Business & Finance
Business and Finance
Business and Finance
Thu, July 15, 2010 A.M. Best Comments on CNA Insurance Companiesa? Pending Transfer of Asbestos and Environmental Pollution Liabilities
OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has commented that the financial strength rating of A (Excellent) and issuer credit ratings (ICR) of aaa of CNA Insurance Companies (CNA) and its members are unchanged following CNA Financial Corporationa™s (CNAF) (headquartered in Chicago, IL) (NYSE: CNA) announcement that its principal operating subsidiary, Continental Casualty Company, together with several of its other insurance subsidiaries, have entered into an agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc., under which approximately $1.6 billion of CNA legacy net asbestos and environmental (A&E) pollution liabilities will be ceded to NICO. The ICR of abbba and debt ratings of CNAF also are unchanged. The outlook for all ratings is stable.
Effective January 1, 2010, CNA will cede these A&E liabilities to NICO under a retroactive reinsurance agreement with an aggregate limit of $4 billion. The aggregate reinsurance limit also will cover credit risk on existing third party reinsurance related to these liabilities. CNA will pay to NICO a reinsurance premium of $2 billion, and also transfer to NICO the right to collect billed third party reinsurance receivables with a net book value of approximately $200 million. NICO will deposit $2.2 billion in a collateral trust for the benefit of CNA. In addition, Berkshire Hathaway Inc. has guaranteed the payment obligations of NICO up to the full aggregate reinsurance limit as well as certain of NICOa™s performance obligations under the trust agreement. NICO will assume responsibility of claims handling and collection from third party reinsurers related to CNAa™s A&E claims. The closing of the transaction is subject to regulatory approvals and other closing conditions, and is expected to occur in the third quarter of 2010.
CNA expects to recognize an after-tax GAAP loss of approximately $375 million as a result of this transaction at closing. Nevertheless, A.M. Best believes the transaction is positive for CNA as it dramatically reduces the uncertainty of its legacy A&E liabilities and virtually eliminates any A&E earnings drag for the foreseeable future. Furthermore, resources required to manage and operate the A&E run off also are dramatically reduced, allowing greater focus on core businesses. A.M. Best anticipates CNAa™s risk-adjusted capitalization will remain solid post the transaction, and operating performance should remain sound in the near term despite the current highly competitive property/casualty environment in its markets.
For Besta™s Credit Ratings, an overview of the rating process and rating methodologies, please visit [ www.ambest.com/ratings ].
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at [ www.ambest.com/ratings/methodology ].
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit [ www.ambest.com ].
