S&P Lowers and Withdraws CNA Re Ratings

November 11, 2002

Standard & Poor’s Ratings Services announced that it has lowered its long-term counterparty credit and insurer financial strength ratings on U.K.-based CNA Reinsurance Co. Ltd. to single-‘B’-plus from triple-‘B’-minus, removed them from CreditWatch, and has withdrawn the ratings at the company’s request.

The actions follow CNA’s recent announcement (See IJ Website Nov. 1) that it has agreed to sell its U.K. subsidiary to Tawa U.K., a subsidiary of France’s Artemis Group, a diversified investment holding company, that forms the base of French financier François Pinault’s business empire.

“The downgrade reflects the cessation of CNA parental control of CNA Re Co. Ltd. and the inherent uncertainty relating to the run-off process,” stated S&P credit analyst Stephen Searby. S&P said it hadn’t yet met with Tawa management, and “cannot therefore comment on the extent to which Tawa will affect the run off of CNA Re Co. Ltd.”

S&P explained that “In August 2001, CNA Re Co. Ltd.’s parent, CNA Financial Corp. (BBB-/Stable/A-3), announced its decision to cease underwriting activities in its London reinsurance operations and to look for a buyer for CNA Re Co. Ltd. In July 2002, it was announced that a sale agreement had been reached with Tawa, conditional upon regulatory approval.”

The bulletin also pointed out that since August 2001, CNA Financial has made capital injections into CNA Re totaling $195 million, of which $120 million was made this year. “Based on the 2001 financial statements, gross technical provisions amounted to $2.4 billion and gross claims paid during 2001 were $0.5 billion, equating to a run-off ratio of 4.8 years, which, given the duration and mix of business written by CNA Re Co. Ltd., is considered in line with industry averages for run-off situations,” it continued.

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