James Anderson – Investor Relations Tom Motamed – Chairman and Chief Executive Officer Craig Mense – Chief Financial Officer.

Josh Shanker – Deutsche Bank Bob Glasspiegel – Janney Montgomery Scott Jeff Schmidt – William Blair Jay Cohen – Bank of America Merrill Lynch Meyer Shields – Keefe, Bruyette & Woods.

Good day, everyone, and welcome to the CNA Financial Corporation First Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. James Anderson. Please go ahead, sir. James Anderson.

Thank you, Dana. Good morning and welcome to CNA’s discussion of our 2016 first quarter financial results. By now hopefully all of you have seen our earnings release, financial supplement and presentation slides. If not, you may access these documents on our website, www.cna.com.

With us on this morning’s call are Tom Motamed, our Chairman and Chief Executive Officer, and Craig Mense, our Chief Financial Officer. Following Tom and Craig’s remarks about our quarterly results, we will open it up for your questions.

Before turning it over to Tom, I would like to advise everyone that during this call there may be forward-looking statements made in references to non-GAAP financial measures. Any forward-looking statements involve risk and uncertainties that may cause actual results to differ materially from the statements made during the call.

Information concerning these risks is contained in our earnings release and in CNA’s most recent 10-Q and 10-K on file with the SEC. In addition, the forward-looking statements speak only as of today, Monday, May 2, 2016. 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 have also been provided in the financial supplement. This call is being recorded and webcast and during the next week the call may be accessed on CNA’s website. With that, I will turn the call over to CNA’s Chairman and CEO, Tom Motamed..

Thank you, James. Good morning, everyone, and thank you for joining us today. In the first quarter, CNA produced net operating income of $91 million, which included an $83 million accounting charge related to our 2010 loss portfolio transfer agreement with Berkshire Hathaway.

Excluding this charge, net operating income was $174 million, compared with $225 million in the first quarter of 2015. The decrease was driven by lower limited partnership investment income, partially offset by improved underwriting income.

Our property and casualty business had a solid first quarter with a combined ratio of 96.1, an improvement of 2.8 points over the prior year quarter. This is a result of favorable loss development across all of our property and casualty segments and sustained improvement in the underlying loss ratio, partially offset by a higher expense ratio.

Specialty continued to produce very good results in a competitive environment. The first quarter combined ratio of 89.4, a 5 point improvement compared with the first quarter of 2015, primarily due to favorable prior-year loss development and lower catastrophe losses. Specialty rates increased 1% in the first quarter with retention of 87%.

We continue to be very selective on new business as we believe that many of the opportunities that are coming into the market are inadequately priced for the exposures. As I have said before, when necessary, we will sacrifice the top line to protect the bottom line.

We continue to make progress in commercial as a result of our focus and commitment to underwriting discipline. The first quarter combined ratio of 101.9%, improved almost 1.5 compared with the prior year period, driven by 2.5 point improvement in the underlying loss ratio. Prior year reserve releases contributed 1.5.

These positive impacts were partially offset by a higher level of catastrophes and an increase in the expense ratio. Commercial rates were flat in the first quarter with retention improving significantly from 76% in the first quarter of last year to 83%. International produced a combined ratio of 99% as compared with 98.3% in the prior year quarter.

Both the underlying loss ratio and catastrophe losses increase largely offset by favorable reserve development. Market conditions continue to be challenging, particularly in the Lloyd’s marketplace. Before I turn it over to Craig, I would like to provide you with some comments on the expense ratio. I will start with some context.

We remain steadfast in our commitment to being among the very best at selecting and pricing risk. We have made significant progress in improving our loss ratio and we know that continued improvement requires exceptional talent, analytics and other underwriting tools.

While in the near-term, these investments in talent and systems pressure our expense ratio, they are necessary in order to achieve improved margins for the long-term. While we are not happy with the first quarter expense ratio, we see it as short-term pain.

You can expect that we will continue to invest in the business while simultaneously executing on our plan to further improve loss and expense results. I can assure you, we expect to treat expenses much in the same way we improved the loss ratio in commercial. With that, I will turn it over to Craig..

Thanks, Tom. Good morning, everyone. I think the best word that characterize CNA’s operating performance this quarter is steady, with notable improvements in property and casualty underwriting profit, reflected in both favorable prior-year development and the underlying accident-year loss ratio and in life and group operating results.

Net operating income for our P&C operations was $207 million, down 22% from last year with stronger operating performance offset by a lower limited partnership returns. Our P&C underwriting capabilities continue to improve. The loss ratio was 60.7%, a 3.8 point improvement over the first quarter of last year.

The underlying loss ratio was 62%, consistent with where we ended the full year 2015. Compared with the prior year quarter, the underlying loss ratio improved modestly highlighted by commercials 2.5 point improvement.

As I did last quarter, I intend to focus my remarks on what I consider the more significant items this quarter the long-term care results, investment income, asbestos and environmental pollution reserve increase and associated accounting and a few key financial strength metrics.

Life and group produced $2 million net operating loss in the quarter compared with $17 million loss in the first quarter of last year. For 2016 first quarter results are reflective of the year-end unlocking and associated resetting of our long-term care reserve assumptions, which we discussed at length last quarter.

Our carried active life reserves are now based on our best estimate assumptions. As a result, the long-term care portion of our first quarter 2016 life and group result reflects the variance between actual experience and the reset assumptions contemplated in our best estimate reserves.

As I said last quarter, while there will undoubtedly be variability in our future periodic results, over time our reset assumptions should theoretically produce a breakeven underwriting result. This quarter’s modest loss reflects outcomes generally in line with our reset assumptions. Net investment income was $435 million in the first quarter.

Limited partnership investments produced a $14 million loss compared with income of $114 million in the prior-year period. In a very volatile quarter, our LP portfolio generated a return of negative 0.6%, compared with the S&P 500 total return of a positive 1.3%.

Income from our fixed maturities securities in the first quarter was $446 million, up slightly from the prior year period, reflecting consistent book yields and a higher invested asset base.

Our investment portfolio’s net unrealized gain stood at approximately $3 billion at quarter end, an increase of $664 million, or 29%, since the end of the fourth quarter, driven by a decrease in market yields. The composition of our investment portfolio is relatively unchanged. Average credit quality of our fixed maturity portfolio remained at A.

Fixed income assets that support our long-duration life and group liabilities had an effective duration of 9.2 years at quarter end. The affective duration of the fixed income assets which support our traditional P&C liabilities was 4.1 years at quarter end. These durations are both in line with portfolio targets.

Our corporate segment produced a net operating loss of $114 million compared with a $22 million loss in the first quarter of 2015.

This decrease was driven by an after-tax retro reinsurance charge of $83 million associated with the accounting for our 2010 loss portfolio transfer of asbestos and environmental pollution liabilities to National Indemnity, a subsidiary of Berkshire Hathaway.

The details of the loss portfolio transfer are illustrated on Page 14 of the earnings slides.

You may recall the retroactive reinsurance nature of the transaction with NICO and that now that the ceded losses on the reinsured portfolio have surpassed the initial consideration paid, which is also known as the gain threshold, any increase in ceded loss reserves must be deferred and only recognized in proportion to paid recoveries.

The deferred gains will be subsequently recognized in future periods as ceded paid losses increase. While the accounting negatively affected our reported results this quarter, there is no cash nor economic impact.

We had expected to complete our review of asbestos and environmental pollution reserves in the second quarter of 2016, but accelerated our efforts after receiving communication from NICO that their reserve review indicated a substantial increase in reserves.

The $200 million of unfavorable development was driven by an increase in anticipated future expenses associated with determination of coverage, higher anticipated payouts associated with a limited number of historical accounts having significant asbestos exposures and a higher-than-expected severity on pollution claims.

As of March 31, 2016, cumulative amounts ceded under the LPT were $2.8 billion, still well under the $4 billion limit. You will note that there has not been any significant change in paid claims and that the estimated survival ratio of the cover remains approximately 16 years.

At March 31st, shareholders’ equity was $11.5 billion and book value per share was $42.41. The 2.5% reduction from year-end 2015 reflects the payment of our regular quarterly and special dividends in the first quarter. Excluding accumulated other comprehensive income, book value per share was $42.61.

Statutory surplus at March 31st was an estimated $10.3 billion for the combined insurance operating companies and we continue to maintain ample dividend capacity. As previously announced, we completed a $500 million debt issuance in the first quarter with the proceeds used to redeem $350 million of senior notes due in August of this year.

The coupon rate on the new debt is 4.5%, 200 basis points lower than the maturing debt. Cash and short-term investments at the holding company level were approximately $535 million at quarter end, reflecting the additional debt proceeds.

We continue to target cash at the holding company equal to approximately one year of our annual net corporate obligations. In the first quarter, operating cash flow was $334 million. Cash principal repayments through pay downs, bond calls, and maturities were approximately $490 million. We continue to maintain a very conservative capital structure.

All our capital adequacy and credit metrics are well above our internal targets and current ratings. With that, I will turn it back to Tom..

Thank you, Craig. Before we take your questions, I would like to spend a minute on where we are in our journey to improve our property and casualty business. We continue to produce outstanding results in specialty, despite an incredibly competitive market environment.

Our retentions are consistently high and we continue to get rate increases in selected parts of the portfolio. We are extremely vigilant in maintaining our margins and believe that much of the new business in the marketplace is underpriced. The result is new business is down, growth is down.

In commercial, we continue to be pleased with the improved retention. Although rates are flat, the loss ratio continues to improve, validating our efforts to improve risk selection and pricing. We believe this is the time to keep our powder dry on new business and not erode our loss ratio accomplishments.

We believe that our increased investments in information technology, analytics, and people are having a favorable impact our business today and for the long-term. With that, we would be glad to take your questions..

Thank you. [Operator Instructions] We’ll go first to Josh Shanker with Deutsche Bank..

Yes, thank you. Good morning.

And given that your commentary about the markets and what not and where you are, when you think about the international business and given where the market is, what sort of long-term hope for margin can we have on the international business?.

Well, we’d like to have more margin than we have today, that’s for sure, and we think that’s possible as we adjust our portfolio outside the U.S. I would tell you, Josh, that we started with the U.S. about seven years ago, changing the portfolio and the mix, and we are doing the same kind of thing in Europe as well as at Hardy.

So as we change the mix and improve the portfolio, we will expect improvement over time..

If I were to think about the pool of business that you would like to participate in industry-wide in the United States and the pool of business you would like to participate in globally, what are the margins for the two industries? Is business in the U.S. better than business globally? Certainly, obviously, the interest rates are higher in the U.S.

than they are in Europe.

Things will change over time, but the attractiveness of the pie, is there at this point in time a market difference?.

I would say, if you look at specialty in the U.S., that's a very good business, and as we have discussed and probably lots of other people have suggested, it's a competitive environment. There are more and more people coming after, "specialty” business.

The fact is it's not as profitable as it was 20 years ago when there were less competitors, but it's still a good business if you know what you are doing. We like the specialty business. If we look at Europe when we purchased Hardy, we purchased Hardy because it was a specialized insurer once again.

So we believe there are margins to be had in the Lloyd's marketplace in specialty. We are changing that portfolio a bit and we are introducing some of the products that we have in the U.S., namely healthcare, in Hardy and more casualty lines, which CNA has done for a long, long time.

The property market in Europe is very tough and we are trying to move more into a casualty marketplace there. So I think the margins are good; it's where you play. It's where you'd play relative to product and geography and you just have to be smart about it.

Canada looks a lot like the U.S., when you think of product capability and, quite honestly, a benign legal environment. So we like Canada, but I think everybody else likes Canada, too. Pretty tough place, so it's about portfolio management, segmentation, pricing, keeping your powder dry, but I think over time Europe should be a good business for us..

And if you think about a five-year plan right now, there seems to be a lot of disruption in the market and a lot of talent might be looking for new jobs.

Is this a year that we should expect that CNA will be hiring in advance of underwriting results being able to show the value of that underwriting?.

We are always looking for good talent and we have been doing that as long as I've been here. We continue to do that. Actually, when you look at the expense ratio, about half of the increase over the prior year relates to talent acquisition.

We have hired a considerable amount of people over the last couple months or quarters and, I think I just looked at a report, we have about 174 more people on board today than we did this time last year. So we are investing in talent and that can be in underwriting, it can be actuarial.

Wherever we can find talent we're going to grab it and get ready for when the market opportunity creates a situation that we can write some business at the right price. I think you talked about a baseball analogy once upon a time and I think the way we're looking at it we're standing tall in the batter's box.

We are letting the bad pitches go by and when something comes over the middle of the plate, we're going to take a shot at it. But there are less opportunities out there today, but the market is experiencing disruption, whether that be people and accounts, and we're going to take advantage of that..

All right. Thank you, I appreciate all the answers. Have a good day and good luck..

You too. Thank you..

We will go next to Bob Glasspiegel with Janney Montgomery Scott..

Good morning, CNA. Tom, are we still on track for Dino to join in December? Some of the other ACE/Chubb departures have come sooner and I wasn't sure whether you were making any efforts to accelerate that..

Dino has a non-compete/non-solicitation. He will arrive December 1..

So you haven't made any efforts to try to speed that up in….

What, you want to get rid of me?.

No, no, no. I love talking to you, Tom..

All right, well, you still have to talk to me for a while. That's the answer..

Okay. Well, I wanted to be able to talk to both of you guys because I really don't know Dino. I'm looking forward to meeting him..

You will have your chance, Bob. Don't worry..

On long-term care, Craig, are you? You are suggesting that the results, if your reserve assumptions are correct, for year-end will be less volatile this year than last year.

Could you remind me what the sort of losses that flowed through last year that would not if the reserve assumptions are valid?.

Last year, just look at last year's first quarter was a $17 million after-tax loss. I think we had one quarter was $24 million after tax, one quarter was $30 million after tax, and then the fourth quarter was the reserve charge.

But if our reserve assumptions are accurate, which I would expect – and the first quarter would be certainly indicative that they were, but it's only one quarter – I would expect that our results ought to be in a tight band around zero. And that would be a lot less than the $25 million to $30 million run rate earnings drag that we had in the past..

Okay, one last question for you, Tom. Maybe I am overanalyzing this, but this was the first sequential uptick in pricing for international and specialty in some time.

Does that suggest we are at the bottom and maybe the disruptions you talked about in some of your competitors is in re-underwriting actions that perhaps Zurich and AIG are taking is having an impact on the market?.

I think, if I understand your question correctly, Bob, when you look at rates, specialty rates first quarter 2016 to first quarter 2015 are flat. They are the same, a little over 1%, a little higher than full-year 2015. If you look at commercial, rates have gone to flat from low single-digits. So I think that's the answer on rates.

And international, that has actually improved from probably off by about 1 point full year 2015 and first quarter 2015 to almost flat this quarter. So that's the rate story.

And what was your other question?.

I was looking at Q4 versus Q1. I saw a little bit better bottoming process than what your speech suggested..

Well, quarter to quarter is – anything can happen in a particular quarter, but I think we are pretty – we're okay with where we are. I think the good story is we're not swinging at bad pitches. We are really maintaining our discipline..

Okay. If I could just follow-up, Zurich and AIG are both claiming to have pretty significant re-underwriting activities in place and expecting to write less business this year. I would think there are two pretty important competitors for you and Chubb and ACE are trying to digest a big acquisition; you have had a decent amount of turnover.

I'm just curious whether you, crystal ball, think that could lead to a bottoming in pricing..

I would hope we're at the bottom. We're not going to discriminate against who the competitors are, but the fact of the matter is, yes, there are companies out there that have some work to do. And it's a particular product or a particular geography. Like I said, we look at that and we say there could be an opportunity and, if there is, we go after it.

But I'm not going to predict this is the bottom of the market. Hard to tell, but I think if look at returns on investments and look at some of the claim trends and things like public D&O and other areas, the fact of the matter is I would hope we would see more discipline in the market going forward..

From your lips to your competitors' ears..

Yes welcome..

We do. Thank you..

Your welcome..

We’ll go next to Jeff Schmidt with William Blair..

Good morning, everyone. Question on the limited partnerships. Could you provide us with any more insight into what some of the main concentrations are there? Is it private equity? Are there high-yield debt funds? What type of lag some of those have..

Good morning..

Question on the limited partnerships. Could you provide us with any more insight into what some of the main concentrations are there? Is it private equity? Are there high-yield debt funds? What type of lag some of those have..

I can comment on that, if you'd like me to. It is a fairly diversified set. They are primarily, but only by a minor amount, hedge funds. Private equity makes up about a third of the book and is focused – the primary equity piece is, frankly, focused primarily on debt-oriented strategies as opposed to typical LBO type strategies.

Roughly 70% reports on a, more or less, current basis with mostly others lagged either one month, although in some cases it's three months. But that's a small part of the total book..

Yes, okay. And then the commercial segment obviously continues to show improvement there, 62% actually your loss ratio.

What is your target for that business? Or where do you think you can go to?.

Obviously lower over time. I don't know what the timeline actually could be, but I'd say there are a couple points there. Two to three points is something that is, I believe, credible..

Two to three points lower from here?.

From 62..

Yes, okay. And then….

Now we say that maybe just to be – we say that, Jeff, in consideration of in today's price adequacy, so [indiscernible]. But at today's pricing and price adequacy we think two to three points better.

Maybe another point. As we've re-profiled the book, we are getting less claims coming in the door than we did in the past, so what we call new horizon claims are down, and also our outstanding claim count continues to go down. So that gives us a belief that the mix is making a difference, how we are changing what we're doing, how we are doing.

So pure underwriting, what we call risk selection pricing, we think that's a couple points and we think what's going on in claims is going to be helpful to us over time..

Okay. And could you say what you are seeing on the workers' comp rate front? I may have missed that..

What is the question, rates on workers' comp?.

Yes..

Yes, it's off low single digits, kind of 3, 4. Quite honestly, what happened when rates were going up, workers' comp went up the most, so there's come some kind of reaction now coming down. But I can tell you on – we tier our business and the lower tiered business we are still getting some rate increases.

It's the best accounts, the fact is, that's where you give up some money..

Yes. Okay. Okay thank you..

You’re welcome..

[Operator Instructions] Well go next to Jay Cohen with Bank of America Merrill Lynch..

Thank you. I've got some questions I guess starting with the expenses. Most notably in the commercial segment, just the absolute dollars of overhead expenses the last couple quarters have been elevated relative to earlier periods.

I wanted to get a sense of how much of this recent increase probably will be with you for some time or is there anything in these more recent numbers? There's roughly $130 million the last couple quarters. Again, this is overhead.

Anything in there where it's temporary; there is some technology investment that will go away? Can you give us some sense of that?.

Yes I think, first off, if you look at acquisition expense, that's flat, right. We're talking about underwriting expense and if we look at underwriting expense, that's up. As I mentioned earlier, Jay, over the last couple quarters we have been hiring people. That's headcount; that costs money.

We also have spent money on IT and analytics, so all of that goes into the underwriting expense. That has gone up and, of course, premiums have flattened and were slightly negative last year, so that also has an impact. The reality is we are going to invest in the business and we are hiring people.

As I mentioned, we have hired an awful lot of people and we have hired a lot of people in commercial as you point that that number has gone up. We’ve hired a lot of people in commercial. This time of year you tend to have people who haven't left yet.

After people get their bonuses there's always a flurry in the marketplace and people move on, but I think headcount will straighten itself out over time..

Okay, thank you for that. On the specialty business, the net premiums continue to rise. Gross premiums, excuse me, continue to rise. Net down. I know the cell phone business distorts that.

This relationship we are seeing now with growing gross and the shrinking or flattish net, should that differential continue in the future?.

We think so. We talk about risk selection here every day. We talk about pricing. We talk about tiering. If your question is specialty, we have some areas of specialty we're getting rate increases where we think we need them. Others are more competitive; we are giving something back.

But I think the story in specialty is, quite honestly, a lot of people don't understand the exposures and they are underpricing the business. They are making it competitive and they are going to pay the price. We've been in this business a long time.

We get it and, therefore, if you look at specialty, we're not writing a lot of new business in specialty. Why is that? We don't think it's priced right..

Actually the question really was on – sorry, Tom, the question was really on the difference between the net and the gross, because I think it's the cell phone business where you write – you basically reinsure all of it. Maybe that's a growing piece of what you are doing.

But if you look at the gross premiums have gone up roughly 10% for the past five quarters, net premiums have been down. I'm wondering going forward has that cell phone business continued to impact the numbers they way it has been..

People keep buying cell phones; it's just going to keep going up..

Okay, that's fine..

And it has been going up..

Yes, that makes sense. Next question. On the healthcare side, we've heard from a number of companies that had some reserve, negative reserve issues in their various healthcare businesses. And this, obviously, encompasses a lot of different types of businesses. It doesn't seem like you guys have had much of an issue.

Can you talk about the reserves in your healthcare-related businesses?.

I think they are more than generally adequate. This quarter's loss reserves in release, in release, in specialty came from older accident years in healthcare, so 2011 and prior. I think we continue to see pressure on results in the more recent accident years, really across all of specialty, Jay, is what Tom was saying.

So 2012, 2013, 2014, 2015 but we believe we have reserved adequately for that. Whether that's healthcare or particularly public D&O or financial institutions where we think the pricing and competitive environment has gotten a bit irrational, we booked to those.

So we see pressure on loss ratios there, but we were able to – we certainly feel like we're reserving adequately and had some favorable news coming out of specialty, 2011 and prior, so older years..

Got it. Nice differential with what we are hearing from some others. Let me squeeze one more question in. Again, more of a probably technical thing. On the international side your net premiums written grew quite a bit faster than your gross. I didn't know if there was a change in your reinsurance program that allowed that..

Well, there are a couple things so you're right. Our reinsurance spend, last year we purchased most of the XOL covers in the first quarter of this year. The anniversary dates then move to April 1, so some of the difference is that.

And then you might remember there was a big premium write-down of $16 million last year in the first quarter in the international business, where for a bunch of previous years Hardy recognized an adverse premium development.

So there were two things happening, when you – maybe it's a little – if you want to call us back and James or I or someone can kind of lead you through it. But once you've cut through all the noise in international, so you cut out that premium write-down a year ago, the reinsurance spend, and FX, it's – the top line is flat.

But we would be happy to lead you to the detail..

Got it, that's helpful. I will sit on the sidelines in case someone wants to ask the question. Thanks..

You’re welcome..

We will go next to Meyer Shields with Keefe, Bruyette & Woods..

Thanks. Two I guess bigger picture questions.

One, are you seeing any change in BOPS liability claims filing? Is that environment changing at all?.

I'm sorry, say that again, Meyer. We didn't really hear you..

I'm sorry. I was asking whether you are seeing any frequency of liability claims under commercial multi-peril..

What were the last three words you said?.

Commercial multiple peril..

Not quite. We haven't seen any increase. And I didn't say this; we had a small favorable development you saw in commercial and kind of differentiating from what we've seen in specialty 2012, 2013, 2014 in commercial lines, both GL – in a very small, modest way the GL and auto both had developed slightly favorably.

So that's certainly encouraging to us and encouraging to what Tom was saying earlier about where we think commercial lines is going..

Okay, that makes sense and that's good to hear. Second, we've heard some talk from both Berkshire Hathaway and AIG about opening their direct-to-consumer distribution platforms.

Can you talk a little bit about how you and maybe your agents are responding to this?.

Direct to consumer, Tom..

Direct to consumer? I think if you look at Berkshire, from what I know, they are looking at the very small business. Particularly what I heard was worker's comp in California. So I don't think – we write small business. We write small worker's comp, but we haven't seen that be a disruptor to us today.

We will see over time what it does, but we are committed to the independent agent system, the broker system. We are pretty selective who we deal with and we try to build strong relationships.

And quite honestly, since we're a company that really specializes in certain industry segments, we're much more focused on the more sophisticated customer who wants the advice of a broker or an agent and is not a price buyer. We're not interested in the price buyers. We're in a different marketplace.

That doesn't mean they won't be successful, but we are not going to compete on price. We would rather compete on value, whether that be underwriting expertise, risk control, claims, whatever it might be. That's how we've chosen to compete..

Okay, fantastic. Thank you very much..

You’re welcome..

With no further questions in the queue I would like to turn the conference over to Tom Motamed for any additional or closing remarks..

Thank you. We will see you next quarter..

Again, that does conclude today's presentation. We thank you for your participation..