CNA Surety Corp. (SUR) filed Quarterly Report for the period ended 2009-09-30.
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 35000 independent agencies. Cna Surety Corp. has a market cap of $630.2 million; its shares were traded at around $14.24 with a P/E ratio of 5.8 and P/S ratio of 1.3.
Highlight of Business Operations:
Net income for the three months ended September 30, 2009 was $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. The decrease in net income reflects the impact of higher net favorable loss reserve development in the 2008 period, partially offset by higher investment income and higher net realized investment gains in the 2009 period.
Net income for the nine months ended September 30, 2009 was $68.6 million, or $1.54 per diluted share, compared to $81.3 million, or $1.84 per diluted share, in 2008. The decrease in net income reflects lower earned premium and the impact of a higher loss ratio, partially offset by higher net investment income and higher net realized investment gains. The 2008 period also benefitted from higher levels of favorable loss reserve development in prior accident years.
For the quarter ended September 30, 2009, gross written premiums decreased 5.8 percent to $113.4 million compared to $120.4 million for the quarter ended September 30, 2008. Contract surety gross written premiums decreased 8.4 percent to $71.8 million due to lower demand resulting from fewer new construction projects. Commercial surety written premiums decreased slightly to $34.2 million due to continued adverse economic conditions.
For the nine months ended September 30, 2009, gross written premiums decreased 5.5 percent to $341.4 million compared to $361.3 million for the nine-month period ended September 30, 2008. Gross written premiums for contract surety decreased 7.9 percent to $215.3 million due to lower demand resulting from fewer new construction projects. Commercial surety decreased 0.6 percent to $102.6 million in the first nine months of 2009, reflecting adverse economic conditions.
The Company’s insurance subsidiaries purchase reinsurance from other insurance companies and affiliates. Reinsurance arrangements are used to limit maximum loss, provide greater diversification of risk and minimize exposure on larger risks. The cost of this reinsurance is recorded as ceded written premium. Ceded written premium decreased $4.5 million and $6.8 million for the three and nine-month periods ended September 30, 2009, respectively, compared to the same periods in 2008. The Company’s decision to increase the per principal retention from $10.0 million to $15.0 million resulted in lower ceded premiums on the 2009 core reinsurance program. Further, as a result of additional losses ceded under the 2007 third party excess of loss treaty, the Company recorded additional ceded premiums of $0.5 million and $4.2 million for the three and nine months ended September 30, 2009 and 2008, respectively.
The net loss ratio was 22.3% for the three months ended September 30, 2009 compared with 8.0% for the same period in 2008. The net loss ratio was 26.8% for the nine months ended September 30, 2009 compared with 19.4% for the same period last year. These loss ratios include re-estimates of prior accident year reserves, known as reserve development. The dollar amount and percentage point effect of these reserve reductions were $7.9 million, or 7.1 percentage points, and $24.9 million, or 22.7 percentage points, for the three months ended September 30, 2009 and 2008, respectively. The dollar amount of these revisions were reductions of $7.9 million, or 2.6 percentage points, and $25.0 million, or 7.8 percentage points, for the nine months ended September 30, 2009 and 2008, respectively.
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