Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Loews Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Darren Daugherty, Director of Investor Relations. Please go ahead.

Thank you, Melissa. Good morning, everyone. Welcome to Loews Corporation's Second Quarter 2011 Earnings Conference Call. A copy of the earnings release may be found on our website, loews.com. On the call this morning are Jim Tisch, our Chief Executive Officer; and Peter Keegan, our Chief Financial Officer. Following our prepared remarks this morning, we will have a question and answer session. Before we begin, however, I will remind you that this conference call might include statements that are forward-looking in nature. Actual results achieved by the company may differ materially from those projections made in any forward-looking statements. Forward-looking statements reflect circumstances at the time they are made, and the company expressly disclaims any obligation to update or revise any forward-looking statements. This disclaimer is only a brief summary of the company’s statutory forward-looking statements disclaimer, which is included in the company’s 10-K and 10-Q filings with the SEC. During the call today, we might also discuss certain non-GAAP financial measures. Please refer to our security filings for reconciliation to the most comparable GAAP measures. I will now turn the call over to Loews' Chief Executive Officer, Jim Tisch.

Thank you, Darren. Good morning, and thanks for joining us on the call today. In the second quarter, Loews' net income decreased to $252 million from $366 million in 2010. The decline is mainly attributable to 2 factors at CNA. First, there was a lower level of favorable net prior year reserve development than in 2010; and second, CNA posted higher catastrophe losses during the quarter than during the second quarter of 2010. CNA continued to make progress growing and improving the underlying performance of its core property and casualty operations despite the natural catastrophe losses affecting the industry during the second quarter. Net written premiums grew by over 5% in CNA's core P&C operations. Growth in both its specialty and commercial segments was driven by new business and higher retention in targeted industry segments. In P&C operations, rate increased by 1% versus the prior-year quarter. Further expanding its specialty franchise, on June 10, CNA completed the acquisition of the minority shares of CNA Surety, increasing the scale of the company's profitable specialty business. We continue to believe that CNA and its surety business will benefit from the strategic realignment. This quarter, CNA reported favorable net prior-year development of $72 million before tax and noncontrolling interest, the 18th consecutive quarter during which it released reserves. In the prior-year quarter, CNA recorded favorable net prior-year development of $265 million before tax and noncontrolling interest, hence the year-over-year decline. Turning to Diamond Offshore. Diamond's results reflect an increase in average utilization of high-spec floaters versus the prior-year quarter, although this was partially offset by decline in contract drilling revenues from the mid-water and jack up fleets. Results for the quarter benefited from 3 high-spec floaters returning to work after being idle during the second quarter of last year following the Macondo accident.…

Thanks, Jim, and good morning, everyone. In the second quarter, Loews Corporation's earnings per share declined to $0.62 from $0.87 in the prior-year quarter. The decline was primarily due to lower results from CNA and partially offset by higher earnings from Diamond Offshore. CNA's contribution to Loews' net operating income decreased to $103 million in the second quarter from $247 million in the prior-year quarter. As Jim stated, favorable net prior-year development was $72 million before tax and noncontrolling interest but declined year-over-year compared to favorable net prior-year development of $265 million in the second quarter of 2010. For the quarter, CNA's pretax catastrophe losses increased to $100 million from $48 million for the same period in 2010. Catastrophe losses in 2011 related primarily to domestic storms and the earthquake in Japan. CNA's realized investment gains were unchanged versus the prior year's second quarter, totaling $12 million after tax and noncontrolling interest. Diamond Offshore's contribution to net income for the quarter increased to $125 million from $104 million in the prior-year quarter, primarily as a result of an increase in average utilization of its high specification floaters, partially offset by a decline in contract drilling revenues earned by the remainder of its fleet. Contract drilling expenses increased with the addition of normal operating cost for Diamond's newest rig, the Ocean Valor, as well as increased amortized mobilization costs and higher costs associated with rigs operating internationally rather than domestically. Partially offsetting increased drilling costs were lower income tax expenses. HighMount E&P's operating income for the quarter increased to $15 million from $5 million in the prior-year quarter. The year-over-year comparison includes a number of nonrecurring items related to the sale in 2010 of assets in the Antrim Shale and Black Warrior Basin. HighMount's operating revenues, as well as expenses, decreased…

Thank you, Pete. Operator, at this time, we'll open it up for questions.

[Operator Instructions] Your first question comes from David Adelman of Morgan Stanley.

Jim, was there any material changes in the composition of the corporate investment portfolio during the quarter?

No, not significant. You're talking about the Loews $4.3 billion portfolio?

Correct.

Is that correct? Yes, there were no significant changes. We have about $500 million or $600 million of equities. We have another $700 million or so of hedge funds. And then, we have the rest primarily in cash and other cash-like instruments.

Okay. And then secondly, you've mentioned in the past an interest at HighMount of making additional acquisitions over time. And I'm curious, has there been things for you to look at in the last 3 to 6 months? And then secondly, in an acquisition context, what do you think of HighMount or Loews' edges in that situation other than financial discipline and having obviously the financial resources to make an acquisition. In other words, are there potential synergies with the existing operations? Do you think that you have certain operational advantages from a cost perspective and so on?

So yes, HighMount has been kicking a bunch of tires. Nothing has come to fruition yet. But in fact, there is a lot to look at. And the things that we're looking at primarily are buying rights to leases on land for both -- we're looking at gas, gas liquids and oil. And there, in fact, are lots of transactions that take place in the oil patch in these types of acquisitions, and there are plenty of them around. We are looking for transactions that will return for us what I would call significant double-digit after-tax returns. And I would say that we've come close on a few times but still haven't finalized anything. But I think we do have the opportunity to do so. I think that what HighMount brings to the table is a very good, very disciplined approach to finding and developing hydrocarbons under the ground. And combined with that -- combined with having the right people, as you mentioned, we do also have the financial discipline and the wherewithal to make these acquisitions. And my belief is if we can do some of these, it will be -- some of these acquisitions, it will be not only beneficial to HighMount, but also beneficial to Loews, in that we'll be able to invest our cash at very attractive rates of return.

Our next question comes from Michael Millman of Millman Research.

Actually, just following up on the last comment and some others. Are you considering that Loews Corporation would invest with HighMount in some of these deals? Or maybe you can explain that. And maybe you can talk generally about the investment idea flow that you may be seeing or may not be seeing, if that's changed...

So if HighMount were to come up with some properties to buy, chances are, HighMount would not be able to fully finance it on its own. And therefore, Loews would be prepared to make a capital contribution to HighMount in order to enable them to make that acquisition.

Can you give us some idea of how much you might -- the range that you might be willing to go?

We're not going to make a bet-the-ranch acquisition, but I could see us doing an acquisition for a few hundred million dollars.

Okay. And the other question was whether you're seeing -- for the type of investment idea flow you're seeing, if any.

We're seeing odds and ends but nothing dramatic that really piques our interest or curiosity. There really -- if you look in the newspapers, you see that there really have not been a lot of transactions that has been done. And I'm not exactly sure why that is, but there's really been nothing that's been of much interest to us.

Maybe just tacking on a question. Did you say on Boardwalk, that they might make acquisitions outside their basic business? Does that suggest anything? Or what does that suggest?

So on the Boardwalk call today, Stan Horton did enunciate a policy of looking for MLP-eligible assets that go beyond the interstate natural gas pipeline business. Right now, Boardwalk is primarily interstate natural gas pipeline. And Boardwalk has expanded its look for assets, but we have nothing in mind at this point in time -- nothing in particular in mind at this point in time.

Your next question comes from Bob Glasspiegel of Langen McAlenney.

Remind me whether you said you were going to term any more debt out or just stay with the less debt to capital.

We have no current plans to issue any more debt at the Loews Corporation level. So we now have $700 million and change in debt at Loews.

Do you have a targeted debt to capital ratio that you've articulated?

No. But at this rate, it'll be zero eventually.

So that sort of implies you don't see anything new. And if you're de-leveraging...

Here's the story. We've got $4.3 billion of cash. If we were to borrow, say, 10-year money, it would look, on an absolute basis, very attractive. But then, what you have to do is think about, "Okay, what am I going to do with the cash?" And suppose we were to borrow $1 billion, that $1 billion would be spent after the $4.3 billion that we already have on the balance sheet was spent. So this is the last cash that will be spent. The problem is, suppose we could borrow for say under, say, 4½% or so. The problem is we're going to invest the money at about zero. So we've got, on an annual basis, a 450 basis point negative carry. That means that in a year or 2, we could afford for interest rates to have gone up 100 or 150 basis points, and we could still be equally well-off not having issued now versus issuing later. So the problem really is that the negative carry makes it expensive, combined with the fact that we have no use for the money.

Well, if we were just going to look at buying $1 of debt back versus buying a share back, it seems like the economic return on buyback would be higher than debt. Now you're going to come back and say you're doing all the buyback you want to do or...

Whoa, whoa, whoa. Okay, yes. I'm talking about -- you're right, I'm talking about issuance. You're talking about borrowing money in order to buy back shares?

No, no. You spent $1 to buy -- you spent $1 to retire debt, which is a 920 pretax return that you could have spent to buy back stock.

The debt we bought back -- it matured.

Okay. Now I get you. How about borrowing, replacing it to buy back stock, yes?

Again, we're not looking to lever up the balance sheet. And like I said, we've got $4.3 billion of cash on the books now. We've purchased -- we've spent over $400 million year-to-date in share repurchases, so we're actually pretty happy with where we are on share repurchases.

Okay. Any changes -- you're still in the long real slow recovery point? Or is it double dip at all in your probabilistic scenario for the next year?

My fearless forecast was, and continues to be, for about 2% economic growth, driven in large part because the consumer and the government is so full up on debt. And I don't think that we can have a robust recovery until we start to chip away at those levels of debt.

Well, the world sort of caught up with you in expectations to some extent, and some people have passed you by. You're not thinking you're overly optimistic with that growth outlook. And if you did, would that change anything you'd be doing as far as capital spending?

Our capital spending is not driven by the economy per se. It's driven by the needs of the individual businesses and the opportunities that we see in the individual businesses. My guess is that if we had 5% growth instead of 2% growth, that, that would translate into more opportunities that we see in the existing businesses. But right now, notwithstanding the 2% growth, we've actually committed to pretty significant capital spending at Diamond Offshore. We're also looking to do that at HighMount with our drilling for hydrocarbon. And Boardwalk Pipelines, they are pursuing opportunities to build out our pipeline system even further. So even with a 2% growth environment, we still have plenty of things to look at.

[Operator Instructions] Your next question comes from Sam Yake of BGB Securities.

I'm kind of new to the Loews story, and I just had a couple of questions that maybe you get all the time, and I'm just wondering if you could give us an update. And my first question is do you ever consider taking a large minority position in publicly traded securities instead of buying out the entire company? And what are your thoughts on that?

Generally not. We like to be able to control our own destiny. And more often than not, when you have a large minority stake, what you are is a large majority shareholder. And so that's not particularly high on our list right now.

Okay. And then could you also give us an update maybe on your thoughts on the cash dividend? It's a relatively small amount now, but I was just wondering what you're thinking about returning cash to shareholders through the cash dividend.

So over the years, we've returned an extraordinary amount of cash to shareholders. We do that through a combination of dividends and share repurchases. And more recently, most of that return of cash to shareholders has come through share repurchases. So that in the first half of the year, as I said, we've repurchased -- or in the year-to-date, we've repurchased over $400 million of cash. We have, as I like to say, a long and glorious history of share repurchases. We have less than 1/3 the shares that were outstanding in 1970. And we've done that through what I would call well-timed share repurchases. It's a part of our DNA. We were repurchasing Loews shares long, long, long before repurchases were the corporate vogue. We're not doing it because it's the corporate vogue, but rather because we think that it creates very good long-term value for all our shareholders. I would say that if shareholders are interested in relatively high dividends being paid from Loews common stock, then I would advise them to sell the stock, because that's generally not that you're going to see from Loews.

Right. One of the things that attracted me to Loews was your long and glorious history of share repurchases, so I'm completely on the same page with you on that.

At this time, there are no further questions. I'll turn back the to Mr. Daugherty for closing remarks.

Thank you for joining us on the call today. A replay will be available on our website, www.loews.com, in approximately 2 hours. That concludes today's call.

Thank you for participating in today's conference call. You may now disconnect.