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CNA Surety Reports Third Quarter 2000 Results CHICAGO, November 6, 2000 -- CNA Surety Corporation (NYSE:SUR) today reported results for the third quarter ended September 30, 2000. Operating earnings for the third quarter, after income taxes, decreased 12 percent to $13.4 million, or 31 cents per share, from $15.2 million, or 34 cents per share, for the same period in 1999. Net income decreased 12 percent to $13.3 million, or 31 cents per share, from $15.2 million, or 34 cents per share, in 1999. These decreases in third quarter operating earnings and net income reflect lower underwriting income partially offset by higher investment income. Underwriting income declined $4.4 million, or 22 percent, primarily due to higher reinsurance costs of approximately $2.4 million and lower net favorable loss reserve development of approximately $1.9 million in the third quarter of 2000. For the third quarter of 2000, the Company’s combined ratio was 78.9 percent. Investment income increased 16 percent to $7.4 million on larger average invested assets and higher portfolio yield. "Given an increasingly difficult business environment, I am pleased with the continued solid underwriting performance of CNA Surety," said Mark C. Vonnahme, President and Chief Executive Officer of CNA Surety. "Our core contract and commercial businesses have maintained their leadership positions with combined gross written premiums up six percent for the first nine months of 2000. However, higher reinsurance costs, reduced net favorable loss reserve development and softness in U.S. public construction markets have adversely affected our underwriting results for the quarter." Mr. Vonnahme added, "Despite economic indications of a slowing in the public construction market, our domestic contract surety business grew eight percent for the nine months ended September 30, 2000." Operating earnings rose to $41.8 million, or 98 cents per share, for the first nine months of 2000 from $40.8 million, or 92 cents per share, for the comparable period in 1999. Net income increased to $41.6 million, or 97 cents per share, for the first nine months of 2000 from $41.1 million, or 93 cents per share, for the comparable period in 1999. These increases were primarily attributable to higher investment income partially offset by lower underwriting income. Underwriting income declined $1.3 million, or two percent, primarily due to lower net favorable loss reserve development of approximately $2.0 million in 2000. For the first nine months of 2000, the Company’s combined ratio was 77.5 percent. Investment income increased 16 percent to $21.9 million. For the third quarter of 2000, gross written premiums decreased two percent to $79.4 million. This decrease in third quarter gross production reflects an estimated $3.0 million reduction associated with the decision by CNA Reinsurance Company, Limited (London) (“CNA Re”) to discontinue writing assumed international credit and surety business. Excluding international reinsurance business assumed from CNA Re, core direct gross written premiums increased two percent to $79.4 million. Gross written premiums for core direct commercial surety increased six percent to $29.4 million primarily due to increased writings of small commercial products. Gross written premiums for contract surety decreased one percent for the quarter to $43.5 million due to continued softness in U.S. public construction spending. For the third quarter of 2000, net written premiums decreased five percent to $75.1 million. Net written premiums for the third quarter decreased seven percent for contract surety and five percent for commercial surety reflecting higher reinsurance costs and the aforementioned gross production variances. The reinsurance rate used to compute ceded premiums is based upon reinsurers’ loss experience under the Company’s surety excess of loss reinsurance contract. Due to increased claims reported to our reinsurers through June 30, 2000, ceded written premiums increased $2.5 million to $4.3 million in the third quarter of 2000. Gross written premiums for the nine month period ended September 30, 2000 increased five percent to $242.4 million with contract surety and commercial surety up eight percent and two percent, respectively. Excluding international reinsurance business assumed from CNA Re, core direct gross written premiums increased six percent to $236.4 million for the first nine months of 2000. Assumed international surety and credit business from CNA Re for the nine months ended September 30, 2000 decreased to $6.0 million from $8.3 million in 1999 due to CNA Re’s decision to discontinue this line. Gross written premiums for core direct commercial surety increased five percent to $92.9 million primarily due to growth of small commercial products. Gross written premiums for contract surety increased eight percent for the first nine months of 2000 to $123.1 million due to generally favorable economic conditions for public construction. Net written premiums for the nine month period ended September 30, 2000 increased four percent to $232.7 million with contract surety and commercial surety up four percent and two percent, respectively, reflecting the effects of higher reinsurance costs and the aforementioned gross production variances. Underwriting income for the third quarter ended September 30, 2000 decreased $4.4 million, or 22 percent, to $15.5 million. The Company’s loss and combined ratios were 15.9 percent and 78.9 percent, respectively, for the third quarter of 2000 compared with loss and combined ratios for the comparable 1999 quarter of 13.1 percent and 72.4 percent, respectively. The loss and combined ratios for the quarters ended September 30, 2000 and 1999 include net favorable loss reserve development of $2.9 million and $4.7 million, respectively. The net favorable loss reserve development in the third quarter of 2000 reflects positive loss and recovery trends primarily with respect to accident years prior to 1997 partially offset by adverse development in more recent accident years. The expense ratio increased to 63.0 percent in the third quarter of 2000 compared with the expense ratio of 59.3 percent in the comparable quarter of 1999, reflecting the impact of increased reinsurance costs on net earned premiums. Higher reinsurance costs reduced net earned premiums for the quarter by approximately $2.4 million. For the nine months ended September 30, 2000, underwriting income decreased $1.3 million, or two percent, to $50.7 million. The loss and combined ratios were 17.3 percent and 77.5 percent, respectively, for the nine months ended September 30, 2000, compared to 15.8 percent and 75.2 percent, respectively, for the same period in 1999. The loss and combined ratios for the nine months ended September 30, 2000 and 1999 include net favorable loss reserve development of $6.8 million and $8.8 million, respectively. The expense ratio increased 0.8 percentage points to 60.2 percent for the nine months ended September 30, 2000, primarily due to higher reinsurance costs. Earnings per share for the three and nine month periods of 2000 benefited from the Company’s share repurchases. In calendar 2000, the Company has repurchased approximately 100,000 of its shares at an aggregate cost of $1.2 million. As of December 31, 1999, the Company had repurchased approximately 1.1 million of its shares at an aggregate cost of $11.8 million. 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 10:00 a.m. Central time on November 7, 2000. 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. Participants can access the call by dialing 800-894-8895 or 561-361-8970. 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 at 11:00 a.m. Central time from November 7 to 11:00 a.m. November 14, 2000 by dialing 800-839-6713 or 402-220-2306, using passcode 3773400. 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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