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.

Topics Reinsurance