Headlines Regarding Structured Insurance Settlements

A.M. Best Affirms Ratings of CNA Financial Corporation and Its Subsidiaries

CNA liabilites are comprised primarily of structured settlements

CNA liabilites are comprised primarily of structured settlements

OLDWICK, N.J.–(BUSINESS WIRE)– A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of the property/casualty subsidiaries of CNA Financial Corporation (CNAF) [NYSE:CNA], also known as CNA Insurance Companies (CNA). Concurrently, A.M. Best has affirmed the ICR of “bbb” and all debt ratings of CNAF and CNA Financial Capital I, II and III. A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of “a-” of CNAF’s life/health subsidiary, Continental Assurance Company (CAC). The outlook for all ratings is stable. All above named companies are headquartered in Chicago, IL. (See below for a detailed listing of the companies and ratings.)

The rating actions reflect CNA’s excellent level of risk-adjusted capitalization, consistent and profitable operating performance and established position as a leading writer within the commercial lines segment of the U.S. property/casualty industry. In addition, the ratings recognize initiatives undertaken by CNA’s management to improve underwriting performance; its vastly improved technological infrastructure, which has enhanced data collection and segment reporting tools; and its continued focus on enterprise risk management. Moreover, in 2010, CNA transferred approximately $1.6 billion of the group’s net legacy asbestos and environmental (A&E) liabilities to National Indemnity Company. A.M. Best views positively the long-term benefits CNA will derive from the substantial reduction in the uncertainty of its legacy A&E liabilities and potential A&E earnings drag.

Partially offsetting these positive rating factors are CNA’s exposure to the adverse impact related to its discontinued long-term care program and other long-term liabilities on underwriting and operating performance, and the current highly competitive environment in its property/casualty markets, which will likely pressure underwriting margins over the near term.

Over the past five years, CNA’s specialty lines segment (CNA Specialty) has achieved excellent underwriting results, while its standard commercial lines segment’s (CNA Commercial) performance has improved but still continues to trail that of competitors, resulting in CNA’s aggregate property/casualty underwriting margins underperforming its peer composite. The group’s current operational focus is to improve profitability with increasing rates and shift to targeted, higher margin customers and industry segments.

The ratings acknowledge the historical financial support provided by CNA’s ultimate parent, Loews Corporation (Loews). In 2008, Loews purchased $1.25 billion of senior perpetual preferred stock issued by CNAF. The majority of proceeds from this offering, $1.0 billion, were down-streamed to CNA’s lead property/casualty insurer, Continental Casualty Company (CCC), via a surplus note. Also in 2008, CNAF contributed an additional $500 million to CNA largely to offset significant investment losses during that year. Since 2008, CNAF’s dramatically improved financial position has enabled it to redeem all of the $1.25 billion preferred stock issued to Loews by year-end 2010 and enabled CNA to pay off the $1.0 billion surplus note issuance to CNAF by June 2012.

CNAF’s financial leverage decreased as of September 2012, with CNAF’s adjusted debt to-total-tangible capital measuring 18.6%, compared with 19.4% at year-end 2011, based on A.M. Best’s current methodology for calculating financial leverage that excludes accumulated other comprehensive income, which was primarily driven by an increase in stockholder equity.

CNAF’s liquidity is adequate. While the company has made significant progress to reduce investment risk by repositioning its portfolio, CNAF maintains an above average exposure to below investment grade securities and long dated maturities, which are largely held to support liabilities from its run-off long-term care and life operations.

CNAF’s cash and equivalents were approximately $292 million at year-end 2011. Combined with the availability of a $250 million credit facility and operating company dividend capacity, the holding company has ample liquidity near term to meet its corporate obligations, which include projected interest payments of $170 million in outstanding debt. In 2011 and 2012, CNAF’s coverage ratios were well within A.M. Best’s guidelines for its ratings.

The ratings of CAC recognize its strong risk-adjusted capitalization, favorable operating results and effective asset/liability management as it operates in run-off status. CAC reported solid statutory profits for 2010, 2011 and through third quarter 2012. A.M. Best notes CAC’s effective asset/liability matching in light of the long duration of its remaining liabilities, comprised primarily of structured settlements. A.M. Best remains concerned with the low interest rate environment, which may pressure returns over the medium term. However, this concern is somewhat mitigated by CAC’s well-developed asset/liability matching and cash flow testing practices.

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What is a Legally Appointed Guardianship–and When Is It a Practical Option?

When an individual suffers a catastrophic injury, there are three main vehicles for protecting that individual’s resources: trusts, structured settlements, and guardianship arrangements. If a child or teen has a recovery in the range of $25,000-$50,000 or a person deemed incompetent by the courts wants to allocate no more than 5% of a substantial recovery, it may be beneficial to appoint a legal guardian for a person and/or an estate.

A legally appointed guardian is responsible for making informed decisions that are in the best interest of the incapacitated party. Oftentimes, a trusted family member is the best choice to act as the legal guardian. However, making decisions on behalf of a loved one can be emotionally and mentally demanding, especially for those cases in which a catastrophic injury has completely altered the way of life for the incapacitated individual (and in effect, for the family).

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ELNY shortfall annuitants’ counsel held in contempt

Nassau County New York State Supreme Court Judge John M. Galasso has issued a decision to hold attorneys for several shortfall structured annuity settlement victims of Executive Life of New York (ELNY) in civil contempt for filing a class action lawsuit.

The judge issued his ruling on Jan. 25, 2013. The class action lawsuit was filed last November against the DFS Superintendent Benjamin Lawsky and previous ELNY receivers for breach of fiduciary duty and other complaints in the ELNY rehabilitation and insolvency case.

The ELNY case involves attempts by the shortfall annuitants to stop the terms of the proposed ELNY liquidation submitted by the New York Department of Financial Services and approved by Galasso. Lifehealthpro.com extensively investigated the saga of the troubled company and its victims last fall.

Some ELNY shortfall victims have been challenging a plan by the New York Liquidation Bureau to liquidate the company, which has been in state controlled rehabilitation since 1991. They claim it is discriminatory, favoring guaranty associations over annuitants.

The plan is held up in the appeals process in New York, where the New York Supreme Court Appellate Division is weighing an appeal and responses. Many people say they had expected a ruling by now as Lawsky had asked for an expedited appeal.

ELNY victims from across the U.S. claim New York is overstepping its jurisdiction and authority by short-changing to the tune of $1 billion ($920 million) owed to some 1,500 victims across all 50 states.

The annuitants who will not be made whole under the liquidation plan include those who have been brain damaged, blinded, disfigured, lost limbs in accidents or lost loved ones due to wrongful death accidents, lawyers have pled.

Galasso acknowledged that the court was not empowered to dismiss the federal complaint  and that the pending appeal may have an impact on the federal action, according to Beyond Structured Settlements, (BSS) a website that tracks progress in the ELNY liquidation case.

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Structured insurance settlements are in the news this week with the affirmation of financial strength rating of “A” (Excellent) for CNA Insurance Companies by A.M. Best. Structured insurance settlements also made the news, along with trusts and guardianship arrangements for protecting an individual’s resources who has suffered a catastrophic injury. And in the raised eyebrow file, a Nassau County New York State Supreme Court judge has found lawyers for Executive Life of New York to be in contempt for their actions regarding structured annuity settlement victims.


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