CNA’s International unit outperforms as US commercial margins narrow

CNA Financial’s international business, which includes its Canadian operations, outperformed in the third quarter, even as underwriting margins narrowed in the commercial insurer’s much larger US business.

The International segment’s combined ratio improved to 86.1% from 91.8% a year earlier, helped by 10.1 points of favorable prior-year reserve development. Net written premiums grew 4%, or 6% excluding currency movements. However, the segment’s underlying combined ratio rose 2.9 points to 94.1%, as the underlying loss ratio increased 1.3 points across most lines and higher acquisition costs lifted the expense ratio 1.6 points.

CNA said its International segment was one of the areas where it is cutting rates, along with property and workers’ compensation.

US casualty pressure

Across all of CNA’s property and casualty business, the combined ratio rose to 97.0% from 92.8%. The underlying loss ratio rose 2.2 points to 64.1%, with increases in every segment. Written rate was up just 2%.

The pressure was sharpest in the US Commercial segment, where the combined ratio rose 7 points to 99.7%, driven by catastrophe losses, unfavorable reserve development and higher losses in excess casualty and workers’ compensation.

“There are areas across many portions of the portfolio where we chose to walk away given current market conditions do not support appropriate pricing, terms and conditions,” said Douglas Worman, chairman and chief executive.

Net income fell to $196 million from $403 million, partly because of a $137 million after-tax charge from CNA’s annual review of its run-off long-term care reserves.

Competition outside the US

For brokers in Canada, the fact that CNA’s International segment is cutting rates suggests the carrier is competing for business outside the US, in line with the wider softening of Canada’s commercial market. Brokers may find CNA Canada willing to negotiate on property and other lines where conditions are competitive.

The pressure in the US is still relevant. Canadian clients with US operations or exposures, especially in excess liability, are likely to face a firmer market for that part of their program. US carriers that are seeing loss trends move against them are unlikely to offer big rate cuts on US-exposed casualty, even as Canadian domestic pricing softens.

The rise in underlying losses within CNA’s own International segment is also worth watching. Strong reserve releases flattered this quarter’s result, but underlying margins are narrowing outside the US as well.