Fitch Affirms Ratings for CNA

February 17, 2006

Fitch Ratings has affirmed the ‘BBB-‘ long-term issuer rating and ‘BBB-‘ senior debt ratings of CNA Financial Corporation (CNA) and the ‘A-‘ insurer financial strength (IFS) ratings of CNA’s U.S. insurance subsidiaries. A full rating list is shown below. The Rating Outlook is Stable.

The ratings reflect improved operating earnings, an established and sustainable position in the commercial lines property/casualty market, a conservative investment portfolio, and strong capitalization for its rating.

Partially offsetting these positives are continued adverse reserve development and uncertainty as to the extent rate adequacy has recovered to levels needed to offset anticipated challenges in the current softening property/casualty market environment. Asbestos risk is also a concern for CNA as well, though the company is well positioned relative to its peers.

CNA has made progress in improving its earnings, posting operating income in 2004 and 2005, following a sizable loss recorded in 2003. In particular, the company’s core ongoing commercial property/casualty business has demonstrated significant improvement in underlying profitability, as the company has benefited from both the recent hard market and management’s efforts to increase its focus on underwriting discipline.

Fitch expects CNA’s operating performance to be favorable in 2006, with ongoing operations near underwriting profitability.

Nevertheless, Fitch remains concerned about how the company will respond to a continued softening market environment, as commercial lines pricing remains competitive, particularly in liability lines. CNA will need to demonstrate that it has the discipline to maintain adequate pricing throughout the underwriting cycle, only growing revenue when it is profitable.

CNA continues to report adverse loss reserve development, driven by 2002 and prior accident years and commutations of several finite reinsurance contracts. This is partially offset by overall favorable development in the 2003 and 2004 accident years, indicating that the more recent years appear to be reserved conservatively.

Over the next few years, large reserve charges are not expected to recur. Any large reserve action, following the major charges taken in recent years, would likely create immediate ratings pressure due to longer term franchise concerns.

Fitch performs a stress test of CNA’s statutory capital to assess the impact of various issues and risks including potential reserve charges, an estimated ‘unwinding’ of the remaining finite reinsurance covers, potential reinsurance recoverable losses, and ongoing needs for capital to support several run-off business lines.

While Fitch has always unwound the impact of CNA’s finite reinsurance covers in its analysis, the commutations are still viewed favorably as they reduce reinsurance credit risk, lower interest expense on funds withheld, and provide for greater transparency of results. The results of the stress test indicate a risk profile that is commensurate with the current rating and Stable Outlook.

The following ratings are affirmed by Fitch with a Stable Rating Outlook:

CNA Financial Corporation

Long-term issuer at ‘BBB-‘;
$549 million 5.85% due Dec. 15 2014 at ‘BBB-‘;
$250 million 6.75% due Nov. 15, 2006 at ‘BBB-‘;
$150 million 6.45% due Jan. 15, 2008 at ‘BBB-‘;
$200 million 6.6% due Dec. 15, 2008 at ‘BBB-‘;
$150 million 6.95% due Jan. 15, 2018 at ‘BBB-‘;
$243 million 7.25% due Nov. 15, 2023 at ‘BBB-‘.;
$750 million preferred stock at ‘BB+’.
The Continental Corporation

Long-term issuer at ‘BBB-‘;
$70 million 8.375% due Aug.15, 2012 at ‘BBB-‘.
American Casualty Company of Reading, Pennsylvania

Boston Old Colony Insurance Company

CNA Casualty of California

Columbia Casualty Company

Commercial Insurance Company of Newark, New Jersey

Continental Assurance Company

Continental Casualty Company

Continental Insurance Company of New Jersey

Continental Insurance Company of Puerto Rico

Continental Lloyd’s Insurance Company

Continental Reinsurance Corporation

Firemen’s Insurance Company of Newark, New Jersey

Galway Insurance Company

Glens Falls Insurance Company

Kansas City Fire & Marine Insurance Company

Mayflower Insurance Company, Ltd.

National Fire Insurance Company of Hartford

National-Ben Franklin Insurance Company of Illinois

Niagara Fire Insurance Company

Pacific Insurance Company

The Buckeye Union Insurance Company

The Continental Insurance Company

The Fidelity and Casualty Company of New York

Transcontinental Insurance Company

Transportation Insurance Company

Valley Forge Insurance Company

Insurer financial strength at ‘A-‘.

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