A.M. Best Affirms Ratings of CNA Surety Corporation Group.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" of CNA Surety Corporation Group (CNA Surety) (Chicago, IL). The ratings apply to Western Surety Company and its wholly owned subsidiaries, Surety Bonding Company of America (both of South Dakota) and Universal Surety of America (Texas). A.M. Best has also affirmed the ICR of "bbb" of CNA Surety Corporation (Chicago, IL) (NYSE: SUR). The outlook for all ratings is stable.

These 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. Partially offsetting these positive rating factors are the group's year-over-year decline in operating results through 2003 and adverse loss reserve development experienced in prior accident years. Nevertheless, the outlook is supported by management's corrective actions, which led to improved operating results and strengthened overall capitalization in 2004 and 2005.

CNA Surety's positive rating factors are derived from its well-defined market focus, extensive distribution network, renewed disciplined underwriting approach 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, enabling the group to leverage its broad-based expertise to develop and expand its leadership position in the surety marketplace.

The ratings also reflect management's corrective actions in recent years to improve operating results, including implementing significant rate increases, reducing its aggregate exposures to large commercial accounts, and continued productivity improvements and operating efficiencies. These initiatives, in conjunction with more favorable corporate default rates, have resulted in an improvement in operating results in 2004 and 2005. Furthermore, the group benefits from the reinsurance support provided by its majority owner, CNA Financial Corporation.

The negative rating factors were driven by a decline in operating results through 2003 due to adverse loss reserve development, an increase in severity and frequency of losses, rising retentions and costs associated with more restrictive reinsurance treaties and an increase in corporate defaults. These unfavorable trends culminated in a significant reserve charge in 2003, resulting in a precipitous drop in surplus.

Further negatively impacting results during this period were CNA Surety's net retentions, which remained above historical amounts, despite declines in 2003 and 2004. In addition, the group also experienced a significant increase in the cost of reinsurance through 2004. However, reinsurance costs have since moderated, and the terms and conditions of the treaties have become less restrictive, as evidenced by only one large account, which remains excluded from the 2005 and 2006 third-party reinsurance treaties.

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.