A.M. Best: CNA Can Handle $1.83 Billion Charge

NU Online News Service, Nov. 13, 3:23 p.m.EST?Most rating firms reacting to CNA FinancialCorporation's $1.83 billion after-tax reserve charge announcementhave affirmed current ratings and voiced the opinion the insurer isbetter-positioned than many competitors to handle such charges.

"We affirmed our ratings and assigned a ?negative' outlook,"said Karen Horvath, an analyst at Oldwick, N.J.-based A.M. Best,which currently has an "A" financial strength rating for CNAInsurance Companies.

She told National Underwriter that amount of reservecharge was "beyond our expectations." But, she added, "I think theydid a very thorough review--and they are probably one of the moreproactive companies that are really trying to get their arms aroundtheir prior-year liabilities. The industry as a whole has a bigdeficiency."

Furthermore, CNA probably has a better wherewithal to take onsuch charges than other companies, Ms. Horvath said, because theyhave the backing of Loews, which has contributed considerablecapital to CNA over the past few years, "and that's been realcapital, real hard cash."

Peter Patrino, an analyst at New York-based Fitch Ratings, whichaffirmed current ratings on CNA Financial and its primary p-cinsurance subsidiaries with "negative" outlook, said Fitch'sperspective wasn't so much on the size of the charge. Rather, "ourfocus was more on the net impact on the balance sheet. And in ouropinion, some reserve uncertainty has been removed, and that helpsus out," he said.

Currently, Fitch has "A-minus" insurer financial strengthratings on CNA's Continental Casualty Company Pool and ContinentalInsurance Company Pool.

Additionally, Standard & Poor's Ratings Services in New Yorksaid its ratings on New York-based Loews remain on CreditWatch with"negative" implications.

Moody's Investors Service, on the other hand, has lowered creditratings of CNA Financial, with senior unsecured debt ratingdowngraded to "Baa3" from "Baa2." But the ratings agency confirmedthe "A3" insurance financial strength ratings of CNA's p-cinsurance subsidiaries, members of the Continental Casualty Companyand Continental Insurance Company intercompany pools.

Speaking on a conference call with analysts yesterday shortlyafter the announcement, Stephen Lilienthal, chief executive officerof the CNA insurance companies, said taking the reserve charge ofthis magnitude was "a very painful, protracted, but necessary"process.

But Mr. Lilienthal said the company has developed a capitalplan, including "substantial support" from its parent companyLoews, following its reserve charges. Going forward, he explained,Loews has agreed to buy $750 million of new CNA non-votingconvertible preferred stock, with the proceeds designed to boostthe statutory surplus of CNA's principal insurance unit,Continental Casualty Company.

Loews has also committed up to $500 million of additionalcapital support by buying surplus notes of Continental Casualty, hesaid. Furthermore, CNA's capital plan also includes a number ofother initiatives, including possible sales or other dispositionsof businesses and assets.