Fitch Affirms CNA's Ratings; Outlook Stable
OREANDA-NEWS. 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 (P/C) insurance subsidiaries at 'A'. The Rating Outlook for all ratings is Stable. A full list of ratings follows at the end of this release.
KEY RATING DRIVERS
Fitch's rating rationale for the affirmation of CNA's ratings reflects the company's strong capitalization, stable earnings, and projected adequate-to-modestly deficient reserve quality. The ratings also reflect anticipated challenges in a competitive P/C market rate environment, the potential for adverse reserve development and deterioration in runoff operations including long-term care.
CNA's financial leverage ratio was 18% at year-end 2015 essentially flat from the prior year. Fitch notes $350 million is coming due in August and anticipates a new debt offering will likely replace the expiring debt. GAAP earnings-based interest coverage was 5.0x for full-year 2015 down from 7.3x in the prior year. The decrease was attributable to lower investment income and a $198 million after-tax charge related to long-term care. Fitch expects that over the next 12-18 months CNA's financial leverage and earnings-based interest coverage will improve moderately over current levels.
CNA reported a GAAP combined ratio of 95.4% for full-year 2015, an improvement over the prior year's 97.7%. From a segment perspective, the Commercial segment continues to underperform but is showing signs of improvement, reporting a GAAP combined ratio of 101.5% for full-year 2015, while Specialty reported 88.7% and International reported 97.6%.
CNA reported favorable reserve development for full-year 2015 that represents approximately 3.1% of earned premiums. When adjusting the combined ratio to account for development, CNA's underlying accident year combined ratio is modestly better versus the prior year. Fitch has some concerns about reserve adequacy related to the commercial business, long-term care, and other run-off operations. Favorably, Specialty and International segment reserves will likely develop redundantly over time. Overall CNA's reserve development is anticipated to be neutral-to-negative in the near term.
CNA's capital position remains solid with stated GAAP stockholders' equity of $11.8 billion at Dec. 31, 2015 and operating leverage of 0.5x. CNA's Prism score for year-end 2014 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 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. CNA's ratings are considered on a standalone basis, but Loews' continued commitment is likely to lessen the magnitude of potential downgrades should CNA's creditworthiness deteriorate.
Key rating triggers that could lead to an upgrade include:
--Strong operating performance with an ROE of 9% and a sustained GAAP calendar-year combined ratio for the ongoing property/casualty business of approximately 100% or better;
--Improved view of reserve adequacy;
--Achieving a Prism score of 'Very Strong' or higher for several consecutive years and maintaining a 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+';
--$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';
--$550 million 3.95% due May 15, 2024 at 'BBB'.
Continental Casualty Company Group
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'.