EX-99.2 3 c85006exv99w2.txt FINANCIAL SUPPLEMENT Exhibit 99.2 a CNA FINANCIAL CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION MARCH 31, 2004 a CNA FINANCIAL CORPORATION TABLE OF CONTENTS MARCH 31, 2004
PAGE ----- Supplemental Financial Information i-iii Statements of Operations 1 Components of Net Income and Per Share Data 2 Selected Balance Sheet Data and Condensed Consolidated Statement of Cash Flows Data 3 Property & Casualty Insurance Claim & Claim Adjustment Expense Reserve Data 4 Property & Casualty Insurance Claim & Claim Adjustment Expense Reserve Rollforward 5 Investments by Segment Aggregation 6 Property & Casualty Results of Operations 7 Life & Group Non-Core and Corporate & Other Non-Core Segments Results of Operations 8 Property & Casualty Operations and Corporate & Other Non-Core Segment Catastrophe Losses 9 Analysis of Pretax Net Investment Income 10 Statutory Data - Preliminary 11 Property & Casualty Operations Loss and LAE Ratio Analysis 12 Life & Group Non-Core Segment - GAAP Results of Operations 13 Asbestos Summary by Policyholder Category 14
a CNA FINANCIAL CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION SEGMENT CHANGES In the first quarter of 2004, CNA revised its reportable segment structure to reflect changes in how it manages its core operations and makes business decisions. CNA now manages its Property & Casualty Operations in two operating segments which represent CNA's core operations: Standard Lines and Specialty Lines. The non-core operations are now managed in the Life & Group Non-Core and Corporate & Other Non-Core segments. Standard Lines includes standard property and casualty coverages sold to small and middle market commercial businesses primarily through an independent agency distribution system, and excess and surplus lines, as well as insurance and risk management products sold to large corporations. These services are provided to customers in the U.S. as well as globally. Specialty Lines provides a broad array of professional, financial and specialty property and casualty products and services. Life & Group Non-Core primarily includes the results of the life and group lines of business that have been sold or placed in run-off. Corporate & Other Non-Core contains certain corporate expenses such as interest on corporate debt and losses and expenses related to the centralized adjusting and settlement of asbestos, environmental pollution and mass tort (APMT) claims. In addition, this segment includes the results of certain property and casualty insurance run-off operations including CNA Re (formerly a stand-alone property and casualty operating segment). Prior period segment disclosures have been conformed to the current year presentation. These segment disclosures, provided in the Supplemental Financial Information Appendix, are available on the company's website, for the years ended December 31, 2002 and 2003, including all quarters. The changes made to CNA's reportable segments were as follows: - CNA Global which consists of marine and global standard lines is now included in Standard Lines (formerly included in Specialty Lines). - CNA Guaranty and Credit is currently in run-off and is now included in the Corporate & Other Non-Core segment (formerly included in Specialty Lines). - CNA Re is currently in run-off and is also now included in the Corporate & Other Non-Core segment (CNA Re was formerly a stand-alone property and casualty operating segment). - Group Operations & Life Operations (formerly separate operating segments) have now been combined into one reportable segment where the run-off of the retained group and life products will be managed. - Certain run-off life and group operations previously included in the Corporate & Other Non-Core segment are now included in the Life & Group Non-Core segment. ACCOUNTING PRONOUNCEMENTS - In July of 2003, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-01, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-01). SOP 03-01 provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts. SOP 03-01 is effective for financial statements for fiscal years beginning after December 15, 2003. SOP 03-01 may not be applied retroactively to prior years' financial statements, and initial application should be as of the beginning of an entity's fiscal year, therefore prior year amounts have not been conformed to the current year presentation. CNA adopted SOP 03-01 as of January 1, 2004. The assets and liabilities of certain guaranteed investment contracts and indexed group annuity contracts that were previously segregated and reported as separate accounts no longer qualify for separate account presentation. Prior to the adoption of SOP 03-01, the asset and liability presentation of these affected contracts were categorized as separate account assets and liabilities in the Condensed Consolidated Balance Sheet. The results of operations from separate account business were primarily classified as other revenue in the Consolidated Statement of Operations. In accordance with the provisions of SOP 03-01, the classification and presentation of certain balance sheet and income statement items have been modified within these financial statements. Accordingly, the investment securities previously classified as separate account assets have now been reclassified to the general account and will be reported based on their investment classification whether available-for-sale or trading securities. The investment portfolio for the indexed group annuity contracts is classified as held for trading purposes and is carried at fair value, with both the net realized and unrealized gains (losses) included within net investment income in the Condensed Consolidated Statement of Operations. CNA continues to have contracts that meet the criteria for separate account presentation. The assets and liabilities of these contracts are legally segregated and reported as assets and liabilities of the separate account business. Substantially all assets of the separate account business are carried at fair value. Separate account liabilities are carried at contract values. i a CNA FINANCIAL CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION DEFINITIONS AND PRESENTATION - P&C OPERATIONS includes Standard Lines and Specialty Lines. - LIFE & GROUP NON-CORE segment primarily includes the results of the life and group lines of business that are held for sale, or have been sold or placed in run-off. - CORPORATE & OTHER NON-CORE segment includes the results of certain property and casualty lines of business placed in run-off, including CNA Re (formerly a stand-alone property and casualty segment). This segment also includes the results related to the centralized adjusting and settlement of APMT claims. - P&C COMPANIES includes Standard Lines, Specialty Lines and P&C business written in the Life & Group Non-Core and Corporate & Other Non-Core segments. - Underwriting results are net earned premiums less net incurred claims, the costs incurred to settle claims, acquisition expenses and underwriting expenses. - The Loss & loss adjustment expense (LAE) ratio represents claim and claim adjustment expenses as a percentage of net earned premiums. - The expense ratio is the percentage of underwriting expenses, acquisition expenses and dividends, including the amortization of deferred acquisition costs, to net earned premiums. - The dividend ratio is the ratio of dividends incurred to net earned premiums. - Limited partnerships (LPs) are a relatively small portion of CNA's overall investment portfolio. The majority of the LPs invest in a substantial number of securities that are readily marketable. CNA is a passive investor in such partnerships and does not have influence over the partnerships' management, who are committed to operate them according to established guidelines and strategies. These strategies may include the use of leverage and hedging techniques that potentially introduce more volatility and risk to the partnerships. - As a result of the sale of the Group Benefits business in the 4th quarter of 2003, income statement results for 2004 are not comparable to 2003. - In February of 2004, CNA entered into a definitive agreement to sell its individual life insurance business. The business sold includes term, universal and permanent life insurance policies and individual annuity products. CNA's individual long term care and structured settlement businesses are excluded from the sale. The transaction, which is subject to certain customary closing conditions, is expected to be completed on April 30, 2004. As a result of the pending sale, CNA has classified the assets and liabilities of the individual life insurance business as held for sale at March 31, 2004, and has recorded a related impairment loss of $569 million. - CNA has initiated a plan to sell CNA Trust, its limited operations bank located in Costa Mesa, California. As a result, CNA has classified the assets and liabilities of its limited operations bank as held for sale at March 31, 2004. The estimated fair value of the assets and liabilities exceeds their carrying value, and therefore no impairment charge was recorded. - All amounts are in millions, except for per share and ratio information. - Certain immaterial differences are due to rounding. ii a CNA FINANCIAL CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION NON-GAAP FINANCIAL MEASURES This financial supplement presents certain GAAP and non-GAAP financial measures to provide information used by management to monitor the Company's operating performance. Management utilizes various financial measures to monitor the Company's insurance operations and investment portfolio. Underwriting results, which are derived from certain income statement amounts, are considered non-GAAP financial measures and are used by management to monitor performance of the Company's insurance operations. The Company's investment portfolio is monitored through analysis of various quantitative and qualitative factors, and certain decisions related to the sale or impairment of investments produce realized gains and losses. Net realized investment gains and losses, which are comprised of after-tax realized investment gains and losses net of participating policyholders' and minority interest, are a non-GAAP financial measure. Underwriting results are computed as net earned premiums less net incurred claims and the cost incurred to settle these claims, acquisition expenses and underwriting expenses. Management uses underwriting results and operating ratios to monitor insurance operations' results without the impact of certain factors, including investment income, other revenues, other expenses, minority interest, income tax benefit (expense) and net realized investment gains (losses). Management excludes these factors in order to analyze the direct relationship between the net earned premiums and the related claims and the cost incurred to settle these claims, acquisition expenses and underwriting expenses. Management excludes after-tax net realized investment gains or losses when analyzing the insurance operations because net realized investment gains or losses related to the Company's available-for-sale investment portfolio are largely discretionary, except for losses related to other-than-temporary impairments, and are generally driven by economic factors that are not necessarily consistent with key drivers of underwriting performance. Operating ratios are calculated using insurance results and are used by the insurance industry and regulators such as state departments of insurance and the National Association of Insurance Commissioners for financial regulation and as a basis of comparison among companies. The ratios presented in this financial supplement are calculated using GAAP financial results and include the loss and loss adjustment expense ratio (loss ratio) as well as the expense, dividend and combined ratios. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios. The Company's investment portfolio is monitored by management through analyses of various factors including unrealized gains and losses on securities, portfolio duration and exposure to interest rate, market and credit risk. Based on such analyses, the Company may impair an investment security in accordance with its policy, or sell a security. Such activities will produce realized gains and losses. While management uses various non-GAAP financial measures to monitor various aspects of the Company's performance, relying on any measure other than net income, which is the most directly comparable GAAP measure to underwriting results and realized gains and losses, is not a complete representation of financial performance. Management believes that its process of evaluating performance through the use of these non-GAAP financial measures provides a basis for understanding the operations and the impact to net income as a whole. Management also believes that investors find these non-GAAP financial measures described above useful to help interpret the underlying trends and performance, as well as to provide visibility into the significant components of net income. iii a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT STATEMENTS OF OPERATIONS
FAV / PERIOD ENDED MARCH 31 THREE MONTHS (UNFAV) (In millions) 2004 2003 % CHANGE --------------------------------------------------------------------------------- ---------- ---------- ----------- STATEMENTS OF OPERATIONS Revenues: Net earned premiums $ 2,168 $ 2,381 (9)% Net investment income 473 432 9 Realized investment losses, net of participating policyholders' and minority interests (458) (76) N/A Other revenues 82 108 (24) ---------- ---------- Total revenues 2,265 2,845 (20) ---------- ---------- Claims, benefits and expenses: Insurance claims and policyholders' benefits 1,620 1,870 13 Other operating expenses 783 837 6 Interest 35 34 (3) ---------- ---------- Total claims, benefits and expenses 2,438 2,741 11 ---------- ---------- (Loss) income from continuing operations before income tax and minority interest (173) 104 N/A Income tax benefit (expense) 54 (18) N/A Minority interest (6) (3) (100) ---------- ---------- Net (loss) income $ (125) $ 83 N/A% ========== ==========
1 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT COMPONENTS OF NET INCOME AND PER SHARE DATA
THREE MONTHS FAV / PERIOD ENDED MARCH 31 (UNFAV) (In millions, except per share data) 2004 2003 % CHANGE --------------------------------------------------------------------------- ---------- ---------- ----------- COMPONENTS OF NET (LOSS) INCOME Income before net realized investment (losses) gains $ 208 $ 132 58% Net realized investment losses, net of participating policyholders' and minority interests (333) (49) N/A ---------- ---------- Net (loss) income $ (125) $ 83 N/A% ========== ========== BASIC AND DILUTED (LOSS) EARNINGS PER SHARE ---------- ---------- Basic and diluted (loss) earnings per share available to common stockholders $ (0.55) $ 0.30 N/A% ========== ========== Weighted average outstanding common stock and common stock equivalents 255.9 223.6
2 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT SELECTED BALANCE SHEET DATA AND CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS DATA
MARCH 31, DECEMBER 31, (In millions, except per share data) 2004 2003 ------------------------------------ ----------- ----------- Assets related to businesses held for sale $ 6,291 $ - Total assets 67,560 68,503 Insurance reserves 42,372 45,383 Debt 2,244 1,904 Liabilities related to businesses held for sale 5,471 - Total liabilities 58,387 59,295 Minority interest 263 256 Accumulated other comprehensive income 924 841 Total stockholders' equity 8,910 8,952 Book value per common share $ 31.58 $ 31.80 Book value per common share excluding unrealized gain or loss on fixed maturity securities $ 28.38 $ 28.98 Outstanding shares of common stock (in millions of shares) (1) 255.9 255.9
THREE MONTHS ENDED MARCH 31 (In millions) 2004 2003 ------------------- ---------- ---------- Net cash flows provided by operating activities $ 37 $ 45 Net cash flows (used) provided by investing activities (441) 132 Net cash flows provided (used) by financing activities 346 (137) ---------- ---------- Net cash flows $ (58) $ 40 ========== ==========
(1) Included in the outstanding shares of common stock for the three months ended March 31, 2004 are the effects of additional common stock equivalents related to the November of 2003 sale of $750 million of convertible preferred shares to Loews Corporation. The preferred shares are convertible into 32.3 million shares of CNA common stock. The conversion occurred on April 20, 2004. 3 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY INSURANCE CLAIM & CLAIM ADJUSTMENT EXPENSE RESERVE DATA
CLAIM & CLAIM ADJUSTMENT EXPENSE RESERVES (1) STANDARD LINES SPECIALTY LINES P&C OPERATIONS (In millions) -------------------------------------------------------------- As of March 31, 2004 Gross $ 14,134 $ 4,287 $ 18,421 Ceded 5,231 1,311 6,542 Net 8,903 2,976 11,879 As of December 31, 2003 Gross $ 14,282 $ 4,200 $ 18,482 Ceded 5,315 1,281 6,596 Net 8,967 2,919 11,886
CLAIM & CLAIM ADJUSTMENT EXPENSE RESERVES (1) LIFE & GROUP CORPORATE & OTHER (In millions) NON-CORE (1) (2) NON-CORE TOTAL OPERATIONS -------------------------------------------------------------- As of March 31, 2004 Gross $ 3,460 $ 9,302 $ 31,183 Ceded 1,653 5,798 13,993 Net 1,807 3,504 17,190 As of December 31, 2003 Gross $ 3,576 $ 9,672 $ 31,730 Ceded 1,685 5,935 14,216 Net 1,891 3,737 17,514
(1) Gross reserves as of March 31, 2004 and December 31, 2003 include $321 million and $448 million of life company reserves, which are primarily related to accident and health business. Net reserves as of March 31, 2004 and December 31, 2003 include $118 million and $230 million of life company reserves, which are primarily related to accident and health business. (2) In February of 2004, CNA entered into a definitive agreement to sell its individual life insurance business. As a result of the pending sale, $64 million of net claim & claim adjustment expense reserves in life companies have been reclassified on the Condensed Consolidated Balance Sheet to liabilities related to businesses held for sale. 4 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY INSURANCE CLAIM & CLAIM ADJUSTMENT EXPENSE RESERVE ROLLFORWARD (1)
PERIOD ENDED MARCH 31, 2004 THREE MONTHS (In millions) ENDED ------------------------------ ------------ Claim & claim adjustment expense reserves, beginning of period Gross $ 31,730 Ceded 14,216 --------- Net 17,514 --------- Net incurred claim & claim adjustment expenses 1,514 Net claim & claim adjustment expense payments (1,774) Net reserves transferred to liabilities related to businesses held for sale (2) (64) Claim & claim adjustment expense reserves, end of period Net 17,190 Ceded 13,993 --------- Gross $ 31,183 =========
(1) Gross reserves as of March 31, 2004 and December 31, 2003 include $321 million and $448 million of life company reserves, which are primarily related to accident and health business. Net reserves as of March 31, 2004 and December 31, 2003 include $118 million and $230 million of life company reserves, which are primarily related to accident and health business. (2) In February of 2004, CNA entered into a definitive agreement to sell its individual life insurance business. As a result of the pending sale, $64 million of net claim & claim adjustment expense reserves in life companies have been reclassified on the Condensed Consolidated Balance Sheet to liabilities related to businesses held for sale. 5 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT INVESTMENTS BY SEGMENT AGGREGATION
MARCH 31, 2004 DECEMBER 31, 2003 (In millions) BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE ---------------- ------------- ------------- ------------- ------------- PROPERTY & CASUALTY AND CORPORATE & OTHER NON-CORE: Fixed Maturities - Taxable $ 11,842 $ 12,241 $ 11,623 $ 11,893 Fixed Maturities - Tax Exempt 8,058 8,223 6,848 7,004 Equities 191 444 225 448 Short-term 5,252 5,253 6,689 6,689 Limited Partnership Investments 1,194 1,194 1,113 1,113 Mortgage Loans & Other 21 29 48 58 ------------- ------------- ------------- ------------- Subtotal 26,558 27,384 26,546 27,205 Securities Lending Collateral 295 295 307 307 ------------- ------------- ------------- ------------- TOTAL INVESTMENTS $ 26,853 $ 27,679 $ 26,853 $ 27,512 ------------- ------------- ------------- ------------- LIFE & GROUP NON-CORE (1) (2): Fixed Maturities - Taxable $ 6,564 $ 7,223 $ 8,155 $ 8,815 Fixed Maturities - Tax Exempt 968 1,004 939 966 Equities 48 60 68 79 Short-term 518 518 419 419 Limited Partnership Investments 465 465 4 4 Mortgage Loans & Other 23 11 197 182 ------------- ------------- ------------- ------------- Subtotal 8,586 9,281 9,782 10,465 Securities Lending Collateral 61 61 123 123 ------------- ------------- ------------- ------------- TOTAL INVESTMENTS $ 8,647 $ 9,342 $ 9,905 $ 10,588 ------------- ------------- ------------- ------------- TOTAL INVESTMENTS $ 35,500 $ 37,021 $ 36,758 $ 38,100 ============= ============= ============= =============
(1) As a result of SOP 03-01, the following investments are included in Life & Group Non-Core as of March 31, 2004 and are included in the March 31, 2004 column above. As of December 31, 2003, the investments were reflected within separate accounts in the Condensed Consolidated Balance Sheet and are not included in the December 31, 2003 column above. In accordance with the requirements of SOP 03-01, the December 31, 2003 column has not been conformed to reflect this change. Refer to page i for further discussion on SOP 03-01.
MARCH 31, 2004 BOOK VALUE FAIR VALUE ----------- ---------- Fixed Maturities - Taxable $ 1,457 1,584 Equities 5 4 Short-term 417 417 Limited Partnership Investments 463 463 ----------- --------- TOTAL INVESTMENTS $ 2,342 2,468 =========== =========
(2) The following balances have been transferred to assets related to businesses held for sale as of March 31, 2004 and are not included in the March 31, 2004 column above. As of December 31, 2003, the balances were reflected within investments in the Condensed Consolidated Balance Sheet and are included in the December 31, 2003 column above. Refer to page ii for further discussion on the pending life sale.
MARCH 31, 2004 BOOK VALUE FAIR VALUE ----------- ---------- Fixed Maturities - Taxable $ 3,425 $ 3,701 Equities 10 13 Short-term 234 234 Mortgage Loans & Other 172 172 ----------- --------- TOTAL INVESTMENTS $ 3,841 $ 4,120 =========== =========
6 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY RESULTS OF OPERATIONS
THREE MONTHS ENDED STANDARD LINES SPECIALTY LINES March 31 FAV/(UNFAV) FAV/(UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE --------------------------------------------------------------------------------------------------------------------------- Gross written premiums $ 1,565 $ 1,634 (4)% $ 710 $ 628 13% Net written premiums 1,265 1,273 (1) 581 476 22 Net earned premiums 1,258 1,219 3 529 428 24 Claim and claim adjustment expenses 823 893 8 334 284 (18) Acquisition expenses 271 238 (14) 97 79 (23) Underwriting expenses 152 160 5 43 43 - Policyholders' dividends 9 15 40 2 1 (100) --------- --------- --------- --------- Underwriting income (loss) 3 (87) 103 53 21 152 --------- --------- --------- --------- Net investment income 138 129 7 62 49 27 Other revenues 40 71 (44) 25 17 47 Other expenses 31 63 51 27 13 (108) --------- --------- --------- --------- Income before income tax, minority interest and net realized investment gains 150 50 200 113 74 53 Income tax expense (34) (5) N/A (34) (24) (42) Minority interest (2) (1) (100) (4) (2) (100) --------- --------- --------- --------- Income before net realized investment gains 114 44 159 75 48 56 Realized investment gains 57 7 N/A 20 3 N/A Income tax expense on realized investment gains (19) (4) N/A (7) (1) N/A --------- --------- --------- --------- Net income $ 152 $ 47 N/A% $ 88 $ 50 76% ========= ========= ========= ========= FINANCIAL RATIOS Loss & LAE 65.5 % 73.3 % 63.1 % 66.3 % Acquisition expense 21.6 19.5 18.4 18.4 Underwriting expense 11.9 13.2 8.0 10.2 Dividends 0.7 1.2 0.4 0.1 --------- --------- --------- --------- Expense ratio, including dividends 34.2 33.9 26.8 28.7 --------- --------- --------- --------- Combined ratio 99.7 % 107.2 % 89.9 % 95.0 % ========= ========= ========= ========= THREE MONTHS ENDED P&C OPERATIONS MARCH 31 FAV/(UNFAV) (In millions) 2004 2003 % CHANGE ---------------------------------------------------------------------------------- Gross written premiums $ 2,275 $ 2,262 1% Net written premiums 1,846 1,749 6 Net earned premiums 1,787 1,647 9 Claim and claim adjustment expenses 1,157 1,177 2 Acquisition expenses 368 317 (16) Underwriting expenses 195 203 4 Policyholders' dividends 11 16 31 --------- --------- Underwriting income (loss) 56 (66) 185 --------- --------- Net investment income 200 178 12 Other revenues 65 88 (26) Other expenses 58 76 24 --------- --------- Income before income tax, minority interest and net realized investment gains 263 124 112 Income tax expense (68) (29) (134) Minority interest (6) (3) (100) --------- --------- Income before net realized investment gains 189 92 105 Realized investment gains 77 10 N/A Income tax expense on realized investment gains (26) (5) N/A --------- --------- Net income $ 240 $ 97 147% ========= ========= FINANCIAL RATIOS Loss & LAE 64.8 % 71.5 % Acquisition expense 20.6 19.2 Underwriting expense 10.8 12.3 Dividends 0.6 1.0 --------- --------- Expense ratio, including dividends 32.0 32.5 --------- --------- Combined ratio 96.8 % 104.0 % ========= =========
7 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT LIFE & GROUP NON-CORE AND CORPORATE & OTHER NON-CORE SEGMENTS RESULTS OF OPERATIONS
THREE MONTHS ENDED LIFE & GROUP NON-CORE MARCH 31 P&C OPERATIONS FAV/(UNFAV) (In millions) 2004 2003 2004 2003 % CHANGE ------- ------- ------- ------- ------- Net earned premiums $ 1,787 $ 1,647 $ 326 $ 586 (44)% Insurance claims & policyholders' benefits 1,157 1,177 407 561 27 Policyholders' dividends 11 16 6 2 (200) Insurance related expenses 563 520 108 200 46 Net investment income 200 178 206 203 1 Other revenues 65 88 34 41 (17) Other expenses 58 76 21 24 13 ------- ------- ------- ------- Income (loss) before income tax, minority interest and net realized investment gains (losses) 263 124 24 43 (44) Income tax (expense) benefit (68) (29) (5) (14) 64 Minority interest (6) (3) -- -- N/A ------- ------- ------- ------- Income before net realized investment gains (losses) 189 92 19 29 (34) Realized investment gains (losses) 77 10 (562) (104) N/A Income tax (expense) benefit on realized investment gains (losses) (26) (5) 161 36 N/A ------- ------- ------- ------- Net income (loss) $ 240 $ 97 $ (382) $ (39) N/A% ======= ======= ======= ======= THREE MONTHS ENDED CORPORATE & OTHER NON-CORE TOTAL OPERATIONS MARCH 31 FAV/(UNFAV) FAV/(UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE ------- ------- ------- ------- ------- -------- Net earned premiums $ 55 $ 148 (63)% $ 2,168 $ 2,381 (9)% Insurance claims & policyholders' benefits 39 114 66 1,603 1,852 13 Policyholders' dividends 1 -- N/A 18 18 -- Insurance related expenses 45 48 6 716 768 7 Net investment income 67 51 31 473 432 9 Other revenues (17) (21) 19 82 108 (24) Other expenses 22 3 N/A 101 103 2 ------- ------- ------- ------- Income (loss) before income tax, minority interest and net realized investment gains (losses) (2) 13 (115) 285 180 58 Income tax (expense) benefit 2 (2) 200 (71) (45) (58) Minority interest -- -- N/A (6) (3) (100) ------- ------- ------- ------- Income before net realized investment gains (losses) -- 11 N/A 208 132 58 Realized investment gains (losses) 27 18 50 (458) (76) N/A Income tax (expense) benefit on realized investment gains (losses) (10) (4) (150) 125 27 N/A ------- ------- ------- ------- Net income (loss) $ 17 $ 25 (32)% $ (125) $ 83 N/A% ======= ======= ======= =======
OTHER FINANCIAL DATA LIFE & GROUP NON-CORE PROPERTY & CASUALTY COMPANY INFORMATION P&C OPERATIONS FAV/(UNFAV) 2004 2003 2004 2003 % CHANGE ------- ------- ------- ------- -------- Gross written premiums $ 2,275 $ 2,262 $ 319 $ 351 (9)% Net written premiums 1,846 1,749 176 137 28 Net earned premiums 1,787 1,647 166 130 28 Underwriting income (loss) 56 (66) (101) (58) (74)% FINANCIAL RATIOS Loss & LAE 64.8% 71.5 % 128.5% 114.6% Acquisition expense 20.6 19.2 17.3 16.2 Underwriting expense 10.8 12.3 15.0 14.1 Dividends 0.6 1.0 -- -- ------- ------ ------ ------- Expense ratio, including dividends 32.0 32.5 32.3 30.3 ------- ------ ------ ------- Combined ratio 96.8% 104.0 % 160.8% 144.9% ======= ====== ====== ======= OTHER FINANCIAL DATA CORPORATE & OTHER NON-CORE TOTAL OPERATIONS PROPERTY & CASUALTY COMPANY INFORMATION FAV/(UNFAV) FAV/(UNFAV) 2004 2003 % CHANGE 2004 2003 % CHANGE ------- ------- -------- ------- ------- -------- Gross written premiums $ 637 $ 803 (21)% $ 3,231 $ 3,416 (5)% Net written premiums (16) 214 (107) 2,006 2,100 (4) Net earned premiums 71 171 (58) 2,024 1,948 4 Underwriting income (loss) (29) (12) (142)% (74) (136) 46% FINANCIAL RATIOS Loss & LAE 77.3% 79.7% 70.4% 75.1% Acquisition expense 55.0 24.9 21.6 19.5 Underwriting expense 9.3 2.5 11.0 11.6 Dividends -- -- 0.6 0.8 ------ ------- ------- ------- Expense ratio, including dividends 64.3 27.4 33.2 31.9 ------ ------- ------- ------- Combined ratio 141.6% 107.1% 103.6% 107.0% ====== ======= ======= =======
8 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY OPERATIONS AND CORPORATE & OTHER NON-CORE SEGMENT - CATASTROPHE LOSSES
-------------------------------------------------------------------------------------------------------------------------------- CATASTROPHE LOSSES (PRETAX) CORPORATE & OTHER (In millions) STANDARD LINES SPECIALTY LINES P&C OPERATIONS NON-CORE TOTAL -------------------------------------------------------------------------------------------------------------------------------- Three months ended March 31, 2004 $ 6 $ 2 $ 8 $ - $ 8 Three months ended March 31, 2003 $ 14 $ 1 $ 15 $ - $ 15 --------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------- CATASTROPHE LOSSES (AFTER-TAX) CORPORATE & OTHER (In millions) STANDARD LINES SPECIALTY LINES P&C OPERATIONS NON-CORE TOTAL -------------------------------------------------------------------------------------------------------------------------------- Three months ended March 31, 2004 $ 4 $ 1 $ 5 $ - $ 5 Three months ended March 31, 2003 $ 9 $ 1 $ 10 $ - $ 10 --------------------------------------------------------------------------------------------------------------------------------
9 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT ANALYSIS OF PRETAX NET INVESTMENT INCOME
(In millions) STANDARD LINES ---------------------------------------------------------------------------------------------------------------------------------- 1Q02 2Q02 3Q02 4Q02 YTD 2002 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 ---- ---- ---- ---- -------- ---- ---- ---- ---- -------- ---- Limited partnership income $ 4 $ 21 $ (41) $ (3) $ (19) $ 13 $ 43 $ 35 $ 35 $ 126 $ 37 Interest on funds withheld and other deposits (39) (45) (38) (57) (179) (34) (77) (115) (43) (269) (38) Other investment income 154 178 165 176 673 150 139 135 126 550 139 ----------------------------------------------------------------------------------------------- Net investment income $ 119 $ 154 $ 86 $ 116 $ 475 $ 129 $ 105 $ 55 $ 118 $ 407 $ 138 ===============================================================================================
SPECIALTY LINES ----------------------------------------------------------------------------------------------- 1Q02 2Q02 3Q02 4Q02 YTD 2002 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 ---- ---- ---- ---- -------- ---- ---- ---- ---- -------- ---- Limited partnership income $ 1 $ 6 $ (12) $ - $ (5) $ 4 $ 14 $ 11 $ 11 $ 40 $ 13 Interest on funds withheld and other deposits (8) (6) (9) (6) (29) (5) (7) (11) (2) (25) (2) Other investment income 49 54 51 52 206 50 46 47 43 186 51 ----------------------------------------------------------------------------------------------- Net investment income $ 42 $ 54 $ 30 $ 46 $ 172 $ 49 $ 53 $ 47 $ 52 $ 201 $ 62 ===============================================================================================
P&C OPERATIONS ----------------------------------------------------------------------------------------------- 1Q02 2Q02 3Q02 4Q02 YTD 2002 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 ---- ---- ---- ---- -------- ---- ---- ---- ---- -------- ---- Limited partnership income $ 5 $ 27 $ (53) $ (3) $ (24) $ 17 $ 57 $ 46 $ 46 $ 166 $ 50 Interest on funds withheld and other deposits (47) (51) (47) (63) (208) (39) (84) (126) (45) (294) (40) Other investment income 203 232 216 228 879 200 185 182 169 736 190 ----------------------------------------------------------------------------------------------- Net investment income $ 161 $ 208 $ 116 $ 162 $ 647 $ 178 $ 158 $ 102 $ 170 $ 608 $ 200 ===============================================================================================
LIFE & GROUP NON-CORE ----------------------------------------------------------------------------------------------- 1Q02 2Q02 3Q02 4Q02 YTD 2002 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 ---- ---- ---- ---- -------- ---- ---- ---- ---- -------- ---- Limited partnership income $ - $ 1 $ (2) $ (2) $ (3) $ 1 $ - $ 1 $ 1 $ 3 $ 1 Interest on funds withheld and other deposits - - - - - - - - - - - Income from trading securities (1) - - - - - - - - - - 28 Other investment income 202 205 205 212 824 202 211 203 202 818 177 ----------------------------------------------------------------------------------------------- Net investment income (2) $ 202 $ 206 $ 203 $ 210 $ 821 $ 203 $ 211 $ 204 $ 203 $ 821 $ 206 ===============================================================================================
CORPORATE & OTHER NON-CORE ----------------------------------------------------------------------------------------------- 1Q02 2Q02 3Q02 4Q02 YTD 2002 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 ---- ---- ---- ---- -------- ---- ---- ---- ---- -------- ---- Limited partnership income $ 2 $ 9 $ (17) $ (1) $ (7) $ 5 $ 18 $ 14 $ 15 $ 52 $ 16 Interest on funds withheld and other deposits (11) (6) (6) (9) (32) (8) (9) (22) (11) (50) (10) Other investment income 72 85 68 76 301 54 49 54 59 216 61 ----------------------------------------------------------------------------------------------- Net investment income $ 63 $ 88 $ 45 $ 66 $ 262 $ 51 $ 58 $ 46 $ 63 $ 218 $ 67 ===============================================================================================
TOTAL OPERATIONS ----------------------------------------------------------------------------------------------- 1Q02 2Q02 3Q02 4Q02 YTD 2002 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 ---- ---- ---- ---- -------- ---- ---- ---- ---- -------- ---- Limited partnership income $ 7 $ 37 $ (72) $ (6) $ (34) $ 23 $ 75 $ 61 $ 62 $ 221 $ 67 Interest on funds withheld and other deposits (58) (57) (53) (72) (240) (47) (93) (148) (56) (344) (50) Income from trading securities (1) - - - - - - - - - - 28 Other investment income 477 522 489 516 2,004 456 445 439 430 1,770 428 ----------------------------------------------------------------------------------------------- Net investment income (2) $ 426 $ 502 $ 364 $ 438 $ 1,730 $ 432 $ 427 $ 352 $ 436 $ 1,647 $ 473 ===============================================================================================
(1) Includes $8 million related to limited partnership investment income that supports indexed group annuity contracts. (2) Net investment income at March 31, 2004 includes income from trading securities. See Accounting Pronouncements for the discussion of SOP 03-01 on page i. 10 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT STATUTORY DATA - PRELIMINARY
PERIOD ENDED MARCH 31 THREE MONTHS INCOME STATEMENT (PRELIMINARY) FAV / (UNFAV) (In millions) 2004 2003 % CHANGE ----------------------------------------------------------------------------------------------------- PROPERTY & CASUALTY COMPANIES Gross written premiums $ 3,691 $ 4,593 (20)% Net written premiums 1,822 1,918 (5) Net earned premiums 1,702 1,722 - Claim and claim adjustment expenses 1,272 1,328 4 Acquisition expenses 324 369 12 Underwriting expenses 215 218 1 Policyholders' dividends 12 25 52 Restructuring and other related costs - - N/A -------- -------- Underwriting loss (121) (218) 44 Net investment income 303 282 7 Other expense (59) (37) (59) Income tax expense (112) (5) N/A Net realized gains 165 37 N/A -------- -------- Net income $ 176 $ 59 198% ======== ======== FINANCIAL RATIOS Loss and LAE 74.7% 77.1% Acquisition expense 17.8 19.2 Underwriting expense 11.8 11.5 Policyholders' dividends 0.7 1.4 -------- -------- Expense ratio 30.3 32.1 -------- -------- Combined ratio 105.0% 109.2% ======== ======== LIFE COMPANIES Earned premium $ 179 $ 492
SUPPLEMENTAL STATUTORY DATA
(PRELIMINARY) (In millions) MARCH 31, 2004 DECEMBER 31, 2003 --------------------------------------------------------------------------------------------- PROPERTY & CASUALTY COMPANIES Statutory surplus (1) $ 6,606 $ 6,170 LIFE COMPANIES Statutory surplus $ 719 $ 707 Gross life insurance in force 378,858 388,968
(1) Surplus includes the Property & Casualty Companies' equity ownership of the life insurance subsidiaries. 11 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY OPERATIONS LOSS AND LAE RATIO ANALYSIS
STANDARD LINES ------------------------------------------------------ 2004 YTD 2003 FY 2003 FY EVALUATED AT EVALUATED AT EVALUATED AT 3/31/04 12/31/03 3/31/04 ------------ -------------- ------------ Gross Accident Year 62.8% 65.4% 64.3% Impact of Other Reinsurance 2.9 2.4 2.8 -------- -------- ------- Net Accident Year 65.7 67.8 67.1% ======= Impact of Corporate Covers - (6.4) Impact of Development (0.2) 35.4 -------- -------- Net Calendar Year 65.5% 96.8% ======== ========
SPECIALTY LINES ------------------------------------------------------ 2004 YTD 2003 FY 2003 FY EVALUATED AT EVALUATED AT EVALUATED AT 3/31/04 12/31/03 3/31/04 ------------ -------------- ------------ Gross Accident Year 62.0% 67.1% 65.8% Impact of Other Reinsurance 1.0 1.8 1.9 -------- -------- ------- Net Accident Year 63.0 68.9 67.7% ======= Impact of Corporate Covers - (1.9) Impact of Development 0.1 18.4 -------- -------- Net Calendar Year 63.1% 85.4% ======== ========
P&C OPERATIONS ------------------------------------------------------ 2004 YTD 2003 FY 2003 FY EVALUATED AT EVALUATED AT EVALUATED AT 3/31/04 12/31/03 3/31/04 ------------ -------------- ------------ Gross Accident Year 62.6% 65.9% 64.7% Impact of Other Reinsurance 2.3 2.2 2.6 -------- -------- ------- Net Accident Year 64.9 68.1 67.3% ======= Impact of Corporate Covers - (5.1) Impact of Development (0.1) 30.6 -------- -------- Net Calendar Year 64.8% 93.6% ======== ========
12 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT LIFE & GROUP NON-CORE SEGMENT - GAAP RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 LIFE & GROUP NON-CORE LIFE & GROUP NON-CORE TOTAL LIFE & GROUP EXCLUDING BUSINESSES BUSINESSES TO BE SOLD NON-CORE (In millions) TO BE SOLD (1) (2) (3) AS REPORTED --------------------------------------------------------------------------------------------------------------------------------- Net earned premiums $ 221 $ 105 $ 326 Insurance claims & policyholders' benefits 301 106 407 Policyholders' dividends - 6 6 Insurance related expenses 73 35 108 Net investment income 154 52 206 Other revenues 25 9 34 Other expenses 13 8 21 ---------- -------- ----- Income before income tax and net realized investment gains (losses) 13 11 24 Income tax expense (1) (4) (5) ---------- -------- ----- Income before net realized investment gains (losses) 12 7 19 Realized investment gains (losses) 6 (568) (562) Income tax (expense) benefit on realized investment gains (losses) (2) 163 161 ---------- -------- ----- Net income (loss) $ 16 $ (398) $(382) ========== ======== =====
THREE MONTHS ENDED MARCH 31, 2003 LIFE & GROUP NON-CORE LIFE & GROUP NON-CORE TOTAL LIFE & GROUP EXCLUDING BUSINESSES BUSINESSES NON-CORE (In millions) TO BE SOLD (1) TO BE SOLD AS REPORTED --------------------------------------------------------------------------------------------------------------------------------- Net earned premiums $ 223 $ 363 $ 586 Insurance claims & policyholders' benefits 261 300 561 Policyholders' dividends (2) 4 2 Insurance related expenses 65 135 200 Net investment income 117 86 203 Other revenues 26 15 41 Other expenses 15 9 24 --------- ------- ----- Income before income tax and net realized investment losses 27 16 43 Income tax expense (8) (6) (14) --------- ------- ----- Income before net realized investment losses 19 10 29 Realized investment losses (64) (40) (104) Income tax benefit on realized investment losses 26 10 36 --------- ------- ----- Net (loss) income $ (19) $ (20) $ (39) ========= ======= =====
(1) Retained life and group businesses principally include group and individual long term care, structured settlements, institutional markets and specialty medical. (2) For three months ended March 31, 2004, net realized investment losses for Life & Group Non-Core businesses to be sold include an estimated pretax impairment loss of $569 million ($406 million after-tax), related to the individual life business. (3) Life and group businesses to be sold include individual life business and CNA Trust. 13 a CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT ASBESTOS SUMMARY BY POLICYHOLDER CATEGORY
MARCH 31, 2004 PERCENT OF NUMBER OF NET PAID NET ASBESTOS ASBESTOS NET (In millions) POLICYHOLDERS LOSSES IN 2004 RESERVES RESERVES --------------------------------------------------------------------------------------------------------------------- POLICYHOLDERS WITH SETTLEMENT AGREEMENTS Structured Settlements 10 $ 41 $ 175 10% Wellington 5 6 17 1 Coverage in Place 34 10 109 7 Fibreboard 1 - 54 3 ----- ------ ------ ---- TOTAL WITH SETTLEMENT AGREEMENTS 50 57 355 21 OTHER POLICYHOLDERS WITH ACTIVE ACCOUNTS Large Asbestos Accounts 163 4 418 24 Small Asbestos Accounts 1,081 3 158 9 ----- ------ ------ ---- TOTAL OTHER POLICYHOLDERS 1,244 7 576 33 ASSUMED REINSURANCE & POOLS - - 156 9 UNASSIGNED IBNR (1) - - 625 37 ----- ------ ------ ---- TOTAL 1,294 $ 64 $1,712 100% ===== ====== ====== ====
(1) IBNR includes claims that are incurred but not reported. 14