-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SOZOnHhgnCHHfGnIBb0kNDU14oWsko5yYSGEbKAf+lDbXuNBaBenMVkGiWkRnIPi Nvv5Nqi5kHDLCShXQl10fA== 0000950137-04-005982.txt : 20040729 0000950137-04-005982.hdr.sgml : 20040729 20040729171713 ACCESSION NUMBER: 0000950137-04-005982 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040729 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNA FINANCIAL CORP CENTRAL INDEX KEY: 0000021175 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 366169860 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05823 FILM NUMBER: 04939855 BUSINESS ADDRESS: STREET 1: CNA PLZ STREET 2: 235 CITY: CHICAGO STATE: IL ZIP: 60685 BUSINESS PHONE: 3128225000 MAIL ADDRESS: STREET 1: CNA PLAZA STREET 2: 235 CITY: CHICAGO STATE: IL ZIP: 60685 8-K 1 c87131e8vk.txt CURRENT REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) July 29, 2004 ------------------------------------- CNA FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 1-5823 36-6169860 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) CNA PLAZA, CHICAGO, ILLINOIS 60685 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (312) 822-5000 Not Applicable (Former Name or Former Address, if Changed Since Last Report) ============================================================================== Page 1 of 2 Item 7. Financial Statements and Exhibits (c) Exhibits:
Exhibit No. Description - ----------- ----------- 99.1 CNA Financial Corporation press release, issued July 29, 2004, providing information on second quarter 2004 results of operations 99.2 CNA Financial Corporation financial supplement, issued July 29, 2004, providing supplemental financial information for the second quarter 2004
Item 12. Results of Operations and Financial Condition On July 29, 2004, CNA Financial Corporation issued a press release and posted a financial supplement providing information on its results of operations for the second quarter of 2004. The press release is furnished as Exhibit 99.1 and the financial supplement is furnished as Exhibit 99.2 to this Form 8-K. The information in this Current Report is being furnished and shall not be deemed "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CNA FINANCIAL CORPORATION Dated: July 29, 2004 /s/ Robert V. Deutsch ----------------------------------- By: Robert V. Deutsch Its: Executive Vice President and Chief Financial Officer Page 2 of 2 EX-99.1 2 c87131exv99w1.txt PRESS RELEASE EXHIBIT 99.1 [CNA LOGO] FOR IMMEDIATE RELEASE CONTACT: MEDIA: ANALYSTS: Charles M. Boesel, 312/822-2592 Dawn M. Jaffray, 312/822-7757 Katrina W. Parker, 312/822-5167 CNA FINANCIAL ANNOUNCES SOLID 2ND QUARTER 2004 UNDERWRITING RESULTS CHICAGO, JULY 29, 2004 --- CNA Financial Corporation (NYSE: CNA) today announced second quarter of 2004 results, which included the following highlights: - Profitable underwriting results in the Property and Casualty Operations as evidenced by a combined ratio of 96.8%. - Net income for the second quarter of 2004 of $289 million as compared with net income of $70 million in the second quarter of 2003. - Improving expense ratios as a result of the Company's expense initiatives.
RESULTS FOR RESULTS FOR THE THREE THE SIX MONTHS ENDED MONTHS ENDED JUNE 30 JUNE 30 - -------------------------------------------------------------------------------- ($ MILLIONS, EXCEPT PER SHARE DATA) 2004 2003 2004 2003 - -------------------------------------------------------------------------------- INCOME (LOSS) BEFORE NET REALIZED INVESTMENT GAINS (LOSSES) $ 171 $(179) $ 379 $ (47) NET REALIZED INVESTMENT GAINS (LOSSES) 118 249 (215) 200 =============================================================================== NET INCOME $ 289 $ 70 $ 164 $ 153 =============================================================================== NET INCOME PER SHARE RESULTS AVAILABLE TO COMMON STOCKHOLDERS (a)(b) $1.07 $0.25 $0.52 $0.55 ===============================================================================
(a) Included in the weighted average number of common shares for the three and six months ended June 30, 2004 are the effects of additional common stock issued related to the November of 2003 sale of $750 million of convertible preferred shares to Loews Corporation. The preferred shares converted into 32,327,015 shares of CNA common stock on April 20, 2004. (b) The three and six months ended June 30, 2004 per share results available to common stockholders are reduced by $16 million and $32 million, or $0.06 per share and $0.13 per share, of undeclared preferred stock dividends. The three and six months ended June 30, 2003 per share results available to common stockholders are reduced by $15 million and $30 million, or $0.07 per share and $0.13 per share, of undeclared preferred stock dividends. Page 1 of 7 Net income for the second quarter of 2004 was $289 million as compared with net income of $70 million for the same quarter of 2003. The increase was primarily due to continued improved underwriting results for the Property and Casualty Operations. The Property and Casualty Operations produced a 96.8 percent combined ratio in the second quarter of 2004 as compared with 126.9 percent in the prior year period. The continued improvement in underwriting results was primarily due to significant unfavorable net prior year development recorded in the second quarter of 2003, the continued favorable impact of rate increases, and the Company's focus on underwriting discipline and expense management. "We are very pleased with the continued strong performance of our core Property & Casualty Operations," said Steve Lilienthal, Chairman and Chief Executive Officer of the CNA insurance companies. "Our focus on the business fundamentals - -- underwriting discipline and expense management - is clearly evident in our second quarter combined ratio in the 90s." Net income for the first six months of 2004 was $164 million as compared with net income of $153 million for the same period in 2003. The increase was primarily due to the factors noted above for the three month period, offset by increased net realized losses. Net realized investment gains were $118 million and $249 million for the three months ended June 30, 2004 and 2003, respectively. The decline was primarily driven by unfavorable results in fixed maturity securities, offset partly by increased gains in the equity and derivatives portfolio, including an after-tax gain of $105 million related to the June of 2004 sale of the Company's equity holdings of Canary Wharf Group PLC, a London based real estate investment. Net realized investment losses were $215 million for the first six months of 2004 as compared with net realized investment gains of $200 million for the same period in 2003. The net realized investment losses in 2004 were primarily driven by the impact of the Company's sale of its Individual Life insurance business, partially offset by the gain on the sale of the Company's Canary Wharf investment. On April 30, 2004, CNA completed the sale of its Individual Life insurance business. The sale resulted in an after-tax realized investment loss of $389 million, which was primarily recognized in the first quarter of 2004 in anticipation of the pending sale. This sale also resulted in an addition to the statutory capital of the Company's primary insurance subsidiary in excess of $550 million. With the closing of the sale of the Individual Life insurance business, the Company completed its previously disclosed capital plan, which included substantial support from Loews Corporation (Loews), the owner of approximately 91% of CNA's outstanding shares. As a result of the sale, the Company repaid the $300 million Life surplus note purchased in February of 2004 by Loews. Page 2 of 7 SEGMENT RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2004
CORPORATE STANDARD SPECIALTY TOTAL P&C LIFE & GROUP & OTHER ($ MILLIONS) LINES LINES OPS. NON-CORE NON-CORE TOTAL - ------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE NET REALIZED INVESTMENT GAINS $ 98 $ 81 $179 $(26) $ 18 $171 NET REALIZED INVESTMENT GAINS 50 18 68 14 36 118 ======================================================================================================= NET INCOME (LOSS) $148 $ 99 $247 $(12) $ 54 $289 =======================================================================================================
SEGMENT RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2003
CORPORATE STANDARD SPECIALTY TOTAL P&C LIFE & GROUP & OTHER ($ MILLIONS) LINES LINES OPS. NON-CORE NON-CORE TOTAL - -------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE NET REALIZED INVESTMENT GAINS $(134) $ (7) $(141) $ 38 $ (76) $(179) NET REALIZED INVESTMENT GAINS 122 38 160 35 54 249 ======================================================================================================= NET INCOME (LOSS) $ (12) $ 31 $ 19 $ 73 $ (22) $ 70 =======================================================================================================
SEGMENT RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2004
CORPORATE STANDARD SPECIALTY TOTAL P&C LIFE & GROUP & OTHER ($ MILLIONS) LINES LINES OPS. NON-CORE NON-CORE TOTAL - -------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE NET REALIZED INVESTMENT GAINS (LOSSES) $ 212 $ 156 $ 368 $ (7) $ 18 $ 379 NET REALIZED INVESTMENT GAINS (LOSSES) 88 31 119 (387) 53 (215) ======================================================================================================= NET INCOME (LOSS) $ 300 $ 187 $ 487 $(394) $ 71 $ 164 =======================================================================================================
SEGMENT RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2003
CORPORATE STANDARD SPECIALTY TOTAL P&C LIFE & GROUP & OTHER ($ MILLIONS) LINES LINES OPS. NON-CORE NON-CORE TOTAL - -------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE NET REALIZED INVESTMENT GAINS (LOSSES) $ (90) $ 41 $ (49) $ 67 $ (65) $ (47) NET REALIZED INVESTMENT GAINS (LOSSES) 125 40 165 (33) 68 200 ======================================================================================================= NET INCOME $ 35 $ 81 $ 116 $ 34 $ 3 $ 153 =======================================================================================================
PROPERTY & CASUALTY SEGMENTS GROSS WRITTEN PREMIUMS
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 - --------------------------------------------------------- ($ MILLIONS) 2004 2003 2004 2003 - --------------------------------------------------------- STANDARD LINES $1,508 $1,651 $3,073 $3,285 SPECIALTY LINES 676 614 1,386 1,242 ========================================================= TOTAL P&C OPERATIONS $2,184 $2,265 $4,459 $4,527 =========================================================
Page 3 of 7 PROPERTY & CASUALTY SEGMENTS NET WRITTEN PREMIUMS
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 - -------------------------------------------------------- ($ MILLIONS) 2004 2003 2004 2003 - -------------------------------------------------------- STANDARD LINES $1,209 $1,087 $2,474 $2,360 SPECIALTY LINES 592 487 1,173 963 ======================================================== TOTAL P&C OPERATIONS $1,801 $1,574 $3,647 $3,323 ========================================================
PROPERTY & CASUALTY CALENDAR YEAR LOSS RATIOS
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 - --------------------------------------------------------- 2004 2003 2004 2003 - --------------------------------------------------------- STANDARD LINES 70.5% 88.0% 68.0% 80.0% SPECIALTY LINES 64.2% 87.5% 63.6% 77.3% TOTAL P&C OPERATIONS 68.6% 87.8% 66.7% 79.2% TOTAL P&C COMPANIES (a) 74.6% 97.4% 73.0% 85.7% =======================================================
(a) P&C Companies includes Standard Lines, Specialty Lines and P&C business written in Life and Group Non-Core and Corporate and Other Non-Core, including CNA Re and asbestos, environmental pollution and mass tort exposures (APMT). PROPERTY & CASUALTY CALENDAR YEAR COMBINED RATIOS
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 - ------------------------------------------------------------ 2004 2003 2004 2003 - ------------------------------------------------------------ STANDARD LINES 99.7% 132.1% 99.7% 118.5% SPECIALTY LINES 90.0% 115.5% 90.0% 105.6% TOTAL P&C OPERATIONS 96.8% 126.9% 96.8% 114.8% TOTAL P&C COMPANIES (a) 101.9% 135.2% 102.8% 120.3% ===========================================================
(a) P&C Companies includes Standard Lines, Specialty Lines and P&C business written in Life and Group Non-Core and Corporate and Other Non-Core, including CNA Re and asbestos, environmental pollution and mass tort exposures (APMT). PROPERTY & CASUALTY GROSS ACCIDENT YEAR LOSS RATIOS
ACCIDENT YEAR 2004 EVALUATED AT ACCIDENT YEAR 2003 EVALUATED AT ACCIDENT YEAR 2003 EVALUATED AT JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 - --------------------------------------------------------------------------------------------------------------------------- STANDARD LINES 66.0% 65.4% 63.9% SPECIALTY LINES 63.6 67.1 65.6 TOTAL P&C OPERATIONS 65.3% 65.9% 64.4% ===============================================================================================================
PROPERTY & CASUALTY NET ACCIDENT YEAR LOSS RATIOS
ACCIDENT YEAR 2004 EVALUATED AT ACCIDENT YEAR 2003 EVALUATED AT ACCIDENT YEAR 2003 EVALUATED AT JUNE 30, 2004 DECEMBER 31, 2003 JUNE 30, 2004 - --------------------------------------------------------------------------------------------------------------------------- STANDARD LINES 66.0% 67.8% 66.7% SPECIALTY LINES 63.1 68.9 65.8 TOTAL P&C OPERATIONS 65.1% 68.1% 66.5% ===============================================================================================================
Page 4 of 7 BUSINESS OPERATING HIGHLIGHTS 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. - - Gross written premiums decreased $143 million for the second quarter of 2004 as compared with the same period in 2003. The decrease was primarily due to intentional underwriting actions, including reductions in certain excess and surplus lines programs, habitational construction business, silica-related risks, and workers compensation policies classified as high hazard. - - Net written premiums increased $122 million for the second quarter of 2004 as compared with the same period in 2003, primarily due to favorable premium development of $90 million recorded in the second quarter of 2004 as compared with unfavorable premium development of $221 million recorded in the same period in 2003. The unfavorable premium development recorded in the second quarter of 2003 was primarily due to additional ceded premiums related to the corporate aggregate and other reinsurance treaties. - - Standard Lines achieved average rate increases during the second quarter of 2004 of 5%. - - Net income for the second quarter of 2004 increased $160 million as compared with the same period in 2003, primarily due to lower unfavorable net prior year development, lower catastrophe losses, and decreased expenses primarily due to the Company's expense initiatives. These items were partially offset by decreased net investment results. SPECIALTY LINES provides a broad array of professional, financial and specialty property and casualty products and services. - - Net written premiums increased $105 million for the second quarter of 2004 as compared with the same period in 2003, primarily due to increases in rate and new business in the professional liability lines of business. - - Specialty Lines achieved average rate increases during the second quarter of 2004 of 10%, primarily across professional liability lines. - - Net income for the second quarter of 2004 increased $68 million as compared with the same period in 2003, primarily due to lower unfavorable net prior year development, improvements in the current net accident year loss ratio, a decrease in the provision for uncollectible reinsurance receivables and decreased underwriting expenses primarily due to the Company's expense initiatives. These items were partially offset by decreased net investment results. Page 5 of 7 LIFE AND GROUP NON-CORE primarily includes the results of the life and group lines of business that have been sold or placed in run-off. The Group Benefits business was sold on December 31, 2003 and the Individual Life business was sold on April 30, 2004. - - Net earned premiums decreased $401 million for the second quarter of 2004 as compared with the same period in 2003, due primarily to the absence of premiums from the Group Benefits and Individual Life businesses. Net earned premiums for these businesses were $10 million and $368 million for the second quarter of 2004 and 2003. - - Net results for the second quarter of 2004 decreased $85 million as compared with the same period in 2003, principally due to the absence of favorable results from the Group Benefits and Individual Life businesses and due to stranded overhead expenses related to these businesses. Net income for these sold businesses was $0.2 million and $40 million for the second quarter of 2004 and 2003. Net results decreased in the second quarter of 2004 as compared with the same period in 2003 as a result of a $22 million after-tax increase in insurance and uncollectible reinsurance reserves related to the Company's past participation in accident and health reinsurance programs. CORPORATE AND 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 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). - - Net results for the second quarter of 2004 increased $76 million as compared with the same period in 2003, primarily due to lower unfavorable net prior year development and a decrease in the provision for uncollectible reinsurance receivables. These items were partially offset by the decline in operating results attributable to lower premium volume for CNA Re, which was placed in run-off in October of 2003. NET INVESTMENT INCOME Pretax net investment income decreased $47 million to $380 million for the second quarter of 2004 as compared with the same period in 2003. The change was primarily due to a lower asset base associated with the sale of the Company's Individual Life and Group Benefits businesses, lower investment yields on fixed maturity securities and decreased limited partnership income. These items were partially offset by reduced interest expense on funds withheld and other deposits. The higher interest expense on funds withheld and other deposits in second quarter of 2003 was due to additional premiums ceded to the corporate aggregate and other finite reinsurance treaties. ABOUT THE COMPANY CNA is the country's fourth largest commercial insurance writer and the 14th largest property and casualty company. CNA's insurance products include standard commercial lines, specialty lines, surety, marine and other property and casualty coverages. CNA's services include risk management, information services, underwriting, risk control and claims administration. For more information, please visit CNA at www.cna.com. CNA is a registered service mark, trade name and domain name of CNA Financial Corporation. Page 6 of 7 CONFERENCE CALL AND WEBCAST INFORMATION: A CONFERENCE CALL FOR INVESTORS AND THE PROFESSIONAL INVESTMENT COMMUNITY WILL BE HELD FROM 10:00 A.M. TO 11:00 A.M. ET TODAY. ON THE CONFERENCE CALL WILL BE STEPHEN W. LILIENTHAL, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE CNA INSURANCE COMPANIES, AND OTHER MEMBERS OF SENIOR MANAGEMENT. PARTICIPANTS CAN ACCESS THE CALL BY DIALING (800) 289-0518 OR FOR INTERNATIONAL CALLERS (913) 981-5532. THE CALL WILL ALSO BE BROADCAST LIVE ON THE INTERNET AT HTTP://INVESTORS.CNA.COM OR YOU MAY GO TO THE INVESTOR RELATIONS PAGES OF THE CNA WEBSITE (WWW.CNA.COM) FOR FURTHER DETAILS. THE CALL IS AVAILABLE TO THE MEDIA, BUT QUESTIONS WILL BE RESTRICTED TO INVESTORS AND THE PROFESSIONAL INVESTMENT COMMUNITY. A TAPED REPLAY OF THE CALL WILL BE AVAILABLE ON CNA'S WEBSITE THROUGH AUGUST 5, 2004. THE REPLAY CAN ALSO BE ACCESSED BY DIALING (888) 203-1112 OR FOR INTERNATIONAL CALLERS (719) 457-0820 AND USING PASSCODE 552526. FINANCIAL SUPPLEMENT INFORMATION RELATED TO THE SECOND QUARTER RESULTS IS AVAILABLE ON THE INVESTOR RELATIONS PAGES OF THE CNA WEBSITE OR BY CONTACTING DAWN JAFFRAY AT (312) 822-7757. FORWARD-LOOKING STATEMENT This press release includes statements which relate to anticipated future events (forward-looking statements) rather than actual present conditions or historical events. You can identify forward-looking statements because generally they include words such as "believes", "expects", "intends", "anticipates", "estimates", and similar expressions. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected. Many of these risks and uncertainties cannot be controlled by CNA. For a detailed description of these risks and uncertainties please refer to CNA's filings with the Securities and Exchange Commission, available at www.cna.com. Any forward-looking statements made in this press release are made by CNA as of the date of this press release. CNA does not have any obligation to update or revise any forward-looking statement contained in this press release, even if CNA's expectations or any related events, conditions or circumstances change. This press release may also contain financial measures that are not in accordance with generally accepted accounting principles (GAAP). For reconciliations of non-GAAP measures to the most comparable GAAP measures, refer to this press release and the financial supplement posted on the Company's website. # # # Page 7 of 7 EX-99.2 3 c87131exv99w2.txt FINANCIAL SUPPLEMENT EXHIBIT 99.2 A CNA FINANCIAL CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION JUNE 30, 2004 CNA FINANCIAL CORPORATION TABLE OF CONTENTS JUNE 30, 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 Statements 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 (Three Months Ended) 7 Life & Group Non-Core and Corporate & Other Non-Core Segments Results of Operations (Three Months Ended) 8 Property & Casualty Results of Operations (Six Months Ended) 9 Life & Group Non-Core and Corporate & Other Non-Core Segments Results of Operations (Six Months Ended) 10 Property & Casualty Operations and Corporate & Other Non-Core Segment - Catastrophe Losses 11 Analysis of Pretax Net Investment Income 12 Statutory Data - Preliminary 13 Property & Casualty Operations Loss and LAE Ratio Analysis 14 Life & Group Non-Core Segment - GAAP Results of Operations (Three Months Ended) 15 Life & Group Non-Core Segment - GAAP Results of Operations (Six Months Ended) 16 Asbestos Summary by Policyholder Category 17
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. 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. The Group Benefits business was sold on December 31, 2003 and the Individual Life business was sold on April 30, 2004. 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 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, including the expenses incurred related to uncollectible reinsurance, as a percentage of net earned premiums. In the second quarter of 2004, the expenses incurred related to uncollectible reinsurance receivables were reclassified from "Other operating expenses" to "Insurance claims and policyholders' benefits" on the Statements of Operations. Prior period amounts and ratios have been reclassified to conform to the current year presentation. This reclassification had no impact on net income (loss) or the combined ratios in any period; however, this change will generally have an unfavorable impact on the loss & loss adjustment expense ratios and a favorable impact on the the expense ratios. - - 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 on December 31, 2003, income statement results for 2004 are not comparable to 2003. - - On April 30, 2004, CNA completed the sale of its individual life insurance business. The business sold included 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. Additionally, the Nashville, Tennessee insurance servicing and administration building was transferred as part of the sale. Consideration from the sale was approximately $700 million, resulting in an after-tax realized investment loss on the sale of $389 million. The results of the business sold through the sale date are included in the statement of operations for the three and six months ended June 30, 2004. As a result of the sale, income statement results for the second quarter of 2004 are not comparable to the corresponding 2003 results. - - 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 June 30, 2004. The estimated fair value of the assets and liabilities exceeds their carrying value; therefore, the gain from the sale will be recorded at closing. - - All amounts are in millions, except for per share and ratio information. - - Certain immaterial differences are due to rounding. ii 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 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT STATEMENTS OF OPERATIONS
FAV / FAV / PERIOD ENDED JUNE 30 THREE MONTHS (UNFAV) SIX MONTHS (UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE - ------------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS Revenues: Net earned premiums $ 2,106 $ 2,197 (4)% $ 4,274 $ 4,578 (7)% Net investment income 380 427 (11) 853 859 (1) Realized investment gains (losses), net of participating policyholders' and minority interests 105 378 (72) (353) 302 N/A Other revenues 72 97 (26) 154 205 (25) ------- ------- ------- ------- Total revenues 2,663 3,099 (14) 4,928 5,944 (17) ------- ------- ------- ------- Claims, benefits and expenses: Insurance claims and policyholders' benefits 1,625 2,108 23 3,263 3,978 18 Other operating expenses 682 881 23 1,447 1,718 16 Interest 31 33 6 66 67 1 ------- ------- ------- ------- Total claims, benefits and expenses 2,338 3,022 23 4,776 5,763 17 ------- ------- ------- ------- Income from continuing operations before income tax and minority interest 325 77 N/A 152 181 (16) Income tax (expense) benefit (29) (5) N/A 25 (23) N/A Minority interest (7) (2) N/A (13) (5) (160) ------- ------- ------- ------- Net income $ 289 $ 70 N/A% $ 164 $ 153 7% ======= ======= ======= =======
1 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT COMPONENTS OF NET INCOME AND PER SHARE DATA
FAV / FAV / PERIOD ENDED JUNE 30 THREE MONTHS (UNFAV) SIX MONTHS (UNFAV) (In millions, except per share data) 2004 2003 % CHANGE 2004 2003 % CHANGE - ------------------------------------------------------------------------------------------------------------------------------ COMPONENTS OF NET INCOME Income (loss) before net realized investment gains (losses) $ 171 $ (179) 196% $ 379 $ (47) N/A% Net realized investment gains (losses), net of participating policyholders' and minority interests 118 249 (53) (215) 200 N/A ------ ------ ------ ------ Net income $ 289 $ 70 N/A% $ 164 $ 153 7% ====== ====== ====== ====== BASIC AND DILUTED EARNINGS PER SHARE ------ ------ ------ ------ Basic and diluted earnings per share available to common stockholders $ 1.07 $ 0.25 N/A% $ 0.52 $ 0.55 (5)% ====== ====== ====== ====== Weighted average outstanding common stock and common stock equivalents 255.9 223.6 255.9 223.6
2 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT SELECTED BALANCE SHEET DATA AND CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS DATA
(In millions, except per share data) JUNE 30, 2004 DECEMBER 31, 2003 - --------------------------------------------------------------------------------------------------- Assets related to businesses held for sale $ 200 $ - Total assets 61,185 68,503 Insurance reserves 43,594 45,383 Debt 1,714 1,904 Liabilities related to businesses held for sale 170 - Total liabilities 52,592 59,295 Minority interest 263 256 Accumulated other comprehensive income 52 841 Total stockholders' equity 8,330 8,952 Book value per common share $ 29.25 $ 31.80 Book value per common share excluding unrealized gain or loss on fixed maturity securities $ 28.91 $ 28.98 Outstanding shares of common stock (in millions of shares) (1) 255.9 255.9
THREE MONTHS ENDED JUNE 30 (In millions) 2004 2003 - ------------------------------------------------------------------------------------------------ Net cash flows provided by operating activities $ 646 $ 70 Net cash flows used by investing activities (101) (84) Net cash flows used by financing activities (523) (12) ----------- ----------- Net cash flows $ 22 $ (26) =========== ===========
SIX MONTHS ENDED JUNE 30 (In millions) 2004 2003 - ------------------------------------------------------------------------------------------------ Net cash flows provided by operating activities $ 683 $ 115 Net cash flows provided (used) by investing activities (542) 48 Net cash flows used by financing activities (177) (149) ----------- ----------- Net cash flows $ (36) $ 14 =========== ===========
(1) Included in the outstanding shares of common stock for the year ended December 31, 2003 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 were converted into 32.3 million shares of CNA common stock on April 20, 2004. 3 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY INSURANCE CLAIM & CLAIM ADJUSTMENT EXPENSE RESERVE DATA
CLAIM & CLAIM ADJUSTMENT EXPENSE RESERVES (1) (In millions) STANDARD LINES SPECIALTY LINES P&C OPERATIONS - ------------------------------------------------------------------------------------------------------- As of June 30, 2004 Gross $ 14,275 $ 4,576 $ 18,851 Ceded 5,192 1,446 6,638 Net 9,083 3,130 12,213 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) NON-CORE TOTAL OPERATIONS - --------------------------------------------------------------------------------------------------------- As of June 30, 2004 Gross $ 3,733 $ 8,979 $ 31,563 Ceded 1,909 5,588 14,135 Net 1,824 3,391 17,428 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 June 30, 2004 and December 31, 2003 include $364 million and $448 million of life company reserves, which are primarily related to accident and health business. Net reserves as of June 30, 2004 and December 31, 2003 include $120 million and $230 million of life company reserves, which are primarily related to accident and health business. 4 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY INSURANCE CLAIM & CLAIM ADJUSTMENT EXPENSE RESERVE ROLLFORWARD (1)
PERIOD ENDED JUNE 30, 2004 THREE MONTHS SIX MONTHS (In millions) ENDED ENDED - ------------------------------------------------------------------------------------------------- Claim & claim adjustment expense reserves, beginning of period Gross $ 31,183 $ 31,730 Ceded 13,993 14,216 ------------ ---------- Net 17,190 17,514 ------------ ---------- Net incurred claim & claim adjustment expenses 1,757 3,240 Net claim & claim adjustment expense payments (1,515) (3,284) Reduction of net reserves due to life sale (2) (4) (42) ------------ ---------- Claim & claim adjustment expense reserves, end of period Net 17,428 17,428 Ceded 14,135 14,135 ------------ ---------- Gross $ 31,563 $ 31,563 ============ ==========
(1) Gross reserves as of June 30, 2004 and December 31, 2003 include $364 million and $448 million of life company reserves, which are primarily related to accident and health business. Net reserves as of June 30, 2004 and December 31, 2003 include $120 million and $230 million of life company reserves, which are primarily related to accident and health business. (2) Net reserves were reduced as a result of the sale of the Individual Life business on April 30, 2004. 5 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT INVESTMENTS BY SEGMENT AGGREGATION
JUNE 30, 2004 DECEMBER 31, 2003 (In millions) BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE - ----------------------------------------------------------------------------------------------------------- PROPERTY & CASUALTY AND CORPORATE & OTHER NON-CORE: Fixed Maturities - Taxable $ 14,432 $ 14,425 $ 11,623 $ 11,893 Fixed Maturities - Tax Exempt 8,011 7,922 6,848 7,004 Equities 168 241 225 448 Short-term 2,597 2,597 6,689 6,689 Limited Partnership Investments 1,216 1,216 1,113 1,113 Mortgage Loans & Other 18 19 48 58 ---------- ---------- ---------- ---------- Subtotal 26,442 26,420 26,546 27,205 Securities Lending Collateral 151 151 307 307 ---------- ---------- ---------- ---------- TOTAL INVESTMENTS $ 26,593 $ 26,571 $ 26,853 $ 27,512 ---------- ---------- ---------- ---------- LIFE & GROUP NON-CORE (1) (2): Fixed Maturities - Taxable $ 6,591 $ 6,861 $ 8,155 $ 8,815 Fixed Maturities - Tax Exempt 978 935 939 966 Equities 50 59 68 79 Short-term 1,052 1,052 419 419 Limited Partnership Investments 470 470 4 4 Mortgage Loans & Other 23 10 197 182 ---------- ---------- ---------- ---------- Subtotal 9,164 9,387 9,782 10,465 Securities Lending Collateral 53 53 123 123 ---------- ---------- ---------- ---------- TOTAL INVESTMENTS $ 9,217 $ 9,440 $ 9,905 $ 10,588 ---------- ---------- ---------- ---------- TOTAL INVESTMENTS $ 35,810 $ 36,011 $ 36,758 $ 38,100 ========== ========== ========== ==========
(1) As a result of SOP 03-01, the following investments are included in Life & Group Non-Core as of June 30, 2004 and are included in the June 30, 2004 column above. As of December 31, 2003, the investments were reflected within separate accounts in the 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.
BOOK VALUE FAIR VALUE ---------- ---------- Fixed Maturities - Taxable $ 1,215 $ 1,287 Equities 5 4 Short-term 325 325 Limited Partnership Investments 468 468 ---------- ---------- TOTAL INVESTMENTS $ 2,013 $ 2,084 ========== ==========
(2) Investments of $185 million for CNA Trust have been transferred to assets related to businesses held for sale and are not included in the June 30, 2004 column above. As of December 31, 2003, the balances were reflected within investments in the Balance Sheet and are included in the December 31, 2003 column above. 6 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY RESULTS OF OPERATIONS
THREE MONTHS ENDED STANDARD LINES SPECIALTY LINES P&C OPERATIONS JUNE 30 FAV/(UNFAV) FAV/(UNFAV) FAV/(UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE 2004 2003 % CHANGE - ---------------------------------------------------------------------------------------------------------------------------------- Gross written premiums $1,508 $1,651 (9)% $ 676 $ 614 10% $2,184 $2,265 (4)% Net written premiums 1,209 1,087 11 592 487 22 1,801 1,574 14 Net earned premiums 1,315 1,018 29 567 459 24 1,882 1,477 27 Claim and claim adjustment expenses 927 896 (3) 364 402 9 1,291 1,298 1 Acquisition expenses 258 266 3 106 83 (28) 364 349 (4) Underwriting expenses 141 172 18 39 45 13 180 217 17 Policyholders' dividends (15) 11 N/A 1 -- N/A (14) 11 N/A ------ ------ ----- ------ ------ ------ Underwriting income (loss) 4 (327) 101 57 (71) 180 61 (398) 115 ------ ------ ----- ------ ------ ------ Net investment income 119 105 13 59 53 11 178 158 13 Other revenues 30 61 (51) 32 30 7 62 91 (32) Other expenses 28 60 53 28 25 (12) 56 85 34 ------ ------ ----- ------ ------ ------ Income (loss) before income tax, minority interest and net realized investment gains 125 (221) 157 120 (13) N/A 245 (234) N/A Income tax (expense) benefit (25) 85 (129) (34) 9 N/A (59) 94 (163) Minority interest (2) 2 (200) (5) (3) (67) (7) (1) N/A ------ ------ ----- ------ ------ ------ Income (loss) before net realized investment gains 98 (134) 173 81 (7) N/A 179 (141) N/A Realized investment gains 77 184 (58) 30 59 (49) 107 243 (56) Income tax expense on realized investment gains (27) (62) 56 (12) (21) 43 (39) (83) 53 ------ ------ ----- ------ ------ ------ Net income (loss) $ 148 $ (12) N/A% $ 99 $ 31 N/A% $ 247 $ 19 N/A% ====== ====== ===== ====== ====== ====== FINANCIAL RATIOS Loss & LAE 70.5% 88.0% 64.2% 87.5% 68.6% 87.8% Acquisition expense 19.6 26.1 18.6 18.2 19.3 23.7 Underwriting expense 10.7 16.9 7.0 9.7 9.6 14.6 Dividends (1.1) 1.1 0.2 0.1 (0.7) 0.8 ------ ------ ----- ------ ------ ------ Expense ratio, including dividends 29.2 44.1 25.8 28.0 28.2 39.1 ------ ------ ----- ------ ------ ------ Combined ratio 99.7% 132.1% 90.0% 115.5% 96.8% 126.9% ====== ====== ===== ====== ====== ======
7 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT LIFE & GROUP NON-CORE AND CORPORATE & OTHER NON-CORE SEGMENTS RESULTS OF OPERATIONS
THREE MONTHS ENDED P&C OPERATIONS LIFE & GROUP NON-CORE JUNE 30 FAV/(UNFAV) (In millions) 2004 2003 2004 2003 % CHANGE - -------------------------------------------------------------------------------------------------------------------------- Net earned premiums $ 1,882 $ 1,477 $ 202 $ 603 (67)% Insurance claims & policyholders' benefits 1,291 1,298 329 580 43 Policyholders' dividends (14) 11 (3) 2 N/A Insurance related expenses 544 566 68 193 65 Net investment income 178 158 142 211 (33) Other revenues 62 91 26 35 (26) Other expenses 56 85 20 21 5 ------- ------- ------- ------- Income (loss) before income tax, minority interest and net realized investment gains (losses) 245 (234) (44) 53 (183) Income tax (expense) benefit (59) 94 18 (15) N/A Minority interest (7) (1) - - N/A ------- ------- ------- ------- Income (loss) before net realized investment gains (losses) 179 (141) (26) 38 (168) Realized investment gains (losses) 107 243 (56) 53 N/A Income tax (expense) benefit on realized investment gains (losses) (39) (83) 70 (18) N/A ------- ------- ------- ------- Net income (loss) $ 247 $ 19 $ (12) $ 73 (116)% ======= ======= ======= ======= THREE MONTHS ENDED CORPORATE & OTHER NON-CORE TOTAL OPERATIONS JUNE 30 FAV/(UNFAV) FAV/(UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE - ----------------------------------------------------------------------------------------------------------------------------------- Net earned premiums $ 22 $ 117 (81)% $ 2,106 $ 2,197 (4)% Insurance claims & policyholders' benefits 21 217 90 1,641 2,095 22 Policyholders' dividends - - N/A (17) 13 N/A Insurance related expenses 23 45 49 635 804 21 Net investment income 60 58 3 380 427 (11) Other revenues (16) (29) 45 72 97 (26) Other expenses 3 4 25 79 110 28 ------ ------- ------- ------- Income (loss) before income tax, minority interest and net realized investment gains (losses) 19 (120) 116 220 (301) 173 Income tax (expense) benefit (1) 45 (102) (42) 124 (134) Minority interest - (1) N/A (7) (2) N/A ------ ------- ------- ------- Income (loss) before net realized investment gains (losses) 18 (76) 124 171 (179) 196 Realized investment gains (losses) 54 82 (34) 105 378 (72) Income tax (expense) benefit on realized investment gains (losses) (18) (28) 36 13 (129) 110 ------ ------- ------- ------- Net income (loss) $ 54 $ (22) N/A% $ 289 $ 70 N/A% ====== ======= ======= =======
P&C OPERATIONS LIFE & GROUP NON-CORE CORPORATE & OTHER NON-CORE OTHER FINANCIAL DATA FAV/(UNFAV) FAV/(UNFAV) PROPERTY & CASUALTY COMPANY INFORMATION 2004 2003 2004 2003 % CHANGE 2004 2003 % CHANGE - --------------------------------------------------------------------------------------------------------------------------- Gross written premiums $ 2,184 $ 2,265 $ 293 $ 326 (10)% $ 481 $ 671 (28)% Net written premiums 1,801 1,574 163 132 23 (4) 120 (103) Net earned premiums 1,882 1,477 150 132 14 23 139 (83) Underwriting income (loss) 61 (398) (84) (71) (18)% (16) (147) 89% FINANCIAL RATIOS Loss & LAE 68.6% 87.8% 146.1% 125.4% 96.6% 172.3% Acquisition expense 19.3 23.7 (3.3) 16.2 6.4 24.2 Underwriting expense 9.6 14.6 13.4 12.3 64.6 8.8 Dividends (0.7) 0.8 - - - - ------- ------- ------ ------ ------ ------ Expense ratio, including dividends 28.2 39.1 10.1 28.5 71.0 33.0 ------- ------- ------ ------ ------ ------ Combined ratio 96.8% 126.9% 156.2% 153.9% 167.6% 205.3% ======= ======= ====== ====== ====== ====== TOTAL OPERATIONS OTHER FINANCIAL DATA FAV/(UNFAV) PROPERTY & CASUALTY COMPANY INFORMATION 2004 2003 % CHANGE - -------------------------------------------------------------------------- Gross written premiums $ 2,958 $ 3,262 (9)% Net written premiums 1,960 1,826 7 Net earned premiums 2,055 1,748 18 Underwriting income (loss) (39) (616) 94% FINANCIAL RATIOS Loss & LAE 74.6% 97.4% Acquisition expense 17.5 23.2 Underwriting expense 10.5 14.0 Dividends (0.7) 0.6 ------- ------- Expense ratio, including dividends 27.3 37.8 ------- ------- Combined ratio 101.9% 135.2% ======= =======
8 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT PROPERTY & CASUALTY RESULTS OF OPERATIONS
SIX MONTHS ENDED STANDARD LINES SPECIALTY LINES P&C OPERATIONS JUNE 30 FAV/(UNFAV) FAV/(UNFAV) FAV/(UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE 2004 2003 % CHANGE - ----------------------------------------------------------------------------------------------------------------------------------- Gross written premiums $ 3,073 $ 3,285 (6)% $ 1,386 $ 1,242 12% $ 4,459 $ 4,527 (2)% Net written premiums 2,474 2,360 5 1,173 963 22 3,647 3,323 10 Net earned premiums 2,573 2,237 15 1,096 887 24 3,669 3,124 17 Claim and claim adjustment expenses 1,750 1,789 2 698 686 (2) 2,448 2,475 1 Acquisition expenses 529 504 (5) 203 162 (25) 732 666 (10) Underwriting expenses 293 332 12 82 88 7 375 420 11 Policyholders' dividends (6) 26 123 3 1 (200) (3) 27 111 ------- ------- ------- ------- ------- ------- Underwriting income (loss) 7 (414) 102 110 (50) N/A 117 (464) 125 ------- ------- ------- ------- ------- ------- Net investment income 257 234 10 121 102 19 378 336 13 Other revenues 70 132 (47) 57 47 21 127 179 (29) Other expenses 59 123 52 55 38 (45) 114 161 29 ------- ------- ------- ------- ------- ------- Income (loss) before income tax, minority interest and net realized investment gains 275 (171) N/A 233 61 N/A 508 (110) N/A Income tax (expense) benefit (59) 80 (174) (68) (15) N/A (127) 65 N/A Minority interest (4) 1 N/A (9) (5) (80) (13) (4) N/A ------- ------- ------- ------- ------- ------- Income (loss) before net realized investment gains 212 (90) N/A 156 41 N/A 368 (49) N/A Realized investment gains 134 191 (30) 50 62 (19) 184 253 (27) Income tax expense on realized investment gains (46) (66) 30 (19) (22) 14 (65) (88) 26 ------- ------- ------- ------- ------- ------- Net income $ 300 $ 35 N/A% $ 187 $ 81 131% $ 487 $ 116 N/A% ======= ======= ======= ======= ======= ======= FINANCIAL RATIOS Loss & LAE 68.0% 80.0% 63.6% 77.3% 66.7% 79.2% Acquisition expense 20.6 22.5 18.5 18.3 19.9 21.3 Underwriting expense 11.3 14.8 7.6 9.9 10.3 13.4 Dividends (0.2) 1.2 0.3 0.1 (0.1) 0.9 ------- ------- ------- ------- ------- ------- Expense ratio, including dividends 31.7 38.5 26.4 28.3 30.1 35.6 ------- ------- ------- ------- ------- ------- Combined ratio 99.7% 118.5% 90.0% 105.6% 96.8% 114.8% ======= ======= ======= ======= ======= =======
9 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT LIFE & GROUP NON-CORE AND CORPORATE & OTHER NON-CORE SEGMENTS RESULTS OF OPERATIONS
SIX MONTHS ENDED P&C OPERATIONS LIFE & GROUP NON-CORE JUNE 30 FAV/(UNFAV) (In millions) 2004 2003 2004 2003 % CHANGE - ------------------------------------------------------------------------------------------------------------------------- Net earned premiums $ 3,669 $ 3,124 $ 528 $ 1,189 (56)% Insurance claims & policyholders' benefits 2,448 2,475 736 1,141 35 Policyholders' dividends (3) 27 3 4 25 Insurance related expenses 1,107 1,086 176 393 55 Net investment income 378 336 348 414 (16) Other revenues 127 179 60 76 (21) Other expenses 114 161 41 45 9 ------- ------- ------- ------- Income (loss) before income tax, minority interest and net realized investment gains (losses) 508 (110) (20) 96 (121) Income tax (expense) benefit (127) 65 13 (29) 145 Minority interest (13) (4) - - N/A ------- ------- ------- ------- Income (loss) before net realized investment gains (losses) 368 (49) (7) 67 (110) Realized investment gains (losses) 184 253 (618) (51) N/A Income tax (expense) benefit on realized investment gains (losses) (65) (88) 231 18 N/A ------- ------- ------- ------- Net income (loss) $ 487 $ 116 $ (394) $ 34 N/A% ======= ======= ======= ======= SIX MONTHS ENDED CORPORATE & OTHER NON-CORE TOTAL OPERATIONS JUNE 30 FAV/(UNFAV) FAV/(UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE - ------------------------------------------------------------------------------------------------------------------------------------ Net earned premiums $ 77 $ 265 (71)% $ 4,274 $ 4,578 (7)% Insurance claims & policyholders' benefits 78 331 76 3,262 3,947 17 Policyholders' dividends 1 - N/A 1 31 97 Insurance related expenses 50 93 46 1,333 1,572 15 Net investment income 127 109 17 853 859 (1) Other revenues (33) (50) 34 154 205 (25) Other expenses 25 7 N/A 180 213 15 ------- ------- ------- ------- Income (loss) before income tax, minority interest and net realized investment gains (losses) 17 (107) 116 505 (121) N/A Income tax (expense) benefit 1 43 (98) (113) 79 N/A Minority interest - (1) N/A (13) (5) (160) ------- ------- ------- ------- Income (loss) before net realized investment gains (losses) 18 (65) 128 379 (47) N/A Realized investment gains (losses) 81 100 (19) (353) 302 N/A Income tax (expense) benefit on realized investment gains (losses) (28) (32) 13 138 (102) N/A ------- ------- ------- ------- Net income (loss) $ 71 $ 3 N/A% $ 164 $ 153 7% ======= ======= ======= =======
P&C OPERATIONS LIFE & GROUP NON-CORE OTHER FINANCIAL DATA FAV/(UNFAV) PROPERTY & CASUALTY COMPANY INFORMATION 2004 2003 2004 2003 % CHANGE - ----------------------------------------------------------------------------------------------------------- Gross written premiums $ 4,459 $ 4,527 $ 612 $ 677 (10)% Net written premiums 3,647 3,323 339 269 26 Net earned premiums 3,669 3,124 316 262 21 Underwriting income (loss) 117 (464) (185) (129) (43)% FINANCIAL RATIOS Loss & LAE 66.7% 79.2% 136.9% 120.1% Acquisition expense 19.9 21.3 7.5 16.2 Underwriting expense 10.3 13.4 14.2 13.1 Dividends (0.1) 0.9 - - --------- --------- ------- ------- Expense ratio, including dividends 30.1 35.6 21.7 29.3 --------- --------- ------- ------- Combined ratio 96.8% 114.8% 158.6% 149.4% ========= ========= ======= ======= CORPORATE & OTHER NON-CORE TOTAL OPERATIONS OTHER FINANCIAL DATA FAV/(UNFAV) FAV/(UNFAV) PROPERTY & CASUALTY COMPANY INFORMATION 2004 2003 % CHANGE 2004 2003 % CHANGE - -------------------------------------------------------------------------------------------------------------------- Gross written premiums $ 1,118 $ 1,474 (24)% $ 6,189 $ 6,678 (7)% Net written premiums (20) 334 (106) 3,966 3,926 1 Net earned premiums 94 310 (70) 4,079 3,696 10 Underwriting income (loss) (45) (159) 72% (113) (752) 85% FINANCIAL RATIOS Loss & LAE 101.2% 121.6% 73.0% 85.7% Acquisition expense 24.2 24.5 19.1 21.2 Underwriting expense 22.3 5.2 10.8 12.7 Dividends - - (0.1) 0.7 ------- ------- ------- -------- Expense ratio, including dividends 46.5 29.7 29.8 34.6 ------- ------- ------- -------- Combined ratio 147.7% 151.3% 102.8% 120.3% ======= ======= ======= ========
10 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 June 30, 2004 $ 4 $ 1 $ 5 $ - $ 5 Six months ended June 30, 2004 10 3 13 - 13 Three months ended June 30, 2003 $ 48 $ 1 $ 49 $ 11 $ 60 Six months ended June 30, 2003 62 2 64 11 75
CATASTROPHE LOSSES (AFTER-TAX) CORPORATE & OTHER (In millions) STANDARD LINES SPECIALTY LINES P&C OPERATIONS NON-CORE TOTAL - ----------------------------------------------------------------------------------------------------------------------- Three months ended June 30, 2004 $ 3 $ 1 $ 4 $ - $ 4 Six months ended June 30, 2004 7 2 9 - 9 Three months ended June 30, 2003 $ 31 $ 1 $ 32 $ 7 $ 39 Six months ended June 30, 2003 40 1 41 7 48
11 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT ANALYSIS OF PRETAX NET INVESTMENT INCOME
(In millions) STANDARD LINES - --------------------------------------------- ------------------------------------------------------------------------- 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 2Q04 YTD 2004 ------ ------ ------ ------ -------- ------ ------ -------- Limited partnership income $ 13 $ 43 $ 35 $ 35 $ 126 $ 37 $ 13 $ 50 Interest on funds withheld and other deposits (34) (77) (115) (43) (269) (38) (43) (81) Other investment income 150 139 135 126 550 139 149 288 ------ ------ ------ ------ -------- ------ ------ -------- Net investment income $ 129 $ 105 $ 55 $ 118 $ 407 $ 138 $ 119 $ 257 ====== ====== ====== ====== ======== ====== ====== ========
SPECIALTY LINES ------------------------------------------------------------------------- 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 2Q04 YTD 2004 ------ ------ ------ ------ -------- ------ ------ -------- Limited partnership income $ 4 $ 14 $ 11 $ 11 $ 40 $ 13 $ 5 $ 18 Interest on funds withheld and other deposits (5) (7) (11) (2) (25) (2) (2) (4) Other investment income 50 46 47 43 186 51 56 107 ------ ------ ------ ------ -------- ------ ------ -------- Net investment income $ 49 $ 53 $ 47 $ 52 $ 201 $ 62 $ 59 $ 121 ====== ====== ====== ====== ======== ====== ====== ========
P&C OPERATIONS ------------------------------------------------------------------------- 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 2Q04 YTD 2004 ------ ------ ------ ------ -------- ------ ------ -------- Limited partnership income $ 17 $ 57 $ 46 $ 46 $ 166 $ 50 $ 18 $ 68 Interest on funds withheld and other deposits (39) (84) (126) (45) (294) (40) (45) (85) Other investment income 200 185 182 169 736 190 205 395 ------ ------ ------ ------ -------- ------ ------ -------- Net investment income $ 178 $ 158 $ 102 $ 170 $ 608 $ 200 $ 178 $ 378 ====== ====== ====== ====== ======== ====== ====== ========
LIFE & GROUP NON-CORE ------------------------------------------------------------------------- 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 2Q04 YTD 2004 ------ ------ ------ ------ -------- ------ ------ -------- Limited partnership income $ 1 $ - $ 1 $ 1 $ 3 $ 1 $ - $ 1 Interest on funds withheld and other deposits - - - - - - - - Income from trading securities (1) - - - - - 28 19 47 Other investment income 202 211 203 202 818 177 123 300 ------ ------ ------ ------ -------- ------ ------ -------- Net investment income (2) $ 203 $ 211 $ 204 $ 203 $ 821 $ 206 $ 142 $ 348 ====== ====== ====== ====== ======== ====== ====== ========
CORPORATE & OTHER NON-CORE ------------------------------------------------------------------------- 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 2Q04 YTD 2004 ------ ------ ------ ------ -------- ------ ------ -------- Limited partnership income $ 5 $ 18 $ 14 $ 15 $ 52 $ 16 $ 6 $ 22 Interest on funds withheld and other deposits (8) (9) (22) (11) (50) (10) (11) (21) Other investment income 54 49 54 59 216 61 65 126 ------ ------ ------ ------ -------- ------ ------ -------- Net investment income $ 51 $ 58 $ 46 $ 63 $ 218 $ 67 $ 60 $ 127 ====== ====== ====== ====== ======== ====== ====== ========
TOTAL OPERATIONS ------------------------------------------------------------------------- 1Q03 2Q03 3Q03 4Q03 YTD 2003 1Q04 2Q04 YTD 2004 ------ ------ ------ ------ -------- ------ ------ -------- Limited partnership income $ 23 $ 75 $ 61 $ 62 $ 221 $ 67 $ 24 $ 91 Interest on funds withheld and other deposits (47) (93) (148) (56) (344) (50) (56) (106) Income from trading securities (1) - - - - - 28 19 47 Other investment income 456 445 439 430 1,770 428 393 821 ------ ------ ------ ------ -------- ------ ------ -------- Net investment income (2) $ 432 $ 427 $ 352 $ 436 $ 1,647 $ 473 $ 380 $ 853 ====== ====== ====== ====== ======== ====== ====== ========
(1) Includes $8 million for first quarter of 2004 and $6 million for second quarter of 2004 related to limited partnership investment income that supports indexed group annuity contracts. (2) Net investment income in 2004 includes income from trading securities. See Accounting Pronouncements at page ii for the discussion of SOP 03-01. 12 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT STATUTORY DATA - PRELIMINARY
PERIOD ENDED JUNE 30 THREE MONTHS SIX MONTHS INCOME STATEMENT (PRELIMINARY) FAV / (UNFAV) (PRELIMINARY) FAV / (UNFAV) (In millions) 2004 2003 % CHANGE 2004 2003 % CHANGE - ------------------------------------ ------------- ------- ------------- ------------- -------- ------------- PROPERTY & CASUALTY COMPANIES Gross written premiums $ 3,077 $ 3,480 (12)% $ 6,349 $ 7,131 (11)% Net written premiums 1,865 1,668 12 3,688 3,586 3 Net earned premiums 1,760 1,494 (18) 3,462 3,216 (8) Claim and claim adjustment expenses 1,426 1,497 5 2,698 2,825 4 Acquisition expenses 305 341 11 637 712 11 Underwriting expenses 222 225 1 429 442 3 Policyholders' dividends 9 15 40 21 40 48 ------------- ------- ------------- -------- Underwriting Loss (202) (584) 65 (323) (803) 60 Net investment income 332 277 20 636 560 14 Other income/expense (52) (90) 42 (49) (127) 61 Income tax (expense) benefit (75) 58 N/A (188) 54 N/A Net realized gains 136 280 (51) 301 316 (5) ------------- ------- ------------- -------- Net income (loss) $ 139 $ (59) N/A% $ 377 $ - N/A% ============= ======= ============= ======== FINANCIAL RATIOS Loss and LAE 81.0% 100.2% 77.9% 87.8% Acquisition expense 16.4 20.4 17.3 19.9 Underwriting expense 11.9 13.5 11.6 12.4 Policyholders' dividends 0.5 1.0 0.6 1.2 ------------- ------- ------------- -------- Expense ratio 28.8 34.9 29.5 33.5 ------------- ------- ------------- -------- Combined ratio 109.8% 135.1% 107.4% 121.3% ============= ======= ============= ======== LIFE COMPANIES (2) Earned premium $ 56 $ 488 $ 236 $ 980
SUPPLEMENTAL STATUTORY DATA
(PRELIMINARY) (In millions) JUNE 30, 2004 DECEMBER 31, 2003 - ------------------------------------ ------------- ----------------- PROPERTY & CASUALTY COMPANIES Statutory surplus (1) $ 6,638 $ 6,170 LIFE COMPANIES Statutory surplus $ 1,238 $ 707 Gross life insurance in force 61,793 388,968
(1) Surplus includes the Property & Casualty Companies' equity ownership of the life insurance subsidiaries. 13 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 6/30/04 12/31/03 6/30/04 ------------ ------------ ------------ Gross Accident Year 66.0% 65.4% 63.9% Impact of Other Reinsurance - 2.4 2.8 ------------ ------------ ------------ Net Accident Year 66.0 67.8 66.7% ============ Impact of Corporate Covers 0.1 (6.4) Impact of Development & Change in Allowance for Uncollectible Reinsurance 1.9 36.7 ------------ ------------ Net Calendar Year 68.0% 98.1% ============ ============
SPECIALTY LINES ------------------------------------------ 2004 YTD 2003 FY 2003 FY EVALUATED AT EVALUATED AT EVALUATED AT 6/30/04 12/31/03 6/30/04 ------------ ------------ ------------ Gross Accident Year 63.6% 67.1% 65.6% Impact of Other Reinsurance (0.5) 1.8 0.2 ------------ ------------ ------------ Net Accident Year 63.1 68.9 65.8% ============ Impact of Corporate Covers - (1.9) Impact of Development & Change in Allowance for Uncollectible Reinsurance 0.5 22.6 ------------ ------------ Net Calendar Year 63.6% 89.6% ============ ============
P&C OPERATIONS ------------------------------------------ 2004 YTD 2003 FY 2003 FY EVALUATED AT EVALUATED AT EVALUATED AT 6/30/04 12/31/03 6/30/04 ------------ ------------ ------------ Gross Accident Year 65.3% 65.9% 64.4% Impact of Other Reinsurance (0.2) 2.2 2.1 ------------ ------------ ------------ Net Accident Year 65.1 68.1 66.5% ============ Impact of Corporate Covers - (5.1) Impact of Development & Change in Allowance for Uncollectible Reinsurance 1.6 32.6 ------------ ------------ Net Calendar Year 66.7% 95.6% ============ ============
14 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT LIFE & GROUP NON-CORE SEGMENT - GAAP RESULTS OF OPERATIONS
LIFE & GROUP NON-CORE LIFE & GROUP NON-CORE TOTAL LIFE & GROUP THREE MONTHS ENDED JUNE 30, 2004 EXCLUDING BUSINESSES BUSINESSES SOLD/TO BE NON-CORE (In millions) SOLD/TO BE SOLD (1) SOLD (2) (3) AS REPORTED - ---------------------------------------------------------- --------------------- --------------------- ------------------ Net earned premiums $ 192 $ 10 $ 202 Insurance claims & policyholders' benefits 321 8 329 Policyholders' dividends 1 (4) (3) Insurance related expenses 50 18 68 Net investment income 143 (1) 142 Other revenues 17 9 26 Other expenses 12 8 20 --------------------- --------------------- ------------------ Loss before income tax and net realized investment gains (losses) (32) (12) (44) Income tax benefit 15 3 18 --------------------- --------------------- ------------------ Loss before net realized investment gains (losses) (17) (9) (26) Realized investment gains (losses) 8 (64) (56) Income tax (expense) benefit on realized investment gains (losses) (3) 73 70 --------------------- --------------------- ------------------ Net income (loss) $ (12) $ - $ (12) ===================== ===================== ==================
THREE MONTHS ENDED JUNE 30, 2003
LIFE & GROUP NON-CORE LIFE & GROUP NON-CORE TOTAL LIFE & GROUP THREE MONTHS ENDED JUNE 30, 2003 EXCLUDING BUSINESSES BUSINESSES SOLD/TO BE NON-CORE (In millions) SOLD/TO BE SOLD (1) SOLD (2) (3) AS REPORTED - ---------------------------------------------------------- --------------------- --------------------- ------------------ Net earned premiums $ 235 $ 368 $ 603 Insurance claims & policyholders' benefits 288 292 580 Policyholders' dividends (4) 6 2 Insurance related expenses 63 130 193 Net investment income 122 89 211 Other revenues 20 15 35 Other expenses 9 12 21 --------------------- --------------------- ------------------ Income before income tax and net realized investment gains 21 32 53 Income tax expense (7) (8) (15) --------------------- --------------------- ------------------ Income before net realized investment gains 14 24 38 Realized investment gains 26 27 53 Income tax expense on realized investment gains (7) (11) (18) --------------------- --------------------- ------------------ Net income $ 33 $ 40 $ 73 ===================== ===================== ==================
(1) Retained life and group businesses principally include group and individual long term care, structured settlements, institutional markets and specialty medical. (2) For the three months ended June 30, 2004, net realized investment losses for Life & Group Non-Core businesses sold/to be sold include a pretax loss of $53 million ($17 million gain after-tax), related to the individual life business. The disproportionate tax provision, on the loss related to the life sale for the three months ended June 30, 2004, arises from a change in estimate related to the estimated tax benefit recorded at March 31, 2004. The change in estimate is due to the completion of a formal study of the outside tax basis of Valley Forge Life Insurance Company. The total loss related to the life sale was $622 million pretax ($389 million after-tax), as reflected in the Life & Group Non-Core results for the six months ended June 30, 2004. (3) Life and group businesses sold/to be sold include group business, individual life business and CNA Trust. Included in this column are the effects of shared corporate overhead expenses which continue to be allocated to the sold businesses. 15 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT LIFE & GROUP NON-CORE SEGMENT - GAAP RESULTS OF OPERATIONS
LIFE & GROUP NON-CORE LIFE & GROUP NON-CORE TOTAL LIFE & GROUP SIX MONTHS ENDED JUNE 30, 2004 EXCLUDING BUSINESSES BUSINESSES SOLD/TO BE NON-CORE (In millions) SOLD/TO BE SOLD (1) SOLD (2) (3) AS REPORTED - ---------------------------------------------------------- --------------------- --------------------- ------------------ Net earned premiums $ 413 $ 115 $ 528 Insurance claims & policyholders' benefits 618 118 736 Policyholders' dividends 1 2 3 Insurance related expenses 110 66 176 Net investment income 297 51 348 Other revenues 33 27 60 Other expenses 25 16 41 --------------------- --------------------- ------------------ Loss before income tax and net realized investment gains (losses) (11) (9) (20) Income tax benefit 11 2 13 --------------------- --------------------- ------------------ Income (loss) before net realized investment gains (losses) - (7) (7) Realized investment gains (losses) 13 (631) (618) Income tax (expense) benefit on realized investment gains (losses) (5) 236 231 --------------------- --------------------- ------------------ Net income (loss) $ 8 $ (402) $ (394) ===================== ===================== ==================
LIFE & GROUP NON-CORE LIFE & GROUP NON-CORE TOTAL LIFE & GROUP SIX MONTHS ENDED JUNE 30, 2003 EXCLUDING BUSINESSES BUSINESSES SOLD/TO BE NON-CORE (In millions) SOLD/TO BE SOLD (1) SOLD (2) (3) AS REPORTED - ---------------------------------------------------------- --------------------- --------------------- ------------------ Net earned premiums $ 458 $ 731 $ 1,189 Insurance claims & policyholders' benefits 549 592 1,141 Policyholders' dividends (6) 10 4 Insurance related expenses 128 265 393 Net investment income 239 175 414 Other revenues 46 30 76 Other expenses 24 21 45 --------------------- --------------------- ------------------ Income before income tax and net realized investment losses 48 48 96 Income tax expense (15) (14) (29) --------------------- --------------------- ------------------ Income before net realized investment losses 33 34 67 Realized investment losses (38) (13) (51) Income tax (expense) benefit on realized investment losses 19 (1) 18 --------------------- --------------------- ------------------ Net income $ 14 $ 20 $ 34 ===================== ===================== ==================
(1) Retained life and group businesses principally include group and individual long term care, structured settlements, institutional markets and specialty medical. (2) For the six months ended June 30, 2004, net realized investment losses for Life & Group Non-Core businesses sold/to be sold include a pretax impairment loss of $622 million ($389 million after-tax), related to the individual life business. (3) Life and group businesses sold/to be sold include group business, individual life business and CNA Trust. Included in this column are the effects of shared corporate overhead expenses which continue to be allocated to the sold businesses. 16 CNA FINANCIAL CORPORATION FINANCIAL SUPPLEMENT ASBESTOS SUMMARY BY POLICYHOLDER CATEGORY
PERCENT OF JUNE 30, 2004 NUMBER OF NET PAID NET ASBESTOS ASBESTOS NET (In millions) POLICYHOLDERS LOSSES IN 2004 RESERVES RESERVES - ---------------------------------------- ------------- -------------- ------------ ------------ POLICYHOLDERS WITH SETTLEMENT AGREEMENTS Structured Settlements 11 $ 28 $ 180 11% Wellington 4 4 19 1 Coverage in Place 31 2 90 5 Fibreboard 1 - 54 3 ------------- -------------- ------------ ------------ TOTAL WITH SETTLEMENT AGREEMENTS 47 34 343 20 OTHER POLICYHOLDERS WITH ACTIVE ACCOUNTS Large Asbestos Accounts 174 19 393 23 Small Asbestos Accounts 1,117 12 162 9 ------------- -------------- ------------ ------------ TOTAL OTHER POLICYHOLDERS 1,291 31 555 32 ASSUMED REINSURANCE & POOLS - 1 156 9 UNASSIGNED IBNR (1) - - 687 39 ------------- -------------- ------------ ------------ TOTAL 1,338 $ 66 $ 1,741 100% ============= ============== ============ ============
(1) IBNR includes claims that are incurred but not reported. 17 -----END PRIVACY-ENHANCED MESSAGE-----