A.M. Best Lowers Rating of CNA Reinsurance

July 24, 2001

A.M. Best Co. lowered the “A” (Excellent) financial strength rating of CNA Reinsurance Co. Ltd., London, to “A-” (Excellent) and placed it under review with negative implications.

According to A.M. Best, this rating action reflects the sharp deterioration in operating performance in 2000 and early 2001–which fell short of the parent’s and A.M. Best’s expectations–and weakened capitalization. The rating also reflects the uncertainty of reserves, given recent adverse development and continued uncertainty regarding U.S. workers’ compensation carve-out business written in 1997-1999 through arrangements with IGI Underwriting Agencies Ltd. (IGI).

Nevertheless, the rating remains Excellent based on the explicit support provided by the parent, Continental Casualty Company, through a $25 million capital contribution in July 2001 and a guaranty of liabilities through year-end 2002. The parent has also provided CNA Re a stop-loss agreement covering liabilities arising from IGI and liabilities arising from 1990 and prior underwriting years, including asbestos and pollution reserves. In addition, $50 million of available capacity under a line of credit provided by the parent remains, which could be utilized to support both capitalization and liquidity.

The rating will remain under review with negative implications pending further discussions with management regarding the potential for future adverse loss reserve development and ongoing strategic plans given the company’s diminished market presence following a substantial reunderwriting of its book.

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