CNA, Others Struggle Through Third Quarter

Amidst a pile of third-quarter earnings announcements that had chief executives bemoaning the competitive state of the property-casualty insurance market and the effects of the forces of Mother Nature, a handful of reports had some unusual twists in their individual earnings stories.

For CNA, the plot was similar to the one written for St. Paul, Chubb, AIG and other large writers of commercial insurance whose earnings statements came before it, but the story's ending was decidedly different.

Like the other insurers, the Chicago-based CNA listed pricing pressures among the obstacles standing in the way of its earnings growth. Unlike the others, however, there was red ink on CNA's bottom line-$14 million worth of it, to be exact.

"The third-quarter results underscore the importance of our restructuring efforts," Dennis Chookaszian, CNA's chair and chief executive officer, said in a statement. He was referring to the insurer's August announcement that it would reduce its work force by 10 percent, close some facilities and consolidate some processing centers.

In the third quarter, those efforts subtracted $151 million from the bottom line. Catastrophe losses of $43 million also contributed to the consolidated loss reported for CNA's life and p-c segments combined.

While most insurers reported lower net income than they had in last year's third quarter, Orion Capital was notable for the magnitude of its income drop-more than 90 percent.

Orion's income plummeted to $2.3 million, or $0.08 per share, compared with $24.5 million, or $0.88 per share, in third-quarter 1997, as factors like a $14.1 million decline in the value of limited partnership investments added a new wrinkle to one of the quarter's more complicated stories.

Like CNA, Farmington, Conn.-based Orion is also in the midst of a restructuring. The company reported a $12.3 million pre-tax charge related to the realignment of its specialty unit-a move that will include the cancellation of roughly $100 million in annual premiums related to unprofitable commodity business.

Like Orion, reinsurer PXRE Corp. had unrealized losses from limited partnership investments to contend with-along with just about everything else, according to its chair, Gerald Radke.

"PXRE felt the effects of apparently uncorrelated underwriting and investment risks, all in the same quarter," he said, referring not only to the investment value declines, but to $48.2 million of losses from Hurricane Georges and $2.5 million in losses from the Swissair and Delta 3 satellite events recorded in the quarter.

Overall, however, what the industry faced in the third quarter and through the first nine months wasn't simply a combination of extraordinary events, analysts contend.

"With 1997 catastrophes at record-low levels, it was a foregone conclusion that 1998 would look bad in comparison," according to Robert Hartwig, vice president and chief economist at the New York-based Insurance Information Institute.

"The companies we deal with are all talking about it-the general malaise of the industry. And it's starting to transcend into the analysts' community," Greg Peters, vice president, equity research for Chicago-based Everen Securities, recently told National Underwriter.

But while Mr. Peters suggested that everyone is looking for "some sort of event" to turn things around, he was hard-pressed to put his finger on what that event might look like.

"The companies I review are being nickeled and dimed to death" with catastrophes, Midwest storms, airplane and satellite problems, he said. But "while it's harder for the profitability of this product to come through," there is still excess capacity for the product that p-c insurers sell.

As a result, even though some insurers have vowed to make changes in their underwriting operations by turning away unprofitable business, others are likely to step in to sweep up those accounts at continued low prices, he and others said-predicting that the underwriting "malaise" will continue well into 1999.

Combined ratios for third-quarter 1998 ranged from a low like 89.0 for Mayfield Village, Ohio-based Progressive and 94.1 for Northbrook, Ill.-based Allstate, to levels like 112.8 for CNA and 117.2 for New York-based TIG, all the way up a 165.5 for PXRE.

On average, though, analysts predict an overall industry combined ratio of 104.3 for 1998 and 105.5 for 1999, according to information put together based by the Insurance Information Institute based on a survey.

Third-quarter 1998 was not without its bright spots-as companies like personal lines insurer Progressive, and Executive Risk, a Simsbury, Conn.-based specialty writer, stood out from the pack with strong third-quarter earnings growth.

Progressive's operating earnings jumped 50.5 percent to $134.4 million, or $1.80 per share, compared to $89.3 million, or $1.18 per share, in last year's third quarter.

Executive Risk reported a 21.3 percent increase in its operating results to $10.8 million.

Progressive, along with New York-based Reliance Group and Greenwich, Conn.-based W.R. Berkley, had something else in their stories that most others insurers were lacking-double-digit jumps in third-quarter net written premiums.

Progressive's premiums grew 13.3 percent over last year, Reliance reported a 17.7 percent increase, and W.R. Berkley saw 21.4 percent growth. For Reliance and W.R. Berkley, specialty and reinsurance operations were key contributors to the insurers' outstanding growth rates.

Unlike Progressive, both Reliance and W.R. Berkley saw operating earnings fall in the third quarter-Reliance by 14.5 percent, and Berkley by nearly 60 percent-with both citing catastrophe losses as primary causes for the declines.

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