AIG Under Review

A.M. Best Co. placed the financial strength ratings of member companies of American International Group Inc. under review with negative implications following the announcement that the chairman and CEO Maurice Greenberg will retire as CEO, although he remains non-executive chairman.

Greenberg will be succeeded by Martin J. Sullivan, who had been AIG's vice chairman and co-chief operating officer. The company also announced that the CFO, Howard Smith, has taken leave and that the filing of AIG's 2004 annual 10-K has been delayed. Smith will be succeeded by Steven J. Bensinger. The retirement of Greenberg follows concern over an increasing number of regulatory inquiries as well as queries from the New York Attorney General and the Securities and Exchanger Commission.

The vast majority of AIG's major insurance subsidiaries have held financial strength ratings of "A++" for many years. However, Best said there remain a number of unresolved issues with the potential for continued uncertainty. The ratings have been placed under review due to the delay in the filing, the premature retirement of two top senior executives, and the numerous regulatory inquiries. Best believes the operating fundamentals within AIG are sound, there is significant management bench-strength among the leaders of the business segments, and barring any additional negative reports, the ability to generate historical earnings should continue.

CNA Affirmed

Fitch Ratings affirmed the "BBB-" long-term issuer and senior debt ratings of Chicago-based commercial insurer CNA Financial Corp., as well as the "BBB-" insurer financial strength ratings of CNA's U.S. insurance subsidiaries.

The rating outlook has moved from negative to stable. The rating outlook reflects CNA's improved balance sheet quality. Fitch said it formed this opinion based on a detailed review of CNA's statutory balance sheet. Statutory capital was stressed for the impact of various issues and risks including potential reserve charges, an estimated unwinding of major finite reinsurance covers, potential reinsurance recoverable losses, and ongoing needs for capital to support several run-off business lines.

Future charges for reserves or reinsurance recoverables are not expected but were included, given the purpose of the analysis, the company's history, and the importance of these issues relative to policyholders' surplus. The result of this analysis, along with good operating results in 2004, led Fitch to revise the rating outlook to stable.

CNA's strengths include improving operating earnings, an established and sustainable position in the commercial lines property/casualty market, and a conservative investment portfolio. Recent operational actions include a greater emphasis on underwriting earnings, as compared with revenue growth, and focusing on core businesses while exiting lines in which a competitive advantage was not present.

Fitch continues to recognize the Loews ownership of CNA but also acknowledges that CNA's rating is based on a stand-alone analysis that does not factor in Loews' willingness or ability to contribute financial support to CNA.

Fitch expressed concern about the degree of rate adequacy in the current insurance market, as well as whether the rate adequacy has recovered to levels needed to offset anticipated challenges when the property/casualty market softens in the near future. Fitch's rating rationale also considers the use of finite reinsurance and credit risk exposure related to reinsurance recoverables. Asbestos risk is a concern for CNA, as well, though the company is well positioned relative to peers.

In 2005, CNA's operating performance is anticipated to show sound and stable improvement. Balance sheet quality is expected to remain stable, with no increase in the asset portfolio risk, stable reserve positions, and solid subsidiary capitalization. Financial leverage is expected to remain below the mid-20s, and has been substantially lower in recent years.

Service Insurance Assigned "A-"

Service Insurance Company of Bradenton, Fla., hit with customer losses of more than $100 million in the four hurricanes that swept Florida in 2004, was removed from A.M. Best's rate review process and assigned an excellent rating with a stable outlook. Service has maintained an "A-" (excellent) rating for 17 years.

As a result of the hurricanes, Service was impacted with four-times more claims in a 45-day period than it usually receives in a year. Much of the insurance industry in Florida suffered severe losses in the storms. Service has top-rated reinsurance and its net loss was only a fraction of the $100 million. Consequently, Service made a commitment to improve its position by increasing capital.