<PAGE>
<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1994 Commission File Number 1-5823
--------------------------
CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-6169860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CNA Plaza
Chicago, Illinois 60685
(Address of principal executive offices) (Zip Code)
(312) 822-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes /X/ No...
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 1, 1994
----------------------------- -------------------------------
Common Stock, Par value $2.50 61,797,856
===============================================================================
Page (1) of (28)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- - ------- --------------------- --------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET
JUNE 30, 1994 (Unaudited) and DECEMBER 31, 1993. . . . . . . . . . . . 3
STATEMENT OF CONSOLIDATED OPERATIONS (Unaudited)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993. . . . . . . 4
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993. . . . . . . . . . . . 5
STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993. . . . . . . . . . . . 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION
- - -------- -----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . 26
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT 11. COMPUTATION OF NET INCOME PER COMMON SHARE. . . . . . . . . . 28
(2)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
June 30 December 31
1994 1993
(In thousands of dollars) (Unaudited)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities available for sale (cost: $21,001,929 and $17,103,240) . . . . $20,622,572 $17,607,635
Equity securities available for sale (cost: $546,974 and $432,738) . . . . . . 587,658 508,249
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,475 57,641
Real estate (less accumulated depreciation: $3,357 and $3,532) . . . . . . . . 3,137 3,963
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,418 174,006
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,314 67,891
Short-term investments--Note B. . . . . . . . . . . . . . . . . . . . . . . . . 6,551,244 6,943,976
---------- ----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,085,818 25,363,361
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,482 129,631
Insurance receivables:
Reinsurance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,961,240 2,951,664
Other insurance receivables . . . . . . . . . . . . . . . . . . . . . . . . . 3,937,413 3,657,048
Less allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . . (122,324) (117,324)
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . 1,033,698 985,383
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,796 245,880
Receivables for securities sold . . . . . . . . . . . . . . . . . . . . . . . . 496,142 387,477
Federal income taxes recoverable (includes $138,294 and $71,774 due from Loews) 145,357
78,512
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,389,370 1,029,657
Property and equipment at cost (less accumulated depreciation: $242,286 and
$219,417) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,250 221,507
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . 182,596 167,292
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,549 271,639
Separate Account business . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,843,256 6,540,557
- - ------------------------------------------------------------------------------------------------------------
Total assets $45,020,643 $41,912,284
================================================================================
============================
<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET-continued
Liabilities and Stockholders Equity
Liabilities:
Insurance reserves:
Claim and claim expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,092,227 $21,670,202
Future policy benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,870,910 2,753,591
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,823,315 2,556,015
Policyholders' funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483,099 478,616
Participating policyholders' equity . . . . . . . . . . . . . . . . . . . . . . 99,784 141,501
Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . 3,735,463 613,250
Payables for securities purchased . . . . . . . . . . . . . . . . . . . . . . . 516,946 40,070
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911,353 913,279
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929,768 822,126
Separate Account business . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,843,256 6,540,557
---------- ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,308,121 36,531,207
---------- ----------
Commitments and contingent liabilities - Note E:
Stockholders' equity:
Common stock ($2.50 par value; Authorized - 200,000,000 shares;
Issued - 61,841,969 shares). . . . . . . . . . . . . . . . . . . . . . . . . . 154,605 154,605
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 434,692 434,692
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,167,510 4,284,293
Net unrealized investment gains (losses). . . . . . . . . . . . . . . . . . . . (191,769) 360,003
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,516) (2,516)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 4,712,522 5,381,077
- - ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $45,020,643 $41,912,284
================================================================================
============================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(3)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
PERIOD ENDED JUNE 30 Second Quarter Six Months
(In thousands of dollars, except per share data) 1994 1993 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Premiums ......................................... $2,366,909 $2,116,694 $4,675,830 $4,201,504
Net investment income ............................ 384,119 328,826 730,419 675,064
Realized investment gains (losses) ............... (76,287) 140,247 (182,002) 580,029
Other............................................. 56,294 42,384 111,247 89,100
--------- --------- --------- ---------
2,731,035 2,628,151 5,335,494 5,545,697
--------- --------- --------- ---------
Benefits and expenses:
Insurance claims and policyholders' benefits ..... 2,180,553 1,994,209 4,301,731 3,954,896
Amortization of deferred acquisition costs........ 337,713 291,441 661,603 567,003
Other operating expenses.......................... 286,433 286,278 594,405 564,596
Interest expense.................................. 17,641 9,117 35,254 18,242
--------- --------- --------- ---------
2,822,340 2,581,045 5,592,993 5,104,737
--------- --------- --------- ---------
Income (loss) before income tax................ (91,305) 47,106 (257,499) 440,960
Income tax benefit (expense)....................... 55,047 27,697 143,188 (52,575)
- - ---------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (36,258) $ 74,803 $ (114,311) $ 388,385
================================================================================
=========================
EARNINGS PER SHARE
Net income (loss).................................. $ (.61) $ 1.19 $ (1.89) $ 6.25
========= ========= ========= =========
Weighted average outstanding shares of
common stock (in thousands of shares)............. 61,798 61,798 61,798 61,798
================================================================================
=========================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(4)
<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Six Months Ended June 30, 1994 and 1993
Net
Unrealized
Additional Investment
Capital Paid-in Retained Gains
(In thousands of dollars) Stock Capital Earnings (Losses) Total
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992..... $302,089 $434,692 $4,020,743 $ 31,673 $4,789,197
Net income................... - - 388,385 - 388,385
Unrealized investment gains.. - - - 3,020 3,020
Preferred dividends.......... - - (2,055) - (2,055)
- - --------------------------------------------------------------------------------------------
Balance, June 30, 1993 $302,089 $434,692 $4,407,073 $ 34,693 $5,178,547
================================================================================
============
Balance, December 31, 1993..... $302,089 $434,692 $4,284,293 $ 360,003 $5,381,077
Net loss..................... - - (114,311) - (114,311)
Unrealized investment losses. - - - (551,772) (551,772)
Preferred dividends.......... - - (2,472) - (2,472)
- - --------------------------------------------------------------------------------------------
Balance, June 30, 1994 $302,089 $434,692 $4,167,510 $(191,769) $4,712,522
================================================================================
============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(5)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
Six Months Ended June 30 1994 1993
(In thousands of dollars)
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ (114,311) $ 388,385
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Pretax realized (gains) losses....................... 182,002 (580,029)
Participating policyholders' interest................ (10,195) (833)
Amortization of bond discount........................ (36,661) (49,044)
Depreciation......................................... 30,000 21,688
Changes in:
Other insurance receivables....................... (275,365) (87,159)
Reinsurance receivables........................... (9,576) 59,756
Prepaid reinsurance premiums...................... (15,304) (1,550)
Deferred acquisition costs........................ (48,315) (70,050)
Accrued investment income......................... (126,916) 45,805
Insurance reserves................................ 806,290 512,180
Federal income taxes.............................. (66,845) 228,598
Deferred income taxes............................. (37,876) (5,236)
Reinsurance payables.............................. 1,395 120,746
Other liabilities................................. 107,791 169,606
Other, net........................................ (56,453) (41,776)
------------ -----------
Total adjustments......................... 443,972 322,702
------------ -----------
Net cash provided by operating activities. 329,661 711,087
------------ -----------
Cash flows from investing activities:
Purchases of fixed maturities.......................... (25,758,628) (17,583,156)
Proceeds from fixed maturities:
Sales................................................ 18,864,859 18,598,308
Maturities, calls and redemptions.................... 3,156,553 1,140,155
Purchases of equity securities......................... (418,971) (455,812)
Proceeds from sale of equity securities................ 303,277 485,145
Change in short-term investments....................... 453,203 (2,418,247)
Purchases of property and equipment.................... (51,582) (26,693)
Change in securities sold under repurchase agreements.. 3,122,213 (510,862)
Change in other investments............................ (7,832) 20,392
Other, net............................................. 942 (2,458)
------------ -----------
Net cash used in investing activities..... (335,966) (753,228)
------------ -----------
</TABLE>
<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS-continued
(Unaudited)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
Six Months Ended June 30 1994 1993
(In thousands of dollars)
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Dividends paid to preferred shareholders............... (2,357) (2,139)
Receipts from investment contracts credited to
policyholder account balances........................ 21,338 25,833
Return of policyholder account balances on investment
contracts............................................ (16,451) (7,891)
Principal payments on long-term debt................... (2,597) (445)
Proceeds from issuance of long-term debt............... 223 300
----------- -----------
Net cash provided by financing
activities............................... 156 15,658
----------- -----------
Net decrease in cash...................... (6,149) (26,483)
Cash at beginning of period ............................. 129,631 84,120
- - -------------------------------------------------------------------------------------
Cash at end of period $ 123,482 $ 57,637
================================================================================
=====
Supplemental disclosures of cash flow information:
Interest paid......................................... $ (34,603) $ (17,907)
Federal income tax refunds received................... 44,872 178,316
================================================================================
=====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(6)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(Unaudited)
NOTE A. Basis of Presentation:
The consolidated financial statements (unaudited) include CNA Financial
Corporation and subsidiaries (CNA) and have been prepared in accordance with
generally accepted accounting principles. In the opinion of management,
these statements include all adjustments (consisting of normal recurring
accruals) which are necessary for a fair presentation of the financial
position, results of operations and cash flows in the accompanying unaudited
consolidated financial statements.
The operating results for the interim periods are not necessarily
indicative of the results to be expected for the full year. These
statements should be read in conjunction with the financial statements and
notes thereto included in CNA's Annual Report to Shareholders (incorporated
by reference in Form 10-K) for the year ended December 31, 1993, filed with
the Commission on March 30, 1994, the Company's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1994, filed with the Commission on May 16,
1994, and the information shown below.
Certain amounts applicable to 1993 have been reclassified to conform to
classifications followed in 1994.
NOTE B. Restricted Investments:
On December 30, 1993, CNA deposited $986.8 million in an escrow account,
pursuant to the Fibreboard Global Settlement Agreement, as discussed in Note
E below. The funds are included in short-term investments and are invested
in U. S. Treasury securities. The escrow account is the prefunding
mechanism to the trust fund for future claimants.
NOTE C. New Accounting Standard:
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 112, "Employers' Accounting for
Postemployment Benefits," which establishes accounting standards for
employers who provide benefits to former employees after employment but
before retirement. This Statement is effective beginning in 1994. CNA has
been historically following the requirements of SFAS 112.
NOTE D. Reinsurance:
CNA assumes and cedes insurance with other insurers and reinsurers and
members of various reinsurance pools and associations. CNA utilizes
reinsurance arrangements to limit its maximum loss, to provide greater
diversification of risk and to minimize exposures on larger risks. The
reinsurance coverages are tailored to the specific risk characteristics of
each product line with CNA's retained amount varying by type of coverage.
Generally, reinsurance coverage for property risks is on an excess of loss,
per risk basis. Liability coverages are generally reinsured on a quota
share basis in excess of CNA's retained risk.
(7)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE D. Reinsurance -(Continued):
The ceding of insurance does not discharge the primary liability of the
original insurer. CNA places reinsurance with other carriers only after
careful review of the nature of the contract and a thorough assessment of
the reinsurers' credit quality and claim settlement performance. Further,
for carriers that are not authorized reinsurers in Illinois (Continental
Casualty Company's state of domicile), CNA receives collateral primarily in
the form of bank letters of credit, securing a large portion of the
recoverables. At June 30, 1994, such collateral totaled approximately $162
million. CNA's largest recoverable from a single reinsurer, including
prepaid reinsurance premiums, at June 30, 1994, was approximately $432
million with Lloyd's of London. The recoverable from Lloyd's of London is
dispersed among thousands of individual members who have unlimited
liability, most of which are Illinois authorized reinsurers.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
- - -
Written Premium
(In millions of dollars) Direct Assumed Ceded Net Direct Assumed Ceded Net
- - -------------------------------------------------------------------------------------------------------------
- - -
Six Months Ended June 30 1994 1993
-------------------------------------
- - ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 259.9 57.8 11.9 305.8 198.2 79.6 10.2
267.6
Short Duration Contracts 4,075.8 728.0 314.0 4,489.8 3,696.1 631.0 251.9
4,075.2
------- ----- ----- ------- ------- ----- -----
- - -------
Total $4,335.7 785.8 325.9 4,795.6 3,894.3 710.6 262.1
4,342.8
======= ===== ===== ======= ======= ===== =====
=======
Second Quarter Ended June 30 1994 1993
-------------------------------------
- - ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 139.2 31.0 6.4 163.8 100.6 46.8 5.6
141.8
Short Duration Contracts 1,968.4 382.8 162.2 2,189.0 1,923.3 318.1 114.0
2,127.4
------- ----- ----- ------- ------- ----- -----
- - -------
Total $2,107.6 413.8 168.6 2,352.8 2,023.9 364.9 119.6
2,269.2
======= ===== ===== ======= ======= ===== =====
=======
- - -------------------------------------------------------------------------------------------------------------
- - -
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
- - -
Earned Premium
(In millions of dollars) Direct Assumed Ceded Net Direct Assumed Ceded Net
- - -------------------------------------------------------------------------------------------------------------
- - -
Six Months Ended June 30 1994 1993
------------------------------------
- - ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 223.2 57.8 11.9 269.1 167.1 76.6 10.2
233.5
Short Duration Contracts 3,996.3 709.1 298.7 4,406.7 3,646.6 571.7 250.3
3,968.0
------- ----- ----- ------- ------- ----- -----
- - -------
Total $4,219.5 766.9 310.6 4,675.8 3,813.7 648.3 260.5
4,201.5
======= ===== ===== ======= ======= ===== =====
=======
Second Quarter Ended June 30 1994 1993
------------------------------------
- - -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 117.9 31.0 6.4 142.5 88.0 44.3 5.6
126.7
Short Duration Contracts 1,991.7 368.4 135.7 2,224.4 1,748.8 353.6 112.4
1,990.0
------- ----- ----- ------- ------- ----- -----
- - -------
Total $2,109.6 399.4 142.1 2,366.9 1,836.8 397.9 118.0
2,116.7
======= ===== ===== ======= ======= ===== =====
=======
- - -------------------------------------------------------------------------------------------------------------
- - -
</TABLE>
Insurance claims and policyholders' benefits are net of reinsurance
recoveries of $259.8 million and $159.4 million for the six months ending
June 30, 1994 and 1993, respectively.
(8)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE E. Legal Proceedings and Contingent Liabilities:
The following information updates legal proceedings and contingent
liabilities reported in Note J of the Notes to the Consolidated Financial
Statements in the 1993 Annual Report to Shareholders and Form 10-Q for the
first quarter ended March 31, 1994.
Fibreboard Litigation
CNA's primary property/casualty subsidiary, Continental Casualty Company
("Continental"), is party to litigation with Fibreboard Corporation
("Fibreboard") involving coverage for certain asbestos-related claims and
defense costs (San Francisco Superior Court, Judicial Council Coordination
Proceeding 1072). As described below, Continental, Fibreboard, another
insurer (Pacific Indemnity, a subsidiary of the Chubb Corporation), and a
negotiating committee of asbestos claimant attorneys have reached a Global
Settlement (the "Global Settlement") to resolve all future asbestos-related
bodily injury claims involving Fibreboard. Continental, Fibreboard and
Pacific Indemnity have also reached an agreement, which is subject to court
approval, (the "Trilateral Agreement") on a settlement to resolve the
coverage litigation in the event the Global Settlement does not obtain final
court approval. The implementation of the Global Settlement or the
Trilateral Agreement would have the effect of settling Continental's
litigation with Fibreboard.
On July 29, 1994 the United States District Court for the Eastern
District of Texas preliminarily approved the Global Settlement agreement,
and further ordered that a final fairness hearing be held on December 12,
1994, to determine whether to finally approve the Global Settlement
agreement. CNA and other parties to the Global Settlement agreement will be
initiating a comprehensive communication program in August 1994 to ensure
that all potential claimants have notice of their rights and possible
benefits under the Global Settlement.
<PAGE>
<PAGE>
Coverage Litigation
Between 1928 and 1971, Fibreboard manufactured insulation products
containing asbestos. Since the 1970's, thousands of claims have been filed
against Fibreboard by individuals claiming bodily injury as a result of
asbestos exposure.
Continental insured Fibreboard under a comprehensive general liability
policy between May 4, 1957 and March 15, 1959. Fibreboard disputed the
coverage positions taken by its insurers and, in 1979, Fireman's Fund,
another of Fibreboard's insurers, brought suit with respect to coverage for
defense and indemnity costs. In January 1990, the San Francisco Superior
Court (Judicial Council Coordination Proceeding 1072) rendered a decision
against the insurers including Continental and Pacific Indemnity. The court
held that the insurers owed a duty to defend and indemnify Fibreboard for
certain of the asbestos-related bodily injury claims asserted against
Fibreboard (in the case of Continental, for all claims involving exposure to
Fibreboard's asbestos products if there was exposure to asbestos at any time
prior to 1959 including years prior to 1957, regardless of when the claims
were asserted or injuries manifested) and that the policies contained no
aggregate limit of liability in relation to such claims. The judgment was
appealed.
(9)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The Court of Appeal entered an opinion on November 15, 1993, as modified
on December 13, 1993, which substantially affirmed the lower court's
decisions on scope of coverage and trigger of coverage issues, as described
below. The Court of Appeal withheld its ruling on the issues discrete to
Continental and Pacific Indemnity pending final court approval of either the
Global Settlement or the Trilateral Agreement described below. On
January 27, 1994, the California Supreme Court granted a Petition for Review
filed by several insurers, including Continental, of, among other things,
the trigger and scope of coverage issues. The order granting review has no
effect on the Court of Appeal's order severing the issues unique to
Continental and Pacific Indemnity. Continental cannot predict the time frame
within which the issues before the California Supreme Court may be resolved.
If neither the Global Settlement nor the Trilateral Agreement is approved,
it is anticipated that Continental and Pacific Indemnity will resume the
appeal process. Continental's appeal of the coverage judgment raises
many legal issues. Key issues on appeal under the policy are trigger
of coverage, scope of coverage, dual coverage requirements and number of
occurrences:
. The trial court adopted a continuous trigger of coverage
theory under which all insurance policies in effect at any
time from first exposure to asbestos until the date of the
claim filing or death are triggered. The Court of Appeal
endorsed the continuous trigger theory, but modified the
ruling to provide that policies are triggered by a
claimant's first exposure to the policyholder's products,
as opposed to the first exposure to any asbestos product.
Therefore, an insurance policy is not triggered if a
claimant's first exposure to the policyholder's product
took place after the policy period. The court, however,
placed the burden on the insurer to prove the claimant was
not exposed to its policyholder's product before or during
the policy period. The trigger of coverage issue is now on
appeal to the California Supreme Court.
Continental's position is that its policy is triggered
under California law by manifestation of appreciable harm.
The bodily injury cannot be said to occur within the
meaning of the policy until actual physical symptoms and
associated functional impairment manifest themselves. Thus,
Continental's position is that if existing California law
were applied, there would be no coverage under
Continental's policy.
<PAGE>
<PAGE>
. The scope of coverage decision imposed a form of "joint and
several" liability that makes each triggered policy liable
in whole for each covered claim, regardless of the length
of the period the policy was in effect. This decision was
affirmed by the Court of Appeal, and is now on appeal to
the California Supreme Court. Continental's position is
that liability for asbestos claims should be shared not
jointly, but severally and on a pro rata basis between the
insurers and insured. Under this theory, Continental would
only be liable for that proportion of the bodily injury
that occurred during the 22-month period its policy was in
force.
. Continental maintains that both the occurrence and the
injury resulting therefrom must happen during the policy
period for the policy to be triggered. Consequently, if the
court holds that the occurrence is exposure to asbestos,
Continental's position is that coverage under the
Continental policy is restricted to those who actually
inhaled Fibreboard asbestos fibers and suffered injury from
May 4, 1957 to March 15, 1959. The Court of Appeal withheld
ruling on this issue, as noted above.
(10) <PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
. Continental's policy had a $1 million per occurrence limit.
Continental contends the number of occurrences under
California law must be determined by the general cause of
the injuries, not the number of claimants, and that the
cause of the injury was the continuous sale and manufacture
of the product. Because the manufacture and sale proceeded
from two locations, Continental maintains that there were
only two occurrences and thus only $2 million of coverage
under the policy. However, the per occurrence limit was
interpreted by the trial court to mean that each claim
submitted by each individual constituted a separate
occurrence. The Court of Appeal withheld ruling on this
issue, as noted above.
Under various reinsurance agreements, Continental has asserted a right to
reimbursement for a portion of its potential exposure to Fibreboard. The
reinsurers have disputed Continental's right to reimbursement and have taken
the position that any claim by Continental is subject to arbitration under
provisions in the reinsurance agreement. A Federal court has ruled that the
dispute must be resolved by arbitration. There can be no assurance that
Continental will be successful in obtaining a recovery under its reinsurance
agreements.
On April 9, 1993, Continental and Fibreboard entered into an agreement
pursuant to which, among other things, the parties agreed to use their best
efforts to negotiate and finalize a global class action settlement with
asbestos-related bodily injury and death claimants.
Through June 30, 1994, Continental, Fibreboard and plaintiff attorneys
had reached settlements with respect to approximately 127,500 claims,
subject to resolution of the coverage issues, for a maximum settlement
amount of approximately $1.48 billion. If neither the Global Settlement nor
the Trilateral Agreement receive final court approval, Continental's
obligation to pay under all settlements will be partially subject to the
results of the pending appeal in the coverage litigation. Minimum amounts
payable under all such agreements, regardless of the outcome of coverage
litigation, total approximately $695.6 million, of which $352.7 million was
paid through June 30, 1994. Continental may negotiate other agreements with
various classes of claimants including groups who may have previously
reached agreement with Fibreboard.
Continental will continue to pursue its appeals in respect of the
coverage litigation and all other litigation involving Fibreboard if the
Global Settlement or the Trilateral Agreement cannot be implemented.
<PAGE>
<PAGE>
Global Settlement
On August 27, 1993, Continental, Pacific Indemnity, Fibreboard and a
negotiating committee of asbestos claimant attorneys reached an agreement in
principle for an omnibus settlement to resolve all future asbestos-related
bodily injury claims involving Fibreboard. The Global Settlement was
executed on December 23, 1993. The agreement calls for contribution by
Continental and Pacific Indemnity of an aggregate of $1.525 billion to a
trust fund for a class of all future asbestos claimants, defined generally
as those persons whose claims against Fibreboard were neither filed nor
settled on or before August 27, 1993. An additional $10 million is to be
contributed to the fund by Fibreboard. The Global Settlement is subject to
court approval and possible appeals. As noted below, there is limited
precedent with settlements which determine the rights of future claimants to
seek relief.
(11)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Subsequent to the announcement of the agreement in principle,
Continental, Fibreboard and Pacific entered into the Trilateral Agreement
which sets forth the parties' obligations in the event the Global Settlement
is not approved by the court. In such case, Continental and Pacific would
contribute to a settlement fund an aggregate of $2 billion, less certain
adjustments. Such fund would be devoted to the payment of Fibreboard's
asbestos liabilities other than liabilities in respect of previously settled
claims. Continental's share of such fund would be $1.44 billion reduced by a
portion of an additional payment of $635 million which Pacific Indemnity has
agreed to pay in respect of unsettled present claims and previously settled
claims. Continental has agreed that if either the Global Settlement or the
Trilateral Agreement is approved, it will assume responsibility for the
claims that had been settled and paid on or before August 27, 1993. A
portion of the additional $635 million to be contributed by Pacific
Indemnity would be applied to the payment of such claims as well. As a part
of the Global Settlement and the Trilateral Agreement, Continental would be
released by Fibreboard from any further liability under the comprehensive
general liability policy written for Fibreboard by Continental, including
but not limited to liability for asbestos-related claims against Fibreboard.
The Trilateral Agreement is subject to court approval and possible appeals.
Continental and Fibreboard have entered into a supplemental agreement
(the "Supplemental Agreement") which governs the interim arrangements and
obligations between the parties until such time as the Global Settlement is
either approved or disapproved by the court and also governs certain
obligations between the parties in the event the Global Settlement is
approved, including the payment of present claims which had been filed or
settled and not included in the Global Settlement.
In addition, Continental and Pacific Indemnity have entered into an
agreement (the "Continental-Pacific Agreement") which sets forth the
parties' agreement with respect to the means for allocating among themselves
responsibility for payments arising out of the Fibreboard insurance policies
whether or not the Global Settlement or the Trilateral Agreement is
approved. Under the Continental-Pacific Agreement, Continental and Pacific
Indemnity have agreed to pay 64.71% and 35.29%, respectively, of the $1.525
billion plus expenses and interest accrued in escrow to be used to satisfy
the claims of future claimants. If neither the Global Settlement nor the
Trilateral Agreement is approved, Continental and Pacific Indemnity would
share, in the same percentages, most but not all liabilities and costs of
either insurer including, but not limited to, liabilities in respect of
unsettled present claims and presently settled claims. If either the
Trilateral Agreement or the Global Settlement is approved by the court,
Pacific Indemnity's share for unsettled present claims and presently settled
claims will be $635 million.
<PAGE>
<PAGE>
Reserves
In the fourth quarter of 1992, Continental increased its reserve with
respect to potential exposure to asbestos-related bodily injury cases by
$1.5 billion. In connection with the agreement in principle announced on
August 27, 1993, Continental added $500 million to such claim reserve. The
Fibreboard litigation represents the major portion of Continental's
asbestos-related claim exposure.
There are inherent uncertainties in establishing a reserve for complex
litigation of this type. Courts have tended to impose joint and several
liability, and because the number of manufacturers who remain potentially
liable for asbestos-related injuries has diminished on account of
bankruptcies, as has the potential number of insurers due to operation of
policy limits, the liability of the remaining defendants is difficult to
estimate. Further, a recent trend by courts to consolidate like cases into
mass tort trials limits the discovery ability of insurers, generally does
not allow for individual claim adjudication, restricts the identification of
appropriate allocation methods and thereby results in an increasing
likelihood for fraud
(12)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
and disproportionate and potentially excessive judgments. Additionally,
management believes that recent court decisions would appear to be based on
social or other considerations irrespective of the facts and legal issues
involved.
The Global Settlement and the Trilateral Agreement are subject to court
approval. There is limited precedent with settlements which determine the
rights of future claimants to seek relief. It is extremely difficult to
assess the magnitude of Continental's potential liability in respect of such
future claimants if neither the Global Settlement nor the Trilateral
Agreement is approved and upheld, keeping in mind that Continental's
potential liability is limited to persons exposed to asbestos prior to the
termination of the policy in 1959.
Projections by experts of future trends differ widely, based upon
different assumptions with respect to a host of complex variables. Some
recently published studies, not specifically related to Fibreboard, conclude
that the number of future asbestos-related bodily injury claims against
asbestos manufacturers could be several times the number of claims brought
to date. Such studies include claims asserted against asbestos manufacturers
for all years, including claims filed or projected to be filed in respect of
periods after 1959. As indicated above, Continental, Fibreboard and
plaintiff attorneys have reached settlements with respect to approximately
127,500 claims, subject to the resolution of coverage issues. Such amount
does not include presently pending or unsettled claims, claims previously
dismissed or claims settled pursuant to agreements to which Continental is
not a party.
Another aspect of the complexity in establishing a reserve arises from
the widely disparate values that have been ascribed to claims by courts and
in the context of settlements. Under the terms of a settlement reached with
plaintiff counsel in August 1993, the expected settlement for approximately
49,500 claims for exposure to asbestos prior to 1959 is currently averaging
approximately $12,900 per claim for claims processed through June 30, 1994.
Based on reports by Fibreboard, since September 1988, Fibreboard resolved
approximately 40,000 claims, approximately 45% of which involved no cost to
Fibreboard other than defense costs, with the remaining claims involving the
payment of approximately $11,000 per claim. On the other hand, a trial
court in Texas in 1990 rendered a verdict in which Fibreboard's liability in
respect of 2,300 claims was found to be approximately $310,000 per claim
including interest and punitive damages. Fibreboard entered into a
settlement of such claims by means of an assignment of its potential
proceeds from its policy with Continental. Continental intervened and
settled these claims for approximately $77,000 on average, with a portion of
the payment contingent on approval of the Global Settlement or the
Trilateral Agreement, and if neither is approved, subject to resolution of
the coverage appeal.
<PAGE>
<PAGE>
Continental believes that as a result of the Global Settlement and the
Trilateral Agreement it has greatly reduced the uncertainty of its exposure
with respect to the Fibreboard matter. However, if neither the Global
Settlement, nor the Trilateral Agreement is approved and upheld, in light of
the factors discussed herein the range of Continental's potential liability
cannot be meaningfully estimated and there can be no assurance that the
reserves established would be sufficient to pay all amounts which ultimately
could become payable in respect of asbestos-related bodily injury
liabilities.
While it is possible that the ultimate outcome of this matter could have
a material adverse impact on the equity of the Company, management does not
believe that a further loss material to equity is probable. Management will
continue to monitor the potential liabilities with respect to asbestos-
related bodily injury claims and will make adjustments to the claim reserves
if warranted.
(13)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Environmental Pollution
Potential exposures exist for claims involving environmental pollution,
including toxic waste clean-up. Environmental pollution clean-up is the
subject of both federal and state regulation. By some estimates, there are
thousands of potential waste sites subject to clean-up. The insurance
industry is involved in extensive litigation regarding coverage issues.
Judicial interpretations in many cases have expanded the scope of coverage
and liability beyond the original intent of the policies.
Under federal regulation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("Superfund") governs the clean-up
and restoration of abandoned toxic waste sites and formalizes the concept of
legal liability for clean-up and restoration by "Potentially Responsible
Parties" ("PRP's"). Superfund establishes a mechanism to pay for clean-up of
waste sites if PRP's fail to do so, and to assign liability to PRP's. The
extent of liability to be allocated to a PRP is dependent on a variety of
factors. Further, the number of waste sites subject to clean-up is unknown.
To date, approximately 1,300 clean-up sites have been identified by the
Environmental Protection Agency. On the other hand, the Congressional Budget
Office is estimating that there will be 4,500 National Priority List sites,
and other estimates project as many as 30,000 sites will require clean-up.
Very few sites have been subject to clean-up to date. The extent of clean-up
necessary and the assignment of liability has not been established.
CNA and the insurance industry are disputing coverage for many such
claims. Key coverage issues include whether Superfund response costs are
considered damages under the policies, trigger of coverage, applicability of
pollution exclusions, the potential for joint and several liability and
definition of an occurrence. Similar coverage issues exist for clean-up of
waste sites not covered under Superfund. To date, courts have been
inconsistent in their rulings on these issues.
The Superfund legislation must be reauthorized in 1994. A number of
proposals to reform Superfund have been made by various parties. It is too
early to determine the future impact of these proposals on CNA and the
insurance industry.
Due to the inherent uncertainties described above, including the
inconsistency of court decisions, the number of waste sites subject to
clean-up, and the standards for clean-up and liability, the exposure to CNA
for environmental pollution claims cannot be meaningfully quantified. CNA
identified reserves only for reported environmental pollution claims. In
1993, CNA allocated approximately $340 million of claim and claim expense
reserves for unreported environmental pollution claims in addition to the
$94 million of reserves recorded for reported claims. At June 30, 1994,
reserves for reported and unreported claims were $98 million and $335
million, respectively. Claim and claim expense reserves represent
management's estimates of ultimate liabilities based on currently available
facts and law. However, in addition to the uncertainties previously
discussed, additional issues related to, among other things, specific policy
provisions, multiple insurers and allocation of liability among insurers,
consequences of conduct by the insured, missing policies and proof of
coverage make quantification of liabilities exceptionally difficult and
subject to later adjustment based on new data.
(14)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
The number of claims filed for environmental pollution coverage continues
to increase. Approximately 1,125 claims were reported in the first six
months of 1994 and approximately 20,300 claims have been reported to date.
Pending claims totaled approximately 10,600 at both June 30, 1994 and
December 31, 1993. Approximately 9,700 claims were closed through June 30,
1994, of which approximately 8,700 claims were settled without payment,
except for claim expenses of $24 million. Settlements for the remaining
1,000 claims totaled $113 million, plus claim expenses of $27 million.
Reserve development for environmental claims totaled $54 million and $38
million for the six months ended June 30, 1994 and 1993. The results of
operations in future years may continue to be adversely affected by
environmental pollution claims and claim expenses. Management will continue
to monitor potential liabilities and make further adjustments as warranted.
Other Litigation
CNA and its subsidiaries are also parties to other litigation arising in
the ordinary course of business. The outcome of this other litigation will
not, in the opinion of management, materially affect the results of
operations or equity of CNA.
(15)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto found on pages
3 to 15, which contain additional information helpful in evaluating
operating results and financial condition.
Results of Operations:
The following chart summarizes key components of operating results for
the second quarter and six months ended June 30, 1994 and 1993.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
Period Ended June 30 Second Quarter Six Months
(In millions of dollars) 1994 1993 1994 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Summary (excluding
realized investment gains/losses):
Revenues:
Premiums:
Property/Casualty $1,703.0 $1,537.2 $3,327.9 $3,007.7
Life 663.9 579.5 1,347.9 1,193.8
------- ------- ------- -------
2,366.9 2,116.7 4,675.8 4,201.5
Net investment income 384.1 328.8 730.4 675.1
Other 56.3 42.4 111.3 89.1
------- ------- ------- -------
2,807.3 2,487.9 5,517.5 4,965.7
Benefits and expenses 2,821.9 2,575.5 5,603.9 5,097.5
------- ------- ------- -------
Operating loss before income tax (14.6) (87.6) (86.4) (131.8)
Income tax benefit 32.3 74.9 87.3 143.6
------- ------- ------- -------
Net operating income (loss) $ 17.7 $ (12.7) $ 0.9 $ 11.8
======= ======= ======= =======
<PAGE>
<PAGE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
Period Ended June 30 Second Quarter Six Months
(In millions of dollars) 1994 1993 1994 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Supplemental Financial Data:
Net operating income (loss) by group:
Property/Casualty $ 7.3 $ (18.2) $ (13.0) $ 0.6
Life 22.3 12.7 37.4 24.0
Other (11.9) (7.2) (23.5) (12.8)
------- ------- ------- -------
17.7 (12.7) 0.9 11.8
------- ------- ------- -------
Net realized investment gains (losses)
by group:
Property/Casualty (40.9) 64.1 (82.9) 328.7
Life (11.6) 23.5 (30.8) 41.8
Other (1.4) (0.1) (1.5) 6.1
------- ------- ------- -------
(53.9) 87.5 (115.2) 376.6
------- ------- ------- -------
Net income (loss) by group:
Property/Casualty (33.6) 45.9 (95.9) 329.3
Life 10.7 36.2 6.6 65.8
Other (13.3) (7.3) (25.0) (6.7)
------- ------- ------- -------
$ (36.2) $ 74.8 $ (114.3) $ 388.4
================================================================================
==========================
</TABLE>
Overview
- - --------
Consolidated revenues were $5.3 billion for the first half of 1994,
compared to revenues of $5.5 billion for the same period in 1993. For the
second quarter of 1994, consolidated revenues were $2.7 billion, compared to
$2.6 billion for the comparable quarter in 1993.
Consolidated revenues, excluding realized investment losses, were up
11.1 percent to $5.52 billion in the first half compared to $4.97 billion
for the first six months of 1993. For the second quarter of 1994
consolidated revenues were up 12.8 percent to $2.81 billion compared to
$2.49 billion for the second quarter of 1993.
CNA incurred a net loss of $114.3 million, or $1.89 per share, for the
first six months of 1994, compared to net income of $388.4 million, or $6.25
per share, for the first six months of 1993.
(16)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
Net operating income for the first six months of 1994, excluding net
realized investment losses, was $0.9 million, or a loss of $.02 per share,
after preferred dividends of $2.5 million, compared to net operating income
of $11.8 million, or $.16 per share, for the first six months of 1993. CNA
incurred pre-tax catastrophe losses of approximately $166 million in the
first half of 1994 compared to $45 million in the first six months of 1993.
The catastrophe claims stem principally from the California earthquake and
severe winter storms throughout the northeastern part of the United States.
Net realized investment losses for the first half of 1994 were $115.2
million, or $1.87 per share, compared to net realized investment gains for
the first half of 1993 of $376.6 million, or $6.09 per share. Net realized
investment losses for the second quarter of 1994 amounted to $53.9 million,
or $.88 per share, compared to net realized investment gains of $87.5
million, or $1.41 per share, for the comparable quarter in 1993. The
realized investment losses are principally the result of repositioning the
portfolios to longer maturities, primarily in government bonds, in order to
improve future overall investment returns. In the first quarter of 1993,
CNA realigned its portfolio which resulted in realized gains in its
investment portfolio that increased Continental Casualty Company's
(Casualty) surplus. This realignment also reduced the concentration of tax-
exempt securities to more quickly utilize the alternative minimum tax credit
carryforward generated in 1992. (See also the discussion under
"Investments" herein.)
CNA's total income tax benefit for the six months ended June 30, 1994
amounted to $143.2 million compared to an expense of $52.6 million for the
same period in 1993. CNA's income tax benefit excluding realized investment
gains/losses amounted to $87.3 million for the six months ended June 30,
1994, compared to $143.6 million in the first half of 1993. The income tax
benefit on realized investment losses for the first half of 1994, totaled
$55.9 million compared with an income tax expense of $196.2 million for the
same period a year ago.
The factors that depressed earnings last year in much of the insurance
industry did not change significantly in the first half of 1994. These include
the prolonged soft market in commercial property/casualty lines and a lower
interest rate environment.
The U.S. property/casualty industry had a net after-tax loss of $1.2
billion in the first quarter of 1994, primarily because of record-breaking
catastrophe losses estimated at $6.5 billion. In spite of these losses,
there have not been substantial increases in rates, except in certain
geographic regions and lines of property insurance. In addition, complex and
costly litigation has been continuing, fueled by the tendency of the courts
to interpret insurance contracts beyond their stated intent.
<PAGE>
<PAGE>
On a more positive note, the workers' compensation environment has
improved in some states, largely because of reform legislation that CNA
actively supported. In life insurance, pricing has become more disciplined,
particularly in setting rates for interest-sensitive products. Considerable
uncertainty surrounds the health insurance marketplace because of
legislative proposals for national health care reform. Still, the upward
spiral in health care costs has diminished in the past 18 months, largely
through the efforts of insurers and employers.
In this challenging environment, CNA remains among the strongest and
most competitive multiline organizations in the insurance industry. During
the first half of 1994, CNA took action on many fronts to become even more
competitive in our various businesses.
(17)
<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
One of these has been to continue to focus on the risk characteristics
and premium rates in commercial lines. CNA will continue to seek business
in lines where it has a sizable market share, substantial experience, and
foresees clear profit potential over the long term. At the same time,
however, the emphasis is on reasonable rates rather than volume growth.
Net operating income for the life group increased, although negatively
affected by intense competition and high health care costs which have
resulted in a continued market shift away from traditional indemnity forms
of health coverage toward managed care products. The Federal Government's
initiative to control health care costs and provide universal access to
quality health care may impact both individual and group accident and
health, workers' compensation, automobile liability and medical malpractice
businesses of CNA. With national health care still the subject of intense
debate, CNA advocates a responsible role for the insurance industry in any
program that may be adopted. CNA believes the public is best served by a
system that relies on the private sector's competence and competitiveness
rather than on rigid, governmental dictates. CNA's ability to compete in
this market will be increasingly dependent on its ability to control costs
through managed care techniques, innovation, and quality customer-focused
service in order to properly position CNA in the evolving health care
environment.
Each of CNA's strategic business units are increasing management
accountability and sharpening the focus on the customer. Greater authority
and accountability for employees at all levels is improving productivity
and responsiveness to agents, insureds and claimants. CNA has also begun to
re-engineer many business processes, and continues to invest in new
automation tools and training.
In addition to these company wide initiatives, CNA is moving forward
with actions to improve its position in existing businesses and increase the
long-term value of its total operation. CNA also is pursuing opportunities
in new marketing areas, expanding alternative marketing capabilities, and
working with partners in strategic alliances whose business focus
complements our own.
CNA continues to emphasize strong business relationships with its
independent agents and brokers. CNA's preferred agent programs and agency-
company advisory councils are integral to its marketing strategies.
CNA is working closely with business insureds to help them reduce their
claims costs, especially in the workers' compensation area. Several pilot
programs have demonstrated the success of this approach in significantly
decreasing our customers' medical and disability loss costs.
CNA continues to develop alternative market strategies in response to
interest among large commercial insureds in purchasing loss control and
claims services unbundled from the insurance contract. Product and
processing improvements for personal lines will help the Company respond
more flexibly to the needs of its customers. In addition, new service teams
are enhancing satisfaction among agents and insureds with our policy and
claims service.
<PAGE>
<PAGE>
The Company is pursuing new opportunities in professional liability,
managed care liability, environmental remediation, financial institution
insurance, catastrophe reinsurance and excess workers' compensation
insurance. CNA's financial strength, expertise and reputation for stability
add up to a solid competitive advantage in these more specialized lines of
property/casualty insurance.
(18)
<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
A new Life Operations Department was formed to increase CNA's presence
and profitability in the individual life and health marketplace. The
distribution organization was restructured to sharpen its competitive edge,
widen the network, and reduce operating costs.
As described in Note E in the Notes to Consolidated Financial
Statements, Casualty has greatly reduced a major source of financial
uncertainty by reaching a Global Settlement to resolve all future asbestos-
related bodily injury claims involving Fibreboard Corporation (Fibreboard),
a former asbestos manufacturer. The agreement, executed in December 1993,
was reached with Fibreboard, Pacific Indemnity Company (Pacific) (a
subsidiary of the Chubb Corporation) and a negotiating committee of asbestos
claimant attorneys. The agreement calls for Casualty and Pacific to
contribute an aggregate of $1.525 billion to a trust fund for a class of all
future asbestos claimants. CNA funded its obligations under the agreement
by depositing approximately $1.0 billion into an escrow account at the end
of 1993. The escrow account is included in the short-term investment
portfolio. CNA believes the reserves established pursuant to this agreement
will be sufficient to cover all asbestos-related Fibreboard claims. While
the Fibreboard agreement must receive court approval and meet other
conditions, settlement of this litigation substantially reduces the
uncertainty about CNA's exposure to future asbestos-related liabilities. On
July 29, 1994 the United States District Court for the Eastern District of
Texas preliminarily approved the Global Settlement agreement, and further
ordered that a final fairness hearing be held on December 12, 1994, to
determine whether to finally approve the Global Settlement agreement. CNA
and other parties to the Global Settlement agreement will be initiating a
comprehensive communication program in August 1994 to ensure that all
potential claimants have notice of their rights and possible benefits under
the Global Settlement.
<PAGE>
<PAGE>
Property/Casualty Operations
- - ----------------------------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
Property/Casualty Group Second Quarter Six Months
Period Ended June 30 1994 1993 1994 1993
(In millions of dollars)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Summary (excluding realized
investment gains/losses):
Revenues:
Premiums: $1,703.0 $1,537.2 $3,327.9 $3,007.7
Net investment income 304.2 262.7 581.8 543.7
Other 42.7 34.1 87.5 69.9
------- ------- ------- -------
2,049.9 1,834.0 3,997.2 3,621.3
Benefits and expenses 2,080.7 1,928.4 4,105.2 3,768.9
------- ------- ------- -------
Operating loss before income tax (30.8) (94.4) (108.0) (147.6)
Income tax benefit 38.1 76.2 95.0 148.2
------- ------- ------- -------
Net operating income (loss) (excluding
realized investment gains/losses) $ 7.3 $ (18.2) $ (13.0) $ 0.6
================================================================================
====================
</TABLE>
Property/casualty revenues, excluding net realized investment
gains/losses, increased 10.4% and 11.8% for the six months and three months
ended June 30, 1994, respectively, compared to the same periods a year ago.
Property/casualty earned premium increased $320 million, or 10.6% and $166
million, or 10.8% from the prior years comparable periods. The increases
were principally attributable to increases in commercial affiliation
marketing, professional liability, and treaty reinsurance.
Pretax operating losses excluding net realized investment gains/losses
for the property/casualty insurance subsidiaries were $108.0 million and
$30.8 million for the six and three months ended June 30, 1994 compared to
$147.6 million and $94.4 million for the same periods a year ago.
(19)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
Investment income increased 7.0% and 15.8% for the six and three months
ended June 30, 1994 to $581.8 million and $304.2 million, respectively when
compared with the comparable periods a year ago. Investment income increased
primarily due to the change in portfolio mix from shorter term securities to
longer maturities, primarily in government bonds mentioned previously.
Underwriting losses for the six and three months ended June 30, 1994, were
$689.8 million and $335.0 million compared to $691.3 million and $357.1
million for the same periods in 1993. The statutory combined ratio for the
six and three months ended June 30, 1994, were 117.5 and 115.2,
respectively, compared with 121.0 for the same periods in 1993. Catastrophe
losses for the six and three months ended June 30, 1994, were $166 million
and $66 million, respectively, compared with $45 million and $19 million for
the respective periods in 1993.
Net operating income of CNA's property/casualty insurance subsidiaries,
which excludes net realized investment losses, was $7.3 million for the
second quarter of 1994, compared to a loss of $18.2 million for the same
period in 1993. Net realized investment losses for the second quarter of
1994 were $40.9 million, compared to net realized investment gains of $64.1
million in the second quarter of 1993.
For the six months ended June 30, 1994, the property/casualty insurance
subsidiaries incurred a net operating loss of $13.0 million compared to an
operating profit of $0.6 million for the comparable period a year ago. Net
realized investment losses for the first six months of 1994 were $82.9
million, compared to net realized investment gains of $328.7 million in the
first six months of 1993.
Life Operations
- - ---------------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
Life Group Second Quarter Six Months
Period Ended June 30 1994 1993 1994 1993
(In millions of dollars)
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Summary (excluding realized
investment gains/losses):
Revenues:
Premiums: $668.7 $585.6 $1,356.5 $1,203.8
Net investment income 79.1 67.1 148.5 133.4
Other 14.4 8.4 23.6 18.2
----- ----- ------- -------
762.2 661.1 1,528.6 1,355.4
Benefits and expenses 727.9 643.6 1,471.0 1,320.2
----- ----- ------- -------
Operating income before income tax 34.3 17.5 57.6 35.2
Income tax expense (12.0) (4.8) (20.2) (11.2)
----- ----- ------- -------
Net operating income (excluding
realized investment gains/losses) $ 22.3 $ 12.7 $ 37.4 $ 24.0
================================================================================
======================
<PAGE>
<PAGE>
</TABLE>
Life insurance revenues, excluding realized investment losses, were
$1,528.6 million and $762.2 million for the six and three months ended June
30, 1994, up 12.8% and 15.3% respectively, when compared to the same periods
a year ago. Life earned premium was $1,356.5 million and $668.7 million,
for the six and three months ended June 30, 1994, up 12.7% and 14.2%,
respectively with the primary growth in group and pension operations. Life
investment income increased 11.3% and 17.9% for the six and three months
ended June 30, 1994, compared to the comparable periods a year ago primarily
due to the first quarter shift out of short-term investments described
earlier.
Net operating income for the life insurance subsidiaries, excluding net
realized investment gains/losses, was $37.4 million and $22.3 million for
the six and three months of 1994, up 55.8% and 75.6%, respectively from the
$24.0 million and $12.7 million earned for the same periods in 1993. Net
realized investment losses for the first six months and second quarter of
1994 were $30.8 and $11.6 million, respectively, compared to net realized
(20)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
investment gains of $41.8 million and $23.5 million recognized for the same
periods in 1993.
INVESTMENTS:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Summary of General Account Investments | |
at Market Value | |
| Change in |
June 30 December 31 | Unrealized | Realized
(In millions of dollars) 1994 1993 | Gains(Losses)| Gains(Losses)
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed income securities: | |
U. S. Treasury securities and | |
obligations of government | |
agencies $10,388 $ 6,554 | $ (446) | $ (145)
Asset-backed securities 2,413 2,547 | (114) | (44)
Tax exempt securities 4,343 5,015 | (168) | 23
Taxable 3,479 3,491 | (156) | (40)
------ ------ | ------ | ------
Total fixed income securities 20,623 17,607 | (884) | (206)
Stocks 588 508 | (35) | 33
Short-term investments and other 6,875 7,248 | 14 | (9)
------ ------ | ------ | ------
Total investments $28,086 $25,363 | (905) | (182)
====== ====== | |
Participating policyholders' interest | 32 | 11
Income tax benefits | 321 | 56
| ------ | ------
Net investment losses | $ (552) | $ (115)
| ====== | ======
- - -----------------------------------------------------------------------------------------------
</TABLE>
CNA's general account investment portfolio is managed to maximize
after-tax investment return, while minimizing credit risks with investments
concentrated in high quality securities to support its insurance
underwriting operations.
CNA has the capacity to hold its fixed income portfolio to maturity.
However, securities may be sold as part of CNA's asset/liability strategies
or to take advantage of investment opportunities generated by changing
interest rates, prepayments, tax and credit considerations, or other similar
factors. Accordingly, the fixed income securities are classified as
available for sale.
<PAGE>
<PAGE>
In early 1994, CNA began to reposition its portfolios to longer
maturities. The repositioning of the portfolios was undertaken in order to
improve future overall investment returns. As a result, both the Casualty
and Life Groups shifted out of their short-term portfolios into five and ten
year government securities resulting in a decrease in short-term
investments. Short-term investments (excluding investments relating to
loaned securities) for the Casualty Group decreased from $5.1 billion at
December 31, 1993 to $2.5 billion at June 30, 1994, while the Life Group
decreased from $1.2 billion at December 31, 1993 to $195.7 million at June
30, 1994. These actions were taken in a period of rising interest rates
which resulted in realized losses in the investment portfolio.
(21)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
The components of the net realized investment gains (losses) are as
follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
Realized Investment Gains (Losses)
Six Months Ended June 30
(In millions of dollars) 1994 1993
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Bonds:
U.S. Government $(145.2) $ 63.3
Tax exempt 23.1 305.5
Asset-backed (44.4) 79.3
Taxable (39.2) 74.8
------ -----
Total bonds (205.7) 522.9
Stocks 32.7 50.6
Other (8.9) 6.5
------ -----
Realized investment gains (losses) reported in revenues (181.9) 580.0
Participating policyholders' interest 10.9 (7.2)
Income tax benefit (expense) 55.8 (196.2)
------ -----
Net realized investment gains (losses) $(115.2) $376.6
================================================================================
====
</TABLE>
For the six months ending June 30, 1994, Casualty had sold
approximately $19 billion of fixed income and equity securities, realizing
pre-tax net losses of $131.2 million. Of the $19 billion of securities
sold, approximately $11 billion and $5 billion, respectively, were from the
U.S. Government and asset-backed bond portfolios.
- - ---------------------------------------------------------------------|
Short-term investments: June 30 December 31 |
1994 1993 |
- - ---------------------------------------------------------------------|
Security repurchase collateral $3,886 $ 623 |
Escrow 993 987 |
Other 1,672 5,334 |
----- ----- |
Total short-term investments $6,551 $6,944 |
===== ===== |
- - ----------------------------------------------------------------------
During the first six months of 1994, consolidated investments increased
$2.7 billion to $28.1 billion. This increase is due to a $3.3 billion
increase in collateral related to securities sold under agreements to
repurchase.
<PAGE>
<PAGE>
The general account portfolio consists primarily of high quality
marketable debt securities, approximately 95% of which are rated as
investment grade. At June 30, 1994, tax-exempt securities and short-term
investments excluding collateral for securities sold under repurchase
agreements, comprised approximately 15% and 9%, respectively, of the general
account's total investment portfolio compared to 19% and 28%, respectively,
at December 31, 1993. At June 30, 1994, the major component of the short-
term investment portfolio was approximately $1.7 billion of U.S. Treasury
bills. Collateral for securities sold under repurchase agreements totaled
$3.9 billion and were invested in high-grade commercial paper.
As of June 30, 1994, the market value of CNA's general account
investments in bonds and redeemable preferred stocks was $20.6 billion and
was less than amortized cost by approximately $379 million. This compares
to $504 million of net unrealized investment gains at December 31, 1993.
The unrealized losses are the result of a general increase in interest
rates. For example, interest rates on U.S. government securities due in one
year jumped 190 basis points while the rates on 5 year and 10 year U.S.
government bonds rose 175 and 153 basis points, respectively, from year-end
1993 levels. The gross unrealized investment gains and losses for the fixed
income securities portfolio at June 30, 1994, were $254 million and $633
million, respectively, compared to $564 million and $60 million,
respectively, at December 31, 1993.
(22)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
Net unrealized investment losses on general account bonds at June 30,
1994 include net unrealized losses on high yield securities of $70 million,
compared to net unrealized investment gains of $15 million at December 31,
1993. High yield securities are bonds rated as below investment grade by
bond rating agencies, plus private placements and other unrated securities
which, in the opinion of management, are below investment grade. Market
values of high yield securities in the general account were $1.0 billion at
June 30, 1994, compared to $727 million at December 31, 1993.
At June 30, 1994, total Separate Account cash and investments amounted
to $5.8 billion with taxable debt securities representing approximately 93%
of the separate accounts' portfolio. Approximately 87% of Separate Account
investments are used to fund guaranteed investment contracts (GIC's) for
which Continental Assurance Company guarantees principal and a specified
return to the contract holders. The market value of all fixed income
securities in the GIC portfolio was $4.8 billion compared to $5.4 billion at
December 31, 1993. At June 30, 1994, amortized cost exceeded market value
by approximately $80 million. This compares with market value exceeding
amortized cost by approximately $148 million at December 31, 1993. The
gross unrealized investment gains and losses for the GIC fixed income
securities portfolio at June 30, 1994, were $68 million and $148 million,
respectively.
Market values of high yield securities in the GIC portfolio were $1.3
billion at June 30, 1994, compared to $1.1 billion at December 31, 1993.
Net unrealized investment losses on high yield securities held in such
separate accounts were $52 million at June 30, 1994, compared to net
unrealized investment gains of $56 million at December 31, 1993.
High yield securities generally involve a greater degree of risk than
that of investment grade securities. Expected returns should, however,
compensate for the added risk. The risk is also considered in the interest
rate assumptions in the underlying insurance products. As of June 30, 1994,
CNA's concentration in high yield bonds including separate accounts was
approximately 5.1% of total assets. In addition, CNA's investment in
mortgage loans and investment real estate are substantially below the
industry average, representing less than one quarter of one percent of its
total assets.
Included in CNA's fixed income securities at June 30, 1994 (general and
GIC portfolios) are $4.0 billion of asset-backed securities, consisting of
approximately 54% in collateralized mortgage obligations ("CMO's"), 15% in
corporate asset-backed obligations, and 31% in U.S. Government agency issued
pass-through certificates. The majority of CMO's held are U.S. Government
agency issues, which are actively traded in liquid markets and are priced
monthly by broker-dealers. At June 30, 1994, the market value of asset-
backed securities were less than amortized cost by approximately $124 million
compared to unrealized investment gains of $87 million at December 31, 1993.
CNA limits the risks associated with interest rate fluctuations and
prepayment by concentrating its CMO investments in early planned
amortization classes with wide bands and relatively short principal
repayment windows.
<PAGE>
<PAGE>
Over the last few years, much concern has been raised regarding the
quality of insurance company invested assets. At June 30, 1994, 62% of the
general account's debt securities portfolio was invested in U.S. Government
securities, 19% in other AAA rated securities and 12% in AA and A rated
securities. CNA's GIC fixed income portfolio is comprised of 22% U.S.
Government securities, 17% other AAA rated securities and 20% in AA and A
rated securities. These ratings are primarily from Standard & Poor's (95%
of the general account portfolio and 94% of the GIC portfolio).
(23)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
FINANCIAL CONDITION:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
Financial Position June 30 December 31
(In millions of dollars, except per share data) 1994 1993
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets $45,020.6 $41,912.3
Stockholders' Equity 4,712.5 5,381.1
Unrealized Net Appreciation (Depreciation) Included in Stockholders's Equity (191.8) 360.0
Book Value per Common Share 73.83 84.65
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
CNA's assets increased approximately $3.1 billion to $45.0 billion as
of June 30, 1994. CNA's investment portfolio increased by $2.7 billion from
December 31, 1993 to $28.7 billion at June 30, 1994. These increases were
the result of security lending activity of $3.7 billion where CNA sells
securities to brokers while agreeing to repurchase them at a future date.
During the first six months of 1994, CNA's stockholders' equity
decreased by $668.6 million, or 12.0%, to approximately $4.7 billion. The
major component of this change was a $551.8 million decline in unrealized
net appreciation, primarily related to changes in market values of debt
securities. Debt security carrying values are highly susceptible to changes
in interest rates and were adversely affected as a general rise in interest
rates occurred in the first half of 1994.
The statutory surplus of the property/casualty subsidiaries decreased
8.2% to approximately $3.3 billion. The decrease resulted from the
aforementioned catastrophe losses and net realized investment losses. The
statutory surplus of the life insurance subsidiaries remained at $1.0
billion.
<PAGE>
<PAGE>
Liquidity and Capital Resources:
The liquidity requirements of CNA have been met primarily by funds
generated from operations. The principal operating cash flow sources of
CNA's property/casualty and life insurance subsidiaries are premiums and
investment income. The primary operating cash flow uses are payments for
claims, policy benefits and operating expenses.
For the first six months of 1994, CNA's operating activities generated
net cash flows of $330 million, compared to $711 million for the same period
in 1993. The decrease in cash flows is due primarily to Fibreboard claim
payments, catastrophe claim payments, and a decline in tax recoveries. Net
cash flows are invested in marketable securities. Investment strategies
employed by CNA's insurance subsidiaries consider the cash flow requirements
of the insurance products sold, and the tax attributes of the various types
of marketable investments.
CNA and the insurance industry are exposed to an unknown amount of
liability for environmental pollution, primarily related to toxic waste site
clean-up. Refer to Note E of Notes to Consolidated Financial Statements for
further discussion of environmental pollution exposures.
Accounting Standards:
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 114, "Accounting by
Creditors for Impairment of a Loan." This Statement applies to financial
statements for fiscal years beginning after December 15, 1994. This
Statement will not have a significant impact on CNA.
(24)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-concluded
In April 1994, the FASB issued an exposure draft on "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
This proposed Statement would require expanded disclosures about derivative
financial instruments-futures, forward, swap, or option contracts, or other
financial instruments with similar characteristics. This proposed Statement
would be effective for financial statements issued for fiscal years ending
after December 15, 1994. If adopted, this Statement will not have a
significant impact on CNA.
(25)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Set forth below is information relating to the 1994 Annual Meeting of
Shareholders of CNA Financial Corporation.
The annual meeting was called to order at 11:00 A.M., May 4, 1994. Represented
at the meeting, in person or by proxy, were 60,233,926 shares, approximately
97.5% of the issued and outstanding shares entitled to vote.
The following business was transacted:
Election of Directors
- - ---------------------
Over 99% of the votes cast for directors were votes for the election of the
following directors. The number of votes cast FOR and WITHHELD with respect
to each director were as follows:
Votes For Votes Withheld
--------- --------------
Antoinette Cook Bush 60,024,171 209,755
Dennis H. Chookaszian 60,024,855 209,071
Phillip L. Engel 60,020,924 213,002
Robert P. Gwinn 60,024,601 209,325
Edward J. Noha 60,024,855 209,071
Richard L. Thomas 60,024,855 209,071
James S. Tisch 60,020,940 212,986
Laurence A. Tisch 60,024,827 209,099
Preston R. Tisch 60,020,939 212,987
Marvin Zonis 60,024,824 209,102
Ratification of the Appointment of Independent Certified Public Accountants
- - ---------------------------------------------------------------------------
The appointment of Deloitte & Touche as independent public auditors for the
Company was ratified by a vote of 60,231,416 shares or 99.99% of the shares
voting. 1,266 shares or approximately .002% of the shares voting, were cast
against, and 1,244 shares, or approximately .002% of the shares voting,
abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS:
Description of Exhibit Exhibit Page
---------------------- Number Number
------- ------
(11) Computation of Net Income per Common Share. 11.1 28
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K for the three months ended June 30, 1994.
(26)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
PART II OTHER INFORMATION - Concluded
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 FINANCIAL CORPORATION
-------------------------
Date: August 12, 1994 By: PETER E. JOKIEL
--------------- ---------------------
Peter E. Jokiel
Senior Vice President and
Chief Financial Officer
(27)<PAGE>
<PAGE>
EXHIBIT 11.1
CNA FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Period Ended June 30 Second Quarter Six Months
(In millions, except per share data) 1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------------------------
Earnings per share:
<S> <C> <C> <C> <C>
Net income (loss)................................ $(36.2) $ 74.8 $(114.3) $388.4
Less preferred stock dividends................... 1.4 1.1 2.5 2.1
----- ----- ------ -----
Net income (loss) available to
common stockholders......................... $(37.6) $ 73.7 $(116.8) $386.3
===== ===== ====== =====
Weighted average shares outstanding.............. 61.8 61.8 61.8 61.8
===== ===== ====== =====
Net income (loss) per common share............ $(.61) $ 1.19 $ (1.89) $ 6.25
===== ===== ====== =====
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
(28)
<PAGE>
