For the quarter ended December 31, 2000 the Company reported net income of $502.9 million or $5.10 per share, compared to a net loss of $207.8 million or $1.97 per share in 1999.
The decrease in net earned premiums of Agency Market Operations was primarily attributable to the transfer of the personal insurance line of business ("Personal Insurance") to The Allstate Corporation ("Allstate") on October 1, 1999. Net earned premiums for 1999 included $1,354.0 million of premiums related to CNA Personal Insurance. Aside from the effects of Personal Insurance, commercial insurance premiums declined slightly due to continued efforts to re-underwrite business and obtain adequate rates for exposure underwritten.
Life Operations is composed of four principal groups, Individual Life, Retirement Services, Long Term Care and Other Operations.
Diamond Offshore Drilling, Inc. and subsidiaries ("Diamond Offshore"). Diamond Offshore Drilling, Inc. is a 53% owned subsidiary of the Company.
Revenues decreased due principally to lower operating dayrates ($143.9 million) and reduced utilization ($50.6 million) for Diamond Offshore's semisubmersible rigs, partially offset by increased utilization ($35.1 million) and higher dayrates ($26.4 million) for jack-up rigs during 2000, as compared to 1999. Revenues also declined by $17.1 million due to the sale of a jack-up rig and $6.0 million due to the mobilization of rigs to new markets during 2000. These declines were partially offset by increased investment income ($14.5 million) and a gain from the sale of a drilling rig of $13.9 million ($4.7 million after taxes and minority interest) in 2000.
During the year ended December 31, 2000, Diamond Offshore expended $250.9 million, including capitalized interest expense, for rig upgrades, primarily for the conversion of the Ocean Confidence. Also included in this amount is approximately $16.0 million expended for variable deckload and water depth capability upgrades on the Ocean Epoch. Diamond Offshore expects to spend approximately $144.8 million for rig upgrade capital expenditures during 2001 which are primarily costs associated with the deepwater upgrade of the Ocean Baroness. Included in this amount is approximately $20.0 million for accommodations and stability enhancement upgrade on the Ocean Nomad.
Certain derivatives in Separate Accounts are held for trading purposes. CNA uses these derivatives to mitigate market risk by purchasing Standard and Poor's 500 index futures contracts in a notional amount equal to the contract liability relating to Life Operations' Index 500 guaranteed investment contract product.
Future policy benefits reserves - Reserves for traditional life insurance products (whole and term life products) and long-term care products are computed using the net level premium method which incorporates actuarial assumptions as to interest rates, mortality, morbidity, withdrawals and expenses. Actuarial assumptions generally vary by plan, age at issue and policy duration and include a margin for adverse deviation. Interest rates range from 3.0% to 9.0%, and mortality, morbidity and withdrawal assumptions are based on CNA and industry experience prevailing at the time of issue. Expense assumptions include the estimated effects of inflation and expenses to be incurred beyond the premium paying period. Reserves for interest sensitive contracts are equal to the account balances that accrue to the benefit of the policyholders. Interest crediting rates ranged from 4.3% to 6.9% for the three years ended December 31, 2000.
Statutory capital and surplus - Combined statutory capital and surplus and net income (loss), determined in accordance with accounting practices prescribed or permitted by the regulations and statutes of various insurance regulators, for property and casualty and life insurance subsidiaries, are as follows:
Goodwill and other intangible assets - Goodwill, representing the excess of purchase price over fair value of the net assets of acquired entities, is generally amortized on a straight-line basis over the period of expected benefit ranging from 15 to 30 years. Other intangible assets are amortized on a straight-line basis over their estimated economic lives. Accumulated amortization at December 31, 2000 and 1999 was $442.0 and $414.8, respectively. Amortization expense amounted to $27.2, $30.5 and $101.3 for the years ended December 31, 2000, 1999 and 1998, respectively.
The carrying value of investments (other than equity securities) that did not produce income for the last twelve months is $35.5 at December 31, 2000.
Gross unearned premium reserves for financial guarantee contracts were $23.0 and $11.0 at December 31, 2000 and 1999, respectively. Gross claim and claim adjustment expense reserves totaled $127.0 and $113.0 at December 31, 2000 and 1999, respectively.
On June 6, 2000, Diamond Offshore issued zero coupon convertible debentures in the principal amount at maturity of $805.0, due June 6, 2020, and received net proceeds of approximately $392.6. These debentures were issued at a price of 49.96% of the principal amount for a yield of 3.5% per annum to maturity.
The aggregate of long-term debt maturing in each of the next five years is approximately as follows: $1,054.5 in 2001, $130.7 in 2002, $401.2 in 2003, $78.6 in 2004 and $553.8 in 2005.
For the other segments of CNA, restructuring and other related charges were approximately $23.0 in 1998. Charges related primarily to the closing of leased facilities were $3.0 and employee severance and outplacement costs related to planned net reductions of 600 employees in the current workforce and benefit costs associated with those reductions were $13.0. In addition, there were charges of $4.0 related to the writedown of certain assets and $3.0 related to the exiting of certain businesses. Through December 31, 1998, approximately 270 employees of these other segments, most of whom were underwriters and office support staff, had been released.
Loews Corporation is a holding company. Its subsidiaries are engaged in the following lines of business: property, casualty and life insurance (CNA Financial Corporation, an 87% owned subsidiary); the production and sale of cigarettes (Lorillard, Inc., a wholly owned subsidiary); the operation of hotels (Loews Hotels Holding Corporation, a wholly owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc., a 53% owned subsidiary); and the distribution and sale of watches and clocks (Bulova Corporation, a 97% owned subsidiary). Each operating entity is responsible for the operation of its specialized business and is headed by a chief executive officer having the duties and authority commensurate with that position.