CNA Financial Corporation

views updated May 29 2018

CNA Financial Corporation

CNA Plaza
333 South Wabash Avenue
Chicago, Illinois 60685
U.S.A.
(312) 822-5000
Fax: (312) 822-6419

Public Company
Incorporated: 1897 as Continental Assurance Company of North America
Employees: 16,700
Assets: $31.86 billion
Stock Exchanges: New York Midwest Pacific

As the unified holding company for a diverse group of insurance entities that date back to the post–Civil War era, CNA Financial Corporation was conceived in 1967 but was not born until 1975. Six decades after its founding as an innovative provider of personal accident and health insurance, Chicago-based CNA was among several large insurers that formed holding companies in the late 1960s to overcome state insurance regulations against diversification. CNA’s foray into non-insurance ventures proved disastrous, however, and the firm was close to insolvency in 1974 when Loews Corporation acquired control late that year. The New York-based conglomerate quickly installed new management and launched a sweeping reorganization that restored CNA’s financial base and set the stage for solid growth. CNA provides underwriting, marketing, and servicing for its various companies, chief among which are the Continental Casualty Company and Continental Assurance Company. It offers broad coverages, including life insurance, in its many forms; property and casualty; health, hospital, and disability; general and specific liability; and workers’ compensation. CNA in 1990 was one of the largest and strongest insurance companies in the United States.

The origins of CNA Financial trace back to the late 1800s, even before the incorporation in 1897 of what is now known as Continental Casualty Company, CNA’s principal property and casualty insurance subsidiary. After the Civil War, a hospital benefit organization called the National Benefit Company was formed to provide health insurance for workers involved in construction of the Northern Pacific Railroad. Cyrus W. Field, a prominent financier who built the first transatlantic telegraph cable in 1866, was the principal investor.

In the early 1890s, National Benefit merged with its biggest competitor, the Northwest Benefit Association based in Duluth, Minnesota, and as the only provider of health insurance at the time, the newly merged company grew rapidly until the Illinois Department of Insurance ruled that it needed nearly $100,000 in additional capital. New investors were found, and it was reorganized in Milwaukee, Wisconsin, as the National Benefit and Casualty Company. With the refinancing, a large group of agent representatives in the field, and franchises to do business with nearly every railroad, the future looked bright. The firm, however, ran short of capital again and was put out of business by the Wisconsin superintendent of insurance.

Two years after that failure, a new insurance company was organized by some of National Benefit’s investors. This was the founding, on November 29, 1897, of the firm that is the “C” in CNA: Continental Assurance Company of North America. Incorporated in Hammond, Indiana, but headquartered in Chicago, the new firm was licensed to operate in Illinois, Indiana, Michigan, and Ohio, with $100,000 in initial capital and a surplus of $60,000. The first president was C.B. Hubbard, and its general manager was B.A. Scott, who had been an executive with National Benefit.

Continental Assurance got off to a fast start by offering the same popular accident and health coverage, called disability insurance today, that had propelled National Benefit’s growth, attracting many of the agents and franchises of the old company. By February 1, 1898, agencies had been set up in all four states, and gross assets had grown to $228,000, leaving surplus and capital of $205,733 after insurance reserves. At the end of 1898, assets had reached $294,527 and capital and surplus stood at $252,618.

In 1900 Gerald Bunker was elected president and the firm changed its name to Continental Casualty Company. By the end of the year, it merged with three other insurers: Metropolitan Accident Company of Chicago, the Northwestern Benevolent Society of Duluth, and the Railway Officials and Employees Accident Association of Indianapolis, Indiana. During the next year the company survived the stock market panic which was brought on by an attempt to corner the market in Northern Pacific Railroad shares. The fledgling firm successfully pursued expansion during the two-year depression that followed.

In 1902 Continental introduced the first type of accident and health policy with a monthly premium, affordable for those who could not pay quarterly or annual premiums. By 1904 the firm was doing business in 41 states and territories, and in one month nearly 15,000 policies were issued. Within a year, Continental had branch offices in nine states and territories, from New York City to Honolulu, Hawaii.

Aside from a boost to its railroad-oriented business, the merger with the Railway Officials and Employees Accident Association brought a key manager into Continental, a London-born insurance executive named Herbert George Barlow Alexander. He had been a successful New York agent for the Indianapolis-based firm and was its agency superintendent at the time of the merger. H.G.B. Alexander, as he was known, joined Continental as a vice president, soon became general manager, and was elected president in 1906, a position he held until his death in 1928.

In 1911 Continental Casualty ventured into life insurance with the organization of Continental Assurance Company. Although management of the two firms was the same, a separate, wholly owned subsidiary was required because Continental Casualty could not sell life insurance under its charter. The new firm was licensed in 11 states and the District of Columbia, with $100,000 in capital and surplus of $60,000.

Despite four business recessions between 1903 and 1912, Continental was growing rapidly, and by 1914 it had moved three times to satisfy its need for more office space. In 1915, as the prewar economy was recovering, Continental ventured into miscellaneous casualty lines, starting with workers’ compensation. In the next few years, Continental sold coverage for liability, burglary, plate glass, and steam boilers, among other risks.

In 1917 Continental Casualty participated in what was the largest group insurance contract at the time. With Equitable Life providing the life insurance, Continental wrote an accident and health policy covering 35,000 employees of the Union Pacific Railroad and its affiliates. The premium for Continental’s share of the business alone was $800,000 a year. The policy, however, was in danger of cancellation after the outbreak of war, with the federal government’s takeover of the railroads. Unable to continue the premiums, the Union Pacific issued a termination notice effective December 31, 1918. Officials of Continental and Equitable fought hard to convince William G. McAdoo, U.S. secretary of the treasury and director general of the railroads, that cancellation would cause an uproar among Union Pacific workers. Although he was concerned about charges of favoritism, as the Union Pacific was the only railroad that provided group insurance for its employees, McAdoo agreed on December 16, 1918, to renew the contract and to assume its obligations. This action is thought to be the U.S. government’s first involvement with group insurance. In 1990 CNA claimed to be the second-largest provider of federal health insurance programs.

By 1919 the combined assets of Continental Casualty and Continental Assurance had reached $5.8 million, with capital and surplus of nearly $1.4 million. By 1928, however, the year of H.G.B. Alexander’s death, assets had soared to nearly $33.4 million, while capital and surplus stood at almost $10.9 million, making “the Continental Companies in point of financial security by far the strongest in the entire West,” according to the firm.

During the 1920s, the Continental Companies introduced several new products and marketing strategies that contributed to their growth. In 1921 Continental Assurance established the Bank Plan, which in cooperation with local banks allowed customers to obtain a combination of savings and life insurance, by encouraging them to save a certain amount each month. Within ten years, the Bank Plan was credited with putting $35 million of life insurance on Continental’s books. Following on the success of its Bank Plan, Continental Assurance introduced in 1926 a salary-investment plan, which was a payroll-deduction program for obtaining insurance through one’s employer.

Continental Casualty wrote a group insurance contract for the Cleveland Teachers Association in 1923, which CNA claims to be the first association group policy written by any insurer. At about the same time, the casualty company also established surety facilities, providing bonds required in business activities such as construction and court proceedings. By 1923 Continental was operating in every U.S. state and territory of the United States, as well as every province of Canada.

After the death of H.G.B. Alexander, who brought the firm from a small but innovative provider of accident and health coverage to a multi-line property, casualty, and life insurance company during his tenure as president, Continental’s structure changed less dramatically, but the firm posted substantial growth while pursuing a number of insurance-industry innovations. Continental, for instance, was the first to offer polio insurance on a national basis, as well as group dental insurance and health insurance for senior citizens.

The Continental Companies more than doubled in size under the leadership of Alexander’s successor, Herman A. Behrens, an experienced insurance executive who started with Continental as a vice president in 1912 and became general manager in 1923. He served as president of Continental Assurance from 1928 until his death in 1945, and served as president of Continental Casualty until 1937, when he became chairman. Assets of Continental Casualty increased from nearly $20.4 million in 1927 to more than $53.3 million in 1943, while the amount of premiums increased from $14.6 million to $31.7 million. By 1928 the Continental Companies had more than 800 employees in Chicago, and the firm paid more than 150,000 claims that year.

In 1929 the firm offered every kind of life and casualty insurance except marine and fire, which was available through an affiliation with the National Fire Insurance Company of Hartford, Connecticut, whose president, F. D. Layton, was a director of Continental Assurance. During the 1930s this relationship grew as Continental Casualty and National Fire teamed up to provide coverage for the growing number of automobile owners. At that time, insurance laws did not permit multiple-peril policies, but they did allow companies such as Continental and National Fire to combine on a joint contract. National Fire’s policy covered physical damage to a customer’s automobile while Continental provided liability coverage, allowing “one-policy convenience” for agents and insureds alike.

In 1938 Continental Casualty created a new subsidiary, Transportation Insurance Company, to provide personal-property and inland marine insurance. Accident and health carriers were not allowed to provide that kind of coverage, but it was legal to set up a subsidiary to do so. Continental also started offering hospitalization insurance that year, with a range of benefits costing from 2¢ to 15¢ per day.

In 1941 Continental established a division to provide accident, health, and hospitalization insurance for people in high-risk occupations and older age groups, and it started offering hospital and surgical benefits on a group basis at wholesale rates in 1944. In the same year, Continental became the first insurer to write all-risks aviation insurance on a worldwide basis. The firm’s personal accident policies were selected by the U.S. government to insure aviators during and after World War II.

Leadership passed in 1945 to Roy Tuchbreiter, who became president of the Continental Companies after the death of Behrens, the firm’s chairman since 1937. Martin P. Cornelius, the son of Continental’s first cashier and a lifelong Continental executive, had served as president of Continental Casualty from 1937 until he was named general counsel in 1944. By 1952 Continental had leaped to $2 billion worth of life insurance in force, up from $420 million in 1942, according to Business Week of October 11, 1952, which cited Continental’s growth as “only an exaggerated example of what has taken place in life insurance as a whole during the past generation.”

After ten years of study, Continental Casualty established a special-risks division in 1953, and within a few years the firm’s willingness to insure test pilots, participants in the Indianapolis 500, and other persons requiring unusual coverages earned it the nickname “Lloyd’s of Chicago,” according to a Newsweek article of October 20, 1958. Patterned after the well-known London insurance exchange, the new unit was bringing in 7% of the casualty company’s $240 million in premiums by 1957.

In 1956 Continental acquired 67% of National Fire in an exchange of stock, forming what was then known as the Continental-National Group. In 1956 the group’s combined net premiums of $414.9 million made it one of the three largest insurers in the United States offering insurance for casualty, life, and fire and allied lines, according to Continental’s annual report of 1956. Despite the diversification, accident and health coverage still accounted for more than half of the premiums and most of the profits at Continental Casualty. In 1956 also, Tuchbreiter became chairman, a title he held until 1964.

With all its growth, diversifications, and acquisitions, Continental Casualty was still relying on its original business of accident and health insurance for more than 54% of its net premiums in 1956, with automobile coverage a distant second at 19%. In life insurance, Continental pioneered the concept of a quantity discount that year, in which the premiums decreased with increasing amounts of insurance.

By the early 1960s Continental Assurance had caught the attention of investors as one of the fastest-growing publicly owned stock life companies, as opposed to mutual life insurers, which are owned by their policyholders. Continental was the sixth-largest stock life company by then. It had by far the highest price-earnings ratio, selling at $192 or 51.8 times earnings per share.

Continental’s last major insurance-company acquisition, the one that put the “A” in CNA, took place in 1963 when American Casualty Company of Reading, Pennsylvania, was acquired in a $40 million stock transaction. That put 529,532 shares of Continental Casualty stock into the hands of Accident and Casualty Insurance Company of Winterthur, Switzerland, a holding that became significant when CNA became embroiled in a takeover battle more than a decade later.

The firm, then known as the Continental National American Group (CNA Group), also acquired American’s subsidiaries, Valley Forge Insurance Company and Valley Forge Life Insurance Company, in the deal. American Casualty, originally founded in 1884 as the American Protective Mutual Insurance Company Against Burglary of Reading, Pennsylvania, was the first U.S. company to offer burglary insurance. In 1902 it reorganized as a publicly owned casualty and surety company and was renamed American Casualty. An affiliate formed in 1944 to write fire and property coverage, American Aviation and General Insurance Company, later became Valley Forge Insurance. In the late 1940s both American and its subsidiary expanded into property, casualty, and surety coverage when laws restricting the writing of multiple lines of insurance were lifted. Between 1945 and 1955 the firm’s annual premiums increased from $11 million to $74 million, and in 1956 it formed the Valley Forge Life subsidiary. By 1963 American’s premium volume had reached $165 million, making the insurance company group the third-largest fire and casualty stock company in the United States, in terms of combined premium volume. It totalled $546.8 million.

In 1964 Continental Assurance’s assets reached $1 billion. In 1965 Howard C. Reeder became the CNA Group’s chairman. In the mid-1960s the CNA Group was not immune to the tough times that hit the insurance industry, caused by “skyrocketing inflation, which causes premium increases to lag behind cost increases; astronomical settlements awarded by juries; spiraling medical costs; more heavily concentrated business risks; and laws in many states prohibiting insurers from revising rates quickly and effectively,” according to an article by Jacque W. Sammet, president of Continental Casualty, in the February 1972 issue of Nation’s Business. Between 1955 and 1970 stock liability companies suffered $1.5 billion in underwriting losses, he noted, and the 14 largest firms alone suffered $609 million in losses during the 1960s.

In 1963 Continental Casualty’s underwriting losses stood at $14.6 million, and the red ink would continue to flow for the rest of the decade. The losses were more than offset by investment income, but CNA executives were still alarmed. In 1965 Continental Casualty’s top echelon held a strategy session at which it pored over a huge underwriting loss of $34 million, according to Sammet, and the idea of scrapping the casualty business was discussed and rejected. The plan adopted was: more emphasis on commercial accounts and a range of cost-cutting moves. Within three years, CNA was at least breaking even on insurance underwriting.

In 1966 the CNA Group briefly flirted with a merger with the Continental Insurance Companies of New York, called Continental Corporation today. Despite the similarity in names, the insurers have always been totally unrelated. The merger of the two firms, each with about $2 billion in assets, would have made sense. Besides consolidating their overhead, the New York insurer was strong in fire and casualty business, weak in accident and health, and had no life insurance operation—the opposite of the Chicago Continental. Three weeks after acknowledging that merger “studies” were underway, the idea was dropped abruptly.

Reeder soon steered the company in another direction, converting the CNA Group into a holding company called CNA Financial Corporation, on December 31, 1967. At the time, many large insurance companies were doing the same thing to get around state regulations against investing in non-insurance ventures. Reeder then took CNA on an acquisition binge. By the end of 1969 he had acquired one of the country’s best-known mutual funds as well as two personal-finance operations, a major West Coast homebuilding company, a nuclear-core leasing company, insurance companies in Canada and California, and a 29% stake in a nursing-home operator. CNA also established new subsidiaries in real estate development, hotel development, and investment services.

The move that drew the most attention on Wall Street was the payment of about $20 million in stock for New York’s Tsai Management & Research Corporation, a mutual fund founded by Gerald Tsai Jr., one of the hottest stock pickers of the mid-1960s, who became CNA’s executive vice president in charge of acquisitions and CNA’s huge investment portfolio. Tsai Management ran five mutual funds, including the Manhattan Fund introduced at the bull market’s peak in 1966. The Manhattan Fund reached a value of about $500 million in 1968 but slid to $380.9 by the end of its first year under CNA’s ownership. CNA widely was considered to have overpaid for the mutual fund operation, but Reeder wanted to enhance CNA’s image.

At first, CNA’s diversification strategy caught the fancy of investors. The stock doubled between 1968 and 1969, the year it started trading on the New York Stock Exchange. The company’s profitability, however, was eroding. Several of the new acquisitions were losing money, and insurance underwriting results were still a problem, although income from the investment of premiums made up for that. Kane Financial Corporation, one of the consumer-credit subsidiaries, lost $16.5 million in 1970 and 1971. CNA Nuclear Leasing was barely profitable, but it tied up $200 million in credit. The Manhattan Fund, the country’s worst-performing mutual fund in 1970, lost $1.5 million, and CNA Realty had heavy losses from, among other things, developing hotels in the overbuilt Honolulu, Hawaii, market.

Breaking precedent, a divided board of directors reached outside of the company for new leadership when Reeder reached mandatory retirement age in 1971. With the six inside directors abstaining from the vote, CNA’s seven outside directors picked Elmer L. “Nick” Nicholson, president of Fidelity Mutual Insurance Company in Philadelphia, Pennsylvania, as the new chairman. Nicholson moved quickly to dismantle Kane Financial and CNA Realty. He tried to sell CNA Nuclear Leasing but did not succeed until 1974. He also reorganized the holding company into four groups: insurance, asset management, real estate, and financial services. He started a long-range strategic planning effort and established new management-performance incentives.

The losses at non-insurance subsidiaries were trimmed to $1.1 million in 1972 from $6.5 million in the prior year, but CNA’s worst problems were only beginning at Continental Casualty and Larwin Group, a West Coast homebuilding firm that CNA had acquired for $200 million in stock in 1969. Larwin was growing fast because housing was on an upswing, and between 1970 and 1972 the firm went into nine new markets, including New York, Chicago, and Washington, D.C. At the same time, Larwin ventured beyond its expertise in single family homes and got involved in apartment buildings and recreational properties. In 1973 the housing market turned sour. Eventually, Larwin was written off at a loss of more than $124 million.

Meanwhile, profits were tumbling at Continental Casualty, which was forced by unexpected underwriting losses to put $17 million into reserves in the third quarter, producing the first quarterly net loss in the company’s history. CNA assured Wall Street that there would be no more earnings surprises, but the company then was forced to put another $15 million into reserves in the fourth quarter, plus yet another $29.7 million in early 1974. At the holding company level, pretax operating income went from $127 million in 1972 to $24.9 million in 1973, and then to a loss of $188.2 million in 1974.

In October 1973 CNA again tried to merge its way out of its problems by agreeing to be acquired by Gulf Oil Corporation in a proposed $850 million stock-and-debt deal. For Gulf, the non-energy diversification would have reduced its dependence on crude oil profits endangered by tension in the Middle East. CNA needed a partner with deep pockets: its surplus, the financial “cushion” left after deducting legally required insurance reserves from assets, was eroded to $482.4 million and would plummet to $125.8 million in the following year. Less than a month after the deal was announced, however, Gulf called it off. No reason was given. The aborted deal left CNA vulnerable to a takeover. Its stock had dropped from about $20 in early 1973 to less than $8 a year later.

In March Loews Corporation, a New York conglomerate headed by Laurence A. Tisch, announced that it owned more than 5% of CNA’s stock, and in May it sought approval from Illinois insurance authorities to seek control. Accident and Casualty Company of Switzerland, which had a 7% stake in CNA stemming from the sale of its American Casualty holdings to CNA, was also interested in a takeover.

CNA fought bitterly for the next five months, but in October the board accepted Loews’s offer to buy 20 million common shares at $6 each, which would give it 56% of the stock. That same day, the company revealed that losses would total $135 million in the third quarter, including another $40 million required to increase the insurance reserves. CNA disclosed it still had need for $122 million in additional capital on top of its existing reserves of $736 million. With $85 million in stock market losses in the third quarter alone, surplus had dropped to $100 million from $277 million at the beginning of the year, and Continental Casualty was “uncomfortably close to insolvency,” according to a November 9, 1974, article in Business Week. As a result, Loews withdrew its CNA bid while it studied the insurer’s financial disclosures. Within a few days, Loews cut its offer to $5 a share, which the board immediately accepted, noting that Loews planned to inject new capital into the company.

By December, Nicholson resigned and Tisch was named chairman. Loews had acquired 83% of a company with $4.5 billion in assets for about $206 million. When the new team from Loews moved in, what it found “was a bloated management mess,” said a November 1, 1976, article in Business Week. CNA’s two-year-old headquarters building in Chicago had the top three floors reserved for lavish executive offices. Belt-tightening was the first move for Loews, a $2.7 billion conglomerate of theater, tobacco, and hotel interests whose own headquarters staff then numbered less than 20 people. The three levels of executive suites were closed down, and about 1,400 people were dismissed. Within less than a year, only 5 of CNA’s original headquarters staff of 400 would remain.

Loews then hired a seasoned insurance-industry executive to head the operation. Edward J. Noha, former executive vice president at Allstate Insurance, took over as chairman of the insurance operations in February 1975. First he obtained a $50 million cash infusion from Loews to shore up CNA’s surplus position, then he launched a massive reorganization. By June 1975, all of the insurance operations were combined under six departments reporting directly to Noha, with two of the most important—marketing and administrative services—filled by former Allstate executives. The objective was to improve sales by getting agents to sell all of CNA’s insurance products at the same time. In addition, Noha’s new team reviewed CNA’s insurance lines and eliminated the unprofitable ones.

Noha also reversed the strategy of relying on investment income to cover underwriting losses. Noha made clear that CNA was in the insurance business, and that underwriting income produced profit. To do so meant raising rates, which is what he did. Within the first half of 1975, the Continental Casualty unit posted pretax profits of $7 million, compared to a $23 million loss in the first six months of the prior year.

Laurence Tisch and his staff took over the non-insurance operations and moved quickly to cut costs. Tisch sold 55 nursing homes CNA owned and cut the staff of its home-building subsidiary to 96 from 600 people. By the end of the first year under new management, CNA as a whole posted a $107 million profit versus a $207 million loss in 1974. By 1983, when it sold General Finance Corporation for $193 million, CNA had divested, discontinued, or written off nearly all of its non-insurance operations.

CNA continued to improve its financial stability during the 1980s, a period when the insurance industry generally was racked by underwriting losses due to severe rate competition, and poor results on investments. In 1984, the sixth year of a decline in insurance rates, the property and casualty industry experienced an underwriting loss of about $21 billion, producing the industry’s first net loss since 1906. CNA, however, did not weaken its surplus by extensive price-cutting, as many insurers did. Thus, CNA had the financial capacity to increase its volume once the soft market had turned around. As a result, in 1989 CNA was the eighth-largest insurer in the United States, as measured by premium income. In 1975 it had been 17th largest.

Under Noha CNA also moved to strengthen its business relationships with the independent agents who sell its products. Independent agents, who represent several insurers, had steadily lost market share to direct-writing agents, who sell for one company only. CNA introduced the High Performance Agency program, that permitted its agents to retain independence while enjoying many of the benefits of company personnel. Participants in this program account for one-quarter of CNA’s casualty sales force while generating more than half of CNA’s property and casualty premium. At year end 1989, surplus had reached $3.1 billion on the casualty side and $786.4 million for life insurance, up from a consolidated surplus of $125.8 million in 1974. Assets stood at $31.9 billion as of September 1990, up from $4.8 billion in 1974.

Principal Subsidiaries

Continental Casualty Company; Continental Assurance Company; National Fire Insurance Company of Hartford; American Casualty Company of Reading, Pa.; Valley Forge Life Insurance Company; Columbia Casualty Company; Transcontinental Insurance Company; Transportation Insurance Company; CNA Management Company Ltd. (U.K.)

CNA Financial Corporation

views updated Jun 27 2018

CNA Financial Corporation

CNA Plaza
333 South Wabash Avenue
Chicago, Illinois 60685
U.S.A.
Telephone: (312) 822-5000
Fax: (312) 822-6419
Web site: http://www.cna.com

Public Company, 86.9 Percent Owned by Loews Corporation
Incorporated: 1967
Employees: 18,600
Total Assets: $62.5 billion (2000)
Stock Exchanges: New York Midwest Pacific
Ticker Symbol: CNA
NAIC: 524126 Direct Property and Casualty Insurance Carriers; 524113 Direct Life Insurance Carriers; 524114 Direct Health and Medical Insurance Carriers; 524130 Reinsurance Carriers

As the unified holding company for a diverse group of insurance entities that date back to the second half of the 19th century, CNA Financial Corporation was conceived in 1967, though not born until 1975. Chicago-based CNA was among several large insurers that formed holding companies in the late 1960s to overcome state insurance regulations against diversification. CNA’s foray into non-insurance ventures proved disastrous, however, and the firm was close to insolvency in 1974 when Loews Corporation acquired control late that year. The New York-based conglomerate quickly installed new management and launched a sweeping reorganization that restored CNA’s financial base and set the stage for solid growth. CNA provides underwriting, marketing, and servicing for its various companies, chief among which are the Continental Casualty Company, the Continental Insurance Company, and Continental Assurance Company. With an emphasis on commercial rather than personal insurance, the CNA companies offer broad coverages, including property and casualty; life, accident, and health; and pension products and annuities.

Late 19th-/ Early 20th-century Origins

In 1900 Gerald Bunker was elected president and the firm changed its name to Continental Casualty Company. By the end of the year, it merged with three other insurers: Metropolitan Accident Company of Chicago, the Northwestern Benevolent Society of Duluth, and the Railway Officials and Employees Accident Association of Indianapolis, Indiana. During the next year the company survived the stock market panic that was brought on by an attempt to corner the market in Northern Pacific Railroad shares. The fledgling firm successfully pursued expansion during the two-year depression that followed.

Aside from a boost to its railroad-oriented business, the merger with the Railway Officials and Employees Accident Association brought a key manager into Continental, a London-born insurance executive named Herbert George Barlow Alexander. He had been a successful New York agent for the Indianapolis-based firm and was its agency superintendent at the time of the merger. H.G.B. Alexander, as he was known, joined Continental as a vice-president, soon became general manager, and was elected president in 1906, a position he held until his death in 1928.

During the 1920s, the Continental Companies introduced several new products and marketing strategies that contributed to their growth. In 1921 Continental Assurance established the Bank Plan, which in cooperation with local banks allowed customers to obtain a combination of savings and life insurance, by encouraging them to save a certain amount each month. Within ten years, the Bank Plan was credited with putting $35 million of life insurance on Continental’s books. Following on the success of its Bank Plan, Continental Assurance introduced in 1926 a salary investment plan, which was a payroll-deduction program for obtaining insurance through one’s employer.

Steady Mid-20th-Century Growth

After the death of H.G.B. Alexander—who oversaw the firm’s evolution from a small but innovative provider of accident and health coverage to a multiline property, casualty, and life insurance company during his tenure as president—Continental’s structure changed less dramatically, but the firm posted substantial growth while pursuing a number of insurance-industry innovations. Continental, for instance, was the first to offer polio insurance on a national basis, as well as group dental insurance and health insurance for senior citizens.

Company Perspectives:

We are committed to remaining focused on our core businesses of insurance and insurance services. We are committed to remaining financially strong and stable, so that we will be here to keep our promises to you, no matter how many years in the future those promises must be kept.

The Continental Companies more than doubled in size under the leadership of Alexander’s successor, Herman A. Behrens, an experienced insurance executive who started with Continental as a vice-president in 1912 and became general manager in 1923. He served as president of Continental Assurance from 1928 until his death in 1945, and served as president of Continental Casualty until 1937, when he became chairman. Assets of Continental Casualty increased from nearly $20.4 million in 1927 to more than $53.3 million in 1943, while the amount of premiums increased from $14.6 million to $31.7 million. By 1928 the Continental Companies had more than 800 employees in Chicago, and the firm paid more than 150,000 claims that year.

In 1929 the firm offered every kind of life and casualty insurance except marine and fire, which was available through an affiliation with the National Fire Insurance Company of Hartford, Connecticut, whose president, F.D. Layton, was a director of Continental Assurance. During the 1930s this relationship grew as Continental Casualty and National Fire teamed up to provide coverage for the growing number of automobile owners. At that time, insurance laws did not permit multiple-peril policies, but they did allow companies such as Continental and National Fire to combine on a joint contract. National Fire’s policy covered physical damage to a customer’s automobile while Continental provided liability coverage, allowing “one-policy convenience” for agents and insureds alike.

After ten years of study, Continental Casualty established a special-risks division in 1953, and within a few years the firm’s willingness to insure test pilots, participants in the Indianapolis 500, and other persons requiring unusual coverages earned it the nickname “Lloyd’s of Chicago,” according to a Newsweek article of October 20, 1958. Patterned after the well-known London insurance exchange, the new unit was bringing in seven percent of the casualty company’s $240 million in premiums by 1957.

In 1956 Continental acquired 67 percent of National Fire in an exchange of stock, forming what was then known as the Continental-National Group. In 1956 the group’s combined net premiums of $414.9 million made it one of the three largest insurers in the United States offering insurance for casualty, life, and fire and allied lines, according to Continental’s annual report of 1956. Despite the diversification, accident and health coverage still accounted for more than half of the premiums and most of the profits at Continental Casualty. In 1956 also, Tuchbreiter became chairman, a title he held until 1964.

With all its growth, diversifications, and acquisitions, Continental Casualty was still relying on its original business of accident and health insurance for more than 54 percent of its net premiums in 1956, with automobile coverage a distant second at 19 percent. In life insurance, Continental pioneered the concept of a quantity discount that year, in which the premiums decreased with increasing amounts of insurance.

Emergence of CNA in the 1960s

By the early 1960s Continental Assurance had caught the attention of investors as one of the fastest-growing publicly owned stock life companies, as opposed to mutual life insurers, which are owned by their policyholders. Continental was the sixth largest stock life company by then. It had by far the highest price-earnings ratio, selling at $192 or 51.8 times earnings per share.

Key Dates:

1897:: Continental Assurance Company of North America is founded to offer accident and health coverage.
1900:: Continental Assurance is renamed Continental Casualty Company.
1911:: Continental Assurance Company is formed to sell life insurance.
1956:: Continental Casualty acquires 67 percent of National Fire Insurance Company, creating Continental-National Group.
1963:: American Casualty Company is acquired, creating the Continental-National American Group.
1967:: The group is reorganized under a new holding company, CNA Financial Corporation; a diversification drive is soon undertaken.
1974:: Loews Corporation acquires 83 percent of CNA’s stock; company begins selling off non-insurance operations.
1975:: CNA ranks as the 17th largest insurer in the United States.
1989:: CNA ranks as the eighth largest insurer in the United States.
1995:: CNA acquires the Continental Corporation.
1999:: Company sells the bulk of its personal lines to Allstate.

Continental’s next major insurance-company acquisition, the one that put the “A” in CNA, took place in 1963 when American Casualty Company of Reading, Pennsylvania, was acquired in a $40 million stock transaction. That put 529,532 shares of Continental Casualty stock into the hands of Accident and Casualty Insurance Company of Winterthur, Switzerland, a holding that became significant when CNA became embroiled in a takeover battle more than a decade later.

The firm, then known as the Continental-National American Group (CNA Group), also acquired American’s subsidiaries, Valley Forge Insurance Company and Valley Forge Life Insurance Company, in the deal. American Casualty, originally founded in 1884 as the American Protective Mutual Insurance Company Against Burglary of Reading, Pennsylvania, was the first U.S. company to offer burglary insurance. In 1902 it reorganized as a publicly owned casualty and surety company and was renamed American Casualty. An affiliate formed in 1944 to write fire and property coverage, American Aviation and General Insurance Company, later became Valley Forge Insurance. In the late 1940s both American and its subsidiary expanded into property, casualty, and surety coverage when laws restricting the writing of multiple lines of insurance were lifted. Between 1945 and 1955 the firm’s annual premiums increased from $11 million to $74 million, and in 1956 it formed the Valley Forge Life subsidiary. By 1963 American’s premium volume had reached $165 million, making the insurance company group the third-largest fire and casualty stock company in the United States, in terms of combined premium volume. It totaled $546.8 million.

In 1964 Continental Assurance’s assets reached $1 billion. In 1965 Howard C. Reeder became the CNA Group’s chairman. In the mid-1960s the CNA Group was not immune to the tough times that hit the insurance industry—“skyrocketing inflation … ; astronomical settlements awarded by juries; spiraling medical costs; more heavily concentrated business risks; and laws in many states prohibiting insurers from revising rates quickly and effectively,” according to an article by Jacque W. Sammet, president of Continental Casualty, in the February 1972 issue of Nation’s Business. Between 1955 and 1970 stock liability companies suffered $1.5 billion in underwriting losses, he noted, and the 14 largest firms alone suffered $609 million in losses during the 1960s.

Reeder soon steered the company in another direction, converting the CNA Group into a holding company called CNA Financial Corporation, on December 31, 1967. At the time, many large insurance companies were doing the same thing to get around state regulations against investing in non-insurance ventures. Reeder then took CNA on an acquisition binge. By the end of 1969 he had acquired one of the country’s best-known mutual funds as well as two personal-finance operations, a major West Coast homebuilding company, a nuclear-core leasing company, insurance companies in Canada and California, and a 29 percent stake in a nursing-home operator. CNA also established new subsidiaries in real estate development, hotel development, and investment services.

The move that drew the most attention on Wall Street was the payment of about $20 million in stock for New York’s Tsai Management & Research Corporation, a mutual fund founded by Gerald Tsai, Jr., one of the hottest stock pickers of the mid-1960s, who became CNA’s executive vice-president in charge of acquisitions and CNA’s huge investment portfolio. Tsai Management ran five mutual funds, including the Manhattan Fund introduced at the bull market’s peak in 1966. The Manhattan Fund reached a value of about $500 million in 1968 but slid to $380.9 million by the end of its first year under CNA’s ownership. CNA widely was considered to have overpaid for the mutual fund operation, but Reeder wanted to enhance CNA’s image.

Taken Over by Loews in the 1970s

At first, CNA’s diversification strategy caught the fancy of investors. The stock doubled between 1968 and 1969, the year it started trading on the New York Stock Exchange. The company’s profitability, however, was eroding. Several of the new acquisitions were losing money, and insurance underwriting results were still a problem, although income from the investment of premiums made up for that. Kane Financial Corporation, one of the consumer credit subsidiaries, lost $16.5 million in 1970 and 1971. CNA Nuclear Leasing was barely profitable, but it tied up $200 million in credit. The Manhattan Fund, the country’s worst-performing mutual fund in 1970, lost $1.5 million, and CNA Realty had heavy losses from, among other things, developing hotels in the overbuilt Honolulu, Hawaii, market.

In March Loews Corporation, a New York conglomerate headed by Laurence A. Tisch, announced that it owned more than five percent of CNA’s stock, and in May it sought approval from Illinois insurance authorities to seek control. Accident and Casualty Company of Switzerland, which had a seven percent stake in CNA stemming from the sale of its American Casualty holdings to CNA, was also interested in a takeover.

CNA fought bitterly for the next five months, but in October the board accepted Loews’s offer to buy 20 million common shares at $6 each, which would give it 56 percent of the stock. That same day, the company revealed that losses would total $135 million in the third quarter, including another $40 million required to increase the insurance reserves. CNA disclosed it still had need for $122 million in additional capital on top of its existing reserves of $736 million. With $85 million in stock market losses in the third quarter alone, surplus had dropped to $100 million from $277 million at the beginning of the year, and Continental Casualty was “uncomfortably close to insolvency,” according to a November 9, 1974, article in Business Week. As a result, Loews withdrew its CNA bid while it studied the insurer’s financial disclosures. Within a few days, Loews cut its offer to $5 a share, which the board immediately accepted, noting that Loews planned to inject new capital into the company.

By December, Nicholson resigned and Tisch was named chairman. Loews had acquired 83 percent of a company with $4.5 billion in assets for about $206 million. When the new team from Loews moved in, what it found “was a bloated management mess,” said a November 1, 1976, article in Business Week. CNA’s two-year-old headquarters building in Chicago had the top three floors reserved for lavish executive offices. Belt-tightening was the first move for Loews, a $2.7 billion conglomerate of theater, tobacco, and hotel interests whose own headquarters staff then numbered less than 20 people. The three levels of executive suites were closed down, and about 1,400 people were dismissed. Within less than a year, only five of CNA’s original headquarters staff of 400 would remain.

Loews then hired a seasoned insurance industry executive to head the operation. Edward J. Noha, former executive vice-president at Allstate Insurance, took over as chairman of the insurance operations in February 1975. First he obtained a $50 million cash infusion from Loews to shore up CNA’s surplus position, then he launched a massive reorganization. By June 1975, all of the insurance operations were combined under six departments reporting directly to Noha, with two of the most important—marketing and administrative services—filled by former Allstate executives. The objective was to improve sales by getting agents to sell all of CNA’s insurance products at the same time. In addition, Noha’s new team reviewed CNA’s insurance lines and eliminated the unprofitable ones.

CNA continued to improve its financial stability during the 1980s, a period when the insurance industry generally was racked by underwriting losses due to severe rate competition, and to poor results on investments. In 1984, the sixth year of a decline in insurance rates, the property and casualty industry experienced an underwriting loss of about $21 billion, producing the industry’s first net loss since 1906. CNA, however, did not weaken its surplus by extensive price-cutting, as many insurers did. Thus, CNA had the financial capacity to increase its volume once the soft market had turned around. As a result, in 1989 CNA was the eighth largest insurer in the United States, as measured by premium income. In 1975 it had been 17th largest.

Under Noha, CNA also moved to strengthen its business relationships with the independent agents who sell its products. Independent agents, who represent several insurers, had steadily lost market share to direct-writing agents, who sell for one company only. CNA introduced the High Performance Agency program, which permitted its agents to retain independence while enjoying many of the benefits of company personnel. Participants in this program account for one-quarter of CNA’s casualty sales force while generating more than half of CNA’s property and casualty premium. At year-end 1989, surplus had reached $3.1 billion on the casualty side and $786.4 million for life insurance, up from a consolidated surplus of $125.8 million in 1974. Assets stood at $31.9 billion in late 1990, up from $4.8 billion in 1974.

1990s: Acquiring Continental Corp. and Restructuring

In 1992 Noha was named chairman of CNA Financial, while Dennis H. Chookaszian took over as chairman and CEO of the insurance operations. Chookaszian, who was hired by Noha shortly after he joined CNA, initially concentrated on improving the efficiency of operations through office automation initiatives and the trimming of the workforce by the end of 1994 from 15,600 to 13,000. Meantime, in 1993, CNA agreed to pay nearly $1.5 billion to settle a decade-long product-liability lawsuit stemming from asbestos manufactured by Fibreboard Corporation from the early 1940s to the late 1960s that may have harmed as many as 325,000 people. CNA’s Continental Casualty along with Pacific Indemnity Co., a unit of Chubb Corporation, had written policies for Fibreboard providing unlimited coverage. The result, at the time, was one of the biggest product-liability settlements in U.S. history.

In May 1995, CNA completed what was believed to be the largest property-casualty insurance merger in the United States in 20 years: the acquisition of the troubled Continental Corporation for $1.1 billion. New York-based Continental, the same company that had almost merged with CNA in 1966, traced its origins back to 1853, when it issued its first policy. The company in 1906 formed the Fidelity Fire Insurance Company, which merged with Phoenix Insurance Company in 1910 to create Fidelity-Phoenix Fire Insurance Company. Continental created the American Eagle Fire Insurance Company in 1915, then, three years later, the entire group adopted the name American Fore Group. After acquiring control of Fireman’s Insurance Company of Newark in 1957, the group changed its name again to the American Fore Loyalty Group. Yet another name change came in 1962 when American Fore became the Continental Insurance Companies. Following a series of acquisitions in 1966, a parent holding company, the Continental Corporation, was created for the growing group of companies. During the 1970s, Continental undertook a number of overseas expansionary moves—in Japan, France, Germany, and Latin America. The 1980s ushered in a period of refocusing, with Continental exiting from the wholesale brokerage business in 1983, then divesting its life and health insurance operations from 1987 to 1989. Continental was now focused exclusively on property-casualty insurance but it suffered blows from a series of major hurricanes, paying out hundreds of millions of dollars in damage claims spawned by Hurricanes Hugo, Iniki, and Andrew in the late 1980s and early 1990s. Continental was further troubled by its potential exposure to mounting environmental pollution claims. In 1994 Continental increased its reserves covering environmental claims to $600 million. From August 1993 to December 1994, when the deal with CNA was announced, Continental’s stock had fallen 60 percent.

The merger of CNA and Continental created the nation’s third largest property-casualty insurance firm and the number six insurance company overall. At the end of 1995, total assets stood at $60.36 billion. Consolidating Continental into CNA was the immediate objective following the buyout, with the focus on cost-cutting and a workforce reduction of about 5,000 employees.

In the late 1990s, CNA faced a difficult operating environment, including a severe slump in commercial insurance, which accounted for more than 60 percent of the company’s premium revenue. Net operating income fell slightly in 1997 to $488 million, from the $578 million figure of the previous year, but then CNA posted a net operating loss of $152 million for 1998. Certain noncore lines began to be divested, including group health, entertainment, and agriculture insurance. In 1997 the company merged its surety business into a publicly traded surety firm called Capsure Holdings Corporation, which was renamed CNA Surety Corporation. CNA Financial retained a 62 percent stake in CNA Surety. In 1998 CNA Financial cut its workforce by 2,400 and consolidated several processing centers. This restructuring aimed to cut annual operating expenses by $300-$350 million.

In the midst of the restructuring, Chookaszian retired as chairman and CEO of the insurance operations but remained on the board of directors. Replacing him in February 1999 was Bernard L. Hengesbaugh, who had been executive vice-president and chief operating officer. In October of that year, CNA sold the bulk of its personal lines—including its auto and homeowners insurance lines—to the Allstate Corporation. Hengesbaugh also launched a plan to improve the profitability of the company’s commercial underwriting by asking CNA’s independent agents to demand rate increases as high as 15 percent for property and casualty insurance policies. Clients that balked were dropped. In early 2000, CNA announced that it was exploring the sale of its life insurance and life reinsurance businesses, in a further move away from personal insurance. In October of that year the company announced that it would sell its life reinsurance unit to MARC, the U.S. life subsidiary of Munich Re; a deal involving the life insurance unit, however, had yet to be found. Meanwhile, CNA announced in March 2000 an offer to purchase the 38 percent of CNA Surety it did not already own, but two months later the plan was scrapped because of increasing stock prices among property-casualty insurance firms. Despite some false starts, it appeared that Hengesbaugh had a solid plan in place for an early 21st century turnaround for CNA Financial.

Principal Subsidiaries

American Casualty Company of Reading, Pennsylvania; CNA Casualty of California; CNA Reinsurance Company, Ltd. (U.K.); CNA Surety Corporation (62%); Columbia Casualty Company; Convida, Inc. (Bahamas); Continental Assurance Company; Continental Casualty Company; Continental Insurance Company of New Jersey; Firemen’s Insurance Company of Newark, New Jersey; First Insurance Company of Hawaii; National Fire Insurance Company of Hartford; National-Ben Franklin Insurance Company of Illinois; Pacific Insurance Company; RSKCo Claims Services, Inc.; The Buckeye Union Insurance Company; The Continental Insurance Company; The Fidelity and Casualty Company of New York; Transcontinental Insurance Company; Transportation Insurance Company; Valley Forge Insurance Company; Valley Forge Life Insurance Company; Western National Warranty Corporation.

Principal Competitors

American International Group, Inc.; The Allstate Corporation; CIGNA Corporation; The Chubb Corporation; GEICO Corporation; The Guardian Life Insurance Company of America; John Hancock Financial Services, Inc.; Massachusetts Mutual Life Insurance Company; Metropolitan Life Insurance Company; Nationwide; New York Life Insurance Company; The Prudential Insurance Company of America; Reliance Group Holdings, Inc.; The St. Paul Companies, Inc.; The Hartford Financial Services Group, Inc.; Travelers Property Casualty Corp.; USAA.