Oct. 27 (Bloomberg) -- Loews Corp., the company run by New York's Tisch family, will inject $1.25 billion into CNA Financial Corp. after the insurance unit posted a third-quarter loss on investment declines and hurricane claims. CNA fell the most in at least 28 years after halting its dividend on common stock.

Loews will buy preferred shares of CNA after the insurer posted a $331 million loss, the New York-based holding company said in a statement. CNA will pay a 10 percent dividend on the preferred shares to Loews, which owns 90 percent of the insurer.

CNA, which typically supplies the majority of Loews's revenue, suffered from falling prices for commercial insurance, the worst U.S. hurricane season since 2005 and declines of holdings in financial firms including mortgage lenders Fannie Mae and Freddie Mac. CNA has reported seven straight quarters of investment losses, totaling more than $700 million.

``CNA needs to get through this period, and on the other side of it there is a very sound and solid business there,'' said Loews Chief Executive Officer James Tisch in a conference call today. ``These are unprecedented times, where you have bond spreads blow out to unimaginable levels, where you have enormous amounts of dislocations in all financial markets.''

Loews posted a net loss of $137 million, or 31 cents a share, compared with profit of $555.7 million, or 77 cents, in the same period a year earlier. Loews owns 90 percent of CNA and 50 percent of Diamond Offshore Drilling Inc., the world's second- largest deepwater oil driller.

Shares Fall

CNA, based in Chicago, fell $5.76, or 33 percent, to $11.90 at 4:15 p.m. in New York Stock Exchange composite trading. The insurer has plunged 65 percent this year to its lowest price since 1985. Loews fell $5.66, or 18 percent, to $25.65, and has dropped 49 percent this year.

``I believe that when this financial crisis is over, that CNA's stock will again be trading at a very attractive valuation,'' Tisch said. He described the insurer as currently trading at ``crazy, ridiculous'' levels.

The biggest insurers in the U.S. and Bermuda have reported more than $93 billion in writedowns and unrealized losses tied to the U.S. mortgage market since the beginning of last year. Fannie and Freddie made up almost half CNA's $423 million in investment losses in the third quarter, which also included $63 million tied to Icelandic banks.

CNA's book value per share, a measure of assets minus liabilities, declined 17 percent over three months to $28.75 as of Sept. 30.

MetLife, Hartford

CNA joins insurers MetLife Inc. and Hartford Financial Services Group Inc. in selling shares to shore up capital amid declines in the value of holdings. Hurricanes and failing investments contributed to an estimated $4.8 billion net loss in the third quarter for all U.S. property and casualty insurers, according to a report by insurance consulting firm Towers Perrin.

CNA won't pay a dividend to its common shareholders as long as the preferred shares to Loews are outstanding. The insurer will use $1 billion of the proceeds to increase its claims-paying surplus at its largest subsidiary, Continental Casualty Co. CNA said in a separate statement the terms of the preferred share agreement with Loews were approved by a ``special committee of independent members of CNA's board of directors.''

The insurer paid its first quarterly dividend for common shareholders in 33 years in 2007 and paid a total of 80 cents a share over six quarters before scotching the dividend today.

Moody's Investors Service affirmed its credit ratings for Loews and CNA, saying in a statement ``the preferred shares will heighten CNA's financial leverage.''

Reversing Course

The price of business insurance in the U.S. dropped 11 percent in the quarter, continuing a decline that began in 2004, according to a survey by the Washington-based Council of Insurance Agents and Brokers. Investment losses and September's Hurricane Ike may prompt property and casualty insurers to reverse course on rate cuts, said Stephen Lowe, a managing director for Towers Perrin, in an interview last week.

Excluding $168 million catastrophe costs, CNA's property and casualty unit earned 8.7 cents for every dollar it collected in premium. Catastrophe costs were $7 million in the year-earlier period.

CNA's outgoing CEO, Stephen Lilienthal, said his replacement, Thomas Motamed, will take over Jan. 1, sooner than previously announced. The company had originally planned the transition to occur June 8 because of a non-compete agreement Motamed had with Chubb Corp., where he worked for more than 30 years. That agreement was waived by Chubb, Lilienthal said.

CNA posted a $77 million investment loss from partnerships including private-equity investments, compared with income of $19 million a year earlier. The partnership investments of $2.11 billion, about 5.2 percent of total holdings as of Sept. 30, compare with $2.32 billion on June 30.

Diamond, Boardwalk

Profit at Diamond rose 52 percent to $310.7 million, driven by oil futures that topped $147 a barrel in July and traded 57 percent higher than in last year's third quarter.

Loews agreed to buy as much as $1 billion of securities from its majority-owned Boardwalk Pipeline Partners LP to help fund pipeline expansion. Loews said it will provide the capital if Boardwalk isn't able to find funds from an outside source ``on acceptable terms.'' Boardwalk shares fell 2.8 percent to $20.48.

Loews's portion of the profit at Boardwalk rose 63 percent to $31 million. Profit at its HighMount Exploration & Production LLC unit more than doubled to $47 million. Net income at its Loews Hotels chain rose 50 percent to $6 million.

Loews spun off Lorillard Inc., the oldest U.S. cigarette maker, in June. The sale boosted second-quarter net income by more than $4 billion after having owned the maker of Newport menthol cigarettes for more than 30 years.

Tisch's father, Laurence Tisch, and Preston Robert Tisch, his uncle, started Loews when they bought a New Jersey hotel in 1946. The family owns about 24 percent of Loews, according to Bloomberg data.

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: October 27, 2008 16:47 EDT