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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
AUGUST 13, 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
August 3, 1998.
2
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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:_____________________________________
John S. Heneghan
Vice President and Chief Financial
Officer
Dated: August 13, 1998
3
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EXHIBIT INDEX
Exhibit No.
99. CNA Surety Corporation Press Release issued on August 3, 1998.
4
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CNA SURETY CORPORATION ANALYST CONTACT:
CNA Plaza John Heneghan
Chicago IL 60685 312-822-1908
[email protected]
MEDIA CONTACT:
Doreen Lubeck
773-583-4331
CNA SURETY ANNOUNCES STRONG QUARTERLY RESULTS ---
NET WRITTEN PREMIUMS UP 16%
CHICAGO, August 3, 1998 -- CNA Surety Corporation (NYSE:SUR) today reported
strong underwriting results for the second quarter ended June 30, 1998 with a
16% increase in net written premiums and a 26% increase in underwriting income
as compared to pro forma amounts for the comparable period in 1997. On a
diluted basis, net income and operating earnings per share were 25 cents for the
second quarter of 1998. Pro forma net income and operating earnings per share
for the second quarter of 1997 were 17 cents and 16 cents, respectively
(exclusive of estimated pro forma investment income of 6 cents). For the first
half of 1998, net income and operating earnings per share were 48 cents. Pro
forma net income and operating earnings per share for the first half of 1997
were 85 cents and 84 cents, respectively (exclusive of estimated pro forma net
investment income of 11 cents). The 1997 six-month results include $38.7
million of favorable loss reserve development compared to $1.7 million in the
first half of 1998.
"We are quite pleased with the strong premium production experienced in the
second quarter, particularly in light of continued competitive market
conditions. Excluding assumed international surety and credit business, net
written premiums of our core business grew 12% for the quarter and 9% for the
first half of 1998," said Mark C. Vonnahme, president and chief executive
officer of CNA Surety. "We believe that this strong growth in quarterly
premiums and our continued positive new account activity reflect increased
market acceptance of our strategy to provide our customers "one stop shopping"
for their surety needs."
Net written premiums for the second quarter of 1998 increased 16% to $73.1
million compared to the pro forma combined net written premiums of $63.0 million
for the second quarter of 1997. Net written premiums for commercial surety
increased $7.2 million, or 28%, for the quarter to $32.7 million,
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a third of which increase was due to the addition of approximately $2.5 million
of international surety and credit business assumed under our reinsurance
arrangement with CNA Reinsurance Company, Limited (London).
Net written premiums for contract surety increased 8% for the quarter to $35.1
million. Net written premiums for fidelity and other lines increased 8% for the
quarter to $5.3 million. Net written premiums for the first half of 1998
increased 13% to $134.9 million with commercial surety and contract surety up
22% and 7%, respectively.
Underwriting income for the second quarter increased $3.0 million, or 26%,
to $15.0 million, reflecting a 7% increase in net earned premiums with virtually
no increase in operating expenses. The Company's loss and combined ratios were
16.7% and 76.3%, respectively, for the second quarter of 1998 compared to the
pro forma loss and combined ratios for the comparable 1997 quarter of 16.6% and
79.8%, respectively. The loss and combined ratios for the second quarter of
1998 and the pro forma second quarter of 1997 include favorable loss reserve
development of $1.1 million and $1.8 million, respectively. The expense ratio
decreased 3.6 percentage points to 59.6% in the second quarter of 1998 compared
to the pro forma expense ratio of 63.2% in 1997.
For the first half of 1998, underwriting income was $27.5 million compared
to pro forma underwriting income of $58.1 in 1997. The loss and combined ratios
were 17.9% and 77.5%, respectively, for the first half of 1998, compared to
(14.4%) and 49.6%, respectively, on a pro forma basis for the same period in
1997. The loss and combined ratios for the first half of 1998 and the
comparable pro forma period of 1997 include favorable loss reserve development
of $1.7 million and $38.7 million, respectively.
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 36,000 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.
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CNA SURETY CORPORATION
Press Release Investor Data
{Amounts in thousands, except per share data}
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1998 1997 1998 1997
-------- --------- -------- ---------
OPERATING RESULTS: (1) (PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C>
Gross written premiums $ 75,145 $ 66,291 $ 138,993 $ 126,070
======== ======== ========= =========
Net written premiums $ 73,109 $ 63,003 $ 134,945 $ 119,131
======== ======== ========= =========
Revenues:
Net earned premiums $ 63,278 $ 59,117 $ 122,023 $ 115,242
Net investment income (2) 6,077 2,798 12,866 5,924
Net investment gains 44 549 44 636
-------- -------- --------- ---------
Total revenues 69,399 62,464 134,933 121,802
-------- -------- --------- ---------
Expenses:
Net losses and loss adjustment expenses 10,558 9,805 21,776 (16,579)
Net commissions, brokerage and
other underwriting 37,729 37,368 72,768 73,696
Interest expense 1,837 1,800 3,658 3,565
Amortization of intangible assets 1,475 1,447 2,950 2,894
-------- -------- --------- ---------
Total expenses 51,599 50,420 101,152 63,576
-------- -------- --------- ---------
Income before income taxes 17,800 12,044 33,781 58,226
Income taxes 6,643 4,644 12,809 21,415
-------- -------- --------- ---------
NET INCOME $ 11,157 $ 7,400 $ 20,972 $ 36,811
======== ======== ========= =========
Basic earnings per common share $ 0.25 $ 0.17 $ 0.48 $ 0.85
======== ======== ========= =========
Diluted earnings per common share $ 0.25 $ 0.17 $ 0.48 $ 0.85
======== ======== ========= =========
Basic weighted average shares outstanding 43,405 43,302 43,377 43,302
-------- -------- --------- ---------
Diluted weighted average shares outstanding 43,566 43,552 43,567 43,552
-------- -------- --------- ---------
DILUTED PER SHARE DATA:
Net income $ 0.25 $ 0.17 $ 0.48 $ 0.85
Net investment gains -- .01 -- .01
-------- -------- ------- --------
OPERATING EARNINGS $ 0.25 $ 0.16 $ 0.48 $ 0.84
======== ======== ======= ========
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1998 1997 1998 1997
-------- -------- ------- -------
(PRO FORMA) (PRO FORMA)
UNDERWRITING RESULTS: (1)
<S> <C> <C> <C> <C>
Net written premiums:
Contract $ 35,092 $ 32,531 $ 60,332 $ 56,494
Commercial 32,696 25,526 62,953 51,739
Fidelity and other 5,321 4,946 11,660 10,898
--------- ----------- ---------- ------------
$ 73,109 $ 63,003 $ 134,945 $ 119,131
========= =========== ========== ============
Net earned premiums $ 63,278 $ 59,117 $ 122,023 $ 115,242
Net losses and loss adjustment expenses (3) 10,558 9,805 21,776 (16,579)
Net commissions, brokerage and other
underwriting expenses 37,729 37,368 72,768 73,696
--------- ----------- ---------- ------------
Underwriting income $ 14,991 $ 11,944 $ 27,479 $ 58,125
========= =========== ========== ============
Loss ratio (3) 16.7% 16.6% 17.9% (14.4)%
Expense ratio 59.6 63.2 59.6 64.0
--------- ----------- ---------- ------------
Combined ratio (3) 76.3% 79.8% 77.5% 49.6%
========= =========== ========== ============
JUNE 30, December 31,
CONSOLIDATED BALANCE SHEET DATA: 1998 1997
-------------- ------------
Invested assets and cash $438,945 $419,667
Intangible assets, net 159,012 161,962
Total assets 766,118 727,180
Insurance reserves 323,242 304,217
Long-term debt 118,000 118,000
Total stockholders' equity 278,701 256,732
Book value per share $ 6.41 $ 5.93
========== ============
Outstanding shares 43,446 43,320
========== ============
</TABLE>
NOTES TO PRESS RELEASE INVESTOR DATA
(1) Pro Forma operating and underwriting results include the surety business
of CNA Financial Corporation subsidiaries, Western Surety Company and
Universal Surety of America as if the businesses had been combined on
January 1, 1996.
(2) As more fully described in the Company's Securities and Exchange
Commission filings, investment income for the three months ended June
30, 1997 excludes estimated pro forma investment income on merger
related cash flows of $3,689 ($2,398 net of tax or $0.06 in pro forma
earnings per share). For the six months ended June 30, 1997, investment
income excludes pro forma investment income of $7,356 ($4,782 net of tax
or $0.11 in pro forma earnings per share). The additional pro forma
investment income is based on the assumption that merger related cash
flows were invested 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 prior year reserves. The
dollar amount and the percentage point effect on the loss ratio of these
reserve revisions, all of which were reductions, were $1,100 or 1.7% and
$1,790 or 3.0% for three months ended June 30, 1998 and 1997 and $1,681
or 1.4 % and $38,690 or 33.6% for six months ended June 30, 1998 and
1997, respectively.
