CNA Surety Announces Third Quarter 2009 Results CHICAGO, October 30, 2009 -- CNA Surety Corporation (“CNA Surety” or the “Company”) (NYSE:SUR) today reported net income for the third quarter of 2009 of $25.5 million, or $0.57 per diluted share, compared to $34.3 million, or $0.78 per diluted share, for the same period in 2008. For the nine months ended September 30, 2009, net income was $68.6 million, or $1.54 per diluted share, compared to $81.3 million, or $1.84 per diluted share, for the same period in 2008. The 2008 periods benefited from higher levels of favorable loss reserve development. Highlights included: A combined ratio of 79.0% in the quarter. Favorable loss reserve development of $7.9 million in the current quarter. Operating cash flow of $44.5 million in the quarter, $109.7 million through September 30th. Pre-tax unrealized investment gains of $64.7 million at September 30, 2009, compared to a pre-tax unrealized investment loss of $7.2 million at December 31, 2008. Book value per share of $19.99 at September 30th, up 15.1% from December 31, 2008. "We are again pleased to report strong results in a difficult climate,” said John F. Welch, President and Chief Executive Officer. “We continue to experience very modest claim activity despite ongoing weakness in the construction economy. In light of this, we felt it was appropriate to adjust our loss reserves for more mature accident years. However, we continue to set reserves at higher levels for the more recent accident years to reflect these difficult conditions." For the six months ended June 30, 2009, net income was $43.0 million, or $0.97 per diluted share, compared to $47.0 million, or $1.06 per diluted share, for the same period in 2008.   Gross Written Premium (in thousands)   Three Months Ended   Nine Months Ended   September 30,   September 30,   2009 2008 2009 2008 Contract $ 71,817 $ 78,418 $215,301 $233,766 Commercial 34,163 34,331 102,579 103,192 Fidelity & other 7,422 7,613 23,481 24,341   $113,402 $120,362 $341,361 $361,299 For the quarter ended September 30, 2009, gross written premiums decreased 5.8% compared to the quarter ended September 30, 2008. For the nine months ended September 30, 2009, gross written premiums decreased 5.5% compared to the nine months ended September 30, 2008. Contract surety gross written premiums decreased 8.4% in the third quarter of 2009 compared to the same period in 2008. For the first nine months of 2009, gross written premiums for contract surety decreased 7.9%. These decreases are due to lower demand resulting from fewer new construction projects. Commercial surety gross written premiums decreased 0.5% and 0.6% for the three and nine months ended September 30, 2009 compared to the same periods in 2008. These decreases reflect continued adverse economic conditions.   Net Written Premium (in thousands)   Three Months Ended   Nine Months Ended   September 30,   September 30,   2009 2008 2009 2008 Contract $ 65,674 $ 67,692 $196,826 $208,490 Commercial 33,265 33,500 100,188 100,795 Fidelity & other 7,422 7,613 23,481 24,341   $106,361 $108,805 $320,495 $333,626 For the quarter ended September 30, 2009, net written premiums decreased 2.2% compared to the quarter ended September 30, 2008. For the nine months ended September 30, 2009, net written premiums decreased 3.9% compared to the nine months ended September 30, 2008, reflecting the decrease in gross written premiums, offset by lower ceded premium.   Underwriting Ratios   Three Months Ended   Nine Months Ended   September 30,   September 30,   2009 2008 2009 2008 Loss ratio* 22.3% 8.0% 26.8% 19.4% Expense ratio 56.7% 56.2% 54.5% 54.5% Combined ratio* 79.0% 64.2% 81.3% 73.9%                 *See note to Press Release Investor Data. The 2009 loss ratios reflect favorable reserve development on prior accident years of $7.9 million, an impact of 7.1 and 2.6 percentage points for the three and nine months ended September 30, 2009, respectively. The 2008 loss ratios reflect favorable reserve development on prior accident years of $24.9 million and $25.0 million, an impact of 22.7 and 7.8 percentage points for the three and nine months ended September 30, 2008, respectively. Expenses for the quarter ended September 30, 2009 included impairments of capitalized software development costs related to in-development projects that the Company decided to terminate. These impairments totaled $4.9 million, which added 4.5 and 1.6 percentage points to the expense ratio for the three and nine months ended September 30, 2009, respectively. Net investment income was $12.5 million and $11.8 million for the three months ended September 30, 2009 and 2008, respectively, and $37.4 million and $35.3 million for the nine months ended September 30, 2009 and 2008, respectively. The favorable result reflects an increase in invested assets, partially offset by lower yields, particularly on short-term investments. The annualized pre-tax yields were 4.1% and 4.3% for the three months ended September 30, 2009 and 2008, respectively, and 4.2% and 4.4% for the nine months ended September 30, 2009 and 2008, respectively. 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. Earnings Conference Call A conference call for investors and the professional investment community will be held at 11:00 a.m. (EDT) on October 30, 2009. 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 888-490-2763. 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 October 30th until 1:00 p.m. (EST) on November 13, 2009 by dialing 888-203-1112, pass code 1340650, or over the Internet at the foregoing web sites. About CNA Surety 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 37,000 independent agencies. The Company’s Securities and Exchange Commission (“SEC”) filings are available at www.sec.gov or visit us at www.cnasurety.com for a direct link to the SEC web site. CNA is a registered service mark, trade name and domain name of CNA Financial Corporation. "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 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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