CNA Financial Corp. Affirmed

Standard & Poor's Ratings Services affirmed its "BBB-" counterparty credit rating on CNA Financial Corp. and its "A-" counterparty credit and financial strength ratings on CNA's insurance affiliates (except for Continental Assurance Co., which is rated "BBB+"). The outlook on all of these companies remains negative.

The ratings reflect CNA's strong market position in commercial lines, historically weak operating performance, substantially improved capitalization, and the demonstrated capital support of CNA's ultimate parent, Loews Corp.

At the end of April 2004, CNA completed the balance-sheet restructuring initiated in November 2003 to help offset the effect of a $2.85 billion reserve strengthening charge ($1.85 billion after-tax) and a $610 million ($396 million after-tax) increase in the provision for reinsurance and insurance receivables. During this period, the company raised $1.4 billion of new capital. Included in S&P's analysis is the effect on statutory and GAAP capital of the aggregate stop-loss reinsurance contracts in force at year-end 2003, and the current rating is fully reflective of S&P's conclusions in this regard.

As part of the restructuring, the company exited the assumed reinsurance, group benefits, and individual life businesses and is now focused exclusively on its commercial property and casualty business. CNA posted pretax income of $78 million in the first nine months of 2004 versus a loss of $2.6 billion in the prior year. The company is benefiting from the strong pricing environment of the past three years, savings from the restructuring and expense-reduction steps it has undertaken, and the absence of significant prior-year reserve strengthening. The 2004 pretax result includes $278 million of losses arising from hurricane activity.

About $1.7 billion of total debt was outstanding at CNA as of September 2004, down from $1.9 billion at year-end 2003.

Hartford P/C to Negative

S&P revised its outlook on Hartford Financial Services Group Inc.'s property and casualty subsidiaries in the Hartford Fire Intercompany Pool to negative from stable.

The rating agency noted that legal and regulatory clouds have overhung Hartford P/C since allegations of illegal bid rigging came to light in a complaint filed by New York Attorney General Eliot Spitzer against Marsh Inc. Although Hartford P/C was not named as a defendant, it was one of four insurers specifically identified in the complaint. The allegations have already led to several class-action lawsuits against Hartford and additional investigations by numerous state regulators.

The outlook on Hartford P/C was revised to negative because of the increased uncertainties regarding these still-developing legal matters. These could include significant pecuniary costs and reputation damage sufficient to erode its very strong competitive advantages. S&P had affirmed the overall ratings for the group because of the companies' leading and diversified market positions, conservative capitalization, strong profitability and expense discipline, leading risk-management practices and reduced financial leverage, which improves coverage and financing capacity. However, the rating agency also noted that these strengths are offset to a degree by the potential for adverse development in the group's P/C subsidiaries' reserves for runoff businesses and the legal and regulatory clouds that now overhang Hartford P/C.

S&P concluded Hartford P/C is among the top writers in the small and middle-market commercial markets, where it is an acknowledged leader. It has a specialized niche in personal lines through its long-term relationship with AARP, which provides earnings diversification for this predominantly commercial lines writer.

The company's exit from the assumed reinsurance market reduced the diversification of Hartford P/C's business platform somewhat but should make operating performance less volatile.

Nationwide Indemnity Downgraded

A.M. Best Co. downgraded the financial strength rating to "B+" (very good) from "B++" (very good) of Nationwide Indemnity Co. of Columbus, Ohio. The rating was placed under review with negative implications due to the significant decline in capitalization reported in the company's third quarter financial statement.

Nationwide Indemnity strengthened reserves in the third quarter, which resulted in a reduction of surplus by approximately $300 million, contributing to the dramatic reduction in risk-adjusted capitalization.

Nationwide Indemnity is a wholly owned subsidiary of Nationwide Mutual Insurance Co. (Nationwide) also of Columbus, Ohio, and was established to run off Nationwide's discontinued operations, including indemnity claims.

First Acceptance Subs Rated

A.M. Best Co. assigned a financial strength rating of "B" to USAuto Insurance Co., the insurance subsidiary of Nashville-based First Acceptance Corporation. The "B" rating has also been assigned to Village Auto Ins. Co., a wholly owned subsidiary of USAuto. The outlook for the ratings of both companies is stable.