Fitch Affirms Cincinnati Financial Corp.’s Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A+' Insurer Financial Strength (IFS) ratings for Cincinnati Financial Corporation's (CINF) three standard market property and casualty insurance subsidiaries and its life insurance subsidiary.

Fitch has also affirmed the following ratings for CINF:

--Issuer Default Rating (IDR) at 'A';

--Senior unsecured notes at 'A-'.

The Rating Outlook is Stable. A full list of ratings follows at the end of this press release.

KEY RATING DRIVERS

The affirmation reflects CINF's balance sheet strengths including conservative operating subsidiary capitalization, sizable holding company cash and invested assets of $1.9 billion compared with total debt and bank borrowings of $840 million, and a moderate financial leverage ratio (FLR) of 12% at March 31, 2015. The property/casualty (P/C) group's score on Fitch's Prism capital model remained 'very strong' at year-end 2013, as it was in each of the last three years.

CINF's underwriting performance continues to be impacted by catastrophes and weather events. While slowing to 5% of net premiums earned (NPE) in 2014, catastrophe losses averaged 7.4% for 2010-2014 and exceeded the company's 10-year average of 6. 0%.

CINF's premium growth has accelerated due to organic expansion into new territories, measured appointment of new agents and rising insurance premium rates. The company's growth in net written premiums for 2010 - 2014 was approximately double that of the P/C industry. Private and commercial auto and homeowners insurance lines, where growth has been fastest relative to the industry, are also those where CINF has successfully increased prices. In addition, CINF has implemented claims management and risk management tools, such as predictive modeling, to improve pricing and risk selection. These initiatives are anticipated to improve loss ratios over time.

Fitch believes CINF's reserves are adequate and well managed. CINF reported favorable prior-year reserve development in each of the last 26 years. Over the five years ending 2014, favorable development on a statutory basis totaled more than $1.2 billion across product segments and averaged 7.4% of NPE.

CINF's allocation to equities remains nearly double industry norms, which creates an exposure to potential capital declines from stock market volatility. A focus on stocks with a demonstrated ability to pay increasingly higher dividends provides some stability in the investment contribution to earnings. CINF has ample liquidity to cover its insurance reserves through its high-quality, liquid bond portfolio.

For the first three months of 2015, CINF reported a GAAP combined ratio of 97.5% and operating EBIT interest coverage of 10.8%.

CINF receives narrow holding company notching, and its holding company ratings were upgraded on November 18, 2014. Fitch published newly updated insurance notching criteria yesterday, July 14, 2015, via an update to its master criteria report, 'Insurance Rating Methodology.' Today's affirmation reflects application of the updated notching criteria to CINF's ratings.

RATING SENSITIVITIES

The key rating triggers that could lead to a downgrade are a combined ratio exceeding 105% on a sustained basis, which compares with the median credit sector factor of 103% for companies with an 'A' IFS rating, evidence of deteriorating profitability on recent growth or failure to maintain a P/C Prism score comfortably within the 'very strong' category.

CINF's IDR and debt ratings now benefit from narrower notching from the IFS rating. A reduction in holding company cash and marketable securities to less than $1 billion, sustained reductions in either GAAP operating or statutory fixed-charge coverage below 5x - 6x and FLR maintained materially greater than 15% could cause the narrow notching to revert to standard notching.

Key rating triggers that could lead to an upgrade include improvement in underwriting performance and catastrophe risk management through difficult underwriting and economic conditions, and sustained at levels comparable with higher rated companies and industry averages.

FULL LIST OF RATING ACTIONS

Fitch affirms the following ratings with a Stable Outlook:

Cincinnati Financial Corporation

--IDR at 'A';

--6.92% senior debentures due May 15, 2028 at 'A-';

--6.90% senior debentures due May 15, 2028 at 'A-';

--6.125% senior notes due Nov. 1, 2034 at 'A-'.

The Cincinnati Insurance Company

The Cincinnati Casualty Company

The Cincinnati Indemnity Company

The Cincinnati Life Insurance Company

--IFS at 'A+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987991

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987991

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings

Primary Analyst

Martha M. Butler, CFA

Senior Director

+1-312-368-3191

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Secondary Analyst

James B. Auden, CFA

Managing Director

+1-312-368-3146

or

Committee Chairperson

Mark E. Rouck, CFA

Senior Director

+1-312-368-2085

or

Media Relations

Alyssa Castelli, New York, +1-212-908-0540

[email protected]

Source: Fitch Ratings