================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended December 31, 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) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ------------------- ------------------------- Common Stock New York Stock Exchange with a par value Chicago Stock Exchange of $2.50 per share Pacific Stock Exchange ----------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None ------------------------------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 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 period 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.... As of March 3, 1997, 61,798,262 shares of common stock were outstanding and the aggregate market value of the common stock of CNA Financial Corporation held by non-affiliates was approximately $1,077 million. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the CNA Financial Corporation 1996 Annual Report to Shareholders are incorporated by reference into Parts I and II of this Report. Portions of the CNA Financial Corporation Proxy Statement prepared for the 1997 annual meeting of shareholders, pursuant to Regulation 14A, are incorporated by reference into Part III of this Report. ================================================================================
CNA FINANCIAL CORPORATION FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1996 Item Page Number PART I Number - ------ ------ 1 Business............................................. 3 2 Properties........................................... 13 3 Legal Proceedings.................................... 14 4 Submission of Matters to a Vote of Security Holders.. 14 PART II 5 Market for the Registrant's Common Stock and Related Stockholder Matters........................... 17 6 Selected Financial Data.............................. 17 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................... 17 8 Financial Statements and Supplementary Data........... 17 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 17 PART III 10 Directors and Executive Officers of the Registrant..... 18 11 Executive Compensation................................. 18 12 Security Ownership of Certain Beneficial Owners and Management............................................. 18 13 Certain Relationships and Related Transactions......... 18 PART IV 14 Financial Statements, Schedules, Exhibits and Reports on Form 8-K............................................ 18 2
PART I ITEM 1. BUSINESS CNA Financial Corportion ("CNA") was incorporated in 1967 as the parent company of Continental Casualty Company ("CCC"), incorporated in 1897, and Continental Assurance Company ("CAC") incorporated in 1911. In 1975, CAC became a wholly-owned subsidiary of CCC. On May 10, 1995, CNA acquired all the outstanding common stock of The Continental Corporation ("Continental") and it became a wholly owned subsidiary of CNA. The Continental Corporation, a New York corporation incorporated in 1968, is an insurance holding company. Its principal subsidiary, The Continental Insurance Company ("CIC") was organized in 1853. The principal business of Continental is the ownership of a group of property and casualty insurance companies. CNA's property and casualty insurance operations are conducted by CCC and its property and casualty insurance affiliates and CIC and its property and casualty insurance affiliates. Life insurance operations are conducted by CAC and its life insurance affiliates. CNA's principal business is insurance conducted through its insurance subsidiaries. As multiple-line insurers, the insurance companies underwrite property, casualty, life and accident and health coverages, as well as pension products and annuities. Their principal market for insurance products is the United States. COMPETITION All aspects of the insurance business are highly competitive. CNA's insurance operations compete with a large number of stock and mutual insurance companies and other entities for both producers and customers and must continuously allocate resources to refine and improve insurance products and services. There are approximately 3,300 companies that sell property/casualty insurance in the United States, approximately 900 of which operate in all or most states. CNA's consolidated property/casualty subsidiaries (including CIC for the full year of 1995) would have been ranked as the third largest property/casualty insurance organization in 1995 based upon statutory net written premium. There are approximately 1,770 companies selling life insurance (including accident and health insurance and pension products and annuities) in the United States. CAC is ranked as the twenty-second largest life insurance organization based on 1995 consolidated statutory premium volume. DIVIDENDS BY INSURANCE SUBSIDIARIES The payment of dividends to CNA by its insurance affiliates without prior approval of the affiliate's domiciliary state insurance commissioners is limited to amounts determined by formula in accordance with the accounting practices prescribed or permitted by the state's insurance department. This formula varies by state. The formula for the majority of the states is the greater of 10% of prior year statutory surplus or prior year statutory net income, less the aggregate of all dividends paid during the twelve months prior to date of payment. Some states, however, have an additional stipulation that dividends can't exceed prior year surplus. Based upon the various state formulas, approximately $941 million in dividends can be paid to CNA by its insurance affiliates in 1997 without prior approval. All dividends must be reported to the domiciliary insurance department prior to declaration and payment. 3
REGULATION The insurance industry is subject to comprehensive and detailed regulation and supervision throughout the United States. Each state has established supervisory agencies with broad administrative power relative to licensing insurers and agents, approving policy forms, establishing reserve requirements, fixing minimum interest rates for accumulation of surrender values and maximum interest rates of policy loans, prescribing the form and content of statutory financial reports, regulating solvency and the type and amount of investments permitted. Regulatory powers also extend to premium rate regulations which require that rates not be excessive, inadequate or unfairly discriminatory. In addition to regulation of dividends by insurance subsidiaries discussed above, intercompany transfers of assets may be subject to prior notice or approval, depending on the size of such transfers and payments in relation to the financial position of the insurance affiliates making the transfer. Insurers are also required by the states to provide coverage to insureds who would not otherwise be considered eligible by the insurers. Each state dictates the types of insurance and the level of coverage which must be provided to such involuntary risks. CNA's insurance subsidiaries' share of these involuntary risks is mandatory and generally a function of its respective share of the voluntary market by line of insurance in each state. After failing to enact the massive health reform introduced in 1994, Congress passed a health insurance reform bill in August of 1996 and the President signed it into law (P.L. 104-191) on August 21, 1996. The new law does little for Americans without health insurance but it will protect those who have health insurance from losing it. The 105th Congress is expected to consider additional incremental health care reform as it attempts to provide greater access and affordability to Americans. Among the bills that have been introduced this year are measures that would allow small businesses to band together to form association health plans to buy insurance; bar the use of clauses restricting what doctors can tell patients about treatment options; restructure the Medicare program; subsidize health insurance for uninsured children; and limit or prohibit underwriting on the basis of genetic information. We cannot predict if any of these proposals will be enacted or the extent to which they may affect the insurance industry. Last year, a moderate product liability bill was vetoed and Congress was not able to override the veto. This year, a similar product liability reform bill was introduced in the Senate. The bill contains many of the provisions of the vetoed bill and thus, one cannot predict if any reform will be adopted. Although federal standards would create more uniform laws, tort reform supporters still look primarily to the states for passage of reform measures. Over the last decade, many states have passed some type of reform, but more recently, state courts have modified or overturned approximately 38% of these reforms. Additionally, new causes of action and theories of damages are more frequently proposed in state courts or legislatures. Continued unpredicability in the law means that insurance underwriting and rating is difficult in commercial lines, professional liability and some specialty coverages. Environmental clean-up remains the subject of both federal and state regulation. Last year Congress and the Clinton Administration failed to reach an agreement on efforts to overhaul the federal Superfund hazardous waste program. The legislative stalemate was the result of a failure by Superfund stakeholders and Congress to reach a compromise on clean-up standards, the repeal of retroactive liability and how to finance future clean-up costs. In the new Congress, Superfund reform has been listed as one of the legislative priorities. At this time we cannot predict if any reform will be enacted. 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 concerning clean up of hazardous waste. Judicial interpretations in many cases have expanded the scope of coverage and liability beyond the original intent of the policies. See Note E of the Consolidated Financial Statements of the 1996 Annual Report to Shareholders for further discussion. 4
REGULATION --(CONTINUED) In recent years, increased scrutiny of state regulated insurer solvency requirements by certain members of the U.S. Congress, resulted in the National Association of Insurance Commissioners developing industry minimum Risk-Based Capital (RBC) requirements, establishing a formal state accreditation process designed to more closely regulate for solvency, minimize the diversity of approved statutory accounting and actuarial practices and increasing the annual statutory statement disclosure requirements. The RBC formulas are designed to identify an insurer's minimum capital requirements based upon the inherent risks (e.g., asset default, credit and underwriting) of its operations. In addition to the minimum capital requirements, the RBC formula and related regulations identify various levels of capital adequacy and corresponding actions that the state insurance departments should initiate. The level of capital adequacy below which insurance departments would take action is defined as the Company Action Level. As of December 31, 1996, all of CNA's property/casualty and life insurance affiliates have adjusted capital amounts in excess of Company Action Levels. REINSURANCE Information as to CNA's reinsurance business is set forth in Note G of the Consolidated Financial Statements of the 1996 Annual Report to Shareholders, incorporated by reference in Item 8, herein. EMPLOYEE RELATIONS CNA has approximately 24,300 full-time equivalent employees and has experienced satisfactory labor relations. CNA has never had work stoppages due to labor disputes. CNA has comprehensive benefit plans for substantially all of its employees, including retirement plans, savings plans, disability programs, group life programs and group health care programs. BUSINESS SEGMENTS Information as to CNA's business segments is set forth in Note M of the Consolidated Financial Statements of the 1996 Annual Report to Shareholders, incorporated by reference in Item 8, herein. 5
PROPERTY/CASUALTY BUSINESS CNA's property/casualty operations market commercial and personal lines of property/casualty insurance through independent agents and brokers. Commercial lines customers include large national corporations, small and medium-sized businesses, groups and associations and professionals. Coverages are written primarily through traditional insurance contracts under which risk is transferred to the insurer. Many large commercial account policies are written under retrospectively-rated contracts which are experience-rated. Premiums for such contracts may be adjusted, subject to limitations set by contract, based on loss experience of the insureds. Other experience-rated policies include provisions for dividends based on loss experience. Experience-rated contracts reduce but do not eliminate risk to the insurer. Commercial business includes such lines as workers' compensation, general liability and commercial automobile, professional and specialty, multiple peril and accident and health coverages as well as reinsurance. Professional and specialty coverages include liability coverage for architects and engineers, lawyers, accountants, medical and dental professionals; directors and officers liability; and other specialized coverages. The major components of CNA's commercial business are professional and specialty coverages, general liability and commercial automobile and workers' compensation which accounted for 18%, 17% and 17%, respectively, of 1996 premiums earned. The property/casualty group markets personal lines of insurance, primarily automobile and homeowners' coverages sold to individuals under monoline and package policies. CNA is required by the various states in which it does business to provide coverage for risks that would not otherwise be considered under CNA's underwriting standards. CNA's share of involuntary risks is mandatory and generally a function of its share of the voluntary market by line of insurance in each state. Premiums for involuntary risks result from mandatory participation in residual markets. Property/casualty involuntary risks include mandatory participation in residual markets, statutory assessments for insolvencies of other insurers and other charges. CNA also provides loss control, policy administration and claim administration services under service contracts for fees. Such services are provided primarily in the workers' compensation market, where retention of more risk by the employer through self-insurance or high-deductible programs has become increasingly prevalent. 6
PROPERTY/CASUALTY BUSINESS--(CONTINUED) <TABLE> <CAPTION> The following table sets forth supplemental data on a GAAP basis, except where indicated, for the property/casualty business: - --------------------------------------------------------------------------------------------------------------- Year Ended December 31 1996 1995(a) 1994 1993 1992 (In millions of dollars) - --------------------------------------------------------------------------------------------------------------- Commercial Premiums Earned <S> <C> <C> <C> <C> <C> Professional and specialty............... $ 1,844.9 $ 1,557.7 $ 1,010.1 $ 798.9 $ 741.5 General liability and commercial automobile 1,754.1 1,648.9 1,261.1 1,154.5 1,176.0 Workers' compensation.................... 1,542.5 1,475.8 1,426.3 1,501.5 1,669.2 Multiple peril.......................... 1,046.9 869.9 389.0 368.5 374.9 Accident and health..................... 919.0 699.1 557.1 428.3 352.6 Reinsurance and other.................... 1,188.9 973.9 773.5 712.2 556.0 --------- --------- --------- ---------- --------- $ 8,296.3 $ 7,225.3 $ 5,417.1 $ 4,963.9 $ 4,870.2 ========= ========= ========= ========== ========= Personal Premiums Earned Personal lines packages.................. $ 1,063.3 $ 781.6 $ 562.6 $ 510.7 $ 447.3 Monoline automobile and property coverages 366.5 325.4 314.2 343.5 395.0 Accident and health...................... 168.9 107.8 88.9 85.6 88.6 --------- ---------- --------- ---------- --------- $ 1,598.7 $ 1,214.8 $ 965.7 $ 939.8 $ 930.9 ========= ========== ========= ========== ========= Involuntary Risks Premiums Earned (b) Workers' compensation.................... $ 135.6 $ 178.2 $ 350.0 $ 292.3 $ 451.4 Private passenger automobile............. 57.9 79.7 46.4 23.2 52.5 Commercial automobile.................... 36.4 19.9 54.3 50.3 44.9 Property and multiple peril.............. 2.2 5.9 5.0 5.5 3.7 --------- ---------- --------- --------- --------- $ 232.1 $ 283.7 $ 455.7 $ 371.3 $ 552.5 ========= ========== ========= ========= ========= Net Investment Income and Other Income Commercial............................... $ 1,943.3 $ 1,713.1 $ 1,145.1 $ 979.8 $ 1,087.3 Personal................................. 353.0 230.4 177.6 156.1 165.3 Involuntary risks........................ 93.4 104.3 88.1 75.7 83.6 --------- ---------- --------- --------- --------- $ 2,389.7 $ 2,047.8 $ 1,410.8 $ 1,211.6 $ 1,336.2 ========= ========== ========= ========= ========= Underwriting (Loss) Commercial............................... $ (853.1) $ (920.8) $ (945.7) $(1,535.6) $(2,505.9) Personal................................ (183.8) (101.9) (185.2) (99.7) (152.8) Involuntary risks........................ (106.3) (98.8) (70.3) (156.5) (340.9) ---------- ---------- ---------- ---------- ---------- $(1,143.2) $(1,121.5) $(1,201.2) $(1,791.8) $(2,999.6) ========== ========== ========== ========== ========== - -------------------------------------------------------------------------------------------------------------- </TABLE>
<TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------- Year Ended December 31 1996 1995(a) 1994 1993 1992 (In millions of dollars) - --------------------------------------------------------------------------------------------------------------- Trade Ratios (c) <S> <C> <C> <C> <C> <C> Loss ratio............................... 76.4% 77.9% 81.9% 96.2% 116.7% Expense ratio........................... 30.9 29.4 28.3 27.2 26.2 Combined ratio (before policyholder dividends)............................... 107.3 107.3 110.2 123.4 142.9 Policyholder dividend ratio.............. 1.6 3.0 4.8 3.9 1.9 Trade Ratios - Statutory basis (c) Loss ratio............................... 76.8% 78.6% 82.2% 96.4% 116.3% Expense ratio............................ 31.6 29.2 27.8 27.1 25.6 Combined ratio (before policyholder dividends)............................... 108.4 107.8 110.0 123.5 141.9 Policyholder dividend ratio.............. 1.4 2.1 3.8 3.1 2.4 Other Data - Statutory basis (d) Capital and surplus...................... $6,348.8 $5,695.9 $3,367.3 $3,598.4 $3,135.8 Written to surplus ratio................. 1.6 1.7 2.0 1.7 2.0 - --------------------------------------------------------------------------------------------------------------- </TABLE> (a) Premium earned, net investment income and underwriting loss includes the results of The Continental Corporation since May 10, 1995. (b) Property/casualty involuntary risks include mandatory participation in residual markets, statutory assessments for insolvencies of other insurers and other involuntary charges. 7
PROPERTY/CASUALTY BUSINESS--(CONTINUED) (c) GAAP trade ratios reflect the results of Continental Casualty Company and its property/casualty insurance subsidiaries for the entire year, along with the results of The Continental Insurance Company and its property/casualty insurance subsidiaries since May 10, 1995. Statutory trade ratios reflect the results of Continental Casualty Company and its property/casualty insurance subsidiaries and The Continental Insurance Company and its property/casualty insurance subsidiaries since January 1, 1995. Prior year ratios have not been restated to include Continental. Trade ratios are industry measures of property/casualty underwriting results. The loss ratio is the percentage of incurred claim and claim adjustment expenses to premiums earned. Under generally accepted accounting principles, the expense ratio is the percentage of underwriting expenses, including the change in deferred acquisition costs, to premiums earned. Under statutory accounting principles, the expense ratio is the percentage of underwriting expenses (with no deferral of acquisition costs) to premiums written. The combined ratio is the sum of the loss and expense ratios. The policyholder dividend ratio is the ratio of dividends incurred to premiums earned. (d) Other Data is determined on the statutory basis of accounting and reflects a capital contribution from CNA of $475 million in 1993. In addition, dividends of $545 million, $325 million, $175 million, $150 million and $100 million were paid to CNA by Continental Casualty Company in 1996, 1995, 1994, 1993 and 1992, respectively. Property/casualty insurance subsidiaries have received, or will receive, reimbursement from CNA for general management and administrative expenses, unallocated loss adjustment expenses and investment expenses of $194.6, $197.0, $169.6, $167.5, and $141.1 million in 1996, 1995, 1994, 1993 and 1992, respectively. The following table displays the distribution of gross written premium: ------------------------------------------------------------------------ Gross Written Premium % of Total --------------------- Year Ended December 31 1996 1995 1994 ------------------------------------------------------------------------ New York..................................... 9.3 10.3 8.6 California................................... 8.5 9.7 11.4 Texas........................................ 6.0 6.5 6.5 Illinois..................................... 5.3 5.2 4.9 Pennsylvania................................. 4.9 5.4 5.7 Florida...................................... 4.2 4.1 4.6 New Jersey................................... 4.1 4.6 3.2 All other states, countries or political subdivisions (a)............................. 46.8 44.4 43.2 Reinsurance assumed: Voluntary.................................. 9.1 7.8 5.9 Involuntary................................ 1.8 2.0 6.0 ------ ------- ------ 100.0 100.0 100.0 ======================================================================== (a) No other state, country or political subdivision accounts for more than 3.0% of gross written premium. 8
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES The loss reserve development table below illustrates the change over time of reserves established for property/casualty claims and claims expense at the end of various calendar years. The first section shows the reserves as originally reported at the end of the stated year. The second section, reading down, shows the cumulative amounts paid as of the end of successive years with respect to that reserve liability. The third section, reading down, shows re-estimates of the original recorded reserve as of the end of each successive year which is the result of CNA's expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The last section compares the latest re-estimated reserve to the reserve originally established, and indicates whether or not the original reserve was adequate or inadequate to cover the estimated costs of unsettled claims.
The loss reserve development table is cumulative and, therefore, ending balances should not be added since the amount at the end of each calendar year includes activity for both the current and prior years. <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------- Schedule of Property/Casualty Loss Reserve Development Calendar Year Ended 1986(a) 1987(a) 1988(a)1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996 (In millions of dollars) - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Gross reserves for unpaid claim and claim expenses................$ -- $ -- $ -- $ -- $16,530 $17,712 $20,034 $20,812 $21,639 $31,044 $29,830 Ceded recoverable....... -- -- -- -- 3,440 3,297 2,867 2,491 2,705 6,089 6,095 ----- ----- ----- ----- ------- ------- ------- ------- ------- ------- ------- Net reserves for unpaid claim and claim expenses................ 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 ------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ NET PAID (CUMULATIVE) AS OF: One year later.......... 1,335 1,763 2,040 2,670 3,285 3,411 3,706 3,629 3,656 6,510 -- Two years later......... 2,383 2,961 3,622 4,724 5,623 6,024 6,354 6,143 7,087 -- -- Three years later....... 3,197 4,031 4,977 6,294 7,490 7,946 8,121 8,764 -- -- -- Four years later........ 3,963 5,007 6,078 7,534 8,845 9,218 10,241 -- -- -- -- Five years later........ 4,736 5,801 6,960 8,485 9,726 10,950 -- -- -- -- -- Six years later......... 5,339 6,476 7,682 9,108 11,207 -- -- -- -- -- -- Seven years later....... 5,880 7,061 8,142 10,393 -- -- -- -- -- -- -- Eight years later....... 6,382 7,426 9,303 -- -- -- -- -- -- -- -- Nine years later........ 6,690 8,522 -- -- -- -- -- -- -- -- -- Ten years later......... 7,738 -- -- -- -- -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------- </TABLE>
<TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------- Schedule of Property/Casualty Loss Reserve Development - continued Calendar Year Ended 1986(a) 1987(a) 1988(a) 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996 (In millions of dollars) - -------------------------------------------------------------------------------------------------------------------- NET RESERVES RE-ESTIMATED AS OF: <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> End of initial year..... 6,243 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 One year later.......... 6,642 8,086 9,737 11,336 12,984 16,032 17,757 18,250 18,922 24,864 -- Two years later......... 6,763 8,345 9,781 11,371 14,693 16,810 17,728 18,125 18,500 -- -- Three years later....... 6,989 8,424 9,796 13,098 15,737 16,944 17,823 17,868 -- -- -- Four years later........ 7,166 8,516 11,471 14,118 15,977 17,376 17,765 -- -- -- -- Five years later........ 7,314 10,196 12,496 14,396 16,440 17,329 -- -- -- -- -- Six years later......... 9,022 11,239 12,742 14,811 16,430 -- -- -- -- -- -- Seven years later.......10,070 11,480 13,167 14,810 -- -- -- -- -- -- -- Eight years later.......10,317 11,898 13,174 -- -- -- -- -- -- -- -- Nine years later........10,755 11,925 -- -- -- -- -- -- -- -- -- Ten years later.........10,823 -- -- -- -- -- -- -- -- -- -- ------- ------ ------ ------ ------- ------ ------ ------ ------ ------ ----- Total net (deficiency) redundancy (4,580) (3,880) (3,622) (3,543) (3,340) (2,914) (598) 453 434 91 -- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Reconciliation to Gross Re-estimated Reserves: Net reserves re-estimated............ 10,823 11,925 13,174 14,810 16,430 17,329 17,765 17,868 18,500 24,864 -- Re-estimated ceded recoverable -- -- -- -- 2,855 2,610 2,046 1,918 2,472 6,262 -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total gross re-estimated reserves -- -- -- -- 19,285 19,939 19,811 19,786 20,972 31,126 -- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Net (Deficiency) Redundancy Related to: Asbestos claims.........(3,021) (2,973) (2,917) (2,818) (2,681) (2,634) (945) (345) (309) (51) -- Environmental claims....(1,021) (1,007) (1,002) (975) (964) (918) (871) (425) (246) (65) -- ------- ------- ------- ------- ------- ------- ----- ----- ----- ----- ----- Total asbestos and (4,042) (3,980) (3,919) (3,793) (3,645) (3,552)(1,816) (770) (555) (116) -- environmental Other................... (538) 100 297 250 305 638 1,218 1,223 989 207 -- ------- ------- ------- ------- ------- ------- ------ ------ ----- ----- ------ Total net (deficiency) redundancy..............(4,580) (3,880) (3,622) (3,543) (3,340) (2,914) (598) 453 434 91 -- - -------------------------------------------------------------------------------------------------------------------------
<FN> (a) Reflects reserves of CNA, excluding Continental reserves which were acquired on May 10, 1995. Accordingly, the reserve development (net reserves recorded at the end of the year, as initially estimated, less net reserves re-estimated as of subsequent years) relates only to the operations of CNA and does not include Continental. (b) Reserve development related to the 1994 reserves of CNA, excluding Continental, as determined by the balances in this column, plus adverse reserve development of $134 million related to the reserves of Continental, acquired on May 10, 1995, which are not reflected in this column, were recorded by CNA in 1995 and subsequent periods. (c) Includes Continental gross reserves of $9,713 million and net reserves of $6,063 million acquired on May 10, 1995 and subsequent development thereon. </FN> </TABLE> 9
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES - (CONTINUED) Additional information as to CNA's property/casualty claim and claim expense reserves is set forth in Notes A and E of the Consolidated Financial Statements of the 1996 Annual Report to Shareholders, incorporated by reference in Item 8, herein. RESERVE DEVELOPMENT Information as to CNA's reserve development is set forth in Note E of the Consolidated Financial Statements of the 1996 Annual Report to Shareholders, incorporated by reference in Item 8, herein. LIFE BUSINESS CNA's life insurance operations market individual and group insurance products through licensed agents, most of whom are independent contractors, who sell life and/or group insurance for CNA and for other companies on a commission basis. The individual insurance products consist primarily of term, universal life, participating policies and annuity products. Products developed in 1996 included a portfolio of variable products and new universal life products which are expected to be marketed in 1997. Group insurance products include life, accident and health consisting primarily of major medical and hospitalization and pension products, such as guaranteed investment contracts and annuities. In the medical and hospitalization market, CNA underwrites the Federal Employees Health Benefits Program (FEHBP) which had revenues of $2.1 billion, $1.9 billion and $1.8 billion in 1996, 1995 and 1994. CNA has undertaken a number of initiatives to enhance service, manage health care utilization demand and quality and strengthen CNA's networks of physicians, hospitals and other providers. CNA's products are designed and priced using assumptions management believes to be reasonably conservative for mortality, morbidity, persistency, expense levels and investment results. Underwriting practices that management believes are prudent are followed in selecting the risks that will be insured. Further, actual experience related to pricing assumptions is monitored closely so that prospective adjustments to these assumptions may be implemented as necessary. CNA mitigates the risk related to persistency by including contractual surrender charge provisions in its ordinary life and annuity policies in the first five to ten years, thus providing for the recovery of acquisition expenses. The investment portfolios supporting interest sensitive products, including universal life and individual annuities, are managed separately to minimize surrender and interest rate risk. Profitability in the health insurance business continues to be impacted by intense competition and rising medical costs. CNA has aggressively pursued expense reduction through increases in automation and other productivity improvements. Further, increasing costs of health care have resulted in a continued market shift away from traditional forms of health coverage toward managed care products and experience-rated plans. CNA's ability to compete in this market will be increasingly dependent on its ability to control costs through managed care techniques, innovation and quality customer-focused service in order to properly position CNA in the evolving health care environment. 10
LIFE BUSINESS--(CONTINUED) <TABLE> <CAPTION> The following table sets forth supplemental data for the life insurance business: - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992 (In millions of dollars) - -------------------------------------------------------------------------------------------------------------------- INDIVIDUAL PREMIUM <S> <C> <C> <C> <C> <C> Life and annuities................................ $ 629.1 $ 497.1 $ 369.4 $ 312.1 $ 294.7 Accident and health............................... 1.8 32.7 32.6 30.9 27.1 --------- --------- --------- --------- --------- $ 630.9 $ 529.8 $ 402.0 $ 343.0 $ 321.8 ========= ========= ========= ========= ========= GROUP PREMIUM Accident and health (a)........................... $ 2,548.0 $ 2,189.7 $ 2,111.2 $ 1,983.0 $ 1,957.5 Life and annuities................................ 194.9 312.9 165.0 116.2 158.4 --------- --------- --------- --------- --------- $ 2,742.9 $ 2,502.6 $ 2,276.2 $ 2,099.2 $ 2,115.9 ========= ========= ========= ========= ========= NET INVESTMENT INCOME AND OTHER INCOME Individual........................................ $ 292.2 $ 247.3 $ 193.8 $ 154.2 $ 163.0 Group............................................. 214.2 198.1 166.4 142.8 156.6 --------- --------- --------- --------- --------- $ 506.4 $ 445.4 $ 360.2 $ 297.0 $ 319.6 ========= ========= ========= ========= ========= INCOME EXCLUDING REALIZED CAPITAL GAINS, BEFORE INCOME TAX Individual........................................ $ 100.9 $ 65.4 $ 47.3 $ 14.5 $ 22.5 Group............................................. 69.8 94.9 87.1 51.9 56.1 --------- --------- --------- --------- --------- $ 170.7 $ 160.3 $ 134.4 $ 66.4 $ 78.6 ========= ========= ========= ========= ========= GROSS LIFE INSURANCE IN FORCE Individual (b).................................... $ 172,213 $ 113,901 $ 80,560 $ 76,835 $ 75,569 Group............................................. 64,796 52,146 46,873 35,413 29,643 --------- --------- --------- --------- --------- $ 237,009 $ 166,047 $ 127,433 $ 112,248 $ 105,212 ========= ========= ========= ========= ========= OTHER DATA - STATUTORY BASIS(C) Capital and surplus............................... $ 1,163.4 $ 1,127.6 $ 1,054.6 $ 1,022.0 $ 1,003.0 Capital and surplus-percent of total liabilities.. 25.5% 28.2% 29.4% 30.1% 33.4% Participating policyholders-percent of gross life insurance in force 0.5 0.6 0.9 1.1 1.2 - -------------------------------------------------------------------------------------------------------------------- (a) Group accident and health premiums include contracts involving U.S. government employees and their dependents amounting to approximately $2.1, $1.9, $1.8, $1.7 and $1.6 billion in 1996, 1995, 1994, 1993 and 1992, respectively. (b) Lapse ratios for individual life insurance, as measured by surrenders and withdrawals as a percentage of average ordinary life insurance in force were 7.2%, 9.4%, 9.7%, 9.7% and 8.6%, in 1996, 1995, 1994, 1993 and 1992, respectively. (c) Other Data is determined on the basis of statutory accounting practices. Life insurance subsidiaries have received reimbursement from CNA for general management and administrative expenses and investment expenses of $28.5, $21.3, $24.7, $25.6 and $24.5 million in 1996, 1995, 1994, 1993 and 1992, respectively. Statutory capital and surplus as a percent of total liabilities is determined after excluding Separate Account liabilities and reclassifying the statutorily required Asset Valuation and Interest Maintenance Reserves as surplus. </TABLE> 11
LIFE BUSINESS - (CONTINUED) Guaranteed Investment Contracts - ------------------------------- CAC writes the majority of its group pension products as guaranteed investment contracts in a fixed Separate Account, which is permitted by Illinois insurance statutes. CAC guarantees principal and a specified return to guaranteed investment contractholders. This guarantee affords the contractholders additional security, in the form of CAC's general account surplus, which supports the principal and interest payments. CNA manages the liquidity and interest rate risks on the guaranteed investment contract portfolio by matching the approximate duration of fixed maturity securities included in the investment portfolio supporting the guaranteed investment contracts with the corresponding payout pattern of the contracts, and assessing market value surrender charges on the majority of the contracts. The table below shows a comparison of the duration of assets and contracts, weighted average investment yield, weighted average interest crediting rates, and withdrawal characteristics of the guaranteed investment contract portfolio. - -------------------------------------------------------------------------------- December 31 1996 1995 1994 - -------------------------------------------------------------------------------- Duration in years: Assets...................................... 3.12 3.12 3.23 Contracts................................... 3.16 2.98 2.99 ---- ---- ---- Difference.................................. (0.04) 0.14 0.24 ====== ==== ==== Weighted average investment yield.............. 7.44% 7.58% 7.67% Weighted average interest crediting rates...... 7.32% 7.45% 7.53% Withdrawal characteristics: With market value adjustment................ 95% 92% 79% Non-withdrawable............................ 5 8 15 Without market value adjustment............. 0 0 6 - -------------------------------------------------------------------------------- Total 100% 100% 100% ================================================================================ As shown above, the weighted average investment yield at December 31, 1996, 1995 and 1994 was more than the weighted average interest crediting rate. INVESTMENTS Information as to CNA's investments is set forth in Note B of the Consolidated Financial Statements of the 1996 Annual Report to Shareholders, incorporated by reference in Item 8, herein. 12
ITEM 2. PROPERTIES CNA Plaza, owned by Continental Assurance Company, serves as the home office for CNA and its insurance subsidiaries. An adjacent building (located at 55 E. Jackson Blvd.), jointly owned by Continental Casualty Company and Continental Assurance Company, is partially situated on grounds under leases expiring in 2058. Approximately 30% of the adjacent building is rented to non-affiliates. CNA's subsidiaries lease office space in various cities throughout the United States and in other countries. The following table sets forth certain information with respect to the principal office buildings owned or leased by CNA's subsidiaries: - -------------------------------------------------------------------------------- AMOUNT OF BUILDING OWNED AND OCCUPIED OR LEASED BY CNA OR ITS LOCATION SUBSIDIARIES PRINCIPAL USAGE - -------------------------------------------------------------------------------- CNA Plaza 1,144,378 * Principal Executive Offices 333 S. Wabash of CNA Chicago, Illinois 180 Maiden Lane 507,547* Property/Casualty New York, New York Insurance Offices 1 Continental Drive 490,993** Property/Casualty Cranbury, New Jersey Insurance Offices 55 E. Jackson Blvd. 308,750 * Principal Executive Chicago, Illinois Offices of CNA 401 Penn Street 251,691* Property/Casualty Reading, Pennsylvania Insurance Offices 100 CNA Drive 251,363* Life Insurance Offices Nashville, Tennessee 7361 Calhoun Place 224,725** Life Insurance Offices Rockville, Maryland 1111 E. Broad St. 215,470** Property/Casualty Columbus, Ohio Insurance Offices 200 S. Wacker Drive 214,997** Property/Casualty Chicago, Illinois Insurance Offices 333 Glen Street 157,825** Property/Casualty Glen Falls, New York Insurance Offices; Residual Market Center 111 Congressional Blvd. 118,215** Personal Lines Indianapolis, Indiana 1431 Opus Place 106,151** Property/Casualty, Downers Grove, Illinois Surety Insurance Offices 2401 Pleasant Valley 102,376** Commercial Operations York, Pennsylvania 1100 Ward Avenue 93,771* First Insurance Company Honolulu, Hawaii of Hawaii, Ltd.Headquarters * Represents property owned by CNA or its subsidiaries. ** Represents property leased by CNA or its subsidiaries. 13
ITEM 3. LEGAL PROCEEDINGS Incorporated herein by reference from Note F of the Consolidated Financial Statements in the 1996 Annual Report to Shareholders. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14
EXECUTIVE OFFICERS OF THE REGISTRANT FIRST BECAME POSITION AND OFFICER OF OFFICES HELD THE CNA WITH INSURANCE NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Laurence A. Tisch Chief Executive 74 **** Co-Chairman of the Officer Board and Co-Chief Executive Officer of Loews Corporation. President, Chief Executive Officer and Director of CBS, Inc. until November 1995. Executive officer of the Registrant since 1974. Dennis H. Chookaszian Chairman of the 53 1975 Chairman of the Board Board and Chief and Chief Executive Executive Officer, Officer of the CNA CNA Insurance Insurance Companies Companies since September 1992. Prior thereto, Mr. Chookaszian was President and Chief Operating Officer of the CNA Insurance Companies. Executive officer of the Registrant since 1975. Philip L. Engel President, CNA 56 1977 President of the CNA Insurance Insurance Companies Companies since September 1992. Prior thereto, Mr. Engel was Executive Vice President of the CNA Insurance Companies. Executive officer of the Registrant since 1992. William J. Senior Vice 44 1987 Senior Vice President Adamson, Jr. President, CNA of the CNA Insurance Insurance Companies since November Companies 1995; Group Vice President of the CNA Insurance Companies from April 1993 through October 1995. Prior thereto, Mr. Adamson was Vice President of the CNA Insurance Companies. Exectuive officer of the Registrant since 1996.
FIRST BECAME POSITION AND OFFICER OF OFFICES HELD THE CNA WITH INSURANCE NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION DURING PAST FIVE YEARS James P. Flood Senior Vice 46 1995 Senior Vice President of President, CNA the CNA Insurance Companies Insurance since May 1995; Senior Companies Vice President of The Continental Insurance Company from October 1992 through May 1995. Prior thereto, Mr. Flood was Vice President of The Continental Insurance Company. Executive officer of the Registrant since 1996. Michael C. Garner Senior Vice 44 1993 Senior Vice President of President, CNA the CNA Insurance Companies Insurance since September 1993. Companies Prior thereto, Mr. Garner was a partner of Coopers and Lybrand LLP. Executive officer of the Registrant since 1996. Bernard L. Hengesbaugh Senior Vice 50 1980 Senior Vice President of President, CNA the CNA Insurance Companies Insurance since November 1990. Companies Executive officer of the Registrant since 1996. Peter E. Jokiel Senior Vice 49 1985 Senior Vice President and President and Chief Financial Officer Chief Financial since November 1990. Officer Executive officer of the Registrant since 1990. Jonathan D. Kantor Senior Vice 41 1994* Group Vice President of the President* CNA Insurance Companies since April 1994. Prior thereto, partner at the law firm of Shea & Gould. Executive officer of the Registrant effective April 1, 1997.** Donald M. Lowry Senior Vice 67 1982 Senior Vice President, President, Secretary and General Secretary and Counsel since August 1992. General Prior thereto, Mr. Lowry Counsel*** was Senior Vice President and General Counsel of the CNA Insurance Companies. Executive officer of the Registrant since 1992. Carolyn L. Murphy Senior Vice 52 1978 Senior Vice President of President, CNA the CNA Insurance Companies Insurance since November 1990. Companies Executive officer of the Registrant since 1992.
FIRST BECAME POSITION AND OFFICER OF OFFICES HELD THE CNA WITH INSURANCE NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION DURING PAST FIVE YEARS William H. Sharkey,Jr. Senior Vice 48 1994 Senior Vice President of President, CNA the CNA Insurance Companies Insurance since January 1994. Prior Companies therto, Mr. Sharkey was Senior Vice President of Cigna Healthcare. Executive officer of the Registrant since 1996. 15
EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED FIRST BECAME POSITION AND OFFICER OF OFFICES HELD THE CNA WITH INSURANCE NAME REGISTRANT AGE COMPANIES PRINCIPAL OCCUPATION DURING PAST FIVE YEARS Adrian M. Tocklin Senior Vice 45 1995 Senior Vice President of President, CNA the CNA Insurance Companies Insurance since May 1995; President Companies of The Continental Insurance Company from June 1994 through May 1995; Executive Vice President of The Continental Insurance Company from August 1991 through June 1994. Prior thereto, Ms. Tocklin was Senior Vice President of The Continental Insurance Company. Executive officer of the Registrant since 1996. Jae L. Wittlich Senior Vice 54 1977 Senior Vice President of President, the CNA Insurance Companies CNA since November 1990. Insurance Executive officer of the Companies Registrant since 1992. David W. Wroe Senior Vice 50 1996 Senior Vice President of President, the CNA Insurance Companies CNA since June 1996. Prior Insurance thereto, Mr. Wroe was Companies President of Agency Management Systems. Executive officer of the Registrant since 1996. - ------------------------------- Officers are elected and hold office until their successors are elected and qualified, and are subject to removal by the Board of Directors. *Mr. Kantor will succeed Donald Lowry as Senior Vice President , Secretary and General Counsel of the CNA Insurance Companies effective April 1, 1997 and as Senior Vice President and General Counsel of the Registrant effective 1998. **Shea & Gould declared bankruptcy in 1995. ***Mr. Lowry will remain Senior Vice President, Secretary and General Counsel of the Registrant until 1998. ****Mr. Tisch is not an officer of the CNA Insurance Companies. 16
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Incorporated herein by reference from page 82 of the 1996 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Incorporated herein by reference from page 2 of the 1996 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference from pages 12 through 29 of the 1996 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Balance Sheet - December 31, 1996 and 1995 Statement of Consolidated Operations - Years Ended December 3l, 1996, 1995 and 1994 Statement of Consolidated Stockholders' Equity - December 31, 1996, 1995 and 1994 Statement of Consolidated Cash Flows - Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Independent Auditors' Report The above Consolidated Financial Statements, the related Notes to the Consolidated Financial Statements and the Independent Auditors' Report are incorporated herein by reference from pages 30 through 81 of the 1996 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required in Part III has been omitted as the Registrant intends to file a definitive proxy statement pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year. ITEM 11. EXECUTIVE COMPENSATION Information required in Part III has been omitted as the Registrant intends to file a definitive proxy statement pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required in Part III has been omitted as the Registrant intends to file a definitive proxy statement pursuant to Regulation l4A with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required in Part III has been omitted as the Registrant intends to file a definitive proxy statement pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year. PART IV ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K Page Number ------ (a) 1. FINANCIAL STATEMENTS: A separate index to the Consolidated Financial Statements is presented in Part II, Item 8.......................... 17 (a) 2. FINANCIAL STATEMENT SCHEDULES: Schedule I Summary of Investments..................... 22 Schedule II Condensed Financial Information (Parent Company). 23 Schedule III Supplementary Insurance Information.............. 27 Schedule V Valuation and Qualifying Accounts and Reserves.. 28 Schedule VI Supplementary Information Concerning Property/Casualty Insurance Operations.......... 28 Other schedules are omitted because of the absence of conditions under which they are required or because the required information is provided in the Consolidated Financial Statements or notes thereto. Independent Auditors' Report................................. 29 18
PART IV ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) (a) 3. EXHIBITS: Exhibit Description of Exhibit Number ---------------------- ------- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession: Securities Purchase Agreement, dated as of December 6, 1994, by and between CNA Financial Corporation and The Continental Corporation (with exhibits thereto) (Exhibit 1 to Form 8-K dated December 9, 1994 incorporated herein by reference.).... 2.1 Merger Agreement, dated as of December 6, 1994, by and among CNA Financial Corporation, Chicago Acquisition Corp. and The Continental Corporation (Exhibit 2 to Form 8-K dated December 9, 1994 incorporated herein by reference.)................... 2.2 (3) Articles of incorporation and by-laws: Certificate of Incorporation of CNA Financial Corporation, as amended May 6, 1987 (Exhibit 3.1 to 1987 Form 10-K incorporated herein by reference.)........................................ 3.1 By-Laws of CNA Financial Corporation, as amended February 12, 1997......................................................... 3.2* (4) Instruments defining the rights of security holders, including indentures: CNA Financial Corporation hereby agrees to furnish to the Commission upon request copies of instruments with respect to long-term debt, pursuant to Item 601(b)(4)(iii) of Regulation S-K.......................................... -- (10) Material contracts: Continental Casualty Company "CNA" Annual Incentive Bonus Plan Provisions (Exhibit 10.1 to 1994 Form 10K incorporated herein by reference.)................................................ 10.1 Employment Agreement between CNA Financial Corporation and Dennis H. Chookaszian, dated December 31, 1995 (Exhibit 10.2 to 1995 Form 10K incorporated herein by reference.)................................................... 10.2 Employment Agreement between CNA Financial Corporation and Philip L. Engel, dated December 31, 1995 (Exhibit 10.3 to 1995 Form 10K incorporated herein by reference.)................... 10.3 Continuing Services Agreement between CNA Financial Corporation and Edward J. Noha, dated February 27, 1991 (Exhibit 6.0 to 1991 Form 8-K, filed March 18, 1991, incorporated herein by reference.)................................................... 10.4 CNA Employees' Retirement Benefit Equalization Plan, as amended through January 1, 1993 (Exhibit 10.4 to 1992 Form 10-K incorporated herein by reference.)............................. 10.5 CNA Employees' Supplemental Savings Plan, as amended through January 1, 1993 (Exhibit 10.6 to 1992 Form 10-K incorporated herein by reference.).......................................... 10.6 19
PART IV ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (continued) (a) 3. EXHIBITS: Exhibit Description of Exhibit Number Number ----------------------------- ------- (10)Material contracts (continued): Federal Income Tax Allocation Agreement dated February 29, 1980 between CNA Financial Corporation and Loews Corporation (Exhibit 10.2 to 1987 Form 10-K incorporated herein by reference.)........................................ 10.7 Agreement between Fibreboard Corporation and Continental Casualty Company, dated April 9, 1993 (Exhibit A to 1993 Form 8-K filed April 12, 1993 incorporated herein by reference.).... 10.8 Settlement Agreement entered into on October 12, 1993 by and among Fibreboard Corporation, Continental Casualty Company, CNA Casualty of California, Columbia Casualty Company and Pacific Indemnity Company together the "Parties" (Exhibit 10.1 to September 30, 1993 Form 10-Q incorporated herein by reference.)................................................... 10.9 Continental-Pacific Agreement entered into October 12, 1993 between Continental Casualty Company and Pacific Indemnity Company (Exhibit 10.2 to September 30, 1993 Form 10-Q incorporated herein by reference.)............................. 10.10 Global Settlement Agreement among Fibreboard Corporation, Continental Casualty Company, CNA Casualty Company of California, Columbia Casualty Company, Pacific Indemnity Company and the Settlement Class dated December 23, 1993 (Exhibit 10.11 to 1993 Form 10-K incorporated herein by reference.).............................................. 10.11 Glossary of Terms in Global Settlement Agreement, Trust Agreement, Trust Distribution Process and Defendant Class Settlement Agreement as of December 23, 1993 (Exhibit 10.12 to 1993 Form 10-K incorporated herein by reference.)............. 10.12 Fibreboard Asbestos Corporation Trust Agreement dated December 23, 1993 (Exhibit 10.13 to 1993 Form 10-K incorporated herein by reference.).......................................... 10.13 Trust Distribution Process - Annex A to the Trust Agreement as of December 23, 1993 (Exhibit 10.14 to 1993 Form 10-K incorporated herein by reference.)............................ 10.14 Defendant Class Settlement Agreement dated December 22, 1993 (Exhibit 10.15 to 1993 Form 10-K incorporated herein by reference.).................................................... 10.15 Escrow Agreement among Continental Casualty Company, Pacific Indemnity Company and The First National Bank of Chicago dated December 23, 1993 (Exhibit 10.16 to 1993 Form 10-K incorporated herein by reference.).......................................... 10.16 20
PART IV ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) (a) 3. EXHIBITS: Exhibit Description of Exhibit Number ---------------------- ------ (11) Computation of Net Income per Common Share................ 11.1* (12) Statements regarding computation of ratios: Computation of Ratio of Earnings to Fixed Charges......... 12.1* Computation of Ratio of Net Income, As Adjusted, to Fixed Charges.......................................... 12.2* (13) 1996 Annual Report........................................ 13.1* (21) Subsidiaries of CNA....................................... 21.1* (23) Independent Auditor's Consent............................. 23.1* (27) Financial Data Schedule................................... 27* *Filed herewith (b) REPORTS ON FORM 8-K: None 21
<TABLE> <CAPTION> SCHEDULE I CNA FINANCIAL CORPORATION SUMMARY OF INVESTMENTS - ------------------------------------------------------------------------------------------------------------------- DECEMBER 31 1996 1995 ------------------------------ ----------------------------------- MARKET CARRYING MARKET CARRYING (In millions of dollars) COST VALUE VALUE COST VALUE VALUE - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Fixed maturities available-for-sale: Bonds: United States government and government agencies and authorities-taxable.... $15,046.9 $15,045.3 $15,045.3 $17,903.4 $18,511.4 $18,511.4 States, municipalities and political subdivisions-tax exempt............. 4,859.6 4,951.2 4,951.2 3,452.8 3,603.1 3,603.1 Foreign governments and political subdivisions........................ 1,200.1 1,213.9 1,213.9 1,509.3 1,543.3 1,543.3 Public utilities..................... 195.5 205.4 205.4 280.2 305.2 305.2 Convertibles and bonds with warrants attached............................ 166.6 168.7 168.7 252.2 260.8 260.8 All other corporate.................. 6,021.7 6,070.5 6,070.5 5,887.2 6,104.6 6,104.6 Redeemable preferred stocks.............. 49.2 65.6 65.6 100.3 116.3 116.3 -------- -------- -------- -------- -------- -------- Total fixed maturities 27,539.6 27,720.6 27,720.6 29,385.4 30,444.7 30,444.7 available-for-sale ======== ======== ======== ======== ======== ======== Equity securities available-for-sale: Common stocks: Public utilities..................... 11.0 15.1 15.1 17.7 23.5 23.5 Banks, trusts and insurance companies 131.5 185.1 185.1 84.3 96.7 96.7 Industrial and other................. 335.1 431.0 431.0 631.8 795.0 795.0 Non redeemable preferred stocks.......... 224.3 227.9 227.9 2.5 2.5 2.5 -------- -------- -------- -------- -------- -------- Total equity securities 701.9 $ 859.1 859.1 736.3 $ 917.7 917.7 available-for-sale................. -------- -------- -------- -------- -------- -------- Mortgage loans.............................. 112.6 112.6 139.8 119.3 -------- -------- -------- -------- Real estate: Investment properties.................... 14.7 10.7 6.6 3.0 Acquired in satisfaction of debt......... 0.2 0.1 0.2 0.1 -------- -------- -------- -------- Total real estate.................. 14.9 10.8 6.8 3.1 -------- -------- -------- -------- Policy loans................................ 174.4 174.4 177.1 177.2 Other invested assets....................... 616.6 681.2 483.5 499.9 Short-term investments...................... 5,853.7 5,853.7 3,724.5 3,724.5 - ------------------------------------------------------------------------------------------------------------------- Total investments $35,013.7 $35,412.4 $34,653.4 $35,886.4 =================================================================================================================== </TABLE>
<TABLE> <CAPTION> SCHEDULE II CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION FINANCIAL POSITION - -------------------------------------------------------------------------------- DECEMBER 31 1996 1995 (In millions of dollars) - -------------------------------------------------------------------------------- ASSETS: <S> <C> <C> Investments in subsidiaries......................... $ 8,098.9 $ 8,060.6 Federal income taxes recoverable.................... -- 136.6 Deferred income taxes............................... 877.2 785.2 Notes receivable from affiliate..................... 205.0 205.0 Other............................................... 17.9 7.9 ---------- ---------- Total assets................................ $ 9,199.0 $ 9,195.3 LIABILITIES: ========== ========== Debt................................................ $ 1,971.2 $ 2,222.4 Federal income taxes payable........................ 28.7 -- Amounts due to affiliates........................... 101.7 190.3 Other............................................... 37.6 47.1 ---------- ---------- Total liabilities........................... 2,139.2 2,459.8 ---------- ---------- Total stockholders' equity.................. 7,059.8 6,735.5 - ------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,199.0 $ 9,195.3 ============================================================================== </TABLE>
<TABLE> <CAPTION> RESULTS OF OPERATIONS - ---------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1996 1995 1994 (In millions of dollars) - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> REVENUES: Equity in income of subsidiaries before income tax: Operating income ............................... $1,088.8 $ 923.5 $ 389.1 Realized investment gains (losses).............. 609.7 453.0 (256.8) Net investment income.............................. 13.6 9.0 0.3 Realized investment gains (losses)................. (5.4) 3.1 (0.3) --------- -------- ------ 1,706.7 1,388.6 132.3 --------- -------- ------ EXPENSES: Administrative and general expenses................ 222.6 219.7 193.1 Interest expense................................... 135.0 125.3 69.6 Other.............................................. 4.0 1.2 3.7 -------- -------- ------ 361.6 346.2 266.4 -------- -------- ------ Income (loss) before income tax............. 1,345.1 1,042.4 (134.1) Income tax benefit (expense)....................... (380.3) (285.4) 170.6 ============================================================================================== Net income $ 964.8 $ 757.0 $ 36.5 ============================================================================================== See accompanying Notes to Condensed Financial Information. </TABLE>
<TABLE> <CAPTION> SCHEDULE II (Continued) CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION STATEMENT OF CASH FLOWS - ----------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1996 1995 1994 (In millions of dollars) - ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................... $ 964.8 $ 757.0 $ 36.5 ------- ------- ----- Adjustments to reconcile net income to net cash used in operating activities: Equity in earnings of unconsolidated affiliates (1,376.7) (1,200.7) (98.0) Realized (gains) losses.......................................... 5.4 (3.1) 0.3 Changes in: Accrued investment income....................................... - - 1.1 Federal income taxes............................................ 165.3 (112.9) 5.6 Deferred income taxes........................................... 93.3 173.2 (115.0) Other, net...................................................... (131.9) 86.7 (23.6) ------- ------- ------ TOTAL ADJUSTMENTS..............................................(1,244.6) (1,056.8) (229.6) -------- -------- ------ NET CASH USED IN OPERATING ACTIVITIES.......................... (279.8) (299.8) (193.1) ------- ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of The Continental Corporation............................. - (1,125.5) - Other acquisition.................................................... - (13.0) - Purchases of fixed maturities........................................ (0.2) (709.0) (195.7) Proceeds from fixed maturities: Sales............................................................. - 501.2 19.6 Maturities........................................................ - 200.6 192.4 Net proceeds from the sale of equity securities...................... - (0.5) 4.0 Change in short-term investments..................................... (1.7) 0.8 1.1 Change in other investments.......................................... (4.6) 10.3 2.3 Other................................................................ - (3.3) (1.0) ------- ------- ------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............ (6.5) (1,138.4) 22.7 -------- -------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid to preferred shareholders............................. (6.3) (7.3) (4.5) Dividend from affiliates............................................. 547.5 325.8 175.0 Proceeds from issuance of long-term debt............................. 248.1 1,325.0 - Principal payments on long-term debt................................ (500.0) - - Loan to The Continental Corporation.................................. - (205.0) - ------- ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES...................... 289.3 1,438.5 170.5 ------- ------- ------- NET INCREASE IN CASH.......................................... 3.0 0.3 0.1 Cash at beginning of year............................................... 0.4 0.1 - - --------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 3.4 $ 0.4 $ 0.1 =========================================================================================================== </TABLE>
<TABLE> <CAPTION> STATEMENT OF CASH FLOWS - CONTINUED - ----------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1996 1995 1994 (In millions of dollars) - ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Supplemental disclosures of cash flow information: Cash received (paid): Interest expense................................................. $(140.9) $(169.5) $(70.5) Federal income taxes............................................. 15.4 102.5 53.1 =========================================================================================================== </TABLE> <TABLE> <CAPTION> Supplemental disclosures of cash flow information relating to acquisitions: Noncash investing activities that are not reflected in the Statement of Cash Flows are listed below*. - ------------------------------------------------------------------------------------------------------------ The Continental Other December 31, 1995 Corporation - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> Fair value of assets acquired......................................... $15,258.5 $ 13.0 Liabilities assumed................................................... (14,133.0) - --------- ------- Cash paid....................................................... $ 1,125.5 $ 13.0 ============================================================================================================ * There were no significant acquisitions by CNA Financial Corporation (Parent Company) during the year ended December 31, 1996 and December 31, 1994. </TABLE> See accompanying Notes to Condensed Financial Information.
SCHEDULE II (CONTINUED) CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION Notes to Condensed Financial Information a. Basis of Presentation The financial statements of the registrant should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the CNA Financial Corporation Annual Report to Shareholders. Certain amounts applicable to prior years have been reclassified to conform to classifications followed in 1996. b. Debt: <TABLE> <CAPTION> ------------------------------------------------------------------------- DECEMBER 31 1996 1995 (In millions of dollars) ------------------------------------------------------------------------- Long-term <S> <C> <C> Variable rate debt: Credit Facility..................................$ 400.0 $ 825.0 Commercial Paper................................. 675.0 500.0 Senior Notes: 8 7/8 %, due March 1, 1998....................... 149.6 149.2 6 1/4%, due November 15, 2003.................... 248.4 248.2 6 3/4%, due November 15, 2006.................... 248.1 -- 7 1/4% Debenture, due November 15, 2023............. 247.1 247.1 1.0% Urban Development Action Grant, due May 7, 2019. 3.0 3.0 -------- -------- Total long-term debt............................. 1,971.2 1,972.5 Short-term debt......................................... -- 249.9 ------------------------------------------------------------------------- Total $1,971.2 $2,222.4 ========================================================================= </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. In 1996, the Company renegotiated the facility extending the maturity to May 2001. The interest rate for the facility is based on the London Interbank Offered Rate (LIBOR), plus 16 basis points. Additionally, there is a facility fee of 9 basis points annually. The average interest rate on the borrowings under the revolver at December 31, 1996 was 5.72%. Under the terms of the facility, CNA may prepay the debt without penalty.
On November 15, 1996, CNA issued $250 million 6 3/4% senior notes, due November 15, 2006. The net proceeds from this issuance of approximately $248 million were used to pay down a portion of the borrowings outstanding under the revolving credit facility. As a result of this debt issuance, borrowing capacity under the revolving credit facility was reduced by $250 million, to $1.075 billion. An additional $250 million of securities remain available for issuance under a shelf registration. 25
NOTES TO CONDENSED FINANCIAL INFORMATION (CONTINUED) In 1995, to take advantage of favorable interest rates, CNA established a commercial paper program borrowing $500 million from investors to replace a like amount of credit facility financing. During 1996, CNA increased its borrowings under the commercial paper program to $675 million. The average interest rate on the commercial paper at December 31, 1996 was 5.67%. The commercial paper borrowings are classified as long-term as borrowing capacity under the credit facility will support the commercial paper. At year end 1996, the outstanding loans under the revolving credit facility were $400 million. There was no unused borrowing capacity under the facility after the effects of the commercial paper program. In 1995, CNA entered into interest rate swap agreements with a notional principal amount of $1.2 billion, which terminate from May to December 2000. These agreements provide that CNA pay interest at a fixed rate, averaging 6.20% at December 31, 1996 in exchange for the receipt of interest at the three month LIBOR rate. Concurrent with the paydown of $250 million on the revolving credit facility, CNA terminated interest rate swaps with a total notional amount of $250 million. The effect of these interest rate swaps was to increase interest expense by approximately $7 million and $2 million for the years ended December 31, 1996 and 1995, respectively. The weighted average interest rate (interest and facility fees) on the variable rate debt, which includes the revolving credit facility, commercial paper and the effect of the interest rate swaps, was 6.28% and 6.50% at December 31, 1996 and 1995, respectively. c. CNA has reimbursed, or will reimburse, its subsidiaries for general management and administrative expenses, unallocated loss adjustment expenses and investment expense of $223.1 million, $218.3 million and $194.3 million in 1996, 1995 and 1994, respectively. d. There were no capital contributions by CNA in 1996, 1995 or 1994. - -------------------------------------------------------------------------------- 26
<TABLE> <CAPTION> SCHEDULE III CNA FINANCIAL CORPORATION SUPPLEMENTARY INSURANCE INFORMATION - ------------------------------------------------------------------------------------------------- Gross Insurance Reserves --------------------------------------------------- CLAIM DEFERRED AND FUTURE POLICY- ACQUISITION CLAIM POLICY UNEARNED HOLDERS' (In millions of dollars) COSTS EXPENSE BENEFITS PREMIUMS FUNDS - ------------------------------------------------------------------------------------------------- DECEMBER 31, 1996 Property/Casualty: <S> <C> <C> <C> <C> <C> Commercial............ $ 822.3 $26,321.8 $ 47.4 $ 3,591.3 $ 171.8 Personal.............. 262.1 1,556.8 325.5 1,043.8 - Involuntary risks..... - 1,951.4 - 23.6 - Life: Individual............ 735.8 147.9 3,138.5 - 30.2 Group................. 34.0 519.2 669.9 - 543.6 ------- --------- ------- ------- ------ CNA Insurance....... $1,854.2 30,497.1 $4,181.3 $ 4,658.7 $ 745.6 ======= ======== ======= ====== Other and intercompany eliminations.......... 332.4 --------- $30,829.5 ======== DECEMBER 31, 1995 Property/Casualty Commercial............ $ 701.9 $27,309.3 $ 38.5 $ 3,607.0 $ 162.6 Personal.............. 258.2 1,426.5 259.9 868.9 - Involuntary risks..... 8.6 2,308.5 - 73.5 - Life: Individual............ 505.7 162.3 2,678.8 - 31.0 Group................. 18.9 473.0 538.7 - 511.4 ------- --------- ------- ------ ------ CNA Insurance....... $1,493.3 31,679.6 $3,515.9 $ 4,549.4 $ 705.0 ======= ======= ======= ====== Other and intercompany eliminations.......... 352.8 --------- $32,032.4 ========= DECEMBER 31, 1994 Property/Casualty: Commercial............ $ 395.2 $18,920.3 $ 28.5 $ 2,129.1 $ 128.4 Personal.............. 197.1 1,042.4 199.0 559.9 - Involuntary risks..... - 1,675.9 - 1.7 - Life: Individual............ 427.3 145.2 2,414.9 - 31.7 Group................. 6.8 439.4 407.4 - 472.4 ------- --------- ------- -------- ------ CNA Insurance....... $1,026.4 22,223.2 $3,049.8 $ 2,690.7 $ 632.5 ======= ======= ======== ====== Other and intercompany eliminations.......... 341.6 --------- $22,564.8 ========= </TABLE>
<TABLE> <CAPTION> CNA FINANCIAL CORPORATION SUPPLEMENTARY INSURANCE INFORMATION - CONTINUED - ------------------------------------------------------------------------------------------------------------- Amortization Insurance of Net Net Claims and Deferred Other Premium Investment Policyholders' Acquisition Operating Premiums Revenue Income Benefits Costs Expenses Written - ------------------------------------------------------------------------------------------------------------- December 31, 1996 Property/Casualty: <S> <C> <C> <C> <C> <C> <C> Commercial............ $ 8,296.3 $1,622.7 $ 6,703.2 $1,715.3 $ 1,103.9 $ 8,592.7 Personal.............. 1,598.7 166.0 1,183.8 402.2 273.5 1,731.5 Involuntary risks..... 232.1 92.6 243.6 61.6 91.6 286.5 Life: Individual............ 630.9 227.6 666.9 26.4 128.8 - Group................. 2,742.9 172.5 2,579.2 (13.4) 321.6 - --------- ------- -------- -------- ------- --------- CNA Insurance....... 13,500.9 2,281.4 11,376.7 $2,192.1 1,919.4 $ 10,610.7 ========= ========= Other and intercompany eliminations.......... (21.9) (5.4) (20.4) (39.7) --------- -------- --------- ------ $13,479.0 $2,276.0 $ 11,356.3 $ 1,879.7 ======== ======== ========= ======== December 31, 1995 Property/Casualty: Commercial............ $ 7,225.3 $1,463.1 $ 5,995.2 $1,494.8 $ 915.3 $ 7,561.3 Personal.............. 1,214.8 132.4 891.6 271.4 228.5 1,254.3 Involuntary risks..... 283.7 104.3 234.0 16.7 145.8 310.5 Life: Individual............ 529.8 214.6 506.8 70.5 134.3 - Group................. 2,502.6 154.6 2,340.1 (9.9) 275.6 - --------- ------- -------- -------- ------- --------- CNA Insurance....... 11,756.2 2,069.0 9,967.7 $1,843.5 1,699.5 $ 9,126.1 ======== ========= Other and intercompany eliminations.......... (21.1) 7.6 (23.8) (19.7) --------- -------- -------- ------- $11,735.1 $2,076.6 $ 9,943.9 $ 1,679.8 ======== ======== ======== ======== December 31, 1994 Property/Casualty: Commercial............ $ 5,417.1 $1,050.8 $ 4,845.8 $ 1,099.2 $ 512.3 $ 5,488.7 Personal.............. 965.7 101.5 833.2 229.6 164.1 1,037.3 Involuntary risks..... 455.7 88.1 339.6 - 186.4 438.7 Life: Individual............ 402.0 172.2 392.2 46.7 109.6 - Group................. 2,276.2 138.4 2,092.9 2.0 260.6 - --------- ------- -------- ------- ------- -------- CNA Insurance....... 9,516.7 1,551.0 8,503.7 $ 1,377.5 1,233.0 $ 6,964.7 ======= ======== Other and intercompany eliminations.......... (42.3) 0.2 (42.5) 2.4 --------- -------- ------- ------- $ 9,474.4 $1,551.2 $ 8,461.2 $ 1,235.4 ======== ======== ======= ======= </TABLE> 27
<TABLE> <CAPTION> SCHEDULE V CNA FINANCIAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - ----------------------------------------------------------------------------------------------------------- Balance Balance Balance at Charged to Charged to at Beginning Costs and Other End of (In millions of dollars) of Period Expenses Amounts Deductions Period ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Year Ended December 31, 1996 Deducted from assets: Allowance for doubtful accounts: Insurance receivables............ $ 288.7 $ 34.5 $ - $ 46.0 $ 277.2 ======= ======= ======= ======= ======= Year Ended December 31, 1995 Deducted from assets: Allowance for doubtful accounts: Insurance receivables............ $ 127.5 $ 39.0 $ 143.5* $ 21.3 $ 288.7 ======= ======= ======== ======= ======= Year Ended December 31, 1994 Deducted from assets: Allowance for doubtful accounts: Insurance receivables............ $ 117.3 $ 18.6 $ - $ 8.4 $ 127.5 ======= ======= ======= ======= ======= --------------------------------------------------------------------------------------------------------- * Includes Continental allowance at acquisition. </TABLE>
<TABLE> <CAPTION> SCHEDULE VI CNA FINANCIAL CORPORATION SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS - ---------------------------------------------------------------------------------------------- CONSOLIDATED PROPERTY/ CASUALTY ENTITIES ------------------------------------- YEAR ENDED DECEMBER 31 1996 1995 1994 (In millions of dollars) - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> Deferred acquisition costs...............................$ 1,084 $ 969 $ 592 Reserves for unpaid claims and claim expenses............ 29,830 31,044 21,639 Discount, if any, deducted above (based on interest rates ranging from 3.5% to 7.5%)......................... 2,459 2,449 1,951 Unearned premiums........................................ 4,659 4,549 2,691 Earned premiums.......................................... 10,127 8,724 6,839 Net investment income.................................... 1,881 1,700 1,240 Claim and claim expenses related to current year......... 7,922 6,787 5,611 Claim and claim expenses related to prior years.......... (91) 122 (71) Amortization of deferred acquisition costs............... 2,179 1,783 1,329 Paid claim and claim expenses............................ 9,201 7,058 5,027 Premiums written......................................... 10,611 9,126 6,965 - ---------------------------------------------------------------------------------------------- </TABLE>
INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders CNA Financial Corporation We have audited the consolidated financial statements of CNA Financial Corporation (an affiliate of Loews Corporation) and subsidiaries as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 and have issued our report thereon dated February 12, 1997. Such consolidated financial statements and report are included in the Company's 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of CNA Financial Corporation and subsidiaries listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. S/DELOITTE & TOUCHE LLP Deloitte & Touche LLP Chicago, Illinois February 12, 1997
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By S/LAURENCE A. TISCH ----------------------------------------------------- Laurence A. Tisch Chief Executive Officer (Principal Executive Officer) By S/PETER E. JOKIEL ----------------------------------------------------- Peter E. Jokiel Senior Vice President and Chief Financial Officer Date: March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SIGNATURE TITLE S/ANTOINETTE COOK BUSH Director | - ---------------------------------- | Antoinette Cook Bush | | | S/DENNIS H. CHOOKASZIAN Director | - ---------------------------------- | Dennis H. Chookaszian | | | S/PHILIP L. ENGEL Director | Dated - ---------------------------------- | Philip L. Engel | March 28, 1997 | | S/ROBERT P. GWINN Director | - ---------------------------------- | Robert P. Gwinn | | | S/WALTER F. MONDALE Director | - ---------------------------------- | Walter F. Mondale | 30
SIGNATURE TITLE S/EDWARD J. NOHA Chairman of the | - ---------------------------------- Board and Director| Edward J. Noha | | | S/JOSEPH ROSENBERG Director | - ---------------------------------- | Joseph Rosenberg | | | S/RICHARD L. THOMAS Director | Dated - ---------------------------------- | Richard L. Thomas | March 28, 1997 | | S/JAMES S. TISCH Director | - ---------------------------------- | James S. Tisch | | | S/LAURENCE A. TISCH Chief Executive | - ---------------------------------- Officer and | Laurence A. Tisch Director | | | | S/PRESTON R. TISCH Director | - ---------------------------------- | Preston R. Tisch | | | S/MARVIN ZONIS Director | - ---------------------------------- | Marvin Zonis | 31
<TABLE> <CAPTION> EXHIBIT 11.1 CNA FINANCIAL CORPORATION COMPUTATION OF NET INCOME PER COMMON SHARE - ------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992 (In millions, except per share data) - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Weighted average shares outstanding............................... 61.8 61.8 61.8 61.8 61.8 ======= ======= ======= ======= ======= Net income (loss) before cumulative effect of accounting changes.. $ 964.8 $ 757.0 $ 36.5 $ 267.5 $(662.5) Less preferred stock dividends.................................... 6.1 6.9 5.3 4.0 4.2 ------- ------- ------- ------- ------- Net income (loss) before cumulative effect of accounting changes available to common stockholders............................. 958.7 750.1 31.2 263.5 (666.7) Cumulative effect on prior years of changes in accounting principles - - - - 331.9 ------- ------- ------- ------- ------- Net income (loss) available to common stockholders............. $ 958.7 $ 750.1 $ 31.2 $ 263.5 $(334.8) ======= ======= ======= ======= ======= Earnings per share: Net income (loss) before cumulative effect of accounting changes.. $ 15.51 $ 12.14 $ 0.51 $ 4.26 $ (10.79) Cumulative effect on prior years of changes in accounting principles - - - - 5.37 -------- -------- ------- -------- -------- Net income (loss) available to common stockholders............. $ 15.51 $ 12.14 $ 0.51 $ 4.26 $ (5.42) ======== ======== ======== ======== ========= - -------------------------------------------------------------------------------------------------------------------- </TABLE> 32
<TABLE> <CAPTION> EXHIBIT 12.1 CNA FINANCIAL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992 (In millions of dollars, except ratios) - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Income before income tax and cumulative effect of accounting changes..................................................... $ 1,345.1 $ 1,042.4 $(134.0) $ 93.5 $(1,374.9) Adjustments: Interest expense......................................... 200.4 182.3 70.5 36.3 36.7 Interest element of operating lease rental............... 31.8 46.7 19.1 18.2 17.6 --------- --------- --------- -------- --------- Income before income tax and cumulative effect of accounting changes, as adjusted........................ $ 1,577.3 $ 1,271.4 $ (44.4) $ 148.0 $(1,320.6) ========= ========= ========= ======== ========= Fixed charges: Interest expense......................................... $ 200.4 $ 182.3 $ 70.5 $ 36.3 $ 36.7 Interest element of operating lease rental............... 31.8 46.7 19.1 18.2 17.6 --------- --------- ------- ------- --------- Fixed charges............................................... $ 232.2 $ 229.0 $ 89.6 $ 54.5 $ 54.3 ======== ======== ======= ======= ========= Ratio of earnings to fixed charges (1)...................... 6.8 5.6 (0.5) 2.7 (24.3) - -------------------------------------------------------------------------------------------------------------------- (1) For purposes of computing this ratio, earnings consist of income before income taxes and cumulative effect of accounting changes plus fixed charges of consolidated companies. Fixed charges consist of interest and that portion of operating lease rental expense which is deemed to be an interest factor for such rentals. </TABLE>
<TABLE> <CAPTION> EXHIBIT 12.2 CNA FINANCIAL CORPORATION COMPUTATION OF RATIO OF NET INCOME, AS ADJUSTED, TO FIXED CHARGES - ------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992 (In millions of dollars, except ratios) - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Net income................................................. $ 964.8 $ 757.0 $ 36.5 $ 267.5 $ (330.6) Adjustments: Interest expense, after tax............................. 130.3 118.5 45.8 23.6 24.2 Interest element of operating lease rental, after tax... 20.7 30.3 12.4 11.8 11.7 --------- -------- ------- ------- -------- Net income, as adjusted.................................... $ 1,115.8 $ 905.8 $ 94.7 $ 302.9 $ (294.6) ========= ======== ======= ======= ======== Fixed charges: Interest expense, after tax............................. $ 130.3 $ 118.5 $ 45.8 $ 23.6 $ 24.2 Interest element of operating lease rental, after tax... 20.7 30.3 12.4 11.8 11.7 --------- -------- ------ -------- --------- Fixed charges.............................................. $ 151.0 $ 148.8 $ 58.2 $ 35.4 $ 35.9 ========= ======== ====== ======== ========= Ratio of net income, as adjusted, to fixed charges (1)..... 7.4 6.1 1.6 8.6 (8.2) - ------------------------------------------------------------------------------------------------------------------ (1) For purposes of computing this ratio, net income has been adjusted to include fixed charges of consolidated companies, after tax. Fixed charges consist of interest and that portion of operating lease rental expense which is deemed to be an interest factor for such rentals. </TABLE> 33
EXHIBIT 21.1 PRIMARY SUBSIDIARIES OF CNA PLACE OF COMPANY INCORPORATION - ------- -------------- AMS Services, Inc. and subsidiaries (10) Delaware Alexsis, Inc. and subsidiaries (4) Maryland American Casualty Company of Reading, Pennsylvania (ACCO) Pennsylvania Boston Old Colony Insurance Company Massachusetts Claims Administration Corp. Maryland CNA Casualty of California California Columbia Casualty Company Illinois Commercial Insurance Company of Newark, N.J. New Jersey Continental Assurance Company (CAC) Illinois Continental Casualty Company (CCC) Illinois Continental Lloyd's Insurance Company Texas Continental Reinsurance Corporation California Firemen's Insurance Company of Newark, New Jersey New Jersey Kansas City Fire and Marine Insurance Company Missouri National Fire Insurance Company of Hartford (NFI) Connecticut National-Ben Franklin Insurance Company of Illinois Illinois Niagara Fire Insurance Company Delaware Pacific Insurance Company California 34
EXHIBIT 21.1 - (continued) PRIMARY SUBSIDIARIES OF CNA - CONTINUED The Buckeye Union Insurance Company Ohio The Continental Corporation, Inc. (CIC) New York The Continental Insurance Company New Hampshire The Continental Insurance Company of New Jersey New Jersey Convida Holdings, Ltd and subsidiary (1) Bahamas The Fidelity and Casualty Company of New York New Hampshire The Glens Falls Insurance Company Delaware The Mayflower Insurance Company, Ltd. Indiana Transcontinental Insurance Company New York Transcontinental Technical Services, Inc. (ServCo) Illinois Transportation Insurance Company Illinois Valley Forge Insurance Company Pennsylvania Valley Forge Life Insurance Company Pennsylvania Western National Warranty Corporation and subsidiary (1) Arizona All other subsidiaries, when aggregated, are not considered significant. 34
EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-50753 of CNA Financial Corporation and subsidiaries on Form S-3 of our reports dated February 12, 1997, appearing in and incorporated by reference in the Annual Report on Form 10-K of CNA Financial Corporation and subsidiaries for the year ended December 31, 1996. S/DELOITTE & TOUCHE LLP Deloitte & Touche LLP Chicago, Illinois March 31, 1997 36