Back to GetFilings.com
- -------------------------------------------------------------------------------
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, 1993 COMMISSION FILE NUMBER 1-5823
--------------------
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
------------------- ----------------
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:
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...
As of March 1, 1994, 61,797,856 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 million.
DOCUMENTS INCORPORATED
BY REFERENCE:
Portions of the CNA Financial Corporation 1993 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 1994 annual meeting of shareholders, pursuant to Regulation 14A, are
incorporated by reference into Part III of this Report.
===============================================================================
CNA FINANCIAL CORPORATION
FORM 10-K REPORT
FOR THE YEAR ENDED DECEMBER 31, 1993
Item Page
Number PART I Number
- ------ ------
1 Business ...................................................... 3
2 Properties .................................................... 17
3 Legal Proceedings.............................................. 17
4 Submission of Matters to a Vote of Security Holders............ 17
PART II
5 Market for the Registrant's Common Stock and
Related Stockholder Matters.................................. 17
6 Selected Financial Data........................................ 17
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 17
8 Financial Statements and Supplementary Data.................... 17
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...................... 17
PART III
10 Directors and Executive Officers of the Registrant ............ 18
11 Executive Compensation ........................................ 18
12 Security Ownership of Certain Beneficial Owners and Management. 18
13 Certain Relationships and Related Transactions ................ 18
PART IV
14 Exhibits, Financial Statements, Schedules and Reports on 18
Form 8-K
2
PART I
ITEM 1. BUSINESS
CNA Financial Corporation and its consolidated subsidiaries (CNA)
constitute the ninth largest insurance company in the United States as measured
by 1992 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. CNA's property and casualty insurance
operations are conducted by CCC and its property and casualty insurance
affiliates, and its life insurance operations are conducted by CAC and its life
insurance affiliates. CNA's principal business conducted through its insurance
subsidiaries is insurance. 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.
COMPETITION
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 3,900 property/casualty insurance companies in the
United States, about 900 of which operate in all or most states. CCC
consolidated is ranked as the sixth largest property/casualty insurance
organization based on statutory net premiums written in 1992.
There are approximately 2,000 companies selling life insurance (including
health insurance and pension products) in the United States. CAC is ranked as
the seventeenth largest consolidated life insurance organization based on
statutory premium revenue in 1992.
DIVIDENDS BY INSURANCE SUBSIDIARIES
The payment of dividends to CNA by its insurance affiliates without prior
approval of the Illinois Insurance Department ("IID") is limited to formula
amounts determined in accordance with the accounting practices prescribed or
permitted by the IID. The current formula limits dividends, without approval of
the insurance commissioner, to the greater of 10% of prior year statutory
surplus or prior year statutory net income (excluding realized gains in excess
of 20% of the cumulative unrealized gains position). For 1994, approximately
$360 million in dividends could be paid to CNA by its insurance affiliates
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 of declaration and ten days prior to 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 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 regulation 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.
3
The trend for legislation and voter initiatives continues, particularly for
personal lines products, 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 which
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 generally a function of its 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 have
led to increased scrutiny of state regulated insurer solvency requirements by
the members of the U.S. Congress. Certain members of Congress have formally
introduced legislative initiatives that, if passed, would subject insurers to
federal solvency regulation. In response to this challenge the NAIC has
developed new industry minimum Risk-Based Capital (RBC) requirements,
established a formal state accreditation process designed to minimize the
diversity of approved statutory accounting and actuarial practices, and has
increased the annual statutory statement disclosure requirements.
RBC requirements are effective for life insurers in 1993 and for property
and casualty insurers in 1994. The RBC formulas were designed to identify an
insurer's minimum capital requirements based upon the inherent risks (e.g.,
asset default, credit and insurance) of its operations. In addition to the
minimum capital requirements, the RBC formula and related regulations identify
various levels of capital adequacy and corresponding action that the state
insurance departments should initiate. The highest such level of capital
adequacy above which insurance departments would take no action is defined as
the Company Action Level. As of December 31, 1993, CNA's life insurance
affiliates, Continental Assurance Company and Valley Forge Life Insurance
Company, had adjusted capital amounts in excess of NAIC Company Action Levels.
The new property/casualty RBC formula was adopted in December, 1993. Absent
significant changes in the industry experience components of the formula, CNA's
property/casualty domestic insurers have adjusted capital amounts in excess of
NAIC Company Action Levels.
In addition to the newly established minimum capital requirements, the NAIC
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. 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 three IRIS ratios with unusual values in 1993, four in 1992 and none
in 1991. The three 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 operat-
ing, the change in surplus, and both the one and two year reserve development
ratios. Catastrophe losses and reserve increases associated with potential
exposure to asbestos-related bodily injury cases recognized in 1992 triggered
all the unusual values generated in 1992. These same events were primarily
responsible for the unusual values for the two year overall operating and
development ratios in 1993. Additionally, lower interest rates in the capital
markets in 1993, coupled with the maintenance of a large short-term investment
portfolio, triggered the unusual value for the investment yield ratio.
CAC had two IRIS ratios with unusual values in 1993, net gain to total
income and change in net written premium. CAC had one unusual value for IRIS
ratios in 1992, net gain to total income, and none in 1991. 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 relates to decreases in the Separate Account annuity
products fund deposits.
4
Federal measures which may 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 has been widely publicized and debated over the past
year. Although legislative reforms could come as soon as 1994, the impact of
such reforms are as yet unknown. Among the options discussed has been a single
comprehensive health care program that would provide access for all Americans,
while attempting to reduce cost via enactment of various cost containment
measures and tort reforms. If implemented, such reforms may impact both
individual and group accident and health, workers' compensation, automobile
liability and medical malpractice lines of business currently underwritten by
CNA.
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. Several 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.
REINSURANCE
CNA's insurance subsidiaries assume and cede insurance with other insurers
and reinsurers and members of various reinsurance pools and associations. CNA
utilizes reinsurance arrangements to limit its maximum loss, to provide greater
diversification of risk and to minimize exposures on larger risks. 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. It had been the practice of insurers to account for the
portion of the risks which have been reinsured with other companies as though
they were risks for which the original insurer is not liable. In December 1992,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 113,"Accounting and Reporting for Reinsurance of
Short-duration and Long-duration Contracts." SFAS 113 sets forth new
requirements for accounting and reporting of reinsurance contracts. The
provisions of this Statement are effective in 1993 and did not impact CNA's
income or stockholders' equity as all material reinsurance arrangements are
prospective and provided for the transfer of risk.
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, CNA receives collateral primarily in the form
of bank letters of credit, securing a large portion of the recoverables.
Reinsurance recoverables on paid and unpaid claims were $2.9, $3.2, and $3.7
billion at year end 1993, 1992 and 1991, respectively. Of the $2.9 billion
recoverable at December 31, 1993, approximately $351 million was due from
unauthorized reinsurers. These balances were partially collateralized by letters
of credit; at December 31, 1993, such collateral totaled $155 million. Despite
best efforts to ensure collection of reinsurance recoverables, the long-tail
nature of many of these recoverables inevitably results in some credit risk. In
estimating CNA's allowance for doubtful accounts, reinsurance recoverables are
carefully analyzed.
CNA's largest recoverable at December 31, 1993 was $484 million due from
Lloyd's of London. The recoverable from Lloyd's of London is dispersed among
thousands of individual members who have unlimited liability, many of which are
Illinois authorized reinsurers. Although Lloyd's of London has recently reported
large underwriting losses, it continues to carry substantial reserves, including
$9 billion in premium trust funds, $6 billion in member trust funds and
policyholder surplus of $381 million. Accordingly, the credit risk associated
with these recoverable balances appears to be minimal. Premiums of $58 million
were ceded to Lloyd's of London in 1993.
5
EMPLOYEE RELATIONS
CNA has approximately 16,800 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, a savings plan, a disability program, a group life
program, and a group health care program.
BUSINESS SEGMENTS
Information as to CNA's business segments is set forth in Note L to the
consolidated financial statements, incorporated by reference in Item 8, herein.
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 product currently
being marketed is long-term disability. 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
adjustments to these assumptions may be implemented as necessary. CNA mitigates
the risk related to persistency by including 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. Investment portfolios
supporting interest sensitive products, including universal life and individual
annuities, are segregated from other investments and managed so as to minimize
the liquidity and interest rate risks.
Profitability in the life insurance business has decreased over the past two
years as a result of declining investment income, reflecting lower interest
rates and a large investment in short-term investments. Further, results
continue 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.
The Federal Government's initiative to control health care costs and provide
universal access to health care was presented in 1993. The impact of potential
health care reform cannot be determined at this time. Such reform may affect
both CNA's individual and group accident and health businesses. 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
The following table sets forth supplemental data for the life insurance business:
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1993 1992 1991 1990 1989
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL PREMIUMS
Life and annuities ..................................................... $ 312.1 $ 294.7 $ 287.9 $ 239.5 $ 235.6
Accident and health..................................................... 30.9 27.1 24.3 21.1 18.0
------- ------- ------- ------- -------
$ 343.0 $ 321.8 $ 312.2 $ 260.6 $ 253.6
======= ======= ====== ====== ======
GROUP PREMIUMS
Life.................................................................... $ 107.2 $ 100.7 $ 90.8 $ 82.6 $ 75.5
Accident and health (a)................................................. 1,983.0 1,957.5 1,887.0 1,713.3 1,647.8
Annuities .............................................................. 9.0 57.7 24.3 51.6 100.1
------- ------- ------- ------- -------
$2,099.2 $2,115.9 $2,002.1 $1,847.5 $1,823.4
======= ======= ======= ======= =======
NET INVESTMENT INCOME AND OTHER INCOME
Individual ............................................................. $ 154.2 $ 163.0 $ 162.5 $ 162.2 $ 156.8
Group................................................................... 142.8 156.6 185.4 188.8 183.3
------- ------- ------- ------- -------
$ 297.0 $ 319.6 $ 347.9 $ 351.0 $ 340.1
======= ======= ======= ======= =======
INCOME EXCLUDING REALIZED CAPITAL GAINS, BEFORE INCOME TAX
Individual.............................................................. $ 14.5 $ 22.5 $ 13.8 $ 15.3 $ 17.8
Group................................................................... 51.9 56.1 76.0 76.2 56.3
------- ------- ------- ------- -------
$ 66.4 $ 78.6 $ 89.8 $ 91.5 $ 74.1
======= ======= ======= ======= =======
GROSS LIFE INSURANCE IN FORCE
Individual (c).......................................................... $ 76,835 $ 75,569 $ 71,539 $ 68,095 $ 64,814
Group................................................................... 35,413 29,643 27,139 21,167 21,105
------- ------- ------- ------- -------
$112,248 $105,212 $ 98,678 $ 89,262 $ 85,919
======= ======= ======= ======= =======
OTHER DATA (b)
Statutory capital and surplus........................................... $1,022.0 $1,003.0 $ 968.4 $ 848.8 $ 786.4
Statutory capital and surplus-percent of total liabilities.............. 30.1% 33.4% 29.9% 26.4% 26.7%
Participating policyholders'-percent of gross life insurance in force... 1.1 1.2 1.6 1.5 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Group accident and health premiums include contracts involving U.S.
Government employees and their dependents amounting to approximately $1.7,
$1.6, $1.5, $1.3, and $1.3 billion in 1993, 1992, 1991, 1990 and 1989,
respectively.
(b) Other Data is determined on the basis of statutory accounting
principles and reflects capital contributions from Continental Casualty
Company of $100 million in 1990 and $130 million in 1989. Life insurance
subsidiaries have received, or will receive, reimbursement from CNA for
general management and administrative expenses and investment expenses in the
amounts of $25.6, $24.5, $25.7, $25.0, and $27.1 million in 1993, 1992, 1991,
1990 and 1989, 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 as
surplus.
(c) Lapse ratios as measured by surrenders and withdrawals as a percentage
of average ordinary life insurance in force were 9.7%, 8.6%, 10.4%, 11.4%, and
13.5%, in 1993, 1992, 1991, 1990, and 1989, respectively.
Annuities and Guaranteed Investment Contracts
- ---------------------------------------------
CAC writes the majority of its annuities and guaranteed investment
contracts ("GlC's") in a fixed or non-variable Separate Account, which is
permitted by Illinois insurance statutes. This treatment 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 illustrates the matching in the duration of assets and
liabilities for the GIC portfolio, the investment yield, the weighted average
interest crediting rates and withdrawal characteristics.
- ------------------------------------------------------------------------------------------------------------------------------
December 31 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
Duration in years:
Assets ............................................................................. 2.68 3.04 2.85 3.36
Liabilities......................................................................... 2.73 2.69 2.54 2.89
---- ---- ---- ----
Mismatch ........................................................................... (.05) 0.35 0.31 0.47
==== ==== ==== ====
Weighted average investment yield..................................................... 7.11% 8.05% 9.38% 9.73%
Weighted average interest crediting rates............................................. 7.74% 8.32% 8.84% 9.26%
Withdrawal characteristics:
With market value adjustment......................................................... 81% 83% 85% 85%
Non-withdrawable..................................................................... 13 12 11 12
Without market value adjustment...................................................... 6 5 4 3
- ------------------------------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100%
==============================================================================================================================
As shown above, the investment yields at December 31, 1993 and 1992 were
less than the average crediting rates. However, this occurred because of
security sales resulting in realized capital gains. Although the sales
proceeds were invested at lower yields, the asset base was increased. At
December 31, 1993 and 1992, the GIC estimated market value of assets exceeded
the estimated market value of contract liabilities and expenses.
PROPERTY/CASUALTY BUSINESS
CNA's property/casualty operations market commercial and personal lines of
property/casualty insurance through independent agents and brokers.
CCC and its property/casualty insurance subsidiaries write primarily
commercial lines coverages. Customers include large national corporations,
small 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 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 risk to the insurer.
Approximately 40% of CNA's property/casualty insurance is written on an
experience-rated basis.
CNA also provides loss control, policy administration and claim adminis-
tration services under service contracts for fees. Such services are provided
primarily in the workers' compensation market where retention of risk 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 profes-
sionals; directors and officers liability; and other specialized coverages.
CNA also assumes commercial risks from other insurers. CNA's primary lines are
workers' compensation, general liability and professional and specialty cover-
ages, which accounted for 29%, 18% and 13%, respectively, of 1993 premiums
earned, including premiums for involuntary risks. Premiums for involuntary
risks result from mandatory participation in residual markets. 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 generally a function of its share of the
voluntary market by line of insurance in each state.
CNA also markets personal lines of insurance, primarily automobile and
homeowners coverages sold to individuals under monoline and package policies.
8
PROPERTY/CASUALTY BUSINESS --(CONTINUED)
The following table sets forth supplemental data for the property/casualty
business:
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1993 1992 1991 1990 1989
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PREMIUMS EARNED
Workers' compensation................................... $ 1,501.5 $ 1,669.2 $ 1,920.4 $ 1,803.8 $ 1,337.1
General liability ...................................... 1,154.5 1,176.0 1,292.6 1,250.7 1,201.4
Professional and specialty.............................. 798.9 741.5 763.9 786.3 779.0
Reinsurance and other .................................. 712.2 556.0 482.0 448.2 489.6
Accident and health .................................... 428.3 352.6 294.2 254.4 214.3
Multiple peril.......................................... 368.5 374.9 397.2 395.2 380.0
-------- -------- -------- -------- --------
$ 4,963.9 $ 4,870.2 $ 5,150.3 $ 4,938.6 $ 4,401.4
======== ======== ======== ======== ========
PERSONAL PREMIUMS EARNED
Personal lines packages ................................ $ 510.7 $ 447.3 $ 335.6 $ 225.2 $ 137.4
Monoline automobile and property coverages.............. 343.5 395.0 470.7 493.0 469.5
Accident and health .................................... 85.6 88.6 88.8 72.5 56.7
-------- -------- -------- ------- --------
$ 939.8 $ 930.9 $ 895.1 $ 790.7 $ 663.6
======== ======== ======== ======= ========
INVOLUNTARY RISKS PREMIUMS EARNED (A)
Workers' compensation ................................. $ 292.3 $ 451.4 $ 499.5 $ 448.4 $ 219.0
Commercial passenger................................... 50.3 44.9 66.6 48.1 41.2
Private passenger ..................................... 23.2 52.5 39.2 65.8 65.4
Property and multiple peril ........................... 5.5 3.7 4.6 5.0 5.1
-------- -------- -------- -------- --------
$ 371.3 $ 552.5 $ 609.9 $ 567.3 $ 330.7
======== ======== ======== ======== ========
NET INVESTMENT INCOME AND OTHER INCOME
Commercial............................................. $ 979.8 $ 1,087.3 $ 1,131.3 $ 1,059.0 $ 930.3
Personal............................................... 156.1 165.3 160.1 137.3 121.2
Involuntary risks...................................... 75.7 83.6 78.5 58.7 42.7
-------- -------- -------- -------- --------
$ 1,211.6 $ 1,336.2 $ 1,369.9 $ 1,255.0 $ 1,094.2
======== ======== ======== ======== ========
UNDERWRITING INCOME (LOSS)
Commercial............................................. $(1,535.6) $(2,505.9) $ (707.1) $ (664.4) $ (661.7)
Personal............................................... (99.7) (152.8) (172.1) (123.6) (127.1)
Involuntary risks ..................................... (156.5) (340.9) (345.5) (327.7) (209.1)
-------- -------- -------- -------- --------
$(1,791.8) $(2,999.6) $(1,224.7) $(1,115.7) $ (997.9)
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1993 1992 1991 1990 1989
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
TRADE RATIOS (B)
Loss ratio............................................. 96.8% 116.7% 88.1% 88.2% 88.7%
Expense ratio ......................................... 27.3 26.2 25.8 25.2 25.2
Combined ratio (before policyholder dividends) 124.1 142.9 113.9 113.4 113.9
Policyholder dividend ratio ........................... 2.3 1.9 2.4 2.2 2.2
TRADE RATIOS - STATUTORY BASIS (B)
Loss ratio............................................. 96.4% 116.3% 88.2% 88.3% 88.7%
Expense ratio ......................................... 27.1 25.6 25.6(*) 24.6 24.9
Combined ratio (before policyholder dividends) 123.5 141.9 113.8(*) 112.9 113.6
Policyholder dividend ratio ........................... 3.1 2.4 2.7 2.1 2.4
OTHER DATA - STATUTORY BASIS (C)
Capital and surplus ................................... $ 3,598.4 $ 3,135.8 $ 3,927.5 $ 3,146.9 $ 3,117.6
Written to surplus ratio............................... 1.7 2.0 1.7(*) 2.0 1.8
- -----------------------------------------------------------------------------------------------------------------------------------
(*) 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.
9
(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. 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 (with no deferral
of acquisition costs) to premiums written. The combined ratio is the sum of
the loss ratio and the expense ratio. The policyholder dividend ratio is the
ratio of dividends incurred to premiums earned.
(c) Other Data is determined on the basis of statutory accounting
principles and reflects capital contributions from CNA of $475 million in
1993, $120 million in 1990 and $200 million in 1989. In addition, dividends of
$150 million, $100 million, $130 million and $100 million were paid to CNA by
Continental Casualty Company in 1993, 1992, 1991 and 1989, 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
$167.5, $141.1, $133.8, $128.1, and $115.3 million in 1993, 1992, 1991, 1990
and 1989, respectively.
The following table displays the distribution of domestic written premium
by state:
- --------------------------------------------------------
WRITTEN PREMIUM BY STATE % OF TOTAL
-------------
YEAR ENDED DECEMBER 31 1993 1992
- --------------------------------------------------------
California.............................. 12.1 11.8
New York................................ 8.4 8.0
Texas................................... 6.2 5.7
Pennsylvania............................ 5.9 6.1
Illinois................................ 5.1 5.1
Florida................................. 4.1 3.3
New Jersey.............................. 3.3 3.1
All other states (a).................... 43.1 41.5
Reinsurance assumed:
Voluntary ........................... 6.9 7.9
Involuntary ......................... 4.9 7.5
----- -----
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.
In recent years, CNA's growth and earnings have been impacted by a
prolonged cycle of inadequate commercial lines pricing, particularly in the
workers' compensation market. CNA has intensified efforts in the political
sphere on behalf of a more predictable and equitable insurance marketing
climate. CNA has taken a leadership role in seeking workers' compensation
reform in several states. Among CNA's marketing strategies during this
difficult time 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 the
costs of doing business, including costs of health care, fraud and tort
liability. Programs include managed health care programs and formation of a
department devoted exclusively to fighting fraud.
Workers' compensation has been a difficult line of business during the
past several years. Despite rapidly escalating loss costs, state regulators
have been unwilling to allow premium rate increases sufficient for insurers to
earn a profit. Unlike other insurance carriers, CNA has remained in this
market in most states. It continues to believe that workers' compensation is a
critical product to its customers, and with its proven expertise in this line,
that there is a profit potential over the long term.
10
During this current industry downcycle, CNA has restricted its exposure to
workers' compensation and has taken other steps to mitigate the underwriting
losses in workers' compensation. These steps include increasing conservatism of
underwriting standards, continuing migration of guaranteed cost policies to
experience-rated contracts, and as mentioned previously, aggressive cost con-
tainment programs geared to reduce the frequency and severity of claims. During
1993, 65% of workers' compensation insurance was written on an experience-rated
basis. As a result of these steps, the past two years' experience has been
encouraging as accident year loss ratios have improved slightly. After
factoring in the investment income related to projected cash flows, this line
of business produced a positive economic return in the 1992 and 1993 accident
years. CNA believes that further improvement in workers' compensation results
will occur as its many efforts toward this objective continue.
The state of California is CNA's largest market, accounting for 12% of its
premium volume in 1993. Workers' compensation is the largest line of business
in California accounting for approximately 40% of premiums written in 1993. As
noted in the discussion of countrywide strategies for workers' compensation,
approximately 87% of California's workers' compensation business was written
via loss sensitive contracts. Profitability trends are slightly more favorable
in this state than countrywide primarily as a result of recently enacted major
workers' compensation reform legislation which included improved benefit
provisions and open premium rating. As a result, favorable profitability trends
in workers' compensation are expected to continue. Other major lines of busi-
ness in California, including commercial multiple peril, commercial automobile
and general liability, are producing less favorable results than countrywide.
CNA is aggressively seeking adequate premium rates for these lines within the
confines of the current regulatory constraints.
PROPERTY/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 (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 assumed insurance, (d) estimates of future expenses to be
incurred in settlement of claims and (e) estimates of claim recoveries. Loss
reserve calculations are based on quantitative techniques which utilize
historical trends to project future payments. Other factors, including mix of
business, the anticipated effects of inflation, and other current conditions
and trends, are implicit in the estimation process. The schedule on page 9
provides information on mix of business.
Structured settlements have been negotiated for certain liability claims
under commercial automobile, personal automobile, workers' compensation,
professional liability and other liability coverages. 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 settle-
ments are funded by annuities purchased from Continental Assurance Company, an
affiliate. 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 cost of annuity
purchases. Such reserves, discounted at interest rates ranging from 6.25% to
7.5%, totaled $749 million, $663 million and $555 million at December 31,
1993, 1992 and 1991, respectively. Ultimate payouts under all existing con-
tracts at December 31, 1993 and 1992 will approximate $2.2 billion and $2.0
billion, respectively.
In 1992, CNA changed its accounting for 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 5.5% with mortality and morbidity assumptions reflecting current
industry experience. At December 31, 1993 and 1992, such discounted reserves
totaled $970 million and $911 million, respectively. Ultimate payouts for these
claims are estimated to be $1.4 billion and $1.3 billion at December 31, 1993
and 1992, respectively.
11
Claim and claim expense reserves are based on estimates and the ultimate
liability may vary significantly from such estimates. Any adjustments that are
made to the reserves are reflected in operating income in the year such
adjustments are made.
In 1993, CNA adopted Statement of Financial Accounting Standards 113, which
requires that balances pertaining to reinsurance transactions be reported
"gross" on the balance sheet rather than as reductions of reserves for claims
and claim expenses. As a result of this change in reporting, the reserve
balances reported in the financial statements prepared in accordance with
generally accepted accounting principles and those prepared under statutory
accounting practices differ by the amount of ceded reserves of $2.9 billion and
$2.5 billion at December 31, 1993 and 1992, respectively.
The retention limits of CNA's property/casualty business vary by type of
coverage and are based on individual risks underwritten. In general, retention
limits have been increased with the growth in underwriting capacity. There have
been no reinsurance transactions, such as portfolio reserve transfers or swaps
of reserves, that have had a material impact on net income.
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 reinterpret contracts beyond their original intent.
A summary of asbestos-related and environmental pollution claims and claims
expense activity follows:
- --------------------------------------------------------------------------------------
CLAIMS AND CLAIMS EXPENSE
---------------------------------------------------
RESERVES, NET OF
REINSURANCE PAYMENTS
DECEMBER 31 YEAR ENDED DECEMBER 31
---------------- -----------------------
(In millions of dollars) 1993 1992 1993 1992 1991
- --------------------------------------------------------------------------------------
Asbestos-related................. $2,080 $1,683 $204 $112 $39
Environmental pollution.......... 433 59 72 38 49
----- ----- --- --- --
Total........................ $2,513 $1,742 $276 $150 $88
======================================================================================
A major portion of CNA's asbestos-related claim exposure involves
litigation with Fibreboard Corporation, as discussed in Note J of Notes to
Consolidated Financial Statements. Adverse reserve developments for
asbestos-related claims totaled $601 million, $1.689 billion, and $48 million
in 1993, 1992 and 1991, 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.
Reserve development for environmental claims totaled $446, $48, and $47
million in 1993, 1992 and 1991, respectively, including litigation costs of
$28, $25 and $21 million. Adverse development for 1993 primarily resulted from
the allocation of approximately $340 million of reserves for unreported
claims. The results of operations in future years may continue to be adversely
affected by environmental pollution claims and claim expenses. Management will
continue to monitor potential liabilities and make further adjustments as
warranted. See Note J to the Consolidated Financial Statements.
12
Reserve Development
- -------------------
The table below provides a reconciliation between beginning and ending
claim and claim expense reserve balances for 1993, 1992 and 1991. In 1992,
beginning and ending reserve balances were restated to retroactively reflect
the accounting change for discounting discussed previously. Not included in
the table below is premium development related to certain insurance policies
subject to retroactive premium adjustments, 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 $(127), $50
and $(43) million in 1993, 1992 and 1991, respectively.
- -------------------------------------------------------------------------------------------------------
CHANGES IN RESERVES FOR PROPERTY/CASUALTY
CLAIMS AND CLAIM EXPENSES
YEAR ENDED DECEMBER 31 1993 1992 1991
(In millions of dollars)
- -------------------------------------------------------------------------------------------------------
Reserves at beginning of year:
Gross............................................................... $20,034 $17,712 $16,530
Ceded reinsurance................................................... 2,867 3,297 3,440
------ ------ ------
Net................................................................. 17,167 14,415 13,090
------ ------ ------
Net incurred claims and claim expenses:
Provision for insured events of current year........................ 5,388 5,708 5,811
Increase (decrease) in provision for insured events of prior years.. 590 1,617 (106)
Amortization of discounts........................................... 94 104 89
------ ------ ------
Total net incurred ............................................... 6,072 7,429 5,794
------ ------ ------
Net payments:
Attributable to current year events................................. 1,202 1,260 1,177
Attributable to prior year events................................... 3,706 3,411 3,285
Amortization of discounts........................................... 10 6 7
------ ------ ------
Total net payments ............................................... 4,918 4,677 4,469
------ ------ ------
Net reserves at end of year ......................................... 18,321 17,167 14,415
====== ====== ======
Gross reserves at beginning of year ................................. 20,034 17,712 16,530
------ ------ ------
Gross incurred claims and claim expenses:
Provision for insured events of current year ....................... 5,817 6,382 6,320
Increase (decrease) in provision for insured events of prior years.. 305 1,487 (174)
Amortization of discounts........................................... 94 104 89
------ ------ ------
Total gross incurred ............................................. 6,216 7,973 6,235
------ ------ ------
Gross payments:
Attributable to current year events................................. 1,278 1,348 1,245
Attributable to prior year events................................... 4,150 4,297 3,801
Amortization of discounts........................................... 10 6 7
------ ------ ------
Total gross payments ............................................. 5,438 5,651 5,053
------ ------ ------
- -------------------------------------------------------------------------------------------------------
Gross reserves at end of year $20,812 $20,034 $17,712
=======================================================================================================
13
The following table displays the development of financial statement claim
and claim expense reserves for 1983 through 1993. In this table, development
of reserves is included in each calendar year between the date of loss and the
date of reestimation. Therefore, the deficiencies of the original estimates of
required reserves that are reflected are cumulative and should not be summed.
All reserve data has been restated to retroactively reflect the accounting
change for discounting discussed previously.
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF PROPERTY/CASUALTY
LOSS RESERVE DEVELOPMENT
CALENDAR YEAR ENDED 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Gross reserves for unpaid claim
and claim expenses.................. $ - $ - $ - $ - $ - $ - $ - $16,530 $17,712 $20,034 $20,812
Ceded recoverable.................... - - - - - - - 3,440 3,297 2,867 2,491
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net reserves for unpaid claim
and claim expenses.................. 3,309 3,931 4,873 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET PAID (CUMULATIVE) AS OF:
One year later ...................... 1,074 1,330 1,594 1,335 1,763 2,040 2,670 3,285 3,411 3,706 -
Two years later...................... 1,624 1,936 2,932 2,383 2,961 3,622 4,724 5,623 6,024 - -
Three years later.................... 2,066 2,493 3,022 3,197 4,031 4,977 6,294 7,490 - - -
Four years later .................... 2,469 2,963 3,642 3,963 5,007 6,078 7,534 - - - -
Five years later .................... 2,759 3,407 4,175 4,736 5,801 6,960 - - - - -
Six years later...................... 3,084 3,766 4,735 5,339 6,476 - - - - - -
Seven years later.................... 3,330 4,156 5,233 5,880 - - - - - - -
Eight years later.................... 3,625 4,512 5,668 - - - - - - - -
Nine years later .................... 3,914 4,901 - - - - - - - - -
Ten years later...................... 4,243 - - - - - - - - - -
Net Reserves Reestimated as of:
End of initial year.................. 3,309 3,931 4,873 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321
One year later ...................... 3,367 3,985 5,047 6,642 8,086 9,737 11,336 12,984 16,032 17,757 -
Two years later...................... 3,477 4,122 5,573 6,763 8,345 9,781 11,371 14,693 16,810 - -
Three years later.................... 3,599 4,659 5,788 6,989 8,424 9,796 13,098 15,737 - - -
Four years later .................... 3,981 4,855 6,170 7,166 8,516 11,471 14,118 - - - -
Five years later .................... 4,127 5,171 6,422 7,314 10,196 12,496 - - - - -
Six years later...................... 4,359 5,395 6,566 9,022 11,239 - - - - - -
Seven years later.................... 4,534 5,486 8,317 10,070 - - - - - - -
Eight years later.................... 4,629 7,215 9,365 - - - - - - - -
Nine years later .................... 6,351 8,270 - - - - - - - - -
Ten years later...................... 7,362 - - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total net deficiency............... (4,053) (4,339) (4,492) (3,827) (3,194) (2,944) (2,851) (2,647) (2,395) (590) -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF PROPERTY/CASUALTY
LOSS RESERVE DEVELOPMENT-CONTINUED
CALENDAR YEAR ENDED 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Reconciliation to Gross Reestimated
Reserves:
Net reserves reestimated............. 15,737 16,810 17,757 -
Reestimated ceded recoverable........ 3,221 3,060 2,582 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total gross reestimated reserves 18,958 19,870 20,339 -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Deficiency Related to:
Asbestos-related claims.............. (2,608) (2,606) (2,640) (2,682) (2,635) (2,577) (2,476) (2,338) (2,290) (601) -
Environmental........................ (595) (601) (599) (597) (582) (577) (550) (539) (493) (446) -
Other................................ (850) (1,132) (1,253) (548) 23 210 175 230 388 457 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total net deficiency............... (4,053) (4,339) (4,492) (3,827) (3,194) (2,944) (2,851) (2,647) (2,395) (590) -
- -----------------------------------------------------------------------------------------------------------------------------------
As the above table illustrates, most of the unfavorable reserve
development is due to asbestos claims. A discussion of CNA's litigation with
Fibreboard Corporation regarding asbestos-related bodily injury claims can be
found in Note J of the Consolidated Financial Statements in the Annual Report
to Shareholders.
In addition to the asbestos and environmental reserve developments noted
on page 12, the unfavorable reserve developments relate primarily to accident
years 1986 and prior and are comprised of the following lines of business:
product liability, medical malpractice, other liability, professional
liability, reinsurance, and workers' compensation. In the early to mid-1980's,
frequency and severity trends exceeded expectations, resulting in reserve
deficiencies in 1986 and prior accident years. For accident years 1987 and
subsequent, frequency and severity trends have noticeably moderated. In
calendar year 1993, positive severity experience in professional liability
lines and improvement in involuntary workers' compensation experience resulted
in favorable development in accident years 1987 through 1992.
14
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, 1993, approximately 20% 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 income 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 income 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 payout patterns. Throughout 1992 and 1993, the level of
short-term investments has increased beyond that needed for short-term
liquidity. Though expected to result in a decline in investment income in the
near term, management believes that the increased concentration in short-term
investments will reduce the impact that a rise in interest rates would have on
its fixed income portfolio. At December 31, 1993, the major components of the
short-term investment portfolio were approximately $1.2 billion of U.S.
Treasury bills and $4.5 billion of high-grade commercial paper.
The following summarizes CNA's distribution of general account
investments:
- --------------------------------------------------------------------------------
DISTRIBUTION OF INVESTMENTS - GENERAL ACCOUNT
DECEMBER 31 1993* 1992 1991
(In millions of dollars)
- --------------------------------------------------------------------------------
Fixed maturities:
Tax-exempt bonds ........................ $ 5,015 $ 9,502 $ 8,998
Taxable bonds............................ 12,145 7,286 9,674
Redeemable preferred stocks.............. 448 568 103
Equity securities:
Common stocks............................ 508 348 230
Non-redeemable preferred stocks - 9 11
Mortgage loans ............................. 58 85 113
Policy loans ............................... 174 179 181
Short-term investments ..................... 6,944 4,444 2,511
Real estate and other invested assets....... 71 57 65
- --------------------------------------------------------------------------------
Total investments at carrying value $25,363 $22,478 $21,886
================================================================================
*Fixed maturity securities are reported at fair value in 1993.
As noted in Management's Discussion and Analysis of Financial Condition
and Results of Operations, in 1993 CNA began a program of realigning its
portfolio which resulted in realizing substantial gains. For the year ended
December 31, 1993, CNA's property and casualty insurance subsidiaries sold
approximately $35.4 billion of fixed income and equity securities realizing
pretax net gains of $741.3 million. Of the securities sold, approximately $5.8
billion was from the tax-exempt municipal bond portfolio. Most of the proceeds
from those sales have been invested in short-term securities, primarily U.S.
Treasury bills and high-grade commercial paper. In addition to reducing the
impact that a rise in interest rates would have on the fixed income portfolio,
the increase in taxable short-term securities and the decrease in tax-exempt
investments will allow the Company to minimize additional alternative minimum
tax credit carryforwards.
15
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).
- ------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GENERAL ACCOUNT
DECEMBER 31 1993 1992 1991
- ------------------------------------------------------------------
AAA...................................... 77% 73% 78%
AA ...................................... 8 10 10
A........................................ 7 10 7
BBB...................................... 5 3 2
Below BBB................................ 3 4 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" above). Approximately 86% or $5.6 billion of
Separate Account investments are used to fund GlC's; the remaining investments
are funding variable products. Approximately 97% of the GlC investment
portfolio is comprised of taxable fixed income securities. The quality of the
GIC fixed income portfolio is as follows (see Note):
- ------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GIC PORTFOLIO
DECEMBER 31 1993 1992 1991
- ------------------------------------------------------------------
AAA...................................... 44% 50% 50%
AA....................................... 6 9 9
A........................................ 18 18 16
BBB...................................... 13 10 10
Below BBB................................ 19 13 15
- ------------------------------------------------------------------
Total 100% 100% 100%
==================================================================
Note: The bond ratings shown in the two tables above are primarily from
Standard & Poor's (94% of the general account portfolio and 93% of the GIC
portfolio in 1993). In the case of private placements and other unrated
securities, comparable internal ratings are developed by CNA. These ratings
are derived by management using 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 of unrated municipal
bonds, a 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, as illustrated above. In 1993, the level of
high yield investments within the GIC portfolio increased $261 million to
$1.068 billion at year end. This increase is a result of the relative
attractiveness of the high yield 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 91% of
the high yield portfolio at December 31, 1993, compared to 82% at the end of
1992. 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.
Included in CNA's 1993 AAA-rated fixed income securities (general and GIC
portfolios) are $4.4 billion of asset-backed securities, consisting of
approximately 47% in collateralized mortgage obligations ("CMO's"), 47% in
U.S. Government agency issued pass-through certificates, and 6% in corporate
asset-backed obligations. The majority of CMO's held are U.S. Government
agency issues, are actively traded in liquid markets and are priced monthly by
broker-dealers. At December 31, 1993, market value exceeded amortized cost by
approximately $87 million. CNA limits the risks associated with interest rate
fluctuations and prepayment by concentrating its CMO investments in early
planned amortization classes with wide bands and relatively short principal
repayment windows.
16
ITEM 2. PROPERTIES
A. HOME OFFICE
CNA Plaza, owned by Continental Assurance Company, is a 1,097,000 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. CNA Plaza and the adjacent building (a 454,000 square
foot building located at 55 E. Jackson Blvd.) are partially situated on
grounds under leases expiring in 2058 and 2067. Approximately 35% of the
adjacent building is rented to non-affiliates.
B. FIELD OFFICES
CNA also maintains four regional offices and forty branch offices in major
cities throughout the United States. This office space is leased except for
offices located in four CNA owned buildings.
ITEM 3. LEGAL PROCEEDINGS
Incorporated herein by reference from Note J of the Notes to the
Consolidated Financial Statements in the 1993 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 55 of the 1993 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from page 2 of the 1993 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 21 of the 1993
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheet - December 31, 1993 and 1992
Statement of Consolidated Operations -
Year Ended December 31, 1993, 1992 and 1991
Statement of Consolidated Stockholders' Equity -
Year Ended December 31, 1993, 1992 and 1991
Statement of Consolidated Cash Flows -
Year Ended December 31, 1993, 1992 and 1991
Notes to the 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 22 through 54 of the 1993 Annual
Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
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 l4A 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. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES 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........................... 17
(a) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule I Summary of Investments..................... 21
Schedule III Condensed Financial Information (Parent
Company)................................... 22
Schedule V Supplemental Insurance Information......... 25
Schedule VI Reinsurance ............................... 26
Schedule VIII Valuation and Qualifying Accounts and
Reserves................................... 26
Schedule IX Short-term Borrowings ..................... 27
Schedule X Supplemental Information Concerning
Property/Casualty Insurance Operations..... 27
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
Page
(a) 2. FINANCIAL STATEMENT SCHEDULES (CONTINUED): Number
------
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
18
(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 6, 1987 (Exhibit 3.1
to 1987 Form 10-K incorporated herein by reference.). 3.1
By-Laws of CNA Financial Corporation, as amended
November 3, 1993 .................................... 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:
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.)................... 10.1
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.)............................... 10.2
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.)............. 10.3
CNA Employees' Retirement Benefit Equalization Plan,
as amended through January 1, 1993 (Exhibit 10.4 to
1992 Form 10-K incorporated herein by reference.).... 10.4
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
(a) 3. EXHIBITS (CONTINUED):
Exhibit
Description of Exhibit Number
---------------------- -------
CNA Employees' Long Term Award Program
(Exhibit 10.5 to 1990 Form 10-K incorporated herein
by reference.) The plan was terminated effective
December 31, 1993................................... 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
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
19
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............. 10.11*
Glossary of Terms in Global Settlement Agreement,
Trust Agreement, Trust Distribution Process and
Defendant Class Settlement Agreement as of
December 23, 1993.................................... 10.12*
Fibreboard Asbestos Corporation Trust Agreement dated
December 23, 1993.................................... 10.13*
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
(a) 3. EXHIBITS (CONTINUED):
Exhibit
Description of Exhibit Number
---------------------- -------
Trust Distribution Process - Annex A to the Trust
Agreement as of December 23, 1993.................... 10.14*
Defendant Class Settlement Agreement dated
December 22, 1993.................................... 10.15*
Escrow Agreement among Continental Casualty Company,
Pacific Indemnity Company and The First National
Bank of Chicago dated December 23, 1993.............. 10.16*
(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) 1993 Annual Report................................... 13.1*
(21) Subsidiaries of CNA.................................. 21.1*
(23) Consent of Deloitte & Touche......................... 23.1*
(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 1993
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 November 3, 1993, CNA
issued a press release that disclosed third quarter
operating results and noted the addition of
$500 million to Continental Casualty Company's loss
reserves for asbestos-related bodily injury claims.
20
SCHEDULE I
CNA FINANCIAL CORPORATION
SUMMARY OF INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1993 1992
------------------------------------- --------------------------------------
MARKET CARRYING MARKET CARRYING
(In thousands of dollars) COST VALUE VALUE COST VALUE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Fixed maturities available for sale:
Bonds:
United States Government and
government agencies and
authorities-taxable ..................... $ 8,551,503 $ 8,688,293 $ 8,688,293 $ 4,845,180 $ 4,944,095 $ 4,845,180
States, municipalities and political
subdivisions-tax exempt.................. 4,724,041 5,014,841 5,014,841 9,506,971 10,162,427 9,501,741
Foreign governments and political
subdivisions............................. 420,948 423,356 423,356 324,864 325,543 324,864
Public utilities ......................... 235,366 256,502 256,502 259,929 268,691 259,929
Convertibles and bonds with warrants
attached................................. 188,583 193,943 193,943 184,407 187,682 184,407
All other corporate....................... 2,461,688 2,582,716 2,582,716 1,737,491 1,741,534 1,671,861
Redeemable preferred stocks................. 444,606 447,984 447,984 567,556 571,371 567,556
---------- ---------- ---------- ---------- ---------- ----------
Total fixed maturities available for sale 17,026,735 17,607,635 17,607,635 17,426,398 18,201,343 17,355,538
---------- ========== ---------- ----------- ========== ----------
Equity securities available for sale:
Common stocks:
Public utilities ......................... 21,634 21,810 21,810 11,712 12,474 12,474
Banks, trusts, and insurance companies.... 57,784 56,695 56,695 11,754 14,783 14,783
Industrial and other ..................... 353,320 429,744 429,744 282,309 320,030 320,030
Nonredeemable preferred stocks.............. - - - 4,761 9,349 9,349
---------- ---------- ---------- ---------- ---------- ----------
Total equity securities.................. 432,738 $ 508,249 508,249 310,536 $ 356,636 356,636
---------- ========== ---------- ---------- ========== ----------
Mortgage loans............................... 57,641 57,641 86,933 84,708
---------- ---------- ---------- ----------
Real estate:
Investment properties....................... 7,319 3,831 8,070 4,256
Acquired in satisfaction of debt............ 176 132 176 139
---------- ---------- ---------- ----------
Total real estate ....................... 7,495 3,963 8,246 4,395
---------- ---------- ---------- ----------
Policy loans................................. 174,006 174,006 178,611 178,611
Other invested assets ....................... 69,145 67,891 55,898 54,294
Short-term investments....................... 6,943,976 6,943,976 4,444,166 4,444,166
- --------------------------------------------------------------------------------------------------------------------------------
Total investments $24,711,736 $25,363,361 $22,510,788 $22,478,348
================================================================================================================================
21
SCHEDULE III
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
FINANCIAL POSITION
- --------------------------------------------------------------------------------------------------
DECEMBER 31 1993 1992
(In thousands of dollars)
- --------------------------------------------------------------------------------------------------
Assets:
Investments in subsidiaries ................................. $5,409,945 $4,246,054
Federal income taxes recoverable............................. 29,244 71,470
Deferred income taxes ....................................... 974,645 1,010,988
Other ....................................................... 29,783 99,455
--------- ---------
Total assets ........................................... 6,443,617 5,427,967
--------- ---------
LIABILITIES:
Debt......................................................... 895,503 444,865
Amounts due to affiliates ................................... 136,904 157,104
Other ....................................................... 30,133 36,801
--------- ---------
Total liabilities....................................... 1,062,540 638,770
- --------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $5,381,077 $4,789,197
==================================================================================================
SCHEDULE III
(CONTINUED)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1993 1992 1991
(In thousands of dollars)
- --------------------------------------------------------------------------------------------------
REVENUES:
Equity in income of subsidiaries before income tax:
Operating income (loss) ............................. $(467,602) $(1,530,698) $307,845
Realized investment gains ........................... 790,320 342,069 441,155
Net investment income ................................. 1,714 2,462 6,231
Other ................................................. (3,493) 4,122 1,236
Realized investment gains ............................. 12,672 12,630 2,182
-------- ---------- -------
333,611 (1,169,415) 758,649
-------- ---------- -------
EXPENSES:
Administrative and general expenses ................... 198,863 169,488 163,250
Interest expense ...................................... 41,303 36,065 39,515
-------- ---------- -------
240,166 205,553 202,765
-------- ---------- -------
Income (loss) before income tax................... 93,445 (1,374,968) 555,884
Income tax benefit..................................... 174,078 712,524 56,628
-------- ---------- -------
Income (loss) before cumulative effect of
accounting changes....................... 267,523 (662,444) 612,512
Cumulative effect on prior years of accounting changes:
Income taxes......................................... - 133,000 -
Postretirement benefits other than pensions
(net of income tax benefit of $32,780)........... - (63,630) -
Discounting for certain workers' compensation and
disability claim reserves
(net of income tax expense of $135,218) ......... - 262,522 -
- --------------------------------------------------------------------------------------------------
Net income (loss) $ 267,523 $ (330,552) $612,512
==================================================================================================
See accompanying Notes to Condensed Financial Information.
22
SCHEDULE III
(CONTINUED)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
CASH FLOW
- -----------------------------------------------------------------------------------------------------
DECEMBER 31 1993 1992 1991
(In thousands of dollars)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................. $ 267,523 $(330,552) $612,512
------- --------- -------
Adjustments to reconcile net income to net cash
used in operating activities:
Cumulative effect of accounting changes - Parent ............. - 18,637 -
Equity in earnings of unconsolidated affiliates:
Cumulative effect of accounting changes ..................... - (350,529) -
Earnings before cumulative effect of accounting changes...... (349,517) 935,594 (705,104)
Revenues - realized gains (losses)............................ (12,672) (12,630) (2,182)
Amortization ................................................. (1) 12 82
Changes in:
Accrued investment income ................................... (65) 198 (58)
Federal income taxes......................................... 42,226 (78,678) 73,417
Deferred income taxes ....................................... (124,313) (293,370) (103,982)
Other, net................................................... (17,727) 22,071 4,592
------- --------- -------
Total adjustments ......................................... (462,069) 241,305 (733,235)
------- --------- -------
NET CASH USED IN OPERATING ACTIVITIES ..................... (194,546) (89,247) (120,723)
------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturities ................................. (999,273) (441,201) (116,315)
Proceeds from sale or maturity of fixed maturities............. 984,489 488,300 71,053
Change in short-term investments............................... 47,575 (50,287) 50,342
Change in other investments ................................... (4,169) 24,172 -
Capital contribution to Continental Casualty Company........... (475,000) - -
Other ......................................................... (10) (2) -
------- --------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........ (446,388) 20,982 5,080
------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred shareholders....................... (4,018) (4,733) (7,628)
Dividend from Continental Casualty Company..................... 150,000 100,000 130,000
Net decrease in short-term debt ............................... - - (399,423)
Proceeds from issuance of long-term debt....................... 494,933 - 395,784
Principal payments on long-term debt........................... - (27,000) (3,000)
Other ......................................................... - - (151)
------- --------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................. 640,915 68,267 115,582
------- --------- -------
NET INCREASE (DECREASE) IN CASH ........................... (19) 2 (61)
Cash at beginning of year ....................................... 19 17 78
- -----------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ - $ 19 $ 17
=====================================================================================================
Supplemental disclosures of cash flow information:
Cash received (paid):
Interest expense ............................................. $ (34,905) $ (35,370) $(30,780)
Federal income taxes ......................................... (54,224) 89,437 69,238
=====================================================================================================
See accompanying Notes to Condensed Financial Information.
23 SCHEDULE III
(CONTINUED)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION
a. DEBT:
--------------------------------------------------------------------------------------
DECEMBER 31 1993 1992
(In thousands of dollars)
--------------------------------------------------------------------------------------
Long-term debt:
8.625% Senior Notes, due March 1, 1996 ................... $249,003 $248,601
8.875% Senior Notes, due March 1, 1998 ................... 148,540 148,264
6.250% Senior Notes, due November 15, 2003 ............... 247,932 -
7.250% Debenture, due November 15, 2023................... 247,028 -
1.000% Urban Development Action Grant, due May 7, 2019.... 3,000 3,000
Due to subsidiaries:
Continental Casualty Company ............................. - 45,000
--------------------------------------------------------------------------------------
Total $895,503 $444,865
======================================================================================
In October 1993, a shelf registration statement was filed with the
Securities and Exchange Commission which made $900 million of debt
securities available for issuance from time to time. In addition,
$100 million from a previous shelf registration remained available for
issuance.
In November 1993, CNA sold $250 million principal amount of 6.25% notes
due 2003 and $250 million principal amount of 7.25% debentures due 2023 at
effective rates per annum of 6.4% and 7.3%, respectively. An additional
$500 million of securities and/or preferred stock will remain available
for issuance under the shelf registration statement.
b. Dividends of $150 million, $100 million, and $130 million were
received by CNA from Continental Casualty Company in 1993, 1992 and
1991, respectively.
c. 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 $193.1 million, $165.6
million and $159.5 million in 1993, 1992, and 1991, respectively.
d. CNA contributed $475 million in capital to Continental Casualty Company
in 1993. There were no capital contributions by CNA in 1992 and 1991.
- -----------------------------------------------------------------------------
24
SCHEDULE V
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- --------------------------------------------------------------------------------------------------------------
GROSS INSURANCE RESERVES**
-----------------------------------------------------------
CLAIM
DEFERRED AND FUTURE POLICY-
ACQUISITION CLAIM POLICY UNEARNED HOLDERS'
(In thousands of dollars) COSTS EXPENSE BENEFITS PREMIUMS FUNDS
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
Property/Casualty:
Commercial................... $371,866 $18,157,358 $ 17,158 $2,001,192 $ 23,503
Personal..................... 190,163 1,012,996 151,753 536,188 -
Involuntary risks............ - 1,641,601 - 18,635 -
Life:
Individual................... 416,703 143,594 2,178,044 - 31,957
Group ....................... 6,651 434,045 406,636 - 423,156
------- ---------- --------- --------- -------
CNA Insurance.............. $985,383 21,389,594 $2,753,591 $2,556,015 $478,616
======= ========= ========= =======
Other and Intercompany Eliminations 280,608
----------
$21,670,202
==========
DECEMBER 31, 1992
Property/Casualty:
Commercial................... $337,160 $17,286,019 $ 10,540 $1,872,975 $ 69,098
Personal.................... 170,327 990,336 114,898 529,459 -
Involuntary risks............ - 1,757,292 - 22,671 -
Life:
Individual................... 385,323 126,100 1,977,113 - 33,750
Group ....................... 7,296 421,041 418,045 - 435,455
------- ---------- --------- --------- -------
CNA Insurance.............. $900,106 20,580,788 $2,520,596 $2,425,105 $538,303
======= ========= ========= =======
Other and Intercompany Eliminations 152,650
----------
$20,733,438
==========
DECEMBER 31, 1991
Property/Casualty:
Commercial................... $335,660 $15,727,996 $ 7,319 $1,979,962 $109,559
Personal..................... 158,350 925,767 102,257 508,781 -
Involuntary risks............ - 1,455,926 - 19,212 -
Life:
Individual................... 372,094 110,707 1,789,467 - 33,133
Group ....................... 6,821 416,808 419,992 - 410,560
------- ---------- --------- --------- -------
CNA Insurance.............. $872,925 18,637,204 $2,319,035 $2,507,955 $553,252
======= ========= ========= =======
Other and Intercompany Eliminations 90,480
----------
$18,727,684
==========
SCHEDULE V
CNA FINANCIAL CORPORATION (CONTINUED)
SUPPLEMENTARY INSURANCE INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
AMORTIZATION
INSURANCE OF
NET NET CLAIMS AND DEFERRED OTHER
PREMIUM INVESTMENT POLICYHOLDERS' ACQUISITION OPERATING PREMIUMS
(In thousands of dollars) REVENUE INCOME BENEFITS COSTS EXPENSES WRITTEN
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
Property/Casualty:
Commercial................... $4,963,965 $ 896,661 $5,171,932 $ 951,168 $ 459,686 $5,030,879
Personal..................... 939,792 87,462 756,027 221,194 130,859 984,222
Involuntary risks............ 371,261 75,673 336,264 - 191,452 367,225
Life:
Individual................... 342,994 142,771 362,146 25,507 95,010 -
Group ....................... 2,099,173 116,955 1,945,584 2,436 242,150 -
--------- --------- --------- --------- --------- ---------
CNA Insurance.............. 8,717,185 1,319,522 8,571,953 $1,200,305 1,119,157 $6,382,326
========= =========
Other and Intercompany Eliminations (28,388) (5,212) (28,548) 545
--------- -------- --------- --------
$8,688,797 $1,314,310 $8,543,405* $1,119,702
========= ========= ========= =========
DECEMBER 31, 1992
Property/Casualty:
Commercial................... $4,870,222 $1,039,283 $6,140,824 $ 820,150 $ 463,784 $4,766,168
Personal..................... 930,902 101,188 808,867 212,406 125,964 964,120
Involuntary risks............ 552,450 83,649 643,957 - 249,398 555,909
Life:
Individual................... 321,792 150,584 321,854 40,720 99,665 -
Group ....................... 2,115,933 132,929 1,966,467 1,251 248,653 -
--------- --------- --------- --------- --------- ---------
CNA Insurance.............. 8,791,299 1,507,633 9,881,969 $1,074,527 1,187,464 $6,286,197
========= =========
Other and Intercompany Eliminations (23,328) 1,126 (23,461) (927)
--------- --------- --------- --------
$8,767,971 $1,508,759 $9,858,508* $1,186,537
========= ========= ========= =========
DECEMBER 31, 1991
Property/Casualty:
Commercial................... $5,150,261 $1,103,382 $4,587,406 $ 862,900 $ 434,874 $5,064,347
Personal..................... 895,141 100,839 796,961 193,853 135,742 946,167
Involuntary risks............ 609,916 78,515 678,238 - 277,215 609,585
Life:
Individual................... 312,196 155,662 306,662 61,004 93,259 -
Group ....................... 2,002,145 165,103 1,876,374 1,909 233,269 -
--------- --------- --------- --------- --------- ---------
CNA Insurance.............. 8,969,659 1,603,501 8,245,641 $1,119,666 1,174,359 $6,620,099
========= =========
Other and Intercompany Eliminations (23,308) 4,308 (23,469) 924
--------- --------- --------- ---------
$8,946,351 $1,607,809 $8,222,172* $1,175,283
========= ========= ========= =========
==========================================================================================================================
SCHEDULE V
CNA FINANCIAL CORPORATION (CONTINUED)
NOTES TO SUPPLEMENTARY INSURANCE INFORMATION
=============================================================================
*Excludes participating policyholders' interest related to realized
investment losses of $13,142, $12,140, and $20,055 in 1993, 1992 and 1991,
respectively.
**1992 and 1991 have been restated to conform to the classifications followed
in 1993 upon adoption of SFAS 113.
25
SCHEDULE VI
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 %
- ----------------------------------------------------------------------------------------------------
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
===== === ===== =====
1991
Life.......................................... $ 281 $ 18 $ 117 $ 380 30.8%
Accident and health........................... 2,173 16 139 2,296 6.1
Property and casualty......................... 5,612 474 1,132 6,270 18.1
----- --- ----- -----
Total premiums............................... $8,066 $508 $1,388 $8,946 15.5
===== === ===== =====
- ----------------------------------------------------------------------------------------------------
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, 1993 ............................. $58,978 $5,713 $53,270 $106,535 50.0%
December 31, 1992 ............................. 53,869 5,146 51,343 100,066 51.3
December 31, 1991 ............................. 49,461 4,983 49,217 93,695 52.5
- ----------------------------------------------------------------------------------------------------
/TABLE
SCHEDULE VIII
CNA FINANCIAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ----------------------------------------------------------------------------------------------------
BALANCE BALANCE
AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
(In thousands of dollars) OF PERIOD EXPENSES AMOUNTS DEDUCTIONS PERIOD
- ----------------------------------------------------------------------------------------------------
Year Ended December 31, 1993
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables ........... $110,420 $ 9,197 $ - $ 2,293 $117,324
======= ====== ======= ===== =======
Year Ended December 31, 1992
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables ........... $100,382 $27,237 $ - $17,199 $110,420
======= ====== ======= ======= =======
Year Ended December 31, 1991
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables ........... $ 80,494 $33,423 $ - $13,535 $100,382
======= ====== ======= ======= =======
- ----------------------------------------------------------------------------------------------------
26
SCHEDULE IX
CNA FINANCIAL CORPORATION
SHORT-TERM BORROWINGS
- ------------------------------------------------------------------------------------------------------------------------
MAXIMUM AVERAGE WEIGHTED
CATEGORY OF WEIGHTED AMOUNT AMOUNT AVERAGE
AGGREGATE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM AT END OF INTEREST DURING THE DURING THE DURING THE
(In thousands of dollars) BORROWINGS PERIOD RATE PERIOD PERIOD (A) PERIOD (B)
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993 Banks $2,000 4.00% $ 2,000 $ 2,000 4.43%
===== ---- ======= ======= ====
YEAR ENDED DECEMBER 31, 1992 (c) Banks $2,000 5.13% $ 2,101 $ 2,040 5.52%
===== ---- ======= ======= ====
YEAR ENDED DECEMBER 31, 1991 (c) Banks $2,011 6.02% $288,577 $107,399 6.61%
===== ---- ======= ======= ====
- -----------------------------------------------------------------------------------------------------------------------
Notes: (a) Average amounts outstanding during the period are calculated by
an average of end of month balances.
(b) Weighted average interest rate for the period is calculated by
dividing short-term interest expense by the average amount
outstanding for the period.
(c) Excludes CNA's 81/2% Sinking Fund Debentures due December 15,
1995 in the outstanding principal amount of $23.4 million which
were called for redemption on February 28, 1992.
SCHEDULE X
CNA FINANCIAL CORPORATION
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED PROPERTY/
CASUALTY ENTITIES
------------------------------------
YEAR ENDED DECEMBER 31
------------------------------------
1993 1992 1991
(In thousands of dollars) (RESTATED) (RESTATED)
- -------------------------------------------------------------------------------------------------------------------------------
Deferred acquisition costs .......................................................... $ 562,029 $ 507,487 $ 494,010
Reserves for unpaid claims and claim expenses........................................ 20,811,955 20,033,647 18,109,689
Discount, if any, deducted above (based on interest rates ranging from 3.5% to 7.5%). 1,886,532 1,787,348 1,126,024
Unearned premiums.................................................................... 2,556,015 2,425,105 2,507,955
Earned premiums...................................................................... 6,275,018 6,353,574 6,655,318
Net investment income................................................................ 1,059,796 1,224,120 1,282,736
Claim and claim expenses related to current year .................................... 5,387,947 5,708,216 5,833,016
Claim and claim expenses related to prior years...................................... 589,959 1,617,433 (12,255)
Amortization of deferred acquisition costs .......................................... 1,172,362 1,032,556 1,056,753
Paid claim and claim expenses........................................................ 4,916,888 4,676,600 4,468,924
Premiums written .................................................................... 6,382,326 6,286,197 6,620,099
- --------------------------------------------------------------------------------------------------------------------------------
27
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, 1993 and 1992 and for each of the three years in the period ended
December 31, 1993, and have issued our report thereon dated February 16, 1994,
which report includes an explanatory paragraph as to certain accounting
changes; such consolidated financial statements and report are included in the
Company's 1993 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
Chicago, Illinois
February 16, 1994
28
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 Laurence A. Tisch
-----------------------------
Laurence A. Tisch
Chief Executive Officer
(Principal Executive Officer)
By Peter E. Jokiel
-----------------------------
Peter E. Jokiel
Senior Vice President and
Chief Financial Officer
Date: March 23, 1994
SIGNATURES --(CONTINUED)
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
Antoinette Cook Bush Director
- ------------------------------
Antoinette Cook Bush
Dennis H. Chookaszian Director
- ------------------------------
Dennis H. Chookaszian
Philip L. Engel Director
- ------------------------------
Philip L. Engel
Robert P. Gwinn Director
- ------------------------------
Robert P. Gwinn
Edward J. Noha Chairman of the Board
- ------------------------------ and Director
Edward J. Noha
Dated:
Lester Pollack Director March 23, 1994
- ------------------------------
Lester Pollack
- ------------------------------ Director*
John E. Stipp
Richard L. Thomas Director
- ------------------------------
Richard L. Thomas
James S. Tisch Director
- ------------------------------
James S. Tisch
Laurence A. Tisch Chief Executive Officer
- ------------------------------ and Director
Laurence A. Tisch
Preston R. Tisch Director
- ------------------------------
Preston R. Tisch
Marvin Zonis Director
- ------------------------------
Marvin Zonis
*Passed away on March 8, 1994.
29