More Bad News – CNA Gets $1.25B from Loews

Looks like everyone is in a tight cash position. As noted earlier in this blog, exactly 3 weeks ago Hartford got a $2.5B investment from Allianz to shore up its balance sheet.

Yesterday CNA announced a $1.25B investment from their biggest shareholder Loews, a conglomerate run by the Tisch family. They lost $331 million in Q3 due mainly to investment losses. Also noted in a CNA press release dated Oct 27, was the early succession of Tom Motamed, former COO of Chubb, as CNA’s CEO. Investment losses are materially affecting the balance sheets of many of our insurers. We will keep a close watch on further developments with other carriers. CNA has suspended its quarterly common stock dividend. The press release reads as followsSince the press release yesterday I have received an email from CNA that provides a more complete explanation than the brief press release. The letter in its entirety follows:

October 28, 2008 To CNA’s Agents & Brokers: Against a backdrop of difficult financial markets and sluggish economic conditions, I would like to take a moment to thank you for your business and to reassure you of CNA’s financial strength and staying power.  Yesterday, we announced our third quarter financial results, including a number of items I would like to bring to your attention. First, we are supplementing our capital base by $1.25 billion through the sale of preferred stock to the Loews Corporation, our majority shareholder. This action is part of a proactive effort to deal with the impact of the current financial market turmoil on our investment portfolio. It is also designed to get ahead of future uncertainty and to position CNA for market opportunities that may emerge. With an even stronger capital base, CNA is well positioned to thrive going forward.   I am pleased to report that A.M. Best has affirmed our property & casualty “A” rating with a stable rating outlook. Moody’s has also affirmed our P&C rating of “A3” with a stable rating outlook. We expect to hear from the other rating agencies in the near future.  With respect to our financial results, our focus on catastrophe exposure management and our strong balance sheet enabled us to weather a very challenging 3rd quarter. The $331 million loss was driven by investment and hurricane-related losses. Still, I remain very positive about the underlying performance of our core Property & Casualty Operations, as measured by a 91.3% combined ratio before catastrophes. The business fundamentals of CNA are very sound. We remain committed to serving your customers, and look forward to growing profitably with you. One other item of note relates to our leadership succession plan. Back in May, we announced that I would be retiring in June 2009, and would be succeeded by Tom Motamed, formerly chief operating officer at Chubb. Tom was unable to join CNA sooner due to his non-compete and non-solicitation covenants with Chubb, and I agreed to stay on even though I had intended to retire when my contract with CNA expired at the end of this year. Since then, CNA has been in touch with Tom and Chubb, and we have reached an agreement for Tom to join CNA on January 1st as chairman and chief executive officer. Tom is an extraordinary individual and very well known throughout the industry. I look forward to working with him through the transition.   Overall, in this complex, challenging time, I would like to assure you that with respect to our capital base, our ongoing business and our leadership talent, we continue to take the steps that make CNA a stable, competitive and financially strong market for your business. Again, thank you for your business. Sincerely,   Stephen W. Lilienthal