Moody’s investor service of Moody’s Corp. (MCO - Analyst Report) affirmed an insurance financial strength (IFS) rating of Continental Casualty Company (CCC) and its intercompany pool members (CNA Insurance Companies) at “A3.” Both these are subsidiaries of CNA Financial Corporation (CNA - Snapshot Report).
Concurrently, the credit rating agency reiterated the senior unsecured debt rating of CNA Financial at “Baa2.” All these ratings carry a stable outlook. The stable outlook for CNA Insurance companies was changed from positive outlook.
Moreover, multi-issuer or multi-seniority shelf registration of CNA Financial was also assigned provisional ratings by Moody’s investor service.
The ratings affirmation came following the steady financial and operational profile of CNA Financial. Also, the company’s consolidated and profitable specialty commercial insurance franchise, sturdy asset quality, and strong capital and liquidity position aided the rating affirmations. However, weak earnings performance, high underwriting combined ratios, volatility in potential claim reserve related to casualty business, interest rate volatility and other risks in CNA Financial’s run-off businesses remain drags on the positive strengths.
A downgrade to a stable outlook for financial strength ratings of CNA Insurance Companies came on the back of its poor underwriting performance in standard commercial lines. This in turn resulted from standard commercial lines’ commodity-like nature and its price sensitivity. The continuous earnings drag from run-off operations was also attributable to the weak results.
CNA Financial’s Life and Group Operations add up $50-$100 million annually to the company’s total expenses. Moreover, these run-off operations are exposed to interest rate and long-term reserve-related risks as these operations have one-third share in the company’s total fixed maturity investment portfolio and also in its policy reserves.
The rating agency might consider a rating upgrade if CNA Financial exhibits rapid growth in core operating earnings of commercial insurance segment; substantially demeans the risks associated with its long-term care, earnings coverage remain above 6x and steadily brings the financial leverage below 25%.
On the other hand, a decline in shareholders’ equity for more than 10% on a sustainable basis, lack of further capital support by Loews Corporation (L - Analyst Report) or other outside investors and consistently high financial leverage of more than 35% in future or earnings coverage falling below 3x will likely lead to ratings or outlook being downgraded for CNA Financial.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock along with maintaining credit worthiness in the market. Therefore, rating downgrades adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help CNA Financial and its subsidiaries retain investor confidence and help it write more businesses going forward.
Among other property and casualty insurers, A.M. Best Co. affirmed FSR of A (Excellent) and ICR of “a” for Aspen American Insurance Company and Aspen Specialty Insurance Company in Sep, 2013. Both these companies are wholly owned subsidiaries of Aspen Insurance Holdings Ltd (AHL - Snapshot Report). A stable outlook was assigned to all the ratings.
CNA Financial presently carries a Zacks Rank #1 (Strong Buy).