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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1995 COMMISSION FILE NUMBER 1-5823
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CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-6169860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CNA PLAZA
CHICAGO, ILLINOIS 60685
(Address of principal executive offices) (Zip Code)
(312) 822-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock New York Stock Exchange
with a par value Chicago Stock Exchange
of $2.50 per share Pacific Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G)OF THE ACT:
None
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [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, 1996, 61,798,262 shares of common stock were outstanding and
the aggregate market value of the common stock of CNA Financial Corporation held
by non-affiliates was approximately $1,145 million.
DOCUMENTS INCORPORATED
BY REFERENCE:
Portions of the CNA Financial Corporation 1995 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 1996 annual meeting of shareholders, pursuant to Regulation 14A, are
incorporated by reference into Part III of this Report.
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CNA FINANCIAL CORPORATION
FORM 10-K REPORT
FOR THE YEAR ENDED DECEMBER 31, 1995
Item Page
Number PART I Number
------ ------
1 Business.............................................. 3
2 Properties............................................ 19
3 Legal Proceedings..................................... 20
4 Submission of Matters to a Vote of
Security Holders..................................... 20
PART II
5 Market for the Registrant's Common Stock and
Related Stockholder Matters.......................... 20
6 Selected Financial Data............................... 20
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 20
8 Financial Statements and Supplementary Data........... 20
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 20
PART III
10 Directors and Executive Officers of the Registrant.... 21
11 Executive Compensation................................ 21
12 Security Ownership of Certain Beneficial Owners
and Management........................................ 21
13 Certain Relationships and Related Transactions........ 21
PART IV
14 Financial Statements, Schedules, Exhibits, and
Reports on Form 8-K................................... 21
2
PART I
ITEM 1. BUSINESS
CNA was incorporated in 1967 as the parent company of Continental Casualty
Company ("CCC"), incorporated in 1897, and Continental Assurance Company
("CAC"), incorporated in 1911. In 1975, CAC became a wholly-owned subsidiary of
CCC. In late 1994, CNA reached an agreement to acquire all the outstanding
common stock of The Continental Corporation ("Continental") through a cash
merger for approximately $1.1 billion. On May 9, 1995, Continental shareholders
approved the agreement and the merger was completed on May 10. As a result and
upon consummation of the merger, Continental became a wholly owned subsidiary of
CNA. The Continental Corporation, a New York corporation incorporated in 1968,
is an insurance holding company. Its principal subsidiary, The Continental
Insurance Company ("CIC") was organized in 1853. The principal business of
Continental is the ownership of a group of property and casualty insurance
companies.
CNA's property and casualty insurance operations are conducted by CCC and
its property and casualty insurance affiliates and CIC and its property and
casualty insurance affiliates. Life insurance operations are conducted by CAC
and its life insurance affiliates. CNA's principal business is insurance
conducted through its insurance subsidiaries. As multiple-line insurers, the
insurance companies underwrite property, casualty, life, and accident and health
coverages. Their principal market for insurance is the United States.
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 3,300 companies that sell property/casualty
insurance in the United States, approximately 900 of which operate in all or
most states. CNA's consolidated property/casualty subsidiaries (including CIC on
a proforma basis) would have been ranked as the third largest property/casualty
insurance organization in 1994 based upon statutory net written premium.
There are approximately 1,800 companies selling life insurance (including
health insurance and pension products) in the United States. CAC is ranked as
the twenty-fourth largest life insurance organization based on 1994 consolidated
statutory premium volume.
DIVIDENDS BY INSURANCE SUBSIDIARIES
The payment of dividends to CNA by its insurance affiliates without prior
approval of the affiliate's domiciliary state insurance commissioners is limited
to amounts determined by formula in accordance with the accounting practices
prescribed or permitted by the state's insurance departments. This formula
varies by state. The formula for the majority of the states is the greater of
10% of prior year statutory surplus or prior year statutory net income, less the
aggregate of all dividends paid during the twelve months prior to date of
payment. Some states, however, have an additional stipulation that dividends
can't exceed prior year earned surplus. Based upon the various states formulas,
approximately $860 million in dividends could be paid to CNA by its insurance
affiliates in 1996 without prior approval. All dividends must be reported to the
insurance department prior to declaration and payment.
3
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,
fixing minimum interest rates for accumulation of surrender values and maximum
interest rates of policy loans, prescribing the form and content of statutory
financial reports, and regulating solvency and the type and amount of
investments permitted. Regulatory powers also extend to premium rate regulations
which require that rates not be excessive, inadequate or unfairly
discriminatory. In addition to regulation of dividends by insurance subsidiaries
discussed above, intercompany transfers of assets may be subject to prior notice
or approval, depending on the size of such transfers and payments in relation to
the financial position of the insurance affiliates making the transfer.
There has been a growing legislative trend, particularly for personal lines
products and workers compensation, directly impacting insurance rate
development, rate application and the ability of insurers to cancel or renew
insurance policies.
Insurers are also required by the states to provide coverage to insureds
who would not otherwise be considered eligible by the insurers. Each state
dictates the types of insurance and the level of coverage which must be provided
to such involuntary risks. CNA's insurance subsidiaries' share of these
involuntary risks is mandatory and generally a function of its respective share
of the voluntary market by line of insurance in each state.
In recent years, insolvencies of a few large insurers previously believed
to be on solid financial ground by many rating agencies and state regulators led
to increased scrutiny of state regulated insurer solvency requirements by
certain members of the U.S. Congress. Had Congress formally adopted initiatives
in the 103rd Congress, insurers would have been subject to federal solvency
regulation. In response to this challenge, the National Association of Insurance
Commissioners (NAIC) developed industry minimum Risk-Based Capital (RBC)
requirements, established a formal state accreditation process designed to more
closely regulate for solvency, minimized the diversity of approved statutory
accounting and actuarial practices, and increased the annual statutory statement
disclosure requirements.
The RBC formulas are designed to identify an insurer's minimum capital
requirements based upon the inherent risks (e.g., asset default, credit and
underwriting) of its operations. In addition to the minimum capital
requirements, the RBC formula and related regulations identify various levels of
capital adequacy and corresponding actions that the state insurance departments
should initiate. The level of capital adequacy below which insurance departments
would take action is defined as the Company Action Level. As of December 31,
1995, all of CNA's life insurance affiliates and property/casualty affiliates
have adjusted capital amounts in excess of Company Action Levels.
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 through
application of a number of financial ratios. These ratios have a range of
results characterized as "usual" by the NAIC. The NAIC IRIS user guide regarding
these ratios specifically states that "Falling outside the usual range is not
considered a failing result..." and "...in some years it may not be unusual for
financially sound companies to have several ratios with results outside the
usual range." It is important, therefore, that IRIS ratio test results be
reviewed carefully in conjunction with all other financial information.
CCC had no IRIS ratios with unusual values in 1995. The one ratio with an
unusual value in 1994 was the two year overall operating ratio. The three IRIS
ratios with unusual values in 1993 were the two year overall operating,
investment yield, and the two year reserve development ratios. Catastrophe
losses and reserve increases associated with Fibreboard Corporation litigation
(see Note J of the Consolidated Financial Statements) recorded in 1992 and 1993
triggered the unusual values for the operating ratios generated in 1993 and 1994
and the reserve development ratios generated in 1993. Additionally, lower
interest rates in 1993, coupled with a proportionately large short-term
investment portfolio, triggered the unusual value for the investment yield
ratio.
4
REGULATION-(CONTINUED)
CIC had three IRIS ratios with unusual values in 1995. These ratios were
change in writings, two-year overall operating ratio, and the two-year reserve
development to surplus. The overall decline in premiums written is attributable
to CIC's efforts to shift its business mix towards more profitable lines. The
two-year overall operating and the two-year reserve development to surplus
ratios were adversely impacted by the establishment of environmental reserves of
$400 million for incurred but not reported losses in 1994 and $200 million in
other loss reserve development, principally in workers' compensation. Further,
in 1994, results were adversely affected by catastrophe losses.
CAC had no IRIS ratios with unusual values in 1995 or 1994. CAC had two
unusual values for IRIS ratios in 1993, which were net gain to total income and
change in net written premium. CAC's reported statutory net income was adversely
affected in 1993 by depressed investment earnings. The unusual value for the
change in premium ratio primarily related to decreases in the Separate Account
annuity products fund deposits.
The potential for health care reform had been widely publicized and debated
in 1994. Although these legislative reforms failed in 1994, and none were
enacted in 1995, some Federal or state health care reform could emerge in the
future. Federal regulation of the insurance industry and repeal of the
McCarran-Ferguson anti-trust exemptions for the insurance industry were widely
discussed topics in the 103rd Congress but have not been of interest in the
first session of the 104th Congress in 1995, and are not anticipated to be of
interest in the second session in 1996.
Although the courts and legislatures are often asked to expand liability,
there is a growing trend among business and professional organizations to wage
campaigns, which in several instances have been successful, aimed at limiting
their liability risks. A number of states have adopted some "tort reform"
measures which, among other things, limit non-economic and punitive damages and
otherwise limit damage awards in product liability and malpractice cases.
Illinois and Texas adopted substantial tort reform in 1995 limiting non-economic
damages and the amount of punitive damages in all civil actions. Arizona,
Colorado, Connecticut, Indiana, Michigan, Montana, New Jersey, North Carolina,
North Dakota, Oklahoma, Oregon, South Dakota and Wisconsin all adopted some
measure of tort reform.
Environmental clean-up is the subject of both federal and state regulation.
By some estimates, there are thousands of potential waste sites subject to
clean-up. The 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. See Note K
of the Consolidated Financial Statements for further discussion.
REINSURANCE
CNA assumes and cedes insurance with other insurers and reinsurers. CNA
utilizes reinsurance arrangements to limit its maximum loss, to provide greater
diversification of risk and to minimize aggregate exposures. The reinsurance
coverages are tailored to the specific risk characteristics of each product line
with CNA's retained amount varying by type of coverage. Generally, reinsurance
coverage for property risks is on an excess of loss, per risk basis. Liability
coverages are generally reinsured on a quota share basis in excess of CNA's
retained risk.
The ceding of insurance does not discharge the primary liability of the
original insurer. CNA places reinsurance with other carriers only after careful
review of the nature of the contract and a thorough assessment of the
reinsurers' credit quality and claim settlement performance. Further, for
carriers that are not authorized reinsurers in its states of domicile, CNA
receives collateral primarily in the form of bank letters of credit, securing a
large portion of the recoverables. Such collateral totaled approximately $1.12
billion and $165 million at December 31, 1995 and 1994, respectively. CNA's
largest recoverable from a single reinsurer, including prepaid reinsurance
premiums, was approximately $435 million and $348 million with Lloyd's of London
at December 31, 1995 and 1994, respectively.
5
EMPLOYEE RELATIONS
CNA has approximately 25,000 full-time equivalent employees and has
experienced satisfactory labor relations. CNA has never had work stoppages due
to labor disputes.
CNA has comprehensive benefit plans for substantially all of its employees,
including retirement plans, savings plans, disability programs, group life
programs, and group health care programs.
BUSINESS SEGMENTS
Information as to CNA's business segments is set forth in Note L of the
Consolidated Financial Statements, incorporated by reference in Item 8, herein.
PROPERTY/CASUALTY BUSINESS
CNA's property/casualty operations market commercial and personal lines of
property/casualty insurance through independent agents and brokers.
CNA 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 large commercial account policies
are written under retrospectively-rated contracts which are experience-rated.
Premiums for such contracts may be adjusted, subject to limitations set by
contract, based on loss experience of the insureds. Other experience-rated
policies include provisions for adjustments to dividends based on loss
experience. Experience-rated contracts reduce but do not eliminate risk to the
insurer. Approximately 12% of CNA's property/casualty insurance is written on an
experience-rated basis.
CNA also provides loss control, policy administration and claim
administration services under service contracts for fees. Such services are
provided primarily in the workers' compensation market where retention of more
risk by the employer through self-insurance or high-deductible programs has
become increasingly prevalent.
Commercial business includes such lines as workers' compensation, general
liability, professional and specialty, multiple peril, and accident and health
coverages. Professional and specialty coverages include liability coverage for
architects and engineers, lawyers, accountants, medical and dental
professionals; directors and officers liability; and other specialized
coverages. CNA also assumes commercial risks from other insurers. The major
components of CNA's commercial business are workers' compensation, general
liability, and professional and specialty coverages, which accounted for 19%,
19% and 18%, respectively, of 1995 premiums earned.
CNA is required by the various states in which it does business to provide
coverage for risks that would not otherwise be considered under CNA's
underwriting standards. CNA's share of involuntary risks is mandatory and
generally a function of its respective share of the voluntary market by line of
insurance in each state. Premiums for involuntary risks result from mandatory
participation in residual markets.
CNA also markets personal lines of insurance, primarily automobile and
homeowners' coverages sold to individuals under monoline and package policies.
The Continental merger made CNA the market leader in package personal lines
products.
6
PROPERTY/CASUALTY BUSINESS-(CONTINUED)
The following table sets forth supplemental data on a GAAP basis, except
where indicated, for the property/casualty business:
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YEAR ENDED DECEMBER 31 1995 (a) 1994 1993 1992 1991
(In millions of dollars)
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COMMERCIAL PREMIUMS EARNED
General liability......................... $ 1,648.9 $ 1,261.1 $ 1,154.5 $ 1,176.0 $ 1,292.6
Professional and specialty................ 1,557.7 1,010.1 798.9 741.5 763.9
Workers' compensation..................... 1,475.8 1,426.3 1,501.5 1,669.2 1,920.4
Multiple peril............................ 869.9 389.0 368.5 374.9 397.2
Reinsurance and other..................... 973.9 773.5 712.2 556.0 482.0
Accident and health....................... 699.1 557.1 428.3 352.6 294.2
---------- ---------- ---------- --------- ---------
$ 7,225.3 $ 5,417.1 $ 4,963.9 $ 4,870.2 $ 5,150.3
========== ========== ========== ========= =========
PERSONAL PREMIUMS EARNED
Personal lines packages................... $ 781.6 $ 562.6 $ 510.7 $ 447.3 $ 335.6
Monoline automobile and property coverages 325.4 314.2 343.5 395.0 470.7
Accident and health....................... 107.8 88.9 85.6 88.6 88.8
---------- ---------- ---------- --------- ---------
$ 1,214.8 $ 965.7 $ 939.8 $ 930.9 $ 895.1
========== ========== ========== ========= =========
INVOLUNTARY RISKS PREMIUMS EARNED (B)
Workers' compensation..................... $ 178.2 $ 350.0 $ 292.3 $ 451.4 $ 499.5
Private passenger auto.................... 79.7 46.4 23.2 52.5 39.2
Commercial passenger auto................. 19.9 54.3 50.3 44.9 66.6
Property and multiple peril............... 5.9 5.0 5.5 3.7 4.6
---------- ---------- ---------- --------- ---------
$ 283.7 $ 455.7 $ 371.3 $ 552.5 $ 609.9
========== ========== ========== ========= =========
NET INVESTMENT INCOME AND OTHER INCOME
Commercial................................ $ 1,713.1 $ 1,145.2 $ 979.8 $ 1,087.3 $ 1,131.3
Personal.................................. 230.4 177.6 156.1 165.3 160.1
Involuntary risks......................... 104.3 88.1 75.7 83.6 78.5
---------- ---------- ---------- --------- ---------
$ 2,047.8 $ 1,410.9 $ 1,211.6 $ 1,336.2 $ 1,369.9
========== ========== ========== ========= =========
UNDERWRITING LOSS
Commercial................................ $ (920.8) $ (945.7) $ (1,535.6) $(2,505.9) $ (707.1)
Personal.................................. (101.9) (185.2) (99.7) (152.8) (172.1)
Involuntary risks......................... (98.8) (70.3) (156.5) (340.9) (345.5)
----------- ----------- ----------- ---------- ----------
$ (1,121.5) $ (1,201.2) $ (1,791.8) $(2,999.6) $(1,224.7)
=========== =========== =========== ========== ==========
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YEAR ENDED DECEMBER 31 1995 (a) 1994 1993 1992 1991
(In millions of dollars)
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TRADE RATIOS (C)
Loss ratio................................ 77.9% 81.9% 96.2% 116.7% 88.1%
Expense ratio............................. 29.4 28.3 27.2 26.2 25.8
Combined ratio (before policyholder 107.3 110.2 123.4 142.9 113.9
dividends)................................
Policyholder dividend ratio............... 3.0 4.8 3.9 1.9 2.5
TRADE RATIOS - STATUTORY BASIS (C)
Loss ratio................................ 78.6% 82.2% 96.4% 116.3% 88.2%
Expense ratio............................. 29.2 27.8 27.1 25.6 25.6
Combined ratio (before policyholder 107.8 110.0 123.5 141.9 113.8
dividends)................................
Policyholder dividend ratio............... 2.1 3.8 3.1 2.4 2.7
OTHER DATA - STATUTORY BASIS (D)
Capital and surplus....................... $ 5,695.9 $ 3,367.3 $ 3,598.4 $ 3,135.8 $ 3,927.5
Written to surplus ratio.................. 1.7 2.0 1.7 2.0 1.7
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(a) Premiums earned, net investment income and other income, and
underwriting loss includes the results of The Continental Corporation since
May 10, 1995.
(b) Property/casualty involuntary risks include mandatory participation in
residual markets, statutory assessments for insolvencies of other insurers,
and other involuntary charges.
(c) GAAP trade ratios reflect the results of Continental Casualty
Company and its property/casualty insurance subsidiaries for the whole
year, along with the results of the Continental Insurance Company since May
10, 1995. Statutory trade ratios reflect the results of Continental
Casualty Company, its property/casualty insurance subsidiaries and
Continental Insurance Company for the entire year of 1995. Prior year
ratios have not been restated to include Continental. Trade ratios are
industry measures of property/casualty underwriting results. The loss ratio
is the percentage of incurred claim and claim adjustment expenses to
premiums earned. Under generally accepted accounting principles, the
expense ratio is the percentage of underwriting expenses, including the
change in deferred acquisition costs, to premiums earned. Under statutory
accounting practices, the expense ratio is the percentage of underwriting
expenses (with no deferral of acquisition costs) to premiums written.
7
PROPERTY/CASUALTY BUSINESS-(CONTINUED)
The combined ratio, before policyholder dividends, is the sum of the loss
and expense ratios. The policyholder dividend ratio is the ratio of dividends
incurred to premiums earned.
(d) Other Data is determined on the basis of statutory accounting
practices and reflects a capital contribution from CNA of $475
million in 1993. In addition, dividends of $325 million, $175
million, $150 million, $100 million and $130 million were paid to CNA
by Continental Casualty Company in 1995, 1994, 1993, 1992 and 1991,
respectively. Property/casualty insurance subsidiaries have received
reimbursement from CNA for general management and administrative
expenses, unallocated loss adjustment expenses and investment
expenses of $197.0, $169.6, $167.5, $141.1, and $133.8 million in
1995, 1994, 1993, 1992 and 1991, respectively.
The following table displays the distribution of domestic written premium
by state:
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Gross Written Premium by State % of Total
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Year Ended December 31 1995 1994 1993
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New York...................... 10.3 8.6 8.4
California.................... 9.7 11.4 12.1
Texas......................... 6.5 6.5 6.2
Pennsylvania.................. 5.4 5.7 5.9
Illinois...................... 5.2 4.9 5.1
New Jersey.................... 4.6 3.2 3.3
Florida....................... 4.1 4.6 4.1
All other states (a).......... 48.8 43.2 43.1
Reinsurance assumed:
Voluntary..................... 3.4 5.9 6.9
Involuntary................... 2.0 6.0 4.9
----- ----- -----
100.0 100.0 100.0
===========================================================================
(a) No other state accounts for more than 3.0% of gross written premium.
The growth and profitability of CNA's property/casualty insurance business
is dependent on many factors, including competitive and regulatory influences,
the efficiency and costs of operations, underwriting quality, the level of
natural disasters, and investment results.
CNA's property/casualty operations continued to show significant
improvement in profitability during 1995, reflecting both improved investment
income and improved underwriting results. Contributing to the improved
underwriting results were continued favorable claim frequency (rate of claim
occurrence) and severity (average cost per claim) in the workers' compensation
line. Legislative reforms have cut costs in some states, residual market losses
have dropped, and the insurance regulators have sharpened their focus on
workers' compensation fraud.
In an effort to maintain growth, CNA has intensified efforts in the
political arena to achieve a more predictable and equitable insurance marketing
climate. Among CNA's marketing strategies are to emphasize responsible pricing
over premium growth and to aggressively adapt to changes in certain markets such
as those in which self-insurance has become important. CNA has also initiated
wide-scale cost management measures. CNA has continued actions to reduce or
stabilize its costs of doing business, including costs of health care, fraud and
tort liability. Programs include managed health care programs and intensified
efforts of fighting fraud.
8
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 undiscounted (a) case basis estimates for
losses reported on direct business, adjusted in the aggregate for ultimate loss
expectations, (b) estimates of unreported losses based upon past experience, (c)
estimates of losses on assumed insurance, and (d) estimates of future expenses
to be incurred in settlement of claims. In establishing these estimates,
consideration is given to current conditions and trends as well as past Company
and industry experience.
Structured settlements have been negotiated for certain property/casualty
insurance claims. Structured settlements are agreements to provide periodic
payments to claimants, which are fixed and determinable as to the amount and
time of payment. Certain structured settlements are funded by annuities
purchased from CAC. Related annuity obligations are carried in future policy
benefits reserves. Obligations for structured settlements not funded by
annuities are carried at the present value of future benefits. Such reserves,
discounted at interest rates ranging from 6.25% to 7.5%, totaled $897.4 million
and $839.0 million at December 31, 1995 and 1994, respectively. Ultimate payouts
under all structured settlements at December 31, 1995 and 1994, will approximate
$3.0 billion and $2.4 billion, respectively.
Reserving practices under both statutory accounting practices and generally
accepted accounting principles allow discounting of claim reserves related to
workers' compensation lifetime claims and accident and health disability claims.
Reserve discounting for these types of claims is common industry practice. These
claim reserves are discounted at interest rates ranging from 3.5% to 6.0% with
mortality and morbidity assumptions reflecting the Company's and current
industry experience. At December 31, 1995 and 1994, such discounted reserves
totaled $2.7 billion and $1.1 billion, respectively. Ultimate payouts for these
claims are estimated to be $3.6 billion and $1.5 billion at December 31, 1995
and 1994, respectively.
9
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES (CONT.)
The loss reserve development table below illustrates the change over time
of reserves established for property/casualty claims and claims expense at the
end of various calendar years. The first section shows the reserves as
originally reported at the end of the stated year. The second section, reading
down, shows the cumulative amounts paid as of the end of successive years with
respect to that reserve liability. The third section, reading down, shows
re-estimates of the original recorded reserve as of the end of each successive
year which is the result of CNA's expanded awareness of additional facts and
circumstances that pertain to the unsettled claims. The last section compares
the latest re-estimated reserve to the reserve originally established, and
indicates whether or not the original reserve was adequate or inadequate to
cover the estimated costs of unsettled claims.
The loss reserve development table is cumulative and, therefore, ending
balances should not be added since the amount at the end of each calendar year
includes activity for both the current and prior years.
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF
PROPERTY/CASUALTY
LOSS RESERVE
DEVELOPMENT
CALENDAR YEAR ENDED 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995* 1995
(In millions of
dollars)
- --------------------------------------------------------------------------------------------------------------------
Gross reserves
for unpaid
claim and claim
expenses............$ -- $ -- $ -- $ -- $ -- $16,530 $17,712 $20,034 $20,812 $21,639 $ 9,713 $31,044
Ceded recoverable... -- -- -- -- -- 3,440 3,297 2,867 2,491 2,705 3,650 6,089
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net reserves
for unpaid
claim and claim
expenses............ 4,873 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 6,063 24,955
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET PAID
(CUMULATIVE)AS OF:
One year later...... 1,594 1,335 1,763 2,040 2,670 3,285 3,411 3,706 3,629 3,656 1,392 --
Two years later..... 2,932 2,383 2,961 3,622 4,724 5,623 6,024 6,354 6,143 -- -- --
Three years later... 3,022 3,197 4,031 4,977 6,294 7,490 7,946 8,121 -- -- -- --
Four years later.... 3,642 3,963 5,007 6,078 7,534 8,845 9,218 -- -- -- -- --
Five years later.... 4,175 4,736 5,801 6,960 8,485 9,726 -- -- -- -- -- --
Six years later..... 4,735 5,339 6,476 7,682 9,108 -- -- -- -- -- -- --
Seven years later... 5,233 5,880 7,061 8,142 -- -- -- -- -- -- -- --
Eight years later... 5,668 6,382 7,426 -- -- -- -- -- -- -- -- --
Nine years later.... 6,116 6,690 -- -- -- -- -- -- -- -- -- --
Ten years later..... 6,379 -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SCHEDULE OF
PROPERTY/CASUALTY
LOSS RESERVE
DEVELOPMENT
CALENDAR YEAR ENDED 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995* 1995
(In millions of
dollars)
- --------------------------------------------------------------------------------------------------------------------
NET RESERVES
RE-ESTIMATED AS OF:
End of initial year. 4,873 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 6,063 24,955
One year later...... 5,047 6,642 8,086 9,737 11,336 12,984 16,032 17,757 18,250 18,922 6,197 --
Two years later..... 5,573 6,763 8,345 9,781 11,371 14,693 16,810 17,728 18,125 -- -- --
Three years later... 5,788 6,989 8,424 9,796 13,098 15,737 16,944 17,823 -- -- -- --
Four years later.... 6,170 7,166 8,516 11,471 14,118 15,977 17,376 -- -- -- -- --
Five years later.... 6,422 7,314 10,196 12,496 14,395 16,441 -- -- -- -- -- --
Six years later..... 6,566 9,022 11,239 12,742 14,811 -- -- -- -- -- -- --
Seven years later... 8,317 10,070 11,480 13,167 -- -- -- -- -- -- -- --
Eight years later... 9,365 10,317 11,898 -- -- -- -- -- -- -- -- --
Nine years later.... 9,635 10,755 -- -- -- -- -- -- -- -- -- --
Ten years later..... 10,074 -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total net
(deficiency)
redundancy.......... (5,201) (4,512) (3,853) (3,615) (3,544) (3,351) (2,961) (656) 196 12 (134) --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Reconciliation to Gross
Re-estimated Reserves:
Net reserves re-estimated 16,441 17,376 17,823 18,125 18,922 6,197 --
Re-estimated ceded recoverable 3,029 2,925 2,546 2,522 2,760 3,650 --
------ ------ ------ ------ ------ ----- ----
Total gross
re-estimated reserves 19,470 20,301 20,369 20,647 21,682 9,847 --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Net (Deficiency)
Redundancy
Related to:
Asbestos claims..... (2,937) (2,973) (2,925) (2,868) (2,769) (2,631) (2,583) (894) (294) (258) -- --
Environmental claims (957) (957) (943) (937) (910) (899) (853) (806) (360) (181) (60) --
Total asbestos and ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- ----
environmental..... (3,894) (3,930) (3,868) (3,805) (3,679) (3,530) (3,436) (1,700) (654) (439) (60)
Other............... (1,307) (582) 15 190 135 179 475 1,044 850 451 (74) --
Total net ------ ------ ------ ------ ------ ------ ------ ------ ---- ---- ----- ----
(deficiency)
redundancy.......... (5,201) (4,512) (3,853) (3,615) (3,544) (3,351) (2,961) (656) 196 12 (134) --
- ----------------------------------------------------------------------------------------------------------------------
*Represents Continental reserves acquired on May 10, 1995 and subsequent
development thereon, through December 31, 1995. This balance combined with
balances reflected in the 1994 column determine development recorded for
the consolidated CNA property/casualty subsidiaries.
10
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES (CONT.)
Reserve Development
- -------------------
The table below provides a reconciliation between beginning and ending
claim and claim expense reserve balances for 1995, 1994 and 1993. Not included
in the table below is premium development related to certain insurance policies
subject to retroactive premium adjustments which are based on various factors,
including loss experience. As a result, CNA also recorded premium and dividend
development related to prior years [increasing/(decreasing) premium] of $(173),
$29 and $(127) million in 1995, 1994 and 1993, respectively.
- -----------------------------------------------------------------------------------------------------------
CHANGES IN RESERVES FOR PROPERTY/CASUALTY
CLAIMS AND CLAIM EXPENSES
YEAR ENDED DECEMBER 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
(In millions of dollars)
Reserves at beginning of year:
Gross................................................................ $21,639 $20,812 $20,034
Ceded reinsurance.................................................... 2,705 2,491 2,867
- -----------------------------------------------------------------------------------------------------------
Net reserves at beginning of year............................. 18,934 18,321 17,167
The Continental Corporation reserves at acquisition - net............ 6,063 --- ---
- -----------------------------------------------------------------------------------------------------------
Total net reserves 24,997 18,321 17,167
- -----------------------------------------------------------------------------------------------------------
Net incurred claims and claim expenses:
Provision for insured events of current year...................... 6,787 5,611 5,388
Increase (decrease) in provision for insured events of prior years** 122 (71) 590
Amortization of discount.......................................... 106 100 94
- -----------------------------------------------------------------------------------------------------------
Total net incurred 7,015 5,640 6,072
- -----------------------------------------------------------------------------------------------------------
Net payments attributable to:
Current year events............................................... 2,000 1,388 1,202
Prior year events................................................. 5,048 3,629 3,706
Amortization of discount.......................................... 9 10 10
- -----------------------------------------------------------------------------------------------------------
Total net payments 7,057 5,027 4,918
- -----------------------------------------------------------------------------------------------------------
Net reserves at end of year.......................................... 24,955 18,934 18,321
Ceded reinsurance at end of year................................... 6,089 2,705 2,491
- -----------------------------------------------------------------------------------------------------------
GROSS RESERVES AT END OF YEAR* $ 31,044 $21,639 $20,812
===========================================================================================================
*Excludes life claim and claim expense reserves and intercompany eliminations
of $988 million, $926 million, and $858 million as of December 31, 1995,
1994 and 1993, respectively, included in the Consolidated Balance Sheet.
**Includes $500 for Fibreboard in 1993. See Note J of the Consolidated
Financial Statements in the Annual Report to Shareholders.
11
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES (CONT.)
CNA, consistent with sound insurance reserving practices, regularly adjusts
its reserve estimates in subsequent reporting periods as new facts and
circumstances emerge that indicate the previous estimates need to be modified.
These adjustments, referred to as "reserve development," are inevitable given
the complexities of the reserving process and are recorded in the statement of
operations in the period the need for the adjustments becomes apparent. The
property/casualty underwriting losses include net adverse (favorable) reserve
development of $122 million, $(71) million and $590 million for the years 1995,
1994 and 1993, respectively.
This reserve development reflects the effects of CNA's ongoing evaluation
of reserve levels and is comprised of the following components:
- --------------------------------------------------------------------------------
DEVELOPMENT-
ADVERSE (FAVORABLE)
DECEMBER 31 1995 1994 1993
(In millions of dollars)
- --------------------------------------------------------------------------------
Environmental............... $241 $181 $446
Asbestos.................... 258 37 601
Other....................... (377) (289) (457)
- --------------------------------------------------------------------------------
TOTAL $122 $(71) $590
================================================================================
Asbestos and Environmental Claims
- ---------------------------------
CNA believes its reserves for environmental and asbestos claims are
appropriately established based upon known facts and current case law. However,
due to inconsistencies of court coverage decisions, the number of waste sites
subject to clean-up, the standards for clean-up and liability, and other
factors, the ultimate exposure to CNA for these claims may vary materially from
the amounts currently recorded, resulting in a potential increase in the claim
reserves recorded. In addition, issues related to, among other things, specific
policy provisions, multiple insurers and allocation of liability among insurers,
consequences of conduct of the insured, missing policies and proof of coverage
make quantification of liabilities exceptionally difficult and subject to
adjustment based upon newly available data. Due to uncertainties and factors
described above, CNA believes it is not practicable to develop a meaningful
range for any such additional reserves that may be required. See Note K of the
Consolidated Financial Statements for further discussion of environmental and
asbestos reserves.
Adverse 1995 environmental reserve development of $241 million includes $60
million related to Continental and results from CNA's on-going monitoring of
current settlement patterns, current pending cases and potential future claims.
1995 adverse asbestos reserve development of $258 million is based on
management's assessment of the effects of 1995 payments and settlement activity
as well as an on-going review of pending asbestos cases and related legal
decisions.
Other 1995 reserve development, which nets to $377 million of favorable
reserve development, is principally due to favorable claim frequency (rate of
claim occurrence) and severity (average cost per claim) experience in the
workers' compensation line of business.
The 1993 environmental development includes an allocation of reserves for
incurred but not reported environmental claims of $340 million. The 1993
asbestos development includes $500 million related to Fibreboard. See Note J of
the Consolidated Financial Statements.
12
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES--(CONTINUED)
The following table summarizes, for 1995 and 1994, the reserve development for
environmental and asbestos claims. Claims activity for Continental is included
for the period May 10, 1995 through December 31, 1995.
- ----------------------------------------------------------------------------------------------------------------------
RESERVE SUMMARY
DECEMBER 31 1995 1994
------------------------------------- -------------------------------------
ENVIRONMENTAL ASBESTOS ENVIRONMENTAL ASBESTOS
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------------------------
Gross reserves:
Reported claims............ $ 336.9 $1,963.3 $ 89.1 $1,954.1
Unreported claims.......... 839.7 358.3 427.0 114.0
---------- -------- ------ --------
1,176.6 2,321.6 516.1 2,068.1
Less reinsurance recoverables....... (146.7) (97.4) (10.4) (129.4)
- ----------------------------------------------------------------------------------------------------------------------
NET RESERVES $1,029.9 $2,224.2 $505.7 $1,938.7
======================================================================================================================
The following tables summarize claim activity for environmental and asbestos
claims.
- --------------------------------------------------------------------------------------------------------------------
CHANGES IN ENVIRONMENTAL RESERVES
YEAR ENDED DECEMBER 31 1995 1994 1993
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------------------
Net reserves at beginning of year........... $505.7 $432.6 $58.6
Continental net reserves at May 10, 1995.... 410.0 -- --
------- ------- -------
Total net reserves...................... 915.7 432.6 58.6
------- ------- -------
Plus: Reserve strengthening................ 240.9 180.6 445.9
------- ------- -------
Less: Gross payments....................... 188.2 131.8 75.0
Reinsurance recoveries............... (61.5) (24.3) (3.1)
------- ------- -------
Net payments......................... 126.7 107.5 71.9
- --------------------------------------------------------------------------------------------------------------------
NET RESERVES AT END OF YEAR $1,029.9 $505.7 $432.6
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
CHANGES IN ASBESTOS RESERVES
YEAR ENDED DECEMBER 31 1995 1994 1993
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------------------
Net reserves at beginning of year........... $1,938.7 $2,080.0 $1,682.8
Continental net reserves May 10, 1995....... 203.5 -- --
Total net reserves...................... 2,142.2 2,080.0 1,682.8
------- ------- -------
Plus: Reserve strengthening................ 258.0 36.8 601.4
------- ------- -------
Less: Gross payments....................... 239.8 245.9 204.3
Reinsurance recoveries............... (63.8) (67.8) (0.1)
------- ------- -------
Net payments......................... 176.0 178.1 204.2
- --------------------------------------------------------------------------------------------------------------------
NET RESERVES AT END OF YEAR $2,224.2 $1,938.7 $2,080.0
====================================================================================================================
13
LIFE BUSINESS
CNA's life insurance operations market individual and group insurance
products through licensed agents, most of whom are independent contractors, who
sell life and/or group insurance for CNA and for other companies on a commission
basis.
Individual insurance products include life and annuity products, which are
sold to individuals and small businesses. The individual life products currently
being marketed consist primarily of term, universal and participating life
policies and annuities. The individual accident and health policies currently
being marketed are long-term disability products. Individual annuity products
consist of both single premium annuities and periodic payment annuities.
Group insurance products include life, accident and health and pension
products which are sold to employers, employer associations and trusts, ranging
in size from small local employers to large multinational corporations. The
group accident and health plans are primarily major medical and hospitalization.
Most of the major medical and hospitalization plans are written under
experience-rated contracts or contracts to provide claim administrative services
only. The growth in premium and in-force is attributable to new term and
permanent life products, as well as annuities.
CNA's products are designed and priced using assumptions management
believes to be reasonably conservative for mortality, morbidity, persistency,
expense levels and investment results. Underwriting practices that management
believes are prudent are followed in selecting the risks that will be insured.
Further, actual experience related to pricing assumptions is monitored closely
so that prospective adjustments to these assumptions may be implemented as
necessary. CNA mitigates the risk related to persistency by including
contractual surrender charge provisions in its ordinary life and annuity
policies in the first five to ten years, thus providing for the recovery of
acquisition expenses. The investment portfolios supporting interest sensitive
products, including universal life and individual annuities, are managed
separately to minimize disintermediation and interest rate risk.
Profitability in the health insurance business continues to be impacted by
intense competition and rising medical costs. CNA has aggressively pursued
expense reduction through increases in automation and other productivity
improvements. Further, increasing costs of health care have resulted in a
continued market shift away from traditional forms of health coverage toward
managed care products and experience-rated plans. CNA's ability to compete in
this market will be increasingly dependent on its ability to control costs
through managed care techniques, innovation, and quality customer-focused
service in order to properly position CNA in the evolving health care
environment.
Although comprehensive health care reforms were not enacted in 1995, some
health care initiatives could emerge in 1996. CNA has urged a meaningful role
for the private sector in any proposed plan. The present health care system is
clearly in need of reform, and CNA has emphasized that the competitive strengths
of the insurance industry must be an integral part of a workable solution.
14
LIFE BUSINESS--(CONTINUED)
The following table sets forth supplemental data for the life insurance
business:
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------------------
INDIVIDUAL PREMIUMS
Life and annuities....................... $ 497.1 $ 369.4 $ 312.1 $ 294.7 $ 287.9
Accident and health...................... 32.7 32.6 30.9 27.1 24.3
--------- --------- --------- --------- ---------
$ 529.8 $ 402.0 $ 343.0 $ 321.8 $ 312.2
========= ========= ========= ========= =========
GROUP PREMIUMS
Life..................................... $ 167.7 $ 138.7 $ 107.2 $ 100.7 $ 90.8
Accident and health (a).................. 2,189.8 2,111.2 1,983.0 1,957.5 1,887.0
Annuities................................ 145.1 26.3 9.0 57.7 24.3
--------- --------- --------- --------- ---------
$ 2,502.6 $ 2,276.2 $ 2,099.2 $ 2,115.9 $ 2,002.1
========= ========= ========= ========= =========
NET INVESTMENT INCOME AND OTHER INCOME
Individual............................... $ 247.3 $ 193.8 $ 154.2 $ 163.0 $ 162.5
Group.................................... 198.1 166.4 142.8 156.6 185.4
--------- --------- --------- --------- ---------
$ 445.4 $ 360.2 $ 297.0 $ 319.6 $ 347.9
========= ========= ========= ========= =========
INCOME EXCLUDING REALIZED CAPITAL GAINS,
BEFORE INCOME TAX
Individual............................... $ 65.4 $ 47.3 $ 14.5 $ 22.5 $ 13.8
Group.................................... 94.9 87.1 51.9 56.1 76.0
--------- --------- --------- --------- ---------
$ 160.3 $ 134.4 $ 66.4 $ 78.6 $ 89.8
========= ========= ========= ========= =========
GROSS LIFE INSURANCE IN FORCE
Individual (b)........................... $ 113,901 $ 80,560 $ 76,835 $ 75,569 $ 71,539
Group.................................... 52,146 46,873 35,413 29,643 27,139
--------- --------- --------- --------- ---------
$ 166,047 $ 127,433 $ 112,248 $ 105,212 $ 98,678
========= ========= ========= ========= =========
OTHER DATA - STATUTORY BASIS(C)
Capital and surplus...................... $ 1,127.6 $ 1,054.6 $ 1,022.0 $ 1,003.0 $ 968.4
Capital and surplus-percent of
total liabilities..................... 28.2% 29.4% 30.1% 33.4% 29.9%
Participating policyholders-percent
of gross life insurance in force 0.6 0.9 1.1 1.2 1.6
- ------------------------------------------------------------------------------------------------------------------
(a) Group accident and health premiums include contracts involving U.S.
government employees and their dependents amounting to approximately $1.9,
$1.8, $1.7, $1.6, and $1.5 billion in 1995, 1994, 1993, 1992, and 1991,
respectively.
(b) Lapse ratios, for individual life insurance, as measured by surrenders
and withdrawals as a percentage of average ordinary life insurance in force
were 9.4%, 9.7%, 9.7%, 8.6%, and 10.4%, in 1995, 1994, 1993, 1992, and
1991, respectively.
(c) Other Data is determined on the basis of statutory accounting
practices. Life insurance subsidiaries have received reimbursement from CNA
for general management and administrative expenses and investment expenses
of $21.3, $24.7, $25.6, $24.5, and $25.7 million in 1995, 1994, 1993, 1992,
and 1991, respectively. Statutory capital and surplus as a percent of total
liabilities is determined after excluding Separate Account liabilities and
reclassifying the Asset Valuation and Interest Maintenance Reserves
(statutorily defined as created reserves) as surplus.
15
LIFE BUSINESS - (CONTINUED)
Guaranteed Investment Contracts
- -------------------------------
CAC writes the majority of its group pension products as guaranteed
investment contracts in a fixed Separate Account, which is permitted by Illinois
insurance statutes. CAC guarantees principal and a specified return to
guaranteed investment contractholders. This guarantee affords the
contractholders additional security, in the form of CAC's general account
surplus, which supports the principal and interest payments.
CNA manages the liquidity and interest rate risks on the guaranteed
investment contract portfolio by matching the duration of fixed maturity
securities included in the guaranteed investment contract portfolio with the
corresponding payout pattern of the contracts, and assessing market value
surrender charges on the majority of the contracts.
The table below shows a comparison of the duration of assets and contracts,
weighted average investment yield, weighted average interest crediting rates,
and withdrawal characteristics of the guaranteed investment contract portfolio.
- --------------------------------------------------------------------------------
December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Duration in years:
Assets..................................... 3.12 3.23 2.68
Contracts.................................. 2.98 2.99 2.73
---- ---- -----
Difference................................. 0.14 0.24 (0.05)
==== ==== =====
Weighted average investment yield............. 7.58% 7.67% 7.11%
Weighted average interest crediting rates..... 7.45% 7.53% 7.74%
Withdrawal characteristics:
With market value adjustment.................. 92% 79% 81%
Non-withdrawable........................... 8 15 13
Without market value adjustment............ 0 6 6
- --------------------------------------------------------------------------------
Total 100% 100% 100%
================================================================================
As shown above, the investment yield at December 31, 1995 and 1994 was more
than the average crediting rate. The investment yields at December 31, 1993 was
less than the average crediting rate. This resulted from the reinvestment of
proceeds from security sales that generated substantial gains, at rates that
were lower than those of the securities sold. However, because the security
sales created a larger asset base to reinvest, the aggregate future cash flows
from interest and principal were substantially unchanged and sufficient to meet
the contract obligations.
16
INVESTMENTS
CNA's general account investment portfolio is managed to maximize after-tax
investment return, while minimizing credit risks with investments concentrated
in high quality securities to support its insurance underwriting operations.
CNA has the capacity to hold its fixed maturity 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 maturity securities are classified as available-for-sale.
CNA's portfolio is managed based on the following investment strategies: i)
diversification is used to limit exposures to any one issue or issuer, and ii)
in general, the public market is used in order to provide liquidity.
Historically, CNA has maintained short-term assets at a level that provided
for liquidity to meet its short-term obligations, principally anticipated claim
payments. At December 31, 1995, short-term investments primarily consisted of
U.S. Treasury bills and high-grade commercial paper. The major components of the
short-term investment portfolio were $800 million of collateral for securities
sold under agreements to repurchase, $1.0 billion in an escrow account (see Note
A of the Consolidated Financial Statements) and approximately $1.9 billion of
other short-term investments.
The following summarizes CNA's distribution of general account investments
at fair value:
---------------------------------------------- ---------- ---------- ----------
DISTRIBUTION OF INVESTMENTS-GENERAL ACCOUNT
DECEMBER 31 1995 1994 1993
(In millions of dollars)
---------------------------------------------- ---------- ---------- ----------
Fixed maturities:
Tax-exempt bonds......................... $ 3,603 $ 3,770 $ 5,015
Taxable bonds............................ 26,725 16,629 12,145
Redeemable preferred stocks.............. 116 429 448
Equity securities:
Common stocks............................ 915 755 508
Non-redeemable preferred stocks.......... 3 - -
Mortgage loans and real estate.............. 122 47 62
Policy loans................................ 177 176 174
Other invested assets....................... 500 101 67
Short-term investments...................... 3,725 5,036 6,944
---------------------------------------------- ---------- ---------- ----------
Total investments at fair value $35,886 $26,943 $25,363
===============================================================================
CNA's general account fixed income portfolio has consistently been of high
quality as illustrated in the following table using the Standard & Poor's
ratings convention (see Note on page 17).
-------------------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GENERAL ACCOUNT
DECEMBER 31 1995 1994 1993
-------------------------------------------------------------------------------
AAA........................................ 78% 82% 77%
AA......................................... 5 6 8
A.......................................... 6 5 7
BBB........................................ 5 2 5
Below BBB.................................. 6 5 3
-------------------------------------------------------------------------------
Total 100% 100% 100%
===============================================================================
CNA's Separate Account investment portfolio is managed to specifically
support the underlying insurance products (see the discussion of guaranteed
investment contracts on page 16 above). Approximately 85% or $5.0 billion of
Separate Account investments are used to fund guaranteed investment contracts;
the remaining investments are used to fund variable products.
17
INVESTMENTS (CONTINUED)
Approximately 96% of the guaranteed investment contracts investment
portfolio is comprised of taxable fixed income securities. The quality of the
guaranteed investment contracts fixed maturity portfolio is as follows (see Note
below):
- --------------------------------------------------------------------------------
BOND PORTFOLIO QUALITY - GUARANTEED INVESTMENT PORTFOLIO
DECEMBER 31 1995 1994 1993
- --------------------------------------------------------------------------------
AAA............................................. 54% 49% 44%
AA.............................................. 5 5 6
A............................................... 14 13 18
BBB............................................. 7 9 13
Below BBB....................................... 20 24 19
- --------------------------------------------------------------------------------
Total 100% 100% 100%
================================================================================
Note: The bond ratings shown in the two tables above are primarily from
Standard & Poor's (93% of the general account portfolio and 95% of
the guaranteed investment portfolio in 1995). In the case of private
placements and other unrated securities, comparable internal ratings
are developed by CNA. These ratings are derived by management using
information available 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.
High yield securities are bonds rated below investment grade by bond rating
agencies, plus private placements and other unrated securities, which in CNA's
opinion, are below investment grade (below BBB). High yield securities generally
involve a greater degree of risk than that of investment grade securities.
Expected returns should, however, compensate for the added risk. The risk is
also considered in the interest rate assumptions in the underlying insurance
products. Further, CNA's investment in real estate and mortgage loans amounted
to less than one-half of one percent of its total assets, substantially below
industry averages. As of December 31, 1995, CNA's concentration of high yield
bonds including separate accounts was approximately 4.7% of total assets.
At December 31, 1995 and 1994, high yield securities within the general and
guaranteed investment portfolios were carried at fair value and amounted to $2.8
billion and $2.1 billion, respectively. Carrying values and fair values of high
yield securities in the general account were $1.9 billion at December 31, 1995,
compared to $1.0 billion at December 31, 1994. In 1995, the level of high yield
investments within the guaranteed investment portfolio decreased $158 million to
$944 million at year end. Market value exceeded amortized cost for high yield
securities by approximately $53 million at December 31, 1995 compared to
December 31, 1994 when amortized cost exceeded market value by $138 million.
Included in CNA's 1995 AAA-rated fixed income securities (general and
guaranteed investment portfolios) are $8.5 billion of asset-backed securities,
consisting of approximately 32% in collateralized mortgage obligations
("CMO's"), 57% in U.S. government agency issued pass-through certificates, and
11% in corporate asset-backed obligations. The majority of CMO's held are U.S.
government agency issues which are actively traded in liquid markets and are
priced monthly by broker-dealers. CNA limits the risks associated with interest
rate fluctuations and prepayment by concentrating its CMO investments in planned
amortization classes with relatively short principal repayment windows. CNA
generally does not invest in complex mortgage derivatives without readily
ascertainable market prices.
CNA invests from time to time in certain derivative financial instruments
to increase investment returns and to eliminate the impact of changes in
interest rates on certain corporate borrowings. Financial instruments used for
such purposes include interest rate swaps, put and call options, commitments to
purchase securities, and short sale of common stock. The gross notional
principal or contractual amounts of these instruments at December 31, 1995,
totaled $2,769.8 million (including $1.2 billion of interest rate swaps
associated with corporate borrowings) compared to $127.9 million at December 31,
1994. See Note F of the Consolidated Financial Statements for further
discussion.
18
ITEM 2. PROPERTIES
CNA Plaza, owned by Continental Assurance Company, serves as the home
office for CNA and its insurance subsidiaries. An adjacent building (located at
55 E. Jackson Blvd.), jointly owned by Continental Casualty Company and
Continental Assurance Company, is partially situated on grounds under leases
expiring in 2058. Approximately 35% of the adjacent building is rented to
non-affiliates. CNA's subsidiaries lease office space in various cities
throughout the United States and in other countries. The following table sets
forth certain information with respect to the principal office buildings owned
or leased by CNA's subsidiaries:
-------------------------------------------------------------------------
Amount Of Building
Owned and Occupied or
Leased by CNA or its
Location Subsidiaries Principal Usage
-------------------------------------------------------------------------
CNA Plaza 1,421,000 * Principal Executive
333 S. Wabash offices of CNA
Chicago, Illinois
180 Maiden Lane 850,453* Property/Casualty
New York, New York Insurance Offices
1 Continental Drive 490,993** Property/Casualty
Cranbury, New Jersey Insurance Offices
55 E. Jackson Blvd. 323,040 * Principal Executive
Chicago, Illinois offices of CNA
200 S. Wacker Drive 296,822** Property/Casualty
Chicago, Illinois Insurance Offices
401 Penn Street 251,691* Property/Casualty
Reading, Pennsylvania Insurance Offices
100 CNA Drive 251,363* Life Insurance Offices
Nashville, Tennessee
7361 Calhoun Place 224,175** Life Insurance Offices
Rockville, Maryland
1111 E. Broad St. 197,537** Property/Casualty
Columbus, Ohio Insurance Offices
333 Glen Street 158,700** Property/Casualty
Glen Falls, New York Insurance Offices;
Residual Market Center
3501 State Highway 123,184** Data Processing
No. 66 Facilities
Neptune, New Jersey
15400 Calhoun Drive 106,848** Life Insurance Offices
Rockville, Maryland
-------------------------------------------------------------------------
Amount Of Building
Owned and Occupied or
Leased by CNA or its
Location Subsidiaries Principal Usage
-------------------------------------------------------------------------
1431 Opus Place 100,991** Property,/Casualty,
Downers Grove, Il. Surety Insurance
Offices
1100 Ward Avenue, 95,450* First Insurance
Honolulu, Hawaii Company of Hawaii,
Ltd. Headquarters
* Represents property owned by CNA or its subsidiaries.
** Represents property leased by CNA or its subsidiaries.
19
ITEM 3. LEGAL PROCEEDINGS
Incorporated herein by reference from Note J of the Consolidated Financial
Statements in the 1995 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 76 of the 1995 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from page 2 of the 1995 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 25 of the 1995
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheet - December 31, 1995 and 1994
Statement of Consolidated Operations - Years Ended December 3l, 1995, 1994
and 1993
Statement of Consolidated Stockholders' Equity - Years Ended December 31,
1995, 1994 and 1993
Statement of Consolidated Cash Flows - Years Ended December 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
Independent Auditors' Report
The above Consolidated Financial Statements, the related Notes to the
Consolidated Financial Statements and the Independent Auditors' Report are
incorporated herein by reference from pages 26 through 74 of the 1995 Annual
Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
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. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS: Number
A separate index to the Consolidated Financial Statements is presented
in Part II, Item 8.............................................................. 21
(a) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule I Summary of Investments...................................... 26
Schedule II Condensed Financial Information (Parent Company)............ 27
Schedule III Supplementary Insurance Information......................... 31
Schedule V Valuation and Qualifying Accounts and Reserves.............. 32
Schedule VI Supplemental Information Concerning Property/Casualty
Insurance Operations........................................ 32
Other schedules are omitted because of the absence of conditions
under which they are required or because the required
information is provided in the Consolidated Financial Statements
or notes thereto.
Independent Auditors' Report.................................................... 33
21
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(continued)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
----------------------
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession:
Securities Purchase Agreement, dated as of December 6, 1994, by and between
CNA Financial Corporation and The Continental Corporation (with exhibits
thereto) (Exhibit 1 to Form 8-K dated December 9, 1994 incorporated herein
by reference.)................................................................. 2.1
Merger Agreement, dated as of December 6, 1994, by and among CNA Financial
Corporation, Chicago Acquisition Corp. and The Continental Corporation
(Exhibit 2 to Form 8-K dated December 9, 1994 incorporated herein
by reference.)................................................................. 2.2
(3) Articles of incorporation and by-laws:
Certificate of Incorporation of CNA Financial Corporation, as amended May 6,
1987 (Exhibit 3.1 to 1987 Form 10-K incorporated herein by reference).......... 3.1
By-Laws of CNA Financial Corporation, as amended August 2, 1995................ 3.2*
(4) Instruments defining the rights of security holders, including indentures:
CNA Financial Corporation hereby agrees to furnish to the Commission
upon request copies of instruments with respect to long-term debt,
pursuant to Item 601(b) (4) (iii) of Regulation S-K............................ -
(10) Material contracts:
Continental Casualty Company "CNA" Annual Incentive Bonus Plan Provisions
(Exhibit 10.1 to 1994 Form 10K incorporated herein by reference)............... 10.1
Employment Agreement between CNA Financial Corporation and
Dennis H. Chookaszian, dated December 31, 1995................................. 10.2*
Employment Agreement between CNA Financial Corporation and
Philip L. Engel, dated December 31, 1995....................................... 10.3*
Continuing Services Agreement between CNA Financial Corporation and
Edward J. Noha, dated February 27, 1991 (Exhibit 6.0 to 1991...................
Form 8-K, filed March 18, 1991, incorporated herein by reference.)............. 10.4
CNA Employees' Retirement Benefit Equalization Plan, as
amended through January 1, 1993 (Exhibit 10.4 to 1992 Form
10-K incorporated herein by
reference)..................................................................... 10.5
CNA Employees' Supplemental Savings Plan, as amended through January 1, 1993
(Exhibit 10.6 to 1992 Form 10-K incorporated herein by reference.)............. 10.6
22
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(continued)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
----------------------
(10) Material contracts (continued):
Federal Income Tax Allocation Agreement dated February 29, 1980
between CNA Financial Corporation and Loews Corporation
(Exhibit 10.2 to 1987 Form 10-K incorporated herein by reference.)......... 10.7
Agreement between Fibreboard Corporation and Continental
Casualty Company, dated April 9, 1993 (Exhibit A to 1993 Form
8-K filed
April 12, 1993 incorporated herein by reference.).......................... 10.8
Settlement Agreement entered into on October 12, 1993 by and
among Fibreboard Corporation, Continental Casualty Company,
CNA Casualty of California, Columbia Casualty Company and
Pacific Indemnity Company together the "Parties" (Exhibit 10.1
to September 30, 1993 Form 10-Q
incorporated herein by reference.)......................................... 10.9
Continental-Pacific Agreement entered into October 12, 1993
between Continental Casualty Company and Pacific Indemnity
Company (Exhibit 10.2 to September 30, 1993 Form 10-Q
incorporated herein
by reference.)............................................................. 10.10
Global Settlement Agreement among Fibreboard Corporation,
Continental Casualty Company, CNA Casualty Company of
California, Columbia Casualty Company, Pacific Indemnity
Company and the Settlement Class dated December 23, 1993
(Exhibit 10.11 to 1993 Form 10-K incorporated herein
by reference).............................................................. 10.11
Glossary of Terms in Global Settlement Agreement, Trust
Agreement, Trust Distribution Process and Defendant Class
Settlement Agreement as of December 23, 1993 (Exhibit 10.12 to
1993 Form 10-K incorporated herein
by reference).............................................................. 10.12
Fibreboard Asbestos Corporation Trust Agreement dated December 23, 1993
(Exhibit 10.13 to 1993 Form 10-K incorporated herein by reference)......... 10.13
Trust Distribution Process - Annex A to the Trust Agreement as
of December 23, 1993 (Exhibit 10.14 to 1993 Form 10-K
incorporated herein
by reference).............................................................. 10.14
Defendant Class Settlement Agreement dated December 22, 1993 (Exhibit
10.15 to 1993 Form 10-K incorporated herein by reference).................. 10.15
Escrow Agreement among Continental Casualty Company, Pacific Indemnity
Company and The First National Bank of Chicago dated December 23, 1993
(Exhibit 10.16 to 1993 Form 10-K incorporated herein by reference)......... 10.16
23
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(continued)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number
----------------------
(11) Computation of Net Income per Common Share......................................... 11.1*
(12) Statements regarding computation of ratios:
Computation of Ratio of Earnings to Fixed Charges.................................. 12.1*
Computation of Ratio of Net Income, As Adjusted, to Fixed Charges.................. 12.2*
(13) 1995 Annual Report................................................................. 13.1*
(21) Subsidiaries of CNA................................................................ 21.1*
(23) Consent of Deloitte & Touche LLP................................................... 23.1*
(27) Financial Data Schedule............................................................ 27*
(28) Information from reports furnished to state insurance regulatory authorities:
Property/Casualty Reserve Reconciliation-Statutory Basis to Generally
Accepted Accounting Principles..................................................... 28.1*
Schedule P from CNA's property/casualty insurance subsidiaries 1995 Annual
Statutory Statements provided to state insurance regulatory authorities............ 28.2 **
* Filed herewith
** Filed hard copy under Regulation S-T Rule 311(c) Form SE
(b) REPORTS ON FORM 8-K:
NONE
24
SCHEDULE I
CNA FINANCIAL CORPORATION
SUMMARY OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994
------------------------------- -------------------------------
MARKET CARRYING MARKET CARRYING
(in millions of dollars) COST VALUE VALUE COST VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------
Fixed maturities available-for-sale:
Bonds:
United States government and government
agencies and authorities-taxable.... $17,903.4 $18,511.4 $18,511.4 $13,404.4 $12,704.2 $12,704.2
States, municipalities and political
subdivisions-tax exempt............. 3,452.8 3,603.1 3,603.1 3,704.6 3,769.6 3,769.6
Foreign governments and political
subdivisions........................ 1,509.3 1,543.3 1,543.3 662.9 653.4 653.4
Public utilities..................... 280.2 305.2 305.2 186.8 190.0 190.0
Convertibles and bonds with warrants
attached............................ 252.2 260.8 260.8 271.9 257.5 257.5
All other corporate.................. 5,881.4 6,098.8 6,098.8 2,937.2 2,824.2 2,824.2
Redeemable preferred stocks.............. 106.1 122.1 122.1 419.3 428.8 428.8
-------- -------- -------- -------- -------- --------
Total fixed maturities 29,385.4 30,444.7 30,444.7 21,587.1 20,827.7 20,827.7
======== ======== ======== ======== ======== ========
available-for-sale
Equity securities available-for-sale:
Common stocks:
Public utilities..................... 17.7 23.5 23.5 26.2 26.3 26.3
Banks, trusts, and insurance companies 84.3 96.7 96.7 134.6 129.0 129.0
Industrial and other................. 631.8 795.0 795.0 567.9 599.5 599.5
Non -redeemable preferred stocks......... 2.5 2.5 2.5 7.6 - -
-------- -------- -------- -------- -------- --------
Total equity securities
available-for-sale................. 736.3 $917.7 917.7 736.3 $754.8 754.8
-------- ======== -------- -------- ======== --------
Mortgage loans.............................. 139.8 119.3 43.8
-------- -------- --------
Real estate:
Investment properties.................... 6.6 3.0 6.3 3.0
Acquired in satisfaction of debt......... 0.2 0.1 0.2 0.1
-------- -------- -------- --------
Total real estate.................. 6.8 3.1 6.5 3.1
-------- -------- -------- --------
Policy loans................................ 177.1 177.2 176.3 176.3
Other invested assets....................... 483.5 499.9 103.4 101.1
Short-term investments...................... 3,724.5 3,724.5 5,036.1 5,036.1
- ------------------------------------------------------------------------------------------------------------------
Total investments $34,653.4 $35,886.4 $27,689.5 $26,942.9
==================================================================================================================
25
SCHEDULE II
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
FINANCIAL POSITION
- --------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------
ASSETS:
Investments in subsidiaries................................ $8,060.6 $4,082.1
Federal income taxes recoverable........................... 136.6 23.7
Deferred income taxes...................................... 785.2 1,475.2
Notes Receivable from affiliate............................ 205.0 ---
------- -------
Other...................................................... 7.9 3.8
------- -------
Total assets....................................... 9,195.3 5,584.8
------- -------
LIABILITIES:
Debt....................................................... 2,222.4 896.4
Amounts due to affiliates.................................. 190.3 112.0
Other...................................................... 47.1 30.5
------- -------
Total liabilities.................................. 2,459.8 1,038.9
Total stockholders' equity......................... 6,735.5 4,545.9
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,195.3 $5,584.8
========================================================================================================
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------
REVENUES:
Equity in income of subsidiaries before income tax:
Operating income (loss)................................. $923.5 $389.1 $(467.6)
Realized investment gains (losses)...................... 453.0 (256.8) 790.3
Net investment income...................................... 9.0 0.3 1.7
Other...................................................... (1.2) (3.7) (3.5)
Realized investment gains (losses)......................... 3.1 (.3) 12.7
------- ------- -------
1,387.4 128.6 333.6
------- ------- -------
EXPENSES:
Administrative and general expenses........................ 219.7 193.1 198.9
Interest expense........................................... 125.3 69.6 41.3
------- ------- -------
345.0 262.7 240.2
------- -------
Income (loss) before income tax..................... 1,042.4 (134.1) 93.4
Income tax (expense) benefit............................... (285.4) 170.6 174.1
- --------------------------------------------------------------------------------------------------------
NET INCOME $757.0 $ 36.5 $ 267.5
========================================================================================================
See accompanying Notes to Condensed Financial Information.
26
SCHEDULE II
(CONTINUED)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
CASH FLOW
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994 1993
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 757.0 $ 36.5 $ 267.5
-------- ------ ------
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in earnings of unconsolidated affiliates........ (1,200.7) (98.0) (349.5)
Realized (gains) losses................................ (3.1) 0.3 (12.6)
Changes in:
Accrued investment income............................. - 1.1 (0.1)
Federal income taxes.................................. (112.9) 5.6 42.2
Deferred income taxes................................. 173.2 (115.0) (124.3)
Other, net............................................ 86.7 (23.6) (17.7)
-------- ------ ------
TOTAL ADJUSTMENTS.................................... (1,056.8) (229.6) (462.0)
-------- ------ ------
NET CASH USED IN OPERATING ACTIVITIES................ (299.8) (193.1) (194.5)
-------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of The Continental Corporation................... (1,125.5) - -
Other acquisition.......................................... (13.0) - -
Purchase of fixed maturities............................... (709.0) (195.7) (999.3)
Proceeds from fixed maturities:
Sales................................................... 501.2 19.6 984.5
Maturities.............................................. 200.6 192.4 -
Net proceeds from the sale of equity securities............ (0.5) 4.0 -
Change in short-term investments........................... 0.8 1.1 47.6
Change in other investments................................ 10.3 2.3 (4.2)
Capital contribution to Continental Casualty Company....... - - (475.0)
Other...................................................... (3.3) (1.0) -
-------- ------ ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.. (1,138.4) 22.7 (446.4)
-------- ------ ------
CASH FLOW
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31 1995 1994 1993
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred shareholders................... (7.3) (4.5) (4.0)
Dividend from Continental Casualty Company................. 325.8 175.0 150.0
Proceeds from issuance of long-term debt................... 1,325.0 - 494.9
Loan to The Continental Corporation........................ (205.0) - -
-------- ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 1,438.5 170.5 640.9
-------- ------ ------
NET INCREASE IN CASH................................ 0.3 0.1 -
Cash at beginning of year..................................... 0.1 - -
- ------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR........................................... $ 0.4 $ 0.1 $ -
============================================================================================================
Supplemental disclosures of cash flow information:
Cash received (paid):
Interest expense....................................... $(169.5) $ (70.5) $ (34.9)
Federal income taxes................................... 102.5 53.1 (54.2)
============================================================================================================
Supplemental disclosures of cash flow information relating to acquisitions:
Noncash investing activities that are not reflected in the Statement of Cash
Flows are listed below.
- --------------------------------------------------------------------------------
The Continental
December 31, 1995 Corporation Other
- --------------------------------------------------------------------------------
Fair value of assets acquired......... $ 15,258.5 $ 13.0
Liabilities assumed................... (14,133.0) -
---------- ------
Cash paid......................... $ 1,125.5 $ 13.0
================================================================================
See accompanying Notes to Condensed Financial Information.
27
SCHEDULE II
(Continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION
a. Debt:
- --------------------------------------------------------------------------------
DECEMBER 31 1995 1994
(In millions of dollars)
- --------------------------------------------------------------------------------
Long-term
Acquisition debt:
Credit Facility, due May 10, 2000 $ 825.0 $ --
Commercial Paper (variable interest rates) 500.0 --
Senior Notes:
8 5/8%, due March 1, 1996* -- 249.4
8 7/8 %, due March 1, 1998 149.2 148.8
6 1/4%, due November 15, 2003 248.2 248.1
7 1/4% Debenture, due November 15, 2023 247.1 247.1
1.0% Urban Development Action Grant, due May 7, 2019 3.0 3.0
------ ------
Total long-term debt 1,972.5 896.4
Short-term debt* 249.9 --
- --------------------------------------------------------------------------------
Total $ 2,222.4 $ 896.4
================================================================================
* Included in short-term debt in 1995.
To finance the acquisition of Continental (including the refinancing of
$205 million of Continental debt), CNA entered into a five-year $1.325
billion revolving credit facility involving 16 banks. The interest rate for
the facility is based on the one, two, three, or six month London Interbank
Offered Rate (LIBOR), plus 25 basis points. Additionally, there is a
facility fee of 10 basis points annually. The average interest rate on the
borrowings under the revolving credit facility at December 31, 1995 was
6.12%. Under the terms of the facility, CNA may prepay the debt without
penalty.
On August 10, 1995, to take advantage of favorable interest rates, CNA
established a commercial paper program borrowing $500 million to replace a
like amount of credit facility financing. The average interest rate on the
commercial paper at December 31, 1995 was 6.05%. The commercial paper
borrowings are classified as long-term as $500 million of the facility will
support the commercial paper. Standard and Poor's and Moody's issued
short-term debt ratings of A2 and P2, respectively, for CNA's commercial
paper program.
As of March 1, 1996, the outstanding loans under the revolving credit
facility were $825 million. There was no unused borrowing capacity under
the facility after the effects of the commercial paper program. CNA entered
into interest rate swap agreements with several banks which terminate from
May to December, 2000.
CNA entered into interest rate swap agreements with several banks which
terminate from May to December, 2000. The effect of these interest rate
swaps was to increase interest expense by $2 million for the year ended
December 31, 1995. See Notes D and F of the Consolidated Financial
Statements for further discussion.
The weighted average interest rate (interest and facility fees) on the
acquisition debt, which includes the revolving credit facility, commercial
paper, and the effect of the interest rate swaps, was 6.50% on December 31,
1995.
An additional $500 million of securities and/or preferred stock remain
available for issuance under the shelf registration statement.
28
NOTES TO CONDENSED FINANCIAL INFORMATION (CONTINUED)
b. CNA has reimbursed, or will reimburse, its subsidiaries for general
management and administrative expenses, unallocated loss adjustment
expenses and investment expense of $218.3 million, $194.3 million, and
$193.1 million in 1995, 1994, and 1993, respectively.
c. CNA contributed $475 million in capital to Continental Casualty Company
in 1993. There were no capital contributions by CNA in 1995, or 1994.
- --------------------------------------------------------------------------------
29
SCHEDULE III
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- -----------------------------------------------------------------------------------------------
GROSS INSURANCE RESERVES
--------------------------------------
CLAIM
DEFERRED AND FUTURE POLICY-
ACQUISITION CLAIM POLICY UNEARNED HOLDERS'
(In millions of dollars) COSTS EXPENSE BENEFITS PREMIUMS FUNDS
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1995
Property/Casualty
Commercial............ $ 701.9 $27,309.3 $ 38.5 $ 3,607.0 $ 162.6
Personal.............. 258.2 1,426.5 259.9 868.9 -
Involuntary risks..... 8.6 2,308.5 - 73.5 -
Life:
Individual............ 505.7 162.3 2,678.8 - 31.0
Group................. 18.9 473.0 538.7 - 511.4
------ -------- ------ ------ -----
CNA Insurance....... $ 1,493.3 31,679.6 $ 3,515.9 $ 4,549.4 $ 705.0
======= ======= ======= =====
Other and intercompany
eliminations.......... 352.8
--------
$32,032.4
========
DECEMBER 31, 1994
Property/Casualty:
Commercial............ $ 395.2 $18,920.3 $ 28.5 $ 2,129.1 $ 128.4
Personal.............. 197.1 1,042.4 199.0 559.9 -
Involuntary risks..... - 1,675.9 - 1.7 -
Life:
Individual............ 427.3 145.2 2,414.9 - 31.7
Group................. 6.8 439.4 407.4 - 472.4
------ -------- ------- ------- -----
CNA Insurance....... $ 1,026.4 22,223.2 $ 3,049.8 $ 2,690.7 $ 632.5
======= ======= ======= =====
Other and intercompany
eliminations.......... 341.6
--------
$22,564.8
========
SCHEDULE III (CONT.)
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- -----------------------------------------------------------------------------------------------
GROSS INSURANCE RESERVES
--------------------------------------
CLAIM
DEFERRED AND FUTURE POLICY-
ACQUISITION CLAIM POLICY UNEARNED HOLDERS'
(In millions of dollars) COSTS EXPENSE BENEFITS PREMIUMS FUNDS
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1993
Property/Casualty:
Commercial............ $ 371.9 $18,157.4 $ 17.2 $ 2,001.2 $ 23.5
Personal.............. 190.2 1,013.0 151.8 536.2 -
Involuntary risks..... - 1,641.6 - 18.6 -
Life:
Individual............ 416.7 143.6 2,178.0 - 32.0
Group................. 6.6 434.0 406.6 - 423.1
------ -------- ------- ------- -----
CNA Insurance....... $ 985.4 21,389.6 $ 2,753.6 $ 2,556.0 $ 478.6
======= ======= ======= =====
Other and intercompany
eliminations.......... 280.6
--------
$21,670.2
========
SCHEDULE III (CONT.)
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- ------------------------------ ------------ -------------------------------------------------------------------
AMORTIZATION
INSURANCE OF
NET NET CLAIMS AND DEFERRED OTHER
PREMIUM INVESTMENT POLICYHOLDERS' ACQUISITION OPERATING PREMIUMS
(In millions of dollars) REVENUE INCOME BENEFITS COSTS EXPENSES WRITTEN
- ------------------------------ ------------ ------------ -------------- ------------- ------------ ------------
DECEMBER 31, 1995
Property/Casualty
Commercial............ $7,225.3 $ 1,463.1 $ 5,995.2 $ 1,494.8 $ 915.3 $ 7,561.3
Personal.............. 1,214.8 132.4 891.6 271.4 228.5 1,254.3
Involuntary risks..... 283.7 104.3 234.0 16.7 145.8 310.5
Life:
Individual............ 529.8 214.6 506.8 70.5 134.3 -
Group................. 2,502.6 154.6 2,340.1 (9.9) 275.6 -
-------- ------- ------- -------- ------- -------
CNA Insurance....... 11,756.2 2,069.0 9,967.7 $ 1,843.5 1,699.5 $ 9,126.1
======== =======
Other and intercompany
eliminations.......... (21.1) 7.6 (23.8) (19.7)
-------- ------- ------- -------
$11,735.1 $ 2,076.6 $ 9,943.9 $ 1,679.8
======== ======= ======= =======
DECEMBER 31, 1994
Property/Casualty:
Commercial............ $5,417.1 $ 1,050.8 $ 4,845.8 $ 1,099.2 $ 512.3 $ 5,488.7
Personal.............. 965.7 101.5 833.2 229.6 164.1 1,037.3
Involuntary risks..... 455.7 88.1 339.6 - 186.4 438.7
Life:
Individual............ 402.0 172.2 392.2 46.7 109.6 -
Group................. 2,276.2 138.4 2,092.9 2.0 260.6 -
-------- ------ ------- ------- ------- --------
CNA Insurance....... 9,516.7 1,551.0 8,503.7 $ 1,377.5 1,233.0 $ 6,964.7
======= ========
Other and intercompany
eliminations.......... (42.3) 0.2 (42.5) 2.4
------- ------- ------- ------
$9,474.4 $ 1,551.2 $ 8,461.2 $ 1,235.4
======= ======= ======= =======
SCHEDULE III (CONT.)
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
- ------------------------------ ------------ -------------------------------------------------------------------
AMORTIZATION
INSURANCE OF
NET NET CLAIMS AND DEFERRED OTHER
PREMIUM INVESTMENT POLICYHOLDERS' ACQUISITION OPERATING PREMIUMS
(In millions of dollars) REVENUE INCOME BENEFITS COSTS EXPENSES WRITTEN
- ------------------------------ ------------ ------------ -------------- ------------- ------------ ------------
DECEMBER 31, 1993
Property/Casualty:
Commercial............ $4,964.0 $ 896.6 $ 5,171.9 $ 951.2 $ 459.7 $ 5,030.9
Personal.............. 939.8 87.5 756.0 221.2 130.9 984.2
Involuntary risks..... 371.2 75.7 336.3 - 191.5 367.2
Life:
Individual............ 343.0 142.8 362.2 25.5 95.0 -
Group................. 2,099.2 116.9 1,945.6 2.4 242.1 -
-------- ------ ------- ------- ------- -------
CNA Insurance....... 8,717.2 1,319.5 8,572.0 $ 1,200.3 1,119.2 $ 6,382.3
======= =======
Other and intercompany
eliminations.......... (28.4) (5.2) (28.6) 0.5
-------- ------- ------- -------
$8,688.8 $ 1,314.3 $ 8,543.4 $ 1,119.7
======= ======= ======= =======
30
SCHEDULE V
CNA FINANCIAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ----------------------------------------------------------------------------------------------------------------
BALANCE BALANCE
AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
(In millions of dollars) OF PERIOD EXPENSES AMOUNTS DEDUCTIONS PERIOD
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables................. $ 127.5 $ 39.0 $ 143.5* $ 21.3 $ 288.7
====== ====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1994
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables................. $ 117.3 $ 18.6 $ - $ 8.4 $ 127.5
====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1993
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables................. $ 110.4 $ 9.2 $ - $ 2.3 $ 117.3
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------
* Includes Continental allowance at acquisition.
SCHEDULE VI
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
- ------------------------------------------------------------------------------------------------------
CONSOLIDATED PROPERTY/
CASUALTY ENTITIES
----------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------
(In millions of dollars) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
Deferred acquisition costs............................... $ 968.7 $ 592.3 $ 562.0
Reserves for unpaid claims and claim expenses............ 31,044.3 21,638.6 20,812.0
Discount, if any, deducted above (based on interest
rates ranging from 3.5% to 7.5%)......................... 2,426.9 1,951.3 1,886.5
Unearned premiums........................................ 4,549.4 2,690.7 2,556.0
Earned premiums.......................................... 8,723.8 6,838.5 6,275.0
Net investment income.................................... 1,699.8 1,240.4 1,059.8
Claim and claim expenses related to current year......... 6,787.3 5,610.8 5,387.9
Claim and claim expenses related to prior years.......... 121.8 (71.2) 590.0
Amortization of deferred acquisition costs............... 1,782.9 1,328.8 1,172.4
Paid claim and claim expenses............................ 7,057.5 5,026.6 4,917.9
Premiums written......................................... 9,126.1 6,964.7 6,382.3
- -------------------------------------------------------------------------------------------------------
31
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, 1995 and 1994 and for each of the three years in the period ended December
31, 1995, and have issued our report thereon dated February 14, 1996, which
report includes an explanatory paragraph as to a change in accounting for
certain investments in debt and equity securities in 1993; such consolidated
financial statements and report are included in the Company's 1995 Annual Report
to Shareholders and are incorporated herein by reference. Our audits also
included the financial statement schedules of CNA Financial Corporation and
subsidiaries listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects, the information set forth
therein.
S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
February 14, 1996
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CNA Financial Corporation
By S/LAURENCE A. TISCH
--------------------------------------------------------
Laurence A. Tisch
Chief Executive Officer
(Principal Executive Officer)
By S/PETER E. JOKIEL
--------------------------------------------------------
Peter E. Jokiel
Senior Vice President and
Chief Financial Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE
S/ANTOINETTE COOK BUSH Director |
- ---------------------------------- |
Antoinette Cook Bush |
|
S/DENNIS H. CHOOKASZIAN Director |
- ---------------------------------- |
Dennis H. Chookaszian |
|
S/PHILIP L. ENGEL Director |
- ---------------------------------- |
Philip L. Engel |
|
S/ROBERT P. GWINN Director |
- ---------------------------------- |
Robert P. Gwinn |
|
S/EDWARD J. NOHA Chairman of the Board |
- ---------------------------------- and Director |
Edward J. Noha |
|
S/JOSEPH ROSENBERG Director |
- ---------------------------------- |
Joseph Rosenberg |
|- Dated:
S/RICHARD L. THOMAS Director | March 29, 1996
- ---------------------------------- |
Richard L. Thomas |
SIGNATURE TITLE
S/JAMES S. TISCH Director |
- ---------------------------------- |
James S. Tisch |
|
S/LAURENCE A. TISCH Chief Executive Officer |
- ---------------------------------- and Director |
Laurence A. Tisch |
|
S/PRESTON R. TISCH Director |
- ---------------------------------- |
Preston R. Tisch |
|
S/MARVIN ZONIS Director |
- ---------------------------------- |
Marvin Zonis
33
EXHIBIT 11.1
CNA FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars, except per share data)
- ---------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding....................... 61.8 61.8 61.8 61.8 61.8
==== ==== ==== ==== ====
Net income (loss) before cumulative effect of
accounting changes...................................... $ 757.0 $ 36.5 $ 267.5 $(662.5) $ 612.5
Less preferred stock dividends............................ 6.9 5.3 4.0 4.2 6.8
------ ------- ------ ------ ------
Net income (loss) before cumulative effect of
accounting changes available to common stockholders.. 750.1 31.2 263.5 (666.7) 605.7
Cumulative effect on prior years of changes in
accounting principles................................... - - - 331.9 -
------ ------ ------ ------ ----
Net income (loss) available to common stockholders..... $ 750.1 $ 31.2 $ 263.5 $(334.8) $ 605.7
====== ====== ====== ====== =====
Earnings per share:
Net income (loss) before cumulative effect of
accounting changes...................................... $ 12.14 $ 0.51 $ 4.26 $ (10.79) $ 9.80
Cumulative effect on prior years of changes
in accounting principles................................ - - - 5.37 -
------ ------ ------ ------- ----
Net income (loss) available to common stockholders..... $ 12.14 $ 0.51 $ 4.26 $ (5.42) $ 9.80
======= ======= ======= ======= =======
- ---------------------------------------------------------- -----------------------------------------------------
34
EXHIBIT 12.1
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars, except ratios)
- --------------------------------------------------------------------------------------------------------------
Income (loss) before income tax and cumulative
effect of accounting changes......................... $1,042.4 $(134.0) $93.5 $(1,374.9) $555.9
Add:
Interest expense.................................. 182.3 70.5 36.3 36.7 38.3
Interest element of operating lease rental........ 46.7 19.1 18.2 17.6 17.6
------- ----- ----- -------- -----
Income before income tax and cumulative effect of
accounting changes, as adjusted................. $1,271.4 $(44.4) $148.0 $(1,320.6) $611.8
======= ===== ===== ======== =====
Fixed charges:
Interest expense.................................. $182.3 $70.5 $36.3 $36.7 $38.3
Interest element of operating lease rental........ 46.7 19.1 18.2 17.6 17.6
----- ---- ---- ---- ----
Fixed charges........................................ $229.0 $89.6 $54.5 $54.3 $55.9
===== ==== ==== ==== ====
Ratio of earnings to fixed charges (1)............... 5.6 (0.5) 2.7 (24.3) 10.9
- --------------------------------------------------------------------------------------------------------------
(1) For purposes of computing this ratio, earnings consist of income before
income taxes and cumulative effect of accounting changes plus fixed charges
of consolidated companies. Fixed charges consist of interest and that
portion of operating lease rental expense which is deemed to be an interest
factor for such rentals.
EXHIBIT 12.2
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF NET INCOME,
AS ADJUSTED, TO FIXED CHARGES
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 1993 1992 1991
(In millions of dollars, except ratios)
- ---------------------------------------------------------------------------------------------------------
Net income (loss)................................ $ 757.0 $ 36.5 $ 267.5 $ (330.5) $ 612.5
Add:
Interest expense, after tax................... 118.5 45.8 23.6 24.2 25.3
Interest element of operating lease rental,
after tax................................... 30.3 12.4 11.8 11.7 11.6
----- ----- ----- ----- -----
Net income (loss), as adjusted................... $ 905.8 $ 94.7 $ 302.9 $ (294.6) $ 649.4
===== ===== ===== ===== =====
Fixed charges:
Interest expense, after tax................... $ 118.5 $ 45.8 $ 23.6 $ 24.2 $ 25.3
Interest element of operating lease rental,
after tax................................... 30.3 12.4 11.8 11.7 11.6
----- ----- ----- ----- -----
Fixed charges.................................... $ 148.8 $ 58.2 $ 35.4 $ 35.9 $ 36.9
====== ===== ===== ===== =====
Ratio of net income (loss), as adjusted,
to fixed charges (1)........................... 6.1 1.6 8.6 (8.2) 17.6
- --------------------------------------------------------------------------------------------------------
(1) For purposes of computing this ratio, net income has been adjusted to
include fixed charges of consolidated companies, after tax. Fixed charges
consist of interest and that portion of operating lease rental expense
which is deemed to be an interest factor for such rentals.
35
EXHIBIT 21.1
SUBSIDIARIES OF CNA
PLACE OF
COMPANY INCORPORATION
- ------- -------------
1897 Corporation Delaware
1911 Corp. and 2 Subsidiaries Delaware
AFCO Agent Service Corporation Delaware
Agency Management Services, Inc. and 6 Subsidiaries Delaware
Alexsis, Inc. and 4 Subsidiaries Maryland
American Casualty Company of Reading, Pennsylvania (ACCO) Pennsylvania
Bayside Management Company, Inc. California
Bayside Reinsurance Company, Ltd. Bermuda
Boston Old Colony Insurance Company Massachusetts
California Central Trust Bank Corporation California
CICAN I Investment Holding Company Canada
CICAN II Investment Holding Company Canada
Cinema Completions International, Inc. Delaware
Claims Administration Corp. Maryland
CNA (Bermuda) Services, Ltd. Bermuda
CNA Automation, Inc. Illinois
CNA Casualty of California California
CNA Casualty of Illinois Illinois
CNA Financial Corporation (CNA) Delaware
CNA Management (International) Limited Jersey Channel Islands
CNA Management Company Limited and 2 Subsidiaries United Kingdom
CNA Real Estate Services, Inc. Illinois
CNA Realty Corp. and 1 Subsidiary Delaware
CNA Reinsurance Company Illinois
CNA Risk Management Holding Company, Inc. Illinois
CNA Services, Incorporated Illinois
CNA Structured Settlements, Inc. Illinois
Collateral Holding Subsidiaries Illinois
Columbia Casualty Company Illinois
Commercial Insurance Company of Newark, N.J. New Jersey
Continental Assurance Company (CAC) Illinois
Continental Casualty Company (CCC) Illinois
Continental Center Associates New York
Continental Corporate Realty Services, Inc. New York
Continental Guaranty & Credit Corporation New York
Continental Holding Corporation Delaware
Continental Holdings Ltd. New South Wales
Continental Insurance (International Agencies) Australia Pty Limited New South Wales
Continental International Insurance, Limited Puerto Rico
Continental Life (Europe) Limited United Kingdom
Continental Life (International) Limited Guemsey
Continental Lloyd's Insurance Company Texas
Continental Loss Adjusting Services, Inc. Illinois
Continental Maiden Lane, Inc. Delaware
Continental Management Services, Ltd. United Kingdom
36
EXHIBIT 21.1 (CONT.)
SUBSIDIARIES OF CNA
Continental Pacific (Australia) Holding Limited Australia
Continental Pacific Insurance Company (Australia) Limited New South Wales
Continental Re Management, Inc. New York
Continental Rehabilitation Resources, Inc. New Jersey
Continental Reinsurance Corporation California
Continental Reinsurance Corporation International Limited Bermuda
Continental Reinsurance Corporation (U.K.) Limited United Kingdom
Continental Reinsurance Management Company Limited United Kingdom
Continental Reinsurance Management Holding Company Limited United Kingdom
Continental Risk Services, Ltd. Bermuda
Continental Risk Services (Barbados) Ltd. Barbados
Continental Service Plan, Inc. New Jersey
Continental Solution, Inc. Illinois
Continental Subsidiary Corporation Delaware
Continental Vision Financial Services, Inc. Delaware
Convida Holdings Ltd and 1 Subsidiary Bahamas
CPI Pension Services Inc. California
Ctek, Inc. New Jersey
Davies & Company Pty., Ltd. Australia
East River Indemnity Company (Barbados), Ltd. Barbados
East River Insurance Company Ltd. West Indies
East River Insurance Company (Bermuda), Ltd. Bermuda
Firemen's Insurance Company of Newark, New Jersey New Jersey
First Benefit Services, Inc. California
First Fire & Casualty Insurance Company of Hawaii, Inc. Hawaii
First Indemnity Insurance of Hawaii, Inc. Hawaii
First Insurance Company of Hawaii, Ltd. Hawaii
Foundation Insurance Agency, Inc. New Jersey
Galway Insurance Company California
Global Management Consultants, Inc. New Jersey
Hull & Cargo Surveyors, Inc. New York
Hull & Cargo Surveyors, Inc. (Canada) British Columbia
IDBI Managers, Inc. New York
Kansas City Fire and Marine Insurance Company Missouri
Larwin Developments, Inc. California
LCI Finance Limited United Kingdom
Lombard Continental Insurance Holdings Limited United Kingdom
Marine Office of America Corporation New York
Marine Office of America Corporation (Canada) Ontario
Marine Office of America (Deutschland) GmbH Germany
Marine Office of America Corporation Italia, Spa Italy
Marine Office of America Corporation (U.K.) Ltd. United Kingdom
Master Capital Corporation Delaware
National Fire Insurance Company of Hartford (NFI) Connecticut
National-Ben Franklin Insurance Company of Illinois Illinois
Niagara Fire Insurance Company Delaware
North Pearl Management, Inc. Texas
Pacific Insurance Company California
Pacific Underwriters, Inc. Texas
Pension/Profit Sharing Systems, Inc. California
Settlement Options, Inc. New Jersey
TCC Acquisition Corp. Delaware
37
EXHIBIT 21.1 (CONT.)
SUBSIDIARIES OF CNA
TCC Holdings, Inc. Delaware
TCC Properties, Inc. New York
The Buckeye Union Insurance Company Ohio
The Continental Corporation (CIC) New York
The Continental Insurance Company New Hampshire
The Continental Insurance Company of New Jersey New Jersey
The Continental Insurance Company (Europe) Limited United Kingdom
The Continental Insurance Company of Puerto Rico Puerto Rico
The Continental Insurance Holdings (Europe) Limited United Kingdom
The CPI Group, Inc. Delaware
The Fidelity and Casualty Company of New York New Hampshire
The Glens Falls Insurance Company Delaware
The Hong Kong Fire Insurance Company, Ltd Hong Kong
The Maiden Lane Syndicate Inc. New York
The Mayflower Insurance Company, Ltd. Indiana
The South Place Syndicate Inc. New York
Transcontinental Insurance Company New York
Transcontinental Technical Services, Inc. (ServCo) Illinois
Transportation Insurance Company Illinois
UAM Limited United Kingdom
United States P & I Agency, Inc. New York
Valley Forge Insurance Company Pennsylvania
Valley Forge Life Insurance Company Pennsylvania
Viaticus, Inc. Delaware
Western National Warranty Corporation Arizona
Zeuxis Corp. VIII Delaware
38
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-50753 of CNA Financial Corporation and subsidiaries on Form S-3 of our report
dated February 14, 1996, appearing in and incorporated by reference in the
Annual Report on Form 10-K of CNA Financial Corporation and subsidiaries for the
year ended December 31, 1995.
S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
March 29, 1996
39
EXHIBIT 28.1
PROPERTY/CASUALTY RESERVE RECONCILIATION-
STATUTORY BASIS TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
A reconciliation of property/casualty reserves as shown in CNA's
property/casualty insurance subsidiaries 1995 annual statutory statements
Schedule P to reserves for unpaid claims and claim expenses, as shown in the
Annual Report on Form 10-K follows. Statutory claim and claim expense reserves
are presented net of ceded reinsurance. Under generally accepted accounting
principles such reserves are recorded "gross" of reinsurance with corresponding
ceded reinsurance recoverables recorded as assets.
- ------------------------------------------------------------------------------------------------------
PROPERTY/CASUALTY RESERVE RECONCILIATION
STATUTORY BASIS TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31 1995
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------
Total claims and claim expenses per Schedule P (net of reinsurance)................... $24,047
Non-domestic affiliates............................................................... 908
Ceded claims and claim expenses....................................................... 6,089
- ------------------------------------------------------------------------------------------------------
Reserve for claims and claim expenses--generally accepted accounting principles $31,044
======================================================================================================
40