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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
FEBRUARY 23, 1998
(Date of Report)
CNA SURETY CORPORATION
(Exact name of Registrant as specified in its charter)
1-13277
(Commission File No.)
DELAWARE 34-4144905
(State or other jurisdiction) (IRS Employer Identification No.)
CNA PLAZA, CHICAGO, ILLINOIS 60685
(Address of principal executive offices) (Zip code)
(312) 822-5000
(Registrant's telephone number, include area code)
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ITEM 5. OTHER EVENTS
See Exhibit 99 to this Form 8-K
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit 99 - CNA Surety Corporation Press Release issued on
February 18, 1998
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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 thereunto duly authorized.
CNA SURETY CORPORATION
(Registrant)
By: /s/ John S. Heneghan
------------------------------------------
John S. Heneghan
Vice President and Chief Financial Officer
Dated: February 23, 1998
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EXHIBIT INDEX
Exhibit No.
99. CNA Surety Corporation Press Release issued on February 18, 1998
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FOR IMMEDIATE RELEASE EXHIBIT 99
ANALYST CONTACT: MEDIA CONTACT:
John S. Heneghan Doreen Lubeck
312-822-1908 773-583-4331
CNA SURETY REPORTS STRONG FOURTH QUARTER RESULTS
CHICAGO, ILLINOIS, FEBRUARY 18, 1998 -- CNA SURETY CORPORATION (NYSE:SUR)
today reported strong operating results for the fourth quarter ended December
31, 1997. On a diluted basis, net income per share was 25 cents compared to pro
forma net income per share of 10 cents for the fourth quarter of 1996.
Operating earnings per share for the quarter were 25 cents versus pro forma
operating earnings per share of 13 cents. Pro forma net income and operating
earnings per share exclude estimated pro forma investment income of 6 cents.
These results reflect the continued strong underwriting results of all the
merged business units. The merger that formed CNA Surety Corporation was
completed on September 30, 1997, combining the surety business of CNA Financial
("CNA") with Capsure Holdings Corp.'s ("Capsure") principal insurance
subsidiaries, Western Surety Company ("Western Surety") and Universal Surety of
America ("Universal Surety").
Operating earnings exclude investment gains (losses) and fourth quarter
1996 non-recurring merger related costs of Capsure. Pro forma operating
results include the surety business of CNA, Western Surety and Universal Surety
as if the businesses had been combined on January 1, 1996.
"We are extremely pleased with the strong underwriting results of our
combined businesses in the fourth quarter of 1997, particularly in light of the
continued competitive conditions in a number of our market segments," said Mark
C. Vonnahme, president and CEO of CNA Surety. "Our results clearly support our
status as the premier surety company in the U.S., with superior marketing
capabilities and a vast national distribution system that provides responsive
customer service while maintaining disciplined underwriting policies."
"A natural extension to our U.S. operations is to identify surety
opportunities abroad, and, in the fourth quarter, we expanded our international
market initiatives. We are committed to providing the growing international
surety and credit market with high-quality products and services and anticipate
this will enhance our long-term growth potential."
Net written premiums for the fourth quarter of 1997 increased 24% to $74.0
million compared to the pro forma combined results of $59.8 million for the
fourth quarter of 1996. Net written premiums for commercial surety increased
64% for the quarter to $41.3 million, primarily due to the addition of
approximately $10 million in international surety and credit business and $3.8
million in return premium from reinsurers. Net written premiums for contract
surety decreased 8% for the quarter to $27.8 million. Net written premiums for
fidelity and other increased 9% for the quarter to $4.9 million.
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The Company's combined ratio improved to 76.9% for the fourth quarter
ended December 31, 1997, compared to the pro forma combined ratio for the
quarter ended December 31, 1996 of 85.0%. The Company's loss ratio was 18.5%
for the 1997 fourth quarter compared to a pro forma loss ratio of 18.8% for the
same period in 1996. The loss and combined ratios for the fourth quarter of
1997 and the pro forma fourth quarter of 1996 include $0.6 million and $4.9
million, respectively, in favorable loss reserve development. The expense
ratio decreased to 58.4% in the fourth quarter 1997 compared to 66.2% in 1996.
The decline in the Company's expense ratio for the quarter was largely due to
the increased operating leverage of the combined organization as net earned
premiums advanced 9% for the quarter.
For the year ended December 31, 1997, net written premiums for the surety
business of CNA and Capsure were $158.1 million and $99.0 million,
respectively. The application of these amounts under the terms of the
"lookback" provisions of the merger agreement and the determination of the
effects, if any, on ownership percentages are matters that are subject to the
normal review process contemplated in the agreement. At the conclusion of this
process, either no adjustment will be made to CNA's 61.75% and the former
Capsure stockholders' 38.25% ownership percentages of CNA Surety under the
terms of the merger agreement described in the Company's Registration Statement
on Form S-4, or an adjustment of such ownership percentages of up to 0.96% in
favor of the minority stockholders could be made.
CNA Surety Corporation, through its principal subsidiaries, Western Surety
Company and Universal Surety of America, provides surety and fidelity bonds in
all 50 states through a combined network of approximately 120,000 independent
agents.
CNA is a registered service mark and trade name of CNA Financial
Corporation.
# # #
- -- Chart Follows--
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements which are not historical facts contained in this release
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, product and policy demand and market response risks, the
effect of economic conditions, the impact of competitive products, policies and
pricing, product and policy development, regulatory changes and conditions,
rating agency policies and practices, development of claims and the effect on
loss reserves, the performance of reinsurance companies under reinsurance
contracts with the Company, investment portfolio developments and reaction to
market conditions, the results of financing efforts, the actual closing of
contemplated transactions and agreements, the effect of the Company's
accounting policies, and other risks detailed in the Company's Securities and
Exchange Commission filings. No assurance can be given that the actual results
of operations and financial condition will conform to the forward-looking
statements contained herein.
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CNA SURETY CORPORATION
Press Release Investor Data
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1997 1996
--------- -----------
<S> <C> <C>
OPERATING RESULTS: (PRO FORMA)
Gross written premiums $75,252 $64,126
======= =======
Net written premiums $73,989 $59,808
======= =======
Revenues:
Net earned premiums $65,433 $59,869
Net investment income (1) 5,766 2,866
Net investment gains 85 19
------- -------
Total revenues 71,284 62,754
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Expenses:
Net losses and loss adjustment expenses 12,134 11,237
Net commissions, brokerage and other 38,213 39,643
Interest expense 1,831 1,807
Amortization of intangible assets 1,447 1,447
Non-recurring merger costs -- 1,524
------- -------
Total expenses 53,625 55,658
------- -------
Income before income taxes 17,659 7,096
Income taxes 6,663 2,751
------- -------
NET INCOME $10,996 $ 4,345
======= =======
Earnings per common share $.25 $.10
======= =======
Earnings per common share, assuming dilution $.25 $.10
======= =======
Weighted average shares outstanding 43,302 43,302
======= =======
Weighted average shares outstanding, assuming dilution 43,552 43,552
======= =======
PER SHARE DATA:
Net income $.25 $.10
Net investment gains .00 .00
Non-recurring merger costs .00 .03
---- ----
OPERATING EARNINGS $.25 $.13
==== ====
</TABLE>
________________________________________________
See notes to Press Release Investor Data on page 4.
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CNA SURETY CORPORATION
Press Release Investor Data
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(PRO FORMA) (PRO FORMA)
UNDERWRITING RESULTS: (2)
Net written premiums:
Contract $27,836 $30,170 $118,138 $118,268
Commercial 41,272 25,157 118,160 97,407
Fidelity and other 4,881 4,481 20,769 19,511
------- ------- -------- --------
$73,989 $59,808 $257,067 $235,186
======= ======= ======== ========
Net earned premiums $65,433 $59,869 $243,425 $238,330
Net losses and loss adjustment expenses (3) 12,134 11,237 5,648 41,450
Net commissions, brokerage and other 38,213 39,643 150,631 150,198
------- ------- -------- --------
Underwriting income $15,086 $ 8,989 $ 87,146 $ 46,682
======= ======= ======== ========
Loss ratio (3) 18.5% 18.8% 2.3% 17.4%
Expense ratio 58.4 66.2 61.9 63.0
------- ------- -------- --------
Combined ratio (3) 76.9% 85.0% 64.2% 80.4%
======= ======= ======== ========
DECEMBER 31, September 30,
CONSOLIDATED BALANCE SHEET DATA: 1997 1997
----------- ------------
Invested assets and cash $419,667 $271,179
Receivable from affiliates -- 116,939
Intangible assets 161,962 163,409
Total assets 734,705 691,872
Insurance reserves 304,217 286,884
Long-term debt 118,000 105,000
Total Shareholders' equity 266,882 255,071
Book value per share $6.16 $5.89
======== ========
Outstanding shares 43,320 43,294
======== ========
</TABLE>
________________________________________
NOTES TO PRESS RELEASE INVESTOR DATA
(1) Investment income for the three months ending December 31, 1996 excludes
pro forma investment income on merger related cash flows of $3,794
($2,466 net of tax or $.06 in pro forma earnings per share). The
additional pro forma investment income is primarily a result of investing
merger related cash flows in high-quality, taxable fixed income securities
with an average duration of approximately 3 years, yielding 6.4%.
(2) Pro Forma underwriting results include the surety business of CNA
Financial, Western Surety and Universal Surety as if the businesses had
been combined on January 1, 1996.
(3) Includes the effect of recording revisions of prior year reserves.
The dollar amount and the percentage point effect on the loss ratio of
these reserve revisions, all of which were deductions, were $647 or 1.0%
and $4,873 or 8.1% for the three months ending December 31, 1997 and 1996
respectively and $40,886 or 16.8% and $16,642 or 7.0% for the years
ending December 31, 1997 and 1996, respectively.
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