While A.M. Best believes positive rating actions are unlikely in the near term, key factors that could trigger negative rating actions on CIC's ratings include further deterioration in underwriting and operating results, particularly if the resulting performance is materially below similarly rated peers or causes substantial declines in risk-adjusted capitalization.The ratings of CSU reflect its excellent level of risk-adjusted capital, the profitable operating results reported in recent years driven primarily by favorable loss-reserve development in prior accident years, as well as the explicit and implicit support afforded it by its position within the Cincinnati Financial enterprise. The positive rating factors are partially offset by the execution risks associated with this relatively new initiative as CSU did not offer excess and surplus coverage prior to 2008, the poor operating performance and the elevated expense ratio relative to the peer composite during the initial years of operation. This concern is somewhat mitigated by the decline in the expense ratio as the company achieves operating scale through increased premium volume. Despite these concerns, the outlook reflects the company's excellent level of risk-adjusted capitalization, the infrastructure support provided by being part of CINF and expectations for improved performance based on management's profitability improvement plan. Key factors that could trigger negative rating actions on CSU's ratings include any material deviation from the company's submitted financial projections or lack of operational or financial support from its parent company. Positive rating actions could be taken on CSU's ratings if underwriting and operating results improve and are sustained over time while maintaining a strong level of risk-adjusted capitalization. The ratings of Cincinnati Life acknowledge its strong risk-adjusted capitalization, positive trends in first year and renewal ordinary life premiums, overall good credit quality of its investment portfolio and its role in CINF as a provider for life, disability income and fixed annuity products. Even with a $25 million dividend paid in 2011 to its parent, Cincinnati Life's risk-adjusted capitalization is more than sufficient to support its ratings. The company continues to focus on its core ordinary life line of business as it has de-emphasized annuity sales in the current year.
Offsetting factors include the challenge of managing a growing percentage of interest sensitive reserves in the current low interest environment, relatively small contribution of net income to the enterprise and incurring costs related to new business strain and XXX reserving, which are partially offset by funding through capital and surplus.The FSR of A+ (Superior) and ICRs of "aa-" have been affirmed with a stable outlook for the following property/casualty members of The Cincinnati Insurance Companies:
- The Cincinnati Insurance Company
- The Cincinnati Indemnity Company
- The Cincinnati Casualty Company