Fitch Ratings has affirmed
Fitch also affirmed CNA's senior unsecured debt at 'BBB+' and Long-Term Issuer Default Rating (IDR) at 'A-'. The Rating Outlook for all of the ratings is Stable.
Key Rating Drivers
The rating actions consider CNA's favorable financial performance, capital, and debt servicing capabilities and financial flexibility. Offsetting the positives is CNA's exposure to the runoff of the long-term care (LTC) business and a modestly elevated expense ratio compared to peers.
Fitch views CNA's financial performance and earnings as strong. For 1H22, CNA reported a combined ratio of 91%, versus 96% in the prior period, and 96% for FY 2021. The improvement for 1H22 results comes mostly from fewer catastrophes, particularly in the commercial segment, and, to a lesser extent, improvements in the expense ratio and modestly higher favorable development. On an accident-year basis, excluding catastrophes, the combined ratio improved modest by 60 basis points to 91% in 1H22 over the prior period.
CNA's capitalization and leverage are very strong with a financial leverage ratio at 20% as of
The run-off LTC business is backed by investments that are primarily dominated by high-quality fixed income securities with an average credit rating of 'A' and a duration of 9.7 years as of 1H22. These assets more closely match the duration of the LTC liabilities than does the traditional non-life assets, but expose the company to more interest rate sensitivity than pure non-life peers. As of YE21, the company had a net unrealized gain position of
Similarly, as the company looks to implement FASB ASU 2018-12,
Fitch believes CNA's reserves are moderately redundant in p/c lines but potentially deficient in LTC. Fitch's concerns with LTC are focused on uncertainties regarding utilization and morbidity trends, ability to obtain necessary rate increases, expectations for ongoing low interest rates and long-duration claims. Given market-wide uncertainties linked to the LTC business, Fitch believes CNA's LTC reserves, and those of many other LTC insurers, may require future strengthening.
CNA is majority owned by
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A material reduction in LTC exposure.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Adverse development of LTC reserves of more than
Sustained GAAP underwriting loss;
Sustained adverse GAAP reserve development in excess of 3% of prior year's equity;
Sustained GAAP ROE of 6% or lower;
A reduction in the overall assessment of capital factor to 'a+' or lower.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
Entity / Debt
Rating
Prior
Ins Fin Str
A+
Affirmed
A+
Ins Fin Str
A+
Affirmed
A+
Ins Fin Str
A+
Affirmed
A+
Ins Fin Str
A+
Affirmed
A+
Ins Fin Str
A+
Affirmed
A+
Ins Fin Str
A+
Affirmed
A+
LT IDR
A-
Affirmed
A-
senior unsecured
LT
BBB+
Affirmed
BBB+
Ins Fin Str
A+
Affirmed
A+
Ins Fin Str
A+
Affirmed
A+
Page
of 2
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
(C) 2022 Electronic News Publishing, source