Fitch Affirms CNA’s Ratings; Outlook Revised to Stable
CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings on CNA Financial Corporation (CNA):
--Issuer Default Rating (IDR) at 'BBB';
--Senior debt at 'BBB-'.
Fitch has also affirmed the 'A-' Insurer Financial Strength (IFS) ratings of CNA's property/casualty insurance subsidiaries. The Rating Outlook has been revised to Stable from Negative. A full rating list is shown below.
The Outlook revision to Stable reflects the financial and implicit support received from CNA's parent company, Loews Corporation (Loews; approximately 90% ownership of CNA; IDR 'A' with a Positive Outlook) as well as CNA's reduced asset portfolio risk profile and improvements in capitalization and earnings. Fitch's ratings continue to reflect CNA's adequate loss reserves and established position in the commercial lines property/casualty market. Partially offsetting these positives are anticipated challenges in the current competitive property/casualty market and soft rate environment and the potential for additional adverse reserve development on older accident years and in runoff operations.
Fitch's rating rationale continues to recognize Loews' ownership of CNA, as the company benefits from the financial flexibility of a strong majority owner and is able to manage the company with a more long-term approach. Loews has demonstrated its support of CNA over the years through various actions that have improved CNA's capitalization. Since 1998, Loews has provided over $4.2 billion of capital support to CNA, including a $1.25 billion preferred stock investment ($1 billion outstanding at March 31, 2010) in the fourth quarter of 2008 that was necessary to address the near-term deterioration in the company's capital position following asset value reductions. Conversely, over the same period, CNA has paid only approximately $600 million of preferred and common stock dividends to Loews and returned $1.5 billion of capital provided by Loews. Fitch views Loews' continued commitment as a critical factor in serving as a support floor for CNA's current ratings.
CNA has historically actively managed its asset portfolio to achieve better economic returns. However, following the recent volatile investment market conditions, the company repositioned its portfolio to reduce risk and volatility, and produce more consistent future performance. These actions included reducing non-investment grade corporate and non-agency RMBS and CMBS holdings through net sales and principal repayments of approximately $3.9 billion (amortized cost) in 2009, with the company reinvesting in investment grade corporate bonds and agency RMBS.
CNA's capital position improved with stockholders' equity up $4.3 billion or 63% since year-end 2008 to $11.2 billion at March 31, 2010, following a sizable 32% decline in 2008. The growth was driven by $664 million of net income and improvement in the company's net unrealized loss investment position to a $560 million unrealized gain (pre-tax) at March 31, 2010 from a $5.4 billion unrealized loss (pre-tax) at year-end 2008, reflecting recovery in the global credit and investment markets. Furthermore, CNA posted $34 million of net realized investment gains (pre-tax) in the first quarter 2010. This follows $2.2 billion of net realized losses (pre-tax) in 2008-2009, driven by $2.8 billion of other-than-temporary impairment (OTTI) investment losses (pre-tax) over this period, primarily from RMBS subprime and Alt-A mortgage and asset-backed holdings, CMBS, corporate bonds and preferred stocks.
CNA's equity credit-adjusted debt-to-total capital leverage is reasonable at about 18.2% on March 31, 2010, down from 25.3% at year-end 2008, reflecting the stockholders' equity increase, and remains below Fitch's expected range of 20%-25%. CNA's total financing and commitment (TFC) ratio at March 31, 2010 is below average at 0.3 times (x) and GAAP earnings coverage (including Loews preferred dividend) improved to 6.1x for 2009 from 5.7x in 2008. If actual results differ from Fitch's key rating rationale, the ratings will be revisited.
Fitch affirms the following ratings with a Stable Outlook:
CNA Financial Corporation
--Issuer Default Rating (IDR) at 'BBB';
--Senior Debt at 'BBB-';
--$399 million 6% due Aug. 15, 2011 at 'BBB-';
--$547 million 5.85% due Dec. 15 2014 at 'BBB-';
--$347 million 6.5% due Aug. 15, 2016 at 'BBB-';
--$149 million 6.95% due Jan. 15, 2018 at 'BBB-';
--$347 million 7.35% due Nov. 15, 2019 at 'BBB-';
--$241 million 7.25% due Nov. 15, 2023 at 'BBB-'.
The Continental Corporation
--IDR at 'BBB';
--$69 million 8.375% due Aug.15, 2012 at 'BBB-'.
Continental Casualty Company Group
Members include:
Continental Casualty Company;
American Casualty Company of Reading, Pennsylvania;
Columbia Casualty Company;
National Fire Insurance Company of Hartford;
The Continental Insurance Company;
The Continental Insurance Company of New Jersey;
Transportation Insurance Company;
Valley Forge Insurance Company.
--Insurer Financial Strength (IFS) at 'A-'.
Applicable Criteria available on Fitch's website at www.fitchratings.com include:
--'Insurance Rating Methodology' (Dec. 29, 2009);
--'Non-Life Insurance Rating Methodology' (March 24, 2010).
Additional information is available at www.fitchratings.com. The issuer did not participate in the rating process other than through the medium of its public disclosure.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Fitch Ratings, Chicago
Brian C. Schneider, CPA, CPCU, +1-312-606-2321
Gerald B. Glombicki, CPA, +1-312-606-2354
or
Brian Bertsch, +1-212-908-0549
(Media Relations, New York)
[email protected]
Source: Fitch Ratings
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