Fitch Affirms CNA's Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed CNA Financial Corporation's (CNA) Issuer Default Rating (IDR) at 'BBB+' and senior unsecured debt at 'BBB'. Fitch has also affirmed the Insurer Financial Strength (IFS) ratings of CNA's property/casualty insurance subsidiaries at 'A'. The Rating Outlook for all ratings is Stable. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

Fitch's rating rationale for the affirmation of CNA's ratings reflects the company's strong capitalization, stable earnings, and adequate to modestly deficient reserve quality. The ratings also reflect anticipated challenges in a competitive property/casualty market rate environment, the potential for adverse reserve development and deterioration in runoff operations including long-term care.

CNA's financial leverage ratio was 18% as the first half of 2015 (1H15) was essentially flat from the prior year after adjusting for a prefunded debt instrument. GAAP earnings-based interest was 7x as 1H15 was down slightly from the prior period but in line for the full year. Fitch expects that over the next 12-18 months CNA's financial leverage and earnings-based interest coverage will approximate current levels.

CNA reported a GAAP combined ratio of 98.6% as of June 30, 2015, a slight deterioration over the prior year's 97.7%. From a segment perspective, Commercial continues to underperform but is showing some signs of improvement, reporting a GAAP combined ratio of 105.3% as of June 30, 2015, while Specialty reported 92.9% and International reported 95.1%.

CNA reported $7 million, approximately 0.1 percentage point (pp) on the combined ratio, of favorable development for 1H15. While this is a credit positive Fitch notes that the level of favorable development has declined each year since 2010. In particular, Fitch has concerns as to reserve adequacy related to the commercial business, long-term care, and other run-off operations. Favorably, Fitch believes that Specialty and International will likely be redundant but overall Fitch anticipates that reserve development will likely be neutral-to-negative in the near term.

CNA's capital position remains solid with stated GAAP stockholders' equity of $12.2 billion at June 30, 2015 and operating leverage of 0.6x.

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 thus 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. Fitch views Loews' continued commitment to likely lessen the magnitude of potential downgrades should CNA's creditworthiness deteriorate, but considers CNA's ratings standalone.

Fitch published newly updated insurance notching criteria on July 14, 2015 via an update to its master criteria report, 'Insurance Rating Methodology.' Today's affirmation reflects application of the updated notching criteria to CNA's ratings.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade include:

--Strong operating performance with an ROE of 9% and a sustained GAAP calendar-year combined ratio for the ongoing property/casualty business of approximately 100% or better;

--Improved view of reserve adequacy;

--Achieving a Prism score of 'Very Strong' or higher for several consecutive years and maintaining a debt-to-total capital ratio below 25%.

Key rating triggers that could lead to a downgrade include:

--Decline in ROE below 6% and sustained combined ratio of 105% or worse;

--Adverse GAAP reserve development in excess of 5% of prior year's equity;

--Achieving a Prism score of 'Adequate' or below or debt-to-total capital maintained above 30%.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

CNA Financial Corporation

--IDR at 'BBB+';

--$350 million 6.5% due Aug. 15, 2016 at 'BBB';

--$150 million 6.95% due Jan. 15, 2018 at 'BBB';

--$350 million 7.35% due Nov. 15, 2019 at 'BBB';

--$500 million 5.875% due Aug. 15, 2020 at 'BBB';

--$400 million 5.75% due Aug. 15, 2021 at 'BBB';

--$243 million 7.25% due Nov. 15, 2023 at 'BBB';

--$550 million 3.95% due May 15, 2024 at 'BBB'.

Continental Casualty Company Group

Members:

American Casualty Company of Reading, Pennsylvania

Columbia Casualty Company

Continental Casualty Company

The Continental Insurance Company

The Continental Insurance Company of New Jersey

National Fire Insurance Company of Hartford

Surety Bonding Company of America

Transportation Insurance Company

Universal Surety of America

Valley Forge Insurance Company

Western Surety Company

--IFS at 'A'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989816

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989816

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150821005697/en/

Fitch Ratings
Primary Analyst
Gerald B. Glombicki, CPA, +1-312-606-2354
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Jeremy R. Graczyk, +1-312-368-3208
Analyst
or
Committee Chairperson
Mark Rouck, CFA, CPA, +1-312-368-2085
Senior Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
[email protected]

Source: Fitch Ratings

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