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A.M. Best Assigns Ratings to CNA Financial Corporationa?s Shelf Registration and Forthcoming Senior Notes

^{Published on 2010-08-06 14:10:29 - Market Wire}
 

OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has assigned a debt rating of abbba to the forthcoming offering of $500 million senior unsecured notes due 2020 and indicative ratings to selected securities under the shelf registration filed on April 14, 2010 of CNA Financial Corporation (CNAF) (headquartered in Chicago, IL) (NYSE: CNA). The outlook assigned to all ratings is stable. (See below for a detailed listing of the debt ratings.)

CNAF intends to use the net proceeds of the senior unsecured notes issuance to redeem approximately $500 million of the $1.25 billion of cumulative senior perpetual preferred stock issued to its parent, Loews Corporation (Loews), in November 2008. CNAF redeemed an additional $250 million of this preferred stock in the fourth quarter of 2009 with a portion of the proceeds from another senior notes issuance.

At June 30, 2009, CNAFa™s adjusted debt plus preferred-to-total capital was 17.4%, which compares with 19.3% at year-end 2009 and 25.8% at year-end 2008 (including accumulated other comprehensive income). CNAFa™s lower financial leverage at June 30, 2010, as compared with year-end 2009 and year-end 2008, primarily reflects a substantial increase in the fair value of the companya™s investments, and to a far lesser degree, operating earnings, which have contributed to dramatically improved comprehensive income and stockholdersa™ equity. Barring volatility in the financial markets, A.M. Best believes CNAFa™s financial leverage will be approximately 20% at year-end 2010, which is well within A.M. Besta™s guidelines for the assigned ratings. This estimated modest increase in financial leverage considers the current $500 million senior notes offering and the approximate $375 million after-tax GAAP loss CNAF expects in the third quarter of 2010 as a result of its recent announced plans to transfer $1.6 billion of its legacy asbestos and environmental liabilities to National Indemnity Company.

CNAFa™s liquidity is adequate despite the above average risk and volatility of its investments, which the company has actively reduced in recent quarters by repositioning its portfolio, a process it regards as largely complete. During this repositioning process, CNAF has maintained substantial cash and short-term investments and continues to generate positive cash flow. The company discontinued its common stock dividend in the fourth quarter of 2008 and no debt matures before August 2011. During 2009 and the first half of 2010, CNAFa™s interest and dividend coverage ratios again improved to satisfactory levels.

Uncertainties regarding the potential for future investment losses remain at CNAF given its above average exposure to structured securities, including residential and commercial mortgage-backed securities, limited partnerships and below investment-grade securities, as well as longer dated maturities, which are largely to support liabilities from its run off long-term care and life operations. In addition, despite the highly favorable prior year loss reserve development of the companya™s property/casualty operations in recent quarters (particularly in the second quarter of 2010), A.M. Best expects continued soft pricing and continued competitive forces in the U.S. commercial lines sector, which will likely pressure underwriting margins over the near term.

The assigned ratings acknowledge the historical financial support provided to CNAF by Loews, which owns approximately 90% of CNAFa™s common stock. The majority of the net proceeds of the $1.25 billion of preferred stock CNAF issued to Loews in November 2008 was downstreamed to CNAFa™s lead property/casualty insurer, Continental Casualty Company, via a surplus note to strengthen the insurance groupa™s statutory surplus. These transactions, as well as CNAFa™s ability to now issue debt and redeem significant amounts of its preferred stock issuance to Loews, demonstrate significant financial flexibility. Given the excellent and improved level of risk-adjusted capitalization at CNAFa™s property/casualty operating subsidiaries in recent quarters, A.M. Best believes CNAF is well positioned to achieve its capital management plans in 2010.

The following indicative ratings have been assigned under the new shelf registration:

CNA Financial Corporationa"

-- abbba on senior debt

-- abbb-a on subordinated debt

-- abb+a on subordinated junior debt

-- abb+a on preferred stock

CNA Financial Capital I, II and III (guaranteed by CNA Financial Corporation)a"

-- abb+a on preferred securities

The following indicative ratings under the prior shelf registration have been withdrawn:

CNA Financial Corporationa"

-- abbba on senior debt

-- abbb-a on subordinated debt

-- abb+a on preferred stock.

For Besta™s Credit Ratings, an overview of the rating process and rating methodologies, please visit [ www.ambest.com/ratings ].

The principal methodology used in determining these ratings is [ Best's Credit Rating Methodology - Global Life & Non-Life Insurance Edition. ]Additional methodologies that may apply 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 ].