##### Table of Contents



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 March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-13277
 CNA SURETY CORPORATION
 (Exact name of Registrant as specified in its Charter)
 DELAWARE
    
    36-4144905(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)333 S. WABASH AVE., CHICAGO, ILLINOIS
    
    60604(Address of principal executive offices)
    
    (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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
 
 o o




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited):
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2009 and at December 31, 2008
    
    
    3Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Stockholders Equity for the Three Months Ended March 31, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATION
    
    
    36Item 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37EX-31(1)EX-31(2)EX-32(1)EX-32(2)
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CNA SURETY CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 March 31,
    
    
    December 31,2009
    
    
    2008(Amounts in thousands,except per share data)AssetsInvested assets:Fixed income securities, at fair value (amortized cost: $1,087,596 and $1,041,816)
    
    $
    1,093,153
    
    
    $
    1,034,646Equity securities, at fair value (cost: $1,302 and $1,231)
    
    
    1,302
    
    
    
    1,231Short-term investments, at cost (approximates fair value)
    
    
    55,951
    
    
    
    80,606Total invested assets
    
    
    1,150,406
    
    
    
    1,116,483Cash
    
    
    11,798
    
    
    
    9,596Deferred policy acquisition costs
    
    
    104,056
    
    
    
    102,092Insurance receivables:Premiums, including $11,881 and $14,303 from affiliates, (net of allowance for
doubtful accounts: $1,097 and $1,307)
    
    
    43,558
    
    
    
    36,948Reinsurance, including $50,000 and $46,122 from affiliates
    
    
    93,163
    
    
    
    91,452Deposit with affiliated ceding company
    
    
    27,311
    
    
    
    29,693Intangible assets (net of accumulated amortization: $25,523 and $25,523)
    
    
    138,785
    
    
    
    138,785Property and equipment, at cost (less accumulated depreciation and amortization: $34,849 and $33,506)
    
    
    24,475
    
    
    
    24,378Prepaid reinsurance premiums (including $70 and $105 from affiliates)
    
    
    460
    
    
    
    420Accrued investment income
    
    
    12,925
    
    
    
    13,464Other assets (including $247 and $0 from affiliates)
    
    
    2,529
    
    
    
    2,208Total assets
    
    $
    1,609,466
    
    
    $
    1,565,519LiabilitiesReserves:Unpaid losses and loss adjustment expenses
    
    $
    453,724
    
    
    $
    428,724Unearned premiums
    
    
    261,732
    
    
    
    258,824Total reserves
    
    
    715,456
    
    
    
    687,548Long-term debt
    
    
    30,917
    
    
    
    30,892Deferred income taxes, net
    
    
    14,173
    
    
    
    9,647Reinsurance and other payables to affiliates
    
    
    71
    
    
    
    1,680Accrued expenses
    
    
    11,617
    
    
    
    20,056Liability for postretirement benefits
    
    
    9,472
    
    
    
    9,283Payable for securities purchased
    
    
    
    
    
    
    8,398Federal income tax payable
    
    
    7,267
    
    
    
    1,581Other liabilities
    
    
    22,584
    
    
    
    29,139Total liabilities
    
    
    811,557
    
    
    
    798,224Commitments and contingencies (See Notes 3, 5, & 8)Stockholders EquityCommon stock, par value $.01 per share, 100,000 shares authorized; 45,612 shares
issued and 44,240 shares outstanding at March 31, 2009 and 45,544 shares issued and
44,168 shares outstanding at December 31, 2008
    
    
    456
    
    
    
    455Additional paid-in capital
    
    
    277,719
    
    
    
    276,255Retained earnings
    
    
    530,508
    
    
    
    509,644Accumulated other comprehensive income (loss)
    
    
    3,958
    
    
    
    (4,286
    )Treasury stock, 1,372 and 1,376 shares, at cost
    
    
    (14,732
    )
    
    
    (14,773
    )Total stockholders equity
    
    
    797,909
    
    
    
    767,295Total liabilities and stockholders equity
    
    $
    1,609,466
    
    
    $
    1,565,519
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CNA SURETY CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three Months EndedMarch 31,2009
    
    
    2008(Amounts in thousands,except per share data)Revenues:Net earned premium
    
    $
    101,151
    
    
    $
    102,641Net investment income
    
    
    12,246
    
    
    
    11,765Net realized investment losses
    
    
    (66
    )
    
    
    (9
    )Total revenues
    
    
    113,331
    
    
    
    114,397Expenses:Net losses and loss adjustment expenses
    
    
    29,588
    
    
    
    25,968Net commissions, brokerage and other underwriting expenses
    
    
    54,278
    
    
    
    55,287Interest expense
    
    
    418
    
    
    
    619Total expenses
    
    
    84,284
    
    
    
    81,874Income before income taxes
    
    
    29,047
    
    
    
    32,523Income tax expense
    
    
    8,183
    
    
    
    9,621Net income
    
    $
    20,864
    
    
    $
    22,902Earnings per common share
    
    $
    0.47
    
    
    $
    0.52Earnings per common share, assuming dilution
    
    $
    0.47
    
    
    $
    0.52Weighted average shares outstanding
    
    
    44,206
    
    
    
    44,130Weighted average shares outstanding, assuming dilution
    
    
    44,376
    
    
    
    44,273
  4




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##### Table of Contents



CNA SURETY CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
 Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedStock
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Treasury
    
    
    TotalShares
    
    
    Common
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Retained
    
    
    Comprehensive
    
    
    Stock
    
    
    StockholdersOutstanding
    
    
    Stock
    
    
    Capital
    
    
    Income
    
    
    Earnings
    
    
    Income (Loss)
    
    
    At Cost
    
    
    Equity(Amounts in thousands)Balance, January 1, 2008
    
    
    44,121
    
    
    $
    455
    
    
    $
    274,069
    
    
    
    
    
    
    $
    399,241
    
    
    $
    8,800
    
    
    $
    (14,860
    )
    
    $
    667,705Comprehensive income:Net income
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,902
    
    
    $
    22,902
    
    
    $
    
    
    
    $
    
    
    
    $
    22,902Other comprehensive income:Change in unrealized gains on
securities, after income tax
benefit of $1,506 (net of
reclassification adjustment
of $1, after income tax
expense of $0)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,797
    )
    
    
    
    
    
    
    (2,797
    )
    
    
    
    
    
    
    (2,797
    )Net change related to
postretirement benefits, after
income tax expense of $206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (227
    )
    
    
    
    
    
    
    (227
    )
    
    
    
    
    
    
    (227
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500Stock options exercised and other
    
    
    16
    
    
    
    
    
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    194Balance, March 31, 2008
    
    
    44,137
    
    
    $
    455
    
    
    $
    274,722
    
    
    
    
    
    
    $
    422,143
    
    
    $
    5,776
    
    
    $
    (14,819
    )
    
    $
    688,277Balance, December 31, 2008
    
    
    44,168
    
    
    $
    455
    
    
    $
    276,255
    
    
    
    
    
    
    $
    509,644
    
    
    $
    (4,286
    )
    
    $
    (14,773
    )
    
    $
    767,295Comprehensive income:Net income
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    20,864
    
    
    $
    20,864
    
    
    $
    
    
    
    $
    
    
    
    $
    20,864Other comprehensive income:Change in unrealized gains on
securities, after income tax
expense of $4,455 (net of
reclassification adjustment
of $0, after income tax
benefit of $0)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,272
    
    
    
    
    
    
    
    8,272
    
    
    
    
    
    
    
    8,272Net change related to
postretirement benefits, after
income tax benefit of $12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (28
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29,108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    578
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578Stock options exercised and other
    
    
    72
    
    
    
    1
    
    
    
    886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    928Balance, March 31, 2009
    
    
    44,240
    
    
    $
    456
    
    
    $
    277,719
    
    
    
    
    
    
    $
    530,508
    
    
    $
    3,958
    
    
    $
    (14,732
    )
    
    $
    797,909
  5




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CNA SURETY CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months EndedMarch 31,2009
    
    
    2008(Amounts in thousands)Cash Flows from Operating Activities:Net income
    
    $
    20,864
    
    
    $
    22,902Adjustments to reconcile net income to net cash provided by operating activities:Provision for doubtful accounts
    
    
    (48
    )
    
    
    (91
    )Depreciation and amortization
    
    
    1,524
    
    
    
    1,315Amortization of bond premium, net
    
    
    1,126
    
    
    
    617(Gain) loss on disposal of property and equipment
    
    
    (3
    )
    
    
    37Net realized investment losses
    
    
    66
    
    
    
    9Stock-based compensation
    
    
    578
    
    
    
    500Changes in:Insurance receivables
    
    
    (8,273
    )
    
    
    (18,425
    )Reserve for unearned premiums
    
    
    2,908
    
    
    
    5,697Reserve for unpaid losses and loss adjustment expenses
    
    
    25,000
    
    
    
    9,346Deposit with affiliated ceding company
    
    
    2,382
    
    
    
    (275
    )Deferred policy acquisition costs
    
    
    (1,964
    )
    
    
    (1,554
    )Deferred income taxes, net
    
    
    38
    
    
    
    283Reinsurance and other payables to affiliates
    
    
    (1,609
    )
    
    
    (460
    )Prepaid reinsurance premiums
    
    
    (40
    )
    
    
    106Accrued expenses
    
    
    (8,439
    )
    
    
    (6,495
    )Other assets and liabilities
    
    
    (458
    )
    
    
    5,681Net cash provided by operating activities
    
    
    33,652
    
    
    
    19,193Cash Flows from Investing Activities:Fixed income securities:Purchases
    
    
    (68,727
    )
    
    
    (52,316
    )Maturities
    
    
    21,787
    
    
    
    5,476Sales
    
    
    
    
    
    
    19,000Purchases of equity securities
    
    
    (473
    )
    
    
    (300
    )Proceeds from the sale of equity securities
    
    
    336
    
    
    
    114Changes in short-term investments
    
    
    24,689
    
    
    
    28,960Purchases of property and equipment, net
    
    
    (1,592
    )
    
    
    (2,161
    )Changes in payables for securities purchased
    
    
    (8,398
    )
    
    
    (15,141
    )Other, net
    
    
    
    
    
    
    100Net cash (used in) investing activities
    
    
    (32,378
    )
    
    
    (16,268
    )Cash Flows from Financing Activities:Employee stock option exercises and other
    
    
    928
    
    
    
    195Net cash provided by financing activities
    
    
    928
    
    
    
    195Increase in cash
    
    
    2,202
    
    
    
    3,120Cash at beginning of period
    
    
    9,596
    
    
    
    10,230Cash at end of period
    
    $
    11,798
    
    
    $
    13,350Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    437
    
    
    $
    670Income taxes
    
    $
    2,312
    
    
    $
    38
  6




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CNA SURETY CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
(UNAUDITED)
 1. Significant Accounting Policies
 Formation of CNA Surety Corporation and Merger
  Principles of Consolidation
  Estimates
  Basis of Presentation
  Earnings Per Share
  7




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##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008Net income
    
    $
    20,864
    
    
    $
    22,902Shares:Weighted average shares outstanding
    
    
    44,168
    
    
    
    44,121Weighted average shares of options exercised and additional stock issuance
    
    
    38
    
    
    
    9Total weighted average shares outstanding
    
    
    44,206
    
    
    
    44,130Effect of dilutive options
    
    
    170
    
    
    
    143Total weighted average shares outstanding, assuming dilution
    
    
    44,376
    
    
    
    44,273Earnings per share
    
    $
    0.47
    
    
    $
    0.52Earnings per share, assuming dilution
    
    $
    0.47
    
    
    $
    0.52
  Adopted Accounting Pronouncements
    8




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##### Table of Contents



Pending Accounting Pronouncements
    9




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##### Table of Contents



2. Investments
  Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedMarch 31, 2009
    
    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
    
    $
    33,116
    
    
    $
    2,637
    
    
    $
    
    
    
    $
    
    
    
    $
    35,753U.S. Agencies
    
    
    36,432
    
    
    
    897
    
    
    
    
    
    
    
    
    
    
    
    37,329Collateralized mortgage obligations
    
    
    34,465
    
    
    
    1,353
    
    
    
    
    
    
    
    
    
    
    
    35,818Mortgage pass-through securities
    
    
    67,679
    
    
    
    2,427
    
    
    
    
    
    
    
    
    
    
    
    70,106Obligations of states and political subdivisions
    
    
    713,526
    
    
    
    27,438
    
    
    
    (1,540
    )
    
    
    (13,336
    )
    
    
    726,088Corporate bonds
    
    
    131,927
    
    
    
    1,967
    
    
    
    (3,666
    )
    
    
    (3,115
    )
    
    
    127,113Non-agency collateralized mortgage obligations
    
    
    35,031
    
    
    
    
    
    
    
    (1,304
    )
    
    
    (4,682
    )
    
    
    29,045Other asset-backed securities:Second mortgages/home equity loans
    
    
    7,487
    
    
    
    
    
    
    
    
    
    
    
    (2,906
    )
    
    
    4,581Consumer credit receivables
    
    
    17,189
    
    
    
    127
    
    
    
    
    
    
    
    (1,299
    )
    
    
    16,017Other
    
    
    10,744
    
    
    
    559
    
    
    
    
    
    
    
    
    
    
    
    11,303Total fixed income securities
    
    
    1,087,596
    
    
    
    37,405
    
    
    
    (6,510
    )
    
    
    (25,338
    )
    
    
    1,093,153Equity securities
    
    
    1,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,302Total
    
    $
    1,088,898
    
    
    $
    37,405
    
    
    $
    (6,510
    )
    
    $
    (25,338
    )
    
    $
    1,094,455
 Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedDecember 31, 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
    
    $
    33,140
    
    
    $
    3,519
    
    
    $
    
    
    
    $
    
    
    
    $
    36,659U.S. Agencies
    
    
    36,476
    
    
    
    1,116
    
    
    
    
    
    
    
    
    
    
    
    37,592Collateralized mortgage obligations
    
    
    35,671
    
    
    
    984
    
    
    
    
    
    
    
    
    
    
    
    36,655Mortgage pass-through securities
    
    
    72,203
    
    
    
    1,489
    
    
    
    
    
    
    
    
    
    
    
    73,692Obligations of states and political subdivisions
    
    
    697,305
    
    
    
    19,730
    
    
    
    (6,929
    )
    
    
    (13,943
    )
    
    
    696,163Corporate bonds
    
    
    96,048
    
    
    
    1,711
    
    
    
    (2,430
    )
    
    
    (1,853
    )
    
    
    93,476Non-agency collateralized mortgage obligations
    
    
    35,025
    
    
    
    
    
    
    
    (2,040
    )
    
    
    (3,607
    )
    
    
    29,378Other asset-backed securities:Second mortgages/home equity loans
    
    
    7,956
    
    
    
    
    
    
    
    (779
    )
    
    
    (2,180
    )
    
    
    4,997Consumer credit receivables
    
    
    17,239
    
    
    
    
    
    
    
    (1,708
    )
    
    
    
    
    
    
    15,531Other
    
    
    10,753
    
    
    
    23
    
    
    
    (273
    )
    
    
    
    
    
    
    10,503Total fixed income securities
    
    
    1,041,816
    
    
    
    28,572
    
    
    
    (14,159
    )
    
    
    (21,583
    )
    
    
    1,034,646Equity securities
    
    
    1,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,231Total
    
    $
    1,043,047
    
    
    $
    28,572
    
    
    $
    (14,159
    )
    
    $
    (21,583
    )
    
    $
    1,035,877
    10




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##### Table of Contents



(a)
 Gross Unrealized Losses
    
    
    EstimatedMarch 31, 2009
    
    AAA/Aaa
    
    
    AA/Aa
    
    
    A/Aa
    
    
    BBB/Baa
    
    
    Total
    
    
    Count
    
    
    Fair ValueFixed income securities:Obligations of states and political subdivisions
    
    $
    2,104
    
    
    $
    4,552
    
    
    $
    3,070
    
    
    $
    5,150
    
    
    $
    14,876
    
    
    
    44
    
    
    $
    222,463Corporate bonds
    
    
    312
    
    
    
    510
    
    
    
    3,811
    
    
    
    2,129
    
    
    
    6,762
    
    
    
    20
    
    
    
    60,255Non-agency collateralized mortgage obligations
    
    
    5,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,986
    
    
    
    7
    
    
    
    29,045Other asset-backed securities:Second mortgages/home equity loans
    
    
    866
    
    
    
    
    
    
    
    
    
    
    
    2,040
    
    
    
    2,906
    
    
    
    2
    
    
    
    4,581Consumer credit receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,299
    
    
    
    1,299
    
    
    
    1
    
    
    
    3,700Total investment grade
    
    
    9,268
    
    
    
    5,062
    
    
    
    6,881
    
    
    
    10,618
    
    
    
    31,829
    
    
    
    74
    
    
    
    320,044Non-investment grade
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    1
    
    
    
    3,023Total
    
    $
    9,268
    
    
    $
    5,062
    
    
    $
    6,881
    
    
    $
    10,618
    
    
    $
    31,848
    
    
    
    75
    
    
    $
    323,067
 
 (a)
    
    Credit rating is determined by the higher of the two ratings, Standard & Poors
(S&P) or Moodys Investor Services (Moodys), when a security has a split rating.    3. Reinsurance
  Three Months Ended March 31,2009
    
    
    2008Written
    
    
    Earned
    
    
    Written
    
    
    EarnedDirect
    
    $
    89,128
    
    
    $
    83,341
    
    
    $
    91,060
    
    
    $
    84,346Assumed
    
    
    21,997
    
    
    
    24,876
    
    
    
    25,565
    
    
    
    26,583Ceded
    
    
    (7,106
    )
    
    
    (7,066
    )
    
    
    (8,181
    )
    
    
    (8,288
    )Net premiums
    
    $
    104,019
    
    
    $
    101,151
    
    
    $
    108,444
    
    
    $
    102,641
  11




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Three Months Ended March 31,2009
    
    
    2008$
    
    
    Ratio
    
    
    $
    
    
    RatioGross losses and loss adjustment expenses
    
    $
    31,308
    
    
    
    28.9
    %
    
    $
    39,105
    
    
    
    35.3
    %Ceded amounts
    
    
    (1,720
    )
    
    
    24.3
    %
    
    
    (13,137
    )
    
    
    158.5
    %Net losses and loss adjustment expenses
    
    $
    29,588
    
    
    
    29.3
    %
    
    $
    25,968
    
    
    
    25.3
    %
  2009 Third Party Reinsurance
  2008 Third Party Reinsurance
  Related Party Reinsurance
    12




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13




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##### Table of Contents



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.
   Fixed Income Securities
  Equity Securities
  Short-Term Investments
   March 31, 2009Fair Value Measurements Using
    
    
    Assets at FairLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    ValueAssets:Fixed income securities at fair value
    
    $
    35,753
    
    
    $
    1,057,400
    
    
    
    
    
    
    $
    1,093,153Equity securities at fair value
    
    
    1,302
    
    
    
    
    
    
    
    
    
    
    
    1,302Short term investments at fair value (a)
    
    
    13,953
    
    
    
    41,998
    
    
    
    
    
    
    
    55,951Total assets
    
    $
    51,008
    
    
    $
    1,099,398
    
    
    
    
    
    
    $
    1,150,406
 
 (a)
    
    Includes commercial paper and money market instruments.  14




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##### Table of Contents



5. Reserves for Losses and Loss Adjustment Expenses
  Three Months EndedMarch 31,2009
    
    
    2008Reserves at beginning of period:Gross
    
    $
    428,724
    
    
    $
    472,842Ceded reinsurance
    
    
    83,691
    
    
    
    150,496Net reserves at beginning of period
    
    
    345,033
    
    
    
    322,346Net incurred loss and loss adjustment expenses:Provision for insured events of current year
    
    
    29,637
    
    
    
    25,966(Decrease) increase in provision for insured events of prior years
    
    
    (49
    )
    
    
    2Total net incurred
    
    
    29,588
    
    
    
    25,968Net payments attributable to:Current year events
    
    
    781
    
    
    
    815Prior year events
    
    
    11,775
    
    
    
    22,858Total net payments
    
    
    12,556
    
    
    
    23,673Net reserves at end of period
    
    
    362,065
    
    
    
    324,641Ceded reinsurance at end of period
    
    
    91,659
    
    
    
    157,547Gross reserves at end of period
    
    $
    453,724
    
    
    $
    482,188
  6. Debt
      15




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##### Table of Contents



7. Employee Benefits
   Three Months EndedMarch 31,2009
    
    
    2008Net periodic benefit cost:Service cost
    
    $
    53
    
    
    $
    59Interest cost
    
    
    134
    
    
    
    145Amortization of prior service cost
    
    
    (40
    )
    
    
    (27
    )Net amortization of actuarial loss
    
    
    
    
    
    
    6Net periodic benefit cost
    
    $
    147
    
    
    $
    183
  8. Commitments and Contingencies
  9. Income Taxes
   10. Stockholders Equity
  Equity Compensation Plans
  16




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##### Table of Contents



WeightedAverageShares
    
    ExerciseSubject
    
    Price PerTo Option
    
    ShareOutstanding options at January 1, 2008
    
    
    1,054,588
    
    
    $
    14.53Options granted
    
    
    259,380
    
    
    $
    16.35Options forfeited
    
    
    (8,390
    )
    
    $
    16.56Options expired
    
    
    (3,000
    )
    
    $
    9.35Options exercised
    
    
    (11,625
    )
    
    $
    11.18Outstanding options at March 31, 2008
    
    
    1,290,953
    
    
    $
    14.93Outstanding options at January 1, 2009
    
    
    1,221,118
    
    
    $
    14.93Options granted
    
    
    217,960
    
    
    $
    18.85Options forfeited
    
    
    (570
    )
    
    $
    16.35Options expired
    
    
    (1,090
    )
    
    $
    13.09Options exercised
    
    
    (68,305
    )
    
    $
    11.50Outstanding options at March 31, 2009
    
    
    1,369,113
    
    
    $
    15.72
 17




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##### Table of Contents



WeightedShares
    
    AverageSubject
    
    Grant DateTo Option
    
    Fair ValueNon-vested options at January 1, 2008
    
    
    554,557
    
    
    $
    7.23Options granted
    
    
    259,380
    
    
    $
    6.32Options vested
    
    
    (78,820
    )
    
    $
    9.04Options forfeited
    
    
    (8,390
    )
    
    $
    6.72Non-vested options at March 31, 2008
    
    
    726,727
    
    
    $
    6.80Non-vested options at January 1, 2009
    
    
    545,095
    
    
    $
    7.29Options granted
    
    
    217,960
    
    
    $
    8.95Options vested
    
    
    (136,849
    )
    
    $
    7.82Options forfeited
    
    
    (570
    )
    
    $
    6.32Non-vested options at March 31, 2009
    
    
    625,636
    
    
    $
    7.76
  Options Vested or Expected to VestWeighted
    
    
    
    
    
    Weighted AverageAverage
    
    Aggregate
    
    RemainingNumber
    
    Exercise Price
    
    Intrinsic Value
    
    Contractual LifeMarch 31, 2009
    
    
    1,285,541
    
    
    $
    15.54
    
    
    $
    4,442,373
    
    
    7.1 yearsOptions ExercisableWeighted
    
    
    
    
    
    Weighted AverageAverage
    
    Aggregate
    
    RemainingNumber
    
    Exercise Price
    
    Intrinsic Value
    
    Contractual LifeMarch 31, 2009
    
    
    743,477
    
    
    $
    13.91
    
    
    $
    3,712,980
    
    
    6.1 years
   18




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##### Table of Contents



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
     19




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Gross Case Loss
    
    
    Gross IBNR Loss
    
    
    Total Grossand LAE Reserves
    
    
    and LAE Reserves
    
    
    ReservesContract
    
    $
    101,832
    
    
    $
    232,280
    
    
    $
    334,112Commercial
    
    
    54,015
    
    
    
    50,375
    
    
    
    104,390Fidelity and other
    
    
    4,140
    
    
    
    11,082
    
    
    
    15,222Total
    
    $
    159,987
    
    
    $
    293,737
    
    
    $
    453,724
       
    
    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;
    
    Potential changes in the Companys reinsurance program; and
    
    Current economic conditions, especially corporate default rates and the condition of the construction economy.
 20




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Investments
     Intangible Assets
  21




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##### Table of Contents



Insurance Premiums
  Deferred Policy Acquisitions Costs
  Results of Operations
 Financial Measures
     22




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##### Table of Contents



Comparison of CNA Surety Actual Results for the Three Months Ended March 31, 2009 and 2008
 Analysis of Net Income
   Results of Insurance Operations
  Three MonthsEndedMarch 31,2009
    
    
    2008Gross written premiums
    
    $
    111,125
    
    
    $
    116,625Net written premiums
    
    $
    104,019
    
    
    $
    108,444Net earned premiums
    
    $
    101,151
    
    
    $
    102,641Net losses and loss adjustment expenses
    
    $
    29,588
    
    
    $
    25,968Net commissions, brokerage and other underwriting expenses
    
    $
    54,278
    
    
    $
    55,287Loss ratio
    
    
    29.3
    %
    
    
    25.3
    %Expense ratio
    
    
    53.7
    
    
    
    53.9Combined ratio
    
    
    83.0
    %
    
    
    79.2
    %
 Premiums Written/Earned
   23




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##### Table of Contents



Three MonthsEndedMarch 31,2009
    
    
    2008Contract
    
    $
    67,355
    
    
    $
    71,952Commercial
    
    
    34,978
    
    
    
    35,595Fidelity and other
    
    
    8,792
    
    
    
    9,078Total
    
    $
    111,125
    
    
    $
    116,625
    Three MonthsEndedMarch 31,2009
    
    
    2008Contract
    
    $
    61,025
    
    
    $
    64,592Commercial
    
    
    34,202
    
    
    
    34,774Fidelity and other
    
    
    8,792
    
    
    
    9,078Total
    
    $
    104,019
    
    
    $
    108,444
   Three MonthsEndedMarch 31,2009
    
    
    2008Contract
    
    $
    61,292
    
    
    $
    62,790Commercial
    
    
    32,217
    
    
    
    32,077Fidelity and other
    
    
    7,642
    
    
    
    7,774Total
    
    $
    101,151
    
    
    $
    102,641
 Net Loss Ratio
  24




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##### Table of Contents



Expense Ratio
  Investment Income and Realized Investment Gains/Losses
   Three Months EndedMarch 31,2009
    
    
    2008Gross realized investment gains
    
    $
    
    
    
    $
    3Gross realized investment losses:Other-than-temporary impairment losses
    
    
    (46
    )
    
    
    Realized losses from sales of securities
    
    
    (20
    )
    
    
    (12
    )Total gross realized investment losses
    
    
    (66
    )
    
    
    (12
    )Net realized investment losses
    
    $
    (66
    )
    
    $
    (9
    )
  Interest Expense
  Income Taxes
  Exposure Management
   25




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##### Table of Contents



Excess of Loss Reinsurance
  2009 Third Party Reinsurance
  2008 Third Party Reinsurance
  Related Party Reinsurance
    26




---



##### Table of Contents



Liquidity and Capital Resources
   27




---



##### Table of Contents



28




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##### Table of Contents



Contractual Obligations as of March 31, 2009
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    TotalDebt (a)
    
    $
    1.1
    
    
    $
    1.4
    
    
    $
    1.4
    
    
    $
    1.4
    
    
    $
    1.4
    
    
    $
    60.1
    
    
    $
    66.8Operating leases
    
    
    1.5
    
    
    
    2.0
    
    
    
    1.9
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    6.4Loss and loss adjustment expense reserves
    
    
    104.4
    
    
    
    124.9
    
    
    
    97.4
    
    
    
    49.6
    
    
    
    23.4
    
    
    
    54.0
    
    
    
    453.7Other long-term liabilities (b)
    
    
    0.3
    
    
    
    1.1
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    0.4
    
    
    
    8.9
    
    
    
    12.1Total
    
    $
    107.3
    
    
    $
    129.4
    
    
    $
    101.6
    
    
    $
    52.5
    
    
    $
    25.2
    
    
    $
    123.0
    
    
    $
    539.0
 
 (a)
    
    Reflects expected principal and interest payments.(b)
    
    Reflects unfunded postretirement benefit plans and long-term incentive plan payments to
certain executives.      29




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##### Table of Contents



Insurance Regulation and Supervision
  Financial Condition
 Investment Portfolio
  Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedMarch 31, 2009
    
    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
    
    $
    33,116
    
    
    $
    2,637
    
    
    $
    
    
    
    $
    
    
    
    $
    35,753U.S. Agencies
    
    
    36,432
    
    
    
    897
    
    
    
    
    
    
    
    
    
    
    
    37,329Collateralized mortgage obligations
    
    
    34,465
    
    
    
    1,353
    
    
    
    
    
    
    
    
    
    
    
    35,818Mortgage pass-through securities
    
    
    67,679
    
    
    
    2,427
    
    
    
    
    
    
    
    
    
    
    
    70,106Obligations of states and political subdivisions
    
    
    713,526
    
    
    
    27,438
    
    
    
    (1,540
    )
    
    
    (13,336
    )
    
    
    726,088Corporate bonds
    
    
    131,927
    
    
    
    1,967
    
    
    
    (3,666
    )
    
    
    (3,115
    )
    
    
    127,113Non-agency collateralized mortgage obligations
    
    
    35,031
    
    
    
    
    
    
    
    (1,304
    )
    
    
    (4,682
    )
    
    
    29,045Other asset-backed securities:Second mortgages/home equity loans
    
    
    7,487
    
    
    
    
    
    
    
    
    
    
    
    (2,906
    )
    
    
    4,581Consumer credit receivables
    
    
    17,189
    
    
    
    127
    
    
    
    
    
    
    
    (1,299
    )
    
    
    16,017Other
    
    
    10,744
    
    
    
    559
    
    
    
    
    
    
    
    
    
    
    
    11,303Total fixed income securities
    
    
    1,087,596
    
    
    
    37,405
    
    
    
    (6,510
    )
    
    
    (25,338
    )
    
    
    1,093,153Equity securities
    
    
    1,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,302Total
    
    $
    1,088,898
    
    
    $
    37,405
    
    
    $
    (6,510
    )
    
    $
    (25,338
    )
    
    $
    1,094,455
 30




---



##### Table of Contents



Gross
    
    
    Gross Unrealized LossesAmortized Cost
    
    
    Unrealized
    
    
    Less Than
    
    
    More Than
    
    
    EstimatedDecember 31, 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
    
    $
    33,140
    
    
    $
    3,519
    
    
    $
    
    
    
    $
    
    
    
    $
    36,659U.S. Agencies
    
    
    36,476
    
    
    
    1,116
    
    
    
    
    
    
    
    
    
    
    
    37,592Collateralized mortgage obligations
    
    
    35,671
    
    
    
    984
    
    
    
    
    
    
    
    
    
    
    
    36,655Mortgage pass-through securities
    
    
    72,203
    
    
    
    1,489
    
    
    
    
    
    
    
    
    
    
    
    73,692Obligations of states and political subdivisions
    
    
    697,305
    
    
    
    19,730
    
    
    
    (6,929
    )
    
    
    (13,943
    )
    
    
    696,163Corporate bonds
    
    
    96,048
    
    
    
    1,711
    
    
    
    (2,430
    )
    
    
    (1,853
    )
    
    
    93,476Non-agency collateralized mortgage obligations
    
    
    35,025
    
    
    
    
    
    
    
    (2,040
    )
    
    
    (3,607
    )
    
    
    29,378Other asset-backed securities:Second mortgages/home equity loans
    
    
    7,956
    
    
    
    
    
    
    
    (779
    )
    
    
    (2,180
    )
    
    
    4,997Consumer credit receivables
    
    
    17,239
    
    
    
    
    
    
    
    (1,708
    )
    
    
    
    
    
    
    15,531Other
    
    
    10,753
    
    
    
    23
    
    
    
    (273
    )
    
    
    
    
    
    
    10,503Total fixed income securities
    
    
    1,041,816
    
    
    
    28,572
    
    
    
    (14,159
    )
    
    
    (21,583
    )
    
    
    1,034,646Equity securities
    
    
    1,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,231Total
    
    $
    1,043,047
    
    
    $
    28,572
    
    
    $
    (14,159
    )
    
    $
    (21,583
    )
    
    $
    1,035,877
  March 31, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedUnrealized Loss Aging
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    LossFixed income securities:Investment grade (a):0-6 months
    
    $
    113,429
    
    
    $
    2,825
    
    
    $
    109,973
    
    
    $
    3,0957-12 months
    
    
    40,059
    
    
    
    3,667
    
    
    
    121,419
    
    
    
    11,06413-24 months
    
    
    90,520
    
    
    
    10,633
    
    
    
    81,395
    
    
    
    12,010Greater than 24 months
    
    
    76,036
    
    
    
    14,704
    
    
    
    33,450
    
    
    
    9,573Total investment grade
    
    
    320,044
    
    
    
    31,829
    
    
    
    346,237
    
    
    
    35,742Non-investment grade:0-6 months
    
    
    3,023
    
    
    
    19
    
    
    
    
    
    
    
    Total
    
    $
    323,067
    
    
    $
    31,848
    
    
    $
    346,237
    
    
    $
    35,742
 
 (a)
    
    Investment grade is determined by the higher of the two ratings, Standard & Poors
(S&P) or Moodys Investor Services (Moodys), when the security has a split rating.    31




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(a)
 Gross Unrealized Losses
    
    
    EstimatedMarch 31, 2009
    
    AAA/Aaa
    
    
    AA/Aa
    
    
    A/Aa
    
    
    BBB/Baa
    
    
    Total
    
    
    Count
    
    
    Fair ValueFixed income securities:Obligations of states and political subdivisions
    
    $
    2,104
    
    
    $
    4,552
    
    
    $
    3,070
    
    
    $
    5,150
    
    
    $
    14,876
    
    
    
    44
    
    
    $
    222,463Corporate bonds
    
    
    312
    
    
    
    510
    
    
    
    3,811
    
    
    
    2,129
    
    
    
    6,762
    
    
    
    20
    
    
    
    60,255Non-agency collateralized mortgage obligations
    
    
    5,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,986
    
    
    
    7
    
    
    
    29,045Other asset-backed securities:Second mortgages/home equity loans
    
    
    866
    
    
    
    
    
    
    
    
    
    
    
    2,040
    
    
    
    2,906
    
    
    
    2
    
    
    
    4,581Consumer credit receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,299
    
    
    
    1,299
    
    
    
    1
    
    
    
    3,700Total investment grade
    
    
    9,268
    
    
    
    5,062
    
    
    
    6,881
    
    
    
    10,618
    
    
    
    31,829
    
    
    
    74
    
    
    
    320,044Non-investment grade
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    1
    
    
    
    3,023Total
    
    $
    9,268
    
    
    $
    5,062
    
    
    $
    6,881
    
    
    $
    10,618
    
    
    $
    31,848
    
    
    
    75
    
    
    $
    323,067
 
 (a)
    
    Credit rating is determined by the higher of the two ratings, S&P or Moodys  when a security has a split rating.     32




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##### Table of Contents



Impact of Pending Accounting Standards
    33




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##### Table of Contents



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;
    
    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 Companys ability to access capital markets;
    
    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.
 34




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##### Table of Contents



TEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   HypotheticalEstimated Fair
    
    
    PercentageHypothetical
    
    
    Value After
    
    
    IncreaseFair Value at
    
    
    Change in
    
    
    Hypothetical
    
    
    (Decrease) inMarch 31,
    
    
    Interest Rate
    
    
    Change in
    
    
    Stockholders2009
    
    
    (bp=basis points)
    
    
    Interest Rate
    
    
    Equity(Dollars in thousands)U.S. Government and government agencies and authorities
    
    $
    179,006
    
    
    200 bp increase
    
    $
    167,846
    
    
    
    (0.9
    )%100 bp increase
    
    
    174,215
    
    
    
    (0.4
    )100 bp decrease
    
    
    181,882
    
    
    
    0.2200 bp decrease
    
    
    183,266
    
    
    
    0.3States, municipalities and political subdivisions
    
    
    726,088
    
    
    200 bp increase
    
    
    637,258
    
    
    
    (7.2
    )100 bp increase
    
    
    679,545
    
    
    
    (3.8
    )100 bp decrease
    
    
    777,052
    
    
    
    4.2200 bp decrease
    
    
    826,505
    
    
    
    8.2Corporate bonds and all other
    
    
    188,059
    
    
    200 bp increase
    
    
    172,260
    
    
    
    (1.3
    )100 bp increase
    
    
    179,815
    
    
    
    (0.7
    )100 bp decrease
    
    
    196,198
    
    
    
    0.7200 bp decrease
    
    
    202,190
    
    
    
    1.2Total fixed income securities available-for-sale
    
    $
    1,093,153
    
    
    200 bp increase
    
    
    977,364
    
    
    
    (9.4
    )100 bp increase
    
    
    1,033,575
    
    
    
    (4.9
    )100 bp decrease
    
    
    1,155,132
    
    
    
    5.1200 bp decrease
    
    
    1,211,961
    
    
    
    9.7
 35




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##### Table of Contents



HypotheticalEstimated Fair
    
    
    PercentageHypothetical
    
    
    Value After
    
    
    IncreaseFair Value at
    
    
    Change in
    
    
    Hypothetical
    
    
    (Decrease) inDecember 31,
    
    
    Interest Rate
    
    
    Change in
    
    
    Stockholders2008
    
    
    (bp=basis points)
    
    
    Interest Rate
    
    
    Equity(Dollars in thousands)U.S. Government and government agencies and authorities
    
    $
    184,598
    
    
    200 bp increase
    
    $
    172,966
    
    
    
    (1.0
    )%100 bp increase
    
    
    179,485
    
    
    
    (0.4
    )100 bp decrease
    
    
    187,485
    
    
    
    0.2200 bp decrease
    
    
    189,197
    
    
    
    0.4States, municipalities and political subdivisions
    
    
    696,163
    
    
    200 bp increase
    
    
    613,030
    
    
    
    (7.0
    )100 bp increase
    
    
    652,614
    
    
    
    (3.7
    )100 bp decrease
    
    
    743,635
    
    
    
    4.0200 bp decrease
    
    
    786,829
    
    
    
    7.7Corporate bonds and all other
    
    
    153,885
    
    
    200 bp increase
    
    
    141,512
    
    
    
    (1.0
    )100 bp increase
    
    
    147,525
    
    
    
    (0.5
    )100 bp decrease
    
    
    160,154
    
    
    
    0.5200 bp decrease
    
    
    163,981
    
    
    
    0.9Total fixed income securities available-for-sale
    
    $
    1,034,646
    
    
    200 bp increase
    
    
    927,508
    
    
    
    (9.1
    )100 bp increase
    
    
    979,624
    
    
    
    (4.7
    )100 bp decrease
    
    
    1,091,274
    
    
    
    4.8200 bp decrease
    
    
    1,140,007
    
    
    
    8.9
 
 ITEM 4. CONTROLS AND PROCEDURES
    
 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.
 36




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    Number Of Shares/VotesFor
    
    Authority WithheldPhilip H. Britt
    
    
    41,403,367
    
    
    
    674,950Anthony S. Cleberg
    
    
    41,419,549
    
    
    
    658,768David B. Edelson
    
    
    34,804,525
    
    
    
    7,273,792D. Craig Mense
    
    
    34,798,264
    
    
    
    7,280,053Robert A. Tinstman
    
    
    41,411,169
    
    
    
    667,148John F. Welch
    
    
    35,243,655
    
    
    
    6,834,662Peter W. Wilson
    
    
    34,934,042
    
    
    
    7,144,275
   For
    
    
    41,781,320Against
    
    
    36,394Abstain
    
    
    260,602
 
 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(1)Certification 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(2)Certification 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(1)Certification 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. 37




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##### Table of Contents



CNA SURETY CORPORATION (Registrant)/s/ John F. WelchJohn F. WelchPresident and Chief Executive Officer/s/ John F. CorcoranJohn F. CorcoranSenior Vice President and Chief Financial Officer
  38




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##### Table of Contents



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.
 39