AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to "aa" from "aa-" and affirmed the Financial Strength Rating (FSR) of A+ (Superior) of The Cincinnati Insurance Company (CIC), the lead property/casualty (P/C) company and its three subsidiaries (collectively referred to as CFC). The outlook of the Long-Term ICRs has been revised to stable from positive while the outlook of the FSR remains stable. (See below for a detailed listing of the companies.) Concurrently, AM Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the Long-Term ICR to "aa-" from "a+" of The Cincinnati Life Insurance Company (CLIC), the life insurance subsidiary of CIC. The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
Additionally, AM Best has upgraded the Long-Term ICR to "a" from "a-"and the Long-Term Issue Credit Ratings (Long-Term IR) of the companies' publicly traded parent, Cincinnati Financial Corporation (CINF) [NASDAQ:CINF.] The outlook of these ratings have been revised to stable from positive. All companies except The Cincinnati Specialty Underwriters Insurance Company (CSU) are domiciled in Fairfield, OH. CSU is domiciled in Delaware. (See below for a detailed listing of the Long-Term IRs.)
The ratings reflect CFC's balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The Long-Term ICR upgrade for CFC reflects the continued improvement in operating performance over time characterized by solid operating earnings, consistent underwriting income and favorable reserve development. These factors have generated operating results in-line with peers that have a strong operating performance assessment while doing so with lower levels of volatility.
Balance sheet strength is supported by CFC's lengthy track record of favorable loss reserve development, strong and positive cash flows, and a comprehensive reinsurance program. Additionally, CFC maintains high common stock leverage relative to its peers. While the stock holdings consist of diversified dividend-paying stocks that enhance investment income, this exposes shareholder equity and risk-adjusted capitalization to equity market fluctuations, as evidenced in 2018. Despite the potential for continued equity market volatility, AM Best feels capitalization will remain well-supportive of CFC's ratings given the diversity of its investment holdings. CFC benefits from the financial flexibility afforded by CINF, which maintains modest financial leverage, strong coverage metrics and is a source of additional liquidity through its access to capital markets and lines of credit.
CFC has produced solid operating earnings, including posting positive underwriting income since 2012. CFC continues to address the below-average performance in its personal auto line of business and has undertaken many initiatives, including re-underwriting, rate increases and the utilization of predictive analytics. AM Best's expectation is that management's initiatives will continue to result in positive operating performance. In addition, these ratings recognize the strong distribution network within its targeted regional markets that is centered on cultivating strong, long-term relationships with local independent insurance agencies. CFC has developed and implemented a risk management framework that appropriately addresses the risks inherent in its profile, and its risk management capabilities generally meet or exceed its risk profile.
The ratings of CLIC reflect its balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The ratings also reflect CLIC's role within the enterprise in offering life and annuity products to its parent's property/casualty client base, in addition to the common management, shared distribution and recognition to the group. CLIC had reported substantial statutory net operating losses from the years 2013-2016 due to new business strain from term life sales, which included Regulation XXX reserve requirements and impacted capital and surplus. However, quality of capital is enhanced by CLIC's relatively large XXX reserves, which AM Best views as a form of hidden equity. CLIC had reported positive earnings over the past few years as XXX reserving has peaked and the reserve strain on new business has been mitigated by the implementation of principles-based reserving. AM Best anticipates that CLIC will continue to report positive earnings trends in future years.
The Long-Term ICRs have been upgraded to "aa" from "aa-" and affirmed the FSR of A+ (Superior) with the Long-Term ICR outlooks revised to stable from positive and the FSR outlook maintained at stable for The Cincinnati Insurance Company and its P/C subsidiaries:
- The Cincinnati Indemnity Company
- The Cincinnati Casualty Company
- The Cincinnati Specialty Underwriters Insurance Company
The following Long-Term IRs have been upgraded, with the outlooks revised to stable from positive:
Cincinnati Financial Corporation—— to "a" from "a-" on $28.0 million 6.90% senior unsecured debentures, due 2028— to "a" from "a-" on $374 million 6.125% senior unsecured notes, due 2034— to "a" from "a-" on $391 million 6.92% senior unsecured debentures, due 2028
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