One of the more important aspects of security analysis involves looking beyond the financial statements of the target company and also examining the financial reports of vendors, competitors, and customers depending on the nature of the business. In the case of insurance companies, it can be interesting to examine both sides of a deal particularly in cases where the transaction is much more important for one party than for the other. In such situations, the smaller company usually provides more information due to a higher level of materiality of the transaction. Such is the case with CNA’s retroactive reinsurance transaction with Berkshire Hathaway.
In this article, we take a close look at the retroactive reinsurance transaction from the perspective of CNA Financial which just filed its 10-K earlier this week. The disclosures provided by CNA appear to be more detailed compared to Berkshire’s prior disclosures on the transaction and could shed some light on the potential profitability of the transaction for Berkshire as well as potential impacts for 2010 earnings.