CNA Financial ( CNA), the 13th largest property and casualty insurance company in the U.S., announced Monday that it has suspended its quarterly dividend as part of an arrangement with its holding company Loews ( L)

Loews will purchase $1.25 billion of nonvoting cumulative senior preferred stock issued by CNA which, per the agreement, must be paid off before CNA can resume paying quarterly dividends on its common stock.

One billion dollars of the proceeds will be used to increase statutory capital of the largest insurance subsidiary, Continental Casualty. The positive spin put on the capital-raise during the conference call was that it was a proactive move to take advantage of new opportunities. However, Continental Casualty reported a quarter-over-quarter decline in capital of $684 million as of June 30, the most recent statutory data available.

It suffered a year-to-date net realized loss on investments of $147 million and an underwriting loss of $410 million. With the continued decline in the securities market and hurricane claims still coming in, these results no doubt deteriorated during the third quarter.

During the conference call, the company indicated that the firm's regulatory risk-based capital ratio before the capital raise was approximately 325% -- the low end of its conservative internal target. After the capital raise, the RBC ratio will be approximately 375%. This level far exceeds regulatory requirements. Continental Casualty has a Financial Strength Rating of C (Fair).

CNA has suffered the same fate as other insurers reporting third-quarter results. It suffered catastrophe losses, investment losses and decreased premium income due to the soft market resulting in a net loss of $331 million or $1.23 per diluted share for the quarter.

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