MOODY'S LOWERS RATINGS OF CNA FINANCIAL CORPORATION AND SUBSIDIARIES; LIFE INSURANCE SUBSIDIARIES REMAIN ON REVIEW, DIRECTION UNCERTAIN, PENDING DIVESTITURE
Moody's Investors Service has lowered its ratings on CNA Financial Corporation (senior unsecured debt to Baa1 from A3) and its principal property-casualty, reinsurance and life insurance subsidiaries. According to Moody's, the downgrades of CNA's debt and property and casualty insurance and reinsurance financial strength ratings reflect the group's earnings weakness in 1999, and the rating agency's reduced expectations for CNA's earnings resiliency in the current year, reflecting continued difficult but modestly improving pricing conditions in the commercial lines marketplace.
Moody's noted that it had cited in its December 1999 report on the CNA Insurance Companies particular concern regarding the "apparent weakening of CNA's reserves" in the Continental Casualty Companies' core commercial lines businesses and the impact that the need for further reserve strengthening in both continuing and discontinued businesses could have on the economic benefits of the company's ongoing restructuring efforts. The rating agency added that its concerns at the time were tempered in part by significant capital appreciation in two of CNA's equity holdings, but that its analysis did not contemplate the emergence of additional losses arising from the group's reinsurance operations. Moody's noted that the company's recent reserve strengthening should help to reduce the drag on future earnings, but that continued difficult pricing in many commercial lines would likely continue to constrain earnings resilience.
With respect to CNA's principal life insurance subsidiaries -- Continental Assurance Company (CAC) and its subsidiary, Valley Forge Life Insurance Company (VFL) -- Moody's noted that the rating downgrades (to A2 from A1) are linked to the downgrade of CNA's other ratings. The rating agency added that the continued review of CAC and VFL's ratings with direction uncertain follows CNA's recent announcement that it was exploring the sale of its individual life insurance and life reinsurance businesses. According to Moody's, the review of CAC and VFL will focus on the structure of the sale and businesses sold, as well as on the financial strength of the ultimate buyer (s) and any support that may be provided.
Ratings downgraded, with stable outlook are as follows:
CNA Financial Corporation:
Senior debt to Baa1 from A3;
Preferred stock to "baa1" from "a3";
Senior shelf to (P)Baa1 from (P)A3;
Subordinated shelf to (P)Baa2 from (P)Baa1;
Junior subordinated shelf to (P)Baa2 from (P)Baa1;
Preferred stock shelf to (P)"baa1" from (P)"a3".
CNA Financial Capital I, II and III - trust preferred shelfs to (P)"baa1" from (P)"a3".
The Continental Corporation - senior debt to Baa2 from Baa1.
Members of the Continental Casualty Company intercompany reinsurance pool - insurance financial strength to A2 from A1:
Continental Casualty Company;
National Fire Insurance Company of Hartford;
American Casualty Company of Reading, Pennsylvania;
Transcontinental Insurance Company;
Valley Forge Insurance Company;
Columbia Casualty Company;
CNA Casualty of California;
Transportation Insurance Company;
CNA Lloyd's of Texas.
Rated Members of the Continental Insurance Company intercompany reinsurance pool - insurance financial strength to A3 from A2:
Boston Old Colony Insurance Company;
The Buckeye Union Insurance Company;
Continental Insurance Company;
Continental Insurance Company of New Jersey;
Commercial Insurance Company of Newark, New Jersey;
Continental Reinsurance Corporation;
The Fidelity and Casualty Company of New York;
Firemen's Insurance Company of Newark, New Jersey;
The Glens Falls Insurance Company;
Kansas City Fire and Marine Insurance Company;
Mayflower Insurance Company;
National-Ben Franklin Insurance Company of Illinois;
Niagara Fire Insurance Company.
CNA Reinsurance Company Limited - insurance financial strength to A3 from A2.
Ratings downgraded, but remaining under review - direction uncertain - are as follows:
Members of the CNA Life Insurance Group - insurance financial strength to A2 from A1:
Continental Assurance Company;
Valley Forge Life Insurance Company.
CNA Financial's Prime-2 rating for commercial paper is unaffected.
CNA Financial Corporation is engaged through its subsidiaries primarily in commercial property and casualty insurance and reinsurance, and in life insurance. For the full year 1999, CNA Financial Corporation reported total revenues of $16.4 billion and a net operating loss of $145 million. As of December 31, 1999 CNA Financial reported total assets of $61.2 billion and shareholders' equity of $8.9 billion.
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