CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed CNA Financial Corporation's (CNA) Issuer Default Rating (IDR) at 'BBB+' and senior unsecured debt at 'BBB'. Fitch has also 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 list of rating actions follows at the end of this release.
KEY RATING DRIVERS
Fitch's rationale for the affirmation of CNA's ratings reflects the company's strong capitalization, stable earnings, and adequate reserve position in ongoing p/c operations. The ratings also reflect anticipated challenges in a competitive property/casualty market rate environment and the potential for adverse reserve development in the runoff of long-term care business.
CNA's financial leverage ratio was 19% at first-half 2016 (1H16), in line with previous years and below the current rating tolerance of 25%. GAAP fixed charge coverage was 5.6x for 1H16, down from 7.0x in 1H15. The decrease was attributable to lower investment income and higher non-catastrophe current accident year losses, partially offset by higher net favorable reserve development. Fitch expects that over the next 12-18 months CNA's earnings-based interest coverage will modestly improve over current levels.
The reported property/casualty GAAP combined ratio was 96.8% for 1H16, an improvement over 1H15 of 98.6%; however, on an accident year basis 1H16 deteriorated 3.0 pp to 101.7% over the same period in the prior year. From a segment perspective, The International segment underperformed with several large losses, but modest improvement is anticipated for full-year 2016 results.
The company reported $163 million (approximately 4.9 pp on the combined ratio) of favorable development for 1H16. Fitch believes that Specialty and International reserves will likely develop redundantly over time and will reduce any adverse development in the Commercial segment. Fitch has concerns about the adequacy of long-term care reserves due to past experience, interest rates, and the long-tail nature of the claims.
CNA's capital position remains solid with stated GAAP stockholders' equity of $11.9 billion at June 30, 2016 and operating leverage of 0.6x. CNA's Prism score for year-end 2015 was 'Very Strong'.
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 as likely to reduce 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:
--Improved view of long-term care reserve adequacy;
--Strong 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 a Prism score of 'Very Strong' or higher for several consecutive years and maintain debt-to-total capital below 25%.
Key rating triggers 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;
--Achieving a Prism score of 'Adequate' or below or debt-to-total capital maintained above 30%.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings with a Stable Outlook:
CNA Financial Corporation
--IDR 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';
--$550 million 3.95% due May 15, 2024 at 'BBB';
--$400 million 4.50% due March 1, 2026 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'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 15 Sep 2016)
https://www.fitchratings.com/site/re/887191
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012941
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012941
Endorsement Policy
https://www.fitchratings.com/regulatory
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001