Good morning and welcome to the CNA's discussion of its 2020 Second Quarter Financial Results. CNA's second quarter earnings release, presentation and financial supplement were released this morning and are available via its website www.cna.com. Speaking today will be Dino Robusto, CNA's Chairman and Chief Executive Officer; and Al Miralles CNA's Chief Financial Officer. Following their prepared remarks, we will open the lines for questions. Today's call may include forward-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, August 03, 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 have been provided in it’s financial supplement. This call is being recorded and webcast. During the next week the call may be assessed on CNA's website. If you are reading a transcript of 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 turn the call over to CNA's Chairman and CEO, Dino Robusto.

Thank you, Diana. Good morning. It is very good to be with you today and I hope you and your families are coping well in these unprecedented times. The second quarter has been a challenging one as the pandemic continues to impact the lives of all of us. For CNA those challenges have been multifaceted and have impacted our underwriting results considerably, as we disclosed in our pre-announcement on July 15. Before I announce a lot more detail on the impacts of COVID-19 and other catastrophes in the quarter, I wanted to start by commenting in our underlying business which performed extremely well in the quarter. Starting with pricing, rate increases continued to accelerate as when we achieved plus 11% in P&C overall up 3 points from the first quarter and 11% is inclusive of worker’s comp which had slightly negative rates. Importantly, increases were broad based as each business unit achieved higher rates. In light of our written rate increases over the last four quarters, earned rate increases are now 7%, which are clearly above our long-run loss cost of trends 4%. But as I have said before, we need to sustain this scaffold for several more quarters before we would favorably adjust our current accident year selections, because we experienced almost four years of rate changes below long-run cost trends prior to this hardening market. And then as I have highlighted on prior calls, we experienced rising severity trends during that period in several product lines like aging services, and primary and excess auto liability. In terms of growth, gross written premium ex-captives is 7% while net-written premium growth was 3% growth, includes the International results that are still impacted by our re-underwriting in our London operations. In the U.S., gross written premium growth ex-captives was 8% for…

Thank you, Dino. Good morning to everyone. As Dino indicated, I will now provide details of our core results by business segments. Starting with specialty, the combined ratio was 104.2% this quarter. The combined ratio includes favorable prior period development of 2.9 and 15 points from catastrophe losses, a lot are essentially all due to COVID-19. A favorable prior period development was largely driven by favorable outcomes in professional management liability, predominantly for accident years 2017 and 2018. The underlying combined ratio for specialty was 92.1% this quarter, 1.1 points of improvement compared to the second quarter 2019. The underlying loss ratio was 59.9%, and the expense ratio was 32%. The expense ratio’s improved by 1.1 points, compared to second quarter of 2019, due to the growth in net earned premiums and lower expenses. The gross written premium growth ex-captives was 7% especially to the quarter and was 4% on a net written premium basis. It's continued to increase at 12%, up from 9% last quarter. Retention was at 85% this quarter, which was up a point compared to last quarter. New business volume was at the same level as the prior year's quarter. The combined ratio for commercial was 118.5% this quarter. This is 18.8 points higher than the second quarter 2019 and includes 19 points of catastrophe loss and six points of unfavourable prior period development. The cat losses include 7.7 points due to civil unrest, 5.9 points from weather related events, and 5.4 points attributable to COVID-19. As previously disclosed, prior period development included a charge for mass tort, primarily due to New York reviver statute related claims. Excluding mass tort, commercial prior period development was $2 million favourable with favorable worker’s compensation design across multiple accident years prior to 2019 offset by adverse development and property…

Thanks, Al. Before we move to the question and answer portion of the call, I want to provide some perspective on the hardening market landscape. Slowly, the unprecedented events in the second quarter hurt our underwriting results overall. However, the good news from our engagement in the quarter is that I am even more bullish that the hardening market conditions will persist well into 2021. All of the dynamics that have been broadly expressed by industry participants, namely an even lower interest rate environment, several years of pricing below long run loss cost trends, social inflation, elevated catastrophe losses and of course, the impacts of this unprecedented pandemic are currently well appreciated by the brokerage as evidenced by their articulation and the dynamics in their quarterly calls, which means that insurance are being effectively educated in the need for higher pricing. And we see evidence of that through our conversations with our insurance. We target market conditions similar to only a few historically will enable us to try for the immediate improvements in policy terms and conditions to achieve stronger pricing across the portfolio, and secure more high quality new business. Our second quarter execution evidenced that we are well positioned to take full advantage of the hard market. And I could not be more proud of all the CNA employees for all their efforts during these unprecedented times. And with that, we'll be glad to take your questions.

[Operator Instructions] We will take our first question from Josh Shanker with Bank of America. Please go ahead.

Yes, thank you. Hope you're all doing well. Tough times, tough times. But I'll keep talking a little bit about the expense ratio. You mentioned no T&E spending. I mean, you're not a big T&E company. I know you're very focused on expenses. But there really wasn't any loss expense ratio improvement compared to 1Q, 2020 and in 2Q, 2019. Can you talk about how premiums are factoring into that? What you think the impact of T&E savings was and how we should think about that going forward?

Josh, I’ll start and so I want to add any comments. Yes as I mentioned, that didn't move from the first quarter, and some of it as you point out, a function of the denominator earned premium, but with the, the strong written premium that we've had in the last few quarters, we anticipate, the earned premium to catch up, and so that will help going forward. And as I said, we did invest a little extra in making sure that we can handle all of these services from a remote environment, some technologies and additional operation staff and that also elevated the numerator. But the -- so if you look at it against the first quarter at about 33.1 [ph] , I think in and around 33 is a one raise, give or take a point up or point down based on how earned premium plays out probably a one way to think about Josh going forward.

Okay. And then two, you talked about how there were some lines, like construction that were not impacted by the COVID and others. If I'm looking at paid to incurred ratio in the 60s, which is obviously phenomenally low. Can you talk about the idea that maybe there were some claims that have yet to be -- that were delayed in terms of filing. And so you're putting in some extra IBNR there. Can you about if there's any issues of paying claims, it does seem to me with a patent cover ratio in the 60s that there maybe should have been a lower and curb. I don't know that -- that is shockingly low number. We talked about; I guess pay trends and what the impact of COVID are on pay trends and why it's temporary?

Okay, so, Josh let me and then you can you can jump in. Let me just -- let me just get to the point about COVID claims. And, and finally, as we indicated, the vast majority of the charge was clearly IBNR. So and as I indicated, a good portion of it, we have it for the healthcare area. So, let me give you an example of how, we look at it and how we looked at it, in particular with agent services. We've got, relatively speaking, a small number of play notices. However, we also have access to the public information about that that have occurred in aging services facilities around the United States, we could not fit against our own insurance. And what we then do is use our experience and our expertise to try to figure out well, how many of those might turn into claim notices. And what might then be potential claims that emerge from that and our legal costs and indemnity dollars. And so it is, as you suggested, mostly IBNR and we estimate relatively low claims, notices and filings, and then we took our estimates from there, based on our experience, based on what we what we saw from, what we have in exposure, what we saw from some of the external information. Not sure Al, if you want to clear, add anything else?

Can I answer the non-COVID claims during COVID. Even if I take all the COVID claims and I back them out, we're still in I guess, the low to mid 70s and paid to incur. I'm worrying payments patterns of claims in general, not necessarily COVID claims, but the impact of COVID on claims payment, and on I guess how you think about incurred losses. It's a very, very low quarter even for non COVID claims.

I can jump in here, Josh. Real quick. I would say, we’re not seeing anything extraordinary in terms of on claim payments, I think there's probably a bit of a timing effect and you're seeing a little bit of that from a paid to incur perspective as well as it's showing up a bit in our operating cash flow, but we believe that, that will balance out with some time.

Okay, and if I can sneak one more. Can you help me a little bit on shadow adjustments in long term care through a complicated just as teach-in and it jumped up a bit in the quarter and how about that?

Yes, so just as a reminder, Josh and it’s Al. That’s in the lighting group segments, the Shadow reserve is intended to you know largely parallel movement in unrealized. And the concept there is that given that you've got investments in Life & Group that you know, we purchase, we've booked yield higher than prevailing rates or unrealized goes up. And it's essentially protecting against the thinking so good investments in that book yield went away, that it could lead to a reserve event. So what you'll see in the quarter really is that the change in unrealized in our Life & Group segments pretty much kind of was in lockstep with the change in the Shadows there.

So I'll try and track that myself. Thank you for the answers.

We will now take our next question from Meyer Shields with KBW. Please go ahead.

Great, thanks. Good morning, Al. Dino, -- all the comment you talked about loss trend of around 4% and I think I want to say about point and a half higher than higher commentary. And if you could explain, first of all, what's driving the difference? And second of all, is that an active year 2020 issue or is that now embedded in prior year reserve as well?

Okay, so that's an important question, actually. So if you look at our long run loss cost trend, all up and we include the affinity programs. Then actually, it's, closer to what we have suggested in the past at about three and a half, potentially slightly less than and 3.5. The 4% that I quoted is excluding the affinity programs. And I, I wanted to clarify that. So that is the difference. Because, as we've indicated before, if you look at our long run loss cost trends for Affinity program, it’s very low. Does that help?

It does, yes. I'm curious on a related note is the affinity program subject to social inflation?

A lot of the affinity program or individual practitioners as I've indicated before, there's nurse practitioners, there’s dentists, but there's physiotherapists etcetera. And as from a – there’s literally hundreds of thousands of these policies for individual practitioners and so you just don't see it. You don't see it there. And also on some of these individual practitioners, they're also access over any other underlying policy. So because of the nature of a lot of individuals there's really not in there's no medical cost in the non-medical part of the sort of professional E&O book also, so…

Okay. I'm sorry that you're…

No, no [Indiscernible] because you have also in the Affinity programs, you have architects and engineers right well you don't have any other medical costs and so that's that that's why it's much lower, and don’t really think it’s impacted by social inflation like the rest of our healthcare portfolio.

Okay, that’s very helpful. And then one final question. I'm just hoping you can update us broadly on what you're seeing in – and what you're seeing and what you're booking in terms of surety? Because it's generally seen as an economically sensitive line.

Yes. Actually, well, just to remind you, Meyer, of our portfolio, its balance, like between about 50:50 about contract surety, the larger contracts, you're in business and then we also that smaller commercial bond operation. Both of them actually have continued to perform very well. Now, when you look at COVID, and we included it in our overall charge, in what we're seeing varies, you could have some potential bankruptcies of some of the smallest contractors based on the pressures they experienced in the second quarter. But overall, against the total IBNR charge, it was very small for surety. So, so far, they both end, both operations continue to perform well.

Great. Thank you so much.

We will now take our next question from Gary Ransom with Dowling & Partners. Please go ahead.

Yes, good morning. I wanted to dig in a little deeper on the overall trends and pricing. And we know, we knew ahead of time that rates were going up. They have been inadequate for a long time, there was social inflation. We have lower interest rates and now we throw in COVID, which isn't quite as clear or consistent of a force across the lines of business. And I just wondered if you could help us understand or get your thoughts on where you think COVID has accelerated the rate impacts the most, and where it might have tempered those trends?

Gary, its Dino. I think, it’s a little bit like the straw that breaks the proverbial camel's back. And then I think, the uncertainty around COVID just impacted overall view is that we're going to need a hardening market probably faster and longer. And I think in certain areas clearly more than others. When you think about healthcare for us, we have been getting significant wage increases. And in the quarter particular on professional liability for aging services our rate increase was 40 points. But I think what's interesting is also our retention went up a little bit. So and what we can see that others are starting to react more like we have been reacting for the last couple of years. So I do think there's some direct causality there. And just in general, I think it adds uncertainty. There's nothing to lead me to believe that post COVID social inflation isn't going to continue to do what it is doing. And the question is, does COVID exacerbate social inflation and I think we just need to let time tell us more. But it added just a sense of level of uncertainty that I couldn't have for additional pressure. And clearly in certain places, as I indicated, like in health care for our portfolio.

Thank you. That's helpful. I also just wanted to ask about workers comp actually, maybe the question is more about what can happen in the future on COVID? So we have certain things that you might not have been able to preserve for like a worker's comp presumption change. And maybe there's other things that can happen in professional liability lines later. Could you just help us understand what you think might? What are the things that can happen in the future that might trigger some additional COVID cost?

Yes. Okay. Let me start with comp, because interestingly, Gary when you look back in March, and the first sort of thought and reaction and I believe I mentioned it also on the first quarter call. So unless this being an issues for workers, comp, again a function of not having the first responders and frontline Healthcare providers. But then, presumption, notwithstanding the fact that it does have some guardrails? There's as of June 30, which is all we could go by at the time. We have 15 [ph] states with presumption and, five of them with a very broad definition of influence, and you can sense that presumption is something of interest in potentially other skills. And so we can only take the 16 states when we chose our IBNR effective of June 30, which is what we did. And I guess one can say if you end up with a lot more states, with presumption, you can be faked. Probably what's the more it's hard to say? Because it's not in effect size, the amount you put in for the 15 states. If you look at the amount we have already paid, it's actually very small and the averages on severity Gary are in line with what the work comp rating bureaus, and they're down about 40%. Why? Because, the COVID cases are usually mild, hospitalization. So, you look at the claims count, we took a number based on the presumption. If it's conservative, it’s play out to be conservative, then even if you have some additional space for presumption, it might subsume it, so it's hard to know exactly. I do. I give you the same thoughts on aging services. As I was saying before, when answering Josh's question -- or part of this question, we look at the claim notices we had received, and it’s relatively limited. So what we did was, because there's reliable external information on deaths that occur in various communities, and you can map our aging services facility. We then took all of those even though we didn't have the notices, and we made a decision about what might turn into claim notices and what then might emerge as payments, or even legal costs. So now, if you have a tremendous second wage loss, potentially you're going to be faced with more. If you have a moderate increase, then the point I made on workers comp. You may -- the number we took, it's not an exact science, may subsume that without increase. We try to be conservative based on the information we had as of June 30. But I think those are the kinds of dynamics that that can play out if that helps.

Yes, that is very helpful. I appreciate it Dino.

Okay. Thanks, Gary.

Our next question comes from Jeff Smith with William Blair. Please go ahead.

Hi, good morning. Did you mention what you know rate increases were 9% overall in the commercial book. Did you mention what that was without workers comp? I presume workers comp is still negative?

Yes, yes. It's about a negative one. So that the overall of the 11 included, included the negative one. So that’s sort of its impact on the commercial. So it was up pretty much over the first quarter.

Okay. And then commercial policyholder retention.

A little over. Sorry, we have a little over 10. Right? Because of the nine and the minus one. I'm sorry. Go ahead.

Okay. Yes, just looking at policyholder retention to the commercial segment turning down a fair amount. I mean, it looks to be particularly middle market. I'm assuming you’re getting a lot more rate there. But the market overall is too -- could you speak to that and why that’s trending down as much as it is?

Yes, that's, a good question. Because then just look at the number, I think really the market obviously we're able to get rate and obviously we're also able to retain the accounts even with stronger rates. But in middle market, in our manufacturing segments specifically, we decided that we needed to re-underwrite a couple of few SIC codes within the manufacturing. And so that's just a decision we made to the under right, some of the -- some of the segments within manufacturing and middle market and that’s all that is. In reaction to that, you can get the rate and you can get the increase in potential.

Okay. And then looking at the International book. Where do you stand in that re-underwriting process as rates now are up in the almost mid-teens, you know when should we expect that growth to turn positive?

That's good question. As I've been commenting, on prior calls, the re-underwriting is substantially over by the end of the third quarter. So I think, going into 2021, we expect to be able to turn positive growth on the international. And if you look at the underlying loss ratio, in the quarter if you look at the underlying loss ratio in the first half, there is a trend now more in line with the rest of our portfolio. So, you know, a long process, but it’s had the effect and we expect to see positive growth in 2021.

Okay. Thank you.

Thank you.

And we will now take a follow up question from Josh Shanker with Bank of America. Please go ahead.

Thank you for taking follow ups. Two quick ones. One -- maybe one's not so quick. But yes, what do you think is the state of the reserve situation for the industry right now in P&C. We really haven't seen that much unfavorables on the face of social inflation. Is this waiting to come?

Josh, I'm not -- I don't think I'm qualified. I can tell you how we feel about our portfolio. And we've been transparent in the quarters to talk about what we have seen, what we've done on severity trends, we talk about when we raised our long-run loss cost trends in certain lines, even multiple times like aging services. And I think I'd have to leave it at just commenting on CNA.

Okay, I guess and then one other question about lows is in buying in a lot of stock. I think we've spoken in the past about how part of the reason for the stock being floating is remuneration of employees through shares. Is there any impact of this ongoing buy into the stock on how you guys think about your capital situation and what not?

I don’t know Al if you want to make any comments? And also, obviously, Josh, you get an opportunity to talk to Loews too after this.

Yes, this is Al. Now I wouldn’t say there is any significant impact. Obviously there was a bit of buying there. And as well, obviously we had some activity just re-filling our treasury and stock. But not significant impact on our overall capital management strategy.

Alright. That makes sense. Alright, I appreciate. Thank you.

Just one quick follow-up on your question on paid incurred. So for the quarter, our overall paid is incurred, and you'll see this obviously in our filed documents with the balance of 78% and that’s was 81% on commercial, so a big difference there and again kind of – restricting some line. Yes, 78% and 81% for commercial. And obviously there is some variability across different lines, right since we had some longer tails and shorter tails. But nothing really extraordinary.

Okay, very good. Thank you.

As there are no further questions at this time. I would like to turn the call back to our host, Dino Robusto for any additional or closing remarks.

Okay, thank you everyone. And thanks for listening in and your questions. And we look forward to talking to you again in the quarter. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.