<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                          COMMISSION FILE NUMBER: 1-13277
                            ----------------------------

                               CNA SURETY CORPORATION
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>
<S>                                                           <C>
                       DELAWARE                                            36-4144905
   (STATE OR OTHER JURISDICTION OF INCORPORATION OR           (I.R.S. EMPLOYER IDENTIFICATION NO.)
                      ORGANIZATION)

             CNA PLAZA, CHICAGO, ILLINOIS                                    60685
       (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                            (ZIP CODE)
</Table>

                                 (312) 822-5000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                            ------------------------
        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:
                         COMMON STOCK, $0.01 PAR VALUE
                                (Title of Class)
                            ------------------------

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

     The aggregate market value of voting stock held by nonaffiliates was $223.2
million based upon the closing price of $14.46 per share on March 8, 2002, using
beneficial ownership of stock rules adopted pursuant to Section 13 of the
Securities Exchange Act of 1934 to exclude voting stock owned by Directors,
Officers and Major Stockholders, some of whom may not be held to be affiliates
upon judicial determination.

     At March 8, 2001, 42,862,832 shares of the Registrant's Common Stock were
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the CNA Surety Corporation 2001 Annual Report to Shareholders
are incorporated by reference into Parts I, II and IV of this Report.

     Portions of the CNA Surety Corporation Proxy Statement prepared for the
2002 annual meeting of shareholders, pursuant to Regulation 14A, are
incorporated by reference into Part III of this report.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                    CNA SURETY CORPORATION AND SUBSIDIARIES

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                              PAGE
                                                                              ----
<S>           <C>                                                             <C>
PART I
 Item 1.      Business....................................................      3
              General.....................................................      3
              Formation of CNA Surety and Merger..........................      3
              Description of Business.....................................      3
              Financial Strength Ratings..................................      3
              Product Information.........................................      4
              Marketing...................................................      7
              Underwriting................................................      8
              Competition.................................................      8
              Reinsurance.................................................      8
              Reserves for Unpaid Losses and Loss Adjustment Expenses.....      9
              Claims......................................................     11
              Asbestos and Environmental Claims...........................     11
              Regulation..................................................     12
              Investments.................................................     13
              Employees...................................................     13
 Item 2.      Properties..................................................     13
 Item 3.      Legal Proceedings...........................................     14
 Item 4.      Submission of Matters to a Vote of Security Holders.........     14
PART II
 Item 5.      Market for the Registrant's Common Stock and Related
              Stockholder Matters.........................................     14
 Item 6.      Selected Financial Data.....................................     15
 Item 7.      Management's Discussion and Analysis of Financial Condition
              and Results of Operations...................................     17
 Item 7A.     Quantitative and Qualitative Discussions About Market
              Risk........................................................     17
 Item 8.      Financial Statements and Supplementary Data.................     17
 Item 9.      Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure....................................     17
PART III
 Item 10.     Directors and Executive Officers of the Registrant..........     18
 Item 11.     Executive Compensation......................................     18
 Item 12.     Security Ownership of Certain Beneficial Owners and
              Management..................................................     18
 Item 13.     Certain Relationships and Related Transactions..............     18
PART IV
 Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form
              8-K.........................................................     18
</Table>

                                        2
<PAGE>

                    CNA SURETY CORPORATION AND SUBSIDIARIES

                                    PART I.

ITEM 1. BUSINESS

GENERAL

     CNA Surety Corporation ("CNA Surety" or "Company") is an insurance holding
company in the United States formed through the September 30, 1997 combination
of the surety business of CNA Financial Corporation with Capsure Holdings
Corp.'s ("Capsure") insurance subsidiaries. CNA Surety is currently one of the
largest surety providers in the United States with approximately an 8.7% market
share (based upon 2000 A.M. Best written premium data). Its wide selection of
products range from very small commercial bonds to large contract bonds.

FORMATION OF CNA SURETY AND MERGER

     In December 1996, CNA Financial Corporation ("CNAF") and Capsure Holdings
Corp. ("Capsure") agreed to merge (the "Merger") the surety business of CNAF
with Capsure's insurance subsidiaries, Western Surety Company ("Western Surety")
and Universal Surety of America ("USA"), into CNA Surety Corporation ("CNA
Surety" or the "Company"). CNAF, through its operating subsidiaries, writes
multiple lines of property and casualty insurance, including surety business
that is reinsured by Western Surety. CNAF owns approximately 64% of the
outstanding common stock of CNA Surety. Loews Corporation owns approximately 89%
of the outstanding common stock of CNAF. The principal operating subsidiaries of
CNAF that wrote the surety line of business for their own account prior to the
Merger were Continental Casualty Company and its property and casualty
affiliates (collectively, "CCC") and The Continental Insurance Company and its
property and casualty affiliates (collectively, "CIC"). CIC was acquired by CNAF
on May 10, 1995. The combined surety operations of CCC and CIC are referred to
herein as CCC Surety Operations ("Predecessor").

     Pursuant to a reorganization agreement, CCC Surety Operations and Capsure
merged their respective operations at the close of business on September 30,
1997 ("Merger Date"). Through reinsurance agreements, CCC and CIC ceded to
Western Surety all of their net unearned premiums and loss and loss adjustment
expense reserves, as of the Merger Date, and will cede to Western Surety all
surety business written or renewed by CCC and CIC for a period of five years
thereafter. Further, CCC and CIC have agreed to assume the obligation for any
adverse development on recorded reserves for CCC Surety Operations as of the
Merger Date, to limit the loss ratio on certain defined business written by CNA
Surety through December 31, 2000 and to provide certain additional excess of
loss reinsurance.

DESCRIPTION OF BUSINESS

     CNA Surety's insurance subsidiaries write surety and fidelity bonds in all
50 states through a combined network of approximately 35,000 independent
agencies. CNA Surety's principal insurance subsidiaries are Western Surety and
USA. The insurance subsidiaries write, on a direct basis or as business assumed
from CCC and CIC, small fidelity and non-contract surety bonds, referred to as
commercial bonds; small, medium and large contract bonds; and errors and
omissions ("E&O") liability insurance. Western Surety is a licensed insurer in
all 50 states, the District of Columbia and Puerto Rico. USA is licensed in 44
states and the District of Columbia. Western Surety's affiliated company, Surety
Bonding Company of America ("SBCA"), is licensed in 28 states and the District
of Columbia.

FINANCIAL STRENGTH RATINGS

     A.M. BEST COMPANY, INC. ("A.M. BEST")

     Western Surety and USA are both currently rated A+ (Superior), by A.M.
Best. An A+ (Superior) rating is assigned to those companies which A.M. Best
believes have achieved superior overall performance when compared to the norms
of the property and casualty insurance industry. A+ (Superior) rated insurers

                                        3
<PAGE>

have been shown to be among the strongest in ability to meet policyholder and
other contractual obligations. Through intercompany reinsurance and related
agreements, CNA Surety's customers have access to CCC's broader underwriting
capacity. CCC is currently rated A by A.M. Best. A.M. Best's letter ratings
range from A++ (Superior) to F (In Liquidation) with A++ being highest.

     STANDARD AND POOR'S ("S&P")

     Western Surety and USA are both currently rated A (Strong), by S&P. CCC is
currently rated A- by S&P. S&P's letter ratings range from AAA+ (Extremely
Strong) to CC (Extremely Weak) with AAA+ being highest. An insurer rated 'A' has
strong financial security characteristics, but is somewhat more likely to be
affected by adverse business conditions than are insurers with higher ratings.

PRODUCT INFORMATION

     According to the Surety Association of America ("SAA") industry estimates
for 2000, approximately 75% of the $3.3 billion United States surety market is
represented by bonds required by federal statutes, state laws, and local
ordinances. These bonding requirements range from federal construction projects,
where the contractor is required to post performance and payment bonds which
guarantee performance of contracts to the government as well as payment of bills
to subcontractors and suppliers, to license and permit bonds which guarantee
compliance with legal requirements for business operations.

     PRODUCTS AND POLICIES

     Unlike a standard, two-party insurance policy, surety bonds are three-party
agreements in which the issuer of the bond (the surety) joins with a second
party (the principal) in guaranteeing to a third party (the owner/obligee) the
fulfillment of some obligation on the part of the principal. The surety is the
party who guarantees fulfillment of the principal's obligation to the obligee.
In addition, sureties are generally entitled to recover from the principal any
losses and expenses paid to third parties. The surety's responsibility is to
evaluate the risk and determine if the principal meets the underwriting
requirements for the bond. Accordingly, surety bond premiums primarily reflect
the type and class of risk and related costs associated with both processing the
bond transaction and investigating the applicant including, if necessary, an
analysis of the applicant's creditworthiness and ability to perform.

     There are two broad types of surety products -- contract surety and
commercial surety bonds. Contract surety bonds secure a contractor's performance
and/or payment obligation generally with respect to a construction project.
Contract surety bonds are generally required by federal, state and local
governments for public works projects. Commercial surety bonds include all
surety bonds other than contract and cover obligations typically required by law
or regulation.

     Contract bond guarantee obligations include the following:

          Bid bonds: used by contractors submitting proposals on potential
     contracts.

          Performance bonds: guarantee to the owner the performance of the
     contractor's obligations according to the terms and conditions of the
     contract.

          Payment bonds: guarantee payment of the contractor's obligations under
     the contract for labor, subcontractors, and materials supplied to the
     project. Payment bonds are utilized in public projects where liens are not
     permitted.

     Other examples of contract bonds are completion, maintenance and supply
bonds.

     Commercial surety business is comprised of bonds covering obligations
typically required by law or regulation, such as the following:

          License and Permit bonds: required by statutes or ordinances for a
     number of purposes including guaranteeing the payment of certain taxes and
     fees and providing consumer protection as a condition to granting licenses
     related to selling real estate or motor vehicles and contracting services.

                                        4
<PAGE>

          Judicial and Fiduciary bonds: required by statutes, courts or legal
     documents for the protection of those on whose behalf a fiduciary acts.
     Examples of such fiduciaries include executors and administrators of
     estates, and guardians of minors and incompetents.

          Public Official bonds: required by statutes and ordinances to
     guarantee the lawful and faithful performance of the duties of office by
     public officials.

     In 1997, CNA Surety expanded into the international surety and credit
insurance market through a 50% U.S. dollar denominated quota share treaty with
an affiliate of CCC, CNA Reinsurance Company, Limited (London) ("CNA Re"). In
2000, CNA Re made a mid-year decision to discontinue writing assumed
international credit and surety business.

     CNA Surety also writes direct contract and commercial surety bonds for
international risks. Such bonds are written to satisfy the international bond
requirements of our domestic customers and for foreign clients.

     In December 2000, CNA Surety purchased an equity interest in De Montfort
Insurance Company PLC, a United Kingdom-based insurance company, which
specializes in providing surety bonds and credit insurance. The investment in De
Montfort further supports CNA Surety's international growth strategy by
enhancing the company's international distribution capabilities in the European
surety marketplace.

     In addition, the Company markets surety related products such as fidelity
bonds and errors and omissions ("E&O") insurance. Fidelity bonds cover losses
arising from employee dishonesty. Examples of purchasers of fidelity bonds are
law firms, insurance agencies and janitorial service companies. CNA Surety
writes E&O policies for two classes of insureds: notaries public and tax
preparers. The notary public E&O policy is marketed as a companion product to
the notary public bond and the tax preparer E&O policy is marketed to small tax
return preparation firms.

     Although all of its products are sold through the same independent
insurance agent and broker distribution network, the Company's underwriting and
management reporting are organized by the two broad types of surety
products -- contract surety and commercial surety, which also includes fidelity
bonds and other insurance products for these purposes. These two operating
segments have been aggregated into one reportable business segment for financial
reporting purposes because of their similar economic and operating
characteristics.

                                        5
<PAGE>

     The following tables set forth, for each principal class of bonds, gross
written premiums, net written premiums and number of domestic bonds and policies
in force and the respective percentages of the total for the past three years
(amounts in thousands, except average bond amounts):

<Table>
<Caption>
                                                               GROSS WRITTEN PREMIUMS
                                        ---------------------------------------------------------------------
                                                      % OF                     % OF                     % OF
                                          2001        TOTAL        2000        TOTAL        1999        TOTAL
                                          ----        -----        ----        -----        ----        -----
<S>                                     <C>           <C>        <C>           <C>        <C>           <C>
Contract..........................      $180,588       54.2%     $161,539       51.0%     $150,022       48.9%
Commercial:
  License and permit..............        77,052       23.1        79,114       25.0        80,413       26.2
  Judicial and fiduciary..........        26,279        7.9        25,669        8.1        29,485        9.6
  Public official.................        18,530        5.6        18,000        5.7        17,658        5.7
  Other...........................         3,165        1.0         5,773        1.8         2,946        1.0
                                        --------      -----      --------      -----      --------      -----
  Total commercial................       125,026       37.6       128,556       40.6       130,502       42.5
Fidelity and other................        27,389        8.2        26,572        8.4        26,335        8.6
                                        --------      -----      --------      -----      --------      -----
                                        $333,003      100.0%     $316,667      100.0%     $306,859      100.0%
                                        ========      =====      ========      =====      ========      =====
Domestic..........................      $322,106       96.7%     $300,079       94.8%     $286,253       93.3%
International.....................        10,897        3.3        16,588        5.2        20,606        6.7
                                        --------      -----      --------      -----      --------      -----
                                        $333,003      100.0%     $316,667      100.0%     $306,859      100.0%
                                        ========      =====      ========      =====      ========      =====
</Table>

<Table>
<Caption>
                                                                NET WRITTEN PREMIUMS
                                        ---------------------------------------------------------------------
                                                      % OF                     % OF                     % OF
                                          2001        TOTAL        2000        TOTAL        1999        TOTAL
                                          ----        -----        ----        -----        ----        -----
<S>                                     <C>           <C>        <C>           <C>        <C>           <C>
Contract..........................      $165,603       52.4%     $150,504       49.4%     $145,616       48.7%
Commercial........................       122,812       38.9       126,923       41.7       128,834       43.1
Fidelity and other................        27,389        8.7        27,041        8.9        24,537        8.2
                                        --------      -----      --------      -----      --------      -----
                                        $315,804      100.0%     $304,468      100.0%     $298,987      100.0%
                                        ========      =====      ========      =====      ========      =====
Domestic..........................      $305,483       96.7%     $289,049       94.9%     $280,463       93.8%
International.....................        10,321        3.3        15,419        5.1        18,524        6.2
                                        --------      -----      --------      -----      --------      -----
                                        $315,804      100.0%     $304,468      100.0%     $298,987      100.0%
                                        ========      =====      ========      =====      ========      =====
</Table>

<Table>
<Caption>
                                                           DOMESTIC BOND/POLICIES IN FORCE
                                        ---------------------------------------------------------------------
                                                      % OF                     % OF                     % OF
                                          2001        TOTAL        2000        TOTAL        1999        TOTAL
                                          ----        -----        ----        -----        ----        -----
<S>                                     <C>           <C>        <C>           <C>        <C>           <C>
Contract..........................            36        1.8%           31        1.6%           28        1.6%
Commercial........................         1,646       80.7         1,543       81.9         1,458       83.6
Fidelity and other................           357       17.5           312       16.5           259       14.8
                                        --------      -----      --------      -----      --------      -----
                                           2,039      100.0%        1,886      100.0%        1,745      100.0%
                                        ========      =====      ========      =====      ========      =====
Average domestic bond
  penalty/policy limit(1).........      $ 38,565                 $ 39,068                 $ 37,128
                                        ========                 ========                 ========
</Table>

-------------------------
(1) The average bond penalty is a measure of the average limit of liability
    associated with in force contract and commercial surety bonds at each
    reporting period.

     In 2001, no individual agency generated more than 1.2% of aggregate gross
written premiums. Approximately $69.4 million, or 20.8%, of gross written
premiums were generated from national insurance brokers in 2001 with the single
largest national broker production comprising $27.4 million, or 8.2%, of gross
written premiums.

                                        6
<PAGE>

MARKETING

     The Company principally markets its products in all 50 states, as well as
the District of Columbia and Puerto Rico. Its products are marketed primarily
through independent producers, including multi-line agents and brokers such as
surety specialists, many of whom are members of the National Association of
Surety Bond Producers. CNA Surety enjoys broad national distribution of its
products, which are marketed through approximately 35,000 of the approximately
44,000 independent property and casualty insurance agencies in the United
States. In addition, the Company employs 43 full-time salaried marketing
representatives and 5 telemarketing representatives to continually service its
vast producer network. Relationships with these independent producers are
maintained through the Company's 43 local branch offices.

     The following table sets forth the distribution of the domestic business of
CNA Surety, by state based upon gross written premiums in each of the last three
years:

<Table>
<Caption>
                                                                  YEARS ENDED
                                                                 DECEMBER 31,
                                                          ---------------------------
                                                          2001       2000       1999
                                                          ----       ----       ----
<S>                                                       <C>        <C>        <C>
Gross Written Premiums by State:
  Texas...............................................     12.9%      11.7%      12.6%
  California..........................................      9.8        8.1        8.4
  Florida.............................................      6.8        6.0        5.6
  New York............................................      4.9        5.1        4.8
  Georgia.............................................      3.7        3.7        3.0
  Pennsylvania........................................      3.3        3.5        3.5
  Illinois............................................      3.1        4.3        4.5
  Michigan............................................      3.1        3.0        3.0
  Massachusetts.......................................      3.0        3.0        3.0
  All Other...........................................     49.4       51.6       51.6
                                                          -----      -----      -----
     Total............................................    100.0%     100.0%     100.0%
                                                          =====      =====      =====
</Table>

     Contract Surety

     With respect to standard contract surety, the core focus for the Company is
contractors with less than $50 million in contracted work in progress. This
segment is comprised of small contractors (less than $5 million in work in
progress), medium contractors ($5-$25 million) and the lower end of the large
contractors (greater than $25 million). These small and medium contractors, as a
group, represent a significant portion of the United States construction market.
The Company has approximately 45 accounts with contracted work in progress of at
least $150 million, the majority of which have been clients of the Company for
more than ten years. Some of these accounts are maintained on a "co-surety" or
joint insurer basis with other sureties in order to manage aggregate exposure.

     In addition to standard contract surety, the Company has underwriters that
focus on serving the bond requirements of small and emerging and specialty
contractors. These contractors typically have limited operating history,
financial resources or other special characteristics that require different
underwriting techniques than standard contract surety. For example, CNA Surety
participates in the non-standard contract surety market, through the federal
government's Small Business Administration ("SBA") surety bond guarantee
programs. These programs provide that the SBA assumes 70% -- 90% of the coverage
in exchange for 10% -- 30% of the premium.

     Commercial Surety

     A large portion of the commercial surety market is comprised of small
obligations represented by licenses and permits that are routine in nature and
require minimal underwriting. Customers are focused principally on prompt and
efficient service.

                                        7
<PAGE>

     The Company continues to focus its marketing efforts on this small
commercial bond market through its Sioux Falls, South Dakota service center. In
this market segment, CNA Surety emphasizes one-day response service, easy-to-use
forms and an extensive array of commercial bond products. In addition,
independent agents are provided pre-executed bond forms, powers of attorney, and
facsimile authorizations that allow them to issue many standard bonds in their
offices.

     CNA Surety also maintains a specific underwriting staff in Chicago
dedicated to middle market and "Fortune 1000" accounts. CNA Surety's insurance
subsidiaries may also direct their marketing to particular industries or classes
of bonds on a broad basis. For instance, the Company maintains programs directed
at notary bonds, mortgage broker compliance bonds and grain warehouse dealer
bonds (protecting funds associated with grain storage).

UNDERWRITING

     The underwriting philosophy of CNA Surety is disciplined, and focused on
consistent underwriting profitability. The extent and sophistication of
underwriting activity varies by type of risk. Contractor accounts and large
commercial surety customers undergo extensive credit, financial and managerial
review and analysis on a regular basis. Certain classifications of bonds, such
as fiduciary and court appeal bonds, also require more extensive underwriting.

     CNA Surety also targets various products in the surety and fidelity bond
market which are characterized by relatively low-risk exposure and small bond
amounts. The underwriting criteria, including the extent of bonding authority
granted to independent agents, varies depending on the class of business and the
type of bond. For example, relatively little underwriting information is
typically required of certain low-exposure risks such as notary bonds.

COMPETITION

     The surety and fidelity market is highly competitive. According to 2000
data from A.M. Best, the U.S. market aggregates approximately $4.1 billion in
direct written premiums, comprised of approximately $3.3 billion in surety
premiums and approximately $0.8 billion in fidelity premiums. The large
diversified insurance companies hold the largest market shares. For example, the
20 largest surety companies account for approximately 78% of the domestic surety
market and 93% of the domestic fidelity market. In 2000, CNA Surety was the
second largest surety provider with an 8.7% market share.

     Primary competitors of CNA Surety are approximately 20 national, multi-line
companies participating in the surety market throughout the country. Management
believes that its principal strengths are capacity, diverse product offerings,
service and accessibility and long-term relationships with agents and accounts.
While the surety industry has experienced slow premium growth, competition has
increased as a result of ten years of profitable underwriting experience. This
competition has typically manifested itself through reduced premium rates and
greater tolerance for relaxation of underwriting standards. Although premium
rates began firming in 2001, particularly on large accounts, as a result of
increases in credit related losses in more recent years, management believes
such competition will continue.

REINSURANCE

     The Company's insurance subsidiaries, in the ordinary course of business,
cede reinsurance to other insurance companies to limit their exposure to loss.
Reinsurance arrangements are used to limit maximum loss, provide greater
diversification of risk and minimize exposure on larger risks. Reinsurance
contracts do not ordinarily relieve the Company of its primary obligations to
claimants. Therefore, a contingent liability exists with respect to reinsurance
ceded to the extent that any reinsurer is unable to meet the obligations assumed
under reinsurance contracts. The Company evaluates the financial condition of
its reinsurers, establishes allowances for uncollectible amounts and monitors
concentrations of credit risk.

     For contract and commercial surety business an excess of loss reinsurance
program is in effect ("Excess of Loss Contract"). The Excess of Loss Contract
provides the insurance subsidiaries of CNA Surety with the

                                        8
<PAGE>

capacity to underwrite large surety bond exposures by providing reinsurance
support from CCC. The Excess of Loss Contract provides $75 million of coverage
in excess of the $55 million of coverage provided to the insurance subsidiaries
by third party reinsurers, which is in turn in excess of the $5 million of
coverage per principal to be retained by the CNA Surety insurance subsidiaries.
Subsequent to the Merger Date, the Company entered into a second excess of loss
contract with CCC ("Second Excess of Loss Contract"). The Second Excess of Loss
Contract provides additional coverage for principal losses that exceed the
foregoing coverage of $75 million per principal provided by the Excess of Loss
Contract, or aggregate losses per principal in excess of $135 million. These two
Excess of Loss Contracts collectively provide coverage for losses discovered on
surety bonds in force as of the Merger Date and for losses discovered on new and
renewal business written during the term of the Excess of Loss Contracts. CCC is
also obligated to act as a joint insurer, or "co-surety," for business covered
by the Excess of Loss Contracts when requested by the CNA Surety insurance
subsidiaries. In consideration for the reinsurance coverage provided by the
Excess of Loss Contracts, the insurance subsidiaries pay to CCC, on a quarterly
basis, a premium equal to 1% of the net written premiums applicable to the
Excess of Loss Contract, subject to a minimum premium of $20,000 and $5,000 per
quarter under the Excess of Loss Contract and Second Excess of Loss Contract,
respectively. The CNA Surety insurance subsidiaries paid $80,000 for all minimum
quarterly premiums due for the Excess of Loss Contract and $20,000 in minimum
quarterly premiums for the Second Excess of Loss Contract during the year ended
December 31, 2001. There were no amounts due to CCC under the Excess of Loss
Contract and Second Excess of Loss Contract as of December 31, 2001. These
Excess of Loss Contracts have been made effective immediately following the
Merger Date and continue for a period of five years from the Merger Date. CCC
has advised the Company that it is unlikely that CCC will renew the Excess of
Loss Contract and Second Excess of Loss Contract on the same terms and
conditions. The Company will request CCC and other interested reinsurance
providers to submit proposals indicating the commercial terms and conditions
under which they would provide replacement excess of loss protection. The
Company anticipates that sufficient high layer excess of loss protection will be
made available to support its large account business, but the cost and structure
of this support may change.

     Effective January 1, 2002, CNA Surety entered into a new excess of loss
treaty ("2002 Excess of Loss Contract") with a group of third party reinsurers
that replaces the $55 million excess of $5 million per principal coverage. The
material differences between the 2002 Excess of Loss Contract and the Company's
2001 program are as follows. The annual aggregate coverage decreases from $115
million in 2001 to $100 million in 2002 with a sub-limit of $60 million for
large commercial accounts. The minimum annual premium for the 2002 Excess of
Loss Contract is $30.0 million compared to $17.2 million of reinsurance premiums
paid in 2001. The 2002 Excess of Loss Contract provides the Company with
coverage on a per principal basis of 90% of $40 million excess of $20 million
retained by the Company. The higher net retention per principal together with
other changes in the reinsurance coverage associated with the new contract
effective January 1, 2002 and the run-off provisions of the terminated excess of
loss reinsurance contract may increase the variability of the Company's future
results of operations and cash flows.

     At December 31, 2001, CNA Surety's largest reinsurance receivable was from
CCC, an A rated company by A.M. Best, and was approximately $58.0 million. At
December 31, 2001, CNA Surety's largest reinsurance receivable from a
non-affiliated reinsurer was approximately $26.7 million with a company rated
A++ (Superior) by A.M. Best.

RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

     CNA Surety's insurance subsidiaries employ generally accepted reserving
approaches in establishing the estimated liability for unpaid losses and loss
adjustment expenses that give consideration to the inherent difficulty and
variability in the estimation process. In addition, CNA Surety utilizes an
independent actuarial firm of national standing to conduct periodic reviews of
loss reserving practices, and annually obtains actuarial certification as to the
reasonableness of actuarial assumptions used and the sufficiency of year-end
reserves for each of its principal insurance subsidiaries.

     The estimated liability for unpaid losses and loss adjustment expenses
includes, on an undiscounted basis, estimates of (a) the ultimate settlement
value of reported claims, (b) incurred but not reported ("IBNR")
                                        9
<PAGE>

claims, (c) future expenses to be incurred in the settlement of claims and (d)
claim recoveries, exclusive of reinsurance recoveries which are reported as an
asset. These estimates are determined based on the Company's and surety industry
loss experience as well as consideration of current trends and conditions. The
estimated liability for unpaid losses and loss adjustment expenses is an
estimate and there is the potential that actual future loss payments will differ
significantly from initial estimates. The methods of determining such estimates
and the resulting estimated liability are regularly reviewed and updated.
Changes in the estimated liability are reflected in operating income in the year
in which such changes are determined to be needed.

     A table is included in Note 8 to the Consolidated Financial Statements of
the 2001 Annual Report to Shareholders which presents the activity in the
reserves for unpaid losses and loss adjustment expenses for the Company and is
incorporated herein by reference. This table highlights the impact of revisions
to the estimated liability established in prior years.

     The following table sets forth a reconciliation of the consolidated loss
reserves reported in accordance with generally accepted accounting principles
("GAAP"), and the reserves reported to state insurance regulatory authorities in
accordance with statutory accounting principles ("SAP") for the year ended
December 31, 2001 (dollars in thousands):

<Table>
<S>                                                             <C>
Net reserves at end of year, GAAP basis.....................    $ 149,493
Ceded reinsurance, net of salvage and subrogation...........      166,318
                                                                ---------
Gross reserves at end of year, GAAP basis...................      315,811
Estimated reinsurance recoverable netted against gross
  reserves for SAP..........................................     (166,318)
                                                                ---------
Gross reserves at end of year, SAP basis....................    $ 149,493
                                                                =========
</Table>

     The loss reserve development table that follows illustrates the change over
time of reserves established for the Company's estimated losses and loss
adjustment expenses at the end of various calendar years. The first section
shows the reserves as originally reported at the end of the stated year. The
second section shows the cumulative amounts paid as of the end of successive
years with respect to that reserve liability. The third section shows
re-estimates of the original recorded reserve as of the end of each successive
year which is the result of management's expanded awareness of additional facts
and circumstances that pertain to the unsettled claims. The last section
compares the latest re-estimated reserve to the reserve originally established,
and indicates whether or not the original reserve was adequate or inadequate to
cover the estimated costs of unsettled claims.

     The loss reserve development table is cumulative as of each December 31,
and, therefore, ending balances should not be added since the amount at the end
of each calendar year includes activity for both the current and prior years.
The loss reserve development table reflects, on a pro forma basis, the reserves
of the CCC Surety Operations and Capsure since 1991 and CIC since its
acquisition in May of 1995. Such historical development is not necessarily
indicative of the financial results that would have occurred under the ownership
and management of CNA Surety nor of future operating results.

                                        10
<PAGE>
<Table>
<Caption>
                                                      AS OF DECEMBER 31,
                       ---------------------------------------------------------------------------------
                        1991      1992      1993      1994       1995       1996       1997       1998
                        ----      ----      ----      ----       ----       ----       ----       ----
                                                    (DOLLARS IN THOUSANDS)
<S>                    <C>       <C>       <C>       <C>       <C>        <C>        <C>        <C>
Net reserves for
  losses and loss
  adjustment
  expenses...........  $60,425   $61,998   $64,627   $70,398   $147,911   $137,064   $122,725   $142,034
Net Paid (Cumulative)
  as of:
  One year later.....   16,287    17,636    12,923    12,018     42,552      9,866     19,595     32,428
  Two years later....   24,295    25,854    19,671    18,149     43,179     20,171     30,775     52,524
  Three years
    later............   29,857    29,495    21,990    21,229     46,782     25,206     43,999     58,421
  Four years later...   31,273    30,582    23,070    22,313     48,960     32,918     47,144         --
  Five years later...   31,909    30,817    23,864    24,776     56,891     35,214         --         --
  Six years later....   32,354    32,150    24,706    24,102     54,724         --         --         --
  Seven years
    later............   32,419    32,811    23,180    22,167         --         --         --         --
  Eight years
    later............   34,344    31,126    21,279        --         --         --         --         --
  Nine years later...   32,456    29,220        --        --         --         --         --         --
  Ten years later....   32,550        --        --        --         --         --         --         --
Net Reserves
  Re-estimated as of
  :
  End of initial
    year.............   60,425    61,998    64,627    70,398    147,911    137,064    122,725    142,034
  One year later.....   58,644    58,603    54,568    51,471    132,267     96,178    118,373    128,949
  Two years later....   51,511    54,585    44,749    44,135    103,466     90,796    102,304    114,605
  Three years
    later............   46,826    47,911    38,972    38,829    101,745     77,086     87,321    110,462
  Four years later...   42,212    42,542    28,094    38,628     89,348     62,217     86,271         --
  Five years later...   39,945    33,699    30,335    31,362     77,477     60,882         --         --
  Six years later....   36,164    37,188    27,842    27,327     72,879         --         --         --
  Seven years
    later............   37,695    34,966    26,010    24,497         --         --         --         --
  Eight years
    later............   37,014    31,672    23,221        --         --         --         --         --
  Nine years later...   33,749    29,727        --        --         --         --         --         --
  Ten years later....   33,654        --        --        --         --         --         --         --
                       =======   =======   =======   =======   ========   ========   ========   ========
Total net
  (deficiency)
  redundancy.........  $26,771   $32,271   $41,406   $45,901   $ 75,032   $ 76,182   $ 36,454   $ 31,572
                       =======   =======   =======   =======   ========   ========   ========   ========
Cumulative redundancy
  (deficiency) as a
  percentage of
  original
  estimate...........     44.3%     52.1%     64.1%     65.2%      50.7%      55.6%      29.7%      22.2%
                       =======   =======   =======   =======   ========   ========   ========   ========

<Caption>
                             AS OF DECEMBER 31,
                       ------------------------------
                         1999       2000       2001
                         ----       ----       ----
                           (DOLLARS IN THOUSANDS)
<S>                    <C>        <C>        <C>
Net reserves for
  losses and loss
  adjustment
  expenses...........  $137,469   $134,298   $149,493
Net Paid (Cumulative)
  as of:
  One year later.....    35,825     44,763         --
  Two years later....    47,795         --         --
  Three years
    later............        --         --         --
  Four years later...        --         --         --
  Five years later...        --         --         --
  Six years later....        --         --         --
  Seven years
    later............        --         --         --
  Eight years
    later............        --         --         --
  Nine years later...        --         --         --
  Ten years later....        --         --         --
Net Reserves
  Re-estimated as of
  :
  End of initial
    year.............   137,469    134,298    149,493
  One year later.....   130,376    139,110         --
  Two years later....   128,134         --         --
  Three years
    later............        --         --         --
  Four years later...        --         --         --
  Five years later...        --         --         --
  Six years later....        --         --         --
  Seven years
    later............        --         --         --
  Eight years
    later............        --         --         --
  Nine years later...        --         --         --
  Ten years later....        --         --         --
                       ========   ========   ========
Total net
  (deficiency)
  redundancy.........  $  9,335   $ (4,812)  $     --
                       ========   ========   ========
Cumulative redundancy
  (deficiency) as a
  percentage of
  original
  estimate...........       6.8%      (3.6)%       --
                       ========   ========   ========
</Table>

CLAIMS

     Proactive claims management is an important factor for the profitable
underwriting of surety and fidelity products. The Company maintains an
experienced and dedicated staff of in-house claim specialists. Claim handling is
performed in Chicago. The disposition of claims and other claim-related activity
is done in accordance with established policies, procedures and expense controls
designed to minimize loss costs and maximize salvage and subrogation recoveries.
Indemnity and subrogation rights exist on a significant portion of the business
written, enabling the Company to pursue loss recovery from the principal.

ASBESTOS AND ENVIRONMENTAL CLAIMS

     The Company does not typically bond contractors that specialize in
hazardous environmental remediation work. The Company does however bond several
accounts that have incidental environmental exposure with respect to which the
Company provides bonding programs. In the commercial surety market, the Company
provides bonds to large corporations that are in the business of mining various
minerals and are obligated to post reclamation bonds that guarantee that
property which was disturbed during mining is returned to an acceptable
condition when the mining is completed. The company also provides court and
other surety bonds for large corporations wherein the underlying action involves
environmental related issues. While no environmental responsibility is overtly
provided by commercial or contract bonds, some risk of environmental

                                        11
<PAGE>

exposure may exist if the surety were to assume certain rights in the completion
of a defaulted project or through salvage recovery.

     Any claim notices that are received are reported and handled in the regular
course of claim handling. The company estimates its net case incurred losses on
known claims of this nature to be $11.7 million as of December 31, 2001.

REGULATION

     The Company's insurance subsidiaries are subject to varying degrees of
regulation and supervision in the jurisdictions in which they transact business
under statutes which delegate regulatory, supervisory and administrative powers
to state insurance regulators. In general, an insurer's state of domicile has
principal responsibility for such regulation which is designed generally to
protect policyholders rather than investors and relates to matters such as the
standards of solvency which must be maintained; the licensing of insurers and
their agents; the examination of the affairs of insurance companies, including
periodic financial and market conduct examinations; the filing of annual and
other reports, prepared on a statutory basis, on the financial condition of
insurers or for other purposes; establishment and maintenance of reserves for
unearned premiums and losses; and requirements regarding numerous other matters.
Licensed or admitted insurers generally must file with the insurance regulators
of such states, or have filed on its behalf, the premium rates and bond and
policy forms used within each state. In some states, approval of such rates and
forms must be received from the insurance regulators in advance of their use.

     Western Surety is domiciled in South Dakota and licensed in all 50 states
and the District of Columbia and Puerto Rico. SBCA is domiciled in South Dakota
and licensed in 28 states and the District of Columbia. USA is domiciled in
Texas and licensed in 44 states and the District of Columbia.

     Insurance regulations generally also require registration and periodic
disclosure of certain information concerning ownership, financial condition,
capital structure, general business operations and any material transactions or
agreements by or among affiliates. Such regulation also typically restricts the
ability of any one person to acquire 10% or more, either directly or indirectly,
of a company's stock without prior approval of the applicable insurance
regulatory authority. In addition, dividends and other distributions to
stockholders generally may be paid only out of unreserved and unrestricted
statutory earned surplus. Such distributions may be subject to prior regulatory
approval, including a review of the implications on Risk-Based Capital
requirements. A discussion of Risk-Based Capital requirements for property and
casualty insurance companies is included in both Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 14 to the
Consolidated Financial Statements of the 2001 Annual Report to Shareholders and
is incorporated herein by reference. Without prior regulatory approval in 2002,
CNA Surety's insurance subsidiaries may pay stockholder dividends of $51.5
million in the aggregate. For the year ended December 31, 2001, CNA Surety
received $56.9 million in dividends from its insurance subsidiaries.

     In March of 1998, the National Association of Insurance Commissioners
adopted the Codification of Statutory Accounting Principles ("Codification").
Codification, which intends to standardize regulatory accounting and reporting
to state insurance departments, became effective on January 1, 2001. However,
statutory accounting principles will continue to be established by individual
state laws and permitted practices. The states in which CNA Surety's insurance
subsidiaries conduct business required adoption of Codification for the
preparation of statutory financial statements effective January 1, 2001. The
adoption of Codification increased the Company's statutory capital and surplus
as of January 1, 2001 by approximately $27.0 million.

     CNA Surety's insurance subsidiaries are subject to periodic financial and
market conduct examinations. These examinations are generally performed by the
domiciliary state insurance regulatory authorities. The South Dakota Department
of Commerce and Regulation -- Division of Insurance (the "South Dakota
Department") conducted its financial and market conduct examination of Western
Surety for the five year period ended December 31, 1996. The South Dakota
Department made a finding of non-compliance with respect to the Company's
practices regarding return of premiums and recommended that Western Surety
change its current procedures regarding the return of premiums. The regulation
in question was subsequently amended to exclude surety products which eliminated
any non-compliance by the Company. The Texas
                                        12
<PAGE>

Department of Insurance (the "Texas Department") conducted its last examination
of USA's financial matters as of December 31, 1996. There were no significant
issues noted which required corrective action by any of the insurance
subsidiaries. The South Dakota Department and the Texas Department are currently
conducting financial examinations of Western Surety and USA, respectively, for
the five year period ended December 31, 2001.

     Certain states in which CNA Surety's insurance subsidiaries conduct their
business require insurers to join a guaranty association. Guaranty associations
provide protection to policyholders of insurers licensed in such states against
the insolvency of those insurers. In order to provide the associations with
funds to pay certain claims under policies issued by insolvent insurers, the
guaranty associations charge members assessments based on the amount of direct
premiums written in that state. Such assessments were not material to CNA
Surety's results of operations in 2001.

     Western Surety and USA each qualifies as an acceptable surety for federal
and other public works project bonds pursuant to U.S. Department of Treasury
regulations. The underwriting limitations of Western Surety, SBCA and USA, based
on each insurer's statutory surplus, are currently $16.9 million, $0.4 million
and $1.7 million, respectively. Through intercompany reinsurance and related
agreements with CCC, CNA Surety has access to CCC's $399.5 million U.S.
Department of Treasury underwriting limitation.

INVESTMENTS

     CNA Surety insurance subsidiaries' investment practices must comply with
insurance laws and regulations and must also comply with certain covenants under
CNA Surety's $130 million revolving credit facility. Generally, insurance laws
and regulations prescribe the nature and quality of, and set limits on, the
various types of investments which may be made by CNA Surety's insurance
subsidiaries.

     The Company's investment portfolio generally is managed to maximize
after-tax investment return, while minimizing credit risk with investments
concentrated in high quality income securities. CNA Surety's portfolio is
managed to provide diversification by limiting exposures to any one industry,
issue or issuer, and to provide liquidity by investing in the public securities
markets. The portfolio is structured to support CNA Surety's insurance
underwriting operations and to consider the expected duration of liabilities and
short-term cash needs.

     An investment committee of CNA Surety's Board of Directors establishes
investment policy and oversees the management of each portfolio. A professional
independent investment adviser has been engaged to assist in the management of
each insurance subsidiary investment portfolio pursuant to established
investment committee guidelines. The insurance subsidiaries pay an advisory fee
based on the market value of the assets under management.

EMPLOYEES

     As of December 31, 2001, the Company employed 808 persons. CNA Surety has
not experienced any work stoppages. Management of CNA Surety believes its
relations with its employees are good.

ITEM 2. PROPERTIES

     CNA Surety leases its executive offices and its shared branch locations
with CCC under an Administrative Services Agreement. CNA Surety currently uses
approximately 86,500 square feet and related personal property at 36 branch
locations and its home and executive offices (19,400 square feet), in Chicago,
Illinois. CNA Surety's annual rent for this space is approximately $2.1 million.
CNA Surety may terminate its use of these locations as set forth in the
Administrative Services Agreement, without penalty, by providing CCC with 30
days written notice.

     CNA Surety leases office space for its primary processing and service
center at 101 South Phillips Avenue, Sioux Falls, South Dakota, under a lease
expiring in 2012. CNA Surety's office space, consisting of approximately 82,900
square feet, is leased from a partnership in which the Company owns a 50%
interest. The annual rent, which is subject to annual adjustments, was $0.8
million as of December 31, 2001. CNA
                                        13
<PAGE>

Surety also leases space for large contract and commercial branch offices in
Dallas, Texas; New York, New York; Troy, Michigan; Roseville, California;
Charlotte, North Carolina; and San Juan, Puerto Rico. Annual rent for these
offices was $0.6 million with leases terminating in 2004, 2007, 2005, 2005, 2006
and 2006, respectively. CNA Surety leases office space for its small and
specialty contract home office at 950 Echo Lane, Suite 250, Houston, Texas,
under a lease terminating in 2006 with an annual rent of $0.2 million. The
Company also leases space for one small and specialty contract branch office in
Austin, Texas for an additional annual rent of approximately $0.1 million.

ITEM 3. LEGAL PROCEEDINGS

     The Company and its subsidiaries are parties to various lawsuits arising in
the normal course of business, some seeking material damages. The Company
believes the resolution of these lawsuits will not have a material adverse
effect on its financial condition or its results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                    PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Company's common stock ("Common Stock") trades on the New York Stock
Exchange under the symbol SUR. On March 8, 2002, the last reported sale price
for the Common Stock was $14.46 per share. The following table shows the range
of high and low sales prices for shares of the Common Stock as reported on the
New York Stock Exchange during 2001 and 2000.

<Table>
<Caption>
                                                                 HIGH      LOW
                                                                 ----      ---
<S>                                                             <C>       <C>
2001
1st Quarter.................................................    $14.50    $12.49
2nd Quarter.................................................    $14.45    $13.10
3rd Quarter.................................................    $14.70    $12.40
4th Quarter.................................................    $16.00    $13.40
2000
1st Quarter.................................................    $14.50    $10.50
2nd Quarter.................................................    $14.94    $10.75
3rd Quarter.................................................    $12.25    $10.38
4th Quarter.................................................    $14.50    $11.00
</Table>

     The number of stockholders of record of Common Stock on March 8, 2002, was
approximately 750.

DIVIDENDS

     Effective May 16, 2001, the Company's quarterly dividend rate was raised to
15 cents per share or 60 cents on an annual basis. The declaration and payment
of dividends to holders of Common Stock, including the amount and frequency of
such dividends, is at the discretion of the Board and depends upon many factors,
including CNA Surety's financial condition, operating characteristics, projected
earnings and growth, capital requirements of its insurance subsidiaries, debt
service obligations and such other factors as the Board deems relevant.

                                        14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The following financial information has been derived from the Consolidated
Financial Statements and Notes thereto which appear in the 2001 Annual Report to
Shareholders and are incorporated herein by reference.

     CNA Surety Corporation is a holding company for the combined surety
business of CNAF and Capsure. Pursuant to a reorganization agreement, CNAF and
Capsure merged their respective operations at the close of business on September
30, 1997. The surety operations of CNAF are referred to as CCC Surety Operations
("Predecessor"). For a more detailed description of the merger transactions and
their effects on the Company's financial data, see the Consolidated Financial
Statements and related Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing in the 2001 Annual
Report to Shareholders which are incorporated herein by reference.

     The following information presented for CNA Surety is for the years ended
December 31, 2001, 2000, 1999 and 1998 and the period from September 30, 1997
(date of inception) through December 31, 1997 and as of December 31, 2001, 2000,
1999, 1998 and 1997. Selected financial data of the Predecessor is presented on
the following page.

<Table>
<Caption>
                                                2001         2000        1999        1998        1997
                                                ----         ----        ----        ----        ----
                                                   (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>           <C>         <C>         <C>         <C>
Total revenues(1)........................    $  350,471    $332,273    $309,405    $283,840    $ 71,284
                                             ==========    ========    ========    ========    ========
Gross written premiums...................    $  333,003    $316,667    $306,859    $278,224    $ 72,755
                                             ==========    ========    ========    ========    ========
Net written premiums.....................    $  315,804    $304,468    $298,987    $270,602    $ 73,989
                                             ==========    ========    ========    ========    ========
Net earned premiums......................    $  320,910    $301,819    $283,540    $258,737    $ 65,433
                                             ==========    ========    ========    ========    ========
Underwriting income(2)...................    $   37,197    $ 64,481    $ 71,894    $ 61,773    $ 15,086
Net investment income....................        29,515      29,897      25,850      24,259       5,766
Net realized investment gains............            46         557          15         844          85
Interest expense.........................         3,925       6,956       5,846       7,218       1,831
Non-recurring charges....................            --         500          --          --          --
Amortization of intangible assets........         6,097       6,097       5,982       5,900       1,447
                                             ----------    --------    --------    --------    --------
Income before income taxes...............        56,736      81,382      85,931      73,758      17,659
Income taxes.............................        19,828      27,780      29,433      28,243       6,663
                                             ----------    --------    --------    --------    --------
Net income...............................    $   36,908    $ 53,602    $ 56,498    $ 45,515    $ 10,996
                                             ==========    ========    ========    ========    ========
Basic and diluted earnings per common
  share..................................    $     0.86    $   1.25    $   1.28    $   1.04    $   0.25
                                             ==========    ========    ========    ========    ========
Loss ratio(2)............................          25.2%       18.4%       15.7%       17.4%       18.5%
Expense ratio............................          63.2        60.2        58.9        58.7        58.4
                                             ----------    --------    --------    --------    --------
Combined ratio(2)........................          88.4%       78.6%       74.6%       76.1%       76.9%
                                             ==========    ========    ========    ========    ========
Invested assets and cash.................    $  579,657    $555,975    $499,400    $505,355    $419,667
Intangible assets, net of amortization...       143,785     149,882     155,980     156,062     161,962
Total assets.............................     1,061,598     950,568     851,575     819,370     725,131
Insurance reserves.......................       516,190     406,636     357,233     333,728     302,168
Debt.....................................        76,195     101,556     101,900     113,000     118,000
Total liabilities........................       673,170     576,536     525,271     509,473     468,399
Stockholders' equity.....................       388,428     374,032     326,304     309,897     256,732
Book value per share.....................    $     9.08    $   8.76    $   7.59    $   7.03    $   5.93
Dividends paid per share.................    $     0.54    $   0.32    $   0.32    $   0.08    $     --
</Table>

-------------------------
(1) Includes investment income and investment gains for CNA Surety for the year
    ended December 31, 2001, 2000, 1999 and 1998 and for the period from
    September 30, 1997 (date of inception) through December 31, 1997.
(2) Includes the effect of recording revisions of prior year reserves. The
    dollar amount and the percentage point effect on the loss ratio of these
    reserve revisions were an addition of $4,812, or 1.5%, for the year ended
    December 31, 2001, a reduction of $7,093, or 2.4%, for the year ended
    December 31, 2000, a reduction of $13,085, or 4.6%, for the year ended
    December 31, 1999 and a reduction of $4,352, or 1.7%, for the year ended
    December 31, 1998 and a reduction of $647, or 1.0%, for the period from
    September 30, 1997 (date of inception) through December 31, 1997.

                                        15
<PAGE>

     The following information of the Predecessor is presented for the three
months ended December 31, 1996, for the nine months ended September 30, 1997 and
1996 and for the year ended December 31, 1996. The selected financial
information of the Predecessor does not include data with respect to assets,
liabilities (other than insurance reserves) and equity because CNAF did not
customarily allocate the investment portfolio or equity of its operating
subsidiaries to its business units like CCC Surety Operations.

<Table>
<Caption>
                                                       THREE       NINE MONTHS ENDED          YEAR
                                                       MONTHS        SEPTEMBER 30,           ENDED
                                                       ENDED      --------------------    DECEMBER 31,
                                                      12/31/96      1997        1996          1996
                                                      --------      ----        ----      ------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                   <C>         <C>         <C>         <C>
Gross written premiums............................    $ 40,654    $116,075    $114,554      $155,208
                                                      ========    ========    ========      ========
Net written premiums..............................    $ 37,641    $108,630    $106,263      $143,904
                                                      ========    ========    ========      ========
Net earned premiums...............................    $ 36,767    $108,564    $112,302      $149,069
Net loss and LAE(1)...............................       9,394     (11,516)     23,612        33,006
Amortization of deferred policy acquisition
  costs(2)........................................      16,665      48,075      49,717        66,382
Other direct expenses.............................       4,631      10,173       8,637        13,268
Policyholders' dividends..........................         324       1,426       1,641         1,965
                                                      --------    --------    --------      --------
Excess of net earned premiums over direct
  operating expenses before income taxes(1)(2)....    $  5,753    $ 60,406    $ 28,695      $ 34,448
                                                      ========    ========    ========      ========
Loss ratio(1).....................................        25.6%      (10.6)%      21.0%         22.1%
Expense ratio(2)..................................        58.8        55.0        53.4          54.8
                                                      --------    --------    --------      --------
Combined ratio(1)(2)..............................        84.4%       44.4%       74.4%         76.9%
                                                      ========    ========    ========      ========
Insurance reserves(3).............................    $214,828    $183,491    $210,340      $214,828
</Table>

-------------------------
(1) Includes the effect of recording releases of prior year loss reserves. The
    dollar amount and the percentage point effect on the loss ratio of these
    reserve revisions, all of which were net reductions, were $1,232, or 3.4%,
    for the three months ended December 31, 1996, $35,000, or 32.2%, and $8,510,
    or 7.6%, for the nine months ended September 30, 1997 and 1996,
    respectively, and $9,742, or 6.5%, for the year ended December 31, 1996.

(2) Does not include the effects of certain general and administrative expenses,
    which are indirect or overhead in nature, since such costs were not
    historically allocated to the CCC Surety Operations by CNAF or its
    subsidiaries. Accordingly, the comparability of this data to other data that
    include such costs is affected.

(3) The insurance reserves include both loss and loss adjustment expense and
    unearned premium reserves. These reserves are shown before the effects of
    ceded reinsurance. In accordance with the reorganization and related
    reinsurance agreements, these reserves, as of the Merger Date, were
    transferred to Western Surety, net of reinsurance which totaled $9,979 and
    $23,876 for the nine months ended September 30, 1997 and 1996 and $21,779 at
    December 31, 1996.

                                        16
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

     Incorporated herein by reference from pages 25 through 38 of the 2001
Annual Report to Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCUSSIONS ABOUT MARKET RISK

     Incorporated herein by reference from pages 33 through 36 of the 2001
Annual Report to Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL:

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Income for the Years Ended December 31, 2001, 2000
     and 1999

Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
     2001, 2000 and 1999

Consolidated Statements of Cash Flows for the Years Ended December 31, 2001,
     2000 and 1999

Notes to Consolidated Financial Statements

Independent Auditors' Report

     The above Consolidated Financial Statements, the related Notes to the
Consolidated Financial Statements and the Independent Auditors' Report are
incorporated herein by reference from pages 39 through 62 of the 2001 Annual
Report to Shareholders.

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
FINANCIAL STATEMENT SCHEDULES:
Schedule I -- Summary of Investments........................  20
Schedule II -- Condensed Financial Information of
  Registrant................................................  21
Schedule III -- Supplementary Insurance Information.........  24
Schedule IV -- Reinsurance..................................  25
Schedule V -- Valuation and Qualifying Accounts.............  26
Schedule VI -- Supplemental Information Concerning
  Property -- Casualty Insurance Operations.................  27
</Table>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                        17
<PAGE>

                                   PART III.

ITEMS 10, 11, 12, AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
                          EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN
                          BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN
                          RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company will file a definitive proxy statement with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act
of 1934 (the "Proxy Statement") relating to the Company's Annual Meeting of
Stockholders to be held on May 21, 2002, not later than 120 days after the end
of the fiscal year covered by this Form 10-K. Information required by Items 10
through 13 will appear in the Proxy Statement and is incorporated herein by
reference.

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<Table>
<Caption>
                                                                PAGE
                                                                ----
<S>                                                             <C>
     (a)(1) Financial Statements:
             A separate index to the Consolidated Financial
             Statements is presented in Part II, Item 8.....    17
     (a)(2) Financial Statement Schedules:
             Independent Auditors' Report...................    19
             Schedule I -- Summary of Investments...........    20
             Schedule II -- Condensed Financial Information
             of Registrant..................................    21
             Schedule III -- Supplementary Insurance
             Information....................................    24
             Schedule IV -- Reinsurance.....................    25
             Schedule V -- Valuation and Qualifying
             Accounts.......................................    26
             Schedule VI -- Supplemental Information
             Concerning Property -- Casualty Insurance
             Operations.....................................    27

     (a)(3) Exhibits........................................    28

     (b) Reports on Form 8-K:
</Table>

     October 30, 2001: CNA Surety announces third quarter 2001 earnings.

     December 5, 2001: CNA Surety comments on potential loss exposure on Enron.

                                        18
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
CNA Surety Corporation

We have audited the consolidated financial statements of CNA Surety Corporation
and subsidiaries as of December 31, 2001 and 2000, and for each of the three
years in the period ended December 31, 2001, and have issued our reports thereon
dated February 11, 2002; such consolidated financial statements and report are
included in the Company's 2001 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedules of CNA Surety Corporation and subsidiaries, listed in Item
14. These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

Deloitte & Touche LLP
Chicago, Illinois
February 11, 2002

                                        19
<PAGE>

                                                                      SCHEDULE I

                    CNA SURETY CORPORATION AND SUBSIDIARIES

                             SUMMARY OF INVESTMENTS
                   OTHER THAN INVESTMENTS IN RELATED PARTIES
                        AS OF DECEMBER 31, 2001 AND 2000

<Table>
<Caption>
                                                                     AS OF DECEMBER 31, 2001
                                                                ---------------------------------
                                                                 COST OR
                                                                AMORTIZED      FAIR      CARRYING
                                                                  COST        VALUE       VALUE
                                                                ---------     -----      --------
                                                                     (AMOUNTS IN THOUSANDS)
<S>                                                             <C>          <C>         <C>
Fixed Income Securities:
  U.S. Government and government agencies and authorities...    $114,866     $117,069    $117,069
  States, municipalities and political subdivisions.........     217,757      220,799     220,799
  All other corporate bonds.................................     131,479      133,973     133,973
                                                                --------     --------    --------
       Total fixed income securities........................     464,102     $471,841     471,841
                                                                --------     ========    --------
Equity securities...........................................      42,614       35,754      35,754
Short-term investments......................................      53,600                   53,600
Other investments...........................................       5,754                    5,303
                                                                --------                 --------
       Total investments....................................    $566,070                 $566,498
                                                                ========                 ========
</Table>

<Table>
<Caption>
                                                                     AS OF DECEMBER 31, 2000
                                                                ---------------------------------
                                                                 COST OR
                                                                AMORTIZED      FAIR      CARRYING
                                                                  COST        VALUE       VALUE
                                                                ---------     -----      --------
                                                                     (AMOUNTS IN THOUSANDS)
<S>                                                             <C>          <C>         <C>
Fixed Income Securities:
  U.S. Government and government agencies and authorities...    $115,639     $117,485    $117,485
  States, municipalities and political subdivisions.........     208,423      212,630     212,630
  All other corporate bonds.................................     129,508      128,169     128,169
                                                                --------     --------    --------
       Total fixed income securities........................     453,570     $458,284     458,284
                                                                --------     ========    --------
Equity securities...........................................      37,761       33,927      33,927
Short-term investments......................................      52,660                   52,660
Other investments...........................................       5,623                    5,154
                                                                --------                 --------
       Total investments....................................    $549,614                 $550,025
                                                                ========                 ========
</Table>

                                        20
<PAGE>

                                                                     SCHEDULE II

                             CNA SURETY CORPORATION

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                (PARENT COMPANY)
                                 BALANCE SHEETS

<Table>
<Caption>
                                                                     DECEMBER 31,
                                                                ----------------------
                                                                  2001         2000
                                                                  ----         ----
                                                                (AMOUNTS IN THOUSANDS)
<S>                                                             <C>          <C>
ASSETS
Investments in and advances to subsidiaries.................    $449,457     $439,636
Fixed income securities.....................................       5,261        5,051
Short-term investments......................................      14,661       43,984
Cash........................................................      12,438        1,965
Other assets................................................         154        1,440
                                                                --------     --------
     Total assets...........................................    $481,971     $492,076
                                                                ========     ========
LIABILITIES
Debt........................................................    $ 75,000     $100,000
Other liabilities...........................................      18,543       18,044
                                                                --------     --------
     Total liabilities......................................      93,543      118,044
                                                                --------     --------
STOCKHOLDERS' EQUITY
Common stock................................................         442          441
Additional paid-in capital..................................     254,133      253,497
Retained earnings...........................................     149,128      135,308
Accumulated other comprehensive income (loss)...............         278          267
Treasury stock, at cost.....................................     (15,553)     (15,481)
                                                                --------     --------
     Total stockholders' equity.............................     388,428      374,032
                                                                --------     --------
          Total liabilities and stockholders' equity........    $481,971     $492,076
                                                                ========     ========
</Table>

                                        21
<PAGE>

                                                                     SCHEDULE II

                             CNA SURETY CORPORATION

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                        (PARENT COMPANY) -- (CONTINUED)
                              STATEMENTS OF INCOME

<Table>
<Caption>
                                                             YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                            DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                                2001            2000            1999
                                                            ------------    ------------    ------------
                                                                       (AMOUNTS IN THOUSANDS)
<S>                                                         <C>             <C>             <C>
Revenues:
  Net investment income.................................      $ 1,891         $ 2,046         $   787
                                                              -------         -------         -------
     Total revenues.....................................        1,891           2,046             787
                                                              -------         -------         -------
Expenses:
  Interest expense......................................        3,855           6,869           5,806
  Corporate expense.....................................        5,243           3,489           4,100
                                                              -------         -------         -------
     Total expenses.....................................        9,098          10,358           9,906
                                                              -------         -------         -------
Loss from operations before income taxes and equity in
  net income of subsidiaries............................       (7,207)         (8,312)         (9,119)
Income taxes............................................       (2,523)         (3,359)         (2,892)
                                                              -------         -------         -------
Net loss before equity in net income of
  subsidiaries -- Parent Company only...................       (4,684)         (4,953)         (6,227)
Equity in net income of subsidiaries....................       41,592          58,555          62,725
                                                              -------         -------         -------
Net income..............................................      $36,908         $53,602         $56,498
                                                              =======         =======         =======
</Table>

                                        22
<PAGE>

                                                                     SCHEDULE II

                             CNA SURETY CORPORATION

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                        (PARENT COMPANY) -- (CONTINUED)
                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                             YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                            DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                                2001            2000            1999
                                                            ------------    ------------    ------------
                                                                       (AMOUNTS IN THOUSANDS)
<S>                                                         <C>             <C>             <C>
OPERATING ACTIVITIES:
  Net income............................................      $ 36,908        $ 53,602        $ 56,498
     Cash dividends from subsidiaries...................        56,900          56,450          33,300
     Tax payments received from subsidiaries............        26,314          29,062          28,674
     Federal and state income tax payments..............       (23,750)        (24,050)        (20,600)
     Adjustments to reconcile net income to net cash
       provided by operating activities:
       Equity in income of unconsolidated affiliates....       (41,592)        (58,555)        (62,725)
       Change in other assets and liabilities...........          (736)         (3,367)         (5,746)
                                                              --------        --------        --------
Net cash provided by operating activities...............        54,044          53,142          29,401
                                                              --------        --------        --------
INVESTING ACTIVITIES:
  Net advances from (to) subsidiaries...................         1,222           2,145          (3,519)
  Capital contributions to subsidiaries.................       (26,158)             --          (4,500)
  Purchases of fixed income securities..................          (210)         (5,051)             --
  Changes in short-term investments.....................        29,323         (32,366)          2,874
  Other.................................................           (54)            (24)             --
                                                              --------        --------        --------
Net cash provided by (used in) investing activities.....         4,123         (35,296)         (5,145)
                                                              --------        --------        --------
FINANCING ACTIVITIES:
  Principal payments on debt............................       (25,000)             --         (13,000)
  Dividends to stockholders.............................       (23,088)        (13,713)        (14,063)
  Purchase of treasury stock............................          (124)         (3,709)        (11,772)
  Other.................................................           518             104              97
                                                              --------        --------        --------
Net cash used in financing activities...................       (47,694)        (17,318)        (38,738)
                                                              --------        --------        --------
Increase (decrease) in cash.............................        10,473             528         (14,482)
Cash at beginning of period.............................         1,965           1,437          15,919
                                                              --------        --------        --------
Cash at end of period...................................      $ 12,438        $  1,965        $  1,437
                                                              ========        ========        ========
</Table>

                                        23
<PAGE>

                                                                    SCHEDULE III

                    CNA SURETY CORPORATION AND SUBSIDIARIES

                      SUPPLEMENTARY INSURANCE INFORMATION
              CNA SURETY CORPORATION AS OF AND FOR THE YEARS ENDED
                        DECEMBER 31, 2001, 2000 AND 1999

<Table>
<Caption>
                                                             YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                            DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                                2001            2000            1999
                                                            ------------    ------------    ------------
                                                                       (AMOUNTS IN THOUSANDS)
<S>                                                         <C>             <C>             <C>
Deferred policy acquisition costs.......................      $ 89,788        $ 91,403        $ 84,924
                                                              ========        ========        ========
Future policy benefits, losses, claims and loss expense
  reserves..............................................      $315,811        $204,457        $157,933
                                                              ========        ========        ========
Unearned premiums.......................................      $200,379        $202,179        $199,300
                                                              ========        ========        ========
Other policy claims and benefits payable................      $     --        $     --        $     --
                                                              ========        ========        ========
Net premium revenue.....................................      $320,910        $301,819        $283,540
                                                              ========        ========        ========
Net investment income...................................      $ 29,515        $ 29,897        $ 25,850
                                                              ========        ========        ========
Benefits, claims, losses and settlement expenses........      $ 80,836        $ 55,683        $ 44,672
                                                              ========        ========        ========
Amortization of deferred policy acquisition costs.......      $147,500        $133,635        $119,746
                                                              ========        ========        ========
Other operating expenses................................      $ 55,377        $ 48,020        $ 47,228
                                                              ========        ========        ========
Net premiums written....................................      $315,804        $304,468        $298,987
                                                              ========        ========        ========
</Table>

                                        24
<PAGE>

                                                                     SCHEDULE IV

                    CNA SURETY CORPORATION AND SUBSIDIARIES

                                  REINSURANCE
  CNA SURETY CORPORATION FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<Table>
<Caption>
                                                                                                 PERCENTAGE
                                                          CEDED TO      ASSUMED                  OF AMOUNT
                                               GROSS        OTHER      FROM OTHER      NET        ASSUMED
                                               AMOUNT     COMPANIES    COMPANIES      AMOUNT       TO NET
                                               ------     ---------    ----------     ------     ----------
                                                                 (AMOUNTS IN THOUSANDS)
<S>                                           <C>         <C>          <C>           <C>         <C>
CNA SURETY CORPORATION
--------------------------
YEAR ENDED DECEMBER 31, 2001
Premiums written:
  Property and casualty insurance.........    $127,494     $17,199      $205,509     $315,804       65.1%
                                              --------     -------      --------     --------       ----
     Total premiums written...............    $127,494     $17,199      $205,509     $315,804       65.1%
                                              ========     =======      ========     ========       ====
Premiums earned:
  Property and casualty insurance.........    $120,687     $13,983      $214,206     $320,910       66.8%
                                              --------     -------      --------     --------       ----
     Total premiums earned................    $120,687     $13,983      $214,206     $320,910       66.8%
                                              ========     =======      ========     ========       ====
YEAR ENDED DECEMBER 31, 2000
Premiums written:
  Property and casualty insurance.........    $115,100     $12,199      $201,567     $304,468       66.2%
                                              --------     -------      --------     --------       ----
     Total premiums written...............    $115,100     $12,199      $201,567     $304,468       66.2%
                                              ========     =======      ========     ========       ====
Premiums earned:
  Property and casualty insurance.........    $109,472     $14,831      $207,178     $301,819       68.6%
                                              --------     -------      --------     --------       ----
     Total premiums earned................    $109,472     $14,831      $207,178     $301,819       68.6%
                                              ========     =======      ========     ========       ====
YEAR ENDED DECEMBER 31, 1999
Premiums written:
  Property and casualty insurance.........    $108,968     $ 7,872      $197,891     $298,987       66.2%
                                              --------     -------      --------     --------       ----
     Total premiums written...............    $108,968     $ 7,872      $197,891     $298,987       66.2%
                                              ========     =======      ========     ========       ====
Premiums earned:
  Property and casualty insurance.........    $103,993     $ 7,392      $186,939     $283,540       65.9%
                                              --------     -------      --------     --------       ----
     Total premiums earned................    $103,993     $ 7,392      $186,939     $283,540       65.9%
                                              ========     =======      ========     ========       ====
</Table>

                                        25
<PAGE>

                                                                      SCHEDULE V

                    CNA SURETY CORPORATION AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS
CNA SURETY CORPORATION AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND
                                      1999

<Table>
<Caption>
                                                                   ADDITIONS
                                                            ------------------------
                                             BALANCE AT     CHARGED TO    CHARGED TO                      BALANCE
                                            BEGINNING OF    COSTS AND       OTHER                        AT END OF
                                               PERIOD        EXPENSES      ACCOUNTS     DEDUCTIONS(1)     PERIOD
                                            ------------    ----------    ----------    -------------    ---------
                                                                    (AMOUNTS IN THOUSANDS)
<S>                                         <C>             <C>           <C>           <C>              <C>
CNA SURETY CORPORATION
--------------------------
YEAR ENDED DECEMBER 31, 2001
  Allowance for possible losses on
     premiums receivable................       $2,650         $  866        $  --          $  (902)       $2,614
                                               ======         ======        =====          =======        ======
  Allowance for possible losses on
     reinsurance receivable.............       $   --         $   --        $  --          $    --        $   --
                                               ======         ======        =====          =======        ======
YEAR ENDED DECEMBER 31, 2000
  Allowance for possible losses on
     premiums receivable................       $2,826         $  837        $  --          $(1,013)       $2,650
                                               ======         ======        =====          =======        ======
  Allowance for possible losses on
     reinsurance receivable.............       $   --         $   --        $  --          $    --        $   --
                                               ======         ======        =====          =======        ======
YEAR ENDED DECEMBER 31, 1999
  Allowance for possible losses on
     premiums receivable................       $1,465         $1,786        $  --          $  (425)       $2,826
                                               ======         ======        =====          =======        ======
  Allowance for possible losses on
     reinsurance receivable.............       $   --         $   --        $  --          $    --        $   --
                                               ======         ======        =====          =======        ======
</Table>

-------------------------
(1) Accounts charged against allowance.

                                        26
<PAGE>

                                                                     SCHEDULE VI

                    CNA SURETY CORPORATION AND SUBSIDIARIES

             SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
                              INSURANCE OPERATIONS
CNA SURETY CORPORATION AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND
                                      1999

<Table>
<Caption>
                                                         YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                        DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                            2001            2000            1999
                                                        ------------    ------------    ------------
                                                                   (AMOUNTS IN THOUSANDS)
<S>                                                     <C>             <C>             <C>
Deferred policy acquisition costs.....................    $ 89,788        $ 91,403        $ 84,924
                                                          ========        ========        ========
Reserves for unpaid claims and claim adjustment
  expenses............................................    $315,811        $204,457        $157,933
                                                          ========        ========        ========
Discount (if any) deducted............................    $     --        $     --        $     --
                                                          ========        ========        ========
Unearned premiums.....................................    $200,379        $202,179        $199,300
                                                          ========        ========        ========
Net premium revenue...................................    $320,910        $301,819        $283,540
                                                          ========        ========        ========
Net investment income.................................    $ 29,515        $ 29,897        $ 25,850
                                                          ========        ========        ========
Net claims and claim expenses incurred related to:
  Current year........................................    $ 76,025        $ 62,776        $ 57,757
                                                          ========        ========        ========
  Prior years.........................................    $  4,812        $ (7,093)       $(13,085)
                                                          ========        ========        ========
Amortization of deferred policy acquisition costs.....    $147,500        $133,635        $119,746
                                                          ========        ========        ========
Net paid claims and claim adjustment expenses.........    $ 65,642        $ 58,854        $ 49,237
                                                          ========        ========        ========
Net premiums written..................................    $315,804        $304,468        $298,987
                                                          ========        ========        ========
</Table>

                                        27
<PAGE>

(A)(3) EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
  2(1)     Reorganization Agreement dated as of December 19, 1996 among
           Capsure Holdings Corp., Continental Casualty Company, CNA
           Surety Corporation, Surety Acquisition Company and certain
           affiliates of Continental Casualty Company (filed on
           December 27, 1996 as Exhibit 2 to Capsure Holdings Corp.'s
           Form 8-K, and incorporated herein by reference).
  2(2)     First Amendment to the Reorganization Agreement dated as of
           July 14, 1997 among Capsure Holdings Corp., Continental
           Casualty Company, CNA Surety Corporation, Surety Acquisition
           Company and certain affiliates of Continental Casualty
           Company (filed on July 16, 1997 as Exhibit 2 to Capsure
           Holdings Corp.'s Form 8-K, and incorporated herein by
           reference).
  3(1)     Certificate of Incorporation of CNA Surety Corporation dated
           December 10, 1996 (filed on August 15, 1997 as Exhibit 3(1)
           to CNA Surety Corporation's Registration Statement on Form
           S-4 (Registration No. 333-33753), and incorporated herein by
           reference).
  3(2)     Amendment to Certificate of Incorporation of CNA Surety
           Corporation dated May 27, 1997 (filed on August 15, 1997 as
           Exhibit 3(2) to CNA Surety Corporation's Registration
           Statement on Form S-4 (Registration No. 333-33753), and
           incorporated herein by reference).
  3(3)     Bylaws of CNA Surety Corporation (filed on August 15, 1997
           as Exhibit 3(3) to CNA Surety Corporation's Registration
           Statement on Form S-4 (Registration No. 333-33753), and
           incorporated herein by reference).
  3(4)     Amendment to Bylaws of CNA Surety Corporation (filed on
           September 23, 1998 as Exhibit 4(3) to CNA Surety
           Corporation's Registration Statement on Form S-8
           (Registration No. 333-64135), and incorporated herein by
           reference).
  4(1)     Specimen certificate of CNA Surety Corporation (filed on
           August 15, 1997 as Exhibit 4(1) to CNA Surety Corporation's
           Registration Statement on Form S-4 (Registration No.
           333-33753), and incorporated herein by reference).
  9        Not applicable.
 10(1)     Form of The CNA Surety Corporation Replacement Stock Option
           Plan (filed on August 15, 1997 as Exhibit 10(12) to CNA
           Surety Corporation's Registration Statement on Form S-4
           (Registration No. 333-33753), and incorporated herein by
           reference).
 10(2)     Form of CNA Surety Corporation 1997 Long-Term Equity
           Compensation Plan (filed on August 15, 1997 as Exhibit
           10(13) to CNA Surety Corporation's Registration Statement on
           Form S-4 (Registration No. 333-33753), and incorporated
           herein by reference).
 10(3)     Form of Aggregate Stop Loss Reinsurance Contract by and
           between Western Surety Company, Universal Surety of America,
           Surety Bonding Company of America and Continental Casualty
           Company (filed on December 27, 1996 as Exhibit 2 to Capsure
           Holdings Corp.'s Form 8-K, and incorporated herein by
           reference).
 10(4)     Form of Surety Excess of Loss Reinsurance Contract by and
           between Western Surety Company, Universal Surety of America,
           Surety Bonding Company of America and Continental Casualty
           Company (filed on December 27, 1996 as Exhibit 2 to Capsure
           Holdings Corp.'s Form 8-K, and incorporated herein by
           reference).
 10(5)     Surety Second Excess of Loss Reinsurance Contract by and
           between Western Surety Company, Universal Surety of America,
           Surety Bonding Company of America and Continental Casualty
           Company (filed on July 9, 1998 as Exhibit 10(14) to CNA
           Surety Corporation's Registration Statement on Form S-1
           (Registration No. 333-56063), and incorporated herein by
           reference).
 10(6)     Form of Surety Quota Share Treaty by and between Western
           Surety Company and Continental Casualty Company (filed on
           December 27, 1996 as Exhibit 2 to Capsure Holdings Corp.'s
           Form 8-K, and incorporated herein by reference).
</Table>

                                        28
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
 10(7)     Employment Agreement dated as of January 1, 2002 by and
           between CNA Surety Corporation and Mark C. Vonnahme.
 10(8)     Consulting Agreement dated as of March 14, 2001 by and
           between CNA Surety Corporation and Robert E. Ayo (filed on
           March 26, 2001 as Exhibit 10(8) to CNA Surety Corporation's
           Annual Report on Form 10-K, and incorporated herein by
           reference).
 10(9)     Employment Agreement dated as of January 1, 2002 by and
           between CNA Surety Corporation and John S. Heneghan.
 10(10)    Employment Agreement dated as of January 1, 2002 by and
           between CNA Surety Corporation and David F. Paul.
 10(11)    Credit Agreement dated as of September 30, 1997, among CNA
           Surety Corporation, the lenders party thereto, and Chase
           Manhattan Bank, as Administrative Agent (filed on July 9,
           1998 as Exhibit 10(13) to CNA Surety Corporation's
           Registration Statement on Form S-1 (Registration No.
           333-56063), and incorporated herein by reference).
 10(12)    Form of CNA Surety Corporation Non-Employee Directors
           Deferred Compensation Plan (filed on July 9, 1998 as Exhibit
           10(15) to CNA Surety Corporation's Registration Statement on
           Form S-1 (Registration No. 333-56063), and incorporated
           herein by reference).
 10(13)    Form of CNA Surety Corporation Deferred Compensation Plan
           (filed on March 24, 2000 as Exhibit 10(18) to CNA Surety
           Corporation's Annual Report on Form 10-K, and incorporated
           herein by reference).
 10(14)    Form of CNA Surety Corporation 2000 Employee Stock Purchase
           Plan (filed on January 26, 2001 (incorporated by reference)
           to CNA Surety Corporation's Registration Statement on Form
           S-8 (Registration No. 333-54440), and incorporated herein by
           reference).
 11        Earnings Per Share Computation.
 12        Not Applicable.
 13        2001 Annual Report to Shareholders.
 16        Not Applicable.
 18        Not Applicable.
 21        Subsidiaries of the Registrant.
 22        Not Applicable.
 23        Consent of Deloitte & Touche LLP dated March 27, 2002.
 24        Not Applicable.
</Table>

                                        29
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                          CNA SURETY CORPORATION

                                                 /s/ MARK C. VONNAHME
                                          --------------------------------------
                                                     Mark C. Vonnahme
                                          President and Chief Executive Officer
                                              (Principal Executive Officer)

                                                 /s/ JOHN S. HENEGHAN
                                          --------------------------------------
                                                     John S. Heneghan
                                            Vice President and Chief Financial
                                                         Officer
                                           (Principal Financial and Accounting
                                                         Officer)

Dated: March 18, 2002

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
DATE                     TITLE                             SIGNATURE
----                     -----                             ---------
<S>              <C>                     <C>
March 18, 2002   Chairman of the Board                /s/ PETER W. WILSON
                     and Director        ---------------------------------------------
                                                        Peter W. Wilson

March 18, 2002         Director                       /s/ GIORGIO BALZER
                                         ---------------------------------------------
                                                        Giorgio Balzer

March 18, 2002         Director                       /s/ PHILIP H. BRITT
                                         ---------------------------------------------
                                                         Philip Britt

March 18, 2002         Director                      /s/ ROBERT V. DEUTSCH
                                         ---------------------------------------------
                                                       Robert V. Deutsch

March 18, 2002         Director                        /s/ EDWARD DUNLOP
                                         ---------------------------------------------
                                                         Edward Dunlop

March 18, 2002         Director                         /s/ MELVIN GRAY
                                         ---------------------------------------------
                                                          Melvin Gray

March 18, 2002         Director                        /s/ ROY E. POSNER
                                         ---------------------------------------------
                                                         Roy E. Posner

March 18, 2002         Director                      /s/ ADRIAN M. TOCKLIN
                                         ---------------------------------------------
                                                       Adrian M. Tocklin

March 18, 2002         Director                      /s/ MARK C. VONNAHME
                                         ---------------------------------------------
                                                       Mark C. Vonnahme
</Table>

                                        30