A full ratings coverage list is shown below.
The rating actions are related to two events announced today. First, the downgrade is in response to a second quarter charge. Second, the Rating Watch reflects further uncertainty related to the reserve study that will be completed during the second half of 2003 and any potential capital actions that may occur as a result.
CNA announced a $308 million after-tax charge which includes adverse development of prior accident year reserves. In addition, the charge also addresses prior accident year claim expenses and potential issues related to reinsurance recoverables.
Given the multiple charges taken in the past five years to strengthen reserves, Fitch believes CNA's reserves have exhibited levels of volatility inconsistent with the prior rating category. As such, this continued reserve volatility was the main consideration in the downgrade. Between 1998 and 2001, CNA incurred $2.7 billion in after-tax adverse prior year reserve development. Favorably, the current charge is not expected to impact capital as both current accident year earnings and realized capital gains through the first half of 2003 will offset the expense.
The Negative Rating Watch reflects the uncertainty related to the announced reserve study. Resolution of the Rating Watch will depend on the size of the resultant reserve charge, if any, and the steps taken by CNA to replenish capital in the event of a material loss. Ultimate rating actions could include a rating affirmation if Fitch becomes comfortable that post-study reserves are adequate and overall capitalization, including both operating company leverage and parent company financial leverage, remain consistent with the organization's recent past. Otherwise, the ratings could be lowered further.
CNA is a multi-line insurance organization with leading market positions in commercial property/casualty insurance and various segments in life insurance. The company is 90% owned by Loews Corporation (Loews). CNA's strengths include a diverse operating profile, large market presence in multiple insurance lines and reasonable investment portfolio quality.
Loews ownership interest is an important consideration in the rating as well, particularly given support provided to CNA over the years. This support has been demonstrated by various actions that have improved CNA's capitalization. Fitch currently rates Loews senior unsecured debt 'A' with a Negative Rating Outlook.
Entity/Issue/Type Action Rating/Watch
CNA Financial Corp.
Senior debt Downgrade from 'BBB' to 'BBB-' / Placed on Rating Watch Negative.
The Continental Corporation
Senior debt Downgrade from 'BBB' to 'BBB-' / Placed on Rating Watch Negative.
Continental Casualty Company Pool
Insurer financial strength Downgrade from 'A' to 'A-' / Placed on Rating Watch Negative.
Members include: Continental Casualty Company, American Casualty Company of Reading, Pennsylvania, CNA Casualty of California, CNA Lloyd's of Texas, Columbia Casualty Company, National Fire Insurance Company of Hartford, Transcontinental Insurance Company, Transportation Insurance Company, and Valley Forge Insurance Company.
Continental Insurance Company Pool
Insurer financial strength Downgrade from 'A' to 'A-' / Placed on Rating Watch Negative.
Members include: The Continental Insurance