APRIL 05, 2012 12:00 AM (EDT)

A.M. Best Affirms Ratings of Western Surety Group and Its Members

Brian O’Larte
Senior Financial Analyst
(908) 439-2200, ext. 5138

Jennifer Marshall
Managing Senior Financial Analyst
(908) 439-2200, ext. 5327

Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK, N.J. - APRIL 05, 2012 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Western Surety Group (Western Surety) (previously known as CNA Surety Corporation Group [CNA Surety]) (headquartered in Chicago, IL) and its members. Concurrently, A.M. Best has withdrawn the ICR of “bbb” of CNA Surety Corporation (SUR) as it was merged with and into its subsidiary, Western Surety Company, effective January 1, 2012. The companies are domiciled in South Dakota. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

The ratings reflect Western Surety’s excellent level of risk-adjusted capitalization, historically profitable operating results and leading market position in the contract and miscellaneous surety bond markets.

These positive rating factors are derived from the group’s clearly defined target markets, extensive distribution network, disciplined underwriting and credit risk management and strong servicing capabilities. In addition, Western Surety maintains a well-diversified surety and fidelity book of business with respect to products, geography and market segments, which enables the group to leverage its broad-based expertise to develop and expand its leadership position in the surety marketplace. Western Surety benefits from the financial flexibility of its indirect parent, CNA Financial Corporation (CNAF) [NYSE: CNA], which has relatively low financial leverage and strong coverage ratios.

Partially offsetting these positive rating factors is the variability in Western Surety’s operating results during the prior soft market cycle due to adverse loss reserve development, severity and frequency of losses, higher corporate defaults and an increase in the retention levels and costs associated with more restrictive reinsurance treaties. However, over the past five years, Western Surety’s loss reserve development has become increasingly favorable, reinsurance costs have moderated, and terms and conditions have become less restrictive.

In 2011, Western Surety reported continued strong underwriting and operating profitability, which it received, in part, from favorable prior year loss reserve development. A.M. Best anticipates the group will achieve positive underwriting and operating performance in 2012, despite the current weakness in the construction industry and the economy (on a lagged basis to a certain degree), the competitive environment in its markets, and the likelihood of a reduced level of favorable prior year loss reserve development.

While the ratings for Western Surety are stable, future positive rating actions may result if it continues its strong underwriting and operating performance. However, negative rating actions could result if the underwriting and operating performance falls markedly short of A.M. Best’s expectations.

During 2011, CNAF, through one of its downstream affiliates, acquired all outstanding shares of SUR (which had no outstanding public debt) and privatized the group. The withdrawal of SUR’s ICR results from that action.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for Western Surety Group and its following members:

-Western Surety Company

-Surety Bonding Company of America

-Universal Surety of America

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include “Risk Management and the Rating Process for Insurance Companies”; “Rating Members of Insurance Groups”; “A.M. Best’s Ratings & the Treatment of Debt”; “Understanding BCAR for Property /Casualty Insurers”; and “Equity Credit for Hybrid Securities.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.

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