CNA Surety Announces Third Quarter 2001 Earnings CHICAGO, October 29, 2001 -- CNA Surety Corporation (NYSE:SUR) today reported net income for the third quarter of $12.0 million, or 28 cents per share, compared to $13.3 million, or 31 cents per share, for the comparable quarter in 2000. Operating earnings for the third quarter, after income taxes, were $11.8 million, or 27 cents per share, compared to $13.4 million, or 31 cents per share, for the same period in 2000. Third quarter operating earnings and net income reflect reduced underwriting and investment income which was partially offset by the favorable impact of decreased interest expense. Underwriting income declined $2.4 million, or 16 percent, primarily due to higher incurred losses principally associated with credit related loss events. For the third quarter of 2001, the Company’s combined ratio was 84.0 percent as compared to 78.9 percent for the same period in 2000. Investment income declined five percent to $7.1 million due to the impact of lower investment yields and reduced invested assets primarily associated with increased dividend payments to shareholders. Interest expense declined $1.0 million to $0.8 million due to declining interest rates and lower outstanding debt levels. “Overall our underwriting results for the third quarter were consistent with our expectations. Production trends remained generally positive with stable submission activity and an improving pricing environment. Incurred loss trends generally remain unfavorable in the surety industry due to current economic and credit conditions,” said Mark C. Vonnahme, President and Chief Executive Officer of CNA Surety. “Although the current economic outlook will create additional challenges for CNA Surety in the short term, market conditions are improving rapidly from both a pricing and underwriting standpoint, particularly on larger risks. These changes are being driven by reduced underwriting capacity in both the primary and reinsurance markets as industry participants reassess exposures and expected risk adjusted returns on capital. We believe CNA Surety is strategically and financially well positioned to capitalize on the dynamic changes in the underlying industry fundamentals.” Net income was $36.3 million, or 85 cents per share, for the first nine months of 2001 compared to $41.6 million, or 97 cents per share, for the same period in 2000. Operating earnings were $36.0 million, or 84 cents per share, for the first nine months of 2001 compared to $41.8 million, or 98 cents per share, for the same period in 2000. The decreases in net income and operating earnings were primarily attributable to the aforementioned reduced underwriting and investment income which was partially offset by the favorable impact of decreased interest expense. Underwriting income declined $9.9 million, or 20 percent, primarily due to higher incurred losses. For the first nine months of 2001, the Company’s combined ratio was 82.8 percent compared to 77.5 percent for the same period of last year. For the third quarter of 2001, gross written premiums increased 11 percent to $88.0 million. Gross written premiums for contract surety increased 12 percent for the quarter to $48.7 million, primarily due to continued strength in public construction nationwide, particularly highway and road, airport and school related projects. Gross written premiums for commercial surety increased 10 percent to $32.5 million primarily due to increases in the large commercial segment which benefited from pricing actions. For the third quarter of 2001, net written premiums increased 12 percent to $84.1 million with contract surety and commercial surety up 15 percent and eight percent, respectively, reflecting the aforementioned gross production changes. Ceded written premiums decreased $0.3 million to $3.9 million for the quarter compared to the same period of 2000. Effective January 1, 2001, the Company began recording written premium on 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 nine months of 2001, gross written premiums increased three percent to $249.3 million even after the $7.6 million gross written premium reduction due to this change and the discontinuance of the CNA Re assumed international credit and surety business of $6.0 million. Core direct gross processed premiums (gross processed premiums, excluding international reinsurance business assumed from CNA Re) increased nine percent to $256.9 million. Contract surety and commercial surety premiums increased 10 percent and seven percent, respectively. These increases were primarily due to continued strength in public construction spending for contract surety and increased large commercial account activity. Gross written premiums for contract surety increased ten percent for the first nine months of 2001 to $135.0 million. Core direct commercial surety premiums were unchanged at $92.9 million. For the first nine months of 2001, net written premiums increased two percent to $237.5 million reflecting the aforementioned gross production changes partially offset by higher reinsurance costs. Ceded written premiums increased $2.0 million to $11.7 million for the first nine months of 2001 compared to the same period of last year. Underwriting income for the third quarter ended September 30, 2001 decreased $2.4 million, or 16 percent, to $13.1 million. The Company’s loss and combined ratios were 20.8 percent and 84.0 percent, respectively, for the third quarter of 2001 compared with loss and combined ratios for the comparable 2000 quarter of 15.9 percent and 78.9 percent, respectively. The loss and combined ratios for the quarter ended September 30, 2001 include net adverse loss reserve development of $0.5 million compared with net favorable loss reserve development of $2.9 million for the comparable 2000 quarter. The expense ratio of 63.2 percent in the third quarter of 2001 was comparable with the expense ratio of 63.0 percent in 2000. For the first nine months of 2001, underwriting income decreased $9.9 million, or 20 percent, to $40.8 million. The loss and combined ratios were 21.0 percent and 82.8 percent, respectively, for the first nine months of 2001, compared to 17.3 percent and 77.5 percent, respectively, for the same period in 2000. The loss and combined ratios for the first nine months of 2001 and the comparable period of 2000 include net adverse loss reserve development of $0.4 million and net favorable loss reserve development of $6.8 million, respectively. The expense ratio increased to 61.8 percent for the first nine months of 2001 compared to 60.2 percent for the same period in 2000, primarily due to higher reinsurance costs and technology related expenditures. In calendar 2001, the Company has repurchased 10,000 of its shares at an aggregate cost of $0.1 million. As of September 30, 2001, the Company had repurchased approximately 1.5 million of its shares at an aggregate cost of $15.6 million since the inception of the Company’s share repurchase program in 1999. 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 October 30, 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. 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 October 30 to 11:00 a.m. November 6, 2001 by dialing 800-839-6713, passcode 4604973. 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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