NU Online News Service, Nov. 12, 2003, 8:07 p.m. EST – Moody’s Investors Service, New York, has cut the insurance financial strength ratings of CNA Corp.’s main U.S. life subsidiaries one notch even though the Chicago-based insurer’s life and group benefits units turned in solid results for the third quarter.
Moody’s lowered the insurance ratings of CNA’s Continental Assurance Company and Valley Forge Life Insurance Company subsidiaries to Baa1, from A2, because of worries that losses at CNA’s property-casualty subsidiaries might put pressure on the life companies, Moody’s says.
CNA has reported a $1.8 billion net loss for the third quarter on $2.7 billion in revenue, compared with $54 million in net income on $2.8 billion in revenue for the third quarter of 2002.
CNA is blaming the net loss on more than $1.8 billion in losses on its property-casualty and reinsurance operations. The main culprits are increases in reserves and core reserves related to asbestos, pollution and mass tort claims, CNA says.
Loews Corp., New York, which owns about 90% of CNA’s stock, has agreed to help CNA by buying $750 million in new CNA non-voting convertible preferred stock; by agreeing to invest as much as $500 million in surplus notes from CNA’s Continental Casualty Company subsidiary by February 2004 if certain asset sales fall through; and by offering to invest another $150 million in Continental Casualty by March 2004 if other asset sales fall through.
CNA also has announced the sale of reinsurance unit renewal rights, a withdrawal from the assumed reinsurance business, an initiative to reorganize its ownership structure to use its statutory capital more efficiently and efforts to cut $200 million in operating expenses.
CNA’s group benefits unit is reporting $42 million in net income for the third quarter on $338 million in net earned premiums, up from $34 million in net income on $292 million in net earned premiums for the third quarter of 2002.
At the life operations, net income increased to $31 million on $264 million in net earned premiums, from $17 million on $236 million in net earned premiums.
“I am certainly disappointed with the actions necessary to strengthen our balance sheet,” says CNA Chairman Stephen Lilienthal. “But I remain very positive about the current performance of our core businesses, particularly property and casualty and group operations.”
CNA has re-underwritten, re-staffed and repositioned its business portfolio over the past two years, Lilienthal says.
Property-casualty sales and property-casualty rate increases were strong during the third quarter, CNA says.
Analysts in the New York office of Standard & Poor’s Ratings Services kept CNA Financial and its affiliates on “CreditWatch with negative implications,” where they had placed the companies in August. The S&P analysts say CNA’s recapitalization efforts and Loews’ commitment to supporting CNA played a role in S&P’s decision to hold the ratings of CNA and its affiliates steady.
Analysts in the Chicago office of Fitch Ratings Ltd. also cited Loews’ support when they affirmed Fitch’s ratings of CNA and its affiliates.
Moody’s analysts are questioning Loews’ future ability to support CNA.
The life insurance subsidiaries could be “a significant potential source of capital relief for CNA’s property-casualty subsidiaries, given their ownership by Continental Casualty Company,” Moody’s says in a comment on its decision to cut the subsidiaries’ ratings. “Management’s continued strategic emphasis on property-casualty insurance operations may lead to a de-emphasis of the life and group businesses.”