October 4, 2017 / 4:27 PM / a year ago

Fitch Affirms CNA Financial Corp's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, October 04 (Fitch) Fitch Ratings has affirmed CNA Financial Corporation's (CNA) property/casualty (p/c) insurance subsidiaries Insurer Financial Strength (IFS) ratings at 'A'(Strong). Fitch has affirmed CNA senior unsecured debt at 'BBB' and Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Rating Outlook for all of the ratings is Stable. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Fitch's affirmation of CNA's ratings reflects the company's strong earnings, very strong capitalization, and a reserve position in ongoing p/c operations that Fitch views as sufficient. The ratings also reflect anticipated challenges in a competitive p/c market rate environment and the potential for adverse reserve development in the runoff long-term care business. Fitch views CNA's financial performance and earnings as strong. The reported p/c GAAP combined ratio was 95.3% for 1H17, an improvement over 1H 16 of 96.8%. Similarly, on an accident year basis 1H 17 was 98.2% versus 101.7% over the same period in the prior year. From a segment perspective, commercial lines has posted weaker results for some time; however, 1H17 the company reported a 99.8% segment GAAP combined ratio which is building on company's improvement in this segment. CNA's reported expense ratio is higher than both peer and industry averages. CNA's capitalization and leverage is very strong with financial leverage ratio at 19%, operating leverage at 0.6x and net leverage at 3.6x as of June 30, 2017. The company's Prism score for year-end 2016 was 'Very Strong'. Overall, reserve adequacy is neutral to the rating. CNA reported $86 million (approximately 2.9 pp on the combined ratio) of favorable reserve development for 1H17. Fitch believes that Specialty and International segment reserves will likely develop redundantly over time, which could reduce potential adverse development in the Commercial segment. Fitch has concerns, both for CNA and industry wide, about reserve adequacy over time for long-term care reserves given past development trends, expectations for on-going low interest rates, and the long-duration of long-term claims. CNA is majority owned by Loews Corporations (Loews) (IDR A/Negative). While CNA benefits from Loews financial flexibility and investment expertise, Fitch's ratings on CNA and its subsidiaries are stand-alone ratings. RATING SENSITIVITIES Key rating sensitivities that could lead to an upgrade include: --Improved view of long-term care reserve adequacy; --Operating performance with a return on earnings (ROE) of 9% and a sustained GAAP calendar year combined ratio for the ongoing property/casualty business of approximately 100% or better; --Maintaining an overall assessment of capital and leverage of 'very strong' or better. Key rating sensitivities that could lead to a downgrade include: --Decline in ROE below 6% and sustained combined ratio of 105% or worse; --Adverse GAAP reserve development in excess of 5% of prior year's equity; --A reduction in the overall assessment of capital to 'good' or lower. FULL LIST OF RATING ACTIONS Fitch has affirmed the following rating with a Stable Outlook: CNA Financial Corporation --IDR at 'BBB+'; --$150 million 6.95% due Jan. 15, 2018 at 'BBB'; --$500 million 5.875% due Aug. 15, 2020 at 'BBB'; --$400 million 5.75% due Aug. 15, 2021 at 'BBB'; --$243 million 7.25% due Nov. 15, 2023 at 'BBB'; --$550 million 3.95% due May 15, 2024 at 'BBB'; --$400 million 4.50% due March 1, 2026 at 'BBB'. --$500 million 3.45% due Aug. 15, 2027 at 'BBB'. Continental Casualty Company Group Members: American Casualty Company of Reading, Pennsylvania Columbia Casualty Company Continental Casualty Company The Continental Insurance Company The Continental Insurance Company of New Jersey National Fire Insurance Company of Hartford Surety Bonding Company of America Transportation Insurance Company Universal Surety of America Valley Forge Insurance Company Western Surety Company --IFS at 'A'. Contact: Gerald Glombicki, CPA Director +1-312-606-2354 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Douglas M. Pawlowski, CFA Senior Director +1-312-368-2054 Committee Chairperson Mark Rouck, CFA, CPA Senior Director +1-312-368-2085 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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