September 16, 2013 / 3:37 PM / 4 years ago

Fitch Upgrades CNA's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, September 16 (Fitch) Fitch Ratings has upgraded CNA Financial Corporation's (CNA) Issuer Default Rating (IDR) to 'BBB+' from 'BBB' and its senior unsecured debt to 'BBB' from 'BBB-'. Also, Fitch has upgraded the Insurer Financial Strength (IFS) ratings of CNA's property/casualty insurance subsidiaries to 'A' from 'A-'. The Rating Outlook for all ratings is Stable. A full rating list is shown below. KEY RATING DRIVERS Fitch's rationale for the upgrade reflects steady improvements in capitalization, stable earnings, and overall good reserve quality, all of which improve Fitch's confidence that CNA's financial performance will maintain the stability demonstrated over the past five years. The ratings also reflect anticipated challenges in a competitive property/casualty market rate environment, the potential for adverse reserve development and deterioration in runoff operations. CNA reported a first-half 2013 GAAP calendar year combined ratio of 101.5% an improvement over year-end 2012's 105% but above a five-year average of 98.7%. Excluding the impact of reserve development, CNA reported a GAAP accident year combined ratio of 102.5% for first half of 2013 an improvement from the prior year of 108.3% and below a five-year average of 105%. CNA continues to post favorable reserve development in its core property/casualty business, a trend that started with year-end 2007 results. The company has taken several steps to bring stability to reserves. Fitch's upgrade for CNA incorporates these trends and therefore it is not anticipated that reserves will develop unfavorably in excess of 5% of the prior year's equity going forward. CNA's financial leverage ratio improved to 18.7% as of June 30, 2013 compared to 19.0% at Dec. 31, 2012. GAAP earnings-based interest coverage improved significantly to 8.5x as of June 30, 2013 compared to 5.8x at year-end 2012. Fitch expects that over the next 12-18 months CNA's financial leverage and earnings-based interest coverage will approximate current levels. CNA's capital position remains solid with stated GAAP stockholders' equity of $11.9 billion at June 30, 2013 and operating leverage of 0.64x. CNA's Prism Capital Score is 'Strong' as of year-end 2012. 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 over the years through various actions that have improved CNA's capitalization. Fitch views Loews' continued commitment as likely to lessen the magnitude of potential downgrades should CNA's creditworthiness deteriorate, but considers CNA's ratings as standalone. RATING SENSITIVITIES Key rating triggers that could lead to an upgrade include: --GAAP calendar year combined ratio for the ongoing property/casualty business of approximately 100% or better over several years; --Strong improvement in total operating earnings that result in return on equity (ROE) of 9% and operating EBIT interest coverage at 9x or better; --Overall flat to favorable GAAP loss reserve development; --Achieving a Prism score of 'Very Strong' or higher for several consecutive years; --Debt-to-total capital maintained below 25%. Key rating triggers that could lead to a downgrade include: --Charges related to investments or runoff operations which impede the company's ability to generate 4-5% annual growth in shareholders' equity before dividends and share repurchases (excluding FAS 115); --Operating at GAAP calendar year combined ratio of approximately 105% or higher; --Decline in total operating earnings that result in ROE below 6% and operating EBIT interest coverage at 6x or lower; --Adverse GAAP reserve development in excess of 5% of prior year's equity; --Achieving a Prism score of 'Adequate' or below; --Debt-to-total capital maintained above 30%. Fitch has upgraded the following ratings with a Stable Outlook: CNA Financial Corporation --IDR to 'BBB+' from 'BBB'; --$549 million 5.85% due Dec. 15, 2014 to 'BBB' from 'BBB-'; --$350 million 6.5% due Aug. 15, 2016 to 'BBB' from 'BBB-'; --$150 million 6.95% due Jan. 15, 2018 to 'BBB' from 'BBB-'; --$350 million 7.35% due Nov. 15, 2019 to 'BBB' from 'BBB-'; --$500 million 5.875% due Aug. 15, 2020 to 'BBB' from 'BBB-'; --$400 million 5.75% due Aug. 15, 2021 to 'BBB' from 'BBB-'; --$243 million 7.25% due Nov. 15, 2023 to 'BBB' from '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 to 'A' from 'A-'. Contact: Primary Analyst Gerald B. Glombicki, CPA Director +1-312-606-2354 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Brian C. Schneider, CPA, CPCU, ARe Senior Director +1-312-606-2321 Committee Chairperson R. Andrew Davidson, CFA Senior Director +1-312-368-3144 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: Additional information is available at ''. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure. Applicable Criteria and Related Research: --Insurance Rating Methodology (Aug. 19, 2013). Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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