Loews Corporation
Q1 2020 Earnings Call Transcript

Published: 4 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Loews Corporation's First Quarter 2020 Earnings Conference Call. [Operator Instructions]. Thank you.It is now my pleasure to turn the call over to Mary Skafidas to begin. Please go ahead.

[Mary Skafidas:]

Thank you, Maria, and good morning, everyone, and welcome to Loews Corporation's first quarter earnings conference call. A copy of our earnings release, earnings supplement and company overview may be found on our website, loews.com. On the call this morning, we have our Chief Executive Officer, Jim Tisch; and our Chief Financial Officer, David Edelson. Questions that have been submitted by shareholders will be addressed during this call.Before we begin, however, I will remind you that this conference call might include statements that are forward-looking in nature. Actual results achieved by the company may differ materially from those made or implied in any forward-looking statements due to a wide range of risks and uncertainties including those set forth in our SEC filings. Forward-looking statements reflect circumstances at the time they are made. The company expressly disclaims any obligation to update or revise any forward-looking statements. This disclaimer is only a brief summary of the company's statutory forward-looking statements disclaimer, which is included in the company's filings with the SEC.During the call today, you may also discuss - we may also discuss non-GAAP financial measures. Please refer to our security filings and earnings supplement for reconciliation to the most comparable GAAP measures.Now let me hand the call over to Jim Tisch, our CEO, who will kick off the call. Jim, over to you.

[James Tisch:]

Thank you, Mary, and good morning. Before we discuss how Loews is addressing the many challenges presented by the coronavirus, I want to take a moment to acknowledge everyone on the front lines of the fight against this pandemic. They are true heroes. I speak for all of us at Loews' Corporation when I thank them for their bravery, for their selflessness and for everything they are doing to save lives. To express our thanks a bit more concretely, I'm proud to announce that Loews has donated $1 million that has been allocated between several different funds that provide direct support to these frontline health care heroes. I'm glad we're able to help these individuals who are risking their own lives to help others.It's astonishing how quickly the coronavirus has altered our lives. Loews' 2019 letter to shareholders is dated February 11 of this year. In it, we described the dramatic changes brought about over the last decade by disruptive technologies, shifting trade relations and an array of market and geopolitical forces. Little did I know when we completed our letter that the most dramatic change was directly ahead. What started out as a promising year has quickly and dramatically morphed into a global economic free fall.Like so many other companies, Loews and its subsidiaries started operating remotely overnight as travel restrictions and shelter-in-place orders were issued by governments around the world. Since Loews and our subsidiaries have already put into place the enhanced IT infrastructure required for a quick and efficient transition to remote operations, our company's move to working from home went even more smoothly than I would have expected. Our employees rose to the challenge with resilience and focus. I want to thank them all for their dedication, which has enabled Loews' to move forward.So back to our operations. The coronavirus has impacted each of Loews' businesses in different ways. Some of our subsidiaries have been hard hit, and others have not. Specifically, Diamond Offshore and Loews Hotels have felt the most pain. Let me lead off with Diamond Offshore and the sequence of events that resulted in the company's Chapter 11 announcement on April 26.It's no secret that the offshore drilling industry has been experiencing a protracted downturn since 2014. It's been a long, hard road for the offshore drillers, plagued by an oversupply of rigs, coupled with persistently low oil prices. Earlier this year, however, we thought we saw the Sun start to break through the clouds. At the beginning of January, oil was priced at $60 a barrel and global oil demand was expected to grow. Unfortunately, that sunny moment was short-lived. Over the first quarter, Saudi Arabia and Russia failed to reach a production agreement, and global demand experienced a sudden and cataclysmic decline due to the spread of COVID-19. These factors caused oil prices to drop to about $20 per barrel. That's a 2/3 decline in price in a 3-month period. In response, oil companies significantly reduced their capital budgets. Travel bans further complicated offshore drillers' ability to staff their rigs, and E&P companies used every opportunity they could to cancel or renegotiate contracts. Talk about impeccably bad timing.Keep in mind that even before this unfortunate confluence of events, Loews' exposure to Diamond was limited to our equity stake, which by mid-March, had a market value of between $100 million and $200 million.Later in this call, our CFO, David Edelson, will walk you through the GAAP impact to Loews of the Diamond Chapter 11 filing. But it's important to remember that while the GAAP deconsolidation loss is significant, it's a noncash loss. Loews' balance sheet remains strong ending the quarter with $3.1 billion in cash and investments.While we are incredibly disappointed about the sequence of world events that led Diamond to make its April 26 announcement. I am very proud of the work that Diamond offshore has done over the years. Diamond has been a leader in the offshore drilling industry. The company's CEO, Marc Edwards, has been outstanding, and his team has worked hard in a very tough environment. Diamond is comprised of talented and resilient individuals facing extraordinary circumstances. We hope for a brighter future for the company in the years to come.Moving on to the rest of the Loews portfolio, I'd like to do a quick review of our businesses and their operations today, how they are faring and functioning in this ever changing new normal world. As you know, for the last couple of years, it has been our practice to take questions from shareholders. Since the questions we have received over the last month have been very consistent, I'm going to address them as part of my prepared remarks and in the context of this review.First up is CNA. Operationally, CNA's performance has been quite strong. The company's underlying combined ratio for the quarter was slightly better than in the first quarter of 2019, driven primarily by a reduction in the expense ratio. CNA also had solid rate increases of 8% as the hard market continued. All in all, CNA has the balance sheet, the business mix, management team and infrastructure to manage adeptly through this crisis.In terms of the pandemic's impact on CNA's future earnings, it's too early to make concrete statements. But we imagine that the P&C industry will face some headwinds. These will include low interest rates and lower premium levels as a result of the decline in GDP. CNA is monitoring the situation closely as it unfolds, and we have a lot of confidence in the expertise and judgment of CNA's CEO, Dino Robusto, and his senior management team.Our shareholders' questions for CNA focused on 2 topics

[David Edelson:]

Thank you, Jim, and good morning, everyone. For the first quarter, Loews reported a net loss of $632 million or $2.20 per share, compared to net income of $394 million or $1.27 per share in last year's first quarter. This year's first quarter loss and the substantial year-over-year decline had 2 main causes

[Mary Skafidas:]

Thank you, David. We want to thank all of you for your continued interest. Please feel free to reach out to me with any additional questions at [e-mail]. A replay will be available on our website, loews.com, in approximately 2 hours.With no questions waiting in queue, we conclude the Loews call. Thank you.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today's Loews Corporation First Quarter 2020 Earnings Conference Call. You may now disconnect.