CNA Surety Announces Second Quarter 2001 Earnings CHICAGO, July 30, 2001 -- CNA Surety Corporation (NYSE:SUR) today reported net income for the second quarter of $12.3 million, or 29 cents per share, compared to $14.1 million, or 33 cents per share, in 2000. Operating earnings for the second quarter, after income taxes, were $12.2 million, or 29 cents per share, compared to $14.3 million, or 34 cents per share, for the same period in 2000. Second quarter operating earnings and net income reflect lower underwriting income partially offset by the favorable impacts of increased investment income and decreased interest expense. Underwriting income declined $3.9 million, or 22 percent, primarily due to higher incurred losses principally associated with credit related loss events impacted by changes in overall economic conditions. For the second quarter of 2001, the Company’s combined ratio was 82.4 percent as compared to 76.4 percent for the same period in 2000. Investment income increased three percent to $7.5 million and interest expense declined 45 percent to $1.0 million. “Given the present economic conditions, we are generally pleased with our overall underwriting results for the second quarter and first half of 2001. Production trends were generally positive, but loss trends were less favorable,” said Mark C. Vonnahme, President and Chief Executive Officer of CNA Surety. “Gross production trends for contract surety have been favorable with written premiums up 14 percent for the quarter and 9 percent for the first half of 2001. In addition, we have begun to see some improvements in the competitive conditions in commercial surety with improved pricing and underwriting conditions, particularly in large account business. During this challenging period in the economic cycle, we believe that we will be able to leverage our proven underwriting and credit evaluation competencies and financial strength for longer-term increases in premium revenues and profitability." Operating earnings were $24.2 million, or 57 cents per share, for the first six months of 2001 compared to $28.4 million, or 67 cents per share, for the same period in 2000. Net income was $24.3 million, or 57 cents per share, for the first six months of 2001 compared to $28.2 million, or 66 cents per share, for the same period in 2000. The decreases in operating earnings and net income were primarily attributable to lower underwriting income partially offset by the favorable impacts of increased investment income and decreased interest expense. Underwriting income declined $7.4 million, or 21 percent, primarily due to higher incurred losses. For the first six months of 2001, the Company’s combined ratio was 82.2 percent as compared to 76.8 percent for the first half of 2000. Investment income increased five percent to $15.2 million and interest expense declined 24 percent to $2.5 million. Future investment income will be impacted by the Company’s May 16, 2001 decision to increase its dividend payout ratio to approximately 50 percent. For the second quarter of 2001, gross written premiums increased four percent to $85.8 million. This increase was achieved despite an estimated $3.0 million reduction in gross written premiums associated with the discontinuance of the CNA Re assumed international credit and surety business. Excluding the CNA Re assumed international credit and surety business, core direct gross written premiums increased eight percent. Gross written premiums for contract surety increased 14 percent for the quarter to $48.0 million. This increase was primarily attributable to continued strength in public construction nationwide, particularly highway and road, airport and school related projects. Gross written premiums for core direct commercial surety increased two percent to $31.4 million primarily reflecting increased business with key distribution partners. For the second quarter of 2001, net written premiums increased three percent to $80.8 million with contract surety up 13 percent and commercial surety down seven percent, reflecting the aforementioned gross production changes and higher reinsurance costs. Ceded written premiums increased $1.0 million to $5.0 million for the second quarter of 2001 as compared to the second quarter of 2000. Effective January 1, 2001, the Company began delaying the recording of written premium until the effective date of the bond, rather than recording on the date the bond is processed (“processed premium”). This change did not impact the recognition of net earned premium but did impact gross written premiums. For the first six months of 2001, gross written premiums decreased one percent to $161.3 million reflecting the unfavorable impact of the change in the timing of recording written premiums of $10.2 million and the discontinuance of the CNA Re assumed international credit and surety business of $6.0 million. Excluding international reinsurance business assumed from CNA Re, core direct gross processed premiums increased nine percent to $171.5 million with contract surety and commercial surety up ten percent and eight percent, respectively. These increases were primarily due to continued strength in public construction spending for contract surety and reflect increased commercial business with key distribution partners and positive fluctuations in large commercial account activity. Gross written premiums for contract surety increased nine percent and core direct commercial surety decreased five percent for the first six months of 2001 to $86.3 million and $60.4 million, respectively. For the first six months of 2001, net written premiums decreased three percent to $153.5 million reflecting the aforementioned gross production changes and higher reinsurance costs. Ceded written premiums increased $2.4 million to $7.8 million for the first half of 2001 as compared to the first half of 2000. Underwriting income for the second quarter ended June 30, 2001 decreased $3.9 million, or 22 percent, to $13.9 million. The Company’s loss and combined ratios were 21.3 percent and 82.4 percent, respectively, for the second quarter of 2001 compared with loss and combined ratios for the comparable 2000 quarter of 18.1 percent and 76.4 percent, respectively. The loss and combined ratios for the quarter ended June 30, 2001 include net adverse loss reserve development of $0.1 million compared with net favorable loss reserve development of $1.8 million for the comparable 2000 quarter. The expense ratio increased to 61.1 percent in the second quarter of 2001 compared with the expense ratio of 58.3 percent in the comparable quarter of 2000, reflecting higher reinsurance costs and technology related expenditures. For the first half of 2001, underwriting income decreased $7.4 million, or 21 percent, to $27.7 million. The loss and combined ratios were 21.1 percent and 82.2 percent, respectively, for the first half of 2001, compared to 18.0 percent and 76.8 percent, respectively, for the same period in 2000. The loss and combined ratios for the first half of 2001 and the comparable period of 2000 include net favorable loss reserve development of $0.2 million and $3.9 million, respectively. The expense ratio increased to 61.1 percent for the first half of 2001 compared to 58.8 percent for the same period in 2000. As of June 30, 2001, the Company had repurchased approximately 1.4 million of its shares at an aggregate cost of $15.5 million under its share repurchase program. The Company has not repurchased any shares in 2001. CNA Surety Corporation is the largest publicly traded surety company in the country. Through its principal subsidiaries, Western Surety Company and Universal Surety of America, CNA Surety provides surety and fidelity bonds in all 50 states through a combined network of approximately 37,000 independent agencies. Visit us at www.cnasurety.com on the World Wide Web. CNA is a registered service mark, trade name and domain name of CNA Financial Corporation. NOTE: A conference call for investors and the professional investment community will be held at 3:00 p.m. CDT time on July 31, 2001. On the conference call will be Mark C. Vonnahme, President and Chief Executive Officer of CNA Surety Corporation and John S. Heneghan, Chief Financial Officer of CNA Surety Corporation. It will also be broadcast live on the Internet or go to the investor relations pages of the CNA Surety web site for further details. A taped replay of the call will be available at 4:00 p.m. CDT time from July 31 to 4:00 p.m. August 7, 2001 by dialing 800-839-6713, access code 4369032. CNA Surety Corporation Press Release Investor Data To view this pdf file, you will need to download Adobe Acrobat Reader. Click on the Adobe icon below to download this free software now.

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