyone that this conference is being recorded. And now I’d like to turn the floor over to Scott Weber. Please go ahead.

Thank you, Greg. Good morning and welcome to CNA's discussion of our 2018 second 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 James Anderson, our incoming Chief Financial Officer, in addition to Craig Mense, our current Chief Financial Officer. Following Dino and James'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 in references to non-GAAP financial measures. Any forward-looking statements involving risks and uncertainties that may cause actual results to differ materially from statements made during the call. Information concerning those risks is contained in the earnings release and at CNA's most recent 10-K and Form 10-Q on file with the SEC. In addition, the forward-looking statements speak only as of today, Monday, July 30th, 2018. 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, Scott. Good morning everyone. I am pleased to share our second quarter results with you today, which show our continued progress in growing our underwriting profits. But before I start, I want to welcome James Anderson to our analyst call and after my remarks I will turn it over to James. You will recall that we announced last quarter that James is taking over from Craig Mense who is retiring at year end. Craig is also with us on the call today. Our core income this quarter was $0.99 per share bringing our first half, per share earnings to $2.02 which is the highest happier earnings for CNA in over 10 years. We are pleased with the second quarter $0.99 per share core income as it included an $0.08 per share after tax impact for IT investments to be made as part of our technology and analytic strategy. Core income for the second quarter was $270 million, which was $31 million higher than a year ago, our return on equity was 9.1%. Overall our second quarter 2018 combined ratio of 93.8% is essentially in line with last year’s 93.5% as catastrophe losses were lower in this year’s quarter and prior period development was comparable. Our underlying combined ratio of 95.3% reflects a modest increase over the same period last year at 94.6%. You may recall, we had an unusually low number of large property losses in last years’ second quarter, which we attributed partially to good luck. Large property losses were slightly higher than expectations in this years’ second quarter but essentially consistent with expectations for the first half of the year, so nothing unusual in our property losses year-over-year, simply normal fluctuations quarter-to-quarter. You will recall that I have consistently highlighted in my comments regarding our focus…

Good morning, everyone. And let me just say that after five plus years of watching and learning from Craig, I’m going to do my best to live up to the high standards he’s set, while also helping Dino and the team execute on the goal of consistently generating top quartile results. Our property and casualty operations produced core income of $319 million, up 22% from the prior year quarter. Pretax underwriting profits of $105 million was consistent with recent quarters driven by a steady underlying combined ratio and $59 million of favorable loss reserve development. Each of our three P&C segments produced favorable development with specialty accounting for the majority. Specialty's development was primarily driven by our professional liability business as well as Surety that comes predominately from actions year 2015 and prior. For the second quarter, our net pretax catastrophe losses were modest at $26 million or about one and a half points on a loss ratio. Our expense ratio also improved at 33.5%, which is representative of our current run rates. Moving to each of our P&C segments, specialty’s combined ratio was 86.8 for the quarter and underlined combined ratio was 92.7 or half-point lower than the prior year’s second quarter, with the loss ratio driving the improvement. For the first half of 2018, specialty’s combined ratio is 87.2, a strong result by any measure. Our commercial segment’s combined ratio in the second quarter was 96.6. This result included 2.5 of catastrophe losses which is a favorable result by historical standards. Commercial second quarter underlying combined ratio was 95, a point higher than the prior year’s quarter. For the first half of 2018, commercial’s combined ratio was 96.8, more than a point better than the first half of 2017. Our international segment generated a combined ratio of 104.7…

Thanks James. Before we move to the question-and-answer portion of the call, let me briefly leave you with some summary thoughts and our performance. Our second quarter core income was $31 million higher than Q2 2017 and our first half core income was $77 million higher year-over-year. We have pretax underlying -- underwriting income of $79 million following up on $111 million in Q1 giving us a $190 million for the first half of the year, up 43% over the same period last year. Solid growth of 4% in net written premium for the quarter and 7% for the first six months, our Life & Group segment continues to sustain breakeven earning since our unlocking in 2015. At 2018 second quarter core return on equity is 9.1% and net income return on equity is 9.4%. Our core earnings per share for the first half of 2018 were $2.02, the highest level of half year earnings at C&I in over 10 years. And finally based upon the confidence in our future earnings potential we increased our regularly quarterly dividend to $0.35 per share. And with that, we'd be glad to take your questions.

[Operator Instructions]. Okay. And first from Deutsche Bank we have Josh Shanker.

Yes. Hello everyone. Congratulations on decent quarter. First question, can you give us the renewal rate price increases and the retention numbers excluding healthcare?

We don't – I don't think we can easily calculate it, but we can get it for you Josh.

Yes, Josh we can get it for you after the call. We just don't have in hands at the moment.

Just one thing I would say, if its 60% for healthcare overall, some rates to concept as much as 30%. It feels to me that -- and there's nothing wrong with this, but the rate renewal environment for the aggregate book might be close to flattish. Is that wrong to me to think it that way?

No, Josh, I think that's a good way. And it's flattish but slightly up, right. I think I indicated in my remarks comp and minus 3.5, last quarter sort of minus three. So you got about half a point there that was down, but international was up half a point, management liability was up half a point, auto was up four-tenth, ocean was up about a point. Property overall was essentially the same in the sort of low two percent-ish. Healthcare just in general in terms of, it's about 7% of the book, so -- but we can do the actual math, but that's a feel for…

7% gives me enough, I can do it myself. I'm not going to put you through.

Okay. Fair enough.

Perfect. And then other question is, I'm just trying to sense style of analysis in the fourth quarter of last year you took this big reserve release on morbidity, a lot of watchers and investors were surprised about that given commentary about morbidity and others. You point out in the 2Q quarters now that morbidity was consistent with expectations. To what extent is the -- can we talk about with the second quarter underlying actuary analysis versus the fourth quarter? And would we expect it to be possible given what you do in 2Q that you would detect any changes if there was one?

Josh, the actuary analysis that we do for long-term care happens in the fourth quarter each year; so what we see on all the other quarters is as actual to expected calculations. So when we say that its in line with our expectations that we're set when we unlock in 2015 and on the gross premium valuations that we've done at the end of 2017, so there is no new analysis that's been done other checking actual towards expected.

Okay. That [Indiscernible].

Josh, maybe, this is Craig, just to maybe add to that, but we certainly would see – it would directly answer your question, if things were changing we would see it, because we follow it. And client volumes have not changed for us over the last really two and half years.

So, can we just review the morbidity adjustment, what prompted that in 4Q? It was based on projected claims or based on actual claims?

Yes, Josh, when we unlock at the end of 2015, we were reacting to morbidity that we had seen in prior years before that which was really on heels of beginning of our rate increase program, so we had seen a lot of what we called shock morbidity leading up to the year in 2015. And when we did that 2015 gross premium valuation allowances, we projected that shock morbidity was going to continue for the next few years. And what we saw in 2016 and 2017 was it actually didn't. It normalized much quicker than we expected, so we had baked in higher levels of morbidity that we ended up not seeing and so that's really what drove the 2017 change.

Okay. Thank you very much for all the answers.

And moving on, we'll hear from Jay Cohen with Bank of America/Merrill Lynch.

Yes. Thank you. I wanted to talk about the international business, underlying combined ratio there for last six quarters around 100, and obviously it's not doing as well as the other segments. Is there a more concerted effort to drive that ratio lower, is that need maybe little bit more extra attention?

Yes. Jay, its Dino. Thanks for the question. It’s a good question. Look, first let me just start off by saying, all of the initiatives along the journey to sort of get to the top tier performance that I've been talking about, everything from the discipline underwriting culture, the talent, all of that that happens across everyone of our offices worldwide, but when you take a look at international, as we go international, you got everything from our Hardy Lloyd's syndicate to the Canadian operation which is maybe more what we see in the U.S. So, you got to take each of those sort of, in its components. So let me just make a couple of observation. Hardy which had been the area that's been most strange from a loss ratio and indeed a combined ratio standpoint is where we are and have been shifting over the course of the last six quarters from the standard Lloyd's type products, the marine, the shared-in-layered property, [Indiscernible] and what we are replacing it with and what we want the Lloyd syndicate to be is principally the target markets that we have expertise in that we think we can bring at a marketplace which is healthcare, technology, life sciences and certain aspects of our construction business. And that's a process that takes time and it has been going on, there's been – I believe its been mentioned some of the evolution away from things like aviation running off political risk. We had a very unprofitable A&H, we had some of our classic cap property which we're moving away from. And so our expectation – so that's a unique effort right for Lloyd's that transcend the other offices and that's the way we see Lloyd's playing up for us in the future and so we clearly expect more profitability from that. Now you take Canada on the other end of the spectrum, Canada, if you look at it historically over the last 10 years, 10 years -- this just had combined ratio under 90%. Now as I indicated – look we had some property losses that were higher than expectations in the quarter, obviously when you do it for the half, they are in line, but for the quarter it made the Canadian piece slightly unprofitably. And since that's been where the lion share is, right, that's why the quarters international. Look, so there are efforts clearly in particularly on the Lloyd syndicate to make that more profitable and we remain very optimistic about our international operation both in terms of it contributing to our bottom line, but also our ability to be able through some of the multinational client. So we're all over its various components, maybe that's a little bit longer than you were hoping for, but I think important to dissect that way. Q – Josh Shanker: Dino, its great perspective. Thanks for sharing that. Very helpful.

Okay.

[Operator Instructions]. Next, we have Gary Ransom with Dowling & Partners.

Yes. Good morning. I had a question on the IT expenses, and wondering if you give us a little more of a qualitative view of what this investment is actually going to change in terms of the customer experience and the agents. What the underwriting tools might be? Kind of giving us a picture of what's happening down in the trenches for all these changes that you're making?

Yes. So, Gary, its Dino. Look, we're excited about this partnership with Atos. First of all, it is a very unique, what we call industry leading service model because they are assuming ownership of the IT infrastructure servers, devices and in the process going to be modernizing all of that. And that eliminate obsolescence risk for us because they take that over. Its very unique also in that it as a service model, so its a consumption-based model moreover Atos uses what they call there canopy hybrid cloud which puts our infrastructure and the software running on infrastructure is going to be migrated to the cloud, which is clearly what you want to be able to do. All of it is building if you will a large foundation for us to be able to then take advantage of the different sort of analytics languages et cetera that cloud brings to you and allows us to modernize it. It's also from a digital standpoint. It's also a sort of devices to service. So they take over all of the management of the devices and brings to bear there sort of cutting-edge digital interfaces which we fundamentally believe the right way to go if you a world leading provider get it in a consumption model as a service which is really really unique in the marketplace. In all of it also helps our entire security because of their cloud. So, look, we are interested in converting and building a foundation to convert all of our legacy, because this is clearly the direction in this industry with the tremendous advances in technology analyst. We're very very excited about the change and it’s a step, albeit a very large step in many more we're going to make.

So, the way you describe it as a consumption model, does that mean it's more akin to a variable cost as oppose to a fixed cost?

Yes.

Okay.

So that you know as we grow they also benefit – of course like most – I was going to say, smart consumption models, that's right so that after a certain level of growth then the per unit cost comes down a little bit. But nevertheless, look, our interest is to let them benefit with us because that ends up making it interesting for them and once they've eliminated all the obsolescence risk and we are using the most cutting-edge cloud environment, we're both very happy.

And the $10 million of savings you referred to them that's part of just eliminating what you're doing and handing it over to them?

Absolutely, there is no question that the scale they bring to bear on a global basis, and I think it's slightly conservative the number at 10 million. So that's baked in as a seven-year deal, so we're very excited.

Okay. I will love to hear more about that over the next several quarters.

Great.

Can I change the subject slightly?

Sure.

I wanted to also ask about loss cost trends too and just whether you're seeing anything across your lines that are a change or shift. You see frequency moving up anywhere. You see severity doing something unusual. I'd love to hear about any pockets where there's change?

Sure, Gary. This is James. I'll give you some color on a few areas. I mean the one area that we're seeing the most change is healthcare as Dino has mentioned. So, we've seen increasing severity trends really driven by large jury awards that both we and the rest of the industry have seen more recently driven by large hospitals and aging services. And as Dino mentioned our underwriters have continue to respond by managing the rate-retention dynamic there getting the six point raise in our retention down at the 73% level. We have now baked in loss cost trends of 6% into that healthcare book. The other area that's elevated from a severity trend standpoint is commercial auto and that's not really a change. It's been elevated for several years, but that's a 4.5% severity assumption with going up to six when we have excess exposures. And at the other end of the spectrum, worker's comp loss cost trends continue to be very good. We're seeing high single digit negative frequency and flat severity, but just to make you crystal clear that's what we're seeing, in our worker's comp reserves we still have a 4% severity assumption baked in as we want to make sure that our reserved levels are set at the longer term trends. I would say, all the other line, Gary, really more modest with no real deviation from our longer term trends.

All right. Okay. That's very helpful.

Gary, its Dino, if I can just -- sorry, Gary, if I can just add to the point about healthcare as James was saying, right, we've been reacting very aggressively and you're seeing rate increase to 6%, 9%, 8% and moving the retention effectively, the combined ratio over the last six quarters come down about 15 points, still a little over a 100, but it is been – its caused that and overall rate retention dynamic is improving it very quickly, so we feel good about it being in a profitable position some time in 2019. So I just thought I'd add that color.

Okay, great. Thank you very much, James.

Thanks Gary.

[Operator Instructions]. Next we have Meyer Shields with KBW.

Great. Thank you. Good morning. James, If I can just close the loop on that. Are you booking worker's compensation frequency negative or flat?

Well, our current trends right now we have severity is running flat and we book a low single-digit negative frequency.

Okay. Thanks. And then sort of on the same topic, I guess in your introductory comment you talked about renewal premium changes coming in line with loss trend. Do you think that is from the perspective of renewal premiums or the rate side in terms of forward underwriting margins?

Yes. So, the renewal premium changed both – it’s a combination of the rate and exposure and exposure that had gone up a point. So the written; little over 4%, four points – it's about two points higher. The earned now is inline with the loss cost trend. Look, its good news in the exposure growth, not all exposure, obviously, acts like rate, some has much more impact, so in the case of payrolls as salaries go up for the same amount of work, that's clearly to your benefits, there is other forms and then there some exposure that is – that doesn't act as rate. Nevertheless, there's a good portion of it that does. It's been consistently going up. So, okay, so it's continues and it sustains itself, that's going to portend well for the underlying loss ratio.

Yes. That makes sense. And then just quickly the IT savings; are those going to be incorporate in the individual segment for both?

It's going to be in the expense ratio, by the business units that used and then impact, right?

That's right. It will come through in all the areas, it will come through a new layer, it come through in the expense ratio, all the different parts of the enterprise.

Perfect. Thanks so much.

[Operator Instructions]. It looks we have another question from Ron Bobman with Capital Returns.

Hi. Good morning. Congrats. I had a one simple question. If my memory serves me I thought, I don't know five plus years ago, you went to sort of a semi or some sort of outsourced tech service provider model but I’m a little bit, I’m not sure but if I am close to accurate could you explain the transition if there is one.

Yes, I mean we did Ron. I think it was probably seven years ago we moved to an outsourced model but different than the one that what we were moving to now. It was really an outsourced labor model before so this is much more an infrastructure as a service where it’s not just the labor, but it’s the entire hardware as Dino mentioned servers, networks everything the entire infrastructure is being outsourced to the third party. Yes and that firm is who we changed from to Atos. So your memory is quite good.

Okay, so something’s it is not with yesterday’s lunch. Thanks gentlemen and good luck with it.

Thanks, Ron.

And at this time, it appears we have no further questions from the audience. I’d like to turn the floor back to management for any additional or closing remarks.

Now that’s great. Thank you everyone for joining us today. See you in a quarter.