A.M. Best Affirms Debt Ratings on CNA and Subsidiaries

A.M. Best Co. announced that it has affirmed various financial strength ratings on the wholly-owned insurance subsidiaries of CNA Financial Corporation, and the “bbb” debt rating on the parent’s existing debt securities.

“The ratings reflect CNA’s solid capitalization, which has compensated for weak operating results,” said the bulletin. It also considered CNA’s “leading market position within the commercial lines segment, brand name recognition, well-established agency relationships, substantial service capabilities and focused marketing approach.”

After going through some extremely hard times, Best noted that CNA’s position is improving. It expects further progress in underwriting and operating performance, “which is supported by the benefits that will continue to be derived from several management initiatives.” It also singled out the group’s “prudent risk management strategies and sound external reinsurance that protects it from large losses.”

“Somewhat offsetting these positive rating factors has been the group’s unfavorable operating performance over recent years driven by adverse loss reserve development, catastrophe losses, intense competition and restructuring charges,” said Best. “These factors have also lent to repressed liquidity and operating cash flow measures.”

It noted that the group “dramatically increased reserves in 2001, significantly reducing the possibility of adverse reserve development from both core and asbestos and environmental (A&E) loss reserves over the medium term (three to five years), a problem that had plagued the group’s earnings for many years.”

Best said that it “believes CNA’s property/casualty operations are now better positioned to produce earnings consistent with A (Excellent) standards. In addition, the action will enable the group to more conservatively reserve current accident years, focus on fundamental underwriting principles and ongoing efforts to improve profitability and benefit from price firming in core commercial markets.”

Best also noted the group’s solid capitalization, more conservative balance sheet and tightened underwriting controls. It views the ratings as “stable,” and also indicated that CNA could count on “the strength and commitment of its majority owner, Loews Corporation, which maintains significant financial resources to support long-term growth strategies.”