CNA Financial Announces Fourth Quarter 2012 Net Operating Loss of $7 Million Including $190 Million

CNA Financial Announces Fourth Quarter 2012 Net Operating Loss of $7 Million Including $190 Million After-Tax Impact from Storm Sandy

• Net Operating Income of $587 Million for 2012

• Book Value Per Share of $45.71, +7% for the Year

• Quarterly Dividend Increased to $0.20 Per Share

CHICAGO--(BUSINESS WIRE)-- CNA Financial Corporation (NYS: CNA) today announced a net operating loss of $7 million and a net loss of $9 million, or $0.03 per common share, for the fourth quarter 2012. Full year 2012 net operating income was $587 million and net income was $628 million, or $2.18 and $2.33 per common share.

Property & Casualty Operations combined ratio for the fourth quarter and full year was 116.1% and 105.0%, respectively. Book value per common share was $45.71 at December 31, 2012 as compared with $42.66 at December 31, 2011.

CNA Financial also declared a quarterly dividend of $0.20 per share, payable March 7, 2013 to stockholders of record on February 21, 2013.

Property & Casualty Operations' net operating income was $60 million for the fourth quarter of 2012 as compared with $345 million in the prior year quarter. This decrease was primarily due to the impact of losses from Storm Sandy as well as a decreased level of favorable net prior year development. This was partially offset by higher net investment income. The Storm Sandy impact for the fourth quarter of 2012, including reinstatement premiums, was $190 million after-tax as compared with catastrophe losses of $11 million after-tax in the prior year quarter.

Net operating results for our non-core segments improved $86 million as compared with the prior year quarter. Results in the Life & Group Non-Core segment were negatively affected by a $24 million after-tax charge in the fourth quarter of 2012 as compared with a $115 million after-tax charge in the prior year quarter due to unlocking actuarial assumptions in the payout annuity business.

Pretax net investment income increased to $563 million for the fourth quarter of 2012 as compared with $523 million in the prior year quarter. This increase was primarily driven by limited partnership investments which produced income of $67 million in the fourth quarter of 2012 as compared with $16 million in the prior year quarter.

Full Year 2012 Consolidated Results

Net operating income for the full year 2012 decreased $23 million as compared with the prior year. Property & Casualty Operations' net operating income was $758 million for the full year as compared with $884 million in the prior year. Similar to the drivers for the fourth quarter, this decrease was primarily due to higher catastrophe losses and decreased favorable net prior year development, partially offset by higher net investment income. The catastrophe losses for the full year, including reinstatement premiums, were $270 million after-tax as compared with $144 million after-tax in the prior year. Net operating results for our non-core segments improved $103 million as compared with the prior year, primarily due to lower after-tax charges associated with unlocking actuarial assumptions in the payout annuity business.

Pretax net investment income increased to $2,282 million for the year as compared with $2,054 million in the prior year. This increase was primarily driven by limited partnership investments.

After-tax net realized investment gains increased to $41 million for the year as compared with $3 million for the prior year, driven by lower other-than-temporary impairment (OTTI) losses recognized in earnings.

Property & Casualty Operations

"Our results in the fourth quarter were materially affected by Storm Sandy. In addition, our track record of continuously improving our accident year loss ratio was slowed by a number of large non-cat losses in this year's fourth quarter. We did drive meaningful rate increases across our P&C portfolio and expect to show renewed progress toward our longer term goals throughout 2013," said Thomas F. Motamed, Chairman and Chief Executive Officer of CNA Financial Corporation.

"In Specialty, we continued to produce solid underwriting results while addressing an upward trend in the non-catastrophe accident year loss ratio with rate increases and tighter underwriting standards. In our Commercial segment, our progress slowed this quarter, but we are confident that our underwriting actions coupled with rate increases, which were sustained at 8% again this quarter, will drive expanding margins throughout 2013."

Business Operating Highlights

CNA Specialty

• Net written premiums increased $18 million for the fourth quarter of 2012 as compared with the prior year quarter. This increase was primarily driven by continued positive rate achievement. Average rate increased 6% for the fourth quarter of 2012 as compared with an increase of 1% for the prior year quarter for the policies that renewed in each period. Retention of 86% and 88% was achieved in each respective period.

• Net operating income decreased $61 million for the fourth quarter of 2012 as compared with the prior year quarter. This decrease was primarily due to a lower level of favorable net prior year development and current accident year underwriting results, partially offset by higher net investment income.

• The combined ratio increased 16.1 points for the fourth quarter of 2012 as compared with the prior year quarter. The loss ratio increased 15.5 points, due to the impact of less favorable net prior year development and a higher current accident year loss ratio, primarily due to a large loss.

CNA Commercial

• Net written premiums increased $24 million, or 3%, for the fourth quarter of 2012 as compared with the prior year quarter. Excluding the impact of First Insurance Company of Hawaii (FICOH), which was sold in the fourth quarter of 2011, net written premiums increased 5%, primarily driven by continued positive rate achievement. Average rate increased 8% for the fourth quarter of 2012, as compared with an increase of 3% for the prior year quarter for the policies that renewed in each period. Retention of 78% and 80% was achieved in each respective period.

• Net operating results decreased $198 million for the fourth quarter of 2012 as compared with the prior year quarter. The decrease was primarily due to higher catastrophe losses and decreased favorable net prior year development.

• The combined ratio increased 37.6 points for the fourth quarter of 2012 as compared with the prior year quarter. The loss ratio increased 37.0 points, primarily due to the impacts of higher catastrophe losses and less favorable net prior year development. The expense ratio increased 0.7 points, driven by increased acquisition expenses.

Hardy

• Net written premiums were reduced by reinstatement premiums of $9 million related to Storm Sandy. Average rate remained flat for the fourth quarter of 2012 for the policies that renewed in the period. Retention of 63% was achieved in the period. The overall retention was reduced by the Property Treaty business unit, where retention was 29%, as we refocus and rebuild this business.

• Net operating loss was $26 million for the fourth quarter of 2012. Storm Sandy losses, including the impact of reinstatement premiums, were $25 million after-tax. These losses added 37.0 points to the loss ratio and 45.2 points to Hardy's fourth quarter 2012 combined ratio.

• The combined ratio excluding catastrophes and prior year development was 105.8% for the fourth quarter of 2012, including 10.3 points from two large non-catastrophe property losses.

Life & Group Non-Core