Insurance giant CNA Financial Corp. announced that it will restate its financial results for the past three years to correct its accounting for several reinsurance contracts, primarily with a former affiliate, and its equity accounting for that affiliate.
The seventh-largest commercial insurance writer and the fourteenth-largest property and casualty company — it is 91 percent owned by Loews Corp. — stated it will reduce stockholders’ equity by $29 million for the 2004 calendar year. In addition, it will increase 2004 earnings by $5 million, reduce its 2003 loss by $14 million, and increase its 2002 profit by $16 million. The company did not provide more information explaining how it arrived at these figures.
CNA added that the restatement is based upon reconsideration of its accounting for its former equity interest in Accord Re Ltd. and for several reinsurance contracts with Accord, but that it also includes two reinsurance agreements with unaffiliated parties that are immaterial in the aggregate.
The insurer explained that in 1989, when Accord was formed, a subsidiary of The Continental Corp. acquired a 49 percent ownership interest in the Bermuda-based firm; Continental also provided capital support to Accord through a guarantee from a subsidiary. Continental was acquired by CNA in 1995.
CNA added that it continues to respond to requests for information from state and federal regulatory authorities regarding insurance-industry investigations of non-traditional products, including finite reinsurance.
“It is possible that the company’s analyses of, or accounting treatment for, other finite reinsurance contracts could be questioned or disputed in the context of the referenced state regulatory examination, and further restatements of the company’s financial results are possible as a consequence, which could have a material adverse impact on the company’s financial condition,” the company added.