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CNA Surety Announces Second Quarter 2007 Results CHICAGO, July 27, 2007 -- CNA Surety Corporation (NYSE:SUR) today reported net income for the second quarter of 2007 of $21.9 million, or $0.50 per diluted share, compared to $19.5 million, or $0.45 per diluted share, for the same period in 2006. The increase in net income reflects higher earned premium, higher net investment income, and the impacts of lower loss and expense ratios, partially offset by net realized investment losses. "We are pleased to report another quarter of strong operating performance", said John F. Welch, President and Chief Executive Officer. "Our combined ratio dipped below 80 percent for the quarter – a clear reflection of our focus on consistent, disciplined underwriting and expense management." For the quarter ended June 30, 2007, gross written premiums increased 6% to $125.9 million as compared to the quarter ended June 30, 2006. Contract surety gross written premiums increased 8% to $84.9 million primarily due to steady demand as a result of the strong construction economy and the success of our small contractor product. Large and small commercial surety gross written premiums, as well as related fidelity and other gross written premiums, increased slightly for the quarter. Net written premiums increased 6% to $116.2 million from the second quarter of 2006. For the quarter ended June 30, 2007, the loss, expense, and combined ratios improved to 25.4 percent, 54.0 percent, and 79.4 percent, respectively, compared to 25.7 percent, 55.1 percent, and 80.8 percent, respectively, for the same period in 2006. The current ratios reflect lower reinsurance costs, strong premium growth and continued focus on expense management. Net investment income for the quarter ended June 30, 2007 was $10.8 million compared to $10.0 million during the second quarter of 2006 due to the increase in invested assets and higher yields. The annualized pre-tax yields were 4.6% and 4.5% for the three months ended June 30, 2007 and 2006, respectively. Net realized investment losses were $0.8 million for the quarter ended June 30, 2007 compared to net realized investment gains of $0.1 million in the same period of 2006. This decrease was primarily due to the recognition of impairment losses on certain fixed income securities in the current quarter. Six Month Results Net income for the six months ended June 30, 2007 was $42.6 million, or $0.96 per diluted share, compared to $37.5 million or $0.86 per diluted share, for the same period in 2006. The increase in net income reflects higher earned premium, higher net investment income, and the impacts of lower loss and expense ratios, partially offset by net realized investment losses. For the six months ended June 30, 2007, gross written premiums increased 5% to $244.4 million as compared to the six month period ended June 30, 2006. Gross written premiums for contract surety increased 8% to $158.0 million primarily due to steady demand as a result of the strong construction economy and the success of our small contractor product. Both large and small commercial surety gross written premiums increased slightly for the first half of 2007. Fidelity and other premiums decreased by 2% due to the lingering effects of the loss of a large notary program in the first quarter of 2006. Ceded written premiums decreased $1.6 million to $19.4 million for the first six months of 2007 compared to the same period last year. This decrease reflects lower costs for reinsurance for a specific account and savings on the core reinsurance program. Net written premiums increased 7% to $225.0 million. For the six months ended June 30, 2007, the loss, expense, and combined ratios improved to 25.4 percent, 54.4 percent, and 79.8 percent, respectively, compared to 25.7 percent, 55.3 percent, and 81.0 percent, respectively, for the same period in 2006. The current ratios reflect lower reinsurance costs, strong premium growth and continued focus on expense management. For the six months ended June 30, 2007, net investment income increased 12% to $21.5 million compared to $19.2 million for the same period in 2006. The increase reflects the impact of higher overall invested assets and higher yields. The annualized pre-tax yields were 4.6% and 4.5% for the six months ended June 30, 2007 and 2006, respectively. Net realized investment losses were $0.6 million for the first six months of 2007 compared to net realized investment gains of $0.1 million in the same period of 2006. The net realized investment losses in the current year were due to the recognition of impairment losses on certain fixed income securities, partially offset by net realized investment gains on the sale of other fixed income securities. As of June 30, 2007, stockholders’ equity increased by 6% from December 31, 2006, to $601.2 million due to net income in the first half of 2007, partially offset by adverse changes in the market value of investments driven by higher interest rates. Combined statutory surplus totaled $386.8 million at June 30, 2007, resulting in a net written premium to statutory surplus ratio of 1.1 to 1.0. Business Environment The Company’s business is subject to certain risks and uncertainties associated with the current economic environment and corporate credit conditions. In the past, the Company’s performance has been materially impacted by a significant increase in corporate defaults on a worldwide basis. Because the nature of the business is to insure against non-performance, future results of operations could be negatively impacted by adverse trends in corporate defaults. CNA Surety Corporation is the largest publicly traded surety company in the country. Through its principal subsidiary, Western Surety Company, CNA Surety provides surety and fidelity bonds in all 50 states through a combined network of approximately 36,000 independent agencies. The Company’s Securities and Exchange Commission (“SEC”) filings are available at www.sec.gov or visit us at www.cnasurety.com on the World Wide Web for a direct link to the SEC web site. 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 11:00 a.m. (EDT) on July 27, 2007. On the conference call will be John F. Welch, President and Chief Executive Officer of CNA Surety Corporation and John F. Corcoran, Chief Financial Officer of CNA Surety Corporation. The call may be accessed by dialing 888-515-2235. 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. The call is available to the media, but questions will be restricted to investors and the professional investment community. A taped replay of the call will be available beginning at 1:00 p.m. (EDT) on July 27th until 1:00 p.m. (EDT) on August 10, 2007 by dialing 888-203-1112, pass code 4716058 or over the Internet at the foregoing web sites. "Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: The statements which are not historical facts contained in this release are forward-looking statements that involve risks and uncertainties, including, but not limited to, product and policy demand and market response risks, the effect of economic conditions, the impact of significant increases in corporate defaults on a national or global basis, the impact of competitive products, policies and pricing, product and policy development, regulatory changes and conditions including underwriting limitations imposed by the U.S. Department of Treasury, rating agency policies and practices, development of claims and the effect on loss reserves, the performance of reinsurance companies under reinsurance contracts with the Company, the cost and availability of reinsurance contracts on reasonable terms, investment portfolio developments and reaction to market conditions, the results of financing efforts, the actual closing of contemplated transactions and agreements, the effect of the Company’s accounting policies, and other risks detailed in the Company’s Securities and Exchange Commission filings. No assurance can be given that the actual results of operations and financial condition will conform to the forward-looking statements contained herein. # # # -- Chart follows -- CNA
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