UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission file number: 1-13277
 CNA SURETY CORPORATION
 (Exact name of Registrant as specified in its Charter)
 DELAWARE
(State or other jurisdiction of 
incorporation or organization)
    
    36-4144905
(I.R.S. Employer
Identification No.)
 333 S. WABASH AVE., CHICAGO, ILLINOIS
(Address of principal executive offices)
    
    60604
(Zip Code)
 (312) 822-5000
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
 
 o o




---



##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets at June 30, 2008 and at December 31, 2007
    
    
    3Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Stockholders Equity for the Six Months Ended June 30, 2008 and 2007
    
    
    5Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34
  2




---



##### 



June 30,
    
    
    December 31,2008
    
    
    2007ASSETSInvested assets:Fixed income securities, at fair value (amortized cost: $965,836 and $949,708)
    
    $
    962,179
    
    
    $
    963,354Equity securities, at fair value (cost: $1,546 and $1,683)
    
    
    1,527
    
    
    
    1,789Short-term investments, at cost (approximates fair value)
    
    
    86,849
    
    
    
    49,453Total invested assets
    
    
    1,050,555
    
    
    
    1,014,596Cash
    
    
    6,322
    
    
    
    10,230Deferred policy acquisition costs
    
    
    107,248
    
    
    
    104,280Insurance receivables:Premiums, including $12,031 and $12,317 from affiliates, (net of allowance for
doubtful accounts: $1,124 and $1,145)
    
    
    48,046
    
    
    
    36,317Reinsurance, including $57,831 and $50,547 from affiliates
    
    
    138,535
    
    
    
    127,119Deposit with affiliated ceding company
    
    
    35,181
    
    
    
    34,644Intangible assets (net of accumulated amortization: $25,523 and $25,523)
    
    
    138,785
    
    
    
    138,785Current income taxes receivable
    
    
    1,147
    
    
    
    1,960Property and equipment, at cost (less accumulated depreciation and
amortization: $31,165 and $29,467)
    
    
    25,426
    
    
    
    24,288Prepaid reinsurance premiums (including $153 and $322 from affiliates)
    
    
    496
    
    
    
    510Accrued investment income
    
    
    12,436
    
    
    
    12,242Other assets (including $470 and $0 receivable from affiliates)
    
    
    2,466
    
    
    
    2,683Total assets
    
    $
    1,566,643
    
    
    $
    1,507,654LIABILITIESReserves:Unpaid losses and loss adjustment expenses
    
    $
    495,041
    
    
    $
    472,842Unearned premiums
    
    
    272,619
    
    
    
    258,930Total reserves
    
    
    767,660
    
    
    
    731,772Debt
    
    
    30,842
    
    
    
    30,791Deferred income taxes, net
    
    
    11,987
    
    
    
    17,756Reinsurance and other payables to affiliates
    
    
    24
    
    
    
    643Accrued expenses
    
    
    13,220
    
    
    
    18,273Liability for postretirement benefits
    
    
    10,296
    
    
    
    10,001Other liabilities
    
    
    28,365
    
    
    
    30,713Total liabilities
    
    
    862,394
    
    
    
    839,949Commitments and contingencies (See Notes 3, 5, & 8)STOCKHOLDERS EQUITYCommon stock, par value $.01 per share, 100,000 shares authorized; 45,522 shares
issued and 44,141 shares outstanding at June 30, 2008 and 45,505 shares issued
and 44,121 shares outstanding at December 31, 2007
    
    
    455
    
    
    
    455Additional paid-in capital
    
    
    275,193
    
    
    
    274,069Retained earnings
    
    
    446,193
    
    
    
    399,241Accumulated other comprehensive income (loss)
    
    
    (2,773
    )
    
    
    8,800Treasury stock, 1,381 and 1,384 shares, at cost
    
    
    (14,819
    )
    
    
    (14,860
    )Total stockholders equity
    
    
    704,249
    
    
    
    667,705Total liabilities and stockholders equity
    
    $
    1,566,643
    
    
    $
    1,507,654
  3




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Net earned premium
    
    $
    108,477
    
    
    $
    105,687
    
    
    $
    211,118
    
    
    $
    203,990Net investment income
    
    
    11,746
    
    
    
    10,763
    
    
    
    23,511
    
    
    
    21,464Net realized investment losses
    
    
    (21
    )
    
    
    (830
    )
    
    
    (30
    )
    
    
    (551
    )Total revenues
    
    
    120,202
    
    
    
    115,620
    
    
    
    234,599
    
    
    
    224,903Expenses:Net losses and loss adjustment expenses
    
    
    27,390
    
    
    
    26,854
    
    
    
    53,358
    
    
    
    51,797Net commissions, brokerage and other underwriting expenses
    
    
    57,825
    
    
    
    57,020
    
    
    
    113,112
    
    
    
    110,918Interest expense
    
    
    532
    
    
    
    728
    
    
    
    1,151
    
    
    
    1,449Total expenses
    
    
    85,747
    
    
    
    84,602
    
    
    
    167,621
    
    
    
    164,164Income before income taxes
    
    
    34,455
    
    
    
    31,018
    
    
    
    66,978
    
    
    
    60,739Income tax expense
    
    
    10,405
    
    
    
    9,124
    
    
    
    20,026
    
    
    
    18,096Net income
    
    $
    24,050
    
    
    $
    21,894
    
    
    $
    46,952
    
    
    $
    42,643Earnings per common share
    
    $
    0.54
    
    
    $
    0.50
    
    
    $
    1.06
    
    
    $
    0.97Earnings per common share, assuming dilution
    
    $
    0.54
    
    
    $
    0.50
    
    
    $
    1.06
    
    
    $
    0.96Weighted average shares outstanding
    
    
    44,132
    
    
    
    43,938
    
    
    
    44,134
    
    
    
    43,959Weighted average shares outstanding, assuming dilution
    
    
    44,231
    
    
    
    44,217
    
    
    
    44,255
    
    
    
    44,248
  4




---



##### 



Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedStock
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Treasury
    
    
    TotalShares
    
    
    Common
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    Comprehensive
    
    
    Stock
    
    
    StockholdersOutstanding
    
    
    Stock
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Income (Loss)
    
    
    At Cost
    
    
    EquityBalance, December 31, 2006
    
    
    43,872
    
    
    $
    453
    
    
    $
    268,651
    
    
    
    
    
    
    $
    306,745
    
    
    $
    4,993
    
    
    $
    (14,940
    )
    
    $
    565,902Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,643
    
    
    
    42,643
    
    
    
    
    
    
    
    
    
    
    
    42,643Other comprehensive income:Change in unrealized gains on
securities, after income tax
benefit of $5,452 (net of
reclassification adjustment of
($142), after income tax
benefit of $76)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,126
    )
    
    
    
    
    
    
    (10,126
    )
    
    
    
    
    
    
    (10,126
    )Net change related to
postretirement benefits, after
income tax expense of $29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    32,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    980Stock options exercised and other
    
    
    119
    
    
    
    1
    
    
    
    1,737
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    1,775Balance, June 30, 2007
    
    
    43,991
    
    
    $
    454
    
    
    $
    271,368
    
    
    
    
    
    
    $
    349,388
    
    
    $
    (5,080
    )
    
    $
    (14,903
    )
    
    $
    601,227Balance, December 31, 2007
    
    
    44,121
    
    
    $
    455
    
    
    $
    274,069
    
    
    
    
    
    
    $
    399,241
    
    
    $
    8,800
    
    
    $
    (14,860
    )
    
    $
    667,705Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    46,952
    
    
    
    46,952
    
    
    
    
    
    
    
    
    
    
    
    46,952Other comprehensive income:Change in unrealized gains on
securities, after income tax
benefit of $6,100 (net of
reclassification adjustment of
($49), after income tax
benefit of $26)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,328
    )
    
    
    
    
    
    
    (11,328
    )
    
    
    
    
    
    
    (11,328
    )Net change related to
postretirement benefits, after
income tax benefit of $204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (245
    )
    
    
    
    
    
    
    (245
    )
    
    
    
    
    
    
    (245
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    919
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919Stock options exercised and other
    
    
    20
    
    
    
    
    
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    246Balance, June 30, 2008
    
    
    44,141
    
    
    $
    455
    
    
    $
    275,193
    
    
    
    
    
    
    $
    446,193
    
    
    $
    (2,773
    )
    
    $
    (14,819
    )
    
    $
    704,249
  5




---



##### 



Six Months EndedJune 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    46,952
    
    
    $
    42,643Adjustments to reconcile net income to net cash provided by operating activities:Provision for doubtful accounts
    
    
    80
    
    
    
    151Depreciation and amortization
    
    
    2,691
    
    
    
    3,207Amortization of bond premium, net
    
    
    1,391
    
    
    
    98Loss on disposal of property and equipment
    
    
    46
    
    
    
    8Net realized investment losses
    
    
    30
    
    
    
    551Stock-based compensation
    
    
    919
    
    
    
    980Changes in:Insurance receivables
    
    
    (23,225
    )
    
    
    (12,396
    )Reserve for unearned premiums
    
    
    13,689
    
    
    
    19,861Reserve for unpaid losses and loss adjustment expenses
    
    
    22,199
    
    
    
    1,345Deposits with affiliated ceding company
    
    
    (537
    )
    
    
    (721
    )Deferred policy acquisition costs
    
    
    (2,968
    )
    
    
    (6,075
    )Deferred income taxes, net
    
    
    101
    
    
    
    (486
    )Reinsurance and other payables to affiliates
    
    
    (619
    )
    
    
    119Prepaid reinsurance premiums
    
    
    14
    
    
    
    1,138Accrued expenses
    
    
    (5,053
    )
    
    
    (6,650
    )Other assets and liabilities
    
    
    (1,431
    )
    
    
    (10,715
    )Net cash provided by operating activities
    
    
    54,279
    
    
    
    33,058CASH FLOWS FROM INVESTING ACTIVITIES:Fixed income securities:Purchases
    
    
    (62,290
    )
    
    
    (101,829
    )Maturities
    
    
    20,206
    
    
    
    12,428Sales
    
    
    24,177
    
    
    
    5,359Purchases of equity securities
    
    
    (333
    )
    
    
    (320
    )Proceeds from the sale of equity securities
    
    
    460
    
    
    
    202Changes in short-term investments
    
    
    (37,028
    )
    
    
    50,790Purchases of property and equipment, net
    
    
    (3,825
    )
    
    
    (3,275
    )Other, net
    
    
    200
    
    
    
    (21
    )Net cash used in investing activities
    
    
    (58,433
    )
    
    
    (36,666
    )CASH FLOWS FROM FINANCING ACTIVITIES:Employee stock option exercises and other
    
    
    246
    
    
    
    1,775Net cash provided by financing activities
    
    
    246
    
    
    
    1,775Decrease in cash
    
    
    (3,908
    )
    
    
    (1,833
    )Cash at beginning of period
    
    
    10,230
    
    
    
    7,164Cash at end of period
    
    $
    6,322
    
    
    $
    5,331Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    1,187
    
    
    $
    1,399Income taxes
    
    $
    19,089
    
    
    $
    18,128
  6




---



##### 



CNA SURETY CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2008
 (UNAUDITED)
 1. Significant Accounting Policies
 Formation of CNA Surety Corporation and Merger
  Principles of Consolidation
  Estimates
  Basis of Presentation
  Earnings Per Share
  7




---



##### 



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    24,050
    
    
    $
    21,894
    
    
    $
    46,952
    
    
    $
    42,643Shares:Weighted average shares outstanding
    
    
    44,130
    
    
    
    43,931
    
    
    
    44,121
    
    
    
    43,872Weighted average shares of options exercised and
additional stock issuance
    
    
    2
    
    
    
    7
    
    
    
    13
    
    
    
    87Total weighted average shares outstanding
    
    
    44,132
    
    
    
    43,938
    
    
    
    44,134
    
    
    
    43,959Effect of dilutive options
    
    
    99
    
    
    
    279
    
    
    
    121
    
    
    
    289Total weighted average shares outstanding, assuming dilution
    
    
    44,231
    
    
    
    44,217
    
    
    
    44,255
    
    
    
    44,248Earnings per share
    
    $
    0.54
    
    
    $
    0.50
    
    
    $
    1.06
    
    
    $
    0.97Earnings per share, assuming dilution
    
    $
    0.54
    
    
    $
    0.50
    
    
    $
    1.06
    
    
    $
    0.96
  Accounting Pronouncements
   8




---



##### 



2. Investments
  Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedJune 30, 2008
    
    or Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Fair ValueFixed income securities:U.S. Treasury securities and obligations of
U.S. Government and agencies:U.S. Treasury
    
    $
    17,759
    
    
    $
    583
    
    
    $
    
    
    
    $
    
    
    
    $
    18,342U.S. Agencies
    
    
    54,605
    
    
    
    653
    
    
    
    (16
    )
    
    
    
    
    
    
    55,242Collateralized mortgage obligations
    
    
    31,112
    
    
    
    456
    
    
    
    (175
    )
    
    
    
    
    
    
    31,393Mortgage pass-through securities
    
    
    59,860
    
    
    
    301
    
    
    
    (340
    )
    
    
    (564
    )
    
    
    59,257Obligations of states and political subdivisions
    
    
    633,233
    
    
    
    9,913
    
    
    
    (3,392
    )
    
    
    (6,565
    )
    
    
    633,189Corporate bonds
    
    
    97,040
    
    
    
    677
    
    
    
    (835
    )
    
    
    (1,806
    )
    
    
    95,076Non-agency collateralized mortgage obligations
    
    
    35,036
    
    
    
    32
    
    
    
    (67
    )
    
    
    (1,232
    )
    
    
    33,769Other asset-backed securities:Second mortgages/home equity loans
    
    
    9,183
    
    
    
    
    
    
    
    (137
    )
    
    
    (1,102
    )
    
    
    7,944Credit card receivables
    
    
    17,237
    
    
    
    251
    
    
    
    (411
    )
    
    
    
    
    
    
    17,077Other
    
    
    10,771
    
    
    
    169
    
    
    
    (50
    )
    
    
    
    
    
    
    10,890Total fixed income securities
    
    
    965,836
    
    
    
    13,035
    
    
    
    (5,423
    )
    
    
    (11,269
    )
    
    
    962,179Equity securities
    
    
    1,546
    
    
    
    41
    
    
    
    (60
    )
    
    
    
    
    
    
    1,527Total
    
    $
    967,382
    
    
    $
    13,076
    
    
    $
    (5,483
    )
    
    $
    (11,269
    )
    
    $
    963,706
 Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedDecember 31, 2007
    
    or Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Fair ValueFixed income securities:U.S. Treasury securities and obligations of
U.S. Government and agencies:U.S. Treasury
    
    $
    17,790
    
    
    $
    485
    
    
    $
    
    
    
    $
    
    
    
    $
    18,275U.S. Agencies
    
    
    52,617
    
    
    
    706
    
    
    
    
    
    
    
    (15
    )
    
    
    53,308Collateralized mortgage obligations
    
    
    30,086
    
    
    
    502
    
    
    
    (11
    )
    
    
    (107
    )
    
    
    30,470Mortgage pass-through securities
    
    
    54,659
    
    
    
    401
    
    
    
    
    
    
    
    (586
    )
    
    
    54,474Obligations of states and political subdivisions
    
    
    625,858
    
    
    
    15,408
    
    
    
    (2,500
    )
    
    
    (641
    )
    
    
    638,125Corporate bonds
    
    
    95,714
    
    
    
    1,493
    
    
    
    (97
    )
    
    
    (1,408
    )
    
    
    95,702Non-agency collateralized mortgage obligations
    
    
    35,011
    
    
    
    232
    
    
    
    
    
    
    
    (699
    )
    
    
    34,544Other asset-backed securities:Second mortgages/home equity loans
    
    
    9,951
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    9,901Credit card receivables
    
    
    17,234
    
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    17,685Other
    
    
    10,788
    
    
    
    157
    
    
    
    
    
    
    
    (75
    )
    
    
    10,870Total fixed income securities
    
    
    949,708
    
    
    
    19,835
    
    
    
    (2,608
    )
    
    
    (3,581
    )
    
    
    963,354Equity securities
    
    
    1,683
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    1,789Total
    
    $
    951,391
    
    
    $
    19,941
    
    
    $
    (2,608
    )
    
    $
    (3,581
    )
    
    $
    965,143
    9




---



##### 



3. Reinsurance
  Three Months Ended June 30,2008
    
    
    2007Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect
    
    $
    95,317
    
    
    $
    88,578
    
    
    $
    95,192
    
    
    $
    87,950Assumed
    
    
    28,995
    
    
    
    27,741
    
    
    
    30,747
    
    
    
    27,985Ceded
    
    
    (7,935
    )
    
    
    (7,842
    )
    
    
    (9,724
    )
    
    
    (10,248
    )$
    116,377
    
    
    $
    108,477
    
    
    $
    116,215
    
    
    $
    105,687
 Six Months Ended June 30,2008
    
    
    2007Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect
    
    $
    186,377
    
    
    $
    172,924
    
    
    $
    187,747
    
    
    $
    168,624Assumed
    
    
    54,560
    
    
    
    54,324
    
    
    
    56,606
    
    
    
    55,867Ceded
    
    
    (16,116
    )
    
    
    (16,130
    )
    
    
    (19,363
    )
    
    
    (20,501
    )$
    224,821
    
    
    $
    211,118
    
    
    $
    224,990
    
    
    $
    203,990
   10




---



##### 



Three Months Ended June 30,2008
    
    
    2007$
    
    
    Ratio
    
    
    $
    
    
    RatioGross losses and loss adjustment expenses
    
    $
    31,433
    
    
    
    27.0
    %
    
    $
    30,280
    
    
    
    26.1
    %Ceded amounts
    
    
    (4,043
    )
    
    
    51.6
    %
    
    
    (3,426
    )
    
    
    33.4
    %Net losses and loss adjustment expenses
    
    $
    27,390
    
    
    
    25.2
    %
    
    $
    26,854
    
    
    
    25.4
    %
 Six Months Ended June 30,2008
    
    
    2007$
    
    
    Ratio
    
    
    $
    
    
    RatioGross losses and loss adjustment expenses
    
    $
    70,538
    
    
    
    31.0
    %
    
    $
    58,573
    
    
    
    26.1
    %Ceded amounts
    
    
    (17,180
    )
    
    
    106.5
    %
    
    
    (6,776
    )
    
    
    33.1
    %Net losses and loss adjustment expenses
    
    $
    53,358
    
    
    
    25.3
    %
    
    $
    51,797
    
    
    
    25.4
    %
 2008 Third Party Reinsurance Compared to 2007 Third Party Reinsurance
  Related Party Reinsurance
     11




---



##### 



4. Fair Value of Financial Instruments
  
    
    Level 1  Quoted prices for identical instruments in active markets.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs are observable in active markets.
    
    Level 3  Valuations derived from valuation techniques in which one or more significant
inputs are unobservable.
   12




---



##### 



Fixed Income Securities
  Equity Securities
  Short-Term Investments
   June 30, 2008Fair Value Measurements UsingLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets at Fair ValueAssets:Fixed income securities at fair value
    
    $
    18,342
    
    
    $
    943,837
    
    
    
    
    
    
    $
    962,179Equity securities at fair value
    
    
    1,527
    
    
    
    
    
    
    
    
    
    
    
    1,527Short term investments at fair value (a)
    
    
    74,363
    
    
    
    12,486
    
    
    
    
    
    
    
    86,849Total assets
    
    $
    94,232
    
    
    $
    956,323
    
    
    
    
    
    
    $
    1,050,555
 
 (a)
    
    Includes commercial paper and money market instruments.  5. Reserves for Losses and Loss Adjustment Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Reserves at beginning of period:Gross
    
    $
    482,188
    
    
    $
    431,974
    
    
    $
    472,842
    
    
    $
    434,224Ceded reinsurance
    
    
    157,547
    
    
    
    143,676
    
    
    
    150,496
    
    
    
    144,858Net reserves at beginning of period
    
    
    324,641
    
    
    
    288,298
    
    
    
    322,346
    
    
    
    289,366Net incurred loss and loss adjustment expenses:Provision for insured events of current year
    
    
    27,453
    
    
    
    26,878
    
    
    
    53,419
    
    
    
    51,847Decrease in provision for insured events of prior years
    
    
    (63
    )
    
    
    (24
    )
    
    
    (61
    )
    
    
    (50
    )Total net incurred
    
    
    27,390
    
    
    
    26,854
    
    
    
    53,358
    
    
    
    51,797Net payments attributable to:Current year events
    
    
    1,725
    
    
    
    3,299
    
    
    
    2,540
    
    
    
    5,574Prior year events
    
    
    7,561
    
    
    
    19,260
    
    
    
    30,419
    
    
    
    42,996Total net payments
    
    
    9,286
    
    
    
    22,559
    
    
    
    32,959
    
    
    
    48,570Net reserves at end of period
    
    
    342,745
    
    
    
    292,593
    
    
    
    342,745
    
    
    
    292,593Ceded reinsurance at end of period
    
    
    152,296
    
    
    
    142,976
    
    
    
    152,296
    
    
    
    142,976Gross reserves at end of period
    
    $
    495,041
    
    
    $
    435,569
    
    
    $
    495,041
    
    
    $
    435,569
 13




---



##### 



6. Debt
     7. Employee Benefits
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net periodic benefit cost:Service cost
    
    $
    59
    
    
    $
    77
    
    
    $
    118
    
    
    $
    153Interest cost
    
    
    145
    
    
    
    173
    
    
    
    290
    
    
    
    346Amortization of prior service cost
    
    
    (26
    )
    
    
    (40
    )
    
    
    (53
    )
    
    
    (81
    )Net amortization of actuarial loss
    
    
    6
    
    
    
    81
    
    
    
    12
    
    
    
    163Net periodic benefit cost
    
    $
    184
    
    
    $
    291
    
    
    $
    367
    
    
    $
    581
   14




---



##### 



8. Commitments and Contingencies
  9. Stockholders Equity
  Equity Compensation Plans
      15




---



##### 



WeightedAverageShares
    
    ExerciseSubject
    
    Price PerTo Option
    
    ShareOutstanding options at January 1, 2007
    
    
    1,008,525
    
    
    $
    12.02Options granted
    
    
    334,100
    
    
    $
    20.70Options forfeited
    
    
    (19,175
    )
    
    $
    13.32Options expired
    
    
    (590
    )
    
    $
    14.97Options exercised
    
    
    (114,010
    )
    
    $
    12.18Outstanding options at June 30, 2007
    
    
    1,208,850
    
    
    $
    14.38Outstanding options at January 1, 2008
    
    
    1,054,588
    
    
    $
    14.53Options granted
    
    
    259,380
    
    
    $
    16.35Options forfeited
    
    
    (20,060
    )
    
    $
    16.79Options expired
    
    
    (4,700
    )
    
    $
    12.11Options exercised
    
    
    (16,300
    )
    
    $
    11.32Outstanding options at June 30, 2008
    
    
    1,272,908
    
    
    $
    14.92
  WeightedShares
    
    AverageSubject
    
    Grant DateTo Option
    
    Fair ValueNon-vested options at January 1, 2007
    
    
    481,613
    
    
    $
    4.51Options granted
    
    
    334,100
    
    
    $
    9.04Options vested
    
    
    (12,875
    )
    
    $
    3.72Options forfeited
    
    
    (19,175
    )
    
    $
    5.13Non-vested options at June 30, 2007
    
    
    783,663
    
    
    $
    6.44Non-vested options at January 1, 2008
    
    
    554,557
    
    
    $
    7.23Options granted
    
    
    259,380
    
    
    $
    6.32Options vested
    
    
    (79,085
    )
    
    $
    9.04Options forfeited
    
    
    (20,060
    )
    
    $
    6.87Non-vested options at June 30, 2008
    
    
    714,792
    
    
    $
    6.71
  Options Vested or Expected to VestWeighted
    
    
    
    
    
    Weighted AverageAverage
    
    Aggregate
    
    RemainingNumber
    
    Exercise Price
    
    Intrinsic Value
    
    Contractual LifeJune 30, 2008
    
    
    1,182,968
    
    
    $
    14.66
    
    
    $
    733,854
    
    
    7.2 years
 Options ExercisableWeighted
    
    
    
    
    
    Weighted AverageAverage
    
    Aggregate
    
    RemainingNumber
    
    Exercise Price
    
    Intrinsic Value
    
    Contractual LifeJune 30, 2008
    
    
    558,116
    
    
    $
    12.72
    
    
    $
    690,328
    
    
    5.9 years
   16




---



##### 



CNA SURETY CORPORATION AND SUBSIDIARIES
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
  Critical Accounting Policies
  Reserves for Unpaid Losses and Loss Adjustment Expenses and Reinsurance
     17




---



##### 



Gross Case Loss
    
    
    Gross IBNR Loss
    
    
    Total Grossand LAE Reserves
    
    
    and LAE Reserves
    
    
    ReservesContract
    
    $
    103,838
    
    
    $
    207,004
    
    
    $
    310,842Commercial
    
    
    110,677
    
    
    
    61,676
    
    
    
    172,353Fidelity and other
    
    
    5,292
    
    
    
    6,554
    
    
    
    11,846Total
    
    $
    219,807
    
    
    $
    275,234
    
    
    $
    495,041
       
    
    Current claim activity, including the frequency and severity of current claims;
    
    Changes in underwriting standards and business mix such as the Companys efforts to
reduce exposures to large commercial bonds;
    
    Changes in the claims handling process; and
    
    Current economic conditions, especially corporate default rates and the condition of the construction economy.
 18




---



##### 



Investments
   19




---



##### 



Intangible Assets
   Insurance Premiums
  Deferred Policy Acquisitions Costs
  Results of Operations
 Financial Measures
  20




---



##### 



Comparison of CNA Surety Actual Results for the Three and Six Months Ended June 30, 2008 and 2007
 Analysis of Net Income
    Results of Insurance Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gross written premiums
    
    $
    124,312
    
    
    $
    125,939
    
    
    $
    240.937
    
    
    $
    244,353Net written premiums
    
    $
    116,377
    
    
    $
    116,215
    
    
    $
    224,821
    
    
    $
    224,990Net earned premiums
    
    $
    108,477
    
    
    $
    105,687
    
    
    $
    211,118
    
    
    $
    203,990Net losses and loss adjustment expenses
    
    $
    27,390
    
    
    $
    26,854
    
    
    $
    53,358
    
    
    $
    51,797Net commissions, brokerage and other expenses
    
    $
    57,825
    
    
    $
    57,020
    
    
    $
    113,112
    
    
    $
    110,918Loss ratio
    
    
    25.2
    %
    
    
    25.4
    %
    
    
    25.3
    %
    
    
    25.4
    %Expense ratio
    
    
    53.3
    
    
    
    54.0
    
    
    
    53.6
    
    
    
    54.4Combined ratio
    
    
    78.5
    %
    
    
    79.4
    %
    
    
    78.9
    %
    
    
    79.8
    %
 Premiums Written/Earned
  21




---



##### 



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Contract
    
    $
    83,396
    
    
    $
    84,873
    
    
    $
    155,348
    
    
    $
    158,016Commercial
    
    
    33,266
    
    
    
    33,457
    
    
    
    68,861
    
    
    
    69,687Fidelity and other
    
    
    7,650
    
    
    
    7,609
    
    
    
    16,728
    
    
    
    16,650$
    124,312
    
    
    $
    125,939
    
    
    $
    240,937
    
    
    $
    244,353
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Contract
    
    $
    76,206
    
    
    $
    76,073
    
    
    $
    140,798
    
    
    $
    140,520Commercial
    
    
    32,521
    
    
    
    32,533
    
    
    
    67,295
    
    
    
    67,820Fidelity and other
    
    
    7,650
    
    
    
    7,609
    
    
    
    16,728
    
    
    
    16,650$
    116,377
    
    
    $
    116,215
    
    
    $
    224,821
    
    
    $
    224,990
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Contract
    
    $
    67,708
    
    
    $
    65,446
    
    
    $
    130,498
    
    
    $
    123,942Commercial
    
    
    32,917
    
    
    
    32,380
    
    
    
    64,994
    
    
    
    64,383Fidelity and other
    
    
    7,852
    
    
    
    7,861
    
    
    
    15,626
    
    
    
    15,665$
    108,477
    
    
    $
    105,687
    
    
    $
    211,118
    
    
    $
    203,990
 22




---



##### 



Excess of Loss Reinsurance
  2008 Third Party Reinsurance Compared to 2007 Third Party Reinsurance
  Related Party Reinsurance
      23




---



##### 



Exposure Management
    Net Loss Ratio
  24




---



##### 



Expense Ratio
  Investment Income and Realized Investment Gains/Losses
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gross realized investment gains
    
    $
    8
    
    
    $
    112
    
    
    $
    11
    
    
    $
    391Gross realized investment losses
    
    
    (29
    )
    
    
    (942
    )
    
    
    (41
    )
    
    
    (942
    )Net realized investment losses
    
    $
    (21
    )
    
    $
    (830
    )
    
    $
    (30
    )
    
    $
    (551
    )
   Interest Expense
   Income Taxes
  25




---



##### 



Liquidity and Capital Resources
         26




---



##### 



Contractual Obligations as of June 30, 2008
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    TotalDebt (a)
    
    $
    1.0
    
    
    $
    1.9
    
    
    $
    1.9
    
    
    $
    1.9
    
    
    $
    1.9
    
    
    $
    71.0
    
    
    $
    79.6Operating leases
    
    
    1.0
    
    
    
    2.0
    
    
    
    2.0
    
    
    
    1.8
    
    
    
    1.0
    
    
    
    
    
    
    
    7.8Loss and loss adjustment expense reserves
    
    
    139.0
    
    
    
    139.0
    
    
    
    99.4
    
    
    
    41.4
    
    
    
    24.0
    
    
    
    52.2
    
    
    
    495.0Other long-term liabilities (b)
    
    
    0.3
    
    
    
    1.1
    
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.5
    
    
    
    9.6
    
    
    
    12.9Total
    
    $
    141.3
    
    
    $
    144.0
    
    
    $
    104.1
    
    
    $
    45.7
    
    
    $
    27.4
    
    
    $
    132.8
    
    
    $
    595.3
 
 (a)
    
    Reflects expected principal and interest payments.(b)
    
    Reflects unfunded postretirement benefit plans and long-term incentive plan payments to
certain executives.   27




---



##### 



Financial Condition
 Investment Portfolio
  Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedJune 30, 2008
    
    or Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Fair ValueFixed income securities:U.S. Treasury securities and obligations of
U.S. Government and agencies:U.S. Treasury
    
    $
    17,759
    
    
    $
    583
    
    
    $
    
    
    
    $
    
    
    
    $
    18,342U.S. Agencies
    
    
    54,605
    
    
    
    653
    
    
    
    (16
    )
    
    
    
    
    
    
    55,242Collateralized mortgage obligations
    
    
    31,112
    
    
    
    456
    
    
    
    (175
    )
    
    
    
    
    
    
    31,393Mortgage pass-through securities
    
    
    59,860
    
    
    
    301
    
    
    
    (340
    )
    
    
    (564
    )
    
    
    59,257Obligations of states and political subdivisions
    
    
    633,233
    
    
    
    9,913
    
    
    
    (3,392
    )
    
    
    (6,565
    )
    
    
    633,189Corporate bonds
    
    
    97,040
    
    
    
    677
    
    
    
    (835
    )
    
    
    (1,806
    )
    
    
    95,076Non-agency collateralized mortgage obligations
    
    
    35,036
    
    
    
    32
    
    
    
    (67
    )
    
    
    (1,232
    )
    
    
    33,769Other asset-backed securities:Second mortgages/home equity loans
    
    
    9,183
    
    
    
    
    
    
    
    (137
    )
    
    
    (1,102
    )
    
    
    7,944Credit card receivables
    
    
    17,237
    
    
    
    251
    
    
    
    (411
    )
    
    
    
    
    
    
    17,077Other
    
    
    10,771
    
    
    
    169
    
    
    
    (50
    )
    
    
    
    
    
    
    10,890Total fixed income securities
    
    
    965,836
    
    
    
    13,035
    
    
    
    (5,423
    )
    
    
    (11,269
    )
    
    
    962,179Equity securities
    
    
    1,546
    
    
    
    41
    
    
    
    (60
    )
    
    
    
    
    
    
    1,527Total
    
    $
    967,382
    
    
    $
    13,076
    
    
    $
    (5,483
    )
    
    $
    (11,269
    )
    
    $
    963,706
 28




---



##### 



Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedDecember 31, 2007
    
    or Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Fair ValueFixed income securities:U.S. Treasury securities and obligations of
U.S. Government and agencies:U.S. Treasury
    
    $
    17,790
    
    
    $
    485
    
    
    $
    
    
    
    $
    
    
    
    $
    18,275U.S. Agencies
    
    
    52,617
    
    
    
    706
    
    
    
    
    
    
    
    (15
    )
    
    
    53,308Collateralized mortgage obligations
    
    
    30,086
    
    
    
    502
    
    
    
    (11
    )
    
    
    (107
    )
    
    
    30,470Mortgage pass-through securities
    
    
    54,659
    
    
    
    401
    
    
    
    
    
    
    
    (586
    )
    
    
    54,474Obligations of states and political subdivisions
    
    
    625,858
    
    
    
    15,408
    
    
    
    (2,500
    )
    
    
    (641
    )
    
    
    638,125Corporate bonds
    
    
    95,714
    
    
    
    1,493
    
    
    
    (97
    )
    
    
    (1,408
    )
    
    
    95,702Non-agency collateralized mortgage obligations
    
    
    35,011
    
    
    
    232
    
    
    
    
    
    
    
    (699
    )
    
    
    34,544Other asset-backed securities:Second mortgages/home equity loans
    
    
    9,951
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    9,901Credit card receivables
    
    
    17,234
    
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    17,685Other
    
    
    10,788
    
    
    
    157
    
    
    
    
    
    
    
    (75
    )
    
    
    10,870Total fixed income securities
    
    
    949,708
    
    
    
    19,835
    
    
    
    (2,608
    )
    
    
    (3,581
    )
    
    
    963,354Equity securities
    
    
    1,683
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    1,789Total
    
    $
    951,391
    
    
    $
    19,941
    
    
    $
    (2,608
    )
    
    $
    (3,581
    )
    
    $
    965,143
  June 30, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedUnrealized Loss Aging
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    LossFixed income securities:Investment grade (a):0-6 months
    
    $
    246,017
    
    
    $
    5,423
    
    
    $
    17,785
    
    
    $
    1757-12 months
    
    
    15
    
    
    
    1
    
    
    
    112,914
    
    
    
    2,43313-24 months
    
    
    92,661
    
    
    
    6,565
    
    
    
    9,984
    
    
    
    671Greater than 24 months
    
    
    48,196
    
    
    
    3,925
    
    
    
    91,683
    
    
    
    2,463Total investment grade
    
    
    386,889
    
    
    
    15,914
    
    
    
    232,366
    
    
    
    5,742Non-investment grade:Greater than 24 months
    
    
    3,246
    
    
    
    778
    
    
    
    3,582
    
    
    
    447Total
    
    $
    390,135
    
    
    $
    16,692
    
    
    $
    235,948
    
    
    $
    6,189
 
 (a)
    
    Investment grade is determined by the higher of the two ratings, Standard & Poors or
Moodys Investor Services, when a security has a split rating.    29




---



##### 



30




---



##### 



Impact of Pending Accounting Standards
 s
 FORWARD-LOOKING STATEMENTS
    
    
    general economic and business conditions;
    
    changes in financial markets such as fluctuations in interest rates, long-term periods of low
interest rates, credit conditions and currency, commodity and stock prices;
    
    the ability of the Companys contract principals to fulfill their bonded obligations;
    
    the effects of corporate bankruptcies on surety bond claims, as well as on capital markets;
    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial decisions,
including interpretation of policy provisions, decisions regarding coverage, trends in
litigation and the outcome of any litigation involving the Company and rulings and changes in
tax laws and regulations;
    
    regulatory limitations, impositions and restrictions upon the Company, including the effects
of assessments and other surcharges for guaranty funds and other mandatory pooling
arrangements;
    
    the impact of competitive products, policies and pricing and the competitive environment in
which the Company operates, including changes in the Companys books of business;
 31




---



##### 




    
    product and policy availability and demand and market responses, including the level of
ability to obtain rate increases and decline or non-renew underpriced accounts, to achieve
premium targets and profitability and to realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim settlement
practices;
    
    the performance of reinsurance companies under reinsurance contracts with the Company;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in the Companys composition of operating segments;
    
    the sufficiency of the Companys loss reserves and the possibility of future increases in
reserves;
    
    the risks and uncertainties associated with the Companys loss reserves; and,
    
    the possibility of further changes in the Companys ratings by ratings agencies, including
the inability to access certain markets or distribution channels and the required
collateralization of future payment obligations as a result of such changes and changes in
rating agency policies and practices.
  
 TEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   32




---



##### 



HypotheticalEstimated Fair
    
    
    PercentageHypothetical
    
    
    Value After
    
    
    IncreaseFair Value at
    
    
    Change in
    
    
    Hypothetical
    
    
    (Decrease) inJune 30,
    
    
    Interest Rate
    
    
    Change in
    
    
    Stockholders2008
    
    
    (bp=basis points)
    
    
    Interest Rate
    
    
    Equity(Dollars in thousands)U.S. Government and government agencies and authorities
    
    $
    164,234
    
    
    200 bp increase
    
    $
    150,228
    
    
    
    (1.3
    )%100 bp increase
    
    
    157,525
    
    
    
    (0.6
    )100 bp decrease
    
    
    168,700
    
    
    
    0.4200 bp decrease
    
    
    170,613
    
    
    
    0.6States, municipalities and political subdivisions
    
    
    633,189
    
    
    200 bp increase
    
    
    558,543
    
    
    
    (6.9
    )100 bp increase
    
    
    599,526
    
    
    
    (3.1
    )100 bp decrease
    
    
    673,934
    
    
    
    3.8200 bp decrease
    
    
    717,310
    
    
    
    7.8Corporate bonds and all other
    
    
    164,756
    
    
    200 bp increase
    
    
    150,916
    
    
    
    (1.3
    )100 bp increase
    
    
    157,679
    
    
    
    (0.7
    )100 bp decrease
    
    
    172,418
    
    
    
    0.7200 bp decrease
    
    
    180,474
    
    
    
    1.5Total fixed income securities available-for-sale
    
    $
    962,179
    
    
    200 bp increase
    
    
    859,687
    
    
    
    (9.5
    )100 bp increase
    
    
    914,730
    
    
    
    (4.4
    )100 bp decrease
    
    
    1,015,052
    
    
    
    4.9200 bp increase
    
    
    1,068,397
    
    
    
    9.8
 HypotheticalEstimated Fair
    
    
    PercentageHypothetical
    
    
    Value After
    
    
    IncreaseFair Value at
    
    
    Change in
    
    
    Hypothetical
    
    
    (Decrease) inDecember 31,
    
    
    Interest Rate
    
    
    Change in
    
    
    Stockholders2007
    
    
    (bp=basis points)
    
    
    Interest Rate
    
    
    Equity(Dollars in thousands)U.S. Government and government agencies and authorities
    
    $
    156,527
    
    
    200 bp increase
    
    $
    143,016
    
    
    
    (1.3
    )%100 bp increase
    
    
    150,653
    
    
    
    (0.6
    )100 bp decrease
    
    
    160,156
    
    
    
    0.4200 bp decrease
    
    
    162,267
    
    
    
    0.6States, municipalities and political subdivisions
    
    
    638,125
    
    
    200 bp increase
    
    
    561,138
    
    
    
    (7.5
    )100 bp increase
    
    
    598,496
    
    
    
    (3.9
    )100 bp decrease
    
    
    680,200
    
    
    
    4.1200 bp decrease
    
    
    725,517
    
    
    
    8.5Corporate bonds and all other
    
    
    168,702
    
    
    200 bp increase
    
    
    153,539
    
    
    
    (1.5
    )100 bp increase
    
    
    160,869
    
    
    
    (0.8
    )100 bp decrease
    
    
    177,063
    
    
    
    0.8200 bp decrease
    
    
    185,960
    
    
    
    1.7Total fixed income securities available-for-sale
    
    $
    963,354
    
    
    200 bp increase
    
    
    857,693
    
    
    
    (10.3
    )100 bp increase
    
    
    910,018
    
    
    
    (5.3
    )100 bp decrease
    
    
    1,017,419
    
    
    
    5.3200 bp decrease
    
    
    1,073,744
    
    
    
    10.8
 
 ITEM 4. CONTROLS AND PROCEDURES
  33




---



##### 



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 
 ITEM 1a. RISK FACTORS
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  None
 
 ITEM 5. OTHER INFORMATION  Reports on Form 8-K:
  
 ITEM 6. EXHIBITS
 Exhibit NumberCertification of Chief Executive Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    31.1Certification of Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    31.2Certification of Chief Executive Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    32.1Certification of Chief Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    32.2
 
 *
    
    Exhibits 32.1 and 32.2 are being furnished and shall not be deemed filed for the purpose of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that Section. These Exhibits shall not be incorporated by reference into any
registration statement or other document pursuant to the Securities Act of 1933, as amended. 34




---



##### 



CNA SURETY CORPORATION (Registrant)/s/ John F. Welch

John F. WelchPresident and Chief Executive Officer/s/ John F. Corcoran

John F. CorcoranSenior Vice President and Chief Financial OfficerDate: July 25, 2008
 
 35




---



##### 



31(1)
    
    Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 
Chief Executive Officer.31(2)
    
    Certification
pursuant to Rule
13a-14(a) of the
Securities Exchange
Act of 1934, as
adopted pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002 
Chief Financial Officer.32(1)
    
    Certification
pursuant to 18
U.S.C. Section
1350, as adopted
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002  Chief Executive Officer.32(2)
    
    Certification
pursuant to 18
U.S.C. Section
1350, as adopted
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002  Chief Financial Officer.
 36