Fitch Ratings said Monday that it upgraded the insurer financial strength ratings of CNA’s property/casualty insurance subsidiaries to “A” from “A-minus,” explaining that steady improvements in capitalization, stable earnings, and overall good reserve quality support the move.

All these factors improve Fitch’s confidence that CNA’s financial performance will maintain the stability demonstrated over the past five years, the rating agency said in a statement, which also said that Fitch upgraded CNA Financial Corporation’s issuer default rating to “BBB-plus” from “BBB,” and its senior unsecured debt to “BBB” from “BBB-minus.”

The outlook for all ratings is stable, Fitch said.

Explaining its rating rationale further, Fitch said its ratings take into account anticipated challenges in a competitive P/C insurance market rate environment, the potential for adverse reserve development and deterioration in runoff operations.

Key rating triggers that could lead to an upgrade include:

  • GAAP calendar year combined ratio for the ongoing property/casualty business of approximately 100 or better over several years.
  • Strong improvement in total operating earnings that result in return on equity (ROE) of 9 percent.
  • Overall flat to favorable GAAP loss reserve development.

Key rating triggers that could lead to a downgrade include:

  • Charges related to investments or runoff operations which impede the company’s ability to generate 4-5 percent annual growth in shareholders’ equity before dividends and share repurchases
  • Operating at GAAP calendar year combined ratio of approximately 105 or higher.
  • Decline in total operating earnings that result in ROE below 6 percent.
  • Adverse GAAP reserve development in excess of 5 percent of prior year’s equity.

According to Fitch, CNA reported a first-half 2013 GAAP calendar year combined ratio of 101.5 an improvement over year-end 2012’s 105 but above a five-year average of 98.7.

Excluding the impact of reserve development, CNA reported a GAAP accident year combined ratio of 102.5 for first half of 2013 an improvement from the prior year of 108.3 and below a five-year average of 105.

Fitch said that CNA continues to post favorable reserve development in its core P/C business, a trend that started with year-end 2007 results.

Source: Fitch Ratings