Fitch Affirms CNA's Ratings; Outlook Stable
By: Financial News
Fitch Ratings has affirmed the 'BBB' issuer default rating (IDR) and 'BBB-' senior debt ratings of CNA Financial Corporation (CNA) and the 'A-' insurer financial strength (IFS) ratings of CNA's insurance subsidiaries. A full rating list is shown below. The Rating Outlook is Stable.
The ratings reflect the company's improved operating earnings, established and sustainable position in the commercial lines property/casualty market, conservative investment portfolio and strong capitalization for its rating. Partially offsetting these positives are the potential for additional adverse reserve development on older accident years and uncertainty as to the extent rate adequacy has recovered to levels needed to offset anticipated challenges in the current softening property/casualty market environment. Asbestos risk is also a concern for CNA as well, though the company is well-positioned relative to peers.
CNA has made significant progress improving its earnings in recent years, following a sizable loss recorded in 2003. The GAAP combined ratio for the ongoing property/casualty operations improved to 96.0% for the first six months of 2006 compared to 110.0% for full year 2005. The improvement was driven primarily by lower catastrophe losses and the absence of reinsurance commutations, which added approximately 11.6 points to the 2005 combined ratio. While these results reflect the company's improved underwriting discipline and expense management, as well as benefits from the hard market of the early 2000s, they still somewhat lag peer company results and industry averages.
Given the numerous and strong rate increases in 2000-2004 during the hardening market, Fitch believes that the current business is adequately priced. However, this opinion will be best judged over the next 1-2 years. Fitch will pay particular attention to loss ratios for the 2003-2005 accident years. CNA reported flat loss reserve development through the first six months of 2006, which included continued adverse reserve development in the 2002 and prior accident years and in run off operations, offset by overall favorable development in the 2003-2005 accident years and in ongoing operations, indicating that the more recent years appear to be reserved conservatively.
Nevertheless, Fitch remains concerned about how the company will respond to a continued softening market environment, as commercial lines pricing remains competitive, particularly in liability lines. CNA will need to demonstrate that it has the discipline to maintain adequate pricing throughout the underwriting cycle, only growing revenue when it is profitable.
Fitch performs a stress test of CNA's statutory capital to assess the effect of various issues and risks, including potential reserve charges, an estimated 'unwinding' of the remaining finite reinsurance covers, potential reinsurance recoverable losses and ongoing needs for capital to support several run-off business lines. The results of the stress test indicate a risk profile that is commensurate with the Stable Rating Outlook.
The following are affirmed by Fitch with a Stable Rating Outlook:
CNA Financial Corporation
--Issuer default rating at 'BBB';
--US$250 million 6.75% due Nov. 15, 2006 at 'BBB-';
--US$150 million 6.45% due Jan. 15, 2008 at 'BBB-';
--US$200 million 6.6% due Dec. 15, 2008 at 'BBB-';
--US$400 million 6.0% due Aug. 15, 2011 at 'BBB-';
--US$549 million 5.85% due Dec. 15 2014 at 'BBB-';
--US$350 million 6.5% due Aug. 15, 2016 at 'BBB-';
--US$150 million 6.95% due Jan. 15, 2018 at 'BBB-';
--US$243 million 7.25% due Nov. 15, 2023 at 'BBB-'.
The Continental Corporation
--Issuer default rating at 'BBB';
--US$70 million 8.375% due Aug. 15, 2012 at 'BBB-'.
Continental Casualty Company Group
Members include:
Continental Casualty Company
American Casualty Company of Reading, Pennsylvania
Boston Old Colony Insurance Company
CNA Casualty of California
Columbia Casualty Company
Commercial Insurance Company of Newark, New Jersey
Continental Insurance Company of New Jersey
Continental Reinsurance Corporation
Firemen's Insurance Company of Newark, New Jersey
Glens Falls Insurance Company
Kansas City Fire & Marine Insurance Company
Mayflower Insurance Company, Ltd.
National Fire Insurance Company of Hartford
National-Ben Franklin Insurance Company of Illinois
Niagara Fire Insurance Company
Pacific Insurance Company
The Buckeye Union Insurance Company
The Continental Insurance Company
The Fidelity and Casualty Company of New York
Transcontinental Insurance Company
Transportation Insurance Company
Valley Forge Insurance Company
--Insurer financial strength at 'A-'.
Continental Assurance Company
--Insurer financial strength at 'A
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. Article Source: http://www.content.onlypunjab.com Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com.
|
