<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 September 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 November 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
SEPTEMBER 30, 1994 (Unaudited) and DECEMBER 31, 1993. . . . . . . . . 3
STATEMENT OF CONSOLIDATED OPERATIONS (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 . . . 4
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 . . . . . . . . 5
STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993. .. . . . . . . 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . 26
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT 11.1. COMPUTATION OF NET INCOME PER COMMON SHARE. . . . . . . . . 28
(2)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
September 30 December 31
1994 1993
(In thousands of dollars) (Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities available for sale (cost: $21,777,466 and $17,103,240) . . . . $21,191,325 $17,607,635
Equity securities available for sale (cost: $609,308 and $432,738) . . . . . . 658,968 508,249
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,662 57,641
Real estate (less accumulated depreciation: $3,398 and $3,532) . . . . . . . . 3,097 3,963
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,808 174,006
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,501 67,891
Short-term investments--Note B. . . . . . . . . . . . . . . . . . . . . . . . . 5,851,006 6,943,976
---------- ----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,030,367 25,363,361
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,440 129,631
Insurance receivables:
Reinsurance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,089,669 2,951,664
Other insurance receivables . . . . . . . . . . . . . . . . . . . . . . . . . 3,864,826 3,657,048
Less allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . . (122,432) (117,324)
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031,230 985,383
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,891 245,880
Receivables for securities sold . . . . . . . . . . . . . . . . . . . . . . . . 200,685 387,477
Federal income taxes recoverable (includes $116,919 and $71,774 due from Loews) 125,048 78,512
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,485,511 1,029,657
Property and equipment at cost (less accumulated depreciation: $256,605 and
$219,417) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,557 221,507
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . 172,363 167,292
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,231 271,639
Separate Account business . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,956,818 6,540,557
- ------------------------------------------------------------------------------------------------------------
Total assets $44,821,204 $41,912,284
============================================================================================================
<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET-continued
Liabilities and Stockholders Equity
Liabilities:
Insurance reserves:
Claim and claim expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,519,606 $21,670,202
Future policy benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,950,367 2,753,591
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,803,166 2,556,015
Policyholders' funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498,716 478,616
Participating policyholders' equity . . . . . . . . . . . . . . . . . . . . . . 93,195 141,501
Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . 3,391,355 613,250
Payables for securities purchased . . . . . . . . . . . . . . . . . . . . . . . 325,505 40,070
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911,314 913,279
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727,824 822,126
Separate Account business . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,956,818 6,540,557
---------- ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,179,866 36,531,207
---------- ----------
Commitments and contingent liabilities
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,221,381 4,284,293
Net unrealized investment gains (losses). . . . . . . . . . . . . . . . . . . . (316,824) 360,003
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,516) (2,516)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 4,641,338 5,381,077
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $44,821,204 $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 SEPTEMBER 30 Third Quarter Nine Months
(In thousands of dollars, except per share data) 1994 1993 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Premiums ......................................... $2,406,456 $2,241,236 $7,082,286 $6,442,740
Net investment income ............................ 394,365 316,110 1,124,784 991,174
Realized investment gains (losses) ............... (14,332) 153,685 (196,334) 733,714
Other............................................. 57,772 45,857 169,019 134,957
--------- --------- --------- ---------
2,844,261 2,756,888 8,179,755 8,302,585
--------- ---------- --------- ---------
Benefits and expenses:
Insurance claims and policyholders' benefits ..... 2,119,447 2,571,187 6,421,178 6,526,083
Amortization of deferred acquisition costs........ 364,407 323,914 1,026,009 890,917
Other operating expenses.......................... 319,329 270,890 913,734 835,486
Interest expense.................................. 17,585 9,133 52,840 27,375
--------- --------- --------- ---------
2,820,768 3,175,124 8,413,761 8,279,861
--------- --------- --------- ---------
Income (loss) before income tax................ 23,493 (418,236) (234,006) 22,724
Income tax benefit................................. 31,463 209,933 174,650 157,358
- -----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 54,956 $ (208,303) $ (59,356) $ 180,082
===========================================================================================================
EARNINGS PER SHARE
Net income (loss).................................. $ .87 $ (3.39) $ (1.02) $ 2.86
========= ========= ========= =========
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>
- --------------------------------------------------------------------------------------------
Nine Months Ended September 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................... - - 180,082 - 180,082
Unrealized investment losses. - - - (782) (782)
Preferred dividends.......... - - (3,116) - (3,116)
- --------------------------------------------------------------------------------------------
Balance, September 30, 1993 $302,089 $434,692 $4,197,709 $ 30,981 $4,965,381
============================================================================================
Balance, December 31, 1993..... $302,089 $434,692 $4,284,293 $ 360,003 $5,381,077
Net loss..................... - - (59,356) - (59,356)
Unrealized investment losses. - - - (676,827) (676,827)
Preferred dividends.......... - - (3,556) - (3,556)
- --------------------------------------------------------------------------------------------
Balance, September 30, 1994 $302,089 $434,692 $4,221,381 $(316,824) $4,641,338
============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(5)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Nine Months Ended September 30 1994 1993
(In thousands of dollars)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ (59,356) $ 180,082
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Pretax realized (gains) losses....................... 196,334 (733,714)
Participating policyholders' interest................ (9,925) (1,713)
Amortization of bond discount........................ (64,060) (63,470)
Depreciation......................................... 45,014 32,672
Changes in:
Other insurance receivables....................... (202,670) (18,617)
Reinsurance receivables........................... (138,005) 415,652
Prepaid reinsurance premiums...................... (5,071) (12,180)
Deferred acquisition costs........................ (45,847) (84,271)
Accrued investment income......................... (13,011) 38,491
Insurance reserves................................ 1,305,318 1,007,560
Federal income taxes.............................. (46,536) 209,468
Deferred income taxes............................. (66,590) (148,487)
Reinsurance payables.............................. (27,780) 41,202
Other, net........................................ (123,094) 101,225
------------ -----------
Total adjustments......................... 804,077 783,818
------------ -----------
Net cash provided by operating activities. 744,721 963,900
------------ -----------
Cash flows from investing activities:
Purchases of fixed maturities.......................... (30,339,554) (28,319,542)
Proceeds from fixed maturities:
Sales................................................ 21,997,854 30,580,983
Maturities, calls and redemptions.................... 3,837,635 1,612,223
Purchases of equity securities......................... (618,070) (619,652)
Proceeds from sale of equity securities................ 480,918 579,877
Change in short-term investments....................... 1,218,501 (4,276,441)
Purchases of property and equipment.................... (84,250) (55,675)
Change in securities sold under repurchase agreements.. 2,778,105 (510,862)
Change in other investments............................ (20,499) 23,099
Other, net............................................. 1,336 (1,834)
------------ -----------
Net cash used in investing activities..... (748,024) (987,824)
------------ -----------
</TABLE>
<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS-continued
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Nine Months Ended September 30 1994 1993
(In thousands of dollars)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Dividends paid to preferred shareholders............... (3,404) (3,210)
Receipts from investment contracts credited to
policyholder account balances........................ 27,129 36,934
Return of policyholder account balances on investment
contracts............................................ (18,967) (12,625)
Principal payments on long-term debt................... (2,857) (1,017)
Proceeds from issuance of long-term debt............... 211 4,372
----------- -----------
Net cash provided by financing
activities............................... 2,112 24,454
----------- -----------
Net increase (decrease) in cash........... (1,191) 530
Cash at beginning of period ............................. 129,631 84,120
- -------------------------------------------------------------------------------------
Cash at end of period $ 128,440 $ 84,650
=====================================================================================
Supplemental disclosures of cash flow information:
Cash received (paid):
Interest paid......................................... $ (52,500) $ (35,619)
Federal income tax refunds received................... 72,563 226,848
=====================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(6)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 Securities
and Exchange Commission on March 30, 1994, the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1994 and June 30, 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 balance at September 30, 1994 is
$1,008.0 million. The escrow account is the prefunding mechanism to the
trust fund for future claimants.
NOTE C. New Accounting Standards:
In 1992, the Financial Accounting Standards Board (FASB) 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.
In May 1993, FASB issued SFAS 114, "Accounting by Creditors for Impairment
of a Loan." This Statement applies to financial statements for fiscal years
beginning after December 15, 1994. In October 1994, the FASB issued SFAS 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures" which amends SFAS 114. These Statements will not have a
significant impact on CNA.
<PAGE>
<PAGE>
In October 1994, the FASB issued SFAS 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." This
Statement requires disclosures about derivative financial instruments--futures,
forward, swap, and option contracts, or other financial instruments with
similar characteristics. This Statement will be effective for financial
statements issued for fiscal years ending after December 15, 1994. CNA will
include the required disclosure in its 1994 Annual Report to Shareholders.
(7)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
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.
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
September 30, 1994, such collateral totaled approximately $162 million.
CNA's largest recoverable from a single reinsurer, including prepaid
reinsurance premiums, at September 30, 1994, was approximately $464 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
- ---------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30 1994 1993
-------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 382.5 85.1 19.0 448.6 303.4 109.6 16.8 396.2
Short Duration Contracts 6,306.0 1,030.1 457.0 6,879.1 5,667.6 923.9 374.5 6,217.0
------- ------- ----- ------- ------- ------- ----- -------
Total $6,688.5 1,115.2 476.0 7,327.7 5,971.0 1,033.5 391.3 6,613.2
======= ======= ===== ======= ======= ======= ===== =======
Quarter Ended September 30 1994 1993
-------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 122.7 27.2 7.0 142.9 105.3 29.9 6.6 128.6
Short Duration Contracts 2,121.4 302.2 143.1 2,280.5 1,971.3 293.0 122.5 2,141.8
------- ------- ----- ------- ------- ----- ----- -------
Total $2,244.1 329.4 150.1 2,423.4 2,076.6 322.9 129.1 2,270.4
======= ======= ===== ======= ======= ===== ===== =======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Earned Premium
(In millions of dollars) Direct Assumed Ceded Net Direct Assumed Ceded Net
- ---------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30 1994 1993
-------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 315.9 85.1 19.0 382.0 253.6 106.2 16.8 343.0
Short Duration Contracts 6,127.0 1,025.2 451.9 6,700.3 5,609.3 852.6 362.2 6,099.7
------- ------- ----- ------- ------- ----- ----- -------
Total $6,442.9 1,110.3 470.9 7,082.3 5,862.9 958.8 379.0 6,442.7
======= ======= ===== ======= ======= ===== ===== =======
Quarter Ended September 30 1994 1993
-------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Duration Contracts $ 92.7 27.2 7.0 112.9 86.7 29.6 6.6 109.7
Short Duration Contracts 2,130.7 316.2 153.3 2,293.6 1,962.6 280.8 111.9 2,131.5
------- ------- ----- ------- ------- ----- ----- -------
Total $2,223.4 343.4 160.3 2,406.5 2,049.3 310.4 118.5 2,241.2
======= ======= ===== ======= ======= ===== ===== =======
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Insurance claims and policyholders' benefits are net of reinsurance
recoveries of $489.7 million and $(37.4) million for the nine months ending
September 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
periods ended March 31, 1994 and June 30, 1994.
FIBERBOARD 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 beginning on December 12,
1994, to determine whether to finally approve the Global Settlement agreement.
CNA and other parties to the Global Settlement agreement initiated a
comprehensive communication program in August 1994 to ensure that all
potential claimants received notice of their rights and possible benefits
under the Global Settlement.
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.
<PAGE>
<PAGE>
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 during the
policy period. 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.
. 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.
<PAGE>
<PAGE>
. 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 September 30, 1994, Continental, Fibreboard and plaintiff
attorneys had reached settlements with respect to approximately 135,500
claims, subject to resolution of the coverage issues, for a maximum
settlement amount of approximately $1.57 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 $719.1 million, of which $403.5
million was paid through September 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 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 Indemnity 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 Indemnity 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 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 claims which are 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 (regardless of whether either such insurer
would otherwise have any liability therefor). 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.
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.<PAGE>
<PAGE>
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
(12)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
identification of appropriate allocation methods and thereby results in an
increasing likelihood for fraud 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, as of September 30, 1994, Continental,
Fibreboard and plaintiff attorneys have reached settlements with respect to
approximately 135,500 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
plaintiffs' counsel in August 1993, the expected settlement for approximately
49,500 claims for exposure to asbestos both prior to and after 1959 is currently
averaging approximately $13,200 per claim for the before 1959 claims processed
through September 30, 1994. Based on reports by Fibreboard, between
September 1988 and April 1993, Fibreboard resolved approximately 40,000 claims
(other than by the assignment process noted above), 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.
A number of proposals to reform Superfund have been made by various
parties, however it appears none will be enacted by Congress in 1994. While
CNA expects that the next Congress will address this issue, no predictions
can be made as to what positions the Congress or the Administration will take
and what legislation, if any, will result.
<PAGE>
<PAGE>
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 September 30, 1994,
reserves for reported and unreported claims were $105 million and $351
million, respectively. CNA has not attributed any reinsurance to reserves
for unreported claims. The reserves for reported claims cited above are net
of reinsurance recoverable of $5 million and $4 million at December 31, 1993
and September 30, 1994, 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 1,400 claims were reported in the first
nine months of 1994 and approximately 19,500 claims have been reported to
date. Pending claims totaled approximately 9,900 and 10,100 at September 30,
1994 and December 31, 1993, respectively. Approximately 9,600 claims were
closed through September 30, 1994, of which approximately 8,650 claims were
settled without payment, except for claim expenses of $25 million.
Settlements for the remaining 950 claims totaled $120 million, plus claim
expenses of $29 million (net of reinsurance recoveries of $28 million and $4
million for claims and claim expenses, respectively). Adverse reserve
development for environmental claims totaled $100 million and $73 million for
the nine months ended September 30, 1994 and 1993. The foregoing claims
statistics represent claims for accident years 1988 and prior, which
coincides with CNA's adoption of the Simplified Commercial General Liability
coverage form which included an absolute pollution exclusion. In previous
filings, such disclosures included claims for all accident years.
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 third quarter and nine months ended September 30, 1994 and 1993.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Period Ended September 30 Third Quarter Nine 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 $1,759.6 $1,627.6 $5,087.5 $4,635.2
Life 646.8 613.6 1,994.8 1,807.5
------- ------- ------- -------
2,406.4 2,241.2 7,082.3 6,442.7
Net investment income 394.4 316.1 1,124.8 991.2
Other 57.8 46.0 169.0 135.0
------- ------- ------- -------
2,858.6 2,603.3 8,376.1 7,568.9
Benefits and expenses 2,821.4 3,170.1 8,425.4 8,267.6
------- ------- ------- -------
Operating income (loss) before
income tax 37.2 (566.8) (49.3) (698.7)
Income tax benefit 26.4 266.0 113.8 409.7
------- ------- ------- -------
Net operating income (loss) $ 63.6 $ (300.8) $ 64.5 $ (289.0)
======= ======= ======= =======
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Period Ended September 30 Third Quarter Nine 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 $ 52.8 $ (303.4) $ 39.8 $ (302.8)
Life 23.1 9.5 60.5 33.5
Other (12.3) (6.9) (35.8) (19.7)
------- ------- ------- -------
63.6 (300.8) 64.5 (289.0)
------- ------- ------- -------
Net realized investment gains (losses)
by group:
Property/Casualty (4.2) 66.8 (87.1) 395.5
Life (6.9) 22.5 (37.7) 64.3
Other 2.4 3.2 0.9 9.3
------- ------- ------- -------
(8.7) 92.5 (123.9) 469.1
------- ------- ------- -------
Net income (loss) by group:
Property/Casualty 48.6 (236.6) (47.3) 92.7
Life 16.2 32.0 22.8 97.8
Other (9.9) (3.7) (34.9) (10.4)
------- ------- ------- -------
$ 54.9 $ (208.3) $ (59.4) $ 180.1
==========================================================================================================
</TABLE>
Overview
- --------
Consolidated revenues for the third quarter of 1994, were $2.84
billion, compared to $2.76 billion for the comparable quarter in 1993. As
shown in the above table, consolidated revenues, excluding realized
investment losses, were up 9.8 percent to $2.86 billion compared to $2.60
billion for the third quarter of 1993.
(16)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
CNA Financial Corporation reported net income for the third quarter
of 1994 of $54.9 million, or $.87 per share, compared to a net loss of $208.3
million, or $3.39 per share, for the third quarter of 1993.
Net operating income for the third quarter of 1994, excluding net
realized investment losses, was $63.6 million, or $1.01 per share, compared
to a net loss of $300.8 million, or $4.89 per share, for the comparable
quarter in 1993. These results reflected improved earnings for both the
property/casualty and life operations primarily due to higher investment
income and improved underwriting results. Included in the 1993 third quarter
results was an addition of $500 million in loss reserves for asbestos-related
bodily injury claims.
For the first nine months of 1994, consolidated revenues were $8.18
billion compared to revenues of $8.30 billion for the same period in 1993.
Consolidated revenues, excluding realized investment losses, were up 10.7
percent to $8.38 billion in the first nine months compared to $7.57 billion
for the first nine months of 1993.
CNA incurred a net loss of $59.4 million, or $1.02 per share, for the
first nine months of 1994, compared to net income of $180.1 million, or $2.86
per share, for the first nine months of 1993.
Net operating income for the first nine months of 1994, excluding net
realized investment gains/losses, was $64.5 million, or income of $.99 per
share, compared to a net operating loss of $289.0 million, or $4.73 per
share, for the first nine months of 1993. CNA incurred pre-tax catastrophe
losses of approximately $213 million, or $2.24 per share, in the first nine
months of 1994 compared to $88 million, or $.93 per share, in the first nine
months of 1993. The catastrophe claims stem principally from the California
earthquake and severe winter storms that occurred throughout the northeastern
part of the United States in the first quarter.
Net realized investment losses for the first nine months of 1994 were
$123.9 million, or $2.01 per share, compared to net realized investment gains
for the first nine months of 1993 of $469.1 million, or $7.59 per share. Net
realized investment losses for the third quarter of 1994 amounted to $8.7
million, or $.14 per share, compared to net realized investment gains of
$92.5 million, or $1.50 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 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.)
<PAGE>
<PAGE>
CNA's total income tax benefit for the nine months ended September
30, 1994 amounted to $174.6 million compared to an expense of $157.4 million
for the same period in 1993. CNA's income tax benefit excluding realized
investment gains/losses amounted to $113.8 million for the nine months ended
September 30, 1994, compared to $409.7 million in the first nine months of
1993. The income tax benefit on realized investment losses for the first
nine months of 1994, totaled $60.8 million compared with an income tax
expense of $252.3 million for the same period a year ago.
(17)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
Property/Casualty Operations
- ----------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Property/Casualty Group Third Quarter Nine Months
Period Ended September 30 1994 1993 1994 1993
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Summary (excluding realized
investment gains/losses):
Revenues:
Premiums: $1,759.6 $1,627.5 $5,087.5 $4,635.2
Net investment income 312.7 255.3 894.5 799.0
Other 44.2 37.3 131.7 107.2
------- ------- ------- -------
2,116.5 1,920.1 6,113.7 5,541.4
Benefits and expenses 2,097.1 2,491.8 6,202.3 6,260.7
------- ------- ------- -------
Operating income (loss) before
income tax 19.4 (571.7) (88.6) (719.3)
Income tax benefit 33.4 268.3 128.4 416.5
------- ------- ------- -------
Net operating income (loss) (excluding
realized investment gains/losses) $ 52.8 $ (303.4) $ 39.8 $ (302.8)
====================================================================================================
</TABLE>
The prolonged soft market in commercial property/casualty lines that
depressed property/casualty earnings last year in much of the insurance
industry did not change significantly in the first nine months of 1994.
Significant catastrophe claims related to the Los Angeles earthquake and
winter storms and the declining market values of bond portfolios due to
rising interest rates put additional pressure on the industry.
Total industry catastrophe losses of $12.7 billion through the third
quarter have already made 1994 the second worst year on record for
catastrophic losses, behind the record $22.9 billion in 1992. 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.
Workers' compensation has improved steadily since 1992. Legislative
reforms have cut costs in some states, residual market losses have dropped
and the insurance regulators have sharpened their focus on workers'
compensation fraud.
<PAGE>
<PAGE>
In this difficult business climate, CNA continues 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.
Property/casualty revenues, excluding net realized investment
gains/losses, increased 10.3% and 10.2% for the nine months and three months
ended September 30, 1994, respectively, compared to the same periods a year
ago. Property/casualty earned premium increased $452 million, or 9.8% and
$132 million, or 8.1%, respectively, from the prior year's comparable
periods. The increases were principally attributable to increases in medium
commercial accounts ($138 million), group accident and health ($102 million),
professional liability ($105 million), and reinsurance ($100 million).
(18)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
Pretax operating results excluding net realized investment
gains/losses for the property/casualty insurance subsidiaries were a loss of
$88.6 million and income of $19.4 million for the nine and three months ended
September 30, 1994 compared to losses of $719.3 million and $571.7 million
for the same periods a year ago. Investment income increased 11.9% and 22.4%
for the nine and three months ended September 30, 1994 to $894.5 million and
$312.7 million, respectively, when compared with the comparable periods a
year ago. Investment income increased primarily due to rising investment
yields in 1994 and the change in portfolio mix from shorter term securities
to longer maturities, primarily in government bonds as mentioned previously.
Underwriting losses for the nine and three months ended September 30,
1994, were $983.1 million and $293.3 million compared to $1,518.3 million and
$827.0 million for the same periods in 1993. The statutory combined ratios
for the nine and three months ended September 30, 1994, were 115.9 and 112.9,
respectively, compared with 131.2 and 148.9 for the same periods in 1993.
Catastrophe losses for the nine and three months ended September 30, 1994,
were $213 million and $47 million, respectively, compared with $88 million
and $43 million for the respective periods in 1993. Most of the 1994 third
quarter catastrophe loss was additional development related to the Northridge
earthquake that occurred in the first quarter. The catastrophe losses masked
the continuing improvement in underwriting experience. Results for the first
nine months of 1994 reflect favorable reserve development of $104 million,
which is net of a $100 million increase in claim and claim expense reserves
for unreported environmental pollution claims. The favorable reserve
development for the three months ended September 30, 1994 was $72 million
which is net of a $45 million increase in claim and claim expense reserves
for unreported environmental pollution claims.
Net operating income of CNA's property/casualty insurance
subsidiaries, which excludes net realized investment losses, was $52.8
million for the third quarter of 1994, compared to a loss of $303.4 million
for the same period in 1993. Net realized investment losses for the third
quarter of 1994 were $4.2 million, compared to net realized investment gains
of $66.8 million in the third quarter of 1993.
For the nine months ended September 30, 1994, the property/casualty
insurance subsidiaries had net operating income of $39.8 million compared to
an operating loss of $302.8 million for the comparable period a year ago.
Net realized investment losses for the first nine months of 1994 were $87.1
million, compared to net realized investment gains of $395.5 million in the
first nine months of 1993.
<PAGE>
<PAGE>
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. Casualty 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 based on current information that the reserves established in
connection with this matter will be sufficient to cover all asbestos-related
Fiberboard claims. CNA believes that as a result of the Global Settlement
and the Trilateral Agreement, referred to in Note E, it has greatly reduced the
uncertainty of its exposure with respect to the Fiberboard 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
(19)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
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.
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 initiated 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.
Life Operations
- ---------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Life Group Third Quarter Nine Months
Period Ended September 30 1994 1993 1994 1993
(In millions of dollars)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Summary (excluding realized
investment gains/losses):
Revenues:
Premiums: $660.1 $620.6 $2,016.6 $1,824.4
Net investment income 79.7 62.5 228.2 195.9
Other 15.5 8.0 39.1 26.2
----- ----- ------- -------
755.3 691.1 2,283.9 2,046.5
Benefits and expenses 719.9 675.4 2,190.9 1,995.6
----- ----- ------- -------
Operating income before income tax 35.4 15.7 93.0 50.9
Income tax expense (12.3) (6.2) (32.5) (17.4)
----- ----- ------- -------
Net operating income (excluding
realized investment gains/losses) $ 23.1 $ 9.5 $ 60.5 $ 33.5
======================================================================================================
</TABLE>
<PAGE>
<PAGE>
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. Although
comprehensive national health reform failed this year, political pressures
for expanded access and cost reduction will continue to accelerate the spread
of managed care. CNA's strength in the managed care environment is its access
to networks of efficient providers of high-quality medical services. 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. The Company remains committed to the goals
of controlling health care costs and expanding access to basic health
coverage to all Americans. CNA supports responsible insurance market reforms
to assure that Americans can get health insurance, keep it and take it with
them from job to job.
Life insurance revenues, excluding realized investment losses, were
$2,283.9 million and $755.3 million for the nine and three months ended
September 30, 1994, up 11.6% and 9.3% respectively, when compared to the same
periods a year ago. Life earned premium was $2,016.6 million and $660.1
million, for the nine and three months ended September 30, 1994, up 10.5% and
6.4%, respectively, with the primary growth for the nine month period
attributable to a of $117 million increase in group operations and a $52 million
increase in pension operations. Life investment income increased 16.5%
and 27.5% for the
(20)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
nine and three months ended September 30, 1994, compared to the same 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 $60.5 million and $23.1 million for
the nine and three months of 1994, up 80.9% and 144.4%, respectively from the
$33.5 million and $9.5 million earned for the same periods in 1993. The
increase in net operating income was primarily due to the improved investment
income, described above, and mortality improvement. Net realized investment
losses for the first nine months and third quarter of 1994 were $37.7 and $6.9
million, respectively, compared to net realized investment gains of $64.3
million and $22.5 million recognized for the same periods in 1993.
Investments:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Summary of General Account Investments | |
at Market Value | |
| Change in |
September 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 $11,200 $ 6,554 | $ (562) | $ (155)
Asset-backed securities 2,258 2,547 | (125) | (61)
Tax exempt securities 4,225 5,015 | (205) | 21
Taxable 3,508 3,491 | (199) | (41)
------ ------ | ------ | ------
Total fixed income securities 21,191 17,607 | (1,091) | (236)
Stocks 659 508 | (26) | 37
Short-term investments and other 6,175 7,244 | (1) | (8)
Derivative security investments: | |
On-Balance Sheet 5 4 | 2 | (11)
Off-Balance Sheet - - | 10 | 21
------ ------ | ------ | ------
Total investments $28,030 $25,363 | (1,106) | (197)
====== ====== | |
Participating policyholders' interest | 38 | 12
Income tax benefit | 391 | 61
| ------ | ------
Net investment losses | $ (677) | $ (124)
| ====== | ======
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
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.
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
(21)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
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 $2.1 billion
at September 30, 1994, and the Life Group decreased from $1.2 billion at
December 31, 1993 to $171.2 million at September 30, 1994. These actions were
taken in a period of rising interest rates which resulted in realized losses on
sales from the investment portfolio.
The components of the net realized investment gains (losses) are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Realized Investment Gains (Losses)
Nine Months Ended September 30
(In millions of dollars) 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Bonds:
U.S. Government $(155.1) $105.0
Tax exempt 21.2 386.4
Asset-backed (60.9) 66.3
Taxable (40.9) 112.8
------ -----
Total bonds (235.7) 670.5
Stocks 37.4 62.8
Derivative securities:
On-Balance Sheet (10.9) (1.5)
Off-Balance Sheet 20.7 (0.4)
Other (7.8) 2.3
------ -----
Realized investment gains (losses) reported in revenues (196.3) 733.7
Participating policyholders' interest 11.6 (12.3)
Income tax benefit (expense) 60.8 (252.3)
------ -----
Net realized investment gains (losses) $(123.9) $469.1
====================================================================================
</TABLE>
<PAGE>
<PAGE>
For the nine months ending September 30, 1994, CNA sold approximately
$27 billion of fixed income and equity securities, realizing pre-tax net
losses of $194.4 million. Of the $27 billion of securities sold,
approximately $15.8 billion and $5.9 billion, respectively, were from the
U.S. Government and asset-backed bond portfolios.
- ---------------------------------------------------------------------|
Short-term investments: September 30 December 31 |
1994 1993 |
- ---------------------------------------------------------------------|
Security repurchase collateral $3,538 $ 623 |
Escrow 1,008 987 |
Other 1,305 5,334 |
----- ----- |
Total short-term investments $5,851 $6,944 |
===== ===== |
- ----------------------------------------------------------------------
During the first nine months of 1994, consolidated investments
increased $2.7 billion to $28.0 billion. This increase is entirely due to
collateral related to securities sold under agreements to repurchase.
The general account portfolio consists primarily of high quality
marketable debt securities, approximately 96% of which are rated as
investment grade. At September 30, 1994, tax-exempt securities and short-
term investments excluding collateral for securities sold under repurchase
agreements, comprised
(22)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
approximately 15% and 8%, respectively, of the general account's total
investment portfolio compared to 19% and 28%, respectively, at December 31,
1993. At September 30, 1994, the major component of the short-term investment
portfolio was approximately $1.0 billion of high-grade commercial paper.
Collateral for securities sold under repurchase agreements totaled $3.5 billion
and were also invested in high-grade commercial paper. The escrow account,
related to the Fibreboard litigation settlement discussed previously, is
invested in U.S. government securities.
CNA holds a small amount of derivative financial investments for the
purposes of enhancing income and total return and/or hedging long-term
investments. The derivative securities are marked-to-market. At September
30, 1994 the total notional value of purchased financial options amounted to
$601 million and the notional value of written financial options and interest
rate swap agreements amounted to $675 million. CNA does not expect to
recognize material gains or losses related to these investments.
As of September 30, 1994, the market value of CNA's general account
investments in bonds and redeemable preferred stocks was $21.2 billion and
was less than amortized cost by approximately $587 million. This compares to
$504 million of net unrealized investment gains at December 31, 1993. The
increase in 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 240 basis points while the rates on 5 year and 10 year
U.S. government bonds rose 207 and 177 basis points, respectively, from year-
end 1993 levels. The gross unrealized investment gains and losses for the
fixed income securities portfolio at September 30, 1994, were $212 million
and $799 million, respectively, compared to $564 million and $60 million,
respectively, at December 31, 1993.
Net unrealized investment losses on general account bonds at
September 30, 1994 include net unrealized losses on high yield securities of
$94 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 September 30, 1994, compared to $727 million at December 31, 1993.
At September 30, 1994, total Separate Account cash and investments
amounted to $6.0 billion with taxable debt securities representing
approximately 90% 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 contractholders. The market value of all fixed
income securities in the GIC portfolio was $4.7 billion compared to $5.4
billion at December 31, 1993. At September 30, 1994, amortized cost exceeded
market value by approximately $115 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 September 30, 1994, were $56 million and $171
million, respectively.
<PAGE>
<PAGE>
Market values of high yield securities in the GIC portfolio were $1.2
billion at September 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 $73 million at September 30, 1994, compared to net
unrealized investment gains of $56 million at December 31, 1993.
(23)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-continued
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 September 30,
1994, CNA's concentration in high yield bonds including separate accounts was
approximately 4.9% 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 September 30, 1994
(general and GIC portfolios) are $4.0 billion of asset-backed securities,
consisting of approximately 51% in collateralized mortgage obligations
("CMO's"), 17% in corporate asset-backed obligations, and 32% 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 September 30, 1994, the
market value of asset-backed securities were less than amortized cost by
approximately $110 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.
Over the last few years, much concern has been raised regarding the
quality of insurance company invested assets. At September 30, 1994, 63% of
the general account's debt securities portfolio was invested in U.S.
Government securities, 19% in other AAA rated securities and 11% in AA and A
rated securities. CNA's GIC fixed income portfolio is comprised of 22% U.S.
Government securities, 21% 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).
Financial Condition:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Financial Position September 30 December 31
(In millions of dollars, except per share data) 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets $44,821.2 $41,912.3
Stockholders' Equity 4,641.3 5,381.1
Unrealized Net Appreciation (Depreciation) Included in Stockholders' Equity (316.8) 360.0
Book Value per Common Share 72.68 84.65
- -------------------------------------------------------------------------------------------------------------
</TABLE>
CNA's assets increased approximately $2.9 billion to $44.8 billion as
of September 30, 1994. CNA's investment portfolio increased by $2.7 billion
from December 31, 1993 to $28.0 billion at September 30, 1994. These
increases were the result of security lending activity of $3.4 billion where
CNA sells securities to brokers while agreeing to repurchase them at a future
date.
<PAGE>
<PAGE>
During the first nine months of 1994, CNA's stockholders' equity
decreased by $739.7 million, or 14.0%, to approximately $4.6 billion. The
major component of this change was a $676.8 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 nine months of 1994.
For the first nine months of 1994, the statutory surplus of the
property/casualty subsidiaries
(24)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-concluded
decreased 8.0% 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.
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 nine months of 1994, CNA's operating activities
generated net cash flows of $745 million, compared to $964 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. In October
1994, the FASB issued SFAS 118, "Accounting by Creditors for Impairment of a
Loan_Income Recognition and Disclosures" which amends SFAS 114. These
Statements will not have a significant impact on CNA.
In October 1994, the FASB issued SFAS 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." This
Statement requires disclosures about derivative financial instruments --
futures, forward, swap, or option contracts, or other financial instruments
with similar characteristics. This Statement is effective for financial
statements issued for fiscal years ending after December 15, 1994. CNA
will include the required disclosure in its 1994 Annual Report to Shareholders.
(25)<PAGE>
<PAGE>
CNA FINANCIAL CORPORATION
PART II OTHER INFORMATION
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
September 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: November 11, 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 September 30 Third Quarter Nine Months
(In millions, except per share data) 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------
Earnings per share:
<S> <C> <C> <C> <C>
Net income (loss)................................ $ 54.9 $(208.3) $ (59.4) $180.1
Less preferred stock dividends................... 1.1 1.1 3.6 3.1
----- ------ ------ -----
Net income (loss) available to
common stockholders......................... $ 53.8 $(209.4) $ (63.0) $177.0
===== ====== ====== =====
Weighted average shares outstanding.............. 61.8 61.8 61.8 61.8
===== ====== ====== =====
Net income (loss) per common share............ $ .87 $ (3.39) $ (1.02) $ 2.86
===== ====== ====== =====
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(28)
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<CIK> 0000021175
<NAME> CNA FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> 9-MOS
<DEBT-HELD-FOR-SALE> 21,191,325
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 658,968
<MORTGAGE> 47,662
<REAL-ESTATE> 3,097
<TOTAL-INVEST> 28,030,367
<CASH> 128,440
<RECOVER-REINSURE> 3,089,669
<DEFERRED-ACQUISITION> 1,031,230
<TOTAL-ASSETS> 44,821,204
<POLICY-LOSSES> 25,469,973
<UNEARNED-PREMIUMS> 2,803,166
<POLICY-OTHER> 498,716
<POLICY-HOLDER-FUNDS> 93,195
<NOTES-PAYABLE> 913,314
<COMMON> 154,605
0
150,000
<OTHER-SE> 4,336,733
<TOTAL-LIABILITY-AND-EQUITY> 44,821,204
7,082,286
<INVESTMENT-INCOME> 1,124,784
<INVESTMENT-GAINS> (196,334)
<OTHER-INCOME> 169,019
<BENEFITS> 6,421,178
<UNDERWRITING-AMORTIZATION> 1,026,009
<UNDERWRITING-OTHER> 913,734
<INCOME-PRETAX> (234,006)
<INCOME-TAX> 174,650
<INCOME-CONTINUING> (59,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,356)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
<RESERVE-OPEN> 18,321,282
<PROVISION-CURRENT> 4,453,177
<PROVISION-PRIOR> (103,836)
<PAYMENTS-CURRENT> 913,557
<PAYMENTS-PRIOR> 2,808,323
<RESERVE-CLOSE> 18,948,742
<CUMULATIVE-DEFICIENCY> 103,836
</TABLE>
