Ladies and gentlemen, thank you for standing by, and welcome to the Loews Corporation Q4 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Mary Skafidas to begin.

Thank you, Laurie, and good morning, everyone. Welcome to Loews Corporation’s fourth quarter and year-end earnings call. A copy of our earnings release, earnings supplement and company overview, may be found on our website, loews.com. On the call this morning, we have our Chief Executive Officer, Jim Tisch; and our Chief Financial Officer, David Edelson. Following our prepared remarks this morning, we will have a question-and-answer session, which will include questions from our shareholders. 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 made or implied in any forward-looking statements due to a wide range of risks and uncertainties, including those set forth in our SEC filings forward-looking statements reflect circumstances at the time they are made. 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 filings with the SEC. During the call today, we might also discuss non-GAAP financial measures. Please refer to our security filings and earnings supplement for reconciliation to the most comparable GAAP measures. In a few minutes, our CFO, David Edelson will walk you through the key drivers for the quarter and the year. But before he does, Jim Tisch, our CEO, will kick off the call. Jim, over to you.

Thank you, Mary, and good morning. Loews had a disappointing fourth quarter, results negatively affected by higher than expected catastrophe losses at CNA and severe declines in the stock market at the end of 2018, impacting both Loews’ and CNA’s investment portfolios. Specifically with regard to CNA, let’s put these equity related losses in context. While the stock market declined 14% in the fourth quarter, CNA’s limited partnership and common equity portfolios were down 5.7% or about a $138 million, counterbalancing CNA’s fourth quarter investment performance, underlying operations for the full year were strong. In 2018, net written premiums grew by 4% and rate increased by 2.6%. CNA’s underlying combined ratio improved for the second straight year and while CNA’s loss ratio ticked up slightly in 2018, it’s essentially on par with its top quartile peers. Additionally, CNA has reduced its expense ratio by 2 points over the past two years, while still making necessary investments in technology, analytics and talents. Earlier today, in light of the full year 2018 results and its strong balance sheet and the CNA Board’s positive outlooks, CNA declared a $0.35 quarterly dividend as well as a $2 special dividend. These dividend payments will result in Loews receiving $570 million in dividends from CNA in March of this year. Over the last five years, including the upcoming March dividend payment, Loews will have received almost $4 billion in dividends from CNA. Moving on to Loews Hotels, I’m happy to report that the company had a stellar year. In 2018, Loews Hotels adjusted EBITDA grew by 15% and has nearly doubled since 2014. This tremendous progress is due to operational improvements and the Company’s ongoing commitment to grow in two focus areas. First, Loews Hotels is concentrating on highly profitable distinguished hotels that cater to group…

Thank you, Jim, and good morning. Today we reported fourth quarter net loss of $165 million or $0.53 per share, as compared to net income of $481 million or $1.43 per share in last year’s fourth quarter. For the full year, we reported net income of $636 million or $1.99 per share, down from $1.16 billion or $3.45 per share in 2017. As a reminder, included in last year’s fourth quarter and full year net income was a $200 million net benefit related to the passage of the Tax Cuts and Jobs Act. We have included a table in our earnings supplement laying out the impact of this net benefit by reporting segment. In my ensuing remarks, I will speak to results before the Q4 2017 impact of the Tax Act. Note that the year-over-year comparisons were also affected by the ongoing impact of the lower U.S. corporate tax rate. Let me start by discussing the key drivers of our fourth quarter loss and then turn my attention to our full year results. As Jim mentioned, the two main drags on our earnings in Q4 were investment results at both CNA and the parent company caused by difficult equity market conditions and catastrophe losses at CNA caused primarily by Hurricane Michael and the California wildfires. At CNA, the Company’s limited partnership and common stock investments lost ground in the fourth quarter, yielding a negative return versus positive results in Q4 2017. This swing accounted for $126 million of the decline in CNA’s contribution to our net income. As Jim highlighted, negative returns in a quarter when the S&P 500 was down 14% are no surprise. Additionally at CNA, the company had realized investment losses in the fourth quarter versus realized gains last year. This change accounted for another $73 million…

Thank you, David. We’ll now go to questions from shareholders.

Our first question is, CNA’s earnings this quarter are pretty ugly. Can you add to your prepared remarks and comment further on their results?

Sure, Mary. First of all, earnings were very ugly, but it was driven by two main factors, one was catastrophe losses and in that department, our catastrophe losses for the quarter were $146 million versus $38 million in the prior year. I should add that the $146 million of catastrophe losses that we had in the quarter was in no way disproportionate to the size of CNA. On a combined ratio basis, that was 8.6 points versus 2.3 points in the prior year for the quarter. Aside from catastrophe losses, the other thing that hurt CNA’s earnings significantly was the investment results, and specifically the results from our LP portfolio and common stocks, which was a $138 million loss in the quarter versus the fourth quarter of the prior year, which was a $50 million gain. And in my opinion, those two temporary factors are overshadowing a lot of the good things that are going on at CNA. Net written premiums for the year last year were up 4%, gross written premiums were up 7% and the difference between the 7% and the 4% is the additional reinsurance that CNA is purchasing. The underlying combined ratio was 95.4% about the same as last year. CNA paid a dividend – announced the dividend – announced the quarterly – regular quarterly dividend as well as the $2 special dividend, in my opinion, reflecting the Board’s confidence in the results of CNA and the way that the company is operating and proceeding. CNA continues to achieve significant rate increases across a number of lines. So from my perspective, things at CNA, notwithstanding the relatively ugly quarter, are really going pretty well.

Thank you, Jim for that additional clarification. Our next question is on Loews Hotels. Loews Hotels has a number of development projects under way. Can you expand on the Loews Hotels strategy?

Sure. What we’ve seen is that there is a generational shift in spending, where the millennial generation is moving more toward experiences rather than things. We see this play out especially in Orlando, with our joint venture with Universal theme parks. We have six hotels there and we’re building a seventh hotel now that has 2,800 rooms. On the Comcast earnings call, Brian Roberts reported something that we already knew that the occupancy ratio of our Orlando hotels is over 90%. And as I mentioned in my remarks, as a result of the occupancy ratio and the higher than market average daily rate, we’re able to achieve extraordinary RevPAR numbers in that market. So what we’ve done is we’ve taken the learnings that we have from Orlando and we’ve applied it to the rest of our business. First, we are striving to be close to demand generators, whether it’s a sports arena, a stadium or a convention center. Secondly, we are working hard to leverage our unique position in the hotel business. We own our own hotels, we’re not a manager of hotels. And therefore, we are willing to put up money to develop hotel properties and as a result, we find that partners are very willing to work with us. And those partners are financial partners as well as municipal partners. And as a result, we’re able – we find to procure for ourselves very attractive development opportunities, which we’re now moving forward with in St. Louis, in Arlington and Kansas City. When investing holding company cash, we’re very, very cognizant of the need to earn good rates of return, and we believe that the hotels that we’re investing in are doing just that. We have a team that’s continuing to look for additional opportunities, and I suspect that in the coming years, we’ll see opportunities that is attractive to us as what we’re doing in these three new markets that we’re developing right now.

Great. Thank you, Jim. Next question is on Diamond Offshore. How do you feel about the offshore drilling market is recovering on the horizon? Why hasn’t Diamond taken part in industry consolidation?

So, one of the nice things about having been in the business for over 40 years is that you’ve seen a lot of things. And I like to think that with respect to offshore drilling, I’ve seen this movie before in the supertanker business. In the supertanker business, there was a glut of supertankers in the early ’80s. Through scrapping, deterioration of the rigs and a slight increase in demand, we saw a whipsaw recovery in the mid to late 1980s. And I see for offshore drilling a similar thing that’s happening now. First of all, all the offshore drilling companies are managing to one thing and one thing only at this point in time. And that is to cash. Cash is the thing that they’re not earning that they desperately need in order to stay in business. So for the rigs that are not operating, it’s a big lift for them to spend cash on maintaining those rigs with no business opportunities in sight. And what happens, I’ve seen very clearly from the tanker industry and also from offshore drilling is that when ships, rigs, drillships are left on the water and they are not operating, then they can deteriorate very rapidly. Combined with that right now, oil prices are relatively low at about $52 a barrel for WTI, and about $61 a barrel for Brent oil. My belief is that with an increase in oil prices, which I see happening, I think we could see over the coming years, a pretty significant increase in demand and that demand increase will first go to rigs that are already operating and then, later on to rigs that are stacked. Our estimation is that the cost to recommission a rig, that’s been stacked for a number of years can easily be…

Okay. Thank you, Jim. Laurie, we’d like to turn the call over to you to open up the call for additional questions.

[Operator Instructions] Our first question comes from the line of Josh Shanker of Deutsche Bank.

Yes. Good morning, everybody.

Good morning.

Hi.

Good morning. Jim, I think I have asked you this question before, but it takes, I guess, a new sort of meaning. CNA says they’re going to be getting out of a bunch of hedge funds that they put money into, and I kind of feel you may disagree that a good part of CNA’s money is your money. What is the investment philosophy around risk assets that make sense for Loews? And in terms of like being in those hedge funds, not in those hedge funds, I know you have also a pool – a small pool of money at Loews you run with risk on it. What is the overriding way that you think about trying to allocate portfolios to risk assets?

Sure. So first, let me address the issue of results. At Loews, in the first five weeks, five or six weeks of this year, we have earned back all that we lost in the fourth quarter of last year. So we reported a loss of about $70 million in our portfolio in the fourth quarter of last year, and the portfolio was up by more than that at Loews. At CNA, they’ve recovered over 60% of their losses. But let me take a minute and talk about the different types of things that people can be invested in. You can invest in stocks, you can invest in hedge funds, you can invest in private equity. And one of the things that’s – that’s struck me in this past – in the past few months is that in the fourth quarter, the S&P 500 was down 14%, our hedge funds were down about 6%, and generally, across the board private equity firms have reported no loss at all. And I actually find that quite incredulous. It’s what I would call a self-graded exam. There was a temporary drop in the market and the private equity firms didn’t report a loss. It’s inconceivable to me that stocks could be down 14% and that there is no loss in private equity. So CNA is in some ways bearing the pain of being mark-to-market, whereas in private equity, there is more of what I would call a mark to moving average, but it’s just something that we have to deal with. In terms of the strategy, CNA’s had a very good run with hedge funds as has Loews. We’re starting to de-emphasize them because we think that, number one, there’s an awful lot of capital that’s invested in them. We think the returns has been competed down. Additionally, in today’s – over the past 10 years, you were able to earn zero on your cash balances. Today you can easily earn 2.5% to 3%. So simply investing in cash is not such a terrible alternative to hedge funds. We’re looking at risk assets that go beyond hedge funds and private equity. We’re looking at certain debt instruments. We’re looking at certain, what I would call, nontraditional private equity investments. We’re just trying to figure out over the coming year what will be the best vehicles for risk assets for both CNA and for Loews.

And, Josh, let me just add that if you look at the quarter, obviously, it looks pretty ugly on the year. This portfolio was down just under 2%. The prior year it made 9% returns. And the year before that, it made 6% returns. So clearly, just focusing in solely on the fourth quarter it’s an aberration.

Okay. Thank you. And if I can get one more in. Changing gears, can we talk about acquisition pipeline and how it looks for Consolidated Container?

There’s a – they made, I think three acquisition last year, and each one relatively small. And there are a number of other opportunities that’s in their pipeline and they’re continuing to kick tires. What we found is that our thesis is proving out that we’re able to acquire smaller manufacturers of containers at say, 8 or 9 times EBITDA, and as a result, own it, because of our economies of scale at 6 and 7 times EBITDA. So we’re very pleased with the acquisition market, and we’re also pleased with our overall investment in CCC.

Would all acquisitions that CCC does be self-funded?

To date, they have been, and based on the set of opportunities that we’re looking at, we continue to believe that they will be self-funding.

Okay. Thank you very much.

Thank you.

Thank you. That does conclude the Q&A portion of the conference. I’ll now return the call to Mary Skafidas for any closing comments.

Thank you, Laurie. As always, thank you, everyone for your continued interest. A replay of this call will be available on our website, loews.com in approximately two hours. That concludes Loews call for today.

Thank you for participating in the Loews Corporation Q4 2018 earnings conference call. You may now disconnect.