------------------------------------------------------------------------------- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 19941995 COMMISSION FILE NUMBER 1-5823
--------------------
CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DelawareDELAWARE 36-6169860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CNA PLAZA
CHICAGO, ILLINOIS 60685
(Address of principal executive offices) (Zip Code)
(312) 822-5000
(Registrant's telephone number, including area code)(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registeredNAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Common Stock New York Stock Exchange
with a par value Chicago Stock Exchange
of $2.50 per share Pacific Stock Exchange
------------------
Securities registered pursuant to Section 12(g) of the Act:------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G)OF THE ACT:
None
------------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [][x]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No...x No....
As of March 1, 1995,1996, 61,798,262 shares of common stock were outstanding and
the aggregate market value of the common stock of CNA Financial Corporation held
by non-affiliates was approximately $721$1,145 million.
DOCUMENTS INCORPORATED
BY REFERENCE:
Portions of the CNA Financial Corporation 19941995 Annual Report to
Shareholders are incorporated by reference into Parts I and II of this Report.
Portions of the CNA Financial Corporation Annual Proxy Statement prepared
for the 19951996 annual meeting of shareholders, pursuant to Regulation 14A, are
incorporated by reference into Part III of this Report.
===============================================================================
1- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CNA FINANCIAL CORPORATION
FORM 10-K REPORT
FOR THE YEAR ENDED DECEMBER 31, 19941995
Item Page
Number PART I Number
------ ------
1 Business ......................................................Business.............................................. 3
2 Properties .................................................... 16Properties............................................ 19
3 Legal Proceedings.............................................. 16Proceedings..................................... 20
4 Submission of Matters to a Vote of
Security Holders............ 16Holders..................................... 20
PART II
5 Market for the Registrant's Common Stock and
Related Stockholder Matters.................................. 16Matters.......................... 20
6 Selected Financial Data........................................ 16Data............................... 20
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................ 16Operations........ 20
8 Financial Statements and Supplementary Data.................... 16Data........... 20
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...................... 16Disclosure............... 20
PART III
10 Directors and Executive Officers of the Registrant ............ 17Registrant.... 21
11 Executive Compensation ........................................ 17Compensation................................ 21
12 Security Ownership of Certain Beneficial Owners
and Management. 17Management........................................ 21
13 Certain Relationships and Related Transactions ................ 17Transactions........ 21
PART IV
14 Financial Statements, Schedules, Exhibits, and
Reports on Form 8-K....................................................... 178-K................................... 21
2
PART I
ITEM 1. BUSINESS
CNA Financial Corporation and its consolidated subsidiaries (CNA)
constitute the twelfth largest insurance company in the United States as
measured by 1993 statutory premium volume.
CNA was incorporated in 1967 as the parent company of Continental Casualty
Company ("CCC"), incorporated in 1897, and Continental Assurance Company
("CAC"), incorporated in 1911. In 1975, CAC became a wholly-owned subsidiary of
CCC. In late 1994, CNA reached an agreement to acquire all the outstanding
common stock of The Continental Corporation ("Continental") through a cash
merger for approximately $1.1 billion. On May 9, 1995, Continental shareholders
approved the agreement and the merger was completed on May 10. As a result and
upon consummation of the merger, Continental became a wholly owned subsidiary of
CNA. The Continental Corporation, a New York corporation incorporated in 1968,
is an insurance holding company. Its principal subsidiary, The Continental
Insurance Company ("CIC") was organized in 1853. The principal business of
Continental is the ownership of a group of property and casualty insurance
companies.
CNA's property and casualty insurance operations are conducted by CCC and
its property and casualty insurance affiliates and CIC and its lifeproperty and
casualty insurance affiliates. Life insurance operations are conducted by CAC
and its life insurance affiliate.affiliates. CNA's principal business is insurance
conducted through its insurance subsidiaries is insurance.subsidiaries. As multiple-line insurers, the
insurance companies underwrite property, casualty, life, and accident and health
coverages. Their principal market for insurance is the United States.
Foreign operations are not significant.
In the fourth quarter of 1994, CNA reached an agreement to purchase
the outstanding shares of common stock of The Continental Corporation
(CIC) under which CNA will acquire CIC through a cash merger for
approximately $1.1 billion, or $20 per CIC share. The acquisition will
create the third-largest U.S. property/casualty insurance group and make
CNA the seventh-largest U.S. insurance organization. The acquisition will
be accounted for as a purchase and, accordingly, CIC's results of
operations will be included in CNA's consolidated results of operations
for periods subsequent to the date of closing, which is expected to be in
the second quarter of 1995. CNA and CIC are jointly seeking prompt
regulatory approvals. The transaction closing is subject to the approvals
of the Continental shareholders and state insurance regulators. The
transaction is also subject to review by the Federal Trade Commission and
the Department of Justice (which review has been completed). Until the
required approvals are received and the acquisition is complete, the
companies will continue to operate independently.
CompetitionCOMPETITION
All aspects of the insurance business are highly competitive. CNA's
insurance operations compete with a large number of stock and mutual insurance
companies and other entities for both producers and customers and must
continuously allocate resources to refine and improve insurance products and
services.
There are approximately 3,9003,300 companies that sell property/casualty
insurance in the United States, aboutapproximately 900 of which operate in all or
most states. CCC and itsCNA's consolidated property/casualty subsidiaries are(including CIC on
a proforma basis) would have been ranked as the sixththird largest property/casualty
insurance organization in 1994 based onupon statutory net premiums written in 1993.premium.
There are approximately 1,800 companies selling life insurance (including
health insurance and pension products) in the United States. CAC is ranked as
the twenty-thirdtwenty-fourth largest life insurance organization based on 1994 consolidated
statutory premium revenue in 1993.
Dividends by Insurance Subsidiariesvolume.
DIVIDENDS BY INSURANCE SUBSIDIARIES
The payment of dividends to CNA by its insurance affiliates without prior
approval of the Illinois Insurance Department ("IID")affiliate's domiciliary state insurance commissioners is limited
to formula amounts determined by formula in accordance with the accounting practices
prescribed or permitted by the IID.state's insurance departments. This formula
varies by state. The current formula limits dividends,
without approvalfor the majority of the insurance commissioner, tostates is the greater of
10% of prior year statutory surplus or prior year statutory net income, less the
aggregate of all dividends paid during the twelve months prior to date of
payment. For 1995,Some states, however, have an additional stipulation that dividends
can't exceed prior year earned surplus. Based upon the various states formulas,
approximately $336$860 million in dividends could be paid to CNA by its insurance
affiliates in 1996 without prior approval. The National
Association of Insurance Commissioners ("NAIC") Financial Regulation
Standards and Accreditation Committee approved the Illinois dividend
formula as complying with the NAIC Model Dividend Law. All dividends must be reported to the
insurance department within five business days ofprior to declaration and ten days prior to payment.
3
RegulationREGULATION
The insurance industry is subject to comprehensive and detailed regulation
and supervision throughout the United States. Each state has established
supervisory agencies with broad administrative power relative to licensing
insurers and agents, approving policy forms, establishing reserve requirements, maintaining guarantee funds,
fixing minimum interest rates for accumulation of surrender values and maximum
interest rates of policy loans, prescribing the form and content of statutory
financial reports, and regulating solvency and the type and amount of
investments permitted. Regulatory powers also extend to premium rate regulations
which require that rates not be excessive, inadequate or unfairly
discriminatory. In addition to regulation of dividends by insurance subsidiaries
discussed above, intercompany transfers of assets may be subject to prior notice
or approval, depending on the size of such transfers and payments in relation to
the financial position of the insurance affiliates making the transfer.
TheThere has been a growing legislative trend, for legislation and voter initiatives continues, particularly for personal lines
products and workers compensation, directly impacting insurance rate
development, rate application and the ability of insurers to cancel or renew
insurance policies.
Restrictions on the consideration of certain
expenses, limits on services provided by advisory organizations and
politically suppressed workers' compensation rates in certain states
continue to be of concern.
Insurers are also required by the states to provide coverage to risks
whichinsureds
who would not otherwise be considered eligible by the insurers. Each state
dictates the types of insurance and the level of coverage which must be provided
to such involuntary risks. CNA's insurance subsidiaries' share of these
involuntary risks is mandatory and generally a function of theirits respective share
of the voluntary market by line of insurance in each state.
In recent years, insolvencies of a few large insurers previously believed
to be on solid financial ground by many rating agencies and state regulators led
to increased scrutiny of state regulated insurer solvency requirements by
certain members of the U.S. Congress. Had Congress formally adopted initiatives
in the 103rd Congress, insurers would have been subject to federal solvency
regulation. In response to this challenge, the National Association of Insurance
Commissioners (NAIC) developed industry minimum Risk-Based Capital (RBC)
requirements, established a formal state accreditation process designed to minimizemore
closely regulate for solvency, minimized the diversity of approved statutory
accounting and actuarial practices, and has increased the annual statutory statement
disclosure requirements.
RBC requirements were first effective for life insurers in 1993 and
for property and casualty insurers in 1994. The RBC formulas wereare designed to identify an insurer's minimum capital
requirements based upon the inherent risks (e.g., asset default, credit and
insurance)underwriting) of its operations. In addition to the minimum capital
requirements, the RBC formula and related regulations identify various levels of
capital adequacy and corresponding actionactions that the state insurance departments
should initiate. The level of capital adequacy below which insurance departments
would take action is defined as the Company Action Level. As of December 31,
1994,1995, all of CNA's life insurance affiliates and property/casualty domestic affiliates
have adjusted capital amounts in excess of NAIC Company Action Levels.
The NAIC established minimum capital requirements and also maintains the Insurance Regulatory Information System
("IRIS"), which assists the state insurance departments in overseeing the
financial condition of both life and property/casualty insurers.insurers through
application of a number of financial ratios. These tests are in the form of
ratios and have a range of
results characterized as "usual" by the NAIC. The NAIC IRIS user guide regarding
these ratios specifically states that "Falling outside the usual range is not
considered a failing result..." and "...in some years it may not be unusual for
financially sound companies to have several ratios with results outside the
usual range." It is important, therefore, that IRIS ratio test results be
reviewed carefully in conjunction with all other financial information.
CCC had no IRIS ratios with unusual values in 1995. The one IRIS ratio with an
unusual value in 1994 three in 1993
and four in 1992. The ratio with an unusual value in 1994 iswas the two year overall operating ratio. The three IRIS
ratios with unusual values in 1993 were the two year overall operating,
investment yield, and the two year reserve development ratios. The four IRIS ratios with unusual values
in 1992 were the two year overall operating, the change in surplus, and
both the one and two year reserve development ratios. Catastrophe
losses and reserve increases associated with Fibreboard Corporation litigation
(see Note J toof the Consolidated Financial Statements) recognizedrecorded in 1992 and 1993
triggered the unusual values for the operating ratios generated in 1993 and 1994
and the reserve development ratios generated in 1993. Additionally, lower
interest 4
Regulation--(continued)
rates in the capital markets in 1993, coupled with a proportionately large short-term
investment portfolio, triggered the unusual value for the investment yield
ratio.
4
REGULATION-(CONTINUED)
CIC had three IRIS ratios with unusual values in 1995. These ratios were
change in writings, two-year overall operating ratio, and the two-year reserve
development to surplus. The overall decline in premiums written is attributable
to CIC's efforts to shift its business mix towards more profitable lines. The
two-year overall operating and the two-year reserve development to surplus
ratios were adversely impacted by the establishment of environmental reserves of
$400 million for incurred but not reported losses in 1994 and $200 million in
other loss reserve development, principally in workers' compensation. Further,
in 1994, results were adversely affected by catastrophe losses.
CAC had no IRIS ratios with unusual values in 1995 or 1994. CAC had two
unusual values for IRIS ratios in 1993, which were net gain to total income and
change in net written premium, and one unusual value for IRIS ratios in
1992, net gain to total income.premium. CAC's reported statutory net income was adversely
affected in both 1993 and 1992 by the transfer of significant
realized capital gains to the Interest Maintenance Reserve and depressed investment earnings. The unusual value for the
change in premium ratio primarily relatesrelated to decreases in the Separate Account
annuity products fund deposits.
Federal measures, which if reintroduced in the 104th Congress and
enacted, would significantly affect the insurance business include
proposals for directly regulating insurance company solvency as well as
repeal of the McCarran-Ferguson Act, which exempts certain aspects of
insurance from Federal regulation to the extent regulated by the states.
The potential for Federal health care reform had been widely publicized and debated
over the past year.in 1994. Although these legislative reforms failed in 1994, and none were
enacted in 1995, some Federal or state health care reform could emerge in 1995. Such possible
reforms include legislation affecting tort reform, medical malpractice,the
future. Federal regulation of the insurance market reformsindustry and tax laws affecting health carerepeal of the
McCarran-Ferguson anti-trust exemptions for the insurance industry were widely
discussed topics in the 103rd Congress but have not been of interest in the
first session of the 104th Congress in 1995, and long term
care benefits.are not anticipated to be of
interest in the second session in 1996.
Although the courts and legislatures are often asked to expand liability,
there is a growing trend among business and professional organizations to wage
campaigns, which in several instances have been successful, aimed at limiting
their liability risks. SeveralA number of states have adopted and some are considering "tort reform"
measures which, among other things, limit non-economic and punitive damages and
otherwise limit damage awards in product liability and malpractice cases.
The U.S. HouseIllinois and Texas adopted substantial tort reform in 1995 limiting non-economic
damages and the amount of Representatives has passed three bills providing for significantpunitive damages in all civil actions. Arizona,
Colorado, Connecticut, Indiana, Michigan, Montana, New Jersey, North Carolina,
North Dakota, Oklahoma, Oregon, South Dakota and Wisconsin all adopted some
measure of tort reform.
Environmental clean-up is the subject of both federal and state regulation.
By some estimates, there are thousands of potential waste sites subject to
clean-up. The passageinsurance industry is involved in extensive litigation regarding
coverage issues. Judicial interpretations in many cases have expanded the scope
of these bills, in their present form, bycoverage and liability beyond the Senate
is uncertain.
Reinsuranceoriginal intent of the policies. See Note K
of the Consolidated Financial Statements for further discussion.
REINSURANCE
CNA assumes and cedes insurance with other insurers and reinsurers and
members of various reinsurance pools and associations.reinsurers. CNA
utilizes reinsurance arrangements to limit its maximum loss, to provide greater
diversification of risk and to minimize exposures on larger risks.aggregate exposures. The reinsurance
coverages are tailored to the specific risk characteristics of each product line
with CNA's retained amount varying by type of coverage. Generally, reinsurance
coverage for property risks is on an excess of loss, per risk basis. Liability
coverages are generally reinsured on a quota share basis in excess of CNA's
retained risk.
The ceding of insurance does not discharge the primary liability of the
original insurer. CNA places reinsurance with other carriers only after careful
review of the nature of the contract and a thorough assessment of the
reinsurers' credit quality and claim settlement performance. Further, for
carriers that are not authorized reinsurers in Illinois,its states of domicile, CNA
receives collateral primarily in the form of bank letters of credit, securing a
large portion of the recoverables. Such collateral totaled approximately $165$1.12
billion and $155$165 million at December 31, 19941995 and 1993,1994, respectively. CNA's
largest recoverable from a single reinsurer, including prepaid reinsurance
premiums, was approximately $348$435 million and $484$348 million with Lloyd's of London
at December 31, 1995 and 1994, and 1993, respectively.
Employee Relations5
EMPLOYEE RELATIONS
CNA has approximately 15,60025,000 full-time equivalent employees and has
experienced satisfactory labor relations. CNA has never had work stoppages due
to labor disputes.
CNA has comprehensive benefit plans for substantially all of its employees,
including a retirement plan, aplans, savings plan, aplans, disability program, aprograms, group life
program,programs, and a group health care program.
Business Segmentsprograms.
BUSINESS SEGMENTS
Information as to CNA's business segments is set forth in Note L toof the
Consolidated Financial Statements, incorporated by reference in Item 8, herein.
5
Life Business
CNA's life insurance operations market individual and group insurance
products through licensed agents, most of whom are independent
contractors, who sell life insurance for CNA and for other companies on a
commission basis. Individual insurance products include life, accident
and health and annuity products, and are sold to individuals and small
businesses.
The individual life products currently being marketed consist
primarily of term, universal life and participating policies. Included in
the universal life category is a salary allotment product marketed
through employers as a supplement to employers' benefit plans. Premiums
are collected from employees through payroll deduction. The individual
accident and health policies currently being marketed are long-term
disability products. Individual annuity products are primarily periodic
payment plans.
Group insurance products include life, accident and health and pension
products, and are sold to employers, employer associations and trusts
ranging in size from small local employers to large multinational
corporations. The group accident and health plans are primarily major
medical and hospitalization. Most of the major medical and
hospitalization plans are written under experience-rated contracts or
contracts to provide claim administrative services only.
CNA's products are designed and priced using assumptions management
believes to be reasonably conservative for mortality, morbidity,
persistency, expense levels and investment results. Underwriting
practices that management believes are prudent are followed in selecting
the risks that will be insured. Further, actual experience related to
pricing assumptions is monitored closely so that prospective adjustments
to these assumptions may be implemented as necessary. CNA mitigates the
risk related to persistency by including contractual surrender charge
provisions in its ordinary life and annuity policies in the first five to
ten years, thus providing for the recovery of acquisition expenses. The
investment portfolios supporting interest sensitive products, including
universal life and individual annuities, are managed as a separate
portfolio to minimize liquidity and interest rate risk.
Profitability in the health insurance business continues to be
impacted by intense competition and rising medical costs. CNA has
aggressively pursued expense reduction through increases in automation
and other productivity improvements. Further, increasing costs of health
care have resulted in a continued market shift away from traditional
forms of health coverage toward managed care products and
experience-rated plans. CNA's ability to compete in this market will be
increasingly dependent on its ability to control costs through managed
care techniques, innovation, and quality customer-focused service in
order to properly position CNA in the evolving health care environment.
Although the Federal Government's proposed comprehensive health care
reform failed to be enacted in 1994, some health care initiatives could
emerge in 1995. Such possible reforms include legislation affecting tort
reform, medical malpractice, insurance market reforms and tax laws
affecting health care and long term care benefits. CNA has urged a
meaningful role for the private sector in any proposed plan. The present
health care system is clearly in need of reform, and CNA has emphasized
that the competitive strengths of the insurance industry must be an
integral part of a workable solution.
6
Life Business--(continued)
The following table sets forth supplemental data for the life
insurance business:
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1994 1993 1992 1991 1990
(In millions of dollars)
------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL PREMIUMS
Life and annuities.................................................... $ 369.4 $ 312.1 $ 294.7 $ 287.9 $ 239.5
Accident and health................................................... 32.6 30.9 27.1 24.3 21.1
------- ------- ------- ------- -------
$ 402.0 $ 343.0 $ 321.8 $ 312.2 $ 260.6
======= ======= ====== ====== ======
GROUP PREMIUMS
Life.................................................................. $ 138.7 $ 107.2 $ 100.7 $ 90.8 $ 82.6
Accident and health (a)............................................... 2,111.2 1,983.0 1,957.5 1,887.0 1,713.3
Annuities............................................................. 26.3 9.0 57.7 24.3 51.6
------- ------- ------- ------- -------
$2,276.2 $2,099.2 $2,115.9 $2,002.1 $1,847.5
======= ======= ======= ======= =======
NET INVESTMENT INCOME AND OTHER INCOME
Individual............................................................ $ 193.8 $ 154.2 $ 163.0 $ 162.5 $ 162.2
Group................................................................. 166.4 142.8 156.6 185.4 188.8
------- ------- ------- ------- -------
$ 360.2 $ 297.0 $ 319.6 $ 347.9 $ 351.0
======= ======= ======= ======= =======
INCOME EXCLUDING REALIZED CAPITAL GAINS, BEFORE INCOME TAX
Individual............................................................ $ 47.3 $ 14.5 $ 22.5 $ 13.8 $ 15.3
Group................................................................. 87.1 51.9 56.1 76.0 76.2
------- ------- ------- ------- -------
$ 134.4 $ 66.4 $ 78.6 $ 89.8 $ 91.5
======= ======= ======= ======= =======
GROSS LIFE INSURANCE IN FORCE
Individual (b)........................................................ $ 80,560 $ 76,835 $ 75,569 $ 71,539 $ 68,095
Group................................................................. 46,873 35,413 29,643 27,139 21,167
------- ------- ------- ------- -------
$127,433 $112,248 $105,212 $ 98,678 $ 89,262
======= ======= ======= ======= =======
OTHER DATA - Statutory basis (c)
Capital and surplus................................................... $1,054.6 $1,022.0 $1,003.0 $ 968.4 $ 848.8
Capital and surplus-percent of
total liabilities (as defined)....................................... 29.4% 30.1% 33.4% 29.9% 26.4%
Participating policyholders'-percent of gross life insurance in force. 0.9 1.1 1.2 1.6 1.5
------------------------------------------------------------------------------------------------------------------------------------
(a) Group accident and health premiums include contracts involving
U.S. government employees and their dependents amounting to approximately
$1.8, $1.7, $1.6, $1.5, and $1.3 billion in 1994, 1993, 1992, 1991 and
1990, respectively.
(b) Lapse ratios as measured by surrenders and withdrawals as a
percentage of average ordinary life insurance in force were 9.7%, 9.7%,
8.6%, 10.4%, and 11.4%, in 1994, 1993, 1992, 1991, and 1990,
respectively.
(c) Other Data is determined on the basis of statutory accounting
principles and reflects capital contributions from Continental Casualty
Company of $100 million in 1990. Life insurance subsidiaries have
received, or will receive, reimbursement from CNA for general management
and administrative expenses and investment expenses in the amounts of
$24.7, $25.6, $24.5, $25.7, and $25.0 million in 1994, 1993, 1992, 1991
and 1990, respectively. Statutory capital and surplus as a percent of
total liabilities is determined after excluding Separate Account
liabilities and reclassifying the Asset Valuation and Interest
Maintenance Reserves (statutorily defined and created reserves) as
surplus.
Annuities and Guaranteed Investment Contracts
---------------------------------------------
CAC writes the majority of its annuities and guaranteed investment
contracts ("GIC's") in a fixed Separate Account, which is permitted by
Illinois insurance statutes. CAC guarantees principal and a specified
return to GIC contractholders. This guarantee affords the contractholders
additional security, in the form of CAC's general account surplus, which
supports any principal and/or guaranteed interest payment shortfalls of
the Separate Account.
CNA manages the liquidity and interest rate risks on the GIC portfolio
by matching the GIC assets and liabilities on the basis of duration and
maintaining market value surrender adjustments on the majority of the
contracts.
7
Life Business--(continued)
The table below shows a comparison of the duration of assets and
liabilities, the investment yield, the weighted average interest
crediting rates and withdrawal characteristics of the GIC portfolio.
--------------------------------------------------------------------------------------------------------------------
December 31 1994 1993 1992
--------------------------------------------------------------------------------------------------------------------
Duration in years:
Assets ............................................................................. 3.23 2.68 3.04
Liabilities......................................................................... 2.99 2.73 2.69
---- ---- ----
Mismatch ........................................................................... 0.24 (0.05) 0.35
==== ==== ====
Weighted average investment yield..................................................... 7.67% 7.11% 8.05%
Weighted average interest crediting rates............................................. 7.53% 7.74% 8.32%
Withdrawal characteristics:
With market value adjustment......................................................... 79% 81% 83%
Non-withdrawable..................................................................... 15 13 12
Without market value adjustment...................................................... 6 6 5
--------------------------------------------------------------------------------------------------------------------
Total 100% 100% 100%
====================================================================================================================
As shown above, the investment yield at December 31, 1994 was more
than the average crediting rate. The investment yields at December 31,
1993 and 1992 were less than the average crediting rates. This resulted
from the reinvestment of proceeds from security sales, that generated
substantial gains, at rates that were lower than those of the securities
sold. However, because the security sales created a larger asset base to
reinvest, the aggregate future cash flows from interest and principal
were substantially unchanged and sufficient to meet the product
obligations.
Property/Casualty BusinessPROPERTY/CASUALTY BUSINESS
CNA's property/casualty operations market commercial and personal lines of
property/casualty insurance through independent agents and brokers.
CCCCNA and its property/casualty insurance subsidiaries write primarily
commercial lines coverages. Customers include large national corporations,
smallsmall- and medium-sized businesses, groups and associations, and professionals.
Coverages are written primarily through traditional insurance contracts under
which risk is transferred to the insurer. Many large commercial account policies
are written under retrospectively-rated contracts which are experience-rated.
Premiums for such contracts may be adjusted, subject to limitations set by
contract, based on loss experience of the insureds. Other experience-rated
policies include provisions for adjustments to dividends based on loss
experience. Experience-rated contracts reduce but do not eliminate risk to the
insurer. Approximately 38%12% of CNA's property/casualty insurance is written on an
experience-rated basis.
CNA also provides loss control, policy administration and claim
administration services under service contracts for fees. Such services are
provided primarily in the workers' compensation market where retention of more
risk by the employer through self-insurance or high-deductible programs has
become increasingly prevalent.
Commercial business includes such lines as workers' compensation, general
liability, professional and specialty, multiple peril, and accident and health
coverages. Professional and specialty coverages include liability coverage for
architects and engineers, lawyers, accountants, medical and dental
professionals; directors and officers liability; and other specialized
coverages. CNA also assumes commercial risks from other insurers. The major
components of CNA's commercial business are workers' compensation, general
liability, and professional and specialty coverages, which accounted for 26%19%,
18%19% and 15%18%, respectively, of 19941995 premiums earned including premiums for involuntary
risks on these lines of business. Premiums for involuntary risks result
from mandatory participation in residual markets.earned.
CNA is required by the various states in which it does business to provide
coverage for risks that would not otherwise be considered under CNA's
underwriting standards. CNA's share of involuntary risks is mandatory and
generally a function of its respective share of the voluntary market by line of
insurance in each state. Premiums for involuntary risks result from mandatory
participation in residual markets.
CNA also markets personal lines of insurance, primarily automobile and
homeownershomeowners' coverages sold to individuals under monoline and package policies.
8The Continental merger made CNA the market leader in package personal lines
products.
6
Property/Casualty Business--(continued)PROPERTY/CASUALTY BUSINESS-(CONTINUED)
The following table sets forth supplemental data on a GAAP basis, except
where indicated, for the property/casualty business:
------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 (a) 1994 1993 1992 1991
1990
(In millions of dollars)
------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------------
COMMERCIAL PREMIUMS EARNED
Workers' compensation...................................General liability......................... $ 1,426.31,648.9 $ 1,501.51,261.1 $ 1,669.21,154.5 $ 1,920.41,176.0 $ 1,803.8
General liability ...................................... 1,261.1 1,154.5 1,176.0 1,292.6 1,250.7
Professional and specialty..............................specialty................ 1,557.7 1,010.1 798.9 741.5 763.9
786.3Workers' compensation..................... 1,475.8 1,426.3 1,501.5 1,669.2 1,920.4
Multiple peril............................ 869.9 389.0 368.5 374.9 397.2
Reinsurance and other ..................................other..................... 973.9 773.5 712.2 556.0 482.0
448.2
Accident and health ....................................health....................... 699.1 557.1 428.3 352.6 294.2
254.4
Multiple peril.......................................... 389.0 368.5 374.9 397.2 395.2
------- ------- ------- ------- ----------------- ---------- ---------- --------- ---------
$ 7,225.3 $ 5,417.1 $ 4,963.9 $ 4,870.2 $ 5,150.3
$ 4,938.6
======= ======= ======= ======= ================= ========== ========== ========= =========
PERSONAL PREMIUMS EARNED
Personal lines packages ................................packages................... $ 562.5781.6 $ 562.6 $ 510.7 $ 447.3 $ 335.6
$ 225.2
Monoline automobile and property coverages..............coverages 325.4 314.2 343.5 395.0 470.7
493.0
Accident and health ....................................health....................... 107.8 88.9 85.6 88.6 88.8
72.5
------- ------- ------- ------- ----------------- ---------- ---------- --------- ---------
$ 965.61,214.8 $ 965.7 $ 939.8 $ 930.9 $ 895.1
$ 790.7
======= ======= ======= ======= ================= ========== ========== ========= =========
INVOLUNTARY RISKS PREMIUMS EARNED (a)(B)
Workers' compensation .................................compensation..................... $ 178.2 $ 350.0 $ 292.3 $ 451.4 $ 499.5
$ 448.4Private passenger auto.................... 79.7 46.4 23.2 52.5 39.2
Commercial passenger auto..............................auto................. 19.9 54.3 50.3 44.9 66.6
48.1
Private passenger auto................................. 46.4 23.2 52.5 39.2 65.8
Property and multiple peril ...........................peril............... 5.9 5.0 5.5 3.7 4.6
5.0
------- ------- ------- ------- ----------------- ---------- ---------- --------- ---------
$ 283.7 $ 455.7 $ 371.3 $ 552.5 $ 609.9
$ 567.3
======= ======= ======= ======= ================= ========== ========== ========= =========
NET INVESTMENT INCOME AND OTHER INCOME
Commercial.............................................Commercial................................ $ 1,713.1 $ 1,145.2 $ 979.8 $ 1,087.3 $ 1,131.3
$ 1,059.0
Personal...............................................Personal.................................. 230.4 177.6 156.1 165.3 160.1
137.3
Involuntary risks......................................risks......................... 104.3 88.1 75.7 83.6 78.5
58.7
------- ------- ------- ------- ----------------- ---------- ---------- --------- ---------
$ 2,047.8 $ 1,410.9 $ 1,211.6 $ 1,336.2 $ 1,369.9
========== ========== ========== ========= =========
UNDERWRITING LOSS
Commercial................................ $ 1,255.0
======= ======= ======= ======= =======
UNDERWRITING INCOME (LOSS)
Commercial.............................................(920.8) $ (945.7) $(1,535.6)$ (1,535.6) $(2,505.9) $ (707.1)
$ (664.4)
Personal...............................................Personal.................................. (101.9) (185.2) (99.7) (152.8) (172.1)
(123.6)
Involuntary risks .....................................risks......................... (98.8) (70.3) (156.5) (340.9) (345.5)
(327.7)
------- ------- ------- ------- -------
$(1,201.2) $(1,791.8)----------- ----------- ----------- ---------- ----------
$ (1,121.5) $ (1,201.2) $ (1,791.8) $(2,999.6) $(1,224.7)
$(1,115.7)
======= ======= ======= ======= ================== =========== =========== ========== ==========
------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 (a) 1994 1993 1992 1991
1990
(In millions of dollars)
------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------------
TRADE RATIOS - GAAP BASIS (b)(C)
Loss ratio.............................................ratio................................ 77.9% 81.9% 96.2% 116.7% 88.1%
88.2%
Expense ratio .........................................ratio............................. 29.4 28.3 27.2 26.2 25.8
25.1
Combined ratio (before policyholder dividends).........107.3 110.2 123.4 142.9 113.9
113.3dividends)................................
Policyholder dividend ratio ...........................ratio............... 3.0 4.8 3.9 1.9 2.5 2.2
TRADE RATIOS - STATUTORY BASIS (b)(C)
Loss ratio.............................................ratio................................ 78.6% 82.2% 96.4% 116.3% 88.2%
88.3%
Expense ratio .........................................ratio............................. 29.2 27.8 27.1 25.6 25.6(*) 24.625.6
Combined ratio (before policyholder dividends).........107.8 110.0 123.5 141.9 113.8(*) 112.9113.8
dividends)................................
Policyholder dividend ratio ...........................ratio............... 2.1 3.8 3.1 2.4 2.7 2.1
OTHER DATA - STATUTORY BASIS (c)(D)
Capital and surplus ...................................surplus....................... $ 5,695.9 $ 3,367.3 $ 3,598.4 $ 3,135.8 $ 3,927.5
$ 3,146.9
Written to surplus ratio...............................ratio.................. 1.7 2.0 1.7 2.0 1.7(*) 2.0
-----------------------------------------------------------------------------------------------------------------------------------
(*)In 1991, CNA changed its statutory method of accounting for
property/casualty written premium on indeterminate premium products
(policies subject to exposure audits). This new method defers the
recognition of written premium and acquisition expenses generally until
billed. The effect of this change in 1991 was a one-time reduction in
written premium and related acquisition expenses of $864 million and $78
million, respectively. In order to provide comparability, the Other Data
and Trade Ratios for 1991 shown above do not reflect the one-time impact
of this statutory accounting change.
(a) Property/casualty involuntary risks include mandatory
participation in residual markets, statutory assessments for insolvencies
of other insurers and other involuntary charges.
(b) Trade ratios reflect the results of Continental Casualty Company
and its property/casualty insurance subsidiaries.1.7
- ----------------------------------------------------------------------------------------------------------------
(a) Premiums earned, net investment income and other income, and
underwriting loss includes the results of The Continental Corporation since
May 10, 1995.
(b) Property/casualty involuntary risks include mandatory participation in
residual markets, statutory assessments for insolvencies of other insurers,
and other involuntary charges.
(c) GAAP trade ratios reflect the results of Continental Casualty
Company and its property/casualty insurance subsidiaries for the whole
year, along with the results of the Continental Insurance Company since May
10, 1995. Statutory trade ratios reflect the results of Continental
Casualty Company, its property/casualty insurance subsidiaries and
Continental Insurance Company for the entire year of 1995. Prior year
ratios have not been restated to include Continental. Trade ratios are
industry measures of property/casualty underwriting results. The loss ratio
is the percentage of incurred claim and claim adjustment expenses to
premiums earned. Under generally accepted accounting principles, the
expense ratio is the percentage of underwriting expenses, including the
change in deferred acquisition costs, to premiums earned. Under statutory accounting principles, the
expense ratio is the percentage of underwriting expenses, including the
change in deferred acquisition costs, to premiums earned. Under statutory
accounting practices, the expense ratio is the percentage of underwriting
expenses (with no deferral of acquisition costs) to premiums written.
7
PROPERTY/CASUALTY BUSINESS-(CONTINUED)
The combined ratio, before policyholder dividends, is the sum of the loss
and expense ratios. The policyholder dividend ratio is the ratio of dividends
incurred to premiums earned.
9
Property/Casualty Business--(continued)
(c)(d) Other Data is determined on the basis of statutory accounting
principlespractices and reflects a capital contributionscontribution from CNA of $475
million in 1993 and $120 million in 1990.1993. In addition, dividends of $325 million, $175
million, $150 million, $100 million and $130 million were paid to CNA
by Continental Casualty Company in 1995, 1994, 1993, 1992 and 1991,
respectively. Property/casualty insurance subsidiaries have received or will receive,
reimbursement from CNA for general management and administrative
expenses, unallocated loss adjustment expenses and investment
expenses in
the amounts of $197.0, $169.6, $167.5, $141.1, $133.8, and $128.1$133.8 million in
1995, 1994, 1993, 1992 1991 and 1990,1991, respectively.
The following table displays the distribution of domestic written premium
by state:
-------------------------------------------------------------------
GROSS WRITTEN PREMIUM BY STATE % OF TOTAL
-------------------------
YEAR ENDED DECEMBER 31 1994 1993 1992
-------------------------------------------------------------------
California.............................. 11.4 12.1 11.8
New York................................ 8.6 8.4 8.0
Texas................................... 6.5 6.2 5.7
Pennsylvania............................ 5.7 5.9 6.1
Illinois................................ 4.9 5.1 5.1
Florida................................. 4.6 4.1 3.3
New Jersey.............................. 3.2 3.3 3.1
All other states (a).................... 43.2 43.1 41.5
Reinsurance assumed:
Voluntary ........................... 5.9 6.9 7.9
Involuntary ......................... 6.0 4.9 7.5
----- ----- -----
100.0 100.0 100.0
===================================================================---------------------------------------------------------------------------
Gross Written Premium by State % of Total
-----------------------------------
Year Ended December 31 1995 1994 1993
---------------------------------------------------------------------------
New York...................... 10.3 8.6 8.4
California.................... 9.7 11.4 12.1
Texas......................... 6.5 6.5 6.2
Pennsylvania.................. 5.4 5.7 5.9
Illinois...................... 5.2 4.9 5.1
New Jersey.................... 4.6 3.2 3.3
Florida....................... 4.1 4.6 4.1
All other states (a).......... 48.8 43.2 43.1
Reinsurance assumed:
Voluntary..................... 3.4 5.9 6.9
Involuntary................... 2.0 6.0 4.9
----- ----- -----
100.0 100.0 100.0
===========================================================================
(a) No other state accounts for more than 3.0% of gross written premium.
The growth and profitability of CNA's property/casualty insurance business
is dependent on many factors, including competitive and regulatory influences,
the efficiency and costs of operations, underwriting quality, the level of
natural disasters, and investment results.
CNA's property/casualty operations continued to show significant
improvement in profitability during 1995, reflecting both improved investment
income and improved underwriting results. Contributing to the improved
underwriting results were continued favorable claim frequency (rate of claim
occurrence) and severity (average cost per claim) in the workers' compensation
line. Legislative reforms have cut costs in some states, residual market losses
have dropped, and the insurance regulators have sharpened their focus on
workers' compensation fraud.
In recent years, CNA'san effort to maintain growth, and earnings have been impacted by a
prolonged cycle of inadequate commercial lines pricing. CNA has intensified efforts in the
political spherearena to achieve a more predictable and equitable insurance marketing
climate. Among CNA's marketing strategies are to emphasize responsible pricing
over premium growth and to aggressively adapt to changes in certain markets such
as those in which self-insurance has become important. CNA has also initiated
wide-scale cost management measures. CNA has continued actions to reduce or
stabilize theits costs of doing business, including costs of health care, fraud and
tort liability. Programs include managed health care programs and intensified
efforts of fighting fraud.
8
The workers' compensation line has improved steadily since 1992.
Legislative reforms have cut costs in some states, residual market losses
have dropped, and the insurance regulators have sharpened their focus on
workers' compensation fraud.
Property/Casualty Claim and Claim ExpensesPROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES
Property/casualty claim and claim expense reserves, except reserves for
structured settlements, workers' compensation lifetime claims and accident and
health disability claims are based on undiscounted (a) case basis estimates for
losses reported on direct business, adjusted in the aggregate for ultimate loss
expectations, (b) estimates of unreported losses based upon past experience, (c)
estimates of losses on assumed insurance, and (d) estimates of future expenses
to be incurred in settlement of claims
and (e) estimates of claim recoveries.claims. In establishing these estimates,
consideration is given to current conditions and trends as well as past Company
and industry experience.
The schedule on page 9 provides
information on mix of business.
Structured settlements have been negotiated for claims on certain property/casualty
insurance policies.claims. Structured settlements are agreements to provide periodic
payments to claimants, which are fixed and determinable as to the amount and
time of payment. Certain structured settlements are funded by annuities
purchased from Continental Assurance
Company.CAC. Related annuity obligations are carried in future policy
benefits reserves. Obligations for structured settlements not funded by
annuities are carried at discounted values which approximate the alternative costpresent value of annuity purchases.future benefits. Such reserves,
discounted at interest rates ranging from 6.25% to 7.5%, totaled $839.0$897.4 million
and $748.9$839.0 million at December 31, 19941995 and 1993,1994, respectively. Ultimate payouts
under all structured settlements 10
Property/Casualty Claim and Claim Expenses--(continued)
funded or unfunded, at December 31, 19941995 and 19931994, will approximate
$3.0 billion and $2.4 billion, respectively.
Reserving practices under both statutory accounting practices and $2.2 billion, respectively.
In 1992, CNA changed itsgenerally
accepted accounting forprinciples allow discounting of claim reserves related to
workers' compensation lifetime claims and accident and health disability claims. Reserving practices under both statutory and generally accepted
accounting principles allow discounting of reserves for fixed and
determinable claim obligations.
Reserve discounting for these types of claims is common industry practice. These
claim reserves are discounted at interest rates ranging from 3.5% to 6.0% with
mortality and morbidity assumptions reflecting the Company's and current
industry experience. At December 31, 19941995 and 1993,1994, such discounted reserves
totaled $1,115 million$2.7 billion and $970
million,$1.1 billion, respectively. Ultimate payouts for these
claims are estimated to be $1.5$3.6 billion and $1.4$1.5 billion at December 31, 1995
and 1994, and 1993,
respectively.
Claim and claim expense reserves are based on estimates, and the
ultimate liability may vary significantly from such estimates. CNA
regularly reviews its reserves, and any adjustments that are made to the
reserves are reflected in operating income in the period such adjustments
become apparent.
The retention limits of CNA as a result of reinsurance of its
property/casualty business vary by type of coverage and are based on
individual risks underwritten. In general, retention limits have been
increased. See additional discussion of reinsurance in Notes G and K to
the Consolidated Financial Statements.
Asbestos-related and Environmental Pollution Claims
---------------------------------------------------
Reserves include estimated amounts for exposures to asbestos-related
and environmental pollution claims. Reserving for such claims involves
significant uncertainties for both CNA and the industry, characterized by
complex and costly litigation and further compounded by the tendency of
the courts to broadly interpret contracts beyond their original intent.
A summary of asbestos-related and environmental pollution claim and
claim expense activity follows:
---------------------------------------------------------------------------------------
CLAIM AND CLAIM EXPENSE
----------------------------------------------------
RESERVES, NET OF
REINSURANCE PAYMENTS
DECEMBER 31 YEAR ENDED DECEMBER 31
---------------- ------------------------
(In millions of dollars) 1994 1993 1994 1993 1992
---------------------------------------------------------------------------------------
Asbestos-related................. $1,939 $2,080 $178 $204 $112
Environmental pollution.......... 506 433 107 72 38
----- ----- --- --- ---
Total........................ $2,445 $2,513 $285 $276 $150
=======================================================================================
9
A major portion of CNA's asbestos-related claim exposure involves
litigation with Fibreboard Corporation, as discussed in Note J to the
Consolidated Financial Statements. Adverse reserve development for
asbestos-related claims totaled $37 million, $601 million, and $1.689
billion in 1994, 1993 and 1992, respectively, which include approximately
$500 million and $1.5 billion related to Fibreboard for 1993 and 1992,
respectively.
Potential exposures also exist for claims involving environmental
pollution including toxic waste clean-up. Environmental pollution
clean-up is the subject of both Federal and state regulation. By some
estimates there are thousands of potential waste sites subject to
clean-up. The insurance industry is involved in extensive litigation
regarding coverage issues. Judicial interpretations in many cases have
expanded the scope of coverage and liability beyond the original intent
of the policies. CNA has not attributed any reinsurance to reserves for
unreported environmental pollution claims. The reserves in the table
above are net of reinsurance recoverables of $3 million and $5 million at
December 31, 1994 and 1993, respectively. Estimating loss reserves is a
difficult process as there are many factors that can ultimately affect
the final settlement of a claim and, therefore, the reserve that is
needed. Changes in the law, results of litigation, medical costs, the
cost of repair materials and labor rates can all impact ultimate claim
costs. In addition, time can be a critical part of reserving
determinations since the longer the span between the incidence of a loss
and the payment or settlement of the claim, the more variable the
ultimate settlement amount can be.
11
Property/Casualty Claim and Claim Expenses--(continued)
Accordingly, short-tail claims, such as property damage claims, tend to
be more reasonably predictable than long-tail claims, such as general
liability and professional liability claims.
Reserve Development
-------------------
The table below provides a reconciliation between beginning and ending
claim and claim expense reserve balances for 1994, 1993 and 1992. Not
included in the table below is premium development related to certain
insurance policies subject to retroactive premium adjustments which are
based on various factors including loss experience. As a result, CNA also
recorded premium and dividend related development to prior years
(increasing (decreasing) premium) of $(29), $(127) and $50 million in
1994, 1993 and 1992, respectively.
-------------------------------------------------------------------------------------------------------
CHANGES IN RESERVES FOR PROPERTY/CASUALTY
CLAIM AND CLAIM EXPENSES
YEAR ENDED DECEMBER 31 1994 1993 1992
(In millions of dollars)
-------------------------------------------------------------------------------------------------------
Reserves at beginning of year:
Gross............................................................... $20,812 $20,034 $17,712
Ceded reinsurance................................................... 2,491 2,867 3,297
------ ------ ------
Net............................................................... 18,321 17,167 14,415
------ ------ ------
Net incurred claim and claim expenses:
Provision for insured events of current year........................ 5,611 5,388 5,708
Increase (decrease) in provision for insured events of prior years*. (71) 590 1,617
Amortization of discounts........................................... 100 94 104
------ ------ ------
Total net incurred ............................................... 5,640 6,072 7,429
------ ------ ------
Net payments:
Attributable to current year events................................. 1,388 1,202 1,260
Attributable to prior year events................................... 3,629 3,706 3,411
Amortization of discounts........................................... 10 10 6
------ ------ ------
Total net payments ............................................... 5,027 4,918 4,677
------ ------ ------
Net reserves at end of year ......................................... $18,934 $18,321 $17,167
====== ====== ======
-------------------------------------------------------------------------------------------------------
CHANGES IN RESERVES FOR PROPERTY/CASUALTY
CLAIM AND CLAIM EXPENSES
YEAR ENDED DECEMBER 31 1994 1993 1992
(In millions of dollars)
-------------------------------------------------------------------------------------------------------
Gross reserves at beginning of year ................................. $20,812 $20,034 $17,712
------ ------ ------
Gross incurred claim and claim expenses:
Provision for insured events of current year ....................... 6,125 5,817 6,382
Increase in provision for insured events of prior years............. 213 305 1,487
Amortization of discounts........................................... 100 94 104
------ ------ ------
Total gross incurred ............................................. 6,438 6,216 7,973
------ ------ ------
Gross payments:
Attributable to current year events................................. 1,468 1,278 1,348
Attributable to prior year events................................... 4,133 4,150 4,297
Amortization of discounts........................................... 10 10 6
------ ------ ------
Total gross payments ............................................. 5,611 5,438 5,651
------ ------ ------
-------------------------------------------------------------------------------------------------------
Gross reserves at end of year $21,639 $20,812 $20,034
=======================================================================================================
*Includes $500 and $1,500 for Fibreboard in 1993 and 1992, respectively.
See Note J to the Consolidated Financial Statements in the Annual Report
to Shareholders.
12
Property/Casualty Claim and Claim Expenses--(continued)PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES (CONT.)
The loss reserve development table below illustrates the change over time
of reserves established for property/casualty claims and claims expense at the
end of various calendar years. The first section shows the reserves as
originally reported at the end of the stated year. The second section, reading
down, shows the cumulative amounts paid as of the end of successive years with
respect to that reserve liability. The third section, reading down, shows
retroactive reestimatesre-estimates of the original recorded reserve as of the end of each successive
year which is the result of CNA's expanded awareness of additional facts and
circumstances that pertain to the unsettled claims. The last section compares
the latest reestimatedre-estimated reserve to the reserve originally established, and
indicates whether ofor not the original reserve was adequate or inadequate to
cover the estimated costs of unsettled claims.
The loss reserve development table is cumulative and, therefore, ending
balances should not be added since the amount at the end of each calendar year
includes activity for both the current and prior years.
-----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF PROPERTY/CASUALTY
LOSS RESERVE DEVELOPMENT
CALENDAR YEAR ENDED 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
(In millions of dollars)
-----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF
PROPERTY/CASUALTY
LOSS RESERVE
DEVELOPMENT
CALENDAR YEAR ENDED 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995* 1995
(In millions of
dollars)
- --------------------------------------------------------------------------------------------------------------------
Gross reserves
for unpaid
claim and claim
expenses.................. expenses............$ --- $ --- $ --- $ --- $ - $ --- $16,530 $17,712 $20,034 $20,812 $21,639 $ 9,713 $31,044
Ceded recoverable.................... - - - - - -recoverable... -- -- -- -- -- 3,440 3,297 2,867 2,491 2,705 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------3,650 6,089
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net reserves
for unpaid
claim and claim
expenses.................. 3,931expenses............ 4,873 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------6,063 24,955
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET PAID
(CUMULATIVE)AS OF:
One year later ...................... 1,330later...... 1,594 1,335 1,763 2,040 2,670 3,285 3,411 3,706 3,629 -3,656 1,392 --
Two years later...................... 1,936later..... 2,932 2,383 2,961 3,622 4,724 5,623 6,024 6,354 - -6,143 -- -- --
Three years later.................... 2,493later... 3,022 3,197 4,031 4,977 6,294 7,490 7,946 - - -8,121 -- -- -- --
Four years later .................... 2,963later.... 3,642 3,963 5,007 6,078 7,534 8,845 - - - -9,218 -- -- -- -- --
Five years later .................... 3,407later.... 4,175 4,736 5,801 6,960 8,485 - - - - -9,726 -- -- -- -- -- --
Six years later...................... 3,766later..... 4,735 5,339 6,476 7,682 - - - - - -9,108 -- -- -- -- -- -- --
Seven years later.................... 4,156later... 5,233 5,880 7,061 - - - - - - -8,142 -- -- -- -- -- -- -- --
Eight years later.................... 4,512later... 5,668 6,382 - - - - - - - -7,426 -- -- -- -- -- -- -- -- --
Nine years later .................... 4,901later.... 6,116 - - - - - - - - -6,690 -- -- -- -- -- -- -- -- -- --
Ten years later...................... 5,291later..... 6,379 -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
- - - - - - - - -
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF
PROPERTY/CASUALTY
LOSS RESERVE
DEVELOPMENT
CALENDAR YEAR ENDED 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995* 1995
(In millions of
dollars)
------------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------
NET RESERVES
RE-ESTIMATED AS OF:
NET RESERVES REESTIMATED AS OF:
End of initial year.................. 3,931year. 4,873 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 6,063 24,955
One year later ...................... 3,985later...... 5,047 6,642 8,086 9,737 11,336 12,984 16,032 17,757 18,250 -18,922 6,197 --
Two years later...................... 4,122later..... 5,573 6,763 8,345 9,781 11,371 14,693 16,810 17,728 - -18,125 -- -- --
Three years later.................... 4,659later... 5,788 6,989 8,424 9,796 13,098 15,737 16,944 - - -17,823 -- -- -- --
Four years later .................... 4,855later.... 6,170 7,166 8,516 11,471 14,118 15,977 - - - -17,376 -- -- -- -- --
Five years later .................... 5,171later.... 6,422 7,314 10,196 12,496 14,395 - - - - -16,441 -- -- -- -- -- --
Six years later...................... 5,395later..... 6,566 9,022 11,239 12,742 - - - - - -14,811 -- -- -- -- -- -- --
Seven years later.................... 5,486later... 8,317 10,070 11,480 - - - - - - -13,167 -- -- -- -- -- -- -- --
Eight years later.................... 7,215later... 9,365 10,317 - - - - - - - -11,898 -- -- -- -- -- -- -- -- --
Nine years later .................... 8,270later.... 9,635 - - - - - - - - -10,755 -- -- -- -- -- -- -- -- -- --
Ten years later...................... 8,524later..... 10,074 -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total net
(deficiency)
redundancy.......... (5,201) (4,512) (3,853) (3,615) (3,544) (3,351) (2,961) (656) 196 12 (134) --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Reconciliation to Gross
Re-estimated Reserves:
Net reserves re-estimated 16,441 17,376 17,823 18,125 18,922 6,197 --
Re-estimated ceded recoverable 3,029 2,925 2,546 2,522 2,760 3,650 --
------ ------ ------ ------ ------ ----- ----
Total gross
re-estimated reserves 19,470 20,301 20,369 20,647 21,682 9,847 --
- --------------------------------------------------------------------------------------------------------------------
- - - - - - ---------------------------------------------------------------------------------------------------------------------
Net (Deficiency)
Redundancy
Related to:
Asbestos claims..... (2,937) (2,973) (2,925) (2,868) (2,769) (2,631) (2,583) (894) (294) (258) -- --
Environmental claims (957) (957) (943) (937) (910) (899) (853) (806) (360) (181) (60) --
Total asbestos and ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----------- ----- ----
environmental..... (3,894) (3,930) (3,868) (3,805) (3,679) (3,530) (3,436) (1,700) (654) (439) (60)
Other............... (1,307) (582) 15 190 135 179 475 1,044 850 451 (74) --
Total net (deficiency) redundancy.. (4,593) (4,762) (4,074) (3,435) (3,190) (3,128) (2,887) (2,529) (561) 71 -
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Reconciliation to Gross Reestimated
Reserves:
Net reserves reestimated............. 15,977 16,944 17,728 18,250 -
Reestimated ceded recoverable........ 3,466 3,293 2,828 2,775 - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total gross reestimated---- ---- ----- ----
(deficiency)
redundancy.......... (5,201) (4,512) (3,853) (3,615) (3,544) (3,351) (2,961) (656) 196 12 (134) --
- ----------------------------------------------------------------------------------------------------------------------
*Represents Continental reserves 19,443 20,237 20,556 21,025acquired on May 10, 1995 and subsequent
development thereon, through December 31, 1995. This balance combined with
balances reflected in the 1994 column determine development recorded for
the consolidated CNA property/casualty subsidiaries.
10
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES (CONT.)
Reserve Development
- -------------------
The table below provides a reconciliation between beginning and ending
claim and claim expense reserve balances for 1995, 1994 and 1993. Not included
in the table below is premium development related to certain insurance policies
subject to retroactive premium adjustments which are based on various factors,
including loss experience. As a result, CNA also recorded premium and dividend
development related to prior years [increasing/(decreasing) premium] of $(173),
$29 and $(127) million in 1995, 1994 and 1993, respectively.
- -----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN RESERVES FOR PROPERTY/CASUALTY
CLAIMS AND CLAIM EXPENSES
YEAR ENDED DECEMBER 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
(In millions of dollars)
Reserves at beginning of year:
Gross................................................................ $21,639 $20,812 $20,034
Ceded reinsurance.................................................... 2,705 2,491 2,867
- -----------------------------------------------------------------------------------------------------------
Net (Deficiency) Redundancy Related to:
Asbestos-related claims.............. (2,653) (2,682) (2,718) (2,670) (2,612) (2,512) (2,374) (2,326) (637) (37)reserves at beginning of year............................. 18,934 18,321 17,167
The Continental Corporation reserves at acquisition - Environmental pollution claims....... (777) (778) (778) (763) (757) (730) (719) (673) (626) (180)net............ 6,063 --- ---
- Other................................ (1,163) (1,302) (578) (2) 179 114 206 470 702 288 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----------------------------------------------------------------------------------------------------------------
Total net (deficiency) redundancy.. (4,593) (4,762) (4,074) (3,435) (3,190) (3,128) (2,887) (2,529) (561) 71reserves 24,997 18,321 17,167
- -----------------------------------------------------------------------------------------------------------------------------------
Most-----------------------------------------------------------------------------------------------------------
Net incurred claims and claim expenses:
Provision for insured events of current year...................... 6,787 5,611 5,388
Increase (decrease) in provision for insured events of prior years** 122 (71) 590
Amortization of discount.......................................... 106 100 94
- -----------------------------------------------------------------------------------------------------------
Total net incurred 7,015 5,640 6,072
- -----------------------------------------------------------------------------------------------------------
Net payments attributable to:
Current year events............................................... 2,000 1,388 1,202
Prior year events................................................. 5,048 3,629 3,706
Amortization of discount.......................................... 9 10 10
- -----------------------------------------------------------------------------------------------------------
Total net payments 7,057 5,027 4,918
- -----------------------------------------------------------------------------------------------------------
Net reserves at end of year.......................................... 24,955 18,934 18,321
Ceded reinsurance at end of year................................... 6,089 2,705 2,491
- -----------------------------------------------------------------------------------------------------------
GROSS RESERVES AT END OF YEAR* $ 31,044 $21,639 $20,812
===========================================================================================================
*Excludes life claim and claim expense reserves and intercompany eliminations
of $988 million, $926 million, and $858 million as of December 31, 1995,
1994 and 1993, respectively, included in the Consolidated Balance Sheet.
**Includes $500 for Fibreboard in 1993. See Note J of CNA's unfavorable reserve development has been due to
asbestos-related and environmental pollution claims. A discussion of
CNA's litigation with Fibreboard Corporation regarding asbestos-related
bodily injury claims can be found in Note J to the Consolidated
Financial Statements in the Annual Report to Shareholders.
13
11
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES (CONT.)
CNA, consistent with sound insurance reserving practices, regularly adjusts
its reserve estimates in subsequent reporting periods as new facts and
circumstances emerge that indicate the previous estimates need to be modified.
These adjustments, referred to as "reserve development," are inevitable given
the complexities of the reserving process and are recorded in the statement of
operations in the period the need for the adjustments becomes apparent. The
property/casualty underwriting losses include net adverse (favorable) reserve
development of $122 million, $(71) million and $590 million for the years 1995,
1994 and 1993, respectively.
This reserve development reflects the effects of CNA's ongoing evaluation
of reserve levels and is comprised of the following components:
- --------------------------------------------------------------------------------
DEVELOPMENT-
ADVERSE (FAVORABLE)
DECEMBER 31 1995 1994 1993
(In millions of dollars)
- --------------------------------------------------------------------------------
Environmental............... $241 $181 $446
Asbestos.................... 258 37 601
Other....................... (377) (289) (457)
- --------------------------------------------------------------------------------
TOTAL $122 $(71) $590
================================================================================
Asbestos and Environmental Claims
- ---------------------------------
CNA believes its reserves for environmental and asbestos claims are
appropriately established based upon known facts and current case law. However,
due to inconsistencies of court coverage decisions, the number of waste sites
subject to clean-up, the standards for clean-up and liability, and other
factors, the ultimate exposure to CNA for these claims may vary materially from
the amounts currently recorded, resulting in a potential increase in the claim
reserves recorded. In addition, issues related to, among other things, specific
policy provisions, multiple insurers and allocation of liability among insurers,
consequences of conduct of the insured, missing policies and proof of coverage
make quantification of liabilities exceptionally difficult and subject to
adjustment based upon newly available data. Due to uncertainties and factors
described above, CNA believes it is not practicable to develop a meaningful
range for any such additional reserves that may be required. See Note K of the
Consolidated Financial Statements for further discussion of environmental and
asbestos reserves.
Adverse 1995 environmental reserve development of $241 million includes $60
million related to Continental and results from CNA's on-going monitoring of
current settlement patterns, current pending cases and potential future claims.
1995 adverse asbestos reserve development of $258 million is based on
management's assessment of the effects of 1995 payments and settlement activity
as well as an on-going review of pending asbestos cases and related legal
decisions.
InvestmentsOther 1995 reserve development, which nets to $377 million of favorable
reserve development, is principally due to favorable claim frequency (rate of
claim occurrence) and severity (average cost per claim) experience in the
workers' compensation line of business.
The 1993 environmental development includes an allocation of reserves for
incurred but not reported environmental claims of $340 million. The 1993
asbestos development includes $500 million related to Fibreboard. See Note J of
the Consolidated Financial Statements.
12
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES--(CONTINUED)
The following table summarizes, for 1995 and 1994, the reserve development for
environmental and asbestos claims. Claims activity for Continental is included
for the period May 10, 1995 through December 31, 1995.
- ----------------------------------------------------------------------------------------------------------------------
RESERVE SUMMARY
DECEMBER 31 1995 1994
------------------------------------- -------------------------------------
ENVIRONMENTAL ASBESTOS ENVIRONMENTAL ASBESTOS
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------------------------
Gross reserves:
Reported claims............ $ 336.9 $1,963.3 $ 89.1 $1,954.1
Unreported claims.......... 839.7 358.3 427.0 114.0
---------- -------- ------ --------
1,176.6 2,321.6 516.1 2,068.1
Less reinsurance recoverables....... (146.7) (97.4) (10.4) (129.4)
- ----------------------------------------------------------------------------------------------------------------------
NET RESERVES $1,029.9 $2,224.2 $505.7 $1,938.7
======================================================================================================================
The following tables summarize claim activity for environmental and asbestos
claims.
- --------------------------------------------------------------------------------------------------------------------
CHANGES IN ENVIRONMENTAL RESERVES
YEAR ENDED DECEMBER 31 1995 1994 1993
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------------------
Net reserves at beginning of year........... $505.7 $432.6 $58.6
Continental net reserves at May 10, 1995.... 410.0 -- --
------- ------- -------
Total net reserves...................... 915.7 432.6 58.6
------- ------- -------
Plus: Reserve strengthening................ 240.9 180.6 445.9
------- ------- -------
Less: Gross payments....................... 188.2 131.8 75.0
Reinsurance recoveries............... (61.5) (24.3) (3.1)
------- ------- -------
Net payments......................... 126.7 107.5 71.9
- --------------------------------------------------------------------------------------------------------------------
NET RESERVES AT END OF YEAR $1,029.9 $505.7 $432.6
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
CHANGES IN ASBESTOS RESERVES
YEAR ENDED DECEMBER 31 1995 1994 1993
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------------------
Net reserves at beginning of year........... $1,938.7 $2,080.0 $1,682.8
Continental net reserves May 10, 1995....... 203.5 -- --
Total net reserves...................... 2,142.2 2,080.0 1,682.8
------- ------- -------
Plus: Reserve strengthening................ 258.0 36.8 601.4
------- ------- -------
Less: Gross payments....................... 239.8 245.9 204.3
Reinsurance recoveries............... (63.8) (67.8) (0.1)
------- ------- -------
Net payments......................... 176.0 178.1 204.2
- --------------------------------------------------------------------------------------------------------------------
NET RESERVES AT END OF YEAR $2,224.2 $1,938.7 $2,080.0
====================================================================================================================
13
LIFE BUSINESS
CNA's life insurance operations market individual and group insurance
products through licensed agents, most of whom are independent contractors, who
sell life and/or group insurance for CNA and for other companies on a commission
basis.
Individual insurance products include life and annuity products, which are
sold to individuals and small businesses. The individual life products currently
being marketed consist primarily of term, universal and participating life
policies and annuities. The individual accident and health policies currently
being marketed are long-term disability products. Individual annuity products
consist of both single premium annuities and periodic payment annuities.
Group insurance products include life, accident and health and pension
products which are sold to employers, employer associations and trusts, ranging
in size from small local employers to large multinational corporations. The
group accident and health plans are primarily major medical and hospitalization.
Most of the major medical and hospitalization plans are written under
experience-rated contracts or contracts to provide claim administrative services
only. The growth in premium and in-force is attributable to new term and
permanent life products, as well as annuities.
CNA's products are designed and priced using assumptions management
believes to be reasonably conservative for mortality, morbidity, persistency,
expense levels and investment results. Underwriting practices that management
believes are prudent are followed in selecting the risks that will be insured.
Further, actual experience related to pricing assumptions is monitored closely
so that prospective adjustments to these assumptions may be implemented as
necessary. CNA mitigates the risk related to persistency by including
contractual surrender charge provisions in its ordinary life and annuity
policies in the first five to ten years, thus providing for the recovery of
acquisition expenses. The investment portfolios supporting interest sensitive
products, including universal life and individual annuities, are managed
separately to minimize disintermediation and interest rate risk.
Profitability in the health insurance business continues to be impacted by
intense competition and rising medical costs. CNA has aggressively pursued
expense reduction through increases in automation and other productivity
improvements. Further, increasing costs of health care have resulted in a
continued market shift away from traditional forms of health coverage toward
managed care products and experience-rated plans. CNA's ability to compete in
this market will be increasingly dependent on its ability to control costs
through managed care techniques, innovation, and quality customer-focused
service in order to properly position CNA in the evolving health care
environment.
Although comprehensive health care reforms were not enacted in 1995, some
health care initiatives could emerge in 1996. CNA has urged a meaningful role
for the private sector in any proposed plan. The present health care system is
clearly in need of reform, and CNA has emphasized that the competitive strengths
of the insurance industry must be an integral part of a workable solution.
14
LIFE BUSINESS--(CONTINUED)
The following table sets forth supplemental data for the life insurance
business:
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------------------
INDIVIDUAL PREMIUMS
Life and annuities....................... $ 497.1 $ 369.4 $ 312.1 $ 294.7 $ 287.9
Accident and health...................... 32.7 32.6 30.9 27.1 24.3
--------- --------- --------- --------- ---------
$ 529.8 $ 402.0 $ 343.0 $ 321.8 $ 312.2
========= ========= ========= ========= =========
GROUP PREMIUMS
Life..................................... $ 167.7 $ 138.7 $ 107.2 $ 100.7 $ 90.8
Accident and health (a).................. 2,189.8 2,111.2 1,983.0 1,957.5 1,887.0
Annuities................................ 145.1 26.3 9.0 57.7 24.3
--------- --------- --------- --------- ---------
$ 2,502.6 $ 2,276.2 $ 2,099.2 $ 2,115.9 $ 2,002.1
========= ========= ========= ========= =========
NET INVESTMENT INCOME AND OTHER INCOME
Individual............................... $ 247.3 $ 193.8 $ 154.2 $ 163.0 $ 162.5
Group.................................... 198.1 166.4 142.8 156.6 185.4
--------- --------- --------- --------- ---------
$ 445.4 $ 360.2 $ 297.0 $ 319.6 $ 347.9
========= ========= ========= ========= =========
INCOME EXCLUDING REALIZED CAPITAL GAINS,
BEFORE INCOME TAX
Individual............................... $ 65.4 $ 47.3 $ 14.5 $ 22.5 $ 13.8
Group.................................... 94.9 87.1 51.9 56.1 76.0
--------- --------- --------- --------- ---------
$ 160.3 $ 134.4 $ 66.4 $ 78.6 $ 89.8
========= ========= ========= ========= =========
GROSS LIFE INSURANCE IN FORCE
Individual (b)........................... $ 113,901 $ 80,560 $ 76,835 $ 75,569 $ 71,539
Group.................................... 52,146 46,873 35,413 29,643 27,139
--------- --------- --------- --------- ---------
$ 166,047 $ 127,433 $ 112,248 $ 105,212 $ 98,678
========= ========= ========= ========= =========
OTHER DATA - STATUTORY BASIS(C)
Capital and surplus...................... $ 1,127.6 $ 1,054.6 $ 1,022.0 $ 1,003.0 $ 968.4
Capital and surplus-percent of
total liabilities..................... 28.2% 29.4% 30.1% 33.4% 29.9%
Participating policyholders-percent
of gross life insurance in force 0.6 0.9 1.1 1.2 1.6
- ------------------------------------------------------------------------------------------------------------------
(a) Group accident and health premiums include contracts involving U.S.
government employees and their dependents amounting to approximately $1.9,
$1.8, $1.7, $1.6, and $1.5 billion in 1995, 1994, 1993, 1992, and 1991,
respectively.
(b) Lapse ratios, for individual life insurance, as measured by surrenders
and withdrawals as a percentage of average ordinary life insurance in force
were 9.4%, 9.7%, 9.7%, 8.6%, and 10.4%, in 1995, 1994, 1993, 1992, and
1991, respectively.
(c) Other Data is determined on the basis of statutory accounting
practices. Life insurance subsidiaries have received reimbursement from CNA
for general management and administrative expenses and investment expenses
of $21.3, $24.7, $25.6, $24.5, and $25.7 million in 1995, 1994, 1993, 1992,
and 1991, respectively. Statutory capital and surplus as a percent of total
liabilities is determined after excluding Separate Account liabilities and
reclassifying the Asset Valuation and Interest Maintenance Reserves
(statutorily defined as created reserves) as surplus.
15
LIFE BUSINESS - (CONTINUED)
Guaranteed Investment Contracts
- -------------------------------
CAC writes the majority of its group pension products as guaranteed
investment contracts in a fixed Separate Account, which is permitted by Illinois
insurance statutes. CAC guarantees principal and a specified return to
guaranteed investment contractholders. This guarantee affords the
contractholders additional security, in the form of CAC's general account
surplus, which supports the principal and interest payments.
CNA manages the liquidity and interest rate risks on the guaranteed
investment contract portfolio by matching the duration of fixed maturity
securities included in the guaranteed investment contract portfolio with the
corresponding payout pattern of the contracts, and assessing market value
surrender charges on the majority of the contracts.
The table below shows a comparison of the duration of assets and contracts,
weighted average investment yield, weighted average interest crediting rates,
and withdrawal characteristics of the guaranteed investment contract portfolio.
- --------------------------------------------------------------------------------
December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Duration in years:
Assets..................................... 3.12 3.23 2.68
Contracts.................................. 2.98 2.99 2.73
---- ---- -----
Difference................................. 0.14 0.24 (0.05)
==== ==== =====
Weighted average investment yield............. 7.58% 7.67% 7.11%
Weighted average interest crediting rates..... 7.45% 7.53% 7.74%
Withdrawal characteristics:
With market value adjustment.................. 92% 79% 81%
Non-withdrawable........................... 8 15 13
Without market value adjustment............ 0 6 6
- --------------------------------------------------------------------------------
Total 100% 100% 100%
================================================================================
As shown above, the investment yield at December 31, 1995 and 1994 was more
than the average crediting rate. The investment yields at December 31, 1993 was
less than the average crediting rate. This resulted from the reinvestment of
proceeds from security sales that generated substantial gains, at rates that
were lower than those of the securities sold. However, because the security
sales created a larger asset base to reinvest, the aggregate future cash flows
from interest and principal were substantially unchanged and sufficient to meet
the contract obligations.
16
INVESTMENTS
CNA's general account investment portfolio is managed to maximize after-tax
investment return, while minimizing credit risks with investments concentrated
in high quality securities to support its insurance underwriting operations.
At December 31, 1994, approximately
14% of CNA's general account portfolio is invested in long-term state and
municipal bonds in order to maximize after-tax yield and provide for a
more stable yield on the portfolio with a higher quality of investment
than may otherwise be available.
CNA has the capacity to hold its fixed incomematurity portfolio to maturity.
However, securities may be sold as part of CNA's asset/liability strategies or
to take advantage of investment opportunities generated by changing interest
rates, prepayments, tax and credit considerations, or other similar factors.
Accordingly, the fixed incomematurity securities are classified as available-for-sale.
CNA's portfolio is managed based on the following investment strategies: i)
diversification is used to limit exposures to any one issue or issuer, and ii)
in general, the public market is used in order to provide liquidity.
Historically, CNA has maintained short-term assets at a level that provided
for liquidity to meet its short-term obligations, principally anticipated claim
payments. At December 31, 1994,1995, short-term investments primarily consisted of
U.S. treasuryTreasury bills and high-grade commercial paper. The major components of the
short-term investment portfolio were $2.5 billion$800 million of collateral for securities
sold under agreements to repurchase, $1.0 billion in an escrow account (see Note
A toof the Consolidated Financial Statements) and approximately $1.5$1.9 billion of
other short-term investments.
The following summarizes CNA's distrbutiondistribution of general account investments:
--------------------------------------------------------------------------------
DISTRIBUTION OF INVESTMENTS - GENERAL ACCOUNT
DECEMBER 31 1994* 1993* 1992
(In millions of dollars)
--------------------------------------------------------------------------------
Fixed maturities:
Tax-exempt bonds ........................ $ 3,770 $ 5,015 $ 9,502
Taxable bonds............................ 16,629 12,145 7,286
Redeemable preferred stocks.............. 429 448 568
Equity securities:
Common stocks............................ 755 508 348
Non-redeemable preferred stocks.......... - - 9
Mortgage loans and real estate.............. 47 62 89
Policy loans ............................... 176 174 179
Other invested assets....................... 101 67 53
Short-term investments ..................... 5,036 6,944 4,444
--------------------------------------------------------------------------------
Total investments at carrying value $26,943 $25,363 $22,478
================================================================================
*Fixed maturity securities are reported at fair value in 1994 and 1993 in
the Annual Report.
investments
at fair value:
---------------------------------------------- ---------- ---------- ----------
DISTRIBUTION OF INVESTMENTS-GENERAL ACCOUNT
DECEMBER 31 1995 1994 1993
(In millions of dollars)
---------------------------------------------- ---------- ---------- ----------
Fixed maturities:
Tax-exempt bonds......................... $ 3,603 $ 3,770 $ 5,015
Taxable bonds............................ 26,725 16,629 12,145
Redeemable preferred stocks.............. 116 429 448
Equity securities:
Common stocks............................ 915 755 508
Non-redeemable preferred stocks.......... 3 - -
Mortgage loans and real estate.............. 122 47 62
Policy loans................................ 177 176 174
Other invested assets....................... 500 101 67
Short-term investments...................... 3,725 5,036 6,944
---------------------------------------------- ---------- ---------- ----------
Total investments at fair value $35,886 $26,943 $25,363
===============================================================================
CNA's general account fixed income portfolio has consistently been of high
quality as illustrated in the following table using the Standard & Poor's
ratings convention (see Note on page 15)17).
------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GENERAL ACCOUNT
DECEMBER 31 1994 1993 1992
------------------------------------------------------------------
AAA...................................... 82% 77% 73%
AA ...................................... 6 8 10
A........................................ 5 7 10
BBB...................................... 2 5 3
Below BBB................................ 5 3 4
------------------------------------------------------------------
Total 100% 100% 100%
==================================================================
-------------------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GENERAL ACCOUNT
DECEMBER 31 1995 1994 1993
-------------------------------------------------------------------------------
AAA........................................ 78% 82% 77%
AA......................................... 5 6 8
A.......................................... 6 5 7
BBB........................................ 5 2 5
Below BBB.................................. 6 5 3
-------------------------------------------------------------------------------
Total 100% 100% 100%
===============================================================================
CNA's Separate Account investment portfolio is managed to specifically
support the underlying insurance products (see the discussion of annuities and GIC's in "Life Insurance"guaranteed
investment contracts on page 16 above). Approximately 88%85% or $5.2$5.0 billion of
Separate Account investments are used to fund GIC's;guaranteed investment contracts;
the remaining investments are used to fund variable products.
1417
Investments--(continued)INVESTMENTS (CONTINUED)
Approximately 88%96% of the GICguaranteed investment contracts investment
portfolio is comprised of taxable fixed income securities. The quality of the
GICguaranteed investment contracts fixed incomematurity portfolio is as follows (see Note
below):
------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GIC PORTFOLIO
DECEMBER 31 1994 1993 1992
------------------------------------------------------------------
AAA...................................... 49% 44% 50%
AA....................................... 5 6 9
A........................................ 13 18 18
BBB...................................... 9 13 10
Below BBB................................ 24 19 13
------------------------------------------------------------------
Total 100% 100% 100%
==================================================================
- --------------------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GUARANTEED INVESTMENT PORTFOLIO
DECEMBER 31 1995 1994 1993
- --------------------------------------------------------------------------------
AAA............................................. 54% 49% 44%
AA.............................................. 5 5 6
A............................................... 14 13 18
BBB............................................. 7 9 13
Below BBB....................................... 20 24 19
- --------------------------------------------------------------------------------
Total 100% 100% 100%
================================================================================
Note: The bond ratings shown in the two tables above are primarily from
Standard & Poor's (95%(93% of the general account portfolio and 94%95% of
the GICguaranteed investment portfolio in 1994)1995). In the case of private
placements and other unrated securities, comparable internal ratings
are developed by CNA. These ratings are derived by management using
information available information on the issuer to assess the credit risk.
Reference also may be made to similar instruments of the issuer that
are rated by Standard & Poor's.
In the case ofHigh yield securities are bonds rated below investment grade by bond rating
agencies, plus private placements and other unrated municipal bonds, an AAA rating may be
assigned to issues with financial guarantee insurance.
CNA actively manages its high yield bonds and maintains the level of
such investments at prudent levels. In 1994, the level of high yield
investments within the GIC portfolio increased $34 million to $1.102
billion at year end. This increase is a result of the relative
attractiveness of the high yieldsecurities, which in CNA's
opinion, are below investment market in comparison to other
investment opportunities during the year. Although the level of high
yield investments has increased, the components of the high yield
portfolio have shifted toward lower risk issues, with B and BB rated
bonds comprising 95% of the high yield portfolio at December 31, 1994,
compared to 91% at the end of 1993 and 82% at the end of 1992.grade (below BBB). High yield securities generally
involve a greater degree of risk than that of investment grade securities.
Expected returns should, however, compensate for the added risk. The risk is
also considered in the interest rate assumptions in the underlying insurance
products. Further, CNA's investment in real estate and mortgage loans amounted
to less than one-half of one percent of its total assets, substantially below
industry averages. As of December 31, 1995, CNA's concentration of high yield
bonds including separate accounts was approximately 4.7% of total assets.
At December 31, 19941995 and 1993,1994, high yield securities within the general and
GICguaranteed investment portfolios were carried at fair value and amounted to $2.8
billion and $2.1 billion, respectively. Carrying values and $1.8fair values of high
yield securities in the general account were $1.9 billion respectively. Amortizedat December 31, 1995,
compared to $1.0 billion at December 31, 1994. In 1995, the level of high yield
investments within the guaranteed investment portfolio decreased $158 million to
$944 million at year end. Market value exceeded amortized cost exceeded
market value for high yield
securities by approximately $138$53 million at December 31, 19941995 compared to
December 31, 19931994 when amortized cost exceeded market value exceeded amortized cost by $72$138 million.
Included in CNA's 19941995 AAA-rated fixed income securities (general and
GICguaranteed investment portfolios) are $4.6$8.5 billion of asset-backed securities,
consisting of approximately 50%32% in collateralized mortgage obligations
("CMO's"), 34%57% in U.S. government agency issued pass-through certificates, and
16%11% in corporate asset-backed obligations. The majority of CMO's held are U.S.
government agency issues which are actively traded in liquid markets and are
priced monthly by broker-dealers. CNA limits the risks associated with interest
rate fluctuations and prepayment by concentrating its CMO investments in planned
amortization classes with relatively short principal repayment windows. CNA
generally does not invest in complex mortgage derivatives without readily
ascertainable market prices.
15CNA invests from time to time in certain derivative financial instruments
to increase investment returns and to eliminate the impact of changes in
interest rates on certain corporate borrowings. Financial instruments used for
such purposes include interest rate swaps, put and call options, commitments to
purchase securities, and short sale of common stock. The gross notional
principal or contractual amounts of these instruments at December 31, 1995,
totaled $2,769.8 million (including $1.2 billion of interest rate swaps
associated with corporate borrowings) compared to $127.9 million at December 31,
1994. See Note F of the Consolidated Financial Statements for further
discussion.
18
ITEM 2. PROPERTIES
A. Home Office
CNA Plaza, owned by Continental Assurance Company, is a 1,421,000
square foot office complex located at 333 S. Wabash, Chicago, Illinois.
The forty-five story office building serves as the home
office for CNA and its insurance subsidiaries. An adjacent building (a 614,000 square
foot building located(located at
55 E. Jackson Blvd.), jointly owned by Continental Casualty Company and
Continental Assurance Company, is partially situated on grounds under leases
expiring in 2058. Approximately 35% of the adjacent building is rented to
non-affiliates. B. Field Offices
CNA also maintains four regional offices and forty branch offices and
processing centersCNA's subsidiaries lease office space in majorvarious cities
throughout the United States. ThisStates and in other countries. The following table sets
forth certain information with respect to the principal office space isbuildings owned
or leased except forby CNA's subsidiaries:
-------------------------------------------------------------------------
Amount Of Building
Owned and Occupied or
Leased by CNA or its
Location Subsidiaries Principal Usage
-------------------------------------------------------------------------
CNA Plaza 1,421,000 * Principal Executive
333 S. Wabash offices located in threeof CNA
Chicago, Illinois
180 Maiden Lane 850,453* Property/Casualty
New York, New York Insurance Offices
1 Continental Drive 490,993** Property/Casualty
Cranbury, New Jersey Insurance Offices
55 E. Jackson Blvd. 323,040 * Principal Executive
Chicago, Illinois offices of CNA
200 S. Wacker Drive 296,822** Property/Casualty
Chicago, Illinois Insurance Offices
401 Penn Street 251,691* Property/Casualty
Reading, Pennsylvania Insurance Offices
100 CNA Drive 251,363* Life Insurance Offices
Nashville, Tennessee
7361 Calhoun Place 224,175** Life Insurance Offices
Rockville, Maryland
1111 E. Broad St. 197,537** Property/Casualty
Columbus, Ohio Insurance Offices
333 Glen Street 158,700** Property/Casualty
Glen Falls, New York Insurance Offices;
Residual Market Center
3501 State Highway 123,184** Data Processing
No. 66 Facilities
Neptune, New Jersey
15400 Calhoun Drive 106,848** Life Insurance Offices
Rockville, Maryland
-------------------------------------------------------------------------
Amount Of Building
Owned and Occupied or
Leased by CNA or its
Location Subsidiaries Principal Usage
-------------------------------------------------------------------------
1431 Opus Place 100,991** Property,/Casualty,
Downers Grove, Il. Surety Insurance
Offices
1100 Ward Avenue, 95,450* First Insurance
Honolulu, Hawaii Company of Hawaii,
Ltd. Headquarters
* Represents property owned buildings.by CNA or its subsidiaries.
** Represents property leased by CNA or its subsidiaries.
19
ITEM 3. LEGAL PROCEEDINGS
Incorporated herein by reference from Note J toof the Consolidated Financial
Statements in the 19941995 Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Incorporated herein by reference from page 7376 of the 19941995 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from page 2 of the 19941995 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference from pages 12 through 2725 of the 19941995
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheet - December 31, 19941995 and 19931994
Statement of Consolidated Operations - Years Ended December 3l, 1995, 1994
1993 and 19921993
Statement of Consolidated Stockholders' Equity - Years Ended December 31,
1995, 1994 1993 and 19921993
Statement of Consolidated Cash Flows - Years Ended December 31, 1995, 1994
1993 and 19921993
Notes to Consolidated Financial Statements
Independent Auditors' Report
The above Consolidated Financial Statements, the related Notes to the
Consolidated Financial Statements and the Independent Auditors' Report are
incorporated herein by reference from pages 2826 through 7274 of the 19941995 Annual
Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
1620
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation 14Al4A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS: Number
A separate index to the Consolidated Financial Statements is presented
in Part II, Item 8.............................................................. 21
(a) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule I Summary of Investments...................................... 26
Schedule II Condensed Financial Information (Parent Company)............ 27
Schedule III Supplementary Insurance Information......................... 31
Schedule V Valuation and Qualifying Accounts and Reserves.............. 32
Schedule VI Supplemental Information Concerning Property/Casualty
Insurance Operations........................................ 32
Other schedules are omitted because of the absence of conditions
under which they are required or because the required
information is provided in the Consolidated Financial Statements
or notes thereto.
Independent Auditors' Report.................................................... 33
21
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS: Number
------
A separate index to the Consolidated Financial Statements
is presented in Part II, Item 8........................... 16
(a) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule I Summary of Investments..................... 21
Schedule II Condensed Financial Information (Parent
Company)...................................(continued)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
----------------------
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession:
Securities Purchase Agreement, dated as of December 6, 1994, by and between
CNA Financial Corporation and The Continental Corporation (with exhibits
thereto) (Exhibit 1 to Form 8-K dated December 9, 1994 incorporated herein
by reference.)................................................................. 2.1
Merger Agreement, dated as of December 6, 1994, by and among CNA Financial
Corporation, Chicago Acquisition Corp. and The Continental Corporation
(Exhibit 2 to Form 8-K dated December 9, 1994 incorporated herein
by reference.)................................................................. 2.2
(3) Articles of incorporation and by-laws:
Certificate of Incorporation of CNA Financial Corporation, as amended May 6,
1987 (Exhibit 3.1 to 1987 Form 10-K incorporated herein by reference).......... 3.1
By-Laws of CNA Financial Corporation, as amended August 2, 1995................ 3.2*
(4) Instruments defining the rights of security holders, including indentures:
CNA Financial Corporation hereby agrees to furnish to the Commission
upon request copies of instruments with respect to long-term debt,
pursuant to Item 601(b) (4) (iii) of Regulation S-K............................ -
(10) Material contracts:
Continental Casualty Company "CNA" Annual Incentive Bonus Plan Provisions
(Exhibit 10.1 to 1994 Form 10K incorporated herein by reference)............... 10.1
Employment Agreement between CNA Financial Corporation and
Dennis H. Chookaszian, dated December 31, 1995................................. 10.2*
Employment Agreement between CNA Financial Corporation and
Philip L. Engel, dated December 31, 1995....................................... 10.3*
Continuing Services Agreement between CNA Financial Corporation and
Edward J. Noha, dated February 27, 1991 (Exhibit 6.0 to 1991...................
Form 8-K, filed March 18, 1991, incorporated herein by reference.)............. 10.4
CNA Employees' Retirement Benefit Equalization Plan, as
amended through January 1, 1993 (Exhibit 10.4 to 1992 Form
10-K incorporated herein by
reference)..................................................................... 10.5
CNA Employees' Supplemental Savings Plan, as amended through January 1, 1993
(Exhibit 10.6 to 1992 Form 10-K incorporated herein by reference.)............. 10.6
22
Schedule III Supplementary Insurance Information........ 25
Schedule IV Reinsurance ............................... 26
Schedule V Valuation and Qualifying Accounts and
Reserves................................... 26
Schedule VI Supplemental Information Concerning
Property/Casualty Insurance Operations..... 27
Other schedules are omitted because of the absence of con-
ditions under which they are required or because the
required information is provided in the Consolidated
Financial Statements or notes thereto.
Independent Auditors' Report ............................. 28
17
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(CONTINUED)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
---------------------- -------
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession:
Securities Purchase Agreement, dated as of
December 6, 1994, by and between CNA Financial
Corporation and The Continental Corporation (with
exhibits thereto) (Exhibit 1 to Form 8-K dated
December 9, 1994 incorporated herein by reference.).. 2.1
Merger Agreement, dated as of December 6, 1994,
by and among CNA Financial Corporation, Chicago
Acquisition Corp. and The Continental Corporation
(Exhibit 2 to Form 8-K dated December 9, 1994
incorporated herein by reference.)................... 2.2
(3) Articles of incorporation and by-laws:
Certificate of Incorporation of CNA Financial
Corporation, as amended May 6, 1987 (Exhibit 3.1
to 1987 Form 10-K incorporated herein by reference.). 3.1
By-Laws of CNA Financial Corporation, as amended
May 4, 1994.......................................... 3.2*
(4) Instruments defining the rights of security holders,
including indentures:
CNA Financial Corporation hereby agrees to furnish
to the Commission upon request copies of instruments
with respect to long-term debt, pursuant to
Item 601(b) (4) (iii) of Regulation S-K..............(continued)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
----------------------
(10) Material contracts (continued):
Federal Income Tax Allocation Agreement dated February 29, 1980
between CNA Financial Corporation and Loews Corporation
(Exhibit 10.2 to 1987 Form 10-K incorporated herein by reference.)......... 10.7
Agreement between Fibreboard Corporation and Continental
Casualty Company, dated April 9, 1993 (Exhibit A to 1993 Form
8-K filed
April 12, 1993 incorporated herein by reference.).......................... 10.8
Settlement Agreement entered into on October 12, 1993 by and
among Fibreboard Corporation, Continental Casualty Company,
CNA Casualty of California, Columbia Casualty Company and
Pacific Indemnity Company together the "Parties" (Exhibit 10.1
to September 30, 1993 Form 10-Q
incorporated herein by reference.)......................................... 10.9
Continental-Pacific Agreement entered into October 12, 1993
between Continental Casualty Company and Pacific Indemnity
Company (Exhibit 10.2 to September 30, 1993 Form 10-Q
incorporated herein
by reference.)............................................................. 10.10
Global Settlement Agreement among Fibreboard Corporation,
Continental Casualty Company, CNA Casualty Company of
California, Columbia Casualty Company, Pacific Indemnity
Company and the Settlement Class dated December 23, 1993
(Exhibit 10.11 to 1993 Form 10-K incorporated herein
by reference).............................................................. 10.11
Glossary of Terms in Global Settlement Agreement, Trust
Agreement, Trust Distribution Process and Defendant Class
Settlement Agreement as of December 23, 1993 (Exhibit 10.12 to
1993 Form 10-K incorporated herein
by reference).............................................................. 10.12
Fibreboard Asbestos Corporation Trust Agreement dated December 23, 1993
(Exhibit 10.13 to 1993 Form 10-K incorporated herein by reference)......... 10.13
Trust Distribution Process - Annex A to the Trust Agreement as
of December 23, 1993 (Exhibit 10.14 to 1993 Form 10-K
incorporated herein
by reference).............................................................. 10.14
Defendant Class Settlement Agreement dated December 22, 1993 (Exhibit
10.15 to 1993 Form 10-K incorporated herein by reference).................. 10.15
Escrow Agreement among Continental Casualty Company, Pacific Indemnity
Company and The First National Bank of Chicago dated December 23, 1993
(Exhibit 10.16 to 1993 Form 10-K incorporated herein by reference)......... 10.16
23
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(CONTINUED)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
---------------------- -------
(10) Material contracts:
Continental Casualty Company "CNA" Annual Incentive
Bonus Plan Provisions................................ 10.1*
Employment Agreement between CNA Financial
Corporation and Dennis H. Chookaszian, dated
February 22, 1993 (Exhibit 10.1 to 1992 Form 10-K
incorporated herein by reference.)................... 10.2
Employment Agreement between CNA Financial
Corporation and Philip L. Engel, dated February 22,
1993 (Exhibit 10.2 to 1992 Form 10-K incorporated
herein by reference.)............................... 10.3
Continuing Services Agreement between CNA Financial
Corporation and Edward J. Noha, dated February 27,
1991 (Exhibit 6.0 to 1991 Form 8-K, filed March 18,
1991, incorporated herein by reference.)............. 10.4
CNA Employees' Retirement Benefit Equalization Plan,
as amended through January 1, 1993 (Exhibit 10.4 to
1992 Form 10-K incorporated herein by reference.).... 10.5
CNA Employees' Supplemental Savings Plan, as amended
through January 1, 1993 (Exhibit 10.6 to 1992
Form 10-K incorporated herein by reference.)......... 10.6
18(continued)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
----------------------
(11) Computation of Net Income per Common Share......................................... 11.1*
(12) Statements regarding computation of ratios:
Computation of Ratio of Earnings to Fixed Charges.................................. 12.1*
Computation of Ratio of Net Income, As Adjusted, to Fixed Charges.................. 12.2*
(13) 1995 Annual Report................................................................. 13.1*
(21) Subsidiaries of CNA................................................................ 21.1*
(23) Consent of Deloitte & Touche LLP................................................... 23.1*
(27) Financial Data Schedule............................................................ 27*
(28) Information from reports furnished to state insurance regulatory authorities:
Property/Casualty Reserve Reconciliation-Statutory Basis to Generally
Accepted Accounting Principles..................................................... 28.1*
Schedule P from CNA's property/casualty insurance subsidiaries 1995 Annual
Statutory Statements provided to state insurance regulatory authorities............ 28.2 **
* Filed herewith
** Filed hard copy under Regulation S-T Rule 311(c) Form SE
(b) REPORTS ON FORM 8-K:
NONE
24
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS, AND REPORTS ON
FORM 8-K (CONTINUED)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
---------------------- -------
(10) Material contracts (continued):
Federal Income Tax Allocation Agreement dated
February 29, 1980 between CNA Financial Corporation
and Loews Corporation (Exhibit 10.2 to 1987
Form 10-K incorporated herein by reference.)......... 10.7
Agreement between Fibreboard Corporation and
Continental Casualty Company, dated April 9, 1993
(Exhibit A to 1993 Form 8-K filed April 12, 1993
incorporated herein by reference.)................... 10.8
Settlement Agreement entered into on October 12, 1993
by and among Fibreboard Corporation, Continental
Casualty Company, CNA Casualty of California,
Columbia Casualty Company and Pacific Indemnity
Company together the "Parties" (Exhibit 10.1 to
September 30, 1993 Form 10-Q incorporated herein by
reference.).......................................... 10.9
Continental-Pacific Agreement entered into
October 12, 1993 between Continental Casualty
Company and Pacific Indemnity Company (Exhibit 10.2
to September 30, 1993 Form 10-Q incorporated herein
by reference.)....................................... 10.10
Global Settlement Agreement among Fibreboard
Corporation, Continental Casualty Company, CNA
Casualty Company of California, Columbia Casualty
Company, Pacific Indemnity Company and the
Settlement Class dated December 23, 1993
(Exhibit 10.11 to 1993 Form 10-K incorporated
herein by refernce................................... 10.11
Glossary of Terms in Global Settlement Agreement,
Trust Agreement, Trust Distribution Process and
Defendant Class Settlement Agreement as of
December 23, 1993 (Exhibit 10.12 to 1993 Form 10-K
incorporated herein by reference..................... 10.12
Fibreboard Asbestos Corporation Trust Agreement dated
December 23, 1993 (Exhibit 10.13 to 1993 Form-K
incorporated herein by reference.)................... 10.13
Trust Distribution Process - Annex A to the Trust
Agreement as of December 23, 1993 (Exhibit 10.14 to
1993 Form 10-K incorporated herein by reference.).... 10.14
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS, AND REPORTS ON
FORM 8-K (CONTINUED)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
---------------------- -------
Defendant Class Settlement Agreement dated
December 22, 1993 (Exhibit 10.15 to 1993 Form-K
incorporated herin by reference.).................... 10.15
Escrow Agreement among Continental Casualty Company,
Pacific Indemnity Company and The First National
Bank of Chicago dated December 23, 1993 (Exhibit 10.16
to 1993 Form 10-K incorporated herein by reference.).. 10.16
19
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS, AND REPORTS ON
FORM 8-K (CONTINUED)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
---------------------- -------
(11) Computation of Net Income per Common Share........... 11.1*
(12) Statements regarding computation of ratios:
Computation of Ratio of Earnings to Fixed Charges.... 12.1*
Computation of Ratio of Net Income, As Adjusted,
to Fixed Charges..................................... 12.2*
(13) 1994 Annual Report................................... 13.1*
(21) Subsidiaries of CNA.................................. 21.1*
(23) Consent of Deloitte & Touche LLP..................... 23.1*
(27) Financial Data Schedule.............................. 27*
(28) Information from reports furnished to state insurance
regulatory authorities:
Property/Casualty Reserve Reconciliation-Statutory
Basis to Generally Accepted Accounting Principles.... 28.1*
Schedule P from Continental Casualty Company's 1994
Consolidated Annual Statutory Statement provided to
state insurance regulatory authorities............... 28.2*
*Filed herewith
(b) REPORTS ON FORM 8-K:
In a report on Form 8-K dated December 6, 1994, CNA issued a press
release which stated that CNA and The Continental Corporation
(Continental) signed an agreement under which CNA will acquire
Continental through a cash merger for $1.1 billion.
In a report on Form 8-K dated December 9, 1994, CNA through its
Continental Casualty subsidiary, consummated its purchase of certain
securities of the Continental Corporation ("Continental"), as
contemplated by the Securities Purchase Agreement dated as of
December 6, 1994, by and between the CNA and Continental, for cash
consideration of $275 million.
20
SCHEDULE I
CNA FINANCIAL CORPORATION
SUMMARY OF INVESTMENTS
--------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994
1993
------------------------------------- --------------------------------------------------------------------- -------------------------------
MARKET CARRYING MARKET CARRYING
(In(in millions of dollars) COST VALUE VALUE COST VALUE VALUE
--------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------
Fixed maturities available-for-sale:
Bonds:
United States government and government
agencies and authorities-taxable .....................authorities-taxable.... $17,903.4 $18,511.4 $18,511.4 $13,404.4 $12,704.2 $12,704.2 $ 8,551.5 $ 8,688.3 $ 8,688.3
States, municipalities and political
subdivisions-tax exempt..................exempt............. 3,452.8 3,603.1 3,603.1 3,704.6 3,769.6 3,769.6 4,724.0 5,014.8 5,014.8
Foreign governments and political
subdivisions.............................subdivisions........................ 1,509.3 1,543.3 1,543.3 662.9 653.4 653.4
420.9 423.4 423.4
Public utilities .........................utilities..................... 280.2 305.2 305.2 186.8 190.0 190.0 235.4 256.5 256.5
Convertibles and bonds with warrants
attached.................................attached............................ 252.2 260.8 260.8 271.9 257.5 257.5
188.6 193.9 193.9
All other corporate.......................corporate.................. 5,881.4 6,098.8 6,098.8 2,937.2 2,824.2 2,824.2
2,461.7 2,582.7 2,582.7
Redeemable preferred stocks.................stocks.............. 106.1 122.1 122.1 419.3 428.8 428.8 444.6 448.0 448.0
-------- -------- -------- -------- -------- --------
Total fixed maturities available-for-sale29,385.4 30,444.7 30,444.7 21,587.1 20,827.7 20,827.7
17,026.7 17,607.6 17,607.6
-------- ======== -------- -------- ======== --------======== ======== ======== ========
available-for-sale
Equity securities available-for-sale:
Common stocks:
Public utilities .........................utilities..................... 17.7 23.5 23.5 26.2 26.3 26.3 21.6 21.8 21.8
Banks, trusts, and insurance companies....companies 84.3 96.7 96.7 134.6 129.0 129.0
57.8 56.7 56.7
Industrial and other .....................other................. 631.8 795.0 795.0 567.9 599.5 599.5
353.3 429.7 429.7
NonredeemableNon -redeemable preferred stocks..............stocks......... 2.5 2.5 2.5 7.6 - -
- - -
------------------ -------- -------- -------- -------- --------
Total equity securities
available-for-sale......................available-for-sale................. 736.3 $$917.7 917.7 736.3 $754.8 754.8
754.8 432.7 $ 508.2 508.2
------------------ ======== -------- -------- ======== --------
Mortgage loans...............................loans.............................. 139.8 119.3 43.8 43.8 57.6 57.6
----------
-------- -------- --------
Real estate:
Investment properties.......................properties.................... 6.6 3.0 6.3 3.0 7.3 3.9
Acquired in satisfaction of debt............debt......... 0.2 0.1 0.2 0.1
------------------ -------- -------- --------
Total real estate .......................estate.................. 6.8 3.1 6.5 3.1
7.5 4.0
------------------ -------- -------- --------
Policy loans.................................loans................................ 177.1 177.2 176.3 176.3
174.0 174.0
Other invested assets .......................assets....................... 483.5 499.9 103.4 101.1
69.2 68.0
Short-term investments.......................investments...................... 3,724.5 3,724.5 5,036.1 5,036.1
6,944.0 6,944.0
--------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------
Total investments $34,653.4 $35,886.4 $27,689.5 $26,942.9
$24,711.7 $25,363.4
==================================================================================================================================================================================================================================================
2125
SCHEDULE II
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
FINANCIAL POSITION
- --------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------
ASSETS:
Investments in subsidiaries................................ $8,060.6 $4,082.1
Federal income taxes recoverable........................... 136.6 23.7
Deferred income taxes...................................... 785.2 1,475.2
Notes Receivable from affiliate............................ 205.0 ---
------- -------
Other...................................................... 7.9 3.8
------- -------
Total assets....................................... 9,195.3 5,584.8
------- -------
LIABILITIES:
Debt....................................................... 2,222.4 896.4
Amounts due to affiliates.................................. 190.3 112.0
Other...................................................... 47.1 30.5
------- -------
Total liabilities.................................. 2,459.8 1,038.9
Total stockholders' equity......................... 6,735.5 4,545.9
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,195.3 $5,584.8
========================================================================================================
FINANCIAL POSITION
-------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993
(In millions of dollars)
-------------------------------------------------------------------------------------------------
Assets:
Investments in subsidiaries ................................. $4,082.1 $5,410.0
Federal income taxes recoverable............................. 23.7 29.2
Deferred income taxes ....................................... 1,475.2 974.6
Other ....................................................... 3.8 29.8
------- -------
Total assets ........................................... 5,584.8 6,443.6
------- -------
LIABILITIES:
Debt......................................................... 896.4 895.5
Amounts due to affiliates ................................... 112.0 136.9
Other ....................................................... 30.5 30.1
------- -------
Total liabilities....................................... 1,038.9 1,062.5
Total stockholders' equity.............................. 4,545.9 5,381.1
-------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,584.8 $6,443.6
=================================================================================================
RESULTS OF OPERATIONS
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1994 1993 1992
(In millions of dollars)
-------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
REVENUES:
Equity in income of subsidiaries before income tax:
Operating income (loss) ............................. $ 389.1................................. $923.5 $389.1 $(467.6) $(1,530.7)
Realized investment gains (losses)................... (220.1)...................... 453.0 (256.8) 790.3 342.1
Net investment income .................................income...................................... 9.0 0.3 1.7
2.5
Other .................................................Other...................................................... (1.2) (3.7) (3.5) 4.1
Realized investment gains (losses)..................... (37.0)......................... 3.1 (.3) 12.7
12.6
----- ----- ------- ------- -------
1,387.4 128.6 333.6
(1,169.4)
----- ------------ ------- -------
EXPENSES:
Administrative and general expenses ...................expenses........................ 219.7 193.1 198.9
169.5
Interest expense ......................................expense........................................... 125.3 69.6 41.3
36.1
----- ----- ------- ------- -------
345.0 262.7 240.2
205.6
----- ------------ -------
Income (loss) before income tax...................tax..................... 1,042.4 (134.1) 93.4
(1,375.0)
Income tax benefit.....................................(expense) benefit............................... (285.4) 170.6 174.1
712.5
----- ----- -------
Income (loss) before cumulative effect of
accounting changes....................... 36.5 267.5 (662.5)
Cumulative effect on prior years of accounting changes:
Income taxes......................................... - - 133.0
Post retirement benefits other than pensions
(net of income tax benefit of $32.8)............. - - (63.6)
Discounting for certain workers' compensation and
disability claim reserves
(net of income tax expense of $135.2)............ - - 262.5
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)$757.0 $ 36.5 $ 267.5
$ (330.6)
=========================================================================================================================================================================================================
See accompanying Notes to Condensed Financial Information.
2226
SCHEDULE II
(CONTINUED)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
CASH FLOW
--------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994 1993 1992
(In millions of dollars)
--------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................income................................................. $ 757.0 $ 36.5 $267.5 $(330.6)
----- ----- -----$ 267.5
-------- ------ ------
Adjustments to reconcile net income to net cash
used in operating activities:
Cumulative effect of accounting changes - Parent ............. - - 18.6
Equity in earnings of unconsolidated affiliates:
Cumulative effect of accounting changes ..................... - - (350.5)
Earnings before cumulative effect of accounting changes......affiliates........ (1,200.7) (98.0) (349.5)
935.6
Realized (gains) losses.......................................losses................................ (3.1) 0.3 (12.6) (12.6)
Changes in:
Accrued investment income ...................................income............................. - 1.1 (0.1)
0.2
Federal income taxes.........................................taxes.................................. (112.9) 5.6 42.2
(78.7)
Deferred income taxes .......................................taxes................................. 173.2 (115.0) (124.3)
(293.4)
Other, net...................................................net............................................ 86.7 (23.6) (17.7)
22.1
----- ----- -----
Total adjustments .........................................-------- ------ ------
TOTAL ADJUSTMENTS.................................... (1,056.8) (229.6) (462.0)
241.3
----- ----- ------------- ------ ------
NET CASH USED IN OPERATING ACTIVITIES .....................ACTIVITIES................ (299.8) (193.1) (194.5)
(89.3)
----- ----- ------------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of The Continental Corporation................... (1,125.5) - -
Other acquisition.......................................... (13.0) - -
Purchase of fixed maturities ................................maturities............................... (709.0) (195.7) (999.3) (441.2)
Proceeds from fixed maturities:
Sales........................................................Sales................................................... 501.2 19.6 984.5
92.2
Maturities...................................................Maturities.............................................. 200.6 192.4 - 396.1
Net proceeds from the sale of equity securities...............securities............ (0.5) 4.0 - -
Change in short-term investments..............................investments........................... 0.8 1.1 47.6 (50.3)
Change in other investments ..................................investments................................ 10.3 2.3 (4.2) 24.2
Capital contribution to Continental Casualty Company..........Company....... - - (475.0)
-
Other ........................................................Other...................................................... (3.3) (1.0) -
-
----- ----- ------------- ------ ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........ACTIVITIES.. (1,138.4) 22.7 (446.4)
21.0
----- ----- ------------- ------ ------
CASH FLOW
--------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994 1993 1992
(In millions of dollars)
--------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred shareholders......................shareholders................... (7.3) (4.5) (4.0) (4.7)
Dividend from Continental Casualty Company....................Company................. 325.8 175.0 150.0 100.0
Proceeds from issuance of long-term debt......................debt................... 1,325.0 - 494.9
-
Principal payments on long-term debt..........................Loan to The Continental Corporation........................ (205.0) - -
(27.0)
----- ----- ------------- ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................ACTIVITIES............ 1,438.5 170.5 640.9
68.3
----- ----- ------------- ------ ------
NET INCREASE (DECREASE) IN CASH ...........................CASH................................ 0.3 0.1 - -
Cash at beginning of year .......................................year..................................... 0.1 - -
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEARYEAR........................................... $ 0.4 $ 0.1 $ -
$ -
==============================================================================================================================================================================================================
Supplemental disclosures of cash flow information:
Cash received (paid):
Interest expense .............................................expense....................................... $(169.5) $ (70.5) $(34.9) $ (35.4)(34.9)
Federal income taxes .........................................taxes................................... 102.5 53.1 (54.2)
89.4
==============================================================================================================================================================================================================
Supplemental disclosures of cash flow information relating to acquisitions:
Noncash investing activities that are not reflected in the Statement of Cash
Flows are listed below.
- --------------------------------------------------------------------------------
The Continental
December 31, 1995 Corporation Other
- --------------------------------------------------------------------------------
Fair value of assets acquired......... $ 15,258.5 $ 13.0
Liabilities assumed................... (14,133.0) -
---------- ------
Cash paid......................... $ 1,125.5 $ 13.0
================================================================================
See accompanying Notes to Condensed Financial Information.
2327
SCHEDULE II
(CONTINUED)(Continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION
a. DEBT:
--------------------------------------------------------------------------------------
DECEMBER 31 1994 1993
(In millions of dollars)
--------------------------------------------------------------------------------------
Long-term debt:
8.625% Senior Notes, due March 1, 1996 ................... $249.4 $249.0
8.875% Senior Notes, due March 1, 1998 ................... 148.8 148.6
6.250% Senior Notes, due November 15, 2003 ............... 248.1 247.9
7.250% Debenture, due November 15, 2023................... 247.1 247.0
1.000% Urban Development Action Grant, due May 7, 2019.... 3.0 3.0
--------------------------------------------------------------------------------------
Total $896.4 $895.5
======================================================================================
In October 1993, a shelf registration statement was filed witha. Debt:
- --------------------------------------------------------------------------------
DECEMBER 31 1995 1994
(In millions of dollars)
- --------------------------------------------------------------------------------
Long-term
Acquisition debt:
Credit Facility, due May 10, 2000 $ 825.0 $ --
Commercial Paper (variable interest rates) 500.0 --
Senior Notes:
8 5/8%, due March 1, 1996* -- 249.4
8 7/8 %, due March 1, 1998 149.2 148.8
6 1/4%, due November 15, 2003 248.2 248.1
7 1/4% Debenture, due November 15, 2023 247.1 247.1
1.0% Urban Development Action Grant, due May 7, 2019 3.0 3.0
------ ------
Total long-term debt 1,972.5 896.4
Short-term debt* 249.9 --
- --------------------------------------------------------------------------------
Total $ 2,222.4 $ 896.4
================================================================================
* Included in short-term debt in 1995.
To finance the Securities and Exchange Commission which made $900acquisition of Continental (including the refinancing of
$205 million of Continental debt), CNA entered into a five-year $1.325
billion revolving credit facility involving 16 banks. The interest rate for
the facility is based on the one, two, three, or six month London Interbank
Offered Rate (LIBOR), plus 25 basis points. Additionally, there is a
facility fee of 10 basis points annually. The average interest rate on the
borrowings under the revolving credit facility at December 31, 1995 was
6.12%. Under the terms of the facility, CNA may prepay the debt securities available for issuance from timewithout
penalty.
On August 10, 1995, to time. In addition,
$100take advantage of favorable interest rates, CNA
established a commercial paper program borrowing $500 million fromto replace a
previous shelf registration remained available
for issuance.
In November 1993, CNA sold $250 million principallike amount of 6.25%
senior notes due 2003credit facility financing. The average interest rate on the
commercial paper at December 31, 1995 was 6.05%. The commercial paper
borrowings are classified as long-term as $500 million of the facility will
support the commercial paper. Standard and $250Poor's and Moody's issued
short-term debt ratings of A2 and P2, respectively, for CNA's commercial
paper program.
As of March 1, 1996, the outstanding loans under the revolving credit
facility were $825 million. There was no unused borrowing capacity under
the facility after the effects of the commercial paper program. CNA entered
into interest rate swap agreements with several banks which terminate from
May to December, 2000.
CNA entered into interest rate swap agreements with several banks which
terminate from May to December, 2000. The effect of these interest rate
swaps was to increase interest expense by $2 million principal amountfor the year ended
December 31, 1995. See Notes D and F of 7.25%
debentures due 2023 at effective rates per annumthe Consolidated Financial
Statements for further discussion.
The weighted average interest rate (interest and facility fees) on the
acquisition debt, which includes the revolving credit facility, commercial
paper, and the effect of 6.4% and 7.3%,
respectively.the interest rate swaps, was 6.50% on December 31,
1995.
An additional $500 million of securities and/or preferred stock isremain
available for issuance under the shelf registration statement.
28
NOTES TO CONDENSED FINANCIAL INFORMATION (CONTINUED)
b. CNA has reimbursed, or will reimburse, its subsidiaries for general
management and administrative expenses, unallocated loss adjustment
expenses and investment expense in the amounts of $218.3 million, $194.3 million, and
$193.1 million in 1995, 1994, and $165.6 million in 1994, 1993, and 1992, respectively.
c. CNA contributed $475 millioninmillion in capital to Continental Casualty Company
in 1993. There were no capital contributions by CNA in 19941995, or 1992.
241994.
- --------------------------------------------------------------------------------
29
SCHEDULE III
CNA FINANCIAL CORPORATION SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
------------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------
GROSS INSURANCE RESERVES**
--------------------------------------------------------------------------RESERVES
--------------------------------------
CLAIM
DEFERRED AND FUTURE POLICY-
ACQUISITION CLAIM POLICY UNEARNED HOLDERS'
(In millions of dollars) COSTS EXPENSE BENEFITS PREMIUMS FUNDS
------------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------
DECEMBER 31, 19941995
Property/Casualty:
Commercial...................Casualty
Commercial............ $ 395.2 $18,920.3701.9 $27,309.3 $ 28.5 $2,129.1 $128.4
Personal..................... 197.1 1,042.4 199.0 559.938.5 $ 3,607.0 $ 162.6
Personal.............. 258.2 1,426.5 259.9 868.9 -
Involuntary risks............risks..... 8.6 2,308.5 - 1,675.9 - 1.773.5 -
Life:
Individual................... 427.3 145.2 2,414.9Individual............ 505.7 162.3 2,678.8 - 31.7
Group ....................... 6.8 439.4 407.431.0
Group................. 18.9 473.0 538.7 - 472.4
-------511.4
------ -------- ------- ------------- ------ -----
CNA Insurance.............. $1,026.4 22,223.2 $3,049.8 $2,690.7 $632.5Insurance....... $ 1,493.3 31,679.6 $ 3,515.9 $ 4,549.4 $ 705.0
======= ======= ======= =====
Other and intercompany
eliminationseliminations.......... 352.8
--------
$32,032.4
========
DECEMBER 31, 1994
Property/Casualty:
Commercial............ $ 395.2 $18,920.3 $ 28.5 $ 2,129.1 $ 128.4
Personal.............. 197.1 1,042.4 199.0 559.9 -
Involuntary risks..... - 1,675.9 - 1.7 -
Life:
Individual............ 427.3 145.2 2,414.9 - 31.7
Group................. 6.8 439.4 407.4 - 472.4
------ -------- ------- ------- -----
CNA Insurance....... $ 1,026.4 22,223.2 $ 3,049.8 $ 2,690.7 $ 632.5
======= ======= ======= =====
Other and intercompany
eliminations.......... 341.6
--------
$22,564.8
========
SCHEDULE III (CONT.)
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- -----------------------------------------------------------------------------------------------
GROSS INSURANCE RESERVES
--------------------------------------
CLAIM
DEFERRED AND FUTURE POLICY-
ACQUISITION CLAIM POLICY UNEARNED HOLDERS'
(In millions of dollars) COSTS EXPENSE BENEFITS PREMIUMS FUNDS
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1993
Property/Casualty:
Commercial...................Commercial............ $ 371.9 $18,157.4 $ 17.2 $2,001.2$ 2,001.2 $ 23.5
Personal.....................Personal.............. 190.2 1,013.0 151.8 536.2 -
Involuntary risks............risks..... - 1,641.6 - 18.6 -
Life:
Individual...................Individual............ 416.7 143.6 2,178.0 - 32.0
Group .......................Group................. 6.6 434.0 406.6 - 423.1
------------- -------- ------- ------- -----
CNA Insurance..............Insurance....... $ 985.4 21,389.6 $2,753.6 $2,556.0$ 2,753.6 $ 2,556.0 $ 478.6
======= ======= ======= =====
Other and intercompany
eliminationseliminations.......... 280.6
--------
$21,670.2
========
DECEMBER 31, 1992
Property/Casualty:
Commercial................... $ 337.2 $17,286.0 $ 10.5 $1,873.0 $ 69.1
Personal..................... 170.3 990.3 114.9 529.4 -
Involuntary risks............ - 1,757.3 - 22.7 -
Life:
Individual................... 385.3 126.1 1,977.1 - 33.7
Group ....................... 7.3 421.1 418.1 - 435.5
-------
--------
------- ------- -----
CNA Insurance.............. $ 900.1 20,580.8 $2,520.6 $2,425.1 $538.3
======= ======= ======= =====
Other and intercompany eliminations 152.6
--------
$20,733.4
========
-----------------------------------------------------------------------------------------------------------------------------$21,670.2
========
SCHEDULE III (CONT.)
CNA FINANCIAL CORPORATION
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------ ------------------------------ ------------ -------------------------------------------------------------------
AMORTIZATION
INSURANCE OF
NET NET CLAIMS AND DEFERRED OTHER
PREMIUM INVESTMENT POLICYHOLDERS' ACQUISITION OPERATING PREMIUMS
(In millions of dollars) REVENUE INCOME BENEFITS COSTS EXPENSES WRITTEN
------------------------------------------------------------------------------------------------------------------------------ ------------------------------ ------------ ------------ -------------- ------------- ------------ ------------
DECEMBER 31, 1995
Property/Casualty
Commercial............ $7,225.3 $ 1,463.1 $ 5,995.2 $ 1,494.8 $ 915.3 $ 7,561.3
Personal.............. 1,214.8 132.4 891.6 271.4 228.5 1,254.3
Involuntary risks..... 283.7 104.3 234.0 16.7 145.8 310.5
Life:
Individual............ 529.8 214.6 506.8 70.5 134.3 -
Group................. 2,502.6 154.6 2,340.1 (9.9) 275.6 -
-------- ------- ------- -------- ------- -------
CNA Insurance....... 11,756.2 2,069.0 9,967.7 $ 1,843.5 1,699.5 $ 9,126.1
======== =======
Other and intercompany
eliminations.......... (21.1) 7.6 (23.8) (19.7)
-------- ------- ------- -------
$11,735.1 $ 2,076.6 $ 9,943.9 $ 1,679.8
======== ======= ======= =======
DECEMBER 31, 1994
Property/Casualty:
Commercial...................Commercial............ $5,417.1 $1,050.8 $4,845.8 $1,099.2$ 1,050.8 $ 4,845.8 $ 1,099.2 $ 512.3 $5,488.7
Personal.....................$ 5,488.7
Personal.............. 965.7 101.5 833.2 229.6 164.1 1,037.3
Involuntary risks............risks..... 455.7 88.1 339.6 - 186.4 438.7
Life:
Individual...................Individual............ 402.0 172.2 392.2 46.7 109.6 -
Group .......................Group................. 2,276.2 138.4 2,092.9 2.0 260.6 -
-------- ------ ------- ------- ------- ------- ------- ---------------
CNA Insurance..............Insurance....... 9,516.7 1,551.0 8,503.7 $1,377.5$ 1,377.5 1,233.0 $6,964.7$ 6,964.7
======= ===============
Other and intercompany
eliminationseliminations.......... (42.3) 0.2 (42.5) 2.4
------- ------ ------- ------- ------
$9,474.4 $1,551.2 $8,461.2* $1,235.4$ 1,551.2 $ 8,461.2 $ 1,235.4
======= ======= ======= =======
SCHEDULE III (CONT.)
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- ------------------------------ ------------ -------------------------------------------------------------------
AMORTIZATION
INSURANCE OF
NET NET CLAIMS AND DEFERRED OTHER
PREMIUM INVESTMENT POLICYHOLDERS' ACQUISITION OPERATING PREMIUMS
(In millions of dollars) REVENUE INCOME BENEFITS COSTS EXPENSES WRITTEN
- ------------------------------ ------------ ------------ -------------- ------------- ------------ ------------
DECEMBER 31, 1993
Property/Casualty:
Commercial...................Commercial............ $4,964.0 $ 896.6 $5,171.9$ 5,171.9 $ 951.2 $ 459.7 $5,030.9
Personal.....................$ 5,030.9
Personal.............. 939.8 87.5 756.0 221.2 130.9 984.2
Involuntary risks............risks..... 371.2 75.7 336.3 - 191.5 367.2
Life:
Individual...................Individual............ 343.0 142.8 362.2 25.5 95.0 -
Group .......................Group................. 2,099.2 116.9 1,945.6 2.4 242.1 -
------- --------------- ------ ------- ------- ------- -------
CNA Insurance..............Insurance....... 8,717.2 1,319.5 8,572.0 $1,200.3$ 1,200.3 1,119.2 $6,382.3$ 6,382.3
======= =======
Other and intercompany
eliminationseliminations.......... (28.4) (5.2) (28.6) 0.5
--------------- ------- ------- -------
$8,688.8 $1,314.3 $8,543.4* $1,119.7
=======$ 1,314.3 $ 8,543.4 $ 1,119.7
======= ======= ======= DECEMBER 31, 1992
Property/Casualty:
Commercial................... $4,870.2 $1,039.3 $6,140.8 $ 820.2 $ 463.8 $4,766.2
Personal..................... 930.9 101.2 808.9 212.4 125.9 964.1
Involuntary risks............ 552.5 83.6 644.0 - 249.4 555.9
Life:
Individual................... 321.8 150.6 321.8 40.7 99.7 -
Group ....................... 2,115.9 132.9 1,966.5 1.2 248.6 -
------- ------- ------- ------- ------- -------
CNA Insurance.............. 8,791.3 1,507.6 9,882.0 $1,074.5 1,187.4 $6,286.2
======= =======
Other and intercompany eliminations (23.3) 1.1 (23.5) (0.9)
------- ------- ------- -------
$8,768.0 $1,508.7 $9,858.5* $1,186.5
======= ======= ======= =======
====================================================================================================================================
30
*Excludes participating policyholders' interest related to realized
investment gains (losses) of $10.9, $(13.1), and $(12.1) in 1994,
1993 and 1992, respectively.
**1992 has been restated to conform to the classifications followed in 1993 and
1994 upon adoption of SFAS 113.
25
SCHEDULE IV
CNA FINANCIAL CORPORATION
REINSURANCE
The effects of reinsurance on premium revenues are shown in the following
schedule:
----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 EARNED PREMIUMS ASSUMED/
------------------------------------- NET
(In millions of dollars) DIRECT CEDED ASSUMED NET %
----------------------------------------------------------------------------------------------------
1994
Life.......................................... $ 408 $ 23 $ 107 $ 492 21.7%
Accident and health........................... 2,678 45 158 2,791 5.7
Property and casualty......................... 5,601 661 1,251 6,191 20.2
----- --- ----- -----
Total premiums............................... $8,687 $729 $1,516 $9,474 16.0
===== === ===== =====
1993
Life.......................................... $ 312 $ 20 $ 108 $ 400 27.0%
Accident and health........................... 2,413 32 149 2,530 5.9
Property and casualty......................... 5,228 496 1,027 5,759 17.8
----- --- ----- -----
Total premiums............................... $7,953 $548 $1,284 $8,689 14.8
===== === ===== =====
1992
Life.......................................... $ 336 $ 21 $ 115 $ 430 26.7%
Accident and health........................... 2,287 33 173 2,427 7.1
Property and casualty......................... 5,324 475 1,062 5,911 18.0
----- --- ----- -----
Total premiums............................... $7,947 $529 $1,350 $8,768 15.4
===== === ===== =====
----------------------------------------------------------------------------------------------------
The impact of reinsurance on life insurance in-force is shown in the
following schedule:
----------------------------------------------------------------------------------------------------
LIFE INSURANCE IN-FORCE ASSUMED/
------------------------------------- NET
(In millions if dollars) DIRECT CEDED ASSUMED NET %
----------------------------------------------------------------------------------------------------
December 31, 1994 ............................. $75,419 $5,953 $52,014 $121,480 42.8%
December 31, 1993 ............................. 58,978 5,713 53,270 106,535 50.0
December 31, 1992 ............................. 53,869 5,146 51,343 100,066 51.3
----------------------------------------------------------------------------------------------------
SCHEDULE V
CNA FINANCIAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------
BALANCE BALANCE
AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
(In millions of dollars) OF PERIOD EXPENSES AMOUNTS DEDUCTIONS PERIOD
----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables................. $ 127.5 $ 39.0 $ 143.5* $ 21.3 $ 288.7
====== ====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1994
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables ...........receivables................. $ 117.3 $ 18.6 $ - $ 8.4 $ 127.5
====== ===== ===== ========== ====== ====== ======
YEAR ENDED DECEMBER 31, 1993
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables ...........receivables................. $ 110.4 $ 9.2 $ - $ 2.3 $ 117.3
====== ===== ===== ==== ====== YEAR ENDED DECEMBER 31, 1992
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables ........... $ 100.4 $ 27.2 $====== ====== ======
- $17.2 $ 110.4
====== ===== ===== ==== ======
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes Continental allowance at acquisition.
26
SCHEDULE VI
CNA FINANCIAL CORPORATION
SUPPLEMENTAL
SCHEDULE VI
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
-------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------
CONSOLIDATED PROPERTY/
CASUALTY ENTITIES
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
(In millions of dollars) 1995 1994 1993
1992
-------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
Deferred acquisition costs ..........................................................costs............................... $ 968.7 $ 592.3 $ 562.0 $ 507.5
Reserves for unpaid claims and claim expenses........................................expenses............ 31,044.3 21,638.6 20,812.0 20,033.6
Discount, if any, deducted above (based on interest
rates ranging from 3.5% to 7.5%).......................... 2,426.9 1,951.3 1,886.5
1,787.3
Unearned premiums....................................................................premiums........................................ 4,549.4 2,690.7 2,556.0
2,425.1
Earned premiums......................................................................premiums.......................................... 8,723.8 6,838.5 6,275.0
6,353.6
Net investment income................................................................income.................................... 1,699.8 1,240.4 1,059.8 1,224.1
Claim and claim expenses related to current year ....................................year......... 6,787.3 5,610.8 5,387.9 5,708.2
Claim and claim expenses related to prior years......................................years.......... 121.8 (71.2) 590.0 1,617.4
Amortization of deferred acquisition costs ..........................................costs............... 1,782.9 1,328.8 1,172.4 1,032.6
Paid claim and claim expenses........................................................expenses............................ 7,057.5 5,026.6 4,916.9 4,676.64,917.9
Premiums written ....................................................................written......................................... 9,126.1 6,964.7 6,382.3
6,286.2
--------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
2731
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
CNA Financial Corporation
We have audited the consolidated financial statements of CNA Financial
Corporation (an affiliate of Loews Corporation) and subsidiaries as of December
31, 19941995 and 19931994 and for each of the three years in the period ended December
31, 1994,1995, and have issued our report thereon dated February 15, 1995,14, 1996, which
report includes an explanatory paragraph as to a change in accounting for
certain accounting changes;investments in debt and equity securities in 1993; such consolidated
financial statements and report are included in the Company's 19941995 Annual Report
to Shareholders and are incorporated herein by reference. Our audits also
included the financial statement schedules of CNA Financial Corporation and
subsidiaries listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects, the information set forth
therein.
S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
February 15, 1995
2814, 1996
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CNA Financial Corporation
By LaurenceS/LAURENCE A. Tisch
-----------------------------TISCH
--------------------------------------------------------
Laurence A. Tisch
Chief Executive Officer
(Principal Executive Officer)
By PeterS/PETER E. Jokiel
-----------------------------JOKIEL
--------------------------------------------------------
Peter E. Jokiel
Senior Vice President and
Chief Financial Officer
Date: March 23, 1995
SIGNATURES --(CONTINUED)29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE
S/ANTOINETTE COOK BUSH Director |
- ---------------------------------- |
Antoinette Cook Bush |
|
S/DENNIS H. CHOOKASZIAN Director ------------------------------
Antoinette Cook Bush|
- ---------------------------------- |
Dennis H. Chookaszian |
|
S/PHILIP L. ENGEL Director ------------------------------
Dennis H. Chookaszian|
- ---------------------------------- |
Philip L. Engel |
|
S/ROBERT P. GWINN Director ------------------------------
Philip L. Engel|
- ---------------------------------- |
Robert P. Gwinn Director
------------------------------
Robert P. Gwinn
Edward|
|
S/EDWARD J. NohaNOHA Chairman of the Board ------------------------------|
- ---------------------------------- and Director |
Edward J. Noha |
|
S/JOSEPH ROSENBERG Director |
- ---------------------------------- |
Joseph Rosenberg |
|- Dated:
S/RICHARD L. THOMAS Director | March 29, 1996
- ---------------------------------- |
Richard L. Thomas |
SIGNATURE TITLE
S/JAMES S. TISCH Director March 23, 1995
------------------------------
Richard L. Thomas|
- ---------------------------------- |
James S. Tisch ------------------------------|
|
S/LAURENCE A. TISCH Chief Executive Officer |
- ---------------------------------- and Director James S. Tisch|
Laurence A. Tisch Chief Executive Officer
------------------------------ and|
|
S/PRESTON R. TISCH Director Laurence A. Tisch|
- ---------------------------------- |
Preston R. Tisch |
|
S/MARVIN ZONIS Director ------------------------------
Preston R. Tisch|
- ---------------------------------- |
Marvin Zonis
Director
------------------------------
Marvin Zonis33
EXHIBIT 11.1
CNA FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars, except per share data)
- ---------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding....................... 61.8 61.8 61.8 61.8 61.8
==== ==== ==== ==== ====
Net income (loss) before cumulative effect of
accounting changes...................................... $ 757.0 $ 36.5 $ 267.5 $(662.5) $ 612.5
Less preferred stock dividends............................ 6.9 5.3 4.0 4.2 6.8
------ ------- ------ ------ ------
Net income (loss) before cumulative effect of
accounting changes available to common stockholders.. 750.1 31.2 263.5 (666.7) 605.7
Cumulative effect on prior years of changes in
accounting principles................................... - - - 331.9 -
------ ------ ------ ------ ----
Net income (loss) available to common stockholders..... $ 750.1 $ 31.2 $ 263.5 $(334.8) $ 605.7
====== ====== ====== ====== =====
Earnings per share:
Net income (loss) before cumulative effect of
accounting changes...................................... $ 12.14 $ 0.51 $ 4.26 $ (10.79) $ 9.80
Cumulative effect on prior years of changes
in accounting principles................................ - - - 5.37 -
------ ------ ------ ------- ----
Net income (loss) available to common stockholders..... $ 12.14 $ 0.51 $ 4.26 $ (5.42) $ 9.80
======= ======= ======= ======= =======
- ---------------------------------------------------------- -----------------------------------------------------
34
EXHIBIT 12.1
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars, except ratios)
- --------------------------------------------------------------------------------------------------------------
Income (loss) before income tax and cumulative
effect of accounting changes......................... $1,042.4 $(134.0) $93.5 $(1,374.9) $555.9
Add:
Interest expense.................................. 182.3 70.5 36.3 36.7 38.3
Interest element of operating lease rental........ 46.7 19.1 18.2 17.6 17.6
------- ----- ----- -------- -----
Income before income tax and cumulative effect of
accounting changes, as adjusted................. $1,271.4 $(44.4) $148.0 $(1,320.6) $611.8
======= ===== ===== ======== =====
Fixed charges:
Interest expense.................................. $182.3 $70.5 $36.3 $36.7 $38.3
Interest element of operating lease rental........ 46.7 19.1 18.2 17.6 17.6
----- ---- ---- ---- ----
Fixed charges........................................ $229.0 $89.6 $54.5 $54.3 $55.9
===== ==== ==== ==== ====
Ratio of earnings to fixed charges (1)............... 5.6 (0.5) 2.7 (24.3) 10.9
- --------------------------------------------------------------------------------------------------------------
(1) For purposes of computing this ratio, earnings consist of income before
income taxes and cumulative effect of accounting changes plus fixed charges
of consolidated companies. Fixed charges consist of interest and that
portion of operating lease rental expense which is deemed to be an interest
factor for such rentals.
EXHIBIT 12.2
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF NET INCOME,
AS ADJUSTED, TO FIXED CHARGES
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars, except ratios)
- ---------------------------------------------------------------------------------------------------------
Net income (loss)................................ $ 757.0 $ 36.5 $ 267.5 $ (330.5) $ 612.5
Add:
Interest expense, after tax................... 118.5 45.8 23.6 24.2 25.3
Interest element of operating lease rental,
after tax................................... 30.3 12.4 11.8 11.7 11.6
----- ----- ----- ----- -----
Net income (loss), as adjusted................... $ 905.8 $ 94.7 $ 302.9 $ (294.6) $ 649.4
===== ===== ===== ===== =====
Fixed charges:
Interest expense, after tax................... $ 118.5 $ 45.8 $ 23.6 $ 24.2 $ 25.3
Interest element of operating lease rental,
after tax................................... 30.3 12.4 11.8 11.7 11.6
----- ----- ----- ----- -----
Fixed charges.................................... $ 148.8 $ 58.2 $ 35.4 $ 35.9 $ 36.9
====== ===== ===== ===== =====
Ratio of net income (loss), as adjusted,
to fixed charges (1)........................... 6.1 1.6 8.6 (8.2) 17.6
- --------------------------------------------------------------------------------------------------------
(1) For purposes of computing this ratio, net income has been adjusted to
include fixed charges of consolidated companies, after tax. Fixed charges
consist of interest and that portion of operating lease rental expense
which is deemed to be an interest factor for such rentals.
35
EXHIBIT 21.1
SUBSIDIARIES OF CNA
PLACE OF
COMPANY INCORPORATION
- ------- -------------
1897 Corporation Delaware
1911 Corp. and 2 Subsidiaries Delaware
AFCO Agent Service Corporation Delaware
Agency Management Services, Inc. and 6 Subsidiaries Delaware
Alexsis, Inc. and 4 Subsidiaries Maryland
American Casualty Company of Reading, Pennsylvania (ACCO) Pennsylvania
Bayside Management Company, Inc. California
Bayside Reinsurance Company, Ltd. Bermuda
Boston Old Colony Insurance Company Massachusetts
California Central Trust Bank Corporation California
CICAN I Investment Holding Company Canada
CICAN II Investment Holding Company Canada
Cinema Completions International, Inc. Delaware
Claims Administration Corp. Maryland
CNA (Bermuda) Services, Ltd. Bermuda
CNA Automation, Inc. Illinois
CNA Casualty of California California
CNA Casualty of Illinois Illinois
CNA Financial Corporation (CNA) Delaware
CNA Management (International) Limited Jersey Channel Islands
CNA Management Company Limited and 2 Subsidiaries United Kingdom
CNA Real Estate Services, Inc. Illinois
CNA Realty Corp. and 1 Subsidiary Delaware
CNA Reinsurance Company Illinois
CNA Risk Management Holding Company, Inc. Illinois
CNA Services, Incorporated Illinois
CNA Structured Settlements, Inc. Illinois
Collateral Holding Subsidiaries Illinois
Columbia Casualty Company Illinois
Commercial Insurance Company of Newark, N.J. New Jersey
Continental Assurance Company (CAC) Illinois
Continental Casualty Company (CCC) Illinois
Continental Center Associates New York
Continental Corporate Realty Services, Inc. New York
Continental Guaranty & Credit Corporation New York
Continental Holding Corporation Delaware
Continental Holdings Ltd. New South Wales
Continental Insurance (International Agencies) Australia Pty Limited New South Wales
Continental International Insurance, Limited Puerto Rico
Continental Life (Europe) Limited United Kingdom
Continental Life (International) Limited Guemsey
Continental Lloyd's Insurance Company Texas
Continental Loss Adjusting Services, Inc. Illinois
Continental Maiden Lane, Inc. Delaware
Continental Management Services, Ltd. United Kingdom
36
EXHIBIT 21.1 (CONT.)
SUBSIDIARIES OF CNA
Continental Pacific (Australia) Holding Limited Australia
Continental Pacific Insurance Company (Australia) Limited New South Wales
Continental Re Management, Inc. New York
Continental Rehabilitation Resources, Inc. New Jersey
Continental Reinsurance Corporation California
Continental Reinsurance Corporation International Limited Bermuda
Continental Reinsurance Corporation (U.K.) Limited United Kingdom
Continental Reinsurance Management Company Limited United Kingdom
Continental Reinsurance Management Holding Company Limited United Kingdom
Continental Risk Services, Ltd. Bermuda
Continental Risk Services (Barbados) Ltd. Barbados
Continental Service Plan, Inc. New Jersey
Continental Solution, Inc. Illinois
Continental Subsidiary Corporation Delaware
Continental Vision Financial Services, Inc. Delaware
Convida Holdings Ltd and 1 Subsidiary Bahamas
CPI Pension Services Inc. California
Ctek, Inc. New Jersey
Davies & Company Pty., Ltd. Australia
East River Indemnity Company (Barbados), Ltd. Barbados
East River Insurance Company Ltd. West Indies
East River Insurance Company (Bermuda), Ltd. Bermuda
Firemen's Insurance Company of Newark, New Jersey New Jersey
First Benefit Services, Inc. California
First Fire & Casualty Insurance Company of Hawaii, Inc. Hawaii
First Indemnity Insurance of Hawaii, Inc. Hawaii
First Insurance Company of Hawaii, Ltd. Hawaii
Foundation Insurance Agency, Inc. New Jersey
Galway Insurance Company California
Global Management Consultants, Inc. New Jersey
Hull & Cargo Surveyors, Inc. New York
Hull & Cargo Surveyors, Inc. (Canada) British Columbia
IDBI Managers, Inc. New York
Kansas City Fire and Marine Insurance Company Missouri
Larwin Developments, Inc. California
LCI Finance Limited United Kingdom
Lombard Continental Insurance Holdings Limited United Kingdom
Marine Office of America Corporation New York
Marine Office of America Corporation (Canada) Ontario
Marine Office of America (Deutschland) GmbH Germany
Marine Office of America Corporation Italia, Spa Italy
Marine Office of America Corporation (U.K.) Ltd. United Kingdom
Master Capital Corporation Delaware
National Fire Insurance Company of Hartford (NFI) Connecticut
National-Ben Franklin Insurance Company of Illinois Illinois
Niagara Fire Insurance Company Delaware
North Pearl Management, Inc. Texas
Pacific Insurance Company California
Pacific Underwriters, Inc. Texas
Pension/Profit Sharing Systems, Inc. California
Settlement Options, Inc. New Jersey
TCC Acquisition Corp. Delaware
37
EXHIBIT 21.1 (CONT.)
SUBSIDIARIES OF CNA
TCC Holdings, Inc. Delaware
TCC Properties, Inc. New York
The Buckeye Union Insurance Company Ohio
The Continental Corporation (CIC) New York
The Continental Insurance Company New Hampshire
The Continental Insurance Company of New Jersey New Jersey
The Continental Insurance Company (Europe) Limited United Kingdom
The Continental Insurance Company of Puerto Rico Puerto Rico
The Continental Insurance Holdings (Europe) Limited United Kingdom
The CPI Group, Inc. Delaware
The Fidelity and Casualty Company of New York New Hampshire
The Glens Falls Insurance Company Delaware
The Hong Kong Fire Insurance Company, Ltd Hong Kong
The Maiden Lane Syndicate Inc. New York
The Mayflower Insurance Company, Ltd. Indiana
The South Place Syndicate Inc. New York
Transcontinental Insurance Company New York
Transcontinental Technical Services, Inc. (ServCo) Illinois
Transportation Insurance Company Illinois
UAM Limited United Kingdom
United States P & I Agency, Inc. New York
Valley Forge Insurance Company Pennsylvania
Valley Forge Life Insurance Company Pennsylvania
Viaticus, Inc. Delaware
Western National Warranty Corporation Arizona
Zeuxis Corp. VIII Delaware
38
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-50753 of CNA Financial Corporation and subsidiaries on Form S-3 of our report
dated February 14, 1996, appearing in and incorporated by reference in the
Annual Report on Form 10-K of CNA Financial Corporation and subsidiaries for the
year ended December 31, 1995.
S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
March 29, 1996
39
EXHIBIT 28.1
PROPERTY/CASUALTY RESERVE RECONCILIATION-
STATUTORY BASIS TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
A reconciliation of property/casualty reserves as shown in CNA's
property/casualty insurance subsidiaries 1995 annual statutory statements
Schedule P to reserves for unpaid claims and claim expenses, as shown in the
Annual Report on Form 10-K follows. Statutory claim and claim expense reserves
are presented net of ceded reinsurance. Under generally accepted accounting
principles such reserves are recorded "gross" of reinsurance with corresponding
ceded reinsurance recoverables recorded as assets.
- ------------------------------------------------------------------------------------------------------
PROPERTY/CASUALTY RESERVE RECONCILIATION
STATUTORY BASIS TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31 1995
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------
Total claims and claim expenses per Schedule P (net of reinsurance)................... $24,047
Non-domestic affiliates............................................................... 908
Ceded claims and claim expenses....................................................... 6,089
- ------------------------------------------------------------------------------------------------------
Reserve for claims and claim expenses--generally accepted accounting principles $31,044
======================================================================================================
40