The proceeds from the offering will be used to repurchase the $46 million Continental Casualty Co. Group surplus note due 2024 to Loews Corp., subject to regulatory approval, and to retire the 6.50% notes at maturity due April 15, 2005, as well as to pay accrued and unpaid interest on such notes.
CNAF's financial leverage remains well below acceptable limits for its current rating, and although earnings coverage has varied widely due to significant periodic reserve increases in 2001 and 2003, available cash coverage remains strong. The insurance operating subsidiaries, which provide dividends to meet holding company cash needs, are well capitalized and have reported good earnings through the first nine months of 2004.
The rating outlook is negative pending CNA's demonstration of continued reserve adequacy and resulting operating profitability, organic surplus generation, positive operating cash flow and improved liquidity over the medium term that would be considered commensurate with an A (Excellent) rating.
Finally, A.M. Best believes that under the assumption that the recent actions will limit the impact of adverse loss reserve development on future earnings, CNA has improved earnings potential. The current book has been fully re-underwritten, and current accident years are benefiting from the compound effects of three years of double-digit rate increases. The data with which to manage underwriting, claims and reserving has improved markedly over the past two to three years, which will enable the company to more quickly recognize and react to adverse trends. Talent at the leadership and technical levels has been upgraded, and management continues to remove infrastructure cost.