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 TheStreet.com 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.

It reported $168 million in catastrophe losses during the third quarter, compared to $7 million in the same quarter a year ago. Net earned premium was down 4% to $1.8 billion during the quarter, with declines across both standard and specialty lines of business. Policy rates decreased an average of 5% on standard commercial lines and 3% on specialty lines. As a result, net operating income was down 60% to $83 million from $212 million a year ago.

Net realized losses on investments climbed to $423 million compared to $71 million during the second quarter. In its press release, the company indicated that $198 million of the loss related to securities issued by Fannie Mae ( FNM) and Freddie Mac ( FRE); $65 million to securities issued by Washington Mutual; and $23 million to securities issued by AIG ( AIG).

Shares of CNA are down nearly 48% on the year and off 23% to $13.66 in recent trading Monday.

TheStreet.com rates the financial strength of 16 CNA property/casualty and life subsidiaries all rated C or C+.

TheStreet.com Ratings issues financial strength ratings on each of the nation's 8,600 banks and savings and loans which are available at no charge on the Banks & Thrifts Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the Insurers & HMOs Screener.

Melissa Gannon is director of insurance and bank ratings for TheStreet.com Ratings, formerly Weiss Ratings, where she directs the operations of the company's insurance and bank ratings division.

In keeping with TSC?s Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

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