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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, 1999 Commission File Number 1-5823
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CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B)OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock New York Stock Exchange
with a par value Chicago Stock Exchange
of $2.50 per share Pacific Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G)OF THE ACT:
None
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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. [ ]
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 No....
As of March 24, 2000, 183,293,131 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 $746 million.
DOCUMENTS INCORPORATED
BY REFERENCE:
Portions of the CNA Financial Corporation 1999 Annual Report to
Shareholders are incorporated by reference into Parts I and II of this Report.
Portions of the CNA Financial Corporation Proxy Statement prepared for the
2000 annual meeting of shareholders, pursuant to Regulation 14A, are
incorporated by reference into Part III of this Report.
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CNA FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Item Page
Number PART I Number
1. Business........................................................ 3
2. Properties...................................................... 10
3. Legal Proceedings............................................... 11
4. Submission of Matters to a Vote of Security Holders............. 11
Executive Officers of the Registrant............................ 12
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters.................................. 13
6. Selected Financial Data......................................... 13
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 13
7A. Quantitative and Qualitative Disclosures about Market Risk....... 13
8. Financial Statements and Supplementary Data..................... 13
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 13
PART III
10. Directors and Executive Officers of the Registrant............... 14
11. Executive Compensation........................................... 14
12. Security Ownership of Certain Beneficial Owners and Management... 14
13. Certain Relationships and Related Transactions................... 14
PART IV
14. Financial Statements, Schedules, Exhibits and Reports on
Form 8-K......................................................... 15
2
PART I
ITEM 1. BUSINESS
CNA Financial Corporation (CNAF or the Company) was incorporated in 1967 and is
an insurance holding company whose primary subsidiaries consist of
property/casualty and life insurance companies. Collectively CNAF and its
subsidiaries are referred to as CNA. CNA's property/casualty insurance
operations are conducted by Continental Casualty Company (CCC), incorporated
1897, and its affiliates, and The Continental Insurance Company (CIC), organized
1853, and its affiliates. Life insurance operations are conducted by Continental
Assurance Company (CAC), incorporated 1911, and its life insurance affiliates.
CIC became an affiliate of the Company in 1995 as a result of the acquisition of
The Continental Corporation (Continental). The principal business of Continental
is the ownership of a group of property and casualty insurance companies. CNA
serves businesses and individuals with a broad range of insurance and other risk
management products and services. Insurance products include property and
casualty coverages; life, accident and health insurance; and pensions products
and annuities. CNA services include risk management, information services,
healthcare management and claims administration. CNA products are marketed
through agents, brokers, managing general agents and direct sales. CNA's
principal market is the United States.
CNA conducts its operations through seven operating segments: Agency Market
Operations, Specialty Operations, CNA Re, Global Operations, Risk Management,
Group Operations and Life Operations. Discussions of each segment including the
products offered, the customers served and the distribution channels used is set
forth in the Management's Discussion and Analysis section of the 1999 Annual
Report to Shareholders, incorporated by reference in Item 7, herein.
On March 20, 2000 CCC proposed to CNA Surety Corporation (CNA Surety) that
CCC make a cash tender offer at $13.00 per share for all shares of CNA Surety
common stock not already owned by CCC and its affiliates. CCC and its affiliates
owned approximately 63 percent of the outstanding shares of CNA Surety common
stock on March 20, 2000. CCC intends to condition the tender offer upon
receiving enough shares so that its ownership reaches at least 90 percent. If
this ownership threshold is achieved, CCC would then acquire the remaining
outstanding shares of CNA Surety common stock not tendered to CCC through a
statutory "short-form" merger process. Stockholders who do not tender their
shares to CCC during the tender offer would also receive $13.00 per share in
cash for their stock in the short-form merger.
COMPETITION
Due to market pressures, the insurance environment remains intensely
competitive. CNA competes 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 its insurance products and
services.
There are approximately 3,400 individual companies that sell property/casualty
insurance in the United States. CNAF's consolidated property/casualty
subsidiaries ranked as the 5th largest property/casualty insurance organization
based upon 1998 statutory net written premiums.
There are approximately 1,500 companies selling life insurance in the United
States. CAC is ranked as the 35th largest life insurance organization based on
1998 consolidated statutory premium volume.
DIVIDENDS BY INSURANCE SUBSIDIARIES
The payment of dividends to CNAF by its insurance subsidiaries without
prior approval of the affiliates' domiciliary state insurance commissioners is
limited by formula. This formula varies by state. The formula used by the
majority of the states provides that 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 is available to be paid
as a dividend to the parent company. Some states, however, have an additional
stipulation that dividends cannot exceed prior year's surplus. Based upon the
formulae applied by the respective domiciliary states of CNAF's
3
insurance subsidiaries, approximately $887 million in dividends can be paid to
CNAF by those subsidiaries in 2000 without prior approval. However, all
dividends must be reported to the domiciliary insurance department prior to
declaration and payment.
REGULATION
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 powers relative to licensing
insurers and agents, approving policy forms, establishing reserve requirements,
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. Such 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 by the state insurance regulator, depending on the size of such
transfers and payments in relation to the financial position of the insurance
affiliates making the transfer.
Insurers are also required by the states to provide coverage to insureds
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 share of these involuntary risks is mandatory
and generally a function of its respective share of the voluntary market by line
of insurance in each state.
Reform of the U.S. tort liability system is another issue facing the insurance
industry. Although federal standards would create more uniform laws, tort reform
supporters still look primarily to the states for passage of reform measures.
Over the last decade, many states have passed some type of reform, but more
recently, a number of state courts have modified or overturned these reforms.
Additionally, new causes of action and theories of damages continue to be
proposed in state court actions or by legislatures. Continued unpredictability
in the law means that insurance underwriting and rating is expected to be
difficult in commercial lines, professional liability and some specialty
coverages.
Although the federal government and its regulatory agencies do not directly
regulate the business of insurance, federal legislative and regulatory
initiatives can impact the insurance business in a variety of ways. These
initiatives and legislation include tort reform proposals; proposals to overhaul
the Superfund hazardous waste removal and liability statute; financial services
modernization legislation, which includes provisions to remove barriers that
prevent banks from engaging in the insurance business; and various tax proposals
affecting insurance companies.
In the mid 1990's the National Association of Insurance Commissioners
(NAIC) adopted risk based capital (RBC) requirements for both life insurance
companies and property/casualty insurance companies. The requirements are to be
utilized by state insurance departments as a minimum capital requirement
identifying companies that merit further regulatory action. The formulae were
not developed to differentiate adequately capitalized companies that operate
with capital levels higher than the RBC requirements. Therefore, it is
inappropriate and inadvisable to use the formulae to rate or rank insurers. At
December 31, 1999 and 1998, all of the Company's life and property & casualty
companies had adjusted capital in excess of amounts requiring any regulatory
action.
REINSURANCE
Information as to CNA's reinsurance activities is set forth in Note G of
the Consolidated Financial Statements of the 1999 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
4
EMPLOYEE RELATIONS
As of December 31, 1999, CNA had approximately 19,600 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 retirement plans, savings plans, disability programs, group life
programs and group health care programs. See Note I of the Consolidated
Financial Statements of the 1999 Annual Report to Shareholders for further
discussion, incorporated by reference in Item 8, herein.
GOVERNMENT CONTRACTS
CNA's premium revenue include premiums under contracts involving U.S.
government employees and their dependents. Such premiums were approximately $2.1
billion, $2.0 billion and $2.1 billion in 1999, 1998 and 1997, respectively.
BUSINESS SEGMENTS
Information as to CNA's business segments is set forth in Note M of the
Consolidated Financial Statements of the 1999 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
Additional information as to CNA's business segments is set forth in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of the 1999 Annual Report to Shareholders, incorporated by
reference in Item 7, herein.
5
SUPPLEMENTARY INSURANCE DATA
The following table sets forth supplementary insurance data.
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YEAR ENDED DECEMBER 31 1999 1998 1997
(In millions of dollars, except ratio information)
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TRADE RATIOS - GAAP BASIS (A)
Loss ratio....................................... 87.1% 81.8% 77.1%
Expense ratio.................................... 32.4 33.6 31.3
Combined ratio (before policyholder dividends)... 119.5 115.4 108.4
Policyholder dividend ratio...................... 0.3 1.1 0.5
TRADE RATIOS - STATUTORY BASIS (A)
Loss ratio....................................... 87.1% 81.5% 77.5%
Expense ratio.................................... 33.8 32.8 30.7
Combined ratio (before policyholder dividends)... 120.9 114.3 108.2
Policyholder dividend ratio...................... 0.3 1.0 0.8
GROSS LIFE INSURANCE IN-FORCE
Group............................................$394,743 $317,720 $239,843
Life (c)......................................... 75,247 76,674 71,755
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$469,990 $394,394 $311,598
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OTHER DATA - STATUTORY BASIS (B)
Property/casualty capital and surplus*..........$ 8,679 $ 7,623 $ 7,123
Life capital and surplus........................ 1,222 1,109 1,223
Written premium to surplus ratio............... 1.1 1.4 1.4
Capital and surplus-percent of total
liabilities..................................... 21.9% 20.5% 22.4%
Participating policyholders-percent of gross
life insurance in force......................... 0.5% 0.5% 0.7%
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*Surplus includes equity of property/casualty companies' ownership in life
insurance subsidiaries.
(a) Trade ratios reflect the results of CNA's property/casualty
insurance subsidiaries. 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. The expense ratio, using amounts determined in accordance with
statutory accounting principles (GAAP), is the percentage of
underwriting expenses, including the amortization of deferred
acquisition costs, to premiums earned. The expense ratio, using
amounts determined in accordance with statutory accounting practices,
is the percentage of underwriting expenses (with no deferral of
acquisition costs) to premiums written. The combined ratio is the sum
of the loss and expense ratios. The policyholder dividend ratio is the
ratio of dividends incurred to premiums earned.
(b) Other data is determined in accordance with statutory accounting
practices. Dividends of $570 million, $410 million and $175 million,
were paid to CNAF by CCC in 1999, 1998 and 1997, respectively.
Insurance subsidiaries have received, or will receive, reimbursement
from CNAF for general management and administrative expenses,
unallocated loss adjustment expenses and investment expenses of $203
million, $189 million and $217 million, in 1999, 1998 and 1997,
respectively. Life statutory capital and surplus as a percent of total
liabilities is determined after excluding Separate Account liabilities
and reclassifying the statutorily required Asset Valuation and Interest
Maintenance Reserves as surplus.
(c) Lapse ratios for individual life insurance, as measured by surrenders
and withdrawals as a percentage of average ordinary life insurance in
force, were 10.9%, 14.7%, and 6.4% in 1999, 1998 and 1997,
respectively.
6
SUPPLEMENTARY INSURANCE DATA--(CONTINUED)
The following table displays the distribution of gross written premiums for the
CNA's property/casualty operations:
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GROSS WRITTEN PREMIUM PERCENT OF TOTAL
YEAR ENDED DECEMBER 31 1999 1998 1997
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New York.................................. 8.2% 9.5% 9.9%
California................................ 7.1 8.2 8.8
Texas..................................... 5.7 6.0 6.2
Florida................................... 4.6 4.6 4.8
Pennsylvania.............................. 4.3 4.7 5.1
New Jersey................................ 3.8 4.4 4.3
Illinois.................................. 3.8 4.5 4.4
All other states, countries or political 46.5 48.0 48.0
subdivisions (a)..........................
Reinsurance assumed....................... 16.0 10.1 8.5
-------------------------------
100.0% 100.0% 100.0%
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(a) No other state, country or political subdivision accounts for more
than 3.0% of gross written premium.
Approximately 97% of CNA's premiums are derived from the United States.
Premiums from any individual foreign country are not significant.
PROPERTY/CASUALTY CLAIM AND CLAIM ADJUSTMENT EXPENSES
The following loss reserve development table illustrates the change over
time of reserves established for property/casualty claims and claim adjustment
expenses at the end of the preceding eleven calendar years for CNA's
property/casualty operations. 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
the originally reported reserve liability. The third section, reading down,
shows re-estimates of the originally recorded reserve as of the end of each
successive year, which is the result of the Company's property/casualty
insurance subsidiaries' expanded awareness of additional facts and circumstances
that pertain to the unsettled claims. The last section compares the latest
re-estimated reserve to the reserve originally established, and indicates
whether the original reserve was adequate or inadequate to cover the estimated
costs of unsettled claims.
7
PROPERTY/CASUALTY CLAIM AND CLAIM ADJUSTMENT EXPENSES--(CONTINUED)
The loss reserve development table for property/casualty operations 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.
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SCHEDULE OF
PROPERTY/CASUALTY
LOSS RESERVE
DEVELOPMENT
CALENDAR YEAR ENDED 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(a) 1995(b) 1996 1997(a) 1998(d) 1999(e)
(In millions of
dollars)
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Gross reserves
for unpaid claim
and claim expenses. $ -- $16,530 $17,712 $20,034 $20,812 $21,639 $31,044 $29,395 $28,533 $28,317 26,631
Ceded recoverable..... -- 3,440 3,297 2,867 2,491 2,705 6,089 5,660 5,326 5,424 6,273
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Net reserves for unpaid
claim
and claim expenses. 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 23,697 22,893 20,358
------- ------- ------- ------- ------- ------- ------- -------- ------ ------- ------
CUMULATIVE NET PAID AS OF:
One year later........ 2,670 3,285 3,411 3,706 3,629 3,656 6,510 5,851 5,954 7,460 --
Two years later....... 4,724 5,623 6,024 6,354 6,143 7,087 10,485 9,796 11,102 -- --
Three years later..... 6,294 7,490 7,946 8,121 8,764 9,195 13,363 13,627 -- -- --
Four years later...... 7,534 8,845 9,218 10,241 10,318 10,624 16,407 -- -- -- --
Five years later...... 8,485 9,726 10,950 11,461 12,489 12,666 -- -- -- -- --
Six years later....... 9,108 11,207 11,951 12,308 14,249 -- -- -- -- -- --
Seven years later..... 10,393 12,023 12,639 13,947 -- -- -- -- -- -- --
Eight years later..... 11,086 12,592 14,166 -- -- -- -- -- -- -- --
Nine years later...... 11,563 14,019 -- -- -- -- -- -- -- -- --
Ten years later....... 12,897 -- -- -- -- -- -- -- -- -- --
NET RESERVES RE-ESTIMATED
AS OF:
End of initial year... 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 23,697 22,893 20,358
One year later........ 11,336 12,984 16,032 17,757 18,250 18,922 24,864 23,479 23,508 23,920 --
Two years later....... 11,371 14,693 16,810 17,728 18,125 18,500 24,294 23,140 23,702 -- --
Three years later..... 13,098 15,737 16,944 17,823 17,868 18,008 23,814 23,666 -- -- --
Four years later...... 14,118 15,977 17,376 17,765 17,511 17,354 24,679 -- -- -- --
Five years later...... 14,396 16,440 17,329 17,560 17,082 19,558 -- -- -- -- --
Six years later....... 14,811 16,430 17,293 17,285 20,066 -- -- -- -- -- --
Seven years later..... 14,810 16,551 17,069 18,974 -- -- -- -- -- -- --
Eight years later..... 14,995 16,487 18,553 -- -- -- -- -- -- -- --
Nine years later...... 14,973 17,792 -- -- -- -- -- -- -- -- --
Ten years later....... 16,155 -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total net (deficiency) (4,888) (4,702) (4,138) (1,807) (1,745) (624) 276 31 (495) (1,027) --
redundancy
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Schedule of
Property/Casualty
Loss Reserve
Development
Calendar Year Ended 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(a) 1995(b) 1996 1997(c) 1998(d) 1999(e)
(In millions of dollars)
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Reconciliation to gross
re-estimated reserves:
Net reserves
re-estimated.......... 16,155 17,792 18,553 18,974 20,666 19,558 24,679 23,666 23,702 23,920 --
Re-estimated ceded
recoverable........... -- 405 667 926 1,095 1,366 7,484 8,334 8,634 9,021 --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total gross
re-estimated reserves 16,155 18,197 19,220 19,900 21,161 20,924 32,163 32,000 32,336 32,941 --
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Net (deficiency) redundancy
related to:
Asbestos claims........ (3,496) (3,365) (3,321) (1,633) (1,033) (999) (811) (910) (806) (560) --
Environmental claims... (978) (972) (929) (886) (445) (276) (197) (136) (138) 84 --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total asbestos and
environmental (4,474) (4,337) (4,250) (2,519) (1,478) (1,275) (1,008) (1,046) (944) (476) --
Other claims........... (414) (365) 112 712 (267) 651 1,284 1,077 449 (551) --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total net (deficiency)
redundancy (4,888) (4,702) (4,138) (1,807) (1,745) (624) 276 31 (495) (1,027) --
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
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(a) Reflects reserves of CNA's property/casualty insurance subsidiaries,
excluding Continental reserves, which were acquired on May 10, 1995 (the
Acquisition Date). Accordingly, the reserve development (net reserves recorded
at the end of the year, as initially estimated, less net reserves re-estimated
as of subsequent years) does not include Continental. In 1995, CNA recorded
adverse reserve development of $134 million related to the reserves of
Continental, on the Acquisition Date.
(b) Includes Continental gross reserves of $9,713 million and net reserves of
$6,063 million acquired on the Acquisition Date and subsequent development
thereon.
(c) Includes net and gross reserves of acquired companies of $57 million and $64
million.
(d) Includes net and gross reserves of acquired companies of $122 million and
$223 million.
(e) Ceded recoverable includes net reserves transferred under retroactive
reinsurance agreements of $784 million, as of December 31, 1999.
8
PROPERTY/CASUALTY CLAIM AND CLAIM ADJUSTMENT EXPENSES--(CONTINUED)
Additional information as to CNA's property/casualty claim and claim
expense reserves and reserve development is set forth in Notes A and E of the
Consolidated Financial Statements of the 1999 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
INVESTMENTS
Information as to the Company's investments is set forth in Notes B and C
of the Consolidated Financial Statements of the 1999 Annual Report to
Shareholders, incorporated by reference in Item 8, herein.
Additional information as to the Company's investments is set forth in the
Management's Discussion and Analysis section of the 1999 Annual Report to
Shareholders, incorporated by reference in Item 7, herein.
9
ITEM 2. PROPERTIES
CNA Plaza, owned by Continental Assurance Company, serves as the home
office for CNAF and its insurance subsidiaries. An adjacent building (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 25% of the adjacent building is rented to
non-affiliates. CNAF's subsidiaries lease office space in various cities
throughout the United States and in other countries. The following table sets
forth certain information with respect to the principal office buildings owned
or leased by CNAF's subsidiaries:
------------------------------------------------------------------------
AMOUNT OF BUILDING
OWNED AND OCCUPIED OR
LEASED BY CNA OR ITS
LOCATION SUBSIDIARIES PRINCIPAL USAGE
------------------------------------------------------------------------
CNA Plaza 1,144,378 sq. ft.* Principal Executive
333 S. Wabash Offices of CNAF
Chicago, Illinois
180 Maiden Lane 1,115,100* Property/Casualty
New York, New York Insurance Offices
55 E. Jackson Blvd. 440,292* Principal Executive
Chicago, Illinois Offices of CNAF
200 S. Wacker Drive 265,727** Property/Casualty
Chicago, Illinois Insurance Offices
401 Penn Street 254,589* Leased to tenants
Reading, Pennsylvania
100 CNA Drive 251,363* Life Insurance Offices
Nashville, Tennessee
1111 E. Broad St. 225,470** Property/Casualty
Columbus, Ohio Insurance Offices
40 Wall Street 199,238** Property/Casualty
New York, New York Insurance Offices
1110 Ward Avenue 186,687* Property/Casualty
Honolulu, Hawaii Insurance Offices
3501 State Highway 66 183,184** Property/Casualty
Neptune, New Jersey Insurance Offices
2405 Lucien Way 178,744** Property/Casualty
Maitland, Florida Insurance Offices
333 Glen Street 164,032** Property/Casualty
Glens Falls, New York Insurance Offices
1100 Cornwall Road 147,884** Property/Casualty
Monmouth Junction, Insurance Offices
New Jersey
600 North Pearl Street 139,151** Property/Casualty
Dallas, Texas Insurance Offices
* Represents property owned by CNAF or its subsidiaries.
** Represents property leased by CNAF or its subsidiaries.
10
ITEM 3. LEGAL PROCEEDINGS
Information as to CNA's legal proceedings is set forth in Note F of the
Consolidated Financial Statements of 1999 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION AND
OFFICES HELD FIRST BECAME
WITH REGISTRANT OFFICER OF CNA
NAME AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
Laurence A. Tisch Chief Executive 77 * Co-Chairman of the Board of Loews Corporation.
Officer, CNA President, Chief Executive Officer and Director of
Financial CBS, Inc. until November 1995. Executive officer of
Corporation the Registrant since 1974.
Bernard L. Hengesbaugh Chairman of the 53 1980 Chairman of the Board and Chief Executive Officer of
Board and Chief CNA Insurance Companies since February 1999. Executive
Executive Officer, Vice President and Chief Operating Officer of CNA
CNA Insurance Insurance Companies from February 1998 until February
Companies 1999. Senior Vice President of CNA Insurance Companies
since November 1990. Executive officer of the Registrant
since 1996.
Robert V. Deutsch Senior Vice 40 1999 Senior Vice President and Chief Financial Officer of
President and CNA Financial Corporation since August 1999. From
Chief Financial June 1987 until August 1999, Mr. Deutsch was
Officer, CNA Executive Vice President, Chief Financial Officer,
Financial Chief Actuary and Assistant Secretary of Executive
Corporation Risk Inc. Executive Officer of the Registrant since
1999.
Jonathan D. Kantor Senior Vice 44 1994 Senior Vice President, General Counsel and Secretary
President, of the Registrant since 1998. Senior Vice President,
General Counsel General Counsel and Secretary of CNA Insurance
and Secretary, Companies since 1997. Prior thereto, Group Vice
CNA Financial President of CNA Insurance Companies since 1994.
Corporation Executive Officer of the Registrant since 1997.
Thomas F. Taylor Executive Vice 48 1992 Executive Vice President, Underwriting Policy Group
President, CNA of CNA Insurance Companies since June 1999. From
Insurance 1998 to 1999, Senior Vice President of CNA Insurance
Companies Companies. From 1992 thru 1998, President and Chief
Operating Officer Financial Insurance division of CNA
Insurance Companies. Executive Officer of the
Registrant since 1999.
Officers are elected and hold office until their successors are elected and
qualified, and are subject to removal by the Board of Directors.
*Mr. Tisch is not an officer of CNA.
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Incorporated herein by reference from page 76 of the 1999 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from page 1 of the 1999 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated herein by reference from pages 13 through 41 of the 1999
Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated herein by reference from pages 35 through 37 of the 1999
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations - Year Ended December 3l, 1999, 1998
and 1997
Consolidated Statements of Stockholders' Equity - December 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows - Year Ended December 31, 1999, 1998
and 1997
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 42 through 74 of the 1999
Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
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 14A 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.
14
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................................. 13
(a) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule I Summary of Investments....................... 18
Schedule II Condensed Financial Information
(Parent Company)............................. 19
Schedule III Supplementary Insurance Information.......... 23
Schedule IV Reinsurance.................................. 24
Schedule V Valuation and Qualifying Accounts............ 24
Schedule VI Supplementary Information Concerning
Property/Casualty Insurance Operations.... 25
Independent Auditors' Report.................................... 26
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
-----------------------------
(3) Articles of incorporation and by-laws:
Certificate of Incorporation of CNA Financial Corporation,
as amended May 20, 1999 ........................................ 3.1*
By-Laws of CNA Financial Corporation, as amended
February 10, 1999 (Exhibit 3.2 to 1998 Form 10-K incorporated
herein by reference.)........................................... 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:
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.).................................................... 10.1
15
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(CONTINUED)
Exhibit
Description of Exhibit Number
----------------------------- -------
(10) Material contracts (continued):
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.)..................................................... 10.2
CNA Employees' Retirement Benefit Equalization Plan, as amended
through January 1, 1994 ........................................ 10.3*
CNA Employees' Supplemental Savings Plan, as amended through
January 1, 1994................................................. 10.4*
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.)............... 10.5
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.)..................................................... 10.6
Continental Casualty Company "CNA" Annual Incentive Bonus Plan
Provisions (Exhibit 10.1 to 1994 Form 10K incorporated herein
by reference.).................................................. 10.7
Employment Agreement between CNA Financial Corporation and
Philip L. Engel, dated December 31, 1995 (Exhibit 10.3 to 1995
Form 10-K incorporated herein by reference.).................... 10.8
Letter extending employment Agreement between CNA Financial
Corporation and Philip L. Engel, dated February 17, 1999 (Exhibit
10.17 to 1998 Form 10-K incorporated herein by reference.)...... 10.9
Continuing Services Agreement between CNA Financial Corporation and
Dennis H. Chookaszian, dated February 9, 1999 (Exhibit 10.2 to 1998
Form 10-K incorporated herein by reference.)....................10.10
Employment Agreement between CNA Financial Corporation and
Bernard Hengesbaugh, dated February 9, 1999 (Exhibit 10.18 to...10.11
CNA Financial Corporation 2000 Long-Term Incentive Plan, dated
August 4, 1999 (Exhibit 4.1 to 1999 Form S-8 filed August 4, 1999,
incorporated herein by reference.)..............................10.12
16
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(CONTINUED)
Exhibit
Description of Exhibit Number
----------------------------- -------
(10) Material Contracts (continued):
Employment Agreement between CNA Financial Corporation and
Robert V. Deutsch, dated August 16, 1999 (Exhibit 10 to
September 30, 1999 Form 10-Q incorporated herein
by reference.)..................................................10.13
Employment Agreement between CNA Financial Corporation and
Thomas F. Taylor dated November 2, 1999.........................10.14*
(12) Computation of Ratio of Earnings to Fixed Charges............... 12.1*
(13) 1999 Annual Report.............................................. 13.1*
(21) Primary Subsidiaries of CNAF.................................... 21.1*
(23) Independent Auditors' Consent................................... 23.1*
(27) Financial Data Schedule......................................... 27*
*Filed herewith
17
SCHEDULE I
CNA FINANCIAL CORPORATION
SUMMARY OF INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 31 1999 1998
----------------------------- -----------------------------
COST OR Cost or
AMORTIZED FAIR CARRYING Amortized Fair Carrying
(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......... $ 9,777 $ 9,619 $ 9,619 $ 9,507 $ 9,694 $ 9,694
States, municipalities and political
subdivisions-tax exempt.................. 4,514 4,396 4,396 6,127 6,321 6,321
Foreign governments and political
subdivisions............................. 1,472 1,429 1,429 1,543 1,545 1,545
Public utilities.......................... 368 354 354 683 694 694
Convertibles and bonds with warrants
attached................................. 135 135 135 1 1 1
All other corporate....................... 11,619 11,185 11,185 11,614 11,724 11,724
Redeemable preferred stocks................... 63 130 130 36 94 94
------- ------- ------- ------- ------- -------
Total fixed maturities available-for-sale 27,948 27,248 27,248 29,511 30,073 30,073
------- ======= ------- ------- ======= -------
Equity securities available-for-sale:
Common stocks:
Banks, trusts and insurance companies.... 16 10 10 10 6 6
Public utilities.......................... 14 14 14 - - -
Industrial and other........................ 858 3,320 3,320 724 1,659 1,659
Non-redeemable preferred stocks................ 262 266 266 321 305 305
------- ------- ------- ------- ------- ------
Total equity securities available-for-sale $ 1,150 $ 3,610 $ 3,610 $ 1,055 $ 1,970 $ 1,970
------- ======= ------- ------- ======= ------
Mortgage loans................................... 44 44 57 57
Real estate...................................... 3 3 5 5
Policy loans..................................... 192 192 177 177
Other invested assets............................ 1,036 1,108 806 858
Short-term investments........................... 3,355 3,355 4,037 4,037
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $33,728 $35,560 $35,648 $37,177
================================================================================================================
18
CNA FINANCIAL CORPORATION SCHEDULE II
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
FINANCIAL POSITION
- -----------------------------------------------------------------------------------------
DECEMBER 31 1999 1998
(In millions of dollars)
- -----------------------------------------------------------------------------------------
ASSETS:
Cash........................................................... $ 4 $ -
Investments in subsidiaries.................................... 10,604 10,865
Deferred income taxes.......................................... 852 995
Notes receivable from affiliates............................... 534 514
Short-term investments......................................... 3 3
Federal income taxes receivable................................. 241 234
Other.......................................................... 19 5
-------- --------
Total assets............................................ $12,257 $12,616
======== ========
LIABILITIES:
Debt........................................................... $ 2,492 $ 2,475
Amounts due to affiliates...................................... 798 984
Other.......................................................... 29 -
-------- --------
Total liabilities....................................... 3,319 3,459
STOCKHOLDERS' EQUITY:
Accumulated other comprehensive income......................... 1,157 991
Other stockholders' equity..................................... 7,781 8,166
-------- --------
Total stockholders' equity.............................. 8,938 9,157
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,257 $12,616
==========================================================================================
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1999 1998 1997
(In millions of dollars)
- --------------------------------------------------------------------------------------------
REVENUES:
Equity in income of subsidiaries before income tax:
Operating income............................................ $ 2 $ (52) $ 956
Realized investment gains................................... 307 695 742
Net investment income.......................................... 8 25 12
Realized investment gains (losses)............................. 8 (2) (4)
-------- --------- -------
325 666 1,706
-------- --------- -------
EXPENSES:
Administrative and general..................................... 203 189 217
Interest....................................................... 160 148 131
Other.......................................................... 3 -- --
-------- --------- -------
366 337 348
-------- --------- -------
Income (loss) before income tax and cumulative effect of a
change in acccounting principle........................ (41) 329 1,358
Income tax expense (benefit)............................ (88) 47 392
Cumulative effect of a change in accounting principle,
net tax of $95......................................... (177) - -
- --------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (130) $ 282 $ 966
============================================================================================
See accompanying Notes to Condensed Financial Information.
19
SCHEDULE II
(continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1999 1998 1997
(In millions of dollars)
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (130) $ 282 $ 966
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Distributions in excess of earnings (undistributed
earnings) of affiliates............................... 197 (159) (1,523)
Realized losses (gains)................................. (8) 2 4
Deferred income taxes................................... 43 47 144
Changes in:
Federal income taxes................................... (7) (60) 79
Other, net............................................. 304 143 352
------- -------- -------
TOTAL ADJUSTMENTS..................................... 529 (27) (944)
------- -------- -------
NET CASH FLOWS FROM OPERATING ACTIVITIES.............. 399 255 22
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments............................ -- 11 (15)
Capital contribution to subsidiaries........................ (207) (257) --
Purchase of preferred stock of subsidiaries................. -- (305) --
Other....................................................... 8 -- (4)
------- -------- -------
NET CASH FLOWS FROM INVESTING ACTIVITIES.............. (199) (551) (19)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:..........................
Dividends paid to preferred shareholders.................... (13) (7) (6)
Proceeds from issuance of long-term debt.................... 175 1,000 --
Principal payments on long-term debt........................ (158) (490) --
Issuance (redemption) of cumulative exchangeable
preferred stock........................................... (200) 200 --
Purchase of treasury stock.................................. -- (102) --
Loans to subsidiaries....................................... -- (305) --
------ -------- -------
NET CASH FLOWS FROM FINANCING ACTIVITIES.............. (196) 296 (6)
------ -------- -------
NET CASH FLOWS........................................ 4 -- (3)
Cash at beginning of year...................................... -- --
- ---------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 4 $ -- $ --
=============================================================================================
Supplemental disclosures of cash flow information:
Cash paid:
Interest............................................... $169 $ 129 $ 134
Federal income taxes................................... 279 143 95
Non-cash transactions:
Notes receivable for the issue of stock................. 19 44 --
=============================================================================================
See accompanying Notes to Condensed Financial Information.
20
SCHEDULE II
(continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION
a. Basis of presentation
The condensed financial information of CNA Financial Corporation
(Parent Company) should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in the CNA Financial
Corporation 1999 Annual Report to Shareholders. Investments in
subsidiaries are accounted for using the equity method of accounting.
Certain amounts applicable to prior years have been reclassified to
conform to classifications followed in 1999.
In the first quarter of 1999, CNA adopted Statement of Position 97-3
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments"(SOP 97-3). SOP 97-3 requires that insurance companies
recognize liabilities for insurance-related assessments when an
assessment is probable and will be imposed, when it can be reasonably
estimated, and when the event obligating the entity to pay an imposed
or probable assessment has occurred on or before the date of the
financial statements. Adoption of SOP 97-3 resulted in an after-tax
charge of $177 million as a cumulative effect of a change in accounting
principle. The pro forma effect of adoption on reported results for
prior periods is not significant.
b. Debt
-------------------------------------------------------------------------
DECEMBER 31 1999 1998
(In millions of dollars)
-------------------------------------------------------------------------
Variable Rate Debt:
Commercial paper.................................. $ 675 $ 500
Credit facility................................... 77 235
Senior Notes:
6.25%, due November 15, 2003...................... 249 249
6.50% , due April 15, 2005........................ 497 497
6.75%, due November 15, 2006...................... 248 248
6.45%, due January 15, 2008....................... 149 149
6.60%, due December 15, 2008...................... 199 199
6.95%, due January 15, 2018....................... 148 148
7.25% Debenture, due November 15, 2023............... 247 247
1.0% Urban Development Action Grant, due May 7, 2019.. 3 3
-------------------------------------------------------------------------
TOTAL $2,492 $2,475
=========================================================================
The Parent Company has a $795 million revolving credit facility (the
Facility) that expires in May 2001. The amount available under the
Facility is reduced by the Parent Company's outstanding commercial
paper borrowings. As of December 31, 1999, there was $43 million of
unused borrowing capacity under the Facility. The interest rate on the
Facility is equal to the London Interbank Offered Rate (LIBOR), plus 16
basis points. Additionally, there is an annual facility fee of 9 basis
points on the entire facility. The average interest rate on the
borrowings under the Facility, excluding facility fees, at December 31,
1999 and 1998, was 6.66% and 5.49%, respectively.
The weighted-average interest rate on commercial paper at December 31,
1999 was 6.50% compared to 5.89% at December 31, 1998. Generally,
commercial paper has a weighted-average maturity of 40 days.
21
SCHEDULE II (continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION--(CONTINUED)
To offset the variable rate characteristics of the Facility and the
interest rate risk associated with periodically reissuing commercial
paper, the Parent Company is party to interest rate swap agreements
with several banks, which have an aggregate notional principal amount
of $650 million at both December 31, 1999 and 1998, and which terminate
from May 2000 to December 2000. These agreements require the Parent
Company to pay interest at a fixed rate, averaging 6.07% at both
December 31, 1999 and 1998, in exchange for the receipt of three month
LIBOR.
The combined weighted average cost of borrowings, including facility
fees, of the Facility, commercial paper borrowings and interest rate
swaps was 6.47% and 6.36% at December 31, 1999 and 1998, respectively.
On February 15, 2000, Standard & Poor's lowered the Parent Company's
senior debt rating from A- to BBB and lowered the Parent Company's
preferred stock rating from BBB to BB+. As a result of these actions,
the facility fee payable on the aggregate amount of the Facility was
increased to 12 1/2 basis points per annum and the interest rate on the
Facility was increased to LIBOR plus 27 1/2 basis points. Additionally,
as a result of these actions, the Parent Company purchased and retired
approximately $30 million of its outstanding money market preferred
stock in February 2000, and announced its intention to purchase or
redeem the remaining outstanding shares.
In 1998, the Parent Company issued $1 billion of senior notes under a
$1 billion Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on August 18, 1997. This shelf registration
incorporated $250 million of securities remaining available for
issuance from a prior shelf registration. Since filing the shelf
registration, the Parent Company has issued in four separate offerings
senior notes with an aggregate principal amount of $1 billion.
On April 15, 1999, the Parent Company retired $100 million of 8.25%
senior notes.
On August 2, 1999, the Parent Company repaid its $157 million, 11%
Secured Mortgage Notes, due June 30, 2013. The gain realized on the
transaction was not significant.
c. Management and administrative expenses
The Parent Company has reimbursed, or will reimburse, its subsidiaries
for the net of general management and administrative expenses,
unallocated loss adjustment expenses and investment expense of $203
million, $189 million and $217 million in 1999, 1998 and 1997,
respectively.
d. Capital contributions
In 1999 and 1998, the Parent Company contributed approximately $200
million and $257 million to the capital of its subsidiaries. There
were no contributions made by the Parent Company to the capital of its
subsidiaries in 1997.
22
SCHEDULE III
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- -------------------------------------------------------------------------------------------------------------------
GROSS INSURANCE RESERVES
-----------------------------------------
CLAIM INSURANCE
DEFERRED AND FUTURE POLICY- NET NET CLAIMS AND
ACQUISITION CLAIM POLICY UNEARNED HOLDERS' PREMIUM INVESTMENT POLICYHOLDERS'
(In millions of dollars) COSTS EXPENSE BENEFITS PREMIUMS FUNDS REVENUE INCOME BENEFITs
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
Agency Market Operations...$ - $ - $ - $ - $ - $ 4,799 $ 686 $ 4,431
Specialty Operations....... - - - - - 1,001 245 951
CNA Re..................... - - - - - 1,176 161 707
Global Operations.......... - - - - - 1,010 132 585
Risk Management............ - - - - - 801 154 909
Group Operations........... - - - - - 3,571 130 3,177
Life Operations............ - - - - - 936 556 871
Corporate.................. - - - - - 35 47 127
Eliminations............... - - - - - (47) - (41)
Consolidated Operations.... 2,436 27,356 5,996 5,103 710 - - -
---------------------------------------------------------------------------------------
$ 2,436 $27,356 $ 5,996 $ 5,103 $ 710 $13,282 $ 2,101 $11,717
=======================================================================================
December 31, 1998
Agency Market Operations...$ - $ - $ - $ - $ - $ 5,247 $ 744 $ 3,871
Specialty Operations....... - - - - - 1,092 245 1,011
CNA Re..................... - - - - - 944 163 670
Global Operations.......... - - - - - 941 110 490
Risk Management............ - - - - - 823 144 893
Group Operations........... - - - - - 3,733 133 3,375
Life Operations............ - - - - - 823 525 855
Corporate.................. - - - - - (26) 82 103
Eliminations............... - - - - - (41) - -
Consolidated Operations.... 2,422 29,154 5,352 5,039 855 - - -
---------------------------------------------------------------------------------------
$ 2,422 $29,154 $ 5,352 $ 5,039 $ 855 $13,536 $ 2,146 $11,268
=======================================================================================
December 31, 1997
Agency Market Operations...$ - $ - $ - $ - $ - $ 5,092 $ 787 $ 4,277
Specialty Operations....... - - - - - 1,251 268 1,092
CNA Re..................... - - - - - 898 153 694
Global Operations.......... - - - - - 854 117 594
Risk Management............ - - - - - 776 158 567
Group Operations........... - - - - - 3,936 117 3,272
Life Operations............ - - - - - 797 501 838
Corporate.................. - - - - - 20 108 59
Eliminations............... - - - - - - - (22)
Consolidated Operations.... 2,142 29,520 4,782 4,700 789 - - -
---------------------------------------------------------------------------------------
$ 2,142 $29,520 $ 4,782 $ 4,700 $ 789 $13,624 $ 2,209 $11,371
=======================================================================================
*Premiums written relates to property/casualty companies only.
23
SCHEDULE III CONTINUED
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- -----------------------------------------------------------
INSURANCE AMORTIZATION
CLAIMS AND OF DEFERRED OTHER
POLICYHOLDERS' ACQUISITION OPERATING PREMIUMS
BENEFITS COSTS EXPENSES WRITTEN*
- -----------------------------------------------------------
$ 4,339 $ 1,182 $ 347 $ 3,667
907 187 102 948
998 290 76 1,275
578 231 315 1,080
755 71 417 839
3,053 2 697 804
1,122 180 94 337
196 - 226 37
(48) - (188) -
- - - -
- ------------------------------------------------------
$ 11,900 $ 2,143 $ 2,086 $ 8,987
======================================================
$ 4,436 $ 1,239 $ 427 $ 5,461
949 175 171 1,023
707 252 57 908
589 224 247 985
765 98 378 889
3,171 5 758 1,008
997 178 104 295
274 9 166 -
(41) - 13 -
- - - -
- ----------------------------------------------------
$ 11,847 $ 2,180 $ 2,321 $10,569
====================================================
$ 3,871 $ 1,242 $ 384 $ 5,085
1,011 247 149 1,267
670 247 79 1,091
490 173 221 812
785 101 304 706
3,408 - 680 963
949 120 147 247
211 8 149 15
- - (13) -
- - - -
- ----------------------------------------------------
$ 11,395 $ 2,138 $ 2,100 $10,186
====================================================
SCHEDULE IV
CNA FINANCIAL CORPORATION
REINSURANCE
Assumed/
Year Ended December 31 Direct Assumed Ceded Net Net %
- -------------------------------------------------------------------------------
(In millions of dollars)
1999 earned premiums:
Property/casualty $ 9,158 $ 1,816 $ 2,199 $ 8,775 20.7%
Accident and health 3,730 198 397 3,531 5.6
Life 1,174 222 420 976 22.7
- -------------------------------------------------------------------------------
Total 1999 earned premiums $14,062 $ 2,236 $ 3,016 $13,282 16.8%
===============================================================================
1998 earned premiums:
Property/casualty $ 8,327 $ 1,549 $ 897 $ 8,979 17.3%
Accident and health 3,745 176 256 3,665 4.8
Life 1,014 159 281 892 17.8
- -------------------------------------------------------------------------------
Total 1998 earned premiums $13,086 $ 1,884 $ 1,434 $13,536 13.9%
===============================================================================
1997 earned premiums:
Property/casualty $ 8,528 $ 1,101 $ 612 $ 9,017 12.2%
Accident and health 3,723 259 280 3,702 7.0
Life 908 128 131 905 14.1
- -------------------------------------------------------------------------------
Total 1997 earned premiums $13,159 $ 1,488 $ 1,023 $13,624 10.9%
===============================================================================
SCHEDULE V
CNA FINANCIAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------------------------------------------
BALANCE BALANCE
AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
(In millions of dollars) OF PERIOD EXPENSES AMOUNTS DEDUCTIONS PERIOD
- ----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
Deducted from assets:
Allowance for doubtful accounts:
Receivables.....................$ 328 $ (6) $ -- $ 12 $ 310
===== ====== ====== ===== =====
YEAR ENDED DECEMBER 31, 1998
Deducted from assets:
Allowance for doubtful accounts:
Receivables......................$ 303 $ 35 $ -- $ 10 $ 328
===== ====== ====== ===== =====
YEAR ENDED DECEMBER 31, 1997
Deducted from assets:
Allowance for doubtful accounts:
Receivables......................$ 277 $ 30 $ -- $ 4 $ 303
===== ====== ====== ===== =====
- ----------------------------------------------------------------------------------------------
24
SCHEDULE VI
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED PROPERTY/
CASUALTY ENTITIES
--------------------------
AS OF AND FOR THE YEAR ENDED DECEMBER 31 1999 1998 1997
(In millions of dollars)
- ---------------------------------------------------------------------------------------------------------
Deferred acquisition costs................................................... $ 1,126 $ 1,279 $ 1,162
Reserves for unpaid claims and claim adjustment expenses..................... 26,631 28,317 28,533
Discount deducted from claim and claim adjustment expense reserves above
(based on interest rates ranging from 3.5% to 7.5%).......................... 2,376 2,380 2,409
Unearned premiums............................................................ 5,103 5,039 4,700
Earned premiums.............................................................. 9,901 10,079 9,927
Net investment income........................................................ 1,648 1,731 1,790
Incurred claim and claim adjustment expenses related to current year......... 7,287 7,903 7,942
Incurred claim and claim adjustment expenses related to prior years.......... 1,027 263 (256)
Amortization of deferred acquisition costs................................... 2,004 2,042 2,017
Paid claim and claim expenses................................................ 9,964 8,745 8,376
Net premiums written......................................................... 8,987 10,569 10,186
- ---------------------------------------------------------------------------------------------------------
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
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, 1999 and 1998, and for each of the three years in the period ended December
31, 1999 and have issued our report thereon dated February 23, 2000, which
report includes an explanatory paragraph as to certain accounting changes; such
consolidated financial statements and report are included in the Company's 1999
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.
Deloitte & Touche LLP
Chicago, Illinois
February 23, 2000
26
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 /S/Laurence A. Tisch
----------------------------
Laurence A. Tisch
Chief Executive Officer
(Principal Executive Officer)
By /S/Robert V. Deutsch
----------------------------
Robert V. Deutsch
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Date: March 29, 2000
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 |
- ------------------------------------ |
Dennis H. Chookaszian |
|
|
/S/Ronald L. Gallatin Director | Dated
- ------------------------------------ |
Ronald L. Gallatin | March 29, 2000
|
|
/S/Robert P. Gwinn Director |
- ------------------------------------ |
Robert P. Gwinn |
|
|
/S/Bernard L. Hengesbaugh Director |
- ------------------------------------ |
Bernard L. Hengesbaugh |
27
SIGNATURES--(continued)
SIGNATURE TITLE |
|
/S/Walter F. Mondale Director |
- ------------------------------------ |
Walter F. Mondale |
|
|
/S/Edward J. Noha Chairman of the Board |
- ------------------------------------ |
Edward J. Noha and Director |
|
|
/S/Joseph Rosenberg Director |
- ------------------------------------ |
Joseph Rosenberg |
|
|
/S/James S. Tisch Director | Dated
- ------------------------------------ |
James S. Tisch | March 29, 2000
|
|
/S/Laurence A. Tisch Chief Executive Officer |
- ------------------------------------ |
Laurence A. Tisch and Director |
|
|
/S/Preston R. Tisch Director |
- ------------------------------------ |
Preston R. Tisch |
|
|
/S/Marvin Zonis Director |
- ------------------------------------ |
Marvin Zonis |
28
EXHIBIT 12.1
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1999 1998 1997 1996 1995
(In millions of dollars, except ratios)
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before income tax, net of minority interest.....$ (41) $ 329 $1,358 $ 1,345 $ 1,042
Adjustments:
Interest expense........................................... 202 219 198 200 182
Interest element of operating lease rental................. 35 47 34 32 47
------- ------- ------ ------- -------
Earnings before fixed charges.................................$ 196 $ 595 $1,590 $ 1,577 $ 1,271
======= ======= ====== ======= =======
Fixed charges:
Interest expense...........................................$ 202 $ 219 $ 198 $ 200 $ 182
Interest element of operating lease rental................. 35 47 34 32 47
------- ------- ------ ------- -------
Total fixed charges...........................................$ 237 $ 266 $ 232 $ 232 $ 229
======= ======= ====== ======= =======
Ratio of earnings to fixed charges (1)........................ 0.8 2.2 6.8 6.8 5.6
- ----------------------------------------------------------------------------------------------------------------
(1) For purposes of computing this ratio, earnings consist of income before
income taxes 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.
29
EXHIBIT 21.1
PRIMARY SUBSIDIARIES OF CNAF
PLACE OF
COMPANY INCORPORATION
- ------- -------------
American Casualty Company of Reading, Pennsylvania Pennsylvania
CNA Casualty of California California
CNA Reinsurance Company, Ltd. United Kingdom
CNA Surety Corporation Delaware
Columbia Casualty Company Illinois
Convida, Inc. Bahamas
Continental Assurance Company Illinois
Continental Casualty Company Illinois
Continental Insurance Company of New Jersey New Jersey
Firemen's Insurance Company of Newark, New Jersey New Jersey
First Insurance Company of Hawaii Hawaii
National Fire Insurance Company of Hartford Connecticut
National-Ben Franklin Insurance Company of Illinois Illinois
Pacific Insurance Company California
RSKCo Claims Services, Inc. Illinois
The Buckeye Union Insurance Company Ohio
The Continental Insurance Company New Hampshire
The Fidelity and Casualty Company of New York New Hampshire
Transcontinental Insurance Company New York
30
EXHIBIT 21.1 -
(continued)
PRIMARY SUBSIDIARIES OF CNAF--(continued)
PLACE OF
COMPANY INCORPORATION
- ------- ------------
Transportation Insurance Company Illinois
Valley Forge Insurance Company Pennsylvania
Valley Forge Life Insurance Company Pennsylvania
Western National Warranty Corporation Arizona
All other subsidiaries, when aggregated, are not considered significant.
31
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-69741 and 333-84447 of CNA Financial Corporation and subsidiaries on Forms
S-3 and S-8, respectively, of our reports dated February 23, 2000, appearing in
and incorporated by reference in the Annual Report on the Form 10-K of CNA
Financial Corporation and subsidiaries for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 29, 2000
32
CNA FINANCIAL CORPORATION
CNA PLAZA
CHICAGO, ILLINOIS 60685
G-123177-A (99)