James Anderson - IR Dino Robusto - Chairman and CEO Craig Mense - CFO.

Josh Shanker - Deutsche Bank Bob Glasspiegel - Janney Jeff Schmidt - William Blair Ron Bobman - Capital Returns Jay Cohen - Bank of America/Merrill Lynch Gary Ransom - Dowling & Partners Meyer Shields - KBW Cliff Galant – Philadelphia Financial.

Good day, everyone. Welcome to the CNA Financial Corporation First Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I’ll turn the call over to Mr. James Anderson. Please go ahead..

Thank you, Shannon. Good morning and welcome to CNA's discussion of our 2017 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 Dino Robusto, our Chairman and Chief Executive Officer, and Craig Mense, our Chief Financial Officer. Following Dino and Craig's remarks about our quarterly results, we will open it up for your questions.

Before I turn it over to Dino, 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 risks and uncertainties that may cause actual results to differ materially from the statements made during the call.

Information concerning those risks is contained in the earnings release and in CNA’s most recent 10-Q and 10-K on file with the SEC. In addition, these forward-looking statements speak only as of today, Monday, May 1, 2017. 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 and other information have been provided in the financial supplement. The call is being recorded and webcast. 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, Dino Robusto..

Thank you, James. Good morning, everyone. The pleasure to share our results for what is my first full quarter with CNA. We had a good quarter both financially and operationally. Each of our P&C segments posted underlying combined ratio that were the same or better than a year ago when commercial is adjusted for its premium development.

We posted favorable loss reserve development in each of our P&C segments. Rate improved modestly, as retention held strong across the P&C segments. We avoided outside catastrophe losses. Our expense base was smaller, investment income was strong and our long-term care business continues to perform at a breakeven level.

But before we go into more detail on our results, let me first talk about what we are working on operationally. The time has gone by quickly as we have been actively working to further strengthen the organization.

You'll recall that my primary objective is to improve our performance, indeed to build a disciplined underwriting culture specifically focused on growing our underwriting profits.

Significant effort is being invested to both continually enhance the expertise of our talent and to supplement our team with selective hires from across the P&C supply chain. Early in the first quarter you may have seen the announcement of our new role as Chief Underwriting Officer.

The role was created to further strengthen our underwriting governance and to develop more profitable growth opportunities.

In this role, Doug Worman’s first priority working together with the leaders of our three P&C segment is to institutionalize the collaboration among the underwriting claims, actuarial, risk control, enterprise risk management and analytics teams.

The closer the alignment, and the more timely and effective the feedback loops among the teams, the more efficient we will be at utilizing all sophisticated tools at our disposal, to grow our underwriting profits, and to be more effective at embedding lessons learned across our entire employee base.

There is tremendous capability in our organization and an imperative to drive needed improvement just to more quickly and seamlessly bring those collective capabilities to bear on our opportunities and issues.

This profit takes more time than one quarter but ’'s senior management team has emerged from the starting gate with tremendous conviction and our employees have responded quite favorably to the new focus. In fact, the energy has been raised to such a level that the momentum is starting to build on itself across the organization.

Of course our focus is not just internal. In the first quarter as seen us bring our underwriting mission to the marketplace and reintroduced our meaningful value proposition of sophisticated products and services to our agents and brokers.

Together with our executive management team I have personally been involved in a number of high-level strategic discussions with agents and brokers and have been very encouraged by the reception we are getting.

Additionally, the leadership of our commercial segment spent many weeks of the quarter visiting our branch locations, providing advanced training, highlighting best practices across the various levers that all of our underwriters utilize.

During these visits, they also spent significant time with key agents and brokers to reinforce CNA's capabilities. Moreover, we continue to strengthen the specialty segment through some select hires to further fortify our underwriting talent available in the market.

In addition, our international segment leadership has had strategic meetings with brokers to ensure that we are reinforcing both our domestic value proposition in Canada, Europe and the U.K., as well as our multinational capability. Bottomline, everyone is very engaged internally and externally to build and demonstrate our strong value proposition.

Over time, this consistent focus and underwriting discipline and producer relationship will lead to greater access to more high-quality new business and improve the overall underwriting performance. All the while, we continue to reinforce a clear bias towards expense discipline.

The quarter's expense ratio showed improvement from a combination of 2016 actions, as well as early benefits of coupling an emphasis on challenging the status quo to gain process efficiency and productivity gains which strict accountability.

With that, let me make a few high level comments on our first quarter financial results, and then Craig will provide much more detail by business unit. Net operating earnings were $235 million or $0.87 per share in the first quarter of 2017 and a marked improvement from the first quarter 2016 to $91 million.

Net operating return on equity was about 8%. Our P&C business generated a 97.2 combined ratio in the first quarter, a point higher than 2016 first quarter results. However, the result was inflated by nearly 2.5 points due to a premium adjustment in our small business unit within the commercial segment which Craig will describe in more detail later.

Excluding this adjustment our combined ratio was 94.8, nearly 1.5 points lower than the first quarter 2016 including a loss ratio of 60.5.

The underlying combined ratio which excludes the impact of catastrophes in prior year development was 96.5% and improvement of nearly a point from the first quarter of 2016 driven by the expense ratio which was 34%.

Our P&C net written premiums excluding the small business premium adjustment grew about 1% as retention remains strong and rates were slightly higher in all three segments. Reported net written premium growth was down 2% as the result of the premium adjustment. High-quality new business continues to be difficult to come by but it does exist.

Acquiring it requires more focused prospecting and greater underwriter effort and reinforcing the relative benefits of our value propositions in order to judicially win more of the high-quality new business that is written by our peers in particular where the customers and the niches we have targeted for years with tailored products and services, and for which we have industry-leading expertise.

Our efforts are gaining traction as evidenced by our modest increase in new business in the first quarter for commercial specifically in our key middle market segments. More generally in terms of industry dynamics, the P&C marketplace in the U.S.

remains competitive but stable with market pricing trends generally in line with what we saw in the fourth quarter of 2016 and terms and conditions are essentially rational. Of course you can always find pockets of what appears to be inappropriately aggressive quotes. Fortunately, we have the underwriting expertise to see clear of these accounts.

Outside the U.S., it is essentially the same story for CNA. Lloyd's business continues to be under greater pressure with more aggressive pricing and the team there, as well as the teams at all our location know that we place no undue pressure to produce growth for growth sake. Our focus is to grow underwriting profits.

Our Life & Group segment had net operating income of $4 million for the quarter continuing to be near breakeven since 2015s unlocking event. The long-term care, favorable morbidity trends offset unfavorable persistency.

Overall, a long-term care book continues to perform as anticipated and we're continuing to get approval with needed reductions from many state regulators. We completed our annual asbestos and environmental reserve review in the first quarter.

This year's review resulted in a $60 million increase to reserves for asbestos and environmental liabilities that has been series to national indemnity, as a part of our 2010 loss portfolio transfer.

The resulting $13 million after-tax charge contributed to the corporate segment net operating loss of $37 million in the quarter compared with loss of $114 million in the first quarter of 2016, a significant year-over-year improvement. We are also pleased to announce our regular dividend of $0.25 per share. And with that, I'll turn it over to Craig..

Thanks Dino. Good morning, everyone.

Our first quarter 2017 net operating income was $235 million and net income was $260 million, much improved from last year's first quarter results and the reflective of steady underwriting performance, favorable loss reserve development across all three P&C business segments reduced expense spend, another small positive earnings contributions from Life & Group, and a significant positive net investment income contribution.

Our property and casual operations produced net operating income of $268 million, nearly 30% above the prior-year quarter. This earnings achievement was despite the dampening impact of the small business premium adjustment.

Notably, our improving underwriting discipline is evident in both P&C operations underlying loss ratio at 62.2, which is a little over 0.5 point better than where we ended the full-year of 2016 and our $57 million of favorable loss reserve development which is consistent with last year's first quarter.

The small business premium adjustment affected both our reported property and casualty and commercial business segment results. I would ask that you refer to the earnings slide Pages 5 and 8, where we have outlined the impact on this quarter's reported results.

You'll recall last quarter we had identified rating errors in our small business package product and recorded a charge to reflect our decision to voluntarily refund premiums to affected policyholders. In our 10-K we noted that we were continuing our review.

We have now concluded that effort and found that they were also rating errors in our small business workers compensation product. Consistent with our approach on the package product, we will voluntarily refund amounts to affected policyholders.

The earnings slide highlight how the underlying business is performing and the specific impact of the earned premium charge on our reported results.

The most significant impact for this premium adjustment at the property and casualty operations level were to reduce our written and earned premium which inflated our combined ratio by 2.4 points and lowered our net written premium growth from a positive 1% to a negative 2%.

You will review our reported results that are under any expense dollars then reduced $22 million or 9% as compared to the prior-year's quarter. Our adjusted expense ratio of 34 is approximately one point lower than both the prior year's quarter and our 2016 full-year results.

I would attribute a little over 50% of the improvement to actions taken in 2016 and our improving expense culture with the remainder attributable to some favorable expense timing. This is true at both the property-casualty and commercial business segment level.

Our specialty segment had another strong quarter with the calendar year combined ratio of 90, including a 58.2% loss ratio which reflected five points of favorable net prior year development.

The favorable loss reserve development of $31 million was driven by a number of our professional liability products, predominantly across accident years 2011 through 2015.

Specialty's underlying combined ratio for the quarter was just below 95 in line with both the prior-year's first quarter and full-year results with relative consistency in both the underlying loss and expense ratios. Specialty's net-written premiums were down 1%, premium rate was up one point in the quarter and retention was a very strong 88%.

As shown on Slide 8, our commercial segments adjusted calendar year combined ratio was 99.1. Commercial adjusted underlying combined ratio was 98.1 and approximate one point improvement from prior year's quarter and full-year 2016 results. The adjusted underlying loss ratio of 62.3 was relatively consistent with the full year 2016 results.

The adjusted expense ratio of 35.3 was more than 1.5 points better than the 2016 full-year results. Favorable loss reserve development of $24 million came primarily from commercial auto. You'll recall that in 2013 and 2014, we strengthened reserves for commercial auto.

However, in recent periods we're seeing some of those pressure abating, and actual claim outcomes coming in lower than expected. Commercial net written premiums in the quarter excluding the premium adjustments were up 2%. Premium rate was up 0.5 point, slightly better than recent quarters, while retention continue to be strong at 83%.

New business in our middle-market specialized industry segments was a positive contributor. Our international segment generated a 95 combined ratios for the quarter including three points of favorable reserve development. This is a four point improvement year-over-year, three points of improvement on the loss ratio, and one on the expense ratio.

The [logged] [ph] rate impact was not material. The underlying combined ratio was 96.4, nearly three points better than the prior year's first quarter results and 6.5 points better than the 2016 full-year results. International segment also benefited from a light cap quarter.

Net-written premiums were up 1%, rate in retention showed slight improvement to recent quarters. Our Life & Group results are consistent with the last few quarters and our expectation. The favorable morbidity that Dino mentioned is driven by lower frequency, also referred to often as incident rates.

We did close the sale of our life settlement business last quarter but there was no real impact to reported financial results, the sale does mark another modest but important effort to continue to reduce volatility and expense at CNA.

Net investment income was $545 million in the first quarter compared with $435 million in the prior-year quarter as you can see on Page 16 of the earnings slide. Our limited partnership portfolio had a strong quarter producing $90 million of pretax income of 3.8% return compared with a $14 million pretax loss in the prior year quarter.

Income from our fixed maturity portfolio was $455 million compared with $446 million in the prior-year quarter, reflective of a higher invested asset base and steady yields. Our investment portfolio's net unrealized gain was $2.7 billion at quarter end, a slight increase since the end of the fourth quarter.

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 traditional P&C liabilities had an effective duration of just over 4.5 years at quarter end in-line with portfolio targets.

The effective duration of the fixed income assets which support our long-duration Life & Group liabilities was 8.8 years at quarter end, which continues to reflect both the low interest rate environment and our tactical decisions at.

At March 31, 2017, shareholders' equity was $11.7 billion and book value per share was $43.15, a decrease of 2.5% since December 31, reflecting the $2.25 of dividends paid in March. Shares equity excluding accumulated other comprehensive income was $11.8 billion.

Book value per share ex-AOCI was $43.49, a 2% increase from year-end 2016 adjusting for the $2.25 dividends paid. More notably the year-over-year increase was 9% adjusting for the $3 of paid dividends. Our financial strength and strong liquidity profile are outlined on Pages 13 and 14 of the earnings slides.

Cash and short-term investments at the holding company were approximately $520 million at quarter end. We continue to target cash as the holding company equal to approximately one year of our annual net corporate obligations. In the first quarter, operating cash flow was just under $300 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'll turn it back to Dino..

Thanks, Craig. Before we move to the question-and-answer portion of the call, let me leave you with some summary point. Each of our P&C segments produced an underlying combined ratio equal to or better than the first quarter of 2016 results when you exclude commercial premium adjustment, nearly one point improvement in total.

Moreover, our P&C underlying loss ratio was 62.2% more than a 0.5 point improvement from the full-year of 2016. Each of our P&C segments produced favorable prior-year loss development totaling near four points consistent with the prior-year period. Underwriting expense dollars were down 9%.

Rate across our P&C segment was almost a point higher in the prior quarter while retention continued strong in mid 80s. A long-term care business continues to be stable and executing efficiently. Our employee, as well as our agents and brokers have responded very favorably to our reinvigorated underwriting focus.

With that, we will be glad to take your questions..

[Operator Instructions] We'll have our first question from Josh Shanker, Deutsche Bank..

I guess my first question goes to Craig, I wonder if you can walk us through the accounting for any losses in the quarter and how that impacts us down the road I brought that the losses show up on the P&L but they're actually going to - I need your refresh on that I guess?.

All right, we’ll recall that. The growth seated losses are the first starting points, so we've increased those $60 million. So given the fact that we’re already in a gain position relative to the contract, you would add that 60 to what is already almost $400 million gain position.

We can give you a specific numbers in the call back Josh to make sure we’re given this to you accurately.

But what then happens is that you have to essentially refresh your calculation of how you take into account the deferred gain and what you're allowed to do is recognize the gain in proportion to the paid losses against your estimated full liabilities.

So right now we're at about 48% of paid loss to where we are estimate reserves which is $2.9 billion. So $1.4 billion or so against the $2.9 billion so what then happens so we think there is a deferred gain on the balance sheet and as losses are paid over the course of this year and future years we’ll recognize the rest of that deferred gain..

And the amortization, that gain is included in the net income number but not the operating income number?.

No, it’s in the operating income number and it is in the corporate..

It’s in the operating as well?.

Yes..

And so what was offsetting gain in this quarter?.

Well, the offsetting - we put up the 60 million or so about 50% of that would be offset and then you also have the amortization of the rest of it. So, essentially this quarter's pre-tax income is a $20 million pre-tax hit to operating income and $13 million after-tax..

Okay, I'm still going to work on that a little bit but I'll come back to you. And then I guess for Dino, thinking about a 100% combined ratio is it general idea for the P&C industry where we are given industry interest. As you try and improve things, are you also running up against this unusual time where insurance is possibly written below 100%.

How should we think about improvements we made at CNA and the backdrop of I guess rising interest rates pushing the envelope about what is possible?.

Not sure I got, exactly Josh which are asking there..

So, it is impossible over the long-term to be much better than 100% combined?.

Sure, and I think as I mentioned on the last call right, I think about it right now our own goals and objective on sort of this absolute basis right. I sort of track the 15 to 16 you know sort of peer companies that we compete with our target business with a little mathematical exercise.

Take a look at the top sort of four or five, look over the last couple of years. What there combined ratio is coming at right now if you look at that cohort in the top performing, we have to close the gap about four to five points which I think is going to come from a combination of both the loss ratio and the expense ratio.

And what we need to do here continue to improve it, is drives many of the things that I talked about on my earlier remarks. And we put in operational goals across the management team to make sure that we’re achieving this target, it’s going to take a little bit of time for us but we are moving forward with real urgency.

And so we clearly do see the ability to do that in the long term without a doubt..

And we assume to be closing that gap and thinking about those top four or five performers, is the gap going to be closed by you improving solely or are their numbers going to deteriorate in a higher interest environment?.

Yes, I understand the question. It tends why right as I talk about setting the goal right, you can look at it in the absolute or the relative and I think what you need to do is look at it in the right. So, we constantly take a look at this number, it’s again just a mathematical exercise.

You want to say the best performing companies are able to achieve this, that’s where you want to be and so that's what we want to do, and that we’re going to close that relative gap and we’re going to keep it on a relative basis which means that it could come from both ends of that spectrum from the right or from the left.

The objective being look, you decide what the best performing are doing, you want to get there, you keep an eye on it, you set the right goals, and you tell the team it can be done. And this is what we’re focused on, but I hope that answers it for you..

Wish you luck with it..

We’ll go next to Bob Glasspiegel with Janney..

Good morning, CNA.

So the adjusted expense ratio of 34% is that a sort of fair run rate and can you improve from that without any help from premium growth?.

Yes, so good morning, it’s Dino. Yes, so as Craig indicated right, excluding the premium adjustment, it was a function of some of the actions that we had put in place in 2016, the expense gone to a little bit of the timing.

So right now running in the sort of low 34s, and we think it's likely going to be in that range in 2017, so you should think about it in terms of about a half to one point better than what we saw in 2016. So we’re making progress..

Where is the long-term goal of where you want to be, you mentioned that that's a key focus to help you narrow the gap versus the industry?.

Yes indeed, and just going back to the prior answer. As we closed what I consider to be an important relative gap, anticipated say combination of the loss ratio and expense ratio. If you look at the gap now against a sort of cohort average over a couple of years it’s probably a couple of points on loss ratio.

And it’s about two to three points on expense ratio. Now whether it’s going to play up precisely to the tenth of a percent, not certain but that’s what we’re looking at and that’s where we’re focused on..

Thank you. And just following up on Josh's question, how much I'm trying to limp through the CAGR, can’t quite make this out.

How much of the Berkshire cover have you utilized either were paid or incurred basis?.

On a seated basis - growth seated basis, we’ve used 2.9 against the four. On a paid it's a little over $1.4 billion..

And this year you incurred you said 60 million?.

I said we increased our growth seated by 60 million..

Right..

And what I said was the incurred impact was 20 pre-tax and 13 after for the impact to that increase..

I'm just trying to say though you got 1.1 billion left to go on a gross basis, and you've used 60 million, just trying to see the survival rate sort of - and what's the right numbers to think about?.

Well, I’m not sure. I think that remember that it’s 4 billion cover so if there is a little over 1.4 billion paid, we’re going to look at it against the limit. Right, there is 2.6 still left against the limit..

On a paid basis..

On a paid basis right, on incurred basis as we said we have seated 2.9 billion so it’s a 1.1 billion still left against the limit..

And 60 is the right numerators that use against those numbers or….

No, not exactly, we could be happy to call you back Bob as we go through exactly because we had put together some exhibits in prior calls that will probably be helpful if we pull them out and send it to you and then we can just walk through the whole thing.

But do remember, I think most importantly that this incurred increase is not - there is no economic impact. So accounting charge and it does get amortized back into income, the deferred gain in income over the life of the contract..

I get you there. I’m just trying - it seems like a relatively small way, sort of the rest of my question unless you’re telling me in the - soft another words..

No, I would tell you exactly, that's what I would help you to take away and this is….

Same way goes mainly related to what?.

It was just related to slightly elevated payments under no losses. So there is nothing, no new sources of losses being identified or no new cohort of claims or anything else like that. It's just a small adjustment that we made this quarter..

Are you the first company doing any reviews this year, so you know what your findings is of interest to me, so appreciated the color. And I would like the tutorial again, I know you've done it before. Thanks a lot..

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

Good morning, everyone. Could you touch on loss cost trends in the commercial segment in the little bit more detail, maybe touch on the legal environment and medical cost inflation what you’re seeing there..

Hi, good morning. Just an overarching commentary first right in terms of lost cost trends. We right now actually are not seeing anything yet that there really changing. Actually, we've been seeing a slight improvement rather than duration in commercial specifically to your question.

In Q1 we saw slightly lower frequency in comps, somewhat lower severity in commercial auto, in the specialty side just a little bit of detail there, little bit of higher frequency trend in healthcare which was a function of aging services which Craig had spoken about in prior calls.

FY management liability, the actual our strength was consistent with 2016 now we have seen, you know security class actions trending a little bit higher in '17 but we haven't seen any of that manifest itself in our book. So again from our vantage point actually not really changing maybe net, net slight improvement.

I don’t know Craig was there anything you wanted to add to it..

No, I think that's exactly the point really not much.

The two spot that where we have heightened expectation that we build into pricing and reserving are for medical cost inflation and auto loss reserve trend but we haven't at the moment - the business is growing in line with that and we certainly don’t see anything else of significant in terms of loss trend wise across the book beyond what Dino just mentioned in that small amount of a medical professional..

Okay.

And then the commercial auto book, I mean obviously there is some issues there with increased frequency and severity book but was illegal at driver of that, severity peace more than anything?.

No, that was, minute to take you back to - we saw lost cost trend increasing back in 2012 is what started.

So we increased reserves pretty significantly in auto in '12, '13 and '14 and this is really what you're seeing now is that we had taken underwriting in addition to increasing reserves substantially but also took underwriting actions at that time we got out of the DNS auto book that we had, we reduced our small business auto writing, really essentially got out of our model line small business auto.

So the combination of the reserve increases and our underwriting actions of - just resulted in - what you've seen today that the severities that we anticipated back there are just playing out at slightly lower claim settlement. So that's really the action that you're seeing here at the moment..

Okay. That's helpful. Thank you..

We’ll go next to Ron Bobman, Capital Returns..

Hi, good morning. I had some commercial auto questions, but you just tackle them.

Other just remaining question is on the adverse development cover, Craig as it relates to page and the rate of page on the cover, I'm wondering as compared to the expectations as far as the timing of payments when you entered into the agreement, has it been quicker, slower or generally at the speed of payment that you expected at the contracts inception, and that’s it for you.

Thanks..

Well, thanks Ron. It’s been generally at the speed we expected. Remember when we bought it, we said that we hope to essentially eliminate our asbestos and environmental and pollution exposure. And we kind of define that as thinking that there was a 20 plus year payout term.

We're now into year seven of that payout and so I would tell you that contract is working out exactly as we conceived and constructed it at the moment..

Thanks. Best of luck..

We’ll go next to Jay Cohen, Bank of America/Merrill Lynch..

Thanks.

A couple of questions, first is when you talk about the timing issues on the expenses, I assume that you're just talking about the kind of the underwriting expenses not acquisition costs?.

That's correct..

Okay.

So we need to look at that underwriting expense number in the first quarter as being maybe a little bit better than we would normally have expected?.

That's exactly, right. And that’s detailed on - I’d point to Page 4 of the supplement, you could see so look at the other underwriting expense line there Jay..

Got it.

And then secondly on the runoff business, are you seeing any increased interest from potential buyers or reinsurers of that business?.

What runoff are you referring to Jay?.

The launch of care business?.

I would say nothing material, we’re certainly active and engaged in that process and in that marketplace and there is always activity, and I would even say ever inactivity and we’re highly engaged in it, but it hasn’t been a significant shift in appetite at the moment..

Got it. Thanks a lot..

We’ll go next to Gary Ransom, Dowling & Partners..

Yes, good morning. I wanted to follow-up on the loss cost question and clearly you're not seeing a whole lot right now. So it's fairly benign for you, but as we've talked with others of your peers, there does seem to be some little upticks in some of the GL lines, maybe a little bit more propensity to sue.

And I just wondered if you had seen anything in any of your sub-segments that might confirm that or deny that?.

No, Gary I would say that that we don't. We’ve listened and read the narrative of the other calls and we have not seen a meaningful uptick in litigation activity affecting any of our business lines, except what Dino mentioned in the medical profession and nursing business but we mentioned that in prior call.

So we certainly would acknowledge that and our client both would acknowledge that there are greater number of law firms engaged in public D&O litigation but that hasn't created anything meaningful and well in the way of loss cost or loss cost inflation. So, no I’m sorry we can't, we do not. We do not see any of that noise..

Okay.

If I look at your - the rate that you disclose and then look that you're seeing loss ratio improvement, it suggest that the loss trends you’re experiencing actually are very benign maybe even down in some cases because you're seeing this improvement with rate that’s maybe just 1% or so is that correct?.

Well Gary, it’s Dino. We have indicated that they have been relatively benign but it’s not dynamic if you recall I mentioned it on the last mentioned on the last call right, there is a number of leverage that I think we can really pull on to improve the underwriting performance.

And in particular Gary, when you're not operating, I use a phrase internally call the efficient sort of underwriting frontier, that’s when you have consistently well performing portfolio of accounts on a risk-adjusted basis executed within a competitive expense infrastructure.

Now we're not there yet, so we have an opportunity to drive improvement even if the earned rate is below loss cost trend, which notwithstanding that being denied -- benign right, the earned off is below. So, I think there is an opportunity for us to continue to work on this dynamic notwithstanding the rate and loss cost trend dynamic..

All right, thank you. And one other question on another topic on your limited partnership income being strong.

Is that the same strategy you've had all along there, I just wondered if you made any changes or what the average expectation is for that book of investment?.

Well I mean that's a - so I would say that we have not made any recent changes to that portfolio but the structure has been in place for pretty long period of time. We have over the last several years shifted from like 90% hedge funds, so it’s little less bias towards the long equity.

And it’s now about 30% private equity and real estate, so still a little slightly shifted towards private equity from what it used to be, but not else wise. And this is a superior performance we wouldn't expect to be able to duplicate this every quarter.

But over the last five years, it's averaged about 9% return over the last 10 years, it’s averaged about 7% return. So I believe that kind of helps you..

Thank you very much..

We’ll go next to Meyer Shields, KBW..

Thanks, good morning.

Some small detail questions if I can, one the fixed maturity portfolio in P&C, the average rating moved from A to A minus, anything significant or is that just like where we finally cross over the threshold?.

Nothing significant and I think that really that’s driven by sale of some of the agency securities which we use to fund the dividend. So, in April its back to A but it also tells you kind of where we are relative to the line and what's available in the market..

Okay, thanks.

And probably given this too much attention, but the timing issue affecting the operating expenses or the underwriting expenses, is that a second quarter correction or should we expect that over the year?.

No, I think - all we trying to give you is that the indication that the improvement you saw isn't all going to be there. So remember what Dino just said, little over half of the improvement was actions we've taken a little less than half as things relative to timing. But we still expect there to be - to run somewhere in the low 34 so at the moment..

Okay. And then last sort of big picture question for Dino. Tom in the past had talked about sort of skepticism towards commercial auto and this worked up pretty well over the last few years.

How are you thinking about the line, not in the immediate, but over the long-term, is that something that you feel like you can build the necessary underwriting expertise to really build up your share?.

At this particular juncture right, it served us well the strategy that Tom and the management team over the years had adopted which is essentially right, you decide what target segments you want to go in, you put a value profit together, you got a product services and you go, you decide what is it that they particularly wants us.

It's risk control, it’s a little bit better on the product service, a little bit better on the underwriting and the need to fill it out and be able to provide also the auto not really as important.

So, in light of some of the dynamics, the economics you know so well about I don’t anticipate that it’s anything that we would change from a strategy standpoint. Serving us well going after the segments that we're doing and there have - as Tom has said, there is many quarters where you're happy that you have small premium in auto.

So we’ll stick with the same approach for now..

Okay. Thanks so much..

We'll go next to Cliff Galant, Philadelphia Financial..

Thank you. I want to go back to the opening comments, when you were talking a little bit about the alignment, different teams in the organization.

And I was wondering if you could explain a little bit more about what you meant by that, may be an example of sort of where CNA is today and where you’d want it to be?.

Yes, it’s a great question, and it sounds like it is in one sort of tangible strategic initiative but it is core to what I consider to be if you really want to have a very strong underwriting culture and what you have to do is take all the expertise. Look actuarial has a very specific expertise.

The claim organization having managed that kind of an organization over the years, the insight that adjusters have on the dynamics that’s happening on account is tremendous.

Loss control, the risk control people, they are out there even before we write these risk, examining the exposures, getting a good sense for what customers really execute upon and why what’s the motivation our enterprise risk management all of the modeling et cetera.

So the expertise is there, what you have to do is institutionalize that feedback loop. And so - and that’s really been a focus for us and it’s looking at it not only from the various lines of business but all kind of postmortems, postmortem on large loss, and to say, okay, let's take a look at that, let's see what we've learned from this.

When you're going after certain complex opportunities bringing those teams to bear, we’re all here in a same building the question of going up a few floors or sideways along the floor and that's really something.

Then the other thing that we're doing because it’s an important one because clearly analytics is really making a difference where it was a little bit more difficult in today's big data and unstructured data information you want to try to automate that process.

And so what you learn from your claims automatically gets filled in to the predictive algorithms, and what we see from a risk control because you can take all that information now and put it into the systems. And so, it is an automation but beyond the automation it's a mindset to say.

We’re going to seek out every neuron we got and bring it to bear on the underwriting process..

It's exciting. Thank you for the good quarter..

That concludes our question-and-answer session. We'll turn the conference back over to Dino Robusto for any additional or closing remarks..

Thank you everyone for your questions. Look forward to seeing you again in 90 days. Bye, now..

That does conclude today's conference. Thank you for your participation. You may now disconnect..