<PAGE> 1
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
MAY 7, 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)
<PAGE> 2
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
May 4, 1998.
2
<PAGE> 3
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: May 7, 1998
3
<PAGE> 4
EXHIBIT INDEX
Exhibit No.
99. CNA Surety Corporation Press Release issued on May 4, 1998.
4
<PAGE> 1
FOR IMMEDIATE RELEASE EXHIBIT 99
ANALYST CONTACT: MEDIA CONTACT:
John S. Heneghan Doreen Lubeck
312-822-1908 773-583-4331
CNA SURETY REPORTS STRONG FIRST QUARTER RESULTS
CHICAGO, ILLINOIS, MAY 4, 1998 -- CNA SURETY CORPORATION (NYSE:SUR) today
reported strong operating results for the first quarter ended March 31, 1998.
On a diluted basis, net income and operating earnings per share were 23 cents
for the first quarter of 1998, which includes one cent per share in favorable
reserve development. Pro forma net income and operating earnings per share of
68 cents for the first quarter of 1997 includes $36.9 million, or 55 cents,
net of income taxes, of favorable reserve development and excludes estimated
pro forma investment income of 5 cents. First quarter 1998 results reflect the
continued solid underwriting results of all the business units. The merger
that formed CNA Surety Corporation on September 30, 1997, combined the surety
business of CNA Financial Corporation ("CNAF") with Capsure Holdings Corp.'s
("Capsure") principal insurance subsidiaries, Western Surety Company and
Universal Surety of America.
"Our first quarter results reflect the commitment of our Company to be
the premier surety provider in the U.S.," said Mark C. Vonnahme, president and
chief executive officer of CNA Surety. "We have successfully taken advantage of
many cross-marketing opportunities created by our merged business units,
contributing to strong first quarter underwriting results despite continued
competitive market conditions. Continuing these efforts will reinforce CNA
Surety's solid position, even in this highly competitive marketplace."
Net written premiums for the first quarter of 1998 increased 10.2% to
$61.8 million compared to the pro forma combined net written premiums of $56.1
million for the first quarter of 1997. Net written premiums for commercial
surety increased $4.0 million, or 15.4%, for the quarter to $30.3 million, in
part due to approximately $2.5 million of international surety and credit
business assumed under our reinsurance arrangement with CNA Reinsurance
Company, Ltd. (London). Net written premiums for contract surety increased
5.3% for the quarter to $25.2 million. Net written premiums for fidelity and
other lines increased 6.5 % for the quarter to $6.3 million.
5
<PAGE> 2
EXHIBIT 99
The Company's loss and combined ratios were 19.1% and 78.7% for the first
quarter ended March 31, 1998 compared to the pro forma loss and combined ratios
for the quarter ended March 31, 1997 of (47.0)% and 17.7%. The loss and combined
ratios for the first quarter of 1998 and the pro forma first quarter of 1997
include favorable loss reserve development of $0.6 million and $36.9 million
($35.0 million related to the former surety business of CNAF), respectively.
Excluding favorable reserve development, the loss ratio and combined ratio for
the pro forma first quarter 1997 would have been 18.7% and 83.4%, respectively.
The expense ratio decreased 5.1 percentage points to 59.6% in the first
quarter 1998 compared to the pro forma expense ratio of 64.7% in 1997. The
decline in the Company's expense ratio for the quarter was principally due to
the larger scale of the combined organization as net earned premiums advanced
4.7% for the quarter.
The reorganization agreement provided a mechanism, referred to as the
"Lookback Adjustment", which could adjust the number of shares of CNA Surety
common stock owned by CNAF operating companies in the event that either or
both of Capsure's and CNAF's surety business actual net written premiums for
1997 varied from certain targets. Application and interpretation of the
provisions of the Lookback Adjustment were completed in April 1998 with no
adjustment to the 61.75% ownership percentage of the CNAF operating
companies.
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 37,000
independent agencies.
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.
6
<PAGE> 3
EXHIBIT 99
CNA SURETY CORPORATION
Press Release Investor Data
{Amounts in thousands, except per share data}
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- --------
OPERATING RESULTS: (1) (PRO FORMA)
<S> <C> <C>
Gross written premiums $63,848 $59,779
======= =======
Net written premiums $61,836 $56,128
======= =======
Revenues:
Net earned premiums $58,745 $56,125
Net investment income (2) 6,789 3,126
Net investment gains - 87
------- -------
Total revenues 65,534 59,338
------- -------
Expenses:
Net losses and loss adjustment expenses 11,218 (26,384)
Net commissions, brokerage and other underwriting expenses 35,039 36,328
Interest expense 1,821 1,765
Amortization of intangible assets 1,475 1,447
------- -------
Total expenses 49,553 13,156
------- -------
Income before income taxes 15,981 46,182
Income taxes 6,166 16,771
------- -------
NET INCOME $ 9,815 $29,411
======= =======
Basic earnings per common share $0.23 $0.68
===== =====
Diluted earnings per common share $0.23 $0.68
===== =====
Basic weighted average shares outstanding 43,348 43,302
======= =======
Diluted weighted average shares outstanding 43,570 43,552
======= =======
DILUTED PER SHARE DATA:
Net income $0.23 $0.68
Net investment gains - -
----- -----
OPERATING EARNINGS $0.23 $0.68
===== =====
</TABLE>
________________________________
See notes to Press Release Investor Data on page 4.
7
<PAGE> 4
EXHIBIT 99
CNA SURETY CORPORATION
Press Release Investor Data
{Amounts in thousands, except per share data}
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
------- -------
(PRO FORMA)
UNDERWRITING RESULTS: (1)
<S> <C> <C>
Net written premiums:
Contract $ 25,240 $ 23,963
Commercial 30,257 26,213
Fidelity and other 6,339 5,952
-------- --------
$ 61,836 $ 56,128
======== ========
Net earned premiums $ 58,745 $ 56,125
Net losses and loss adjustment expenses (3) 11,218 (26,384)
Net commissions, brokerage and other underwriting expenses 35,039 36,328
-------- --------
Underwriting income $ 12,488 $ 46,181
======== ========
Loss ratio (3) 19.1% (47.0)%
Expense ratio 59.6 64.7
-------- --------
Combined ratio (3) 78.7% 17.7%
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, December 31,
CONSOLIDATED BALANCE SHEET DATA: 1998 1997
--------- ------------
<S> <C> <C>
Invested assets and cash $427,599 $419,667
Intangible assets, net 160,487 161,962
Total assets 740,871 727,180
Insurance reserves 309,620 304,217
Long-term debt 118,000 118,000
Total stockholders' equity 266,523 256,732
Book value per share $6.14 $5.93
===== =====
Outstanding shares 43,379 43,320
======== ========
</TABLE>
________________________________________
NOTES TO PRESS RELEASE INVESTOR DATA
(1) Pro Forma operating and 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.
(2) Investment income for the three months ending March 31, 1997 excludes
estimated pro forma investment income on merger related cash flows of
$3,667 ($2,384 net of tax or $0.05 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%.
(3) Includes the effect of recording revisions of prioryear reserves. The
dollar amount and the percentage point effect on the loss ratio of these
reserve revisions, all of which were reductions, were $581 or 1.0% and
$36,900 or 65.7% for the three months ending March 31, 1998 and 1997.
8
