• On 21 May 2013, Moody’s announced rating actions on MBIA Insurance Corp., National Public Finance Guarantee Corp., MBIA Inc. and other related entities. Because of the large number of credits across several asset classes affected by these rating actions, including Moody's-rated securities that are guaranteed or "wrapped" by these companies, ratings appearing on this website may not yet reflect current information. For current information on affected credits, please visit www.moodys.com/fig.
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Rating Action:

Moody's upgrades CNA Financial (senior debt to Baa2); outlook on insurance ratings is positive

Global Credit Research - 28 Jun 2012

Approximately $2.6 billion of debt affected.

New York, June 28, 2012 -- Moody's Investors Service has upgraded the debt ratings of CNA Financial Corporation (NYSE: CNA; senior unsecured to Baa2 from Baa3) with a stable outlook. In the same action, Moody's has affirmed the A3 insurance financial strength (IFS) ratings for Continental Casualty Company (CCC) and other rated members of its property/casualty insurance intercompany pool ("CNA Insurance Companies") while revising the outlook to positive from stable.

According to Moody's, the affirmation of the CNA Insurance Companies' A3 IFS ratings reflects CNA's leadership position in many major commercial and specialty property & casualty insurance lines in the US, its consistently profitable specialty lines segment, a sound liquidity position and good risk-adjusted capitalization, and the historically supportive parentage of Loews Corporation. These strengths remain tempered by earnings weakness and persistent high combined underwriting ratios in commercial lines, by potential claim reserve volatility associated with commercial casualty lines of business, and to a lesser degree by exposures to natural and manmade catastrophes, as well as interest rate sensitivity and other risks inherent in CNA's run-off long-duration pension and long term care operations.

The shift to a positive outlook, however, reflects notable sustained improvements in the group's credit profile in recent years, particularly with respect to asset quality and profitability as well as improved stability in its risk-adjusted capital adequacy profile and enhanced strategic focus. Moody's noted that CNA significantly de-risked its investment portfolio in recent years, and has demonstrated consistent profitability in its specialty lines segment while continuing to make steady, if gradual, improvements in its commercial lines operations, which remain challenged by weak underwriting profitability and elevated combined ratios. Moody's added that risk management has become a core discipline, and one that has enabled the company to identify areas of risk concentrations and capital inefficiencies, and support strategic decisions with respect to its core operations, as well as the divestiture of non-strategic segments or subsidiaries.

The upgrade of CNA Financial's debt ratings considers both the above-noted positive developments at CNA's core insurance operations, as well as today's upgrade of Loews' Corporation's senior debt to A2, from A3, and Moody's view that creditors of CNA Financial benefit not only from the improving underlying strength of the group's insurance operations, but also incrementally from the implied support of a higher-rated Loews Corporation, through its internal liquidity resources, as well as its diversified sources of cash flow. The stable outlook for CNA Financial's debt ratings reflects Moody's view that, should the positive rating outlook on the group's insurance A3 financial strength ratings ultimately resolve in a rating upgrade, CNA Financial's senior debt rating would likely remain stable, consistent with Moody's standard 3-notch spread between insurance subsidiary financial strength and holding company senior unsecured debt ratings.

"CNA has made strides in strengthening its profitability, enhancing its actuarial and reserving discipline, de-risking its investment portfolio, stabilizing its risk-adjusted capitalization, and improving the underwriting performance of its commercial lines segment," commented Moody's senior credit officer Alan Murray. "We view the enterprise as being well positioned to build on its property-casualty insurance franchise going forward, including sustaining its long-standing leadership is specialty lines (e.g. professional liability and surety) and in re-focusing and improving its commercial insurance segment, which nevertheless continues to face significant headwinds."

Moody's noted that a combination of the following factors could lead to an upgrade: 1) sustained improvement in core operating earnings, particularly in the commercial lines segment; 2) adjusted financial leverage below 25% on a sustained basis; 3) risk-adjusted capitalization on par with more highly-rated industry peers; 4) an upgrade of Loews Corporation (senior debt currently at A2); and 5) earnings coverage of interest on fixed maturities above 6x. Conversely, factors that could lead to a return to a stable outlook include the following: 1) a non-temporary decline in shareholders' equity of 10% or more (with adjustments for variability in unrealized gains/losses), absent further capital support from Loews Corporation or other outside investors; 2) sustained adjusted financial leverage in excess of 30%; 3) a downgrade of Loews Corporation to the Baa level or below, and/or an indication of diminished support of CNA by Loews; 4) earnings coverage of interest on debt and preferred dividends below 4x; or 5) annual adverse reserve development in excess of 5% of total reserves.

The following ratings have been upgraded, with a stable outlook:

CNA Financial Corporation: senior unsecured debt to Baa2 from Baa3; provisional rating for senior unsecured debt to (P)Baa2 from (P)Baa3; provisional rating for subordinated debt to (P)Baa3 from (P)Ba1; preferred stock to Ba1 (hyb) from Ba2 (hyb); provisional rating for preferred stock to (P)Ba1 from (P)Ba2;

The Continental Corporation: senior unsecured debt to Baa2 from Baa3;

CNA Financial Capital I, II and III: provisional rating for capital securities to (P)Baa3 from (P)Ba1.

The following ratings have been affirmed and the outlook has been changed to positive from stable:

American Casualty Company of Reading, Pennsylvania -- insurance financial strength at A3;

Columbia Casualty Company -- insurance financial strength at A3;

The Continental Casualty Company -- insurance financial strength at A3;

The Continental Insurance Company of New Jersey -- insurance financial strength at A3;

Continental Insurance Company -- insurance financial strength at A3;

National Fire Insurance Company of Hartford -- insurance financial strength at A3;

Transportation Insurance Company -- insurance financial strength at A3;

Valley Forge Insurance Company -- insurance financial strength at A3.

CNA Financial Corporation is engaged through its subsidiaries in commercial and specialty property and casualty insurance. For the full year 2011, CNA Financial Corporation reported net earned premiums of $6.6 billion and net income of $614 million. As of March 31, 2012, shareholders' equity was $12.0 billion.

The principal methodology used in these ratings was Moody's Global Rating Methodology for Property and Casualty Insurers, published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Alan Murray
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades CNA Financial (senior debt to Baa2); outlook on insurance ratings is positive
No Related Data.

 

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