Good morning, and welcome to the CNA's Discussion of its 2019 Fourth Quarter Financial Results. CNA's fourth quarter earnings release, presentation and financial supplement were released this morning and are available via its website, www.cna.com. Speaking today will be CNA’s Chairman and Chief Executive Officer, Mr. Dino Robusto, and CNA's Chief Financial Officer, Mr. James Anderson. Following their prepared remarks, we will open the lines for questions. Today's call may include forwarding-looking statements 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 SEC filings. In addition, the forward-looking statements speak only as of today Monday, February the 10th, 2020. 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 has been provided in the financial supplement. This call is being recorded and webcast. During next week, the call may be accessed on CNA's website. If you are reading a transcript on this call, please note that the transcript may not be reviewed for accuracy. Thus it may contain transcription errors that could materially alter the intent or meaning of the statements. With that, I will now turn the call over to CNA's Chairman and CEO, Dino Robusto.

Thank you, Margarette. Good morning, everyone. I am pleased to share our fourth quarter and full year results with you today, which reflects continued strong underwriting performance, accelerated price increases and robust growth across our U.S. operations. Core income for the fourth quarter was $265 million or $0.97 per share, inclusive of a $48 million or $0.18 per share after-tax, non-economic charge related to our annual asbestos and environmental pollution reserve review. I will provide more contexts to the quarter in a moment. But first, I’ll make a few comments on the full year results. P&C Underlying underwriting profit for the full year was up 15% to $362 million and the underlying combined ratio came down more than half a point to 94.8%. This is the third consecutive year of improvement in the underlying combined ratio. We achieved 7% gross written premium growth ex captives, which strengthened as the year progressed as we leveraged the improving market conditions. Rate increases for the full year were 2.5 times higher than 2018 and increased each quarter. New business was up 8%, as rate increases and overall improved terms and conditions led to more high-quality opportunities. Now back to the fourth quarter results. The P&C Underlying Combined ratio was 94.9%, a significant improvement over last year’s fourth quarter results and in line with the full year 2019 results. Strong underlying performance in both Commercial and Specialty, combined with improved International performance drove the strong results. The P&C all-in combined ratio for the fourth quarter was 95.6%, which was nearly 10 points better than the fourth quarter of 2018. Now it is fair to point out that I had categorized the 2018 fourth quarter result as an outlier and improvement in the subsequent quarters proved that out. Nevertheless, the 2019 fourth quarter result is…

Thanks, Dino, and good morning everyone. Our Property and Casualty operations produced core income of $337 million in the fourth quarter and $1.2 billion for the full year. Pre-tax underlying underwriting profit for the fourth quarter was $87 million. For the full year, pre-tax underlying underwriting profit was $362 million, a 15% increase over 2018. Our P&C expense ratio was 33.7% in the fourth quarter, and 33.5% for the full year. It’s worth noting that our U.S. expense ratio for the full year 2019 was 32.8%. As we head into the New Year, we expect our 2020 P&C expense ratio to be at or below 33% as the benefit of premium growth becomes more significant on an earned basis, particularly in the latter half of the year. Prior period loss development was favorable 2.2 points in the quarter, which reflects the outcomes of the reserve studies completed in the fourth quarter. For the full year, prior period development was favorable 0.7 points and we remain confident in the strength of our reserve position. Moving to each of our individual P&C business units, Specialty’s underlying combined ratio in the fourth quarter was 93.3%, an improvement of one point compared with the fourth quarter of 2018. Specialty’s overall combined ratio for the quarter was 88.2% including 4.9 points of favorable prior period developments. This favorable development was primarily in accident years 2017 and prior, driven by professional liabilities within our Affinity segment. For the year, Specialty’s underlying combined ratio was 93%, and the overall combined was 90.2% including 3.3 points of favorable prior period developments. Specialty’s gross written premium excluding third-party captives grew 7% in the quarter with strong rates and new business growth more than offsetting a lower retention level, which was driven by underwriting actions within healthcare. Our Commercial segment’s…

Thanks, James. Before we move to the Question-and-Answer portion of the call, let me review with some overarching thoughts in our performance. The full year underlying combined ratio of 94.8% includes for the third straight year and it is the best in a decade. Our underlying P&C loss ratio was 60.9% for the quarter and 61% for the year. U.S. gross written premium ex captives grew 9%, while net written premium grew 6% for the year. We achieved 7 points of rates in the fourth quarter, one point higher than the third quarter. I am encouraged by our pricing trajectory in recent quarters and based on what we have seen in January, I am optimistic that we can continue to drive rate above our long-run loss cost trends through 2020. We increased our regular quarterly dividend to $0.37 per share and we once again declared a special dividend of $2 per share. With that, we’ll be glad to take your questions.

[Operator Instructions] We can now take our first question from Jeff Schmitt from William Blair. Please go ahead.

Hi. Good morning everyone.

Good morning.

Looking at the International book, obviously, you had a pretty good quarter. But could you give us an update on where that sort of Property book stands? Is that largely repaired? Or is there additional work that needs to be done there?

Hi Jeff, it’s Dino. What I’d say is, we are doing the right thing in International and I think it’s showing up in the results. The underlying combined ratio, as we indicated, was down 5 points and we also had lower CAT losses, which we had expected, because the Lloyds book, the syndicate was down 17% even with the strong rate increases. So, clearly, we’ve done a lot of work on that portfolio. But there is still some work that continues and there could be some volatility quarter-for-quarter. I think what I would say is, if you think about it in terms of the premium base, I think we – you should expect the re-underwriting to probably affect our premium base for a few more quarters. And so, there is a little bit more work to do, but a lot of it has already been done and we expect to go into 2021 with a really great – really great portfolio.

Okay. And then, thinking about the Commercial book, you had mentioned a number of times loss cost or rates in excess of loss cost trends, you plan on keeping that through 2020. And I guess, with rate accelerating, it suggests the loss cost trends are accelerating. So, do you – as you look ahead and you think about rate, I mean, are you expecting that loss cost trends continue accelerating? And if you are going to stay out ahead that on rate, I mean, are you foreseeing a potential impact on retention if that’s the case?

Sure, Jeff. That one is good question, obviously. Look, I think, our long-run loss cost trend assumptions incorporates all that we know and we see now. So, as that evolves, we will continue to incorporate the new information. What I’d highlight is that, we have a conservative bias and how we set those loss picks and we tend to jump on bad news rather quickly. I think our track record bears it out. If you look at our historical record of favorable development, we also – we worked really hard to react early on our underwriting actions. And then, depending on the overall market environment, to your point, we either get what we need or we’ll let retention drop, which is evidenced clearly in our aging services book and we’ve been detailing that for you over the course of the last year. As I said, based on the quarter’s reserve reviews, we feel our picks, our long-run trend assumptions incorporate our loss patterns and we feel comfortable with the position and we’ll just keep reacting both internally actuarially, externally in underwriting actions quarter-for-quarter.

And I would just add one thing to that, Jeff. I think, just because rate is going up does not mean that loss cost trends are going up. Rate is going to be a factor of what we think we need and it’s also going to be a factor of what the market bears. And so, we are going to do exactly what Dino said with loss cost trends and we are going to continue to push hard for rates.

Okay. Thank you for the answers.

Thank you. And we can now take our next question from Gary Ransom from Dowling & Partners. Please go ahead.

Yes, good morning. I wanted to zero in on that healthcare retention of 66. I think it’s one of the lowest ones since it’s been there for a long time.

Yes.

And I know what’s – yes, you are pushing rate, you are losing customers, but it just seems like that’s – it’s a lot more significant this quarter. Can you comment on that?

Yes. I mean, it has been double-digit rate on rate. There is no question, Gary. And that’s when you start to compound double-digit rate increases, it’s a little bit more difficult. We are also being very aggressive on what it is that we need and we have been increasing it. In the fourth quarter rate was 25% and what we do is we put out the terms and conditions and if we don’t get it then the message to all the underwriters and they do know it is you let it go. And I think, it always depends on a mix-for-mix and we’ll see if you were to go back there was some other quarters where the retention was in the low 60s, then it rebounds a little bit and it depends a little bit on the mix. But we continue to push this very aggressively and then of course, you compound that with the terms and conditions reporting larger deductibles on medical malpractice. We pretty well doubled actually the amount of policies that now have $25,000 medical mal deductible. I mean, a few years back, the medical mal had virtually no deductibles or very, very low. So, if you put all of that together and we try to get those terms and conditions if we don’t, we’ll lose it. And it’s going to fluctuate quarter-for-quarter. But what isn’t going to fluctuate is, our pattern of rate increases and terms and conditions. We are going to keep pushing that hard.

What’s surprising to me is, just how, I think what it says about the industry, that there is a problem that seems well established and yet others are taking it at a lower price. And I don’t know if that’s surprising to you …

Well, I mean it’s hard, yes, it’s always, Gary, you look at it across the industry and I understand that, for us, I mean, I can only tell you, we’ve been quite transparent on our healthcare, not only actions, our loss picks, our loss cost trends. And so, we do what we think is the right thing. We think we are doing the right thing. You get it right on every deal, of course, not. And it’s difficult to say how some others may view it, in particular, when they take we let go.

All right. Thank you. And then, I am just flipping to the other extreme, where it was a small business where rates have slowed down. Can you remind us how much is workers’ comp? And what the mix is there that’s causing that?

Yes, Gary. When you look at rate, ex work comp, it’s up about two points.

Okay.

So, work comp is the largest single line in that segment.

Okay. Great. Thank you.

But it continues to grow and we got good policy retention. And so, we are happy with the – and the profitability is good. And so, we are happy with the small business.

Right. All right. And on A&E, I wanted to just ask if there was something that - I know it’s economically not – nothing to you but, you are seeing some trends beneath the surface. And I just wondered if you could give us a little more detail about what it was you saw that caused the adverse developments there?

Sure. What we saw in the quarter and really for the year was an increase in defense cost primarily, but also some indemnity costs, all unknown accounts for – as that was in environmental. So, that was really – that, in combination with reviewing our expectation for reinsurance recoverable were the two pieces that drove the change there.

Okay. And then maybe…

Maybe just to add one thing – just to add one thing to that, Gary, what we are not seeing is increase in mesothelioma plants. That trend is likely on its way down.

Okay. Helpful. And just one last question, or a broader question on the whole social inflation issue, I mean, I see your numbers. You’ve actually improved for the full year – year-over-year on an underlying basis and everyone has been talking about the social inflation and yet, you are sort of keeping up with whatever it is. And I just wonder if you have any comments on it? And anything new you are seeing in that area?

Gary, it’s clearly been a big topic for everyone. I think, it’s a trend when you start to see the trend, how you react and how conservative you are. And as I said, we don’t get it right all the time. But I do think the conservative bias has played out. I mean, I guess one comment, there is a lot of - using as a benchmark sort of attorney involvement on cases. So, I can just tell you from our portfolio, there actually has not been a significant change and we track it by all the lines of business. We’ve actually seen slightly lower level of attorney involvement in primary auto, a little slighter uptick in primary general liability and it’s actually been flat now for several years in aging services. And when you sort of put it all together on the third-party lines, it really hasn’t changed. So, I don’t, you know, know if that helps at all, but it’s sometimes commented on. So I just thought I’d share with you what we have in our claim patterns.

Thank you for that. That’s very helpful. That’s all I have.

[Operator Instructions] And we can now take the next question from Meyer Shields from KBW.

Great. Thanks. Two quick questions if I can. First, is it fair to assume that Affinity growth should accelerate in 2020 given what the – I’ll call it, gain/loss trends that that you are still seeing?

Meyer, I don’t think we heard that full question. Could you repeat it?

I am sorry. It sounds based on Dino’s last comments, like, overall loss trends remain under control and I am assuming that that’s true in the Affinity book, as well. Given the concerns that we are hearing from other companies there, is it fair to expect the top-line growth to pickup in Affinity because of that?

On the Affinity, as we’ve talked about, Meyer, is, these are programs, they are multi-year, they are long-term. Now we have been to write a large program, we added one large program in 2019 - but – 2018 actually, which played out throughout the quarters of 2019 – all four of the quarters actually, which makes some of the growth comparison on Specialty seamless, because of this program. But, you don’t write those every quarter, right? There – we go after them. We clearly have an expertise over the last several decades. We are always looking for them. But it’s got a fit. It’s got to be the right type of program at the right profitability in all of this component parts. So they are harder to combine. But clearly, we have a team that’s always focused on it. And we’ll keep our eyes open to continue to grow it, because it is very profitable for us.

Okay. Thank you. Second question, I just want to make sure I understood your response to Jeff. It sounded like there is still some works coming in the International segment. But in the fourth quarter, I guess, it looks like the upside of rate outpaced the exposure reduction. Is that a fair expectation for 2020?

I think, what Dino’s comments were primarily around the Lloyds portfolio. Remember, we also have a Canadian business, which is not undergoing the kind of re-underwriting that’s happening in London. And that’s growing quite nicely, as well as the continental business is actually growing, as well, based on significant rates that they are getting there. So, you have really two of the three components to that International business are growing more organically and offsetting what’s happening in the Lloyds portfolio.

Okay. Understood. Thanks so much.

[Operator Instructions] There are no further questions on the line at this time. I would now like to turn the call back to the hosts for any additional or closing remarks.

No, that’s great. Thank you and we’ll chat next quarter.

Thank you. That does conclude today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.