The ratings acknowledge the historical financial support provided by CNA’s ultimate parent, Loews Corporation (Loews). In 2008, Loews purchased $1.25 billion of senior perpetual preferred stock issued by CNAF. The majority of proceeds from this offering, $1.0 billion, were down-streamed to CNA’s lead property/casualty insurer, Continental Casualty Company (CCC), via a surplus note. Also in 2008, CNAF contributed an additional $500 million to CNA largely to offset significant investment losses during that year. Since 2008, CNAF’s dramatically improved financial position has enabled it to redeem all of the $1.25 billion preferred stock issued to Loews by year-end 2010 and enabled CNA to pay off the $1.0 billion surplus note issuance to CNAF by June 2012.
CNAF’s financial leverage decreased as of September 2012, with CNAF’s adjusted debt to-total-tangible capital measuring 18.6%, compared with 19.4% at year-end 2011, based on A.M. Best’s current methodology for calculating financial leverage that excludes accumulated other comprehensive income, which was primarily driven by an increase in stockholder equity.
CNAF’s liquidity is adequate. While the company has made significant progress to reduce investment risk by repositioning its portfolio, CNAF maintains an above average exposure to below investment grade securities and long dated maturities, which are largely held to support liabilities from its run-off long-term care and life operations.
CNAF’s cash and equivalents were approximately $292 million at year-end 2011. Combined with the availability of a $250 million credit facility and operating company dividend capacity, the holding company has ample liquidity near term to meet its corporate obligations, which include projected interest payments of $170 million in outstanding debt. In 2011 and 2012, CNAF’s coverage ratios were well within A.M. Best’s guidelines for its ratings.The ratings of CAC recognize its strong risk-adjusted capitalization, favorable operating results and effective asset/liability management as it operates in run-off status. CAC reported solid statutory profits for 2010, 2011 and through third quarter 2012. A.M. Best notes CAC’s effective asset/liability matching in light of the long duration of its remaining liabilities, comprised primarily of structured settlements. A.M. Best remains concerned with the low interest rate environment, which may pressure returns over the medium term. However, this concern is somewhat mitigated by CAC’s well-developed asset/liability matching and cash flow testing practices.
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