CNA Selling Continental Life, Group Business to Wilton Re

February 10, 2014

CNA Financial Corp. said it is selling its life and group insurance business, Continental Assurance Co., to a subsidiary of Wilton Re Holdings Ltd.

CNA said it expected net proceeds of about $615 million from the sale and a portion of this would be in the form of a dividend from Continental.

In addition to the sale of Continental, certain affiliates of CNA and Wilton Re have agreed to enter into a 100 percent reinsurance agreement and related transaction agreements under which a Wilton Re subsidiary will reinsure all of the run-off structured settlement annuities reinsured by a Bermuda-based subsidiary of CNA.

The transactions, when completed, will reduce CNA’s non-core Life & Group gross GAAP insurance reserves by $3.4 billion, or 25 percent, and dispose of the vast majority of CNA’s payout annuity business, according to the announcement.

CNA said it expects the transaction to close in the second quarter of 2014.

As a result of the transaction, CNA expects to record an after-tax GAAP charge of approximately $220 million, which the company said it will record in the first quarter of 2014.

“Over the past several years, we have simplified our operations through targeted dispositions and made strategic investments in higher growth businesses,” said Thomas F. Motamed, chairman and CEO of CNA. “This transaction is another step in the execution of our strategy to create a more focused P&C business capable of delivering consistent performance.”

The Continental deal was announced after parent Loews Corp. reported a bigger quarterly loss, hurt by impairment charges. Loews’ net loss widened to $198 million in the fourth quarter ended Dec. 31 from $32 million a year earlier.

The company said it took goodwill impairment charges of $398 million in the quarter, primarily related to low market prices for natural gas and natural gas liquids in its HighMount Exploration & Production LLC unit.

Loews, owned by the billionaire Tisch family, also booked a charge of $111 million, related to CNA’s transfer of its asbestos and pollution liabilities to Berkshire Hathaway Inc.’s National Indemnity Co. unit.

Loews’ revenue rose 5 percent to $3.89 billion in the quarter.

Loews reported $356 million in income for the quarter, mainly due to higher earnings at CNA and increased investment income.

CNA’s Property & Casualty Operations’ net operating income was $340 million for the fourth quarter of 2013 as compared with $60 million in the prior year quarter, which the company said was primarily due to improved current accident year underwriting results, including lower catastrophe losses, and higher net investment income.  These favorable items were partially offset by lower favorable net prior year development.  Catastrophe losses for the fourth quarter were $15 million after-tax as compared with $190 million after-tax in the prior year quarter.  Net written premiums grew 5 percent year over year, driven by increases in CNA Specialty and Hardy, a Lloyd’s underwriter acquired in 2012.

CNA’s net operating income for the full year 2013 increased $330 million as compared to the prior year.  Property & Casualty Operations’ net operating income was $1,185 million for the full year as compared with $758 million in the prior year.  Catastrophe impacts for the full year were $111 million after-tax as compared with $270 million after-tax in the prior year.

The combined ratio for Property & Casualty Operations for the fourth quarter and full year was 95.0 and 97.9, respectively.

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