<PAGE> 1
CNA SURETY CORPORATION ANALYST CONTACT:
CNA Plaza John Heneghan
Chicago IL 60685 312-822-1908
[email protected]
MEDIA CONTACT:
Doreen Lubeck
773-583-4331
-------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
CNA Surety Reports Third Quarter 2000 Results
CHICAGO, November 6, 2000 -- CNA Surety Corporation (NYSE:SUR) today
reported results for the third quarter ended September 30, 2000. Operating
earnings for the third quarter, after income taxes, decreased 12 percent to
$13.4 million, or 31 cents per share, from $15.2 million, or 34 cents per share,
for the same period in 1999. Net income decreased 12 percent to $13.3 million,
or 31 cents per share, from $15.2 million, or 34 cents per share, in 1999. These
decreases in third quarter operating earnings and net income reflect lower
underwriting income partially offset by higher investment income. Underwriting
income declined $4.4 million, or 22 percent, primarily due to higher reinsurance
costs of approximately $2.4 million and lower net favorable loss reserve
development of approximately $1.9 million in the third quarter of 2000. For the
third quarter of 2000, the Company's combined ratio was 78.9 percent. Investment
income increased 16 percent to $7.4 million on larger average invested assets
and higher portfolio yield.
"Given an increasingly difficult business environment, I am pleased
with the continued solid underwriting performance of CNA Surety," said Mark C.
Vonnahme, President and Chief Executive Officer of CNA Surety. "Our core
contract and commercial businesses have maintained their leadership positions
with combined gross written premiums up six percent for the first nine months of
2000. However, higher reinsurance costs, reduced net favorable loss reserve
development and softness in U.S. public construction markets have adversely
affected our underwriting results for the quarter."
Mr. Vonnahme added, "Despite economic indications of a slowing in the
public construction market, our domestic contract surety business grew eight
percent for the nine months ended September 30, 2000."
Operating earnings rose to $41.8 million, or 98 cents per share, for
the first nine months of 2000 from $40.8 million, or 92 cents per share, for the
comparable period in 1999. Net income increased to $41.6 million, or 97 cents
per share, for the first nine months of 2000 from $41.1 million, or 93 cents per
share, for the comparable period in 1999. These increases were primarily
attributable to higher investment income partially offset by lower underwriting
income. Underwriting income declined $1.3 million, or two percent, primarily due
to lower net favorable loss reserve
- more -
<PAGE> 2
development of approximately $2.0 million in 2000. For the first nine months of
2000, the Company's combined ratio was 77.5 percent. Investment income increased
16 percent to $21.9 million.
For the third quarter of 2000, gross written premiums decreased two
percent to $79.4 million. This decrease in third quarter gross production
reflects an estimated $3.0 million reduction associated with the decision by CNA
Reinsurance Company, Limited (London) ("CNA Re") to discontinue writing assumed
international credit and surety business. Excluding international reinsurance
business assumed from CNA Re, core direct gross written premiums increased two
percent to $79.4 million. Gross written premiums for core direct commercial
surety increased six percent to $29.4 million primarily due to increased
writings of small commercial products. Gross written premiums for contract
surety decreased one percent for the quarter to $43.5 million due to continued
softness in U.S. public construction spending. For the third quarter of 2000,
net written premiums decreased five percent to $75.1 million. Net written
premiums for the third quarter decreased seven percent for contract surety and
five percent for commercial surety reflecting higher reinsurance costs and the
aforementioned gross production variances. The reinsurance rate used to compute
ceded premiums is based upon reinsurers' loss experience under the Company's
surety excess of loss reinsurance contract. Due to increased claims reported to
our reinsurers through June 30, 2000, ceded written premiums increased $2.5
million to $4.3 million in the third quarter of 2000.
Gross written premiums for the nine month period ended September 30,
2000 increased five percent to $242.4 million with contract surety and
commercial surety up eight percent and two percent, respectively. Excluding
international reinsurance business assumed from CNA Re, core direct gross
written premiums increased six percent to $236.4 million for the first nine
months of 2000. Assumed international surety and credit business from CNA Re for
the nine months ended September 30, 2000 decreased to $6.0 million from $8.3
million in 1999 due to CNA Re's decision to discontinue this line. Gross written
premiums for core direct commercial surety increased five percent to $92.9
million primarily due to growth of small commercial products. Gross written
premiums for contract surety increased eight percent for the first nine months
of 2000 to $123.1 million due to generally favorable economic conditions for
public construction. Net written premiums for the nine month period ended
September 30, 2000 increased four percent to $232.7 million with contract surety
and commercial surety up four percent and two percent, respectively, reflecting
the effects of higher reinsurance costs and the aforementioned gross production
variances.
Underwriting income for the third quarter ended September 30, 2000
decreased $4.4 million, or 22 percent, to $15.5 million. The Company's loss and
combined ratios were 15.9 percent and 78.9 percent, respectively, for the third
quarter of 2000 compared with loss and combined ratios for the comparable 1999
quarter of 13.1 percent and 72.4 percent, respectively. The loss and combined
ratios for the quarters ended September 30, 2000 and 1999 include net favorable
loss reserve development of $2.9 million and $4.7 million, respectively. The net
favorable loss reserve development in the third quarter of 2000 reflects
positive loss and recovery trends primarily with respect to accident years prior
to 1997 partially offset by adverse development in more recent accident years.
The expense ratio
-2-
<PAGE> 3
increased to 63.0 percent in the third quarter of 2000 compared with the expense
ratio of 59.3 percent in the comparable quarter of 1999, reflecting the impact
of increased reinsurance costs on net earned premiums. Higher reinsurance costs
reduced net earned premiums for the quarter by approximately $2.4 million.
For the nine months ended September 30, 2000, underwriting income
decreased $1.3 million, or two percent, to $50.7 million. The loss and combined
ratios were 17.3 percent and 77.5 percent, respectively, for the nine months
ended September 30, 2000, compared to 15.8 percent and 75.2 percent,
respectively, for the same period in 1999. The loss and combined ratios for the
nine months ended September 30, 2000 and 1999 include net favorable loss reserve
development of $6.8 million and $8.8 million, respectively. The expense ratio
increased 0.8 percentage points to 60.2 percent for the nine months ended
September 30, 2000, primarily due to higher reinsurance costs.
Earnings per share for the three and nine month periods of 2000
benefited from the Company's share repurchases. In calendar 2000, the Company
has repurchased approximately 100,000 of its shares at an aggregate cost of $1.2
million. As of December 31, 1999, the Company had repurchased approximately 1.1
million of its shares at an aggregate cost of $11.8 million.
CNA Surety Corporation is the largest publicly traded surety company in
the country. Through its principal subsidiaries, Western Surety Company and
Universal Surety of America, CNA Surety provides surety and fidelity bonds in
all 50 states through a combined network of approximately 37,000 independent
agencies. Visit us at www.cnasurety.com on the World Wide Web.
CNA is a registered service mark, trade name and domain name of CNA
Financial Corporation.
NOTE: A conference call for investors and the professional investment
community will be held at 10:00 a.m. Central time on November 7, 2000. On the
conference call will be Mark C. Vonnahme, President and Chief Executive Officer
of CNA Surety Corporation and John S. Heneghan, Chief Financial Officer of CNA
Surety Corporation. Participants can access the call by dialing 800-894-8895 or
561-361-8970. It will also be broadcast live on the internet at
http://www.cnasurety.com/ or go to the investor relations pages of the CNA
Surety website (www.cnasurety.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 at 11:00 a.m.
Central time from November 7 to 11:00 a.m. November 14, 2000 by dialing
800-839-6713 or 402-220-2306, using passcode 3773400.
# # #
-3-
<PAGE> 4
CNA SURETY CORPORATION
Press Release Investor Data
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Gross written premiums $ 79,393 $ 80,718 $ 242,424 $ 230,423
========= ========= ========= =========
Net written premiums $ 75,126 $ 78,968 $ 232,715 $ 224,503
========= ========= ========= =========
Revenues:
Net earned premiums $ 73,541 $ 72,009 $ 224,782 $ 209,567
Net investment income 7,428 6,387 21,896 18,900
Net realized investment gains (losses) (39) 6 191 426
--------- --------- --------- ---------
Total revenues 80,930 78,402 246,869 228,893
--------- --------- --------- ---------
Expenses:
Net losses and loss adjustment expenses 11,683 9,447 38,943 33,119
Net commissions, brokerage and
other underwriting 46,325 42,661 135,158 124,477
Interest expense 1,809 1,464 5,159 4,284
Non-recurring charge(1) -- -- 500 --
Amortization of intangible assets 1,525 1,508 4,573 4,458
--------- --------- --------- ---------
Total expenses 61,342 55,080 184,333 166,338
--------- --------- --------- ---------
Income before income taxes 19,588 23,322 62,536 62,555
Income taxes 6,250 8,118 20,978 21,470
--------- --------- --------- ---------
NET INCOME $ 13,338 $ 15,204 $ 41,558 $ 41,085
========= ========= ========= =========
Basic earnings per common share $ 0.31 $ 0.34 $ 0.97 $ 0.93
========= ========= ========= =========
Diluted earnings per common share $ 0.31 $ 0.34 $ 0.97 $ 0.93
========= ========= ========= =========
Basic weighted average shares outstanding 42,909 44,102 42,922 44,100
========= ========= ========= =========
Diluted weighted average shares outstanding 43,001 44,261 43,056 44,245
========= ========= ========= =========
OPERATING EARNINGS, AFTER INCOME TAXES:
Net realized income $ 13,338 $ 15,204 $ 41,558 $ 41,085
Net realized investment (gains) losses 25 (4) (124) (277)
Non-recurring charge(1) -- -- 325 --
--------- --------- --------- ---------
Operating earnings $ 13,363 $ 15,200 $ 41,759 $ 40,808
========= ========= ========= =========
DILUTED PER SHARE DATA:
Net income $ 0. 31 $ 0.34 $ 0.97 $ 0.93
Net realized investment (gains) losses -- -- -- (0.01)
Non-recurring charge(1) -- -- 0.01 --
--------- --------- --------- ---------
OPERATING EARNINGS $ 0. 31 $ 0.34 $ 0.98 $ 0.92
========= ========= ========= =========
</TABLE>
--------------------------------------
See notes to Press Release Investor Data on page 5.
-4-
<PAGE> 5
CNA SURETY CORPORATION
Press Release Investor Data
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
UNDERWRITING RESULTS:
Gross written premiums:
Contract $ 43,512 $ 43,835 $ 123,079 $ 113,552
Commercial 29,446 30,680 98,932 96,947
Fidelity and other 6,435 6,203 20,413 19,924
--------- --------- --------- ---------
79,393 80,718 242,424 230,423
Net written premiums:
Contract $ 39,630 $ 42,469 $ 114,106 $ 109,966
Commercial 29,058 30,722 97,727 96,117
Fidelity and other 6,438 5,777 20,882 18,420
--------- --------- --------- ---------
$ 75,126 $ 78,968 $ 232,715 $ 224,503
========= ========= ========= =========
Net earned premiums $ 73,541 $ 72,009 $ 224,782 $ 209,567
Net losses and loss adjustment expenses (2) 11,683 9,447 38,943 33,119
Net commissions, brokerage and other
underwriting expenses 46,325 42,661 135,158 124,477
--------- --------- --------- ---------
Underwriting income $ 15,533 $ 19,901 $ 50,681 $ 51,971
========= ========= ========= =========
Loss ratio (2) 15.9% 13.1% 17.3% 15.8%
Expense ratio 63.0 59.3 60.2 59.4
--------- --------- --------- ---------
Combined ratio (2) 78.9% 72.4% 77.5% 75.2%
========= === ===== ========= =========
CASH FLOW DATA:
Net cash provided by operations $ 30,165 $ 50,353 $ 68,796 $ 66,358
SEPTEMBER 30, December 31,
CONSOLIDATED BALANCE SHEET DATA: 2000 1999
--------- -----------
Invested assets and cash $ 554,755 $ 499,400
Intangible assets, net 151,407 155,980
Total assets 910,269 851,575
Insurance reserves 378,350 357,233
Long-term debt 101,556 101,900
Total stockholders' equity 361,671 326,304
Book value per share $ 8.43 $ 7.59
Outstanding shares 42,916 43,006
========= =========
</TABLE>
-----------------------------
NOTES TO PRESS RELEASE INVESTOR DATA
(1) Relates to costs incurred with respect to the proposed tender offer by
CNA Financial.
(2) 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 $2,878 or
3.9 % and $4,728 or 6.6 % for three months ended September 30, 2000 and
1999 , and $6,756 or 3.0 % and $8,841 or 4.2% for nine months ended
September 30, 2000 and 1999, respectively.
"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 CNA Surety Corporation'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.
-5-
