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 $1.8 billion compared with total debt and bank borrowings of $826 million, and a moderate financial leverage ratio (FLR) of 12% at Sept. 30, 2015. The property/casualty (P/C) group's score on Fitch's Prism capital model remained 'very strong' at year-end 2014, as it was in each of the last four years.

With lower catastrophe losses and improved underwriting, CINF's financial performance has improved since 2012. Underwriting profits grew to $243 million for the first nine months of 2015, from $86 million for the same period in 2014. Catastrophe losses were 4.7% of net premiums earned (NPE) for YTD 2015 compared with an average of 7.4% for 2010 - 2014, and exceeding the company's 10-year average of 6.1%.

CINF's premium growth has accelerated due to organic expansion into new territories, measured appointment of new agents and rising insurance premium rates. The CAGR of net written premiums was 7.8% over the five-year period 2010 - 2014, approximately double the 3.4% estimated for 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 models, 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. CINF's P/C reserve leverage, at 0.9x at year-end 2014, and capital exposure to reserve redundancies or deficiencies is relatively moderate.

CINF's allocation to equities remains nearly double industry norms, which creates an exposure to potential capital declines from stock market volatility. Reported shareholders' equity declined 3.4% for the first nine months of 2015 to $6.4 billion as lower unrealized gains, primarily on equities, as well as shareholder dividends declared, exceeded net income for the period.

A focus on common stock investments that have 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 nine months of 2015, CINF reported a GAAP combined ratio of 92.5% and operating EBIT interest coverage of 14.9x.

RATING SENSITIVITIES

The key rating triggers that could lead to a downgrade are a combined ratio exceeding 105% on a sustained basis, evidence of deteriorating profitability on recent growth or failure to maintain a P/C Prism score in the 'very strong' category.

CINF's holding company ratings benefit from narrow 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 an 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:

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+'.

The Rating Outlook is Stable.

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

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=994035

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=994035

Endorsement Policy

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151113005860/en/

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, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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