CNA Financial Notes Solid Q2 Numbers

Chicago-based CNA Financial Corp. announced second quarter of 2004 results.

Net income for the second quarter of 2004 was $289 million as compared with net income of $70 million for the same quarter of 2003. The increase was primarily due to continued improved underwriting results for the property and casualty operations.

The property and casualty operations produced a 96.8 percent combined ratio in the second quarter of 2004 as compared with 126.9 percent in the prior year period. The continued improvement in underwriting results was primarily due to significant unfavorable net prior year development recorded in the second quarter of 2003, the continued favorable impact of rate increases, and the company’s focus on underwriting discipline and expense management.

“We are very pleased with the continued strong performance of our core property & casualty operations,” Steve Lilienthal, chairman and CEO of the CNA insurance companies, said. “Our focus on the business fundamentals – underwriting discipline and expense management – is clearly evident in our second quarter combined ratio in the 90s.”

Net income for the first six months of 2004 was $164 million as compared with net income of $153 million for the same period in 2003. The increase was primarily due to the factors noted above for the three month period, offset by increased net realized losses.

Net realized investment gains were $118 million and $249 million for the three months ended June 30, 2004 and 2003, respectively. The decline was primarily driven by unfavorable results in fixed maturity securities, offset partly by increased gains in the equity and derivatives portfolio, including an after-tax gain of $105 million related to the June of 2004 sale of the company’s equity holdings of Canary Wharf Group PLC, a London based real estate investment.

Net realized investment losses were $215 million for the first six months of 2004 as compared with net realized investment gains of $200 million for the same period in 2003. The net realized investment losses in 2004 were primarily driven by the impact of the company’s sale of its Individual Life insurance business, partially offset by the gain on the sale of the company’s Canary Wharf investment.

Gross written premiums decreased $143 million for the second quarter of 2004 as compared with the same period in 2003. The decrease was primarily due to intentional underwriting actions, including reductions in certain excess and surplus lines programs, habitational construction business, silica-related risks, and workers’ compensation policies classified as high hazard.

Net written premiums increased $122 million for the second quarter of 2004 as compared with the same period in 2003, primarily due to favorable premium development of $90 million recorded in the second quarter of 2004 as compared with unfavorable premium development of $221 million recorded in the same period in 2003. The unfavorable premium development recorded in the second quarter of 2003 was primarily due to additional ceded premiums related to the corporate aggregate and other reinsurance treaties.

Meantime, Standard Lines achieved average rate increases during the second quarter of 2004 of 5%. Net income for the second quarter of 2004 increased $160 million as compared with the same period in 2003, primarily due to lower unfavorable net prior year development, lower catastrophe losses, and decreased expenses primarily due to the company’s expense initiatives. These items were partially offset by decreased net investment results.

Specialty Lines provides a broad array of professional, financial and specialty property and casualty products and services. Net written premiums increased $105 million for the second quarter of 2004 as compared with the same period in 2003, primarily due to increases in rate and new business in the professional liability lines of business.

Specialty Lines achieved average rate increases during the second quarter of 2004 of 10%, primarily across professional liability lines.

Net income for the second quarter of 2004 increased $68 million as compared with the same period in 2003, primarily due to lower unfavorable net prior year development, improvements in the current net accident year loss ratio, a decrease in the provision for uncollectible reinsurance receivables and decreased underwriting expenses primarily due to the company’s expense initiatives. These items were partially offset by decreased net investment results.