Fitch Rates CNA's New Senior Debt Issue due 2024 'BBB'

CHICAGO--()--Fitch Ratings has affirmed CNA Financial Corporation's (CNA) Issuer Default Rating (IDR) at 'BBB+' and its senior unsecured debt at 'BBB'. Fitch has assigned a 'BBB' rating to CNA's 3.95% $550 million senior unsecured debt issuance that matures in 2024. Also, Fitch has affirmed the Insurer Financial Strength (IFS) ratings of CNA's property/casualty insurance subsidiaries at 'A'. The Rating Outlook for all ratings is Stable. A full rating list is shown below.

KEY RATING DRIVERS

Fitch's rating rationale for the affirmation of CNA's ratings reflects the company's strong capitalization, stable earnings, and overall reserve quality. The ratings also reflect anticipated challenges in a competitive property/casualty market rate environment, the potential for adverse reserve development and deterioration in runoff operations.

CNA's financial leverage ratio improved to 17.7% as year-end 2013 compared to 19% at Dec. 31, 2012. GAAP earnings-based interest coverage improved significantly to 8.7x as year-end 2013 compared to 5.8x at year end 2012. Fitch expects that over the next 12-18 months CNA's financial leverage and earnings based interest coverage will approximate current levels.

Fitch notes that CNA's reported financial leverage will temporarily increase to approximately 22% but pro forma financial leverage is relatively unchanged as the new debt issuance will be the source of funds to repay $549 million debt issuance that matures in December 2014.

CNA reported a 97.9% GAAP calendar year combined ratio for full year 2013 an improvement over year end 2012's 105%. Excluding the impact of reserve development, CNA reported a GAAP accident year combined ratio of 99.7% for full year 2013 an improvement from prior year of 108.3%.

CNA's capital position remains solid with stated GAAP stockholders' equity of $12.7 billion at year end 2013 and operating leverage of 0.58 times (x).

CNA recently announced the sale of Continental Assurance Company, an unrated wholly owned life insurance subsidiary that consists of structured settlements and group annuities, to Wilton Re Holdings Ltd. CNA expects to receive total consideration, including tax benefits, of $615 million, which is slightly higher than CAC's statutory capital and surplus of $597 million as of Dec. 31, 2013. However, the company expects to record an after-tax GAAP charge of approximately $220 million during the first quarter, primarily reflecting different statutory and GAAP reserve valuations bases. The transaction is expected to close in the second quarter, subject to regulatory review, and is not anticipated to affect CNA's current ratings.

Fitch's rating rationale continues to recognize Loews' ownership of CNA, as the company benefits from the financial flexibility of a strong majority owner and is able to manage the company with a more long-term approach. Loews has demonstrated its support of CNA over the years through various actions that have improved CNA's capitalization. Fitch views Loews' continued commitment to likely lessen the magnitude of potential downgrades should CNA's creditworthiness deteriorate, but considers CNA's ratings standalone.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade include:

--GAAP calendar year combined ratio for the ongoing property/casualty business of approximately 100% or better over several years;

--Strong improvement in total operating earnings that result in a return on equity of 9% and operating EBIT interest coverage at 9x or better;

--Overall flat to favorable GAAP loss reserve development;

--Achieving a Prism score of 'Very Strong' or higher for several consecutive years;

--Debt-to-total capital maintained below 25%.

Key rating triggers that could lead to a downgrade include:

--Charges related to investments or runoff operations which impede the company's ability to generate 5% annual growth in shareholders' equity before dividends and share repurchases(excluding FAS 115);

--Operating at GAAP calendar year combined ratio of approximately 105% or worse;

--Decline in total operating earnings that result in ROE below 6% and operating EBIT interest coverage at 6x or worse;

--Adverse GAAP reserve development in excess of 5% of prior year's equity;

--Achieving a Prism score of 'Adequate' or below;

--Debt-to-total capital maintained above 30%.

Fitch has assigned the following rating:

CNA Financial Corporation

--$550 million 3.95% due May 15, 2024 'BBB'.

Fitch has affirmed the following ratings with a Stable Outlook:

CNA Financial Corporation

--IDR at 'BBB+';

--$549 million 5.85% due Dec. 15, 2014 at 'BBB';

--$350 million 6.5% due Aug. 15, 2016 at 'BBB';

--$150 million 6.95% due Jan. 15, 2018 at 'BBB';

--$350 million 7.35% due Nov. 15, 2019 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'.

Continental Casualty Company Group

Members:

Continental Casualty Company

American Casualty Company of Reading, Pennsylvania

Columbia Casualty Company

National Fire Insurance Company of Hartford

The Continental Insurance Company

The Continental Insurance Company of New Jersey

Transportation Insurance Company

Valley Forge Insurance Company

Surety Bonding Company of America

Universal Surety of America

Western Surety Company

--IFS at 'A'.

Additional information is available at 'www.fitchratings.com'.

The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

Applicable Criteria and Related Research:

--Insurance Rating Methodology (November 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=821740

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Contacts

Fitch Ratings
Primary Analyst
Gerald B. Glombicki, CPA, +1-312-606-2354
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
or
Committee Chairperson
Julie A. Burke, CFA, CPA, +1-312-368-3158
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Gerald B. Glombicki, CPA, +1-312-606-2354
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
or
Committee Chairperson
Julie A. Burke, CFA, CPA, +1-312-368-3158
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com