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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 5, 1998
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CNA FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 1-5823 36-6169860
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
CNA Plaza, Chicago, Illinois 60685
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (312) 822-5000
(Former Name or Former Address, if Changed Since Last Report)
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<PAGE>
Item 5. Other Events
CNA Reports Second Quarter Earnings and Estimate of Reorganization Charges
Board of Directors Approves Share Repurchase Program
CHICAGO, August 5, 1998 -- CNA Financial Corporation (NYSE: CNA) announced its
earnings for the second quarter and an estimated range of charges related to
reorganization activities in several of its businesses.
Second Quarter Results and Six-Month Comparisons
Net income for the second quarter of 1998 was $210 million, or $1.12 per share,
compared with $235 million, or $1.26 per share, for the same quarter in 1997.
Excluding net realized investment gains and losses, net income for the second
quarter of 1998 amounted to $64 million, or $0.33 per share, compared with $126
million, or $0.67 per share, for the same quarter in 1997. Net realized
investment gains for the second quarter of 1998 were $146 million, or $0.79 per
share, compared with $109 million, or $0.59 per share, for the comparable period
in 1997. (The company does not have any dilutive instruments related to its
common shares. Accordingly, basic and diluted earnings are the same.)
Catastrophe losses had an unfavorable impact on earnings of $82 million after
tax, or $0.44 per share, for the second quarter of 1998 as compared to an
unfavorable impact of $29 million, or $0.16 per share, for the second quarter of
1997. Consolidated revenues for the second quarter of 1998 were $4.4 billion
compared with $4.2 billion for the second quarter of 1997.
"CNA's results reflect continued soft market conditions, as well as higher
catastrophe losses compared to last year," said CNA Chairman and Chief Executive
Officer Dennis H. Chookaszian. "As a market leader in many lines of insurance,
CNA is taking decisive action to increase both customer satisfaction and
shareholder value as we continue to face intense price competition."
Net income for the first six months of 1998 was $443 million, or $2.37 per
share, compared with $412 million, or $2.21 per share, for the first six months
of 1997. Excluding net realized investment gains and losses, net income for the
first six months of 1998 amounted to $181 million, or $0.96 per
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share, compared with $262 million, or $1.40 per share, for the first six months
of 1997. Net realized investment gains were $262 million, or $1.41 per share,
for the first half of 1998, compared with net realized investment gains of $150
million, or $0.81 per share, for the same period in 1997. Catastrophe losses
were $98 million after tax, or $0.53 per share, for the first six months of
1998, as compared to $49 million, or $0.27 per share, for the comparable period
of 1997.
Consolidated revenues for the first six months of 1998 were $8.8 billion,
compared to $8.4 billion for the first six months of 1997.
Estimated Reorganization Charges
Separately, CNA announced current estimates of the financial implications of its
initiatives to achieve world-class performance. The announcement encompasses all
of its 29 strategic business units (SBUs), as well as corporate support areas.
The company anticipates finalizing its plan by year-end 1998 and estimates that
it will record a pre-tax charge of $100 million to $140 million for
restructuring costs. Also, over the next 12 to 18 months, the company expects
additional pre-tax transition costs of $200 million to $260 million related to
the restructuring. The pre-tax impact on third-quarter earnings from these
reorganization charges is estimated to be $175 million to $260 million.
"World-class companies continually innovate and change. CNA is committed to
providing quality products and service, and being a leader in our chosen
markets," said Chookaszian. "Most of our SBUs are market leaders today and are
growing. Over the past three years, CNA has achieved record shareholder equity,
net income, and premium revenue," Chookaszian said. "We are building an even
stronger future with our customers and distribution partners from this position
of strength."
Among the actions expected as part of the organizational changes are
* closing several facilities
* consolidating certain processing locations
* reducing CNA's current workforce of approximately 24,000 employees by
about 10 percent
* enhancing computer systems
While the company has not finalized its analysis of anticipated costs savings,
it estimates that its world-class initiatives, which include the restructuring
plan as well as revenue growth and operating efficiencies, will result in
anticipated reductions of approximately 200 basis points in the company's
expense ratio, and savings of approximately $300 million to $350 million on an
annualized basis. The company expects a portion of the anticipated savings will
be realized beginning in the latter part of 1998 and to achieve this reduced
expense level within 18 months.
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"We regret the impact that job losses will have on our employees who are
affected," Chookaszian said. "We are committed to treating them professionally
during this transition."
CNA Financial Corp. Board Chairman Edward J. Noha said, "Over the past 20 years
CNA has responded successfully to significant challenges in the insurance
marketplace while maintaining an unshakable commitment to financial strength."
Share Repurchase Program Approved
The board of directors has today approved a plan to purchase, in open market or
privately negotiated transactions, its outstanding common stock from time to
time as market conditions warrant.
"The share repurchase program demonstrates our confidence in CNA's long term
prospects and is consistent with our efforts to enhance shareholder value," said
Chookaszian.
CNA ranks among the top 10 U.S. insurance groups with 1997 revenues of $17
billion. Headquartered in Chicago, CNA is a leading multiline insurer, serving
individuals and businesses with a broad range of insurance products and
insurance-related services. CNA products and services are marketed through
multiple distribution channels, including independent agents, brokers, general
agents and direct sales. Since 1897, CNA has built on a foundation of financial
strength, stability and commitment to customers and business partners. CNA is
the registered service mark and trade name of CNA Financial Corporation. Shares
of CNA Financial Corporation have traded at a split-adjusted high of $53.260 and
a low of $36.460 for the 52-week period ending August 4, 1998.
FORWARD LOOKING STATEMENT
The statements contained in this press release which are not historical facts
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, product and policy demand and market responses, the effect
of economic conditions, the impact of competitive products, policies and
pricing, product and policy development, regulatory changes and conditions,
rating agency policies and practices, development of claims and the effect on
loss reserves, the performance of reinsurance companies under reinsurance
contracts with the Company, investment portfolio developments and reaction to
market conditions, the results of financing efforts, the actual closing of
contemplated transactions and agreements and other risks detailed in the
Company's Securities and Exchange Commission filings. No assurance can be given
that the actual results of operations and financial condition will conform to
the forward-looking statements contained herein.
# # #
TABLES TO FOLLOW
NOTE: A conference call for the investment community will be held from 3:00 to
3:30 p.m. Eastern Daylight Time today. On the conference call will be Dennis
Chookaszian, chairman and CEO of CNA, and W. James MacGinnitie, chief financial
officer of CNA. Participants can access the call by dialing 800-754-1053. The
call is available to the media, but questions will be restricted to the
investment community. A taped replay of the call will be available, beginning
one hour after the call ends, until 6:00 p.m. Eastern Daylight Time on Thursday,
August 6, 1998, by dialing 888-893-5820.
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CNA FINANCIAL CORPORATION
<TABLE>
<CAPTION>
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1998 1997
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In Earnings In Earnings
(In millions of dollars, except per share data) Millions Per Share Millions Per Share
- -----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30
<S> <C> <C> <C> <C>
Revenues.......................................... $ 4,430 - $ 4,243 -
Net Income Excluding Net Realized
Investment Gains/Losses......................... $ 64 $ 0.33 $ 126 $ 0.67
Net Realized Investment Gains .................... 146 0.79 109 0.59
------- ---------
------- ------------ -------------
Net Income........................................ $ 210 $ 1.12 $ 235 $ 1.26
------- --------- ------------ -------------
SIX MONTHS ENDED JUNE 30
Revenues......................................... $ 8,757 - $ 8,375 -
Net Income Excluding Net Realized
Investment Gains/Losses........................ $ 181 $ 0.96 $ 262 $ 1.40
Net Realized Investment Gains ................... 262 1.41 150 0.81
------- --------- ---------- -------------
Net Income....................................... $ 443 $ 2.37 $ 412 $ 2.21
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FINANCIAL POSITION JUNE 30 DECEMBER 31
(In millions of dollars, except per share data) 1998 1997
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<S> <C> <C>
Stockholders' Equity.............................. $ 8,787 $ 8,309
Net Unrealized Appreciation
Included in Stockholders' Equity............ 627 589
Book Value per Common Share....................... 46.59 44.01
Weighted Average Outstanding Shares of
Common Stock................................. 185.4 185.4
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SUPPLEMENTAL FINANCIAL DATA SECOND QUARTER SIX MONTHS
PERIOD ENDED ENDED JUNE 30 1998 1997 1998 1997
(In millions of dollars)
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NET INCOME (EXCLUDING NET REALIZED
INVESTMENT GAINS/LOSSES):
<S> <C> <C> <C> <C>
Property and Casualty................................ $ 74 $ 125 $ 200 $ 264
Life................................................. 20 24 38 47
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Total Insurance..................................... 94 149 238 311
Interest Expense and Other............................ (30) (23) (57) (49)
====== ====== ===== =====
$ 64 $ 126 $ 181 $ 262
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REALIZED INVESTMENT GAINS (LOSSES),
NET OF TAX AND POLICYHOLDERS' INTEREST:
Property and Casualty............................... $ 122 $ 82 $ 208 $ 94
Life................................................ 25 26 55 44
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Total Insurance................................... 147 108 263 138
Other............................................... (1) 1 (1) 12
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$ 146 $ 109 $ 262 $ 150
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</TABLE>
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CNA FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
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PERIOD ENDED JUNE 30 SECOND QUARTER SIX MONTHS
1998 1997 1998 1997
(In millions of dollars, except per share data)
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Revenues:
<S> <C> <C> <C> <C>
Premiums........................................ $ 3,467 $ 3,348 $ 6,835 $ 6,695
Net investment income........................... 558 547 1,120 1,111
Realized investment gains ...................... 232 172 415 238
Other........................................... 172 176 387 331
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4,429 4,243 8,757 8,375
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Benefits and expenses:
Insurance claims and policyholders' benefits.... 2,937 2,860 5,787 5,752
Other operating expenses........................ 1,208 1,041 2,355 2,053
------- -------- ------ --------
4,145 3,901 8,142 7,805
------- -------- ------ --------
Income before income tax...................... 284 342 615 570
Income tax expense................................ 74 107 172 158
------- ------- ------ --------
Net income $ 210 $ 235 $ 443 $ 412
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EARNINGS PER SHARE
Net income ....................................... $ 1.12 $ 1.26 $ 2.37 $ 2.21
====== ======= ====== =======
Weighted average outstanding shares of
common stock (in millions of shares).............. 185.4 185.4 185.4 185.4
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</TABLE>
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CNA FINANCIAL CORPORATION
<TABLE>
<CAPTION>
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SUPPLEMENTAL STATUTORY DATA - OPERATIONS SECOND QUARTER SIX MONTHS
PERIOD ENDED JUNE 30 1998 1997 1998 1997
(In millions of dollars, except ratios)
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PROPERTY/CASUALTY COMPANIES:
<S> <C> <C> <C> <C>
Premiums written............................ $ 2,846 $ 2,834 $ 5,818 $ 5,506
Premiums earned............................. 2,638 2,565 5,189 5,031
Underwriting loss........................... (349) (308) (687) (660)
Investment income........................... 420 444 845 872
Trade ratios:
Loss....................................... 79.1% 78.6% 78.5% 79.0%
Combined (before policyholder dividends)... 109.6% 107.7% 108.7% 109.1%
Dividends to policyholders................. 1.0% 0.7% 0.9% 0.9%
LIFE COMPANIES:
Premium income............................. 876 890 1,777 1,849
CNA INSURANCE NET PREMIUM VOLUME
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Property/Casualty:
Commercial.................................. $ 2,298 $ 2,502 $ 4,698 $ 4,657
Personal.................................... 479 478 988 936
Involuntary Risks........................... 69 (146) 132 (87)
Life:
Individual.................................. 197 218 429 449
Group....................................... 679 672 1,348 1,400
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$ 3,722 $ 3,724 $ 7,595 $ 7,355
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SUPPLEMENTAL STATUTORY DATA - FINANCIAL POSITION JUNE 30 DECEMBER 31
(In millions of dollars, except ratios) 1998 1997
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PROPERTY/CASUALTY COMPANIES:
Estimated statutory surplus......................... $ 7,019 $ 7,123
Estimated written to surplus ratio.................. 1.5 1.4
Claim and claim expense reserves.................... $ 24,164 $ 24,088
Ratio of reserves to twelve months premium
revenue........................................... 2.4 2.4
LIFE COMPANIES:
Statutory surplus................................... $ 1,281 $ 1,224
Life insurance in force............................. 351,347 311,598
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</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNA FINANCIAL CORPORATION
Date: August 6, 1998 By: S\W. JAMES MACGINNITIE
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W. James MacGinnitie
Senior Vice President and
Chief Financial Officer
