CNA Selling Reinsurance Renewals

By Mark E. Ruquet

NU Online News Service, Oct. 3, 3 :27 p.m.EDT?CNA said it is getting out of the reinsurance business and isselling off the CNA Re renewal rights to Folksamerica ReinsuranceCo.

Analysts said the action, which the company said would allow itto concentrate on its core property-casualty business, was notunexpected, and that any ratings impact would probably beminimal.

CNA said renewal rights for "most of the treaty business" wouldbe sold to Folksamerica, which is a subsidiary of White MountainsInsurance Corp, Ltd., of Hamilton, Bermuda.

CNA said CNA Re expects to write approximately $600 million inpremium this year. It has been "a profitable book of reinsurancebusiness," said Stephen W. Lilienthal, chairman and chief executiveofficer for CNA.

Under the terms of contract, CNA said Folksamerica wouldcompensate the carrier based on the amount of premiums it renewsover the next two contract periods. CNA said it is withdrawing fromthe assumed reinsurance business, but would manage the run-off ofits retained liabilities.

In a separate release, Folksamerica said it plans to establishan underwriting office in Chicago staffed by CNA reinsuranceprofessionals.

John Iten, director at Standard & Poor's in New York City,said CNA is following what a lot of other primary insurers havedone, abandoning the reinsurance business because of the capitalinvestment they would have to make in order to be "a factor" in thereinsurance arena.

"It's not a big surprise," he said.

He added that he did not believe there were too many primary p-ccarriers left in the reinsurance business as companies look toconsolidate their businesses "and play to their strengths."

Damien Magarelli, associate director at S&P, said forFolksamerica the transaction would have no affect on the company'srating in the near term, with the renewals not taking place until2004. He would not speculate on the long-term affects, but he notedthe renewals did fit in with the company's business model.

He too indicated that the move fit with a general strategy byprimary insurers to refocus on their p-c business and get away fromreinsurance business where they have less strength.

Alan Murray and Jim Bartie, both vice presidents and senioranalysts with Moody's Investor Service based in New York City, saidthe move was positive for both companies. Mr. Murray said it wasnot unexpected, and fits with a general strategy of CNA toconcentrate on its core commercial and commercial specialtylines.

"It will not de-leverage CNA dramatically, but it will help somewith their risk base capital," observed Mr. Murray.

He said there has been some question about CNA remaining in thereinsurance business after it exited London and saw its creditrating drop.

Mr. Bartie said while he believed the move overall was apositive one for Folksamerica, he did not think the reinsurer wouldpick up a majority of the renewal business because it did not fitwith their risk appetite.

Folksamerica has concentrated its business on property,venturing more into the casualty area. A good portion of CNA'sreinsurance business is on the professional liability side.

He noted that Folksamerica has had a good look at the book andwould not have gone along with the deal if it did not feel it wouldbe able to pick up several hundred million dollars from thebusiness.

"There is a fairly modest amount of business there thatFolksamerica felt it would not be able to get or could only obtainif it competed on price," Mr. Bartie noted.

Fitch Rating issued a statement that CNA's move would "modestlystrengthen CNA's operating leverage position." However, the ratingservice has all of the insurers' companies on rating watch. It wenton to say that the move was not significant to the company'sbalance sheet.