A.M. Best Affirms Ratings Of Cincinnati Financial Corp. And Its Subsidiaries

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-“ for The Cincinnati Insurance Company, The Cincinnati Indemnity Company and The Cincinnati Casualty Company, collectively referred to as The Cincinnati Insurance Companies (CIC) standard market property/casualty group. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a+" of The Cincinnati Life Insurance Company (Cincinnati Life). Additionally, A.M. Best has affirmed the ICR of "a-" and debt ratings of CIC and Cincinnati Life's publicly traded parent, Cincinnati Financial Corporation (CINF) [NASDAQ: CINF]. All companies are domiciled in Fairfield, OH, except where specified. The outlook for all ratings is stable.

A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a" of The Cincinnati Specialty Underwriters Insurance Company (CSU) (Wilmington, DE), a wholly owned, separately rated excess and surplus lines subsidiary of The Cincinnati Insurance Company, the lead property/casualty company. The outlook for CSU remains stable.

The affirmation of the ratings reflects CIC's superior risk-adjusted capitalization and conservative loss reserving standards that have resulted in substantial favorable loss-reserve development for prior accident years. The ratings also consider the group's generally conservative operating fundamentals, favorable balance sheet liquidity, growing use of predictive analytic modeling tools and historically strong operating performance. The ratings also acknowledge the strong franchise value of CIC, which ranks among the top 30 property/casualty organizations in the United States, based on net premiums written. Lastly, CIC benefits from the financial flexibility afforded by its publicly traded parent, which maintains modest financial leverage and additional liquidity through its access to capital markets and lines of credit.

Somewhat offsetting these positive factors are CIC's weakened underwriting performance in recent years relative to its similarly rated peers, historically elevated common stock leverage and geographic concentration of risk. Although CIC's underwriting performance improved in 2012, it has deteriorated in recent years from its historically strong levels, particularly impacted by results in its homeowners and workers' compensation lines of business, which pressured the group's overall underwriting results. Management has implemented a number of strategic initiatives that have improved the performance of these lines, including enhanced pricing techniques, improved risk selection, increased use of technology, greater geographic diversification and the establishment of direct workers' compensation claims reporting. In addition, the group's market profile is somewhat geographically concentrated, as nearly 50% of its writings are derived from six states in the Midwest and Southeast. As a result, the group remains more exposed to economic, legislative and judicial changes than more geographically diversified peers. Further, this geographic concentration drove significant increases in weather-related losses in recent accident years. Despite these concerns, the outlook reflects CIC's superior level of risk-adjusted capitalization, which supports the ongoing variability in the group's underwriting and operating performance.

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