================================================================================ 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, 1997 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. [ ] 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, 1998, 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 $1,394 million. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the CNA Financial Corporation 1997 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 1998 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, 1997 Item Page Number PART I Number ------ ---- 1. Business.......................................................... 3 2. Properties........................................................ 12 3. Legal Proceedings................................................. 13 4. Submission of Matters to a Vote of Security Holders............... 13 PART II 5. Market for the Registrant's Common Stock and Related Stockholder Matters..................................... 15 6. Selected Financial Data........................................... 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 15 7A. Quantitative and Qualitative Disclosures about Market Risk........ 15 8. Financial Statements and Supplementary Data....................... 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... 15 PART III 10. Directors and Executive Officers of the Registrant................ 16 11. Executive Compensation............................................ 16 12. Security Ownership of Certain Beneficial Owners and Management.... 16 13. Certain Relationships and Related Transactions.................... 16 PART IV 14. Financial Statements, Schedules, Exhibits and Reports on Form 8-K. 16 2
PART I ITEM 1. BUSINESS CNA Financial Corporation (CNAF) 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 (the acquisition date) CNAF acquired all the outstanding common stock of The Continental Corporation and it became a wholly owned subsidiary of CNAF. The Continental Corporation (Continental), 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. CNAF is a holding company whose primary subsidiaries consist of property/casualty and life insurance companies, collectively CNA. CNA's property/casualty insurance operations are conducted by CCC and its affiliates and CIC and its 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, CNA underwrites 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 competes 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 3,400 individual companies that sell property/casualty insurance in the United States. CNAF's consolidated property/casualty subsidiaries ranked as the third largest property/casualty insurance organization based upon 1996 statutory net written premium. There are approximately 1,700 companies selling life insurance in the United States. CAC is ranked as the twenty-second largest life insurance organization based on 1996 consolidated statutory premium volume. DIVIDENDS BY INSURANCE SUBSIDIARIES The payment of dividends to CNAF by its insurance affiliates without prior approval of the affiliates' domiciliary state insurance commissioners is limited to amounts determined by formula in accordance with the accounting practices prescribed or permitted by the states' insurance departments. 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's surplus. Based upon the various state formulas, approximately $677 million in dividends can be paid to CNAF by its insurance affiliates in 1998 without prior approval. All dividends must be reported to the domiciliary insurance department prior to declaration and payment.
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 powers 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 3
REGULATION--(CONTINUED) 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 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. Reform of the Nation's tort reform system is another issue facing the insurance industry. 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 a significant number of these reforms. Additionally, new causes of action and theories of damages are more frequently proposed in state courts or legislatures. Continued unpredictability 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 the methodology for financing future clean-up costs. Although Superfund reform continues to be listed as one of Congress' 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 1997 Annual Report to Shareholders for further discussion, incorporated by reference in Item 8, herein. 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. The RBC requirements establish a formal state accreditation process designed to regulate for solvency more closely, minimize the diversity of approved statutory accounting and actuarial practices, and increase 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, 1997, all of CNAF's property/casualty and life insurance affiliates have adjusted capital amounts in excess of Company Action Levels.
REINSURANCE Information as to the CNA's reinsurance business is set forth in Note G of the Consolidated Financial Statements of the 1997 Annual Report to Shareholders, incorporated by reference in Item 8, herein. EMPLOYEE RELATIONS CNA has approximately 24,700 full-time equivalent employees and has experienced satisfactory labor relations. CNA has never had work stoppages due to labor disputes. 4
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. See Note I of the Consolidated Financial Statements of the 1997 Annual Report to Shareholders for further discussion, incorporated by reference in Item 8, herein. BUSINESS SEGMENTS Information as to the Company's business segments is set forth in Note M of the Consolidated Financial Statements of the 1997 Annual Report to Shareholders, incorporated by reference in Item 8, herein. PROPERTY/CASUALTY BUSINESS The property/casualty group is comprised of commercial business, personal lines of insurance, involuntary risks and other related businesses. Customers of the commercial business 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 lines also includes reinsurance assumed from other insurance companies and certain group accident and health insurance coverages. 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 property/casualty commercial business are professional and specialty coverages, general liability and commercial automobile, and workers' compensation which accounted for 17%, 17% and 16%, respectively, of 1997 premiums earned. The property/casualty group markets personal lines of insurance, primarily automobile and homeowners coverages sold to individuals under monoline and package policies. Involuntary risks include mandatory participation in residual markets, statutory assessments for insolvencies of other insurers, and other similar charges. 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. The property/casualty group also provides other related services including loss control, policy administration and claim administration services under service contracts for fees. Such services are provided primarily in the workers' compensation market. 5
PROPERTY/CASUALTY BUSINESS--(CONTINUED) The following table sets forth supplemental data on a GAAP basis, except where indicated, for the property/casualty business: <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------- Year Ended December 31 1997 1996 1995 1994 1993 (In millions of dollars, except ratio information) - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Commercial Premiums Earned (a) Professional and specialty............... $ 1,688 $ 1,845 $ 1,558 $ 1,010 $ 799 General liability and commercial automobile 1,682 1,754 1,649 1,261 1,155 Workers' compensation.................... 1,845 1,543 1,476 1,426 1,501 Multiple peril........................... 1,058 1,047 870 389 369 Accident and health...................... 1,062 919 699 557 428 Reinsurance and other.................... 1,083 1,189 974 774 712 ------- ------- ------- ------- ------- $ 8,418 $ 8,297 $ 7,226 $ 5,417 $ 4,964 ======= ======= ======= ======= ======= Personal Premiums Earned (a) Personal lines packages.................. $ 1,085 $ 1,063 $ 782 $ 563 $ 511 Monoline automobile and property coverages 440 367 325 314 343 Accident and health...................... 126 106 108 89 86 ------- ------- ------- ------- ------- $ 1,651 $ 1,536 $ 1,215 $ 966 $ 940 ======= ======= ======= ======= ======= Involuntary Risks Premiums Earned (a)(b) Workers' compensation.................... $ (249) $ 198 $ 178 $ 350 $ 292 Private passenger automobile............. 66 58 80 47 23 Commercial automobile................... 25 36 20 54 50 Property and multiple peril.............. 16 2 6 5 6 ------- ------- ------- ------- ------- $ (142) $ 294 $ 284 $ 456 $ 371 ======= ======= ======= ======= ======= Net Investment Income and Other Income (a) Commercial............................... $ 2,172 $ 2,074 $ 1,713 $ 1,145 $ 980 Personal................................. 209 222 231 178 156 Involuntary risks........................ 43 94 104 88 76 ------- ------- ------- ------- ------- $ 2,424 $ 2,390 $ 2,048 $ 1,411 $ 1,212 ======= ======= ======= ======= ======= Underwriting (Loss) Income (a) Commercial............................... $(1,421) $ (853) $ (921) $ (946) $(1,536) Personal................................. 124 (184) (102) (185) (100) Involuntary risks........................ 135 (106) (99) (70) (156) ------- ------- ------- ------- ------- $(1,162) $(1,143) $(1,122) $(1,201) $(1,792) ======= ======= ======= ======= ======= - --------------------------------------------------------------------------------------------------------------- </TABLE>
PROPERTY/CASUALTY BUSINESS--(CONTINUED) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------- Year Ended December 31 1997 1996 1995 1994 1993 (In millions of dollars, except ratio information) - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> TRADE RATIOS - GAAP BASIS (C) Loss ratio............................... 77.1% 76.4% 77.9% 81.9% 96.2% Expense ratio............................ 31.3 30.9 29.4 28.3 27.2 Combined ratio (before policyholder 108.4 107.3 107.3 110.2 123.4 dividends)............................. Policyholder dividend ratio.............. 0.5 1.6 3.0 4.8 3.9 TRADE RATIOS - STATUTORY BASIS (C) Loss ratio............................... 77.5% 76.8% 78.6% 82.2% 96.4% Expense ratio............................ 30.7 30.6 29.2 27.8 27.1 Combined ratio (before policyholder 108.2 107.4 107.8 110.0 123.5 dividends)............................. Policyholder dividend ratio.............. 0.8 1.4 2.1 3.8 3.1 OTHER DATA - STATUTORY BASIS (D) Capital and surplus...................... $ 7,123 $6,349 $ 5,696 $ 3,367 $ 3,598 Written to surplus ratio................. 1.4 1.6 1.7 2.0 1.7 - ----------------------------------------------------------------------------------------------------------------- <FN> (a) Premiums earned, net investment income and underwriting loss includes the results of The Continental Corporation since the acquisition date. (b) Property/casualty involuntary risks include mandatory participation in residual markets, statutory assessments for insolvencies of other insurers and other similar charges. </FN> </TABLE> 6
PROPERTY/CASUALTY BUSINESS--(CONTINUED) (c) GAAP trade ratios reflect the results of CCC and its property/casualty insurance subsidiaries for the entire year, along with the results of Continental since the acquisition date. Statutory trade ratios reflect the results of CCC and its property/casualty insurance subsidiaries and Continental 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 CNAF of $475 million in 1993. In addition, dividends of $175 million, $545 million, $325 million, $175 million and $150 million were paid to CNAF by CCC in 1997, 1996, 1995, 1994 and 1993, respectively. Property/casualty insurance subsidiaries have received, or will receive, reimbursement from CNAF for general management and administrative expenses, unallocated loss adjustment expenses and investment expenses of $199 million, $195 million, $197 million, $170 million and $168 million in 1997, 1996, 1995, 1994 and 1993, respectively. The following table displays the distribution of gross written premium: ------------------------------------------------------------------------- GROSS WRITTEN PREMIUM % OF TOTAL ------------------------------ YEAR ENDED DECEMBER 31 1997 1996 1995 ------------------------------------------------------------------------- New York................................... 9.9 9.3 10.3 California................................. 8.8 8.5 9.7 Texas...................................... 6.2 6.0 6.5 Pennsylvania............................... 5.1 4.9 5.4 Florida.................................... 4.8 4.2 4.1 Illinois................................... 4.4 5.3 5.2 New Jersey................................. 4.3 4.1 4.6 All other states, countries or political subdivisions (a)........................... 48.0 46.8 44.4 Reinsurance assumed: Voluntary................................ 9.7 9.1 7.8 Involuntary.............................. (1.2) 1.8 2.0 ------- ------- ------ 100.0 100.0 100.0 ========================================================================= (a) No other state, country or political subdivision accounts for more than 3.0% of gross written premium.
PROPERTY/CASUALTY BUSINESS--(CONTINUED) PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES The following loss reserve development table 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 the Company's property/casualty insurance subsidiaries' 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 the original reserve was adequate or inadequate to cover the estimated costs of unsettled claims. 7
PROPERTY/CASUALTY CLAIM AND CLAIM EXPENSES--(CONTINUED) 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 1987(a) 1988(a) 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996 1997(d) (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 $29,395 $28,240 Ceded recoverable........ -- -- -- 3,440 3,297 2,867 2,491 2,705 6,089 5,660 4,995 ----- ----- ----- ------ ----- ----- ----- ----- ----- ----- ----- Net reserves for unpaid claim and claim expenses.... 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 23,245 ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ NET PAID (CUMULATIVE) AS OF: One year later........... 1,763 2,040 2,670 3,285 3,411 3,706 3,629 3,656 6,510 5,851 -- Two years later.......... 2,961 3,622 4,724 5,623 6,024 6,354 6,143 7,087 10,485 -- -- Three years later........ 4,031 4,977 6,294 7,490 7,946 8,121 8,764 9,195 -- -- -- Four years later......... 5,007 6,078 7,534 8,845 9,218 10,241 10,318 -- -- -- -- Five years later......... 5,801 6,960 8,485 9,726 10,950 11,461 -- -- -- -- -- Six years later.......... 6,476 7,682 9,108 11,207 11,951 -- -- -- -- -- -- Seven years later........ 7,061 8,142 10,393 12,023 -- -- -- -- -- -- -- Eight years later........ 7,426 9,303 11,086 -- -- -- -- -- -- -- -- Nine years later......... 8,522 9,924 -- -- -- -- -- -- -- -- -- Ten years later.......... 9,097 -- -- -- -- -- -- -- -- -- -- NET RESERVES RE-ESTIMATED AS OF: End of initial year...... 8,045 9,552 11,267 13,090 14,415 17,167 18,321 18,934 24,955 23,735 23,245 One year later........... 8,086 9,737 11,336 12,984 16,032 17,757 18,250 18,922 24,864 23,479 -- Two years later.......... 8,345 9,781 11,371 14,693 16,810 17,728 18,125 18,500 24,294 -- -- Three years later........ 8,424 9,796 13,098 15,737 16,944 17,823 17,868 18,008 -- -- -- Four years later......... 8,516 11,471 14,118 15,977 17,376 17,765 17,511 -- -- -- -- Five years later.........10,196 12,496 14,396 16,440 17,329 17,560 -- -- -- -- -- Six years later..........11,239 12,742 14,811 16,430 17,293 -- -- -- -- -- -- Seven years later........11,480 13,167 14,810 16,551 -- -- -- -- -- -- -- Eight years later........11,898 13,174 14,995 -- -- -- -- -- -- -- -- Nine years later.........11,925 13,396 -- -- -- -- -- -- -- -- -- Ten years later..........12,203 -- -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total net (deficiency) (4,158) (3,844) (3,728) (3,461) (2,878) (393) 810 926 661 256 -- redundancy - ----------------------------------------------------------------------------------------------------------------- </TABLE>
<TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------ Schedule of Property/Casualty Loss Reserve Development Calendar Year Ended 1987(a) 1988(a) 1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(b) 1995(c) 1996 1997(d) (In millions of dollars) - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Reconciliation to gross re-estimated reserves: Net reserves re-estimated 12,203 13,396 14,995 16,551 17,293 17,560 17,511 18,008 24,294 23,479 -- Re-estimated ceded recoverable -- -- -- 2,939 2,672 2,085 1,904 2,405 6,560 6,108 -- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------ Total gross re-estimated -- -- -- 19,490 19,965 19,645 19,415 20,413 30,854 29,587 -- reserves - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Net (deficiency) redundancy related to: Asbestos claims. (3,073) (3,017) (2,919) (2,785) (2,738) (1,049) (449) (414) (156) (105) -- Environmental claims.... (1,000) (997) (970) (960) (914) (869) (423) (243) (63) -- -- ------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ----- Total asbestos and environmental (4,073) (4,014) (3,889) (3,745) (3,652) (1,918) (872) (657) (219) (105) -- Other claims............ (85) 170 161 284 774 1,525 1,682 1,583 880 361 -- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------------- Total net (deficiency) redundancy.............. (4,158) (3,844) (3,728) (3,461) (2,878) (393) 810 926 661 256 -- ======= ======= ======= ======= ======== ====== ====== ====== ====== ====== ===== - --------------------------------------------------------------------------------------------------------------------- <FN> (a) Reflects reserves of CNA's property/casualty insurance subsidiaries, excluding Continental reserves which were acquired on the acquisition date. 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) 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, on the acquisition date, 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 the acquisition date and subsequent development thereon. (d) Includes gross reserves of acquired companies of $64 million. </FN> </TABLE> 8
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 1997 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 1997 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 other companies on a commission basis. Insurance products are also marketed through other distribution channels such as banks, direct marketing and the Internet. The individual insurance products consist primarily of term, universal life, and fixed and variable annuity products. 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. CNA's life insurance 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 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 life insurance subsidiaries 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 position CNA properly in the evolving health care environment. 9
LIFE BUSINESS--(CONTINUED) The following table sets forth supplemental data on a GAAP basis, except where indicated for the life insurance business: <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------- Year Ended December 31 1997 1996 1995 1994 1993 (In millions of dollars, except ratio information) - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> INDIVIDUAL PREMIUM Life and annuities................................ $ 642 $ 629 $ 497 $ 369 $ 312 Accident and health............................... 3 2 33 33 31 --------- --------- --------- --------- --------- $ 645 $ 631 $ 530 $ 402 $ 343 ========= ========= ========= ========= ========= GROUP PREMIUM Accident and health (a)........................... $ 2,527 $ 2,548 $ 2,190 $ 2,111 $ 1,983 Life and annuities................................ 263 195 313 165 116 --------- --------- --------- --------- --------- $ 2,790 $ 2,743 $ 2,503 $ 2,276 $ 2,099 ========= ========= ========= ========= ========= NET INVESTMENT INCOME AND OTHER INCOME Individual........................................ $ 297 $ 292 $ 247 $ 194 $ 154 Group............................................. 236 214 198 166 143 --------- --------- --------- --------- --------- $ 533 $ 506 $ 445 $ 360 $ 297 ========= ========= ========= ========= ========= OPERATING INCOME BEFORE INCOME TAX Individual........................................ $ 88 $ 101 $ 65 $ 47 $ 14 Group............................................. 65 70 95 87 52 --------- --------- --------- --------- --------- $ 153 $ 171 $ 160 $ 134 $ 66 ========= ========= ========= ========= ========= GROSS LIFE INSURANCE IN-FORCE Individual (b).................................... $ 239,843 $ 172,213 $ 113,901 $ 80,560 $ 76,835 Group............................................. 71,755 64,796 52,145 46,873 35,413 --------- --------- --------- --------- --------- $ 311,598 $ 237,009 $ 166,046 $ 127,433 $ 112,248 ========= ========= ========= ========= ========= OTHER DATA - STATUTORY BASIS(c) Capital and surplus............................... $ 1,223 $ 1,163 $ 1,128 $ 1,055 $ 1,022 Capital and surplus-percent of total liabilities.. 22.4% 25.5% 28.2% 29.4% 30.1% Participating policyholders-percent of gross life insurance in force................................ 0.7% 0.5% 0.6% 0.9% 1.1% - ---------------------------------------------------------------------------------------------------------------- <FN> (a) Group accident and health premium includes contracts involving U.S. government employees and their dependents, and amounted to approximately $2.1 billion, $2.1 billion, $1.9 billion, $1.8 billion and $1.7 billion in 1997, 1996, 1995, 1994 and 1993, 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 6.4%, 7.2%, 9.4%, 9.7% and 9.7% in 1997, 1996, 1995, 1994 and 1993, respectively. (c) Other data is determined on the basis of statutory accounting practices. Life insurance subsidiaries have received reimbursement from CNAF for general management and administrative expenses and investment expenses of $18 million, $29 million, $21 million, $25 million and $26 million in 1997, 1996, 1995, 1994, and 1993, 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. </FN> </TABLE> 10
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. The Company manages the liquidity and interest rate risks on the guaranteed investment contract portfolio by managing the 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 1997 1996 1995 - ------------------------------------------------------------------------------- Duration in years: Assets....................................... 3.74 3.12 3.12 Contracts.................................... 3.63 3.16 2.98 ---- ---- ---- Difference................................... 0.11 (0.04) 0.14 ==== ====== ==== Weighted average investment yield............... 6.81% 7.44% 7.58% Weighted average interest crediting rates....... 6.78% 7.32% 7.45% Withdrawal characteristics: With market value adjustment................. 97% 95% 92% Non-withdrawable............................. 3 5 8 - ------------------------------------------------------------------------------- Total 100% 100% 100% =============================================================================== As shown above, the weighted average investment yield at December 31, 1997, 1996 and 1995 was more than the weighted average interest crediting rate. During 1997, general market interest rates were lower which led to an increase in the market value of CNA's fixed maturitiy securities. As a result of this increase, CNA was able to realize significant capital gains on its investment portfolio. However, the interest rates on fixed maturity securities purchased in this market had a lower yield which led to a narrowing of the spread between investment yields and crediting rates. INVESTMENTS Information as to the Company's investments is set forth in Note B of the Consolidated Financial Statements of the 1997 Annual Report to Shareholders, incorporated by reference in Item 8, herein. 11
ITEM 2. PROPERTIES CNA Plaza, owned by Continental Assurance Company, serves as the home office for CNAF 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 28% of the adjacent building is rented to non-affiliates. CNAF'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 CNAF's subsidiaries: -------------------------------------------------------------------------- AMOUNT OF BUILDING OWNED AND OCCUPIED OR LEASED LOCATION BY CNA OR ITS SUBSIDIARIES PRINCIPAL USAGE -------------------------------------------------------------------------- CNA 1,144,378 sq. ft.* Principal Executive Plaza Offices of CNAF 333 S. Wabash Chicago, Illinois 180 Maiden Lane 1,091,570*** Property/Casualty New York, New York Insurance Offices 55 E. Jackson Blvd. 440,292* Principal Executive Chicago, Illinois Offices of CNAF 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 200 S. Wacker Drive 219,285** Property/Casualty Chicago, Illinois Insurance Offices 1111 E. Broad St. 183,019** Property/Casualty Columbus, Ohio Insurance Offices 333 Glen Street 157,825** Property/Casualty Glen Falls, New York Insurance Offices 1100 Cornwall Road 147,884** Property/Casualty Monmouth Junction Insurance Offices New Jersey 600 North Pearl Street 139,151** Property/Casualty Dallas, Texas Insurance Offices 111 Congressional Blvd. 118,215** Property/Casualty Indianapolis, Indiana Insurance Offices 1431 Opus Place 106,151** Property/Casualty Downers Grove, Illinois Insurance Offices 2401 Pleasant Valley 102,376** Property/Casualty York, Pennsylvania Insurance Offices * Represents property owned by CNAF or its subsidiaries. ** Represents property leased by CNAF or its subsidiaries. *** Property is owned by Continental and 46% of it is occupied by CNAF or its subsidiaries. 12
ITEM 3. LEGAL PROCEEDINGS Information as to CNA's legal proceedings is set forth in Note F of the Consolidated Financial Statements of 1997 Annual Report to Shareholders, incorporated by reference in Item 8, herein. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 13
EXECUTIVE OFFICERS OF THE REGISTRANT <TABLE> <CAPTION> POSITION AND OFFICES HELD FIRST BECAME WITH OFFICER OF NAME REGISTRANT AGE CNA PRINCIPAL OCCUPATION DURING PAST FIVE YEARS <S> <C> <C> <C> <C> Laurence A. Tisch Chief Executive 75 * Co-Chairman of the Board and Co-Chief Executive Officer, CNA Officer of Loews Corporation. President, Chief Financial Executive Officer and Director of CBS, Inc. until Corporation November 1995. Executive officer of the Registrant since 1974. Dennis H. Chookaszian Chairman of the 54 1975 Chairman of the Board and Chief Executive Officer of Board and Chief CNA since September 1992. Prior thereto, Executive Mr. Chookaszian was President and Chief Operating Officer, CNA Officer of CNA. Executive officer of the Registrant since 1975. Philip L. Engel President, CNA 57 1977 President of CNA since September 1992. Prior thereto, Mr. Engel was Executive Vice President of CNA. Executive officer of the Registrant since 1992. Bernard L. Executive Vice 51 1980 Executive Vice President and Chief Operating Officer Hengesbaugh President and of CNA since February 4, 1998. Senior Vice President Chief Operating of CNA since November 1990. Executive officer of the Officer, CNA Registrant since 1992. W. James MacGinnitie Senior Vice 59 1997 Senior Vice President and Chief Financial Officer of President and CNA and of the Registrant since October 1997. From Chief Financial 1994 through 1997, Partner at Ernst & Young LLP. Officer Prior to that time, principal with Tillinghast. <FN> Officers are elected and hold office until their successors are elected and qualified, and are subject to removal by the Board of Directors. *Mr. Tisch is not an officer of CNA. </FN> </TABLE> 14
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Incorporated herein by reference from page 91 of the 1997 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA Incorporated herein by reference from page 2 of the 1997 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference from pages 14 through 38 of the 1997 Annual Report to Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Incorporated herein by reference under the heading Market Risk in the Management Discussion and Analysis of Financial Condition and Results of Operations of the 1997 Annual Report to Shareholders on pages 30 through 33. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Balance Sheet - December 31, 1997 and 1996 Statement of Consolidated Operations - Year Ended December 3l, 1997, 1996 and 1995 Statement of Consolidated Stockholders' Equity - December 31, 1997, 1996 and 1995 Statement of Consolidated Cash Flows - Year Ended December 31, 1997, 1996 and 1995 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 40 through 90 of the 1997 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15
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 <TABLE> <CAPTION> Page (a) 1. FINANCIAL STATEMENTS: Number <S> <C> A separate index to the Consolidated Financial Statements is presented in Part II, Item 8..................................................................... 15 (a) 2. FINANCIAL STATEMENT SCHEDULES: Schedule I Summary of Investments............................................. 20 Schedule II Condensed Financial Information (Parent Company)................... 21 Schedule III Supplementary Insurance Information................................ 25 Schedule V Valuation and Qualifying Accounts and Reserves..................... 26 Schedule VI Supplementary Information Concerning Property/Casualty Insurance Operations............................................... 26 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........................................................... 27 </TABLE> 16
PART IV ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (continued) <TABLE> <CAPTION> (a) 3. EXHIBITS: Exhibit Description of Exhibit Number ------------------------ ------- <S> <C> (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 (Exhibit 3.2 to 1996 Form 10-K incorporated herein by reference.)........................ 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 </TABLE> 17
PART IV ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (continued) <TABLE> <CAPTION> (a) 3. EXHIBITS: Exhibit Description of Exhibit Number ------------------------ ---------- <S> <C> (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 </TABLE> 18
PART IV ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (continued) <TABLE> <CAPTION> (a) 3. EXHIBITS: Exhibit Description of Exhibit Number ------------------------ -------- <S> <C> (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) 1997 Annual Report...................................................................... 13.1* (21) Subsidiaries of CNA..................................................................... 21.1* (23) Independent Auditors' Consent........................................................... 23.1* (27) Financial Data Schedule................................................................. 27* *Filed herewith (b) REPORTS ON FORM 8-K: None </TABLE> 19
<TABLE> <CAPTION> SCHEDULE I CNA FINANCIAL CORPORATION SUMMARY OF INVESTMENTS - ----------------------------------------------------------------------------------------------------------------- December 31 1997 1996 ----------------------------- --------------------------------- Fair Carrying Fair 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.... $13,798 $13,920 $13,920 $15,047 $15,045 $15,045 States, municipalities and political subdivisions-tax exempt............. 4,534 4,724 4,724 4,860 4,951 4,951 Foreign governments and political subdivisions........................ 998 998 998 1,200 1,214 1,214 Public utilities..................... 340 355 355 195 205 205 Convertibles and bonds with warrants attached............................ 3 2 2 167 169 169 All other corporate.................. 9,280 9,452 9,452 6,022 6,071 6,071 Redeemable preferred stocks.............. 67 97 97 49 66 66 ------ ------ ------ ------ ------ ------ Total fixed maturities available-for-sale................. 29,020 29,548 29,548 27,540 27,721 27,721 ------ ====== ------ ------ ====== ------ Equity securities available-for-sale: Common stocks: Public utilities..................... -- -- -- 11 15 15 Banks, trusts and insurance companies 8 7 7 132 185 185 Industrial and other................. 559 672 672 335 431 431 Non redeemable preferred stocks.......... 128 135 135 224 228 228 ------ ------ ------ ------ ------ ------ Total equity securities available-for-sale................. 695 $ 814 814 702 $ 859 859 ------ ====== ------ ------ ====== ------ Mortgage loans.............................. 80 80 113 113 Real estate................................. 5 5 10 10 Policy loans................................ 177 177 174 174 Other invested assets....................... 544 695 617 681 Short-term investments...................... 4,884 4,884 5,854 5,854 - ----------------------------------------------------------------------------------------------------------------- Total investments $35,405 $36,203 $35,010 $35,412 ================================================================================================================= </TABLE> 20
<TABLE> <CAPTION> SCHEDULE II CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION FINANCIAL POSITION - ----------------------------------------------------------------------------------------------------------- DECEMBER 31 1997 1996 (In millions of dollars) - ----------------------------------------------------------------------------------------------------------- ASSETS: <S> <C> <C> Investments in subsidiaries....................................... $ 9,770 $ 8,099 Deferred income taxes............................................. 511 877 Notes receivable from affiliate................................... 205 205 Short-term investments............................................ 174 2 Other............................................................. 4 16 -------- ------- Total assets.............................................. $ 10,664 $ 9,199 ======== ======= LIABILITIES: Debt.............................................................. $ 1,972 $ 1,971 Federal income taxes payable...................................... 108 29 Amounts due to affiliates......................................... 106 102 Other............................................................. 169 37 -------- ------- Total liabilities......................................... 2,355 2,139 Total stockholders' equity................................ 8,309 7,060 - ----------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,664 $ 9,199 =========================================================================================================== RESULTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 1997 1996 1995 (In millions of dollars) - ---------------------------------------------------------------------------------------------------------- REVENUES: Equity in income of subsidiaries before income tax: Operating income ..............................................$ 956 $1,089 $ 923 Realized investment gains...................................... 742 610 453 Net investment income............................................. 12 13 9 Realized investment gains (losses)................................ (4) (5) 3 ------- ------ ------- 1,706 1,707 1,388 ------- ------ ------- EXPENSES: Administrative and general expenses............................... 217 223 220 Interest expense.................................................. 131 135 125 Other............................................................. - 4 1 ------- ------ ------- 348 362 346 ------- ------ ------ Income before income tax................................... 1,358 1,345 1,042 Income tax expense................................................ 392 380 285 - ---------------------------------------------------------------------------------------------------------- NET INCOME $ 966 $ 965 $ 757 ========================================================================================================== See accompanying Notes to Condensed Financial Information. </TABLE> 21
<TABLE> <CAPTION> SCHEDULE II (continued) CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION Statement of Cash Flows - ---------------------------------------------------------------------------------------------------------------- Year ended December 31 1997 1996 1995 (In millions of dollars) - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: <S> <C> <C> <C> Net income........................................................... $ 966 $ 965 $ 757 ---- ---- ---- Adjustments to reconcile net income to net cash flows from operating activities: Equity in income of unconsolidated affiliates.................... (1,441) (1,377) (1,201) Realized losses (gains).......................................... 4 5 (3) Changes in: Federal income taxes............................................ 79 165 (113) Deferred income taxes........................................... 366 93 173 Other, net...................................................... (127) (131) 87 ------ ----- ----- TOTAL ADJUSTMENTS.............................................. (1,119) (1,245) (1,057) ------- ------ ------ NET CASH FLOWS FROM OPERATING ACTIVITIES....................... (153) (280) (300) ------ ----- ----- Cash flows from investing activities: Purchase of The Continental Corporation.............................. - - (1,126) Other acquisitions................................................... - - (13) Purchases of fixed maturities........................................ - - (709) Proceeds from fixed maturities: Sales............................................................. - - 501 Maturities........................................................ - - 201 Net proceeds from the sale of equity securities...................... - - (1) Change in short-term investments..................................... (15) (2) 1 Other................................................................ (4) (5) 7 ----- ----- ----- NET CASH FLOWS FROM INVESTING ACTIVITIES....................... (19) (7) (1,139) ------ ------ ------ Cash flows from financing activities: Dividends paid to preferred shareholders............................. (6) (6) (7) Dividend from affiliates............................................. 175 548 326 Proceeds from issuance of long-term debt............................. - 248 1,325 Principal payments on long-term debt................................ - (500) - Loan to The Continental Corporation.................................. - - (205) ----- ----- ----- NET CASH FLOWS FROM FINANCING ACTIVITIES....................... 169 290 1,439 ----- ----- ----- NET CASH FLOWS (3) 3 - Cash at beginning of year............................................... 3 - - - ------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ - $ 3 $ - =================================================================================================================== </TABLE>
<TABLE> <CAPTION> SCHEDULE II (continued) CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION Statement of Cash Flows - (continued) - ---------------------------------------------------------------------------------------------------------------- Year ended December 31 1997 1996 1995 (In millions of dollars) - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Supplemental disclosures of cash flow information: Cash (paid) received: Interest ........................................................ $ (134) $(141) $(170) Federal income taxes............................................. (95) 15 103 =================================================================================================================== Noncash investing activities that are not reflected in the Statement of Cash Flows are listed below. The Continental Other December 31, 1995 Corporation - -------------------------------------------------------------------------------------------------------------------- Fair value of assets acquired..................................... $15,259 $ 13 Liabilities assumed............................................... (14,133) - ------- ----- Cash paid..................................................... $ 1,126 $ 13 ==================================================================================================================== <FN> See accompanying Notes to Condensed Financial Information. </FN> </TABLE> 22
SCHEDULE II (continued) CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION NOTES TO CONDENSED FINANCIAL INFORMATION a. Basis of presentation The condensed financial information of CNA Financial Corporation (Parent Company) should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the CNA Financial Corporation Annual Report to Shareholders. Investment in subsidiaries are accounted for using the equity method of accounting. Certain amounts applicable to prior years have been reclassified to conform to classifications followed in 1997. b. Long-term debt ------------------------------------------------------------------------- December 31 1997 1996 (In millions of dollars) ------------------------------------------------------------------------- Variable rate debt: Credit Facility.................................. $ 400 $ 400 Commercial Paper................................. 675 675 Senior Notes: 8 7/8 %, due March 1, 1998....................... 150 150 6 1/4%, due November 15, 2003.................... 249 248 6 3/4%, due November 15, 2006.................... 248 248 7 1/4% Debenture, due November 15, 2023............. 247 247 1.0% Urban Development Action Grant, due May 7, 2019. 3 3 -------------------------------------------------------------------------- Total $1,972 $1,971 ========================================================================= CNA Financial Corporation (CNAF)has in place a revolving credit facility that was used to finance the acquisition of The Continental Corporation.The interest rate on 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, 1997 and 1996, respectively was 6.16% and 5.72%. To take advantage of favorable interest rates, CNAF established a commercial paper program to replace borrowings under the revolving credit facility. The commercial paper borrowings are classified as long-term as $675 million of the committed bank facility will support the commercial paper program. The weighted average interest rate on commercial paper at December 31, 1997 was 6.05% compared to 5.67% at December 31, 1996. At year end 1997, 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.
SCHEDULE II (continued) To offset the variable rate characteristics of the facility, CNAF entered into interest rate swap agreements with several banks having a total notional principal amount of $950 million, which terminate from May 2000 to December 2000. These agreements provide that CNAF pay interest at a fixed rate, averaging 6.20% at December 31, 1997 and 1996, in exchange for the receipt of interest at the three month LIBOR rate. The 23
SCHEDULE II (continued) CNA FINANCIAL CORPORATION (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION NOTES TO CONDENSED FINANCIAL INFORMATION--(CONTINUED) effect of these interest rate swaps was to increase interest expense by $4 million and $7 million for the years ended December 31, 1997 and 1996, respectively. The weighted average interest rate (interest and facility fees) on the variable rate acquisition debt, which includes the revolving credit facility and commercial paper was 6.35% and 6.28% at December 31, 1997 and 1996, respectively. This rate reflects the effect of the interest rate swaps. On August 18, 1997, CNAF filed a Registration Statement on Form S-3 with the Securities and Exchange Commission relating to $1 billion of senior and subordinated debt and preferred stock that became effective on October 22, 1997. This new shelf registration incorporated $250 million of securities remaining available for issuance from a prior shelf registration. On January 8, 1998, the Company issued $150 million principal amount of 6.45% senior notes due January 15, 2008 and $150 million principal amount of 6.95% senior notes due January 15, 2018. The net proceeds were used to pay down bank loans drawn under the Company's revolving credit facility. Concurrent with the reduction in bank debt, the Company terminated $300 million in notional amount of interest rate swaps. On March 2, 1998 CNAF paid at the due date $150 million of 8 7/8% senior notes with funds drawn against the revolving credit facility (unaudited). c. Management and admininstrative expenses CNAF has reimbursed, or will reimburse, its subsidiaries for general management and administrative expenses, unallocated loss adjustment expenses and investment expense of $217 million, $223 million and $218 million in 1997, 1996 and 1995, respectively. d. Capital contributions There were no contributions made by CNAF to the capital of its insurance and other subsidiaries in 1997, 1996 or 1995. - -------------------------------------------------------------------------------- 24
<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, 1997 Property/Casualty: <S> <C> <C> <C> <C> <C> Commercial............ $ 804 $ 25,624 $ 91 $ 3,717 $ 150 Personal.............. 358 1,386 445 963 2 Involuntary risks..... -- 1,230 -- 20 -- Life: Individual............ 934 114 3,593 -- 31 Group................. 46 555 700 -- 559 ------- ------- ------- ------- ----- Subtotal............ 2,142 28,909 4,829 4,700 742 Other and intercompany eliminations.......... - 318 - - - ------- ------- ------- ------- ----- $ 2,142 $ 29,227 $ 4,829 $ 4,700 $ 742 ======= ======= ======= ======= ===== December 31, 1996 Property/Casualty: Commercial............ $ 822 $ 25,887 $ 47 $ 3,591 $ 172 Personal.............. 262 1,557 326 1,044 - Involuntary risks..... - 1,951 - 24 - Life: Individual............ 736 148 3,138 - 30 Group................. 34 519 670 - 544 ------- ------- ------- ------- --- Subtotal............ 1,854 30,062 4,181 4,659 746 Other and intercompany eliminations.......... -- 333 -- -- -- ------- ------- ------- ------- ----- $ 1,854 $ 30,395 $ 4,181 $ 4,659 $ 746 ======= ======= ======= ======= ===== December 31, 1995 Property/Casualty: Commercial............ $ 702 $ 27,309 $ 38 $ 3,607 $ 163 Personal.............. 258 1,427 260 869 - Involuntary risks..... 9 2,308 - 73 - Life: Individual............ 505 162 2,679 - 31 Group................. 19 473 539 - 511 ------- ------- ------- ------- ----- Subtotal............ 1,493 31,679 3,516 4,549 705 Other and intercompany eliminations.......... -- 353 -- -- -- ------- ------- ------- ------- ----- $ 1,493 $ 32,032 $ 3,516 $ 4,549 $ 705 ======= ======= ======= ======= ===== </TABLE> *Premiums written relates to property/casualty companies only.
<TABLE> <CAPTION> SCHEDULE III CNA FINANCIAL CORPORATION SUPPLEMENTARY INSURANCE INFORMATION - CONTINUED - -------------------------------------------------------------------------------------------------------- Amortization Insurance of Net Net Claims and Deferred Other Premium Investment Policyholders' Acquisition Operating Premiums (In millions of dollars) Revenue Income Benefits Costs Expenses Written* - --------------------------------------------------------------------------------------------------------- December 31, 1997 Property/Casualty: <S> <C> <C> <C> <C> <C> <C> Commercial............ $ 8,418 $ 1,601 $ 7,369 $ 1,855 $ 1,148 $ 8,570 Personal.............. 1,651 146 991 407 191 1,803 Involuntary risks..... (142) 43 (383) -- 107 (187) Life: Individual............ 645 248 633 122 99 -- Group................. 2,790 171 2,643 (1) 318 -- ------ ------ ------ ------ ------ ------ Subtotal............ 13,362 2,209 11,253 2,383 1,863 10,186 Other and intercompany eliminations.......... - - - - 2 - ------ ------ ------ ------ ------ ------ $13,362 $ 2,209 $11,253 $ 2,383 $ 1,865 $10,186 ====== ====== ====== ====== ====== ======= December 31, 1996 Property/Casualty: Commercial............ $ 8,297 $ 1,623 $ 6,703 $ 1,715 $ 1,104 $ 8,593 Personal.............. 1,536 166 1,184 402 273 1,731 Involuntary risks..... 294 92 244 62 92 287 Life: Individual............ 631 227 667 26 129 - Group................. 2,743 173 2,579 (13) 322 - ------ ------ ------ ------ ------ ------ Subtotal............ 13,501 2,281 11,377 2,192 1,920 10,611 Other and intercompany eliminations.......... (22) (5) (20) -- (40) -- ------ ------ ------ ------ ------ ------ $13,479 $ 2,276 $11,357 $ 2,192 $ 1,880 $10,611 ======= ====== ====== ====== ===== ====== December 31, 1995 Property/Casualty: Commercial............ $ 7,226 $ 1,463 $ 5,995 $ 1,495 $ 915 $ 7,561 Personal.............. 1,215 132 892 271 229 1,254 Involuntary risks..... 284 104 234 17 146 311 Life: Individual............ 530 214 507 71 134 - Group................. 2,503 155 2,340 (10) 276 - ------ ------ ------ ------ ------ ------- Subtotal............ 11,758 2,068 9,968 1,844 1,700 9,126 Other and intercompany eliminations.......... (23) 9 (24) -- (20) -- ------ ------ ------ ------ ------ ------ $ 11,735 $ 2,077 $ 9,944 $ 1,844 $ 1,680 $ 9,126 ======= ====== ====== ====== ===== ====== </TABLE> 25
SCHEDULE V CNA FINANCIAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------- Balance at Charged to Charged to Balance at Beginning Costs and Other End of (In millions of dollars) of Period Expenses Amounts Deductions Period - ---------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Deducted from assets: Allowance for doubtful accounts: <S> <C> <C> <C> <C> <C> Receivables................................. $ 277 $ 30 $ - $ 4 $ 303 ===== ===== ====== ====== ===== Year Ended December 31, 1996 Deducted from assets: Allowance for doubtful accounts: Receivables................................. $ 289 $ 34 $ - $ 46 $ 277 ===== ===== ====== ===== ===== Year Ended December 31, 1995 Deducted from assets: Allowance for doubtful accounts: Receivables................................. $ 128 $ 39 $ 143* $ 21 $ 289 ===== ===== ====== ====== ===== - -------------------------------------------------------------------------------------------------------------- * Includes Continental allowance at the acquisition date. </TABLE> SCHEDULE VI CNA FINANCIAL CORPORATION SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------- Consolidated Property/ Casualty Entities ------------------------------------- Year Ended December 31 1997 1996 1995 (In millions of dollars) - -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Deferred acquisition costs.................................... $1,162 $ 1,084 $ 969 Reserves for unpaid claims and claim expenses................. 28,240 29,830 31,044 Discount deducted from claim and claim expense reserves above (based on interest rates ranging from 3.5% to 7.5%)......... 2,409 2,459 2,449 Unearned premiums............................................. 4,700 4,659 4,549 Earned premiums............................................... 9,927 10,127 8,725 Net investment income......................................... 1,790 1,881 1,699 Claim and claim expenses related to current year.............. 7,942 7,922 6,787 Claim and claim expenses related to prior years............... (256) (91) 122 Amortization of deferred acquisition costs.................... 2,262 2,179 1,783 Paid claim and claim expenses................................. 8,376 9,200 7,057 Premiums written.............................................. 10,186 10,611 9,126 - -------------------------------------------------------------------------------------------------------- </TABLE> 26
INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders 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, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 and have issued our report thereon dated February 18, 1998. Such consolidated financial statements and report are included in the Company's 1997 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 18, 1998 27
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/W.JAMES MACGINNITIE -------------------------------------------------------- W. James MacGinnitie Senior Vice President and Chief Financial Officer Date: March 30, 1998 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 30, 1998 | /S/ROBERT P. GWINN Director | - ---------------------------------- | Robert P. Gwinn | | | /S/WALTER F. MONDALE Director | - -------------------------------- | Walter F. Mondale | 28
SIGNATURES--(CONTINUED) 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 30, 1998 | /S/JAMES S. TISCH Director | - ---------------------------------- | James S. Tisch | | | /S/LAURENCE A. TISCH Chief Executive Officer| - ---------------------------------- and Director | Laurence A. Tisch | | | /S/PRESTON R. TISCH Director | - --------------------------------- | Preston R. Tisch | | | /S/MARVIN ZONIS Director | - ------------------------------- | Marvin Zonis | | 29
EXHIBIT 11.1 CNA FINANCIAL CORPORATION COMPUTATION OF NET INCOME PER COMMON SHARE <TABLE> <CAPTION> ============================================================================================= Year Ended December 31 1997 1996 1995 1994 1993 (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.........................................$ 966 $ 965 $ 757 $ 36 $ 268 Less preferred stock dividends..................... 7 7 7 5 4 ------ ------ ------- ---- ------ Net income available to common stockholders........$ 959 $ 958 $ 750 $ 31 $ 264 ====== ====== ====== ====== ====== Earnings per share: Net income available to common stockholders.....$15.52 $15.51 $12.14 $ 0.51 $ 4.26 ====== ====== ====== ====== ====== </TABLE> 30
EXHIBIT 12.1 CNA FINANCIAL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- Year Ended December 31 1997 1996 1995 1994 1993 (In millions of dollars, except ratios) - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Income before income tax ........................$ 1,358 $ 1,345 $ 1,042 $(134) $ 94 Adjustments: Interest expense.............................. 198 200 182 71 36 Interest element of operating lease rental.... 34 32 47 19 18 -------- ------- ------- ------ ----- Income before income tax, as adjusted............$ 1,590 $ 1,577 $ 1,271 $ (44) $ 148 ====== ======= ======= ====== ===== Fixed charges: Interest expense..............................$ 198 $ 200 $ 182 $ 71 $ 36 Interest element of operating lease rental.... 34 32 47 19 18 ------- ------- ------- ----- ----- Total fixed charges..............................$ 232 $ 232 $ 229 $ 90 $ 54 ====== ======= ======= ===== ===== Ratio of earnings to fixed charges (1)........... 6.8 6.8 5.6 (0.5) 2.7 - --------------------------------------------------------------------------------------------- <FN> (1) For purposes of computing this ratio, earnings consist of income before income taxes 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. </FN>
</TABLE> EXHIBIT 12.2 CNA FINANCIAL CORPORATION COMPUTATION OF RATIO OF NET INCOME, AS ADJUSTED, TO FIXED CHARGES <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------ Year Ended December 31 1997 1996 1995 1994 1993 (In millions of dollars, except ratios) - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Net income................................................$ 966 $ 965 $ 757 $ 37 $ 268 Adjustments: Interest expense, after tax............................ 129 130 119 46 24 Interest element of operating lease rental, after tax.. 22 21 30 12 12 ------ ------ ----- ----- ----- Net income, as adjusted...................................$ 1,117 $ 1,116 $ 906 $ 95 $ 304 ====== ====== ===== ===== ===== Fixed charges: Interest expense, after tax............................$ 129 $ 130 119 $ 46 $ 24 Interest element of operating lease rental, after tax.. 22 21 30 12 12 ------ ------- ----- ----- ----- Total fixed charges.......................................$ 151 $ 151 $ 149 $ 58 $ 36 ====== ====== ===== ===== ===== Ratio of net income, as adjusted, to fixed charges (1).... 7.4 7.4 6.1 1.6 8.6 - ------------------------------------------------------------------------------------------------------ <FN> (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. </FN> </TABLE> 31
EXHIBIT 21.1 PRIMARY SUBSIDIARIES OF CNA PLACE OF INCORPORATION COMPANY AMS Services, Inc. Delaware Alexsis, Inc. Maryland American Casualty Company of Reading, Pennsylvania (ACCO) Pennsylvania Boston Old Colony Insurance Company Massachusetts Claims Administration Corp. Maryland CNA Casualty of California California CNA Surety Corporation Delaware 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 32
EXHIBIT 21.1 - (continued) PRIMARY SUBSIDIARIES OF CNA--(continued) PLACE OF INCORPORATION COMPANY The Buckeye Union Insurance Company Ohio The Continental Corporation, Inc. New York The Continental Insurance Company New Hampshire The Continental Insurance Company of New Jersey New Jersey Convida Holdings, Ltd. 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 Arizona All other subsidiaries, when aggregated, are not considered significant. 33
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 18, 1998, 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, 1997. /S/DELOITTE & TOUCHE LLP Deloitte & Touche LLP Chicago, Illinois March 30, 1998 34