A.M. Best Affirms Ratings of CNA Financial Corporation and Its Subsidiaries

Fri Jan 11, 2013 4:12pm EST

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OLDWICK, N.J.--(Business Wire)--
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent)
and issuer credit ratings (ICR) of "a" of the property/casualty subsidiaries of
CNA Financial Corporation (CNAF) [NYSE:CNA], also known as CNA Insurance
Companies (CNA). Concurrently, A.M. Best has affirmed the ICR of "bbb" and all
debt ratings of CNAF and CNA Financial Capital I, II and III. A.M. Best also has
affirmed the FSR of A- (Excellent) and ICR of "a-" of CNAF`s life/health
subsidiary, Continental Assurance Company (CAC). The outlook for all ratings is
stable. All above named companies are headquartered in Chicago, IL. (See below
for a detailed listing of the companies and ratings.) 

The rating actions reflect CNA`s excellent level of risk-adjusted
capitalization, consistent and profitable operating performance and established
position as a leading writer within the commercial lines segment of the U.S.
property/casualty industry. In addition, the ratings recognize initiatives
undertaken by CNA`s management to improve underwriting performance; its vastly
improved technological infrastructure, which has enhanced data collection and
segment reporting tools; and its continued focus on enterprise risk management.
Moreover, in 2010, CNA transferred approximately $1.6 billion of the group`s net
legacy asbestos and environmental (A&E) liabilities to National Indemnity
Company. A.M. Best views positively the long-term benefits CNA will derive from
the substantial reduction in the uncertainty of its legacy A&E liabilities and
potential A&E earnings drag. 

Partially offsetting these positive rating factors are CNA`s exposure to the
adverse impact related to its discontinued long-term care program and other
long-term liabilities on underwriting and operating performance, and the current
highly competitive environment in its property/casualty markets, which will
likely pressure underwriting margins over the near term. 

Over the past five years, CNA`s specialty lines segment (CNA Specialty) has
achieved excellent underwriting results, while its standard commercial lines
segment`s (CNA Commercial) performance has improved but still continues to trail
that of competitors, resulting in CNA`s aggregate property/casualty underwriting
margins underperforming its peer composite. The group`s current operational
focus is to improve profitability with increasing rates and shift to targeted,
higher margin customers and industry segments. 

The ratings acknowledge the historical financial support provided by CNA`s
ultimate parent, Loews Corporation (Loews). In 2008, Loews purchased $1.25
billion of senior perpetual preferred stock issued by CNAF. The majority of
proceeds from this offering, $1.0 billion, were down-streamed to CNA`s lead
property/casualty insurer, Continental Casualty Company (CCC), via a surplus
note. Also in 2008, CNAF contributed an additional $500 million to CNA largely
to offset significant investment losses during that year. Since 2008, CNAF`s
dramatically improved financial position has enabled it to redeem all of the
$1.25 billion preferred stock issued to Loews by year-end 2010 and enabled CNA
to pay off the $1.0 billion surplus note issuance to CNAF by June 2012. 

CNAF`s financial leverage decreased as of September 2012, with CNAF`s adjusted
debt to-total-tangible capital measuring 18.6%, compared with 19.4% at year-end
2011, based on A.M. Best`s current methodology for calculating financial
leverage that excludes accumulated other comprehensive income, which was
primarily driven by an increase in stockholder equity. 

CNAF`s liquidity is adequate. While the company has made significant progress to
reduce investment risk by repositioning its portfolio, CNAF maintains an above
average exposure to below investment grade securities and long dated maturities,
which are largely held to support liabilities from its run-off long-term care
and life operations. 

CNAF`s cash and equivalents were approximately $292 million at year-end 2011.
Combined with the availability of a $250 million credit facility and operating
company dividend capacity, the holding company has ample liquidity near term to
meet its corporate obligations, which include projected interest payments of
$170 million in outstanding debt. In 2011 and 2012, CNAF`s coverage ratios were
well within A.M. Best`s guidelines for its ratings. 

The ratings of CAC recognize its strong risk-adjusted capitalization, favorable
operating results and effective asset/liability management as it operates in
run-off status. CAC reported solid statutory profits for 2010, 2011 and through
third quarter 2012. A.M. Best notes CAC`s effective asset/liability matching in
light of the long duration of its remaining liabilities, comprised primarily of
structured settlements. A.M. Best remains concerned with the low interest rate
environment, which may pressure returns over the medium term. However, this
concern is somewhat mitigated by CAC`s well-developed asset/liability matching
and cash flow testing practices. 

A.M. Best believes that CAC is well positioned at its current rating level for
the foreseeable future. However, downward rating pressures may occur should CAC
experience unfavorable earnings or capital trends. Additionally, downward rating
actions on CAC may occur should CCC experience a material decline in its
financial strength. 

While the ratings for CNA are stable, future positive rating actions may result
if it outperforms its projections. However, negative rating actions could result
if its operating performance falls markedly short of A.M. Best`s expectations. 

The FSR of A (Excellent) and ICRs of "a" have been affirmed for the following
property/casualty members of the CNA Insurance Companies:

* American Casualty Company of Reading, Pennsylvania
* Columbia Casualty Company
* Continental Casualty Company
* The Continental Insurance Company of New Jersey
* The Continental Insurance Company
* National Fire Insurance Company of Hartford
* North Rock Insurance Company Limited
* Transportation Insurance Company
* Valley Forge Insurance Company

The following debt ratings have been affirmed:

 CNA Financial Corporation-                                                                                                            
 --"bbb" on $550 million 5.85% senior unsecured notes, due 2014 (of which $549 million was outstanding as of September 30, 2012)       
 --"bbb" on $350 million 6.5% senior unsecured notes, due 2016                                                                         
 --"bbb" on $150 million 6.95% senior unsecured notes, due 2018                                                                        
 --"bbb" on $350 million 7.35% senior unsecured notes, due 2019                                                                        
 --"bbb" on $500 million 5.875% senior unsecured notes, due 2020                                                                       
 --"bbb" on $400 million 5.75% senior unsecured notes, due 2021                                                                        
 --"bbb" on $250 million 7.25% senior unsecured debentures, due 2023 (of which $243 million was outstanding as of September 30, 2012)  

The following indicative debt ratings on securities available under the shelf
registration have been affirmed:

 CNA Financial Corporation-             
 -- "bbb" on senior unsecured debt      
 -- "bbb-" on senior subordinated debt  
 -- "bb+" on junior subordinated debt   
 -- "bb+" on preferred stock            
 CNA Financial Capital I, II and III-   
 -- "bb+" on preferred securities       

The methodology used in determining these ratings is Best`s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best`s rating
process and contains the different rating criteria employed in the rating
process. Key criteria utilized include: "Risk Management and the Rating Process
for Insurance Companies"; "Catastrophe Analysis in A.M. Best`s Ratings";
"Insurance Holding Company and Debt Ratings"; "The Treatment of Terrorism Risk
in the Rating Evaluation"; "Understanding BCAR for Property/Casualty Insurers";
"Understanding BCAR for Life/Health Insurers"; "A.M. Best`s Liquidity Model of
U.S. Life Insurers"; and "Rating Members of Insurance Groups." Best`s Credit
Rating Methodology can be found at www.ambest.com/ratings/methodology. 

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit

Copyright © 2013 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Brian O`Larte-P/C, 908-439-2200, ext. 5138
Senior Financial Analyst
Joan Sullivan-L/H, 908-439-2200, ext. 5144
Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations

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