A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of ?a? of CNA Surety Corporation Group (CNA Surety) and its members. Concurrently, A.M. Best has affirmed the ICR of ?bbb? of its immediate parent, CNA Surety Corporation (SUR) (headquartered in Chicago, IL) [NYSE:SUR]. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

The ratings reflect CNA Surety's solid risk-adjusted capitalization, historically profitable operating results and leading market position in the contract and miscellaneous surety bond markets.

These positive rating factors are derived from the group's clearly defined target markets, extensive distribution network, disciplined underwriting and credit risk management and strong servicing capabilities. In addition, CNA Surety maintains a well-diversified surety and fidelity book of business with respect to products, geography and market segments, which enables the group to leverage its broad-based expertise to develop and expand its leadership position in the surety marketplace. CNA Surety benefits from the financial flexibility of SUR, which has low financial leverage and strong coverage ratios, as well as its majority owner, CNA Financial Corporation (CNA) [NYSE:CNA], which owns approximately 61% of SUR.

Partially offsetting these positive rating factors is the variability in CNA Surety's operating results during the prior soft market cycle due to adverse loss reserve development, severity and frequency of losses and higher corporate defaults. A further negative impact during this period was an increase in the retention levels and costs associated with more restrictive reinsurance treaties. However, in more recent years, loss reserve development has become increasingly favorable (particularly in years 2008 through 2010); net reinsurance retention levels decreased through 2008; reinsurance costs have moderated; and terms and conditions have become less restrictive.

In 2010, the group reported continued excellent underwriting and operating profitability, which benefited in part from a particularly high level of favorable prior year loss reserve development. Although the group's operating performance will likely be negatively impacted in the near term by the current weakness in the construction industry and the economy (on a lagged basis to a certain degree), the competitive environment in its markets and the likelihood of less favorable prior year loss reserve development, A.M. Best anticipates the group will achieve generally positive underwriting and operating performance in 2011.

On November 1, 2010, SUR announced that it received a proposal from CNA to acquire all of the outstanding minority shares of common stock of SUR that are not currently owned by the subsidiaries of CNA for $22 per share. On February 4, 2011, a special committee of the board of directors of SUR announced it had unanimously concluded that the $22 per share offer substantially undervalues SUR. A.M. Best will monitor this situation closely and will comment, if necessary, when more definitive actions are taken by CNA and SUR relating to any proposed transaction.

The FSR of A (Excellent) and ICRs of ?a? have been affirmed for CNA Surety Corporation Group and its following members:

  • Western Surety Company
  • Surety Bonding Company of America
  • Universal Surety of America

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: ?Risk Management and the Rating Process for Insurance Companies?; ?Understanding BCAR for Property/Casualty Insurers?; ?Rating Members of Insurance Groups?; ?A.M. Best's Ratings & the Treatment of Debt?; and ?Equity Credit for Hybrid Securities.? Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
W. Dolson Smith, CFA
Senior Financial Analyst
908-439-2200, ext. 5379
w.dolson.smith@ambest.com
or
Michael J. Lagomarsino, CFA
Assistant Vice President
908-439-2200, ext. 5810
michael.lagomarsino@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com