CNA Benefits Sale Doesn’t Affect S&P Rating

December 1, 2003

Standard & Poor’s Ratings Services said Chicago-based commercial lines insurer CNA Financial Corp.’s sale of its group benefits business to Hartford Financial Services Group Inc. was expected and will have no effect on its rating.

The subsidiary writing this business, CNA Group Life Assurance Co., is not currently rated by S&P, so no rating action was taken at this time. The “A” ratings on CNA’s rated life insurance affiliates — Continental Assurance Co. and Valley Forge Life Insurance Co. — were not affected by this transaction.

The sale includes group life and accident insurance, short- and long-term disability insurance, and certain other products. Excluded from the sale is group long-term care insurance, which will be transferred to another CNA affiliate prior to completion of the sale.
The disposition of this business was expected by S&P as part of the capital plan that CNA announced in conjunction with its third-quarter pre-tax restructuring charge of $2.35 billion ($1.5 billion after taxes) for reserve strengthening.

Combined with a $332 million addition to its bad-debt reserve for reinsurance recoverables and other charges, the company reported a net loss of $1.76 billion for the quarter. Capitalization of CNA’s property/casualty affiliates (rated “A-“) is expected to return in the first quarter of 2004 to a level consistent with a rating in the ‘A’ range, S&P said in a statement. The sale is expected to result in a GAAP loss of about $200 million for CNA. However, on a statutory accounting basis, the sale will generate an after-tax gain of about $100 million.

Another component of the capital-restoration plan — the purchase by CNA’s parent, Loews Corp. of $750 million of preferred stock, which will convert into CNA common stock once necessary regulatory approval is obtained — was completed Nov. 24, 2003. Other parts of the plan include a commitment by Loews to provide up to $500 million of additional support in the form of surplus notes purchased from Continental Casualty Co. by Feb. 26, 2004, if the capital improvement from asset sales is less than expected. Finally, Loews has committed to provide an additional $150 million of new capital to CCC by March 31, 2004. In total, Loews will provide up to $1.4 billion of capital contributions to CNA.

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