CNA FINANCIAL CORPORATION
EXHIBIT 99.01
CNA FINANCIAL CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information presents CNA Financial
Corporation's (the Company or CNAF) pro forma unaudited condensed consolidated
balance sheet as of September 30, 2002 and the Company's pro forma unaudited
condensed consolidated statements of operations for the year ended December 31,
2001 and for the nine months ended September 30, 2002.
On October 31, 2002, the Company completed the sale of the shares of CNA Re
Management Company Limited and its wholly-owned subsidiary CNA Reinsurance
Company Limited (collectively referred to hereinafter as CNA Re U.K.) to Tawa
U.K. Limited. The sale includes business underwritten since inception by CNA Re
U.K. except for certain risks retained by Continental Casualty Company (CCC), a
wholly-owned subsidiary of the Company, as discussed below. This sale does not
impact CNA Re's on-going U.S.-based operations.
CNA Re U.K. was sold for $1, subject to adjustments that are primarily driven by
certain operating results and changes in interest rates between January 1, 2002
and October 31, 2002, and realized foreign currency losses recognized by CNA Re
U.K. prior to December 31, 2002. Due to the various components of the completion
adjustments, which are initially prepared by the buyer, the final purchase price
cannot yet be determined. However, based upon information currently available to
the Company, management believes there will be a reduction in the previously
recognized impairment loss, which will be reflected as a realized gain when the
completion adjustments are finalized. The anticipated realized gain on sale is
not reflected in the pro forma adjustments.
Concurrent with the sale, several reinsurance agreements under which CCC
provided retrocessional protection to CNA Re U.K. will be terminated. As part of
the sale, CNA Re U.K.'s net exposure to all IGI Program liabilities, as
described in note B2 below, will be ceded to CCC. Further, CCC will provide a
$100 million stop loss reinsurance cover attaching at carried reserves on CNA Re
U.K.'s 2001 underwriting year exposures for which CCC received premium of $25
million.
The pro forma adjustments are presented as if they had occurred, as of September
30, 2002 for the purposes of the pro forma unaudited Condensed Consolidated
Balance Sheet, and as of the beginning of the respective period presented for
the purposes of the pro forma unaudited Condensed Consolidated Statements of
Operations.
This pro forma unaudited financial information does not purport to represent
what the Company's actual financial position and results of operations would
have been had such events actually occurred on the aforementioned dates. The pro
forma unaudited financial information also does not purport to serve as a
forecast of the Company's financial position or results of operations for any
future periods.
The pro forma adjustments are based on currently available information and upon
certain assumptions that management believes are reasonable in the
circumstances. This pro forma financial information should be read in
conjunction with the Company's audited consolidated financial statements as of
and for the year ended December 31, 2001 appearing in the Company's Annual
Report on form 10-K for the year ended December 31, 2001, and the unaudited
condensed consolidated financial statements as of September 30, 2002 and for the
nine-month period then ended appearing in the Company's Quarterly Report on Form
10-Q for the quarter then ended.
CNA FINANCIAL CORPORATION
EXHIBIT 99.01
CNA FINANCIAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002
(UNAUDITED)
PRO FORMA ADJUSTMENTS
------------------------
AS REPORTED DECREASE (INCREASE) PRO FORMA
CNAF CNAF
BALANCE CNA RE U.K. OTHER BALANCE
(In millions) SHEET [A] [B] NOTES SHEET
----------- ----------- ------- -------- ---------
ASSETS:
Investments and cash $36,439 $ 1,116 $ 286 B1,B2,B3 $35,037
Receivables 16,831 1,330 (77) B2 15,578
Deferred acquisition costs 2,548 1 - 2,547
Other assets 6,103 28 - 6,075
Separate account business 3,147 - - 3,147
------- ------- ------- -------
Total assets $65,068 $ 2,475 $ 209 $62,384
======= ======= ======= =======
LIABILITIES:
Insurance reserves $42,580 $ 2,179 $ 308 B1,B2 $40,093
Debt 2,549 - - 2,549
Reinsurance balances payable 3,032 104 (35) B2 2,963
Other liabilities 4,827 192 (64) B1,B2,B3 4,699
Separate account business 3,147 - - 3,147
------- ------- ------- -------
Total liabilities 56,135 2,475 209 53,451
------- ------- ------- -------
Minority interest 233 - - 233
Stockholders' equity 8,700 - - 8,700
------- ------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $65,068 $ 2,475 $ 209 $62,384
======= ======= ======= =======
CNA FINANCIAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(UNAUDITED)
PRO FORMA ADJUSTMENTS
--------------------------
DECREASE (INCREASE)
RESTATED PRO FORMA
CNAF CNAF
(In millions, except per share data) STATEMENT OF CNA RE U.K. OTHER STATEMENT OF
OPERATIONS [C] [D] [E] OPERATIONS
------------- ----------- -------- ------------
REVENUES
Net earned premiums $ 9,288 $ 224 $ - $ 9,064
Net investment income 1,856 59 15 1,782
Realized investment gains (losses), net of
participating policyholders' and minority
interests 1,262 (3) - 1,265
Other revenues 676 - - 676
-------- -------- -------- --------
Total revenues 13,082 280 15 12,787
-------- -------- -------- --------
CLAIMS, BENEFITS AND EXPENSES
Insurance claims and benefits 11,279 467 - 10,812
Amortization of deferred acquisition costs 1,804 63 - 1,741
Other operating expenses 1,909 51 - 1,860
Restructuring and other related charges 251 6 - 245
Interest 157 - - 157
-------- -------- -------- --------
Total claims, benefits and expenses 15,400 587 - 14,813
-------- -------- -------- --------
Loss from continuing operations before income
tax and minority interest (2,318) (307) 15 (2,026)
Income tax benefit (expense) 745 (67) (5) 817
Minority interest (21) - - (21)
-------- -------- -------- --------
(Loss) income from continuing operations $ (1,594) $ (374) $ 10 $ (1,230)
======== ======== ======== ========
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE
FROM CONTINUING OPERATIONS $ (8.22) $ (6.34)
======== ========
WEIGHTED AVERAGE OUTSTANDING COMMON STOCK AND
COMMON STOCK EQUIVALENTS 194.0 194.0
======== ========
CNA FINANCIAL CORPORATION
EXHIBIT 99.01
CNA FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
PRO FORMA ADJUSTMENTS
--------------------------
DECREASE (INCREASE)
RESTATED PRO FORMA
CNAF CNAF
(In millions, except per share data) STATEMENT OF CNA RE U.K. OTHER STATEMENT OF
OPERATIONS [D] [E] OPERATIONS
------------- ----------- -------- ------------
REVENUES
Net earned premiums $ 7,925 $ 13 $ - $ 7,912
Net investment income 1,292 32 7 1,253
Realized investment (losses) gains, net of
participating policyholders' and minority
interests (137) 11 - (148)
Other revenues 476 - - 476
------- ------- ------- -------
Total revenues 9,556 56 7 9,493
------- ------- ------- -------
CLAIMS, BENEFITS AND EXPENSES
Insurance claims and benefits 6,542 15 - 6,527
Amortization of deferred acquisition costs 1,350 5 - 1,345
Other operating expenses 1,261 12 - 1,249
Restructuring and other related charges - - - -
Interest 112 - - 112
------- ------- ------- -------
Total claims, benefits and expenses 9,265 32 - 9,233
------- ------- ------- -------
Income from continuing operations before income
tax and minority interest 291 24 7 260
Income tax expense (78) (1) (3) (74)
Minority interest (11) - - (11)
------- ------- ------- -------
Income from continuing operations $ 202 $ 23 $ 4 $ 175
======= ======= ======= =======
BASIC AND DILUTED EARNINGS PER SHARE
FROM CONTINUING OPERATIONS $ 0.91 $ 0.78
======= =======
WEIGHTED AVERAGE OUTSTANDING COMMON STOCK AND
COMMON STOCK EQUIVALENTS 223.6 223.6
======= =======
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
[A] This column of pro forma adjustments represents the balance sheet of CNA Re
U.K. as included in the CNAF Condensed Consolidated Balance Sheet as of
September 30, 2002 as reported.
[B] This column of pro forma adjustments includes the transfer of certain
assets and liabilities between CNA Re U.K. and its parent, CCC, arising
from several concurrent completion transactions as more fully described
below.
[B1] Represents the impact of the termination of four intercompany
reinsurance agreements under which, CNA Re U.K. ceded losses to CCC.
These terminations result in a transfer of insurance reserves of $337
million and cash of $262 million from CCC to CNA Re U.K.
[B2] In 1997, CNA Re U.K. entered into an arrangement with IOA Global, Ltd.
(IOA), an independent managing general agent based in Philadelphia,
Pennsylvania, to develop and manage a book of accident and health
coverages. Pursuant to this arrangement, IGI Underwriting Agencies,
Ltd. (IGI), a personal accident reinsurance managing general
underwriter, was appointed to underwrite and
CNA FINANCIAL CORPORATION
EXHIBIT 99.01
market the book under the supervision of IOA. Between April 1, 1997
and December 1, 1999, IGI underwrote a number of reinsurance
arrangements with respect to personal accident insurance worldwide
(the IGI Program).
This pro forma adjustment reflects the retrocession to CCC of CNA Re
U.K.'s remaining net exposure relating to the IGI Program. This
retrocession includes a transfer of insurance reserves of $29 million,
receivables of $77 million, related liabilities of $35 million and
cash of $2 million.
[B3] Represents the impact of other aspects of the transaction including
estimated foreign currency losses and other estimated future
completion adjustments, which decreases cash by $22 million and
decreases other liabilities by $22 million.
[C] The CNAF Condensed Consolidated Statement of Operations for the year ended
December 31, 2001 is restated to reclassify the results of CNA Vida as
discontinued operations.
[D] These columns of pro forma adjustments represent the results of operations
of CNA Re U.K. as included in the CNAF Condensed Consolidated Statements of
Operations for the respective periods presented.
[E] This column of pro forma adjustments represents the estimated reduction of
investment income assuming the cash related to CNAF's completion
transactions in pro forma note B, was transferred to CNA Re U.K. as of
January 1, 2001. This estimated reduction of interest income totals $15
million, which is based on the approximate two-year U.S. Treasury yield of
5% as of January 1, 2001.
[F] This column of pro forma adjustments represents the estimated reduction of
investment income assuming the cash related to completion transactions in
pro forma note B, was transferred to CNA Re U.K. as of January 1, 2002.
This estimated reduction of interest income totals $7 million, which is
based on the approximate two-year U.S. Treasury yield of 3% as of January
1, 2002.