A.M. Best Affirms Financial Strength and Debt Ratings of CNA.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 12, 2003

A.M. Best Co. has affirmed the financial strength ratings of A (Excellent) of CNA Insurance Companies (Chicago, IL) and its life/health subsidiaries following the group's announcement of a $2.1 billion third quarter 2003 after-tax charge arising from its recently completed reserve reviews. The company also announced a $1.4 billion recapitalization plan.

Concurrently, A.M. Best has affirmed the "bbb" debt ratings on CNA Financial Corporation's (NYSE:CNA) existing senior debt securities, the AMB-2 rating on the commercial paper program and indicative ratings assigned to corporate securities under a $600 million shelf registration filed in 1999. These indicative ratings include "bbb" on senior unsecured debt, "bbb-" on subordinated debt, "bb+" on trust preferred securities and "bb+" on preferred stock. The rating outlook is negative pending CNA's demonstration of reserve adequacy, and resulting operating profitability, organic surplus generation, positive operating cash flow and improved liquidity over the medium term (3-5 years) that would be considered commensurate with an A (Excellent) rating.

The third quarter charge primarily consisted of core reserve strengthening relating to accident years 2000 and prior but included a provision for asbestos, environmental pollution and mass tort (APMT) reserves. The primary factors that led to the net prior year development were the previously announced comprehensive reserve reviews, which included construction defect and other volatile exposures, and a ground up analysis of APMT exposures. Although the magnitude of the reserve charge taken was far in excess of the reserve deficiency already contemplated by A.M. Best and reflected in the financial strength ratings assigned to CNA's insurance subsidiaries prior to this announcement, A.M. Best believes the study was comprehensive, conservative and makes a reasonable provision for prior year losses. In addition, the analysis was corroborated by an internationally recognized actuarial firm that performed an independent study of both core and APMT exposures, as well as the company's independent auditors, who reviewed the study. While this reserve charge is the second of its kind in the last three years and potential for continued prior year loss emergence always exists, this reserve increase reduces the likelihood of material adverse development in the near term. A.M.Best also believes CNA has been one of the more proactive U.S.-based property and casualty insurers in addressing its prior year loss reserve deficiencies.

The affirmation is based upon the subsequent recapitalization plan, which allows for up to $1.4 billion of capital to be infused by Loews Corporation, the ultimate parent, to replenish the majority of the surplus lost through the charge and to enable CNA to maintain balance sheet strength commensurate with its current financial strength rating of A (Excellent). The affirmation is also predicated upon A.M. Best's determination that there is negligible execution risk in the recapitalization plan, given the $2.4 billion of cash and marketable securities held at Loews Corporation at September 30, 2003, and its significant liquidity. This liquidity is augmented by considerable annual free cash flow to the holding company from other subsidiaries.

The recapitalization plan calls for a total of $1.4 billion to be committed to CNA by the end of the first quarter 2004. Loews has agreed to purchase $750 million of a new series of CNA preferred stock, which would automatically convert into CNA common stock based on current market prices once necessary approvals have been obtained. The proceeds would be applied by CNA to increase the statutory surplus of CNA's principal insurance subsidiary, Continental Casualty Company (CCC). Under the agreement, Loews has also committed up to $500 million of additional capital support through the purchase of surplus notes of CCC in the event that certain additions to CCC's statutory capital are not achieved by February 26, 2004, through business or asset sales and related actions. Additionally, Loews has indicated its commitment to provide up to an additional $150 million by March 31, 2004, in a form to be determined to support the statutory capital of CCC in the event of additional shortfalls in relation to business and asset sales.

Finally, A.M. Best believes that under the assumption that the recent actions will limit the impact of adverse loss reserve development on future earnings, CNA has improved earnings potential for 2004 and beyond. The current book has been fully reunderwritten, and current accident years are benefiting from the compound effects of three years of double-digit rate increases. The data with which to manage underwriting, claims and reserving has improved markedly over the past two to three years, which will enable the company to more quickly recognize and react to adverse trends. Talent at the leadership and technical levels has been upgraded, and management continues to remove infrastructure cost.

A negative outlook has also been assigned to CNA's life and health companies. The change in outlook is due to A.M. Best's belief that these companies are no longer considered core to CNA's operations. A.M. Best is also concerned that the life companies will be looked to provide future capital to CNA's property/casualty operations in the form of potentially large dividends. Presently, CNA's life and health companies are favorably capitalized. However, the payment of significant dividends would negatively impact the future earnings capability of the companies, further reducing these companies' recent modest statutory operating results.

For a comprehensive list of CNA's financial strength and debt ratings, please visit www.ambest.com/press/111201cna.pdf.

For a list of A.M. Best's debt ratings, please visit: http://www.ambest.com/ratings/debtrating/companies.html

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.