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Rating Action:

MOODY'S LOWERS CNA FINANCIAL CORPORATION'S LONG-TERM DEBT RATING (TO Baa2 FROM Baa1); CONTINENTAL CASUALTY COMPANY POOL MEMBERS' FINANCIAL STRENGTH TO A3

28 Dec 2001
MOODY'S LOWERS CNA FINANCIAL CORPORATION'S LONG-TERM DEBT RATING (TO Baa2 FROM Baa1); CONTINENTAL CASUALTY COMPANY POOL MEMBERS' FINANCIAL STRENGTH TO A3

US Multiline Insurance Holding Company.

New York, December 28, 2001 -- Moody's Investors Service has lowered the long-term debt and preferred stock ratings of CNA Financial Corporation (senior debt to Baa2 from Baa1) and of The Continental Corporation (senior debt to Baa3 from Baa2), as well as the insurance financial strength ratings of members of the Continental Casualty Company intercompany reinsurance pool (to A3 from A2). These rating actions conclude a review begun on August 2, 2001 in connection with charges taken in the second quarter of 2001 for adverse claim development at Continental Casualty Company and CNA's other property/casualty insurance and reinsurance operations. The outlooks for these ratings are stable. The Baa2 insurance financial strength rating of CNA Reinsurance Company Ltd. remains on review, direction uncertain, pending Moody's review of further developments in connection with its anticipated sale.

The insurance financial strength ratings of the members of CNA's Continental Insurance Company intercompany pool (A3, with stable outlooks) and CNA Financial Corporation's principal life insurance subsidiaries -- Continental Assurance Company and Valley Forge Life Insurance Company (both rated A2, with negative outlooks) -- are not affected, nor is CNA Financial Corporation's Prime-2 rating for commercial paper.

Moody's noted that although the rating review was originally prompted by CNA's second quarter reserve charges of approximately $2.1 billion net after-tax, and acknowledged CNA Financial Corporation's intention to pursue a $1 billion equity recapitalization, the rating downgrades ultimately reflected additional considerations. The most significant among these is Moody's more cautious view of the adequacy of CNA's reserves in 2001 as compared with the prior year, and the continuing concern that ultimate claim costs on business written in prior years could exceed current estimates, in part reflecting adverse industry-wide claim trends in certain casualty lines. Moody's noted CNA Financial's successful completion of its equity recapitalization in September of this year and that it demonstrated tangible support on the part of Loews Corporation for CNA. However, the rating agency added that its original review had not contemplated losses sustained by CNA from the September 11 terrorist attacks (approximately $300 million net after-tax), from the Company's recent restructuring charges (approximately $120 million net after-tax) and from exposure to losses under insurance and reinsurance contracts (approximately $50 million net after-tax) related to the recent bankruptcy of Enron Corporation, all of which were contributing factors in the rating downgrades.

According to Moody's, CNA Financial Corporation and its principal subsidiaries remain reasonably well-capitalized, and the parent's tangible consolidated GAAP equity capitalization of approximately $5.9 billion as of September 30, 2001 (excluding goodwill and deferred acquisition costs) continues to provide significant capacity to support CNA's various underwriting, investment and other business risks. However, earnings and cash flow have been under strain since 1999 in the flagship property/casualty and reinsurance segments, offset in part by positive results in the life insurance and other segments as well as by investment results. Moody's added that most property/casualty lines of business in which CNA is engaged are undergoing a considerable recovery in contract pricing, terms and conditions and that CNA's prospective operating performance should reflect this improvement in 2002 and 2003. The rating agency added that recent efforts to improve operational efficiency should also contribute to improvement in cash flow and profit margins. Moody's noted that future rating activity for CNA will likely be influenced by the adequacy of the property/casualty group's reserve position and by the property/casualty operation's ability to benefit from the ongoing industrywide recovery in order to improve internal capital generation and debt servicing capabilities at CNA Financial.

The following credit ratings have been lowered:

CNA Financial Corporation:

Senior debt to Baa2 from Baa1; Senior shelf to (P)Baa2 from (P)Baa1;

Subordinated shelf to (P)Baa3 from (P)Baa2;

Junior subordinated shelf to (P)Baa3 from (P)Baa2;

Preferred stock to Ba1 from Baa3; Preferred stock shelf to (P)Ba1 from (P)Baa3;

CNA Financial Capital I, II and III - trust preferred shelf to (P)Baa3 from (P)Baa2;

The Continental Corporation - senior debt to Baa3 from Baa2.

The following insurance financial strength ratings on members of the Continental Casualty Company intercompany reinsurance pool have been lowered to A3 from A2:

American Casualty Company of Reading, Pennsylvania;

CNA Casualty of California;

CNA Lloyd's of Texas;

Columbia Casualty Company;

Continental Casualty Company;

National Fire Insurance Company of Hartford;

Transcontinental Insurance Company;

Transportation Insurance Company;

Valley Forge Insurance Company.

CNA Financial Corporation is engaged through its subsidiaries primarily in commercial property and casualty insurance and reinsurance, and in life insurance. As of September 30, 2001, CNA Financial Corporation reported year-to-date total revenues of $9.5 billion and a net loss of $1.6 billion, and shareholders' equity of $8.6 billion.

New York
Alan Murray
VP - Senior Credit Officer
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ted Collins
Managing Director
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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