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

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

Business Wire

OLDWICK, N.J. -- January 11, 2013

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

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

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

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

       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
Press spacebar to pause and continue. Press esc to stop.