Good morning and welcome to the CNA's discussion of its 2020 Third Quarter Financial Results. CNA's third quarter earnings release, presentation and financial supplements 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 involved 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, November 02, 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 the financial supplement. This call is being recorded and webcast. During the next week the call may be accessed 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, Rolando. Good morning. It is very good to be with you today and I hope you and your families are coping well. This is quite unprecedented times. CNA continues to operate effectively as our underlying business performance improved once again this quarter as evidenced by the ongoing acceleration in rate achievement as well as higher overall growth and growth in new business. We also had an improved underlying loss ratio and a lower expense ratio for the quarter. As we have done in previous years, we completed our annual Life and Group review in the quarter which importantly includes the long term care growth premium evaluation or GPV analysis of our active life reserves. As part of our analysis we took strong action to address the lower interest rate environment we now face compared to a year ago by conservatively modifying our discount rate assumptions. First we have lowered our expectations for the normative 10 year treasury yield to 2.75%, a reduction of 100 basis points from last year. Second, we extended the time period to grade up to that normative rate from 6 years to 10 years and long term care reserve discounted these changed reflect are ongoing proven approach to reserving in our stead fast results to protect our capital and earnings in an ongoing low interest rate environment. Al will provide you with much more details associated with this year's GPV review. Turning to P&C our underlying combined ratio of 92.6% for the quarter improved by 2 points from a year ago and is the lowest underlying combined ratio of CNA in the last 10 years. The underlying loss ratio improvement consisted of only a half point benefit due to lower frequency from the ongoing economic downturn. With most of the improvement driven by our…

Thanks Dino and good morning to everyone. As Dino indicated that I will now provide details of our results by business segment, starting especially the combined ratio was 89.5% this quarter. The combined ratio includes favorable primary development of 2 points and 1 point for catastrophe losses. The favorable prior period development is largely driven by continued strong profitability of maturity business partially offset by unfavorable development in healthcare. The underlying combined ratio especially with 90.5% this quarter 1.6 points of improvement compared to third quarter 2019. The underlying loss ratio was 60% and the expense ratio was 30.5%. The expense ratio has improved by 1.3 points compared to third quarter 2019 due to both growth in net earned premium and lower expenses. The gross rate and premium growth ex-cap is plus 11% especially for the quarter and was 9% on net written premium. Rates continued to increase at plus 13% up from 11% last quarter. The retention was 86% this quarter which was flat to last quarter. The business volume was strong with growth of 14% over the prior year's quarter. The combined ratio for commercial was 111.5% this quarter which is 9.9 points higher than third quarter 2019 and includes 17 points of catastrophe losses and 0.6 points of un-paidable prior period development. The cat losses are attributable to severe weather related events in the quarter primarily Hurricanes Laura, Isaias and Sally, and the Midwest derecho. The underlying combined ratio for commercial was 93.9% this quarter 0.1 points higher than third quarter 2019 but 0.9 points improvement on a year-to-date basis versus prior. The underlying loss ratio was 61% compared to 61.5% in the prior year reflecting a modest benefit from lower frequency in the quarter as Dino mentioned. The expense ratio was 32.3% compared to 31.7% in…

Thanks Al. One last point of emphasis before we move on to the question and answer portion of the call. Each quarter of this year I have developed greater confidence in the strength and duration of the hard market because of the widespread industry awareness and therefore increasing customer awareness of the adverse impact of a protracted low interest rate environment, social inflation dynamics as well as years of depressed pricing and elevated catastrophe activity increasingly it is understood this will take more than a few additional quarters of correction to allow the industry to achieve required levels of return to responsibly protect the customer risks we assume. I am optimistic that we will be able to take full advantage of this correction period to achieve stronger pricing, better terms and conditions, growing our top line premium as well as our share of high quality new business and improving both their underlying loss and expense ratios. And with that we'd be happy to take your questions.

[Operator Instructions] We'll take our first question from Joshua Shanker with Bank of America. Please go ahead.

Yes. Good morning everyone. I hope you'll indulge me with maybe more than two but you can cut me off if you want. So first question on the expense ratio in the P&C business; absolutely a great number. Anything we need to think about in terms of G&E or COVID related expenses making this a typically low or is that a good number to think about going forward?

Al you want to take that?

Yes. Sure. Good morning Joshua. It's a good question. So I would say modest impact from travel right. We are not a huge teeny spend company. So I would say the expenses are modestly benefited from less or very little travel but not a lot really the pickup largely driven by our pickup in our group.

And so that might be it obviously just one quarter but might be a useful number if you think about going forward it's not unreasonable.

I don't think it's unusual. Remember our strategy has been to try to hold underwriting expenses flat while we invest in the business and I think what you saw in the quarter was just that good efforts in holding flat. We continue on our path of investing in talent, technology, analytics but the disciplines showing through on the our expense spends and then again you see the path of our written growth and we're starting to see that really show up in our earnings.

And then in terms of long-term care there is a few quickies, one is I just need to understand exactly. I thought that the future rate increases are not included in the assumptions and I guess when I was reading the press release it said that the 2019 rate increases came through better than expected. I'm trying to understand exactly how does that work? The expectations should they were they built into the numbers or what is that $318 million exactly?

Sure. So just remember this gross premium valuation effectively what it is it takes all of your future cash flows, premiums, claims, expenses and then it discounts it all back on your balance sheet in the form of a reserve. Okay. So that includes your premiums and that's just how it works from a life company perspective. Now what we include from from a rate increase perspective we would deem to be prudent like I said we take the increases that we've gotten approved already that haven't yet kicked in or come through as actual premium that we've filed but have not yet been approved or that we have a current approved program but has not gone through the filing process yet. The sum of what is in our reserves pursuant to rate increases is $265 million so that's the balance that is outstanding. Last year that balance was $230 million baked into our reserves okay. So what basically I'm saying with that $318 million is what was the change you had some of the rate increases actually earned in and then you have your updated assumptions. The bulk of that change that $318 million is purely based on last year's estimates of what we thought we could achieve versus what we actually achieved that is we outperformed, we got greater rate than we would have anticipated. But our approach and our philosophy is to be proven about what we think we can earn and do not go far out in the future and you will see you hear other long-term carriers speak they all have a little bit different perspective but some will go further out into the future and will have a bit more aggressive expectations in terms of what they achieved because we don't know when there is an uncertainty of what the rate environment will be we've always taken a very important approach on that and then so what you're seeing is basically our ability to outperform on those assumptions.

And I was looking over not just yours but some other companies rate increase approvals and whatnot and some of them are quite staggering. Are we at the point where you are ambivalent about whether a policyholder takes the offer of the new rate or cancels the power team gets a compensation in return? You'll still see some rate increase where we're getting to the point where you're happy to have those policyholders on because you're getting the rate that you need? How should we think about that?

The way you should think about that is where we set the rates is basically the weight that we put out is actuarial equivalent to what options we would give them on benefit reductions. So that if someone says I want to reduce my inflation, I don't want to use my daily benefit then doing so versus accepting the rate is essentially equivalent. Now what we've seen and we can see that –

Canceling equivalent as well?

Well, canceling they're basically giving up all of their benefits. So canceling they're basically forgoing what they would have paid in premiums over the years. So I wouldn't look at that the same.

That's not an option I would use the cash benefit return in exchange foregoing your benefits?

These policies do not have cash value.

Okay.

So there is not on the render value.

Some of them did have that okay and one last question, can you partially how much COVID mortality, there is in the persistency benefit you had in the quarter?

You mean current operations as opposed to in our reserve use?

There was I think $150 million in persistency benefit it was mortality related I assume some of that is COVID mortality.

In our current operations that is the operating result we have $30 million, there is some mortality benefit which you should think of as what came through the results would be kind of more of more permanent impacts of the business that is that we had a lower level of paid claims and really more severity and as well you would have some mortality coming through there both in our what we call healthy lives as well as our claimed population. And what we are holding and being more cautious about is more of the claim frequency component.

Okay. well thank you for all the detailed answers. I appreciate it.

You're welcome.

And up next we'll hear from Gary Ransom with Dowling & Partners. Please go ahead.

Yes. Good morning. I wanted to ask a little bit about expenses as well. I'd like to hear your thoughts on how the COVID experience might cause permanent changes in expense levels and I'm thinking maybe there is some rejiggering of real estate and yes travel and entertainment maybe some processes work just as well with people at home and I wanted to ask the question is how do you make the best of what you might have learned over the past seven months? Is there some changes you can make?

I'll start Al and then you can you can jump in. I think maybe starting a little bit with the second part Gary. There are things that we are clearly learning in the process and the ability for us to work in this remote environment does generate an ability for us to say well going forward I think there is probably going to be less overall travel and expenses. You will continue to do that. We have branch operations. We'll go with them to those locations. We will obviously meet with our agents and brokers across all of those locations but our agents and brokers are also valuing the calls that we make in a virtual environment. Our clients are also everyone is generating some efficiency gains from that process. So I think there will be some potential benefit. Now I want to be a little bit careful just on the point that as Al had mentioned that travel expenses not a large component of our numerator can easily get consumed by our decisions that we continue to make on talent and in particular analytics and technology but there are some definitive positives that have been generated from a process standpoint a work standpoint that we anticipate from the talent standpoint as you can secure talent from a remote environment and find them work effectively. Of course we're all looking forward to getting for a large extent getting back in offices but there are clearly some benefits. I don't want to suggest that that has a big impact on the numerator at this particular juncture because travel and expenses a little bit less of an issue for all of the other components but nevertheless as I'll point it out because of the earned premium growth that's going to continue going into 2021. It'll continue to have a benefit.

So I guess I was trying to fare it out if there was a way to reduce expenses but it sounds like this is really more part and parcel of your keeping expense dollars flat and just letting the premium grow. Is that fair?

Yes. I think that's a that's a fair way where we stand today. We're always to keep it flat as you make investments in all the other areas you are having to gain operational efficiencies in other areas and I'm sure the COVID related circumstance will also provide some operational efficiencies. I just wanted to put it in context as not being a big driver of our numerator within underwriting expenses Gary.

All right. Thank you and my other question was on terms and conditions. So shifting gears a little bit and how you've been tightening those either in international or in segments that need it here. You've had experience with past cycles so you might have a view of how that terms and conditions change contributes to the overall improvement and how the timing might flow through? I'm just trying to get a sense of how big of an increment on top of the rates might be coming from the terms and conditions changes?

Yes. So it's clear that as this market continues to harden you get a lot of benefits within a construct of terms and conditions beyond the pricing. You get policy terms. They get a lot more restrictive. You get better deductibles. The exclusions that you can add in certain components of exposure that have gotten expanded in a softer market. Clearly this is an opportunity to take advantage of these changes in terms and conditions and we're clearly -- clearly doing that and I do think the way that I think about it having seen the 85, the 86 hard mark at 87 and then right after 2001 is that the terms and conditions tend to persist very beyond when the rates, the rate increases start to subside. So the rates moderate first the terms and conditions persist a little bit longer and then as you get deeper into a softer cycle you get the pressure on terms and conditions. So we are clearly taking advantage of the ability to do that in all areas. In particular in areas we've been re-underwriting like our healthcare portfolio in the United States. Some of our large property clearly some of the property from an international standpoint and this is going to serve us well beyond even when rates start to moderate again which in and of itself is going to be a little bit of a ways out there.

So do you think we're already seeing a meaningful benefit from terms and conditions changes?

I mean I would say to you that our re-underwriting efforts in the aggregate are clearly providing a benefit, a good example Gary that I would use is the international calendar year combined ratio which was under a hundred in the third quarter notwithstanding the catastrophes in the United States and I point that out only because in the past prior to our international re-underwriting we would evidence considerable catastrophe activity emanating out of our London operation on U.S. catastrophes and we clearly saw a benefit in this quarter in the last 18 months has gone a really, has made has made a big impact. So I put it within the broader umbrella of the underwriting initiative where you can already start to see it. I think you see it also in areas like healthcare where we've been able to get considerable deductibles on our professional liability; something that you have not seen before. So those are the part of the broader re-underwriting that we've been focused on for a while. Yes, I do think it's having a meaningful impact.

Thank you for all your thoughts Dino. I appreciate it.

Yes, you're welcome.

And up next we'll hear from Meyer Shields with KBW. Please go ahead.

Thanks. Good morning. I guess it's a question for Al. The fixed income portfolio within P&C seems to be risen, I don't know somewhat abruptly from the second quarter to the third quarter. I was hoping you can talk to what's driving that?

Sure Meyer and you mean the value of the portfolio?

No, the portfolio duration.

Duration. Yes correct. Yes, the duration is up that is not a function of any changes in the portfolio. What you're seeing there Meyer is with our current low rate environment rate staying low a lot of the modeling companies basically recalibrated their scenario modeling to reflect that rates could go lower prior to more recently they had floors in that would say rates aren't going to go any lower than this level they basically reduced those floors and now have the potential that you could drop to zero and so basically with that sensitivity now into the duration modeling with lower rates, lower -- the potential of lower rates and lower coupons the durations are higher but that has nothing to do with us changing anything in the portfolio.

Okay. So there is no incremental risk or anything like that.?

Correct.

Correct. We would essentially would have been a flat quarter-over-quarter in duration but for that modeling change.

Okay. Thank you. Within specialty I guess I was hoping you could quantify the offsetting reserve development patterns from surety and healthcare?

Okay. I'm not sure I understood that all. Can you just repeat that? Do you mind?

Yes. No mind at all. So Al talks about offsetting if I understood correctly offsetting reserve developments within a specialty segment where I think boiled down you have releases within surety and some charges within medical or with or healthcare those would be you could quantify that?

Al do you want to jump in there?

Sure. Meyer you're going to see that obviously as the queue comes out, so you have about $40 million of benefit from the shortly business and that's really a continuation of the exceptional profitability we see in that business and then healthcare, some adverse development really driven by some large loss activity and again kind of a bit of the kind of the trend that we've been seeing and obviously we would expect that will dissipate as we conclude the re-underwriting of that book.

Okay. That's helpful and then just finally on reserves but within commercial, the last few quarters of that or maybe more than few have had favorable workers compensation reserve development. That's something you could talk through how that played out in the third quarter?

Al the favorable and on work comp do you have those numbers?

Yes. So and work comp again you've hey you've got a couple puts and takes on commercial. On workers comp you're going to see favorable development there really reflective of continuation of favorable medical trends that we've been experiencing.

Okay. Thank you very much. I appreciate.

And up next we'll hear from Ron Bobman with Capital Returns. Please go ahead.

Hi good morning. Dino, you have a specialty in the healthcare area and I'm wondering if you might give us a little bit more sort of color as to what's going on in the various sort of sub segments sort of loss activity or claims activity underwriting sort of the underwriting environment sort of some more info would be interesting. Please.

Okay. And just to make sure, I got all of that related to healthcare sub segments related to the COVID or just in general?

Yes. Really I guess really the COVID impact on the various segments whether it's doctors, nursing facilities, hospitals, other specialties obviously it's got to be create a lot of upheaval and challenges and be interesting to hear about what you're seeing, what you're learning. Thanks.

Yes. So the healthcare as we had indicated when we put up our ultimate loss reserve we had indicated that a good portion of or the larger portion of the ultimate loss Rob was indeed medical malpractice and in particular aging services. And now what we did at the time to try to set an ultimate since we didn't have actual much claim activity we took a look at what came in from a claim notice standpoint and although that was relatively limited we then also just took some of the public information and looked at the number of decks within aging services facilities that we insure and what we did this took an estimate of what percentage overtime might turn in to claims. And then what we did was in the third quarter as I indicated in my prepare remarks not much changed. We've got even fewer additional claims on the healthcare aging services side than we did in the second quarter. So as I had indicated it was possible that when we put up that ultimate it might end up subsuming activity that we see in the third quarter which is essentially what it has but again I just want to caution, we indicated this is going to be slow moving. These things will take some time. So notwithstanding a relatively limited a plain notice activity at this juncture, I think we feel that the ultimate we did put up of which again the larger portion was medical malpractices is it's still appropriate. Does that answer your question?

Yes. And to be obviously know, how do you handle renewals? You obviously have a lot of accounts, I presume with like light claim count maybe no claim count but you do face renewals come due and what's the underwriting approach to writing those would be very interesting. Thanks.

Yes. Sure. And as you know we had embarked early on and I think can comfortably say we led the market in the turn on healthcare because we are a major player and we are respected we started to get rate increases and have had double digit rate increases for multiple years now and what we have said is we're going to get or achieve the terms and conditions and the rate increases we need or we're going to let it go and what you saw over the course of the last several quarters was the willingness to drop the retention ratio and we have in particular on aging services. It had dropped considerably below the overall retention ratios we drive at CNA but that was fine. We decided we were going to do that. Now we're getting substantial rate increases going into the third quarter. We had aging services alone was up 56% in rate increases about 13 points higher than it was. In the second quarter if you take all of healthcare combined about 32 versus 28 in the second quarter and so we continue to drive this in the right direction. What is particularly comforting to us is over the course of the last couple of quarters maybe as I say that proverbial straw that broke the camel's back was COVID you're seeing other players really take follow our lead and so we actually have been able to generate some substantial rate increases while actually increasing our retention; the implication simply being that others are following suit. So yes it's been substantial and what we and our position remains the same if we can't get the terms and conditions we deem appropriate and after 20 plus years of experience we think we know what it is, what they should be then we are prepared to walk away in the sub segments that have been problematic and that have had a higher longer loss constraint. Does that give you the color you needed?

Yes. It's very helpful and I assume those rates that you mentioned which are, they're significant that's separate and apart from the benefits of terms and condition changes I presume.

Correct. Because you get deductibles, you get kind of policy language migration, although the vast majority of claims made of continuing to move that and so that's over and above and quite frankly in our opinion needed.

Okay. Thanks a lot. That's helpful. Interesting. Good luck. Hope it continues.

And there are no further questions in queue. I'll turn the call back over to CEO Dino Robusto for additional or closing remarks.

Okay. Thank you very much and we look forward to chatting with you next quarter. Thank you.

And ladies and gentlemen this concludes today's call. We thank you for your participation and you may now disconnect.