TEXT - Fitch affirms CNA Financial Corp ratings
Feb 15 - Fitch Ratings has affirmed the ratings on CNA Financial Corporation (CNA) including the following: --Issuer Default Rating (IDR) at 'BBB'; --Senior debt at 'BBB-'. Fitch has also affirmed the 'A-' Insurer Financial Strength (IFS) ratings of CNA's property/casualty insurance subsidiaries. The Rating Outlook remains Positive. A full rating list is shown below. KEY RATING DRIVERS Fitch's rating rationale for the affirmation of CNA's ratings reflects the company's improvements in capitalization and earnings, and CNA's established position in the commercial lines property/casualty market. The ratings also reflect anticipated challenges in a competitive property/casualty market rate environment and the potential for additional adverse reserve development on older accident years and in runoff operations. The Positive Outlook reflects CNA's continued growth in capital, several years of favorable reserve development, and improvement in GAAP underwriting performance relative to peers. CNA has historically underperformed other large commercial line peers by 5 percentage points or greater on a GAAP calendar year combined ratio. Recently, this gap has narrowed. However, full year 2012 CNA reported a 105% GAAP calendar year combined ratio, deteriorating from the prior year's 98.4% and a 2008-2011 annual average of 97.2%. Full year 2012 underwriting results included 6.4 percentage points related to catastrophe losses and were boosted by 3.3 percentage points of favorable reserve development, resulting in an accident year ex-catastrophe combined ratio of 101.9% up slightly from prior year's 101.7% and 2008-2011 year average of 101.1%. CNA continues to post favorable reserve development, a trend that started with year-end 2008 results, and has taken several steps to simplify the financial statements and bring stability to reserves. Fitch's Positive Outlook for CNA incorporates these trends and therefore it is not anticipated that reserves will develop unfavorably in excess of 5%-7% of the prior year's equity. Historically, CNA had a legacy of adverse reserve development in the 2000's as the company underpriced several lines of business in the soft markets. CNA's debt-to-total-capital ratio was 21.5% at Dec. 31, 2012, virtually unchanged from year-end 2011. GAAP earnings-based interest coverage was 5.8x at year-end 2012 down slightly from 6.0x for full year 2011 and below the five-year average of 7.5x. Fitch expects that over the next 12-18 months CNA's financial leverage and earnings based interest coverage will approximate current levels. Fitch's rating rationale continues to recognize Loews' ownership of CNA, as the company benefits from the financial flexibility of a strong majority owner and is able to manage the company with a more long-term approach. Loews has demonstrated its support of CNA over the years through various actions that have improved CNA's capitalization. Fitch views Loews' continued commitment as a critical factor in serving as a support floor for CNA's ratings, but notes that current ratings are standalone therefore no support for Loews' ownership is given at current rating levels. RATING SENSITIVITIES Key rating triggers that could lead to an upgrade include: --An ongoing calendar year combined ratio in line with large commercial insurance peers; --Run-off and other operations at or near break even results --Overall flat to favorable loss reserve development; --Sustainable organic growth in capital; --Debt-to-total capital maintained below 25%; --Maintain a Prism statutory capital model score of 'Strong.' Key rating triggers that could lead to a downgrade include: --Significant charges related to investments or runoff operations; --Significant deterioration in the company's overall capitalization; --Failure to maintain a disciplined underwriting approach in the competitive market and soft rate environment; --Adverse reserve development in excess of 5%-7% of prior year's equity; --Debt-to-total capital maintained above 30%. Fitch affirms the following ratings with a Positive Outlook: CNA Financial Corporation --IDR at 'BBB'; --Senior Debt at 'BBB-'; --$549 million 5.85% due Dec. 15, 2014 at 'BBB-'; --$350 million 6.5% due Aug. 15, 2016 at 'BBB-'; --$150 million 6.95% due Jan. 15, 2018 at 'BBB-'; --$350 million 7.35% due Nov. 15, 2019 at 'BBB-'; --$500 million 5.875% due Aug. 15, 2020 at 'BBB-'; --$400 million 5.75% due Aug. 15, 2021 at 'BBB-'; --$243 million 7.25% due Nov. 15, 2023 at 'BBB-'. Continental Casualty Company Group Members: Continental Casualty Company American Casualty Company of Reading, Pennsylvania Columbia Casualty Company National Fire Insurance Company of Hartford The Continental Insurance Company The Continental Insurance Company of New Jersey Transportation Insurance Company Valley Forge Insurance Company Surety Bonding Company of America Universal Surety of America Western Surety Company --IFS at 'A-'.
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