- --------------------------------------------------------------------------------
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, 1996 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, 1996
- ----------------------------------- -------------------------------
Common Stock, Par value $2.50 61,798,262
- --------------------------------------------------------------------------------
Page (1) of (30)
<PAGE>
CNA FINANCIAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 (Unaudited) and DECEMBER 31, 1995.............. 3
STATEMENT OF CONSOLIDATED OPERATIONS (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995....................................... 4
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995............. 5
STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995............. 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited) SEPTEMBER 30, 1996......................... 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........................... 27
SIGNATURES............................................................. 28
EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON SHARE................. 29
EXHIBIT 27 FINANCIAL DATA SCHEDULE.................................... 30
(2)
<PAGE>
<TABLE>
<CAPTION>
CNA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
September 30 December 31
1996 1995
(In millions of dollars) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities available for sale:(cost $27,057.2 and $29,385.4)............ $27,037.6 $30,444.7
Equity securities available for sale:(cost $778.4 and $736.3) ................ 975.2 917.7
Mortgage loans and real estate:(less accumulated depreciation $4.2 and $3.6 ) 134.8 122.4
Policy loans.................................................................. 175.9 177.2
Other invested assets......................................................... 383.6 499.9
Short-term investments........................................................ 6,162.2 3,724.5
---------- ---------
Total investments........................................................ 34,869.3 35,886.4
Cash............................................................................... 264.8 221.6
Insurance receivables:
Reinsurance receivables ...................................................... 7,273.2 7,169.1
Other insurance receivables................................................... 6,086.2 5,302.4
Less allowance for doubtful accounts.......................................... (279.8) (288.7)
Deferred acquisition costs......................................................... 1,777.8 1,493.3
Accrued investment income.......................................................... 493.3 545.4
Receivables for securities sold.................................................... 585.1 185.2
Federal income taxes recoverable:(includes $55.8 and $153.0 due from Loews) ...... 34.2 132.7
Deferred income taxes.............................................................. 1,673.9 1,254.9
Property and equipment at cost:(less accumulated depreciation $429.0 and $313.7) .. 605.2 584.7
Prepaid reinsurance premiums....................................................... 373.3 495.4
Intangibles........................................................................ 426.7 456.3
Other assets....................................................................... 900.4 595.0
Separate Account business.......................................................... 5,711.5 5,868.1
- -----------------------------------------------------------------------------------------------------------------
Total assets $60,795.1 $59,901.8
=================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CNA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET - continued
- -------------------------------------------------------------------------------------------------------------------
September 30 December 31
1996 1995
(In millions of dollars) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities:
Insurance reserves:
Claim and claim expense....................................................... $31,589.0 $32,032.4
Unearned premiums............................................................. 4,786.3 4,549.4
Future policy benefits........................................................ 3,990.6 3,515.9
Policyholders' funds.......................................................... 707.4 705.0
Securities sold under repurchase agreements........................................ 602.6 774.1
Payables for securities purchased.................................................. 661.1 163.3
Participating policyholders' equity................................................ 121.5 140.1
Short-term debt.................................................................... 0.0 257.6
Long-term debt..................................................................... 2,774.0 2,767.9
Other liabilities.................................................................. 3,140.3 2,392.5
Separate Account business.......................................................... 5,711.5 5,868.1
-------- --------
Total liabilities.......................................................... 54,084.3 53,166.3
-------- --------
Commitments and contingent liabilities Stockholders' equity:
Common stock ($2.50 par value; Authorized - 200,000,000 shares;
Issued - 61,841,969 shares).................................................... 154.6 154.6
Preferred stock.................................................................... 150.0 150.0
Additional paid-in capital......................................................... 434.7 434.7
Retained earnings.................................................................. 5,830.9 5,065.6
Net unrealized investment gains ................................................... 143.1 933.1
Treasury stock, at cost............................................................ (2.5) (2.5)
------- -------
Total stockholders' equity................................................. 6,710.8 6,735.5
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $60,795.1 $59,901.8
==================================================================================================================
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</FN>
</TABLE>
(3)
<PAGE>
<TABLE>
<CAPTION>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
PERIOD ENDED SEPTEMBER 30 THIRD QUARTER NINE MONTHS
1996 1995 1996 1995*
(In millions of dollars, except per share data)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Premiums.........................................$3,435.3 $3,196.2 $10,049.0 $8,581.1
Net investment income............................ 540.3 552.0 1,675.9 1,497.6
Realized investment gains ....................... 109.3 97.7 487.1 339.3
Other............................................ 170.7 155.0 454.1 294.9
-------- --------- -------- ---------
4,255.6 4,000.9 12,666.1 10,712.9
-------- --------- -------- ---------
Benefits and expenses:
Insurance claims and policyholders' benefits..... 2,839.5 2,740.9 8,400.9 7,314.8
Amortization of deferred acquisition costs....... 601.5 480.2 1,568.5 1,262.9
Other operating expenses......................... 464.4 472.1 1,469.7 1,204.5
Interest expense................................. 50.9 64.8 155.4 120.5
-------- --------- ---------- ---------
3,956.3 3,758.0 11,594.5 9,902.7
-------- --------- ---------- ---------
Income before income tax....................... 299.3 242.9 1,071.6 810.2
Income tax expense................................. 60.8 76.6 301.7 234.4
-------- --------- ---------- ---------
Net income $ 238.5 $ 166.3 $ 769.9 $ 575.8
=========================================================================================================
EARNINGS PER SHARE
Net income ........................................$ 3.83 $ 2.66 $ 12.38 $ 9.23
======== ========= =========== ==========
Weighted average outstanding shares of
common stock (in millions of shares)............... 61.8 61.8 61.8 61.8
=========================================================================================================
<FN>
* Includes results of The Continental Corporation from May 10, 1995.
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</FN>
</TABLE>
(4)
<PAGE>
<TABLE>
<CAPTION>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Unaudited)
- -----------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1996 and 1995
Net
Additional Unrealized
Capital Paid in Retained Investment Gains Total
Stock Capital Earnings (Losses)
(In millions of dollars)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 302.1 $ 434.7 $ 4,315.5 $ (506.4) $ 4,545.9
Net income....................... - - 575.8 - 575.8
Unrealized investment gains...... - - - 1,143.6 1,143.6
Preferred dividends.............. - - (5.1) - (5.1)
- -----------------------------------------------------------------------------------------------------
Balance, September 30, 1995 $ 302.1 $ 434.7 $ 4,886.2 $ 637.2 $ 6,260.2
=====================================================================================================
Balance, December 31, 1995 $ 302.1 $ 434.7 $ 5,065.6 $ 933.1 $ 6,735.5
Net income....................... - - 769.9 - 769.9
Unrealized investment (losses)... - - - (790.0) (790.0)
Preferred dividends.............. - - (4.6) - (4.6)
- -----------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $ 302.1 $ 434.7 $ 5,830.9 $ 143.1 $ 6,710.8
=====================================================================================================
</TABLE>
(5)
<PAGE>
<TABLE>
<CAPTION>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30 1996 1995
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................$ 769.9 $ 575.8
--------- -----------
Adjustments to reconcile net income to net cash flows from operating
activities:
Net realized investment gains, pre-tax ...................................... (487.1) (339.3)
Participating policyholders' interest........................................ 1.9 (1.4)
Amortization of intangibles.................................................. 18.8 12.2
Amortization of bond discount................................................ (129.6) (108.3)
Depreciation................................................................. 118.1 65.2
Changes in:
Reinsurance and other insurance receivables, net.......................... (896.9) (1,117.3)
Prepaid reinsurance premiums.............................................. 122.1 57.9
Deferred acquisition costs................................................ (284.5) (147.1)
Accrued investment income................................................. 52.1 (38.8)
Insurance reserves........................................................ 292.6 755.6
Federal income taxes...................................................... 98.5 (34.4)
Deferred income taxes..................................................... 139.1 190.4
Reinsurance payables...................................................... 234.7 41.5
Other, net................................................................ (114.7) 497.2
---------- -----------
Total adjustments ................................................ (834.9) (166.6)
---------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES ......................... (65.0) 409.2
---------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS - continued
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30 1996 1995
(In millions of dollars)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from investing activities:
Purchases of fixed maturities................................................. (24,783.0) (25,308.3)
Proceeds from fixed maturities:
Sales....................................................................... 25,758.4 23,320.0
Maturities, calls and redemptions........................................... 1,657.9 2,306.3
Purchases of equity securities................................................ (513.1) (567.0)
Proceeds from sale of equity securities....................................... 650.0 914.4
Change in short-term investments.............................................. (2,340.2) (1,029.2)
Purchases of property and equipment .......................................... (148.9) (72.5)
Change in securities sold under repurchase agreements......................... (171.6) 26.2
Change in other investments................................................... 256.0 (18.6)
Purchase of The Continental Corporation....................................... - (1,125.5)
Cash acquired in connection with the Continental merger....................... - 165.1
Purchase of Alexsis........................................................... - (46.3)
Other, net.................................................................... 21.0 (13.0)
---------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES ......................... 386.5 (1,448.4)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred shareholders...................................... (4.7) (5.2)
Receipts from investment contracts credited to policyholder account balances.. 11.7 19.4
Return of policyholder account balances on investment contracts............... (33.8) (25.9)
Change in short-term debt..................................................... (257.6) -
Principal payments on long-term debt.......................................... (3.4) (504.5)
Reitrement of notes payable................................................... - (205.0)
Proceeds from issuance of long-term debt...................................... 9.5 1,831.1
-------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES......................... (278.3) 1,109.9
-------- -----------
Net cash flows............................................ 43.2 70.7
Cash at beginning of period...................................................... 221.6 147.6
===========================================================================================================
CASH AT END OF PERIOD $ 264.8 $ 218.3
===========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid:
Interest expense..............................................................$ (166.2) $ (113.4)
Federal income taxes.......................................................... (42.9) (122.7)
===========================================================================================================
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</FN>
</TABLE>
(6)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. Basis of Presentation:
The Condensed Consolidated Financial Statements (Unaudited) include CNA
Financial Corporation (CNA or the Company) and its subsidiaries which consist of
property/casualty insurance companies (principally Continental Casualty Company
and Continental Insurance Company) and life insurance companies (principally
Continental Assurance Company and Valley Forge Life Insurance Company). Loews
Corporation (Loews) owns approximately 84% of the outstanding common stock of
CNA.
CNA is a multiple-line insurer underwriting property and casualty
coverages; life, accident and health insurance. CNA serves a wide spectrum of
insureds, including individuals; small, medium and large businesses;
associations; professionals and groups.
CNA acquired The Continental Corporation (Continental) through a cash
merger for approximately $1.1 billion. The merger was completed on May 10, 1995.
Results of operations for the nine-month period ended September 30,
1996 include the operations of Continental. Results of operations for the
nine-months ended September 30, 1995 reflect the results of Continental
subsequent to May 10, 1995 (See Note B).
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, 1995, filed with the Commission on
March 29, 1996.
The accompanying Condensed Consolidated Financial Statements have been
prepared in conformity with generally accepted accounting principles. Certain
amounts applicable to prior periods have been reclassified to conform to
classifications followed in 1996. All significant intercompany amounts have been
eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of CNA's management, these statements include all adjustments,
consisting of normal recurring accruals, which are necessary for the fair
presentation of the financial position, results of operations and cash flows in
the accompanying condensed consolidated financial statements.
NOTE B. The Continental Corporation:
On December 6, 1994, CNA entered into a merger agreement providing for
the payment of approximately $1.1 billion to holders of Continental common
stock. To finance the acquisition, CNA entered into a five year revolving credit
facility (see Note F). The merger was consummated on May 10, 1995.
The acquisition of Continental has been accounted for as a purchase;
therefore, Continental's operations are included in the Condensed Consolidated
Financial Statements since May 10, 1995. CNA has completed its evaluation and
appraisal of Continental's net assets resulting in goodwill of approximately
$315 million. Goodwill will be amortized over twenty years.
(7)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
The unaudited pro forma condensed results of operations presented below
assume the Continental acquisition had occurred at the beginning of 1995:
|-----------------------------------------------------------------------|
|PRO FORMA |
|NINE MONTHS ENDED SEPTEMBER 30, 1995 |
|(In millions of dollars, except per share data) |
|-----------------------------------------------------------------------|
|Revenues $12,200.5 |
| |
|Realized investment gains included in revenue 459.4 |
| |
|Income before income tax expense 839.0 |
|Income tax expense (257.8)|
| ---------|
|Net income $ 581.2 |
| =========|
| |
|Net income per share $ 9.32 |
| =========|
| |
|-----------------------------------------------------------------------|
The unaudited pro forma condensed financial information is not
necessarily indicative either of the results of operations that would have
occurred had this transaction been consummated at the beginning of 1995 or of
future operations of the combined companies.
Certain discontinued operations were acquired as part of the
Continental merger. The components of operating results of the discontinued
operations are shown net in the accompanying financials and are comprised of the
following:
|---------------------------------------------------------------------|
|NINE MONTHS ENDED SEPTEMBER 30 1996 1995 |
|(In millions of dollars) |
|---------------------------------------------------------------------|
| |
|Revenues $ 68.8 $29.8 |
|Expenses 68.8 29.8 |
| ----- ----- |
| Income before income taxes - - |
|Income taxes - - |
| ----- ----- |
| Income from discontinued operations $ - $ - |
| ===== ===== |
| |
|---------------------------------------------------------------------|
<PAGE>
Net assets of discontinued insurance operations at September 30, 1996
and December 31, 1995 were included in "Other Assets". The table below reflects
assets and liabilities of the discontinued operations net of intercompany
eliminations (excluding intercompany notes):
|------------------------------------------------------------------------------|
|FOR THE PERIOD ENDED SEPTEMBER 30, 1996 DECEMBER 31, 1995|
|(In millions of dollars) |
|------------------------------------------------------------------------------|
| |
|ASSETS: |
|Cash and investments $ 785.5 $ 825.3 |
|Reinsurance receivables and other assets 791.3 521.9 |
| ------- ------- |
| 1,576.8 1,347.2 |
| ------- ------- |
| |
|LIABILITIES: |
|Claim and claim expenses 1,163.9 955.7 |
|Other liabilities 312.8 257.6 |
| ------- -------- |
| 1,476.7 1,213.3 |
| ------- -------- |
| Net assets $ 100.1 $ 133.9 |
| ======= ======== |
| |
|------------------------------------------------------------------------------|
(8)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE C. Restricted Investments:
On December 30, 1993, CNA deposited $986.8 million in an escrow
account, pursuant to the Fibreboard Global Settlement Agreement, (see Note E).
At September 30, 1996, the escrow account amounted to $1,065.8 million. The
funds are included in short-term investments and are invested in U. S. Treasury
securities.
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 its states of domicile, CNA
receives collateral primarily in the form of bank letters of credit, securing a
large portion of the recoverables. At September 30, 1996, such collateral
totaled approximately $1.1 billion. CNA's largest recoverable from a single
reinsurer, including prepaid reinsurance premiums, at September 30, 1996, was
approximately $435 million with Lloyd's of London.
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------|
|NINE MONTHS ENDED SEPTEMBER 30 EARNED PREMIUMS |
| ------------------------------------------------ ASSUMED/ |
| NET |
|(In millions of dollars) DIRECT ASSUMED CEDED NET % |
|---------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C> <C>
| |
|1996 |
| Life $ 519.4 $ 87.3 $ 33.1 $ 573.6 15.2 %|
| Accident and health 2,580.3 183.0 112.4 2,650.9 6.9 |
| Property and casualty 6,702.2 1,177.5 1,055.2 6,824.5 17.3 |
|---------------------------------------------------------------------------------------------|
| Total premiums $ 9,801.9 $ 1,447.8 $ 1,200.7 $10,049.0 14.4 %|
|=============================================================================================|
| |
|1995 |
| Life $ 467.8 $ 81.4 $ 16.1 $ 533.1 15.3 %|
| Accident and health 2,289.1 95.9 59.6 2,325.4 4.1 |
| Property and casualty 5,764.0 925.5 966.9 5,722.6 16.2 |
|---------------------------------------------------------------------------------------------|
| Total premiums $ 8,520.9 $ 1,102.8 $ 1,042.6 $ 8,581.1 12.9 %|
|=============================================================================================|
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
|----------------------------------------------------------------------------------------------|
|THREE MONTHS ENDED SEPTEMBER 30 EARNED PREMIUMS |
| ------------------------------------------------ ASSUMED/ |
| NET |
|(In millions of dollars) DIRECT ASSUMED CEDED NET % |
|--------------------------------------------------------------------------------------------- |
| |
<S> <C> <C> <C> <C> <C>
|1996 |
| Life $ 165.5 $ 30.1 $ 17.9 $ 177.7 16.9 % |
| Accident and health 919.6 93.5 79.2 933.9 10.0 |
| Property and casualty 2,453.2 174.7 304.2 2,323.7 7.5 |
|----------------------------------------------------------------------------------------------|
| Total premiums $ 3,538.3 $ 298.3 $ 401.3 $ 3,435.3 8.7 % |
|----------------------------------------------------------------------------------------------|
| |
|1995 |
| Life $ 168.9 $ 26.5 $ 6.7 $ 188.7 14.0 % |
| Accident and health 847.9 27.7 21.4 854.2 3.2 |
| Property and casualty 2,316.5 352.2 515.4 2,153.3 16.4 |
|----------------------------------------------------------------------------------------------|
| Total premiums $ 3,333.3 $ 406.4 $ 543.5 $ 3,196.2 12.7 % |
|==============================================================================================|
</TABLE>
(9)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
In the table above, life earned premium is primarily from long duration
contracts, property/casualty earned premium is from short duration contracts,
and accident and health earned premiums are primarily from short duration
contracts.
Insurance claims and policyholders' benefits are net of reinsurance of
$108.5 million and $1,010.3 million and $782.8 million and $1,112.8 million for
the quarter and nine months ending September 30, 1996 and September 30, 1995,
respectively.
NOTE E. Legal Proceedings and Contingent Liabilities:
The following information updates legal proceedings and contingent
liabilities reported in Notes J and K of the Notes to the Consolidated Financial
Statements in the 1995 Annual Report to Shareholders.
FIBREBOARD LITIGATION
CNA's primary property/casualty subsidiary, Continental Casualty
Company ("Casualty"), 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, Casualty, Fibreboard, another insurer
(Pacific Indemnity, a subsidiary of the Chubb Corporation), and a negotiating
committee of asbestos claimant attorneys (collectively referred to as Settling
Parties) have reached a Global Settlement (the "Global Settlement") to resolve
all future asbestos-related bodily injury claims involving Fibreboard, which is
subject to court approval. Casualty, Fibreboard and Pacific Indemnity have also
reached an agreement (the "Trilateral Agreement"), on a settlement to resolve
the coverage litigation in the event the Global Settlement does not obtain final
court approval or is subsequently successfully attacked. The implementation of
the Global Settlement or the Trilateral Agreement would have the effect of
settling Casualty's litigation with Fibreboard.
On July 27, 1995, the United States District Court for the Eastern
District of Texas entered judgment approving the Global Settlement Agreement and
the Trilateral Agreement. As expected, appeals were filed as respects both of
these decisions. On July 25, 1996, a panel of the United States Fifth Circuit
Court of Appeals in New Orleans affirmed the judgment approving the Global
Settlement Agreement by a 2 to 1 vote and affirmed the judgment approving the
Trilateral Agreement by a 3 to 0 vote. A petition has been filed for re-hearing
by the entire Fifth Circuit Court of Appeals as respects the decision on the
Global Settlement Agreement.
No further appeal has been filed with respect to the Trilateral
Agreement and CNA believes that the time to file any such further appeal has
expired, and accordingly, CNA believes that court approval of the Trilateral
Agreement has become final. CNA currently expects that Casualty's litigation
with Fibreboard will be dismissed during the first quarter of 1997.
Global Settlement
On April 9, 1993, Casualty 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.
On August 27, 1993, the Settling Parties reached an agreement in
principle for an omnibus settlement to resolve all future asbestos-related
bodily injury claims involving Fibreboard. The Global Settlement Agreement was
executed on December 23, 1993. The agreement calls for contribution by Casualty
(10)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
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. As
indicated hereinabove, the Global Settlement approval has been affirmed on
appeal, however, further review is being sought and there is limited precedent
with settlements which determine the rights of future claimants to seek relief.
Subsequent to the announcement of the agreement in principle, Casualty,
Fibreboard and Pacific Indemnity entered into the Trilateral Agreement which
among other things, settles the coverage case in the event the Global Settlement
approval is not ultimately upheld. In such case, Casualty and Pacific Indemnity
will 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 for claims settled before August 23, 1993.
Casualty'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 for
claims either filed or settled before August 27, 1993. Based upon receipt of the
final approval of the Trilateral Agreement, Casualty will assume responsibility
for the claims that were settled before August 27, 1993. A portion of the
additional $635 million to be contributed by Pacific Indemnity will be applied
to the payment of such claims as well. As a part of the Global Settlement and
the Trilateral Agreement, Casualty is to be released by Fibreboard from any
further liability under the comprehensive general liability policy written for
Fibreboard by Casualty, including but not limited to liability for
asbestos-related claims against Fibreboard. As indicated above, CNA believes
that court approval of the Trilateral Agreement has become final and
non-appealable.
Casualty 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 coverage case is finally resolved,
either through final court approval of the Global Settlement Agreement, or final
court disapproval of the Global Settlement Agreement and final court approval of
the Trilateral Agreement, or through a final decision in the California courts.
It also governs certain obligations between the parties upon the Global
Settlement being upheld on appeal including the payment of claims which are not
included in the Global Settlement.
In addition, Casualty and Pacific Indemnity have entered into an
agreement (the "Casualty-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.
Under the Casualty-Pacific Agreement, Casualty and Pacific Indemnity have agreed
to pay 64.71% and 35.29%, respectively, of the $1.525 billion to be used to
satisfy the claims of future claimants, plus certain expenses. The $1.525
billion has already been deposited into an escrow for such purpose. Based upon
the final approval of the Trilateral Agreement, Pacific Indemnity's share for
unsettled present claims and presently settled claims will be $635 million.
Through September 30, 1996, Casualty, Fibreboard and plaintiff
attorneys had reached settlements with respect to approximately 133,700 claims,
subject to resolution of the coverage issues, for an estimated settlement amount
of approximately $1.62 billion plus any applicable interest. Final court
approval of the Trilateral Agreement obligates Casualty to pay under these
settlements. Approximately $705 million was paid through September 30, 1996. As
described above, such payments are partially recoverable from Pacific Indemnity.
Casualty may negotiate other agreements with various classes of claimants
including groups who may have previously reached agreement with Fibreboard.
(11)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
Reserves
In the fourth quarter of 1992, Casualty 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, Casualty added $500 million to such claim reserve in the third quarter of
1993. The Fibreboard claims represent the major portion of Casualty's
asbestos-related claim exposure.
Casualty believes that final court approval of the Trilateral Agreement
and its implementation will eliminate any further material exposure with respect
to the Fibreboard matter.
Under various reinsurance agreements, Casualty has asserted a right to
reimbursement for a portion of its potential exposure to Fibreboard. Casualty's
principal reinsurers have disputed Casualty's right to reimbursement and have
taken the position that any claim by Casualty 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 Casualty
will be successful in obtaining a significant recovery under its reinsurance
agreements.
ENVIRONMENTAL AND ASBESTOS
The CNA property/casualty insurance companies have potential exposures
related to environmental and asbestos-related claims.
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.
The Comprehensive Environmental Response Compensation and Liability Act
of 1980 ("Superfund") and comparable state statutes ("mini-Superfund") govern
the clean-up and restoration of abandoned toxic waste sites and formalize the
concept of legal liability for clean-up and restoration by "Potentially
Responsible Parties" ("PRP's"). Superfund and the mini-Superfunds (Environmental
Clean-up Laws or "ECLs") establish 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 its National Priorities List. 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 that
will require clean-up under ECLs. 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.
<PAGE>
A number of proposals to reform Superfund have been made by various
parties. Despite Superfund taxing authority expiring at the end of 1995, no
reforms have been enacted by Congress. While the next Congress may 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. If there is
legislation, and in some circumstances even if there is no legislation, the
federal role in environmental clean-up may be materially reduced in favor of
(12)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
state action. Substantial changes in the federal statute or the activity of the
EPA may cause states to reconsider their environmental clean-up statutes and
regulations. There can be no meaningful prediction of the pattern of regulation
that would result.
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 ultimate exposure to CNA for
environmental pollution claims cannot be meaningfully quantified. Claim and
claim expense reserves represent management's estimates of ultimate liabilities
based on currently available facts and case 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 adjustment based on new data. As of September 30, 1996
and December 31, 1995, CNA carried approximately $802 million and $1,030
million, respectively, of claim and claim expense reserves, net of reinsurance
recoverable, for reported and unreported environmental pollution claims. There
was no environmental reserve development for the nine months and quarter ended
September 30, 1996. Adverse environmental reserve development of $241 million
for the year ended December 31, 1995 includes $60 million related to Continental
and results from CNA's on-going monitoring of settlement patterns, current
pending cases and potential future claims. The foregoing reserve information
relates to 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.
CNA has exposure to asbestos-related claims, including those
attributable to CNA's on-going litigation with Fibreboard Corporation. A
detailed discussion of CNA's litigation with Fibreboard Corporation regarding
asbestos-related bodily injury claims is discussed at the beginning of this
note. Estimation of asbestos-related claim reserves encounter many of the same
limitations discussed above for environmental pollution claims such as
inconsistency of court decisions, specific policy provisions, multiple insurers
and allocation of liability among insurers, missing policies and proof of
coverage. As of September 30, 1996 and December 31, 1995, CNA carried
approximately $2,051 million and $2,224 million, respectively, of claim and
claim expense reserves, net of reinsurance recoverable, for reported and
unreported asbestos-related claims. Unfavorable reserve development for the nine
months ended September 30, 1996 and the year ended December 31, 1995, totaled
$38 million and $258 million, respectively.
The results of operations in future years may continue to be adversely
affected by environmental pollution and asbestos aims and claim expenses.
Management will continue to monitor potential liabilities and make further
adjustments as warranted.
CNA, consistent with sound reserving practices, regularly adjusts its
reserve estimates in subsequent reporting periods as new facts and circumstances
emerge that indicate the previous estimates need to be modified. Beginning the
latter part of 1995 and through 1996 to date, CNA has been actively settling
many of its larger environmental pollution and asbestos-related claim exposures.
This strategy has resulted in a large volume of claim payments during 1996, and
corresponding reductions in reserves. In addition, Fibreboard claim payments
escalated in 1996 as some scheduled payments came due. Management does not
believe that these recent activities have changed facts or circumstances evident
at December 31, 1995, therefore, no material modifications to previous reserve
estimates have been made in 1996. The following table provides additional data
related to CNA's environmental pollution and asbestos-related claims reserves.
(13)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
|-----------------------------------------------------------------------------------------------|
| |
|RESERVE SUMMARY SEPTEMBER 30, 1996 DECEMBER 31, 1995 |
| ------------------------------- ---------------------------------|
| ENVIRONMENTAL ASBESTOS ENVIRONMENTAL ASBESTOS |
| |
|------------------------------------------------------------- ---------------------------------|
|(In millions of dollars) |
| |
<S> <C> <C> <C> <C>
|Gross reserves: |
| Reported claims $ 328 $ 1,877 $ 337 $ 1,963 |
| Unreported claims 594 275 840 358 |
| ------ ------ ------ ------ |
| 922 2,152 1,177 2,321 |
|Less reinsurance recoverable (120) (101) (147) (97) |
|-----------------------------------------------------------------------------------------------|
|Net reserves $ 802 $ 2,051 $ 1,030 $ 2,224 |
|===============================================================================================|
</TABLE>
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.
(14)
<PAGE>
CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - concluded
NOTE F. Debt:
Long and short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------|
|LONG AND SHORT-TERM DEBT |
|(In millions of dollars) SEPTEMBER 30 DECEMBER 31 |
| 1996 1995 |
|-------------------------------------------------------------------------------------------------|
<S> <C> <C>
|Long-term: |
| Acquisition debt: |
| Credit Facility $ 650.0 $ 825.0 |
| Commercial Paper 675.0 500.0 |
| Senior Notes: |
| 8 7/8%, due March 1, 1998 149.4 149.2 |
| 8 1/4%, due April 15, 1999 102.2 102.8 |
| 7 1/4%, due March 1, 2003 145.8 145.4 |
| 6 1/4%, due November 15, 2003 248.4 248.2 |
| 8 3/8%, due August 15, 2012 97.9 97.9 |
| 71/4% Debenture, due November 15, 2023 247.1 247.1 |
| 11% Secured Mortgage Notes, due June 20, 2013 393.2 386.6 |
| 8% - 13.7% Secured Capital Leases, due December 31, 2011 46.6 46.0 |
| Other 18.4 19.7 |
| ---------- ---------- |
| Total long-term debt 2,774.0 2,767.9 |
|Short-term - 257.6 |
| ---------- ---------- |
| Total debt $ 2,774.0 $ 3,025.5 |
| ========== ========== |
|-------------------------------------------------------------------------------------------------|
</TABLE>
To finance the acquisition of Continental (including the refinancing of
$205 million of Continental debt) CNA entered into a five-year $1.325 billion
revolving credit facility. CNA renegotiated the facility in 1996 extending the
maturity by one year. The average interest rate on the borrowings under the
revolver at September 30, 1996 was 5.66%. Under the terms of the facility, CNA
may prepay the debt without penalty, giving CNA flexibility to arrange
longer-term financing on more favorable terms. In 1995, to take advantage of
favorable interest rate spreads, CNA established a Commercial Paper Program,
borrowing $500 million from investors to replace a like amount of bank
financing. In the first nine months of 1996 CNA increased commercial paper
borrowings by $175 million replacing a like amount of bank financing. The
weighted-average rate on commercial paper at September 30, 1996 was 5.66%. The
commercial paper borrowings are classified as long-term as $675 million of the
committed credit facility supports the commercial paper program.
CNA entered into interest rate swap agreements with several banks which
terminate from May to December, 2000. The effect of these interest rate swaps
was to increase interest expense by $5.6 million and $1.9 million for the nine
months and quarter ended September 30, 1996. Interest expense was increased by
$1.1 million in the third quarter of 1995.
The weighted average interest rate on the acquisition debt, which includes
the revolving credit facility, commercial paper, and the effect of the interest
rate swaps, was 6.36% on September 30, 1996.
On March 1, 1996, CNA repaid at the due date $250 million of 8 5/8% senior
notes. These notes were classified as short-term debt in 1995.
(15)
<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.
CNA Financial Corporation (CNA) is the parent company of the CNA Insurance
Companies. The CNA Insurance Companies, the largest writer of commercial
property and casualty insurance, is comprised of Continental Casualty Company
and its subsidiaries, Continental Assurance Company and its subsidiaries and The
Continental Corporation, acquired on May 10, 1995, and its subsidiaries. The CNA
Insurance Companies provide property and casualty coverage, life, accident and
health insurance.
<PAGE>
RESULTS OF OPERATIONS:
The following chart summarizes key components of operating results for
the nine months and quarters ended September 30, 1996 and 1995. Results of
operations include The Continental Corporation subsequent to May 10, 1995.
<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------------------|
|PERIOD ENDED SEPTEMBER 30 THIRD QUARTER NINE MONTHS |
|(In millions of dollars) 1996 1995 1996 1995 |
|-------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C>
| |
|OPERATING SUMMARY (EXCLUDING NET REALIZED INVESTMENT |
|GAINS/LOSSES): |
|Revenues: |
| Premiums: |
| Property/Casualty $ 2,592.8 $ 2,427.8 $ 7,579.2 $ 6,375.1 |
| Life 842.5 768.4 2,469.8 2,206.0 |
| -------- -------- -------- -------- |
| 3,435.3 3,196.2 10,049.0 8,581.1 |
| Net investment income 540.3 552.0 1,675.9 1,497.6 |
| Other 170.7 155.0 454.1 294.9 |
| -------- -------- -------- -------- |
| 4,146.3 3,903.3 12,179.0 10,373.6 |
|Benefits and expenses 3,957.6 3,757.3 11,583.4 9,895.1 |
| -------- ------- -------- -------- |
| Operating income before income tax expense 188.7 145.9 595.6 478.5 |
|Income tax expense (27.9) (42.8) (138.1) (116.6) |
| -------- ------- -------- -------- |
| Net operating income $ 160.8 $ 103.1 $ 457.5 $ 361.9 |
| ======== ======== ======== ======== |
|SUPPLEMENTAL FINANCIAL DATA: |
|Net operating income (loss) by group: |
| Property/Casualty $ 164.9 $ 122.1 $ 462.6 $ 361.7 |
| Life 22.9 24.6 77.5 73.1 |
| Other (27.0) (43.6) (82.6) (72.9) |
| --------- -------- --------- -------- |
| 160.8 103.1 457.5 361.9 |
| --------- -------- --------- -------- |
|Net realized investment gains by group: |
| Property/Casualty 52.2 52.3 232.4 138.0 |
| Life 22.0 9.2 79.0 72.9 |
| Other 3.5 1.7 1.0 3.0 |
| -------- -------- -------- -------- |
| 77.7 63.2 312.4 213.9 |
| -------- -------- -------- -------- |
|Net income (loss) by group: |
| Property/Casualty 217.1 174.4 695.0 499.7 |
| Life 44.9 33.8 156.5 146.0 |
| Other (23.5) (41.9) (81.6) (69.9) |
| --------- -------- ------- -------- |
| $ 238.5 $ 166.3 $ 769.9 $ 575.8 |
|=============================================================================================================|
</TABLE>
(16)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
Consolidated Results
- --------------------
CNA reported earnings for the first nine months of 1996 that continue
to reflect improved operating results despite weather-related catastrophe
losses. Earnings were also boosted by substantial capital gains.
Net operating income, which excludes net realized investment gains, was
$457.5 million, or $7.33 per share, for the first nine months of 1996 compared
to net operating income of $361.9 million, or $5.77 per share, for the first
nine months of 1995. Net operating income for the third quarter was $160.8
million, or $2.57 per share, compared with $103.2 million, or $1.64 per share,
for the same quarter in 1995. CNA's income in the first nine months of 1996 is
net of pretax losses of $280.2 million related to catastrophe claims; pretax
catastrophe losses in the first nine months of 1995 were $115.9 million.
Realized investment gains, net of tax, for the first nine months of
1996 were $312.4 million, or $5.05 per share, compared to net realized
investment gains for the first nine months of 1995 of $213.9 million, or $3.46
per share. The components of the net realized investment gains (losses) are as
follows:
|----------------------------------------------------------------------------|
|REALIZED INVESTMENT GAINS(LOSSES) |
|NINE MONTHS ENDED SEPTEMBER 30 1996 1995 |
|(In millions of dollars) |
|----------------------------------------------------------------------------|
|Fixed maturity securities: |
| U.S. Government $ 102.0 $ 99.2 |
| Taxable 109.0 (17.6) |
| Asset-backed 23.1 35.7 |
| Tax exempt 13.5 23.6 |
| ------ ------ |
| Total fixed maturity securities 247.6 140.9 |
|Stocks 148.2 126.3 |
|Derivative securities 11.3 0.8 |
|Separate accounts and other 80.0 71.3 |
| ------ ------ |
| Realized investment gains reported in revenues 487.1 339.3 |
|Participating policyholders' interest (11.1) (7.6) |
|Income tax expense (163.6) (117.8) |
| ----- ----- |
| Net realized investment gains $ 312.4 $ 213.9 |
|============================================================================|
Net income was $769.9 million, or $12.38 per share for the first nine
months of 1996, compared to $575.8 million, or $9.23 per share, for the first
nine months of 1995. Net income for the third quarter of 1996 was $238.5
million, or $3.83 per share, compared with net income of $166.3 million, or
$2.66 per share, for the third quarter of 1995.
(17)
<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 1996 1995 1996 1995 |
|(In millions of dollars) |
|--------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C>
| |
|OPERATING SUMMARY (EXCLUDING NET REALIZED |
| INVESTMENT GAINS/LOSSES): |
|Revenues: |
| Premiums $ 2,592.8 $ 2,427.8 $ 7,579.2 $ 6,375.1 |
| Net investment income 444.6 460.4 1,384.3 1,226.8 |
| Other 137.0 136.0 378.1 252.0 |
| --------- --------- -------- -------- |
| 3,174.4 3,024.2 9,341.6 7,853.9 |
|Benefits and expenses 2,978.8 2,848.9 8,740.3 7,376.2 |
| --------- --------- -------- -------- |
| Income before income tax 195.6 175.3 601.3 477.7 |
|Income tax expense (30.7) (53.2) (138.7) (116.0)|
| --------- ---------- -------- ---------|
| Net operating income (excluding net |
|realized investment gains/losses) $ 164.9 $ 122.1 $ 462.6 $ 361.7 |
|==============================================================================================================|
</TABLE>
Property/casualty revenues, excluding net realized investment
gains/losses, increased 18.9% for the nine months ended September 30, 1996 to
$9.3 billion compared to the same period a year ago. Property/casualty earned
premium increased $1.2 billion, or 18.9% from the prior years' comparable
period.
The increase in earned premium is due primarily to an increase in
personal lines premium resulting from cancellation of a quota share agreement,
under which Continental was ceding premium, and also an increase in mass
marketing business. Additionally, earned premium increased with the inclusion of
Continental business for the full nine months of 1996. These increases are
partially offset by a decline in workers' compensation premium.
Property/casualty profitability, as measured by pretax operating income
before realized gains, continued to show improvement in the third quarter.
Operating results reflect continued favorable loss trends particularly in
workers' compensation business, partially offset by increased weather related
catastrophe costs. CNA incurred pre-tax catastrophe losses of approximately
$280.2 million and $72.2 million in the first nine months and third quarter of
1996 compared to $115.9 million and $37.9 million for the respective periods in
1995. In addition, underwriting expenses reflect expected economies of scale
from merging the operations of Continental into CNA.
<PAGE>
Pretax operating income excluding net realized investment gains/losses
for the property/casualty insurance subsidiaries was $601.3 million and $195.6
million for the first nine months and three months ended September 30, 1996
compared to $477.7 million and $175.3 million for the same period a year ago.
Investment income increased 12.8% for the nine months ended September 30, 1996
to $1,384.3 million from $1,226.8 million for the comparable period a year ago.
The increase is primarily the result of inclusion of the Continental portfolio
for the full nine months of 1996. This increase was offset in part by a lower
asset base resulting from operating cash outflows in 1996 and the repayment of
$250 million in long-term debt, as discussed in the liquidity and capital
resource section. Third quarter 1996 investment income as compared to third
quarter 1995 investment income decreased 3.43% to $444.6 million from $460.4
resulting primarily from cash outflows as noted above. The bond segment of the
investment portfolio yielded 6.6% in the first nine months of 1996 compared with
7.0% for the same period a year ago. Underwriting losses for the nine and three
months ended September 30, 1996, were $783.0 million and $249.0 million,
compared to $749.1 million and $285.1 million for the same period in 1995.
(18)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
The net income of CNA's property/casualty insurance subsidiaries,
excluding net realized investment gains/losses, was $462.6 and $164.9 million
for the nine and three months ended September 30, 1996, compared to $361.7
million and $122.1 million for the same periods in 1995. Net realized investment
gains for the nine and three months ended September 30,1996 were $232.4 million
and $52.2 million, compared to $138.0 million and $52.3 million in the
comparable periods of 1995.
CNA's primary property/casualty subsidiary, Continental Casualty
Company ("Casualty"), is party to litigation with Fibreboard Corporation
("Fibreboard") involving coverage for certain asbestos-related claims and
defense costs (see Note E).
On July 27, 1995, the United States District Court for the Eastern
District of Texas entered judgment approving the Global Settlement Agreement
(see Note E for a discussion on the Global Settlement) and the Trilateral
Agreement. As expected, appeals were filed as respects both of these decisions.
On July 25, 1996, a panel of the United States Fifth Circuit Court of Appeals in
New Orleans affirmed the judgment approving the Global Settlement Agreement by a
2 to 1 vote and affirmed the judgment approving the Trilateral Agreement by a 3
to 0 vote. A petition has been filed for re-hearing by the entire Fifth Circuit
Court of Appeals as respects the decision on the Global Settlement Agreement.
No further appeal has been filed with respect to the Trilateral
Agreement and CNA believes that the time to file any such further appeal has
expired, and accordingly, CNA believes that court approval of the Trilateral
Agreement has become final. The implementation of the Trilateral Agreement has
the effect of settling Casualty's litigation with Fibreboard. CNA currently
expects that Casualty's litigation with Fibreboard will be dismissed during the
first quarter of 1997.
<PAGE>
Life Operations
- ---------------
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------|
|LIFE GROUP THIRD QUARTER NINE MONTHS |
|PERIOD ENDED SEPTEMBER 30 1996 1995 1996 1995 |
|(In millions of dollars) |
|---------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C>
| |
|Operating Summary (excluding net realized |
| investment gains/losses): |
|Revenues: |
| Premiums $ 848.6 $ 775.3 $2,488.3 $2,227.0 |
| Net investment income 98.6 88.8 295.1 266.0 |
| Other 32.7 19.1 75.1 43.0 |
| ------- ------- -------- ------- |
| 979.9 883.2 2,858.5 2,536.0 |
|Benefits and expenses 944.7 845.2 2,737.2 2,423.0 |
| ------- ------- -------- ------- |
| Income before income tax 35.2 38.0 121.3 113.0 |
|Income tax expense (12.3) (13.4) (43.8) (39.9)|
| -------- ------- -------- ------- |
| Net operating income (excluding net |
|realized investment gains/losses) $ 22.9 $ 24.6 $ 77.5 $ 73.1 |
| |
|=============================================================================================|
</TABLE>
CNA continues to build on the momentum established last year with the
introduction of new individual life and annuities products.
Life revenues, excluding net realized investment gains, were $2.9
billion, up 12.7% for the nine months ended September 30, 1996 compared to the
same period a year ago. Life premium revenues for the third quarter in 1996 were
$979.9 million, up 10.9% from the same quarter in 1995, with the primary growth
in both group business and individual life business, which markets term,
(19)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
universal life and annuities. Investment income increased 10.9% compared to the
same period a year ago due to a larger asset base generated from increased
cashflows from premium growth. The bond segment of the life investment
portfolio, which is the primary investment segment, yielded 6.7% in the first
nine months of 1996 compared with 7.0% for the same period a year ago.
Pretax operating income for the life insurance subsidiaries, excluding
net realized investment gains/losses, was $121.3 million and $35.2 million for
the nine and three months ended September 30, 1996, compared to $113.0 million
and $38.0 million for the same period in 1995.
CNA's life insurance subsidiaries' net income excluding net realized
investment gains/losses was $77.5 million and $22.9 million for the nine and
three months ended September 30, 1996 compared to $73.1 million and $24.6
million for the same period in 1995. Net realized investment gains for the nine
and three months ended September 30, 1996 were $79.0 million and $22.0 million,
compared to $72.9 million and $9.2 million for the same periods of 1995.
(20)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
INVESTMENTS:
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------|-------------------------------|
|Summary of General Account Investments at Market Value |Nine months ended September 30 |
| | 1996 |
| |----------------|--------------|
| | CHANGE IN | |
| SEPTEMBER 30 DECEMBER 31 | NET UNREALIZED| REALIZED |
|(In millions of dollars) 1996 1995 | GAINS(LOSSES) | GAINS(LOSSES)|
|---------------------------------------------------------------------------------|----------------|--------------|
<S> <C> <C> <C> <C>
| | | |
|Fixed maturity securities: | | |
|U. S. Treasury securities and | | |
| obligations of government agencies $ 9,948 $ 13,542 | $ (564) | $ 102 |
|Asset-backed securities 6,045 6,086 | (218) | 14 |
|Tax exempt securities 4,147 3,603 | (90) | 23 |
|Taxable 6,898 7,214 | (207) | 109 |
| -------- -------- | ------ | ---- |
| Total fixed maturity securities 27,038 30,445 | (1,079) | 248 |
|Stocks 975 918 | 15 | 148 |
|Short-term investments and other 6,855 4,482 | - | (5) |
|Derivative security investments 1 41 | - | 11 |
| -------- -------- | ------ | ---- |
| Total investments $ 34,869 $ 35,886 | (1,064) | 402 |
| ======== ======== | | |
|Separate accounts and discontinued operations | (116) | 85 |
|Participating policyholders' interest | 21 | (11) |
|Income tax benefit (expense) | 369 | (164) |
| | ------ | ----- |
| Net investment (losses) gains | $ (790) | $ 312 |
| | ====== | ==== |
|---------------------------------------------------------------------------------|----------------|--------------|
|---------------------------------------------------------------------------------|
|SHORT-TERM INVESTMENTS: |
|---------------------------------------------------------------------------------|
|Security repurchase collateral $ 603 $ 776 |
|Escrow account 1,066 1,045 |
|Other 4,493 1,904 |
| ----- ----- |
| Total short-term investments $6,162 $ 3,725 |
| ===== ===== |
| |
|---------------------------------------------------------------------------------|
</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 maturity 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 maturity securities are classified as available for sale.
<PAGE>
CNA holds a relatively small amount of derivative financial instruments
for purposes of enhancing income and total return. The derivative securities are
marked-to-market with valuation changes reported as realized investment gains
and losses. CNA's investment in, and risk in relation to, derivative securities
is not significant.
(21)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
The general account portfolio consists primarily of high quality
marketable fixed maturity securities, approximately 96% of which are rated as
investment grade. At September 30, 1996, tax-exempt securities and short-term
investments, excluding collateral for securities sold under repurchase
agreements, comprised approximately 12% and 16%, respectively, of the general
account's total investment portfolio compared to 10% and 8%, respectively, at
December 31, 1995. Historically, CNA has maintained short-term assets at a level
that provided for liquidity to meet its short-term obligations, as well as
reasonable contingencies and anticipated claim payout patterns. The current
level of short-term investments is anticipated to cover an increased volume of
Fibreboard claim payments (see Note E) resulting from the final approval of the
Trilateral Agreement, as well as settlement of security transactions. At
September 30, 1996, the major components of the short-term investment portfolio
consist primarily of high-grade commercial paper and U.S. Treasury bills.
Collateral for securities sold under repurchase agreements decreased $173
million to $603 million at September 30, 1996 from $776 million at December 31,
1995.
As of September 30, 1996, the market value of CNA's general account
investments in fixed maturities was $27.0 billion and was less than amortized
cost by approximately $20 million. This compares to a market value of $30.4
billion and $1,059 million of net unrealized investment gains at December 31,
1995. The gross unrealized investment gains and losses for the fixed maturity
securities portfolio at September 30, 1996, were $351 million and $371 million,
respectively, compared to $1,136 million and $77 million, respectively, at
December 31, 1995. The change in unrealized investment gains on the fixed
maturity portfolio of $1,079 million for the nine months ended September 30,
1996 is attributable, in large part, to increases in interest rates which have
an adverse effect on bond prices.
Net unrealized investment losses on general account fixed maturities at
September 30, 1996 include net unrealized losses on high yield securities of $1
million, compared to net unrealized gains of $67 million at December 31, 1995.
The change in unrealized investment gains on high yield securities is
attributable to increases in interest rates which have an adverse effect on bond
prices. 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. Fair values of high yield
securities in the general account were $1.2 billion at September 30, 1996,
compared to $1.9 billion at December 31, 1995.
CNA's general account also maintains an equity securities portfolio,
the fair value of which was $975 million at September 30, 1996 compared to cost
of $778 million reflecting unrealized gains of approximately $197 million. The
fair value of the equity securities portfolio in the general account was $918
million at December 31, 1995 compared to a cost of $736 million, reflecting
unrealized appreciation of approximately $182 million.
At September 30, 1996, total separate account cash and investments
amounted to $5.7 billion with taxable fixed maturity securities representing
approximately 83% of the separate accounts' portfolio. Approximately 80% of
separate account investments are used to fund guaranteed investments for which
Continental Assurance Company guarantees principal and a specified return to the
contractholders. The duration of fixed maturity securities included in the
guaranteed investment portfolio are matched approximately with the corresponding
payout pattern of the liabilities of the guaranteed investment contracts. The
fair value of all fixed maturity securities in the guaranteed investment
portfolio was $4.0 billion compared to $4.8 billion at December 31, 1995. At
September 30, 1996, amortized cost was greater than the fair value by
approximately $26 million. This compares to an unrealized gain of $53 million at
(22)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
December 31, 1995. The gross unrealized investment gains and losses for the
guaranteed investment fixed maturity securities portfolio at September 30, 1996,
were $56 million and $82 million, respectively.
Carrying values of high yield securities in the guaranteed investment
portfolio were $603 million at September 30, 1996 and $944 million December 31,
1995. Net unrealized investment losses on such high yield securities held were
$34 million at September 30, 1996, compared to $14 million at December 31, 1995.
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, 1996,
CNA's concentration in high yield bonds including separate accounts was
approximately 3% 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 half of one percent of its total assets.
Included in CNA's fixed maturity securities at September 30, 1996
(general and guaranteed investment portfolios) are $8.3 billion of asset-backed
securities, consisting of approximately 36% in collateralized mortgage
obligations ("CMO's"), 12% in corporate asset-backed obligations, and 42% in
U.S. Government 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, 1996, the fair value of
asset-backed securities was more than amortized cost by approximately $69
million compared to unrealized investment gains of $200 million at December 31,
1995. CNA limits the risks associated with interest rate fluctuations and
prepayment by concentrating its CMO investments in early planned amortization
classes with 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, 1996, 56% of the
general account's fixed maturity securities portfolio was invested in U.S.
Government securities, 25% in other AAA rated securities and 11% in AA and A
rated securities. CNA's guaranteed investment portfolio includes fixed maturity
securities comprised of 38% U.S. Government securities, 18% in other AAA rated
securities and 15% in AA and A rated securities. These ratings are primarily
from Standard & Poor's.
<PAGE>
FINANCIAL CONDITION:
|----------------------------------------------------------------------------|
|Financial Position September 30 December 31 |
|(In millions of dollars, except per share data) 1996 1995 |
|----------------------------------------------------------------------------|
| |
|Assets $60,795.1 $59,901.8|
|Stockholders' Equity 6,710.8 6,735.5|
|Unrealized Net Appreciation (Depreciation) |
| Included in Stockholders' Equity 143.1 933.1|
|Book Value per Common Share 106.17 106.56|
|----------------------------------------------------------------------------|
CNA's assets increased approximately $900 million to $60.8 billion as
of September 30, 1996. CNA's investment portfolio decreased by $1.0 billion to
$34.9 billion reflecting a reduction in pretax unrealized gains of $1.2 billion
from December 31, 1995 as discussed in the investments section above.
Debt security carrying values are highly susceptible to changes in
interest rates and were unfavorably affected by a general increase in interest
(23)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
rates that occurred in the latter part of the first quarter of 1996 and
continued throughout the second quarter. Interest rates declined somewhat in the
third quarter of 1996 resulting in an increase in net unrealized appreciation of
approximately $100 million for the quarter.
The statutory surplus of the property/casualty subsidiaries increased
3.1% in the first nine months of 1996 to approximately $5.9 billion. The
statutory surplus of the life insurance subsidiaries remained at $1.1 billion.
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 the Condensed Consolidated Financial
Statements for further discussion of environmental pollution exposures.
LIQUIDITY AND CAPITAL RESOURCES:
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 1996, CNA's operating activities used cash
flows of approximately $65 million, compared with positive cash flow of $409
million in 1995. The decrease is primarily the result of cash flows used by
underwriting activities including higher payments for catastrophe related losses
and as discussed in Note E, increased settlement of environmental pollution and
asbestos related claim exposures resulting in a large volume of claim payments
in 1996. Also contributing to the decreased operating cash flow is increased
interest payments on acquisition debt for the full nine month period in 1996
compared to approximately five months in 1995.
Net cash flows from operations are generally 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.
To finance the acquisition of Continental (including the refinancing of
$205 million of Continental debt) CNA entered into a five-year $1.325 billion
revolving credit facility. The average interest rate on the borrowings under the
revolving credit facility at September 30, 1996 was 5.66%. In 1996, CNA
renegotiated the credit facility extending the maturity by one year. Under the
terms of the facility, CNA may prepay the debt without penalty, giving CNA
flexibility to arrange longer-term financing on more favorable terms.
To offset the variable rate characteristics of the facility, CNA
entered into five-year interest rate swap agreements with several banks. These
agreements convert variable rate debt into fixed rate debt resulting in fixed
rates on notional amounts of $1.2 billion. The effect of these interest rate
swaps was to increase interest expense by $1.9 million and $5.6 million for the
quarter and nine months ended September 30, 1996.
In 1995, to take advantage of favorable interest rate spreads, CNA
established a Commercial Paper Program, borrowing $500 million from investors to
replace a like amount of bank financing. In the first nine months of 1996 CNA
increased commercial paper borrowings by $175 million replacing a like amount of
bank financing. The weighted-average yield on commercial paper at September 30,
1996 was 5.66%. The commercial paper borrowings are classified as long-term as
(24)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
$675 million of the committed bank facility supports the commercial paper
program.
The weighted-average interest rate (interest and facility fees) on the
acquisition debt, which includes the revolving credit facility, commercial paper
and the effect of the interest rate swaps, was 6.36% at September 30, 1996.
On March 1, 1996, CNA repaid at the due date $250 million of 8 5/8%
senior notes.
The chart below lists the current insurance ratings for CNA's Continental
Casualty Company Intercompany Pool, Continental Insurance Company Intercompany
Pool and Continental Assurance Company. Also shown are the ratings on the senior
debt of both CNA Financial Corporation (CNA) and The Continental Corporation
(Continental) and CNA's commercial paper and preferred stock.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
|-----------------|----------------------------------|------------------------------------------------|
| | INSURANCE RATINGS | DEBT AND STOCK RATINGS |
| |----------------------------------|------------------------------------------------|
| | Financial Strength | |
| |----------|-----------|-----------| |
| | | | | CNA | Continental |
| | | | |-----------|-----------|----------|-------------|
| | | | |Senior Debt|Commercial |Preferred |Senior Debt |
| | CCC | CAC | CIC | | Paper | Stock | |
| |----------|-----------|-----------| | | | |
| | | | |-----------|-----------|----------|-------------|
| | | | | | | | |
|A.M. Best | A | A | A- | - | - | - | - |
| | | | | | | | |
| | | | | | | | |
|Moody's | A1 | A1 | A2 | A3 | P2 | a3 | Baa1 |
| | | | | | | | |
| |----------|-----------|-----------| | | | |
| | Claims Paying Ability | | | | |
| |----------|-----------|-----------| | | | |
| | | | | | | | |
|Standard & Poor's| A+ | AA | A- | A- | A2 | A- | BBB- |
| | | | | | | | |
| | | | | | | | |
|Duff & Phelps | AA- | AA | - | A- | - | A- | - |
|-----------------|----------|-----------|-----------|-----------|-----------|----------|-------------|
| | | | | | | | |
|-----------------|----------|-----------|-----------|-----------|-----------|----------|-------------|
</TABLE>
(25)
<PAGE>
CNA FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - concluded
Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used for long-lived assets and certain identifiable intangibles
to be disposed of. This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by the entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This Statement applies to
financial statements for fiscal years beginning after December 15, 1995. This
Statement did not have a significant impact on CNA.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. The requirements of this
Statement will generally be effective for 1996 financial statements. This
Statement has no impact on the results of operations of CNA as the Company has
no compensation which qualifies.
In June 1996, the FASB issued SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This Statement
establishes accounting standards based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognized the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. The statement also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. This Statement is effective for transfers and serving of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. This Statement will not have a
significant impact on CNA.
(26)
<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 29
(27) Financial Data Schedule 27 30
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K for the three months ended September
30, 1996.
(27)
<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 14, 1996 By: S/PETER E. JOKIEL
----------------- --------------------------
Peter E. Jokiel
Senior Vice President and
Chief Financial Officer
(28)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
CNA FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
- ------------------------------------------------------------------------------------------------------------
Period Ended September 30 Third Quarter Nine Months
(In millions, except per share data) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per share:
Net income ....................................... $ 238.5 $ 166.3 $ 769.9 $ 575.8
Less preferred stock dividends.................... 1.6 1.3 4.6 5.1
----- ----- ----- ------
Net income available to common stockholders....... $ 236.9 $ 165.0 $ 765.3 $ 570.7
====== ====== ====== ======
Weighted average shares outstanding............... 61.8 61.8 61.8 61.8
====== ====== ====== ======
Net income per common share....................... $ 3.83 $ 2.66 $ 12.38 $ 9.23
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(29)
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
</LEGEND>
<CIK> 0000021175
<NAME> CNA FINANCIAL CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 27,038
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 975
<MORTGAGE> 105
<REAL-ESTATE> 30
<TOTAL-INVEST> 34,869
<CASH> 265
<RECOVER-REINSURE> 7,273
<DEFERRED-ACQUISITION> 1,778
<TOTAL-ASSETS> 60,795
<POLICY-LOSSES> 35,580
<UNEARNED-PREMIUMS> 4,786
<POLICY-OTHER> 122
<POLICY-HOLDER-FUNDS> 707
<NOTES-PAYABLE> 2,774
<COMMON> 155
0
150
<OTHER-SE> 6,406
<TOTAL-LIABILITY-AND-EQUITY> 60,795
10,049
<INVESTMENT-INCOME> 1,676
<INVESTMENT-GAINS> 487
<OTHER-INCOME> 454
<BENEFITS> 8,401
<UNDERWRITING-AMORTIZATION> 1,568
<UNDERWRITING-OTHER> 1,470
<INCOME-PRETAX> 1,072
<INCOME-TAX> 302
<INCOME-CONTINUING> 770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 770
<EPS-PRIMARY> 12.38
<EPS-DILUTED> 12.38
<RESERVE-OPEN> 24,955
<PROVISION-CURRENT> 5,784
<PROVISION-PRIOR> (142)
<PAYMENTS-CURRENT> 1,585
<PAYMENTS-PRIOR> 4,796
<RESERVE-CLOSE> 24,216
<CUMULATIVE-DEFICIENCY> (142)
</TABLE>
