Continental Assurance, Valley Forge Downgraded by S&P.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/20/97 -- Standard & Poor's today lowered its claims-paying ability and counterparty credit ratings on Continental Assurance Co. and Valley Forge Life Insurance Co. to double-`A'-minus from double-'A'. The outlook on the counterparty credit rating is negative.

Continental Assurance and Valley Forge Life are strategically important members of the Chicago, Ill.-based CNA Financial Corp. group of insurance companies. The downgrade reflects Standard & Poor's implementation of its group rating methodology which establishes a group rating on the entire insurance organization. In turn, the group rating can positively or negatively affect the financial strength rating of the stand alone entity within the group. In this case, the ratings of both Continental Assurance and Valley Forge were negatively impacted by the lower rated parent or group, CNA Financial Corp.

MAJOR RATING FACTORS:

-- A diverse business profile: Valley Forge and Continental have diversity in products, markets, and distribution systems. The major business lines include life insurance -- with a significant position in term life, guaranteed investment contracts, federal employee health insurance, life reinsurance, group association life, and health products. Distribution systems include managing general agents, affiliated property/casualty agents, and agents specializing in niche markets.

-- While the company's position in the group medical market has declined during the past few years, this has been offset by a significant improvement in the life insurance market. The company has doubled sales of individual life insurance products since 1993 partly through building a major presence in the term insurance market and through increased sales of universal life and annuities.

-- Although Standard & Poor's considers term life insurance a commodity-like product, it believes that Continental Assurance has demonstrated that it will sustain a strong market position by adding value to the relationships with producers.

-- Continental Assurance's traditional group medical indemnity business, other than its federal employee health business, has weakened because of the many changes in the health care provider marketplace, particularly the trend to managed care. Continental Assurance now seeks a niche market in private employer group health care which will leverage off of the expertise of its recently purchased subsidiary, CNA Health Partners, but this strategy's success is not yet proven.

-- While there has been growth in the federal employee group health business, which is a stable low-risk line, profitability is low and it offers only modest growth opportunity.

-- Superior capitalization, with a 178% Standard & Poor's ratio as of year-end 1996.

-- Superior liquidity, as measured on a risk-adjusted basis, with a Standard & Poor's liquidity ratio of 334% as of year-end 1996.

-- Good financial flexibility as a strategically important unit of its parent company, CNA Financial (single-`A'-minus senior debt).

-- High credit quality of invested assets.

-- Good profitability, with a Standard & Poor's earnings adequacy ratio of 164% .

EXPECTATIONS

-- While 1997 operating earnings are expected to dip slightly, Standard & Poor's believes that the company's profitability will resume growth in 1998.

-- Capital and liquidity will remain superior, financial flexibility will remain strong, and invested assets will continue to be of high quality.

-- The business profile will continue to improve as various product line initiatives are implemented, Standard & Poor's said.

OUTLOOK: NEGATIVE

The outlook is tied to the negative outlook for the parent, CNA Financial Corp./CNA Group.---CreditWire

CONTACT: Jack Reichman, New York (1) 212-208-8432

Matthew T Coyle, New York (1) 212-208-8307

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