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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1996 Commission File Number 1-5823
------------------------------
CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-6169860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CNA PLAZA
CHICAGO, ILLINOIS 60685
(Address of principal executive offices) (Zip Code)
(312) 822-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------- -------------------------
Common Stock New York Stock Exchange
with a par value Chicago Stock Exchange
of $2.50 per share Pacific Stock Exchange
-----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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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 3, 1997, 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 $1,077 million.
DOCUMENTS INCORPORATED
BY REFERENCE:
Portions of the CNA Financial Corporation 1996 Annual Report to
Shareholders are incorporated by reference into Parts I and II of this Report.
Portions of the CNA Financial Corporation Proxy Statement prepared for the
1997 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 ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1996
Item Page
Number PART I Number
- ------ ------
1 Business............................................. 3
2 Properties........................................... 13
3 Legal Proceedings.................................... 14
4 Submission of Matters to a Vote of Security Holders.. 14
PART II
5 Market for the Registrant's Common Stock and
Related Stockholder Matters........................... 17
6 Selected Financial Data.............................. 17
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 17
8 Financial Statements and Supplementary Data........... 17
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 17
PART III
10 Directors and Executive Officers of the Registrant..... 18
11 Executive Compensation................................. 18
12 Security Ownership of Certain Beneficial Owners and
Management............................................. 18
13 Certain Relationships and Related Transactions......... 18
PART IV
14 Financial Statements, Schedules, Exhibits and Reports
on Form 8-K............................................ 18
2
PART I
ITEM 1. BUSINESS
CNA Financial Corportion ("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. On May 10, 1995, CNA acquired all the
outstanding common stock of The Continental Corporation ("Continental") and it
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, as well as pension products and annuities. Their principal market for
insurance products 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
for the full year of 1995) would have been ranked as the third largest
property/casualty insurance organization in 1995 based upon statutory net
written premium.
There are approximately 1,770 companies selling life insurance (including
accident and health insurance and pension products and annuities) in the United
States. CAC is ranked as the twenty-second largest life insurance organization
based on 1995 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 department. 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 surplus. Based upon the various state formulas,
approximately $941 million in dividends can be paid to CNA by its insurance
affiliates in 1997 without prior approval. All dividends must be reported to the
domiciliary 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, 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.
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.
After failing to enact the massive health reform introduced in 1994,
Congress passed a health insurance reform bill in August of 1996 and the
President signed it into law (P.L. 104-191) on August 21, 1996. The new law does
little for Americans without health insurance but it will protect those who have
health insurance from losing it. The 105th Congress is expected to consider
additional incremental health care reform as it attempts to provide greater
access and affordability to Americans. Among the bills that have been introduced
this year are measures that would allow small businesses to band together to
form association health plans to buy insurance; bar the use of clauses
restricting what doctors can tell patients about treatment options; restructure
the Medicare program; subsidize health insurance for uninsured children; and
limit or prohibit underwriting on the basis of genetic information. We cannot
predict if any of these proposals will be enacted or the extent to which they
may affect the insurance industry.
Last year, a moderate product liability bill was vetoed and Congress was
not able to override the veto. This year, a similar product liability reform
bill was introduced in the Senate. The bill contains many of the provisions of
the vetoed bill and thus, one cannot predict if any reform will be adopted.
Although federal standards would create more uniform laws, tort reform
supporters still look primarily to the states for passage of reform measures.
Over the last decade, many states have passed some type of reform, but more
recently, state courts have modified or overturned approximately 38% of these
reforms. Additionally, new causes of action and theories of damages are more
frequently proposed in state courts or legislatures. Continued unpredicability
in the law means that insurance underwriting and rating is difficult in
commercial lines, professional liability and some specialty coverages.
Environmental clean-up remains the subject of both federal and state
regulation. Last year Congress and the Clinton Administration failed to reach an
agreement on efforts to overhaul the federal Superfund hazardous waste program.
The legislative stalemate was the result of a failure by Superfund stakeholders
and Congress to reach a compromise on clean-up standards, the repeal of
retroactive liability and how to finance future clean-up costs. In the new
Congress, Superfund reform has been listed as one of the legislative priorities.
At this time we cannot predict if any reform will be enacted. 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
concerning clean up of hazardous waste. Judicial interpretations in many cases
have expanded the scope of coverage and liability beyond the original intent of
the policies. See Note E of the Consolidated Financial Statements of the 1996
Annual Report to Shareholders for further discussion.
4
REGULATION --(CONTINUED)
In recent years, increased scrutiny of state regulated insurer solvency
requirements by certain members of the U.S. Congress, resulted in the National
Association of Insurance Commissioners developing industry minimum Risk-Based
Capital (RBC) requirements, establishing a formal state accreditation process
designed to more closely regulate for solvency, minimize the diversity of
approved statutory accounting and actuarial practices and increasing 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,
1996, all of CNA's property/casualty and life insurance affiliates have adjusted
capital amounts in excess of Company Action Levels.
REINSURANCE
Information as to CNA's reinsurance business is set forth in Note G of the
Consolidated Financial Statements of the 1996 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
EMPLOYEE RELATIONS
CNA has approximately 24,300 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 M of the
Consolidated Financial Statements of the 1996 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
5
PROPERTY/CASUALTY BUSINESS
CNA's property/casualty operations market commercial and personal lines of
property/casualty insurance through independent agents and brokers.
Commercial lines 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 dividends based on loss experience.
Experience-rated contracts reduce but do not eliminate risk to the insurer.
Commercial business includes such lines as workers' compensation, general
liability and commercial automobile, professional and specialty, multiple peril
and accident and health coverages as well as reinsurance. 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. The major components of CNA's
commercial business are professional and specialty coverages, general liability
and commercial automobile and workers' compensation which accounted for 18%, 17%
and 17%, respectively, of 1996 premiums earned.
The property/casualty group markets personal lines of insurance, primarily
automobile and homeowners' coverages sold to individuals under monoline and
package policies.
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 share of the voluntary market by line of insurance
in each state. Premiums for involuntary risks result from mandatory
participation in residual markets. Property/casualty involuntary risks include
mandatory participation in residual markets, statutory assessments for
insolvencies of other insurers and other charges.
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.
6
PROPERTY/CASUALTY BUSINESS--(CONTINUED)
The following table sets forth supplemental data on a GAAP basis, except
where indicated, for the property/casualty business:
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31 1996 1995(a) 1994 1993 1992
(In millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
Commercial Premiums Earned
Professional and specialty............... $ 1,844.9 $ 1,557.7 $ 1,010.1 $ 798.9 $ 741.5
General liability and commercial automobile 1,754.1 1,648.9 1,261.1 1,154.5 1,176.0
Workers' compensation.................... 1,542.5 1,475.8 1,426.3 1,501.5 1,669.2
Multiple peril.......................... 1,046.9 869.9 389.0 368.5 374.9
Accident and health..................... 919.0 699.1 557.1 428.3 352.6
Reinsurance and other.................... 1,188.9 973.9 773.5 712.2 556.0
--------- --------- --------- ---------- ---------
$ 8,296.3 $ 7,225.3 $ 5,417.1 $ 4,963.9 $ 4,870.2
========= ========= ========= ========== =========
Personal Premiums Earned
Personal lines packages.................. $ 1,063.3 $ 781.6 $ 562.6 $ 510.7 $ 447.3
Monoline automobile and property coverages 366.5 325.4 314.2 343.5 395.0
Accident and health...................... 168.9 107.8 88.9 85.6 88.6
--------- ---------- --------- ---------- ---------
$ 1,598.7 $ 1,214.8 $ 965.7 $ 939.8 $ 930.9
========= ========== ========= ========== =========
Involuntary Risks Premiums Earned (b)
Workers' compensation.................... $ 135.6 $ 178.2 $ 350.0 $ 292.3 $ 451.4
Private passenger automobile............. 57.9 79.7 46.4 23.2 52.5
Commercial automobile.................... 36.4 19.9 54.3 50.3 44.9
Property and multiple peril.............. 2.2 5.9 5.0 5.5 3.7
--------- ---------- --------- --------- ---------
$ 232.1 $ 283.7 $ 455.7 $ 371.3 $ 552.5
========= ========== ========= ========= =========
Net Investment Income and Other Income
Commercial............................... $ 1,943.3 $ 1,713.1 $ 1,145.1 $ 979.8 $ 1,087.3
Personal................................. 353.0 230.4 177.6 156.1 165.3
Involuntary risks........................ 93.4 104.3 88.1 75.7 83.6
--------- ---------- --------- --------- ---------
$ 2,389.7 $ 2,047.8 $ 1,410.8 $ 1,211.6 $ 1,336.2
========= ========== ========= ========= =========
Underwriting (Loss)
Commercial............................... $ (853.1) $ (920.8) $ (945.7) $(1,535.6) $(2,505.9)
Personal................................ (183.8) (101.9) (185.2) (99.7) (152.8)
Involuntary risks........................ (106.3) (98.8) (70.3) (156.5) (340.9)
---------- ---------- ---------- ---------- ----------
$(1,143.2) $(1,121.5) $(1,201.2) $(1,791.8) $(2,999.6)
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31 1996 1995(a) 1994 1993 1992
(In millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
Trade Ratios (c)
Loss ratio............................... 76.4% 77.9% 81.9% 96.2% 116.7%
Expense ratio........................... 30.9 29.4 28.3 27.2 26.2
Combined ratio (before policyholder
dividends)............................... 107.3 107.3 110.2 123.4 142.9
Policyholder dividend ratio.............. 1.6 3.0 4.8 3.9 1.9
Trade Ratios - Statutory basis (c)
Loss ratio............................... 76.8% 78.6% 82.2% 96.4% 116.3%
Expense ratio............................ 31.6 29.2 27.8 27.1 25.6
Combined ratio (before policyholder
dividends)............................... 108.4 107.8 110.0 123.5 141.9
Policyholder dividend ratio.............. 1.4 2.1 3.8 3.1 2.4
Other Data - Statutory basis (d)
Capital and surplus...................... $6,348.8 $5,695.9 $3,367.3 $3,598.4 $3,135.8
Written to surplus ratio................. 1.6 1.7 2.0 1.7 2.0
- ---------------------------------------------------------------------------------------------------------------
(a) Premium earned, net investment 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.
7
PROPERTY/CASUALTY BUSINESS--(CONTINUED)
(c) GAAP trade ratios reflect the results of Continental Casualty Company
and its property/casualty insurance subsidiaries for the entire year,
along with the results of The Continental Insurance Company and its
property/casualty insurance subsidiaries since May 10, 1995. Statutory
trade ratios reflect the results of Continental Casualty Company and
its property/casualty insurance subsidiaries and The Continental
Insurance Company and its property/casualty insurance subsidiaries
since January 1, 1995. Prior year ratios have not been restated to
include Continental. Trade ratios are industry measures of
property/casualty underwriting results. The loss ratio is the
percentage of incurred claim and claim adjustment expenses to premiums
earned. Under generally accepted accounting principles, the expense
ratio is the percentage of underwriting expenses, including the change
in deferred acquisition costs, to premiums earned. Under statutory
accounting principles, the expense ratio is the percentage of
underwriting expenses (with no deferral of acquisition costs) to
premiums written. The combined ratio is the sum of the loss and expense
ratios. The policyholder dividend ratio is the ratio of dividends
incurred to premiums earned.
(d) Other Data is determined on the statutory basis of accounting and
reflects a capital contribution from CNA of $475 million in 1993. In
addition, dividends of $545 million, $325 million, $175 million, $150
million and $100 million were paid to CNA by Continental Casualty
Company in 1996, 1995, 1994, 1993 and 1992, respectively.
Property/casualty insurance subsidiaries have received, or will
receive, reimbursement from CNA for general management and
administrative expenses, unallocated loss adjustment expenses and
investment expenses of $194.6, $197.0, $169.6, $167.5, and $141.1
million in 1996, 1995, 1994, 1993 and 1992, respectively.
The following table displays the distribution of gross written premium:
------------------------------------------------------------------------
Gross Written Premium % of Total
---------------------
Year Ended December 31 1996 1995 1994
------------------------------------------------------------------------
New York..................................... 9.3 10.3 8.6
California................................... 8.5 9.7 11.4
Texas........................................ 6.0 6.5 6.5
Illinois..................................... 5.3 5.2 4.9
Pennsylvania................................. 4.9 5.4 5.7
Florida...................................... 4.2 4.1 4.6
New Jersey................................... 4.1 4.6 3.2
All other states, countries or political
subdivisions (a)............................. 46.8 44.4 43.2
Reinsurance assumed:
Voluntary.................................. 9.1 7.8 5.9
Involuntary................................ 1.8 2.0 6.0
------ ------- ------
100.0 100.0 100.0
========================================================================
(a) No other state, country or political subdivision accounts for more
than 3.0% of gross written premium.
8
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES
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 1986(a) 1987(a) 1988(a)1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996
(In millions of
dollars)
- --------------------------------------------------------------------------------------------------------------------
Gross reserves
for unpaid
claim and claim
expenses................$ -- $ -- $ -- $ -- $16,530 $17,712 $20,034 $20,812 $21,639 $31,044 $29,830
Ceded recoverable....... -- -- -- -- 3,440 3,297 2,867 2,491 2,705 6,089 6,095
----- ----- ----- ----- ------- ------- ------- ------- ------- ------- -------
Net reserves
for unpaid
claim and claim
expenses................ 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
NET PAID
(CUMULATIVE) AS OF:
One year later.......... 1,335 1,763 2,040 2,670 3,285 3,411 3,706 3,629 3,656 6,510 --
Two years later......... 2,383 2,961 3,622 4,724 5,623 6,024 6,354 6,143 7,087 -- --
Three years later....... 3,197 4,031 4,977 6,294 7,490 7,946 8,121 8,764 -- -- --
Four years later........ 3,963 5,007 6,078 7,534 8,845 9,218 10,241 -- -- -- --
Five years later........ 4,736 5,801 6,960 8,485 9,726 10,950 -- -- -- -- --
Six years later......... 5,339 6,476 7,682 9,108 11,207 -- -- -- -- -- --
Seven years later....... 5,880 7,061 8,142 10,393 -- -- -- -- -- -- --
Eight years later....... 6,382 7,426 9,303 -- -- -- -- -- -- -- --
Nine years later........ 6,690 8,522 -- -- -- -- -- -- -- -- --
Ten years later......... 7,738 -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Schedule of
Property/Casualty
Loss Reserve
Development - continued
Calendar Year Ended 1986(a) 1987(a) 1988(a) 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996
(In millions of
dollars)
- --------------------------------------------------------------------------------------------------------------------
NET RESERVES
RE-ESTIMATED AS OF:
End of initial year..... 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735
One year later.......... 6,642 8,086 9,737 11,336 12,984 16,032 17,757 18,250 18,922 24,864 --
Two years later......... 6,763 8,345 9,781 11,371 14,693 16,810 17,728 18,125 18,500 -- --
Three years later....... 6,989 8,424 9,796 13,098 15,737 16,944 17,823 17,868 -- -- --
Four years later........ 7,166 8,516 11,471 14,118 15,977 17,376 17,765 -- -- -- --
Five years later........ 7,314 10,196 12,496 14,396 16,440 17,329 -- -- -- -- --
Six years later......... 9,022 11,239 12,742 14,811 16,430 -- -- -- -- -- --
Seven years later.......10,070 11,480 13,167 14,810 -- -- -- -- -- -- --
Eight years later.......10,317 11,898 13,174 -- -- -- -- -- -- -- --
Nine years later........10,755 11,925 -- -- -- -- -- -- -- -- --
Ten years later.........10,823 -- -- -- -- -- -- -- -- -- --
------- ------ ------ ------ ------- ------ ------ ------ ------ ------ -----
Total net (deficiency)
redundancy (4,580) (3,880) (3,622) (3,543) (3,340) (2,914) (598) 453 434 91 --
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Reconciliation to Gross
Re-estimated Reserves:
Net reserves
re-estimated............ 10,823 11,925 13,174 14,810 16,430 17,329 17,765 17,868 18,500 24,864 --
Re-estimated ceded
recoverable -- -- -- -- 2,855 2,610 2,046 1,918 2,472 6,262 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total gross
re-estimated reserves -- -- -- -- 19,285 19,939 19,811 19,786 20,972 31,126 --
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net (Deficiency)
Redundancy
Related to:
Asbestos claims.........(3,021) (2,973) (2,917) (2,818) (2,681) (2,634) (945) (345) (309) (51) --
Environmental claims....(1,021) (1,007) (1,002) (975) (964) (918) (871) (425) (246) (65) --
------- ------- ------- ------- ------- ------- ----- ----- ----- ----- -----
Total asbestos and (4,042) (3,980) (3,919) (3,793) (3,645) (3,552)(1,816) (770) (555) (116) --
environmental
Other................... (538) 100 297 250 305 638 1,218 1,223 989 207 --
------- ------- ------- ------- ------- ------- ------ ------ ----- ----- ------
Total net
(deficiency)
redundancy..............(4,580) (3,880) (3,622) (3,543) (3,340) (2,914) (598) 453 434 91 --
- -------------------------------------------------------------------------------------------------------------------------
(a) Reflects reserves of CNA, excluding Continental reserves which were acquired
on May 10, 1995. Accordingly, the reserve development (net reserves recorded at
the end of the year, as initially estimated, less net reserves re-estimated as
of subsequent years) relates only to the operations of CNA and does not include
Continental.
(b) Reserve development related to the 1994 reserves of CNA, excluding
Continental, as determined by the balances in this column, plus adverse reserve
development of $134 million related to the reserves of Continental, acquired on
May 10, 1995, which are not reflected in this column, were recorded by CNA in
1995 and subsequent periods.
(c) Includes Continental gross reserves of $9,713 million and net reserves of
$6,063 million acquired on May 10, 1995 and subsequent development thereon.
9
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES - (CONTINUED)
Additional information as to CNA's property/casualty claim and claim
expense reserves is set forth in Notes A and E of the Consolidated Financial
Statements of the 1996 Annual Report to Shareholders, incorporated by reference
in Item 8, herein.
RESERVE DEVELOPMENT
Information as to CNA's reserve development is set forth in Note E of the
Consolidated Financial Statements of the 1996 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
LIFE BUSINESS
CNA's life insurance operations market individual and group insurance
products through licensed agents, most of whom are independent contractors, who
sell life and/or group insurance for CNA and for other companies on a commission
basis.
The individual insurance products consist primarily of term, universal
life, participating policies and annuity products. Products developed in 1996
included a portfolio of variable products and new universal life products which
are expected to be marketed in 1997. Group insurance products include life,
accident and health consisting primarily of major medical and hospitalization
and pension products, such as guaranteed investment contracts and annuities. In
the medical and hospitalization market, CNA underwrites the Federal Employees
Health Benefits Program (FEHBP) which had revenues of $2.1 billion, $1.9 billion
and $1.8 billion in 1996, 1995 and 1994. CNA has undertaken a number of
initiatives to enhance service, manage health care utilization demand and
quality and strengthen CNA's networks of physicians, hospitals and other
providers.
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 surrender 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.
10
LIFE BUSINESS--(CONTINUED)
The following table sets forth supplemental data for the life insurance
business:
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------------------
INDIVIDUAL PREMIUM
Life and annuities................................ $ 629.1 $ 497.1 $ 369.4 $ 312.1 $ 294.7
Accident and health............................... 1.8 32.7 32.6 30.9 27.1
--------- --------- --------- --------- ---------
$ 630.9 $ 529.8 $ 402.0 $ 343.0 $ 321.8
========= ========= ========= ========= =========
GROUP PREMIUM
Accident and health (a)........................... $ 2,548.0 $ 2,189.7 $ 2,111.2 $ 1,983.0 $ 1,957.5
Life and annuities................................ 194.9 312.9 165.0 116.2 158.4
--------- --------- --------- --------- ---------
$ 2,742.9 $ 2,502.6 $ 2,276.2 $ 2,099.2 $ 2,115.9
========= ========= ========= ========= =========
NET INVESTMENT INCOME AND OTHER INCOME
Individual........................................ $ 292.2 $ 247.3 $ 193.8 $ 154.2 $ 163.0
Group............................................. 214.2 198.1 166.4 142.8 156.6
--------- --------- --------- --------- ---------
$ 506.4 $ 445.4 $ 360.2 $ 297.0 $ 319.6
========= ========= ========= ========= =========
INCOME EXCLUDING REALIZED CAPITAL GAINS, BEFORE INCOME TAX
Individual........................................ $ 100.9 $ 65.4 $ 47.3 $ 14.5 $ 22.5
Group............................................. 69.8 94.9 87.1 51.9 56.1
--------- --------- --------- --------- ---------
$ 170.7 $ 160.3 $ 134.4 $ 66.4 $ 78.6
========= ========= ========= ========= =========
GROSS LIFE INSURANCE IN FORCE
Individual (b).................................... $ 172,213 $ 113,901 $ 80,560 $ 76,835 $ 75,569
Group............................................. 64,796 52,146 46,873 35,413 29,643
--------- --------- --------- --------- ---------
$ 237,009 $ 166,047 $ 127,433 $ 112,248 $ 105,212
========= ========= ========= ========= =========
OTHER DATA - STATUTORY BASIS(C)
Capital and surplus............................... $ 1,163.4 $ 1,127.6 $ 1,054.6 $ 1,022.0 $ 1,003.0
Capital and surplus-percent of total liabilities.. 25.5% 28.2% 29.4% 30.1% 33.4%
Participating policyholders-percent of gross life
insurance in force 0.5 0.6 0.9 1.1 1.2
- --------------------------------------------------------------------------------------------------------------------
(a) Group accident and health premiums include contracts involving U.S.
government employees and their dependents amounting to approximately
$2.1, $1.9, $1.8, $1.7 and $1.6 billion in 1996, 1995, 1994, 1993 and
1992, 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 7.2%, 9.4%, 9.7%, 9.7% and 8.6%, in 1996, 1995, 1994, 1993
and 1992, 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 $28.5, $21.3, $24.7, $25.6 and $24.5 million in 1996, 1995,
1994, 1993 and 1992, respectively. Statutory capital and surplus as a
percent of total liabilities is determined after excluding Separate
Account liabilities and reclassifying the statutorily required Asset
Valuation and Interest Maintenance Reserves as surplus.
11
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 approximate duration of fixed
maturity securities included in the investment portfolio supporting the
guaranteed investment contracts 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 1996 1995 1994
- --------------------------------------------------------------------------------
Duration in years:
Assets...................................... 3.12 3.12 3.23
Contracts................................... 3.16 2.98 2.99
---- ---- ----
Difference.................................. (0.04) 0.14 0.24
====== ==== ====
Weighted average investment yield.............. 7.44% 7.58% 7.67%
Weighted average interest crediting rates...... 7.32% 7.45% 7.53%
Withdrawal characteristics:
With market value adjustment................ 95% 92% 79%
Non-withdrawable............................ 5 8 15
Without market value adjustment............. 0 0 6
- --------------------------------------------------------------------------------
Total 100% 100% 100%
================================================================================
As shown above, the weighted average investment yield at December 31, 1996,
1995 and 1994 was more than the weighted average interest crediting rate.
INVESTMENTS
Information as to CNA's investments is set forth in Note B of the
Consolidated Financial Statements of the 1996 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
12
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 30% 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 1,144,378 * Principal Executive Offices
333 S. Wabash of CNA
Chicago, Illinois
180 Maiden Lane 507,547* Property/Casualty
New York, New York Insurance Offices
1 Continental Drive 490,993** Property/Casualty
Cranbury, New Jersey Insurance Offices
55 E. Jackson Blvd. 308,750 * Principal Executive
Chicago, Illinois Offices of CNA
401 Penn Street 251,691* Property/Casualty
Reading, Pennsylvania Insurance Offices
100 CNA Drive 251,363* Life Insurance Offices
Nashville, Tennessee
7361 Calhoun Place 224,725** Life Insurance Offices
Rockville, Maryland
1111 E. Broad St. 215,470** Property/Casualty
Columbus, Ohio Insurance Offices
200 S. Wacker Drive 214,997** Property/Casualty
Chicago, Illinois Insurance Offices
333 Glen Street 157,825** Property/Casualty
Glen Falls, New York Insurance Offices;
Residual Market Center
111 Congressional Blvd. 118,215** Personal Lines
Indianapolis, Indiana
1431 Opus Place 106,151** Property/Casualty,
Downers Grove, Illinois Surety Insurance Offices
2401 Pleasant Valley 102,376** Commercial Operations
York, Pennsylvania
1100 Ward Avenue 93,771* First Insurance Company
Honolulu, Hawaii of Hawaii, Ltd.Headquarters
* Represents property owned by CNA or its subsidiaries.
** Represents property leased by CNA or its subsidiaries.
13
ITEM 3. LEGAL PROCEEDINGS
Incorporated herein by reference from Note F of the Consolidated Financial
Statements in the 1996 Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
EXECUTIVE OFFICERS OF THE REGISTRANT
FIRST BECAME
POSITION AND OFFICER OF
OFFICES HELD THE CNA
WITH INSURANCE
NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS
Laurence A. Tisch Chief Executive 74 **** Co-Chairman of the
Officer Board and Co-Chief
Executive Officer of
Loews Corporation.
President, Chief
Executive Officer and
Director of CBS, Inc.
until November 1995.
Executive officer of
the Registrant since
1974.
Dennis H. Chookaszian Chairman of the 53 1975 Chairman of the Board
Board and Chief and Chief Executive
Executive Officer, Officer of the CNA
CNA Insurance Insurance Companies
Companies since September 1992.
Prior thereto, Mr.
Chookaszian was
President and Chief
Operating Officer of
the CNA Insurance
Companies. Executive
officer of the
Registrant since 1975.
Philip L. Engel President, CNA 56 1977 President of the CNA
Insurance Insurance Companies
Companies since September 1992.
Prior thereto, Mr.
Engel was Executive
Vice President of the
CNA Insurance
Companies. Executive
officer of the
Registrant since 1992.
William J. Senior Vice 44 1987 Senior Vice President
Adamson, Jr. President, CNA of the CNA Insurance
Insurance Companies since November
Companies 1995; Group Vice President
of the CNA Insurance
Companies from April 1993
through October 1995. Prior
thereto, Mr. Adamson was
Vice President of the CNA
Insurance Companies.
Exectuive officer of the
Registrant since 1996.
FIRST BECAME
POSITION AND OFFICER OF
OFFICES HELD THE CNA
WITH INSURANCE
NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS
James P. Flood Senior Vice 46 1995 Senior Vice President of
President, CNA the CNA Insurance Companies
Insurance since May 1995; Senior
Companies Vice President of The
Continental Insurance
Company from October 1992
through May 1995.
Prior thereto, Mr. Flood
was Vice President of The
Continental Insurance
Company. Executive officer
of the Registrant since
1996.
Michael C. Garner Senior Vice 44 1993 Senior Vice President of
President, CNA the CNA Insurance Companies
Insurance since September 1993.
Companies Prior thereto, Mr. Garner
was a partner of Coopers
and Lybrand LLP. Executive
officer of the Registrant
since 1996.
Bernard L. Hengesbaugh Senior Vice 50 1980 Senior Vice President of
President, CNA the CNA Insurance Companies
Insurance since November 1990.
Companies Executive officer of the
Registrant since 1996.
Peter E. Jokiel Senior Vice 49 1985 Senior Vice President and
President and Chief Financial Officer
Chief Financial since November 1990.
Officer Executive officer of the
Registrant since 1990.
Jonathan D. Kantor Senior Vice 41 1994* Group Vice President of the
President* CNA Insurance Companies
since April 1994.
Prior thereto, partner at
the law firm of Shea &
Gould. Executive officer
of the Registrant effective
April 1, 1997.**
Donald M. Lowry Senior Vice 67 1982 Senior Vice President,
President, Secretary and General
Secretary and Counsel since August 1992.
General Prior thereto, Mr. Lowry
Counsel*** was Senior Vice President
and General Counsel of the
CNA Insurance Companies.
Executive officer of the
Registrant since 1992.
Carolyn L. Murphy Senior Vice 52 1978 Senior Vice President of
President, CNA the CNA Insurance Companies
Insurance since November 1990.
Companies Executive officer of the
Registrant since 1992.
FIRST BECAME
POSITION AND OFFICER OF
OFFICES HELD THE CNA
WITH INSURANCE
NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS
William H. Sharkey,Jr. Senior Vice 48 1994 Senior Vice President of
President, CNA the CNA Insurance Companies
Insurance since January 1994. Prior
Companies therto, Mr. Sharkey was
Senior Vice President of
Cigna Healthcare. Executive
officer of the Registrant
since 1996.
15
EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
FIRST BECAME
POSITION AND OFFICER OF
OFFICES HELD THE CNA
WITH INSURANCE
NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS
Adrian M. Tocklin Senior Vice 45 1995 Senior Vice President of
President, CNA the CNA Insurance Companies
Insurance since May 1995; President
Companies of The Continental
Insurance Company from June
1994 through May 1995;
Executive Vice President of
The Continental Insurance
Company from August 1991
through June 1994.
Prior thereto, Ms. Tocklin
was Senior Vice President
of The Continental
Insurance Company.
Executive officer of the
Registrant since 1996.
Jae L. Wittlich Senior Vice 54 1977 Senior Vice President of
President, the CNA Insurance Companies
CNA since November 1990.
Insurance Executive officer of the
Companies Registrant since 1992.
David W. Wroe Senior Vice 50 1996 Senior Vice President of
President, the CNA Insurance Companies
CNA since June 1996. Prior
Insurance thereto, Mr. Wroe was
Companies President of Agency
Management Systems.
Executive officer of the
Registrant since 1996.
- -------------------------------
Officers are elected and hold office until their successors are elected and
qualified, and are subject to removal by the Board of Directors.
*Mr. Kantor will succeed Donald Lowry as Senior Vice President , Secretary and
General Counsel of the CNA Insurance Companies effective April 1, 1997 and as
Senior Vice President and General Counsel of the Registrant effective 1998.
**Shea & Gould declared bankruptcy in 1995.
***Mr. Lowry will remain Senior Vice President, Secretary and General Counsel of
the Registrant until 1998.
****Mr. Tisch is not an officer of the CNA Insurance Companies.
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference from page 82 of the 1996 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from page 2 of the 1996 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 29 of the 1996
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheet - December 31, 1996 and 1995
Statement of Consolidated Operations - Years Ended December 3l, 1996, 1995
and 1994
Statement of Consolidated Stockholders' Equity - December 31, 1996, 1995
and 1994
Statement of Consolidated Cash Flows - Years Ended December 31, 1996, 1995
and 1994
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 30 through 81 of the 1996 Annual
Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation l4A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required in Part III has been omitted as the Registrant intends
to file a definitive proxy statement pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
Page
Number
------
(a) 1. FINANCIAL STATEMENTS:
A separate index to the Consolidated Financial Statements
is presented in Part II, Item 8.......................... 17
(a) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule I Summary of Investments..................... 22
Schedule II Condensed Financial Information (Parent Company). 23
Schedule III Supplementary Insurance Information.............. 27
Schedule V Valuation and Qualifying Accounts and Reserves.. 28
Schedule VI Supplementary Information Concerning
Property/Casualty Insurance Operations.......... 28
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................................. 29
18
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 February 12,
1997......................................................... 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
(Exhibit 10.2 to 1995 Form 10K incorporated herein by
reference.)................................................... 10.2
Employment Agreement between CNA Financial Corporation and
Philip L. Engel, dated December 31, 1995 (Exhibit 10.3 to 1995
Form 10K incorporated herein by reference.)................... 10.3
Continuing Services Agreement between CNA Financial Corporation
and Edward J. Noha, dated February 27, 1991 (Exhibit 6.0 to 1991
Form 8-K, filed March 18, 1991, incorporated herein by
reference.)................................................... 10.4
CNA Employees' Retirement Benefit Equalization Plan, as amended
through January 1, 1993 (Exhibit 10.4 to 1992 Form 10-K
incorporated herein by reference.)............................. 10.5
CNA Employees' Supplemental Savings Plan, as amended through
January 1, 1993 (Exhibit 10.6 to 1992 Form 10-K incorporated
herein by reference.).......................................... 10.6
19
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(continued)
(a) 3. EXHIBITS:
Exhibit
Description of Exhibit Number 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
20
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) 1996 Annual Report........................................ 13.1*
(21) Subsidiaries of CNA....................................... 21.1*
(23) Independent Auditor's Consent............................. 23.1*
(27) Financial Data Schedule................................... 27*
*Filed herewith
(b) REPORTS ON FORM 8-K:
None
21
SCHEDULE I
CNA FINANCIAL CORPORATION
SUMMARY OF INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995
------------------------------ -----------------------------------
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.... $15,046.9 $15,045.3 $15,045.3 $17,903.4 $18,511.4 $18,511.4
States, municipalities and political
subdivisions-tax exempt............. 4,859.6 4,951.2 4,951.2 3,452.8 3,603.1 3,603.1
Foreign governments and political
subdivisions........................ 1,200.1 1,213.9 1,213.9 1,509.3 1,543.3 1,543.3
Public utilities..................... 195.5 205.4 205.4 280.2 305.2 305.2
Convertibles and bonds with warrants
attached............................ 166.6 168.7 168.7 252.2 260.8 260.8
All other corporate.................. 6,021.7 6,070.5 6,070.5 5,887.2 6,104.6 6,104.6
Redeemable preferred stocks.............. 49.2 65.6 65.6 100.3 116.3 116.3
-------- -------- -------- -------- -------- --------
Total fixed maturities 27,539.6 27,720.6 27,720.6 29,385.4 30,444.7 30,444.7
available-for-sale ======== ======== ======== ======== ======== ========
Equity securities available-for-sale:
Common stocks:
Public utilities..................... 11.0 15.1 15.1 17.7 23.5 23.5
Banks, trusts and insurance companies 131.5 185.1 185.1 84.3 96.7 96.7
Industrial and other................. 335.1 431.0 431.0 631.8 795.0 795.0
Non redeemable preferred stocks.......... 224.3 227.9 227.9 2.5 2.5 2.5
-------- -------- -------- -------- -------- --------
Total equity securities 701.9 $ 859.1 859.1 736.3 $ 917.7 917.7
available-for-sale................. -------- -------- -------- -------- -------- --------
Mortgage loans.............................. 112.6 112.6 139.8 119.3
-------- -------- -------- --------
Real estate:
Investment properties.................... 14.7 10.7 6.6 3.0
Acquired in satisfaction of debt......... 0.2 0.1 0.2 0.1
-------- -------- -------- --------
Total real estate.................. 14.9 10.8 6.8 3.1
-------- -------- -------- --------
Policy loans................................ 174.4 174.4 177.1 177.2
Other invested assets....................... 616.6 681.2 483.5 499.9
Short-term investments...................... 5,853.7 5,853.7 3,724.5 3,724.5
- -------------------------------------------------------------------------------------------------------------------
Total investments $35,013.7 $35,412.4 $34,653.4 $35,886.4
===================================================================================================================
SCHEDULE II
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
FINANCIAL POSITION
- --------------------------------------------------------------------------------
DECEMBER 31 1996 1995
(In millions of dollars)
- --------------------------------------------------------------------------------
ASSETS:
Investments in subsidiaries......................... $ 8,098.9 $ 8,060.6
Federal income taxes recoverable.................... -- 136.6
Deferred income taxes............................... 877.2 785.2
Notes receivable from affiliate..................... 205.0 205.0
Other............................................... 17.9 7.9
---------- ----------
Total assets................................ $ 9,199.0 $ 9,195.3
LIABILITIES: ========== ==========
Debt................................................ $ 1,971.2 $ 2,222.4
Federal income taxes payable........................ 28.7 --
Amounts due to affiliates........................... 101.7 190.3
Other............................................... 37.6 47.1
---------- ----------
Total liabilities........................... 2,139.2 2,459.8
---------- ----------
Total stockholders' equity.................. 7,059.8 6,735.5
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,199.0 $ 9,195.3
==============================================================================
RESULTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994
(In millions of dollars)
- ----------------------------------------------------------------------------------------------
REVENUES:
Equity in income of subsidiaries before income tax:
Operating income ............................... $1,088.8 $ 923.5 $ 389.1
Realized investment gains (losses).............. 609.7 453.0 (256.8)
Net investment income.............................. 13.6 9.0 0.3
Realized investment gains (losses)................. (5.4) 3.1 (0.3)
--------- -------- ------
1,706.7 1,388.6 132.3
--------- -------- ------
EXPENSES:
Administrative and general expenses................ 222.6 219.7 193.1
Interest expense................................... 135.0 125.3 69.6
Other.............................................. 4.0 1.2 3.7
-------- -------- ------
361.6 346.2 266.4
-------- -------- ------
Income (loss) before income tax............. 1,345.1 1,042.4 (134.1)
Income tax benefit (expense)....................... (380.3) (285.4) 170.6
==============================================================================================
Net income $ 964.8 $ 757.0 $ 36.5
==============================================================================================
See accompanying Notes to Condensed Financial Information.
SCHEDULE II
(Continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 964.8 $ 757.0 $ 36.5
------- ------- -----
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in earnings of unconsolidated affiliates (1,376.7) (1,200.7) (98.0)
Realized (gains) losses.......................................... 5.4 (3.1) 0.3
Changes in:
Accrued investment income....................................... - - 1.1
Federal income taxes............................................ 165.3 (112.9) 5.6
Deferred income taxes........................................... 93.3 173.2 (115.0)
Other, net...................................................... (131.9) 86.7 (23.6)
------- ------- ------
TOTAL ADJUSTMENTS..............................................(1,244.6) (1,056.8) (229.6)
-------- -------- ------
NET CASH USED IN OPERATING ACTIVITIES.......................... (279.8) (299.8) (193.1)
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of The Continental Corporation............................. - (1,125.5) -
Other acquisition.................................................... - (13.0) -
Purchases of fixed maturities........................................ (0.2) (709.0) (195.7)
Proceeds from fixed maturities:
Sales............................................................. - 501.2 19.6
Maturities........................................................ - 200.6 192.4
Net proceeds from the sale of equity securities...................... - (0.5) 4.0
Change in short-term investments..................................... (1.7) 0.8 1.1
Change in other investments.......................................... (4.6) 10.3 2.3
Other................................................................ - (3.3) (1.0)
------- ------- ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............ (6.5) (1,138.4) 22.7
-------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred shareholders............................. (6.3) (7.3) (4.5)
Dividend from affiliates............................................. 547.5 325.8 175.0
Proceeds from issuance of long-term debt............................. 248.1 1,325.0 -
Principal payments on long-term debt................................ (500.0) - -
Loan to The Continental Corporation.................................. - (205.0) -
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES...................... 289.3 1,438.5 170.5
------- ------- -------
NET INCREASE IN CASH.......................................... 3.0 0.3 0.1
Cash at beginning of year............................................... 0.4 0.1 -
- ---------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 3.4 $ 0.4 $ 0.1
===========================================================================================================
STATEMENT OF CASH FLOWS - CONTINUED
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash received (paid):
Interest expense................................................. $(140.9) $(169.5) $(70.5)
Federal income taxes............................................. 15.4 102.5 53.1
===========================================================================================================
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 Other
December 31, 1995 Corporation
- ------------------------------------------------------------------------------------------------------------
Fair value of assets acquired......................................... $15,258.5 $ 13.0
Liabilities assumed................................................... (14,133.0) -
--------- -------
Cash paid....................................................... $ 1,125.5 $ 13.0
============================================================================================================
* There were no significant acquisitions by CNA Financial Corporation (Parent
Company) during the year ended December 31, 1996 and December 31, 1994.
See accompanying Notes to Condensed Financial Information.
SCHEDULE II
(CONTINUED)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
Notes to Condensed Financial Information
a. Basis of Presentation
The financial statements of the registrant should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto included in the CNA Financial Corporation Annual Report to
Shareholders.
Certain amounts applicable to prior years have been reclassified to
conform to classifications followed in 1996.
b. Debt:
-------------------------------------------------------------------------
DECEMBER 31 1996 1995
(In millions of dollars)
-------------------------------------------------------------------------
Long-term
Variable rate debt:
Credit Facility..................................$ 400.0 $ 825.0
Commercial Paper................................. 675.0 500.0
Senior Notes:
8 7/8 %, due March 1, 1998....................... 149.6 149.2
6 1/4%, due November 15, 2003.................... 248.4 248.2
6 3/4%, due November 15, 2006.................... 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............................. 1,971.2 1,972.5
Short-term debt......................................... -- 249.9
-------------------------------------------------------------------------
Total $1,971.2 $2,222.4
=========================================================================
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. In 1996, the Company renegotiated
the facility extending the maturity to May 2001. The interest rate for
the facility is based on the London Interbank Offered Rate (LIBOR),
plus 16 basis points. Additionally, there is a facility fee of 9 basis
points annually. The average interest rate on the borrowings under the
revolver at December 31, 1996 was 5.72%. Under the terms of the
facility, CNA may prepay the debt without penalty.
On November 15, 1996, CNA issued $250 million 6 3/4% senior notes, due
November 15, 2006. The net proceeds from this issuance of approximately
$248 million were used to pay down a portion of the borrowings
outstanding under the revolving credit facility. As a result of this
debt issuance, borrowing capacity under the revolving credit facility
was reduced by $250 million, to $1.075 billion.
An additional $250 million of securities remain available for issuance
under a shelf registration.
25
NOTES TO CONDENSED FINANCIAL INFORMATION (CONTINUED)
In 1995, to take advantage of favorable interest rates, CNA established
a commercial paper program borrowing $500 million from investors to
replace a like amount of credit facility financing. During 1996, CNA
increased its borrowings under the commercial paper program to $675
million. The average interest rate on the commercial paper at December
31, 1996 was 5.67%. The commercial paper borrowings are classified as
long-term as borrowing capacity under the credit facility will support
the commercial paper. At year end 1996, the outstanding loans under the
revolving credit facility were $400 million. There was no unused
borrowing capacity under the facility after the effects of the
commercial paper program.
In 1995, CNA entered into interest rate swap agreements with a notional
principal amount of $1.2 billion, which terminate from May to December
2000. These agreements provide that CNA pay interest at a fixed rate,
averaging 6.20% at December 31, 1996 in exchange for the receipt of
interest at the three month LIBOR rate. Concurrent with the paydown of
$250 million on the revolving credit facility, CNA terminated interest
rate swaps with a total notional amount of $250 million.
The effect of these interest rate swaps was to increase interest
expense by approximately $7 million and $2 million for the years ended
December 31, 1996 and 1995, respectively.
The weighted average interest rate (interest and facility fees) on the
variable rate debt, which includes the revolving credit facility,
commercial paper and the effect of the interest rate swaps, was 6.28%
and 6.50% at December 31, 1996 and 1995, respectively.
c. CNA has reimbursed, or will reimburse, its subsidiaries for general
management and administrative expenses, unallocated loss adjustment
expenses and investment expense of $223.1 million, $218.3 million and
$194.3 million in 1996, 1995 and 1994, respectively.
d. There were no capital contributions by CNA in 1996, 1995 or 1994.
- --------------------------------------------------------------------------------
26
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, 1996
Property/Casualty:
Commercial............ $ 822.3 $26,321.8 $ 47.4 $ 3,591.3 $ 171.8
Personal.............. 262.1 1,556.8 325.5 1,043.8 -
Involuntary risks..... - 1,951.4 - 23.6 -
Life:
Individual............ 735.8 147.9 3,138.5 - 30.2
Group................. 34.0 519.2 669.9 - 543.6
------- --------- ------- ------- ------
CNA Insurance....... $1,854.2 30,497.1 $4,181.3 $ 4,658.7 $ 745.6
======= ======== ======= ======
Other and intercompany
eliminations.......... 332.4
---------
$30,829.5
========
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
=========
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION - CONTINUED
- -------------------------------------------------------------------------------------------------------------
Amortization
Insurance of
Net Net Claims and Deferred Other
Premium Investment Policyholders' Acquisition Operating Premiums
Revenue Income Benefits Costs Expenses Written
- -------------------------------------------------------------------------------------------------------------
December 31, 1996
Property/Casualty:
Commercial............ $ 8,296.3 $1,622.7 $ 6,703.2 $1,715.3 $ 1,103.9 $ 8,592.7
Personal.............. 1,598.7 166.0 1,183.8 402.2 273.5 1,731.5
Involuntary risks..... 232.1 92.6 243.6 61.6 91.6 286.5
Life:
Individual............ 630.9 227.6 666.9 26.4 128.8 -
Group................. 2,742.9 172.5 2,579.2 (13.4) 321.6 -
--------- ------- -------- -------- ------- ---------
CNA Insurance....... 13,500.9 2,281.4 11,376.7 $2,192.1 1,919.4 $ 10,610.7
========= =========
Other and intercompany
eliminations.......... (21.9) (5.4) (20.4) (39.7)
--------- -------- --------- ------
$13,479.0 $2,276.0 $ 11,356.3 $ 1,879.7
======== ======== ========= ========
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
======== ======== ======= =======
27
SCHEDULE V
CNA FINANCIAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- -----------------------------------------------------------------------------------------------------------
Balance 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, 1996
Deducted from assets:
Allowance for doubtful accounts:
Insurance receivables............ $ 288.7 $ 34.5 $ - $ 46.0 $ 277.2
======= ======= ======= ======= =======
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
======= ======= ======= ======= =======
---------------------------------------------------------------------------------------------------------
* 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 1996 1995 1994
(In millions of dollars)
- ----------------------------------------------------------------------------------------------
Deferred acquisition costs...............................$ 1,084 $ 969 $ 592
Reserves for unpaid claims and claim expenses............ 29,830 31,044 21,639
Discount, if any, deducted above (based on interest
rates ranging from 3.5% to 7.5%)......................... 2,459 2,449 1,951
Unearned premiums........................................ 4,659 4,549 2,691
Earned premiums.......................................... 10,127 8,724 6,839
Net investment income.................................... 1,881 1,700 1,240
Claim and claim expenses related to current year......... 7,922 6,787 5,611
Claim and claim expenses related to prior years.......... (91) 122 (71)
Amortization of deferred acquisition costs............... 2,179 1,783 1,329
Paid claim and claim expenses............................ 9,201 7,058 5,027
Premiums written......................................... 10,611 9,126 6,965
- ----------------------------------------------------------------------------------------------
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, 1996 and 1995 and for each of the three years in the period ended December
31, 1996 and have issued our report thereon dated February 12, 1997. Such
consolidated financial statements and report are included in the Company's 1996
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 12, 1997
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 28, 1997
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 | Dated
- ---------------------------------- |
Philip L. Engel | March 28, 1997
|
|
S/ROBERT P. GWINN Director |
- ---------------------------------- |
Robert P. Gwinn |
|
|
S/WALTER F. MONDALE Director |
- ---------------------------------- |
Walter F. Mondale |
30
SIGNATURE TITLE
S/EDWARD J. NOHA Chairman of the |
- ---------------------------------- Board and Director|
Edward J. Noha |
|
|
S/JOSEPH ROSENBERG Director |
- ---------------------------------- |
Joseph Rosenberg |
|
|
S/RICHARD L. THOMAS Director | Dated
- ---------------------------------- |
Richard L. Thomas | March 28, 1997
|
|
S/JAMES S. TISCH Director |
- ---------------------------------- |
James S. Tisch |
|
|
S/LAURENCE A. TISCH Chief Executive |
- ---------------------------------- Officer and |
Laurence A. Tisch Director |
|
|
|
S/PRESTON R. TISCH Director |
- ---------------------------------- |
Preston R. Tisch |
|
|
S/MARVIN ZONIS Director |
- ---------------------------------- |
Marvin Zonis |
31
EXHIBIT 11.1
CNA FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992
(In millions, 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.. $ 964.8 $ 757.0 $ 36.5 $ 267.5 $(662.5)
Less preferred stock dividends.................................... 6.1 6.9 5.3 4.0 4.2
------- ------- ------- ------- -------
Net income (loss) before cumulative effect of accounting changes
available to common stockholders............................. 958.7 750.1 31.2 263.5 (666.7)
Cumulative effect on prior years of changes in accounting principles - - - - 331.9
------- ------- ------- ------- -------
Net income (loss) available to common stockholders............. $ 958.7 $ 750.1 $ 31.2 $ 263.5 $(334.8)
======= ======= ======= ======= =======
Earnings per share:
Net income (loss) before cumulative effect of accounting changes.. $ 15.51 $ 12.14 $ 0.51 $ 4.26 $ (10.79)
Cumulative effect on prior years of changes in accounting principles - - - - 5.37
-------- -------- ------- -------- --------
Net income (loss) available to common stockholders............. $ 15.51 $ 12.14 $ 0.51 $ 4.26 $ (5.42)
======== ======== ======== ======== =========
- --------------------------------------------------------------------------------------------------------------------
32
EXHIBIT 12.1
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992
(In millions of dollars, except ratios)
- --------------------------------------------------------------------------------------------------------------------
Income before income tax and cumulative effect of accounting
changes..................................................... $ 1,345.1 $ 1,042.4 $(134.0) $ 93.5 $(1,374.9)
Adjustments:
Interest expense......................................... 200.4 182.3 70.5 36.3 36.7
Interest element of operating lease rental............... 31.8 46.7 19.1 18.2 17.6
--------- --------- --------- -------- ---------
Income before income tax and cumulative effect of
accounting changes, as adjusted........................ $ 1,577.3 $ 1,271.4 $ (44.4) $ 148.0 $(1,320.6)
========= ========= ========= ======== =========
Fixed charges:
Interest expense......................................... $ 200.4 $ 182.3 $ 70.5 $ 36.3 $ 36.7
Interest element of operating lease rental............... 31.8 46.7 19.1 18.2 17.6
--------- --------- ------- ------- ---------
Fixed charges............................................... $ 232.2 $ 229.0 $ 89.6 $ 54.5 $ 54.3
======== ======== ======= ======= =========
Ratio of earnings to fixed charges (1)...................... 6.8 5.6 (0.5) 2.7 (24.3)
- --------------------------------------------------------------------------------------------------------------------
(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 1996 1995 1994 1993 1992
(In millions of dollars, except ratios)
- ------------------------------------------------------------------------------------------------------------------
Net income................................................. $ 964.8 $ 757.0 $ 36.5 $ 267.5 $ (330.6)
Adjustments:
Interest expense, after tax............................. 130.3 118.5 45.8 23.6 24.2
Interest element of operating lease rental, after tax... 20.7 30.3 12.4 11.8 11.7
--------- -------- ------- ------- --------
Net income, as adjusted.................................... $ 1,115.8 $ 905.8 $ 94.7 $ 302.9 $ (294.6)
========= ======== ======= ======= ========
Fixed charges:
Interest expense, after tax............................. $ 130.3 $ 118.5 $ 45.8 $ 23.6 $ 24.2
Interest element of operating lease rental, after tax... 20.7 30.3 12.4 11.8 11.7
--------- -------- ------ -------- ---------
Fixed charges.............................................. $ 151.0 $ 148.8 $ 58.2 $ 35.4 $ 35.9
========= ======== ====== ======== =========
Ratio of net income, as adjusted, to fixed charges (1)..... 7.4 6.1 1.6 8.6 (8.2)
- ------------------------------------------------------------------------------------------------------------------
(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.
33
EXHIBIT 21.1
PRIMARY SUBSIDIARIES OF CNA
PLACE OF
COMPANY INCORPORATION
- ------- --------------
AMS Services, Inc. and subsidiaries (10) Delaware
Alexsis, Inc. and subsidiaries (4) Maryland
American Casualty Company of Reading, Pennsylvania (ACCO) Pennsylvania
Boston Old Colony Insurance Company Massachusetts
Claims Administration Corp. Maryland
CNA Casualty of California California
Columbia Casualty Company Illinois
Commercial Insurance Company of Newark, N.J. New Jersey
Continental Assurance Company (CAC) Illinois
Continental Casualty Company (CCC) Illinois
Continental Lloyd's Insurance Company Texas
Continental Reinsurance Corporation California
Firemen's Insurance Company of Newark, New Jersey New Jersey
Kansas City Fire and Marine Insurance Company Missouri
National Fire Insurance Company of Hartford (NFI) Connecticut
National-Ben Franklin Insurance Company of Illinois Illinois
Niagara Fire Insurance Company Delaware
Pacific Insurance Company California
34
EXHIBIT 21.1 - (continued)
PRIMARY SUBSIDIARIES OF CNA - CONTINUED
The Buckeye Union Insurance Company Ohio
The Continental Corporation, Inc. (CIC) New York
The Continental Insurance Company New Hampshire
The Continental Insurance Company of New Jersey New Jersey
Convida Holdings, Ltd and subsidiary (1) Bahamas
The Fidelity and Casualty Company of New York New Hampshire
The Glens Falls Insurance Company Delaware
The Mayflower Insurance Company, Ltd. Indiana
Transcontinental Insurance Company New York
Transcontinental Technical Services, Inc. (ServCo) Illinois
Transportation Insurance Company Illinois
Valley Forge Insurance Company Pennsylvania
Valley Forge Life Insurance Company Pennsylvania
Western National Warranty Corporation and subsidiary (1) Arizona
All other subsidiaries, when aggregated, are not considered significant.
34
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
reports dated February 12, 1997, 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, 1996.
S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
March 31, 1997
36