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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, 1997 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
- ------------------- ------------------------
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. [ ]
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, 1998, 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 $1,394 million.
DOCUMENTS INCORPORATED
BY REFERENCE:
Portions of the CNA Financial Corporation 1997 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
1998 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, 1997
Item Page
Number PART I Number
------ ----
1. Business.......................................................... 3
2. Properties........................................................ 12
3. Legal Proceedings................................................. 13
4. Submission of Matters to a Vote of Security Holders............... 13
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................................... 15
6. Selected Financial Data........................................... 15
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 15
7A. Quantitative and Qualitative Disclosures about Market Risk........ 15
8. Financial Statements and Supplementary Data....................... 15
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................... 15
PART III
10. Directors and Executive Officers of the Registrant................ 16
11. Executive Compensation............................................ 16
12. Security Ownership of Certain Beneficial Owners and Management.... 16
13. Certain Relationships and Related Transactions.................... 16
PART IV
14. Financial Statements, Schedules, Exhibits and Reports on Form 8-K. 16
2
PART I
ITEM 1. BUSINESS
CNA Financial Corporation (CNAF) 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 (the acquisition date) CNAF
acquired all the outstanding common stock of The Continental Corporation and it
became a wholly owned subsidiary of CNAF. The Continental Corporation
(Continental), 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.
CNAF is a holding company whose primary subsidiaries consist of
property/casualty and life insurance companies, collectively CNA. CNA's
property/casualty insurance operations are conducted by CCC and its affiliates
and CIC and its 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, CNA underwrites
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 competes
with a large number of stock and mutual insurance companies and other entities
for both producers and customers, and must continuously allocate resources to
refine and improve insurance products and services.
There are approximately 3,400 individual companies that sell
property/casualty insurance in the United States. CNAF's consolidated
property/casualty subsidiaries ranked as the third largest property/casualty
insurance organization based upon 1996 statutory net written premium.
There are approximately 1,700 companies selling life insurance in the
United States. CAC is ranked as the twenty-second largest life insurance
organization based on 1996 consolidated statutory premium volume.
DIVIDENDS BY INSURANCE SUBSIDIARIES
The payment of dividends to CNAF by its insurance affiliates without prior
approval of the affiliates' domiciliary state insurance commissioners is
limited to amounts determined by formula in accordance with the accounting
practices prescribed or permitted by the states' 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's surplus. Based upon the various state
formulas, approximately $677 million in dividends can be paid to CNAF by its
insurance affiliates in 1998 without prior approval. All dividends must be
reported to the domiciliary insurance department prior to declaration and
payment.
REGULATION
The insurance industry is subject to comprehensive and detailed regulation
and supervision throughout the United States. Each state has established
supervisory agencies with broad administrative powers relative to licensing
insurers and agents, approving policy forms, establishing reserve requirements,
fixing minimum interest rates for accumulation of surrender values and maximum
interest rates of policy loans, prescribing the form and content of statutory
financial reports, 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
3
REGULATION--(CONTINUED)
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 share of these involuntary risks is mandatory
and generally a function of its respective share of the voluntary market by line
of insurance in each state.
Reform of the Nation's tort reform system is another issue facing the
insurance industry. Although federal standards would create more uniform laws,
tort reform supporters still look primarily to the states for passage of reform
measures. Over the last decade, many states have passed some type of reform, but
more recently, state courts have modified or overturned a significant number of
these reforms. Additionally, new causes of action and theories of damages are
more frequently proposed in state courts or legislatures. Continued
unpredictability 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 the methodology for financing future clean-up costs.
Although Superfund reform continues to be listed as one of Congress' 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 1997 Annual Report to Shareholders for further discussion,
incorporated by reference in Item 8, herein.
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. The RBC requirements establish a formal state
accreditation process designed to regulate for solvency more closely, minimize
the diversity of approved statutory accounting and actuarial practices, and
increase 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,
1997, all of CNAF's property/casualty and life insurance affiliates have
adjusted capital amounts in excess of Company Action Levels.
REINSURANCE
Information as to the CNA's reinsurance business is set forth in Note G of
the Consolidated Financial Statements of the 1997 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
EMPLOYEE RELATIONS
CNA has approximately 24,700 full-time equivalent employees and has
experienced satisfactory labor relations. CNA has never had work stoppages due
to labor disputes.
4
CNA has comprehensive benefit plans for substantially all of its employees,
including retirement plans, savings plans, disability programs, group life
programs and group health care programs. See Note I of the Consolidated
Financial Statements of the 1997 Annual Report to Shareholders for further
discussion, incorporated by reference in Item 8, herein.
BUSINESS SEGMENTS
Information as to the Company's business segments is set forth in Note M of
the Consolidated Financial Statements of the 1997 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
PROPERTY/CASUALTY BUSINESS
The property/casualty group is comprised of commercial business, personal
lines of insurance, involuntary risks and other related businesses.
Customers of the commercial business 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 lines also includes reinsurance assumed from other insurance
companies and certain group accident and health insurance coverages.
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
property/casualty commercial business are professional and specialty coverages,
general liability and commercial automobile, and workers' compensation which
accounted for 17%, 17% and 16%, respectively, of 1997 premiums earned.
The property/casualty group markets personal lines of insurance, primarily
automobile and homeowners coverages sold to individuals under monoline and
package policies.
Involuntary risks include mandatory participation in residual markets,
statutory assessments for insolvencies of other insurers, and other similar
charges. 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.
The property/casualty group also provides other related services including
loss control, policy administration and claim administration services under
service contracts for fees. Such services are provided primarily in the workers'
compensation market.
5
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 1997 1996 1995 1994 1993
(In millions of dollars, except ratio
information)
- ---------------------------------------------------------------------------------------------------------------
Commercial Premiums Earned (a)
Professional and specialty............... $ 1,688 $ 1,845 $ 1,558 $ 1,010 $ 799
General liability and commercial automobile 1,682 1,754 1,649 1,261 1,155
Workers' compensation.................... 1,845 1,543 1,476 1,426 1,501
Multiple peril........................... 1,058 1,047 870 389 369
Accident and health...................... 1,062 919 699 557 428
Reinsurance and other.................... 1,083 1,189 974 774 712
------- ------- ------- ------- -------
$ 8,418 $ 8,297 $ 7,226 $ 5,417 $ 4,964
======= ======= ======= ======= =======
Personal Premiums Earned (a)
Personal lines packages.................. $ 1,085 $ 1,063 $ 782 $ 563 $ 511
Monoline automobile and property coverages 440 367 325 314 343
Accident and health...................... 126 106 108 89 86
------- ------- ------- ------- -------
$ 1,651 $ 1,536 $ 1,215 $ 966 $ 940
======= ======= ======= ======= =======
Involuntary Risks Premiums Earned (a)(b)
Workers' compensation.................... $ (249) $ 198 $ 178 $ 350 $ 292
Private passenger automobile............. 66 58 80 47 23
Commercial automobile................... 25 36 20 54 50
Property and multiple peril.............. 16 2 6 5 6
------- ------- ------- ------- -------
$ (142) $ 294 $ 284 $ 456 $ 371
======= ======= ======= ======= =======
Net Investment Income and Other Income (a)
Commercial............................... $ 2,172 $ 2,074 $ 1,713 $ 1,145 $ 980
Personal................................. 209 222 231 178 156
Involuntary risks........................ 43 94 104 88 76
------- ------- ------- ------- -------
$ 2,424 $ 2,390 $ 2,048 $ 1,411 $ 1,212
======= ======= ======= ======= =======
Underwriting (Loss) Income (a)
Commercial............................... $(1,421) $ (853) $ (921) $ (946) $(1,536)
Personal................................. 124 (184) (102) (185) (100)
Involuntary risks........................ 135 (106) (99) (70) (156)
------- ------- ------- ------- -------
$(1,162) $(1,143) $(1,122) $(1,201) $(1,792)
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------
PROPERTY/CASUALTY BUSINESS--(CONTINUED)
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995 1994 1993
(In millions of dollars, except ratio
information)
- ---------------------------------------------------------------------------------------------------------------
TRADE RATIOS - GAAP BASIS (C)
Loss ratio............................... 77.1% 76.4% 77.9% 81.9% 96.2%
Expense ratio............................ 31.3 30.9 29.4 28.3 27.2
Combined ratio (before policyholder 108.4 107.3 107.3 110.2 123.4
dividends).............................
Policyholder dividend ratio.............. 0.5 1.6 3.0 4.8 3.9
TRADE RATIOS - STATUTORY BASIS (C)
Loss ratio............................... 77.5% 76.8% 78.6% 82.2% 96.4%
Expense ratio............................ 30.7 30.6 29.2 27.8 27.1
Combined ratio (before policyholder 108.2 107.4 107.8 110.0 123.5
dividends).............................
Policyholder dividend ratio.............. 0.8 1.4 2.1 3.8 3.1
OTHER DATA - STATUTORY BASIS (D)
Capital and surplus...................... $ 7,123 $6,349 $ 5,696 $ 3,367 $ 3,598
Written to surplus ratio................. 1.4 1.6 1.7 2.0 1.7
- -----------------------------------------------------------------------------------------------------------------
(a) Premiums earned, net investment income and underwriting loss includes
the results of The Continental Corporation since the acquisition date.
(b) Property/casualty involuntary risks include mandatory participation in
residual markets, statutory assessments for insolvencies of other
insurers and other similar charges.
6
PROPERTY/CASUALTY BUSINESS--(CONTINUED)
(c) GAAP trade ratios reflect the results of CCC and its property/casualty
insurance subsidiaries for the entire year, along with the results of
Continental since the acquisition date. Statutory trade ratios reflect
the results of CCC and its property/casualty insurance subsidiaries and
Continental 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 CNAF of $475 million in 1993. In
addition, dividends of $175 million, $545 million, $325 million, $175
million and $150 million were paid to CNAF by CCC in 1997, 1996, 1995,
1994 and 1993, respectively. Property/casualty insurance subsidiaries
have received, or will receive, reimbursement from CNAF for general
management and administrative expenses, unallocated loss adjustment
expenses and investment expenses of $199 million, $195 million, $197
million, $170 million and $168 million in 1997, 1996, 1995, 1994 and
1993, respectively.
The following table displays the distribution of gross written premium:
-------------------------------------------------------------------------
GROSS WRITTEN PREMIUM % OF TOTAL
------------------------------
YEAR ENDED DECEMBER 31 1997 1996 1995
-------------------------------------------------------------------------
New York................................... 9.9 9.3 10.3
California................................. 8.8 8.5 9.7
Texas...................................... 6.2 6.0 6.5
Pennsylvania............................... 5.1 4.9 5.4
Florida.................................... 4.8 4.2 4.1
Illinois................................... 4.4 5.3 5.2
New Jersey................................. 4.3 4.1 4.6
All other states, countries or political
subdivisions (a)........................... 48.0 46.8 44.4
Reinsurance assumed:
Voluntary................................ 9.7 9.1 7.8
Involuntary.............................. (1.2) 1.8 2.0
------- ------- ------
100.0 100.0 100.0
=========================================================================
(a) No other state, country or political subdivision accounts for more
than 3.0% of gross written premium.
PROPERTY/CASUALTY BUSINESS--(CONTINUED)
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES
The following loss reserve development table 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 the Company's property/casualty insurance
subsidiaries' expanded awareness of additional facts and circumstances that
pertain to the unsettled claims. The last section compares the latest
re-estimated reserve to the reserve originally established, and indicates
whether the original reserve was adequate or inadequate to cover the estimated
costs of unsettled claims.
7
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES--(CONTINUED)
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 1987(a) 1988(a) 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996 1997(d)
(In millions of
dollars)
- -----------------------------------------------------------------------------------------------------------------------
Gross reserves
for unpaid claim
and claim expenses.... $ -- $ -- $ -- $16,530 $17,712 $20,034 $20,812 $21,639 $31,044 $29,395 $28,240
Ceded recoverable........ -- -- -- 3,440 3,297 2,867 2,491 2,705 6,089 5,660 4,995
----- ----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Net reserves
for unpaid
claim
and claim expenses.... 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 23,245
----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
NET PAID (CUMULATIVE) AS OF:
One year later........... 1,763 2,040 2,670 3,285 3,411 3,706 3,629 3,656 6,510 5,851 --
Two years later.......... 2,961 3,622 4,724 5,623 6,024 6,354 6,143 7,087 10,485 -- --
Three years later........ 4,031 4,977 6,294 7,490 7,946 8,121 8,764 9,195 -- -- --
Four years later......... 5,007 6,078 7,534 8,845 9,218 10,241 10,318 -- -- -- --
Five years later......... 5,801 6,960 8,485 9,726 10,950 11,461 -- -- -- -- --
Six years later.......... 6,476 7,682 9,108 11,207 11,951 -- -- -- -- -- --
Seven years later........ 7,061 8,142 10,393 12,023 -- -- -- -- -- -- --
Eight years later........ 7,426 9,303 11,086 -- -- -- -- -- -- -- --
Nine years later......... 8,522 9,924 -- -- -- -- -- -- -- -- --
Ten years later.......... 9,097 -- -- -- -- -- -- -- -- -- --
NET RESERVES RE-ESTIMATED
AS OF:
End of initial year...... 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 23,245
One year later........... 8,086 9,737 11,336 12,984 16,032 17,757 18,250 18,922 24,864 23,479 --
Two years later.......... 8,345 9,781 11,371 14,693 16,810 17,728 18,125 18,500 24,294 -- --
Three years later........ 8,424 9,796 13,098 15,737 16,944 17,823 17,868 18,008 -- -- --
Four years later......... 8,516 11,471 14,118 15,977 17,376 17,765 17,511 -- -- -- --
Five years later.........10,196 12,496 14,396 16,440 17,329 17,560 -- -- -- -- --
Six years later..........11,239 12,742 14,811 16,430 17,293 -- -- -- -- -- --
Seven years later........11,480 13,167 14,810 16,551 -- -- -- -- -- -- --
Eight years later........11,898 13,174 14,995 -- -- -- -- -- -- -- --
Nine years later.........11,925 13,396 -- -- -- -- -- -- -- -- --
Ten years later..........12,203 -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total net (deficiency) (4,158) (3,844) (3,728) (3,461) (2,878) (393) 810 926 661 256 --
redundancy
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Schedule of
Property/Casualty
Loss Reserve
Development
Calendar Year Ended 1987(a) 1988(a) 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996 1997(d)
(In millions of
dollars)
- --------------------------------------------------------------------------------------------------------------------
Reconciliation to gross
re-estimated reserves:
Net reserves
re-estimated 12,203 13,396 14,995 16,551 17,293 17,560 17,511 18,008 24,294 23,479 --
Re-estimated ceded
recoverable -- -- -- 2,939 2,672 2,085 1,904 2,405 6,560 6,108 --
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Total gross
re-estimated -- -- -- 19,490 19,965 19,645 19,415 20,413 30,854 29,587 --
reserves
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net (deficiency) redundancy
related to:
Asbestos claims. (3,073) (3,017) (2,919) (2,785) (2,738) (1,049) (449) (414) (156) (105) --
Environmental claims.... (1,000) (997) (970) (960) (914) (869) (423) (243) (63) -- --
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ -----
Total asbestos and
environmental (4,073) (4,014) (3,889) (3,745) (3,652) (1,918) (872) (657) (219) (105) --
Other claims............ (85) 170 161 284 774 1,525 1,682 1,583 880 361 --
------- ------ ------ ------ ------ ------ ------ ------ ------ -------------
Total net (deficiency)
redundancy.............. (4,158) (3,844) (3,728) (3,461) (2,878) (393) 810 926 661 256 --
======= ======= ======= ======= ======== ====== ====== ====== ====== ====== =====
- ---------------------------------------------------------------------------------------------------------------------
(a) Reflects reserves of CNA's property/casualty insurance subsidiaries,
excluding Continental reserves which were acquired on the acquisition date.
Accordingly, the reserve development (net reserves recorded at the end of the
year, as initially estimated, less net reserves re-estimated as of subsequent
years) does not include Continental.
(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, on the
acquisition date, 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 the acquisition date and subsequent development
thereon.
(d) Includes gross reserves of acquired companies of $64 million.
8
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 1997 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 1997 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 other companies on a commission
basis. Insurance products are also marketed through other distribution channels
such as banks, direct marketing and the Internet. The individual insurance
products consist primarily of term, universal life, and fixed and variable
annuity products. 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.
CNA's life insurance 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 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 life insurance subsidiaries 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 position CNA properly in the evolving health care environment.
9
LIFE BUSINESS--(CONTINUED)
The following table sets forth supplemental data on a GAAP basis, except
where indicated for the life insurance business:
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995 1994 1993
(In millions of dollars, except ratio information)
- ----------------------------------------------------------------------------------------------------------------
INDIVIDUAL PREMIUM
Life and annuities................................ $ 642 $ 629 $ 497 $ 369 $ 312
Accident and health............................... 3 2 33 33 31
--------- --------- --------- --------- ---------
$ 645 $ 631 $ 530 $ 402 $ 343
========= ========= ========= ========= =========
GROUP PREMIUM
Accident and health (a)........................... $ 2,527 $ 2,548 $ 2,190 $ 2,111 $ 1,983
Life and annuities................................ 263 195 313 165 116
--------- --------- --------- --------- ---------
$ 2,790 $ 2,743 $ 2,503 $ 2,276 $ 2,099
========= ========= ========= ========= =========
NET INVESTMENT INCOME AND OTHER INCOME
Individual........................................ $ 297 $ 292 $ 247 $ 194 $ 154
Group............................................. 236 214 198 166 143
--------- --------- --------- --------- ---------
$ 533 $ 506 $ 445 $ 360 $ 297
========= ========= ========= ========= =========
OPERATING INCOME BEFORE INCOME TAX
Individual........................................ $ 88 $ 101 $ 65 $ 47 $ 14
Group............................................. 65 70 95 87 52
--------- --------- --------- --------- ---------
$ 153 $ 171 $ 160 $ 134 $ 66
========= ========= ========= ========= =========
GROSS LIFE INSURANCE IN-FORCE
Individual (b).................................... $ 239,843 $ 172,213 $ 113,901 $ 80,560 $ 76,835
Group............................................. 71,755 64,796 52,145 46,873 35,413
--------- --------- --------- --------- ---------
$ 311,598 $ 237,009 $ 166,046 $ 127,433 $ 112,248
========= ========= ========= ========= =========
OTHER DATA - STATUTORY BASIS(c)
Capital and surplus............................... $ 1,223 $ 1,163 $ 1,128 $ 1,055 $ 1,022
Capital and surplus-percent of total liabilities.. 22.4% 25.5% 28.2% 29.4% 30.1%
Participating policyholders-percent of gross life
insurance in force................................ 0.7% 0.5% 0.6% 0.9% 1.1%
- ----------------------------------------------------------------------------------------------------------------
(a) Group accident and health premium includes contracts involving U.S. government employees and their
dependents, and amounted to approximately $2.1 billion, $2.1 billion, $1.9 billion, $1.8 billion and
$1.7 billion in 1997, 1996, 1995, 1994 and 1993, 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 6.4%, 7.2%, 9.4%, 9.7% and 9.7% in 1997, 1996, 1995, 1994
and 1993, respectively.
(c) Other data is determined on the basis of statutory accounting practices. Life insurance subsidiaries
have received reimbursement from CNAF for general management and administrative expenses and investment
expenses of $18 million, $29 million, $21 million, $25 million and $26 million in 1997, 1996, 1995, 1994,
and 1993, 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.
10
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.
The Company manages the liquidity and interest rate risks on the guaranteed
investment contract portfolio by managing the 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 1997 1996 1995
- -------------------------------------------------------------------------------
Duration in years:
Assets....................................... 3.74 3.12 3.12
Contracts.................................... 3.63 3.16 2.98
---- ---- ----
Difference................................... 0.11 (0.04) 0.14
==== ====== ====
Weighted average investment yield............... 6.81% 7.44% 7.58%
Weighted average interest crediting rates....... 6.78% 7.32% 7.45%
Withdrawal characteristics:
With market value adjustment................. 97% 95% 92%
Non-withdrawable............................. 3 5 8
- -------------------------------------------------------------------------------
Total 100% 100% 100%
===============================================================================
As shown above, the weighted average investment yield at December 31, 1997,
1996 and 1995 was more than the weighted average interest crediting rate. During
1997, general market interest rates were lower which led to an increase in the
market value of CNA's fixed maturitiy securities. As a result of this increase,
CNA was able to realize significant capital gains on its investment portfolio.
However, the interest rates on fixed maturity securities purchased in this
market had a lower yield which led to a narrowing of the spread between
investment yields and crediting rates.
INVESTMENTS
Information as to the Company's investments is set forth in Note B of the
Consolidated Financial Statements of the 1997 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
11
ITEM 2. PROPERTIES
CNA Plaza, owned by Continental Assurance Company, serves as the home
office for CNAF and its insurance subsidiaries. An adjacent building (located at
55 E. Jackson Blvd.), jointly owned by Continental Casualty Company and
Continental Assurance Company, is partially situated on grounds under leases
expiring in 2058. Approximately 28% of the adjacent building is rented to
non-affiliates. CNAF's subsidiaries lease office space in various cities
throughout the United States and in other countries. The following table sets
forth certain information with respect to the principal office buildings owned
or leased by CNAF's subsidiaries:
--------------------------------------------------------------------------
AMOUNT OF BUILDING OWNED
AND OCCUPIED OR LEASED
LOCATION BY CNA OR ITS SUBSIDIARIES PRINCIPAL USAGE
--------------------------------------------------------------------------
CNA 1,144,378 sq. ft.* Principal Executive
Plaza Offices of CNAF
333 S. Wabash
Chicago, Illinois
180 Maiden Lane 1,091,570*** Property/Casualty
New York, New York Insurance Offices
55 E. Jackson Blvd. 440,292* Principal Executive
Chicago, Illinois Offices of CNAF
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
200 S. Wacker Drive 219,285** Property/Casualty
Chicago, Illinois Insurance Offices
1111 E. Broad St. 183,019** Property/Casualty
Columbus, Ohio Insurance Offices
333 Glen Street 157,825** Property/Casualty
Glen Falls, New York Insurance Offices
1100 Cornwall Road 147,884** Property/Casualty
Monmouth Junction Insurance Offices
New Jersey
600 North Pearl Street 139,151** Property/Casualty
Dallas, Texas Insurance Offices
111 Congressional Blvd. 118,215** Property/Casualty
Indianapolis, Indiana Insurance Offices
1431 Opus Place 106,151** Property/Casualty
Downers Grove, Illinois Insurance Offices
2401 Pleasant Valley 102,376** Property/Casualty
York, Pennsylvania Insurance Offices
* Represents property owned by CNAF or its subsidiaries.
** Represents property leased by CNAF or its subsidiaries.
*** Property is owned by Continental and 46% of it is occupied by CNAF or its
subsidiaries.
12
ITEM 3. LEGAL PROCEEDINGS
Information as to CNA's legal proceedings is set forth in Note F of the
Consolidated Financial Statements of 1997 Annual Report to Shareholders,
incorporated by reference in Item 8, herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION AND
OFFICES HELD FIRST BECAME
WITH OFFICER OF
NAME REGISTRANT AGE CNA PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
Laurence A. Tisch Chief Executive 75 * Co-Chairman of the Board and Co-Chief Executive
Officer, CNA Officer of Loews Corporation. President, Chief
Financial Executive Officer and Director of CBS, Inc. until
Corporation November 1995. Executive officer of the Registrant
since 1974.
Dennis H. Chookaszian Chairman of the 54 1975 Chairman of the Board and Chief Executive Officer of
Board and Chief CNA since September 1992. Prior thereto,
Executive Mr. Chookaszian was President and Chief Operating
Officer, CNA Officer of CNA. Executive officer of the Registrant
since 1975.
Philip L. Engel President, CNA 57 1977 President of CNA since September 1992. Prior thereto,
Mr. Engel was Executive Vice President of CNA.
Executive officer of the Registrant since 1992.
Bernard L. Executive Vice 51 1980 Executive Vice President and Chief Operating Officer
Hengesbaugh President and of CNA since February 4, 1998. Senior Vice President
Chief Operating of CNA since November 1990. Executive officer of the
Officer, CNA Registrant since 1992.
W. James MacGinnitie Senior Vice 59 1997 Senior Vice President and Chief Financial Officer of
President and CNA and of the Registrant since October 1997. From
Chief Financial 1994 through 1997, Partner at Ernst & Young LLP.
Officer Prior to that time, principal with Tillinghast.
Officers are elected and hold office until their successors are elected and
qualified, and are subject to removal by the Board of Directors.
*Mr. Tisch is not an officer of CNA.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Incorporated herein by reference from page 91 of the 1997 Annual
Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from page 2 of the 1997 Annual
Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference from pages 14 through 38 of the 1997
Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated herein by reference under the heading Market Risk in the
Management Discussion and Analysis of Financial Condition and Results of
Operations of the 1997 Annual Report to Shareholders on pages 30
through 33.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheet - December 31, 1997 and 1996
Statement of Consolidated Operations - Year Ended December 3l, 1997, 1996
and 1995
Statement of Consolidated Stockholders' Equity - December 31, 1997, 1996
and 1995
Statement of Consolidated Cash Flows - Year Ended December 31, 1997, 1996
and 1995
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 40 through 90 of the 1997
Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
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..................................................................... 15
(a) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule I Summary of Investments............................................. 20
Schedule II Condensed Financial Information (Parent Company)................... 21
Schedule III Supplementary Insurance Information................................ 25
Schedule V Valuation and Qualifying Accounts and Reserves..................... 26
Schedule VI Supplementary Information Concerning Property/Casualty
Insurance Operations............................................... 26
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........................................................... 27
16
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
(Exhibit 3.2 to 1996 Form 10-K incorporated herein by reference.)........................ 3.2
(4) Instruments defining the rights of security holders, including indentures:
CNA Financial Corporation hereby agrees to furnish to the Commission
upon request copies of instruments with respect to long-term debt,
pursuant to Item 601(b) (4) (iii) of Regulation S-K..................................... -
(10) Material contracts:
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
17
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
18
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) 1997 Annual Report...................................................................... 13.1*
(21) Subsidiaries of CNA..................................................................... 21.1*
(23) Independent Auditors' Consent........................................................... 23.1*
(27) Financial Data Schedule................................................................. 27*
*Filed herewith
(b) REPORTS ON FORM 8-K:
None
19
SCHEDULE I
CNA FINANCIAL CORPORATION
SUMMARY OF INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------
December 31 1997 1996
----------------------------- ---------------------------------
Fair Carrying Fair Carrying
(In millions of dollars) Cost Value Value Cost Value Value
- -----------------------------------------------------------------------------------------------------------------
Fixed maturities available-for-sale:
Bonds:
United States government and government
agencies and authorities-taxable.... $13,798 $13,920 $13,920 $15,047 $15,045 $15,045
States, municipalities and political
subdivisions-tax exempt............. 4,534 4,724 4,724 4,860 4,951 4,951
Foreign governments and political
subdivisions........................ 998 998 998 1,200 1,214 1,214
Public utilities..................... 340 355 355 195 205 205
Convertibles and bonds with warrants
attached............................ 3 2 2 167 169 169
All other corporate.................. 9,280 9,452 9,452 6,022 6,071 6,071
Redeemable preferred stocks.............. 67 97 97 49 66 66
------ ------ ------ ------ ------ ------
Total fixed maturities
available-for-sale................. 29,020 29,548 29,548 27,540 27,721 27,721
------ ====== ------ ------ ====== ------
Equity securities available-for-sale:
Common stocks:
Public utilities..................... -- -- -- 11 15 15
Banks, trusts and insurance companies 8 7 7 132 185 185
Industrial and other................. 559 672 672 335 431 431
Non redeemable preferred stocks.......... 128 135 135 224 228 228
------ ------ ------ ------ ------ ------
Total equity securities
available-for-sale................. 695 $ 814 814 702 $ 859 859
------ ====== ------ ------ ====== ------
Mortgage loans.............................. 80 80 113 113
Real estate................................. 5 5 10 10
Policy loans................................ 177 177 174 174
Other invested assets....................... 544 695 617 681
Short-term investments...................... 4,884 4,884 5,854 5,854
- -----------------------------------------------------------------------------------------------------------------
Total investments $35,405 $36,203 $35,010 $35,412
=================================================================================================================
20
SCHEDULE II
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------------
DECEMBER 31 1997 1996
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------------
ASSETS:
Investments in subsidiaries....................................... $ 9,770 $ 8,099
Deferred income taxes............................................. 511 877
Notes receivable from affiliate................................... 205 205
Short-term investments............................................ 174 2
Other............................................................. 4 16
-------- -------
Total assets.............................................. $ 10,664 $ 9,199
======== =======
LIABILITIES:
Debt.............................................................. $ 1,972 $ 1,971
Federal income taxes payable...................................... 108 29
Amounts due to affiliates......................................... 106 102
Other............................................................. 169 37
-------- -------
Total liabilities......................................... 2,355 2,139
Total stockholders' equity................................ 8,309 7,060
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,664 $ 9,199
===========================================================================================================
RESULTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1997 1996 1995
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------------
REVENUES:
Equity in income of subsidiaries before income tax:
Operating income ..............................................$ 956 $1,089 $ 923
Realized investment gains...................................... 742 610 453
Net investment income............................................. 12 13 9
Realized investment gains (losses)................................ (4) (5) 3
------- ------ -------
1,706 1,707 1,388
------- ------ -------
EXPENSES:
Administrative and general expenses............................... 217 223 220
Interest expense.................................................. 131 135 125
Other............................................................. - 4 1
------- ------ -------
348 362 346
------- ------ ------
Income before income tax................................... 1,358 1,345 1,042
Income tax expense................................................ 392 380 285
- ----------------------------------------------------------------------------------------------------------
NET INCOME $ 966 $ 965 $ 757
==========================================================================================================
See accompanying Notes to Condensed Financial Information.
21
SCHEDULE II
(continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
Statement of Cash Flows
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31 1997 1996 1995
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 966 $ 965 $ 757
---- ---- ----
Adjustments to reconcile net income to net cash flows
from operating activities:
Equity in income of unconsolidated affiliates.................... (1,441) (1,377) (1,201)
Realized losses (gains).......................................... 4 5 (3)
Changes in:
Federal income taxes............................................ 79 165 (113)
Deferred income taxes........................................... 366 93 173
Other, net...................................................... (127) (131) 87
------ ----- -----
TOTAL ADJUSTMENTS.............................................. (1,119) (1,245) (1,057)
------- ------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES....................... (153) (280) (300)
------ ----- -----
Cash flows from investing activities:
Purchase of The Continental Corporation.............................. - - (1,126)
Other acquisitions................................................... - - (13)
Purchases of fixed maturities........................................ - - (709)
Proceeds from fixed maturities:
Sales............................................................. - - 501
Maturities........................................................ - - 201
Net proceeds from the sale of equity securities...................... - - (1)
Change in short-term investments..................................... (15) (2) 1
Other................................................................ (4) (5) 7
----- ----- -----
NET CASH FLOWS FROM INVESTING ACTIVITIES....................... (19) (7) (1,139)
------ ------ ------
Cash flows from financing activities:
Dividends paid to preferred shareholders............................. (6) (6) (7)
Dividend from affiliates............................................. 175 548 326
Proceeds from issuance of long-term debt............................. - 248 1,325
Principal payments on long-term debt................................ - (500) -
Loan to The Continental Corporation.................................. - - (205)
----- ----- -----
NET CASH FLOWS FROM FINANCING ACTIVITIES....................... 169 290 1,439
----- ----- -----
NET CASH FLOWS (3) 3 -
Cash at beginning of year............................................... 3 - -
- -------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ - $ 3 $ -
===================================================================================================================
SCHEDULE II
(continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
Statement of Cash Flows - (continued)
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31 1997 1996 1995
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash (paid) received:
Interest ........................................................ $ (134) $(141) $(170)
Federal income taxes............................................. (95) 15 103
===================================================================================================================
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..................................... $15,259 $ 13
Liabilities assumed............................................... (14,133) -
------- -----
Cash paid..................................................... $ 1,126 $ 13
====================================================================================================================
See accompanying Notes to Condensed Financial Information.
22
SCHEDULE II
(continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION
a. Basis of presentation
The condensed financial information of CNA Financial Corporation
(Parent Company) should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in the CNA Financial
Corporation Annual Report to Shareholders. Investment in subsidiaries
are accounted for using the equity method of accounting.
Certain amounts applicable to prior years have been reclassified to
conform to classifications followed in 1997.
b. Long-term debt
-------------------------------------------------------------------------
December 31 1997 1996
(In millions of dollars)
-------------------------------------------------------------------------
Variable rate debt:
Credit Facility.................................. $ 400 $ 400
Commercial Paper................................. 675 675
Senior Notes:
8 7/8 %, due March 1, 1998....................... 150 150
6 1/4%, due November 15, 2003.................... 249 248
6 3/4%, due November 15, 2006.................... 248 248
7 1/4% Debenture, due November 15, 2023............. 247 247
1.0% Urban Development Action Grant, due May 7, 2019. 3 3
--------------------------------------------------------------------------
Total $1,972 $1,971
=========================================================================
CNA Financial Corporation (CNAF)has in place a revolving credit
facility that was used to finance the acquisition of The Continental
Corporation.The interest rate on 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, 1997
and 1996, respectively was 6.16% and 5.72%.
To take advantage of favorable interest rates, CNAF
established a commercial paper program to replace borrowings
under the revolving credit facility. The commercial paper borrowings
are classified as long-term as $675 million of the committed bank
facility will support the commercial paper program. The weighted
average interest rate on commercial paper at December 31, 1997 was
6.05% compared to 5.67% at December 31, 1996.
At year end 1997, 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.
SCHEDULE II
(continued)
To offset the variable rate characteristics of the facility, CNAF
entered into interest rate swap agreements with several banks having a
total notional principal amount of $950 million, which terminate from
May 2000 to December 2000. These agreements provide that CNAF pay
interest at a fixed rate, averaging 6.20% at December 31, 1997 and
1996, in exchange for the receipt of interest at the three month LIBOR
rate. The
23
SCHEDULE II
(continued)
CNA FINANCIAL CORPORATION
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL INFORMATION--(CONTINUED)
effect of these interest rate swaps was to increase interest expense
by $4 million and $7 million for the years ended December 31, 1997 and
1996, respectively.
The weighted average interest rate (interest and facility fees) on the
variable rate acquisition debt, which includes the revolving credit
facility and commercial paper was 6.35% and 6.28% at December 31, 1997
and 1996, respectively. This rate reflects the effect of the interest
rate swaps.
On August 18, 1997, CNAF filed a Registration Statement on Form S-3
with the Securities and Exchange Commission relating to $1 billion of
senior and subordinated debt and preferred stock that became effective
on October 22, 1997. This new shelf registration incorporated $250
million of securities remaining available for issuance from a prior
shelf registration. On January 8, 1998, the Company issued $150 million
principal amount of 6.45% senior notes due January 15, 2008 and $150
million principal amount of 6.95% senior notes due January 15, 2018.
The net proceeds were used to pay down bank loans drawn under the
Company's revolving credit facility. Concurrent with the reduction in
bank debt, the Company terminated $300 million in notional amount of
interest rate swaps.
On March 2, 1998 CNAF paid at the due date $150 million of 8 7/8%
senior notes with funds drawn against the revolving credit
facility (unaudited).
c. Management and admininstrative expenses
CNAF has reimbursed, or will reimburse, its subsidiaries for general
management and administrative expenses, unallocated loss adjustment
expenses and investment expense of $217 million, $223 million and $218
million in 1997, 1996 and 1995, respectively.
d. Capital contributions
There were no contributions made by CNAF to the capital of its
insurance and other subsidiaries in 1997, 1996 or 1995.
- --------------------------------------------------------------------------------
24
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, 1997
Property/Casualty:
Commercial............ $ 804 $ 25,624 $ 91 $ 3,717 $ 150
Personal.............. 358 1,386 445 963 2
Involuntary risks..... -- 1,230 -- 20 --
Life:
Individual............ 934 114 3,593 -- 31
Group................. 46 555 700 -- 559
------- ------- ------- ------- -----
Subtotal............ 2,142 28,909 4,829 4,700 742
Other and intercompany
eliminations.......... - 318 - - -
------- ------- ------- ------- -----
$ 2,142 $ 29,227 $ 4,829 $ 4,700 $ 742
======= ======= ======= ======= =====
December 31, 1996
Property/Casualty:
Commercial............ $ 822 $ 25,887 $ 47 $ 3,591 $ 172
Personal.............. 262 1,557 326 1,044 -
Involuntary risks..... - 1,951 - 24 -
Life:
Individual............ 736 148 3,138 - 30
Group................. 34 519 670 - 544
------- ------- ------- ------- ---
Subtotal............ 1,854 30,062 4,181 4,659 746
Other and intercompany
eliminations.......... -- 333 -- -- --
------- ------- ------- ------- -----
$ 1,854 $ 30,395 $ 4,181 $ 4,659 $ 746
======= ======= ======= ======= =====
December 31, 1995
Property/Casualty:
Commercial............ $ 702 $ 27,309 $ 38 $ 3,607 $ 163
Personal.............. 258 1,427 260 869 -
Involuntary risks..... 9 2,308 - 73 -
Life:
Individual............ 505 162 2,679 - 31
Group................. 19 473 539 - 511
------- ------- ------- ------- -----
Subtotal............ 1,493 31,679 3,516 4,549 705
Other and intercompany
eliminations.......... -- 353 -- -- --
------- ------- ------- ------- -----
$ 1,493 $ 32,032 $ 3,516 $ 4,549 $ 705
======= ======= ======= ======= =====
*Premiums written relates to property/casualty companies only.
SCHEDULE III
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION - CONTINUED
- --------------------------------------------------------------------------------------------------------
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, 1997
Property/Casualty:
Commercial............ $ 8,418 $ 1,601 $ 7,369 $ 1,855 $ 1,148 $ 8,570
Personal.............. 1,651 146 991 407 191 1,803
Involuntary risks..... (142) 43 (383) -- 107 (187)
Life:
Individual............ 645 248 633 122 99 --
Group................. 2,790 171 2,643 (1) 318 --
------ ------ ------ ------ ------ ------
Subtotal............ 13,362 2,209 11,253 2,383 1,863 10,186
Other and intercompany
eliminations.......... - - - - 2 -
------ ------ ------ ------ ------ ------
$13,362 $ 2,209 $11,253 $ 2,383 $ 1,865 $10,186
====== ====== ====== ====== ====== =======
December 31, 1996
Property/Casualty:
Commercial............ $ 8,297 $ 1,623 $ 6,703 $ 1,715 $ 1,104 $ 8,593
Personal.............. 1,536 166 1,184 402 273 1,731
Involuntary risks..... 294 92 244 62 92 287
Life:
Individual............ 631 227 667 26 129 -
Group................. 2,743 173 2,579 (13) 322 -
------ ------ ------ ------ ------ ------
Subtotal............ 13,501 2,281 11,377 2,192 1,920 10,611
Other and intercompany
eliminations.......... (22) (5) (20) -- (40) --
------ ------ ------ ------ ------ ------
$13,479 $ 2,276 $11,357 $ 2,192 $ 1,880 $10,611
======= ====== ====== ====== ===== ======
December 31, 1995
Property/Casualty:
Commercial............ $ 7,226 $ 1,463 $ 5,995 $ 1,495 $ 915 $ 7,561
Personal.............. 1,215 132 892 271 229 1,254
Involuntary risks..... 284 104 234 17 146 311
Life:
Individual............ 530 214 507 71 134 -
Group................. 2,503 155 2,340 (10) 276 -
------ ------ ------ ------ ------ -------
Subtotal............ 11,758 2,068 9,968 1,844 1,700 9,126
Other and intercompany
eliminations.......... (23) 9 (24) -- (20) --
------ ------ ------ ------ ------ ------
$ 11,735 $ 2,077 $ 9,944 $ 1,844 $ 1,680 $ 9,126
======= ====== ====== ====== ===== ======
25
SCHEDULE V
CNA FINANCIAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ----------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
(In millions of dollars) of Period Expenses Amounts Deductions Period
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 Deducted from assets:
Allowance for doubtful accounts:
Receivables................................. $ 277 $ 30 $ - $ 4 $ 303
===== ===== ====== ====== =====
Year Ended December 31, 1996
Deducted from assets:
Allowance for doubtful accounts:
Receivables................................. $ 289 $ 34 $ - $ 46 $ 277
===== ===== ====== ===== =====
Year Ended December 31, 1995
Deducted from assets:
Allowance for doubtful accounts:
Receivables................................. $ 128 $ 39 $ 143* $ 21 $ 289
===== ===== ====== ====== =====
- --------------------------------------------------------------------------------------------------------------
* Includes Continental allowance at the acquisition date.
SCHEDULE VI
CNA FINANCIAL CORPORATION
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
- --------------------------------------------------------------------------------------------------------
Consolidated Property/
Casualty Entities
-------------------------------------
Year Ended December 31 1997 1996 1995
(In millions of dollars)
- --------------------------------------------------------------------------------------------------------
Deferred acquisition costs.................................... $1,162 $ 1,084 $ 969
Reserves for unpaid claims and claim expenses................. 28,240 29,830 31,044
Discount deducted from claim and claim expense reserves above
(based on interest rates ranging from 3.5% to 7.5%)......... 2,409 2,459 2,449
Unearned premiums............................................. 4,700 4,659 4,549
Earned premiums............................................... 9,927 10,127 8,725
Net investment income......................................... 1,790 1,881 1,699
Claim and claim expenses related to current year.............. 7,942 7,922 6,787
Claim and claim expenses related to prior years............... (256) (91) 122
Amortization of deferred acquisition costs.................... 2,262 2,179 1,783
Paid claim and claim expenses................................. 8,376 9,200 7,057
Premiums written.............................................. 10,186 10,611 9,126
- --------------------------------------------------------------------------------------------------------
26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CNA Financial Corporation
We have audited the consolidated financial statements of CNA Financial
Corporation (an affiliate of Loews Corporation) and subsidiaries as of December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997 and have issued our report thereon dated February 18, 1998. Such
consolidated financial statements and report are included in the Company's 1997
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 18, 1998
27
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/W.JAMES MACGINNITIE
--------------------------------------------------------
W. James MacGinnitie
Senior Vice President and
Chief Financial Officer
Date: March 30, 1998
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 30, 1998
|
/S/ROBERT P. GWINN Director |
- ---------------------------------- |
Robert P. Gwinn |
|
|
/S/WALTER F. MONDALE Director |
- -------------------------------- |
Walter F. Mondale |
28
SIGNATURES--(CONTINUED)
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 30, 1998
|
/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 |
|
29
EXHIBIT 11.1
CNA FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
=============================================================================================
Year Ended December 31 1997 1996 1995 1994 1993
(In millions, except per share data)
- -----------------------------------------------------------------------------------------------
Weighted average shares outstanding................ 61.8 61.8 61.8 61.8 61.8
====== ====== ====== ====== ======
Net income.........................................$ 966 $ 965 $ 757 $ 36 $ 268
Less preferred stock dividends..................... 7 7 7 5 4
------ ------ ------- ---- ------
Net income available to common stockholders........$ 959 $ 958 $ 750 $ 31 $ 264
====== ====== ====== ====== ======
Earnings per share:
Net income available to common stockholders.....$15.52 $15.51 $12.14 $ 0.51 $ 4.26
====== ====== ====== ====== ======
30
EXHIBIT 12.1
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- ---------------------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995 1994 1993
(In millions of dollars, except ratios)
- ---------------------------------------------------------------------------------------------
Income before income tax ........................$ 1,358 $ 1,345 $ 1,042 $(134) $ 94
Adjustments:
Interest expense.............................. 198 200 182 71 36
Interest element of operating lease rental.... 34 32 47 19 18
-------- ------- ------- ------ -----
Income before income tax, as adjusted............$ 1,590 $ 1,577 $ 1,271 $ (44) $ 148
====== ======= ======= ====== =====
Fixed charges:
Interest expense..............................$ 198 $ 200 $ 182 $ 71 $ 36
Interest element of operating lease rental.... 34 32 47 19 18
------- ------- ------- ----- -----
Total fixed charges..............................$ 232 $ 232 $ 229 $ 90 $ 54
====== ======= ======= ===== =====
Ratio of earnings to fixed charges (1)........... 6.8 6.8 5.6 (0.5) 2.7
- ---------------------------------------------------------------------------------------------
(1) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges of consolidated companies. Fixed charges
consist of interest and that portion of operating lease rental expense
which is deemed to be an interest factor for such rentals.
EXHIBIT 12.2
CNA FINANCIAL CORPORATION
COMPUTATION OF RATIO OF NET INCOME,
AS ADJUSTED, TO FIXED CHARGES
- ------------------------------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995 1994 1993
(In millions of dollars, except ratios)
- ------------------------------------------------------------------------------------------------------
Net income................................................$ 966 $ 965 $ 757 $ 37 $ 268
Adjustments:
Interest expense, after tax............................ 129 130 119 46 24
Interest element of operating lease rental, after tax.. 22 21 30 12 12
------ ------ ----- ----- -----
Net income, as adjusted...................................$ 1,117 $ 1,116 $ 906 $ 95 $ 304
====== ====== ===== ===== =====
Fixed charges:
Interest expense, after tax............................$ 129 $ 130 119 $ 46 $ 24
Interest element of operating lease rental, after tax.. 22 21 30 12 12
------ ------- ----- ----- -----
Total fixed charges.......................................$ 151 $ 151 $ 149 $ 58 $ 36
====== ====== ===== ===== =====
Ratio of net income, as adjusted, to fixed charges (1).... 7.4 7.4 6.1 1.6 8.6
- ------------------------------------------------------------------------------------------------------
(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.
31
EXHIBIT 21.1
PRIMARY SUBSIDIARIES OF CNA
PLACE OF INCORPORATION
COMPANY
AMS Services, Inc. Delaware
Alexsis, Inc. Maryland
American Casualty Company of Reading, Pennsylvania (ACCO) Pennsylvania
Boston Old Colony Insurance Company Massachusetts
Claims Administration Corp. Maryland
CNA Casualty of California California
CNA Surety Corporation Delaware
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
32
EXHIBIT 21.1 - (continued)
PRIMARY SUBSIDIARIES OF CNA--(continued)
PLACE OF INCORPORATION
COMPANY
The Buckeye Union Insurance Company Ohio
The Continental Corporation, Inc. New York
The Continental Insurance Company New Hampshire
The Continental Insurance Company of New Jersey New Jersey
Convida Holdings, Ltd. 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 Arizona
All other subsidiaries, when aggregated, are not considered significant.
33
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 18, 1998, 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, 1997.
/S/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Chicago, Illinois
March 30, 1998
34